M/s.Jameela Panels & Veneers, Kannur V. ITO, Kannur

ITA 238/COCH/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1008 (ITAT-COCHIN)
• Duration Of Justice: 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 14-02-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 04-09-2012
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: U MOHANAN
• Keywords: Capital asset; Depreciation; Capital receipt
• Section: 10; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 238 & 239/COCH/2012 ASSESSMENT YEARS : 2005-06 & 2006-07 M/S. JAMEELA PANELS & VENEERS, BALIAPATTAM, KANNUR DIST. [PAN:AACFJ 8329H] VS. THE INCOME-TAX OFFICER, WARD- 1(1), KANNUR. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI U. MOHANAN, CA REVENUE BY SMT. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 14/02/2013 DATE OF PRONOUNCEMENT 28/02/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 20-06-2012 PASSED BY THE LD. CIT(A)-II, KOZHIKODE A ND THEY RELATE TO THE ASSESSMENT YEARS 2005-06 & 2006-07. 2. THE SOLITARY ISSUE URGED IN THIS APPEAL IS WHETH ER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN RED UCING THE INVESTMENT SUBSIDY AMOUNT RECEIVED BY THE ASSESSEE, FROM THE COST OF ASSETS FOR THE PURPOSE OF COMPUTATION OF DEPRECIATION UNDER THE INCOME TAX AC T. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE-FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF PLYWOOD AND OTHER ALLIED PRODUCTS. DURING THE COURSE OF SCRUTINY PROCEEDINGS RELATING TO THE ASSESSMENT YEAR 2005-06, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD REC EIVED A SUM OF RS. 5,64,585/- AS SUBSIDY DURING THE F.Y. 1999-2000. THE ASSESSING O FFICER FURTHER NOTICED THAT THE I.T.A. NOS.238 &239/COCH/2012 2 ASSESSEE DID NOT DEDUCT THE ABOVE SAID SUBSIDY AMOU NT FROM THE COST OF ASSETS WHILE CALCULATING DEPRECIATION UNDER THE INCOME TAX ACT. THE ASSESSING OFFICER TOOK THE VIEW THAT THE GOVERNMENT HAS GRANTED THE SUBSIDY IN ORDE R TO MEET A PART OF THE COST OF ASSETS AND HENCE THE SAME IS REQUIRED TO BE DEDUCTE D FROM THE SAID COST AS PER THE PROVISIONS OF SEC. 43(1) OF THE ACT FOR THE PURPOSE S OF COMPUTATION OF DEPRECIATION. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THA T THE SUBSIDY AMOUNT RECEIVED BY IT IS AN INDUSTRIAL SUBSIDY GRANTED BY THE GOVERNMEN T IN ORDER TO STIMULATE INVESTMENTS IN SPECIFIC INDUSTRIES IN SPECIFIC AREAS FOR THE PU RPOSE OF ENCOURAGING INFRASTRUCTURE INVESTMENTS. ACCORDINGLY, IT WAS CONTENDED THAT TH E INVESTMENT SUBSIDY IS NOT GIVEN WITH REFERENCE TO ANY SPECIFIC ASSET OR BY WAY OF R EIMBURSEMENT OF THE COST OF ASSETS AND HENCE THE SAME IS NOT REQUIRED TO BE DEDUCTED F ROM THE COST OF ASSETS AS PER THE PROVISIONS OF SEC. 43(1) OF THE ACT. 4. THE SAID CONTENTIONS DID NOT FIND FAVOUR WIT H THE ASSESSING OFFICER. ACCORDINGLY, THE AO REDUCED THE AMOUNT OF SUBSIDY FROM THE WDV O F THE ASSETS AS ON 01-04-2004 AND RE-COMPUTED THE DEPRECIATION ALLOWABLE TO THE A SSESSEE. THE AO PLACED RELIANCE ON THE DECISION RENDERED BY THE HONBLE SUPREME COU RT IN THE CASE OF CALCUTTA ELECTRIC SUPPLY CORPORATION VS. CIT (1992) (194 ITR 296) TO DERIVE SUPPORT FOR HIS ACTION OF REDUCING THE AMOUNT OF SUBSIDY FROM THE WDV OF THE ASSETS AS ON 01-04-2004. FOR ASSESSMENT YEAR 2006-07, THE ASSESSING OFFICER INIT IATED RECTIFICATION PROCEEDINGS U/S 154 OF THE ACT AND RECOMPUTED THE DEPRECIATION BY A DOPTING THE WDV OF THE PLANT AND MACHINERY AS AT 31.3.2005, AS COMPUTED BY HIM IN TH E ASSESSMENT YEAR 2005-06. 5. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BY FILING APPEALS BEFORE THE LD. CIT(A) FOR BOTH THE YEARS UNDER CONSIDERATION. BEFORE LD CIT(A), THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF P.G. CHEMICALS (1994) (210 ITR 830)(SC) IN SUPPORT OF IT S CONTENTIONS. HOWEVER, THE SUBMISSIONS MADE BY THE ASSESSEE DID NOT FIND FAVOU R WITH THE LD.CIT(A) ALSO AND HENCE THE APPEAL OF THE ASSESSEE WAS DISMISSED BY T HE FIRST APPELLATE AUTHORITY. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFOR E US. I.T.A. NOS.238 &239/COCH/2012 3 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE HAS BEEN GRANTED THE IMPUGNED SUBSIDY AMOUNT IN ACCORDANCE WITH THE STATE INVESTMENT SUBSIDY SCHEME FRAMED BY THE GOVERNMENT OF KERALA IN ORDER TO STIMULATE THE CAPITAL INVESTMENT IN THE STATE OF KERALA. HE ACCORDINGLY SUBMITTED THAT THE SUBSIDY AMOUNT UNDER CONSIDERATION WAS NOT GRANTED TO MEET A PORTI ON OF THE COST OF ASSETS AS DEFINED IN SEC. 43(1) OF THE ACT. THE LD A.R FURTHER SUBMI TTED THAT THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF P.G. CHEMICALS (REFERRED SUPRA) WOULD SQUARELY APPLY TO THE FACTS OF THE CASE. HE FURTHER SUBMITT ED THAT THE RELIANCE PLACED BY THE ASSESSING OFFICER ON THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF CALCUTTA ELECTRIC SUPPLY CORPORATION (REFERRED SUPRA) WOULD N OT APPLY, SINCE THE ISSUE THEREIN WAS ABOUT DETERMINATION OF ACTUAL COST UNDER THE PR OVISIONS OF THE INCOME TAX ACT, 1961 IN RESPECT OF THOSE ASSETS WHICH WERE ACQUIRED IN THE EARLIER YEARS DURING WHICH THE PROVISIONS OF INCOME TAX ACT, 1922 WAS APPLICAB LE. HE FURTHER SUBMITTED THAT THE RATIO OF P.G. CHEMICALS LTD. (REFERRED SUPRA) HAS B EEN FOLLOWED BY THE HONBLE HIGH COURTS AND TRIBUNAL IN THE FOLLOWING CASES: A) CIT VS. HIMACHAL ENGINEERING COMPANY P. LTD. (20 08) 301 ITR 116 (HP) B) CIT VS. STANDARD FIREWORKS P. LTD. (2010) 326 I TR 498 (MAD.). C) SASISRI EXTRACTIONS LTD. VS. CIT(2008) 307 ITR ( AT) 127 (VISAKHAPATNAM). 7. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE S UBSIDY AMOUNT RECEIVED BY THE ASSESSEE IS A REVENUE RECEIPT AND HENCE, THE SAME I S REQUIRED TO BE DEDUCTED FROM THE COST OF ASSETS AS PER THE PROVISIONS OF SECTION 43( 1) OF THE ACT. THE LD. DR INVITED OUR ATTENTION TO PARA 5 OF THE ORDER PASSED BY THE LD. CIT(A) WHEREIN THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE MANUAL FOR STATE I NVESTMENT SUBSIDY, HAS GIVEN A FINDING THAT THE SAID SCHEME IS OMNIBUS IN NATURE A ND IS BEING GIVEN TO ALL INDUSTRIES FOR CAPITAL INVESTMENT IN PLANT, MACHINERY, POLLUTION C ONTROL EQUIPMENTS, BUILDINGS ETC. THE LD. DR SUBMITTED THAT DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF P.G. CHEMICALS IS NOT APPLICABLE IN THE INSTANT CASE, SI NCE THE SUBSIDY GRANTED IN THE CASE BEFORE HONBLE SUPREME COURT WAS IN THE NATURE OF A N INCENTIVE GIVEN TO INDUSTRIES TO MOVE TO A BACKWARD AREA. HOWEVER, IN THE INSTANT C ASE, THE SUBSIDY HAS BEEN GRANTED TO PROMOTE INVESTMENTS IN CAPITAL ASSETS AND HENCE THE SAME WAS GIVEN TO MEET PART OF CAPITAL INVESTMENTS. ACCORDINGLY, THE LD. DR SUBMI TTED THAT THE SUBSIDY AMOUNT IN THE I.T.A. NOS.238 &239/COCH/2012 4 INSTANT CASE IS REQUIRED TO BE DEDUCTED FROM THE AC TUAL COST AS PER THE PROVISIONS OF SEC. 43(1) OF THE ACT. THE LD. DR PLACED RELIANCE ON THE FOLLOWING CASE LAW IN SUPPORT OF HER CONTENTIONS: A) SHANEY STEEL AND PRESS WORKS LTD. VS. CIT (228 ITR 253) (SC). B) CIT VS. UDAYA PICTURES PVT. LTD. (225 ITR 294). C) CIT VS. RAJARAM MAIZE PRODUCTS (251 ITR 427) 8. IN THE REJOINDER, THE LD. AR SUBMITTED THAT THE INVESTMENT SUBSIDY CANNOT BE CONSIDERED AS AN AMOUNT MET DIRECTLY OR INDIRECTLY BY THE GOVERNMENT OF KERALA AS MENTIONED IN THE PROVISIONS OF SEC. 43(1) OF THE AC T. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. WE NOTICE THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE VISAK HAPATNAM BENCH OF ITAT IN THE CASE OF SASISRI EXTRACTIONS LTD. VS. CIT (REFERRED SUPRA) . IN THAT CASE, THE ASSESSEE THEREIN RECEIVED A SUM OF RS. 20 LAKHS AS INVESTMENT SUBSID Y UNDER THE SCHEME FLOATED BY THE STATE GOVERNMENT OF ANDHRA PRADESH. THE ASSESSEE PL ACED HEAVY RELIANCE ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF P .G. CHEMICALS LTD. (REFERRED SUPRA). AFTER CONSIDERING THE RIVAL SUBMISSIONS, THE TRIBUN AL TOOK THE VIEW THAT THE INVESTMENT SUBSIDY WAS GRANTED FOR SETTING UP OF INDUSTRIES IN THE STATE OF ANDHRA PRADESH. IT WAS FURTHER HELD THAT COST OF INVESTMENT IS TAKEN AS BASIS ONLY FOR THE PURPOSE OF DETERMINING THE QUANTUM OF SUBSIDY. ACCORDINGLY, T HE TRIBUNAL HELD THAT THE SUBSIDY AMOUNT CANNOT BE REDUCED FROM THE ACTUAL COST OF CA PITAL ASSETS. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE OPERATIVE PORTION OF THE DECISION: 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS AND PERUSED THE RECORD. IN OUR CONSIDERED OPINION, EVEN AFTER INSE RTION OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT, THE BASIC PRINCIPLE UNDER LYING IN THE DECISION OF THE APEX COURT IN THE CASE OF P.J. CHEMICALS LTD. (1994 ) 210 ITR 830, STILL HOLDS THE FIELD. THEIR LORDSHIPS ANALYSED 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 ASSE T, SUCH PAYMENT/GRANT WOULD FALL WITHIN THE EXPRESSION MET WHEREAS THE SUBSIDY RECEIVED MERELY TO ACCELERATE THE INDUSTRIAL DEVELOPMENT OF THE STA TE CANNOT BE CONSIDERED AS PAYMENTS MADE SPECIFICALLY TO MEET A PORTION OF THE COST OF THE ASSETS. I.T.A. NOS.238 &239/COCH/2012 5 13. A CAREFUL PERUSAL OF TARGET 2000 SCHEME SHOWS THAT THE SCHEME WAS INTENDED TO ACCELERATE INDUSTRIAL DEVELOPMENT OF TH E STATE AND THE INCENTIVE WAS GIVEN FOR SETTING UP OF INDUSTRIES IN ANDHRA PR ADESH AND FOR THE PURPOSE OF DETERMINING THE AMOUNT OF SUBSIDY TO BE GIVEN THE COST OF ELIGIBLE INVESTMENT WAS TAKEN AS THE BASIS, THOUGH IT WAS NOT SPECIFICALLY INTENDED TO SUBSIDISE THE COST OF THE CAPITAL. UND ER THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE INCENTIVE IN THE FORM OF S UBSIDY CANNOT BE CONSIDERED AS A PAYMENT DIRECTLY OR INDIRECTLY TO M EET ANY PORTION OF THE ACTUAL COST AND THUS IT FALLS OUTSIDE THE KEN OF EXP LANATION 10 TO SECTION 43(1) OF THE ACT. IN THE LIGHT OF THE ABOVE DISCUS SION, WE ARE OF THE VIEW THAT FOR THE PURPOSE OF COMPUTING DEPRECIATION ALLO WABLE TO THE ASSESSEE, THE SUBSIDY AMOUNT CANNOT BE REDUCED FROM THE ACTUA L COST OF THE CAPITAL ASSET. THE ASSESSING OFFICER IS DIRECTED ACCORDING LY. 10. WE HAVE ALSO GONE THROUGH THE VARIOUS CASE LAW RELIED UPON BY THE LD. DR BEFORE US. IN ALL THE THREE CASES RELIED UPON BY THE LD. DR, THE ISSUE IS ABOUT THE NATURE OF THE SUBSIDY RECEIVED BY THE RESPECTIVE ASSESSES WHE THER THEY ARE CAPITAL RECEIPTS OR REVENUE RECEIPTS. HOWEVER, IN THE INSTANT CASE, TH ERE IS NO DISPUTE THAT THE INVESTMENT SUBSIDY RECEIVED BY THE ASSESSEE IS A CAPITAL RECEI PT. HENCE, IN OUR VIEW, THE THREE DECISIONS RELIED UPON BY THE LD. DR ARE NOT APPLICA BLE TO THE ISSUE UNDER CONSIDERATION. 11. IN VIEW OF THE FORGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE INVESTMENT SUBSIDY RECEIVED BY THE ASSESSEE CANNOT BE CONSIDER ED AS AMOUNT WHICH HAS BEEN MET BY THE GOVERNMENT OF KERALA TO ENABLE THE ASSESSEE TO ACQUIRE THE ASSETS. AS POINTED OUT BY THE VISAKHAPATNAM BENCH OF ITAT, THE TOTAL A MOUNT OF INVESTMENT IS CONSIDERED ONLY FOR THE PURPOSE OF DETERMINING THE ELIGIBLE AM OUNT OF SUBSIDY. UNDER THESE CIRCUMSTANCES, THE RATIO OF THE DECISION OF THE HON BLE SUPREME COURT RENDERED IN THE CASE OF P.G. CHEMICALS LTD. (REFERRED SUPRA) SHALL APPLY TO THE INSTANT CASE ALSO. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LD. CIT (A) AND ALSO THAT OF THE ASSESSING OFFICER ON THE IMPUGNED ISSUE IN BOTH THE YEARS. I.T.A. NOS.238 &239/COCH/2012 6 12. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. PRONOUNCED ACCORDINGLY 28-02-2 013. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 28TH FEBRUARY, 2013 GJ COPY TO: 1. M/S. JAMEELA PANELS & VENEERS, BALIAPATTAM, KANN UR DIST. 2. THE INCOME-TAX, OFFICER,WARD-1(1), KANNUR. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOZH IKODE. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN I.T.A. NOS.238 &239/COCH/2012 7