L G Electronics India Pvt. Ltd. Vs PCIT (Supreme Court of India)
The dispute concerned the exercise of revisional jurisdiction under Section 263(1) of the Income-tax Act in relation to the assessee’s claim that a subsidy of ₹49,38,00,503 received under a Government of Maharashtra scheme constituted a capital receipt not chargeable to tax. Under the scheme, the assessee was permitted to collect sales tax and later claim refund up to 75% of the gross fixed capital investment. The Assessing Officer (AO) accepted the assessee’s treatment of the subsidy as a capital receipt without any discussion or recorded reasons.
Read HC Judgment in this case: Unreasoned Assessment Order Justifies Section 263 Revision: Delhi HC
The Commissioner of Income Tax (CIT), exercising powers under Section 263, held that the assessment order was erroneous and prejudicial to the interests of the Revenue. After issuing notice, the CIT remitted the matter while recording findings that the subsidy was revenue in nature and taxable. The ITAT examined the subsidy scheme, referred to decisions of the Supreme Court in Sahney Steel & Press Works Ltd. and Ponni Sugars and Chemicals Ltd., and held that the character of the subsidy as capital or revenue was a debatable issue. It concluded that no error could be attributed to the Assessing Officer and that the invocation of Section 263 was not justified.
