Subsidy allowed can be treated as Capital Receipt: Delhi HC confirms Permission granted by ITAT [Read Order]

The Delhi High Court confirms the permission granted by ITAT treating the subsidy allowed as a capital receipt as per the New Industrial Policy and Other Concession Scheme from the state of Jammu & Kashmir.

The revenue challenged the order dated 19th December 2019 passed by the Income Tax Appellant Tribunal for the assessment year 2011-12.

The Assessing Officer (‘AO’) made an addition of Rs. 2,50,000/- under Section 14A of the Income Tax Act read with Rule 8D(2)(iii) of the Income Tax Rules, 1962. The AO had then relied upon the CBDT Circular No. 5/2014 dated 11th February 2014 to hold that even if in the relevant assessment year, no exempt income has been earned by the taxpayer, disallowance of expenditure is to be provided.

The CIT(A) on appeal before the CIT(A) upheld the addition made by the AO. Being aggrieved by the order of the CIT(A), the assessee challenged the addition before the ITAT. The assessee raised an additional ground concerningthesubsidy received by it from the State of Jammu & Kashmir.

ITAT deleted the disallowance made by the assessing officer under Section 14A of the Act read with Rule 8D, and permitted the assessee to treat the subsidy received from the State of Jammu and Kashmir as ‘capital receipt’ instead of ‘revenue receipt’ and allowed the deduction of education cess as an allowable expenditure.

It was observed that the subsidy received by the assessee under the “New Industrial Policy and Other Concessions Scheme” from the State of Jammu & Kashmir was to be treated as a ‘capital receipt’ and was wrongly reported as a revenue receipt instead of a capital receipt in the return of income.

Justice Manmohan M S and Justice Manmeet Pritam Singh Arora dismissed the appeal as there was no error committed by the ITAT by permitting the assessee to raise the additional ground at the stage of the appeal as there was no dispute raised by the department to the fact that the said subsidy given by State of Jammu & Kashmir to the assessee is liable to be treated as a capital receipt.

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates