M/s Monarch Rocks Pvt. Ltd., Hyderabad V. ACIT, CIRCLE-16(2), Hyderabad

ITA 1256/HYD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53730 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 04-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBE R. ITA NO.1256/HYD/2011 (ASSESSMENT YEAR 2005-06) M/S. MONARCH ROCKS PVT. LTD., HYDERABAD (PAN AACCM 3263 E) V/S INCOME-TAX OFFICER, WARD-16(2), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.RAMA RAO RESPONDENT BY : SHRI K.J.RAO DATE OF HEARING 25 10.2011 DATE OF PRONOUNCEMENT 31.10.2011 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YE AR 2005- 06, IS DIRECTED AGAINST THE ORDER OF THE COMMISSION ER OF INCOME- TAX(APPEALS)-V, HYDERABAD DATED 29.4.2011. 2. EFFECTIVE GROUNDS OF THE ASSESSEE IN THIS APPEA L READ AS FOLLOWS- 1. .. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE SUBSIDY RECEIVED BY THE APPELLANT FROM THE GOVERNMENT OF AN DHRA PRADESH IS TO BE REDUCED FROM THE COST OF ASSET FOR THE PURPOSE OF ARRIVING AT DEPRECIATION. 3. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED T HE FACT THAT THE SUBSIDY PAID BY THE GOVERNMENT OF ANDHRA PRADES H DOES NOT REPRESENT THE REIMBURSEMENT OF THE COST OF ASSET AND THE SAID AMOUNT IS NOT TO BE DEDUCTED FROM THE COST OF THE ASSET FOR THE PURPOSE OF ARRIVING AT DEPRECIATI ON. 4 : ITA NO.1256/HYD/2011 M/S. MONARCH ROCKS PVT. LTD., HYDERABAD 2 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E COMPANY FIELD ITS RETURN OF INCOME ON 29.10.2005 DECLARING A TOTAL INCOME OF RS.3,18,820. THOUGH ASSESSMENT WAS ORIGINALLY COMPL ETED UNDER S.143(3) OF THE ACT ON 14.11.2007, ACCEPTING THE R ETURNED INCOME, THE SAID ASSESSMENT WAS REOPENED AND COMPLETED UND ER S.143(3) READ WITH S.147 OF THE ACT ON 30.10.2009 BY DETERMI NING THE TOTAL INCOME OF THE ASSESSEE AT RS.5,71,020, AFTER DISALL OWING EXCESS DEPRECIATION AMOUNTING TO RS.2,52,195. THE DEPRECIA TION CLAIMED BY THE ASSESSEE WAS FOUND TO BE EXCESSIVE BY THE ASSES SING OFFICER, SINCE, ACCORDING TO HIM, THE SUBSIDY RECEIVED BY THE ASSES SEE FROM THE STATE GOVERNMENT WAS OF CAPITAL NATURE, AND AS SUCH IT HA S TO BE REDUCED FROM THE COST OF THE PLANT AND MACHINERY. THE ASSE SSING OFFICER ACCORDINGLY DETERMINED THE EXCESS CLAIMED DEPRECIAT ION, BEING 25% OF THE SUBSIDY RECEIVED OF RS.10,08,780 RECEIVED BY TH E ASSESSEE, AT RS.2,52,195. HE DISALLOWED SUCH EXCESS CLAIMED DEPR ECIATION OF RS.2,52,195, WHICH WAS ADDED BACK TO THE INCOME, WH ILE COMPLETING THE RE-ASSESSMENT UNDER S.143(3) READ WITH S.147 O F THE ACT. 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A), IT WAS CONTENDED BY THE LEAR NED AUTHORISED REPRESENTATIVE THAT THE SUBSIDY RECEIVED WAS BY WAY OF ENCOURAGEMENT FOR SETTING UP THE INDUSTRY IN A BACK WARD AREA, AND NOT BY WAY OF REIMBURSEMENT FOR THE COST OF THE ASSET. IT WAS ALSO CONTENDED IN THE ALTERNATIVE THAT EVEN IF THE SUBSI DY IS TO BE REDUCED FROM THE COST OF THE ASSET, THEN THE COST OF THE AS SETS SHOULD PROPORTIONATELY BE REDUCED BETWEEN THE LAND AND BUI LDING AND PLANT AND MACHINERY, AS THE THREE ASSETS WERE CONSIDERED TOGETHER FOR THE QUANTIFICATION OF THE SUBSIDY SANCTIONED. THE CI T(A), AFTER EXAMINING ITA NO.1256/HYD/2011 M/S. MONARCH ROCKS PVT. LTD., HYDERABAD 3 THE SCHEME OF SUBSIDY IN THE LIGHT OF THE ORDER PAS SED BY THE STATE GOVERNMENT DATED 4.9.2004 SANCTIONING THE SUBSIDY, FOUND SOME MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE EN TIRE AMOUNT OF SUBSIDY CANNOT BE DEDUCTED FROM PLANT AND MACHINERY ONLY, BECAUSE SUBSIDY WAS MEANT TO OFFSET THE COST OF PLANT AND M ACHINERY. THE CIT(A), OBSERVING THAT THE SUBSIDY CAN ALSO NOT BE MEANT TO OFFSET THE COST OF LAND, BECAUSE LAND DOES NOT DEPRECIATE AND RATHER IT APPRECIATES, DIRECTED THE ASSESSING OFFICER TO REDU CE PROPORTIONAL SUBSIDY AMOUNT FROM BUILDING AND PLANT AND MACHINER Y BLOCKS IN THE RATIO OF INVESTMENTS CONSIDERED. ACCORDING TO HI M, THE AMOUNT OF CAPITAL COST REDUCED FROM THE BLOCK OF BUILDINGS WO ULD BE RS.3,78,273 (16,16,998 X 10,80,780 /(16,56,998+30,75,054) AND T HAT FROM PLANT AND MACHINERY WILL BE RS.7,02,329 (RS.30,75,054 X 10,80,780/(16,56,998 + 30,75,054). HOLDING THAT T HE PROPORTIONAL DEPRECIATION CLAIMED WILL ACCORDINGLY BE ADDED BACK , THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 6. STILL AGGRIEVED, ASSESSEE PREFERRED THE PRESENT APPEAL. 7. THE LEARNED COUNSEL FOR THE ASSESSEE, REITERATI NG THE CONTENTIONS URGED BEFORE THE LOWER AUTHORITIES, SUB MITTED THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE WITH THE DECISION OF THE APEX COURT IN THE CASE OF CITV/S. P.J.CHEMICALS LTD. (210 ITR 830). HE ALSO PLACED R ELIANCE ON THE DECISION OF THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF SASISRI EXTRACTIONS LIMITED V/S. ACIT(122 ITD 428) 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE OPPOSED THE ABOVE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE AS SESSEE, AND STRONGLY RELIED ON THE ORDERS OF THE ASSESSING OFFI CER AND THE CIT(A). ITA NO.1256/HYD/2011 M/S. MONARCH ROCKS PVT. LTD., HYDERABAD 4 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE INVOLVE D IN THIS APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE WITH THE DECISION OF THE APEX COURT IN THE CASE OF CIT V/S. PJ CHEMICALS LTD. (SUPRA), RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, WHEREIN IT HAS BE EN HELD VIDE HEAD- NOTE ON PAGE 830 OF THE REPORTS(210 ITR), AS FOLLOW S- WHERE GOVERNMENT SUBSIDY IS INTENDED AS AN INCENTI VE TO ENCOURAGE ENTREPRENEURS TO MOVE TO BACKWARD AREAS A ND ESTABLISH INDUSTRIES, THE SPECIFIED PERCENTAGE OF T HE FIXED CAPITAL COST, WHICH IS THE BASIS FOR DETERMINING TH E SUBSIDY , BEING ONLY A MEASURE ADOPTED UNDER THE SCHEME TO QU ANTIFY THE FINANCIAL AID, IS NOT A PAYMENT, DIRECTLY OR INDIRE CTLY, TO MEET ANY PORTION OF THE ACTUAL COST. THE EXPRESSION A CTUAL COST IN SECTION 43(1) OF THE INCOM E TAX ACT, 1961, NEEDS TO BE INTERPRETED LIBERALLY. SUCH A SUBSIDY DOES NOT PART AKE OF THE INCIDENTS WHICH ATTRACT THE CONDITIONS FOR ITS DEDU CTIBILITY FROM ACTUAL COST. THE AMOUNT OF SUBSIDY IS NOT TO BE DEDUCTED FROM THE ACTUAL COST UNDER SECTION 43(1) FOR THE PURPOSE OF CALCULATION OF DEPRECIATION, ETC. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE A PEX COURT IN THE CASE NOTED ABOVE, WE HOLD THAT EVEN THOUGH THE STATE GOV ERNMENT IN THE PRESENT CASE HAS TAKEN INTO ACCOUNT THE COST OF LAN D, BUILDINGS AND PLANT AND MACHINERY WHILE GRANTING SUBSIDY TO THE A SSESSEE, IT WAS SO TAKEN MERELY FOR THE PURPOSE OF QUANTIFICATION OF T HE SUBSIDY TO WHICH ASSESSEE IS ENTITLED, AND SINCE THE SUBSIDY RECEIVE D BY THE ASSESSEE IS ONLY BY WAY OF INCENTIVE FOR ESTABLISHING INDUSTRIE S IN A BACKWARD AREA, SUCH SUBSIDY IS NOT DEDUCTIBLE FROM THE COST OF THE ASSETS, WHILE QUANTIFYING THE DEPRECIATION TO WHICH THE ASSESSEE IS ELIGIBLE ON SUCH ASSETS. WE ACCORDINGLY, SET ASIDE THE IMPUGNED ORD ER OF THE CIT(A), AND DELETE THE ENTIRE ADDITION ON ACCOUNT OF EXCESS CLAIMED DEPRECIATION OF RS.2,52,195, MADE BY THE ASSESSING OFFICER, ALLOWING THE GROUNDS OF THE ASSESSEE IN THIS APPEAL. ITA NO.1256/HYD/2011 M/S. MONARCH ROCKS PVT. LTD., HYDERABAD 5 4. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER. JUDICIAL MEMBER. DT/- 31ST OCTOBER, 2011 COPY FORWARDED TO: 1. M/S. MONARCH ROCKS PVT. LTD., C/O. SHRI S.RAMA R AO, FLAT NO.102, SHIRYA'S ELEGANCE, NO.3-6-643, STREET NO.9, HIMAYATNAGAR, HYDERABAD 500029 2. ASST COMMISSIONER OF INCOME-TAX 16(2), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(A) - V, HYDERABAD I 4. COMMISSIONER OF INCOME - TAX IV, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. B.V.S.