TMI Blog2017 (4) TMI 1384X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of roving and fishing enquiry without having any specific material before him. Though, the revisional authority has alleged that the Assessing Officer failed to make any enquiry, neither he himself has made any enquiry on the basis of material on record to point out the specific error committed by the Assessing Officer nor has mentioned the nature of enquiry to be conducted by the Assessing Officer and what more documents and details are required to be called for, considering the fact that all documents and details relating to subsidy are already available on record. Therefore, on over all consideration of facts and circumstances of this case, we are of the view that the assessment order cannot be held to be erroneous and prejudicial to the interests of Revenue, hence, PCIT was unjustified in exercising power under section 263 for revising the assessment order. - Order u/s 263 set aside - Decided in favor of assessee. - ITA no.3564/Mum./2016 - - - Dated:- 13-4-2017 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER Assessee by : Shri P.J. Pardiwala Revenue by : Shri Jitendra Jain O R D E R PER SAKTIJIT DEY, J.M. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived by the assessee was for purchase of plant and machinery, hence, the assessee has reduced the said amount from the actual cost of plant and machinery and has not claimed any depreciation in respect of such amount. It was also submitted by the assessee that such subsidy is not related to sales of products, in as much as, during the relevant previous year, the assessee has declared profit of ₹ 9.57 crore on the sale proceeds of ₹ 41.68 crore credited to the Profit Loss account. It was submitted, there is no prejudice caused to the Revenue as the assessee has not claimed any depreciation on the subsidy amount which is purely towards cost of plant and machinery. The learned PCIT, however was not convinced with the submissions of the assessee. Referring to the agreement entered with Kureha Corporation, Japan, the learned PCIT observed that such agreement is essentially for supply of chemical products. He observed, the agreement is for six years after which the assessee is not bound to make sales to Kureha Corporation, Japan. Therefore, receipt from Kureha Corporation, Japan, termed as capital subsidy are part of sales to be made by the assessee over the years. He, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Japan. Thus, the observations of the learned PCIT that the subsidy is actually part of sale price is thoroughly misconceived. The learned Authorised Representative submitted, the agreement makes it clear that the subsidy provided by Kureha Corporation, Japan, is for investing in the new manufacturing facility, therefore, the nature of such subsidy is purely capital. The learned Authorised Representative submitted, as per the accounting methodology adopted by the assessee, amounts received from the customers specifically towards setting up / expansion of manufacturing facilities linked to a contractual arrangement for supply of specified quantities of products manufactured from the said facilities at pre determined prices are treated as current liabilities and recognised as Revenue in the Profit Loss account. The learned Authorised Representative submitted, consistent with the accounting methodology, the assessee had reduced an amount of ₹ 8,33,12,691 being a capital receipt. In this context, the learned Authorised Representative drew our attention to the computation of income along with the note appended thereto. Learned Authorised Representative submitted, in the audit re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f depreciation by the assessee, the same is a totally new issue not forming part of the show cause notice issued under section 263. Therefore, the PCIT without giving opportunity to the assessee could not have embarked upon such issue. Relying upon the decision of the Hon'ble Supreme Court in CIT v/s Amitabh Bachchan, [2016] 384 ITR 200 (SC), the learned Authorised Representative submitted, rules of natural justice have to be complied with in proceedings u/s 263 of the Act. 5. Learned Departmental Representative submitted, during the assessment proceedings, the Assessing Officer neither made any enquiry nor examined the nature and character of the subsidy received by the assessee. He submitted, this fact is evident from the assessment order, wherein, there is no discussion by the Assessing Officer on this issue. Learned Departmental Representative submitted, the claim of the assessee that the issue was examined by the Assessing Officer during the assessment proceedings cannot be accepted on face value without corroborating material. He submitted, while conducting of an assessment proceeding, the Assessing Officer is not only an adjudicator but is also an investigator. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the Assessing Officer during the assessment proceedings, has enquired into the nature and character of subsidy received by the assessee during the relevant previous year. As brought to our notice by the learned Authorised Representative, in the computation of income filed along with the return of income, the assessee has reduced an amount of ₹ 8,33,12,691, being a part of capital subsidy which was credited to the Profit Loss account in accordance with AS 12. Further, in the notes appended to the statement of depreciation, the assessee has specifically mentioned about the receipt of capital subsidy from Kureha Corporation, Japan, and utilisation in the expansion of the manufacturing facility. It is also stated in the said note that the capital subsidy received by the assessee was reduced from the actual cost of plant and machinery for the purpose of claiming depreciation. It is further revealed from the statement of depreciation and note appended thereto, which is filed before the Assessing Officer, the assessee received an amount of ₹ 15,44,63,572 in assessment year 2010 11 out of which it utilised an amount of ₹ 3,89,64,428 and the balance unutilised s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught any material on record to show that the Assessing Officer had examined the issue is not acceptable, since, the Assessing Officer in Para 5.2 of the assessment order has referred to the letter dated 18th November 2013 by the assessee. Perusal of the said letter, a copy of which is at Page 2 of the paper book, establishes the fact that the assessee has made exhaustive submissions with reference to the nature and character of subsidy received from Kureha Corporation, Japan. These facts demonstrate that the Assessing Officer has enquired into the issue at the time of assessment proceedings. Therefore, the allegation of the PCIT that the Assessing Officer has not examined the issue at the time of assessment proceedings is not borne out from record and contrary to the material on record. 9. The insertion of Explanation 2 to section 263 of the Act, does not give unbridled power to the revisional authority to revise any order of the Assessing Officer merely on the reasoning that in his opinion the Assessing Officer has not carried out the enquiry which he should have made. The Tribunal, Mumbai Bench, in Narayan Tatu Rane v/s ITO, ITA no.2690/Mum./2016, dated 6th May 2016, while ana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OB AT Mumbai. Clause (5) of the agreement provides that Kureha Corporation, Japan, shall pay U.S. $ 108,30,000 as a capital subsidy towards investment in new manufacturing facility. It further provides that no part of the capital subsidy shall be deducted from the purchase price nor any other invoice amount raised by the assessee on Kureha Corporation, Japan. Clause (5b) further stipulates that 2nd, 3rd and 4th installment of capital subsidy shall be paid subject to completion of establishment of new manufacturing facility. Thus, from the reading of the agreement as a while and more as a whole and more particularly clause (4) and (5) it is clear that purchase price paid by Kureha Corporation, Japan, for chemical products is separate and distinct from capital subsidy. Clause (5a) and (5b) of the agreement, clearly says that the capital subsidy is for investment in new manufacturing facility and no part of such subsidy shall be deducted from the purchase price nor any other invoice amount raised on Kureha Corporation, Japan. Thus, the reading of the terms of the agreement prima facie establishes that capital subsidy has a direct nexus with the establishment of manufacturing facility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings which on due and proper scrutiny disclosed that the necessary enquiries were not made. On the said basis the learned C.I.T. came to the conclusion that the assessment order in question was erroneous and prejudicial to the interests of the Revenue warranting exercise of power under Section 263 of the Act. Consequently, the assessment for the year 2001-2002 was set aside and a fresh assessment was ordered. At this stage, it must be noticed that in the order dated 20th March, 2006 the learned C.I.T. arrived at findings and conclusions in respect of issues which were not specifically mentioned in the show cause notice dated 7th November, 2005. In fact, on as many as seven/eight (07/08) issues mentioned in the said show cause notice the learned C.I.T. did not record any finding whereas conclusions adverse to the assessee were recorded on issues not specifically mentioned in the said notice before proceeding to hold that the assessment needs to be set aside. However, three (03) of the issues, details of which are noticed herein below, are common to the show cause notice as well as the revisional order of the learned C.I.T. 7. On appeal, the learned Tribunal took t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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