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SLP dismissed by SC against HC’s order quashing reassessment as sufficient disclosure was made on receipt of Govt. subsidy
Where Assessing Officer initiated reassessment proceedings on ground that subsidy received by assessee from Government was directly credited to capital reserve account which resulted into non-consideration of such amount for computation of assessee’s book profit, however, said proceedings were quashed by High Court by holding that there was sufficient disclosure in return filed by assessee with respect to entry in question, SLP filed against decision of High Court was to be dismissed
 105 taxmann.com 182 (SC)
SUPREME COURT OF INDIA
Deputy Commissioner of Income Tax
Pandesara Infrastructure Ltd.
ROHINTON FALI NARIMAN ANDVINEET SARAN, JJ.
SPECIAL LEAVE PETITION (CIVIL) DIARY NOS. 5879 OF 2019†
MARCH 11, 2019
Section 115JB, read with section 147, of the Income-tax Act, 1961 – Minimum alternate tax (Computation of book profit) – Assessment year 2012-13 – For relevant year assessee filed its return declaring certain taxable income – Assessing Officer completed assessment under section 143(3) – After expiry of four years from end of relevant year, Assessing Officer initiated reassessment proceedings on ground that subsidy received by assessee from Government was directly credited to capital reserve account which resulted into non-consideration of such amount for computation of assessee’s book profit – Assessee challenged validity of reassessment proceedings – High Court found that there was sufficient disclosure in return filed by assessee with respect to entry in question and same was also noticed by Assessing Officer during scrutiny assessment – High Court thus taking a view that reassessment proceedings had been initiated merely on basis of change of opinion, set aside said proceedings – Whether, on facts, SLP filed against decision of High Court was to be dismissed – Held, yes [Para 2] [In favour of assessee]
Pandesara Infrastructure Ltd. v. Dy. 105 taxmann.com 181 (Guj.) [SLP dismissed; See Annex].
- Shubangi Tuli, Mahaling Pandarge, Advs. and Mrs. Anil Katiyar, AOR for the Petitioner.
- Delay condoned.
- The Special Leave Petition is dismissed.
- However, the question of law is left open.
- Pending application stands disposed of.
 105 taxmann.com 181 (GUJ)
HIGH COURT OF GUJARAT
Pandesara Infrastructure Ltd. v. Deputy Commissioner of Income Tax
AKIL KURESHI AND B.N. KARIA, JJ.
R/SPECIAL CIVIL APPLICATION NO. 7804 OF 2018
AUGUST 13, 2018
Tushar Himani, Ms. Vaibhavi K. Parikh for the Petitioner.Nikunt Raval and Mrs. Kalpanak Ravalfor the Respondent.
Akil Kureshi, J. – The petitioner has challenged a notice dated 4.12.2007 issued by respondent Assessing Officer to reopen the petitioner’s assessment for the assessment year 2012-2013.
- Brief facts are as under. The petitioner is a company registered under the Companies Act and is engaged in the business of infrastructure development. For the assessment year 2012-2013, the petitioner had filed return of income on 27.9.2012 declaring loss of 3.92 crores (rounded off). The return was scrutinized by the Assessing Officer during which process various queries were raised and answered by the petitioner. The Assessing Officer passed the order of assessment under section 143(3) of the Act on 28.1.2015. Subsequently, the Assessing Officer issued the impugned notice. Reasons recorded by him for issuing the notice read as under :
“2. In the Note 2.10 of Notes to Accounts annexed to the Audit Report, the company had given following description:
Grants and subsidies from the government are recognized when there is reasonable assurance that (i) the company will comply with the conditions attached to them, and (ii) the grant/subsidy will be received.
When the grant or subsidy related to revenue, it is recognized as income on a systematic basis in the statement of profit and loss over the period necessary to match them with the related costs, which they are intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and release to Income In equal amounts over the expected useful life of the related asset.
Where the company received non-monetary grants, the asset is accounted for on the basis of Its acquisition cost. In case a non-monetary asset is given of cost, it is recognized at a nominal value.
Government grants of the nature of promoter’s contribution are credit to capital reserve and treated as a part of the shareholders funds.
- Further, on perusal of the cash flow statement for the year ended 31.3.2012 and capital reserve account of financial statement and assessment records revealed that during the year, the assessee company had received capital subsidy of Rs.9,17,86,000/-. It was seen that balance of capital reserve account under the head reserves and surplus of balance sheet shows increase to that extent i.e Rs.31,81,06,034/- (PY: Rs.22,63,20,034/-). It is evident that capital subsidy of Rs. 9,17, 86, 000/- was directly credited to capital reserve account in the balance sheet.
- In the computation of income for A.Y.2012-13, it was noticed that the company had shown Book Profit u/s. 115JB for the year under consideration at (-) Rs.5,71,43,911/-. As such, the above amount of Rs.9,17,86,000/- was not considered for computation of book profit u/s 115JB as the same was directly transferred to capital reserve account in the balance sheet in contravention to its stated accounting policies.
4.1 The company is bound to disclose in the profit & loss account the said amount as non recurring transaction or a transaction of an exceptional nature irrespective of its being capital or revenue in nature. It would be inappropriate to directly transfer such amount to capital reserve. Such receipts are also covered by clause 2(b) of Part-II of Schedule VI of the Companies Act which, inter-alia, states that P&L account shall disclose every material feature including credits or receipts and debits or expenses in respect of non recurring transactions or transactions of exceptional nature. Thus, in view of provisions of section 115JB, the receipt of Rs.9,17,86,000/- was required to be added while computing income u/s. 115JB of the Act which the assessee company failed to do.
- So, in view of the above discussion, I have reason to believe that the income to the tune of Rs.9,17,86,000/- directly credited to capital reserve account in the balance sheet chargeable to tax u/s. 115JB has escaped from assessment due to failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment for the AY 2012-13.”
- The petitioner raised objections to the notice of reopening under a communication dated 28.2.2018. Such objections were rejected by the Assessing Officer by an order dated 8.3.2018, upon which, this petition is filed.
- Counsel for the petitioner submitted that the sole ground on which the notice for reopening was issued is the treatment to the amount of Rs.9.17 crores received by the company by way of subsidy. According to the Assessing Officer, such subsidy amount could not have been directly credited to Capital Reserve account in the balance sheet as was done by the company. This distorted the computation of the assessee’s book profit under section 115JB of the Act. In the opinion of the Assessing Officer therefore, such sum of Rs. 9.17 crores was required to be added while computing the assessee’s book profit. Counsel submitted that in the return filed, the assessee had made full disclosures. There was no failure on part of the assessee to disclose material facts. Reasons recorded by the Assessing Officer do not refer to any such failure of the assessee. Additionally, during the scrutiny assessment, this aspect had also come up for discussion.
- On the other hand, learned counsel for the Revenue opposed the petition contending that the Assessing Officer had recorded proper reasons and thereafter issued notice for reopening of assessment.
- As noted, return filed by the assessee was taken in scrutiny. After such scrutiny assessment, impugned notice has been issued beyond a period of four years from the end of relevant assessment year. The question of failure on part of the assessee to disclose truly and fully all material facts therefore, becomes relevant. The Assessing Officer’s main objection to the treatment given by the assessee to subsidy of 9.17 crores was that such amount was directly credited to Capital Reserve account by the assessee which resulted into non consideration of such amount for computation of assessee’s book profit. According to him, such treatment was not in consonance with the accounting treatment such receipt should have met. However, in the reasons recorded itself, he referred to note 2.10 of Notes to Accounts annexed with audit report in which it was stated inter-alia that the company had received non monetary grants and the same is accounted on the basis of its acquisition cost. The assessee had treated the Government grants as promoter’s contribution and credited to Capital Reserve account and treated as part of shareholders’ funds. Whatever be the correctness of such accounting treatment, the assessee had made the full disclosure about the treatment given to such subsidy and the reason therefore. During the course of assessment proceedings also, this aspect had further come to the notice of the Assessing Officer. For example in its letter dated 19.1.2015, in continuation of earlier letter dated 1.9.2014, which both letters were in response to the Assessing Officer’s different queries, the assessee had pointed out as under :
“1. Details of capital subsidy received during the year along with copy of ledger account and copy of capital subsidy sanction order by Government of Gujarat (GOG) and Government of India Ministry of Environment & Forests (MOEF) is coll. enclosed as Annexure “A”. These sanction letters from respective institutions are self-explanatory.”
- Thus not only there was sufficient disclosure in the return filed by the assessee with respect to the entry in question, this was also noticed by the Assessing Officer during the scrutiny assessment. If therefore, the Assessing Officer had any doubt or dispute about the manner in which the assessee treated such subsidy, it was always open for him and in fact, required of him to object then. In any case, reopening of assessment beyond a period of four years would not be permissible under such circumstances.
- Petition is allowed. Impugned notice is set aside. Petition is disposed of.
In favour of assessee.
† Pandesara Infrastructure Ltd. v.. Dy. CIT  105 taxmann.com 181 (Guj.).