DCIT 1(3), MUMBAI V. SPECTRUM COAL & POWER LTD, HYDERABAD

ITA 1813/MUM/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0489 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 16-06-2015
• Assessment Year: misc
• Appeal Filed On: 06-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Capital asset; Depreciation; Business expenditure; Search and seizure; Rule of consistency; Additional depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI P K BANSAL, VICE PRESIDENT & SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 1295/MUM/2012 ASSESSMENT YEAR : 2000-01 ITA NO. 1296/MUM/2012 ASSESSMENT YEAR : 2001-02 ITA NO. 1880/MUM/2010 ASSESSMENT YEAR : 2004-05 ITA NO. 1881/MUM/2010 ASSESSMENT YEAR : 2005-06 ITA NO. 898/MUM/2013 ASSESSMENT YEAR : 2006-07 ITA NO. 899/MUM/2013 ASSESSMENT YEAR : 2007-08 ITA NO. 900/MUM/2013 ASSESSMENT YEAR : 2008-09 SPECTRUM COAL & POWER L TD (FORMERLY ST-CLI COAL WASHERIES LTD), NEW DELHI PAN AADCS9860J VS. ACIT CIRCLE 1(3)/DCIT CIRCLE 1(3) MUMBAI (APPELLANT) (RESPONDENT) ITA NO. 1813/MUM/2013 ASSESSMENT YEAR : 2006-07 DCIT 1(3) MUMBAI VS. SPECTRUM COAL & POWER LTD HYDERABAD 500 082 PAN AADCS9860J (APPELLANT) (RESPONDENT) FOR THE REVENUE : SHRI RAM TIWARI FOR THE ASSESSEE : SHRI SALIL KAPOOR DATE OF HEARING : 31 .0 7 .2017 DATE OF PRONOUNCEMENT : 03 .0 8 .2017 O R D E R PER P K BANSAL, VICE-PRESIDENT: ALL THESE APPEALS SINCE RELATE TO THE SAME ASSESSE E, THEREFORE, THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER. SPECTRUM COAL & POWER LTD 2 2. THE GROUNDS OF APPEAL IN ITA NO. 1295/MUM/2012 F OR AY 2000-01 & ITA NO. 1296/MUM/2012 FOR AY 2001-02 ARE COMMON. I N BOTH THESE APPEALS THE ASSESSEE HAS TAKEN AS MANY AS EIGHT GROUNDS OF APPEAL. GROUND NO.1, 7 & 8 ARE GENERAL IN NATURE, THEREFORE, DOES NOT REQU IRE ANY ADJUDICATION. GROUND NOS. 5 & 6 WERE NOT PRESSED IN BOTH THE EARS AND, THEREFORE, DISMISSED AS NOT PRESSED. THE ONLY COMMON GROUNDS, WHICH SURVIVE FOR OUR ADJUDICATION, READ AS UNDER: 2. THAT IN THE FACTS & CIRCUMSTANCES OF THE CASE, THE CIT(A) AND ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN REDUCING THE VALUE OF PLANT AND MACHINERY BY RS .9,97,28,611/- FOR A.Y. 2000-01 FOR THE PURPOSE OF ALLOWING DEPRECIATION UNDER THE INCOME TAX ACT, 1961. 3. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AN D IN LAW IN TREATING THE AMOUNT OF RS.9,97,28,611/- AS COST BO RNE BY ANY OTHER PERSON OR AUTHORITY AND REDUCING THE SAME FR OM THE COST OF PLANTS AND MACHINERY FOR THE PURPOSE OF ALLOWING DE PRECIATION FOR A.Y. 2000-01 AND CIT(A) HAS ERRED IN LAW AND FACTS IN UPHOLDING THE SAME. 4. THAT THE CIT(A) AND ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT THE SAID AMOUNT OF RS.9,97,28,611/- RECEIVED AS A CONDITIONAL GRANT WHICH IS IN THE SHAPE OF A LOAN R EPAYABLE @200% OF THE SAID AMOUNT UNDER THE PACER AGREEMENT. 3. AT THE OUTSET, BOTH THE PARTIES AGREED THAT SIMI LAR GROUNDS HAVE BEEN TAKEN AS GROUND NOS.4 & 5 IN A.Y. 2004-05, GROUND N O.3 IN A.YS. 2005-06, 2006-07 AND 2007-08. BOTH THE PARTIES AGREED THAT THE GROUNDS RELATE TO THE CLAIM OF DEPRECIATION BY THE ASSESSEE. IT WAS ALSO AGREED THAT THESE GROUNDS BE DECIDED ON THE BASIS OF THE FACTS INVOLVED FOR A .Y. 2000-01 AND WHATEVER SPECTRUM COAL & POWER LTD 3 VIEW MAY BE TAKEN BY THIS TRIBUNAL FOR A.Y. 2000-01 , THE SAME MAY BE TAKEN IN ALL OTHER YEARS ALSO. 4. THE FACTS RELATING TO THESE GROUNDS ARE THAT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD RECEIVED A SUM OF ` 9,97,28,611/- FROM US AID THROUGH ICICI UNDER THE PROGRAM FOR ACCELERATION OF COMMERC IAL ENERGY RESEARCH (PACER) IN THE YEARS 1996-97, AND 1997-98, WHICH WA S CREDITED TO THE CAPITAL RESERVE IN THE BALANCE SHEET OF THE COMPANYS ACCOU NTS. IN THE F.Y. 1999- 2000, THE ASSESSEE COMPANY HAD ADJUSTED THIS AMOUNT AGAINST THE INVESTMENT IN PLANT AND MACHINERY MADE DURING THE Y EAR. HOWEVER, THE COST OF PLANT & MACHINERY WAS NOT REDUCED TO THIS EXTENT WHILE CALCULATING THE WRITTEN DOWN VALUE (WDV) FOR THE PURPOSE OF DETERMI NING THE DEPRECIATION AS PER THE PROVISIONS OF THE INCOME TAX ACT. THIS RES ULTED IN EXCESS ALLOWANCE OF DEPRECIATION AS CLAIMED BY THE ASSESSEE WHILE TH E CASE WAS PROCESSED U/S. 143(1). THE ASSESSING OFFICER TREATED THE GRANT RE CEIVED BY THE ASSESSEE FROM US AID THROUGH ICICI AS COST MET DIRECTLY OR I NDIRECTLY BY ANY OTHER PERSON OR AUTHORITY AS PER THE PROVISIONS OF SECTIO N 43 OF THE I.T.ACT. WHILE FRAMING THE ASSESSMENT U/S 143(3), THE FIRST APPELL ATE AUTHORITY DISMISSED THE APPEAL OF THE ASSESSEE VIDE ORDER DATED 27.02.2006. WHEN THE MATTER WENT IN FIRST ROUND BEFORE THE ITAT, THE TRIBUNAL SET AS IDE THE ASSESSMENT AND DIRECTED THE ASSESSING OFFICER TO ADJUDICATE AFRESH THE ISSUE IN ACCORDANCE WITH LAW, AFTER GIVING ADEQUATE OPPORTUNITY OF HEAR ING TO THE ASSESSEE. THE SPECTRUM COAL & POWER LTD 4 ASSESSING OFFICER TOOK THE VIEW THAT THE AMOUNT OF THE GRANT RECEIVED UNDER PACER FROM US AID THROUGH ICICI AMOUNTED TO COST ME T BY US AID ON THE PURCHASE OF PLANT AND MACHINERY BY THE ASSESSEE COM PANY AS PER THE PROVISIONS OF SECTION 43(1) OF THE IT ACT AND, THER EFORE, HE TOOK THE WDV OF THE PLANT AND MACHINERY FOR THE PURPOSE OF CALCULAT ION OF DEPRECIATION AT THE COST OF PLANT AND MACHINERY REDUCED BY THE AMOUNT O F GRANT RECEIVED BY THE ASSESSEE COMPANY FROM US AID THROUGH ICICI UNDER PA CER. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) CONFI RMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING AS UNDER: 3.3.1 ON THE FIRST ISSUE, WHETHER THE AMOUNT OF GRA NT RECEIVED BY THE APPELLANT COMPANY FROM ICICI LTD. MUMBAI UNDER PACER AGREEMENT, IS A LOAN OR AN ASSISTANCE, I AM INCLINE D TO AGREE WITH THE VIEWS OF THE ASSESSING OFFICER THAT THIS AMOUNT OF RS. 9,97,28,611/- RECEIVED BY THE APPELLANT COMPANY IS A CONDITIONAL GRANT AND NOT A LOAN, IT IS NOTED THAT THE FIRST AG REEMENT WAS SIGNED BETWEEN ICICI LTD. AND US AGENCY FOR INTERNA TIONAL DEVELOPMENT (USAID) DATED 31/08/1987 WHEREIN USAID HAD AGREED TO GIVE PROJECT GRANT FOR PROGRAMME FOR ACCE LERATION FOR COMMERCIAL ENERGY RESEARCH (PACER) AND ICICI LTD WA S TO DISBURSE THE GRANT FUNDS RECEIVED UNDER AID GRANT F OR FINANCING OF APPROVED SUB-PROJECTS. USAID HAD CONTRIBUTED 20 MIL LION DOLLARS FOR THIS PROJECT. AND IN THIS AGREEMENT, THERE WAS NO P ROVISION FOR RETURN OF GRANT BY THE ICICI LTD. BACK TO USAID. TH E ICICI LTD WAS TO PROVIDE IN KIND SUPPORT SUFFICIENT TO MEET THE P URPOSES OF THE PROJECT AND THE SUB PROJECT PARTICIPANTS TO CONTRIB UTE AN AMOUNT OF NOT LESS THAN 40% OF THE TOTAL COST OF THE PROJECT. WHEREAS IN THE SECOND AGREEMENT BETWEEN THE ICICI LTD. AND THE APP ELLANT COMPANY DATED 12 SEPT, 1996 TITLED 'AGREEMENT FOR P ACER ASSISTANCE' THE ICICI LTD. HAS AGREED TO PR OVIDE FINANCE FOR THE IMPLEMENTATION OF THE PROPOSAL GIVEN BY THE APP ELLANT COMPANY. THIS CONDITIONAL GRANT WAS TO BE DISBURSED ONLY UP TO 31 ST AUGUST 1997 AS PER CLAUSE C1 OF THIS AGREEMENT, IT WAS AGREED THAT THE APPELLANT COMPANY SHALL MAKE PAYMENTS TO ICICI BASED ON SPECTRUM COAL & POWER LTD 5 GROSS ANNUAL SALES DERIVED FROM THE COMMERCIAL EXPL OITATION OF THE INNOVATION COMMENCING WITH THE FIRST SUCH'' COMMERC IAL TRANSACTION. SUCH PAYMENTS SHALL BE MADE ON THE FOLLOWING BASIS SUBJECT TO THE MAXIMUM 200% OF THE CONDITIONAL GRANT IN ANY EVENT. AN AMOUNT EQUIVALENT TO ONE HUNDRED PERCENT OF THE CONDITIONA L GRANT SHALL BE PAID TO ICICI LTD AT THE RATE OF (I) 4% OF THE GROS S ANNUAL SALES OF THE COAL BENEFICIATED IN THE FUTURE PROJECT, (II) 2 % OF THE GROSS ANNUAL SALES OF THE COAL BENEFICIATED IN THE PROPOS ED COMMERCIAL PROJECT. 1 FIND IT VERY STRANGE THAT ON ONE HAND IC 1CI LTD. IS GETTING USAID FOR PACER PROJECT ON NON RETURNABLE BASIS, ON THE OTHER HAND, ICICI LTD IS MAKING THIS GRANT CONDITIONAL FO R THE APPELLANT COMPANY DEMANDING DOUBLE THE AMOUNT OF THE GRARLT G IVEN TO THE APPELLANT COMPANY OVER A PERIOD OF TIME WHEN THE GR ANT GIVEN TO THE APPELLANT COMPANY IS RETURNABLE TO THE ICICI LT D. BY TWICE THE AMOUNT OF GRANT TAKEN FOR PACER PROJECT THEN HOW SU CH GRANT CAN BE TAKEN TO BE IN THE NATURE OF GRANT/ASSISTANCE/SU BSIDY/AID WAS ARGUED BY THE AUTHORIZED REPRESENTATIVE. HOWEVER IN MY VIEW, AFTER EXAMINING BOTH AGREEMENTS AND CLAUSES THEREIN, THE PREPONDERANCE OF PROBABILITY SUGGESTS THAT THE ORIGIN OF THIS AMO UNT IS FROM A AID PROJECT RUN BY USAID AND THE AMOUNT WAS GIVEN TO TH E LTD. FOR RUNNING A SPECIFIC ENERGY PROJECT UNDER PACER. HOW EVER, THE ICICI LTD. HAS TURNED THIS ASSISTANCE INTO A CONDITIONA L GRANT WHILE EXTENDING THIS AMOUNT TO THE APPELLANT COMPANY, REP AYABLE AMOUNT, BEING TWICE THE AMOUNT OF CONDITIONAL GRANT GIVEN AS A ROYALTY LINKED TO THE SALES. IT IS ALSO A FACT THAT THE APPELLANT COMPANY HAD RETURNED A SUM OF RS. 20 LAC TO THE ICI CI LTD. AS A ROYALTY AS PER AGREEMENT, HOWEVER THEREAFTER NO PAY MENTS HAVE BEEN MADE BY THE APPELLANT COMPANY TO THE ICICI LTD . NEITHER THE ICICI LTD. HAS RECOVERED THE BALANCE AMOUNT OF ROYA LTY FROM THE APPELLANT COMPANY AS PER AGREEMENT NOR THE APPELLAN T COMPANY HAS PROVIDED FOR ANY ROYALTY PAYABLE TO THE ICICI L TD, IN ITS BOOKS OF ACCOUNTS. THE CONDUCT OF THE APPELLANT COMPANY A ND ITS METHOD OF ACCOUNTING OVER MANY ASSESSMENT YEARS SHOW THAT IT HAS TREATED THIS CONDITIONAL GRANT GIVEN BY THE ICICI LTD. AS A N AID/ASSISTANCE/GRANT/SUBSIDY AND NOT AS A LOAN. NO ROYALTY WAS REPAID OR REPAYABLE BY THE APPELLANT COMPANY TO THE ICICI LTD. AFTER MAKING A PAYMENT OF RS.20 LACS TO THE ICICI L TD. THEREFORE, I FIND NO INFIRMITY IN THE ASSESSMENT ORDER OF ASSESS ING OFFICER WHEREIN HE HAS HELD THAT THIS AMOUNT GIVEN BY ICICI LTD. TO THE APPELLANT COMPANY IS BASICALLY AN AID/ASSISTANCE/GR ANT/SUBSIDY AND NOT IN THE NATURE OF LOAN GIVEN TO THE APPELLANT CO MPANY. IN CASE, THE AMOUNT GIVEN BY THE ICICI LTD. WAS A LOAN IN TH AT CASE, THE ICICI LTD, SHOULD HAVE CHARGED INTEREST ON THE AMOU NT GIVEN TO THE SPECTRUM COAL & POWER LTD 6 APPELLANT COMPANY. HOWEVER, THE AGREEMENT BETWEEN T HE APPELLANT COMPANY AND THE ICICI LTD. DOES NOT SHOW ANY CLAUSE WHEREIN IT IS WRITTEN THAT LOAN WAS REPAYABLE ON IN TEREST. CONSEQUENTLY, I FIND NO MERIT IN THE ARGUMENT OF TH E AUTHORIZED REPRESENTATIVE OF THE APPELLANT COMPANY THAT SUCH A MOUNT MAY BE TREATED AS A LOAN WHEN THE ENTIRE TRANSACTION AS PE R AGREEMENTS DEALS WITH AID OR GRANT GIVEN TO THE APPELLANT COMP ANY UNDER PACER AGREEMENT. THEREFORE, ALL THESE GROUNDS NO. 2 TO 5 ARE DISMISSED. FURTHER, THE SIXTH GROUND OF APPEAL IS A LSO DECIDED AGAINST THE APPELLANT COMPANY BECAUSE NO PROVISION FOR PAYMENT OF ROYALTY TO THE ICICI LTD, WAS MADE IN THE BOOKS OF ACCOUNTS OF THE APPELLANT COMPANY, IN CASE, ANY ROYALTY WAS PAY ABLE AS A GENUINE BUSINESS EXPENDITURE BY THE APPELLANT COMPA NY TO THE ICICI LTD., IN THAT CASE THE APPELLANT COMPANY MUST HAVE MADE A PROVISION IN ITS BOOKS OF ACCOUNTS FOR MAKING SUCH PAYMENT. THEREFORE, IT IS APPARENT THAT THE APPELLANT COMPAN Y HAS TREATED THE AMOUNT RECEIVED FROM ICICI LTD. AS A ONETIME GR ANT / ASSISTANCE WHICH WAS NOT RETURNABLE BY THE APPELLAN T COMPANY. 3.3.2 ON THE SECOND ISSUE, WHETHER THE AMOUNT OF GR ANT SHOULD BE REDUCED FROM THE COST OF ASSETS OR NOT FOR GRANTING DEPRECIATION, I AM OF THE VIEW THAT THE EXPLANATION 10 TO SECTION 4 3(1) WILL COVER ALL KIND OF GRANTS CONDITIONAL OR OTHERWISE, IRRESP ECTIVE OF THEIR PURPOSES AND MUST BE REDUCED TO WORK OUT THE ACTUAL COST UNDER SECTION 43(1) OF THE INCOME TAX ACT, 1961. TO SUM U P, 1 FIND NO REASON TO INTERFERE WITH THE ORDER OF ASSESSING OFF ICER WHEREIN HE HAS GRANTED DEPRECIATION ON THE ASSETS TO THE APPEL LANT COMPANY AFTER REDUCING THE AMOUNT OF GRANT RECEIVED BY THE APPELLANT COMPANY. 5. THE LEARNED AR BEFORE US DREW OUR ATTENTION TO P AGE 116 OF THE PAPER- BOOK AND CONTENDED THAT THERE WAS A PROJECT GRANT A GREEMENT BETWEEN ICICI & THE USA FOR PROGRAM FOR ACCELERATION OF COMMERCIA L ENERGY RESEARCH. REFERRING TO PAGE 118, IT WAS POINTED OUT THAT THE PURPOSE OF THIS AGREEMENT WAS TO SET UP THE UNDERSTANDINGS OF THE PARTIES WIT H RESPECT TO THE UNDERTAKING BY ICICI OF THE PROJECT DESCRIBED AT PA GE 119 AND WITH RESPECT TO THE FINANCING OF THE PROJECT. REFERRING TO PAGE 11 9 IT WAS POINTED OUT THAT SPECTRUM COAL & POWER LTD 7 THE PROJECT IS DEFINED WITH THREE INTER RELATED COM PONENTS FOR SEEKING TO CREATE AN INSTITUTIONAL ENVIRONMENT FOR RELEVANT TE CHNOLOGY INNOVATION IN THE ENERGY SECTOR. ICICI WILL DISBURSE GRAND FUNDS REC EIVED UNDER AID GRANT FOR FINANCING OF APPROVED SUBPROJECTS AND RELATED ACTIV ITIES AND ORGANIZE SECRETARIAT FOR THE EXECUTING OF THE PROJECT. OUR ATTENTION WAS DRAWN TOWARDS SECTION 43(1), WHICH DEFINES THE ACTUAL COST MEAN S THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE REDUCED BY THAT PORTION OF T HE COST THEREOF, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PE RSON OR AUTHORITY. ON THE BASIS OF THIS DEFINITION, IT WAS CONTENDED THAT FOR THE PURPOSE OF DETERMINING THE ACTUAL COST ONLY THAT PORTIONS WILL BE REDUCED FROM THE ACTUAL COST WHICH HAS TO BE MET BY ANY OTHER PERSON OR AUTHORITY. IN THIS CASE, THE GRANT UNDER THE AGREEMENT HAS BEEN GIVEN NOT BY ANY PERSO N OR THE AUTHORITY; IT HAS BEEN GIVEN BY USA, WHICH IS SOVEREIGN. OUR ATT ENTION WAS ALSO DRAWN TOWARDS EXPLANATION 10 TO SECTION 43. ON THE BASIS OF THIS EXPLANATION, IT WAS CONTENDED THAT ONLY THAT PORTION OF THE COST OF ASSETS ACQUIRED BY THE ASSESSEE, WHICH HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR THE STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY PERSON IN THE FORM OF SUBSIDY OR GRAN T OR REIMBURSEMENT HAS TO BE REDUCED FROM THE ACTUAL COST OF ASSETS FOR THE P URPOSE OF DEPRECIATION. USA IS NEITHER CENTRAL GOVERNMENT/STATE GOVERNMENT ENTITY NOR ANY AUTHORITY ESTABLISHED UNDER ANY LAW IN INDIA. EVEN OTHERWISE , IT WAS CONTENDED THAT IN VIEW OF THE DECISION OF THE VISAKHAPATNAM BENCH OF THIS TRIBUNAL IN THE CASE SPECTRUM COAL & POWER LTD 8 OF SASISRI EXTRACTIONS LIMITED V. ACIT (122 ITD 428 ) AND THE DECISION OF KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF UNIVER SAL CABLES LIMITED VS. DCIT (57 TAXMANN.COM 95), EVEN AFTER INSERTION OF EXPLAN ATION 10 TO SECTION 43(1), THERE IS NO CHANGE IN THE BASIC CONCEPT AND THE FIR ST TEST HAS TO BE SATISFIED IS THAT THE PORTION OF THE COST OF ASSET SHOULD BE MET EITHER DIRECTLY OR INDIRECTLY BY ANY AUTHORITY EITHER IN THE FORM OF SUBSIDY OR O THERWISE. SO LONG AS THE SUBSIDY WAS INTENDED TO ENCOURAGE ENTREPRENEURS TO ESTABLISH INDUSTRIES, THE MERE FACT THAT A SPECIFIED PERCENTAGE OF THE FIXED CAPITAL COST WAS TAKEN AS THE BASIS FOR DETERMINING THE SUBSIDY SHOULD NOT BE MISTAKEN AS A PAYMENT INTENDED TO SUBSIDIZE THE COST OF CAPITAL OF THE NE W INDUSTRY. IT WAS POINTED OUT THAT EVEN AFTER THE INSERTION OF EXPLANATION 10 TO SECTION 43(1), THE BASIC PRINCIPLE UNDERLYING IN THE DECISION OF APEX COURT IN THE CASE OF P J CHEMICALS LTD 210 ITR 830 (SC) STILL HOLDS GOOD. IN THAT DEC ISION, THEIR LORDSHIPS ANALYZED THE EXPRESSION MET DIRECTLY OR INDIRECTLY TO COME TO THE CONCLUSION THAT ONLY IN A CASE WHERE A SUBSIDY OR OTHER GRANT WAS GIVEN TO OFFSET THE COST OF AN ASSET, SUCH PAYMENT/GRANT WOULD FALL WIT HIN THE EXPRESSION MET WHEREAS THE SUBSIDY RECEIVED MERELY TO ACCELERATE T HE INDUSTRIAL DEVELOPMENT OF THE STATE CANNOT BE CONSIDERED AS PAYMENTS MADE SPECIFICALLY TO MEET A PORTION OF THE COST OF THE ASSETS. IN THIS CASE, G RANT WAS NOT GIVEN TO MEET THE COST OF ANY SPECIFIC ASSET BUT TO CREATE AN INS TITUTIONAL ENVIRONMENT FOR OUR TECHNOLOGY INNOVATION IN THE ENERGY SECTOR. IT WAS FURTHER CONTENDED THAT IN THE CASE OF THE ASSESSEE, THE GRANT WAS GIV EN FOR SETTING UP ADVANCED SPECTRUM COAL & POWER LTD 9 PLANT FOR BENEFICIATION OF HIGH ASH INDIAN COAL AS AN INTEGRATED COAL BENEFICIATION PLANT. OUR ATTENTION WAS ALSO DRAWN TOWARDS AGREEMENT FOR PACER ASSISTANCE ENTERED INTO BETWEEN ICICI AND THE ASSESSEE. ON THIS BASIS, IT WAS STATED THAT AS PER CLAUSE C THE AGR EEMENT WAS FOR FINANCING OUT THE PACER GRANT RESOURCES AND ICICI HAS AGREED TO P ROVIDE FINANCE FOR THE IMPLEMENTATION OF THE PROPOSAL. THIS GRANT WAS REP AYABLE BY THE ASSESSEE ALTHOUGH THERE WAS NO LIMITATION FOR THE REPAYMENT. THE REPAYMENT HAS TO BE MADE @2% OF THE GROSS ANNUAL SALES OF THE COAL B ENEFICIATED IN THE PROPOSED COMMERCIAL PROJECT BUT SUBJECT TO THE COND ITION THAT THE REPAYMENT AMOUNT WILL NOT EXCEED 100% OF CONDITIONAL GRANT. THE ASSESSEE HAS PAID BACK A SUM OF ` 20 LACS. FOR THE TERMS AND CONDITIONS, OUR ATTENT ION WAS DRAWN TOWARDS CLAUSE C.1. OF THE AGREEMENT APPEARIN G AT PAGE 98 OF THE PAPER-BOOK. THUS, IT WAS CONTENDED THAT IT WAS A F INANCING ARRANGEMENT AND IN FACT NOT A SUBSIDY OR A GRANT. FURTHER, IT WAS SUBMITTED THAT DURING THE ASSESSMENT YEARS 2003-04, 2009-09 AND 2009-10, THE ASSESSING OFFICER AFTER EXAMINING THE ISSUE, ALLOWED THE CLAIM OF THE ASSES SEE BY PASSING ORDER U/S. 143(3). THEREFORE, IN VIEW OF RES ADJUDICATE AND F OLLOWING THE PRINCIPLE OF CONSISTENCY, DEPRECIATION SHOULD BE ALLOWED TO THE ASSESSEE. IN THIS REGARD RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS: CIT VS. GOPAL PUROHIT 336 ITR 287 (BOM) CIT VS. NEO POLY PACK (P) LTD. 245 ITR 492 (DEL) SPECTRUM COAL & POWER LTD 10 OUR ATTENTION WAS ALSO DRAWN TOWARDS THE QUERIES RA ISED AND THE SUBMISSIONS MADE BY THE ASSESSEE DURING THE ASSESSMENT YEARS 20 03-04 AND 2008-09 IN RESPECT OF CLAIM OF DEPRECIATION BY THE ASSESSEE WH ILE FRAMING THE ASSESSMENT U/S. 143(3). LASTLY, IT WAS SUBMITTED T HAT THE FACT THAT THE ASSESSEE HAS TRANSFERRED THE SAID AMOUNT TO THE MAC HINERY ACCOUNT WILL NOT MAKE ANY DIFFERENCE AS THE ENTRY WILL NOT DETERMINE THE REAL INCOME. 6. THE LEARNED DR, ON THE OTHER HAND, REFERRED TO T HE FINDINGS GIVEN BY THE CIT(A) AND ON THAT BASIS IT WAS CONTENDED THAT THE TRUE NATURE OF THE AMOUNT RECEIVED BY THE ASSESSEE WAS NOT LOAN BUT IT WAS A GRANT. THE PREPONDERANCE OF PROBABILITY SUGGESTS THAT ORIGIN O F THIS PROJECT IS THE GRANT BY US AID THROUGH ICICI UNDER THE PROGRAM FOR ACCEL ERATION OF COMMERCIAL ENERGY RESEARCH. BUT THE ICICI LTD HAS TURN THIS A SSISTANCE INTO A CONDITIONAL GRANT WHILE EXTENDING THIS AMOUNT TO THE ASSESSEE, REPAYABLE AMOUNT BEING TWICE THE AMOUNT OF CONDITIONAL GRANT GIVEN AS ROYA LTY LINKED TO THE SALES. THE ASSESSEE HAS MERELY RETURNED A SUM OF ` 20 LACS TO ICICI, HOWEVER, THEREAFTER THE ASSESSEE HAS NOT MADE ANY PAYMENTS T O THE ICICI LTD NEITHER THE ICICI LTD HAS RECOVERED THE AMOUNT FROM ASSESSE E COMPANY NOR THE ASSESSEE HAS PROVIDED FOR ANY ROYALTY PAYABLE TO IC ICI LTD IN ITS BOOKS OF ACCOUNT. THE CONDUCT OF THE ASSESSEE SHOWS THAT I T HAS TREATED THIS AMOUNT GIVEN BY ICICI LTD AS A AID/ASSISTANCE/GRANT/SUBSID Y AND NOT AS A LOAN. SO FAR AS THE APPLICABILITY OF EXPLANATION 10 TO SECTI ON 43(1) IS CONCERNED, IT WAS SPECTRUM COAL & POWER LTD 11 CONTENDED THAT WHATEVER GRANT WAS RECEIVED, WHETHER CONDITIONAL OR NOT, IT HAS TO BE REDUCED FOR WORKING OUT THE ACTUAL COST U /S. 43(1) OF THE ACT. 7. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CON SIDERED THE SAME ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AS WELL AS ICICI LTD UNDER WHICH THE ASSESSEE HAS BEEN GIVEN THE SAID AMOUNT. NOT ONLY THIS, WE HAVE ALSO GONE THROUGH THE AGREEMENT ENTERED INTO BETWEE N ICICI LTD AND USA UNDER WHICH USA HAS AUTHORIZED ICICI LTD TO DISPERS E GRANT OF FUNDS RECEIVED UNDER THE HEAD GRANT. IT IS NOT DISPUTE D THAT THE ASSESSEE HAS RECEIVED THE SAID GRANT AS PER THE AGREEMENT WITH I CICI LTD FOR WHICH THE GOVERNMENT OF USA HAS AGREED TO CONTRIBUTE CERTAIN SUM OF MONEY AS PER THE AGREEMENT DATED 31.08.1987. THE AGREEMENT BETWEEN THE ASSESSEE AND ICICI LTD FOR SPECIAL ASSISTANCE WAS ENTERED INTO O N 12.09.1996. UNDER THE SAID AGREEMENT, THE ASSESSEE WAS GIVEN A SPECIAL GR ANT OF ` 9,97,28,611/-. AS PER THE ASSESSING OFFICER, SAID GRANT WAS TO MEE T THE PART OF THE PROJECT COST UNDER PACER AND DURING THE ASSESSMENT YEAR 200 0-01, THE ASSESSEE HAS ADJUSTED THE SAID GRANT AGAINST THE COST OF PLANT & MACHINERY. THE ASSESSING OFFICER ALLOWED DEPRECIATION TO THE ASSESSEE ON THE WDV OF THE PLANT & MACHINERY AS HAS BEEN WORKED OUT AFTER REDUCING THE SAID GRANT. NOW THE QUESTION BEFORE US IS WHETHER THE SAID GRANT HAS TO BE REDUCED FROM THE WDV OF THE PLANT & MACHINERY FOR THE PURPOSE OF ALLOWAN CE OF DEPRECIATION. FROM SPECTRUM COAL & POWER LTD 12 THE AGREEMENT DATED 12.09.1996, BETWEEN ICICI LTD A ND THE ASSESSEE, WE NOTED THAT CLAUSE 5 STATES AS UNDER: 5) IN ACCORDANCE WITH THE PROVISIONS OF THE PACER AGREEMENT, THE APPROPRIATE AUTHORITY HAS EXAMINED AND APPROVED THE PROPOSAL FOR FINANCING OUT OF THE PACER GRANT RESOURCES AND ICIC I HAS AGREED TO PROVIDE FINANCE FOR THE IMPLEMENTATION OF THE PR OPOSAL ON THE TERMS AND CONDITIONS HEREINAFTER SET FORTH. SIMILARLY, CLAUSE B OF THE TERMS AND CONDITIONS REA D AS UNDER: B. PROJECT FINANCING B1. ICICI HEREBY AGREES TO FINANCE, BY CONDITIONAL GRANT, THE IMPLEMENTATION OF THE PROPOSAL UP TO THE MAXIMUM AM OUNT OF RS 188 LACS AND US$ 2,243,011 EQUIVALENT IN AGGREGATE TO US $ 2,765,233 OR 75% PERCENT OF THE ACTUAL EXPENDITURE WHICHEVER IS LESS. THE APPROVED PROPOSAL BUDGET AS CONTEMPLATED IS SET FORTH IN ANNEX A. HERETO. B1. THE PORTION OF THE ACTUAL EXPENDITURE ON THE PR OJECT WHICH ICICI PROVIDES TO THE PROPOSERS BY WAY OF CONDITION AL GRANT SHALL HEREINAFTER BE DESCRIBED AS 'CONDITIONAL GRANT. B2. THE PROPOSERS SHALL PROVIDE IN TIMELY FAS HION THEIR CONTRIBUTION AS BUDGETED IN THE 'ANNEX A AND IN THE EVENT THE PROPOSERS DO NOT AVAIL OF THE CONDITIONAL GRANT ON OR BEFORE PROJECT ASSISTANCE COMPLETION DATE WHICH IS AUGUST 31. 1997 , THE PROPOSERS SHALL PROVIDE SUCH ADDITIONAL FINANCE REQ UIRED FOR THE IMPLEMENTATION OF THE PROPOSAL FROM THEIR OWN RESO URCES. B3. ICICI SHALL DISBURSE THE CONDITIONAL GRANT TO T HE OTHER- PROPOSERS AS DESCRIBED IN ANNEX B HERETO ONLY UPTO AUGUST 31,1997. B4. ICICI SHALL UNDER NO CIRCUMSTANCES BE LIABL E FOR ANY LOSS, COMPENSATION OR DAMAGE TO THE PROPOSERS, OR ANY THI RD PARTY IN CONNECTION WITH SUCH PROJECT FINANCING OR CONDITION AL GRANT IN ANY MANNER WHATSOEVER. SPECTRUM COAL & POWER LTD 13 ON THE BASIS OF THESE CLAUSES, IT IS APPARENT THAT THE ICICI LTD AGREED TO FINANCE CONDITIONAL GRANT TO THE ASSESSEE UNDER THE PROGRAM FOR ACCELERATION OF COMMERCIAL ENERGY RESEARCH. THIS CONDITIONAL GR ANT SHALL BE REPAYABLE BY THE ASSESSEE TO ICICI, WHICH IS APPARENT FROM CLAUS E C1 OF THE AGREEMENT, WHICH STATES AS UNDER: C.I. PAYMENTS TO ICICI BY THE MAIN PROPOSER. IN THE EVENT OF THE MAIN PROPOSER PUTTING THE PROP OSAL FOR COMMERCIAL USE/ UNLESS OTHERWISE AGREED TO IN WRIT ING SUBSEQUENTLY, THE MAIN PROPOSER SHALL MAKE PAYMENT S TO ICICI BASED ON GROSS ANNUAL, SALES DERIVED FROM THE COMME RCIAL EXPLOITATION OF THE INNOVATION COMMENCING WITH THE FIRST SUCH COMMERCIAL TRANSACTION. SUCH PAYMENTS SHALL BE MADE ON THE FOLLOWING BASIS SUBJECT TO THE MAXIMUM 200% OF THE CONDITIONAL - GRANT IN ANY EVENT. A) AN AMOUNT EQUIVALENT TO ONE HUNDRED PERCENT OF T HE CONDITIONAL GRANT REFERRED TO IN SUB-SECTION B1 ABOVE, SHALL BE PAID TO ICICI AT THE RATE OF (1) 4% (FOUR PERCENT ONLY) OF THE GROSS ANNUAL SALES OF THE COAL BENEFICIATED IN THE FUTURE PROJECTS, (II) 2% (TWO PERCENT ONLY ) OF THE GROSS ANNUAL SALES OF THE COAL BENEFI CIATED IN THE PROPOSED COMMERCIAL PROJECT. B) WHEN PAYMENT OF CONDITIONAL GRANT HAS BEEN COMPL ETED ACCORDING TO SUB SECTION (A) ABOVE, THE RATE OF FUR THER PAYMENT SHALL BE PAID TO ICICI AT THE RATE OF (I) 4% (FOUR PERCENT ONLY) OF THE GROSS ANNUAL SALES OF THE COAL BENEFICIATED IN THE FUTURE PROJECTS, (II) 2% (TWO PERCENT ONLY ) OF THE GROSS ANNUAL SALES OF THE COAL BENEFICIATED IN THE PROPOSED , COMMERCIAL PROJECT. SUCH FURTHER PAYMENTS TO CONTINUE UNTIL A FURTHER A MOUNT EQUIVALENT TO ONE HUNDRED PERCENT OF CONDITIONAL GR ANT SHALL HAVE BEEN PAID TO ICICI. THE TERM 'GROSS ANNUAL SALES' MEANS THE GROSS INCOM E REALISED BY WAY OF WASHING CHARGES RECEIVED FROM THE COMMERCIAL EXPLOITATION OF THE INNOVATION IN INDIA OR ABROAD AND SHALL INCL UDE ALL SPECIFIC SPECTRUM COAL & POWER LTD 14 EXPORT INCENTIVES OR BONUSES .RECEIVED BY THE MAIN PROPOSER BUT SHALL EXCLUDE SALES TAX AND EXCISE DUTIES . ON THE BASIS OF THIS CLAUSE, IT IS APPARENT THAT TH E ASSESSEE HAS TO REPAY THE SAID CONDITIONAL GRANT SUBJECT TO THE CONDITION THA T THE MAXIMUM REPAYMENT AMOUNT WILL NOT EXCEED TO 200% OF THE CONDITIONAL G RANT AND TILL THAT THE ASSESSEE HAS TO PAY 2% OF THE GROSS ANNUAL SALES OF THE COAL BENEFICIATED UNDER THE PROPOSED COMMERCIAL PROJECT. THE GRANT F ROM THIS AGREEMENT IS CONDITIONAL. THE GRANT SO RECEIVED BY THE ASSESSEE IS A FINANCIAL ARRANGEMENT AND CANNOT BE REGARDED TO BE A SUBSIDY GRANT. SINC E THIS GRANT HAS BEEN GIVEN UNDER THE AGREEMENT WHICH ICICI HAS ENTERED I NTO WITH USA THEREFORE, WE HAVE ALSO GONE THROUGH THE AGREEMENT ENTERED INT O BETWEEN THEM, COPY OF WHICH IS AVAILABLE AT PAGES 116 TO 130 OF THE PA PER-BOOK. FROM THE SAID AGREEMENT, IT IS APPARENT THAT THE AGREEMENT IS FOR FINANCING THE PROJECT GRANT UNDER PACER. THE PROJECT HAS BEEN DEFINED UN DER ARTICLE 2, WHICH READS AS UNDER: ARTICLE 2: THE PROJECT SECTION 2.1. DEFINITION OF PROJECT. THE PROJECT, WITH THREE INTER- RELATED COMPONENTS, WHICH IS FURTHER DESCRIBED IN A NNEX 1, WILL, UNDER THE OVERALL DIRECTION OF THE DEPARTMENT OF NO N-CONVENTIONAL ENERGY SOURCES (DKES) .OF THE MINISTRY OF ENERGY OF THE GOVERNMENT OF INDIA SUPPORT SELECTED RESEARCH AND T ECHNOLOGY DEVELOPMENT PROPOSALS WHILE SEEKING TO CREATE AN IN STITUTIONAL ENVIRONMENT FOR RELEVANT TECHNOLOGY INNOVATION IN T HE ENERGY SECTOR. ICICI WILL DISBURSE GRANT FUNDS RECEIVED UNDER AID GRANT FOR FINANCING OF APPROVED SUBP ROJECTS AND RELATED ACTIVITIES AND ORGANIZE SECRETARIAT FOR THE EXECUTION OF THE PROJECT. WITHIN THE LIMITS OF THIS DEFINITION OF TH E PROJECT, ELEMENTS SPECTRUM COAL & POWER LTD 15 OF THE AMPLIFIED DESCRIPTION IN ANNEX 1 MAY BE CHAN GED BY WRITTEN AGREEMENT OF THE AUTHORISED REPRESENTATIVES OF THE PARTIES NAMED IN SECTION 9.2, WITHOUT FORMAL AMENDMENT OF THIS AG REEMENT, HOWEVER, THESE BE VETTED BY THE DEA IN THE MOF PRIO R TO THEIR INCORPORATION. FROM THIS IT IS APPARENT THAT THE GRANT IS TO CREAT E AN INSTITUTIONAL ENVIRONMENT FOR TECHNOLOGICAL INNOVATIONS IN THE EN ERGY SECTOR AND DISBURSEMENT OF THE GRANT IS TO BE MADE BY ICICI. THIS AGREEMENT, EVEN IF WE TAKE THE CONTENTION OF THE LEARNED DR, THAT IT I S NOT A FINANCIAL ARRANGEMENT BUT A SUBSIDY, IT IS NOT FOR A SPECIFIC PLANT & MACHINERY. WE HAVE ALSO GONE THROUGH THE PROVISIONS OF SECTION 43 (1) AS WELL AS EXPLANATION 10 THEREOF. WE NOTED THAT SECTION 43(1) DEFINES TH E ACTUAL COST TO MEAN THE ACTUAL COST OF THE ASSETS OF THE ASSESSEE REDUCED B Y THAT PORTION OF THE COST THEREOF, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRE CTLY BY OTHER PERSON OR AUTHORITY. IN THE IMPUGNED CASE, WE NOTED THAT WHA T THE ICICI HAS FINANCED BY WAY OF CONDITIONAL GRANT TO THE ASSESSEE IS THE AMOUNT RECEIVED FROM USA UNDER THE PROJECT GRANT AGREEMENT FOR THE PROGRAM F OR ACCELERATION OF COMMERCIAL ENERGY RESEARCH. NOW THE QUESTION ARISE S WHETHER USA CAN BE REGARDED TO BE A PERSON OR AUTHORITY. IN OUR VIEW, THIS PROVISION CANNOT BE READ WITHOUT EXPLANATION 10. EXPLANATION 10 THERE TO READS AS UNDER: EXPLANATION 10 : WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY E STABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM O F A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), T HEN, SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRAN T OR SPECTRUM COAL & POWER LTD 16 REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL C OST OF THE ASSET TO THE ASSESSEE. FROM THE READING OF THE SAID EXPLANATION, IT IS EXP LICITLY CLEAR THAT IF A PORTION OF A COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY CENTRAL GOVERNMENT OR STATE GOVERNMEN T OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON IN THE FORM OF A SUBSIDY OR A GRANT OR REIMBURSEMENT, SAID SUBSIDY GRANT OR REI MBURSEMENT AS IS RELATABLE TO THE ASSET SHALL BE REDUCED OUT OF THE ACTUAL COST OF THE ASSESSEE TO THE ASSESSEE. USA IS A SOVEREIGN AND CANNOT BE CENTRAL GOVERNMENT OR STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED BY AN Y LAW IN INDIA. NOW THE QUESTION ARISES, WHETHER USA CAN BE REGARDED TO BE A PERSON. A PERSON HAS BEEN DEFINED U/S. 2(31) AS UNDER: PERSON INCLUDES (I) AN INDIVIDUAL, (II) A HINDU UNDIVIDED FAMILY, (III) A COMPANY, (IV) A FIRM, (V) AN ASSOCIATION OF PERSON OR A BODY OF INDIVIDUALS, WHETHER INCORPORATED OR NOT, (VI) A LOCAL AUTHORITY, AND (VII) EVERY ARTIFICIAL JURIDICAL PERSON, NOT FALLING WITH IN ANY OF THE PRECEDING SUB-CLAUSES. (EXPLANATION FOR THE PURPOSES OF THIS CLAUSE, AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A LOCAL AUTHORITY OR AN ARTIFICIAL JURIDICAL PERSON SHALL B E DEEMED TO BE A PERSON, WHETHER OR NOT SUCH PERSON OR BODY OR AUTHORITY OR JURIDICAL PERSON WAS FORMED OR ESTABLI SHED OR INCORPORATED WITH THE OBJECT OF DERIVING INCOME, PR OFITS OR GAINS SPECTRUM COAL & POWER LTD 17 FROM THE SAID DEFINITION, WE ARE OF THE VIEW THAT U SA CANNOT BE REGARDED TO BE A PERSON UNDER THE IT ACT. EVEN ON THIS BASIS A LSO FINANCIAL ASSISTANCE GIVEN BY ICICI CANNOT BE REGARDED TO BE A COST MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON. WE HAVE ALSO GONE THROUGH THE DE CISION OF VISAKHAPATNAM BENCH OF THIS TRIBUNAL IN THE CASE OF SASISRI EXTRA CTIONS LIMITED V. ACIT122 ITD 428. WE NOTED THAT IN THIS CASE, THE TRIBUNAL HAS CATEGORICALLY HELD UNDER PARA 11 OF ITS ORDER THAT EVEN AFTER INSERTIO N OF EXPLANATION 10 TO SECTION 43(1) OF THE I.T ACT, THE BASIC PRINCIPLE U NDERLYING THE DECISION OF THE APEX COURT IN THE CASE OF CIT VS. P J CHEMICALS 210 ITR 830, STILL HOLDS GOOD. IN THIS DECISION, THEIR LORDSHIPS ANALYZED THE EXPR ESSION MET DIRECTLY OR INDIRECTLY TO COME TO THE CONCLUSION THAT ONLY IN A CASE WHERE A SUBSIDY OR OTHER GRANT IS GIVEN TO OFFSET THE COST OF AN ASSET , SUCH PAYMENT/GRANT WOULD FALL WITHIN THE EXPRESSION MET WHEREAS THE SUBSID Y RECEIVED MERELY TO ACCELERATE THE INDUSTRIAL DEVELOPMENT OF THE STATE CANNOT BE CONSIDERED AS PAYMENT MADE SPECIFICALLY TO MEET A PORTION OF THE COST OF ASSETS. THIS DECISION IN OUR VIEW IS EQUALLY APPLICABLE IN THE C ASE OF THE ASSESSEE AS THE CONDITIONAL GRANT WAS GIVEN UNDER THE PROGRAM FOR A CCELERATION OF COMMERCIAL ENERGY RESEARCH. AS PER THE AGREEMENT E NTERED INTO BETWEEN ICICI AND USA, WE NOTED THAT THE SAME VIEW HAS BEEN TAKEN BY KOLKATA BENCH OF THIS TRIBUNAL IN THE CASE OF UNIVERSAL CAB LES LIMITED VS. DCIT 57 TAXMANN.COM 95. WHILE HOLDING SO, THE TRIBUNAL UND ER PARA 18 OF ITS ORDER RELIED ON THE ORDER OF THE ORDER OF THE VISAKHAPATN AM BENCH IN THE CASE OF SPECTRUM COAL & POWER LTD 18 SASISRI EXTRACTIONS LIMITED (SUPRA). IN VIEW OF TH IS FACT, RESPECTFULLY, FOLLOWING THE DECISIONS AND LEGAL POSITION EXPLAINED BY THE H ONBLE SUPREME COURT IN THE CASE OF P J CHEMICALS (SUPRA), WE ARE OF THE VI EW THAT THE CONDITION OF FINANCIAL GRANT RECEIVED BY THE ASSESSEE COULD NOT BE REDUCED FROM THE ACTUAL COST OF FIXED ASSETS FOR COMPUTING THE DEPRECIATION UNDER THE INCOME TAX ACT. 8. NOW COMING TO THE LAST BIT OF THE SUBMISSION MAD E BY THE LEARNED AR, WE NOTED THE FACT THAT DURING THE ASSESSMENT YEARS 2003-04, 2008-09 AND 2009-10, THE ASSESSING OFFICER, UNDER THE SAME SET OF FACTS, AFTER EXAMINING THE ISSUE IN DETAIL, ALLOWED DEPRECIATION TO THE AS SESSEE. THE LEARNED DR EVEN THOUGH VEHEMENTLY RELIED ON THE ORDER OF THE C IT(A) COULD NOT DISTINGUISH THAT THE FACTS INVOLVED IN ASSESSMENT Y EARS 2003-04, 2008-09 AND 2009-10 WERE DIFFERENT FROM THE IMPUGNED ASSESSMENT YEARS. WE, THEREFORE, ON THE BASIS OF THE PRINCIPLE OF CONSISTENCY, RESPE CTFULLY, FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. GOPAL PUROHIT 336 ITR 287 (BOM) AND THAT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NEO POLY PACK (P) LTD. 245 ITR 492 (DEL) HOLD THAT THE CONDITIONAL GRANT RECEIVED BY THE ASSESSEE CANNOT BE REDUCED OU T OF THE WDV OF THE ASSETS FOR THE PURPOSE OF COMPUTING THE DEPRECIATIO N. IN OUR VIEW, THE CONTENTION OF THE LEARNED DR THAT THE ASSESSEE HAS CREDITED THE SAID AMOUNT TO THE ASSETS IN THE BOOKS OF ACCOUNT WILL NOT MAKE ANY DIFFERENCE. AS TO CLAIMING OF THE DEPRECIATION BY THE ASSESSEE IN THE INCOME TAX RETURN, IN VIEW SPECTRUM COAL & POWER LTD 19 OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT 82 ITR 363 (SC), WHE REIN IT HAS BEEN HELD THAT WHETHER THE ASSESSEE IS ENTITLED TO A PART DED UCTION OR NOT WILL DEPEND ON THE PROVISION OF THE LAW RELATING THERETO AND NO T ON THE VIEW WHICH THE ASSESSEE MAY TAKE OF HIS RIGHTS; NOR CAN THE EXISTE NCE OR ABSENCE OF ENTRIES IN HIS BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE I N THE MATTER. 9. IN VIEW OF OUR AFORESAID DISCUSSION, WE SET ASID E THE ORDER OF THE CIT(A) IN EACH OF THE ASSESSMENT YEARS ON THIS ISSU E AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION TO THE ASSESSEE WITHO UT DEDUCTING THE AMOUNT OF THE CONDITIONAL GRANT RECEIVED BY THE ASSESSEE FROM THE ACTUAL COST/WDV OF THE PLANT AND MACHINERY. THUS, THIS GROUND IN EACH OF THE ASSESSMENT YEARS IS ALLOWED. THIS DISPOSES OF APPEALS IN ITA NOS. 1 295 & 1296/MUM/2012 10. ITA NO. 1880/MUM/2010 FOR ASSESSMENT YEAR : 2004-05 GROUND NO.1, 11, 12,13 AND 15 ARE GENERAL IN NATUR E, THEREFORE, IT DOES NOT REQUIRE ANY ADJUDICATION. GROUND NO. 2 IS THE SUMMARY OF OTHER GROUNDS TAKEN BY THE ASSESSEE AND, THEREFORE, DOES NOT REQU IRE ANY ADJUDICATION. GROUND NOS. 6 AND 8 WERE NOT PRESSED, HENCE STANDS DISMISSED AS NOT PRESSED. 11. GROUND NOS. 3 AND 4 READ AS UNDER: 3. THE CIT(A) HAS, IN VIEW OF THE FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW, GROSSLY ERRED IN UPHOLDING THE ACT ION OF THE ASSESSING OFFICER IN TREATING THE EXPENDITURE INCUR RED ON OBTAINING A SPECTRUM COAL & POWER LTD 20 TECHNICAL REPORT AS EXPENDITURE INCURRED ON ACQUIRI NG A CAPITAL ASSET AND HENCE NOT ALLOWING THE SAME AS REVENUE EXPENDIT URE. 4. THE CIT(A) HAS FAILED IN APPRECIATING THE FACT T HAT NO NEW CAPITAL ASSET HAS BEEN CREATED/ACQUIRED BY OBTAINING THE TE CHNICAL REPORT. 12. THE FACTS RELATING TO THESE GROUNDS ARE THAT TH E ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED TECHNICAL KNOWHOW AS CAPITAL EXPENDITURE. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE ASSESSEE VIDE LETTER DATED 9.11.2006 BY SUBMITTING A NOTE CLAIMED THESE EXPENDITURE AS REVENUE EXPENDITURE. THE ASSESSEE CLAIMED THAT HE HAS ADDED IN THE BALANCE SHEET UNDER THE HEAD PLANT & MACHINERY A SUM OF ` 4 CRORES AS AMOUNT PAID FOR TECHNICAL KNOWHOW AND CLAIMED DEPRECIATION. TH IS EXPENDITURE HAS BEEN INCURRED FOR COAL BENEFICIATION AND, THEREFORE IT I S IN THE NATURE OF REVENUE EXPENDITURE AND NOT A CAPITAL EXPENDITURE. IN THIS REGARD A COPY OF THE AGREEMENT DATED 23.08.2003 BETWEEN THE ASSESSEE AND BSES LTD WAS ALSO SUBMITTED. THE ASSESSING OFFICER DID NOT AGREE WIT H THE ASSESSEE AND TREATED THE SAME AS CAPITAL EXPENDITURE IN VIEW OF THE PROV ISIONS OF SECTION 32(1)(II), WHICH CATEGORIZES THAT TECHNICAL KNOW-HOW ACQUIRED BY THE ASSESSEE AS AN INTANGIBLE ASSET AND ANY EXPENDITURE INCURRED TOWAR DS ACQUISITION OF SUCH ASSET AS CAPITAL EXPENDITURE, ELIGIBLE FOR DEPRECIA TION. THE ASSESSING OFFICER THEREFORE REJECTED THE CLAIM OF THE ASSESSEE TREATI NG THE SUM OF ` 4 CRORES AS REVENUE EXPENDITURE. AGGRIEVED THE ASSESSEE WENT I N APPEAL BEFORE THE CIT(A). THE CIT(A) AS PER THE FINDINGS GIVEN BY HI M UNDER PARA 4 TO 8 SPECTRUM COAL & POWER LTD 21 REJECTED THE CLAIM OF THE ASSESSEE. HENCE, THE ASS ESSEE IS IN APPEAL BEFORE US. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CA REFULLY CONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES B ELOW. THE QUESTION BEFORE US IS WHETHER THE SUM OF ` 4 CRORE PAID BY THE ASSESSEE AS PER TECHNICAL KNOWHOW AGREEMENT DATED 23.08.2003 BETWEE N THE ASSESSEE AND BSES IS CAPITAL EXPENDITURE OR A REVENUE EXPENDITUR E. WE HAVE GONE THROUGH THE SAID AGREEMENT, COPY OF WHICH IS PLACED AT PAGE S 59 TO 66 OF THE PAPER- BOOK. AS PER CLAUSE 5 OF THIS AGREEMENT, THE ASSES SEE HAS TO PAY A SUM OF ` 4 CRORE AS TECHNICAL KNOW-HOW FEES IN INSTALLMENTS OF ` 2 CRORE EACH IN CONSIDERATION OF THE PREPARATION AND COMPLETION OF THE REPORT AND THE SERVICES TO BE PROVIDED BY BSES TO THE ASSESSEE. T HE SCOPE OF THE WORK HAS BEEN DESCRIBED UNDER CLAUSE 1 AS UNDER: 1.1 ST-BSES HEREBY APPOINTS BSES TO PREPARE FOR IT S USE AND BENEFIT FOR THE PURPOSE OF ITS PROJECT (DEFINED HER EINABOVE) A TECHNICAL KNOW-HOW PROJECT REPORT (HEREINAFTER REFE RRED TO AS THE 'REPORT') AND BSES HEREBY ACCEPT SUCH APPOINTMENT A ND AGREES TO PREPARE THE REPORT AND PROVIDE THE SERVICES HEREINA FTER MENTIONED, ON THE TERMS AND CONDITIONS CONTAINED IN THIS AGREE MENT. 1.2 THE REPORT SHALL CONTAIN INFORMATION AND DATA I NCLUDING, WITHOUT LIMITATION, KNOW-HOW, STATISTICS, LOGISTICS, EVALUA TIONS, PROPOSALS, ANALYSIS, PLANS, METHODOLOGY, STANDARDS, FACTORS, F ORECASTS, PROJECTIONS, CONCLUSIONS AND RECOMMENDATIONS AND SU CH OTHER INCIDENTAL AND NECESSARY DETAILS AND MATTERS TO PRO VIDE TO ST-BSES A COMPREHENSIVE AND DETAILED REPORT TO ASSIST ST-BS ES IN THE OPERATION AND MAINTENANCE OF THE PROJECT BY ST-BSES IN AN OPTIMUM MANNER FOR IMPROVEMENTS IN THE COAL BENEFIC IATION ACTIVITY FOR POWER GRADE COAL. SPECTRUM COAL & POWER LTD 22 1.3 BSES SHALL, FROM TIME TO TIME, UPON EVERY REASONABLE REQUEST OF ST-BSES -PROVIDE ALL SUCH INCIDENTAL SER VICES TO ST-BSES IN CONNECTION WITH THE PROJECT AS ARE REQUIRED BY S T-BSES TO UTILIZE THE INFORMATION AND DATA CONTAINED IN THE REPORT IN A BENEFICIAL MANNER AND TO PROVIDE ALL REQUIRED CLARIFICATIONS I N RELATION TO ANY MATTER CONTAINED IN THE REPORT. 1.4 THE REPORT SHALL BE AND REMAIN THE PROPERTY OF ST-BSES AND BSES SHALL NOT BE CONCERNED WITH THE PURPOSE FOR WH ICH, OR THE MANNER IN WHICH ST-BSES USES THE REPORT. FROM CLAUSE 1.2, IT IS APPARENT THAT THE PAYMENT HA S BEEN MADE BY THE ASSESSEE FOR IMPROVEMENT IN THE COAL BENEFICIATION ACTIVITY FOR POWER GRADE COAL. NOW THE QUESTION ARISES WHETHER THE PAYMENT SO MADE IS REVENUE EXPENDITURE OR A CAPITAL EXPENDITURE. 14. THE LEARNED AR BEFORE US VEHEMENTLY CONTENDED T HAT THE TECHNICAL REPORT OBTAINED WAS TO FACILITATE BUSINESS AS WELL AS SMOOTH AND EFFICIENT FUNCTIONING THEREOF. IT IS INCURRED FOR IMPROVEMEN T OF COAL BENEFICIATION ACTIVITY FOR POWER GRADE COAL, THEREBY IMPROVING TH E EXISTING BUSINESS OF THE ASSESSEE. OUR ATTENTION WAS DRAWN TOWARDS THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT 177 ITR 377 (SC) TO SUPPORT THE CONTENTION THAT THE EXP ENDITURE INCURRED FOR THE IMPROVEMENT OF THE EXISTING BUSINESS IS REVENUE EXP ENDITURE. WE HAVE GONE THROUGH THE DECISION AND NOTED THAT AT PAGE 390, TH E HONBLE SUPREME COURT HAS HELD AS UNDER: IN THE PRESENT CASE, THE PRINCIPAL REASON THAT INF LUENCED THE OPTION OF THE HIGH COURT WAS THAT THE INITIATION AND EXPLO ITATION OF THE NEW SPECTRUM COAL & POWER LTD 23 PROCESS BROUGHT IN THEIR WAKE A NEW VENTURE REQUIRI NG AN ALTOGETHER NEW PLANT. WE ARE AFRAID THIS VIEW MAY N OT BE JUSTIFIED. CLAUSES 2, 4 AND 6 OF THE AGREEMENT PROVIDE : '(2) FOR AND IN CONSIDERATION OF THE SUB-CULTURES, DESIGN, FLOW SHEET AND WRITTEN DESCRIPTION TO BE FURNISHED BY MEIJI TO ALEMBIC PURSUANT TO PARAGRAPH (1) HEREOF, ALEMBIC SHALL PAY TO MEIJI IN ADVANCE AND IN LUMP SUM, SUCH AN AMOUNT AS MEIJI IS ABLE TO COLLECT FIFTY THOUSAND U. S. DOLLARS ($ 50,000) NET IN TOKYO AFTER DEDUCTING ANY TAXES AND CHARGES TO BE IMPOSED IN IN DIA UPON MEIJI WITH RESPECT TO THE SAID PAYMENT TO MEIJI.' '(4) MEIJI WILL GIVE ADVICE, TO THE EXTENT CONSIDER ED NECESSARY BY MEIJI ON ANY DIFFICULTY ALEMBIC MAY ENCOUNTER IN AP PLYING THE SUB- CULTURES AND INFORMATIONS OBTAINED BY ALEMBIC FROM MEIJI TO THE LARGE SCALE MANUFACTURE. THE ABOVE PROVISION SHALL BE IN FORCE AFTER MEIJI'S RECEIPT OF THE AMOUNT SET FORTH IN PARAGRAP H (2) HEREOF UNTIL THE END OF TWO (2) YEARS FROM THE EFFECTIVE DATE OF THIS AGREEMENT . . .' '(6) ANY OF THE SUB-CULTURES AND INFORMATIONS OBTAI NED BY ALEMBIC FROM MEIJI SHALL BE REGARDED AS STRICTLY CONFIDENTI AL BY ALEMBIC AND ITS PERSONNEL AND SHALL BE USED BY ALEMBIC ONLY IN ITS PENICILLIN G PLANT IN INDIA, AND SHALL NOT BE DISCLOSED TO ANY OTHER PERSON, FIRM OR AGENCY, GOVERNMENTAL OR PRIVATE. ALEMBIC SHALL TAKE ALL REA SONABLE STEPS TO ENSURE THAT SUCH SUB-CULTURES AND INFORMATION WILL NOT BE COMMUNICATED. ALEMBIC SHALL TAKE ALL POSSIBLE PRECA UTIONS AGAINST THE ESCAPE FROM ITS PREMISES OF THE STRAIN OBTAINED FROM MEIJI OR PROPAGATED THEREFROM. ALEMBIC SHALL NOT APPLY FOR ANY PATENT TO ANY COUNT RY IN RELATION TO ANY OF THE SUB-CULTURES AND INFORMATION OBTAINED BY ALEMBIC FROM MEIJI'. AS NOTED EARLIER, THE TRIBUNAL, IN THE COURSE OF IT S ORDER, HELD: '. . . MEIJI AGREED TO GIVE THE DESIGNS, ETC., NOT ONLY FOR A PILOTPLANT BUT FOR THE MANUFACTURE OF PENICILLIN ACCORDING TO MEIJI'S PROCESS ON COMMERCIAL SCALE. THE ASSESSEE HAS TO PUT IN A LARG ER PLANT MODELLED ON THE PILOT-PLANT. ' (EMPHASIS * SUPPLIED ). HAVING REGARD TO THE TERMS OF CLAUSE 4 OF THE AGREE MENT, THIS CONCLUSION IS NON SEQUITUR. SPECTRUM COAL & POWER LTD 24 THE IMPROVISATION IN THE PROCESS AND TECHNOLOGY IN SOME AREAS OF THE ENTERPRISE WAS SUPPLEMENTAL TO THE EXISTING BUS INESS AND THERE WAS NO MATERIAL TO HOLD THAT IT AMOUNTED TO A NEW O R FRESH VENTURE. THE FURTHER CIRCUMSTANCE THAT THE AGREEMENT PERTAIN ED TO A PRODUCT ALREADY IN THE LINE OF THE ASSESSEE'S ESTABLISHED B USINESS AND NOT TO A NEW PRODUCT INDICATES THAT WHAT WAS STIPULATED WA S AN IMPROVEMENT IN THE OPERATIONS OF THE EXISTING BUSIN ESS AND ITS EFFICIENCY AND, PROFITABILITY NOT REMOVED FROM THE AREA OF THE DAY- TO-DAY BUSINESS OF THE ASSESSEE'S ESTABLISHED ENTER PRISE. IT APPEARS TO US THAT THE ANSWER TO THE QUESTIONS R EFERRED SHOULD BE ON THE BASIS THAT THE FINANCIAL OUTLAY UNDER THE AG REEMENT WAS FOR THE BETTER CONDUCT AND IMPROVEMENT OF THE EXISTING BUSINESS AND SHOULD, THEREFORE, BE HELD TO BE REVENUE EXPENDITUR E. 15. THE LEARNED DR, ON THE HAND, VEHEMENTLY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED A NOTE ON WHAT DOES COAL BENEFICIATION MEAN. WE HAVE GONE THROUGH THAT NOTE. WE NOTED TH AT COAL BENEFICIATION HAS BEEN DEFINED AS COST EFFECTIVE AND SIGNIFICANT STEP TOWARDS IMPROVING POWER PLANT EFFICIENCY AND REDUCING THE GHG EMISSIO NS FROM THE COAL FIRED POWER PLANTS IN INDIA WOULD BE TO INCREASE THE AVAI LABILITY OF CLEAN BENEFICIATED COALS USING APPROPRIATE BENEFICIATION TECHNOLOGIES. IN FACT, IT IMPROVES THE QUALITY OF COAL. FROM THE NOTE IT IS NOT DENIED THAT IT IS NOT FOR THE IMPROVEMENT IN THE COAL BENEFICIATING ACTIVITY FOR POWER GRADE COAL. POWER GRADE COAL IS THE EXISTING BUSINESS OF THE AS SESSEE. THIS MEANS IMPROVEMENT IN THE COAL BENEFICIATION EFFECTS THE D AY TO DAY BUSINESS OF THE ASSESSEE AND IMPROVES THE OPERATIONS OF THE EXISTIN G BUSINESS. IT DOES NOT RELATE TO A NEW PRODUCT AND, THEREFORE, IN OUR VIEW THE CASE OF THE ASSESSEE IS DULY COVERED BY THE AFORESAID FINDING OF THE HON BLE SUPREME COURT IN THE SPECTRUM COAL & POWER LTD 25 CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. WE ALSO NO TED THAT THE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO0. LTD. VS. CIT 124 ITR 1 (SC) HAS OBSERVED THAT HERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT, MAY, NO NE THE LESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MA Y BREAK DOWN. SINCE THE EXPENDITURE INCURRED IS FOR THE IMPROVEMENT OF THE EXISTING BUSINESS AND HAS NOT CREATED A NEW BUSINESS FOR THE ASSESSEE, THEREF ORE, IT WILL BE A REVENUE EXPENSE. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THE DISALLOWANCE. 16. GROUND NO.5 HAVE ALREADY BEEN DISPOSED OF WHILE DEALING WITH THE APPEALS FOR ASSESSMENT YEARS 2001-01 AND 2001-02 IN THE PRECEDING PARAGRAPHS, WHICH WE HAVE ALLOWED. 17. GROUND NO.7 READ AS UNDER: THE CIT(A) HAS, IN VIEW OF THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW, GROSSLY ERRED IN UPHOLDING THE ACTION O F THE AO IN TREATING THE EXPENSES ON REPAIRS AND MAINTENANCE OF ROADS AND BRIDGES AS CAPITAL EXPENDITURE AND CONSEQUENTLY DIS ALLOWING THE ASSESSEES CLAIM FOR REVENUE EXPENDITURE TO THE EXT ENT OF RS.46,33,463/- SIMILAR GROUND HAS BEEN TAKEN IN ASSESSEES APPEALS AS GROUND NO. 5 FOR A.YS. 2005-06, 2006-07, 2007-08 AND AS GROUND NO.2 IN A.Y. 2008-09 (EXCEPT CHANGE IN FIGURE). BOTH THE PARTIES AGREED THAT TH IS GROUND BE DISPOSED OF ON THE BASIS OF THE FACTS INVOLVED IN THE CASE OF THE ASSESSEE FOR A.Y. 2004-05 SPECTRUM COAL & POWER LTD 26 AND WHATEVER VIEW THIS TRIBUNAL MAY TAKE SHALL BE T HE VIEW TAKEN FOR A.YS 2005-06, 2006-07, 2007-08 AND 2008-09. 18. THE FACTS RELATING TO THIS GROUND ARE THE ASSES SING OFFICER NOTED FROM THE PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE HAS I NCURRED EXPENDITURE ON REPAIRS OF THE ROADS AND BRIDGES, WHICH HAS BEEN CL AIMED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS CONSTRUCTED ROADS ON THE LAND TAKEN FROM SOUTH EAST COALFIELDS LTD FOR DOING BUSINESS OF BENEFICIATION OF COAL. ACCORDING TO THE ASSESSING OFFICER THE EXPENDITURE SO INCURRED BRING INTO EXISTENCE THE ASSET GIVING BENE FIT OF ENDURING NATURE. SIMILARLY, THE ASSESSING OFFICER TOOK THE VIEW THAT THE EXPENSES MADE FOR THE REPAIRS TO BRIDGES ARE NOTHING BUT CONSTRUCTION OF BRIDGES. THEREFORE, HE TOOK ALL THESE EXPENSES TO BE CAPITAL IN NATURE. THE AS SESSING OFFICER RELYING ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE C ASE OF GUJARAT MINERAL DEVELOPMENT CORPORATION LTD V. CIT (143 ITR 822) AN D CALCUTTA HIGH COURT DECISION IN THE CASE OF INDIAN ALUMINIUM CO. LTD. V S. CIT (198 ITR 202 TOOK A VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION @10%. 19. WE HAVE GONE THROUGH THE JUDGMENTS OF HONBLE H IGH COURTS IN THE CASE OF GUJARAT MINERAL DEVELOPMENT CORPORATION LTD AND INDIAN ALUMINIUM CO. LTD (SUPRA), AND NOTED THAT IN BOTH THESE CASES THE LAND DOES NOT BELONG TO THE ASSESSEE. THE LAND WAS TAKEN ON A LONG TERM LEASE AS IS THE CASE OF THE ASSESSEE. ON THE LEASEHOLD LAND THE ASSESSEE H AS INCURRED EXPENSES FOR SPECTRUM COAL & POWER LTD 27 CONSTRUCTION OF APPROACH BRIDGE, FOR LAYING THE PIP ELINES TO THE BENEFICIATING PLANT. IN EACH OF THE CASES THE HONBLE HIGH COURT TOOK A VIEW THAT THE EXPENDITURE SO INCURRED IS CAPITAL EXPENDITURE. TH EREFORE, IN OUR VIEW THE EXPENDITURE INCURRED ON THE CONSTRUCTION OF ROADS A ND BRIDGES, ALTHOUGH TERMED AS REPAIRS AND MAINTENANCE OF ROADS AND BRI DGES HAS TO BE REGARDED AS CAPITAL EXPENDITURE. FURTHER, WE ALSO NOTED THA T, THE ASSESSING OFFICER WHILE MAKING ASSESSMENT U/S. 143(3) FOR A.YS 2003-0 4 AND 2009-10, SIMILAR EXPENDITURE HAS BEEN ALLOWED BY IN AS REVENUE EXPEN DITURE. THERE IS NO CHANGE IN THE FACTS IN THE IMPUGNED ASSESSMENT YEAR S AS COMPARED TO A.YS. 2003-04 AND 2009-10. IN VIEW OF THE DECISION OF JU RISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (336 ITR 287), TH E PRINCIPLE OF CONSISTENCY HAS TO BE FOLLOWED. WE ARE BOUND TO FOLLOW THE DEC ISION OF THE JURISDICTIONAL HIGH COURT AND, ACCORDINGLY, GROUND NO.7 IN A.Y 200 4-05, GROUND NO.5 IN A.YS. 2005-06, 2006-07 & 2007-08 AND GROUND NO.2 IN A.Y. 2008-09 IS ALLOWED. 20. GROUND NOS. 9 & 10 IN A.Y. 2004-05 AND GROUND N O.6 IN A.Y 2005-06 RELATE TO COMMON ISSUE PERTAINING TO DISALLOWANCE O F NON-COMPETITION FEES. THE FACTS RELATING TO THESE GROUNDS ARE THAT DURING THE A.Y. 2005-06, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD DEB ITED ` 6 CRORES AS NON- COMPETE FEES TO THE PROFIT AND LOSS ACCOUNT. WHEN ENQUIRED, THE ASSESSEE SUBMITTED THAT THE SAID SUM HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT IN RESPECT OF THE FEES PAID TO RELIANCE ENERGY LTD. THIS FEES HAS BEEN PAID SPECTRUM COAL & POWER LTD 28 ON 25.08.2003. THE PERIOD OF NON-COMPETITION HAS B EEN COMPLETED THIS YEAR THEREFORE, THE SAME HAS BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT. THE ESSENCE OF THE AGREEMENT WAS THAT FOR ONE YEAR FROM THE DATE OF AGREEMENT, RELIANCE ENERGY LTD. COULD NOT COMPETE WITH THE ASS ESSEE COMPANY IN COAL WASHING BUSINESS. THEREFORE IF THERE WAS A CONTRAV ENTION OF AGREEMENT, DURING THE PERIOD 1.8.2003 TO 31.7.2004, THE SAME A MOUNT WOULD HAVE TO BE PAID BACK TO THE ASSESSEE COMPANY. THE ASSESSING O FFICER DID NOT AGREE WITH THE ASSESSEE BUT ALLOWED THE CLAIM FOR 127 DAYS AMO UNTING TO ` 2 .08 CRORES AND THE BALANCE ` 3.92 CRORES IS ADDED TO THE INCOME OF THE ASSESSEE . THE ASSESSEE DURING THE APPELLATE PROCEEDINGS FOR A Y 2 004-05 FILED AN ADDITIONAL GROUND BEFORE THE CIT(A). BUT THE CIT(A) DID NOT A DJUDICATE THE ADDITIONAL GROUND. 21. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING T HROUGH THE ORDERS OF THE AUTHORITIES BELOW, WE HAVE NOTED THAT THE ADDITIONA L GROUND, IN THIS RESPECT, RAISED BY THE ASSESSEE BEFORE THE CIT(A) FOR THE A. Y. 2004-05 HAS NOT BEEN ADJUDICATED. WE, THEREFORE, RESTORE THIS ISSUE TO T HE FILE OF THE CIT(A) WITH A DIRECTION THAT THE CIT(A) SHALL ADJUDICATE THIS GRO UND AND DECIDE IT ON MERIT IN ACCORDANCE WITH LAW, AS IN OUR OPINION THIS IS A LE GAL GROUND. SO FAR AS A.Y. 2005-06 IS CONCERNED, SINCE THE CLAIM OF DEDUCTION OF ENTIRE AMOUNT OF ` 6 CRORE WILL DEPEND ON THE OUTCOME OF THE ADDITIONAL GROUND FOR A.Y 2004-05 BEFORE THE CIT(A), WE SET ASIDE THE ISSUE TO THE FI LE OF THE CIT(A) WITH A DIRECTION THAT THE CIT(A) SHALL ADJUDICATE THIS GRO UND AFRESH IN A.Y. 2005-06 SPECTRUM COAL & POWER LTD 29 VIZ-A-VIZ SIMILAR ISSUE ARISING IN A.Y. 2004-05, AN D RE-DECIDE THE ISSUE IN ACCORDANCE WITH LAW IN EACH YEAR AND HOW MUCH AMOUN T THE ASSESSEE SHALL BE ENTITLED FOR DEDUCTION. NEEDLESS TO STATE THAT WHILE ADJUDICATING THIS GROUND, THE CIT(A) MUST APPRECIATE THERE IS NO DISP UTE BETWEEN THE ASSESSEE AND THE REVENUE THAT THE SAID EXPENDITURE IS REVENU E EXPENDITURE. THUS, GROUND NOS. 9 & 10 IN A.Y. 2004-05 AND GROUND NO.6 IN A.Y. 2005-06 ARE ALLOWED FOR STATISTICAL PURPOSE. 22. GROUND NO.14 IS CONSEQUENTIAL IN NATURE AND, TH EREFORE, THE ASSESSING OFFICER IS DIRECTED TO COMPUTE INTEREST U/S. 234A A ND 234D AFTER GIVING EFFECT TO THIS ORDER. THIS DISPOSES OFF THE APPEAL FOR A. Y. 2004-05. 23. ITA NO. 1881/MUM/2010 ASSESSMENT YEAR 2005-06 GROUND NOS. 1, 7, 8, 9 AND 12 ARE GENERAL IN NATUR E AND DOES NOT REQUIRE ANY ADJUDICATION. GROUND NO.2 IS THE SUMMA RY OF ALL THE OTHER GROUNDS. GROUND NO.3 RELATING TO THE CLAIM OF DEPR ECIATION ON PLANT & MACHINERY HAS ALREADY BEEN DISPOSED OFF WHILE DISPO SING OF THE GROUND NOS. 2, 3, AND 4 FOR A.Y. 2000-01 IN THE PRECEDING PARAG RAPHS. GROUND NO.4 WAS NOT PRESSED HENCE, STANDS DISMISSED AS NOT PRESSED. GROUND NOS. 5 AND 6 STANDS DISPOSED OF WHILE DISPOSING OF GROUND NOS. 7 & 9 FOR A.Y. 2004-05. 24. GROUND NO.10 AND 11 ARE CONSEQUENTIAL IN NATURE AND, THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO COMPUTE INTEREST U /S. 234A AND 234D AFTER GIVING EFFECT TO THIS ORDER. SPECTRUM COAL & POWER LTD 30 25. ITA NO. 898/MUM/2013 ASSESSMENT YEAR 2006-07 GROUND NO. 1, 6, 7 AND 8 ARE GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. GROUND NO.2 IS THE SUMMARY OF TH E EFFECTIVE GROUNDS TAKEN BY THE ASSESSEE AND, THEREFORE, DOES NOT REQUIRE SE PARATE ADJUDICATION. GROUND NO.3 RELATING TO THE CLAIM OF DEPRECIATION O N PLANT & MACHINERY HAS ALREADY BEEN DISPOSED OFF WHILE DISPOSING OF THE GR OUND NOS. 2, 3, AND 4 FOR A.Y. 2000-01 IN THE PRECEDING PARAGRAPHS. GROUND NO.4 WAS NOT PRESSED HENCE, STANDS DISMISSED AS NOT PRESSED. GROUND NO . 5 RELATES TO THE ISSUE WHETHER THE EXPENSES ON REPAIR AND MAINTENANCE OF R OAD AND BRIDGES ARE CAPITAL EXPENDITURE. THIS GROUND STANDS DISPOSED O F WHILE DISPOSING GROUND NO.7 FOR A.Y. 2004-05. THUS, THERE REMAINS NO OTHE R GROUND FOR OUR DISPOSAL. 26. ITA NO. 899/MUM/2013 ASSESSMENT YEAR 2007-08 GROUND NO. 1, 7, 8 AND 10 ARE GENERAL IN NATURE AN D DOES NOT REQUIRE ANY ADJUDICATION. GROUND NO.2 IS THE SUMMARY OF TH E EFFECTIVE GROUNDS TAKEN BY THE ASSESSEE AND, THEREFORE, DOES NOT REQUIRE SE PARATE ADJUDICATION. GROUND NO.3 RELATING TO THE CLAIM OF DEPRECIATION O N PLANT & MACHINERY HAS ALREADY BEEN DISPOSED OFF WHILE DISPOSING OF THE GR OUND NOS. 2, 3, AND 4 FOR A.Y. 2000-01 IN THE PRECEDING PARAGRAPHS. GROUND NO.4 WAS NOT PRESSED HENCE, STANDS DISMISSED AS NOT PRESSED. GROUND NO .5 RELATES TO THE ISSUE WHETHER THE EXPENSES ON REPAIR AND MAINTENANCE OF R OAD AND BRIDGES ARE CAPITAL EXPENDITURE. THIS GROUND STANDS DISPOSED O F WHILE DISPOSING GROUND NO.7 FOR A.Y. 2004-05. GROUND NO.9 IS CONSEQUENTIAL IN NATURE AND, THEREFORE, SPECTRUM COAL & POWER LTD 31 THE ASSESSING OFFICER IS DIRECTED TO COMPUTE INTERE ST U/S. 234B AFTER GIVING EFFECT TO THIS ORDER. 27. ITA NO. 900/MUM/2013 ASSESSMENT YEAR 2008-09 GROUND NOS. 1, 3, 4 AND 6 ARE GENERAL IN NATURE AN D DOES NOT REQUIRE ANY ADJUDICATION. GROUND NO.2 RELATES TO THE ISSUE WHETHER THE EXPENSES ON REPAIRS AND MAINTENANCE OF ROAD AND BRIDGES ARE CAP ITAL EXPENDITURE. THIS GROUND STANDS DISPOSED OF WHILE DISPOSING GROUND NO .7 FOR A.Y. 2004-05. GROUND NO.5 IS CONSEQUENTIAL IN NATURE AND, THEREFO RE, THE ASSESSING OFFICER IS DIRECTED TO COMPUTE INTEREST U/S. 234B AFTER GIV ING EFFECT TO THIS ORDER. 28. ITA NO. 1813/MUM/2013 ASSESSMENT YEAR 2006-07 THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) BY TAKING THE FOLLOWING EFFECTIVE GROUND OF APPEAL: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING ADDITIONAL DE PRECIATION ON PLANT & MACHINERY WITHOUT APPRECIATING THE FACT THA T THE ASSESSEE IS IN THE BUSINESS OF COAL BENEFICIATION ONLY AND NO N EW PRODUCT IS MANUFACTURED? THE FACTS RELATING TO THIS GROUND ARE THAT THE ASSE SSING OFFICER NOTED THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF COAL BENEFI CIATION. THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION AMOUNTING TO ` .1,18,56,604/- THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE IS NOT PR ODUCING ANY NEW PRODUCT BUT IS PROCESSING RAW COAL TO BRING OUT MARKETABLE COAL. THEREFORE, HE DISALLOWED THE CLAIM OF THE ASSESSEE IN RESPECT OF ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE I.T ACT. THE ASSESSEE WENT IN AP PEAL BEFORE THE CIT(A). SPECTRUM COAL & POWER LTD 32 THE CIT(A) AFTER ANALYZING VARIOUS DECISIONS AS WEL L AS THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ASPINWALL AND CO. LTD. VS. CIT 251 ITR 323 (SC) TOOK A VIEW THAT BENEFICIATED COAL IS COMM ERCIALLY DIFFERENT PRODUCT THAN THE NATURAL COAL EXTRACTED FROM THE EARTH AND THEREFORE, HELD AS UNDER: I HAVE GONE THROUGH THE DETAILED SUBMISSIONS MADE B Y THE APPELLANT WITH REGARD TO ITS CLAIM THAT THE APPELLA NT IS ENGAGED IN THE MANUFACTURING OF GOODS. THE APPELLANT'S CONT ENTION IS THAT IN THE MANUFACTURING PROCESS, THE APPELLANT CONVERT S THE RAW COAL INTO BENEFICIATED COAL AND THE BENEFICIATED CO AL IS COMMERCIALLY KNOWN AS A DIFFERENT PRODUCT THAN THE RAW COAL EXTRACTED FROM THE EARTH. THE APPELLANT HAS RELIED ON VARIOUS CASE LAWS. IN THE CASE OF SHIV OIL AND DAL MILL 281 ITR 0221(A11), THE HON'BLE ALLAHABAD HIGH COURT HAS HEL D THAT REFINING OF OIL WILL AMOUNT TO MANUFACTURE. THE APP ELLANT IS DOING SIMILAR PROCESS TO COAL WHICH MAKES THE RAW C OAL TAKEN FROM EARTH TO BENEFICIATED COAL WHICH CAN BE USED B Y THERMAL POWER COMPANIES. I AM OF THE VIEW THAT BENEFICIATED COAL IS A COMMERCIALLY DIFFERENT PRODUCT THAN THE NATURAL COA L EXTRACTED FROM THE EARTH. IN VIEW OF THIS, I HOLD THAT THE A PPELLANT IS ENTITLED FOR ADDITIONAL DEPRECIATION . 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY CONSIDERED THE SAME. WE NOTED THAT THIS ISSUE IS NO MORE RES INTE GRA IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SES A GOA LTD. 271 ITR 331 (SC), IN WHICH THE HONBLE APEX COURT HAS HELD THAT EXTRACTION AND PROCESSING OF MINERAL ORE AMOUNTS TO PRODUCTION. IN VIEW OF THE SAID DECISION, EXTRACTION OF COAL AND PROCESSING THEREOF WILL TANT AMOUNT TO PRODUCTION AND CONVERTING RAW COAL INTO BENEFICIATED COAL IS A MAN UFACTURING PROCESS, AS BENEFICIATED COAL IS A DIFFERENT MARKETABLE PRODUCT . NO CONTRARY DECISION WAS SPECTRUM COAL & POWER LTD 33 BROUGHT TO OUR KNOWLEDGE. WE, THEREFORE, CONFIRM T HE ORDER OF THE CIT(A) AND DISMISS THE GROUND TAKEN BY THE REVENUE. 30. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D AND THE ASSESSEES APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DAY OF AUGUST, 2017. SD/- SD/- (PAWAN SINGH) (P K BANSAL) JUDICIAL MEMBER VICE-PRESIDENT MUMBAI; DATED: 3 RD AUGUST, 2017 SA COPY OF THE ORDER FORWARDED TO : 1. THE APP ELL ANT. 2. THE RESPONDENT. 3. T HE CIT(A) 4. THE CIT 5. DR, E BENCH, ITAT, MUMBAI BY ORDER, #TRUE COPY # ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI