TMI Blog2019 (2) TMI 1837X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is allowed to claim the depreciation u/s 32 of the Act. These amendments do not apply to the assessment year 2013- 14 under consideration as the amendments apply prospectively only. Infact, the Assessing Officer examined all these issues before treating the subsidy as capital receipt. From this point of view merely based on the ground of verification of the issue by the Assessing Officer, invoking of the provisions of Section 263 of the Act is uncalled for and unsustainable under law. We find merit in the same and uphold the view taken by the Assessing Officer in regular assessment order. Accordingly, the ground no.1 and 2 raised in the appeal on this issue are allowed. Share Premium Application of Section 56(2)(viib) - treatment of Share premium u/s 68 of the Act cum the applicability of the provisions of section 56(2)(viib) of the Act read with Rule 11UA of the I.T. Rules - HELD THAT:- We find that the Pr. CIT failed to issue show cause notice undisputedly. Therefore, in our opinion, the order of the Pr.CIT requires to be reversed on this issue. As such, ld.DR could not make out a case that the issue of share premium and the share capital relate in the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt. After due verification, the Assessing Officer allowed the claim of the assessee. Having held, the Assessing Officer invoked the Explanation 10 to section 43(1) of the Act and mentioned that when the subsidy is a capital nature, the same should be reduced from the actual cost of the assets and claimed the depreciation on the reduce value. In the process, the Assessing Officer distinguished the Supreme Court judgement in the case of CIT vs. Ponni Sugars Chemical Ltd. vide Civil Appeal No.5694 of 2008 dated 16th September, 2008. Further, the Assessing Officer discussed the provisions of clause (xviii) to section 2(24) of the Act read with the said Explanation 10 in support of the above finding. Relevant portion of the assessment order is extracted as follows :- 4.2 Submission of the assessee is seen and the same is not acceptable for the reasons mentioned here: a. A subsidy can be either Revenue receipt of Capital receipt depending upon the facts of the case. If a subsidy is revenue receipt then the question of section 43(1) and its explanation 10 which is in the instant case does not arise. However in the instant case assessee has treated the same as Capital receipt. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of sub-clause (xviii) in section 2(24) by Finance Act, 2015, with effect from 1-4-2016, does not have retrospective effect Held yes During relevant year, assessee received subsidy from Tea Board and Ministry of Commerce Industry, Government of India Assessing officer treated said subsidy as revenue in nature and brought same to tax He also reduced value of subsidy from actual cost of machinery on which depreciation had to be allowed in accordance with Explanation 10 to section 43(1) Whether prior to aforesaid amendment, if a subsidy was regarded as revenue subsidy, it would be taxable besides value of subsidy getting reduced from actual cost of depreciable assets for purpose of allowing depreciation, if conditions laid down in Explanation 10 to section 43(1) were satisfied Held, yes Whether, since, there was no dispute that other conditions laid down in Explanation 10 to section 43(1) were satisfied in instant case, impugned order passed by Assessing Officer did not require any interference Held, yes [Para 21] ii) Hon ble High Court in the case of Commissioner of Income Tax, Circle- 2, Vs Shree Renuka Sugars Ltd. [2012] 28 taxmann.com 268 (Kar.) has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of subsidy in light of facts and judicial pronouncement laid down by the Hon ble Supreme Court in the case of Sahney Steel correctly and therefore, the assessment order passed by the Assessing Officer is found erroneous and prejudicial to the interest of revenue. 3.2 Further, the CASS reason for selection of case for scrutiny for the A.Y. 2013-14 was Large Share Premium Received . During the course of assessment proceedings, the erstwhile A.O. while examining the parties who had introduced the share premium, had not verified the creditworthiness and genuineness of the parties in the said transactions. It would not be irrelevant to mention that the assessee had received huge share premium of ₹ 67.25 crores in aggregate. Further, share premium per share is of ₹ 900 on face value of ₹ 100. The Assessing Officer failed to examine the reasonableness of premium @ 900% along with creditworthiness of parties from whom huge share premium was received. 3.3 In view of the above facts, the assessment order passed by the A.O. on 23.03.2016 for the A.Y. 2013-14 is found to be erroneous and prejudicial to the interest of the revenue. 5. From the above, it is ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiries, if any, pass a fresh assessment order in accordance with applicable provision of the law. In para 3 and 3.1 of the order of the Pr.CIT, the Pr.CIT considered various judgments on the issue of capital nature of the subsidy given under the Package Scheme of Incentives, 2007. 6. Further, on the issue of share premium related addition, the Pr.CIT was of the opinion that the Assessing Officer did not verify the genuineness and creditworthiness of the parties and took a special reference to the contributors of members i.e. (i) Giridhari S. Kale, (ii) Prajakta G. Kale and (iii) Alok G. Kale. These subscribes share the common address at C-10, Abhimanshree Society, Baner Road, Pune 411007. Further, Pr.CIT is of the opinion that the Assessing Officer should have applied the provisions of section 56(2)(viib) of the I.T. Act r.w. Rule 11UA of the I.T Rules. 6.1 Further, referring to the Auditor Report furnished u/s 44AB of the Act, the Pr.CIT held that the said report dated 21.02.2014 is not proper. In this regard, Pr.CIT suggested the Assessing Officer to take appropriate action applying the provisions of section 271B r.w.s. 44AB of the Act. 7. Aggrieved with the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration. Secondly the Assessing Officer has also examined the genuineness and creditworthiness of the parties in the assessment proceedings u/s 143(3) of the Income Tax Act for Assessment Year 2011-12. 4. The Learned Pr. Commissioner of Income Tax has erred on facts and in law in holding that it is necessary to examine the r.w.s 44AB of the Income Tax Act as the Assessing Officer did not inquire in to this aspect. The Learned Pr. Commissioner of Income Tax has ignored the fact noted by himself on page 18 of his order that the tax audit report dated 21-02-2014 was The Learned Pr. Commissioner of Income Tax has failed to appreciate that available on record. The Learned Pr. Commissioner of Income Tax has failed to appreciate the issue was not the subject matter of the show cause notice issued by him u/s 263 of the Income Tax Act. Therefore, in view of the judgement of Delhi High Court in the case of Krishak Bharati Co-operative Ltd. 80 taxmann.com 326{Delhi) and the judgements of the Hon'ble Income Tax Appellate Tribunal in the case of M/s Geometric Software Solutions Co. Ltd. 32 SOT 428 (Mum) and M/s Wind World India Infrastructure Pvt. Ltd. 86 taxmann.com 279{Mum) the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt judgement in the case of Malabar Industrial Co. Ltd. vs. CIT (109 Taxman 66). 11. At the outset, ld. Counsel submitted that the issues at Sl. No.3 and 4 (above) are not borne out of the show cause notice dated 21.03.2018 and these issues were decided without finding place in the said show cause notice. Relying on various decisions, ld. Counsel submitted that these issues are required to be dismissed as outside the purview of the provisions of section 263 of the Act. 12. We shall now deal with each of these issues in the following paragraphs. I. Subsidy Issue PSI, 2007 13. The assessee received subsidy of ₹ 23,18,12,203/- from the Maharashtra Government and under the PSI Scheme 2007, the assessee treated the same as capital receipt. The Assessing Officer accepted the claim of the assessee after elaborate discussion and relied on various discussions in the process. 14. Further, the Assessing Officer examined this issue and, to the utter dissatisfaction of the assessee, Assessing Officer invoked the provisions of Explanation 10 to section 43 r.w.s. 2(24) clause (xviii) of the Act and amendments thereof. After due deliberation and the reasoning, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to conduct due verification into the issue. As the issue was verified and an opinion is framed, the issue under consideration stands outside of the scope of section 263 of the Act. The ld. AR read out the contents of para 4.4 of the order of the Assessing Officer. The same read as follows :- 4.4 For the reasons mentioned above, assessee should have reduced the subsidy given by the State Government to that extent of ₹ 23,18,12,203/- and should have calculated the depreciation accordingly. However, assessee has failed to do so. As such there is an excessive depreciation allowed in the instant case to the extent of working given by the assessee which comes to ₹ 3,47,71,830/- is added to the total income of the assessee within the meaning of section 43(1) r.w.s. 32 of the I.T. Act. Penalty proceedings u/s 271(1)(c) are initiated for concealment of income. 18. Further, referring to the differing stands of the Assessing Officers on similar issue of subsidy and its treatment in various assessment years, ld. AR submitted that in the assessment year 2012-13, in own case, the same issue was analysed and the claim was allowed by the Assessing Officer. Referring to nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this legal position, even if the Hon'ble Tribunal comes to the conclusion in the present case that the Assessing Officer has not examined correctly, the nature of the subsidy before accepting the claim of the assessee that it was of capital nature, and the revision order of the CIT passed u/s 263 of the Act is to be upheld on this account, ultimately while passing the consequential assessment order, the Assessing Officer, will have to hold that the subsidy received by the assessee under the 'Package Scheme of Incentives 2007', was of capital nature. In view of this, upholding of the revision order of the CIT will result in avoidable multiplication of litigation/appeals. 19. Leaving the merits of the issue, ld. Counsel submitted that the issue relating to the subsidy was scrutinised by the Assessing Officer and the assessment order bears witness to the said observations. It is the claim of the learned counsel of the assessee before us that the Assessing Officer verified the issue after calling for the details and formed an opinion/view in the matter. On these facts, the Pr.CIT cannot assume the jurisdiction u/s.263 of the Act for taking a view, which is different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Section 263 of the Act is uncalled for and unsustainable under law. We find merit in the same and uphold the view taken by the Assessing Officer in regular assessment order. Accordingly, the ground no.1 and 2 raised in the appeal on this issue are allowed. II. Issue relating to Share Premium Application of Section 56(2)(viib) of the Act. 22. Regarding the requirement of verification of the share premium received by the assessee the facts include that the assessee raised the share capital and the share premium from concerns and the details of which are extracted as under :- (a) Share Capital of ₹ 5,80,00,000/- (b) Share Premium of ₹ 52,20,00,000/-. Received from Tata Capital Special Situation Fund. (c) Share Capital of ₹ 44,30,000/- and (d) Share Premium of ₹ 3,98,70,000/- Received from the promoters Mr. G.S. Kaley, Ms. Prajakta G. Kaley and Mr. Alok G. Kaley. (e) Share Capital of ₹ 1,20,00,000/- and (f) Share Premium of ₹ 11,06,47,000/-. Credited on issue of shares to M/s Tata Capital Special Situation Fund by converting 1200 unsecured 0% Optionally Convertible Bonds (OCB) into Optionally Convertible Pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer during the assessment proceedings for the assessment year 2011-2012. Mentioning that the Pr.CIT failed to issue any show cause notice on this issue of share capital/share premium, ld. AR submitted that cancellation of the assessment order of Assessing Officer on this account is unsustainable in view of the decision in the case of Geometric Software Solutions Co. Ltd. 32 SOT 428 (Mumbai), Krishik Bharti Co-Operative Ltd 80 Taxmann.Com 326 (DEL) and Wind World India Investment P Ltd 86 Taxmann.Com 279 (MUM). Further, it is the submission of the assessee that the Pr. CIT never issued a show cause notice u/s 263 of the Act calling for assessee s Explanation on the applicability of the provisions of Section 56(2)(viib) of the Act. 25. Ld. DR relied heavily on the order of the Pr.CIT. 26. After hearing both the parties on this issue, we find that the Pr. CIT failed to issue show cause notice undisputedly. Therefore, in our opinion, the order of the Pr.CIT requires to be reversed on this issue. As such, ld.DR could not make out a case that the issue of share premium and the share capital relate in the assessment year 2013-2014 under consideration. The assessee s claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Tribunal in case of Shri Nandkumar Bhalchandra Bhondve (supra) was decided in the context of the Assessing Officer s failure to initiate penalty proceedings u/s.271(1)(c) of the Act. The Pr.CIT assumed jurisdiction u/s.263 of the Act for making good of the said lapses of the Assessing Officer. On these facts in para 8 9 the Tribunal held that the Pr. CIT cannot initiate the penalty proceedings. The Assessing Officer should initiate such penalty proceedings during the assessment proceedings. For the sake of completeness, the said para 8 9 are extracted as under :- 8. We have carefully heard the rival submissions and perused the record. In exercise of power conferred under section 263 of the Act, the Commissioner has set-aside the assessment for framing it afresh inter-alia on the ground that the Assessing Officer has failed to initiate penalty proceedings under section 271(1)(c) of the Act on the addition of ₹ 2,20,72,000/- to the total income. The other ground for invoking power under section 263 namely assessment done in haste has not been seriously challenged on behalf of the assessee. Accordingly, the limited question to be decided in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X
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