Kaira Dist.Co.Op.Milk Producers Union Ltd., Anand V. The ACIT.,Anand Circle, Anand

ITA 1336/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1510 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 08-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Keywords: Depreciation; Business expenditure; Proportionate interest; Question of law; Reason to believe; Unabsorbed depreciation; Revenue expenditure
• Section: 143(3); 14A; 32; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD, AMUIL DIARY ROAD, ANAND - 388001 PAN: AAACK9062D (APPELLANT) VS THE ACIT, ANAND CIRCLE, ANAND (RESPONDENT) REVENUE BY : S H RI NARENDRA SINGH , SR. D . R. ASSESSEE BY: S H RI SANJAY R. SHAH , A.R. DATE OF HEARING : 05 - 04 - 2 016 DATE OF PRONOUNCEMENT : 31 - 05 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THE S E TWO ASSESSEE S APPEAL S FOR A.Y. 2007 - 08 & 2009 - 10 , AR ISE FROM ORDER OF THE CIT(A) - IV, BARODA DATED 04 - 02 - 213 & 22 - 02 - 2013 IN APPEAL NO S . CAB/IV - A - 305/2011 - 12 & CAB/IV - A - 378/2011 - 12 , IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1 961; IN SHORT THE ACT . I T A NO S. 1336 & 1337 / A HD/20 13 A Y 200 7 - 08 & 2009 - 10 I.T.A NO S . 1336 & 1337 /AHD/20 13 A.Y. 2007 - 08 & 2009 - 10 PAGE NO KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. 2 WE PROCEED ASSESSMENT YEAR WISE FOR THE SAKE OF CONVENIENCE AND BREVITY. ASSESSMENT YEAR 2007 - 08 ITA 1336/AHD/2013 2. THE AS SESSEE S TWIN SUBSTANTIVE GROUNDS CHALLENGE VALIDITY OF REOPENING AS WELL AS SECTION 14A R.W. RULE 8D D ISALLOWANCE OF RS. 11,79,478/ - MADE BY THE ASSESSING OFFICER AND AFFIRMED IN THE LOWER APPELLATE PROCEEDINGS. 3. THIS ASSESSEE IS A CORPORATE SOCIETY PROCESSING MILK AND ALSO PRODUCING MILK PRODUCTS, CATTLE FEED, MALTED MILK FOOD CHOCOLATES AND ALLIED PRO DUCTS. IT FILES RETURN ON 29 - 10 - 2007 ADMITTING NIL INCOME AFTER SETTING OFF UNABSORBED DEPRECIATION OF THE EARLIER ASSESSMENT YEARS. THE SAME WAS PROCESSED ON 22 - 11 - 2007. THE ASSESSING OFFICER TOOK UP SCRUTINY. HE COMPLETED A REGULAR ASSESSMENT INTER A LIA MAKING DISALLOWANCES/ADDITIONS U/S. 14A R.W RULE 8D IN THE NATURE OF INTEREST AMOUNTING TO RS. 23,46,232/ - AS INCURRED RELATING TO DIVI DEND INCOME OF RS. 76,55,740/ - . THE SAME RESULTED IN COMPUTATION OF TA XA BLE INCOME AMOUNTING TO RS. 7, 33,02,921/ - . 4. THE ASSESSEE PREFERRED APPEAL. THE CIT(A) HELD THAT THE IMPUGNED ASSESSMENT YEAR IS 2007 - 08 NOT ELIGIBLE TO RULE 8D APPLICATION TO BE INVOKED FROM ASSESSMENT YEAR 2 008 - 09 ONLY AS HELD BY HON BLE BOMBAY HIGH COURT GODREJ BOYCE CASE (2010) 328 ITR 81. HE WAS OF THE VIEW THAT THE IMPUGNED SECTION 41A DISALLOWANCE HAS I.T.A NO S . 1336 & 1337 /AHD/20 13 A.Y. 2007 - 08 & 2009 - 10 PAGE NO KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. 3 TO BE ACCORDINGLY COMPUTED BY ADOPTING A REASONABLE METHOD. HE OBSERVED THAT THE ASSESSEE HAD NOT PLACED ON RECORD ANY CASH FLOW STATEMENT AS WELL TO PROVE INVESTMENT OF NON - INTEREST BEARIN G FUNDS ONLY IN TAX FREE INVESTMENTS. THIS MADE THE CIT(A) TO CONFIRM PROPORTIONATE INTEREST DISALLOWANCE OF RS. 21,29,714/ - . HE WOULD REDUCE ADMINISTRATIVE EXPENDITURE DISALLOWANCE FROM RS. 2,16,513/ - TO RS. 25,000/ - SINCE MOST THE TAX FREE INVESTMENTS HAD BEEN CONTINUING FROM EARLIER ASSESSMENT YEARS. 5. THE ASSESSEE FILED APPEAL ITA 567/AHD/2011 BEFORE THE TRIBUNAL. A CO - ORDINATE BENCH IN ITS ORDER DATED 05 - 06 - 2015 FOLLOWED HON BLE JURISDICTIONAL HIGH COURT DECISION IN CIT VS. BANASKANTH DISTRICT COOPERATIVE MILK PRODUCERS UNION TAX APPEAL 271/2014 DECIDED ON 31 - 03 - 2014 TO HOLD SECTION 14A WOULD HAVE NO APPLICATION IN RELATION TO DEDUCTION TO BE MADE WHILE COMPUTING TOTAL UNDER CHAPTER IV. IT NEGATED SECTION 14A APPLICATION IN RESPECT OF A CO - OPE RATIVE SOCIETY INCOME ENJOYING SECTION 80P DEDUCTION. 6. IT TRANSPIRES FROM THE CASE FILE THAT THE ASSESSING OFFICER IN THE MEANTIME FORMED REASONS TO BELIEVE THAT THE ASSESSEE S INCOME LIABLE TO BE TAXED HAD ESCAPED ASSESSMENT. HE ISSUED SECTION 148 NOT ICE DATED 04 - 07 - 2011. THE ASSESSEE FILED RETURN ON 03 - 08 - 2011. IT SOUGHT FOR REOPENING REASONS. THE ASSESSING OFFICER FURNISHED THE SAME READING AS UNDER: - I.T.A NO S . 1336 & 1337 /AHD/20 13 A.Y. 2007 - 08 & 2009 - 10 PAGE NO KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. 4 THE ASSESSEE HAD FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007 - 08 ON 29/10/2007 DECLARING TOTAL INCOME OF RS. NIL. THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE INCOME TAX ACT, 1961 ON 15/12/2009 DETERMINING TOT AL INCOME AT RS.7,33,02,921/ - . 2. IT IS FOUND ON VERIFICATI ON OF THE RECORDS THAT THE ASSESSEE COMPANY IS ENGAGED IN T HE BUSINESS OF PROCESSING OF MILK AND MANUFACTURING OF MILK PRODUCTS, CATTLE FEED, MALTED MILK FOOD, CHOCOLATES AND OTHER ALLIED PRODUCTS. THE RETURN OF INCOME WAS FILED ON 29/10/2007 DECLARING TOTAL INCOME AT RS. NIL. IT WAS FOUND THAT THE DISALLOWANCE OF RS.23,46,232/ - WAS MADE U/S.1 4A OF THE ACT, CONSIDERING THE NET INTEREST EXPENSES OF RS.4,53,81,000/ - AS AGAINST TOTAL INTEREST EXPENSES OF RS.7,05,14,000/ - . THE INTEREST EXPENSES & INTEREST INCOME WERE DECLARED AT RS.7,05,14,000/ - & RS.2,51,33,000/ - RESP ECTIVELY AND NET INTEREST EXPENSES WERE DERIVED AT RS.4,53,81,000/ - (RS.7,05,14,000/ - MINUS RS.2,51,33,000/ - ). SUCH NETTING OF INTEREST EXPENDITURE IS NOT ENVISAGED U/S.1 4A OF TH E ACT R.W. RULE 8D OF THE RULES. THE PROVISIONS OF RULE 8D(2)(II) OF I.T. RULE S, 1962 PROVIDES THAT 'THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST' IS TO BE CONSIDERED FOR WORKING OUT THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME FOR DISALLOWANCE U/S.14A OF THE ACT. THE PROVISIONS OF RULE DOES NOT PROVIDE FOR NETTING OF INTEREST EXPENSES FOR THE WORKING O F DISALLOWANCE OF EXPENDITURE ON THIS POINT. BUT, THE ALLOWING NETTING OF INTEREST AS SUCH AND ACCORDINGLY WORKING OF DISALLOWANCE U/S.1 4A R.W. RULES 8D RESULTED IN SHORT DISALLOWANCE OF RS. 11 ,79 ,439/ - . 3. IN VIEW OF THE ABOVE FACTS & CIRCUMSTANCES, I HAVE REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED THE ASSESSMENT WITHIN THE MEANING OF SEC. 147 OF THE INCOME - TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2007 - 08. I, THEREFORE, ISSUE NOTICE U/S 148 OF THE ACT FOR A.Y.2007 - 08 TO THE ASSESSEE AFTER OBTAINING NECESSARY APPROVAL OF THE HIGHER AUTHORITY. 7. THE ASSESSEE FILED ITS OBJECTION PETITION AGAINST THE ABOVE STATED REOPENING. THE ASSESSING OFFICER IN HIS ORDER DATED 07 - 10 - I.T.A NO S . 1336 & 1337 /AHD/20 13 A.Y. 2007 - 08 & 2009 - 10 PAGE NO KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. 5 2011 REJECTED THESE OBJECTIONS BY PASSING A SPEAKING ORDER. THIS FOLLOWED THE IMPUGNED REASSESSMENT ON 04 - 11 - 2011. THE ASSESSING OFFICER CONCLUDED THAT THE IMPUGNED INTEREST DISALLOWANCE IS TO BE MADE ON GROSS AMOUNT OF RS. 70,51,400/ - INSTEAD OF ADOPTIN G NETTING FORMULA. THIS RESULTED IN ENHANCED RULE 8D(2)(II) DISALLOWANCE FROM RS. 23,46,232/ - TO RS. 35,25,710/ - MADE EARLIER IN REGULAR ASSESSMENT. 8. THE ASSESSEE FILED YET ANOTHER APPEAL ON BOTH VALIDITY OF REOPENING AS WELL AS ON MERITS. THE CIT(A) REJECTS BOTH THESE CONTENTIONS LEAVING THE ASSESSEE AGGRIEVED. 9. WE HAVE HEARD BOTH THE PARTIES. CASE FILE PERUSED. THE ASSESSEE S ARGUMENT IS THAT THIS TRIBUNAL IN ITS EARLIER ORDER IN FIRST ROUND OF THE VERY ASSESSMENT YEAR HAS ALREADY NEGATED APP LICATION OF SECTION 14A IN PRINCIPLE (SUPRA). AND THAT RULE 8D DOES NOT COVER ASSESSMENT YEAR 2007 - 08. THE REVENUE STRONGLY SUPPORTS THE CIT(A) S ORDER. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THESE RIVAL CONTENTIONS . WE AGREE WITH ASSESSEE S AR GUMENT THAT THIS TRIBUNAL IN ITS OWN APPEAL AGAINST REGULAR ASSESSMENT INVOLVING SECTION 14A DISALLOWANCE HAS ALREADY DECIDED THAT THE SAME DOES NOT APPLY IN A COOPERATIVE SOCIETY CASE ENJOYING SECTION 80P DEDUCTION. WE FIND THAT THE ASSESSING OFFICER HAS REOPENED THE SAID ASSESSMENT THEREBY APPLY GROSS INTEREST COMPUTATION FORMULA INSTEAD OF NETTING FOR COMPUTING RULE 8D DISALLOWANCE. THE LAW IS VERY WELL SETTL ED BY LAW THAT R ULE 8D IS NOT APPLICABLE IN THE IMPUGNED I.T.A NO S . 1336 & 1337 /AHD/20 13 A.Y. 2007 - 08 & 2009 - 10 PAGE NO KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. 6 ASSESSMENT YEAR. A CO - ORDINATE BENCH OF THE TRIBUNAL IN DCIT VS. TRADE APARTMENTS ITA 1277/KOL/2011 DECIDED ON 30 - 03 - 2012 HAS ALREADY REJECTED REVENUE S CONTENTIONS AGAINST NETTING FORMULA. THE REVENUE FAILS TO REBUT THE ABOVE STATED LEGAL AND FACTUAL POSITION . WE HOLD IN T H ESE FACTS THAT BO TH THE ASSESSEE S GROUNDS DESERVES TO SUCCEED ON VALIDITY OF REOPENING AS WELL AS MERITS. ITA 1336/AHD/2013 IS ALLOWED. ASSESSMENT YEAR 2009 - 10 ITA 1337/AHD/2 013 10. THIS APPEAL RAISES THE FOLLOWING SUBSTANTIVE GROUNDS: - 1. THE ORDER PASSED BY THE LEARNED CIT(A) IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW & FACTS. IT IS SUBMITTED THAT IT BE SO DONE NOW. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF AC) BY DISALLOWING THE CLAIM OF DEPRECIATION OF RS.45,90,466/ - ON PORTION OF PL ANT AND MACHINERY RECEIVED TOWARDS GRANT/SUBSIDY FROM NATIONAL DAIRY DEVELOPMENT BOARD UNDER '70% LOAN AND 30% GRANT' SCHEME. YOUR APPELLANT SUBMITS THAT 30% GRANT HAS BEEN RECEIVED TOWARDS THE PROJECT AS A WHOLE AND HENCE, IT IS ENTITLED TO DEPRECIATION O N THE ENTIRE COST OF THE ASSETS INSTALLED AND PUT TO USE WITHOUT DEDUCTING THE GRANT PORTION. IT IS SUBMITTED THAT IT BE SO ALLOWED NOW. 2.1 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THAT EXPLANATION 10 TO SECTION 43(1) OF THE ACT WOULD APPLY IN RESPECT OF ASSETS ACQUIRED PRIOR TO 1 - 4 - 99 AND ALSO IN RESPECT OF GRANTS RECEIVED PRIOR TO 1 - 4 - 99 AND THEREBY WOULD APPLY FROM ASSESSMENT YEAR 1999 - 00 IRRESPECTIVE OF THE YEAR OF ACQUISITION OF ASSETS AND YEAR OF DISBURSEMENT OF GRANT. THE LEARNED CIT( A) THUS ERRED IN DENYING BENEFIT OF DEPRECIATION IN RESPECT OF VALUE OF GRANT/SUBSIDY IN RESPECT OF THE ASSETS ACQUIRED PRIOR TO A.Y. 1999 - 00 EVEN THOUGH IN RESPECT OF THESE VERY ASSETS FULL DEPRECIATION IS ALLOWED IN EARLIER YEARS I.T.A NO S . 1336 & 1337 /AHD/20 13 A.Y. 2007 - 08 & 2009 - 10 PAGE NO KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. 7 WITHOUT DEDUCTING VALUE OF GRANT FROM ACTUAL COST OR WDV OF ASSETS. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2.2 THE ACTION OF LEARNED CIT(A) IN HOLDING THAT SUBSIDY IS DEDUCTIBLE FROM ACTUAL COST U/S 43(1) IS PATENTLY INCORRECT AND UNJUSTIFIED. PARTICULARLY WHEN IN THE YEAR UND ER CONSIDERATION, THE APPELLANT IS CLAIMING DEPRECIATION ON WDV OF ASSETS WHICH HAVE ALREADY ENTERED THE BLOCK IN THE ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 1999 - 2000. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DEPRECIATION AS CLAIMED BY THE APPELLANT B E ALLOWED. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.1 ,50,00,000/ - ( RUPEES ONE CRORE FIFTY LAKHS)BEING CONTRIBUTION TO ARDA (ANAND RESEARCH DEVELOPMENT ASSOCIATION) FOR DAIRY DEVELOP MENT(DD)/RESEARCH EXPENSES ON THE GROUND THAT SAME IS NOT ALLOWABLE AS BUSINESS EXPENDITURE. EVEN THOUGH ACCORDING TO THE APPELLANT SUCH CLAIM IS ALLOWABLE U/S 37 OF THE ACT. 3.1 THE LEARNED CIT(A) GROSSLY ERRED IN APPLYING OBSERVATIONS OF HON'BLE SUPREME COURT IN CASE OF SARVANA SPINNING MILLS PVT. LTD . 2 9 3 I TR 201 WHICH WERE IN DIFFERENT CONTEXT AND/OR DIFFERENT FACTS. 3.2 THE ACTION OF LEARNED CIT(A) IN HOLDING THAT CONTRIBUTION MADE TO ARDA IS NOT ALLOWABLE AS EXPENSES U/S 37 IS PATENTLY INCORRECT AND UNJUSTIFIED AS SUCH CONTRIBUTION IS FOR THE PURPOS E OF THE BUSINESS OF THE APPELLANT. IT IS SUBMITTED THAT IT BE SO HELD NOW AND CONTRIBUTION MADE TO ARDA AS CLAIMED AS DEDUCTION BY THE APPELLANT BE ALLOWED. 11. LEARNED AUTHORIZED R EPRESENTATIVE STATES AT THE OUTSET THAT A CO - ORDINATE BENCH OF THE TRIBU NAL IN ITS ORDER DATED 05 - 06 - 2015 HAS ACCEPTED ITS IDENTICAL FIRST SUBSTANTIVE GROUND AS UNDER : - 5.1. IT IS NOT DISPUTED THAT THE CLAIM OF THE ASSESSEE WAS ALLOWED IN EARLIER YEARS. HOWEVER, IN THE PRESENT CASE, THE CLAIM IS REJECTED ON THE GROUND THAT E XPLANATION - 10 TO SECTION 43(1) OF THE ACT INSERTED W.E.F. 01/04/1999 ENVISAGES THAT WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON IN THE FORM OF SUBSIDY OR GRANT OR I.T.A NO S . 1336 & 1337 /AHD/20 13 A.Y. 2007 - 08 & 2009 - 10 PAGE NO KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. 8 REIMBURSEMENT (BY WHATSOEVER NAME CALLED), THEN SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR/REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. IT IS THE SUBMISSION OF THE ASSESSEE THAT THIS EXPLANATION WOULD APPLY TO THE ASSETS WHICH ARE ACQUIRED POST - INSERTION OF THIS EXPLANATION. 5.2. THE ISSUE WHICH REQUIRES EXAMINATION IS WHETHER THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE ENTIRE AMOUN T INCLUDING THE GRANT POTION. THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ACIT VS. GUJARAT CO - OP.MILK MKTG. FEDERATION LTD. IN TAX APPEAL NO.113 OF 2008 DATED 20/04/2010 HAD FORMULATED QUESTION OF LAW WHICH READS AS UNDER: - WHETHER ON THE FA CTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ITAT WAS RIGHT IN LAW IN HOLDING THAT ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION ON THE 30% OF THE VALUE OF THE PLANT AND MACHINERY RECEIVED BY WAY OF GRANT FROM NDDB UNDER 70% LOAN AND 30% GRANT SC HEME? . THE HON BLE COURT ANSWERED THE ABOVE QUESTION IN PARA - 3 OF THE JUDGEMENT AS UNDER: - 3. MOREOVER, IT IS AN ACCEPTED POSITION BETWEEN THE PARTIES THAT THE CONTROVERSY INVOLVED IN THE PRESENT CASE STANDS CONCLUDED BY A DECISION OF THIS HIGH COURT IN THE CASE OF MAHESANA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. VS. COMMISSIONER OF INCOME TAX, (2002) 258 ITR 780, WHEREBY THE QUESTION HAS BEEN ANSWERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. 5.3. THE HON BLE GUJARAT HIGH COURT HAS DEC IDED THE ISSUE IN THE CASE OF MAHESANA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. VS. CIT REPORTED AT (2002) 258 ITR 780 (GUJ.) BY HOLDING AS UNDER: - 6. SO FAR AS THE SECOND QUESTION IS CONCERNED, ONE HAS TO REFER TO THE DECISION OF THE APEX COURT IN CIT VS. P.J. CHEMICALS LTD. (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC) : TC 29R.367. IN THAT CASE, GOVERNMENT SUBSIDY WAS INTENDED AS AN INCENTIVE TO ENCOURAGE ENTREPRENEURS TO MOVE TO BACKWARD AREAS AND ESTABLISH INDUSTRIES. THE SPECIFIED PERCENTA GE OF THE FIXED CAPITAL COST, WHICH IS THE BASIS FOR DETERMINING THE SUBSIDY, BEING ONLY A MEASURE I.T.A NO S . 1336 & 1337 /AHD/20 13 A.Y. 2007 - 08 & 2009 - 10 PAGE NO KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. 9 ADOPTED UNDER THE SCHEME TO QUANTIFY THE FINANCIAL AID, IS NOT A PAYMENT, DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE 'ACTUAL COST'. THE EXPRESSION 'AC TUAL COST' IN S. 43(1) OF THE ACT NEEDS TO BE INTERPRETED LIBERALLY. SUCH A SUBSIDY DOES NOT PARTAKE OF THE INCIDENTS WHICH ATTRACT THE CONDITIONS FOR ITS DEDUCTIBILITY FROM 'ACTUAL COST'. THE AMOUNT OF SUBSIDY IS NOT TO BE DEDUCTED FROM THE 'ACTUAL COST' UNDER S. 43(1) FOR THE PURPOSE OF CALCULATION OF DEPRECIATION, ETC. THE TRIBUNAL APPEARS TO HAVE BEEN GUIDED BY THE VIEW THAT DEPRECIATION SHOULD BE ALLOWED ONLY ON 'ACTUAL COST' TO THE ASSESSEE. THE TRIBUNAL S ORDER CANNOT BE SAID TO BE REASONED ORDER ON THIS QUESTION. BUT READING THE ORDER, IT APPEARS THAT TRIBUNAL WAS GUIDED BY THE REASONINGS RECORDED BY THE CIT(A), THE RELEVANT PORTION OF WHICH IS REPRODUCED HEREUNDER : 'INDIAN DAIRY CORPORATION HAD IMPORTED THE MACHINERY IN QUESTION AND SUPPLIED THE SA ME TO THE APPELLANT UNDER LOAN - CUM - GRANT ASSISTANCE SCHEME. TO THE EXTENT TO WHICH THE COST OF THE MACHINERY WAS COVERED BY THE GRANT, IT AMOUNTS TO THE COST BEING MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY AND, THEREFORE, THE VALUE OF SUC H GRANT IS RIGHTLY REDUCED BY THE ITO FROM THE ACTUAL COST OF THE MACHINERY IN QUESTION WHILE ALLOWING THE DEPRECIATION. THE APPEAL ON THIS POINT FAILS'. THE APEX COURT HAS POINTED OUT THAT EXPRESSION 'ACTUAL COST' NEEDS TO BE INTERPRETED LIBERALLY. SUBSID Y OF THE NATURE WE ARE CONCERNED WITH, DOES NOT PARTAKE OF THE INCIDENTS WHICH ATTRACT THE CONDITIONS FOR THEIR DEDUCTIBILITY FROM 'ACTUAL COST'. IN VIEW OF THAT, ANSWER TO QUESTION NO. 2 MUST BE IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE. 5.4. THE REVENUE HAS PLACED RELIANCE ON THE DECISION OF COORDINATE BENCH (ITAT A BENCH AHMEDABAD) PASSED IN ITA NO.1372/AHD/2010 FOR AY 2005 - 06 IN THE CASE OF VIDYA DAIRY VS. ACIT, DATED 12/07/2013, WHEREIN THE COORDINATE BENCH HAS DECI DED THIS ISSUE IN PARA - 8 BY OBSERVING AS UNDER: - 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE I.T.A NO S . 1336 & 1337 /AHD/20 13 A.Y. 2007 - 08 & 2009 - 10 PAGE NO KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. 10 HAD RECEIVED GRANT FROM NDDB PRIOR TO 1995 BUT THE AGREEMENT WAS EXECUTED BETWEEN T HE ASSESSEE AND NDDB ON 21.7.1999. THE ASSESSEE HAS NOT WORKED OUT THE DEPRECIATION FOR THE PERIOD PRIOR TO 1.4.2001 THOUGH THE GRANT WAS RECEIVED PRIOR TO 1995 AS ACCORDING TO THE ASSESSEE EXPLANATION 5 TO SECTION 32 WERE INSERTED WITH EFFECT FROM 1.4.200 2 AND BECAME APPLICABLE FROM AY 2002 - 03 ONWARDS. CIT(A) IN HIS ORDER HAS NOTED THAT AO HAS APPLIED EXPLANATION 10 TO S. 43(1) IN AY 2005 - 06 AND NOT IN ASSESSMENT YEAR PRIOR TO AY 1999 - 2000. EXPLANATION 10 WHICH HAS BEEN INTRODUCED WITH EFFECT FROM 1.4.1999 STATES THAT 'WHERE A PORTION OF THE ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR ANY OTHER AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (B Y WHATEVER NAME CALLED), THEN, SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE'. PERUSAL OF AFORESAID EXPLANATION IT CAN BE SEEN IT HAS BEEN INTRODUCED WITH EFFECT FROM 1.4.1999. FURTHER IT DOES NOT REFER TO ASSETS ACQUIRED AFTER 1.4.1999 OR GRANT/SUBSIDY RECEIVED AFTER 1.4.1999 AND THEREFORE WE ARE OF THE VIEW THAT IT HAS TO BE APPLIED FROM AY 1999 - 2000 ONWARDS IRRESPECTIVE OF THE YEAR OF ACQUISITION OF ASSE TS OR THE YEAR OF DISBURSEMENT OF GRANT. SEEN IN THE LIGHT OF THE EXPLANATION 10, IT IS AN UNDISPUTED FACT THAT THE ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET FROM THE GRANT RECEIVED FROM NDDB AND THEREFORE THE COST RELATABLE TO SUCH SUBSIDY SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET. FURTHER THE DECISION IN THE CASE OF A.P. SHRIMP SEED PRODUCTION SUPPLY AND RESEARCH CENTRE (SUPRA) WHICH HAS BEEN RELIED BY ASSESSEE IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE BECAUSE IN THAT CASE THE ASSESSMENT YEAR IN QUESTION WAS 1991 - 92 WHEREAS IN THE PRESENT CASE THE ASSESSMENT YEAR IS 2005 - 06. CONSIDERING THE AFORESAID FACTS, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR TO THE ORDER OF CIT(A) AND THUS THIS GROUND OF ASSESSE E IS DISMISSED. 5.5. THE HON BLE KERALA HIGH COURT IN THE CASE OF CIT VS. SUN FIBRE OPTICS (P.) LTD.(SUPRA) HELD AS UNDER: - I.T.A NO S . 1336 & 1337 /AHD/20 13 A.Y. 2007 - 08 & 2009 - 10 PAGE NO KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. 11 4. EVEN THOUGH THE CIT (APPEALS) REJECTED THE APPEAL, THE 2ND APPEAL FILED BY THE ASSESSEE WAS ALLOWED BY THE TRIBUNAL THE TRIB UNAL HELD THAT SUBSIDY HAVING BEEN RECEIVED BEFORE 31/03/1998 AND DEPRECIATION WAS GRANTED FOR SUBSEQUENT YEARS BASED ON THE ACTUAL COST WITHOUT REDUCING THE SUBSIDY AMOUNT UNDER EXPLANATION 10 TO SECTION 43(1), THE ASSESSEE IS ENTITLED TO DEPRECIATION ON THE WRITTEN DOWN VALUE FOR THE ASSESSMENT YEAR 2002 - 03. THE MAIN REASONING OF THE TRIBUNAL IS THAT THE PROVISION FOR REDUCTION OF SUBSIDY FROM COST OF MACHINERY WAS INTRODUCED BY THE ABOVE AMENDMENT ONLY WITH EFFECT FROM 01/04/1999 AND SO MUCH SO, IT DOES NOT APPLY TO INVESTMENTS MADE ANY TIME PRIOR TO THAT WHICH IN THIS CASE IS BEFORE 31/03/1998. SINCE THE TRIBUNAL ALLOWED ASSESSEE'S APPEAL, THE DEPARTMENT FILED THIS APPEAL BEFORE US CHALLENGING THE FINDINGS OF THE TRIBUNAL 5. AFTER HEARING BOTH SIDES WE ARE UNABLE TO INTERFERE WITH THE ORDERS OF THE TRIBUNAL BECAUSE THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE HONOURABLE SUPREME COURT IN THE CASE OF CIT V. P.J. CHEMICALS LTD. [1994] 210 ITR 830 / 76 TAXMAN 611 . FURTHER WE DO NOT KNOW ON WHAT BASIS THE D EPARTMENT CAN INTRODUCE RETROSPECTIVITY TO THE AMENDMENT INTRODUCED WHEN THE LEGISLATURE HAS NOT DONE SO. OBVIOUSLY, THE ABOVE AMENDMENT IS PROSPECTIVE IN NATURE AND THE SAME APPLIES TO INVESTMENTS 'MADE ON PLANT AND MACHINERY AND OTHER DEPRECIABLE ASSETS AFTER 01/04/1999. SO MUCH SO, WE UPHOLD THE ORDER OF THE TRIBUNAL AND DISMISS THE APPEAL ON THIS ISSUE. THEREFORE, IN THE LIGHT OF THE JUDGEMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF MAHESANA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. VS. CI T(SUPRA) AND THE JUDGEMENT OF KERALA HIGH COURT IN THE CASE OF CIT VS. SUN FIBRE OPTICS (P.) LTD.(SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN EXCLUDING THE GRANT PORTION OF THE AMOUNT FROM THE ACTUAL COST. HEN CE, WE HEREBY DELETE THE DISALLOWANCE AND DIRECT THE AO TO GIVE DEDUCTION ON THE ENTIRE AMOUNT. THUS, THESE GROUNDS OF THE ASSESSEE S APPEAL ARE ALLOWED. THE REVENUE IS UNABLE TO POINT OUT ANY DISTINCTION ON FACTS OR LAW VIS - - VIS THOSE INVOLVED IN LE ARNED CO - ORDINATE BENCH DECISION. I.T.A NO S . 1336 & 1337 /AHD/20 13 A.Y. 2007 - 08 & 2009 - 10 PAGE NO KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. 12 WE ACCEPT ASSESSEE S FIRST SUBST A NTIV E GROUND BY ADOPTING JUDICIAL CONSISTENCY. 12. THIS LEAVES US WITH THE ASSESSEE S SECOND SUBS TA NTIVE GROU ND CHALLENGING DISALLOWANCE OF R S. 1.5 CRORES IN THE NATURE OF CONTRIBUTION MADE TO ARDA(ANAND RESEARCH DEVELOPMENT ASSOCIATION ) FOR DAIRY DEVELOPMENT AND CLAIMED AS REVENUE EXPENDITURE. THE ASSESSEE IS FAIR ENOUGH IN POINTING OUT THAT THE ABOVE STATED TRIBUNAL S DECISION HAS REJECTED ITS IDENTICAL PLEA IN EARLIER ASSESSMENT YEA RS. WE APPRECIATE THIS FAIR STAND TO UPHOLD THE CIT(A) S FINDINGS UNDER CHALLENGE. THIS SECOND SUBSTANTIVE GROUND FAILS. ITA 1337/AHD/2013 IS PARTLY ALLOWED. 13. THE ASSESSEE S FORMER ITA 1336/AHD/2013 IS ALLOWED AND LATTER APPEAL ITA 1337/AHD/2013 IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 31 - 05 - 201 6 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 3 1 /05 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD I.T.A NO S . 1336 & 1337 /AHD/20 13 A.Y. 2007 - 08 & 2009 - 10 PAGE NO KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. 13 6. GUARD FILE. BY ORDER/ , / ,