The Pune Bench of Income Tax Appellate Tribunal (ITAT) has deleted an addition against Volkswagen on account of government grants.
The assessee, Volkswagen India Private Limited filed its return declaring Nil income. The assessment was completed by making addition on account of certain transfer pricing adjustment. The PCIT issued a show cause notice observing that the assessment proceedings for the A.Y. 2014-15 transpired that the assessee had received Government grants in the year under consideration also, which were taxable, but taken as capital receipt in the computation of total income.
On the basis of a reference made by the AO, through proper channel, the PCIT issued the above show cause notice and thereafter passed the order under Section 263 of the Income Tax Act setting aside the assessment order and directing the AO to frame the assessment afresh after conducting enquiries and verification.
It can be seen that the PCIT referred to the assessment proceedings and the assessment order for the A.Y. 2014-15, in his show cause notice, divulging that the grants received by the assessee in such year were wrongly taken as capital receipt and the further fact that similar grants were received in earlier years as well, including the year under consideration.
The PCIT referred to the AO’s report and then recorded observing that, “Your contention was found to be not acceptable and accordingly assessment for the A.Y. 2014-15 was completed making addition on account of subsidy received. It was further observed that the incentives given to the company in the form of subsidies were production related incentives. It was not a one-time subsidy but a recurring subsidy over the years. Therefore, the scheme was not to make any payment directly or indirectly for setting up of the industries as claimed by you. Reliance was placed on the decision of the SC in the case of Sahney Steel & Press Works Limited Vs. CIT wherein the apex court held that where the assessee received certain incentives including concessions etc. year after year only after setting up of the new industry and commencement of production, then they are to be treated as revenue receipts.”
Nikhil Pathak, on behalf of the assessee submitted that the initiation of revision proceedings, based only on the proposal sent by the AO for making the revision, lacked jurisdiction.
M.M. Chate, on behalf of the revenue, relied on certain decisions in support of his case.
The two-member Bench of R.S. Syal, (Vice President) and S.S. Viswanethtra Ravi, (Judicial Member) observed that the Commissioner may call for and examine the record of any proceedings under this Act and thereafter if he considers that any order passed therein by the AO was erroneous, he may initiate the revision proceedings. Both the conditions, namely, the CIT calling for and examining the record and then considering the assessment order passed by the AO to be erroneous and prejudicial to the interest of the Revenue were to be cumulatively satisfied by the CIT alone.
The Bench set aside the impugned order and allowed the appeal filed by the assessee holding that the use of the word `and’ between the two expressions amply demonstrates that the calling for and examining the record by the CIT should precede and his such examination should culminate in getting satisfied that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue.
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