TMI Blog2020 (6) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... ant period. See Rajmal Lakhichand Jewellers Pvt. Ltd. [ 2018 (3) TMI 1625 - ITAT PUNE ]. The ground is thus partly allowed. Value of subsidy from Written Down Value of fixed assets - CIT(A) concluded that the incentive provided under the scheme is directly linked to acquisition of fixed assets - HELD THAT:- AO in assessment proceedings has rejected assessee‟s claim of treating subsidy as capital receipt at threshold itself. AO has not examined the issue from the perspective purpose of subsidy and its utilization. CIT(A) in the impugned order has not specified as to how the assessee has reflected the amount of subsidy in its books. Since, facts are not emerging from the orders of authorities below, we deem it appropriate to restore this issue back to the file of Assessing Officer for de novo adjudication after affording reasonable opportunity of hearing to the assessee, in accordance with law. Appeal by assessee are thus, allowed for statistical purpose. - ITA No.797/PUN/2017, ITA No.945/PUN/2017 - - - Dated:- 20-9-2019 - Shri D. Karunakara Rao, Accountant Member And Shri Vikas Awasthy, JM For the Assessee : S/Shri Chetan Karia/Suhas Bora/Sanket Bora For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther contended that the issue whether the subsidy received under the PSI, 2007 Scheme is revenue or capital receipt has been considered by the Tribunal in the case of Innoventive Industries Ltd. Vs. DCIT in ITA No.601/PN/2013, assessment year 2009-10, decided on 24.03.2017. The Tribunal held that the refund of sales tax under the said Scheme is capital receipt and is not liable to tax. The ld. AR submitted that the only issue in the appeal of Revenue is with respect to findings of CIT(A) on sales tax subsidy scheme. 3.1 The corresponding grounds raised by assessee are grounds No.2 and 3. The CIT(A) while granting relief to the assessee directed the Assessing Officer to reduce the amount of subsidy from the cost of acquisition of fixed assets. The assessee in appeal has assailed later part of findings of the First Appellate Authority, the ld. AR submitted written submissions on this issue. The same are reproduced herein below:- 2. Ground No. 2 and 3: Regarding directions of CIT(A) to reduce amount of subsidy from the cost of acquisition / WDV of fixed assets: 2.1 The sales tax incentive received by the assessee-company relates to its unit for expansion. 2.2 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidy was quantified on the percentage of the total investment made by the assessee. The law is already settled on the subject. 2.6 Explanation 10 provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It is further, provided there under, that where such subsidy or grant or reimbursement of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. 2.7 In order to invoke Explanation 10, it is necessary to show that the subsidy was directly or indirectly use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act read with Rule 8D(2) of the Rules ₹ 2,33,50,690/-. In first appellate proceedings, the CIT(A) restricted the disallowance only to Rule 8D(2)(iii) of the Income Tax Rules i.e. ₹ 8,88,221/-. The ld. AR submitted that admittedly, the assessee had not made any suo-moto disallowance in earning exempt income of ₹ 2,000/-. Since own funds of assessee were more than the funds invested, the CIT(A) deleted disallowance of interest expenditure made under Rule 8D(2)(ii) by the Assessing Officer. The ld. AR submitted that Pune Bench of Tribunal in the case of Rajmal Lakhichand Jewellers Pvt. Ltd. Vs. DCIT in ITA No.672/PUN/2015 decided on 07.03.2018 has held that disallowance u/s 14A of the Act cannot exceed exempt income earned by assessee. Therefore, disallowance u/s 14A of the Act be restricted to exempt income earned by the assessee during impugned assessment year. 4. On the other hand, Shri S.B. Prasad representing the Department vehemently defended the findings of Assessing Officer in making addition in respect of sales tax refund received by the assessee under PSI, 2007 Scheme. The ld. DR supporting the findings of CIT(A) in confirming the disallowance u/s 14A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing the value of subsidy from Written Down Value (hereinafter referred to as WDV) of fixed assets. The assessee has placed heavy reliance on the decision rendered by Hon‟le Apex Court in the case of CIT vs P.J. Chemicals Ltd. (supra). The Hon‟ble Supreme Court of India in the said case had held that subsidy received by assessee should not be deducted from actual cost of assets for the purpose of computing depreciation. The aforesaid judgment was rendered in September, 1994. Thereafter, in the year 1999, Explanation 10 to section 43(1) was inserted w.e.f. 01.04.1999. The same is reproduced herein below: Explanation 10. Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city duty and exemption of stamp duty) or to the extent of taxes paid to the State Government within a period of 7 years, whichever is lower. A close perusal of the above condition would make it unambiguously clear that it is not the choice of the beneficiary under the scheme to select the mode of subsidy. The beneficiary is entitled to subsidy subject to the limit of 75% of eligible investments as reduced by the amount of benefits availed on account of Electricity Duty and Stamp Duty exemption or the taxes paid to the State Government within a period of 7 years, whichever is lower. In the present case, the assessee has received Industrial Promotion Subsidy in the form of refund of sales tax paid to the State Government. The latter mode of payment of Industrial Promotion Subsidy is possible only when the beneficiary under the scheme has commenced production and its products are available in the market for sale. Until and unless the production starts and the products are sold in the market, there cannot be refund of sales tax. In the background of the above narrated facts, it would be wrong to conclude that since the assessee has received subsidy as refund of sales tax, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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