Sakar Glazed Tiles Pvt. Ltd., Ahmedabad V. The Dy.CIT, Circle-8, Ahmedabad

CO 199/AHD/2013

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2864 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 10-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 19-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P S CHOUDHARY
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Capital receipt; Unabsorbed depreciation; Capital expenditure
• Section: 43B; 40A(3); 32; 10

Judgement Text

, ,LK ,LK,LK ,LK- -- -,E ,E,E ,E- -- -LH LHLH LH , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER !# ITA NO.1588/AHD/2013 & CROSS OBJECTION NO.199/AHD/2013(IN ITA NO.1588/AHD/ 2013) ( / ASSESSMENT YEAR :2009-10) DCIT, CIRCLE-8, AHMEDABAD # VS. SAKAR GLAZED TILES PVT. LTD. 401, SHEFALI CENTRE, PALDI CHAR RASTA, AHMEDABAD. $ # % & # PAN/GIR NO. : AADCS 3760 K ( !$' / APPELLANT ) .. ( ($' # RESPONDENT & CROSS OBJECTOR) ASSESSEE BY : SHRI P.S. CHOUDHARY, SR. DR REVENUE BY : SHRI SAKAR SHARMA, AR ) *+,- / DATE OF HEARING 10/03/2017 ./01+,- / DATE OF PRONOUNCEMENT 29/05/2017 2# O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS APPEAL HAS BEEN FILED BY THE DEPARTMENT AND THE CROSS- OBJECTION THEREOF FILED BY THE ASSESSEE ARE DIRECTE D AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XIV, AHMEDA BAD, DATED ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 2 - 22/03/2013 FOR THE ASSESSMENT YEAR (AY) 2009-10. DE PARTMENT HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1A). THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.2,25,000/- BEING DEPRECIATION ON CAPITAL SUBSIDY OF RS.15,00,000/- CONSIDERED BY THE A SSESSING OFFICER. 1B). THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-X IV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS TO HOLD THA T THE CAPITAL SUBSIDY RECEIVED BY ASSESSEE WASN'T GRANTED TO MEET THE COST OF PLANT & MACHINERY. 1C). THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-X IV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS TO IGNORE T HE FACT THAT THE SAME SUBSIDY WAS GRANTED FOR THE SPECIFIC PURPO SE OF TECHNOLOGY UP-GRADATION & WAS CALCULATED W.R.T. THE PURCHASE PRICE OF PLANT & MACHINERY. 2A). THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-X IV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.32,73,544/- MADE ON ACCOUNT OF T RANSPORT PAYMENTS, BY INVOKING PROVISIONS OF SECTION 40A(3 ) OF THE ACT, READ WITH RULE. 6DD(G). 2B). THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)- XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS TO IGNORE T HE FACT THAT THE PAYMENTS WERE MADE THROUGHOUT THE YEAR NOT TO I NDIVIDUAL TRUCK DRIVERS BUT WHO WERE HAVING BANKING FACILITIE S & HENCE NOT COVERED UNDER EXCEPTION IN RULE 6DD(G) OF INCOM E-TAX RULES. 3). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 3 - 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- IN THIS CASE FROM THE BALANCE SHEET OF THE ASSESSEE , IT WAS NOTICED THAT THE ASSESSEE WAS IN RECEIPT OF RS.15,00,000/- AS CAPITAL SUBSIDY DURING THE YEAR. ACCORDINGLY, THE A.R. OF THE ASSES SEE VIDE QUESTIONNAIRE DATED 04/08/2011 WAS ASKED TO FURNISH THE DETAILS O F CAPITAL SUBSIDY OF RS.15,00,000/- AND ITS IMPACT ON THE ASSETS SIDE OF THE BALANCE SHEET ALONG WITH NECESSARY EVIDENCES. THE ASSESSEE FILED A REPLY ON 22/08/2011 WHICH IS REPRODUCED BELOW: 'YOUR HONOUR HAS ASKED TO FURNISH EVIDENCE REGARDIN G CAPITAL SUBSIDY DURING THE YEAR AND ITS TREATMENT IN THE BOOKS OF A CCOUNTS. IN THIS REGARDS, IT IS SUBMITTED THAT CAPITAL SUBSIDY IS RE CEIVED UNDER CREDIT LINKED CAPITAL SUBSIDY SCHEME (CLCSS) AMOUNTING TO RS. 15,00,000/- WHICH HAS BEEN CARRIED DIRECTLY TO THE BALANCE SHEE T UNDER THE HEAD 'RESERVE & SURPLUS' TREATING IT TO BE A CAPITAL REC EIPT BASED ON APPRECIATION OF GOVT. POLICY. A XEROX COPY OF THE S AME IS BEING 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 SUBSI DY OF RS. 15,00,000/- UNDER CLCSS THROUGH DISBURSING AGENCY A ND SALIENT FEATURES OF SCHEME AS AVAILABLE WITH THE ASSESSEE WERE AS UN DER: CLCSS: THE MINISTRY OF MICRO & SMALL ENTERPRISES IS OPERAT ING A SCHEME FOR TECHNOLOGY UP GRADATION OF MSE UNITS, CALLED THE CREDIT LINKED CAPITAL SUBSIDY SCHEME. ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 4 - OBJECTIVE: THE OBJECTIVE OF THE SCHEME IS TO FACILITATE TECHNO LOGY UP GRADATION OF MICRO AND SMALL ENTERPRISES IN THE 45 SPECIFIED PRODUCTS / SUB-SECTORS BY PROVIDING CAPITAL SUBSIDY FOR INDUCT ION 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 RS.600 CR ORE (WHICHEVER EARLIER). IT PROVIDED FOR 12% CAPITAL SUBSIDY, ON I NSTITUTIONAL FINANCE AVAILED OF BY MSE UNIT. FURTHER, THE ELIGIBLE AMOUN T OF SUBSIDY CALCULATED WAS BASED ON ACTUAL LOAN AMOUNT NOT EXCE EDING RS.40 LAKH. MODIFICATIONS : THE SCHEME WAS MODIFIED W.E.F. SEPT 29, 2005 A S UNDER: (A) THE CEILING ON LOANS HAS BEEN RAISED FROM RS. 40 LAKH TO RS. 1 CRORE; (B) THE RATE OF SUBSIDY HAS BEEN ENHANCED FROM 12 PER CENT TO15 PER CENT; (C) THE ADMISSIBLE CAPITAL SUBSIDY IS TO BE CALCULA TED WITH REFERENCE TO THE PURCHASE PRICE OF PLANT AND MACHINERY, INSTE AD OF TERM LOAN DISBURSED TO THE UNIT; (D) THE PRACTICE OF CATEGORIZATION OF SSI UNITS IN DIFFERENT SLABS ON THE BASIS OF THEIR PRESENT INVESTMENT, FOR DETERMIN ING THE ELIGIBLE SUBSIDY, DONE AWAY WITH. (E) THE OPERATION OF THE SCHEME HAS BEEN EXTENDED S UBSEQUENTLY FOR PERIOD (AS PER RBI MASTER CIR DATED JULY 01, 2010, GOVT. OF INDIA, OF MICRO, SMALL AND MEDIUM ENTERPRISES HAS C ONVEYED APPROVAL FOR CONTINUATION OF THE SCHEME FROM X PLAN TO XI PLAN (2007-12) ELIGIBLE UNITS : A) EXISTING MSE UNITS REGISTERED WITH THE STATE DIRECT ORATE OF INDUSTRIES WHICH UPGRADE WITH THE STATE-OF-THE-ART TECHNOLOGY, WITH OR WITHOUT EXPANSION. B) NEW MSE UNITS WHICH ARE REGISTERED WITH THE STATE D IRECTORATE OF INDUSTRIES AND WHICH SET UP THEIR FACILITIES ONLY W ITH THE APPROPRIATE ELIGIBLE AM PROVEN TECHNOLOGY DULY APPROVED BY THE GOVERNING AND TECHNOLOGY APPROVAL BOARD (GTAB). ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 5 - AMOUNT OF SUBSIDY : 15% OF THE COST OF ELIGIBLE PLANT & MACHINERY OR RS.15 LAKH WHICHEVER IS LESS. CEILING ON THE LOAN AMOUNT : RS. 100 LAKH NODAL AGENCIES : SIDBI AND NABARD ACT AS THE NODAL AGENCIES FOR THE IMPLEMENTATION OF THIS SCHEME. IN FEBRUARY 2006, TH E GOVERNING AND TECHNOLOGY APPROVAL BOARD (GTAB) OF THE CREDIT LINK ED CAPITAL SUBSIDY SCHEME (CLCSS) INCLUDED NINE PUBLIC SECTOR BANKS/GOVERNMENT AGENCIES AS NODAL BANKS/AGENCIES F OR IMPLEMENTATION AND RELEASE OF CAPITAL SUBSIDY UNDER THE CLCSS: ELIGIBLE PRIMARY LENDING INSTITUTIONS (PLI ) : ALL SCHEDULED COMMERCIAL BANK, SCHEDULED COOPERATIVE BANKS [INCLU DING THE URBAN COOPERATIVE BANKS CO-OPTED BY THE SIDBI UNDER THE T ECHNOLOGICAL UP GRADATION FUND SCHEME(TUFS) OF THE MINISTRY OF TEXT ILES], REGIONAL RURAL BANKS (RRBS), STATE FINANCIAL CORPORATION'S ( SFCS) AND NORTH EASTERN DEVELOPMENT FINANCIAL INSTITUTION (NEDFI) A RE ELIGIBLE AS PLI UNDER THIS SCHEME AFTER THEY EXECUTE A GENERAL AGRE EMENT (GA) WITH ANY OF THE NODAL AGENCIES, I.E., THE SMALL INDUSTRI ES 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 PE R ITS EXISTING NORMS. II) UNITS AVAILING SUBSIDY UNDER THE CLCSS SHALL NOT A VAIL ANY OTHER SUBSIDY FOR TECHNOLOGY UP GRADATION FROM THE CENTRAL/STATE/UT GOVERNMENT. HOWEVER, CASES COVERED UNDER NATIONAL EQUITY FUND (NEF) SCHEME, WHICH ARE OTHERW ISE 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 SUBSI DY UNDER THE CLCSS. ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 6 - IV). ONE OF THE MAIN REQUIREMENTS FOR SANCTION OF ASSISTANCE UNDER THE TECHNOLOGY UPGRADATION SCHEME WILL BE AVAILABIL ITY OF COMPETENT MANAGEMENT IN THE UNIT CONCERNED TO CARRY OUT THE UPGRADATION PROGRAMME AND TO MANAGE THE OPERATION O F THE UNIT EFFICIENTLY. TOWARDS THIS END, THE LENDING AGENCIES MAY STIPULATE CONDITIONS AS MAY BE CONSIDERED NECESSARY. UNDER THE ABOVE REFERRED SCHEME YOUR ASSESSEE RECEI VED CAPITAL SUBSIDY OF RS. 15 LACS WHICH WAS THE MAXIMUM PERMIS SIBLE AMOUNT FROM THE GOVT. THROUGH DISBURSING AGENCY SBI . COPY OF APPROVAL CUM DISBURSEMENT LETTER IS ENCLOSED HEREWI TH FOR READY REFERENCE. YOUR ASSESSEE HAS CONSIDERED THIS AMOUNT OF RS.15 L ACS AS CAPITAL RECEIPT IN THE BOOKS AND THEREFORE, THIS AM OUNT HAS NOT BEEN ROUTED THROUGH PROFIT AND LOSS ACCOUNT AND HAS BEEN DIRECTLY CREDITED TO THE RESERVE AND SURPLUS ACCOUN T. YOUR ASSESSEE FOR THIS PURPOSE RELIED UPON THE DECI SION OF ITAT VISHAKHAPATNAM IN THE CASE OF SASISRI EXTRACTIONS LTD VS CIT 122 ITD 428(VSK) AND ITAT-AHMEDABAD BENCH A IN THE CASE OF GUJARAT WATER RESOURCES DEVELOPMENT LTD VS. JCIT IN ITA NO 167-168/A/2004 VIDE ORDER DATED 16/10/2009 WHEREIN IDENTICAL RECEIPTS HAVE BEEN HELD TO BE IN THE NATURE OF CAPI TAL RECEIPTS AND HENCE THIS AMOUNT IS NOT ELIGIBLE FOR TAXATION.' FROM THE PERUSAL OF THE ABOVE REPLY OF THE ASSESSEE , IT IS EVIDENT THAT THE SUBSIDY WAS GIVEN TO THE ASSESSEE AGAINST THE PLANT & MACHINERY AS THE ADMISSIBLE CAPITAL SUBSIDY WAS CALCULATED WITH REFE RENCE TO PURCHASE PRICE OF PLAT & MACHINERY INSTEAD OF THE TERM LOAN DISBURSED TO THE UNIT. SINCE, THE SUBSIDY WAS RECEIVED AGAINST THE PLANT & MACHINERY, THE VALUE OF PLANT AND MACHINERY HAD TO BE REDUCED TO T HAT EXTENT. DURING THE DISCUSSION, THE A.R. OF THE ASSESSEE WAS TOLD A S TO WHY DEPRECIATION TO THE EXTENT OF RS.15,00,000/- CLAIMED AGAINST PLA NT & MACHINERY SHOULD NOT BE DISALLOWED. ON THIS SPECIFIC QUESTION ALSO, THE A.R. OF THE ASSESSEE DID NOT FURNISH ANY REPLY. IT IS RELEVANT HERE TO REPRODUCE THE EXPLANATION 10 TO SECTION 43 OF THE IT. ACT. 'EXPLANATION 10:- WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN DIRECTLY OR INDIR ECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUT HORITY ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 7 - ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, I N THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NA ME CALLED), THEN, SO MUCH OF THE COST AS IS RELATABLE FOR SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUA L COST OF THE ASSET TO THE ASSESSEE: PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT I S 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 SU CH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFER ENCE TO WHICH THE SUBSIDY OR GRANT OR REIMBURSEMENT IS SO RECEIVED, S HALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASS ESSEE.' SINCE THE SUBSIDY AGAINST THE PRINCIPAL AMOUNT OF L OAN TAKEN AGAINST THE PLANT AND MACHINERY, HAD RESULTED INTO REDUCTION OF WDV OF THE ASSETS (PLANT & MACHINERY AGAINST WHICH THE LOA N WAS UTILIZED), THE DEPRECIATION PERTAINING TO CORRESPONDING ASSETS ACQ UIRED FROM SUCH LOAN AND CLAIMED AS EXPENDITURE DURING THE YEAR WAS TO BE REDUCED TO THAT EXTENT. ACCORDINGLY, THE DEPRECIATION @ 15% 7 ON PL ANT & MACHINERY AMOUNTING TO RS.15,00,000/- (AGAINST WHICH SUBSIDY RECEIVED) WHICH COMES TO RS.2,25,000/- IS DISALLOWED AND ADDED TO T HE TOTAL INCOME OF THE ASSESSEE HENCE, THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATIO N AMOUNTING TO RS.2,25,000/- CLAIMED AGAINST PLANT & MACHINERY AGA INST WHICH CAPITAL SUBSIDY WAS RECEIVED. THUS, DEPRECIATION OF RS.2,25 ,000/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. PENA LTY U/S. 271(1) (C) OF THE IT. ACT IS BEING INITIATED SEPARATELY. DISALLOWANCE U/S.40A(3) FROM THE PERUSAL OF THE TAX AUDIT REPORT FILED BY T HE ASSESSEE, IT WAS NOTICED THAT THE AUDITOR HAD GIVEN HIS REMARK I N PARA 17(H)(B) AS UNDER: AMOUNT ADMISSIBLE U/S. 40A(3) R.W.R. 6DD WITH BREAKUP OF RS. NIL IN VIEW OF EXCEPTION PROVIDED IN RULE 6DD (G) BY WHICH THE ASSESSEE CONSIDERS ITSELF TO BE COVERED AND THEREFORE, ACCORDING TO THE ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 8 - INADMISSIBLE AMOUNTS ASSESSEE NO DISALLOWANCE U/S. 40A (3) IS NEED TO BE MADE. HOWEVER, DETAILS OF PAYMENTS MADE IN EXCESS OF RS.20,000/- PER DAY PER PERSON/PARTY NOTICED BY US IN THE COURSE OF AUDIT ARE BEING REPORTED BY WAY OF ANNEXURE 4 OF THIS REPORT TOTALING RS.32,73,544/-. IT IS RELEVANT HERE TO REPRODUCE AUDITOR'S RE MARK GIVEN BELOW THE ABOVE MENTIONED ANNEXURE 4 AS NOTE 1 AND 2. 'NOTE 1: THE ABOVE PAYMENTS DO NOT INCLUDE VEHICLE EXPENSES REIMBURSED TO THE STAFFS AND EMPLOYEES FOR FILING P ETROL/DIESEL IN COMPANY'S VEHICLES AT THE END OF THE EACH MONTH. AM OUNT PAID DOES NOT EXCEED RS.20,000/- PER DAY PER EMPLOYEE OF THE ASSESSEE CO. NOTE 2: ACCORDING TO THE ASSESSEE NO DISALLOWANCE U /S.40A (3) IS REQUIRES TO BE MADE IN VIEW OF EXCEPTION PROVIDED I N RULE 6DD (G). ACCORDING TO THE ASSESSEE THERE ARE NO BANKING FACILITIES AVAILABLE AT VILLAGE RAJPURA WHERE UNITS OF THE ASS ESSEE ARE LOCATED AND WHERE GOODS IS DELIVERED BY THE TRANSPO RTERS AND WHO REFUSED TO ACCEPT CHEQUES TOWARDS TRANSPORTATION CO ST AGAINST DELIVERY OF GOODS CARRIED BY THEM.' IN VIEW OF THE ABOVE REMARKS OF THE AUDITORS, THE A .R. OF THE ASSESSEE WAS ASKED TO FURNISH EXPLANATION AS TO WHY SUCH PAY MENTS MADE IN CASH CONTRARY TO THE PROVISIONS OF SECTION 40A(3) OF THE IT. ACT, SHOULD NOT BE DISALLOWED DUE TO FOLLOWING REASONS: (I) THE ABOVE REMARKS OF THE AUDITOR ARE NOT SPECIFIC. (II) THE AUDITOR HAS NOT QUALIFIED IN HIS REPORT THAT THE CONDITIONS MENTIONED IN RULE 6DD (G) IS APPLICABLE TO THE CASE OF THE ASSESSEE. (II) THE RESPONSIBILITY FOR QUALIFICATION OF ELIGIBILITY OF RULES 6DD (G) IN THE CASE OF THE ASSESSEE WAS SHIFTED TO THE ASSE SSEE COMPANY AS STATED BY THE AUDITORS IN HIS REPORT. IN THE NOTE 1 AND NOTE 2 ABOVE ALSO, THE AUDITORS HAD SHOWN ENTIRE RESPONSIB ILITY ON THE ASSESSEE. WHEN AN AUDITOR HAD GIVEN A VERY COMPREHE NSIVE ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 9 - REPORT ON EACH AND EVERY POINT OF AUDIT, IT IS SURP RISING TO NOTE THAT THE AUDITOR HAD GIVEN AN ESCAPING REMARK ON TH E POINT OF VERIFICATION OF CASH PAYMENT ABOVE RS.20,000. IN VI EW OF THE ABOVE REMARKS OF THE AUDITORS, THE CIRCUMSTANCES ME NTIONED IN THE REPORT WITH REGARD TO RULE 6DD (G) IS NOT AT AL L FOUND JUSTIFIED. THUS, THE ASSESSEE HAS VIOLATED THE PROVISIONS OF S ECTION 40A (3) OF THE IT. ACT AND NOT FULFILLED THE ELIGIBILITY CONDITION S 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 RE SPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAW N ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY TH OUSAND 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, W HICH ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BANK, TO ANY PERSON WHO ORDINARILY RESIDE, OR IS CARRYING ON ANY BUSINE SS, PROFESSION OR VOCATION, IN ANY SUCH VILLAGE OR TOWN' ACCORDINGLY, THE A.R. OF THE ASSESSEE WAS ASKED VID E ORDER SHEET ENTRY DATED 16/11/2011 TO SUBMIT THE EVIDENCES FOR ELIGIB ILITY OF BENEFIT OF RULE 6DD (G) AS MENTIONED IN THE AUDITORS' REMARKS. IN RESPONSE, THE ASSESSEE FILED REPLY DATED 21/11/2011 WHICH IS REPR ODUCED BELOW. 'RULE 6 DP (A) FOR RS. 3273544 YOUR HONOUR HAS SOUGHT INFORMATION AS TO UNDER WHIC H CONDITIONS A BENEFIT OF RULE 6 DD (G) AS QUALIFIED BY TAX AUDITOR IN TAX AUDIT REPORTS IN PARA 17(B)FOR RS.32,73,554/ . IN THIS REGARD IT IS SUBMITTED THAT YOUR ASSESSEE C OMPANY HAS MADE CASH PAYMENT TO THE TRUCK DRIVERS OF THE TRANS PORT COMPANY WHO WERE TRANSPORTING RAW MATERIALS FROM RAJASTHAN & OTHER ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 10 - STATE TO THE ASSESSEE'S FACTORIES IN VILLAGE - RAJP URA OF DISTRICT GANDHINAGAR INSISTED ON PAYMENT IN CASH AND THERE A RE NO BANKING FACILITIES AVAILABLE AT VILLAGE RAJPURA WHE RE UNITS OF THE ASSESSEE ARE LOCATED AND WHERE GOODS IS DELIVERED B Y THE TRANSPORTERS AND WHO REFUSED TO ACCEPT CHEQUES TOWA RDS TRANSPORTATION COST AGAINST DELIVERY OF GOODS CARRI ED BY THEM. ENCLOSED HEREWITH A XEROX COPY OF CERTIFICATE OBTAI NED FROM VILLAGE -RAJPURA TALATI THAT THERE ARE NO BANKING F ACILITIES IS AVAILABLE AT VILLAGE RAJPURA FOR YOUR HONOUR KIND VERIFICATIONS. IN VIEW OF EXCEPTION PROVIDED IN RULE 6DD (G) BY WH ICH YOUR ASSESSEE COMPANY TO BE COVERED AND THEREFORE, NO DI SALLOWANCE U/S. 40A (3) IS NEED TO BE MADE.' THE ABOVE REPLY OF THE ASSESSEE ALONG WITH THE CERT IFICATE OBTAINED FROM VILLAGE -RAJPURA TALATI HAS BEEN PERUSED BUT IT CAN NOT BE ACCEPTED AS VALID EVIDENCE FOR THE BENEFIT OF RULE 6DD (G). IT IS NOT CERTIFIED BY THE ASSESSEE AS TO WHETHER THE PAYMENT WAS MADE TO PERS ONS WHO ORDINARILY RESIDED OR HAD BEEN CARRYING OUT ANY BUSINESS OR PR OFESSION OR VOCATION IN VILLAGE RAJAPURA. FURTHER, THE DETAILS ANNEXED W ITH THE AUDITORS' REPORT AS ANNEXURE 4 CLEARLY INDICATE THAT THE PAYM ENT WAS NOT MADE TO ANY INDIVIDUAL PERSON, WHO HAD NO BANK ACCOUNT JUST BECAUSE OF THE FACT THAT IN THAT VILLAGE THERE WAS NO BANKING FACILITY. ALL THE PAYMENTS WERE MADE TO VARIOUS TRANSPORT COMPANIES AND ALL THESE P AYMENTS WERE OF RECURRING NATURE, THEREFORE, THE ASSESSEE COULD NOT PROVE THE ONUS ON ITS PART THAT THESE TRANSPORT COMPANIES DO NOT HAVE ANY BANK ACCOUNT AND THEY FORCED/COMPELLED THE ASSESSEE TO MAKE THE PAYM ENT IN CASH ONLY AND THE ASSESSEE IN BUSINESS EXPEDIENCY HAD TO MAKE THE PAYMENT IN CASH. NO PROOF WITH REGARD TO THE FACT THAT THE TRA NSPORT COMPANIES MENTIONED IN ANNEXURE 4 ARE OWNED BY INDIVIDUAL WHO RESIDES IN THE SAID VILLAGE AND WHO DO NOT HAVE ANY BANK ACCOUNT A NYWHERE AND WHO WERE NOT ACCEPTING PAYMENT FROM THE ASSESSEE OTHERW ISE THAN IN CASH. IN VIEW OF THE ABOVE, THE ASSESSEE HAD NOT FURNISHE D EVIDENCE WITH REGARD TO FULFILLMENT OF CONDITIONS IN RULE 6D D (G) READ WITH SECTION 40 A (3) OF THE IT ACT, THE ENTIRE AMOUNT O F RS. 32,73,544/- IS ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 11 - DISALLOWED U/S. 40A (3) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. DISALLOWANCE OF PROFESSIONAL TAX - RS.3,900/- DURING THE COURSE OF SCRUTINY, THE ASSESSEE WAS ASK ED TO FURNISH THE DETAILS OF PROFESSIONAL TAX. IN RESPONSE, THE A SSESSEE FILED A REPLY DATED 08/11/2011 IN WHICH IT IS NOTICED THAT THE PA YMENT 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 FILIN G OF RETURN U/S. 139(1) WAS 30/09/2009. THEREFORE, THE PAYMENT OF PR OFESSIONAL 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 EL ECTRICITY CONNECTION-RS.63,750/- FROM PERUSAL OF THE DETAILS FILED BY THE ASSESSEE, IT WAS NOTICED THAT THE ASSESSEE DEBITED A SUM OF RS.63,750/- AS E LECTRICITY EXPENSES IN PROFIT & LOSS ACCOUNT. THE ASSESSEE WAS ASKED TO FU RNISH THE COPY OF LEDGER AND THE BILLS FOR PAYMENT OF ELECTRICITY EXP ENSE. IN RESPONSE, VIDE LETTER DATED 08/11/2011, THE ASSESSEE FILED COPY OF THE BILL 07/10/2008 WHICH WAS ISSUED BY UTTAR GUJARAT VIJ CO. LTD. IN T HE BILL, IT WAS CLEARLY MENTIONED THAT IT WAS A CONTRIBUTION TOWARD S COST OF CAPITAL ASSETS. THUS, IT IS A CAPITAL EXPENDITURE WHICH WAS TO BE CAPITALIZED WITH THE PLANT & MACHINERY, BUT THE ASSESSEE HAD DEBITED IT IN THE P & L A/C. DURING THE DISCUSSION, THE A.R. OF THE ASSESSEE FAI LED TO OFFER ANY EXPLANATION ON THIS ISSUE. IN VIEW OF THE ABOVE, RS .63,750/- IS TREATED AS CAPITAL EXPENDITURE AND IS DISALLOWED. HOWEVER, DEP RECIATION @ 7.5% WHICH COMES TO RS.4,781/- IS ALLOWED TO THE ASSESSE E ON CAPITALIZATION OF ABOVE EXPENDITURE TOWARDS PLANT & MACHINERY. THU S, NET DISALLOWANCE OF RS.58,969/- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE TREATING THE SAME AS CAPITAL EXPENDITURE. PROOF OF INTEREST ON TDS PAYMENT. FROM THE DETAILS AVAILABLE ON RECORDS, IT WAS NOTIC ED THAT THE ASSESSEE HAD SHOWN TDS PAYABLE OF RS.1,44,313/- AS ON 31/03/2009. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF DE POSIT OF TDS. IN RESPONSE, THE ASSESSEE FILED COPY OF CHALLAN DATED 30/09/2009 WHICH SHOWS THAT THE TOTAL PAYMENT OF TDS WAS RS. 1,39,65 7/- AS AGAINST ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 12 - ACTUAL TDS PAYABLE OF RS.1,44,313/-. THUS, TDS IN RESPECT OF INTEREST PAYMENT AMOUNTING TO RS.4,656/- WAS NOT PAID BY THE ASSESSEE UPTO THE DATE OF FILING OF RETURN. THUS, THE ASSESSEE FAILED TO PAY THE TDS OF RS.4,656/- AND IS NOT ELIGIBLE FOR CLAIM OF INTERES T PAYMENT OF PROPORTIONATE AMOUNT U/S. 40(A) (IA) OF THE ACT. DU RING THE DISCUSSION, THE A.R. OF THE ASSESSEE AGREED FOR THE PROPORTIONA TE DISALLOWANCE OF INTEREST U/S. 40(A) (IA) OF THE ACT FOR THE ABOVE D EFAULT OF TDS OF RS.4,656/-. IN VIEW OF THE ABOVE, THE PROPORTIONATE AMOUNT OF INTEREST PAYMENT OF RS.41,094/- IS DISALLOWED U/S. 40(A) (IA ) AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ALLOWABILITY OF CLAIM OF UNABSORBED DEPRECIATION LO SS THE ASSESSEE WAS ALSO ASKED TO FURNISH PROOF OF CLA IM OF UNABSORBED DEPRECIATION TO BE SET OFF AGAINST THE I NCOME. THE ASSESSEE FILED A STATEMENT OF THE AUDITORS AS UNDER: UNABSORBED DEPRECIATION TO BE CARRIED FORWARD AND A VAILABLE FOR SET OFF IN A.Y. 2009-10: A.Y. 2002-03 RS. 17,93,015/- A.Y. 2003-04 RS. 29,47,847/- THE ASSESSEE WAS ASKED TO FURNISH THE COPY OF RETUR N AND THE EVIDENCES IN SUPPORT OF CLAIM OF DEPRECIATION. IN RESPONSE, T HE ASSESSEE FILED ACKNOWLEDGEMENT COPY OF RETURN FOR A.Y. 2002-03 WHI CH SHOWS THAT THE ASSESSEE WAS ELIGIBLE FOR DEPRECIATION LOSS OF RS.5,97,291/- FOR THAT ASST. YEAR ONLY INSTEAD OF CLAIM OF RS. 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 A BOVE. 4. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LEARNED CIT(A). IN THIS CASE, LEARNED CI T(A) ALLOWED THE APPEAL OF THE ASSESSEE. ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 13 - 5. NOW DEPARTMENT IS BEFORE US. 6. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER. IN THIS CASE, LEARNED AR STATED THAT APPELLANT SUBMITT ED A COPY OF THE VISHAKHAPATNAM BENCH IN THE CASE OF SASISRI EXTRACT IONS LTD. VS. CIT 122 ITD 428 (VSK) TO SUPPORT ITS CONTENTION THAT TH E SUBSIDY SO RECEIVED WOULD FALL IN THE CATEGORY OF CAPITAL RECEIPT IS LI ABLE FOR THE REDUCTION FROM THE COST OF PLANT AND MACHINERY EVEN AFTER INS ERTION OF EXPLANATION 10 TO SECTION 43 OF THE ACT. THE OPERATIVE PART OF THE DECISION OF THE TRIBUNAL IS REPRODUCED HERE BELOW: 'THIS APPEAL, FILED AT THE INSTANCE OF THE ASSESSEE -COMPANY, IS DIRECTED AGAINST THE ORDER DATED NOVEMBER 13, 2006, PASSED B Y THE COMMISSIONER OF INCOME-TAX (APPEALS), GUNTUR, AND I T PERTAINS TO THE ASSESSMENT YEAR 2003-04. ADDITION OF RS.3,24,166 MA DE BY THE ASSESSING OFFICER AND CONFIRMED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) BY APPLYING THE PROVISIONS OF SECTION 43( 1) OF THE INCOME-TAX ACT, 1961, IS THE SUBJECT MATTER OF DISPUTE BEFORE THE TRIBUNAL. THE FACTS OF THE CASE, IN BRIEF, ARE AS FOLLOWS. TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING/PROCESSING OF EDIBLE OILS. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE RECEIVED AN AMOUNT OF RS.20,00,000/- AS IN VESTMENT SUBSIDY UNDER A SCHEME FLOATED BY THE ANDHRA PRADESH STATE GOVERNMENT KNOWN AS 'TARGET 2000'. THE ASSESSEE HAS NOT DECLAR ED THE RECEIPT AS INCOME OF THE YEAR UNDER CONSIDERATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS CONTENDED THAT THE SU BSIDY WAS GIVEN TO THE UNIT BECAUSE OF THE FACT THAT IT HAS ESTABLISHE D AN ELIGIBLE INDUSTRIAL UNIT IN THE NOTIFIED AREA AND THUS THE RECEIPT WAS CAPITAL IN NATURE AND NOT TAXABLE. THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO CLARIFY AS TO WHY THE SUBSIDY RECEIVED SHOULD NOT BE REDUCED F ROM THE COST OF THE ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 14 - ASSETS SO THAT THE ASSESSEE WOULD GET LESSER DEPREC IATION THAN WHAT WAS CLAIMED IN THE RETURN. THE CASE OF THE ASSESSEE WAS THAT THE SUBSIDY WAS NOT GIVEN TO ACQUIRE ANY ASSET EITHER DIRECTLY OR I NDIRECTLY AND THUS IT NEED NOT BE CONSIDERED FOR CALCULATION OF DEPRECIAT ION. HE FURTHER CONTENDED THAT SUBSIDY WAS CALCULATED BASED ON THE INVESTMENT MADE BY THE ASSESSEE FOR ESTABLISHING THE UNIT AND THERE IS NO EMBARGO ON THE UTILIZATION OF THE SUBSIDY IN WHICH EVENT IT CANNOT BE SAID THAT THE SUBSIDY WAS DIRECTLY RELATABLE TO THE COST OF THE A SSETS. THE ASSESSING OFFICER WAS, HOWEVER, OF THE OPINION THAT G. O. MS. NOS. 117 AND 108, DATED MARCH 17, 1993 AND MAY20, 1996, RESPECTIVELY, ISSUED BY THE ANDHRA PRADESH STATE GOVERNMENT PROVI DES SUBSIDY CALCULATED AT 20 PER CENT, OF THE FIXED CAPITAL INV ESTMENT AND THUS IT WAS CLEARLY LINKED TO THE FIXED CAPITAL COST OF THE ASS ESSEE. THEREFORE, IT IS NOTHING BUT REIMBURSEMENT OF PART OF THE CAPITAL IN VESTMENT IN WHICH EVENT, IT AFFECTS THE ACTUAL COST OF THE FIXED ASSE TS ON WHICH THE ELIGIBLE DEPRECIATION WAS CLAIMED UNDER SECTION 32 OF THE AC T. THE ASSESSING OFFICER THEREUPON CONSIDERED THE PROVISIONS OF SECT ION 43(1) OF THE ACT AND EXPLANATION 10 THERETO (INSERTED WITH EFFECT FR OM APRIL 1,1999) TO CONCLUDE THAT AN INVESTMENT SUBSIDY CALCULATED AT A PERCENTAGE OF THE FIXED CAPITAL INVESTMENT HAS TO NECESSARILY BE REDU CED 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 FO LLOWING DECISIONS IN SUPPORT OF HIS CONTENTION THAT THE IMPUGNED SUBSIDY IS NOT DIRECTLY OR INDIRECTLY CONNECTED TO THE ASSETS AND IN THE ABSEN CE 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 (A P); AND CIT V. P.J. CHEMICALS LTD. [1994] 210ITR 830 (SC). THE LEARNED ASSESSING OFFICER WAS OF THE VIEW THAT THE CASE-LAWS CITED BY THE ASSESSEE ARE DISTINGUISHABLE ON FACTS INASMU CH AS THE SAID DECISIONS WERE RENDERED PRIOR TO THE INSERTION OF E XPLANATION 10 TO SECTION 43(1) OF THE ACT. IN OTHER WORDS, THE EXPLA NATION MAKES IT CLEAR THAT ANY AMOUNT MET DIRECTLY OR INDIRECTLY BY THE G OVERNMENT IN THE FORM OF A SUBSIDY, THEN, SO MUCH OF THE COST AS IS RELATABLE TO THE SUBSIDY, SHALL NOT BE INCLUDED IN THE ACTUAL COST O F THE ASSET. HE FURTHER NOTICED THAT THE AMOUNT RECEIVED IN THE FORM OF SUB SIDY WAS PAID TO THE ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 15 - BANKER FOR REPAYMENT OF TERM LOAN TAKEN BY THE COMP ANY ON THE PURCHASE OF THE CAPITAL ASSETS WHICH MAKES IT FURTH ER CLEAR THAT THE SUBSIDY GIVEN BY THE GOVERNMENT WAS USED TO OFFSET THE CAPITAL COSTS AND THUS THE SAME HAS TO BE REDUCED FROM THE COST O F THE FIXED ASSETS. HE ACCORDINGLY APPORTIONED THE SUBSIDY AMOUNT AGAINST THE OPENING WDV OF THE ASSETS OF THE ASSESSEE AND CALCULATED THE EL IGIBLE DEPRECIATION. AGGRIEVED, IT WAS CONTENDED BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT THE INCENTIVE SCHEME WHICH WAS CONSI DERED BY THE ANDHRA PRADESH HIGH COURT IN THE DECISION CITED SUP RA AND THE 'TARGET 2000' SCHEME ARE IDENTICAL AND MEANT FOR THE PURPOS E OF ENCOURAGING THE ENTREPRENEURS TO ESTABLISH NEW INDUSTRY. IN BOT H THE SCHEMES THE AMOUNT OF SUBSIDY WAS LINKED TO FIXED CAPITAL COSTS FOR DETERMINATION OF THE AMOUNT OF SUBSIDY WITHOUT ANY DIRECTION AS TO H OW THE SUBSIDY AMOUNT HAS TO BE UTILIZED. IT WAS FURTHER CONTENDED THAT THE DECISION OF THE APEX COURT IN THE CASE OF P.J. CHEMICALS LTD. [ 1994] 210 ITR 830 AND THE DECISION OF THE ANDHRA PRADESH HIGH COURT I N GODAVARI PLYWOODS LTD. [1987] 168 1TR 632 ARE APPLICABLE MUT ATIS MUTANDIS TO THE FACTS OF THE INSTANT CASE. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WA S, HOWEVER, OF THE OPINION THAT EXPLANATION 10 TO SECTION 43(1) IN SERTED WITH EFFECT FROM APRIL 1, 1999, ENLARGES THE SCOPE OF THE EXPRE SSION 'ACTUAL COST'. THOUGH IN THE PRESENT CASE THE SUBSIDY IS NOT GIVEN DIRECTLY TO MEET THE COST OF THE ASSET, INDIRECT MOTIVE OF THE STATE GOV ERNMENT IN GIVING SUBSIDY WAS TO BRING DOWN THE COST OF THE INVESTMEN T OF THE ASSESSES AND THEREFORE IT CAN BE SAID THAT THE STATE GOVERNMENT HAS MET THE COST INDIRECTLY. HE ACCORDINGLY AFFIRMED THE ACTION OF T HE ASSESSING OFFICER. FURTHER AGGRIEVED, 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 ATTENTI ON TO PAGES 12, 18, 35, 46 AND 47 OF THE PAPER BOOK IT WAS SUBMITTED TH AT THE SCHEME UNDER WHICH SUBSIDY WAS GRANTED TO THE ASSESSEE DOES NOT INDICATE THAT IT WAS SPECIFICALLY MEANT TO OFFSET THE COST OF THE CAPITA L ASSETS PURCHASED BY THE ASSESSEE. ON THE OTHER HAND, THE SCHEME UNDER W HICH THE ASSESSEE WAS GRANTED SUBSIDY AND THE SCHEMES WHICH WERE CONS IDERED BY THE ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 16 - SUPREME COURT AS WELL AS THE ANDHRA PRADESH HIGH CO URT IN THE CASES CITED SUPRA WERE IDENTICAL AND THE MAIN PURPOSE UND ER BOTH THE SCHEMES WAS TO GIVE A FILLIP TO THE ENTREPRENEURS WHO ESTAB LISH NEW INDUSTRIAL UNITS IN ELIGIBLE NOTIFIED AREAS AND FOR THE PURPOS E OF WORKING OUT THE AMOUNT OF SUBSIDY TO BE GIVEN FIXED CAPITAL INVESTM ENT WAS CONSIDERED, BUT THE FACT REMAINS THAT THERE IS AN OUTER CEILING OF RS.20,00,000/- IRRESPECTIVE OF THE CAPITAL INVESTMENT WHICH ONLY G OES TO SHOW THAT THE SUBSIDY WAS NOT MEANT TO OFFSET THE COST OF THE ASS ETS. HE HAS ADVERTED OUR ATTENTION TO PAGES 35 TO 37 OF THE PAPER BOOK, I.E., ABSTRACT OF THE 'TARGET 2000' INDUSTRIAL POLICY. LEARNED COUNSEL ADVERTED OUR ATTENTION TO EXPLANATI ON 10 TO SECTION 43(1) TO SUBMIT THAT THERE IS NO MATERIAL DIFFERENC E IN THE LANGUAGE OF EXPLANATION 10 SECTION 43(1) OF THE ACT AND ALSO TH E LANGUAGE USED IN SECTION 43(1). BOTH DEFINE ACTUAL COST STATING THAT A PORTION OF THE COST MET DIRECTLY OR INDIRECTLY BY ANY AUTHORITY HAS TO BE REDUCED FROM THE COST OF THE ASSET. EXPLANATION 10 TO SECTION 43(1) OF THE ACT DOES NOT MATERIALLY DIFFER FROM THE LANGUAGE USED IN SECTION 43(1) BUT MERELY CLARIFIES THAT THE COST MET BY THE AUTHORITY IN THE FORM OF SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED) HA S TO BE REDUCED FROM THE COST OF THE ASSET. THUS EXPLANATION 10 TO SECTION 43(1) AS WELL AS THE MAIN PROVISION OF SECTION 43(1) IS COUCHED I N AN IDENTICAL MANNER STRESSING UPON THE FACT THAT ONLY THE COST WHICH IS 'MET DIRECTLY OR INDIRECTLY' HAS TO BE REDUCED FROM THE COST OF THE ASSET. SECTION 43(1) OF THE ACT WAS THE SUBJECT-MATTER OF CONSIDERATION BY THE APEX COURT IN THE CASE OF P. J. CHEMICALS LTD. [1994] 210ITR 830, WHE REIN THEIR LORDSHIPS OBSERVED AT PAGE 839 OF THE REPORT AS UND ER: 'THE QUESTION IN THE PRESENT CONTEXT IS NOT WHETHER IF A PORTION OF THE COST IS MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY, IT SHOULD BE DEDUCTED OR NOT. QUITE OBVI OUSLY, THE PLAIN MEANING OF THE SECTION IS THAT IT SHALL BE. BUT THE REAL QUESTION IS AS TO THE CHARACTER AND NATURE OF A SUBSIDY WHETHER IT WAS REALLY INTENDED TO SUBSIDISE THE COST OF THE CAPITAL OR WA S INTENDED AS AN INCENTIVE TO ENCOURAGE ENTREPRENEURS TO MOVE TO BACKWARD AREAS AND ESTABLISH INDUSTRIES, THE SPECIFIED PERCE NTAGE OF THE FIXED CAPITAL COST WHICH IS THE BASIS FOR DETERMINI NG THE SUBSIDY BEING ONLY A MEASURE ADOPTED UNDER THE SCHEME TO QU ANTIFY THE ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 17 - FINANCIAL AID. THE CONTENTION IS THAT IT IS NOT A P AYMENT, DIRECTLY OR INDIRECTLY, TO MEET ANY PORTION OF THE 'ACTUAL C OST' BUT INTENDED AS AN INCENTIVE TO ENTREPRENEURS, ITS QUAN TIFICATION DETERMINED AT A PERCENTAGE OF THE FIXED CAPITAL COS T.' AT PAGE 841 OF THE REPORT, THEIR LORDSHIPS FURTHER OBSERVED AS UNDER: 'THE GOVERNMENT SUBSIDY, IT IS NOT UNREASONABLE TO SAY, IS AN INCENTIVE NOT FOR THE SPECIFIC PURPOSE OF MEETING A PORTION OF THE COST OF THE ASSETS, THOUGH QUANTIFIED AS OR GEARED TO A PERCENTAGE OF SUCH COST. IF THAT BE SO, IT DOES NOT PARTAKE OF THE CHARACTER OF A PAYMENT INTENDED EITHER DIRECTLY OR INDIRECTLY TO MEET THE 'ACTUAL COST'.' LEARNED COUNSEL, THEREFORE, SUBMITTED THAT EVEN AFT ER 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 INDIR ECTLY BY AN AUTHORITY EITHER IN THE FORM OF A SUBSIDY OR OTHERWISE. SO LO NG AS THE SUBSIDY WAS INTENDED TO ENCOURAGE ENTREPRENEURS TO ESTABLISH IN DUSTRIES, THE MERE FACT THAT A SPECIFIED PERCENTAGE OF THE FIXED CAPIT AL COST WAS TAKEN AS THE BASIS FOR DETERMINING THE SUBSIDY SHOULD NOT BE MIS TAKEN AS A PAYMENT INTENDED TO SUBSIDISE THE COST OF CAPITAL OF THE NE W INDUSTRY. HE THUS STRONGLY RELIED UPON THE AFORE- CITED DECISIONS. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE RELIED UPON THE ORDERS OF THE TAX AUTHORITIES AND SUBMITTED THA T 'TARGET 2000' SCHEME IS A DIFFERENT CONCEPT FROM THE SCHEMES CONS IDERED 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 P LYWOODS LTD. [1987] 168 ITR 632. IN THE AFORE-CITED DECISIONS, T HE INTENTION OF THE GOVERNMENT WAS TO INDUCE THE ENTREPRENEURS TO MOVE TO BACKWARD AREAS, WHEREAS IN THE INSTANT CASE, 'TARGET 2000' S CHEME IS MERELY TO ACCELERATE INDUSTRIAL DEVELOPMENT OF THE STATE AND ALL THE DISTRICTS IN THE STATE HAVE BEEN CATEGORIZED AS ELIGIBLE ARE RS. FUR THER, THE UTILIZATION OF THE SUBSIDY AMOUNT FOR THE PURPOSE OF REPAYMENT OF TERM LOAN IS ALSO A POINTER IN SUPPORT OF THE CONTENTION OF THE REVEN UE THAT THE SUBSIDY AMOUNT HAS HELPED IN REDUCTION OF THE COST OF THE A SSETS. HE THUS ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 18 - SUBMITTED THAT THE DECISIONS CITED SUPRA ARE NOT AP PLICABLE TO THE FACTS OF THE CASE. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN OUR CONSIDERED OPINION, EVEN AFTER INSER TION OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT, THE BASIC PRINCIPLE UNDERLYING IN THE DECISION OF THE APEX COURT IN THE CASE OF P. J. CHE MICALS LTD. [1994] 210 ITR 830, STILL HOLDS THE FIELD. THEIR LORDSHIPS ANA LYSED THE EXPRESSION 'MET DIRECTLY OR INDIRECTLY' TO COME TO THE CONCLUS ION THAT ONLY IN A CASE WHERE A SUBSIDY OR OTHER GRANT WAS GIVEN TO OFFSET THE COST OF AN ASSET, SUCH PAYMENT/GRANT WOULD FALL WITHIN THE EXPRESSION 'MET' WHEREAS THE SUBSIDY RECEIVED MERELY TO ACCELERATE THE INDUSTRIA L DEVELOPMENT OF THE STATE CANNOT BE CONSIDERED AS PAYMENTS MADE SPECIFI CALLY TO MEET A PORTION OF THE COST OF THE ASSETS. A CAREFUL PERUSAL OF 'TARGET 2000' SCHEME SHOWS THA T THE SCHEME WAS INTENDED TO ACCELERATE INDUSTRIAL DEVELOPMENT OF TH E STATE AND THE INCENTIVE WAS GIVEN FOR SETTING UP OF INDUSTRIES IN ANDHRA PRADESH AND FOR THE PURPOSE OF DETERMINING THE AMOUNT OF SUBSID Y TO BE GIVEN THE COST OF ELIGIBLE INVESTMENT WAS TAKEN AS THE BASIS, THOUGH IT WAS NOT SPECIFICALLY INTENDED TO SUBSIDISE THE COST OF THE CAPITAL. UNDER THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE INCENTIV E 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 OU TSIDE 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. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED.' 7. IN OUR CONSIDERED OPINION, THIS CASE IS COVERED BY THE AFORESAID JUDGMENT. THEREFORE, THIS GROUND OF THE DEPARTMENT IS DISMISSED. SO FAR AS DISALLOWANCE OF RS.32,73,544/- WAS MADE ON ACCOU NT OF TRANSPORT ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 19 - 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 JUDGMEN T OF JURISDICTIONAL HIGH COURT [2014] 366 ITR 122 (GUJARAT), IN THE CAS E OF ANUPAM TELE SERVICES VS. ITO: SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, READ WI TH RULE 6DD OF THE INCOME-TAX RULES, 1962 - BUSINESS DISALLOWANCE - CA SH PAYMENT EXCEEDING PRESCRIBED LIMITS (RULE 6DD(J)) -ASSESSME NT YEAR 2006-07 - ASSESSEE WAS WORKING AS AN AGENT OF TATA TELE SERVI CES LIMITED FOR DISTRIBUTING MOBILE CARDS AND RECHARGE VOUCHERS - P RINCIPAL COMPANY TATA INSISTED THAT CHEQUE PAYMENT FROM ASSESSEE'S C O-OPERATIVE BANK WOULD NOT DO, SINCE REALIZATION TOOK LONGER TIME AN D SUCH PAYMENTS SHOULD BE MADE ONLY IN CASH IN THEIR BANK ACCOUNT - IF ASSESSEE WOULD NOT MAKE CASH PAYMENT AND MAKE CHEQUE PAYMENTS ALON E, IT WOULD HAVE RECEIVED RECHARGE VOUCHERS DELAYED BY 4/5 DAYS WHIC H WOULD SEVERELY AFFECT ITS BUSINESS OPERATION - ASSESSEE, THEREFORE , MADE CASH PAYMENT - WHETHER IN VIEW OF ABOVE, NO DISALLOWANCE UNDER SEC TION 40A(3) WAS TO BE MADE IN RESPECT OF PAYMENT MADE TO PRINCIPAL - H ELD, YES [PARAS 21 TO 23] [IN FAVOUR OF ASSESSEE] 9 . RESPECTFULLY, FOLLOWING THE ABOVE SAID JUDGMENT, WE DISMISS THE GROUND OF THE DEPARTMENT WITH REGARD TO DISALLOWANC E OF RS.32,73,544/- MADE ON ACCOUNT OF TRANSPORT PAYMENTS. THEREFORE, A PPEAL FILED BY THE DEPARTMENT IS DISMISSED. ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 20 - ASSESSEES CROSS OBJECTION IN CO NO.199/AHD/2013 (I N ITA NO.1588/AHD/2013) FOR THE A.Y.2009-10: 10. ASSESSEE HAS TAKEN FOLLOWING OBJECTIONS: I. THE LEARNED CIT(A) ERRED BOTH ON FACTS AND IN LAW I N UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN MAKING DISALLOWA NCE OF RS.41,094/- U/S. 40(A)(IA) OF THE ACT FOR SHORT PAY MENT OF TDS. II. THE LEARNED CIT(A) ERRED BOTH ON FACTS AND IN LAW I N UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN RESTRICTING CARR Y FORWARD OF UNABSORBED DEPRECIATION TO RS.5,97,291/- AGAINST EL IGIBLE AMOUNT OF RS.17,93,015/- PERTAINING TO A.Y.2002-03. 11. IN SUPPORT OF ITS CONTENTION, ASSESSEE HAS FILE D ANNEXURE 7 OF TAX AUDIT REPORT: STATEMENT GIVEN DETAILS OF AVAILABLE UNABSORBED BUSINESS LOSS & DEPRECIATION FOR SETOFF AGAINST INCOME BEFOR E SETOFF FOR A.Y. 2009-10 BASED ON RE-INCOME FILED BY THE ASSESSEE AN D SUBMITTED FOR THE PURPOSE OF TAX AUDIT U/S. 44AB OF THE ACT. 12. THE DETAILS OF THE SAID FACTS HAS GIVEN IN PAGE NO.10 AT PARA10 OF THE AO AND LEARNED CIT(A) HAS GIVEN IN PAGE NO. 26 AT PARA 5.3. 13. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE C ASE, WE REMIT THE ISSUE RAISED IN THE CO BY THE ASSESSEE BACK TO THE FILE OF THE AO FOR VERIFICATION AT HIS END. THE AO WILL PROVIDE REASON ABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS HEREBY DIRECTED TO CO-OPERATE WITH THE AO AND FURNISH THE DETAILS WELL IN TIME BE FORE THE AO. ITA NO.1588/AHD/2013 & CO NO.199/AHD/2013 (IN ITA N O.1588/AHD/2013) DCIT VS. SAKAR GLAZED TILES PVT. LTD. ASST.YEAR 2009-10 - 21 - ACCORDINGLY, THE CROSS OBJECTION FILED BY THE ASSES SEE IS ALLOWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 1588/AHD/2013 IS DISMISSED AND CROSS OBJECTION 199/AHD/2013 (IN ITA NO.1588/AHD/2013) IS ALLOWED FOR STATISTICAL PURPOS E. THIS ORDER PRONOUNCED IN OPEN COURT ON 29/05/2017 SD/- SD/- ( ) 3 4 ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 29/05/2017 PRITI YADAV, SR. PS !'# $#! # COPY OF THE ORDER FORWARDED TO : 1. !$' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 56, ) 7, / CONCERNED CIT 4. ) 7, 3!4 / THE CIT(A)-XIV, AHMEDABAD. 5. 89:,56 !-!561 ! / DR, ITAT, AHMEDABAD 6. :;<* # GUARD FILE. % & / BY ORDER, (8,, //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY