The ITO, Ward-3(2)(7), Ahmedabad V. M/s. Indo German Tool Room, Ahmedabad

ITA 1806/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8269 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 05-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: CHIRAG R SHAH
• Keywords: Capital asset; Depreciation; Cost of acquisition
• Section: 10; 142(1)

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA NO.1806/AHD/2016 / ASSTT. YEAR: 2013-2014 ITO, WARD-3(2)(7) AHMEDABAD. VS. M/S.INDO GERMAN TOOL ROOM PLOT NO.5003, PHASE-IV GIDC MEHMADABAD ROAD VATVA, AHMEDABAD 382445. PAN : AAAAJI 0033 P / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI MUDIT NAGPAL, SR.DR ASSESSEE BY : SHRI CHIRAG R. SHAH, AR ! / DATE OF HEARING : 07/03/2018 '#$ ! / DATE OF PRONOUNCEMENT: 14/05/2018 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF LD.CIT(A)-3, AHMEDABAD DATED 9.5.2016 PASSED FOR TH E ASSTT.YEAR 2013-14. 2. SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT (A) HAS ERRED IN DELETING DISALLOWANCE OF DEPRECIATION OF RS.2,71 ,29,827/- ON FACTORY BUILDING, MACHINERY AND FURNITURE & FIXTURE S MADE BY THE AO WITH THE AID OF EXPLANATION 10 TO SECTION 43(1) OF THE INCOME TAX ACT. ITA NO.1806/AHD/2016 2 3. BRIEF FACTS OF THE CASE AS EMERGE OUT FROM ORDERS OF THE REVENUE AUTHORITIES ARE THAT THE ASSESSEE IS A GOVE RNMENT INSTITUTION REGISTERED UNDER THE SOCIETIES REGISTRA TION ACT. IT WAS FORMED FOR UNDERTAKING PROMOTIONAL ACTIVITIES FOR D EVELOPMENT OF MICRO, SMALL AND MEDIUM INDUSTRIES AND TRAINING FAC ILITIES TO STUDENTS THROUGH SELF EMPLOYMENT COURSES. ITS PROM OTERS ARE GOVERNMENT OF INDIA, GERMAN GOVERNMENT AND GOVERNME NT OF GUJARAT AND MANAGED BY A GOVERNING COUNCIL, CHAIRED BY ADDITIONAL SECRETARY AND DEVELOPMENT COMMISSIONER ( MSME), MINISTRY OF MSME, GOVERNMENT OF INDIA. FOR SETTING UP AND RUNNING OF THIS ORGANIZATION FUNDS WERE PROVIDED BY THE PROMOTERS TOWARDS CAPITAL/CORPUS. 4. ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSE SSMENT YEAR 2013-14 ON 2.9.2013 DECLARING LOSS OF RS.10,77,539/ -. AFTER PROCESSING THE RETURN UNDER SECTION 143(1), THE CAS E OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT. CON SEQUENTLY, NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED U PON THE ASSESSEE ON 9.9.2013. THEREAFTER DUE TO CHANGE OF I NCUMBENT AO, A NOTICE UNDER SECTION 142(1) R.W.S. 129 OF THE ACT WAS ISSUED ON 15.9.2015 AND SERVED UPON THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSE SSEE HAS DEBITED A SUM OF RS.2,71,29,827/- IN ITS PROFIT & L OSS ACCOUNT TOWARDS DEPRECIATION ON LEASEHOLD BUILDING, PLANT A ND MACHINERY AND FURNITURE AND FIXTURES. THIS CLAIM ACCORDING T O THE AO WAS NOT IN ORDER, SINCE BUILDING AND INFRASTRUCTURE WERE PR OVIDED BY THE PROMOTER-GOVERNMENT. THE AO ACCORDINGLY SHOW CAUSE D THE ASSESSEE TO EXPLAIN ENTITLEMENT OF CLAIM OF DEPRECI ATION. THE ASSESSEE EXPLAINED THAT ALL THE THREE PROMOTER-GOVE RNMENTS CONTRIBUTED FUND TOWARDS ITS CAPITAL. AS PER THE A CCOUNTING ITA NO.1806/AHD/2016 3 PRINCIPLE, TO REFLECT TRUE AND FAIR PICTURE OF BUSI NESS AND ACTIVITIES OF THE ORGANISATION, IT IS NECESSARY THAT ALL RECEI PTS INCLUDING THE CONTRIBUTION FROM THE PROMOTERS WERE TO BE REFLECTE D AS INCOME RECEIPT AND DEDUCT THEREFROM ALL EXPENSES INCURRED BY THE ASSESSEE INCLUDING DEPRECIATION. ASSESSEE CONTENDE D THAT SIMILAR CLAIM OF DEPRECIATION WAS ALLOWED BY THE LD.CIT(A) IN THE ASSESSMENT YEARS 2007-08 AND 2008-09. EXPLANATION OF THE ASSESSEE WAS NOT FOUND FAVOUR FROM THE AO. THE LD .AO MAINTAINED HIS STAND THAT SINCE FIXED ASSETS WERE P URCHASED OUT OF CONTRIBUTION OF CAPITAL BY THE PROMOTERS, COST OF T HE ASSETS TO THE ASSESSEE REMAINED NIL, AND NO DEPRECIATION CAN BE A LLOWABLE ON SUCH ASSETS. IN OTHER WORDS, ACCORDING TO THE AO, AS THE ASSESSEE HAS NOT INCURRED A SINGLE PIE TOWARDS PURCHASE COST OF THE ASSETS, THEREFORE, COST OF ASSETS BEING AT NIL, ASSESSEE IS NOT ENTITLED FOR DEPRECIATION. HE ACCORDINGLY DISALLOWED CLAIM OF T HE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE THE F IRST APPELLATE AUTHORITY, WHO AFTER CONSIDERING CONSTITU TION OF THE ASSESSEE-ORGANISATION AND NATURE OF CONTRIBUTION OF PROMOTERS TOWARDS ITS CAPITAL, ALLOWED THE CLAIM OF THE ASSES SEE. WHILE ALLOWING THE CLAIM OF THE ASSESSEE, THE LD.CIT(A) A LSO RELIED UPON HIS OWN ORDERS FOR EARLIER ASSESSMENT YEARS AS WELL AS DECISION OF THE ITAT INDORE BENCH IN THE CASE OF ASSESSEE ANOTHE R UNIT AT MADHYA PRADESH, WHERE SIMILAR CLAIM WAS ALLOWED TO THE ASSESSEE. AGGRIEVED BY THE ACTION OF THE LD.CIT(A) IN DELETIN G THE DISALLOWANCE, THE REVENUE IS BEFORE US. 6. THE LD.DR RELIED UPON THE ORDER OF THE AO, WHILE , THE LD.COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD.CIT(A). THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED T HAT SIMILAR ITA NO.1806/AHD/2016 4 CLAIM OF THE ASSESSEE WAS ALLOWED IN EARLIER YEARS, AND PARTICULARLY, THE TRIBUNAL IN ASSESSEES OWN CASE I N ITA NO.78 AND 79/AHD/2014 IN THE ASSESSMENT YEARS 2007-08 AND 200 8-09 ALLOWED THE CLAIM OF DEPRECIATION TO THE ASSESSEE. THE LD.COUNSEL ALSO DREW OUR ATTENTION TOWARDS AUDITED ACCOUNTS OF THE ASSESSEE CONTAINED IN THE PAPER BOOK, PARTICULARLY PAGE NO.6 WHERE IN SCHEDULE-1, UNDER CORPUS/CAPITAL FUND CONTRIBUTIO N FROM THREE PROMOTERS VIZ. GOVT. OF INDIA, GOVERNMENT OF FEDERA L REPUBLIC OF GERMANY AND GOVT. OF GUJARAT HAVE BEEN SHOWN. 7. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. FACTS WITH REGARD TO CONSTITU TION AND ACTIVITIES OF THE ASSESSEE-SOCIETY ARE NOT IN DISPU TE. DISPUTE IS WITH REGARD TO TREATMENT OF CONTRIBUTION MADE BY TH E PROMOTERS OF THE ASSESSEE. IT IS THE CASE OF THE REVENUE THAT THE ASSETS PURCHASED/ACQUIRED BY THE ASSESSEE WERE OUT OF CONT RIBUTION MADE BY THE PROMOTERS, WHICH ARE IN THE NATURE OF S UBSIDY. THEREFORE, SUCH ASSETS DO NOT QUALIFY FOR ENTITLEME NT OF DEPRECIATION, BECAUSE COST HAS BEEN MET BY THE PROM OTERS IN THE FORM OF SUBSIDY. WHEREAS, THE CONTENTION OF THE ASS ESSEE IS THAT THE FUNDS CONTRIBUTED BY THE PROMOTERS ARE TOWARDS CAPITAL/CORPUS FUNDS AND OBJECT OF SUCH CONTRIBUTION WAS TO SET UP UNIT OR EXPAND ITS EXISTING SET UP, AND THEREFORE, AMOUNTS UTILIZE D FOR ACQUIRING ASSETS IN FURTHERANCE OF ITS OBJECTS CANNOT BE REDU CED FROM THE COST OF ASSETS FOR THE PURPOSE OF GRANTING DEPRECIA TION. WE FIND THAT SIMILAR ISSUE IN ASSESSEES OWN CASE FOR THE A SSESSMENT YEAR 2007-08 AND 2008-2009 CAME UP BEFORE THE COORDINATE BENCH TRIBUNAL IN ITA NO.78 AND 79/AHD/2014 [WHEREIN ONE OF US IS A PARTY (JM)] HAS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE SUBSIDY OR GRANT AMOUN T COULD NOT BE ITA NO.1806/AHD/2016 5 REDUCED FROM THE COST OF THE CAPITAL ASSET. TRIBUN AL HAS ALSO OBSERVED THAT THE LD.AO HAS FAILED TO CONSTRUE TRUE NATURE OF THE CONTRIBUTION OF FUND MADE BY THE PROMOTERS AND ITS INTENT AND PURPOSE FOR WHICH SUCH FUNDS HAVE BEEN UITLISED BY THE ASSESSEE. WE FIND THAT HERE IS THE CASE WHERE THREE GOVERNMEN TS COMING TOGETHER AND DOING BUSINESS BY THEMSELVES BY CONSTI TUTING A SOCIETY. ITS MAIN OBJECTS RELATED TO PROVIDING TEC HNICAL, ADVISORY AND CONSULTANCY SERVICES FOR SMALL AND MEDIUM SCALE INDUSTRIES ACROSS THE STATE OF GUJARAT, BESIDES FOR IMPROVING SKILLS AND KNOWLEDGE OF THE PERSONNEL OF THE TOOL ROOM. TO AC HIEVE THESE OBJECTS, PROMOTERS PROVIDE FUND IN FORM OF GRANT TO WARDS CAPITAL FUND. TO OUR MIND, SUCH CONTRIBUTION IN THE FORM OF GRANT COULD NOT BE CONSIDERED AS A PAYMENT DIRECTLY OR INDIRECTLY T O MEET ANY PORTION OF THE ACTUAL COST AND, THUS, DOES NOT FALL WITHIN THE AMBIT OF THE EXPLANATION 10 TO SECTION 43 (1). THE LD.CIT(A) HAS CONSIDERED THIS ASPECT LOGICALLY AND ARRIVED AT A R IGHT CONCLUSION. THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL IN A SSESSEES OWN CASE CITED SUPRA, WE FIND NO MERIT IN APPEAL OF THE REVENUE. WE CONFIRM THE ORDER OF THE LD.CIT(A) AND DISMISS GROU NDS OF APPEAL OF REVENUE. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 14 TH MAY, 2018. SD/- SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 14/05/2018