M/s Demarte Industries Ltd., Ludhiana V. ITO, W-5(1), Ludhiana

ITA 1274/CHANDI/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4757 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 05-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHANDRAKANTA SR DR
• Keywords: Depreciation; Additional depreciation; Capital receipt; Set aside
• Section: 115JB; 143(1)

Judgement Text

, .. , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BEN CHES, SMC CHANDIGARH .., ! BEFORE: SHRI. N.K.SAINI, VICE PRESIDENT ITA NO.1274/CHD/2018 ASSESSMENT YEAR : 2013-14 M/S DEMARTE INDUSTRIES LTD. C/O RAJESH MEHRU & CO. H.NO. 2761/2, GURDEV NAGAR LUDHIANA THE ITO, W - 5(1) LUDHIANA PAN NO: AAACD5840N APPELLANT RESPONDENT !' ASSESSEE BY : SHRI AJAY JAIN, CA #!' REVENUE BY : SMT. CHANDRAKANTA, SR. DR $ %! & DATE OF HEARING : 17/07/2019 '()*! & DATE OF PRONOUNCEMENT : 09/08/2019 '#/ ORDER PER N.K. SAINI, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-2, LUDHIANA, DT. 09/08/2018. 2. IN THE PRESENT APPEAL ASSESSEE HAS RAISED THE FO LLOWING GROUNDS: 1. THAT THE IMPUGNED ORDER IS AGAINST FACTS AND LAW. 2. THAT ON LAW, FACTS AND CIRCUMSTANCES OF THE CASE, T HE WORTHY CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF DEPRECI ATION AND ADDITIONAL DEPRECIATION OF RS. 11,40,910/- AS CLAIMED ON CAPITAL SUBSIDY OF RS. 32 ,59,741/-, WHICH IS OTHERWISE REQUIRED TO BE DEDUCTED FROM THE COST OF FIXED ASSET, BY ERRONE OUSLY HOLDING THAT THE SAME HAS BEEN ACTUALLY RECEIVED BY THE ASSESSEE COMPANY. 3. THAT ON LAW, FACTS AND CIRCUMSTANCES OF THE CASE, T HE WORTHY CIT(A) HAS ERRED IN CONFIRMING CALCULATION OF THE BOOK PROFITS UNDER SE CTION 115JB OF THE INCOME TAX ACT, 1961 BY CONTRADICTING TREATMENT OF CAPITAL SUBSIDY BY NO T DEDUCTING THE AMOUNT OF CAPITAL SUBSIDY FROM BOOK PROFIT CALCULATION AND TREATED AS REVENUE RECEIPT. SIMULTANEOUSLY, ON THE OTHER HAND, THE SAID AMOUNT OF CAPITAL SUBSIDY HAS BEEN REDUCED FROM COST OF FIXED ASSETS. THUS AMOUNTS TO DOUBLE TAXATION. 4. THAT THE APPELLANT CRAVES LEAVE FOR ANY ADDITION, D ELETION OR AMENDMENT IN THE GROUNDS OF APPEAL ON OR BEFORE THE DISPOSAL OF THE SAME. 3. VIDE GROUND NO. 1 THE GRIEVANCE OF THE ASSESSEE RELATES TO THE CONFIRMATION OF DISALLOWANCE OF DEPRECIATION AND ADDITIONAL DEPRECI ATION AS CLAIMED ON CAPITAL SUBSIDY WHICH WAS REQUIRED TO BE DEDUCTED FROM THE COST OF FIXED ASSETS. 4. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE E-FILED ITS RETURN OF INCOME ON 24/09/2013 DECLARING AN INCOME OF RS. 11,80,590/- W HICH WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS ACT), ON 27/03/2015. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. 2 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSEE WHILE CALCULATING TAXABLE INCOME REDUCED AN AMOUNT OF RS. 32,59,741/- AS SUBSIDY ON FIXED ASSETS FROM TUFF, FROM PROFITS UNDER THE HEA D ITEMS FOR SEPARATE CONSIDERATION AND AS THE SAME WAS NOT REDUCED FROM THE ACTUAL COS T OF ASSETS FOR THE PURPOSE OF CLAIM OF DEPRECIATION. THE A.O. ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE AMOUNT OF RS. 32,59,741/- MAY NOT BE REDUCED FROM T HE COST OF MACHINERY. IN RESPONSE THE ASSESSEE SUBMITTED AS UNDER: WE ARE IN RECEIPT OF YOUR GOODSELFS NOTICE DT 1 7.03.2016 WHEREIN YOUR GOODSELF HAS REQUIRED EXPLANATION ON SUBSIDY CREDITED UNDER THE HEAD 'OTHER INCOME' IN PROFIT & LOSS ACCOUNT DURING THE YEAR, IN THIS REGARD, IT IS SUBMITTED THAT DURING THE YEAR IN QUESTION, THE ASSESSEE COMPANY HAS NOT RECEIVED AMOUNT OF SUB SIDY WHICH IS SHOWN IN PROFIT & LOSS ACCOUNT. IT IS SHOWN IN SUBSIDY RECEIVABLE UNDER TH E HEAD 'OTHER LOANS & ADVANCES' IN THE BALANCE SHEET FOR THE YEAR UNDER ASSESSMENT AND CRE DITED IN SUBSIDY ACCOUNT IN THE PROFIT & LOSS ACCOUNT BUT SUBSIDY HAS NOT RECEIVED IN ACTU AL IT IS RECEIVABLE. AS SUBSIDY HAS NOT RECEIVED DURING THE YEAR SO WHY TAX HAS BEEN PAID O N SUCH AMOUNT. IT IS FICTITIOUS ASSETS. WHILE COMPUTING TAXABLE INCOME OF THE ASSESSEE COMP ANY, SUCH AMOUNT OF SUBSIDY HAS BEEN DEDUCTED FROM THE INCOME OF THE COMPANY. AS SU BSIDY AMOUNT HAS NOT RECEIVED SO IT IS NOT TO BE REDUCED FROM COST OF MACHINERY. AFT ER RECEIVING THE SUBSIDY, AMOUNT SHOULD BE REDUCED FROM COST OF ASSETS.' 6. THE A.O. AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE OBSERVED THAT THE CONTENTION OF THE ASSESSEE DID NOT HOLD MERIT AND A CCORDINGLY THE SAME WAS REJECTED. THE A.O. REDUCED THE CAPITAL SUBSIDY OF RS. 32,59, 741/- FROM THE COST OF MACHINERY AND CLAIM OF DEPRECIATION ALONGWITH ADDITIONAL DEPRECIA TION WAS RESTRICTED TO THE ACTUAL COST OF MACHINERY. ACCORDINGLY EXCESS CLAIM OF DEPR ECIATION @ 35% ( 15% DEPRECIATION AND 20% ADDITIONAL DEPRECIATION) OF RS. 32,59,741/- WHICH WORKED OUT TO RS. 11,40,910/- WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 7. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE A.O. WRONGLY REDUCED THE WHOLE AMOUNT OF S UBSIDY OF RS. 32,59,741/- WHEREAS THE ASSESSEE HAD RECEIVED RS. 10,04,264/- IN ACTUAL WHICH SHOULD HAVE BEEN DEDUCTED FROM THE COST OF FIXED ASSETS AND THE DEPRECIATION RATE WAS TO BE APPLIED @ 15% ONLY BECAUSE THE ADDITIONAL DEPRECIATION WAS TO BE ALLOW ED IN THE YEAR IN WHICH THE MACHINERY WAS PURCHASED AND NOT IN SUBSEQUENT YEARS . 8. THE LD. CIT(A) HOWEVER, DID NOT FIND MERIT IN TH E SUBMISSIONS OF THE ASSESSEE BY OBSERVING THAT THE ACTION OF THE ASSESSEE IN CREDIT ING WHOLE OF THE AMOUNT OF SUBSIDY TO THE PROFIT & LOSS ACCOUNT EITHER ON RECEIPT BASIS O R ON DUE BASIS CLEARLY PROVED THAT THE SUBSIDY AMOUNT OF RS. 32,59,741 PERTAINED TO THE YE AR UNDER CONSIDERATION ONLY AND AS SUCH THE ASSESSEE COMPANY SHOULD HAVE REDUCED THIS AMOUNT FROM THE ACTUAL COST OF THE FIXED ASSETS FOR THE PURPOSES OF CLAIMING THE D EPRECIATION AND ADDITIONAL DEPRECIATION. 9. NOW THE ASSESSEE IS IN APPEAL. 10. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE SU BSIDY WAS TO BE REDUCED FROM THE 3 FIXED ASSETS ONLY WHEN IT WAS RECEIVED. HOWEVER, FO R THE YEAR UNDER CONSIDERATION AN AMOUNT OF RS. 10,04,264/- WAS RECEIVED AND NOT THE WHOLE AMOUNT OF SUBSIDY OF RS. 32,59,741/-. IT WAS FURTHER SUBMITTED THAT NEITHER THE A.O. NOR THE LD. CIT(A) APPRECIATED THE FACTS IN RIGHT PERSPECTIVE AND WRONGLY WORKED O UT THE ADDITIONAL DEPRECIATION WHICH IS AVAILABLE ONLY IN THE YEAR OF PURCHASE AND NOT IN SUBSEQUENT YEARS. 11. IN HER RIVAL SUBMISSIONS THE LD. SR. DR STRONGL Y SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND REITERATED THE OBSERVATIONS M ADE IN THEIR RESPECTIVE ORDERS. 12. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE IT IS AN ADMITTED FACT THAT THE A.O. REDUCED THE TOTAL AMOUNT OF SUBSIDY OF RS. 32,59,74 1/- WHEREAS THE CLAIM OF THE ASSESSEE IS THAT THE AMOUNT OF RS. 10,04,264/- WAS ONLY RECEIVED, THE SAME WAS TO BE DEDUCTED FROM THE COST OF FIXED ASSETS AND THAT NO ADDITIONAL DEPRECIATION WAS TO BE WORKED OUT SINCE THE MACHINERY WAS NOT PURCHASED IN THE YEAR OF RECEIPT OF THE SUBSIDY WHERE AS THE ADDITIONAL DEPRECIATION WAS ALLOWABLE ONLY IN THE YEAR IN WHICH THE MACHINERY WAS PURCHASED. THE AFORESAID CLAIM OF THE ASSESSEE REQUIRES VERIFICATION, I THEREFORE CONSIDERING THE TOTALITY OF THE FACT DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE BACK TO THE FILE OF THE A.O. TO BE ADJUDICATED AFRE SH IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. 13. AS REGARDS TO THE GROUND NO. 3 RELATING TO CALC ULATION OF THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT AND NOT DEDUCTING THE AMOU NT OF CAPITAL SUBSIDY FROM THE BOOK PROFIT. 14. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THE ITAT MUMBAI J BENCH IN ITA NO. 9 23/BANG/2009 FOR THE A.Y. 2004-05 IN THE CASE OF M/S JSW STEEL LIMITED, MUMBAI VS. ACIT, CIRCLE 11(5), BANGALORE, COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON THE RECORD. 15. IN HER RIVAL SUBMISSIONS THE LD. SR. DR STRONGL Y SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 16. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND MATERIAL AVAILABLE ON THE RECORD IT IS NOTICE THAT THIS ISSUE HAS BEEN SE T ASIDE BY ITAT MUMBAI J BENCH IN THE AFORESAID REFERRED TO CASE AND THE RELEVANT FINDING S HAVE BEEN GIVEN IN PARA 23 OF THE ORDER DT. 13/01/2017 IN THE CASE OF M/S JSW STEEL L IMITED, MUMBAI VS. ACIT, CIRCLE 11(5), BANGALORE (SUPRA) WHICH READ AS UNDER: 23. FROM THE PERUSAL OF AFORESAID DECISIONS, AT THE OUTSET, IT MAY APPEAR THAT ON SIMILAR NATURE OF ISSUES THERE ARE DIVERGENT VIEWS OF VARIO US BENCHES OF THE TRIBUNAL, HOWEVER, ONE COMMON POINT/RATIO PERMEATING THROUGH ALL THE DECIS IONS, WHICH CAN BE DEDUCED BY US IS THAT, IF AN ASSESSEE COMPANY IS IN RECEIPT OF A 'CA PITAL RECEIPT' WHICH IS NOT CHARGEABLE TO TAX AT ALL, THAT IS, IT DOES NOT FALL WITHIN ANY OF THE CHARGING SECTION OR CAN BE CLASSIFIED UNDER ANY HEADS OF INCOME UNDER THE INCOME TAX ACT, THEN SAME CANNOT BE TREATED AS PART OF NET PROFIT AS PER PROFIT & LOSS ACCOUNT OR RECKONED AS WORKING RESULT' OF THE COMPANY OF THE RELEVANT PREVIOUS YEAR AND CONSEQUEN TLY, CANNOT BE HELD TO BE TAXABLE 4 AS 'BOOK PROFIT' UNDER MAT IN TERMS OF SECTION 115JB. ACCORDINGLY, OUR CONCLUSION REMAINS THE SAME THAT, THE CAPITAL SURPLUS ON ACCOUNT OF WAIVER OF DUES NEITHER IS TAXABLE NOR CAN BE INCLUDED IN COMPUTATION OF BOOK PROFIT U/S 115JB . 17. IN THE PRESENT CASE ALSO THE A.O. CONSIDERED TH E SUBSIDY AS CAPITAL RECEIPT AND REDUCED IT FROM THE COST OF ASSETS THEREFORE IT WAS NOT CHARGEABLE TO TAX AT ALL UNDER ANY HEAD OF THE INCOME, THEN IT COULD NOT HAVE BEEN TREATED AS PART OF THE NET PROFIT AS PER PROFIT & LOSS ACCOUNT, SO COULD NOT HAVE BEE N HELD TO BE TAXABLE AS BOOK PROFIT UNDER MAT IN TERMS OF SECTION 115JB OF THE ACT. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER OF COORDINATE BENCH, THIS ISSUE I S DECIDED IN FAVOUR OF THE ASSESSEE. 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 09/08/2019 ) SD/- .., ( N.K. SAINI) ! / VICE PRESIDENT AG DATE: 09/08/2019 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE