Indo German Tool Room, V. The DCIT 1 (1),

ITA 125/IND/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 47784 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 09-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KESHAVE SAXENA
• Assessee Lawyers: S S DESHPANDE
• Keywords: Reopening of assessment; Depreciation
• Section: 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARMA, A.M. PAN NO. : AAAAI0272M I.T.A.NO. 593 , 125 & 594 /IND/200 9 A.Y. : 2001 - 02 , 2005 - 06 & 2006 - 07 INDO GERMAN TOOLS ROOM, DCIT, 1(1), 29 1 - B, 302A, SECTOR E, SANWER ROAD, INDORE. VS INDORE. APPELLANT RESPONDENT APPELLANT BY : S/SHRI GIRISH DAVE AND SHRI S. S. DESHPANDE, C.A. RESPONDENT BY : SHRI KESHAVE SAXENA, CIT DR O R D E R PER R. C. SHARMA, A.M. TH ESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2001 - 02, 2005 - 06 AND 2006 - 07. 2. F OLLOWING THREE COMMON GROUNDS HAVE BEEN TAKEN IN ALL THE YEARS UNDER CONSIDERATION : - - : 2 : - 2 1. THE LD. CIT(A) HAS ERRED IN MAINTAINING THE DISALLOWAN CE OF DEPRECIATION ON THE GROUND THAT THE ASSETS HAVE BEEN PURCHASED FROM THE GOVERNMENT GRANT AND AS SUCH IT WOULD REDUCE THE COST. 1.1 IT WAS PROVED BEFORE THE LD. CIT(A) AND THE LD. AO THAT THE GRANT WAS RECEIVED TOWARDS THE CORPUS OF THE ENTITY AND AS SUCH NO DISALLOWANCE OUT OF DEPRECIATION CAN BE MADE. 2. THE LD. CIT(A) SHOULD HAVE CONSIDERED THE FACT THAT THE ASSESSEE HAS APPLIED FOR REGISTRATION U/S 12A/12AA AND THE APPLICATION IS NOT DISPOSED OFF OF THE LD. CIT. THUS, THE ASSESSMENT SHOULD HAVE BEEN F RAMED AS PER PROVISIONS OF SECTION 11 TO 13 OF THE INCOME - TAX ACT, 1961, AND THE DEPRECIATION SHOULD HAVE BEEN ALLOWED AS CLAIMED. 3. THE LD. CIT(A) HAS ERRED IN UPHOLDING THE REOPENING OF ASSESSMENT AS NOT INVALID. 3. SHRI GIRISH DAVE APPEARED ON BEHALF OF THE ASSESSEE ALONGWITH SHRI S. S. DESHPANDE , C. A . AND SHRI KESHAVE - : 3 : - 3 SAXENA , THE CIT DR APPEARED ON BEHALF OF THE REVENUE AND ARGUED THE CASE. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. 5. THE ASSESSEE, IN TH IS CASE, IS GOVERNMENT OF INDIA ENTERPRIS ES. AT THE OUT - SET, THE LD. AUTHORIZED REPRESENTATIVE PLACED ON RECORD THE ORDER OF HON'BLE SUPREME COURT IN THE CASE OF ELECTRONICS CORPN. OF INDIA LIMITED, ORDER DATED 17 TH FEBRUARY, 2011, WHEREIN REQUIREMENT OF OBTAINING COD APPROVAL WAS DISPENSED WITH BY HON'BLE SUPREME COURT AND THE DECISION RENDERED BY IT ON EARLIER OCCASIONS WERE RECALLED, WHEREIN REQUIREMENT OF OBTAINING COD APPROVAL WAS INSISTED IN CASE OF GOVERNMENT UNDERTAKINGS. ACCORDINGLY, AFTER COMING THE DECISION OF HON'BLE SUPREME COURT, THE RE IS NOR REQUIREMENT FOR OBTAINING C.O.D. APPROVAL. 6. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE SOCIETY WAS SET UP BY THE GOVERNMENT OF INDIA WITH THE ASSISTANCE OF GOVERNMENT OF GERMANY AND GOVERNMENT OF M.P. FOR CARRYING ON THE ACTIVITY OF PROVIDI NG TECHNICAL, ADVISORY AND CONSULTANCY SERVICES FOR SMALL SALE UNITS AND PROVIDING SERVICE - : 4 : - 4 FACILITIES FOR DESIGNING, DEVELOPING THE PRODUCTS AND TRAINING OF PERSONNEL IN THE TOOL ROOM, ESTABLISHED BY THE ASSESSEE. INITIALL Y, GOVERNMENT OF INDIA AND GOVERNM ENT OF GERMANY CONTRIBUTED SUBSTANTIAL MONEY TOWARDS THE CAPITAL FUNDS. FROM THIS FUND, WITH THE ASSISTANCE OF GOVERNMENT OF M.P. THE SOCIETY ESTABLISHED ITS TOOL ROOM AND PURCHASED THE PLANT AND MACHINERY AND BUILDING . DEPRECIATION HAS BEEN CLAIMED FROM Y EAR TO YEAR ON THE ASSETS. THE AO HAS, HOWEVER, NOTED THAT THE GRANT HAS BEEN PERMITTED TO BE RELATABLE TO THE ASSETS PURCHASED BY THE ASSESSEE AND HENCE AS PER EXPLANATION 10 OF SECTION 43 OF THE ACT, THE VALUE OF PLANT AND MACHINERY WAS TO BE REDUCED BY THE GRANTS RESULTING INTO DISALLOWANCE OF DEPRECIATION @ 25%. THE AO ACCORDINGLY DISALLOWED AND ADDED BACK THE DEPRECIATION WHICH WAS CHALLENGED BY THE ASSESSEE BEFORE THE CIT(A), WHO CONFIRMED THE ACTION OF THE AO AND THE ASSESSEE IS IN FURTHER APPEAL BEF ORE US. 7. AT THE OUT - SET, THE LD. AUTHORIZED REPRESENTATIVE PLACED ON RECORD THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF P.J. CHEMICALS LIMITED, 210 ITR 830, WHEREIN IT WAS HELD THAT AMOUNT OF SUBSIDY FOR GRANT RECEIVED BY - : 5 : - 5 GOVERNMENT AS INCENTIV E FOR SETTING UP INDUSTRIES IN BACKWARD AREA IS NOT TO BE REDUCED FROM THE ACTUAL COST OF THE ASSETS. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF RADHA M ADHAV GUM FACTORY, 217 ITR 355, WHEREIN BY FOLLOWING T HE DECISION OF P.J.CHEMICALS (SUPRA), IT WAS HELD THAT THE AMOUNT OF GOVERNMENT SUBSIDY WAS NOT TO BE REDUCED FROM ACTUAL COST FOR THE PURPOSE OF COMPUTING DEPRECIATION. RELIANCE WAS ALSO PLACED BY THE LD. AUTHORIZED REPRESENTATIVE ON THE DECISION OF HON'B LE KARNATAKA HIGH COURT IN THE CASE OF D A VANGER E COTTON MILLS LIMITED , 243 ITR 864, AND ALSO ON THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF SURENDRA TEXTILES, 258 ITR 387, HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. INDUSTRI AL CABLES (INDIA) LIMITED, 257 ITR 417 , HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. JAYANA COLD STORAGE AND ICE FACTORY, 260 ITR 430, HON'BLE GUJARAT HIGH COURT IN THE CASE OF MEHSANA DISTRICT COOP. MILK PRODUCERS UNION LIMITED VS. CIT, 132 TAXMAN 40 (GUJ), AND LASTLY, ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MOHTA OIL INDUSTRIES PRIVATE LIMITED, 164 TAXMAN 276 . IN VIEW - : 6 : - 6 OF THESE JUDGMENTS, THE LD. AUTHORIZED REPRESENTATIVE VEHEMENTLY ARGUED THAT THE DEPARTMENTAL AUTHORITIE S WERE NOT JUSTIFIED IN REDUCING THE GRANT RECEIVED FROM GOVERNMENT FROM ACTUAL COST WHILE COMPUTING ASSESSEE S CLAIM FOR DEPRECIATION. 8. ON THE OTHER HAND, THE LD. SENIOR D.R. RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 9. WE HAVE CAREFULLY CONSIDERED THE R IVAL CONTENTIONS AND DELIBERATED ON THE CASE LAWS CITED BY THE LD. AUTHORIZED REPRESENTATIVE IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. IN THE INSTANT CASE, THE ASSESSEE BEING A SOCIETY SET UP BY THE GOVERNMENT OF INDIA, FOR CARRYING ON ACTIVITY OF PRO VIDING TECHNICAL AND CONSULTANCY SERVICES FOR SMALL SCALE UNIT. IT GOT GOVERNMENT GRANT TOWARDS CAPITAL FUNDS. BY UTILIZING THESE FUNDS AND ITS OWN CAPITAL, IT ACQUIRED PLANT AND MACHINERY AND BUILDING. WHILE ALLOWING ASSESSEE S CLAIM FOR DEPRECIATION ON S UCH PLANT AND MACHINERY AND BUILDING, THE AO REDUCED THE ACTUAL COST BY THE AMOUNT OF GRANT AFTER APPLYING EXPLANATION 10 TO SECTION 43. HON'BLE SUPREME COURT IN THE CASE OF P.J. CHEMICALS (SUPRA) HAS ELABORATELY DEALT WITH SUCH A SITUATION AND OBSERVED TH AT WHERE GOVERNMENT SUBSIDY IS - : 7 : - 7 INTENDED AS AN INCENTIVE TO ENCOURAGE ENTREPRENEURS, THE SAME IS NOT A PAYMENT DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE ACTUAL COST. THE EXPRESSION ACTUAL COST IN SECTION 43(1) OF THE INCOME - TAX ACT, 1961, IS TO BE INTERPRETED LIBERALLY. ACCORDINGLY, SUCH SUBSIDY DOES NOT PAR - TAKE ALL THE INCIDENTS WHICH ATTRACTS THE CONDITION FOR ITS DEDUCTIBILITY FROM ACTUAL COST . IT WAS, THEREFORE, HELD THAT AMOUNT OF SUBSIDY IS NOT LIABLE TO BE DEDUCTED FROM THE ACTUAL COST U/ S 43(1) FOR THE PURPOSE OF CALCULATION OF DEPRECIATION. RESPECTFULLY FOLLOWING THE PROPOSITION OF LAW AS LAID DOWN BY THE HON'BLE SUPREME COURT AND THEREAFTER BY VARIOUS COURTS, AS NARRATED ABOVE, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AUTHORI TIES FOR REDUCING THE AMOUNT OF GOVERNMENT GRANT FROM THE ACTUAL COST OF PLANT AND MACHINERY AND BUILDING FOR THE PURPOSE OF ALLOWING ASSESSEE S CLAIM FOR DEPRECIATION. ACCORDINGLY, WE REVERSE THE ORDER OF LOWER AUTHORITIES AND DECIDE THE ISSUE IN FAVOUR O F THE ASSESSEE. 10. AS WE HAVE ALREADY DECIDED THE ASSESSEE S GROUND WITH REGARD TO CLAIM OF DEPRECIATION IN ITS FAVOUR, THE GROUND NO. 3 RAISED WITH REGARD TO REGISTRATION U/S 12A/12AA HAS BECOME - : 8 : - 8 ACADEMIC. WE, THEREFORE, DO NOT THINK IT APPROPRIATE TO DEAL WI TH THE SAME. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ALL THE YEARS ARE ALLOWED IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 26 TH APRIL, 2011. SD/ - SD/ - (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26 TH APRIL, 2011 . CPU* 212 5