Taxability of Industrial promotional subsidy received by Mahindra & Mahindra Limited: ITAT directs de novo Adjudication. [Read Order]

Mahindra & Mahindra Limited, the appellant filed the appeal challenging the order of CIT(A) passed against the assessment order by Circle 7(2)(2), Mumbai, under section 143(3) of the Income-tax Act, 1961 (“Act”), dated 21.12.2018 for Assessment Year 2016-17.

The appellant assessee alleged that the order passed by the CIT(A) is bad in law and without jurisdiction and ought to be quashed. It was passed without granting adequate opportunity to the Appellant to make explain our submissions on merits of the additional ground of appeal with documentary evidence, thereby violating principles of nature justice.

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The assessee has contested on the addition made towards disallowance of claim in respect of industrial promotional subsidy received by the assessee from the State Government of Maharashtra under the package scheme of incentives, 2007, to be treated as capital receipt, not chargeable to tax. According to the assessee, industrial promotional subsidy is ought to be treated as capital receipt even in the light of amended section 2(24)(viii) for normal provisions as well as book profit under section 115JB of the Act.

Assessee did not raise this issue in the assessment proceedings though it had credited receipt of this amount in its profit and loss account and it was only at the first appellate stage where this issue was raised by way of an additional ground.

Before the CIT(A) submitted that sum of Rs.117,22,55,564/- was credited to the profit and loss account being subsidy received from the State Government of Maharashtra under the package scheme of incentives, 2007. In the return of income, this amount was offered to tax as it was not reduced in the computation.

Assessee did not raise this before the Assessing Officer under the belief that this subsidy would fall within the definition of income in terms of section 2(24)(viii) introduced with effect from Assessment Year 2016-17 by the Finance Act, 2015. By raising the additional ground before the first appellate authority, assessee claimed that this subsidy amount received by the assessee from the State Government of Maharashtra under package scheme of incentives,2007 is a capital receipt and thus, not chargeable to tax under the Act.

Assessee made detailed submission, explaining the nuances of the scheme under which the said amount was received along with the amendment brought in by Finance Act, 2015 effective from Assessment Year 2016-17. The same is reproduced in the first appellate order itself. In respect of the amended definition of income under section 2(24)(viii), assessee made an elaborate submission to explain the meaning of ‘assistance’ to justify that the subsidy so received is a capital receipt.

While dealing with the merits on the issue, CIT(A) after capturing the facts relating to the claim under section 2(24)(viii), placed strong reliance on the decision of Supreme Court in the case of Ponni Sugar and Chemicals Ltd. [2008] and in the case of Sahney Steel and Press Works Ltd. [2008] to dislodge the claim of the assessee and held to treat it as the revenue receipt chargeable to tax.

CIT(A) in its deliberation took note of certain factual details and documents which assessee did not furnish to justify the claim as to details about where the unit was located and details of manufacturing activity carried in the unit. Further, assessee could not furnish details of capital investment made and also details of employment generated. He further observed that in absence of eligibility certificate, the claim could not be verified and the quantum of incentive could not be determined.

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Counsel for the assessee at the outset prayed for restoration of this specific issue back to the file of CIT(A) so as to avail an opportunity to make the submissions afresh along with all the relevant and corroborative documentary evidences to explain its claim. It was also submitted that CIT(A) has not dealt with the amended definition of income under section 2(24)(viii) in proper perspective taking into account the features of the scheme under which assessee had received the subsidy.

The Shri Amit Shukla, Judicial Member and Shri Girish Agrawal, Accountant Member observed that the claim of the assessee is more in respect of the amended definition whereby it has attempted to justify the claim even within the amended definition of income, effective from Assessment Year 2016-17 which has not been elaborately discussed and dealt with by CIT(A) while adjudicating on the issue. The CIT(A) has made observations in respect of certain documents and details which assessee could not furnish and therefore, the matter could not be taken up holistically in absence of such details and documents.

The court remitted the matter back to the file of CIT(A) on this issue for de novo meritorious adjudication.

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