ACIT, Coimbatore V. M/s. T.Stanes and Company Ltd., Coimbatore

ITA 114/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64166 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-09-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 23-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K RAJAGOPAL JT
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI [BEFORE SHRI N.S. SAINI , ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ] I.T.A.NO. 114/MDS/2012 ASSESSMENT YEAR : 2008 - 09 THE ACIT COMP ANY CIRCLE I(1) CHENNAI VS M/S T.STANES & CO. LTD 8/23 - 24, RACE COURSE COIMBATORE 641 018 [PAN AAACT 7126P] ( APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.RAJAGOPAL, JT. CIT RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 04 - 09 - 2012 DATE OF PRONOUNCEMENT : 05 - 09 - 2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) - I, COIMBATORE, DATED 19.10.2011. 2 . THE REVENUE HAS TAKEN FOLLOWING GR OUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IS AGAINST FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN DELETING THE SUBSIDY RECEIPT OF RS.15,43,374/ - RECEIV ED FROM DSIR. I.T.A.NO. 114/2012 : - 2 - : 3. THE LEARNED CIT (A) ERRED IN HOLDING THAT THE FUNDS GIVEN BY DSIR (DEPT. OF SCIENTIFIC AND INDUSTRIAL RESEARCH) IS WORKING CAPITAL AND IS ONLY A PROJECT GRANT IN THE FORM OF LOAN AND THIS CANNOT BE TREATED AS SUBSIDY. 4. THE LEARNED CI T(A) OUGHT TO HAVE CONSIDERED THAT ON A PLAIN READING OF THE AGREEMENT, IT IS CLEAR THAT THE AMOUNT GIVEN BY DSIR TO THE ASSESSEE IS ONLY A GRANT IN THE FORM OF SUBSIDY WHICH IS NOT REQUIRED TO BE REPAID. 5. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED TH AT ON A READING OF THE AGREEMENT, IT FURTHER STATES THAT THE ASSESSEE IS LIABLE TO MAKE PAYMENTS TO NATIONAL RESEARCH DEVELOPMENT CENTRE ONLY AFTER THE TEST RUN AND COMMERCIAL PRODUCTION, AND THIS PAYMENT IS ALLOWABLE AS DEDUCTION UNDER THE PROVISIONS O F THE ACT. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE CIT(APPEALS) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER RESTORED. 3 . IN ALL THE GROUNDS OF APPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF THE CIT(A) IN HOLDING THAT THE SUM OF ` 15,43,374/ - GIVEN BY THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (DSIR) WAS WORKING CAPITAL AND IS ONLY A PROJECT GRANT IN THE FORM OF LOAN WHICH CANNOT BE TREATED AS SUBSIDY. 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED DEPRECIATION OF ` 15,43,374/ - ON ASSETS PURCHASED BY THE ASSESSEE WITH THE AID OF GRANT FROM DSIR ON THE GROUND THAT AS PER SECTION 43(1), THE ACTUAL COST MEANS THE ACTUAL COST TO THE ASSESSEE REDUCED BY THA T PORTION OF THE COST, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. I.T.A.NO. 114/2012 : - 3 - : 5 . ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF DEPRECIATION TO THE ASSESSEE WITHOUT REDUCING THE GRANT FROM THE COST OF THE ASSETS PURCHASED BY THE ASSESS EE BY OBSERVING THAT THE AMOUNT RECEIVED FROM THE DSIR TOWARDS PART FINANCE OF COST OF MACHINERY WAS ONLY A FINANCIAL ASSISTANCE AND NOT SUBSIDY WHICH WAS WRONGLY ASSU M ED BY THE ASSESSING OFFICER. THE AMOUNT GIVEN BY THE DSIR WAS ONLY A PROJECT GRANT IN T HE FORM OF LOAN. HENCE, THE AMOUNT RECEIVED FROM DSIR CANNOT BE REDUCED FROM THE COST OF MACHINERY FOR CALCULATING DEPRECIATION. HE NOTED THAT ON THE SAME ISSUE IN EARLIER ASSESSMENT YEAR 2007 - 08, HE HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 6 . THE A.R OF THE ASSESSEE FILED BEFORE US A COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 DATED 6.6.2012 PASSED IN I.T.A.NO. 842/MDS/2011 AND SUBMITTED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE AND AGAIN ST THE REVENUE AND THEREFORE, THE APPEAL OF THE REVENUE SHOULD BE DISMISSED. 7 . THE DR AGREED WITH THE ABOVE SUBMISSION OF THE A.R OF THE ASSESSEE. 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABL E ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS DISALLOWED DEPRECIATION OF I.T.A.NO. 114/2012 : - 4 - : ` 15,43,374/ - CLAIMED BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS PURCHASED THE MACHINERY IN QUESTION WITH THE AID OF SUBSIDY RECEIVED FROM DSIR AND THEREFOR E, THE DEPRECIATION CLAIMED ON MACHINERY, THE COST OF WHICH WAS SUBSIDIZED BY DSIR WAS NOT ALLOWABLE TO THE ASSESSEE. THE CIT(A) ALLOWED THE CLAIM OF DEPRECIATION BY FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2007 - 08 FOR THE REASON THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM DSIR WAS A PROJECT GRANT IN THE FORM OF LOAN. WE FIND THAT IN ASSESSMENT YEAR 2007 - 08 WHEN THE MATTER TRAVELLED TO THE TRIBUNAL, THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A) BY OBSERVING AS UNDER: 7. WE HAVE HEARD THE RIVAL SU BMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE RECEIVED ` 14 LAKHS FROM DSIR TOWARDS RUNNING COST OF THE PROJECT. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT DISCLOSED THE SAME AS ITS INCOME. ACCORDING TO THE ASSESSING OFFICER, THE SAME WAS A SUBSIDY OF REVENUE NATURE AND THEREFORE, THE ASSESSING OFFICER ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 8. ON APPEAL, THE CIT(A), LOOKING INTO THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE SAID DSIR, OBSERVED AS UNDER: AS SEEN FROM AGREEMENT, IT STIPULATES PAYMENT OF 1 . 3 TIMES OF THE FINANCIAL ASSISTANCE RECEIVED BY THE APPELLANT TO BE REPAID AFTER THE COMMENCEMENT OF COMMERCIAL PRODUC TION IN A PERIOD OF 5 YEARS AND IT TAKES THE CHARACTER OF LOAN FROM DSIR AND NOT A SUBSIDY. THE APPELLANT HAS ALSO TREATED THE AMOUNT RECEIVED AS LOAN IN ITS FINANCIAL STATEMENT DULY AUDITED UNDER THE PROVISIONS OF THE COMPANIES ACT. THE AGREEMENT I.T.A.NO. 114/2012 : - 5 - : WHICH P ROVIDES FOR FINANCIAL ASSISTANCE BY DSIR AND THE RETURN OF SUCH FINANCIAL ASSISTANCE BY THE APPELLANT COMPANY I N THE F ORM OF LUMP SUM ROYALTY HAS TO READ IN TOTALITY AND CANNOT BE READ IN ISOLATION . AS SEEN FROM THE DETA I LS OF THE AGREEMENT, IT CAN BE INFE RRED THAT THE AMOUNT PROVIDED BY DSIR IS ONLY A FINANCIAL ASSISTANCE AND NOT SUBSIDY WHICH WAS WRONGLY ASSUMED BY THE ASSESSING OFFICER . IT IS ALSO MENTIONED AT CLAUSE 13 OF THE AGREEMENT ' DSIR WILL HAVE THE RIGHT TO RECOVER FROM TSCL AT ANY TIME, THE MONI ES DISBURSED BY DSIR FOR THE PROJECT ALONG WITH 12% SIMPLE INTEREST IF TSCL ABANDONS THE PROJECT ON ' ITS OWN , WITHOUT APPROVAL OF DSIR O R I F THE PROJECT IS TERMINATED AS ABOVE' 9 . THEREFORE, THE CIT(A) FOUND THAT THE AMOUNT IN QUESTION WAS IN THE NATURE OF LOAN AND NOT IN THE NATURE OF REVENUE SUBSIDY AND DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THE DR SUBMITTED THAT AS THE AMOUNT IN QUESTION WAS SUBSIDY, THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. WE F IND THAT THE DR COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE CIT(A). THE DR COULD NOT BRING ANY MATERIAL BEFORE US TO SHOW THAT THE AMOUNT IN QUESTION WAS NOT REFUNDABLE BY THE ASSESSEE TO THE SAID DSIR IN ANY CIRCUMSTANCES. ON THE OTH ER HAND, WE FIND THAT THE CIT(A), AFTER GOING THROUGH THE AGREEMENT UNDER WHICH FINANCIAL ASSISTANCE WAS ADVANCED BY THE SAID DSIR TO THE ASSESSEE, FOUND THAT THE AMOUNT OF FINANCIAL ASSISTANCE WAS LIABLE TO BE REPAID BY THE ASSESSEE TO THE SAID DSIR EIT HER 1.3 TIMES AFTER THE COMMENCEMENT OF COMMERCIAL PRODUCTION OR @ 12% INTEREST IF THE PROJECT WAS ABANDONED EARLIER. WE FIND THAT NO MATERIAL WAS BROUGHT BEFORE US BY THE DEPARTMENT TO CONTROVERT THE ABOVE FINDING OF THE CIT(A). THUS, WE DO NOT FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). IT IS CONFIRMED. THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. I.T.A.NO. 114/2012 : - 6 - : 10 . AS NO DISTINGUISHING FEATURES HAVE BEEN POINTED OUT BY THE DR IN THE PRESENT YEAR OF APPEAL FROM THE FACTS OF T HE CASE IN ASSESSMENT YEAR 2007 - 08, WE DO NOT FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) WHICH IS CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 11 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 05 TH DAY OF SEPTEMBER , 2012, AT CHENNAI. SD/ - SD/ - (VIKAS AWASTHY) JUDICIAL MEMBER ( N.S.SAINI ) ACCOUNTANT MEMBER DATED: 05 TH SEPTEMBER , 2012 RD C OPY TO: APPELLANT / RESPONDENT / CIT(A) /CIT/ DR