Case Law Details
Eknath Ramkrisnanrao Salve Vs ITO (ITAT Pune)
The case of Eknath Ramkrisnanrao Salve Vs. Income Tax Officer (ITAT Pune) revolves around three primary issues: the taxability of subsidy received, disallowance of interest on interest-free advances, and disallowance of agricultural income on an estimated basis. Let’s delve into each of these issues.
Taxability of Subsidy Received: Mr. Salve received a subsidy of Rs. 13,19,670 from the Agricultural Department, Government of Maharashtra, for installing drip irrigation systems. The Assessing Officer treated this subsidy as taxable revenue receipt, while Mr. Salve argued that it should be considered a capital receipt. He provided a letter from the Agricultural Department specifying the subsidy amount for him and his family members. However, the CIT(A) upheld the Assessing Officer’s decision, holding that the subsidy was indeed a revenue receipt.
The ITAT Pune, upon reviewing the case, found that the CIT(A) failed to adequately justify why the subsidy should be considered a revenue receipt. They noted that subsidies can be either capital or revenue depending on the terms and conditions of the scheme. Therefore, they remanded the case back to the CIT(A) for further adjudication, instructing them to determine whether the subsidy should be treated as capital or revenue. The ITAT emphasized the need for a detailed explanation from the CIT(A) regarding this classification.
Disallowance of Interest on Interest-Free Advances: Mr. Salve had given an interest-free advance of Rs. 20,00,000 to Shri T.A. Khan. The Assessing Officer disallowed the proportionate interest expense related to this advance, estimating it at 12%. However, Mr. Salve argued that this disallowance should be deleted based on the principle of presumption regarding interest-free funds, citing relevant court judgments.
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