M/S. HYUNDAI MOTOR INDIA LTD.,KANCHIPURAM V. PCIT-4, , CHENNAI

ITA 434/CHNY/2025

AI Insights

The case involves Hyundai Motor India Ltd., which appealed against the order of the Principal Commissioner of Income Tax-4, Chennai, concerning the taxability of an Investment Promotion Subsidy (IPS) received. The subsidy, amounting to Rs.33 crores, was initially treated as a revenue receipt by the Assessing Officer but was later contested and deemed a capital receipt by the Tribunal in a previous ruling. The Principal Commissioner later challenged this classification under section 263, leading to the current appeal. The Tribunal found that the Assessing Officer had adequately examined the issue as per the directions given in the earlier appeal and that the subsidy was not intended to offset the cost of any assets, thus not falling under the purview of Explanation 10 to section 43(1) of the Act.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 835386 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 12-02-2025
• Other Referred Cases: Malabar Industrial Co. Ltd. V. Commissioner of Income-tax, CIT vs. Chaphalkar Brothers Pune, Kwality Steel Suppliers Complex, Virtusa Consulting Services (P.) Ltd., Sunbeam Auto Ltd., Clix Finance India (P.) Ltd, Spectra Shares & Scrips (P) Ltd., Chemsworth (P.) Ltd., Shriram Properties Limited, Thanthi Trust, Rajkumar Impex Pvt. Limited, Keller (M) SDN BHD, Menzies Bobba Ground Handling Services Private Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: E.PAVUNA SUNDARI; C.I.T
• Assessee Lawyers: SRIRAM SESHADRI
• Keywords: Set aside; Depreciation; Cost of acquisition; Capital receipt; Wholly owned subsidiary; Revision of order
• Section: 143(3); 263; 10; 2

Judgement Text

" आयकर अपील य अ धकरण, ‘ए’ \u000eयायपीठ, चे\u000eनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI \u0015ी मनु क ुमार ग\u0019र, \u000eया\u001aयक सद य एवं \u0015ी एस. आर. रघुनाथा, लेखा सद य क े सम# BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.:434/Chny/2025 \u001aनधा$रण वष$ / Assessment Year: 2012-13 M/s. Hyundai Motor India Ltd., Plot No.H-1, Sipcot Industrial Park, Irungattukottai, Sriperumbudur Taluk, Kancheepuram District – 602 117. vs. The Principal Commissioner of Income Tax-4, Chennai. [PAN:AAACH-2364-M] (अपीलाथ&/Appellant) ('(यथ&/Respondent) अपीलाथ& क) ओर से/Appellant by : Shri. Sriram Seshadri, C.A. '(यथ& क) ओर से/Respondent by : Ms. E. Pavuna Sundari, C.I.T. सुनवाई क) तार ख/Date of Hearing : 06.01.2026 घोषणा क) तार ख/Date of Pronouncement : 11.02.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM: This appeal is filed by the assessee against the order dated 09.12.2024 passed by the learned Principal Commissioner of Income Tax–1, Chennai (“Ld. PCIT”) under section 263 of the Income-tax Act, 1961 (“the Act”), whereby the order passed by the Assessing Officer (AO) u/s.143(3) read with section 254 of the Act dated 20.02.2024 was held to be erroneous and prejudicial to the interests of the Revenue. 2. The brief facts emanating from the records are that the assessee, Hyundai Motor India Limited (“HMIL”), is a wholly owned subsidiary of Hyundai Printed from counselvise.com :-2-: ITA. No:434/Chny/2025 Motor Company, South Korea, engaged in manufacture and export of passenger vehicles. For AY 2012-13, the assessment was completed u/s. 143(3) of the Act. During the course of assessment proceedings, the assessee raised an additional claim that the Investment Promotion Subsidy (“IPS”) received in the form of refund of output VAT amounting to Rs.33 crores was a capital receipt not chargeable to tax. The Ld. AO rejected the claim treating the same as revenue receipt. 3. On appeal, this Tribunal, vide order dated 23.03.2023 in IT(TP)A No. 51/CHNY/2021, held that the IPS was granted for setting up/expansion of manufacturing facilities and was capital in nature. However, the matter was restored to the file of the AO for: • examination of the complete scheme and details of investment for quantification of subsidy; and • verification of applicability of Explanation 10 to section 43(1) of the Act, with a categorical direction to ascertain whether the subsidy was intended to offset the cost of acquisition of assets or merely to accelerate industrial development. 4. Pursuant to the above directions, the AO conducted remand proceedings, called for detailed information, examined the scheme documents, investment details certified by the statutory auditor, and submissions of the assessee. Thereafter, the AO passed an order dated 20.02.2024 under section 143(3) r.w.s 254 of the Act, accepting the assessee’s claim that IPS amounting to Rs.33 crores was a capital receipt not chargeable to tax and that Explanation 10 to section 43(1) of the Act was not applicable. 5. Subsequently, the Ld. PCIT initiated proceedings u/s.263 of the Act, alleging that the AO failed to properly examine the applicability of Explanation 10 to section 43(1) of the Act and that the subsidy was intended to offset the cost of assets. By the impugned order dated 09.12.2024, the Ld. PCIT set aside the order giving effect and directed the AO to apportion the subsidy among Printed from counselvise.com :-3-: ITA. No:434/Chny/2025 various blocks of assets and reduce the same from WDV for recomputation of depreciation. 6. Aggrieved, the assessee is in appeal before us. 7. Before us, the ld.AR assailing the action of the ld.PCIT, submitted that the order passed by the AO u/s.143(3) r.w.s.254 was in accordance with law and there is no reason to interfere by the ld.PCIT. Further, the ld.AR stated that during the course of remand proceedings, the AO sought for relevant materials and the assessee made detailed submissions vide letter dated 01.01.2024 along with details of investments as certified by the Statutory Auditor (Page 136 to 183 of paperbook). The assessee also made specific submissions on the aspect that IPS is not given towards offsetting the cost of any assets and accordingly, submitted that Explanation 10 to Section 43(1) of the Act is not applicable in the subject case (Page 143 of paperbook). The assessee also submitted relevant jurisprudence in this connection before the AO (Page 150 and 151 of paperbook). 8. The ld.AR further contended that the AO after verifying the complete details of the scheme, details of investments and considering the detailed submissions of the assessee including relevant jurisprudence regarding the non-applicability of the provisions of Explanation 10 to Section 43(1) of the Act, concluded the remand proceedings by passing an order u/s.143(3) r.w.s 254 of the Act accepting the assessee’s claim and by concluding that the IPS received by the Appellant is a capital receipt not chargeable to tax (Para 6 of the order giving effect dated 20.02.2024 in Page 40 and 41 of Memorandum of Appeal). 9. The ld.AR submitted that in the proceedings u/s.263 of the Act were initiated by the Ld.PCIT alleging that the AO had failed to note that the ITAT had more or less come to a conclusion that the said incentive was given to offset the cost of a particular asset and was not merely granted with an objective of Printed from counselvise.com :-4-: ITA. No:434/Chny/2025 accelerating the industrial development. (Page 184 to 186 of paperbook) and failed to examine the applicability of the provisions of Explanation 10 to Section 43(1) of the Act. The Ld.PCIT, thereby concluded that the order giving effect is erroneous and prejudicial to the interest of the revenue and set aside the order giving effect passed by the AO passing an order u/s.263 of the Act dated 09.12.2024, directing the AO to apportion the IPS received by the assessee among the separate block of assets in proportion to the eligible assets segregated into each of the block of assets of the assessee, and reduce the amount of subsidy from the WDV of the said block (Para 7.5 of the Impugned Order in Page 33 of Memorandum of Appeal). 10. The ld.AR submitted that the proceedings u/s.263 of the Act can only be invoked only upon satisfaction of twin conditions as per the provisions of the Act, namely: (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. 11. Further he contended that, where only one of the conditions is satisfied, i.e., if the order of the assessing officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue, recourse cannot be made to section 263(1) of the Act by the PCIT/CIT. In this regard, the Appellant relies upon the ruling of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. V. Commissioner of Income-tax [2000] 243 ITR 83 (SC) (Page 1 of Case law compilation), wherein it has been held that if one of the conditions specified in the section is absent i.e. if the order of the assessing officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue, Section 263(1) of the Act cannot be invoked. 12. The ld.AR also submitted that, the Explanation 2 to Section 263(1) of the Act inserted vide Finance Act, 2015 with effect from 01.06.2015, provides for a deeming provision where the order is deemed to be erroneous insofar as it is Printed from counselvise.com :-5-: ITA. No:434/Chny/2025 prejudicial to the interests of the revenue if one of the four conditions provided therein were met. Explanation 2 to section 263 of the Act inter-alia provides that an order shall be deemed to be erroneous if the same was passed without making inquiries or verification which should have been made. Thus, an order passed after making all due inquiries and application of mind cannot be regarded as erroneous. 13. In this regard, the ld.AR submitted that during the course of remand proceedings pursuant to the order of this ITAT, the AO had called for specific details with respect to the claim of the Appellant in treating the IPS as capital receipt, not chargeable to tax. In this connection, the assessee submitted the details of the nature of subsidy, objectives of the scheme under which the IPS was granted to the Appellant, and categorically made specific submissions in connection with the non-applicability of Explanation 10 to Section 43(1) of the Act (page 140 of Paperbook). The assessee duly submitted the following documents in support of the assessee’s claim that the IPS is not given for offsetting the cost of any asset nor towards running the business profitably and hence, IPS is a capital receipt, not chargeable to tax: - Memorandum of Understanding dated January 22, 2008 between the Appellant and GoTN (page 67 of paperbook) - Government Order (‘GO’) issued for the formulation of Ultra-Mega Integrated Automobile Projects policy and sanction of incentives (page 85 of paperbook) - Copy of Interim Eligibility Certificate dated 23 July 2009 (page 101 of paperbook) - Copy of Final Eligibility Certificate dated 17 April 2014 (page 109 of paperbook) - Tamil Nadu Industrial Policy 2007 (page 152 of paperbook) - Policy document issued by Tamil Nadu Industrial Guidance & Export Promotion Bureau in respect of incentives offered by GoTN to Industries (amended up to May 31, 1997) (page 179 of paperbook) - Statutory auditor certificate quantifying the investment made by HMIL in respect of Phase II Manufacturing Facility (refer page 208 of paperbook) Printed from counselvise.com :-6-: ITA. No:434/Chny/2025 14. It was further buttressed that, the detailed submissions were made on the non-applicability of Explanation 10 to Section 43(1) of the Act (page 149 of paperbook) on the basis that the IPS is not given to offset the cost of fixed assets. It was highlighted that the cost of eligible investments was taken as a basis only for the purpose of determining the amount of subsidy, and the subsidy was issued towards the industrial development and not specifically intended to subsidize the cost of any asset. In this connection, multiple judicial precedents in support of the assessee’s claim were also submitted before the AO (page 150 and 151 of paperbook). The AO upon consideration of the detailed submissions of the assessee and the relevant facts and materials and after applying their mind upon the relevant documents, had completed the remand proceedings vide order dated giving effect dated 20.02.2024 (Page 35 of Memorandum of Appeal). 15. Relevant extracts of the order giving effect are reproduced below: \"6. Tax treatment of output VAT Incentives (Investment Promotion subsidy): The Hon'ble ITAT directed the AO to verify the issue with reference to relevant materials and decide the issue in accordance with the law. Regarding this issue the AO has asked for the relevant materials and the same are submitted before the Assessing Officer on 9th January, 2024. The reply of the assessee is reproduced as below: a. \"It is submitted that since the incentive in the form of Investment Promotion Subsidy is not a payment received directly or indirectly to meet any portion of the actual cost, it falls outside the purview of Explanation 10 to Section 43(1) of the Act. In this connection, reference is drawn to Explanation 10 to Section 43(1) of the Act, which is reproduced below: ……………………………………… ……………………………………… The documents furnished by the Assessee viz., the complete details of Scheme viz., the Memorandum of Understanding entered into by the Assesee with the Govt. of Tamil Nadu, Government Order in G.O. (Ms) No. 52 dated 26.02.2007 and the Government Order in G.O, (Ms) No. 101 dated 23.04.2008 and the Statutory Auditor Certificate certifying the details of investment made are examined. Considering the submissions made and the details verified, the claim of the Assessee that the Subsidy accrued during the year (JPS) (Rs. 33,00,82,506/-) is a capital receipt, not chargeable to tax, is hereby accepted.” Printed from counselvise.com :-7-: ITA. No:434/Chny/2025 16. From the above, it would be evident that all the relevant documents submitted were duly examined by the AO and the AO has also categorically called out in his order that the submissions against applicability of Explanation 10 to Section 43(1) of the Act has been verified and allows the assessee’s claim that IPS is a capital receipt not chargeable to tax. In cases where Explanation 10 to Section 43(1) of the Act is applicable, the receipt shall become chargeable to tax through a depreciation adjustment. When the Explanation 10 to Section 43(1) of the Act is inapplicable, there is no incidence to taxation, which has been held by the AO by stating that the IPS is a capital receipt, not chargeable to tax. 17. In view of the above arguments, the ld.AR submitted that all the relevant documents and submissions have already been examined in detail by the AO during the remand proceedings and thus, this cannot fall under the situations contemplated in explanation 2 to Section 263(1) of the Act. 18. Without prejudice to the fact that detailed enquiry and examination with respect to the issue under consideration was undertaken by the AO in the course of remand proceedings, even if one were to say that such enquiry was inadequate, the same cannot be a ground for proceedings assessee u/s.263 of the Act. It is a settled principle that there is a distinction between ‘lack of enquiry’ and ‘inadequate enquiry’. It is only in cases of 'lack of inquiry' that such a course of action u/s.263 of the Act would be open. In this regard, ld.AR relied upon the following judicial precedents including the Jurisdictional High Court and Tribunal decisions, wherein it was held that if a query was raised during original assessment which was responded by the Appellant and issue was allowed in the assessment, even if such enquiry is inadequate, the CIT was not justified in invoking the provisions of section 263 of the Act: Printed from counselvise.com :-8-: ITA. No:434/Chny/2025 Name of the Case Forum Citation Page No. in case law compilation Kwality Steel Suppliers Complex SC 395 ITR 1 6 Virtusa Consulting Services (P.) Ltd. HC – Madras 442 ITR 385 35 Sunbeam Auto Ltd. HC-Delhi 332 ITR 167 67 Clix Finance India (P.) Ltd HC – Delhi 298 Taxman 217 78 Spectra Shares & Scrips (P) Ltd. HC-Andra Pradesh 354 ITR 35 89 Chemsworth (P.) Ltd. HC – Karnataka 119 taxmann.com 358 113 Shriram Properties Limited ITAT – Chennai 2023 (4) TMI 375 133 Thanthi Trust ITAT – Chennai 171 taxmann.com 470 124 Rajkumar Impex Pvt. Limited ITAT – Chennai 2023 (6) TMI 812 154 Keller (M) SDN BHD ITAT – Chennai ITA 1319/CHNY/2023 163 Menzies Bobba Ground Handling Services Private Ltd ITAT – Hyderabad ITA No. 226/ Hyd/ 2021 181 19. Further, ld.AR relied on assessee’s own case for AY 2022-23 (ITA No. 2948/CHNY/2024) (Page 117 of CLC), this Tribunal has quashed the 263 proceedings on the basis that the AO has extensively enquired into the matter and thereafter drew his conclusions, and therefore, the case will not fall into the mischief of clauses a and b of Explanation 2 to Section 263 of the Act. The relevant extracts are reproduced below: “3.6. We have heard rival submissions in the light of material available on records. It is settled law that, clauses a & b of explanation-2 to section 263 postulate that an order can be declared as erroneous in so far as it is prejudicial to the interest of the Revenue only in the event of appropriate enquiries and verification not done by the Ld.AO. The facts available on records clearly allude that the Ld.AO had conducted requisite enquiries on the issue Tax treatment of RoDTEP incentives before concluding that no adjustment was required to be made. Under the circumstances, subsequent invocation of revisionary action u/s 263 by PCIT is unauthorized and unwarranted. Accordingly, we are of the considered view that the assessee succeeds qua the legal contest made by it through the ground of appeal no.2.” 20. Further, the ld.AR contended that in the assessee’s case for the impugned year, as explained earlier, all the relevant details and documents were duly submitted before the Ld. AO. Accordingly, the assessment was Printed from counselvise.com :-9-: ITA. No:434/Chny/2025 completed after due verification of the facts and documents submitted by the AO and the AO has categorically concluded that there is no incidence to taxation towards the subsidy received and hence, not chargeable to tax. It is also submitted that merely because the AO does not provide specific findings in connection with the applicability of Explanation 10 to Section 43(1) of the Act in the order giving effect dated 20.02.2024 and have not passed a detailed speaking order in this connection, the same cannot be a ground for the Ld. PCIT to invoke jurisdiction u/s.263 of the Act. The fact that the assessment order clearly states that the AO has pursued the assessee’s submissions on this specific aspect, which is also reproduced in the order giving effect (page 39 and 40 of memorandum of appeal) indicates that the AO has clearly applied his mind on the assessee’s submission and accepted the assessee’s claim on the non-applicability of Explanation 10 to Section 43(1) of the Act. 21. In this connection, the ld.AR relied upon the ruling of the Hon’ble Supreme Court in the case of V-Con Integrated Solutions Pvt. Ltd. (SLP(Diary) No. 13205 of 2025), wherein it was held as under: “The assessee does not have control over the pen of the Assessing Officer. Once the Assessing Officer carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee.” 22. The ld.AR, also relied upon the following decisions wherein it has been held that non-rejection of the explanation in the Assessment Order would amount to the Assessing Officer accepting the view of the assessee: - Hon’ble Supreme Court (272 Taxman 179) and Hon’ble Bombay High Court (425 ITR 177) in the case of Marico Ltd. – Page 20 and 22 of case law compilation - Hon’ble Madras High Court in the case of Cognizant Technology Solutions India Pvt. Ltd. (SLP 92 of 2023) - Page 33 of case law compilation 23. Further, the ld.AR submitted that on 26.02.2007, the GoTN issued GO (Ms.) No.52 (Page 85 of paperbook) for formulation of Ultra Mega Integrated Automobile Projects Policy, wherein it was highlighted that Tamil Nadu has been unsuccessful in attracting large integrated automobile projects during the past as the incentive packages offered by Tamil Nadu were less attractive when compared to the other states. Further, it was also noted that the State will lose Printed from counselvise.com :-10-: ITA. No:434/Chny/2025 its pre-eminent position in automobile and auto component manufacturing, if this trend continues, and the same will have long term adverse impact on the State's capability in attracting investments, generating and sustaining employment and achieving economic growth. In the above backdrop, the GoTN felt it necessary to bring out an exclusive policy for encouraging set up of major Integrated Automobile projects in Tamil Nadu and accordingly, formulated the 'Ultra Mega Integrated Automobile Project ('UMIAP') Policy'. 24. On 22.01.2008, the assessee entered into a Memorandum of Understanding with the Government of Tamil Nadu (‘GoTN’) (Page 67 of paper book) which has primarily granted an incentive for the purpose of setting up / expansion of its manufacturing facility. The incentive was granted by the GoTN for the purpose of setting up of Phase II manufacturing facility (expansion along with a new engine and transmission plant with an installed capacity of 3.30 lakh cars per annum) (Page 68 of the paper book). The incentive in the form of IPS issued by way of refund of Output VAT, has been granted for encouraging the setup of major automobile projects and boost the investments in Tamil Nadu (Govt Order in Page 85 of the Paper book). The GoTN has offered the aforementioned subsidy to the assessee on account of the following benefits that would accrue to the state (Page 68 of the paper book): - Contribution to State Gross Domestic Product - Enhancing Brand Equity of Chennai viz. consolidate Chennai / Tamil Nadu's position as Detroit of South Asia - Ancillary Development i.e. additional investment by vendors and supporting service providers - Enhancement in Employment Potential from about 4000 to 7600 persons 25. In view of the above benefits, the GOTN agreed to provide a structured package of support to the Assessee in the form of fiscal and other incentives under the UMIAP Policy subject to the fulfilling certain obligations within the investment period i.e., seven years from 01.06.2006 (Page 69 of paper book). The obligations to be fulfilled by HMIL (page 69 of paperbook) to avail the infrastructure support, utilities and various incentives offered by the GoTN were Printed from counselvise.com :-11-: ITA. No:434/Chny/2025 as under: - Eligible investment of INR 4,000 Crs in eligible fixed assets [including investment in intangibles upto a maximum of 10% of the actual eligible investment] within a period of seven years from 1st June 2006. - Expansion through Creation of incremental installed plant capacity of 3.30 lakhs vehicles per annum. 26. Upon satisfaction of the aforementioned criteria, the fiscal incentives available to HMIL in the form of IPS consisted of (page 81 of paper book): - Refund of Input VAT and Gross Output VAT (without any set off) for a period of 21 years from the date of commencement of commercial production or to the extent of 115 per cent of eligible investment, whichever is earlier; and - Soft loan against Central Sales Tax (without set off) repayable after a period of 14 years along with nominal interest. 27. The input VAT refund ran concurrently along with the gross output VAT refund and CST soft loan. 28. In addition, as per the UMIAP, the subsidy comprised of infrastructure support, exemption from entry tax, octroi, works contract tax and other state levies, flexibility in labour recruitments / operations and single window facilitation / clearances (Page 83 of paper book). 29. Based on the satisfaction of the above conditions, an interim eligibility certificate dated 23.07.2009 was issued by the State Industries Promotion Corporation of Tamil Nadu limited (‘SIPCOT’) considering the eligible investment made till such date (Page 101 of paper book). Further after the completion of project on 31.03.2011, a final eligibility certificate was issued by SIPCOT on 17.04.2014. The final eligibility certificate issued by SIPCOT TN considers eligible investments at Rs.4,373.22 crores (while the actual investment made by HMIL was Rs.4,971 crores) and according quantified the subsidy receivable in the form of IPS as Rs.4,023.36 crores. (Page 109 of the paper book). Printed from counselvise.com :-12-: ITA. No:434/Chny/2025 30. During the impugned year under consideration, based on the sales, the assessee accrued refund of Output VAT amounting to Rs.33 crores from the Government of Tamil Nadu and credited the same to P&L account under Schedule 21(iii): Other Operating Revenues (page 22 of paper book). 31. The character of the receipt has to be determined with respect to the purpose for which the subsidy is given and the form in which subsidy is given would not change the character of the subsidy. In the present case, the subsidy was granted with a view to incentivize/encourage the huge investment made by the Appellant for setting up a passenger car manufacturing unit in Tamil Nadu. In view of the above, the receipt of the subsidy was capital in nature. It may be noted that the object of the subsidy was not to enhance the operational profitability of Appellant or to fund the cost of fixed assets. Hence, the subsidy that is primarily granted as an incentive for the purpose of setting up/ expansion of its manufacturing facility, is to be treated as capital receipt not chargeable to tax. 32. It is a settled principle that subsidy issued towards accelerating industrial investments or expansion/setting up of units is to be treated as capital in nature. This issue is squarely covered by the ruling of the Hon’ble Supreme Court in the case of CIT vs. Chaphalkar Brothers Pune (400 ITR 279). This Tribunal also in the assessee’s case for the subject AY, has categorically held that IPS is capital in nature. The relevant extract of the Tribunal order is reproduced below: “11.6……………….. It is a settled principle of law by various Courts, including the Hon’ble Supreme Court in the case of CIT v. Chaphalkar Brothers Pune, reported in (2018) 400 ITR 279 (SC), that subsidy received towards accelerating industrial investment/setting up of units is to be treated as capital in nature, even if such subsidy has been quantified in terms of reimbursement of expenses or VAT, etc.,. Further, CBDT Circular No.142 dated 01.08.1974, which deals with characterization of subsidy received under 10% Central Outright Grant of Subsidy Scheme, 1971, states that classification of a subsidy as capital or revenue depends on whether the subsidy has been granted for helping the growth of the industries or for supplementing their profits. If the subsidy is granted for the purpose of growth of industries, then, the receipt of the subsidy was concluded to be on capital account. In the present case, going by the Scheme promoted by the Government of Tamil Nadu, it shows that industrial promotion subsidy has been promoted for encouraging Ultra Mega Printed from counselvise.com :-13-: ITA. No:434/Chny/2025 Integrated Automobile Industry in the state of Tamil Nadu. Therefore, we are of the considered view that from the submissions of the assessee, it appears that IPS accrued to the assessee for the impugned assessment year on the basis of sales is given for setting up/expansion of manufacturing facility and is on capital account. Therefore, said subsidy should be treated as capital receipt. ……………” 33. Further, the ld.AR contended that the assessee had not received the IPS for the acquisition of any assets and was granted for encouraging the setup of major automobile projects and boost the investments in Tamil Nadu. Therefore, the ld.AR submitted that the Investment Promotion Subsidy is not deductible from the actual cost of assets under Section 43(1) of the Act. 34. The ld.AR, also relied upon the order of this Tribunal in assessee’s own case for AYs 2013-14 to 2015-16 (Page 212, 224 and 236 of case law compilation), wherein the order giving effect dated 20.02.2024 issued by the AO for the impugned year, which is partly set aside by the Ld. PCIT has been viewed by this Tribunal to conclude that the IPS received by the assessee is a capital receipt not chargeable to tax (refer para 9 to 15). 35. Therefore, the Ld.PCIT’s basis for re-computing the depreciation after reducing the incentive proportionately from the block of assets is grossly erroneous and the Ld.PCIT has failed to consider the nature of the subsidy and the relevant jurisprudence supporting the assessee’s claim in this connection. 36. The ld.AR also drew our attention to the decision of the this Tribunal to the treatment of the same incentive in the Appellant’s own case, post amendment to Section 2(24)(xviii) of the Act, i.e, from AY 2016-17, wherein the AO and this Tribunal has treated the said subsidy as taxable under the Act, which further supports the assessee’s stand that the said incentive was not issued towards offsetting the cost of any assets and the provisions of Explanation 10 to Section 43(1) of the Act is not applicable to the facts of the assessee’s case. In this connection, the Appellant reproduces the provisions of Section 2(24)(xviii) of the Act: Printed from counselvise.com :-14-: ITA. No:434/Chny/2025 “(xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee 89[other than,- (a) the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43; or (b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be”. 37. In view of the above, the Revenue’s stand in AY 2016-17 onwards to tax the output VAT incentive in entirety under Section 2(24)(xviii) makes it evident that the said incentive is not towards offsetting the cost of any assets and hence, the Ld. PCIT’s basis for invoking the revisionary proceedings is flawed and inconsistent with the Revenue’s position adopted year on year. 38. Therefore, the ld.AR submitted that the proceedings u/s.263 of the Act kindly be quashed for the reasons mentioned below: ― In relation to the assessee’s claim on the above ground, the assessee has produced before the AO all the relevant documents to support the assessee’s claim and also filed the detailed submissions. This may be evidenced from the records of the remand proceedings. ― The AO has, after due consideration of the submissions made by the assessee and after making all relevant inquiries, and after the perusal of records and documents submitted before him allowed the assessee’s claim after duly verifying the non-applicability of the Explanation 10 to Section 43(1) of the Act. ― Further, even on merits, the stand of the Ld.PCIT is arbitrary and untenable based on our detailed submissions placed above. ― Accordingly, the order passed by the AO is not erroneous insofar as prejudicial to the interest of the revenue. 39. Per contra the ld.DR supported the impugned order and submitted that the AO failed to appreciate that the Tribunal, in its earlier order, had indicated that the subsidy was linked to cost of assets. It was contended that the AO did not pass a speaking order on Explanation 10 and hence the order was erroneous and prejudicial to the interests of the Revenue. Printed from counselvise.com :-15-: ITA. No:434/Chny/2025 40. We have carefully considered the rival submissions, perused the material available on record, including the paper books filed by the assessee, the impugned order passed by the Ld.PCIT u/s. 263 of the Act, the order giving effect passed by the AO pursuant to the directions of the Tribunal, and the judicial precedents relied upon by both sides. 41. It is a trite law that the power of revision u/s.263 of the Act can be exercised only when the twin conditions laid down therein are satisfied simultaneously, namely: (i) the order of the Assessing Officer is erroneous; and (ii) the error is prejudicial to the interests of the Revenue. 42. This legal principle stands conclusively settled by the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT (243 ITR 83), wherein it was held that if one of the conditions is absent, recourse cannot be had to section 263 of the Act. 42.1 Explanation 2 to section 263, inserted with effect from 01.06.2015, creates a deeming fiction whereby an order shall be deemed to be erroneous in so far as prejudicial to the interests of the Revenue if, inter alia, the order is passed without making inquiries or verification which should have been made. However, this Explanation does not obliterate the distinction between “lack of enquiry” and “inadequate enquiry”, a distinction consistently recognised by the Courts. It is only in cases of complete absence of enquiry that revisionary jurisdiction can be validly assumed. 43. In the present case, it is an undisputed fact that the assessment order dated 20.02.2024 was passed by the AO pursuant to specific directions of the Tribunal contained in its order dated 23.03.2023. The Tribunal had restored the matter to the file of the AO with a categorical mandate to: Printed from counselvise.com :-16-: ITA. No:434/Chny/2025 • examine the complete scheme and details of investment for quantification of subsidy; and • verify the applicability of Explanation 10 to section 43(1) of the Act, particularly whether the subsidy was intended to offset the cost of acquisition of assets or merely to accelerate industrial development. 44. The record reveals that during the remand proceedings, the AO called for exhaustive details from the assessee. In response, the assessee furnished: • the Memorandum of Understanding with the Government of Tamil Nadu; • Government Orders framing the Ultra Mega Integrated Automobile Projects Policy; • Interim and Final Eligibility Certificates issued by SIPCOT; • Tamil Nadu Industrial Policy documents; • statutory auditor’s certificate certifying the quantum and nature of eligible investments; and • detailed written submissions specifically addressing the non-applicability of Explanation 10 to section 43(1), supported by judicial precedents. 45. These documents are placed at pages 136 to 183 of the paper book and have not been controverted by the Revenue. 46. We find that the AO, after examining the above materials, has recorded in paragraph 6 of the order giving effect that the scheme documents, Government Orders, and statutory auditor certificate were examined and that, considering the submissions and details verified, the subsidy accrued during the year was accepted as a capital receipt not chargeable to tax. 47. Thus, the allegation of the Ld. PCIT that the AO failed to conduct enquiry on the applicability of Explanation 10 to section 43(1) is factually incorrect. 48. The primary plank of the Ld. PCIT’s reasoning is that the AO did not pass a “speaking order” on Explanation 10 to section 43(1). In our considered view, this by itself cannot render the assessment order erroneous. 49. The Hon’ble Supreme Court in V-Con Integrated Solutions Pvt. Ltd. (supra) has categorically held that once the Assessing Officer conducts an Printed from counselvise.com :-17-: ITA. No:434/Chny/2025 investigation and does not make an addition, it must be presumed that the AO has accepted the assessee’s explanation. The assessee has no control over the manner in which the AO records his conclusions. 50. Similarly, in Marico Ltd. (supra) and Cognizant Technology Solutions India Pvt. Ltd., (supra) it has been held that non-rejection of an explanation after enquiry amounts to acceptance of the same. 51. What is relevant for section 263 is whether enquiry was conducted, not how elaborately the conclusion was written. The assessment order must be read as a whole, and when it expressly records that the scheme documents and submissions were examined, the inference of application of mind is unavoidable. Even assuming that the enquiry conducted by the AO was inadequate, the law is well settled that inadequate enquiry does not confer jurisdiction u/s.263 of the Act. 52. In support of our above view, we take the support of the decision of the Hon’ble Supreme Court in Kwality Steel Suppliers Complex (395 ITR 1) and several High Courts including the jurisdictional Madras High Court in Virtusa Consulting Services (P.) Ltd. (442 ITR 385) have consistently held that where a query was raised, responded to, and the issue was decided, the Commissioner cannot substitute his opinion for that of the AO. 53. In the present case, this is not even a case of inadequate enquiry, but one of extensive enquiry pursuant to specific Tribunal directions. Therefore, the invocation of Explanation 2 to section 263 is wholly misconceived. 54. On merits also, we find no infirmity in the view taken by the AO. The scheme documents, Government Orders, and the Memorandum of Understanding unequivocally demonstrate that the Investment Promotion Subsidy was granted to encourage setting up and expansion of ultra-mega Printed from counselvise.com :-18-: ITA. No:434/Chny/2025 automobile projects, attract large-scale investments into the State of Tamil Nadu, generate employment and ancillary industrial development and strengthen the State’s industrial and economic base. 55. We find that the subsidy was quantified with reference to eligible investments only as a measure of entitlement, and not for the purpose of meeting the cost of any specific asset. There is no stipulation in the scheme that the subsidy shall be utilised for acquisition of assets or that it shall go to reduce the cost thereof. 56. The character of a subsidy is determined by its purpose, not by the mode of disbursement, a principle firmly laid down by the Hon’ble Supreme Court in CIT v. Chaphalkar Brothers Pune (400 ITR 279). Applying this test, the Tribunal in the assessee’s own case for this very assessment year has already held that the IPS is capital in nature. Once the subsidy is found not to be intended to offset the cost of acquisition of assets, Explanation 10 to section 43(1) has no application. 57. We also find force in the assessee’s contention that from AY 2016-17 onwards, the Revenue itself has taxed the same incentive u/s.2(24)(xviii) of the Act, which expressly excludes subsidies that are taken into account for determining actual cost under Explanation 10 to section 43(1) of the Act. This statutory treatment adopted by the Revenue in later years reinforces the conclusion that the IPS was not meant to reduce the cost of assets, and the contrary stand taken by the Ld.PCIT for the year under consideration is internally inconsistent. 58. In substance, the Ld.PCIT has sought to re-appreciate the same material and substitute his view for that of the AO. Such an exercise is impermissible u/s.263 of the Act. The provision does not vest the Commissioner with appellate powers, nor does it permit revision merely because another view is possible. Printed from counselvise.com :-19-: ITA. No:434/Chny/2025 59. In view of the above reasoning and discussion, we hold that the AO had conducted due and proper enquiry in compliance with the directions of the Tribunal and hence the assessment order dated 20.02.2024 is neither erroneous nor prejudicial to the interests of the Revenue. Further, the conditions precedent for invoking section 263 of the Act are not satisfied and therefore the impugned order passed by the Ld. PCIT is unsustainable in law. 60. Accordingly, the order passed by the Ld. PCIT u/s. 263 of the Act dated 09.12.2024 is quashed, and the assessment order dated 20.02.2024 passed by the AO u/s.143(3) read with section 254 of the Act is restored. 61. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 11th February, 2026 at Chennai. Sd/- Sd/- (मनु क ुमार ग\u0019र) (MANU KUMAR GIRI) \u000eया\u001aयक सद य/Judicial Member (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) लेखा सद य/Accountant Member चे\u000eनई/Chennai, .दनांक/Dated, the 11th February, 2026 SP आदेश क) '\u001aत0ल1प अ2े1षत/Copy to: 1. अपीलाथ&/Appellant 2. '(यथ&/Respondent 3.आयकर आयु3त/CIT– Chennai/Coimbatore/Madurai/Salem 4. 1वभागीय '\u001aत\u001aन ध/DR 5. गाड$ फाईल/GF Printed from counselvise.com "