Laxmikant Ramshwar Kale, V. Income-tax Officer,

ITA 2031/PUN/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8446 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 25-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Principle of natural justice
• Section: 143(3); 28; 10

Judgement Text

INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 2031/PN/2013 (ASSESSMENT YEAR : 2009-10) LAXMIKANT RAMESHWAR KALE, A-24, MARKET YARD, LATUR 413 512 PAN NO.ABAPK9595K .. APPELLANT VS. ITO, WARD-3(3), LATUR .. RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI DEPARTMENT BY : SHRI B.C. MALAKAR DATE OF HEARING : 30-10-2014 DATE OF PRONOUNCEMENT : 31-10-2014 ORDER PER R.S. PADVEKAR, JM : THIS APPEAL IS FILED BY THE ASSESSEE CHALLENGING TH E IMPUGNED ORDER OF THE LD.CIT(A), AURANGABAD DATED 1 3- 09-2013 FOR THE A.Y. 2009-10. THE ASSESSEE HAS TAK EN THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A), AURANGABAD HAS ERRED IN CONFIRMING THE ORDER UNDER SECTION 143(3) PASSED BY THE ASSESSING OFFICER IN WHICH HE REDUCED THE ALLOWANCE OF DEPRECIATION CLAIMED BY THE APPELLANT BY RS 3,14,68 6/- BY REDUCING FROM THE OPENING WDVS OF VARIOUS ASSETS TH E AMOUNT OF GOVERNMENT SUBSIDY OF RS25,00,000/- WHICH WAS RECEIVED BY THE APPELLANT IN THE PREVIOUS YEAR RELATING TO A Y 2008-09 FOR ARRIVING AT THE WDVS FOR COMPUTA TION OF DEPRECIATION. 2. THE LEARNED CIT(A) HAS NOT APPRECIATED THAT SUPREME COURT DECISION IN THE CASE OF THE P J CHEMI CALS LTD 210 ITR 830 IS APPLICABLE IN THE APPELLANT'S CA SE AND THE SUBSIDY RECEIVED WAS NOT LIABLE TO BE DEDUCTED WHILE ARRIVING AT THE WDVS OF THE DEPRECIABLE ASSETS CONS IDERING THE NATURE OF THE SAME AND ALSO HE HAS NOT APPRECIA TED THE FACT THAT THE NATURE OF THE SUBSIDY IN QUESTION IS NOT OF THAT CONTEMPLATED BY THE SECTION 43(1) AND THE EXPLANATION 10 TO THAT SECTION WAS NOT APPLICABLE I N CASE OF THE APPELLANT CONSIDERING THE NATURE OF THE SUBSIDY . 2 2. THE ASSESSEE IS IN THE TRADING OF GRAIN AND PULS ES AND HE CARRIES ON THE SAID BUSINESS UNDER THE NAME AND STYLE OF M/S. CHANDRAKANT TRADING COMPANY. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 20 09-10 WHICH WAS SELECTED FOR SCRUTINY AND ASSESSMENT HAS BEEN COMPLETED U/S.143(3) OF THE ACT. IN RESPECT O F THE ISSUE OF THE DEPRECIATION, THE ASSESSING OFFICER HA S NOTED THAT THE ASSESSEE HAS RECEIVED THE SUBSIDY TO THE E XTENT OF RS.25 LAKHS. THE ASSESSEE TOOK CONTENTION BEFOR E THE AO THAT THE SAID SUBSIDY IS RECEIVED AS A SPECIAL C APITAL INCENTIVE FROM THE STATE GOVERNMENT IN LIEU OF ESTABLISHING AN INDUSTRY IN THE BACKWARD AREA. THE ASSESSEE ALSO TOOK CONTENTION THAT THE SAID SUBSIDY WAS NOT GIVEN TO MEET COST OF ANY ASSET DIRECTLY OR IND IRECTLY. THE ASSESSEES ABOVE CONTENTIONS WERE NOT ACCEPTED BY THE ASSESSING OFFICER AS IN HIS OPINION AS PER EXPL ANATION 10 TO SECTION 43(1) THE SAID SUBSIDY IS TO BE DEDUC TED FROM THE ACTUAL COST OF THE FIXED ASSET. AS OBSERV ED BY THE ASSESSING OFFICER, THE ASSESSEE HAS NOT REDUCED SUBSIDY FROM THE ACTUAL COST OF THE FIXED ASSET AND THEREFORE THE ASSESSING OFFICER HELD THAT THE AMOUN T OF THE SUBSIDY IS TO BE REDUCED FROM THE WDV OF THE AS SETS ON THE PRO-RATA BASIS. HE THEREFORE, REDUCED WDV O F ASSETS AS UNDER BY ADOPTING PROPORTIONATE METHOD: DESCRIPTION OF ASSET OPENING WDV PROPORTIONATE SUBSIDY BUILDING 26,84,298/ - 14,89,433/ - PLANT & MACHINERY ADDITION BEFORE 180 DAYS 17,26,881/ - 94,390/- 18,21,271/- 10,10,566/ - TOTAL 45,05,569/ - 25,00,000/ - 3 2.1 IN CONSEQUENCE THE WDV OF THE BLOCK WAS REDUCED AND THE DEPRECIATION WAS ALSO REDUCED. THE AO WORK ED OUT THE DEPRECIATION ON THE REDUCED WDV AND DISALLO WED THE DEPRECIATION TO THE EXTENT OF RS.3,14,686/-. 3. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD.CIT(A) BUT WITHOUT SUCCESS. THE LD.CIT(A) CONFIR MED THE ACTION OF THE ASSESSING OFFICER. THE REASONING S AND FINDINGS OF THE LD.CIT(A) IS AS UNDER : 5.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND RIVAL CONTENTIONS. THE RELEVANT PROVISIONS OF T HE ACT IN THIS REGARD ARE REPRODUCED BELOW 43. IN SECTION 28 TO 41 AND IN THIS SECTION, UNLESS THE CONTEXT OTHERWISE REQUIRES- (1) 'ACTUAL COST' MEANS THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE, REDUCED BY THAT PORTION OF THE COST THEREOF, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY- EXPLANATION 10- WHERE A PORTION OF COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL OR A STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT ( BY WHATEVER NAME CALLED ) THEN, SO MUCH FOR THE COST AS IS RELATABLE TO SUCH SUBSIDY PR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. PROVIDED THE WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT IS OF SUCH NATURE THAT IT CANNOT BE DIRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH O F THE AMOUNT WHICH DEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT OR GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSIDY OR GRANT OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE.' FROM THE FACTS OF THE CASE IT HAS BEEN NOTICED THAT THE APPELLANT HAS RECEIVED SUBSIDY FROM STATE GOVERNMENT UNDER CAPITAL INCENTIVE SCHEME ON THE BASIS OF COST OF CAPITAL ASSETS ACQUIRED BY THE APPELLANT. THE SUBSIDY IS CERTAINLY RELATABLE TO TH E COST OF ASSETS AND CERTAINLY REDUCED THE COST OF ASSETS INCURRED BY THE APPELLANT. IN VIEW OF THE ABOVE PROVISIONS OF EXPLANATION 10 TO SECTION 43, THE APPELLANT SHOULD HAVE DEDUCTED THE PROPORTIONATE SUBSIDY FROM THE COST OF ASSETS FOR ARRIVING AT ALL OWABLE DEPRECIATION. THIS PROPOSITION IS SUPPORTED BY THE FOLLOWING DECISIONS - 4 (1) ALFA LAVAL INDIA LTD. VS. DCIT (2008) 117 T T.T 902 (PUNE) IN THIS CASE IT HAS BEEN LAID DOWN THAT SPECIAL CAPITAL INCENTIVE, THOUGH ACCRUED IN FINANCIAL YEAR 1995-96, HAVING BEEN RECEIVED BY THE ASSESSEE IN PREVIOUS YEAR 1999-2000 AND BOOK VALUE OF ASSETS HAVING ALSO BEEN ADJUSTED IN THIS YEAR ACCORDINGLY, CIT(A) WAS RIGHT IN INVOKING PROVISIONS OF EXPLANAT ION 10 TO SECTION 43(1) TO CORRESPONDINGLY REDUCE THE ACTUAL COST/WDV OF ASSETS AND ALLOWING DEPRECIATION ACCORDINGLY. (2) CIT VS. JANAK STEEL TUBES (P) LTD. 179 ITR 536 ( P & H ) IN THIS CASE IT HAS BEEN LAID DOWN THAT CAPITAL SUBSIDY RECEIVED BY THE ASSESSEE SHOULD BE DEDUCTED FROM THE VALUE OF PLANT AND MACHINERY AND BUILDING WHILE WORKING OUT WDV FOR ALLOWING DEPRECIATION TO THE ASSESSEE U/S.32. (3) CIT VS. JINDAL BROS. RICE MILLS 179 ITR 47 0 ( P & H ) - IN THIS CASE IT HAS BEEN LAID DOWN THAT CAPITAL SUBSIDY OF 15% ALLOWED BY THE STATE GOVT. ON THE CO ST OF PLANT AND MACHINERY, BUILDING ETC. FOR SETTING U P INDUSTRIES IN BACKWARD AREA WOULD REDUCE THE ACTUAL COST THEREOF WITHIN THE MEANING OF SECTION 43(1). THE HON'BLE ITAT PUNE HAS RECENTLY DECIDED THE IDENTICAL ISSUE IN FAVOUR OF 'REVENUE' IN THE CASE OF RUCHA ENGINEERING IN ITA NO.667/PN/2006 AND 1338/PN/2007 DATED 19/01/2011. IN VIEW OF THE ABOVE FACTS AND DISCUSSION AND RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE A BOVE REFERRED DECISIONS, I HOLD THAT THE A.O. IS JUSTIFI ED IN DISALLOWING DEPRECIATION AMOUNTING TO RS.3,14,686/- . THE ADDITION RS.3,14,686/- IS CONFIRMED. GROUND NOS . L & 2 ARE DISMISSED. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE LD. COUNSEL SUBMITS THAT THE ASSESSEE HAS RECEI VED THE SUBSIDY UNDER THE SPECIAL CAPITAL INCENTIVE SCH EME- 2001 DECLARED BY THE GOVERNMENT DATED 31-03-2001. HE ARGUES THAT THE HONBLE ITAT, VISAKHAPATNAM BENC H IN THE CASE OF SASISRI EXTRACTIONS LTD. VS. ACIT RE PORTED IN (2008) 15 DTR 313 HAS DECIDED THIS ISSUE IN FAVO UR OF 5 THE ASSESSEE AFTER CONSIDERING THE EXPLANATION-10 T O SECTION 43(1) OF THE ACT AND ALSO THE DECISION OF T HE APEX COURT IN THE CASE OF CIT VS. P.J. CHEMICALS LT D., REPORTED IN (2010) 210 ITR 830. HE SUBMITS THAT BO TH THE AUTHORITIES BELOW HAVE NOT AT ALL EXAMINED THE SCHEME UNDER WHICH THE SUBSIDY IS GIVEN. HE PLEADE D FOR ALLOWING THE CLAIM OF THE ASSESSEE. WE HAVE AL SO HEARD THE LD. DEPARTMENTAL REPRESENTATIVE. 4.1 WE FIND THAT THE LD.CIT(A) HAS NOT AT ALL CONSIDERED THE SCHEME UNDER WHICH THE ASSESSEE HAS RECEIVED THE SUBSIDY FOR DETERMINING THE APPLICABIL ITY OF EXPLANATION-10 TO SECTION 43(1). IT IS NECESSARY F OR BOTH THE AUTHORITIES BELOW TO HAVE EXAMINED THE ASSESSEE S CLAIM IN THE LIGHT OF THE PROVISIONS AND THE TERMS AND CONDITIONS OF THE PACKAGE SCHEME OF INCENTIVE-2001. THE LD.CIT(A) HAS MERELY REFERRED TO EXPLANATION 10 TO SECTION 43(1) AND REJECTED THE CLAIM OF THE ASSESSE E. 4.2 WE FIND THAT IDENTICAL ISSUE HAS COME FOR THE CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF K AVITA AGRO INDUSTRIES VS. DCIT, CIRCLE-3, NANDED VIDE ITA NO.1999/PN/2013 ORDER DATED 31-01-2014 AND THE TRIBUNAL HAS SET-ASIDE THE ISSUE TO THE FILE OF THE CIT(A) FOR DECIDING THE ISSUE AFRESH AFTER EXAMINING THE S CHEME UNDER WHICH THE ASSESSEE HAS RECEIVED SUBSIDY. THE OPERATIVE PART OF THE SAID DECISION IS AS UNDER : 5. IN THE CASE OF SASISRI EXTRACTIONS LTD. (SUPRA) IS CONCERNED, THE ASSESSEE HAD RECEIVED AN AMOUNT OF RS.20,00,000/- AS INVESTMENT SUBSIDY UNDER A SCHEME FLOATED BY ANDHRA PRADESH STATE GOVERNMENT KNOWN AS TARGET 2000. IT WAS CONTENDED THAT THE SUBSIDY W AS GIVEN TO THE UNIT BECAUSE OF THE FACT THAT IT HAS ESTABLISHED AN ELIGIBLE INDUSTRIAL UNIT IN THE NOTI FIED 6 AREA AND THUS THE RECEIPT WAS CAPITAL IN NATURE AND NOT TAXABLE. IT WAS ALSO CONTENDED BY THE ASSESSEE THA T THE SUBSIDY WAS NOT GIVEN TO ACQUIRE ANY ASSET EITH ER DIRECTLY OR INDIRECTLY HENCE, THE AMOUNT OF SUBSIDY SHOULD NOT BE REDUCED FROM THE COST OF ANY ASSET. THE TRIBUNAL EXAMINED THE G.O. ISSUED BY THE ANDHRA PRADESH STATE GOVERNMENT AND HELD THAT THE SAID SUBSIDY WAS NOT GIVEN FOR ACQUIRING ANY SPECIFIC AS SET. IN THE PRESENT CASE, WE FIND THAT BOTH THE AUTHORIT IES BELOW HAVE NOT AT ALL EXAMINED THE SCHEME UNDER WHICH THE ASSESSEE HAS RECEIVED THE SUBSIDY. AS PE R THE FACTS ON RECORD IT IS SEEN THAT THE ASSESSEE RE CEIVED SUBSIDY FROM THE STATE GOVERNMENT IN THE PREVIOUS YEAR RELATING TO THE A.Y. 2006-07. IN THIS CASE AL SO IT IS CONTENDED BY THE ASSESSEE THAT THE SUBSIDY IS GRANT ED TO THE PROMOTERS AS A CONTRIBUTION AND IS GRANTED I N LIEU OF INDUSTRIES IN THE BACKWARD AREA AND SAME IS NOT RECEIVED TO MEET, DIRECTLY OR INDIRECTLY, THE COST OF ANY ASSET AND THEREFORE THE AMOUNT OF SUBSIDY IS NOT TO BE DEDUCTED WHILE ARRIVING AT WDVS TO THE ASSETS. BEF ORE US ALSO THE ASSESSEE HAS NOT FILED THE RELEVANT SCH EME OR ANY OTHER DOCUMENTS TO ESTABLISH THE NATURE OF T HE SUBSIDY. THE NATURE OF SUBSIDY CAN BE DECIDE ONLY AFTER EXAMINING THE RESPECTIVE SCHEME UNDER WHICH THE ASSESSEE HAS BEEN GRANTED SUBSIDY. WE, THEREFORE, CONSIDER IT FIT TO RESTORE THIS ISSUE BACK TO THE F ILE OF THE CIT(A) FOR FRESH CONSIDERATION AND ADJUDICATION. T HE CIT(A) IS DIRECTED TO REEXAMINE THE SCHEME UNDER WHICH THE ASSESSEE HAS BEEN GRANTED THE SUBSIDY WHETHER THE SAME IS GRANTED FOR MEETING THE COST OF ASSETS AND ACCORDINGLY DECIDE THE ISSUE. NEEDLESS TO SAY THE CIT(A) IS DIRECTED TO GIVE OPPORTUNITY OF B EING HEARD TO THE ASSESSEE AS PER PRINCIPLES OF NATURAL JUSTICE. 4.3 IN THIS CASE ALSO, IN A VERY CRYPTIC MANNER, BO TH THE AUTHORITIES HAVE DECLINED TO ALLOW THE CLAIM OF THE ASSESSEE. WE, THEREFORE, SET-ASIDE THE ORDER OF TH E LD.CIT(A) AND REMIT BACK THE ISSUE TO THE FILE OF T HE LD.CIT(A) FOR FRESH ADJUDICATION AND CONSIDERATION IN THE LIGHT OF THE DIRECTIONS GIVEN IN THE CASE OF KAVITA AGRO INDUSTRIES (SUPRA). NEEDLESS TO SAY THE LD.CIT(A) SHALL EXAMINE THE SCHEME UNDER WHICH THE SUBSIDY HAS BEEN GRANTED TO THE ASSESSEE AND ALSO THE DECISION OF TH E ITAT, VISAKHAPATNAM BENCH IN THE CASE OF SASISRI EXTRACTIONS LTD., (SUPRA). THE ASSESSEE SHOULD BE GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD AS PER PRIN CIPLES 7 OF NATURAL JUSTICE. ACCORDINGLY, GROUNDS OF THE AS SESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 31-10-2014. SD/- SD/- (R.K. PANDA) (R.S. PADVEK AR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 31 ST OCTOBER, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A), AURANGABAD 4. CIT, AURANGABAD 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR, ITAT, PUNE BENCHES, PUNE