INCOME TAX OFFICER-WARD-2(4), Nagpur V. M/S GRAMIN VIKAS SANSHODHAN VA PRASHIKSHAN SANSTHA, Nagpur

ITA 62/NAG/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1661 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE SHRI R V LOYA
• Assessee Lawyers: NAG ASSESSMENT YEARS
• Keywords: Business income; Business expenditure; Charitable institution; Opportunity of being heard; Additional evidence; Capital receipt; Capital expenditure
• Section: 142(1); 12A; 12AA; 148; 12

Judgement Text

1 ITA NOS.62,63,64/NAG/2014 & ITA NOS.87,88 & 89/NAG/2014 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NOS. 6 2 , 63 & 64/NAG/2014 ASSESSMENT YEARS: 2006 - 07, 2007 - 08 & 2008 - 09. THE INCOME - TAX OFFICER, M/S GRAMIN VIKAS SANSHODHAN VA WARD - 2(4), NAGPUR. VS. PRASHIKSHAN SANSTHA, 6, SHYBHAM APARTMENT, JAGAT CO - OPERATIVE HOUSING SOCIETY, BYRAMJI TOWN, NAGPUR - 440 013 PANAAATG3177E APPELLANT RESPONDENT. I.T.A. NOS. 87, 88 & 89/NAG/2014 ASSESSMENT YEARS : 2006 - 07, 2007 - 08 & 2008 - 09. M/S GRAMIN VIKAS SANSHODHAN VA THE INCOME - TAX OFFICER, PRASHIKSHAN SANSTHA, NAGPUR. VS. WARD - 2(4), NAGPUR. APPELLANT. RESPONDENT. DEPARTMENT BY : SHRI NARENDRA KANE. ASSESSEE BY : SHRI R.V. LOYA. DATE OF HEARING : 06 - 08 - 2015 DATE OF PRONOUNCEMENT : 4 - 9 - 2015. O R D E R PER BENCH: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE EMANATE OUT OF COMMON ORDER OF LEARNED CIT(APPEALS) FOR ASSESSMENT YEARS 2006 - 07, 2007 - 08 AND 2008 - 09 DATED 28 - 11 - 2013. 2 ITA NOS.62,63,64/NAG/2014 & ITA NOS.87,88 & 89/NAG/2014 2. THE ONLY COMMON ISSUE RAISED IN THE REVENUES APPEAL IS THAT THE CIT(APPEALS) ERRED IN ADMITTING ADDITIONAL EVIDENCE IN CONTRAVENTION OF THE PROVISIONS OF RULE 46A OF INC OME TAX RULES, 1962 AND IN DIRECTING THE AO TO ALLOW EXPENDITURE ATTRIBUTABLE TO TH E ASSESSEES BUSINESS RECEIPTS. 3. THE COMMON ISSUE RAISED IN ASSESSEES APPEALS READ AS UNDER : (1) THAT THE ORDER OF THE INCOME TAX OFFICER WARD 2(4), NAGPUR IS BAD IN LA W AND WRONG ON FACTS AND THE LEARNED C . I.T.(A) HAS ERRED IN CONFIRMING THE SAME. ON THE FACTS AND CIRCUMSTANCES OF THE CASE ACTION OF BOTH THE AUTHORITIES IS UNJUSTIFIED. (2) THAT THE ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN DISALLOWING EXPENDITURE HOLDING THAT THE SAME IS NOT INCURRED FOR EARNING T HE I NCOME AND THE LEARNED CIT(A) WAS NOT JUSTIFIED IN PAR T L Y ALLOWING THE EXPEND IT URE . ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THERE IS DIRECT NEXUS BETWEEN EXPENDITURE INCURRED AND REC EIPT AND THEREFORE THE WHOLE EXPEND IT URE INCURRED SHOULD HAVE BEEN ALLOWED . (2) THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN TREATING THE GOVERNMENT GRANTS AS REVENUE RECEIPT OF THE ASSESSEE . ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CI T(A) HAS FAILED TO APPRECIATE THAT THERE WAS AN OBLIGATION TO UTILIZE THE AMOUNT ONLY FOR THE PURPOSE FOR WHICH IT WAS MADE AVAILABLE AND THE ASSESSEE IS A TRUSTEE AGENT FOR SUCH PROJECTS . THE ACTION OF THE CIT(A) IS ARBITRARY AND UNJUSTIFIED . (4) THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THAT NO EXPENDITURE HAS BEEN INCURRED FOR RECEIVING GOVERNMENT GRANTS. ON THE FACTS OF THE CASE . THE GRANTS HAVE BEEN RECEIVED AGAINST THE EXPENDITURE INCURRED BY THE ASSESSEE AND THE ACTION OF TH E LEARNED CIT(A) IS ARBITRARY AND CONTRARY TO FACTS AVAILABLE ON RECORD . (5) THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN TREATING THE GOVERNMENT GRANTS RECEIPT FOR CAPITAL EXPENDITURE AS REVENUE RECEIPTS. ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE ACTION OF THE LEARNED CIT(A) IS CONTRARY TO FACTS AVAILABLE ON RECORD. 3 ITA NOS.62,63,64/NAG/2014 & ITA NOS.87,88 & 89/NAG/2014 4. IN THIS CASE THE ASSESSEE IS A PUBLIC CHARITABLE TRUST REGISTERED WITH THE OFFICE OF THE REGISTRAR OF SOCIETIES, NAGPUR. THE BRIEF FACTS OF THE CASE ARE AS UNDER : THE APPELLANT HAD NOT FILED RETURNS OF INCOME FOR THE AYS 2006 - 07, 2007 - 08 AND 2008 - 09. HOWEVER, BASED ON THE INFORMATION CONTAINED IN THE AUDIT REPORT SUBMITTED BY THE APPELLANT, ALONG WITH THE APPLICATION MADE U/S 12A OF THE ACT FOR GRANT OF APPROVAL UNDE R 12AA, THE AO NOTICED THAT THE APPELLANT HAD RECEIVED CERTAIN AMOUNTS AND INCURRED EXPENDITURE UNDER VARIOUS HEADS AS PER THE INCOME & EXPENDITURE ACCOUNT, WHICH RESULTED INTO SURPLUS. THE YEAR - WISE DETAILS OF THE INCOME & EXPENDITURE AND SURPLUS IS AS FO LLOWS : ASSTT. YEAR. GROSS REC EIPTS ( ` ) EXPENDITURE ( ` ) SURPLUS/DEFICIT ( ` ) 2006 - 07 7,75,288/ - 22,89,783/ - ( - 15,14,495/ - ) 2007 - 08 1,86,40,579/ - 98,22,771/ - 88,17,808/ - 2008 - 09 1,27,92,940/ - 1,21,47,414/ - 6,45,525/ - BASED ON THE ABOVE INFORMATION CONTAINED IN THE INCOME & EXPENDITURE A/C FOR THE YEARS UNDER CONSIDERATION, THE AO ISSUED NOTICES U/S 148 OF THE ACT WITHIN THE MEANING OF 147 ON THE GROUND THAT THE INCOME CHARGEABLE TO TAX HAS ESC APED THE ASSESSMENTS. THE RETURNS FILED BY THE APPELLANT IN RESPONSE TO THE NOTICES U/S 148 WERE REGULARIZED AND SCRUTINY PROCEEDINGS WERE INITIATED BY WAY OF ISSUE OF NOTICES U/S 143(2) AND 142(1) OF THE ACT. THE AO, IN HIS ASSESSMENT ORDERS FOR THE YEARS UNDER APPEAL, HAS RECORDED A FINDING THAT THE EXPENSES DEBITED TO THE INCOME & EXPENDITURE A/C HAVE NOT BEEN INCURRED TO EARN THE INCOME SHOWN IN PARA 3 OF THE ASSESSMENT ORDERS UNDER VARIOUS HEADS. THE AO FUR THER NOTICED THAT AS THE REGISTRATION U/S 12AA OF THE ACT WAS DENIED TO THE APPELLANT TRUST BY CIT - I, NAGPUR, VIDE ORDER DATED 20 - 08 - 2009, 4 ITA NOS.62,63,64/NAG/2014 & ITA NOS.87,88 & 89/NAG/2014 THEREFORE, SINCE THE PROVISIONS OF SECTION 11 & 12 OF THE ACT ARE NOT APPLICABLE TO THE CASE OF THE APPELLANT, HENCE, THE EXPENDITURE CLAIMED BY THE APPELLANT IS NOT ALLOWABLE IN THESE YEARS. THE AO, THEREFORE, ISSUED AND SERVED A SHOW - CAUSE NOTICE TO THE APPELLANT ON 23 - 08 - 2010, ASKING THE APPELLANT AS TO WHY THE INCOME SHOULD NOT BE COMPUTED IN THE COMMERCIAL MANNER AN D EXPENDITURE DISALLOWED, THERE BEING NO NEXUS BETWEEN THE INCOME AND THE EXPENDITURE INCURRED , AS THE APPELLANT WAS NOT ELIGIBLE TO COMPUTE THE INCOME U/S 11 OF THE ACT, FOR WANT OF GRANT OF REGISTRATION U/S 12AA. SINCE, THERE WAS NO EXPLANATION FROM THE ASSESSEE, THEREFORE THE AO ASSESSED THE INCOME ON COMMERCIAL BASIS FOR WANT OF GRANT OF REGISTRATION U/S 12AA OF THE ACT AND, ACCORDINGLY, TAXED THE ENTIRE RECEIPTS, DISALLOWING THEREBY THE ENTIRE EXPENDITURE CLAIMED IN THE INCOME & EXPENDITURE A/C BY TH E APPELLANT IN ALL THE ASSESSMENT YEARS. 5. AGAINST THE ABOVE ORDER, THE ASSESSEE APPEALED BEFORE THE LEARNED CIT(APPEALS). THE LEARNED CIT(APPEALS) PARTLY ALLOWED THE APPEAL HOLDING AS UNDER : 7.0 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE AR A ND THE ORDERS OF THE AO. IT IS UNDISPUTED THAT THE TRUST IS NOT APPROVED FOR GRANT OF REGISTRATION U/S 12A OF THE I.T. ACT, 1961. THEREFORE, THE APPELLANT IS NOT ELIGIBLE TO AVAIL THE BENEFITS OF PROVISIONS OF SECTIONS 11 & 12 OF THE I.T. ACT. ON CAREFUL E XAMINATION OF THE FACTS, IT IS NOTED THAT THE ACTIVITIES CARRIED OUT BY THE APPELLANT ARE IN THE NATURE OF CARRYING OF TRADE AND COMMERCE, WHICH ARE HIT BY THE AMENDED PROVISIONS OF SECTION 2(15) OF THE ACT. THE DEFINITION OF CHARITABLE PURPOSE STANDS AMENDED BY THE FINANCE ACT, 2008 WITH EFFECT FROM 1.4.2009. THE RELEVANT PROVISO READS AS UNDER : PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVI TY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A 5 ITA NOS.62,63,64/NAG/2014 & ITA NOS.87,88 & 89/NAG/2014 CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE I NCOME FROM SUCH ACTIVITY. 7.1 IT CLEARLY TRANSPIRES FROM THE ABOVE PROVISIONS OF LAW THAT ANY ACTIVITY IN THE NATURE OF TRADE AND COMMERCE OR BUSINESS IS NOT CHARITABLE PURPOSE. ON PERUSAL OF THE RECEIPT OF ACCOUNT IT IS SEEN THAT THE APPELLANT IS ENGAG ED IN THE ACTIVITY OF SALE OF MILK AND ALSO GETTING COMMISSION ON SUCH SWALE OF MILK. BESIDES, THE APPELLANT HAS RECEIVED INTEREST ON FDRS. THE OTHER RECEIPTS, RECEIPTS FROM RESOURCE TECHNOLOGY AND BANK INTEREST AND DIVIDEND INCOME ON SHARES, WHICH CLEARLY REPRESENT THE ACTIVITIES IN THE NATURE OF TRADE AND COMMERCE, HENCE THE APPELLANT TRUST/SANSTHA DOES NOT EXIST FOR CHARITABLE PURPOSES. THEREFORE, THE ACT OF THE AO TO DENY THE BENEFITS OF SECTIONS 11 & 12 OF THE ACT, PURSUANT TO REJECTION OF GRANT OF APP ROVAL U/S 12A OF THE ACT, IS HELD TO BE JUSTIFIED. 7.2 NOW THE ISSUE TO BE DECIDED IS THAT WHETHER WHOLE OF THE EXPENDITURE INCURRED BY THE APPELLANT IS TO BE ALLOWED OR THE PROPORTION ATE EXPENDITURE ATTRIBUTABLE TO THE INCOME DERIVED BY THE APPELLANT O UT OF ITS BUSINESS ACTIVITIES ONLY SHOULD BE ALLOWED. IN THIS REGARD, IT IS SIGNIFICANT TO MENTION THAT THE APPELLANT HAD RECEIVED GOVERNMENT GRANTS OF ` .1,14,00,000/ - , ` 1,39,90,031/ - , & ` 72,01,877/ - IN THE AYS 2006 - 07, 2007 - 08 & 2008 - 09 RESPECTIVELY. IN AY 2006 - 07, THE APPELLANT HAD TREATED THE GRANT AS CAPITAL RECEIPT, TAKING THE SAME DIRECTLY IN THE BALANCE SHEET. HOWEVER, IN SUBSEQUENT AY 2007 - 08, THE APPELLANT HAS TREATED THE GOVERNME NT GRANTS AS REVENUE RECEIPTS. THE CONTENTION OF THE APPELLANT IN THE APPELLATE PROCEEDINGS IS THAT THE APPELLANT MISTAKENLY CREDITED THE GRANTS TO THE INCOME AND EXPENDITURE ACCOUNT IN AY 2007 - 08, WHICH WAS RECTIFIED IN THE SUBSEQUENT AY 2008 - 09. THUS, THE STAND TAKEN BY THE APPELLANT IS THAT THE GOVERNMENT GRANTS RECE IVED BY THE APPELLANT, ARE IN THE NATURE OF CAPIAL RECEIPTS, BY VIRTUE OF THE FACT THAT SUCH GRANT RECEIVED FROM THE GOVERNMENT HAD BEEN UTILIZED FOR CONSTRUCTION OF BUILDING, SHEDS, PURCHASE OF EQUIPMENT MACHINERY, CATTLE BREEDING, ETC. THUS THE APPEL LANT CONTENDS THAT SINCE THE AMOUNT RECEIVED FROM THE GOVERNMENT TOWARDS GRANT HAD BEEN UTILIZED FOR CAPITAL EXPENDITURE, THEREFORE THE GRANT IS CAPITAL IN NATURE. THE APPELLANT IN THIS REGARD FURTHER CONTENDED THAT THE APPELLANT TYRUST/SANSTHA FIRST HAD I NCURRED CAPITAL EXPENDITURE AND CLAIMED THE GRANTS FROM GOVERNMENT, BASED ON SUCH UTILIZATION CERTIFICATE. 6 ITA NOS.62,63,64/NAG/2014 & ITA NOS.87,88 & 89/NAG/2014 7.3 IT CAN BE CLEARLY INFERRED FROM THE ABOVE VERSION OF THE AR OF THE APPELLANT THAT THE RECEIPT AS GRANTS FROM GOVERNMENT AS SUCH IS NOT CAPITA L IN NATURE, BUT IS OF REVENUE IN NATURE. SINCE ITS APPLICATION IS TOWARDS CAPITAL EXPENDITURE, THE APPELLANT TREATED THE RECEIPT AS CAPITAL IN NATURE. THE CONTENTION OF THE APPELLANT THAT THE RECEIPT FROM GOVERNMENT IN THE FORM OF GRANT IS CAPITAL IN NATURE, DOES NOT CARRY MUCH SUBSTANCE IN THE SENSE THAT A RECEIPT5 BY ITS NATURE ITSELF CAN BE TERMED AS CAPITAL OR REVENUE IN NATURE, AND NOT BY ITS APPLICATION OR USE, WHICH IS NOT A DETERMINING FACTOR, FOR A RECEIPT TO BE REGARDED AS CAPITAL OR REVENUE IN NATURE. 7.4 NOW COMING TO THE ALLOWABILITY OF EXPENDITURE INCURRED IN CONNECTION WITH THE BUSINESS RECEIPTS, THERE EXISTS NO AMBIGUITY THAT IF THE PROFITS ARE COMPUTED IN THE COMMERCIAL MANNER AS PER SECTION 14 R.W.S. 28 OF THE ACT, IN THAT CASE THE BUSINESS EXPENDITURE HAS TO BE ALLOWED AS DEDUCTION AGAINST THE BUSINESS RECEIPTS. SO FAR AS THE GRANT FROM THE GOVERNMENT IS CONCERNED, THE SAME BEING A REVENUE RECEIPT, IS LIABLE TO BE TAXED. IT IS ALSO UNDISPUTED THAT NO EX PENDITURE HAS BEEN INCURRED IN CONNECTION WITH RECEIVING THE GOVERNMENT GRANTS, THEREFORE, THE ENTIRE AMOUNTS OF GRANTS RECEIVED IN ALL THE THREE ASSESSMENT YEARS, AS MENTIONED IN PARA 7.2 ABOVE, ARE LIABLE TO BE TAXED, WITHOUT ALLOWANCE OF ANY EXPENDITURE AGAINST THE SAME. IN THIS REGARD, THE AO IS NOT JUSTIFIED IN DISALLOWING THE ENTIRE EXPENSES ATTRIBUTABLE TO BOTH BUSINESS RECEIPTS AS WELL AS TO THE GOVERNMENT GRANTS. IN THE FAIRNESS OF JUSTICE, THE AO IS DIRECTED TO ALLOW THE EXPENDITURE ATTRIBUTABLE T O THE BUSINESS RECEIPTS, AFTER EXCLUDING THE AMOUNT OF GOVERNMENT GRANTS FROM GROSS RECEIPTS, AND TAX WHOLE OF THE GOVERNMENT GRANTS AS REVENUE RECEIPTS OVER AND ABOVE THE BUSINESS INCOME, WITHOUT ALLOWING ANY EXPENDITURE AGAINST THE SAME IN ALL THE THRE E ASSESSMENT YEARS OF APPEAL. 6, AGAINST THE ABOVE ORDER, REVENUE AND ASSESSEE ARE IN CROSS APPEALS. 7. WE FIND THAT IT IS THE PLEA OF THE LEARNED COUNSEL OF THE ASSESSEE THAT LEARNED CIT(APPEALS) HAS ERRED IN HOLDING THAT GOVERNMENT GRANTS RECEIVED AR E THE INCOME OF THE ASSESSEE. LEARNED COUNSEL OF THE ASSESSEE PLEADED THAT THERE IS A RECOGNIZED SYSTEM OF ACCOUNTING WITH RESPECT TO GOVERNMENT GRANTS. THIS HAS BEEN ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. HENCE LEARNED COUNSEL PLEADED THAT THE GRANTS RECEIVED FROM THE GOVERNMENT BY THE ASSESSEE SHOULD BE TREATED IN THE 7 ITA NOS.62,63,64/NAG/2014 & ITA NOS.87,88 & 89/NAG/2014 LIGHT OF THE ABOVE SAID ACCOUNTING STANDARD/GUIDELINES FOR TREATMENT OF GOVERNMENT GRANTS. IN THIS REGARD LEARNED COUNSEL ACCEPTED THAT THERE ARE ERRORS IN THE FINANCIAL STATEMENTS OF THE ASSESSEE WHICH HAVE BEEN CONSIDERED BY THE AO . LEARNED COUNSEL SOUGHT AN OPPORTUNITY BEFORE THE AO IN THIS REGARD TO CANVAS THE CASE AFRESH ALONG WITH THE PERMISSION TO RECAST THE FINANCIAL STATEMENT. 8. LEARNED D.R. IN THIS REGARD VEHE MENTLY OPPOSED THIS SUBMISSION. HE SUBMITTED THAT THE LEARNED CIT(APPEALS) AFTER APPRECIATING ALL THE FACTS ON RECORD HAS PASSED AN APPROPRIATE ORDER WHICH HOLDS THAT THE GRANTS RECEIVED ARE INCOME OF THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE CAN NOW NO T BE ALLOWED TO MAKE FRESH CLAIMS AND RECAST THE FINANCIAL STATEMENTS BEFORE THE AUTHORITIES BELOW. LEARNED D.R. FURTHER SUBMITTED THAT LEARNED CIT(APPEALS) HAS ACCEPTED VARIOUS SUBMISSIONS OF THE ASSESSEE ON THE ISSUE OF ALLOWABILITY OF EXPENDITURE WITHO UT GIVING THE AO AN OPPORTUNITY OF BEING HEARD. HENCE ON THESE ISSUES HE PLEADED THAT THE CIT(APPEALS) ORDER ON THIS ASPECT IS TO BE SET ASIDE. 9. UPON CAREFUL CONSIDERATION, WE NOTE THAT THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LEARNED CIT(APPEALS) HAS PASSED AN ORDER WITHOUT FOLLOWING THE PRESCRIPTION OF RULE 46A. WE NOTE THAT THIS ISSUE IS RELATED TO THE LEARNED CIT(APPEALS) DIRECTION THAT T HE AO IS DIRECTED TO ALLOW THE EXPENDITURE ATTRIBUTABLE TO THE BUSINESS RECEIPTS AFTER EXCLUDING THE AMOUNT OF GOVERNMENT GRANTS FROM THE GROSS RECEIPTS. WE FIND THAT IT CANNOT BE SAID THAT REVENUE CAN BE AGGRIEVED BY THE ABOVE ORDER OF LEARNED CIT(APPEA LS). THE LEARNED CIT(APPEALS) HAS UPHELD THE AOS VIEW THAT THE GOVERNMENT GRANTS SHOULD BE TAXED AS A WHOLE. BUT THE LEARNED CIT(APPEALS) HAS DIRECTED THE AO TO ALLOW THE EXPENDITURE ATTRIBUTABLE TO THE BUSINESS RECEIPTS. IN OUR CONSIDERED OPINION THE R EV ENUE CANNOT BE AGGRIEVED BY THIS ORDER. HOWEVER, SINCE WE ARE REMITTING THE ENTIRE ISSUE TO THE 8 ITA NOS.62,63,64/NAG/2014 & ITA NOS.87,88 & 89/NAG/2014 FILE OF THE AO IN TERMS OF ASSESSEES APPEALS BELOW , T HE REVENUES APPEALS ARE ALSO ALLOWED FOR STATISTICAL PURPOSES. 10. AS REGARDS THE ASSESSEES APPEALS, WE FIND THAT THERE CANNOT BE ANY DISPUTE TO THE PROPOSITION THAT GOVERNMENT GRANTS SHOULD BE TAXED AS PER THEIR NATURE AND THE ACCOUNTING STANDARD/GUIDELINES ISSUED IN THIS REGARD. HOW THE ASSESSEE HAS TREATED THE SAME IN ITS BOOKS OF ACCOUNTS CANNOT B E A BASIS FOR BRINGING THE SAME TO TAX. AS HELD BY THE HONBLE APEX COURT IN THE CASE OF TUTUCORIN ALKALI CHEMICAL & FERTILIZERS LTD. 227 ITR 172 T HAT ACCOUNTING ENTRIES ARE NOT DETERMINATIVE OF THE ACTUAL NATURE OF THE TRANSACTION. IN THIS VIEW OF THE MATTER, LEARNED COUNSEL OF THE ASSESSEES PLEA THAT THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY TO CANVAS THE PLEA OF TREATMENT OF GOVERNMENT GRANTS AS PER PROPER ACCOUNTING STANDARD AND IN THE LIGHT OF THE NA TURE OF THE GRANTS IS TO BE ACCEPTED. FURTHER MORE, AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SHELLY PRODUCTS 261 ITR 367, AN INCOME WHICH IS EXEMPT CANNOT BE SUBJECTED TO TAX BECAUSE OF A MISTAKE OR ERROR ON THE PART OF THE ASSESSEE IN OFFERING THE SAME FOR TAXATION. THE HONBLE APEX COURT HAS EXPOUNDED THAT A BONAFIDE PLEA OF THE ASSESSEE IN THIS REGARD SHOULD BE ENTERTAINED BY THE AO. SIMILARLY IN THE CASE OF CIT VS. MR. P. FIRM MUAR 56 ITR 67 HONBLE APEX COURT HAS EXPOUNDED THAT IF A PARTICULAR INCOME IS NOT TAXABLE UNDER I.T. ACT, IT CANNOT BE TAXED ON THE BASIS OF ESTOPPEL OR ANY OTHER EQUITABLE LAW. HENCE IF A PARTICULAR INCOME IS NOT E X IGIBLE TO TAX, THE AO HAS NO POWER TO TAX THE SAID INCOME. 11. IN THE LIGHT OF THESE PRECED ENTS , WE SET ASIDE THE ENTIRE ISSUE TO THE FILE OF THE AO. THE AO IS DIRECTED TO CONSIDER THE ISSUE OF TAXATION OF ASSESSEES INCOME IN THE LIGHT OF THE DIRECTIONS AS ABOVE. THE AO IS FURTHER DIRECTED TO ENTERTAIN THE BONAFIDE PLEAS OF THE ASSESSEE IN TH IS REGARD. 9 ITA NOS.62,63,64/NAG/2014 & ITA NOS.87,88 & 89/NAG/2014 12. IN THE RESULT, BOTH THE REVENUES APPEALS AND ASSESSEES APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 4 TH DAY OF SEPT. , 2015. SD/ - SD/ - (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 4 TH SEPT., 2015. COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE .