TMI Blog2017 (6) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... ed against revenue Addition invoking provisions of Section 40A(3) - Held that:- See Anupam Tele Services vs. ITO [2014 (2) TMI 30 - GUJARAT HIGH COURT] as held rigors of section 40A(3) of the Act must be lifted. - if the assessee had not made cash payment and relied on cheque payments alone, it would have received the recharge vouchers delayed by 4/5 days and thereby severely affecting its business operations. - Decided against revenue - ITA No.1588/Ahd/2013, And Cross Objection No.199/Ahd/2013 - - - Dated:- 29-5-2017 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER For The Assessee : Shri P.S. Choudhary, Sr. DR For The Revenue : Shri Sakar Sharma, AR ORDER PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : This appeal has been filed by the Department and the Crossobjection thereof filed by the assessee are directed against the order of the Commissioner of Income Tax(Appeals)-XIV, Ahmedabad, dated 22/03/2013 for the Assessment Year (AY) 2009-10. Department has taken following grounds of appeal: 1a). The learned Commissioner of Income-tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g enclosed and further stated on identical facts ITAT- Vishakhapatnam in the case of Sasisri Extractions Ltd. Vs. CIT122 ITD 428 (VSK) hence held that subsidy of this nature would fall in the category of capital receipt. 3 . Further stated that assessee received capital subsidy of ₹ 15,00,000/- under CLCSS through disbursing agency and salient features of scheme as available with the assessee were as under: CLCSS: The Ministry of Micro Small Enterprises is operating a scheme for technology up gradation of MSE units, called the Credit Linked Capital Subsidy Scheme. Objective: The objective of the scheme is to facilitate technology up gradation of micro and small enterprises in the 45 specified products / sub-sectors by providing capital subsidy for induction of proven technologies approved under the scheme. Duration of the Scheme: Initially, the scheme was to be in operation for 5 years (Oct 1, 2000 to Sept 30, 2005) or till the time sanctions of capital subsidy by the nodal agency reach ₹ 600 crore (whichever earlier). It provided for 12% capital subsidy, on institutional finance availed of by MSE unit. Further, the eligible a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al agencies, i.e., the Small Industries Development Bank of India (SIDBI) and National Bank for Agriculture and Rural Development (NABARD). Other conditions for loans i) Promoters contribution, security, debt-equity ratio, up-front fee, etc. will be determined by the lending agency as per its existing norms. ii) Units availing subsidy under the CLCSS shall not avail any other subsidy for technology up gradation from the Central/State/UT Government. However, cases covered under National Equity Fund (NEF) Scheme, which are otherwise eligible under the CLCSS, can also be covered under this scheme. iii). Units in the North-Eastern Region which are availing financial incentives/subsidy under any other scheme from the Government in the Region would, however, be eligible for subsidy under the CLCSS. iv). One of the main requirements for sanction of assistance under the technology upgradation scheme will be availability of competent management in the unit concerned to carry out the upgradation programme and to manage the operation of the unit efficiently. Towards this end, the lending agencies may stipulate conditions as may be considered necessary. Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. Since the subsidy against the principal amount of loan taken against the plant and machinery, had resulted into reduction of WDV of the assets (Plant Machinery against which the loan was utilized), the depreciation pertaining to corresponding assets acquired from such loan and claimed as expenditure during the year was to be reduced to that extent. Accordingly, the depreciation @ 15% 7 on plant machinery amounting to ₹ 15,00,000/- (against which subsidy received) which comes to ₹ 2,25,000/- is disallowed and added to the total income of the assessee Hence, the assessee is not eligible for depreciation amounting to ₹ 2,25,000/- claimed against plant machinery against which capital subsidy was received. Thus, depreciation of ₹ 2,25,000/- is disallowed and added to the total income of the assessee. Penalty u/s. 271(1) (c) of the IT. Act is being initiated separately. Disallowance u/s.40A(3) From the perusal of the tax au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 20,000. In view of the above remarks of the auditors, the circumstances mentioned in the report with regard to rule 6DD (g) is not at all found justified. Thus, the assessee has violated the provisions of section 40A (3) of the IT. Act and not fulfilled the eligibility conditions mentioned in rule 6DD (g) of the IT. Rules. The provisions of section 40A(3)and Rule 6DD (g) are reproduced below: 40A Expenses or payments not deductible in certain circumstances (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. Rule 6DD (g) Where the payment is made in a village or a town, which on the date of such payment is not served by any bank, to any person who ordinarily reside, or is carrying on any business, profession or vocation, in any such village or town Accordingly, the A.R. of the assessee was asked vide order sheet entry dated 16/11/2011 to submit the evidences for eligibility of benefit of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides in the said village and who do not have any bank account anywhere and who were not accepting payment from the assessee otherwise than in cash. In view of the above, the assessee had not furnished evidence with regard to fulfillment of conditions in Rule 6DD (g) read with section 40 A (3) of the IT Act, the entire amount of Rs. 32,73,544/- is disallowed u/s. 40A (3) of the Act and added to the total income of the assessee. Disallowance of Professional Tax - ₹ 3,900/- During the course of scrutiny, the assessee was asked to furnish the details of professional tax. In response, the assessee filed a reply dated 08/11/2011 in which it is noticed that the payment was not made within the due date of filing of return of income u/s. 139(1) of the Act. It was paid on 09/10/2010 whereas the date of filing of return u/s. 139(1) was 30/09/2009. Therefore, the payment of professional tax of Rs.3,900/- is disallowed u/s. 43B of the IT Act and added back to the total income of the assessee. Disallowance of Capital expenditure of electricity connection-Rs.63,750/- From perusal of the details filed by the assessee, it was noticed that the assessee debited a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009-10: A.Y. 2002-03 ₹ 17,93,015/- A.Y. 2003-04 ₹ 29,47,847/- The assessee was asked to furnish the copy of return and the evidences in support of claim of depreciation. In response, the assessee filed acknowledgement copy of return for A.Y. 2002-03 which shows that the assessee was eligible for depreciation loss of Rs.5,97,291/- for that asst. year only instead of claim of ₹ 17,93,015/-. However, the claim of depreciation with regard to assessment year 2003-04 at Rs.29,47,847/- is found in accordance with the Auditors report. Accordingly, set off of unabsorbed depreciation of assessment year 2002-03 and 2003-04 is given on the basis of above verification only and not statement given by the auditors as stated above. 4. Against the said order assessee preferred first statutory appeal before the learned CIT(A). In this case, learned CIT(A) allowed the appeal of the assessee. 5. Now Department is before us. 6. We have gone through the relevant record and impugned order. In this case, learned AR stated that appellant submitted a copy of the Vishakhapatnam Bench in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Andhra Pradesh State Government provides subsidy calculated at 20 per cent, of the fixed capital investment and thus it was clearly linked to the fixed capital cost of the assessee. Therefore, it is nothing but reimbursement of part of the capital investment in which event, it affects the actual cost of the fixed assets on which the eligible depreciation was claimed under section 32 of the Act. The Assessing Officer thereupon considered the provisions of section 43(1) of the Act and Explanation 10 thereto (inserted with effect from April 1,1999) to conclude that an investment subsidy calculated at a percentage of the fixed capital investment has to necessarily be reduced from the cost of the assets for the purpose of granting depreciation on such assets. It may be noticed that the assessee relied upon the following decisions in support of his contention that the impugned subsidy is not directly or indirectly connected to the assets and in the absence of clear mention that the subsidy was given to meet a portion of the cost of the asset, the same need not be considered for inclusion of actual cost of the assets. CIT v. Godavari Plywoods Ltd. [1987] 168 ITR 632 (AP); and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved, the assessee is in appeal before us. Learned counsel appearing on behalf of the assessee filed a paper book containing sixty pages and by adverting our attention to pages 12, 18, 35, 46 and 47 of the paper book it was submitted that the scheme under which subsidy was granted to the assessee does not indicate that it was specifically meant to offset the cost of the capital assets purchased by the assessee. On the other hand, the scheme under which the assessee was granted subsidy and the schemes which were considered by the Supreme Court as well as the Andhra Pradesh High Court in the cases cited supra were identical and the main purpose under both the schemes was to give a fillip to the entrepreneurs who establish new industrial units in eligible notified areas and for the purpose of working out the amount of subsidy to be given fixed capital investment was considered, but the fact remains that there is an outer ceiling of ₹ 20,00,000/- irrespective of the capital investment which only goes to show that the subsidy was not meant to offset the cost of the assets. He has adverted our attention to pages 35 to 37 of the paper book, i.e., abstract of the Target 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended either directly or indirectly to meet the 'actual cost'. Learned counsel, therefore, submitted that even after introduction of Explanation 10 to section 43(1) of the Act there is no change in the basic concept and the first test to be satisfied is that portion of the cost of the asset should be met either directly or indirectly by an authority either in the form of a subsidy or otherwise. So long as the subsidy was intended to encourage entrepreneurs to establish industries, the mere fact that a specified percentage of the fixed capital cost was taken as the basis for determining the subsidy should not be mistaken as a payment intended to subsidise the cost of capital of the new industry. He thus strongly relied upon the afore- cited decisions. On the other hand, the learned Departmental representative relied upon the orders of the tax authorities and submitted that Target 2000 scheme is a different concept from the schemes considered by the apex court in the case of P.J. Chemicals Ltd. [1994] 210 ITR 830 and the Andhra Pradesh High Court in the case of Godavari Plywoods Ltd. [1987] 168 ITR 632. In the afore-cited decisions, the intention of the Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment. Therefore, this Ground of the Department is dismissed. So far as disallowance of ₹ 32,73,544/- was made on account of transport payments, by invoking provisions of Section 40A(3) of the Act, read with Rule. 6DD(g) are concerned. 8. Learned AR filed relevant portion of the judgment of Jurisdictional High Court [2014] 366 ITR 122 (Gujarat), in the case of Anupam Tele Services vs. ITO: Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limits (Rule 6DD(j)) -Assessment year 2006-07 - Assessee was working as an agent of Tata Tele Services Limited for distributing mobile cards and recharge vouchers - Principal company Tata insisted that cheque payment from assessee's co-operative bank would not do, since realization took longer time and such payments should be made only in cash in their bank account - If assessee would not make cash payment and make cheque payments alone, it would have received recharge vouchers delayed by 4/5 days which would severely affect its business operation - Assessee, therefore, made cash payment - Whether in view of above, no disal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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