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2018 (2) TMI 501

as revenue receipt. - Addition on account of sundry credits - Held that:- CIT(A) has deleted the addition based on the assurance given by the assessee that reconciliation of the outstanding sundry creditors would be completed and unenforceable credits of sundry creditors would be offered to tax. In the interest of justice and equity, we are of the view that the Assessing Officer should be granted an opportunity to examine the reconciliation statement of sundry creditors filed by the assessee. Therefore, this issue is restored to the files of the Assessing Officer. - Addition made on account of interest accrued on treasury savings deposits - accrual of interest - assessee was following the mercantile system of accounting - Held that:- CIT(A) had only directed the Assessing Officer to verify whether interest accrued on treasury savings deposits is offered to tax on the basis of mercantile system of accounting. We do not find any infirmity in the finding of the CIT(A) and confirm the same. It is ordered accordingly. - I.T.A. Nos. 474, 484 And 485/Coch/2016 - Dated:- 1-2-2018 - SHRI CHANDRA POOJARI, AM AND GEORGE GEORGE K., JM For The Revenue : Shri A. Dhanaraj, Sr. DR For The .....

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mpany and therefore it is a revenue receipt. The relevant observation of the Assessing Officer in making the above addition reads as follows: (Pg. 2 of AO) It is noticed that the assessee has been receiving grants from the Govt. of Kerala and of India for its various business activities through different schemes/projects. During the previous year, relevant to AY 2012-13, the assessee has received such grants and the position of the unspent balance of grant so received, to the tune of ₹ 41,61,30,489/- was not taken to the P&L a/c at the end of the year. As these grants received were not earmarked for any capital expenditure and these were received for the business activities of the assessee company, the unspent balance should be brought to tax. As per IT Act, receipts otherwise than of a capital nature is subject to tax. 3.2 Aggrieved by the assessment order, the assessee preferred an appeal to the first appellate authority. The CIT(A) after elaborately considering the submissions made by the assessee, held that the amounts received from the Central Government and the State Government are not subsidy but only a grant-in-aid to do specific/designated work. It was further he .....

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ant received during the year but not taking into account the brought forward balance of earlier years. It is also not the case of the Assessing Officer that the appellant had not disallowed depreciation on the capital assets which were acquired by using the grants received during the year. It could be seen from the profit and loss account that depreciation of ₹ 2,22,29,369/- on the assets acquired out of the grants received has been written back and shown as income without which the returned income of ₹ 1,40,64,800/- could not have been worked out. It is also further not the case of the Assessing Officer that grants received were not utilized for the purpose for which it was granted and utilization certificate for each project and scheme was not submitted to the respective Governments. In the circumstances, the grants received neither forming part of the revenue of the appellant nor credited to the profit and loss account as income. Since these grants are not forming part of the revenue, the unspent balance cannot be treated as revenue receipt and taxed. As ruled by the Hon ble Supreme Court in the case of Sahney Steel and Press Works Ltd vs CIT (228 ITR 253), if the pu .....

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n the utilization certificate issued every year. 3.4.1 The projects/schemes are envisaged by Government of India, Ministry of Agriculture, Department of Animal Husbandry whereby specific amounts are disbursed for implementing the Centrally sponsored scheme like Conservation of Malabari Goat, Piggery Development Programme, National Fodder Production Programme, Cattle and Buffalo breeding etc. The assessee had produced letters of the Government of India, Ministry of Agriculture to explain how these grants are disbursed to the assessee. The assessee has also produced a copy of agreement entered into between the assessee and the President of India acting through Director (AH), Department of Animal Husbandry, Dairying & Fisheries, Ministry of Agriculture, Government of India, whereby the assessee is to construct state of the art semen station for production of quality frozen semen. On perusal of the letters of the Government of India, whereby the assessee is advanced grants, the agreements entered between assessee and the Government, it is clear that the assessee is acting as a nodal agency for the implementationof the Government sponsored programmes/schemes. The Government authorit .....

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heads in which grants are received. This is because those schemes are terminated or wound up or closed during that year. The scheme can be closed only after utilizing the funds allotted for the scheme or on the expiry of the period for which the scheme is sanctioned. It can be seen that when certain schemes are closed without utilizing the full grant that amounts are returned to the respective sanctioning authority. In the financial year 2013-14, with regard to Buffalo Breeding Scheme, Kuriyottumala, refund letter dated 22/08/2012 addressed to the Department of Animal Husbandry intimating the return of grant is on record. Similarly, in the financial year 2016-17, ₹ 191.60 lakhs and ₹ 74 lakhs were refunded from the fund allotted for RKVY Scheme. The relevant letters addressed to the Director of Agriculture are also on record. In some cases, the unspent balance in one scheme is carried over to new scheme with the permission of the sanctioning authority. The relevant permission of the sanctioning authority is also on record. The chartered accountant s certificates are also available on record stating that the grant received for specific purpose have been utilized for tha .....

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the government for specific purpose cannot be taxed in the hands of the assessee. It was further held by the Hon ble High Court that the interest received by the assessee on the amount of grant deposited in the bank was also in the nature of grant itself. (ii) The Hon ble High Court of Karnataka in the case of CIT vs. Karnataka Urban Infrastructure Development and Finance Corporation reported in 284 ITR 582 held that the amounts received by the Centre for implementing certain schemes envisaged by the Government is not taxable in the hands of the assessee since the assessee is only an implementing agency. It was further held by the Hon ble High Court that the interest from deposits made out of the grants received from the Government is also not taxable. (iii) The Hon ble High Court of Karnataka in the case of CIT vs. M/s. India Telephone Industries Ltd. in ITA No. 73/2009 (judgment dated 18-03- 2013) was considering the following substantial question of law: Whether the Tribunal was correct in holding that the grant-in-aid of ₹ 38,02,801/- received by the assessee from, the Government of India should be treated as 'capital receipt' and cannot be treated as 'revenu .....

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n the activities of the government and where the grants and advances or loans are disbursed by the government to the assessee, the said grants, advances cannot be held to be the income of the assessee as the said grants/advances are released to the assessee for the specific purposes for carrying on the development work. 3.4.6 In the light of the aforesaid facts and judicial pronouncements mentioned above, I hold that the unspent grant received by the assessee from the Government as on 31/03/2012 amounting to ₹ 41,61,30,489/- cannot be brought to tax as revenue receipt. 3.5 In the result, the appeal of the Revenue in ITA No. 474/Coch/2016 is dismissed. ITA No. 484/Coch/2016: (AY : 2003-04) 4. The grounds raised are as follows: 1. The learned Commissioner of Income Tax(Appeals), Trivandrum erred in deleting the addition relying on the decision of Hon ble Supreme Court in the case of Sahaney Steel and Press Works Ltd. Vs. CIT (228 ITR 253) and held that what appellant had received both from the Central Government and State Government is nothing but grants in aid received for the purpose of setting up of its business and to complete the projects and it was received for capital pu .....

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by the addition of ₹ 12,35,813/- made by the AO, the assessee, among other issues, filed an appeal before the first appellate authority. The contention raised by the assessee before the CIT(A) is reproduced below: The amount of ₹ 12,35,813/- is the balance of sundry creditors during the Assessment Year 2003-04. The above amount is not fully unclaimed and old balances. This amount includes security deposit from the contractors, earnest money deposit, deposit for assuring performance of contracts, stale cheques return, purchases made from outside state etc. This will be adjusted/returned as and when the final settlements are made by the contractors/purchasers. The exact old balances will be traced out and reported. The CIT(A) deleted the addition of ₹ 12,35,813 by observing as follows: 6.2 Under the provisions of the Act, unexplained sundry creditors which are crystallized during the current year alone can be considered for making the addition. The brought forward old balances which could still be claimed by the parties concerned during the year under consideration cannot be considered for making the addition. The conditions precedent for making such addition can e .....

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och/2016 (AY 2003-04) 5. The grounds raised read as follows: 1. The learned Commissioner of Income Tax(Appeals), Trivandrum erred in deleting the addition relying on the decision of Hon ble Supreme Court in the case of Sahaney Steel and Press Works Ltd. Vs. CIT (228 ITR 253) and held that what appellant had received both from the Central Government and State Government is nothing but grants in aid received for the purpose of setting up of its business and to complete the projects and it was received for capital purposes. 2. The CIT(A) ought to have considered the fact that the unspent balance of grants in aid not earmarked for any capital expenditure and it should be brought to tax. The learned CIT(A) has failed to look into the finding of the Assessing Officer that payment was not a subsidy for setting up the plant but a grant for the efficient and profitable running of the industry and its growth. The receipts were therefore revenue in nature. 3. The learned CIT(A) has deleted the addition of interest accrued on treasury savings deposits. 4. The CIT(A) ought to have allowed the addition as the assessee had not produced the ledgers for interest receivable account even during the a .....

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r consideration has rightly been taken into account and the addition made to the income returned has actually resulted in double addition. Hence, the addition made of ₹ 37,85,470/- is hereby deleted. However, the appellant is hereby directed to furnish/produce copies of both interest receivable and interest account for the Assessing Officer to verify afresh the interest account and to satisfy himself that the addition made had resulted in double addition. In view of the above, the appeal on this ground is allowed for statistical purposes. 5.5 Aggrieved by the order of the CIT(A), the Revenue had raised this issue in the present appeal. The Ld. DR relied on the grounds raised in the Memorandum of Appeal. The Ld. AR on the other hand relied on the findings/conclusion of the CIT(A). 5.6 We have heard the rival submissions and perused the material on record. The CIT(A) had only directed the Assessing Officer to verify whether interest accrued on treasury savings deposits amounting to ₹ 37,85,470/- is offered to tax on the basis of mercantile system of accounting. We do not find any infirmity in the finding of the CIT(A) and confirm the same. It is ordered accordingly. 5.7. .....

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