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Kaira Dist. Cooperative Mil Producers’ Union Ltd. Versus The DCIT/ACIT Anand Circle Anand

2015 (6) TMI 517 - ITAT AHMEDABAD

Entitlement to claim depreciation on portion of plant and machinery received towards grant/subsidy from National Dairy Development Board under "70% loan and 30% grant" scheme - whether 30% grant has been received towards the project as a whole and hence, it is entitled to depreciation on the entire cost of assets installed and put to use without deducting the grant portion? - Held that:- In the light of the judgement of Mahesana District Co-operative Milk Producers Union Ltd. vs. CIT (1999 (12) .....

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the case in hand, undisputedly the assessee has made contribution for research, therefore such payments would fall under section 35 of the Act and for claiming deduction u/s.35 of the Act, the Association is required approved in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed. No material is placed on record that the Association is approved in the manner prescribed. Under these facts, we do not see any infirmity in the order of ld.CIT(A),same is .....

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the said Section. The words “do not form part of the total income under this Act” is significant and important. As noticed above, before allowing deduction under Chapter VIA we have to compute the income and include the same in the total income. In this manner, the income which qualifies for deductions under Sections 80C to 80U has to be first included in the total income of the assessee. It, therefore, becomes part of the income, which is subjected to tax. Thereafter, deduction is to be allowed .....

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T vs. Banaskantha Dist.Co-op.Milk Producers’ Union Ltd.( 2014 (5) TMI 12 - GUJARAT HIGH COURT ), we hereby direct the AO to delete the disallowance. - Decided in favour of assessee. - ITA NO.563/Ahd/2011,ITA NO.564/Ahd/2011,ITA NO.565/Ahd/2011,ITA NO.566/Ahd/2011,ITA NO.567/Ahd/2011,ITA NO.651/Ahd/2011,ITA NO.652/Ahd/2011 - Dated:- 5-6-2015 - Shri N.S. Saini and Shri Kul Bharat,JJ. For the Petitioner: Shri J.P. Shah, Adv. & Shri Sanjay R.Shah, CA, ARs For the Respondent: Shri Roopchand, Sr .....

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r for the sake of convenience. 2. First, we take up the assessee s appeal in ITA No.563/Ahd/2011, wherein following grounds have been raised:- Your appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & facts. It is s .....

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g the grant portion. It is submitted that it be so allowed now. (ii) The learned CIT (A) erred in law and on facts in holding that Explanation 10 to section 43(1) of the Act would apply in respect of assets acquired prior to 1-4-99 and also in respect of grants received prior to 1-4-99 and thereby would apply from assessment year 1999- 00 irrespective of the year of acquisition of assets or year of disbursement of grant. The learned CIT(A) thus erred in denying benefit of depreciation in respect .....

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iation on WDV of assets which have already entered the block in the assessment years prior to Assessment Year 1999-2000. It is submitted that it be so held now and depreciation as claimed by the appellant be allowed. 3. (i) The learned CIT(Appeals) erred in law and on facts in confirming disallowance of ₹ 2,50,00,000/- being contribution to ARDA (Anand Research Development Association) for Dairy Development/Research expenses on the ground that the same is not allowable as business expendit .....

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ppellant. It is submitted that it be so held now and contribution made to ARDA as claimed as deduction by the appellant be allowed. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal. 2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as the Act ) was framed vide order dated 24/03/2005. While framing the .....

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Against this, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions of the assessee, partly allowed the appeal. While partly allowing the appeal, the ld.CIT(A) confirmed the disallowance of claim of depreciation of portion of plant and machinery received through grant subsidy amounting to ₹ 3,00,06,370/- and also confirmed the disallowance of contribution of ₹ 2,50,00,000/-. Against these two additions, the assessee has preferred the present appeal. .....

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unsel for the assessee reiterated the submissions as were made before the ld.CIT(A). The ld.counsel for the assessee submitted that the disallowance has been made on certain assumptions and presumptions. He submitted that the AO was not justified in reducing the claim of depreciation on grant portion. He submitted that 30% grant has been received from National Dairy Development Board (NDDB) and 70% loan and that too prior to 1st April01999, i.e. prior to insertion of Explanation 10 to Section 43 .....

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e.f. 01/04/1999. The amendment is prospective in nature and the same applies to investment made on plant and machinery and other depreciable assets after 01/04/1999. He submitted that in view of the judgement of Hon ble Kerala High Court in the case of CIT vs. Sun Fibre Optics (P.) Ltd., ground raised in the appeal deserves to be allowed. 4.1. On the contrary, ld.Sr.DR supported the orders of the authorities below and submitted that under the identical facts, this Tribunal (ITAT A Bench Ahmedaba .....

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and facts of the case. Appellant s contention at Sr.No.(v) is taken up first. Doctrine of resjudicata or estoppels by record does not apply to decisions given by ITO over different assessment year and the decision in one assessment year does not affect or bind decision for another year [New Jahangir Vakil Mills Co. Ltd. (1963) 49 ITR 137 (SC)]. Decision given in earlier year has no binding force in next assessment [H. A. Shah & Co. (1956) 30 ITR 618]. Moreover, law was amended by Finance Act .....

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t of depreciation allowed/allowable till then. In appellant's case, the assets in question were not acquired by way of gift or inheritance. As such, there is no application of Explanation 2 to section 43(1). 5.2.2. Appellant's contention at Sr.No.(i) is now taken up. As far asallowance of depreciation on grant portion in assessment years prior to A. Y. 1999-2000 is concerned, since Explanation 10 was inserted w.e.f, 1.4.1999, position in law was different for earlier assessment years and .....

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to its decision in GCMMF's case for A.Yrs. 1997-98 and 1998-99 only, without going into the issue about different position in law due to insertion of Explanation 10 to section 43(1) w.e.f. 1.4.1999. The matter was brought to Tribunal's notice; however, it only referred to its decisions in A.Yrs. 1998-99 and 1997-98. where the observation of ITAT regarding Explanation 10 to section 43(1) was that it was not relevant for A.Yrs. 1997-98 and 1998-99 due to its insertion w.e.f. 1.4.1999. Even .....

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A.Y.2000- 01; however, as mentioned above, in A.Y.2000-01, the issue regarding insertion of Explanation 10 below section 43(1) was not considered by the Hon'ble Tribunal, which decided the issue by following its decisions in A.Yrs. 1997-98 and 1998-99 only. Appellant's contention at Sr.No.(i) is therefore, not tenable. It cannot be said that the issue in this year is covered by the decisions relied upon by the appellant. 5.2.3. Appellant's contention at Sr.No.(iv) is now taken up. T .....

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llant. In appellant's case, the grant was received for establishing the said dairies/bread spread project and not to accelerate industrial development of State as was the case in P. 3. Chemicals Ltd./Sasisri Extractions Ltd. In appellant's case, grant was received to offset the cost of assets only. Decision in case of Sasisri Extractions Ltd. is therefore not applicable. As far as appellant's contention about ,the grant being towards project as a whole is concerned, the grant in appe .....

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act of Explanation 10 to section 43(1) and has followed its decisions for earlier years, when Explanation 10 was not on the statute book. Regarding view that Assessing Officer has to allow depreciation on WDV brought forward from earlier assessment year, the Supreme Court in case of Saharanpur Electric Supply Co. Ltd. held as under: ".....the phraseology of the Act does not bear out the contention that the actual cost of asset has to be determined only once viz., in the previous year of its .....

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is for the Assessing Officer to determine its actual cost. This is a mandatory step which the officer cannot be prevented from taking merely because the actual cost of the asset has already been determined in one or more earlier years". Further, Explanation 10 reads as under: "Explanation 10: Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or any authority established under any law or by any other person in .....

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for A.Y. 1999-2000 onwards, Explanation 10 is to be applied irrespective of the year of acquisition of assets as well as year of disbursement of grant. For this purpose, WDV of assets on the first day of previous year is to be accordingly recomputed by reducing grant component from "actual cost". Appellant's contention at Sr.No.(iii) is therefore, not acceptable. 5.2.5. All the contentions of the appellant have therefore, been considered and found to be not acceptable. Disallowance .....

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established under any law or by any other person in the form of subsidy or grant or reimbursement (by whatsoever 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 the submission of the assessee that this Explanation would apply to the assets which are acquired post-insertion of this Explanation. 5.2. The issue which requires examination is whether the assessee is entitled f .....

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rom NDDB under 70% Loan and 30% Grant Scheme? . The Hon ble Court answered the above question in para-3 of the judgement as under:- 3. Moreover, it is an accepted position between the parties that the controversy involved in the present case stands concluded by a decision of this High Court in the case of Mahesana District Cooperative Milk Producers Union Ltd. vs. Commissioner of Income Tax, (2002) 258 ITR 780, whereby the question has been answered in favour of assessee and against the revenue. .....

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areas and establish industries. The specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly to meet any portion of the "actual cost". The expression "actual cost" in s. 43(1) of the Act needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility .....

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t portion of which is reproduced hereunder : "Indian Dairy Corporation had imported the machinery in question and supplied the same to the appellant under loan-cumgrant assistance scheme. To the extent to which the cost of the machinery was covered by the grant, it amounts to the cost being met directly or indirectly by any other person or authority and, therefore, the value of such grant is rightly reduced by the ITO from the actual cost of the machinery in question while allowing the depr .....

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oordinate Bench (ITAT A Bench Ahmedabad) passed in ITA No.1372/Ahd/2010 for AY 2005-06 in the case of Vidya Dairy vs. ACIT, dated 12/07/2013, wherein the Coordinate Bench has decided this issue in para-8 by observing as under:- 8. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the Assessee had received grant from NDDB prior to 1995 but the agreement was executed between the Assessee and NDDB on 21.7.1999. The Assessee has not worked out the .....

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the assessee has been met directly or indirectly by the Central Government or any other 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". Perusal of aforesaid Explanation it can be seen it has been introduced with effect from 1.4.1999. Further it doe .....

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st of the asset. Further the decision in the case of A.P. Shrimp Seed Production Supply and Research Centre (supra) which has been relied by Assessee is distinguishable and not applicable to the facts of the present case because in that case the assessment year in question was 1991-92 whereas in the present case the assessment year is 2005-06. Considering the aforesaid facts, we are of the view that no interference is called for to the order of CIT(A) and thus this ground of Assessee is dismisse .....

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itten down value for the assessment year 2002-03. The main reasoning of the Tribunal is that the provision for reduction of subsidy from cost of machinery was introduced by the above amendment only with effect from 01/04/1999 and so much so, it does not apply to investments made any time prior to that which in this case is before 31/03/1998. Since the Tribunal allowed assessee's appeal, the Department filed this appeal before us challenging the findings of the Tribunal 5. After hearing both .....

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other depreciable assets after 01/04/1999. So much so, we uphold the order of the Tribunal and dismiss the appeal on this issue. Therefore, in the light of the judgement of Hon ble Gujarat High Court in the case of Mahesana District Co-operative Milk Producers Union Ltd. vs. CIT(supra) and the judgement of Kerala High Court in the case of CIT vs. Sun Fibre Optics (P.) Ltd.(supra), we are of the considered view that the authorities below were not justified in excluding the grant portion of the am .....

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iation (ARDA). He submitted that the ld.CIT(A) disallowed the claim by observing that the contribution to ARDA falls u/s.35(1)(ii) of the Act and, therefore, the same cannot be claimed u/s.37 of the Act. He submitted that the ld.CIT(A) grossly erred in observing that unless ARDA is approved and notified for the purpose of section 35(1)(ii), the expenditure is not admissible. The ld.counsel for the assessee submitted that the expenditure is incurred for the business purpose of the assessee. The c .....

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the Act, the assessee is required to demonstrate that the expenditure is not of the nature described in sections 30 to 36 of the Act and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expanded wholly and exclusively for the purpose of business or profession. He submitted that in the case in hand, the assessee has made contribution to an organization falls under section 35(1) of the Act. However, the ld.CIT(A) did not allow the deduction as condit .....

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of research and development related to cattle-feed,etc. It is also not disputed that the contribution is as per bye-laws of the assessee. The contention of the ld.counsel for the assessee is that the contribution being made for the business purposes and for commercial expediency, such expenditure is required should be allowed as a business expenditure. The ld.CIT(A) did not allow the claim by observing as under:- 8.2. I have considered facts of the case and appellant's submissions. At the ti .....

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the decisions cited on behalf of assessees are not X being discussed by us as they deal with cases falling under 37. That section is a residuary section. Under section 37, a particular item of expenditure may be deductible if the expenditure does not fall within .sections 30 to 36...... Hence we do not wish to express any opinion on applicability of section 37(1)". The Supreme Court declined to entertain assessee's request to claim deduction u/s.37(l) on the ground that even if expendit .....

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claimed u/s.37. Appellant has not made the claim u/s.35. In any case, claim u/s.35(1)(ii) would not be admissible, unless ARDA is approved and notified for the purpose of section 35(1)(ii). Decisions relied upon by the appellant are now taken up. These are all on the issue of expenses being incurred wholly and exclusively for the purpose of business, even if other parties too benefit from incurring of expenditure. These decisions are all in the context of section 37 and would not be applicable .....

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ction would not have been admissible u/s.35 also due to conditions under that section being not satisfied. To sum up, disallowance of ₹ 2,50,00,000/- is confirmed. 7.1. There is no dispute with regard to the fact that the section 37 is a residuary section with regard to availability of expenditure under the head business or profession . For the purpose of availing the deduction u/s.37 of the Act, the assessee is required to demonstrate that the expenditure is not in the nature described un .....

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gh the claim has not been made u/s.35, the deduction would not have been available to the assessee u/s.35 also due to the conditions u/s.35 is being not satisfied. The ld.counsel for the assessee argued at length to buttress the contention that the expenditure is essentially in the nature of business expenditure and would meet the condition as prescribed u/s.37 of the Act. The ld.CIT(A) denied the deduction on the basis that the expense in question in the instant case being contribution to ARDA, .....

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r expended before the commencement of the business (not being expenditure laid out or expended before the 1st day of April, 1973), on payment of any salary [as defined in Explanation 2 below sub-section (5) of section 40A] to an employee engaged in such scientific research, or on the purchase of materials used in such scientific research, the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall, to the extent it .....

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llege or other institution for the purposes of this clause- (A) is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and (B) such association, university, college or other institution is specified as such, by notification in the Official Gazette, by the Central Government;] 7.2. In the case in hand, undisputedly the assessee has made contribution for research, therefore such payments would fall under section 35 of t .....

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for AY 2002-03 partly allowed. 9. Now, we take up the assessee s appeal in ITA No.564/Ahd/2011 for AY 2004-05, wherein following grounds have been taken:- Your appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & f .....

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hout deducting the grant portion. It is submitted that it be so allowed now. (ii) The learned CIT (A) erred in law and on facts in holding that Explanation 10 to section 43(1) of the Act would apply in respect of assets acquired prior to 1-4-99 and also in respect of grants received prior to 1- 4-99 and thereby would apply from assessment year 1999-00 irrespective of the year of acquisition of assets or year of disbursement of grant. The learned CIT(A) thus erred in denying benefit of depreciati .....

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aiming depreciation on WDV of assets which have already entered the block in the assessment years prior to Assessment Year 1999-2000. It is submitted that it be so held now and depreciation as claimed by the appellant be allowed. 3. (i) The learned CIT(Appeals) erred in law and on facts in confirming disallowance of ₹ 3,50,00,000/- being contribution to ARDA (Anand Research Development Association) for Dairy Development/Research expenses on the ground that the same is not allowable as busi .....

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ness of the appellant. It is submitted that it be so held now and contribution made to ARDA as claimed as deduction by the appellant be allowed. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal. 9.1. First ground of the appeal is general in nature and needs no independent adjudication. 9.2. Parties have adopted their arguments as were raised in ITA No.563/Ahd/2011 for AY 2002-03. Since the grounds and facts are identical to th .....

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he learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & facts. It is submitted that it be so held now. 2.(i) The learned CIT(A) erred in confirming the disallowance of the claim of depreciation of ₹ 1,36,14,060/- on portion of plant and machinery received towards gra .....

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ets acquired prior to 1-4-99 and also in respect of grants received prior to 1- 4-99 and thereby would apply from assessment year 1999-00 irrespective of the year of acquisition of assets or year of disbursement of grant. The learned CIT(A) thus erred in denying benefit of depreciation in respect of value of grant/subsidy in respect of assets acquired prior to A.Y. 1999-00 even though in respect of these very assets full depreciation is allowed in earlier years without deducting value of grant f .....

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t be allowed. 3. (i) The learned CIT(Appeals) erred in law and on facts in confirming disallowance of ₹ 3,50,00,000/- being contribution to ARDA (Anand Research Development Association) for Dairy Development/Research expenses on the ground that the same is not allowable as business expenditure, even though according to appellant such claim is allowable u/s 37 of the Act. (ii) The learned AO grossly erred in applying observations of Hon'ble Supreme Court in case of Sarvanna Spinning Mil .....

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disallowance of disallowance of ₹ 10,56,741/- being amount paid to Anandalaya Education Society, Anand towards contribution for education fees for children of the employees from the General Reserve Fund. (ii) The action of learned CIT(A) in holding that school fee is the part of perquisite and required deduction of tax at source is patently incorrect and unjustified. It is submitted that it be so held now and depreciation as claimed by the appellant be allowed. Your appellant prays for lea .....

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Nos.2(i) to 2(iii) of assessee s appeal are allowed and ground Nos.3(i) to 3(iii) of assessee s appeal are rejected. 10.3. Apropos to ground No.4, the ld.counsel for the assessee submitted that the authorities below were not justified in disallowing the amount of ₹ 10,56,741/- paid to Anandalaya Education Society, Anand towards contribution for education fees for children of the employees from the General Reserve Fund. The ld.counsel for the assessee placed reliance on the decision of this .....

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(A) has given a finding on fact in para-8.2 of his order, as under:- 8.2. I have considered the matter. Deduction in question of ₹ 10,56,741/- was claimed separately in the computation of income filed with the return of income. The said amount of ₹ 10,56,741/- was not debited to the profit and loss account as also clear from Note No.8 to the computation of income. During the year, the assessee has paid ₹ 10,56,741/- to Anandalaya Education Society, Anand towards contribution fo .....

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ut of general reserve is out of accumulated profits and is even otherwise not eligible for deduction as expense in A>Y. 2005-06. The decision relied upon by the appellant in the case of Institute of Rural Management Anand is on a different issue, i.e. whether bearing of part of school fees by the employer amounted to perquisite, thereby requiring deduction of tax at source. It is held that contribution of ₹ 10,56,741/- to Anandalaya Education Society is not allowable as deduction in A.Y .....

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wherein following grounds have been taken:- Your appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & facts. It is submitted that it be so held now. 2.(i) The learned CIT(A) erred in confirming the disallowance of .....

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w and on facts in holding that Explanation 10 to section 43(1) of the Act would apply in respect of assets acquired prior to 1-4-99 and also in respect of grants received prior to 1- 4-99 and thereby would apply from assessment year 1999-00 irrespective of the year of acquisition of assets or year of disbursement of grant. The learned CIT(A) thus erred in denying benefit of depreciation in respect of value of grant/subsidy in respect of assets acquired prior to A.Y. 1999-00 even though in respec .....

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ment Year 1999-2000. It is submitted that it be so held now and depreciation as claimed by the appellant be allowed. 3. (i) The learned CIT(Appeals) erred in law and on facts in confirming disallowance of ₹ 3,50,00,000/- being contribution to ARDA (Anand Research Development Association) for Dairy Development/Research expenses on the ground that the same is not allowable as business expenditure, even though according to appellant such claim is allowable u/s 37 of the Act. (ii) The learned .....

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on by the appellant be allowed. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal. 12.1. First ground of the appeal is general in nature and needs no independent adjudication. 12.2. Parties have adopted their arguments as were raised in ITA No.563/Ahd/2011 for AY 2002-03. Since the grounds and facts are identical to that of AY 2002-03 in assessee s own case(supra), for the same reasoning, for this year also ground Nos.2(i) to 2 .....

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following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & facts. It is submitted that it be so held now. 2.(i) The learned CIT(A) erred in confirming the disallowance of the claim of depreciation of ₹ 61,28,699/- on portion of plant and machinery received towards grant/subsidy from National Dairy Development Board under "70% loan and 30% grant" scheme. Your appel .....

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from assessment year 1999-00 irrespective of the year of acquisition of assets or year of disbursement of grant. The learned CIT(A) thus erred in denying benefit of depreciation in respect of value of grant/subsidy in respect of assets acquired prior to A.Y. 1999-00 even though in respect of these very assets full depreciation is allowed in earlier years without deducting value of grant from actual cost or WDV of assets. It is submitted that it be so held now. (iii) The action of learned CIT (A .....

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; 4,000,00,000/- being contribution to ARDA (Anand Research Development Association) for Dairy Development/Research expenses on the ground that the same is not allowable as business expenditure, even though according to appellant such claim is allowable u/s 37 of the Act. (ii) The learned AO grossly erred in applying observations of Hon'ble Supreme Court in case of Sarvanna Spinning Mills Pvt. Ltd. 293 ITR 201 which were in different context and on different facts. (iii) The action of learne .....

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he appellant by invoking provisions of Section 14A. (ii) The learned CIT(A) grossly erred in invoking provisions of section 14A in respect of dividend earned by the appellant which is not exempt but only deductible u/s.80P(2)(d). (iii) The learned Assessing Officer erred in fact and in law in invoking provisions of Rule 8D. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal. (iv) The learned Assessing Officer erred in fact and i .....

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round Nos.3(i) & 3(iii). Since the grounds and facts are identical to that of AY 2002-03 in assessee s own case(supra), for the same reasoning, for this year also ground Nos.2(i) to 2(iii) of assessee s appeal are allowed and ground Nos.3(i) to 3(iii) of assessee s appeal are rejected. 13.2. Apropos to ground No.4 of assessee s appeal is against disallowance of interest expenditure by invoking the provisions of section 14A of the Act. The ld.counsel for the assessee submitted that the author .....

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e find that the ld.CIT(A) has confirmed the addition by observing as under:- 5.2. I have considered appellant's submissions. Appellant's contention regarding non applicability of section 14A is first taken up. Although, the dividend income in question was included in gross total income, the same was excluded again from the total income, due to deduction u/s.80P(2)(d) of ₹ 70,40,970/-. In other words, dividend from cooperative societies was not included in appellant's total inco .....

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. In order to consider what is the total income of the assessee, effect has to be given to all the provisions of the Act including the deductions permissible under Chapter VI-A. It may be pertinent to mention that- the first step for computation of total income is to determine the income under various heads of income as specified under s. 14 of the Act. After working out the gross total income, deductions as permissible under Chapter VI are to be made which gives the total income. There is disti .....

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ome referred in s. 80P(2)(d) is included in the gross total income but once the said income is excluded by virtue of s.80P(2)(d) it no longer can be said to be included in the total income. Since deduction under s.80P(2)(d) is allowed to the assessee out of the gross total income, the income described in s.80P(2)(d) no longer is included in the total income notwithstanding the fact that the said income is included in the gross total income. Accordingly S.14A is applicable even in respect of the .....

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pril, 1962 are dearly attracted in this case. Therefore, deductions permissible to the assessee under s.80P(2)(d) is in respect of the net income after excluding the expenses attributable to the income referred to in- s. 80P(2)(d). In case some expenditure is indivisible, vis-a-vis other receipts of business, the same shall have to be apportioned between the various types of receipts and deduction under s.80P(2)(d) computed accordingly. Conclusion: Sec. 14A applies to deduction under s. 80P(2)(d .....

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ufacturing Co. Ltd., Mumbai vs. DCIT in ITA 626/10 and WP 758 of 2010, after considering ITAT's Special Bench decision in the case of Daga Capital Management Pvt. Ltd. held that Rule 8D would apply w.e.f. A.Y. 2008-09. However, the Court also held that even prior to A.Y.2008-09, when Rule 8D was not applicable, Assessing Officer has to enforce the provisions of sub-section 1 of section 14A and for that purpose, Assessing Officer is duty bound to determine expenditure incurred in relation to .....

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tion 2 of section 14A cannot be applied for the year under consideration are not acceptable in view of decision of Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. 5.2.2. The question to be examined now is whether any interest and other expenditure incurred by the appellant and charged against taxable income was in relation to dividend income claimed to be fully deductible u/s.80P and if yes, determination of such expenses on a reasonable basis. Appellant's contenti .....

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vestment/tax free incomes can only be proved by cash flow statements. Appellant has to explain that at particular movement of investment, it had sufficient interest free funds at its disposal". Appellant has not filed any cash flow statement and it is not established that at the time of making investment in cooperative societies, the funds used were exclusively out of interest free funds. Appellant has therefore, not been able to establish correctness of its claim that no interest expenditu .....

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interest expense of ₹ 7,05,14,000/- as incurred towards earning of dividend from cooperative societies. The same is to be disallowed u/s,14A. Further, since most of the investments were made by the appellant in earlier years, administrative and managerial expenses attributable to earning of exempt dividend income would not be much and the same are estimated at ₹ 25,000/- as against ₹ 2,16,513/- computed under Rule 8D. To sum up, disallowance of ₹ 21,54,714/- is directed t .....

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rcumstances of the case, the learned ITAT has erred in law in holding to the effect that the provisions of section 14A does not apply to income for which deduction under Chapter VI-A (section 80A to 80U) of the Income Tax Act is available? (iii) Whether the words 'income which does not form part of total income under this Act' used in section 14A of the Income Tax Act, 1961 include the income which is not chargeable to tax pursuant to provisions of Chapter VIA (section 80A to 80U) of the .....

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me, which does not form part of the total income as provided in sections 10 to 13A under Chapter III of the Act. Section 14A was introduced retrospectively with effect from 1.4.1962 by Finance Act, 2001, for the purpose of computing the total income under Chapter IV. And, any expenditure incurred by the assessee in relation to exempted income, for the purpose of computing the total income, while applying section 14A, no deduction shall be allowed. However, there is a clear absence of any referen .....

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ided under Chapter VIA. We notice that the investment in shares made by the assessee which earned him the dividend was from his own income. Moreover, from the very provision of section 14A, the same would have no application in respect of the income not being taxable on account of deduction under section 80P(2)(d). Both the authorities have rightly held that there is no application of section 14A as far as the deduction under section 80A to 80U under Chapter VIA of the Act are concerned. 8. We n .....

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Bench of this Court observed that broadly speaking the figure of total income is arrived at, as per the Act, in four stages. Firstly, the income of the resident assessee is computed by including all incomes, profits and gains arising in India or outside. Similarly income of resident but not ordinary resident or nonresident, are computed in accordance with Section 5 Chapter II, which forms the basis of Charge. Secondly, Chapter III with the heading Incomes not included in the total income , compr .....

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II and Chapter VIII and which had been substantial or partly replaced and were placed under Chapter VI-A. These were deductions which were reduced from the income computed in accordance with the earlier provisions/Chapters of the Act. These deductions were made in the computation of total income and, therefore, definition of gross total income , which was/is arrived at without reference to the deduction allowable under Chapter VI-A, was introduced. The deductions available under Chapter VI-A wer .....

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ould indicate an identifiable section, category or class of income rather than mere portion or amount of such income. The question raised should be whether this income was included and not whether any deduction was allowed . The use of the word part contemplates a type of income which by its very nature does not form part of the total income. The word includible supports that reference to the general nature and class of income rather than factual inclusion. (2) It is not the actual quantificatio .....

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, they form a part of the total income and do not get excluded merely because deduction is allowed. (3) The Legislature had enacted sections 80C to 80U in Chapter VI-A, as a measure of relief from taxable liability. It incorporates and allows deductions. The income from these sources was included in the income, but subjected to deduction. Qualification would vary from section to section. Further in some cases the deduction was full and in some cases it was partial but this was not material and i .....

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l Sections in Chapter VIA of the Act) is allowable as a deduction. There will be a fallacy in this argument. Even were partial or net amount is to be allowed as a deduction, the figure can be minus or in a loss. Logically, as a squiter, it will follow that in case the assessee has a negative/minus figure as per the computation made any of the provisions of Chapter VIA, the expenditure incurred cannot allowable under Section 37 of the Act, in view of Section 14A. The said position cannot be accep .....

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allowed has the effect that the income, on which deduction is allowed, ceases to be part of the total income. This is not the scheme, effect and purport of the Act. The expression income which does not form part of the total income refers to the nature, character or type of income and not the quantum. 34. Section 14A states that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not fo .....

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irst included in the total income of the assessee. It, therefore, becomes part of the income, which is subjected to tax. Thereafter, deduction is to be allowed in accordance with and subject to the fulfillment of the conditions of the respective provisions. This is also subject to Section 80AB and 80A(1) and (2). Chapter VIA does not postulate or state that the incomes which qualify for the said deduction will be excluded and not form part of the total income. They form part of the total income .....

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her a deduction once allowed has the effect that the income on which deduction ceases to be part of the total income. It has been uniformly and consistently held that in the absence of express language to the contrary, deduction if allowed does not mean that the said income ceases to be part of the total income. 36. In view of the aforesaid position, we answer the questions of law mentioned above in affirmative, i.e., against the appellant-Revenue and in favour of the respondent-assessee.In the .....

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the case of CIT vs. Banaskantha Dist.Co-op.Milk Producers Union Ltd.()supra), we hereby direct the AO to delete the disallowance. Thus, this ground of assessee s appeal is allowed. 13.8. Ina the result, the appeal of the assessee in ITA No.567/Ahd/2011 for AY 2007-08 is partly allowed. 14. Now, we take up the Revenue s appeals in ITA Nos.651 & 652/Ahd/2011 for AYs 2005-06 & 2006-07 respectively, wherein following common grounds have been taken:- 1. On the facts and in the circumstances .....

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