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2015 (7) TMI 174 - ITAT AHMEDABAD

2015 (7) TMI 174 - ITAT AHMEDABAD - [2015] 42 ITR (Trib) 334 (ITAT [Ahm]) - Disallowance of claim of additional depreciation - CIT(A) deleted the addition - Held that:- On due consideration of the order of CIT(A)in the light of decision of CIT vs. VTM Ltd. (2009 (9) TMI 35 - MADRAS HIGH COURT ) and CIT vs. Hi Tech Arai Ltd. [2009 (9) TMI 60 - MADRAS HIGH COURT ] wherein held that additional depreciation on windmill will be admissible to the assessee. Thus we are of the view that ld. first appell .....

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ed in casting department where additional load of electricity is required. These fittings at the location attach moulding and casting at three places. Therefore, they are integral part of the machinery. We allow this ground of appeal and delete the disallowance. The ld. AO shall compute the depreciation admissible to the assessee @ 15% on these electrical fittings and fans. The moment they are treated as a part of plant the assessee will get additional depreciation also - Decided against revenue .....

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he hands of the company. If a company issues shares to the public or to the existing shareholders at lesser than otherwise prevailing premium due to market sentiments or otherwise such share receipts of a premium would be a case of receipt of lower amount on capital amount. Because the object of issuing such share at a lower price is nowhere directly connected with the earning of income but, when the company undertakes to issue shares to its employees at a discounted premium at a future date the .....

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f the assessee's claim.- Decided against revenue.

Additional depreciation on Mumbai Display Centre disallowed - Held that:- The AO has to compute the true written down value in this year in view of confirmation of additional depreciation in earlier year. We have duly considered the rival contentions and gone through the record carefully. If claim of depreciation in one year is being disallowed then that would enhance the written down value of the asset by the disallowed amount in the .....

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llant : Shri S N Soparkar, AR For the Respondent : Shri Roop Chand, Sr. DR ORDER Per Shri Rajpal Yadav, Judicial Member The assessee and Revenue are in cross appeals against the order of ld. CIT(A) dated 7/9/2011 passed for AY 2008-09. 2. First we take the appeal of Revenue. In the solitary substantial ground of appeal Revenue has pleaded that ld. CIT(A) has erred in deleting the addition of ₹ 1,29,17,418/- which was added by the AO by making disallowance out of claim of additional depreci .....

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91/- during the year. It had claimed additional depreciation on wind-mill at ₹ 1,29,17,418/-. The AO had issued a questionnaire on 11/10/2010 under section 142(1) and asked the explanation of the assessee, as to why additional depreciation should not be disallowed because assessee has not been manufacturing any article or things out of the wind-mill. According to the AO the wind-mill essentially generate power but no manufacturing activity can be construed from the wind-mill and, therefore .....

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inery or plant shall be allowed as a deduction under clause (ii). According to the AO generation of electricity through a windmill is not a manufacturing activity which gives rise to production of any article or things identifiable, therefore, the assessee is not entitled for additional depreciation. He disallowed the claim of assessee and made the addition. 4. On appeal ld. first appellate authority has allowed the claim of assessee by putting reliance upon the decisions of Hon'ble Madras H .....

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preciation on cost of windmill acquired. It is also held that the plant and machinery purchased need not be operationally used for manufacturing articles or things. Since the only objection of the assessing officer was that windmills generated electricity which is not articles or thing is no longer a relevant issue in the light of these decisions. From the facts narrated in the assessment order and in the appellant's submission, it is clear that appellant fulfilled all the conditions require .....

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in one year. Considering this appellant fulfills all the conditions required for claim of additional depreciation. Respectfully following the decision of Madras High Court relied upon by the appellant, assessing officer is directed to allow additional depreciation on windmill." 5. The ld. counsel for the assessee at the very outset submitted that the issue in dispute is squarely covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court rendered in the case .....

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c generator does not result into manufacture or production or article or thing, but it is used to generate electricity and that the basic criteria to get additional depreciation under clause (iia) of Section 32(1) of the Act is that the plant and machinery should be covered under clause (ii) of Section 32(1) of the Act, whereas wind electric generator is classified as per clause (i) of section 32(1) of the Act." After making a reference to the decisions of Hon'ble Madras High Court as r .....

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a windmill then depreciation will be admissible to such an assessee. The other conditions provided under section 32 ought to be fulfilled. On due consideration of the order of CIT(A) extracted (supra) in the light of decision of Hon'ble Gujarat High Court, we are of the view that ld. first appellate authority has appreciated the facts and circumstances of the case in right perspective and the issue in dispute is covered in favour of the assessee by the decision of Hon'ble Gujarat High C .....

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ation on fans, electrical installations at 10% instead of 15% admissible to plant and machinery. In brief ld. CIT(A) has erred in confirming the disallowance of ₹ 9,55,810/- which represents disallowance of ₹ 1,17,151/- on fan; ₹ 1,13,124/- on electric installation; and ₹ 7,25,535/- as an additional depreciation. The ld. AO has verified the claim of assessee and observed that in the schedule of depreciation, rates of depreciation are prescribed separately for each item. F .....

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hat the issue is covered in favour of the assessee by the decision of I.T.A.T. in the case of Madhu Industries Ltd. vs. Income-tax Officer, reported in 132 TTJ 233 (Ahd). He also relied upon the decisions of Hon'ble Gujarat High Court in the cases reported at 256 ITR 322 (Guj) and 151 ITR 75 (Guj). The question is, whether electrical fittings, fans in the case of assessee are integral part of plant or machinery or they are independent items. If they can function independently of plant and ma .....

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admissible at the same rate which is applicable in the case of plant and machinery. The AO in the impugned order has nowhere observed that these are not part and parcel of the plant and machinery. The assessee has pleaded that electric cables and fans are being installed in casting department where additional load of electricity is required. These fittings at the location attach moulding and casting at three places. Therefore, they are integral part of the machinery. We allow this ground of app .....

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the issue in dispute is squarely covered in favour of the assessee by the order of the Tribunal passed in AY 2007-08 wherein similar disallowance was deleted. The ld. counsel of the assessee further contended that the ITAT in AY 2007-08 has allowed the claim of assessee by following the order of ITAT (Spl. Bench) in the case of Biocon Ltd. vs. Dy. CIT 25 ITR (Trib) 602. 11. The ld. DR on the other hand was unable to controvert the contentions of the ld. counsel for the assessee. 12. Before the .....

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h to note - "9.2.4. In order to appreciate the rival submissions, it is of the utmost importance to understand the concept of ESOP. Section 2(15A) of the Indian Companies Act, 1956 defines "employee stock option" to mean 'the option given to the whole-time Directors, Officers or employees of a company, which gives such Directors, Officers or employees, the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a predetermined price .....

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g the vesting period as given in the scheme. On the completion of the vesting period in the service of the company, such options vest with the employees. The options are then exercised by the employees by making application to the employer for the issue of shares against the options vested in them. The gap between the completion of vesting period and the time for exercising the options is usually negligible. The company, on the exercise of option by the employees, allots shares to them who can t .....

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and as a quid pro quo it undertakes to compensate the employees with a certain amount given in the shape of discounted premium on the issue of shares. 9.2.5. The core of the arguments of the ld. DR in this regard is twofold. First, that it is not an expenditure in itself and secondly, it is a short capital receipt or at the most a sort of capital expenditure. In our considered opinion both the legs of this contention are legally unsustainable. 9.2.6. There is no doubt that the amount of share pr .....

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fair market value of the shares', then such excess share premium shall be charged to tax under the head 'Income from other sources'. But for that, the amount of share premium has always been understood and accepted as a capital receipt. If a company issues shares to the public or the existing shareholders at less than the otherwise prevailing premium due to market sentiment or otherwise, such short receipt of premium would be a case of a receipt of a lower amount on capital account. .....

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hen a company undertakes to issue shares to its employees at a discounted premium on a future date, the primary object of this exercise is not to raise share capital but to earn profit by securing the consistent and concentrated efforts of its dedicated employees during the vesting period. Such discount is construed, both by the employees and company, as nothing but a part of package of remuneration. In other words, such discounted premium on shares is a substitute to giving direct incentive in .....

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es to public, gives ₹ 60 as incentive to its employees, such incentive of ₹ 60 would be remuneration to employees and hence deductible. In the same way, if the company, instead, issues shares to its employees at a premium of ₹ 40, the discounted premium of ₹ 60, being the difference between ₹ 100 and ₹ 40, is again nothing but a different mode of awarding remuneration to employees for their continued services. In both the cases, the object is to compensate emp .....

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ny. By no stretch of imagination, we can describe such discount as either a short capital receipt or a capital expenditure. It is nothing but the employees cost incurred by the company. The substance of this transaction is disbursing compensation to the employees for their services, for which the form of issuing shares at a discounted premium is adopted." After making a detailed analysis the ITAT has held that it is an allowable deduction. The conclusion of the Special Bench reads as under .....

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by the amount of difference in the amount of discount calculated with reference the market price at the time of grant of option and the market price at the time of exercise of option. No accounting principle can be determinative in the matter of computation of total income under the Act. The question before the special bench is thus answered in affirmative by holding that discount on issue of Employee Stock Options is allowable as deduction in computing the income under the head 'Profits and .....

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es at ₹ 61/- per share (i.e. face value of ₹ 5/- and premium of ₹ 56/- per share). Thus the assessee has a loss of the difference in premium at ₹ 79.80 (Rs.135.80 - ₹ 56). This amount has been claimed as a revenue loss by the assessee. The AO has not independently made detailed discussion in the present year rather he relied upon the finding of his predecessor in AY 2007-08. He reproduced the finding of the AO recorded in AY 2007-08 on pages 4 to 8 of the assessment .....

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re, the same are decided together. 5.1. The ld.Sr.counsel for the assessee submitted that the authorities below were not justified in making the disallowance of Employee's Stock Option Scheme (ESOP) amounting to ₹ 24,30,554/- made u/s.28 r.w.s. 37 of the Act. The ld.Sr.counsel for the assessee submitted that these issues are squarely covered in favour of the assessee by the decision of Hon'ble Special Bench of the Tribunal (ITAT Bangalore Bench - Special Bench) rendered in the case .....

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facts of the case, assessment order and appellant's submission. Appellant has claimed the ESOP expense without incurring a single penny expense on employees. Not a single rupee has gone out of the assessee's books for the purpose of ESOP but still the difference between market price of share and ESOP offer price was considered as loss/expense and the same was claimed. All the arguments raised by the appellant have been answered clearly by the assessing officer which is quoted in para-7.1 .....

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. There is no revenue loss or gain in issue of equity shares. If shares are issued at premium then share premium account in balance sheet increases. If the shares are issue at discount either share premium account is reduced or shares discount account is increased. In either event, profit or income of the company is not at all affected. Therefore claiming any loss on account of giving option to employee to subscribe shares at lower value is without any basis and frivolous. 2-When shares are issu .....

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therefore clearly outside the purview of section 37 and 28 which deals with revenue expenses or losses. Therefore making such claim just on the basis of accounting entries for certain disclosure purposes and completely ignoring the provisions of IT act is nothing but furnishing inaccurate particulars of income. Considering the above and the discussion in assessment order, I find this claim frivolous, unsustainable and not as per the provisions of law. Accordingly the addition made by the assessi .....

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there was no question of listing of its shares and having some market price at the time of grant of options. Ordinarily, the amount of discount on premium which is written off over the vesting period represents the market price of the shares listed on the stock exchange on the date of grant of option as reduced by the price at which option is given to the employees. However, since there was no availability of any market price of such shares on the date of grant of option as the company came to b .....

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y following the aforesaid decision of Special Bench of ITAT Bangalore rendered in the case of Biocon Ltd.(supra), we allow the ground Nos. 5 & of assessee's appeal." 14. On due consideration of the details, we are of the view that there is no disparity on the facts. The AO has based his order exclusively on the findings of assessment order passed in AY 2007-08. The contribution of the AO in this AY is of four lines recorded on page 8. We have examined the submissions of the assessee .....

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ompany issues shares to the public or to the existing shareholders at lesser than otherwise prevailing premium due to market sentiments or otherwise such share receipts of a premium would be a case of receipt of lower amount on capital amount. Because the object of issuing such share at a lower price is nowhere directly connected with the earning of income but, when the company undertakes to issue shares to its employees at a discounted premium at a future date the primary object of this exercis .....

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