TMI Blog2015 (5) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that no expenses have been incurred to earn the said income - Held that:- The assessee company is engaged in the business of manufacturing and sale of cables and cable wires. The assessee company has held shares purchased in earlier periods as investment and now the AO has to find out that the shares held by the company has been purchased out of its own fund or out of loans taken by the assessee. In case, the AO wants to disallow the interest he has to establish the nexus that the loan taken on which interest payment is made is invested in purchase of shares, by virtue of which it has earned dividend. In term of the above, this issue in both the years is set aside to the file of AO. - Decided in favour of assessee for statistical purposes. Industrial Investment Promotion Assistance - CIT(Appeals) though holding that Industrial Investment Promotion Assistance allowed by the State Govt. is the nature of capital receipt but directing AO for reduce the same from the cost of Fixed Assets for the purpose of computing depreciation by applying the Explanation 10 of Sec. 43(1) - Held that:- The subsidy was received in terms of Madhya Pradesh Industrial Investment Promotion Assistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1906/Kol/2013 - - - Dated:- 27-2-2015 - Mahavir Singh, JM And Shamim Yahya, AM,JJ. For the Appellants : Shri J P Khaitan Sanjay Bhaumik, Advs For the Respondent : Shri Vijay Kumar, CIT-DR ORDER Per Shri Mahavir Singh,JM. The cross appeals being nos. 670 910/K/2013 by assessee and revenue are arising out of order of CIT(A)-VI, Kolkata in Appeal No. 210/CIT(A)/VI/R-6/2010-11/Kol dated 28.01.2013 and the cross appeals being nos. 1051 1906/K/2013 by assessee and revenue are arising out of order of CIT(A)-VI, Kolkata in Appeal No. 181/CIT(A)-VI/R-6/11-12 dated 28.03.2013. Assessments were framed by Addl./JCIT, Range-6, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for Assessment Years 2008- 09 and 2009-10 vide his separate orders dated 31.12.2010 and 15.12.2011 respectively. 2. The first common issue in these two appeals of assessee (ITA Nos.679 1051/K/2013) is as regards to allowance of balance 50% additional depreciation u/s 32(1)(ii) of the Act in respect of new plant and machinery, purchased and put to use for less than 180 days in the immediately preceding year. For the sake of brevity, we dispose of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stalled. 14. It is held that the additional depreciation claimed by the appellant is part of the claim/deduction filed in the statement of income in the return. Therefore, any extra claim which is not allowable as per law can be disallowed by the Assessing Officer. Action of the Assessing Officer is upheld. Therefore, it is held that the appellant is not entitled for depreciation of ₹ 4,17,51,970/- u/s. 32(1)(iia) in the assessment year 2008-09. This ground of appeal is dismissed. 15. However, in view of the rejection of assessee's ground for allowing additional depreciation as claimed, the Assessing Officer is directed to re-determine the written down value of fixed assets and allow normal depreciation accordingly and he will keep a note of this adjustment in the records till the issue is finally settled. Aggrieved, assessee is in appeals before us. 5. We have heard rival submissions and gone through facts and circumstances of the case. We find that this issue is covered by the decision of Coordinate Bench of ITAT A Bench, Kolkata in the case of ITA No. 683/K/2011, Birla Corporation Ltd. Vs. DCIT for AY 2007-08 dated 08.12.2014, wherein it has been held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the clause for the eligibility of the assessee to claim additional depreciation. When the assessee is eligible for depreciation @ 20%, in the absence of any specific provision, the AO cannot cut down the scope of deduction by referring to second proviso to section 32(1)(ii) of the Act. He also pointed out that even if there is any contradiction between sections 32(1)(iia) and second proviso to section 32(1)(ii), it has to be reconciled so as to give harmonious effect to the legislative intent. The benefits conferred on the assessee by way of incentive provision cannot be taken away by adopting an implied meaning to second proviso to section 32(1)(ii) of the Act. Since the second proviso to section 32(1)(ii) does not expressly prohibit the allowance of the balance 50% depreciation in the subsequent year, second proviso to section 32(1)(ii) shall not be interpreted to mean that it impliedly restrict the additional depreciation to be allowed in the subsequent assessment year. We are of the view that the assessee now is entitled for 50% additional depreciation, because in the year in which the machinery was first put to use the assessee claimed only 50% of additional depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd has put to use for the purpose of business less than 180 days, the deduction shall be restricted to 50% of the amount calculated at the prescribed rate. Therefore, if the machinery is put to use in any particular year, the assessee is entitled for 50% of the prescribed rate of additional depreciation. The Income-tax Act is silent about the allowance of the balance 10% additional depreciation in the subsequent year. Taking advantage of this position, the assessee now claims that the year in which the machinery was put to use the assessee is entitled for 50% additional depreciation since the machinery was put to use for less than 180 days and the balance 50% shall be allowed in the next year since the eligibility of the assessee for claiming 20% of the additional depreciation cannot be denied by invoking Second Proviso to section 32(1)(ii) of the Act. 17. The ld. senior counsel also relied on the decision of the Delhi Bench of this Tribunal in the case of DCIT vs. Cosmo Films Ltd. 139 ITD 628 (Del) and in the case of ACIT vs. SIL Investment Ltd. 148 TTJ 213 (Del). This issue was considered by the Delhi Bench of this Tribunal in the case of Cosmo Films Ltd. (supra), wherein con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year of acquisition but restricted for that year to 50% on account of usage./ The so earned incentive must be made available in the subsequent year. The overall deduction of depreciation u/s 32 shall definitely not exceed the total cost of machinery and plant. In view of this matter, we set aside the orders of the authorities below and direct to extend the benefit. We allow ground no.2 of the assessee's appeal. Since we have decided ground no.2 in favour of assessee, there is no need to decide the alternative claim raised in ground no.3. The same is dismissed. 18. In view of the above discussion and considering the orders of coordinate Benches, cited supra, we are of the considered view that the assessee is entitled for additional depreciation u/s. 32(1)(iia) of the Act in this assessment year also. We direct the AO accordingly. Since the issue is squarely covered by the decision of coordinate Bench, cited supra, we are of the considered view that the assessee is entitled for additional depreciation u/s. 32(1)(iia) of the Act in these assessment years also. We direct the AO accordingly. This issue of assessee's appeals is allowed. 6. The next common issue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/- as per Rule 8D read with section 14A is upheld. This ground of appeal is dismissed. Aggrieved, assessee came in appeal before us. 8. Before us Shri J. P. Khaitan, Sr. Advocate distinguished the case law referred by CIT(A) in of the case of Dhanuka Sons, supra. He particularly referred to para 9 of the judgment of Hon'ble Calcutta High Court, which reads as under: 9. In our opinion, the mere fact that those shares were old ones and not acquired recently is immaterial. It is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it is for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year, no interest is payable by the assessee for acquiring those old shares. In the absence of any such materials placed by the assessee, in our opinion, the authorities below rightly held that proporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of fixed assets for the purpose of computing depreciation in view of the Explanation-10 to Sec. 43(1) of the Act. The assessee is against exclusion of costs of the asset in term of Explanation 10 to Sec. 43(1) of the Act, whereas revenue is against treating the assistance as capital receipt. We take the facts from AY 2008-09 and decide the issue. For this, assessee has raised following ground No.3:- That on the facts and circumstances of the case, the learned CIT(Appeals) though holding that Industrial Investment Promotion Assistance of ₹ 2,61,93,863/- allowed by the State Govt. is the nature of capital receipt but erred in directing the Assessing Officer (AO) for reduce the same from the cost of Fixed Assets for the purpose of computing depreciation by applying the Explanation 10 of Sec. 43(1) of I.T. Act. Revenue has raised following ground No.1:- Whether on the facts and circumstances of the case, Ld. CIT(A)-VI Kolkata has erred in law in holding that subsidy received as Industrial Promotion Assistance be treated as capital receipts. 11. Brief facts are that the assessee is engaged in the business of manufacturing and sale of Cables and Cable wires. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court in the case of CIT vs. Ponni Sugars and chemicals Ltd. (2008) 306 ITR 392 (SC) and jurisdictional High Court decision in the case of CIT Vs. Rasoi Ltd. (2011) 335 ITR 438 (Cal) allowed the claim of the assessee being capital subsidy by observing in para 49 to 51 as under: 49. The object of the subsidy is to generate employment and encourage the setting up of industries in the backward area. The Hon'ble Supreme Court in the case of CIT v. Ponni Sugars Chemicals Ltd. [2008] 306 ITR 392 has held that the test of the character of the receipt of a subsidy in the hands of the assessee under a scheme has to be determined with respect to the purpose for which the subsidy is granted and further observed that in such cases, what has to be applied is the purpose test. The point of time at which the subsidy is paid is not relevant, the source is immaterial, while form of subsidy is material by holding as under:- The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision does not help the revenue in any way. (emphasis supplied) 21. On consideration of the entire materials on record, we, thus, uphold the view of the Tribunal below and dismiss the appeal by answering the first three questions in the affirmative and against the revenue and the last question in the negative and against the revenue. 51. I have considered the observations of the Assessing Officer in the assessment order and submissions of the appellant. Respectfully, following the judgment of the Hon'ble Jurisdictional High court in the case of CIT Vs. Rasoi Ltd. (supra), this ground of appeal is partly allowed and Industrial Promotion Assistance received by the appellant is considered as capital subsidy. It is held that the claim of Industrial Promotion Assistance (IPA) of the appellant is capital in nature. 13. But CIT(A) applied Explanation 10 to section 43(1) of the Act and directed the AO that subsidy amount be reduced from the actual cost of the fixed assets for calculating depreciation allowable under the Act. For this, he observed in para 53 to 55 as under: 52. The Assessing Officer is further directed that since, he has treated Industrial Promotion A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a subsidy or re-imbursement by whatever name called. 54. Therefore, following the judgement of the Hon'ble Jurisdictional High Court in the case of CIT vs. Rasoi Ltd. (supra), this ground of appeal has been partly allowed and Industrial Promotion Assistance (IPA) has been considered as capital subsidy, the issue of depreciation is to be considered accordingly as per Explanation 10 to Section 43. The provisions of Explanation 10 to Section 43 w.e.f. 01-04-1999 provides that actual cost means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority and further provides that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same 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. 55. The Hon'ble jurisdictional High Court has not consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and machinery, electrical establishments and pollution control devices and apparatus. (b) Industries having fixed capital investment of ₹ 25 crore and above were treated as mega projects. The assessee's fixed capital investment was in excess of ₹ 60 crore and as such its project qualified as a mega project. (c) The industrial investment promotion assistance to be wanted under the said Scheme was not to exceed the investment made in fixed capital assets and was to be wanted for the period specified depending upon the location of the unit and investment made. Such assistance was to be quantified on an annual basis as the amount equivalent to 75% of the amount deposited as commercial or central sales tax. The assistance amount was to be released in the next year in the commercial tax account of the unit by banker's cheque/demand draft. The assistance was not to be granted in respect of products not manufactured by the unit itself. (d) The unit was required to be approved by a financial institution or Bank. In case of selffinance, the project was required to be appraised by a financial institution and the financial provision had to be satisfactory. (e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to March 28, 2014. Such assistance was not to exceed the amount of fixed capital investment of ₹ 60. 25 crore (sanction letter and certificate of registration at Pp 84 and 87 of the Paper Book). (ii) Exemption from entry tax for a period of five years from December 9, 2006 to December 8, 2011 in respect of specified raw materials, incidental goods and packing materials (Certificate of eligibility at page 103 of the Paper Book). Sh Khaithan relied on the judgement of Hon'ble Supreme Court in CIT v Ponni Sugars Chemicals Ltd. (2008) 306 ITR 392 (SC), wherein it is held that the basic test to be applied in judging the character of a subsidy was the purpose for which the subsidy was given. It was held that the point of time at which the subsidy was paid was not relevant. The form of the subsidy or the source thereof was also immaterial. If the object of the subsidy scheme was to enable the assessee to run the business more profitably, then the receipt was on revenue account. If the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the object of the said Scheme was clearly to enable the setting up of a new unit or expansion of an existing unit and the assistance was, therefore, on capital account. The extent of assistance and the period for which it was to be granted was linked to the fixed capital investment. Projects with investments of ₹ 25 crore and above were classified as mega projects. The unit to which the assistance was granted had to be engaged in manufacturing operations and such operations were to be carried out during the entire period of grant of assistance and for five years thereafter. He further explained that assessee's project involved fixed capital investment of more than ₹ 60 crore and use of new technology for the first time in India, it was accorded the status of a mega project of special importance by the Apex Level Empowered Committee for Industrial Investment Promotion constituted under (the chairmanship of the Chief Minister of the State of Madhya Pradesh). Hence, he narrated that this Industrial Investment Promotion Assistance is in no way related to, directly or indirectly, for acquiring the capital asset and explanation 10 to section 43(1) will not apply in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the status of a mega project of special importance by the Apex Level Empowered Committee for Industrial Investment Promotion constituted under the chairmanship of the Chief Minister of the State of Madhya Pradesh and the package sanctioned for it, inter alia, included Industrial investment promotion assistance equivalent to ....5% of the State and Central Sales Tax paid for every year for a period of seven years from March 29, 2007 to March 28, 2014 with a maximum cap of ₹ 60.25 crore. Industrial Investment Promotion A-,s sistance.: - An Industrial Investment Promotion Assistance, equivalent to 50% amount of Commercial Tax and Central Sales Tax (excluding Commercial Tax on the purchase of raw material) deposited by the unit in the preceding year would be given to the industry; having fixed capital investment between ₹ 1.00 crore to ₹ 10 crores. Provision for this purpose would be made in the departmental budget. This would be available for 3 years in advanced districts and for 5 years in the backward districts. Assistance will not be more than fixed capital investment. An industrial Investment Promotion Assistance equivalent to 75% amount of Commercial T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishing or expansion of a unit and not for the specific purpose of meeting a portion of the cost of the assets. The subsidy is not directly relatable to any capital assets and not for the specific purpose of meeting a portion of the cost of the assets but it is the overall investment to make it eligible for availing the benefit. In the present case before us, the total capital investment cost for this project was 61 Crores. The State Government after evaluation of the proposed project of the company, granted certain fiscal incentives including Industrial Investment Promotion Assistance (UP A) for a period of 7 years from the date of Commencement of Commercial Production subject to fulfilment of condition as regarding infusion of capital investment as committed by the Company. Since the Project of the Company was of special importance and located in a backward district of category 'A', the government accorded the assistance for a period of 7 years instead of normal eligibility period of 5 years. However the maximum ceiling of the assistance was equivalent to fixed capital investment only. As per the Scheme, the amount of assistance which is to be claimed on yearly basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 10 provided under sec.43(1) of the Act. The said Explanation provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It is further, provided thereunder, that where such subsidy or grant or reimbursement of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same 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. In order to invoke Explanation 10, it is necessary to show that the subsidy was directly or indirectly used for acquiring an asset. This is again a question of fact. The relatable subsidy to such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances, we are of the view that the incentive in the form of subsidy cannot be considered as a payment directly or indirectly to meet any portion of the actual cost and thus it falls outside the ken of Explanation 10 to section 43(1) of the Act. In the light of the above discussion, we are of the view that for the purpose of computing depreciation allowable to the assessee, the subsidy amount cannot be reduced from the actual cost of the capital asset. The Assessing Officer is directed accordingly. 19. In view of the above facts and circumstances of the case and legal position explained by Hon'ble Supreme Court in the case of P. J. Chemicals Ltd. (supra), we are of the view that subsidy receipt should not be reduced from the actual cost of fixed assets for computing depreciation under the provisions of the Act. Accordingly, this issue of revenue's appeal is dismissed and that of the assessee is allowed. 20. The next common issue in these appeals of assessee is in regard to the claim of entry tax treated by AO as revenue receipt and confirmed by CIT(A), whereas assessee has claimed the same as capital receipt. The facts and circumstances of both the years on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to override the provisions of the Income Tax Act, 1961. Both Acts i.e. The Industrial Promotion Policy 2004 was formulated by the State Government of Madhya Pradesh for the promotion of industry in the State and does not provide that it will override the provisions of the Income Tax Act, 1961 for income tax purposes and accounting of entry tax in the Income Tax Act, 1961. 74. The Hon'ble madras High Court has held that that the directions issued by Reserve Bank of India to provide for non-performing assets cannot override the mandatory provisions of the Income-tax Act contained in section 36(1)(viia). It observed in the order as under:- Further, the Commissioner (Appeals), on the facts of the case, found that merely because the Reserve Bank of India has directed the assessee to provide for non-performing assets, that direction cannot override the mandatory provisions of the Income-tax Act contained in section 36(1)(viia) which stipulate for deduction not exceeding 5 per cent, of the total income only in respect of the provision for bad and doubtful debts which are predominately revenue in nature or trade related and not for provision for non-performing assets which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e various judgements of the appellate authorities including of Hon'ble Apex Court. Hence, the claim of the assessee for deduction of ₹ 1,01,09,282/- is not allowed. This ground of appeal is dismissed. We find that even now before us, Ld. counsel for the assessee could not establish that how this is equivalent to the Industrial Investment Promotion Assistance, the scheme of Govt. of Madhya Pradesh. We find no infirmity in the order of CIT(A) and the same is confirmed. This common issue in both the years of assessee's appeals is dismissed. 22. The next common issue in these appeals of the assessee for AYs 2008-09 and 2009- 10 is against the order of CIT(A) in confirming the action of the Assessing Officer in respect of disallowance of provision for leave liability in terms of clause (f) of section 43B of the Act. For this, the assessee has raised the following ground No.5 in AY 2008-09: 1. That on the facts and circumstances of the case, the Ld. CIT(A) further erred in not holding that provision for leave encashment for ₹ 73,79,381/- is neither a statutory liability nor contingent liability and therefore not to be considered for the purpose of computing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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