Assistant Commissioner of Income Tax, Chhindwara V. M/s. Central Madhya Pradesh Gramin Bank, Chhindwara

ITA 135/JAB/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1733 (ITAT-JABALPUR)
• Duration Of Justice: 2 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 12-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SARABJEET SINGH SHRI S S DESH
• Keywords: Capital asset; Depreciation; Set aside
• Section: 143(3); 43; 13; 28

Judgement Text

ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 1 | P A G E SHRI NRS GANESAN, JUDICIAL MEMBER & SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITANO.135/JAB/2018 ASSESSMENT YEAR: 2012-13 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE CHHINDWARA, SHARDHA SABURI BHAWAN, OPP. DANIELSON COLLEGE, NAGPUR ROAD, CHHINDWARA, (M.P.) 480001 VS. CENTRAL MADHYA PRADESH GRAMIN BANK, 800/19, SOUTH CIVIL LINES, CHHINDWARA,(M.P.) -480001 [PAN: AACAS4446H] (APPELLANT) (RESPONDENT) ORDER PER SANJAY ARORA, AM: 1. THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINS T THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEAL)-1, JABALPUR (C IT(A) FOR SHORT) DATED 12.3.2018, PARTLY ALLOWING THE ASSESSEES APPEAL CO NTESTING ITS ASSESSMENT U/S.147 R.W.S. 143(3) OF THE INCOME TAX ACT, 1961( ACT HEREINAFTER) FOR ASSESSMENT YEAR (AY) 2012-13. 2. THE APPEAL RAISES A SINGLE ISSUE, PER ITS SOLE GROUND, READING AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 5,33,72,693/- ON AC COUNT OF CLAIM OF DEPRECIATION AS SECTION 43 DOES NOT REQUIRE ESTABLI SHING ANY DIRECT RELATIONSHIP BETWEEN THE ASSISTANCE RECEIVED UNDER (*) UTILIZATION OF THE SAME IN PURCHASE OF ASSETS. 2. ANY OTHER GROUND THAT MAY BE ADDUCED AT THE TIME OF HEARING. [(*) BE READ AS AND] REVENUE BY SHRI SARABJEET SINGH, CIT-DR ASSESSEE BY SHRI S. S. DESHPANDEY, CA DATE OF HEARING 21/10/2020 DATE OF PRONOUNCEMENT 10/12/2020 ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 2 | P A G E 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE, A REGI ONAL RURAL BANK (RRB), ESTABLISHED UNDER THE REGIONAL RURAL BANK ACT, 1976 , PROMOTED BY GOVERNMENT OF INDIA (GOI), GOVERNMENT OF MADHYA PRADESH, AND C ENTRAL BANK OF INDIA, (WITH SHAREHOLDING OF 50%, 15% AND 35% RESPECTIVELY ), RECEIVED A CAPITAL SUPPORT OF RS.20 CRORES DURING THE RELEVANT PREVIOU S YEAR, BEING FINANCIAL YEAR (F.Y.) 2011-12, FROM GOI, TO MAINTAIN CAPITAL ADEQU ACY. THE ASSESSEE PURCHASED COMPUTER HARDWARE FOR RS.1779.09 LACS DURING THE RE LEVANT YEAR, CLAIMING DEPRECIATION THEREON IN THE IMPUGNED SUM, AT 50% OF THE ELIGIBLE RATE OF 60%, HAVING BEEN PUT TO USE FOR A PERIOD OF LESS THAN 18 0 DAYS DURING THE YEAR. IN VIEW OF THE ASSESSING OFFICER (AO), SECTION 43(1) R EAD WITH EXPLANATION 10 THERETO, WHICH READS AS UNDER, WAS APPLICABLE IN TH E FACTS AND CIRCUMSTANCES OF THE CASE: 43. DEFINITIONS OF CERTAIN TERMS RELEVANT TO INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLESS TH E CONTEXT OTHERWISE REQUIRES- (1) ACTUAL COST MEANS THE ACTUAL COST OF THE ASSE TS TO THE ASSESSEE, REDUCED BY THAT PORTION OF THE COST THEREOF, IF ANY, AS HAS BEEN ME T DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY: PROVIDED . PROVIDED FURTHER EXPLANATION 1 9 EXPLANATION 10 . - WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMEN T OR A STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), T HEN, 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: PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT IS OF SUCH NATURE THAT IT CANNOT BE DIRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT OR GRANT THE SAM E PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSIDY OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. HE, ACCORDINGLY, DISALLOWED THE SAME RELYING ON THE DECISION BY THE HONBLE KARNATAKA HIGH COURT IN CIT VS. SHREE RENUKA SUGARS LTD . (IN ITA NOS. 5006 AND 5007 OF 2011, DATED 31.8.2012). IN APPEAL, THE LD. CIT(A) WAS OF THE VIEW ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 3 | P A G E THAT THE AMOUNT WAS GIVEN BY THE GOI FOR RECAPITALI ZATION, FURTHER, THAT THE SAME HAD BEEN UTILIZED FOR PURCHASING COMPUTERS WAS ALSO NOT ESTABLISHED. THE DISALLOWANCE OF DEPRECIATION WAS, UNDER THE CIRCUMS TANCES, NOT JUSTIFIED, AND DIRECTED ITS DELETION. AGGRIEVED, THE REVENUE IS IN APPEAL. 4. THE RESPECTIVE CASES 4.1 THE REVENUES CASE IS THAT THE SOLE PREMISE OF THE DELETION BY THE LD. CIT(A) IS THE NON-ESTABLISHMENT OF THE NEXUS BETWEE N THE FUNDS RECEIVED BY THE BANK FROM GOI AND THE PURCHASE OF THE COMPUTER HARD WARE. THE BANK FACING SHORTAGE OF CAPITAL WOULD NOT HAVE BEEN ABLE TO PUR CHASE THE COMPUTER SYSTEM OTHERWISE, I.E., BUT FOR THE RECEIPT OF THE CAPITAL GRANT, RECEIVED IN MAY/JUNE, 2011, I.E., MUCH PRIOR TO THE SAID PURCHASE IN DECE MBER, 2011/JANUARY, 2012. IT WAS, RATHER, ON THE CONTRARY, FOR THE ASSESSEE-BANK TO SHOW THAT THE MONEY RECEIVED HAD NOT BEEN UTILIZED FOR THE PURCHASE OF COMPUTERS. THE NOMENCLATURE OR THE NAME GIVEN TO THE CAPITAL CONTRIBUTION IS NO T RELEVANT, BUT ITS NATURE. RELIANCE WAS PLACED ON SHREE RENUKA SUGARS LTD. (SUPRA). 4.2 THE ASSESSEES CASE, ON THE OTHER HAND, IS THAT THE AMOUNT HAD BEEN RECEIVED BY THE BANK TOWARD SHARE CAPITAL. THE SAME WAS FOR IMPROVING THE CAPITAL TO RISK WEIGHTED ASSETS RATIO (CRAR), WHICH HAD INDEED SHOWN AN IMPROVEMENT, I.E., FROM 6.52% AT THE END OF THE IMM EDIATELY PRECEDING YEAR, TO 7.62% AT THE END OF THE RELEVANT YEAR (PB PG. 125). THE DECISION IN SHREE RENUKA SUGARS LTD. (SUPRA) IS NOT APPLICABLE INASMUCH AS IN THE FACTS OF THAT CASE THE ASSESSEE HAD RECEIVED CAPITAL SUBSIDY FROM THE STATE GOVERNMENT FOR COMMISSIONING A CO-GENERATION POWER PLANT. FURTHER, THOUGH IT WAS EXPLAINED, ON BEING ENQUIRED BY THE BENCH, THAT THE FIXED ASSE TS ARE TAKEN INTO ACCOUNT, AND WITHOUT ANY DISCOUNT (I.E., AT 100%), IN COMPUTING THE CRAR, SO, HOWEVER, THAT WOULD NOT IN ANY MANNER IMPLY THAT THE FUNDS HAD BE EN EITHER USED FOR OR EVEN GRANTED FOR THE ACQUISITION OF THE FIXED ASSETS. FI NALLY, EVEN IF REGARDED AS ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 4 | P A G E FINANCING THE ASSET PURCHASE INDIRECTLY, THE REDUCT ION IN THE COST CAN ONLY BE ON A PROPORTIONATE BASIS. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. THE LAW 5.1 SECTION 43(1) PROVIDES FOR, IN RECKONING ACTUA L COST, A REDUCTION IN THE COST TO THE ASSESSEE, WHERE THE SAME IS, TO WHATEVE R EXTENT, MET BY ANY OTHER PERSON OR AUTHORITY, DIRECTLY OR INDIRECTLY. EXPLANATION 10 CLARIFIES THAT WHERE THE COST IS SO MET BY ANOTHER, DIRECTLY OR INDIRECT LY, THE COST RELATABLE TO THE ASSET IS TO BE REDUCED. PROVISO THERETO FURTHER PROVIDES THAT THIS RELATION IS TO BE WORKED QUA A PARTICULAR ASSET ON A PROPORTIONATE BASIS WHERE A GROUP OF ASSETS ARE UNDER CONSIDERATION. ANALYSIS 5.2 OUR FIRST OBSERVATION IN THE MATTER IS THAT THE FINDING BY THE LD. CIT(A), AND WHICH FORMS THE BASIS OF THE IMPUGNED ORDER, IS INCONCLUSIVE. IF, IN HIS VIEW, THE AO WAS REQUIRED TO ESTABLISH THE NEXUS B ETWEEN THE FUNDS AND THEIR UTILIZATION FOR COMPUTERS, BEFORE HE COULD INVOKE S ECTION 43(1), IT WAS INCUMBENT ON HIM TO EITHER DO THAT HIMSELF OR, IN T HE ALTERNATIVE, SEEK A REMAND REPORT FROM THE AO IN THE MATTER, SO AS TO SETTLE T HE MATTER ONE WAY OR THE OTHER, I.E., ON THE ANVIL AND ON THE BASIS OF DEFINITE FIN DING/S WHICH IN HIS VIEW IS DECISIVE OF THE MATTER. HOW COULD, ONE WONDERS, THE MATTER BE LEFT OPEN-END ED OR DECIDED ON THAT BASIS ? IT IS WELL-SETTLED THAT THE APPELLATE AUTHORITY H AS THE JURISDICTION AS WELL AS THE DUTY TO CORRECT ALL ERR ORS IN THE PROCEEDINGS UNDER APPEAL AND TO ISSUE, IF NECESSARY, APPROPRIATE DIRE CTIONS TO THE AUTHORITY AGAINST WHOSE DECISION THE APPEAL IS PREFERRED TO DISPOSE O F THE WHOLE OR ANY PART OF THE MATTER AFRESH, UNLESS FORBIDDEN BY LAW FROM DOING S O BY THE STATUTE (REFER: KAPURCHAND SRIMAL V. CIT [1981] 131 ITR 451 (SC)). WE SPEAK OF SELF- DETERMINATION BY THE LD. CIT(A) OR CALLING FOR A RE MAND REPORT, AS SEC. 251(1)(A) ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 5 | P A G E STANDS AMENDED BY FINANCE ACT, 2001, EXCLUDING THE POWER OF SET ASIDE WITH THE FIRST APPELLATE AUTHORITY W.E.F. 01/6/2001. THE IMP UGNED ORDER DOES NOT, EVEN AS CONTENDED BY THE REVENUE PER ITS GROUND, ADDRESS T HE ISSUE AS TO IF A NEXUS WAS REQUIRED TO BE ESTABLISHED? THIS IS AS THE PROVISIO N INCLUDES, BESIDES DIRECT, INDIRECT MEETING OF COST AS WELL, WHILE A NEXUS C OULD ONLY BE IN CASE OF A DIRECT FUNDING. THAT APART, WHEREVER THERE IS A TIME LAG B ETWEEN THE RECEIPT OF FUNDS AND THE PURCHASE OF AN ASSET, ONE PRECEDING THE OTH ER, IT COULD ALWAYS BE CONTENDED THAT THE COST WAS MET FROM THE COMMON POO L OF FUNDS, WHICH INCLUDED, OR INDEED DID NOT AS WHERE THE COST IS PAID PRIOR TO THE RECEIPT, THE GRANT. EVEN AS REIMBURSEMENT WOULD ORDINARILY APPLY IN CASE OF DIRECT FUNDING, IT DOES CLARIFY THAT THE TIMING OF THE RECEIPT OF F UNDS AND THE ACQUISITION MAY NOT BE IN TANDEM, TO THOUGH NO CONSEQUENCE. IN THE FACT S OF THE CASE, IT ALSO NEEDS TO BE APPRECIATED THAT THE AO WAS CONSTRAINED FOR WANT OF THE NECESSARY DETAILS. NO CASH-FLOW STATEMENT, THAT WOULD BE REQUIRED FOR THE PURPOSE, WAS PROVIDED BY THE ASSESSEE AT ANY STAGE. THE REASON AS TO THE MONEY BEING GIVEN FOR RECAPITALIZATION IS, AGAIN, NEITHER HERE NOR THERE, AS IT DOES NOT, IN ANY MANNER, PRECLUDE THE SAME FROM BEING UTILIZED BY THE ASSESS EE-BANK FOR ACQUIRING THE FIXED ASSETS OF ITS BUSINESS. 5.3 COMING TO THE MERITS OF THE CASE, WE SHALL CONS IDER THE CASE OF THE ASSESSEE, WHICH HAS NOT BASED IT, OR ENTIRELY SO, C ASE ON THE FINDINGS BY THE LD. CIT(A), AND ONLY RIGHTLY SO. THIS IS AS, WITHOUT DO UBT, THE MATTER WOULD HAVE TO BE BASED ON DEFINITE FINDINGS, OF FACT AND/OR LAW, AND WHICH HAVE THUS FAR ELUDED THE CASE, AND WHICH, IN THE MAIN, IS THE REVENUES CASE. WE ARE UNABLE TO PLACE MUCH STORE ON THE CONTENTION THAT THE AMOUNT RECEIV ED BEING NEITHER A SUBSIDY NOR GRANT NOR REIMBURSEMENT, THE SECTION IS INA PPLICABLE. THE SAID TERMS, EVEN AS CLARIFIED PER THE SECTION ITSELF, ARE ILLUS TRATIVE, AND IT IS THE PURPOSE FOR WHICH THE SAME HAS BEEN GIVEN THAT IS RELEVANT. IN FACT, TOWARD THIS, THE LD. COUNSEL FOR THE ASSESSE, SHRI DESHPANDEY, WAS ASKED BY THE BENCH DURING ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 6 | P A G E HEARING, TO NO SATISFACTORY ANSWER, AS TO WHY THE R ECEIPT IN THE INSTANT CASE COULD NOT BE CONSIDERED OR CONSTRUED AS A GRANT FROM TH E CENTRAL GOVERNMENT. THE ARGUMENT AS TO THE PROVISION BEING APPLICABLE O NLY WHEN THE UNIT IS SET-UP AND NOT TO A RUNNING CONCERN, IS WITHOUT ANY BASIS EITHER ON FACTS OR IN LAW. WE HAVE ALREADY CLARIFIED THAT IT IS THE NATUR E OF THE SUM, DETERMINED BY THE PURPOSE FOR WHICH IT IS GIVEN, THAT IS RELEVANT AND DETERMINATIVE OF THE MATTER. AS LONG AS IT IS FOR MEETING THE COST OF AN ASSET, DIRECTLY OR INDIRECTLY, IT IS IRRELEVANT WHETHER THE ASSET PURCHASED OR SETUP IS AT THE COMMENCEMENT OF THE OPERATIONS OR BY WAY OF A SUBSTANTIAL EXPANSION OR EVEN IN THE REGULAR COURSE OF BUSINESS; A BUSINESS ENTERPRISE BEING REQUIRED TO C ONSTANTLY UPGRADE ITSELF AS WELL AS TO REPLACE THE ASSETS WHICH HAVE OVER TIME BECOME OBSOLETE, TECHNOLOGICALLY OR FUNCTIONALLY, OR OTHERWISE WORN OUT THROUGH USER. THE ARGUMENT IS DE HORS THE EXPRESS PROVISION OF LAW AND, CONSEQUENTLY, WI THOUT REFERENCE TO ANY JUDICIAL PRECEDENT. ON FACTS, THER E HAS IN FACT BEEN A SUBSTANTIAL EXPANSION DURING THE RELEVANT YEAR; THE FIXED ASSET BLOCK SHOWING A QUANTUM JUMP, I.E., FROM RS. 467.10 LACS (AS ON 31/3/2011) TO RS. 2597.95 LACS (AS ON 31/3/2012), AN INCREASE BY RS. 2130.85 LACS, OR 456 %, WITH BOTH THE FIGURES BEING TAKEN, SO AS TO ARRIVE AT THE CORRECT AMOUNT OF ADDITION (NET OF DELETION), PRIOR TO DEPRECATION, A BOOK ENTRY (PB PG. 27). THE ARGUMENT THAT THE ASSET (COMPUTER HARDWARE) WAS ACQUIRED MUCH LATER AND, THEREFORE, NOT ACQUIRED OUT OF THE CAPITAL CON TRIBUTION, BUT OUT OF THE COMMON POOL OF FUNDS AVAILABLE WITH THE BANK, IS AL SO NEITHER HERE NOR THERE AND, THEREFORE, OF NO ASSISTANCE TO THE ASSESSEE. T HE MOMENT THE BANK RECEIVES THE SUM (RS. 20 CRORES), WHICH, BEING FROM THREE DI FFERENT PARTIES, WOULD ITSELF BE OVER A PERIOD OF TIME, IT IMPROVES ITS CAPITAL BASE TO THAT EXTENT, IRRESPECTIVE OF IT BEING KEPT AS CASH OR ADVANCED TO PARTIES OR OTHERWISE IN SHORT-TERM INSTRUMENTS, ETC. IT IS NOT THE CASE OF THE SAID MO NEY HAVING BEEN LOST DURING THE INTERIM PERIOD (I.E., FROM MAY/JUNE, 2011 TO DECEMB ER, 2011); THE BANK IN FACT REPORTING A PROFIT (EVEN AFTER DEPRECIATION) FOR TH E PERIOD. THE MONEY IS THUS FOR ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 7 | P A G E BEING APPLIED TOWARD THE ASSETS OF THE BUSINESS, SO THAT THE TIME OF THEIR ACQUISITION WOULD NOT BE MATERIAL AS LONG AS IT IS, WHOLLY OR PARTLY, ATTRIBUTABLE TO THE SAID SUM. THE PLEA, MADE W.R.T. THE PROVISO TO THE EXPLANATION 10 , FOR APPLYING THE PROVISION, WHERE REGARDED AS APPLICABLE, PROPORTION ATELY, I.E., THOUGH VALID IN PRINCIPLE, WOULD ALSO NOT BE OF MUCH ASSISTANCE TO THE ASSESSEE. THIS IS AS, AS AFORE-STATED, THE GROSS ACQUISITION OF THE FIXED AS SETS DURING THE YEAR IS AT RS. 2130.85 LACS, ALMOST MATCHING THE CAPITAL GRANT FOR RS. 2000 LACS, SO THAT IT WOULD COVER ALMOST (94%) THE ENTIRE COST OF THE ASS ETS ACQUIRED DURING THE YEAR, INCLUSIVE OF COMPUTER HARDWARE AT RS. 1779.09 LACS. 5.4 WE, HOWEVER, FOR REASONS DISCUSSED HEREINAFTER, DO NOT CONSIDER THE PROVISION OF S. 43(1) AS APPLICABLE IN THE FACTS AN D CIRCUMSTANCES OF THE CASE. THERE IS NOTHING TO SHOW OF ANY PROPOSAL FOR THE AC QUISITION OF FIXED ASSETS. RATHER, THE CAPITAL INFUSION IS A PART OF AN ALL IN DIA EXERCISE, UNDERTAKEN COVERING ALL RRBS ACROSS INDIA, UNDER THE AEGIS OF RBI & NABARD, UNDER WHOSE ADMINISTRATIVE CONTROL THE RRBS FUNCTION, TO IMPROVE THEIR CAPITAL ADEQUACY. THE FUNDS HAVE BEEN PROVIDED BY THE CENT RAL AND STATE GOVERNMENTS AND CBI, IN THE RATIO OF THEIR RESPECTIVE SHAREHOLD INGS, AND NOT BY GOI ALONE, AS HAS BEEN STATED IN THE ASSESSMENT AND THE IMPUGNED ORDER, AT PARAS 2 & 7.2.4 THEREOF RESPECTIVELY (SCH. 8 TO THE BS AS AT 31/3/2 012/PB PG. 39). FURTHER, IT IS BY WAY OF RISK CAPITAL, SPECIFICALLY TOWARD ENHANCI NG THE RISK BEARING CAPACITY, MEASURED AS THE RATIO OF THE RISK CAPITAL TO THE AS SETS OF THE BANK, WITH THE ASSOCIATED RISK VARYING BETWEEN 0% (AS FOR CASH) AND 100% (AS FOR FIXED ASSETS), I.E., CRAR. TRUE, THE GRANT WAS ALLOWED B Y GOI ON ACCEPTING THE RECOMMENDATIONS OF THE DR. K.C. CHAKRABARTY COMMITT EE TOWARD IMPROVING THE CAPITAL ADEQUACY OF THE RRBS, OF WHICH THE ASSESSE- BANK IS ONE. THOUGH A PART OF RS.1100 CRS. RELEASED BY GOI OVER A PERIOD OF 2 YEARS (FYS. 2011-12 & 2012- 13), THE SAME, AT RS. 10 CR. EACH FOR THE SAID TWO YEARS FOR THE ASSESSEE-BANK, ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 8 | P A G E WAS SUBJECT TO AND, CONSEQUENTLY, ACCOMPANIED BY A PROPORTIONATE CONTRIBUTION BY THE OTHER TWO SHARE-HOLDERS AS WELL. THE BANK HA S ACCORDINGLY RIGHTLY CHARACTERIZED IT AS PART OF THE EQUITY (RISK) CAPIT AL, REFLECTING IT AS SHARE CAPITAL DEPOSIT, EVEN AS NO SHARES STAND ALLOTTED AGAINST T HE SAME (PB PG. 22). THE NON- ISSUE OF SHARES WOULD HAVE NO MATERIAL BEARING IN T HE MATTER AS IT DOES NOT, IN VIEW OF CONTRIBUTIONS PROPORTIONATE TO THEIR RESPEC TIVE SHAREHOLDINGS, DISTURB THE RATIO OF EITHER THEIR VOTING RIGHTS OR THE PROPORTI ON OF THE RISK BORNE BY THE PROMOTERS, THE PROVIDERS OF THE RISK CAPITAL. WHILE , THEREFORE, IT IS NOT CORRECT TO SAY THAT THE FUNDS WERE NOT MEANT FOR COMPUTERS, BE ING AN ELIGIBLE ASSET OF THE BUSINESS, ACQUIRED FOR ITS PURPOSES, IT ALSO CANNOT BE SAID THAT THE SAME IS FOR MEETING THEIR COST, EVEN AS WE HAVE FOUND THAT THE SAME IS NOT A RELEVANT CONSIDERATION IN THE INSTANT CASE INASMUCH AS THE S AME DO NOT QUALIFY TO BE A SUBSIDY, GRANT, REIMBURSEMENT, OR THE LIKE. THAT THE BANK WAS FREE TO, AND DID INDEED ACQUIRE F IXED ASSETS, I.E., SUBSEQUENT TO THE RECEIPT OF FUNDS, WHICH IT, FACIN G SHORTAGE OF CAPITAL, MAY NOT HAVE OTHERWISE, IS OF NO CONSEQUENCE. RATHER, AS AF ORE-NOTED, THE SAME BEING RECKONED IN COMPUTING CRAR, INVESTMENT THEREIN SHAL L IMPROVE THE CRAR. THE RAISING OF MONEY TO FINANCE THE ACQUISITION OF AN ASSET, AS BY WAY OF BORROWING, IS A TRANSACTION SEPARATE AND DISTINCT F ROM THE TRANSACTION OF ACQUIRING AN ASSET. THE TWO SIGNIFY SEPARATE TRANSA CTIONS, THE RAISING AND APPLICATION OF FUNDS, EVEN AS EXPLAINED IN CIT V . TATA IRON & STEEL CO. LTD. [1998] 231 ITR 285 (SC). IN THE FACTS OF THAT CASE, THE ASSESSEE HAD BORROWED FUNDS IN FOREIGN EXCHANGE TO ACQUIRE AN ASSET. HOWE VER, DUE TO FLUCTUATION IN THE FOREIGN EXCHANGE RATE, THE ASSESSEE HAD TO REPAY A MUCH LESSER AMOUNT THAN HE WOULD OTHERWISE HAVE. IT WAS HELD THAT THIS WAS NOT A FACTOR WHICH COULD ALTER THE COST INCURRED BY THE ASSESSEE FOR THE PURCHASE OF THE ASSET. THE ASSESSEE MIGHT HAVE RAISED FUNDS TO PURCHASE THE ASSET BY BO RROWING, BUT WHAT THE ASSESSEE HAD PAID FOR IT WAS THE PRICE OF THE ASSET . THAT PRICE COULD NOT CHANGE BY ANY EVENT SUBSEQUENT TO THE ACQUISITION OF THE A SSET. THE MANNER OR MODE OF ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 9 | P A G E REPAYMENT OF THE LOAN HAD NOTHING TO DO WITH THE CO ST OF AN ASSET ACQUIRED BY THE ASSESSEE FOR THE PURPOSE OF HIS BUSINESS. THE D EPRECIATION WOULD THUS HAVE TO BE COMPUTED WITHOUT REFERENCE TO THE SAID REDUCT ION IN THE BORROWING ON ACCOUNT OF FOREIGN EXCHANGE RATE FLUCTUATION. IT WE NT ON TO SAY THAT EVEN IF AN ASSET IS PURCHASED WITH NON-REPAYABLE SUBSIDY RECEI VED FROM THE GOVERNMENT, THE COST OF THE ASSET WILL BE THE PRICE PAID BY THE ASSESSEE FOR ACQUIRING THE ASSET. THE OBSERVATION WAS MADE WITHOUT REFERENCE TO S. 43 (1), WHICH WAS NOT BROUGHT TO ITS NOTICE, MUCH LESS EXPLANATION 10 THERETO, INSERTED ON THE STATUTE LATER. EVEN THE FLUCTUATION IN THE FOREIGN EXCHANGE RATE S TANDS SINCE PROVIDED U/S. 43A. THE POINT, HOWEVER, THAT IS BEING SOUGHT TO BE DRAWN AND BROUGHT HOME IS THAT EXCEPT WHERE AND TO THE EXTENT AN EXPENSE OR C REDIT IS SPECIFICALLY, I.E., BY LEGAL FICTION OR OTHERWISE, STATUTORILY BROUGHT WIT HIN THE FRAMEWORK OF THE DEFINITION, THE ACTUAL COST, A MATTER OF FACT, WO ULD CONTINUE TO BE GOVERNED BY THE NORMAL AND ACCEPTED PRINCIPLES OF COMMERCIAL AC COUNTING, I.E., THE PRICE AT WHICH THE ASSET IS ACQUIRED. REFERENCE IN THIS REGA RD MAY ALSO PROFITABLY BE MADE TO THE DECISION BY THE APEX COURT IN CHALLAPALI SUGARS LTD. V. CIT [1975] 98 ITR 167 (SC), WHERE THE ISSUE WAS THE INCLUSION OF INTEREST INCURRED FOR THE NORMATIVE PREOPERATIVE PERIOD ON THE CAPITAL BORROW ED FOR CAPITAL INVESTMENT, WHICH HAS NOW BEEN SPECIFICALLY PROVIDED UNDER EXPLANATION 8 TO S. 43(1) AND PROVISO TO S. 36(1)(III). CONTINUING FURTHER, FOR THE SAME REASON, I.E., EXPLANATION 10 , THE DECISION IN CIT V. P.J. CHEMICALS [1994] 210 ITR 830 (SC) SHALL APPLY NO LONGER. IN THAT CASE, IT WAS HELD THAT IT IS THE PREDOMINANT OBJECT FOR WHICH THE SUBSIDY IS GRANTED BY THE GOVERNMENT THAT IS RELEVA NT, SO THAT WHERE THE SAME IS TOWARD INCENTIVIZING THE MOVEMENT OF THE INDUSTRY T O A BACKWARD AREA, THE SAME WOULD NOT IMPACT THE COST OF THE PROJECT AND, THUS, THE DEPRECIATION OR THE DEVELOPMENT REBATE IS TO BE ALLOWED WITHOUT REFEREN CE THERETO, EVEN WHERE THE SUBSIDY IS WITH REFERENCE TO THE COST OF THE PROJEC T, WHICH WAS ONLY A MANNER OF QUANTIFYING IT. ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 10 | P A G E IN FINE, THE LIMITS OF THE PROVISION, I.E., EVEN AF TER THE INSERTION OF EXPLANATION 10 , BROADENING ITS SCOPE, ARE IMPLICIT THEREIN. IT IS ONLY WHERE THE FUNDS ARE GIVEN TOWARD MEETING THE COST OF AN ASSET , DIRECTLY OR INDIRECTLY, THAT THE SAME CAN BE REDUCED FROM THE COST TO THE ASSESS EE. THAT IS, IT IS WHERE THE SUM IS ALLOWED TOWARD DECREASING THE RISK OF THE RE CIPIENT ENTITY BY REDUCING ITS FINANCIAL EXPOSURE AND, FURTHER, BY A PERSON WHO IS OTHERWISE NOT OBLIGED TO PROVIDE THE RISK CAPITAL SO AS TO ENABLE THE RECIPI ENT ENTITY TO BEAR RISK, THAT THE COST REDUCTION TO THAT EXTENT TAKES PLACE. THE COND ITION IS IMPLICIT IN THE SECTION AS THE FUNDS FOR THE ACQUISITION OF AN ASSET, DEPRE CIABLE OR OTHERWISE, ARE TO BE IN ANY CASE RAISED WHERE THE BUSINESS ENTERPRISE IS UN ABLE TO GENERATE SUFFICIENT FUNDS ON, OR DOES NOT HAVE ADEQUATE CAPITAL OF, ITS OWN. IT IS THIS CAPITAL THAT HAS BEEN RAISED BY THE ASSESSEE-BANK . BORROWING OF MONEY WOULD FALL IN THE SAME CATEGORY. IT IS FOR THIS REASON THAT THE ENUME RATION OF THE NATURE OF THE CAPITAL, AS BY WAY OF SUBSIDY, GRANT OR REIMBURSEME NT, DEFINING THE CHARACTER OF THE SUM, IN THE EXPLANATION 10 APPENDED TO THE PROVISION, ASSUMES SIGNIFICANCE . ONE COULD ARGUE, AND NOT UNREASONABLY SO, THAT THE CONTRIBUTION BY GOI, AND CONSEQUENTLY BY OTHERS, IS BY VIRTUE OF ITS ST ATUS AS THE CENTRAL GOVERNMENT, AND NOT IN ITS CAPACITY AS A SHAREHOLD ER, WHICH WAS ONLY INCIDENTAL. THAT IS, THE CONTRIBUTION BY IT BE REGA RDED AS BY GOI, AS ENVISAGED BY THE PROVISION, AND NOT AS A SHARE-HOLDER. IT IS NOT CLEAR IF THE GOI IS A MAJOR SHAREHOLDER IN ALL RRBS, AS APPEARS TO BE THE CASE, OR NOT SO. BE THAT AS IT MAY, IT IS SO IN THE CASE OF THE ASSESSEE. NOT ONLY THAT, I T HAS INSISTED ON A PROPORTIONATE CONTRIBUTION BY THE OTHER TWO SHAREHOLDERS, I.E., I N THEIR SHAREHOLDING RATIO, MAKING ITS CONTRIBUTION SUBJECT THERETO (PB PG. 11 6). THE AMOUNT RECEIVED HAS BEEN ACCORDINGLY CREDITED BY THE ASSESSEE TO THE SH ARE CAPITAL DEPOSIT ACCOUNT. THOUGH TERMED DEPOSIT, IT IS NON-REFUNDABLE, INCR EASING THE PROMOTER CAPITAL TO THAT EXTENT. IT IS ALL THESE UNDISPUTED, ADMITTED F ACTS THAT HAVE LED US TO SAY OF THE NECESSARY FUNDS HAVE BEEN RAISED BY WAY OF EQUITY C APITAL TOWARD RISK MITIGATION. THE SAME THUS HAVE NO RELATION WITH COS T REDUCTION, EITHER UNDER ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 11 | P A G E EXPLANATION 10 OR UNDER THE NORMAL PERCEPTS OF COMMERCIAL ACCOUNT ING. A LENDER, FOR EXAMPLE, PROVIDES CAPITAL, WHICH MAY BE FOR ACQUISITION OF AN ASSET, YET, THE SAME CANNOT, BY ANY SCORE, BE REGARDED AS TOWARD MEETING THE COST OF THE ASSET. THE RISK CAPITAL RAISED IS, IN THIS CONT EXT, OF THE SAME SPECIES. 5.5 THIS LEAVES US WITH ONE ASPECT OF THE MATTER, I .E., THE SCOPE OF THE WORD INDIRECTLY IN SECTION 43(1) AS WELL AS IN EXPLANATION 10 THERETO. NO JUDICIAL PRECEDENT TOWARD THE SAME HAS ALSO BEEN CITED. ITS SCOPE, AS ONE CAN GATHER UPON READING EXPLANATION 10 IN CONJUNCTION WITH PROVISO THERETO, AS IT OUGHT TO BE, IS WHERE THE COST OF AN ASSET IS MET TO WHATEVER EXT ENT, EITHER INDIVIDUALLY OR AS A PART OF THE PROJECT COST, EVEN AS THE OBJECT OF THE SAME, I.E., THE GRANT OR SUBSIDY, IS NOT SPECIFICALLY FOR MEETING THE SAID COST, BUT SOME OTHER, AS PROMOTING INDUSTRIAL GROWTH OF A REGION, ETC. AS, NEVERTHELES S, IT HAS THE EFFECT OF MEETING THE COST TO THE RECIPIENT ENTITY, THE SAME SHALL BE REDUCED TO THE EXTENT RELATABLE. THE SAME, AS APPARENT, HAS NO BEARING IN THE FACTS OF THE CASE. COST, AS AFORE- STATED, AND THEREFORE IT ATTRIBUTES, INCLUDING REDU CTION THEREIN, ARE ESSENTIALLY MATTERS OF FACT. FOR THE REASONS STATED AT PARA 5.4 HEREINABOVE, THE PRESENT CANNOT BE SAID TO BE A CASE OF INDIRECT MEETING OF COST. IN SUM 6. THE CASE OF EITHER SIDE BEFORE THE TRIBUNAL WAS INCHOATE, EVEN AS IT IS OBLIGED TO ADJUDICATE ON FIRM FINDINGS, INCLUDING I NFERENTIAL, OF FACT, BASED ON THE MATERIAL ON RECORD, AND IN ACCORDANCE WITH LAW. THE MONEY, IT WAS STATED, WITHOUT SHOWING WHERE AND HOW IT WAS APPLIED, WAS G IVEN TO STRENGTHEN THE CAPITAL STRUCTURE OF THE BANK, WITH THE SAME, MEASU RED IN TERMS OF CRAR, SHOWING AN IMPROVEMENT. THE FIXED ASSETS, BEING THE ASSETS OF THE BUSINESS, COULD BE ACQUIRED FROM THE FUNDS GIVEN (RS.20 CR.), AND WERE INDEED ACQUIRED IN A MATCHING AMOUNT OF RS.21.31 CR. DURING THE YEAR ( REFER PARA 5.3). HOW COULD IT BE THEN SAID THAT THE AMOUNT WAS NOT APPLIED, PA RTICULARLY CONSIDERING THAT THE BANK WAS FACING SHORTAGE OF CAPITAL, SO THAT IT, BE ING OBLIGED TO MAINTAIN OTHER ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 12 | P A G E STATUTORY RATIOS, VIZ. SLR, CRR ETC., WOULD NOT, AT LEAST ORDINARILY, DIVERT ITS LIQUID RESOURCES FOR CAPITAL ASSETS, AS COMPUTERS, WHICH NEVERTHELESS ARE REQUIRED TO MAINTAIN ITS FUNCTIONAL/BUSINESS COMPETENCE? THE PROVISION COVERS INDIRECT MEETING OF COST AS WELL. A ONE-TO-ONE CORRESPONDENC E OR DIRECT NEXUS BETWEEN THE RECEIPT AND APPLICATION OF FUNDS IS THEREFORE N OT REQUIRED, EVEN AS THE ASSET PURCHASE, ENTAIL AS IT DOES DIFFERENT PROCESSES, WO ULD ITSELF REQUIRE SOME TIME TO MATURE, AS INDEED WOULD THE RECEIPT OF THE FUNDS TH EMSELVES, BEING FROM THREE DIFFERENT SOURCES IN THE INSTANT CASE, AND IN FACT MATERIALIZED FROM MAY TO SEPTEMBER, 2011 (PB PG. 115). THUS, EVEN IF ENVISA GED TO BE ACQUIRED OUT OF THE SAID CONTRIBUTION, IT WOULD ONLY FRUCTIFY AFTER A TIME LAG. THE MONEY, IN THE MEANWHILE, COULD BE RETAINED AS CASH OR PARKED IN A NY LIQUID INSTRUMENT BY THE BANK. FURTHER, THE CAPITAL BEING AT A FRACTION OF T HE RISK ADJUSTED ASSETS OF THE BANK, AN INCREASE IN BOTH BY LIKE AMOUNT WOULD INCR EASE THE RATIO OF THE CAPITAL AND, THUS, CRAR. AS SUCH, NOTHING TURNS ON THE INCR EASE IN CRAR, WHICH WOULD BE SO ON THE INVESTMENT OF THE INCREASED CAPI TAL IN FIXED ASSETS, BEING COMPUTER HARDWARE IN THE MAIN. THE MONEY, HOWEVER, HAS BEEN CONTRIBUTED BY ALL TH E SHAREHOLDERS BY WAY OF CAPITAL INFUSION, IN THE RATIO OF RESPECT IVE SHARE-HOLDINGS. THE SAME, THEREFORE, BELONGS TO A CLASS SEPARATE AND DISTINCT FROM THAT OF SUBSIDY, GRANT OR REIMBURSEMENT. THE SCOPE OF THE WORDS (BY WHATEVER NAME CALLED) IN EXPLANATION 10 IS LIMITED BY THE PRINCIPLE OF EJUSDEM GENERIS TO FALL IN THE SAME CLASS OR CATEGORY TO WHICH THE WORDS PRECEDING IT B ELONG. FURTHER STILL, INASMUCH AS THE WORD GRANT, ADMITTEDLY A WORD OF WIDE AMPL ITUDE, TO WHICH REFERENCE WAS ALSO MADE DURING HEARING (REFER PARA 5.3), THE PRINCIPLE OF NOSCITUR A SOCIIS WOULD APPLY, SO THAT IT WOULD TAKE ITS COLOUR FROM THE OTHER TWO WORDS. I.E., SUBSIDY AND REIMBURSEMENT, ALL THE THREE FORMING A PARTICULAR CLASS/CATEGORY. AS SUCH, IT BECOMES LARGELY IMMATERIAL WHETHER THE FIX ED ASSETS OR COMPUTERS WERE FINANCED, TO WHATEVER EXTENT, DIRECTLY OR INDIRECTL Y, BY THE SAID CAPITAL. THIS IS AS, EVEN IF SO, THE SAME WERE PROVIDED BY WAY OF EQ UITY (RISK) CAPITAL RAISED ITA NO. 135/JAB/2018 (AY 2012-13) ASST. CIT V. CENTRAL MADHYA PRADESH GRAMIN BANK 13 | P A G E FROM ITS SHARE-HOLDERS, THE PROVIDERS OF RISK CAPI TAL. THE SAME IS AKIN TO THE RAISING OF MONEY THROUGH BORROWING, WHICH THOUGH MA Y BE WITHOUT UNDERTAKING ANY OR MINIMAL RISK, AS WHERE IT IS SECURED. THE SA ME, EVEN IF FOR ACQUIRING AN ASSET, IS A TRANSACTION SEPARATE AND DISTINCT FROM THAT OF ACQUISITION OF THE ASSET. EVEN IF, THEREFORE, TOWARD RAISING FUNDS TO FINANCE THE ACQUISITION OF THE ASSETS, IT CANNOT BE SAID TO BE TOWARD MEETING THE COST OF THE ASSET TO BE ACQUIRED THEREFROM, WHETHER DIRECTLY OR INDIRECTLY, I.E., WI THIN THE MEANING OF THE SAME U/S. 43(1), AND FOR WHICH WE MAY ALSO ADVERT TO THE WORD CONTEXT REFERRED TO IN S. 43, I.E., PRIOR TO SUB-SECTION (1), SO THAT IT I S ONLY WHERE THE CONTEXT ADMITS THEREOF THAT THE DEFINITION PROVIDED THEREIN IS TO BE ADOPTED. THE OCCASION TO EXAMINE THE SCOPE OF WORD INDIRECTLY, APPEARING B OTH IN SECTION 43(1) AS WELL AS IN EXPLANATION 10 THERETO, THEREFORE, DOES NOT ARISE FOR CONSIDERATI ON IN THE FACTS OF THE CASE. COST, IT ATTRIBUTES, AS WELL A S WHETHER THE SAME HAS BEEN MET DIRECTLY OR INDIRECTLY, IN THE FACTS OF THE CASE, B Y ANY PERSON OR AUTHORITY, ARE ESSENTIALLY QUESTIONS OF FACT. QUA THE LAW IN THE MATTER, EXPLANATION 10 READ WITH PROVISO THERETO CLARIFIES THAT EVEN WHERE THE GRANT, ETC., IS NOT SPECIFICALLY PROVIDED FOR THAT PURPOSE, IF IT RESULTS IN OR LEAD S TO THE COST OF THE ASSET BEING MET BY ANOTHER, THE SAME HAS TO BE GIVEN EFFECT TO. SURELY, THE SAME IS NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CA SE. NO PORTION OF THE COST OF THE COMPUTER HARDWARE (I. E., RS. 1779.09 LACS) CAN BE SAID TO BE, IN LAW OR ON FACTS, MET BY THE C APITAL CONTRIBUTION OF RS.20 CR. TO ANY EXTENT, FOR ITS ACTUAL COST TO THE ASSESSEE -BANK BEING REDUCED WITH REFERENCE TO IT. WE DECIDE ACCORDINGLY. 7. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 10/12/2020 // T RUE COPY // AKS/-*(P)