Cosmo Films Ltd, V. DCIT Circle 3 (1),

ITA 2508/DEL/2007

• Counselvise Citation: 250820114 RSA 2007
• Duration Of Justice: 4 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-07-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 18-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KRISHNA
• Keywords: Capital asset; Depreciation; Business expenditure; Opportunity of being heard; Rule of consistency; Additional depreciation; Retrospective amendment; Cost of acquisition; Capital receipt; Unabsorbed depreciation
• Section: 14A; 37(1); 10B; 32; 37; 10; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER (1) ITA NO.2831/DEL./2007 (ASSESSMENT YEAR : 2004-05) DCIT, CIRCLE 3 (1), VS. M/S. COSMO FILMS LIMITED, NEW DELHI. 30, COMMUNITY CENTRE, SAKET, NEW DELHI. (PAN : AAACC1152C) (2) ITA NO.2508/DEL./2007 (ASSESSMENT YEAR : 2004-05) M/S. COSMO FILMS LIMITED, VS. DCIT, CIRCLE 3 (1), 30, COMMUNITY CENTRE, SAKET, NEW DELHI. NEW DELHI. (PAN : AAACC1152C) (3) ITA NO.1449/DEL./2008 (ASSESSMENT YEAR : 2005-06) (4) ITA NO.4040/DEL./2009 (ASSESSMENT YEAR : 2006-07) ADDL.CIT, RANGE 3, VS. M/S. COSMO FILMS LIMITED, NEW DELHI. 30, COMMUNITY CENTRE, SAKET, NEW DELHI. (PAN : AAACC1152C) (5) ITA NO.1548/DEL./2008 (ASSESSMENT YEAR : 2005-06) (6) ITA NO.4010/DEL./2009 (ASSESSMENT YEAR : 2006-07) M/S. COSMO FILMS LIMITED, VS. ADDL.CIT, RANGE 3, 30, COMMUNITY CENTRE, SAKET, NEW DELHI. NEW DELHI. (PAN : AAACC1152C) ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 2 (7) & (8) ITA NOS.934 & 935/DEL./2011 (ASSESSMENT YEARS : 2004-05 & 2005-06) M/S. COSMO FILMS LIMITED, VS. DCIT, CIRCLE 3 (1), 30, COMMUNITY CENTRE, SAKET, NEW DELHI. NEW DELHI. (PAN : AAACC1152C) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. SAMPATH, ADVOCATE REVENUE BY : SHRI KRISHNA, CIT DR ORDER PER BENCH : ITA NOS. 2508/DEL/2007 & 2831/DEL/2007 BOTH THE CROSS APPEALS ARISE OUT OF THE ORDER OF T HE CIT (APPEALS)-VI, NEW DELHI DATED 15.03.2007 FOR THE ASSESSMENT YEAR 2004-05. 2. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE IN IT A NO.2831/DEL/2007 ARE AS UNDER :- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN TREATING THE 'SALES TAX SUBSIDY' AS CAPITA L RECEIPT, WHICH WAS ADDED BY THE AO AS 'REVENUE RECEIPT' 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO ON AC COUNT OF SALES TAX SUBSIDY, TREATING THE SAME AS CAPITAL REC EIPT IGNORING THE DECISION OF THE SUPREME COURT IN THE CASE OF SA HNEY STEEL AND PRESS WORKS LTD. (228 ITR 253) WHICH IT WAS HEL D THAT SUBSIDY GIVEN TO THE ASSESSEE TO ASSIST IN CARRYING ON TRADE OR BUSINESS, IS A TRADING RECEIPT. ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 3 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED TREATING THE SALES TAX SUBSIDY AS CAPITAL REC EIPT CONTRARY TO THE DECISION OF THE MADRAS HIGH COURT IN THE CASE O F TAMILNADU SUGAR CORP LTD. VS CIT (130 TAXMAN 348), WHEREIN IT WAS HELD THAT PURCHASE TAX SUBSIDY IN A REVENUE RECEIPT. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED IN ALLOWING DEPRECIATION @ 60% ON COMPUTER PE RIPHERALS AND ACCESSORIES AS AGAINST THE PROVISIONS OF THE AC T. 5. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RI GHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND( S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEA L. 3. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ITA NO.2508/DEL/2007 ARE AS UNDER :- 1) THAT THE COMMISSIONER OF INCOME TAX (APPEALS) - VI, NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW IN CONFIRMING PRORATED ADHOC DISALL OWANCE OF RS.5,59,000 FOR INTEREST AND ADMINISTRATIVE EXPENSE S WHICH ARE ALLEGED TO HAVE BEEN ATTRIBUTABLE TO THE EARNING OF DIVIDEND INCOME. 2) THAT THE COMMISSIONER OF INCOME TAX (APPEALS) -V I, NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW IN CONFIRMING DISALLOWANCE OF ARREA RS OF ADDITIONAL DEPRECIATION OF RS.3,31,78,825 AS CERTIF IED BY THE CHARTERED ACCOUNTANT ON QUALIFYING ASSETS PUT TO US E IN THE SECOND HALF OF THE IMMEDIATELY PRECEDING PREVIOUS Y EAR. 3) THAT THE COMMISSIONER OF INCOME TAX (APPEALS) -V I, NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW IN NEGATING AN ALTERNATE CLAIM FOR DEDUCTION OF ADDITIONAL DEPRECIATION OF RS.11,29,06,214 IN AY 2 004-05. 4) THAT THE APPELLANT RESERVES THE RIGHT TO ADD, AL TER OR AMEND ANY OTHER GROUND AT THE TIME OF HEARING. ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 4 4. FIRST WE TAKE UP REVENUES APPEAL. IN GROUND NO S.1 TO 3, THE ISSUE INVOLVED IS AGAINST THE DELETION OF ADDITION ON ACC OUNT OF SALES-TAX SUBSIDY. 5. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING BOPP FILM WHICH IS A THIN PLASTIC FILM USED FOR LAM INATING PAPERS AND CARD BOARD IN THE PACKAGING INDUSTRY. THE RETURN OF INC OME WAS FILED 28.10.2004 DECLARING INCOME AT RS.16,08,25,590/-. 6. IN GROUND NOS1 TO 3 OF REVENUES APPEAL, THE ISS UE IS REGARDING SALES-TAX SUBSIDY AVAILABLE TO ASSESSEE FOR A PERIOD OF FIVE YEARS UNDER THE GOVERNMENT OF MAHARASHTRA POLICY FOR THE DISPERSAL OF INDUSTRI ES OUTSIDE BOMBAY-THANE- PUNE BELT AND TO ATTRACT INDUSTRIES TO THE UNDERDE VELOPED AND DEVELOPING AREAS OF THE STATE. THESE PACKAGE OF INCENTIVES IN TRODUCED IN 1964 WAS AMENDED FROM TIME TO TIME. THE SCHEME UNDER WHICH ASSESSEE GOT THE INCENTIVE IS RESOLUTION NO.IDC-1093 (8889)/IND-8 DA TED 7.5.1993. PRIOR TO THAT, SUCH BENEFITS WERE AVAILABLE UNDER 1988 SCHEM E AND PRIOR TO 1988 SCHEME, THE BENEFITS WERE EXTENDED BY 1979 SCHEME. THE SCHEME OF 1979 WAS A MODIFIED FORM OF 1977 SCHEME. THE SCHEME OF 1988 WAS REVISED TO RATIONALIZE THE SCOPE OF INCENTIVES, VARIOUS SCALES AND MODE OF RELEASE OF INCENTIVE TO INTENSIFY AND ACCELERATE THE PROCESS O F DISPERSAL OF INDUSTRIES FROM THE DEVELOPED AREA TO DEVELOP THE UNDERDEVELOP ED REGIONS OF STATE, PARTICULARLY THOSE FARTHER AWAY FROM BOMBAY-THANE-P UNE BELT. THE SCHEME OF 1993 UNDER WHICH ASSESSEE GOT BENEFIT WAS BASICA LLY A REVISED FORM OF ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 5 INCENTIVES. IN THIS REVISED SCHEME OF 1993, THE EX PERIENCE GAINED IN THE IMPLEMENTATION OF EARLIER SCHEME PARTICULARLY OF 19 88 AND LIBERALIZED INDUSTRIAL POLICY OF GOVT. OF INDIA WAS TAKEN INTO CONSIDERATION AND THERE WERE SOME MODIFICATIONS WITH REGARD TO SCOPE OF INCENTIV ES, VARIOUS SCALES AND MODE OF RELEASE OF INCENTIVES. 6.1 IN THE PLEADINGS, LD. DR MAINLY RELIED ON THE D IFFERENCE IN THE EARLIER SCHEMES AND OF 1993 SCHEME. HE HAD DRAWN OUR ATTEN TION TO VARIOUS PROVISIONS OF SCHEME WHICH ARE IN VARIANCE TO THE O LD SCHEME. HE PLEADED THAT THE CASE IS NOT COVERED BY DECISION OF SPECIAL BENCH ITAT, MUMBAI IN THE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD., 88 I TD 273 (MUM.)(SB). ON THE OTHER HAND, LD. AR RELIED ON THE ORDER OF CIT ( A) AND PLEADED THAT THE ISSUE IS COVERED BY DECISION OF MUMBAI ITAT SPECIAL BENCH IN THE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD. 88 IT 273 (MUM.)( SB) WHICH HAS BEEN AFFIRMED BY HON'BLE BOMBAY HIGH COURT IN ITS ORDER DATED 15.04.2009 REPORTED IN [2010] TAXMANN.COM 218 (BOM.). 6.2 WE HAVE HEARD BOTH SIDES ON THIS ISSUE. THE LE ARNED CIT (A) HAS GRANTED THE RELIEF ON THE BASIS OF DECISION OF SPEC IAL BENCH OF MUMBAI ITAT IN THE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD. (C ITED SUPRA). THIS DECISION HAS BEEN UPHELD BY HON'BLE BOMBAY HIGH COURT AND TH E HON'BLE HIGH COURT HAS HELD AS UNDER :- ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 6 4. SOFARAS QUESTION (B) IS CONCERNED, THE TRIBUNAL RELIED UPON THE ITAT MUMBAI BENCH 'J' (SPECIAL BENCH) DECI SION IN THE CASE OF ASSESSEE ITSELF IN DY. CIT V. RELIANCE INDUSTRIES LTD. [2004] 88 ITD 273: WE MAY GAINFULLY REPRODUCE THE F OLLOWING PORTION: 'THE SCHEME FRAMED BY THE GOVERNMENT OF MAHARASHTRA IN 1979 FIND FORMULATED BY ITS RESOLUTION DATED 5-1 -1980 HAS BEEN ANALYSED IN DETAIL BY THE TRIBUNAL IN ITS ORDER IN RIL FOR THE ASSESSMENT YEAR 1985-86 WHICH WE HAVE ALREADY REFERRED TO IN EXTENSO. ON AN ANALYSIS OF THE SCHEME, THE TRIBUNAL HAS COME TO THE CONCLUSION THA T THE THRUST OF THE SCHEME IS THAT THE ASSESSEE WOULD BEC OME ENTITLED FOR THE SALES TAX INCENTIVE EVEN BEFORE TH E COMMENCEMENT OF THE PRODUCTION, WHICH IMPLIES THAT THE OBJECT OF THE INCENTIVE IS TO FUND A PART OF THE CO ST OF THE SETTING UP OF THE FACTORY IN THE NOTIFIED BACKWARD AREA. THE TRIBUNAL HAS, AT MORE THAN ONE PLACE, STATED THAT T HE THRUST OF THE SCHEME WAS THE INDUSTRIAL DEVELOPMENT OF THE BACKWARD DISTRICTS AS WELL AS GENERATION OF EMPLOYM ENT THUS ESTABLISHING A DIRECT NEXUS WITH THE INVESTMEN T IN FIXED CAPITAL ASSETS. IT HAS BEEN FOUND THAT THE EN TITLEMENT OF THE INDUSTRIAL UNIT TO CLAIM ELIGIBILITY FOR THE INCENTIVE AROSE EVEN WHILE THE INDUSTRY WAS IN THE PROCESS OF BEING SET UP. ACCORDING TO THE TRIBUNAL, THE SCHEME WAS ORIENTED TOWARDS AND WAS SUBSERVIENT TO THE INVESTM ENT IN FIXED CAPITAL ASSETS. THE SALE TAX INCENTIVE WAS EN VISAGED ONLY AS AN ALTERNATIVE TO THE CASH DISBURSEMENT AND BY ITS VERY NATURE WAS TO BE AVAILABLE ONLY AFTER PRODUCTI ON COMMENCED. THUS, IN EFFECT, IT WAS HELD BY THE TRIB UNAL THAT THE SUBSIDY IN THE FORM OF SALES TAX INCENTIVE WAS NOT GIVEN TO THE ASSESSEE FOR ASSISTING IT IN CARRYING OUT THE BUSINESS OPERATIONS. THE OBJECT OF THE SUBSIDY WAS TO ENCOURAGE THE SETTING UP OF INDUSTRIES IN THE BACKW ARD AREA.' THUS, IT CAN CLEARLY BE SEEN THAT A FINDING HAS BEE N RECORDED THAT THE OBJECT OF THE SUBSIDY WAS TO ENCOURAGE THE SETT ING UP OF INDUSTRIES IN THE BACKWARD AREA BY GENERATING EMPLO YMENT THEREIN. IN OUR OPINION, IN ANSWERING THE ISSUE, TH E TEST AS LAID DOWN BY THE SUPREME COURT IN CIT V. PONNI SUGARS & ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 7 CHEMICALS LTD [2008] 306 ITR 392 WILL HAVE TO BE CO NSIDERED. THE SUPREME COURT HAS HELD THAT THE TEST OF THE CHA RACTER OF THE RECEIPT OF A SUBSIDY IN THE HANDS OF THE ASSESSEE U NDER A SCHEME HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FO R WHICH THE SUBSIDY IS GRANTED. THE COURT FURTHER OBSERVED THAT IN SUCH CASES, WHAT HAS TO BE APPLIED IS THE PURPOSE TEST. THE POINT OF TIME AT WHICH THE SUBSIDY IS PAID IS NOT RELEVANT. THE SOURCE IS IMMATERIAL. FORM OF SUBSIDY IS MATERIAL. COURT THEN PROCEEDED TO OBSERVE AS UNDER: 'THE MAIN ELIGIBILITY CONDITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IS THAT THE INCENTIVE MUST BE UTILIZED FOR REPAYMENT OF LOANS TAKEN BY THE ASSESS EE TO SET UP NEW UNITS OR FOR SUBSTANTIAL EXPANSION OF EXISTI NG UNITS. ON THIS ASPECT THERE IS NO DISPUTE. IF THE OBJECT O F THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN TH E BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REV ENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE AS SISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN T HE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT.' THEREFORE, LET US APPLY THE PURPOSE TEST BASED ON T HE FINDINGS RECORDED BY THE SPECIAL BENCH. THE OBJECT OF THE SU BSIDY WAS TO SET UP ANEW UNIT IN A BACKWARD AREA TO GENERATE EMP LOYMENT. IN OUR OPINION, THE SUBSIDY IS CLEARLY ON CAPITAL ACCO UNT. IN THAT VIEW OF THE MATTER, QUESTION (D) AS FRAMED, WOULD A LSO NOT ARISE. 5. IN THE LIGHT OF ABOVE, APPEAL IS ADMITTED ONLY O N THE QUESTIONS (B), (E) AND (F). THE LEARNED DR MAINLY CONCENTRATED HIS ARGUMENTS ON THE DIFFERENCE BETWEEN OLD SCHEME AND NEW SCHEME OF 1993. HOWEVER, HE IS FAILED TO DISTINGUISH AND MAKE OUT A MARKABLE DIFFERENCE IN BASIC PURPOSE OF SUBSIDY RECEIVED BY ASSESSEE AND SUBSIDY RECEIVED BY RELIANCE INDUSTRIE S LIMITED. HIS RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CAS E OF SAHNEY STEEL AND ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 8 PRESS WORKS LTD., 228 ITR 253 AND HON'BLE MADRAS HI GH COURT IN THE CASE OF TAMILNADU SUGAR CORP LTD. VS. CIT, 130 TAXMAN 348 ( MADRAS), ARE OF NO HELP. THE ASSESSEE RECEIVED THE SUBSIDY FROM THE M AHARASHTRA GOVERNMENT UNDER THE MAHARASHTRA GOVT.S PACKAGE SCHEME OF INC ENTIVES, 1993. THE SCHEME IS EXTENSION OF THE EARLIER SCHEMES. THE PR EAMBLE OF THE SCHEME PROVIDED IN THE RESOLUTION NO.IDL-1093/(8889)/IND-8 SHOWS THAT THE SCHEME WAS FOR TO ACHIEVE DISPERSAL OF INDUSTRIES O UTSIDE THE BOMABY-THANE- PUNE BELT AND TO ATTRACT THEM TO THE UNDERDEVELOPED AND DEVELOPING AREAS OF THE STATE OF MAHARASHTRA. THE PACKAGES OF INCENTIV ES TO NEW/EXPANSION UNITS SET UP IN THE DEVELOPING REGION OF THE STATE WERE A VAILABLE AND WERE IN OPERATION SINCE 1964 UNDER THE SCHEME POPULARLY KNO WN AS THE PACKAGE SCHEME OF INCENTIVES. THIS SCHEME HAS BEEN AMENDED FROM TIME TO TIME AND PRIOR TO 1993, THE LAST AMENDMENT WAS IN 1988. THE LEARNED DR FAILED TO MAKE MARKABLE DISTINCTION BETWEEN EARLIER SCHEMES A ND THE SCHEME OF 1993 UNDER WHICH THE ASSESSEE RECEIVED THE SUBSIDY. THE CIT (A) HAS GRANTED THE RELIEF ON THE BASIS OF SPECIAL BENCH DECISION, CITE D SUPRA, WHICH HAS BEEN CONFIRMED BY THE HON'BLE MUMBAI HIGH COURT, CITED S UPRA. THE CIT (A) HAS GRANTED THE RELIED BY HOLDING AS UNDER :- 6.3 I HAVE CONSIDERED THE ARGUMENTS OF LEARNED AR AND GONE THROUGH THE OBSERVATIONS OF THE AO. MY OBSERVATIO NS ON THIS ISSUE ARE AS UNDER:- ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 9 (I) I FIND THAT THE ISSUE RELATING TO SALES-TAX SUB SIDY HAS BEEN DEALT BY THE SPECIAL BENCH OF MUMBAI ITAT IN T HE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD. 88 ITD 27 3 MUMBAI (SB). THE AO ALSO DID NOT DISTINGUISH THE CA SE OF RELIANCE INDUSTRIES, (SUPRA) BUT HE MADE THE ADDITI ON BY OBSERVING THAT THE JUDGEMENT OF SPECIAL BENCH HAS N OT ACCEPTED BUT THE ISSUE IS PENDING BEFORE THE HON'BL E MUMBAI HIGH COURT. (II) ON GOING THROUGH THE JUDGEMENT OF SPECIAL BEN CH OF IT AT IN RELIANCE INDUSTRIES LTD, I FIND THAT TH E QUESTION OF SALES-TAX SUBSIDY PROVIDED UNDER MAHARA SHTRA BENEFIT SCHEME OF INCENTIVE WAS INVOLVED IN BOTH TH E CASES. THUS, THERE ARE SIMILARITY IN THE FACTS ON T HE ISSUE OF SALES-TAX SUBSIDY IN BOTH THE CASES. HENCE, THE FIN DING OF ITAT IN RELIANCE CASE IS APPLICABLE IN APPELLANT'S CASE. FOR THE SAKE OF CONVENIENCE, THE RELEVANT PORTION O F FINDING OF THE SPECIAL BENCH MUMBAI IN RELIANCE INDUSTRIES, (SUPRA) IS PRODUCED BELOW:- 'ACCORDINGLY ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE ASSESSEE COMPANY WAS JUSTIFIE D IN ITS CLAIM THAT THE SALES-TAX INCENTIVE ALLOWED TO IT DU RING THE PREVIOUS YEAR IN TERMS OF THE RELEVANT GOVT. ORDER CONSTITUTED CAPITAL RECEIPT AND WAS NOT TO BE TAKEN INTO ACCOUNT IN COMPUTATION OF TOTAL INCOME. ' THUS, IN THE LIGHT OF SPECIAL BENCH OF MUMBAI IT AT DECISION IN RELIANCE INDUSTRIES LTD CASE, I FIND TH AT THE AO IN APPELLANT CASE WAS NOT JUSTIFIED TO TREAT THE SALES -TAX SUBSIDY OF RS.6,74,99,274/- AS REVENUE RECEIPT. FURTHER, I FIN D THAT APPELLANT HAS CHARGED THE SALES TAX AMOUNT BEING PART AND PAR CEL OF SALES AND QUANTIFIED THIS SALES-TAX SUBSIDY OF RS.6,74,99 ,274/- AND DEDUCTED THE SAME FROM THE BLOCK OF ASSET BY VIRTUE OF EXPLANATION 10 OF SECTION 43(1) WHICH WAS INSERTED BY THE FINANCE ACT, 1998 W.E.F 1.4.1999. THUS, THE DEPRECI ATION TO THAT EXTENT HAS BEEN REDUCED IN THIS YEAR AND FURTHER SH ALL BE REDUCED IN DUE COURSE. IN OTHER WORDS, THE DISALLOWANCE OF SALES-TAX SUBSIDY WOULD AMOUNT TO DOUBLE DISALLOWANCE IN CASE OF APPELLANT. IN THE LIGHT OF FACTS AND LEGAL PROVISIO N I HOLD THAT THE ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 10 AO WAS NOT JUSTIFIED TO DISALLOW THE SALES-TAX SUBS IDY AMOUNTING TO RS.6,74,99,274 AND THE SAME IS DELETED. RELIEF RS.6,74,99,274/- SINCE THE RELIEF IS GRANTED ON THE BASIS OF SPECIAL BENCH DECISION OF ITAT, MUMBAI, WHICH HAS BEEN AFFIRMED BY HON'BLE HIGH COU RT, THE PURPOSE OF SUBSIDY REMAINS THE SAME. THE FACTS REMAIN THE SA ME, THEREFORE, WE FIND NO FAULT IN THE ORDER OF THE CIT (A) AND ACCORDINGLY, GROUND NOS.1 TO 3 OF REVENUES APPEAL ARE DISMISSED. 7. GROUND NO.4 IS AGAINST ALLOWING THE DEPRECIATION @ 60% ON COMPUTER PERIPHERALS. CIT (A) GRANTED RELIEF BY HOLDING AS UNDER :- 3. GROUND NO. IS AGAINST DISALLOWANCE OF DEPRECIAT ION OF RS.25,242/- ON ACCOUNT OF COMPUTER ACCESSORIES. I FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE APPELLANT. THUS, BY FOLLOWING MY PREVIOUS ORDER DATED 22.12.06 APPEAL NO.56/06-07 A.Y. 03- 04, PARA 5.3, I HOLD THAT COMPUTER ACCESSORIES ARE INTEGRAL PART OF COMPUTER SYSTEM AND DEPRECIATION AGAINST THESE ARE LIABLE TO BE ALLOWED @ 60%. THUS, THE A.O. IS DIRECTED TO RE WO RK OUT THE DEPRECIATION AND ALLOW THE SAME ACCORDINGLY. THUS, GROUND NO.5 IS DECIDED IN FAVOUR OF THE APPELLANT. AT THE TIME OF HEARING, LEARNED AR SUBMITTED THAT T HIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT KOLK ATA B BENCH IN THE CASE OF ITO VS. SAMIRAN MAJUMDAR REPORTED IN 98 ITD 119. 7.1 AFTER HEARING BOTH THE SIDES ON THE ISSUE, WE F IND THAT THE MATTER ALSO STANDS ADMITTEDLY COVERED BY THE SPECIAL BENCH OF M UMBAI TRIBUNAL IN THE CASE OF CIT VS. DATACRAFT INDIA LTD., (2011) 133 TT J 377. FURTHER IN THE CASE ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 11 OF EXPEDITORS INTERNATIONAL (INDIA) (P) LTD. VS. AD DITIONAL CIT, (2008) 13 DTR (DEL.)(TRIB.) 435, IT HAS BEEN INTER ALIA HELD THAT PERIPHERALS SUCH AS PRINTERS, SCANNERS, NT SERVER ETC. FORM INTEGRAL PART OF THE COMPUTER AND, THEREFORE, ARE ELIGIBLE FOR DEDUCTION OF DEPRECIATION @ 60% AS APP LICABLE TO THE COMPUTERS. RESPECTFULLY FOLLOWING THESE DECISIONS, WE UPHOLD T HE ORDER OF THE CIT (APPEALS) ON THIS ISSUE. 8. GROUND NO.5 IN REVENUES APPEAL IS GENERAL IN NA TURE AND DOES NOT REQUIRE ANY ADJUDICATION. 9. IN THE RESULT, THE REVENUES APPEAL IN ITA NO.28 31/DEL/2007 FOR ASSESSMENT YEAR 2004-05 IS DISMISSED. 10. IN THE CROSS APPEAL (ITA NO.2508/DEL/2007 FOR A Y 2004-05) FILED BY THE ASSESSEE, THE GROUND NO.1 IS AGAINST THE CONFIR MATION OF AD HOC DISALLOWANCE OF RS.5,59,000/- FOR INTEREST AND ADMI NISTRATIVE EXPENSES ATTRIBUTABLE TO THE EARNING OF DIVIDEND INCOME. 11. THE LEARNED AR SUBMITTED THAT THIS ISSUE MAY BE RESTORED TO THE FILE OF ASSESSING OFFICER IN VIEW OF THE DECISION OF HON'BL E MUMBAI HIGH COURTS DECISION IN THE CASE OF GODREJ & BOYCE VS. DCIT, 328 ITR 81 (MUM.). LEARNED DR WAS NOT HAVING ANY OBJECTION TO THIS PRO POSITION 12. WE HAVE HEARD BOTH THE SIDES. THE HON'BLE MUMB AI HIGH COURTS DECISION IN THE CASE OF GODREJ & BOYCE VS. DCIT, CI TED SUPRA, IS THE ONLY HIGH COURT DECISION AVAILABLE ON THE APPLICABILITY OF THE RULE 8D AND ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 12 DISALLOWANCE UNDER SECTION 14A. THE HON'BLE MUMBAI HIGH COURT IN THE AFORESAID CASE HELD AS UNDER : RULE 8D R.W. S. 14A (2) IS NOT ARBITRARY OR UNREAS ONABLE BUT CAN BE APPLIED ONLY IF ASSESSEES METHOD NOT SATISFACTORY. RULE 8D IS NOT RETROSPECTIVE AND APPL IES FROM AY 2008-09. FOR EARLIER YEARS, DISALLOWANCE HAS TO BE WORKED OUT ON REASONABLE BASIS U/S 14A (1) IN AY 2002-03, THE ASSESSEE CLAIMED THAT NO DISALLO WANCE U/S 14A IN RESPECT OF THE TAX-FREE DIVIDEND EARNED BY I T COULD BE MADE AS IT HAD NOT INCURRED ANY EXPENDITURE TO EARN THE DIVIDEND. THE AO REJECTED THE CLAIM AND MADE A DISA LLOWANCE U/S 14A. THIS WAS DELETED BY THE CIT (A). ON APPEAL BY THE DEPARTMENT, THE TRIBUNAL FOLLOWED THE JUDGEMENT OF THE SPECIAL BENCH IN DAGA CAPITAL 117 ITD 169 (MUM) (WHERE IT H AD BEEN HELD THAT S. 14A(2) & (3) & RULE 8D ARE PROCEDURAL IN NATURE AND HAVE RETROSPECTIVE EFFECT) AND REMANDED THE MAT TER TO THE AO FOR RE-COMPUTING THE DISALLOWANCE. THE ASSESSEE CHALLENGED THE DECISION OF THE TRIBUNAL. HELD: (1) THE ARGUMENT THAT DIVIDEND ON SHARES / UNITS IS NOT TAX-FREE IN VIEW OF THE DIVIDEND-DISTRIBUTION TAX PAID BY TH E PAYER U/S 115-O IS NOT ACCEPTABLE BECAUSE SUCH TAX IS NOT PAI D ON BEHALF OF THE SHAREHOLDER BUT IS PAID IN RESPECT OF THE PA YERS OWN LIABILITY; (2) S. 14A SUPERSEDES THE PRINCIPLE OF LAW THAT IN THE CASE OF A COMPOSITE BUSINESS EXPENDITURE INCURRED TOWARDS TAX -FREE INCOME COULD NOT BE DISALLOWED AND INCORPORATES AN IMPLICIT THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXA BLE AND NON-TAXABLE INCOME. ONCE A PROXIMATE CAUSE FOR DISALLOWANCE IS ESTABLISHED WHICH IS THE RELATION SHIP OF THE EXPENDITURE WITH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME A DISALLOWANCE U/S 14A HAS TO BE EFF ECTED ; ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 13 (3) THE ARGUMENT THAT A LITERAL INTERPRETATION OF S . 14A LEADS TO ABSURD CONSEQUENCES IS NOT ACCEPTABLE. S 14A IS FOUNDED ON A VALID RATIONALE THAT THE BASIC PRINCIPLE OF TAXATION IS TO TAX NET INCOME I.E GROSS INCOME MINUS EXPENDITURE; (4) THE ARGUMENT THAT THE METHOD IN RULE 8D R.W.S 1 4A (2) FOR DETERMINING EXPENDITURE RELATING TO THE TAX-FREE IN COME IS ARBITRARY AND VIOLATIVE OF ARTICLE 14 IS NOT ACCEPT ABLE BECAUSE THERE IS AN ADEQUATE SAFEGUARD BEFORE RULE 8D CAN B E INVOKED. THE AO CANNOT IPSO FACTO APPLY RULE 8D BUT CAN DO S O ONLY WHERE HE RECORDS SATISFACTION ON AN OBJECTIVE BASIS THAT THE ASSESSEE IS UNABLE TO ESTABLISH THE CORRECTNESS OF ITS CLAIM . ALSO A UNIFORM METHOD PRESCRIBED TO RESOLVE DISPUTE S BETWEEN ASSESSEES AND THE DEPARTMENT CANNOT BE SAID TO BE A RBITRARY OR OPPRESSIVE. THERE IS A RATIONALE IN RULE 8D AND ITS METHOD IS FAIR & REASONABLE. IT CANNOT BE SAID THAT THERE I S MADNESS IN THE METHOD OF RULE 8D SO AS TO RENDER IT UNCONSTITU TIONAL; (5) RULE 8D, INSERTED W.E.F 24.3.2008 CANNOT BE REGARDED AS RETROSPECTIVE BECAUSE IT ENACTS AN ARTIFICIAL METHOD OF ESTIMATING EXPENDITURE RELATABLE TO TAX-FREE INCOME . IT APPLIES W.E.F AY 2008-09 ; (6) FOR THE AYS WHERE RULE 8D DOES NOT APPLY, THE A O WILL HAVE TO DETERMINE THE QUANTUM OF DISALLOWABLE EXPEN DITURE BY A REASONABLE METHOD HAVING REGARD TO ALL FACTS AND CIRCUMSTANCES; (7) ON FACTS, THOUGH IN THE EARLIER YEARS, THE TRIB UNAL HAD HELD THAT THE TAX-FREE INVESTMENTS HAD BEEN MADE OUT OF THE ASSESSEES OWN FUNDS, THIS DID NOT MEAN THAT THERE WAS NO EXPENDITURE INCURRED TO EARN TAX-FREE INCOME. EVEN THOUGH RULE 8D DID NOT APPLY TO AY 02-03, THE AO HAD TO CO NSIDER WHETHER DISALLOWANCE COULD BE MADE U/S 14A (1) . ALSO, THE ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 14 PRINCIPLE OF CONSISTENCY WOULD NOT APPLY AS S. 14A HAD INTRODUCED A MATERIAL CHANGE IN THE LAW. AS STATED ABOVE, BOTH SIDES ARE AGREED TO RESTORE T HE MATTER TO THE FILE OF ASSESSING OFFICER, THEREFORE, WE RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR WORKING OUT THE REASONABLE DISALLOWANCE S U/S 14A (1) IN VIEW OF THE AFORESAID DECISION OF HON'BLE MUMBAI HIGH COURT . 13. IN GROUND NOS.2 & 3, THE ISSUE INVOLVED IS AGAI NST THE DISALLOWANCE OF ARREARS OF ADDITIONAL DEPRECIATION OF RS.3,34,78,82 5/- AND NEGATING AN ALTERNATE CLAIM FOR DEDUCTION OF ADDITIONAL DEPRECI ATION OF RS.11,29,06,214/-. 14. THE ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATIO N DURING THE YEAR WHICH WAS NOT PERTAINING TO THE ADDITION TO THE FIXED ASS ET DURING THE YEAR. THE CLAIM OF THE ASSESSEE WAS THAT THE ADDITIONS MADE D URING THE SECOND HALF OF THE FINANCIAL YEAR 2002-03 RELEVANT TO ASSESSMENT Y EAR 2003-04, THE ADDITIONAL DEPRECIATION WAS CLAIMED ONLY ON 50% ON ALL THE ADDITIONS MADE AFTER 30 TH SEPTEMBER, 2002. THE BALANCE 50% COULD NOT BE CLA IMED IN THAT ASSESSMENT YEAR ON ACCOUNT OF SECOND PROVISO TO SEC TION 32(1)(II), HENCE THE SAME IS BEING CLAIMED DURING THIS YEAR AS IT WAS BA LANCE OF THE ADDITIONAL DEPRECIATION. THE LEARNED AR SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 32(1)(IIA), THE ASSESSEE WAS ENTITLED FOR FURTHER S UM OF DEPRECIATION EQUAL TO 15% OF THE ACTUAL COST OF NEW PLANT AND MACHINERY A CQUIRED DURING THE YEAR AND INSTALLED. THE ASSESSEE HAS BEEN GRANTED A STA TUTORY RIGHT BY PROVISIONS OF ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 15 SECTION 32(1)(IIA) TO ALLOW A FURTHER SUM EQUAL TO 15% IN THE YEAR OF ACQUISITION. THE EXPRESSION USED IN THE PROVISION IS SHALL BE ALLOWED. THE SECOND PROVISO TO SECTION 32(1)(II) RESTRICTS THE A LLOWANCE TO 50% IF USED FOR LESS THAN 180 DAYS. THUS, IT IS A RESTRICTION FOR PERIOD OF USAGE. THE STATUTORY RIGHT PROVIDED TO THE ASSESSEE CANNOT BE GET DIVEST ED BY THE SECOND PROVISO TO SECTION 32 (1)(II). NOWHERE IN THE ACT IT IS PROHI BITED THAT REMAINING BALANCE OF ADDITIONAL DEPRECIATION ON THE ASSETS ADDED AFTE R 30 TH SEPTEMBER, SHALL NOT BE ALLOWED. THE CROSS REFERENCE TO CLAUSE (IIA) IN THE SECOND PROVISO TO SECTION 32(1)(II) PROVIDES THAT 50% RULE WILL APPLY IF ASSETS ARE PURCHASED IN SECOND HALF OF FINANCIAL YEAR BUT IT CANNOT OVERLOO K THE ONE TIME ALLOWANCE WHICH IS A STATUTORY RIGHT EARNED IN THE YEAR OF AC QUISITION. HAD THERE BEEN INTENTION TO RESTRICT THE ONE TIME ALLOWANCE TO 50% THEN IT COULD HAVE BEEN PROVIDED IN PROVISO TO CLAUSE (IIA). THE RESTRICTI ON IS ONLY FOR PERIOD OF USAGE. THE PROVISO TO CLAUSE (IIA) RESTRICTS/PROHIBITS DED UCTION ONLY IN RESPECT OF FOLLOWING :- ( A ) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLA TION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE IND IA BY ANY OTHER PERSON; OR ( B ) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PR EMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODAT ION IN THE NATURE OF A GUEST-HOUSE; OR ( C ) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES; OR ( D ) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL C OST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE INCOME ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 16 CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION OF ANY ONE PREVIOUS YEAR; THERE IS NO BAR IN LAW THAT ONCE THE AMOUNT @ 15% O F NEW PLANT AND MACHINERY IS CALCULATED AND ONLY 50% IS ALLOWABLE I N THAT PARTICULAR YEAR ON ACCOUNT OF PERIOD OF USAGE THEN BALANCE SHALL NOT B E ALLOWED FOREVER. THE LAW DOES NOT RESTRICT/PROHIBIT THAT THE BALANCE OF 50% SO CALCULATED SHALL NOT BE ALLOWED IN THE IMMEDIATE SUCCEEDING YEAR. THE ADD ITIONAL DEPRECIATION U/S 32(1)(IIA) AS PROVIDED BY THE FINANCE (NO.2) ACT, 2 002 W.E.F. 1.4.2003 IS EXPLAINED BY CIRCULAR NO.8 OF 2002 DATED 27.08.2002 REPORTED IN 258 ITR (ST) 13 AS BEING A DEDUCTION OF A FURTHER SUM AS DEPRECIATION, THEREFORE WHAT WAS PROPOSED TO BE ALLOWED IS DEPRECIATION SIM PLICITOR THOUGH IT WAS CALLED AS ADDITIONAL DEPRECIATION. SECTION 32(1)(I IA) MANDATES THE GRANT OF ADDITIONAL SUM OF DEPRECIATION. THEREFORE, ANY BAL ANCE OF THE AMOUNT OF ADDITIONAL SUM OF DEPRECIATION WOULD HAVE TO BE CON SIDERED TO BE CARRY FORWARD AND SET OFF IN TERMS OF SUB-SECTION (2) OF SECTION 32 OF THE ACT. THIS SUB-SECTION OF SECTION 32(2) PROVIDES THAT WHERE, I N THE ASSESSMENT OF THE ASSESSEE, FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWA NCE UNDER SUB-SECTION (1) OF SECTION 32 IN ANY PREVIOUS YEAR, THAN THE ALLOWANCE SHALL BE ADDED TO THE AMOUNT OF ALLOWANCE FOR DEPRECIATION FOR THE FOLLOW ING PREVIOUS YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, THEN IT WILL BE DEEMED TO BE THE ALL OWANCE FOR THAT PREVIOUS ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 17 YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEAR. SECTION 32 (IIA) OF THE ACT IS AN INCENTIVE PROVISION FOR ENCOURAGING THE INDUS TRIALIZATION AND SUCH A PROVISION WOULD HAVE TO BE CONSTRUED LIBERALLY. A PROVISION FOR PROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERALLY. T HIS BENEFIT IS ONE TIME ALLOWANCE AND THE RESTRICTIONS, IF ANY, ON SUCH INC ENTIVE PROVISIONS HAVE TO BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE OF THE PRO VISION AND NOT TO FRUSTRATE IT. THE CONSTRUCTION WHICH FRUSTRATES THE BASIC PU RPOSE OF THE PROVISION SHOULD BE AVOIDED. THE ITAT SHOULD TAKE A PRAGMATI C VIEW. HE ALSO RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CAS E OF BAJAJ TEMPO LIMITED 196 ITR 188. THE SECOND PROVISO TO CLAUSE (II) TO SUB-SECTION (1) OF SECTION 32 PROVIDES A RESTRICTION ON THE QUANTUM OF DEPRECI ATION BASED ON THE USAGE PERIOD. AS PER THIS PROVISION, THE ASSETS ACQUIRED AND PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN 180 DAYS, THE DEDUCTION IN RESPECT OF SUCH ASSETS IS TO BE RESTRI CTED TO 50% OF THE AMOUNT CALCULATED. BUT IT DOES NOT RESTRICT THAT BALANCE SHALL NOT BE ALLOWED FOREVER. THE ADDITIONAL DEPRECIATION AS PROVIDED IN CLAUSE ( IIA) OF SUB-SECTION (1) OF SECTION 32 IS A ONE TIME BENEFIT WHEREAS THE NORMAL DEPRECIATION IS YEAR TO YEAR FEATURE. IF THE BENEFIT IS RESTRICTED ONLY TO 50% THEN IT WILL BE AGAINST THE BASIC INTENTION TO PROVIDE INCENTIVE FOR ENCOURAGIN G THE INDUSTRIALIZATION. THIS WILL ALSO FRUSTRATE THE OBJECT OF THE PROVISIO N AND IT WILL BE UNFAIR, UNEQUITABLE AND UNJUST. THERE IS NO RESTRICTION PR OVIDED IN LAW WHICH RESTRICT ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 18 THE CARRY FORWARD OF THE ADDITIONAL SUM OF DEPRECIA TION WHICH IS A ONE TIME AFFAIR AVAILABLE TO ASSESSEE ON THE NEW MACHINERY A ND PLANT. IT WAS ALSO PLEADED THAT WHAT IS EXPRESSLY GRANTED AS AN INCENT IVE CANNOT BE DENIED THROUGH A PEJORATIVE INTERPRETATION OF SECOND PROVI SO TO SECTION 32(1)(II) WHEN SUCH PROVISIONS BY ITSELF DOES NOT BAR CONSIDERATIO N U/S 32(2) OF THE INCOME- TAX ACT. HE PLEADED THAT THE ORDERS OF THE AUTHOR ITIES BELOW ON THIS ISSUE IS TO BE SET ASIDE. 15. ALTERNATIVELY, HE ALSO PLEADED THAT THE PROVISI ONS OF SECTION 32(1)(IIA) DO NOT STIPULATE ANY CONDITION OF PUT TO USE, THERE FORE, FULL DEDUCTION IS ALLOWABLE IN THE YEAR OF PURCHASE ITSELF AND IT MAY BE ALLOWED IN FULL EVEN PLANT & MACHINERY ACQUIRED AFTER 31ST SEPTEMBER, 20 03. 16. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THA T THE FULL ADDITIONAL DEPRECIATION CAN BE ALLOWED AS PER SECTION 32(1)(II A) ONLY WHEN THE ASSETS ARE PUT TO USE FOR MORE THAN 180 DAYS IN THE YEAR OF AC QUISITION. THE ADDITIONAL DEPRECIATION ON THE ASSETS WHICH ARE PUT TO USE BY THE ASSESSEE FOR LESS THAN 180 DAYS IS RESTRICTED TO 50% OF THE AMOUNT BY SECO ND PROVISO TO SECTION 32(1)(II). THERE CANNOT BE ANY CARRIED FORWARD ADD ITIONAL DEPRECIATION TO BE ALLOWED IN SUBSEQUENT YEAR. THE SECOND PROVISO TO SECTION 32(1)(II) RESTRICTS SUCH ALLOWANCES. THE PROVISO LAID DOWN CONDITIONS FOR RESTRICTING THE DEPRECIATION WHERE THE ASSETS ARE USED FOR LESS THA N 180 DAYS. THE CONDITION ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 19 TO PUT TO USE IS NECESSARY THE CONDITION FOR ALLOWI NG ANY TYPE OF DEPRECIATION, THEREFORE, THE CIT (A) HAS RIGHTLY CONFIRMED THE AD DITION. 17. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. SE CTION 32(1)(IIA) INSERTED BY FINANCE (NO.2) ACT, 2002 WITH EFFECT FROM 1.4.20 03. IN SPEECH OF FINANCE MINISTER, THIS CLAUSE WAS INSERTED TO PROVIDE INCEN TIVES FOR FRESH INVESTMENT IN INDUSTRIAL SECTOR. THIS CLAUSE WAS INTENDED TO GIV E IMPETUS TO NEW INVESTMENT IN SETTING UP A NEW INDUSTRIAL UNIT OR FOR EXPANDIN G THE INSTALLED CAPACITY OF EXISTING UNITS BY AT LEAST 25%. THEREAFTER THESE P ROVISIONS WERE AMENDED BY THE FINANCE (NO.2) ACT OF 2004 W.E.F. 1.4.2005 AND PROVIDED THAT IN THE CASE OF ANY MACHINERY OR PLANT WHICH HAS BEEN ACQUIRED A FTER THE 31 ST DAY OF MARCH, 2005 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM E QUAL TO 15% OF ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTI ON UNDER CLAUSE (II) OF SECTION 32(1). THIS ADDITIONAL ALLOWANCE U/S 32(1) (IIA) IS MADE AVAILABLE AS CERTAIN PERCENTAGE OF ACTUAL COST OF NEW MACHINERY AND PLANT ACQUIRED AND INSTALLED. THIS PROVISION HAS BEEN DIRECTED TOWARD S ENCOURAGING INDUSTRIALIZATION BY ALLOWING ADDITIONAL BENEFIT TO THE SETTING UP NEW INDUSTRIAL UNDERTAKINGS MAKING OR FOR EXPANSION OF THE INDUSTRIAL UNDERTAKING BY WAY OF MAKING MORE INVESTMENT IN CAPITAL GOODS. THUS, THESE ARE INCENTIVES AIMED TO BOOST NEW INVESTMENTS IN SETTIN G UP AND EXPANDING THE ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 20 UNITS. THE PROVISO TO SECTION 32(1)(IIA) RESTRICTS THE BENEFIT IN RESPECT OF FOLLOWING :- PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RES PECT OF ( A ) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLA TION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA B Y ANY OTHER PERSON; OR ( B ) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PR EMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODAT ION IN THE NATURE OF A GUEST-HOUSE; OR ( C ) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES; OR ( D ) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL C OST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION OF ANY ONE PREVIOUS YEAR; THUS, THIS INCENTIVE IN THE FORM OF ADDITIONAL SUM OF DEPRECIATION IS NOT AVAILABLE TO ANY PLANT OR MACHINERY WHICH HAS BEEN USED EITHER WITHIN INDIA OR OUTSIDE INDIA BY ANY OTHER PERSON OR SUCH MACHINERY AND PLANT ARE INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATIO N, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST HOUSE OR ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES, OR ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWABLE AS DEDUCTION (WHERE BY WAY OF DE PRECIATION OR OTHERWISE) IN COMPUTING THE TOTAL INCOME UNDER THE HEAD PROFI TS AND GAINS OF BUSINESS OR PROFESSION OF ANY ONE PREVIOUS YEAR. THUS, THE IN TENTION WAS NOT TO DENY THE BENEFIT TO THE ASSETS WHO HAVE ACQUIRED OR INSTALLE D NEW MACHINERY OR PLANT. THE SECOND PROVISO TO SECTION 32(1)(II) RESTRICTS T HE ALLOWANCES ONLY TO 50% ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 21 WHERE THE ASSETS HAVE BEEN ACQUIRED AND PUT TO USE FOR A PERIOD LESS THAN 180 DAYS IN THE YEAR OF ACQUISITION. THIS RESTRICTION IS ONLY ON THE BASIS OF PERIOD OF USE. THERE IS NO RESTRICTION THAT BALANCE OF ON E TIME INCENTIVE IN THE FORM OF ADDITIONAL SUM OF DEPRECIATION SHALL NOT BE AVAI LABLE IN THE SUBSEQUENT YEAR. SECTION 32(2) PROVIDES FOR A CARRY FORWARD S ET UP OF UNABSORBED DEPRECIATION. THIS ADDITIONAL BENEFIT IN THE FORM OF ADDITIONAL ALLOWANCE U/S 32(1)(IIA) IS ONE TIME BENEFIT TO ENCOURAGE THE IND USTRIALIZATION AND IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F BAJAJ TEMPO VS. CIT, CITED SUPRA, THE PROVISIONS RELATED TO IT HAVE TO B E CONSTRUCTED REASONABLY, LIBERALLY AND PURPOSIVE TO MAKE THE PROVISION MEANI NGFUL WHILE GRANTING THE ADDITIONAL ALLOWANCE. THIS ADDITIONAL BENEFIT IS T O GIVE IMPETUS TO INDUSTRIALIZATION AND THE BASIC INTENTION AND PURPO SE OF THESE PROVISIONS CAN BE REASONABLY AND LIBERALLY HELD THAT THE ASSESSEE DESERVES TO GET THE BENEFIT IN FULL WHEN THERE IS NO RESTRICTION IN THE STATUTE TO DENY THE BENEFIT OF BALANCE OF 50% WHEN THE NEW PLANT AND MACHINERY WERE ACQUIRED AND USE FOR LESS THAN 180 DAYS. ONE TIME BENEFIT EXTENDED TO ASSESSEE HA S BEEN EARNED IN THE YEAR OF ACQUISITION OF NEW PLANT AND MACHINERY. IT HAS BEEN CALCULATED @ 15% BUT RESTRICTED TO 50% ONLY ON ACCOUNT OF USAGE OF THESE PLANT & MACHINERY IN THE YEAR OF ACQUISITION. IN SECTION 32(1)(IIA), THE EX PRESSION USED IS SHALL BE ALLOWED. THUS, THE ASSESSEE HAD EARNED THE BENEFI T AS SOON AS HE HAD PURCHASED THE NEW PLANT AND MACHINERY IN FULL BUT I T IS RESTRICTED TO 50% IN ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 22 THAT PARTICULAR YEAR ON ACCOUNT OF PERIOD OF USAGES . SUCH RESTRICTIONS CANNOT DIVEST THE STATUTORY RIGHT. LAW DOES NOT PROHIBIT THAT BALANCE 50% WILL NOT BE ALLOWED IN SUCCEEDING YEAR. THE EXTRA DEPRECIATION ALLOWABLE U/S 32(1)(IIA) IN AN EXTRA INCENTIVE WHICH HAS BEEN EARNED AND CALCUL ATED IN THE YEAR OF ACQUISITION BUT RESTRICTED FOR THAT YEAR TO 50% ON ACCOUNT OF USAGE. THE SO EARNED INCENTIVE MUST BE MADE AVAILABLE IN THE SUBS EQUENT YEAR. THE OVERALL DEDUCTION OF DEPRECIATION U/S 32 SHALL DEFINITELY N OT EXCEED THE TOTAL COST OF PLANT AND MACHINERY. IN VIEW OF THIS MATTER, WE S ET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT TO EXTEND THE BENEFIT. WE ALLOW GROUND NO.2 OF THE ASSESSEES APPEAL. SINCE WE HAVE DECIDED GROUN D NO.2 IN FAVOUR OF ASSESSEE, THERE IS NO NEED TO DECIDE THE ALTERNATE CLAIM RAISED IN GROUND NO.3. THE SAME IS DISMISSED. 18. GROUND NO.4 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.2508/DEL/2007 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1449/DEL/2008 20. THIS APPEAL FILED BY THE REVENUE ARISES OUT OF THE ORDER OF THE CIT (APPEALS)-VI, NEW DELHI DATED 21.02.2008 FOR THE AS SESSMENT YEAR 2005-06. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE ARE AS U NDER :- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.51,86,8 25/- MADE BY AO ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION LO SS ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 23 IGNORING THE FACT THAT LIABILITY IS UNASCERTAINED A ND HENCE NOT ALLOWABLE. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN ALLOWING THE DEPRECIATION @ 60% ON COMPUTER PERIPHERALS AND ACCESSORIES AMOUNTING TO RS.29,620/ - EVEN THOUGH RULE 5 OF THE I.T. RULES SPECIFICALLY ALLOW HIRE RATE OF DEPRECIATION AT 60% ONLY ON COMPUTER AND COMPUTER S OFTWARE AND NOT ON COMPUTER ACCESSORIES. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN TREATING THE 'SALE TAX SUBSIDY' AMO UNTING TO RS.9,48,11,588/- AS CAPITAL RECEIPT WHICH WAS ADDED BY THE AO AS 'REVENUE RECEIPT'. 4. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY; ALTER, ADD OR FOREGO ANY GROUNDS(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS AP PEAL. 21. IN GROUND NO.1, THE ISSUE INVOLVED IS FOREIGN E XCHANGE FLUCTUATION LOSS. THE LEARNED DR SUBMITTED THAT LIABILITY WAS UNASCER TAINED; HENCE THE FLUCTUATION IS NOT ALLOWABLE. HE SUBMITTED THAT TH E CIT (A) WAS NOT JUSTIFIED IN ALLOWING THE APPEAL. 22. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THA T THE ASSESSEE COMPANY HAS DEBITED A NET LOSS ON FOREIGN EXCHANGE TRANSACT IONS OF RS.96.87 LACS IN THE PROFIT AND LOSS ACCOUNT. IN THE IMMEDIATE PRECEDIN G PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004-05, THE ASSESSEE HAS CREDITED A NET GAIN OF RS.374.95 LACS TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE IS CONVERTING THE FOREIGN CURRENCY ASSETS AND LIABILITIES INTO RUPEE TERM AT THE EXCHANGE RATE PREVALENT AT THE LAST DATE OF FINANCIAL YEAR, I.E. THE DATE ON W HICH THE BALANCE SHEET OF THE ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 24 ASSESSEE IS DRAWN AND THE SAME IS REFLECTED IN THE PROFIT AND LOSS ACCOUNT REGULARLY FROM YEAR TO YEAR BASIS. IN THE CURRENT YEAR, THERE WAS A LOSS WHILE IN IMMEDIATE PRECEDING YEAR THERE WAS A GAIN. THE METHOD IS BEING CONSISTENTLY FOLLOWED. THE ASSESSEE FOLLOWING THE SAME ACCOUNTING PRINCIPLES FROM YEAR TO YEAR BASIS WHEREVER THERE I S A GAIN THE ASSESSEE OFFERS THE AMOUNT FOR TAXATION AND WHERE THERE IS LOSS THE ASSESSEE CLAIMS A LOSS IN THE PROFIT & LOSS ACCOUNT. 23. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE AND W E HOLD THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS DECISI ONS OF COURTS. IT IS ALSO COVERED BY DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA LIMITED REPORTED IN (2009) 312 ITR 254. IN THIS HON'BLE SUPREME COURT HELD AS UNDER :- LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF FLU CTUATION IN THE RATE OF FOREIGN EXCHANGE AS ON THE DATE OF T HE BALANCE- SHEET IS AN ITEM OF EXPENDITURE UNDER SECTION 37(1) OF THE INCOME-TAX ACT, 1961. DECISION OF THE DELHI HIGH COURT IN CIT V. WOODWAR D GOVERNOR INDIA P. LT. [2007] 294 ITR 451 AFFIRMED. FOR VALUING THE CLOSING STOCK AT THE END OF A PART ICULAR YEAR, THE VALUE PREVAILING ON THE LAST DATE IS RELE VANT. THIS IS BECAUSE PROFIT/LOSS IS EMBEDDED IN THE CLOSING STOC K. WHILE ANTICIPATED LOSS IS TAKEN INTO ACCOUNT, ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SH OW INCREASE IN PROFITS BEFORE ACTUAL REALIZATION. THIS IS THE T HEORY UNDERLYING THE RULE THAT CLOSING STOCK IS TO BE VAL UED AT COST OR MARKET PRICE WHICHEVER IS LOWER. ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 25 DECISION OF THE DELHI HIGH COURT AFFIRMED. THE EXPRESSION 'ANY EXPENDITURE' HAS BEEN USED IN SECTION 37 OF THE ACT, 1961, TO COVER BOTH 'EXPENS ES INCURRED' AS WELL AS AN AMOUNT WHICH IS REALLY A 'LOSS' EVEN THOUGH SUCH AMOUNT HAS NOT GONE OUT FROM THE POCKET OF THE ASSE SSEE. PROFITS AND GAINS OF THE PREVIOUS YEAR ARE REQUIRED TO BE COMPUTED IN ACCORDANCE WITH THE RELEVANT ACCOUNTING STANDARD. ON GENERAL PRINCIPLES OF COMMERCIAL ACCOUNTING, THE VALUE OF THE STOCK-IN-TRADE AT THE BEGINNING AND AT THE END OF THE ACCOUNTING YEAR SHOULD BE ENTERED IN THE PROFIT AND LOSS ACCOUNT AT COST OR MARKET PRICE, WHICHEVER IS LOWER -THE MARKET VALUE BEING ASCERTAINED ON THE LAST DATE OF THE ACC OUNTING YEAR, NOT AT ANY INTERMEDIATE DATE. NO GAIN OR PROFIT CA N ARISE UNTIL A BALANCE IS STRUCK BETWEEN THE COST OF ACQUISITION A ND THE PROCEEDS OF SALE. THE WORD 'PROFITS' IMPLIES A COMP ARISON BETWEEN THE STATE OF BUSINESS AT TWO SPECIFIC DATES , USUALLY SEPARATED BY AN INTERVAL OF TWELVE MONTHS. STOCK-IN -TRADE IS AN ASSET: IT IS A TRADING ASSET. THEREFORE, THE CONCE PT OF PROFITS AND GAINS MADE BY A BUSINESS DURING THE YEAR CAN ONLY M ATERIALIZE WHERE A COMPARISON OF THE ASSETS OF THE BUSINESS AT TWO DIFFERENT DATES ARE TAKEN INTO ACCOUNT. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, WHAT IS DUE IS BROUGHT INTO CREDIT BEFORE IT IS ACTUALLY RECEIV ED : IT BRINGS INTO DEBIT AN EXPENDITURE FOR WHICH A LEGAL LIABILI TY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED. UNITED COMMERCIAL BANK V. CIT [1999] 240 ITR 355 (SC) FOLLOWED. . THE ACCOUNTING METHOD FOLLOWED BY AN ASSESSEE CONTINUOUSLY FOR A GIVEN PERIOD OF TIME HAS TO BE P RESUMED TO BE CORRECT TILL THE ASSESSING OFFICER COMES TO THE CONCLUSION FOR REASONS TO BE GIVEN THAT THE SYSTEM DOES NOT RE FLECT TRUE AND CORRECT PROFITS. ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 26 IN VIEW OF THIS, WE UPHOLD THE ORDER OF CIT (A) ON THIS ISSUE AND ACCORDINGLY, THIS GROUND IS DISMISSED. 24. GROUND NO.2 IS AGAINST ALLOWING THE DEPRECIATIO N @ 60% ON COMPUTER PERIPHERALS. AT THE TIME OF HEARING, LEARNED AR SU BMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT KOLKATA B BENCH IN THE CASE OF ITO VS. SAMIRAN MAJUMDAR REPORTED IN 98 ITD 119. 24.1 WE HAVE HEARD BOTH THE SIDES. WE HAVE DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN THIS ORDER VIDE GROUND NO.4 OF ITA NO.2831/DE/2007 FOR ASSESSMENT YEAR 2004-05 IN PARAGRAPHS 7 & 7.1. FAC TS REMAIN THE SAME, FOLLOWING OUR AFORESAID ORDER, WE SUSTAIN THE ORDER OF CIT (A) ON THIS ISSUE AND ACCORDINGLY THIS GROUND IS DISMISSED. 25. GROUND NO.3 IS AGAINST THE DELETION OF ADDITION ON ACCOUNT OF SALES TAX SUBSIDY. WE HAVE TAKEN UP THIS ISSUE IN GROUND NOS .1 TO 3 IN REVENUES APPEAL IN ITA NO.2831/DEL/2007 FOR ASSESSMENT YEAR 2004-05 VIDE PARAGRAPHS 4 TO 6 HEREINBEFORE. FACTS AND CIRCUMSTANCES IN THIS AS SESSMENT YEAR IS ALSO SIMILAR TO THAT ASSESSMENT YEAR. THEREFORE, FOLLOW ING OUR DECISION IN THE SAID APPEAL AS AFORESAID, WE FIND NO FAULT IN THE ORDER OF THE CIT (A) AND ACCORDINGLY, WE SUSTAIN THE SAME ON THIS ISSUE AND THIS GROUND OF REVENUE IS DISMISSED. 26. GROUND NO.4 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 27 27. IN THE RESULT, APPEAL FILED BY THE REVENUE IN I TA NO.1449/DEL/2008 FOR ASSESSMENT YEAR 2005-06 IS DISMISSED. ITA NO.1548/DEL/2008 28. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE FOR ASSESSMENT YEAR 2005-06 ARE AS UNDER :- 1) THAT THE COMMISSIONER OF INCOME TAX (APPEALS) - VI, NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW IN CONFIRMING DISALLOWANCE OF ARREA RS OF ADDITIONAL DEPRECIATION OF RS.4,07,69,572/- AS CERT IFIED BY THE CHARTERED ACCOUNTANT ON QUALIFYING ASSETS PUT TO US E IN THE SECOND HALF OF THE IMMEDIATELY PRECEDING PREVIOUS Y EAR. 2) THAT THE COMMISSIONER OF INCOME TAX (APPEALS) -V I, NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW IN NEGATING AN ALTERNATE CLAIM FOR DEDUCTION OF ADDITIONAL DEPRECIATION OF RS.2,22,91,570/- IN AY 2005-06. 3) THAT THE APPELLANT RESERVES THE RIGHT TO ADD, AL TER OR AMEND ANY OTHER GROUND AT THE TIME OF HEARING. 29. GROUND NOS.1 & 2 ARE AGAINST THE CONFIRMATION O F DISALLOWANCE OF ARREARS OF ADDITIONAL DEPRECIATION OF RS.4,07,69,57 2/- AND NEGATING AN ALTERNATE CLAIM FOR DEDUCTION OF ADDITIONAL DEPRECI ATION OF RS.2,22,91,570/-. 30. WE HAVE TAKEN UP THIS ISSUE IN GROUND NOS.1 & 2 IN ASSESSEES APPEAL IN ITA NO.2508/DEL/2007 FOR ASSESSMENT YEAR 2004-05 VI DE PARAGRAPHS 13 TO 17 HEREINBEFORE. FACTS AND CIRCUMSTANCES IN THIS A SSESSMENT YEAR ARE ALSO SIMILAR TO THAT ASSESSMENT YEAR. THEREFORE, FOLLOW ING OUR OWN DECISION IN THE AFORESAID APPEAL, WE SET ASIDE THE ORDERS OF THE AU THORITIES BELOW AND DIRECT TO ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 28 EXTEND THE BENEFIT. ACCORDINGLY, WE ALLOW GROUND N O.1 TAKEN BY THE ASSESSEE. GROUND NO.2 IS ALTERNATE CLAIM, HENCE NO NEED TO AD JUDICATE. 31. GROUND NO.3 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. ITA NO.4040/DEL/2009 32. THIS APPEAL FILED BY THE REVENUE ARISES OUT OF THE ORDER OF THE CIT (APPEALS)-VI, NEW DELHI DATED 23.07.2009 FOR THE AS SESSMENT YEAR 2006-07. 33. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE ARE AS UNDER :- 1. THE LD.CIT(A) ERRED ON FACTS AND IN LAW BY TREA TING THE 'SALES TAX SUBSIDY' OF RS.266,05,910/- AS CAPITAL R ECEIPT, WHICH WAS ADDED BY THE AO AS 'REVENUE RECEIPT'. 2. THE LD.CIT(A) ERRED ON FACTS AND IN LAW BY DELET ING THE ADDITION MADE BY THE AO ON ACCOUNT OF SALES TAX SUB SIDY, TREATING THE SAME AS CAPITAL RECEIPT IGNORING THE D ECISION OF THE SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LIMITED (228 ITR 253), WHERE IT WAS HELD THAT SUBSI DY GIVEN TO THE ASSESSEE TO ASSIST IN CARRYING ON TRADE OR BUSI NESS, IS A TRADING RECEIPT. 3. THE LD.CIT(A) ERRED ON FACTS AND IN LAW BY TREAT ING THE SALES TAX SUBSIDY AS CAPITAL RECEIPT CONTRARY TO TH E DECISION OF THE MADRAS HIGH COURT IN THE CASE OF TAMILNADU SUGA R CORP. LTD. VS. CIT (130 TAXMAN 348) WHEREIN IT WAS HELD T HE PURCHASE TAX SUBSIDY IS A REVENUE RECEIPT. 4. THE LD.CIT(A) ERRED ON FACTS AND IN LAW BY ALLOW ING THE DEPRECIATION @ 60% ON COMPUTER PERIPHERALS AND ACCE SSORIES AMOUNTING TO RS.31,378/- THOUGH THE IT RULES ALLOWS 60% DEPRECIATION ONLY ON COMPUTER AND COMPUTER SOFTWARE . 5. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY; ALTER, ADD OR FOREGO ANY GROUNDS(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS AP PEAL. ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 29 34. GROUND NOS.1 TO 3 IS AGAINST THE DELETION OF AD DITION ON ACCOUNT OF SALES TAX SUBSIDY. WE HAVE TAKEN UP THIS ISSUE IN GROUND NOS.1 TO 3 IN REVENUES APPEAL IN ITA NO.2831/DEL/2007 FOR ASSESS MENT YEAR 2004-05 VIDE PARAGRAPHS 4 TO 6 HEREINBEFORE. FACTS AND CIR CUMSTANCES IN THIS ASSESSMENT YEAR IS ALSO SIMILAR TO THAT ASSESSMENT YEAR. THEREFORE, FOLLOWING OUR DECISION IN THE SAID APPEAL AS AFORES AID, WE FIND NO FAULT IN THE ORDER OF THE CIT (A) AND ACCORDINGLY, WE SUSTAIN TH E SAME ON THIS ISSUE AND GROUNDS ARE DISMISSED. 35. GROUND NO.4 IS AGAINST ALLOWING THE DEPRECIATIO N @ 60% ON COMPUTER PERIPHERALS. AT THE TIME OF HEARING, LEARNED AR SU BMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT KOLKATA B BENCH IN THE CASE OF ITO VS. SAMIRAN MAJUMDAR REPORTED IN 98 ITD 119. 35.1 WE HAVE HEARD BOTH THE SIDES. WE HAVE DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN THIS ORDER VIDE GROUND NO.4 OF ITA NO.2831/DE/2007 FOR ASSESSMENT YEAR 2004-05 IN PARAGRAPHS 7 & 7.1. FAC TS REMAIN THE SAME, FOLLOWING OUR AFORESAID ORDER, WE SUSTAIN THE ORDER OF CIT (A) ON THIS ISSUE AND ACCORDINGLY THIS GROUND IS DISMISSED. 36. GROUND NO.5 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. 37. IN THE RESULT, APPEAL FILED BY THE REVENUE IN I TA NO.4040/DEL/2009 FOR ASSESSMENT YEAR 2006-07 IS DISMISSED. ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 30 ITA NO.4010/DEL/2009 38. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 ARE AS UNDER :- 1) THAT THE COMMISSIONER OF INCOME TAX (APPEALS) - VI, NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW IN CONFIRMING DISALLOWANCE OF ARREA RS OF ADDITIONAL DEPRECIATION OF RS.58,30,495/- AS CERTIF IED BY THE CHARTERED ACCOUNTANT ON QUALIFYING ASSETS PUT TO US E IN THE SECOND HALF OF THE IMMEDIATELY PRECEDING PREVIOUS Y EAR. 2) THAT THE COMMISSIONER OF INCOME TAX (APPEALS) -V I, NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW IN NEGATING AN ALTERNATE CLAIM FOR DEDUCTION OF ADDITIONAL DEPRECIATION OF RS.2,46,25,759/- IN AY 2005-06. 3) THAT THE COMMISSIONER OF INCOME TAX (APPEALS)-VI , NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW IN CONFIRMING DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.7,33,260/- 4) THAT THE COMMISSIONER OF INCOME TAX (APPEALS)-VI , NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW IN CONFIRMING DISALLOWANCE OF RS.42 ,95,700/- OUT OF CLAIM FOR DEDUCTION U/S 10B. 5) THAT THE COMMISSIONER OF INCOME TAX (APPEALS)-VI , NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW IN ADJUDGING ALLOCATION OF MANAGEME NT SALARY PURELY ON ESTIMATE BASIS. 6) THAT THE COMMISSIONER OF INCOME TAX (APPEALS)-VI , NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW IN CONFIRMING DISALLOWANCE U/S 14A AT RS.88,17,408/- BEING AS HIGH AS 111% OF THE DIVIDEN D INCOME WITHOUT REGARD TO THE PAST HISTORY IN PREVIOUS TWO A.Y.S 2004-05 AND A.Y. 2005-06 OF SUCH DISALLOWANCE AS LOW AS 2.3 % OF DIVIDEND INCOME. ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 31 7) THAT THE APPELLANT RESERVES THE RIGHT TO ADD, AL TER OR AMEND ANY OTHER GROUND AT THE TIME OF HEARING. 39. GROUND NO.1 & 2 IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF ARREARS OF ADDITIONAL DEPRECIATION OF RS.58,30,495/- AND NE GATING AN ALTERNATE CLAIM FOR DEDUCTION OF ADDITIONAL DEPRECIATION OF RS.2,46 ,25,759/-. WE HAVE TAKEN UP THIS ISSUE IN GROUND NOS.1 & 2 IN ASSESSEES APP EAL IN ITA NO.2508/DEL/2007 FOR ASSESSMENT YEAR 2004-05 VIDE P ARAGRAPHS 13 TO 17 HEREINBEFORE. FACTS AND CIRCUMSTANCES IN THIS ASSE SSMENT YEAR IS ALSO SIMILAR TO THAT ASSESSMENT YEAR. THEREFORE, FOLLOWING OUR DECISION IN THE SAID APPEAL AS AFORESAID, WE SET ASIDE THE ORDERS OF THE AUTHOR ITIES BELOW AND DIRECT TO EXTEND THE BENEFIT. ACCORDINGLY, WE ALLOW BOTH THE GROUNDS TAKEN BY THE ASSESSEE. 40. GROUND NO.3 IS AGAINST THE DISALLOWANCE OF PRIO R PERIOD EXPENSES. IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE CONFIR MATION OF THE ADDITION OF RS.7,33,260/- OF PRIOR PERIOD EXPENSES. THE LEARNE D AR SUBMITTED THAT THE ASSESSEE HAS SUBMITTED ALL THE RELEVANT DETAILS IN RESPECT OF THESE EXPENSES. THESE WERE THE SHORT PROVISION FOR EXPENSES AND REL IANCE WAS PLACED ON THE DECISION OF ONGC VS. DCIT, 83 ITD 151. IT WAS ALSO SUBMITTED THAT THESE EXPENSES RELATED TO PRIOR PERIOD IS ACTUALLY QUANTI FIED /CRYSTALLIZED IN THE YEAR RELEVANT TO ASSESSMENT YEAR 2006-07, THEREFORE, IT IS DEDUCTIBLE EXPENSES. HE ALSO RELIED ON THE UNREPORTED DECISION OF HON'BLE D ELHI HIGH COURT IN THE CASE ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 32 OF CIT, DELHI-III, NEW DELHI VS. M/S. VISHNU INDUST RIAL GASES P. LTD. IN ITR NO.229/1988 VIDE ORDER DATED 6 TH MAY, 2008 WHERE THE HON'BLE HIGH COURT HAS HELD THAT THE SITUATION DOES NOT SEEM TO HAVE C HANGED OVER THE LAST FIFTY YEARS AND THE REVENUE CONTINUES TO AGITATE THE QUES TION WHETHER TAX IS LEVIABLE IN A PARTICULAR YEAR OR IN SOME OTHER YEAR AND THE HON'BLE COURT HAS HELD THAT THIS IS HARDLY A QUESTION THAT SHOULD REQUIRE US TO EXERCISE OUR MINDS PARTICULARLY SINCE THERE IS NO DOUBT THAT THE TAX H AS BEEN PAID AND THE RATE OF TAX REMAINS THE SAME FOR BOTH THE ASSESSMENT YEARS. HE PLEADED THAT THE TAX RATES WERE THE SAME IN THOSE YEARS, THEREFORE, IN V IEW OF THE AFORESAID DECISION OF HON'BLE DELHI HIGH COURT, NO ADDITION IS CALLED FOR. 41. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THA T THE ASSESSEE HAS FAILED TO ESTABLISH THAT THESE EXPENSES PERTAINING TO PRIOR PERIOD EXPENSES WERE ACTUALLY QUANTIFIED AND CRYSTALLIZED DURING THE REL EVANT PREVIOUS YEAR AND SINCE THE ASSESSEE IS FOLLOWING THE MERCANTILE SYST EM OF ACCOUNTING, THEREFORE, THESE CANNOT BE ALLOWED IN THIS YEAR. 42. WE HAVE HEARD BOTH THE SIDES. WE HAVE CONSIDER ED THE CASE LAWS RELIED UPON AND AFTER CONSIDERING THESE FACTS, WE FIND THA T THE ASSESSEE HAS FAILED TO ESTABLISH THAT THESE EXPENSES WERE ACTUALLY CRYSTAL LIZED DURING THE YEAR UNDER CONSIDERATION. SINCE THE ASSESSEE WAS FOLLOWING TH E MERCANTILE SYSTEM OF ACCOUNTING THE ASSESSEE HAS TO ESTABLISH THAT THESE LIABILITIES PERTAINING TO THE PREVIOUS YEAR WERE ACTUALLY CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 33 SINCE THE ASSESSEE HAS FAILED TO DO SO WE SUSTAIN T HE ORDER OF THE CIT (A) IN THIS GROUND. ACCORDINGLY, THE GROUND IS REJECTED. 43. IN GROUND NOS.4 & 5, THE ISSUE INVOLVED IS CONF IRMATION OF DISALLOWANCE OF RS.42,95,700/- OUT OF THE CLAIM FOR DEDUCTION U/S 10B. 44. THE LEARNED AR SUBMITTED THAT THE FOLLOWING AMO UNTS WERE REDUCED FROM THE CLAIM U/S 10B : (I) MANAGEMENT SALARY RS.40,56,000/- (II) CHARITY RS. 1,05,700/- (III) MISC. RS. 1,34,000/- RS.42,95,700/- HE PLEADED THAT CHARITY AND MISC. EXPENSES ARE NOT AT ALL RELATED TO THE UNIT FOR WHICH DEDUCTION U/S 10B IS CLAIMED. IN THE CASE OF MANAGEMENT SALARY, THE ASSESSEE ADJUDICATED THE SAME @ 5% OF THE SALARY PA ID IN PROPORTION TO THE ESTIMATED TIME SPENT BY THESE KEY PERSONNEL IN THE OVERALL MANAGEMENT OF THE EOU UNIT. HE ALSO PLEADED ALTERNATIVELY THAT PROFI TS OF THE BUSINESS OF THE UNDERTAKING WOULD MEAN THE PROFITS AS COMPUTED UNDE R THE HEAD PROFITS AND GAIN OF BUSINESS OR PROFESSION IN THE ASSESSMENT O RDER. THE ASSESSING OFFICER HAS COMPUTED THE ADMISSIBLE DEDUCTION ON TH E RETURNED PROFIT OF THE EOU AS AGAINST THE ASSESSED PROFIT OF THE EOU WITHO UT CONSIDERING THE PROPORTIONAL DISALLOWANCE FOR EOU SUCH AS ADDITIONA L DEPRECIATION, PRIOR PERIOD EXPENSES, DEPRECIATION ON COMPUTERS, PROPORT IONATE INTEREST U/S 14A AND HE PLEADED THAT ASSESSING OFFICER HAS WRONGLY C ONSIDERED THE ENTIRE COST ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 34 OF MANAGEMENT SALARY IN PROPORTION OF EXPORT TURNOV ER TO THE TOTAL TURNOVER OF THE EXPORT UNIT. 45. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THA T THE ASSESSEE HAS ALLOCATED ALL OTHER EXPENSES IN THE RATIO OF SALES TURNOVER EXCEPT THE MANAGEMENT SALARY. FOR THIS THE ASSESSEE HAS ADOPT ED THE TIME ESTIMATED IN PROPORTION TO THE PRODUCTION CAPACITY EMPLOYED IN E OU AND NON EOU PLANTS WHICH IS PURELY ON ESTIMATE BASIS. IT IS COMPLETEL Y UNSCIENTIFIC AND UNRELIABLE. THE ALLOCATION ON THE BASIS OF SALES TURNOVER IS MO RE ACCURATE AND A JUSTIFIED WAY FOR ALLOCATION OF ALL THE COMMON EXPENSES INCLU DING THE EXPENSES OF THE MANAGEMENT SALARY. HE PLEADED THAT THE CIT (A) HAS RIGHTLY CONFIRMED THE ORDER OF ASSESSING OFFICER IN THIS REGARD. 46. WE HAVE HEARD BOTH THE SIDES. IN OUR CONSIDERE D VIEW, TWO ITEMS, CHARITY AND MISC. EXPENSES SHOULD BE EXCLUDED FROM THE ALLOCATION OF EXPENSES PERTAINING TO THE EXPORT ORIENTED UNIT. H OWEVER, IN THE CASE OF MANAGEMENT SALARY, THE ALLOCATION MADE BY ASSESSEE IS NOT JUSTIFIED, THE ALLOCATION SHOULD BE MADE IN THE RATIO OF SALES TUR NOVER AS ADOPTED BY ASSESSEE HIMSELF TO ALLOCATE OTHER EXPENSES. THIS METHOD OF ALLOCATION IS MORE ACCURATE AND CORRECT WAY FOR ALLOCATION OF MANAGEME NT SALARY TO THE FACTS OF ASSESSEES CASE. THE BASIS ADOPTED BY ASSESSEE OF TIME ESTIMATED IN PROPORTION TO THE PRODUCTION CAPACITY EMPLOYED IN E OU AND NON EOU PLANTS ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 35 IS HIGHLY UNRELIABLE AND UNSCIENTIFIC. IN VIEW OF THESE FACTS, WE SUSTAIN THE ORDER OF CIT (A) AND DISMISS THIS GROUND. 47. GROUND NO.6 IS AGAINST THE CONFIRMATION OF DISA LLOWANCE U/S 14A AT RS.88,17,408/- BEING AS HIGH AS 111% OF THE DIVIDEN D INCOME. WE HAVE TAKEN UP THIS ISSUE IN GROUND NO.1 IN ASSESSEES APPEAL I N ITA NO.2508/DEL/2007 FOR ASSESSMENT YEAR 2004-05 VIDE PARAGRAPHS 10 TO 12 HE REINBEFORE. FACTS AND CIRCUMSTANCES IN THIS ASSESSMENT YEAR ARE ALSO SIMI LAR TO THAT ASSESSMENT YEAR. THEREFORE, FOLLOWING OUR DECISION IN THE SAID APPEA L AS AFORESAID, WE RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR WORK ING OUT THE REASONABLE DISALLOWANCES U/S 14A (1). 48. GROUND NO.7 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. 49. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO.4010/DEL/2009 FOR ASSESSMENT YEAR 2006-07 IS PARTLY ALLOWED FOR STATI STICAL PURPOSES. 50. THE ASSESSEE HAS TAKEN AN ADDITIONAL GROUND IN ITA NOS.2508/DEL/2007, 1548/DEL/2008 AND 4010/DEL/2009 FOR ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 RESPECTIVELY. THE ADD ITIONAL GROUND IN ALL THE THREE APPEALS, EXCEPT THE DIFFERENCE IN FIGURE, REA D AS UNDER :- 1. THAT THE AMOUNT OF SALES TAX SUBSIDY UNDER DISP ERSAL OF INDUSTRIES PACKAGE SCHEME OF INCENTIVES, 1993 IS NO T DEDUCTIBLE FROM THE BLOCK OF ASSETS FOR THE PURPOSE OF COMPUTI NG DEPRECIATION AS IT IS SOLELY MEANT TO ENCOURAGE SET TING UP OF INDUSTRIES IN UNDEVELOPED/UNDERDEVELOPED REGIONS IN ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 36 MAHARASHTRA STATE AND NOT BY WAY OF PAYMENT MADE SP ECIFICALLY TO MEET A PORTION OF THE COST OF ANY ASSET. 2. THAT THE APPELLANT RESERVES THE RIGHT TO ADD, AL TER OR AMEND ANY OTHER GROUND AT THE TIME OF HEARING. 51. IT WAS SUBMITTED BEFORE US THAT THIS IS A PUREL Y LEGAL GROUND AND IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CAS E OF NTPC VS. CIT, 229 ITR 383, IT SHOULD BE ADMITTED. THE SUBSIDY RECEIV ED BY THE COMPANY IS IN THE CAPITAL FIELD FOR SETTING UP INFRASTRUCTURE/EXP ANSION AND THE SUBSIDY WAS NOT MEANT FOR REIMBURSEMENT OR FOR MEETING OUT THE COST OF THE FIXED ASSETS. FOR THIS, HE RELIED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF P.J. CHEMICALS LIMITED, 210 ITD 830 AND PLEADED THAT EVE N WHERE THE SUBSIDY IS GIVEN AS A SPECIFIED PERCENTAGE OF FIXED CAPITAL CO ST, THAT CAN ONLY BE CALLED A MEASURE ADOPTED UNDER A PARTICULAR SCHEME TO QUANTI FY THE SUBSIDY BUT THAT WILL NOT BE A PAYMENT DIRECTLY OR INDIRECTLY TO MEE T ANY PORTION OF THE ACTUAL COST OF THE ASSETS, THEREFORE, SUCH SUBSIDY CANNOT BE REDUCED FROM THE ACTUAL COST OF ANY FIXED ASSETS. HE ALSO SUBMITTED THAT S IMILAR VIEW IS ALSO TAKEN BY THE ITAT VISAKHAPATNAM BENCH IN THE CASE OF SASISRI EXTRACTIONS LTD. VS. ACIT, 122 ITD 428. 52. ON THE OTHER HAND, LEARNED DR OBJECTED TO ADMIT THE ADDITIONAL GROUND. HE ALSO PLEADED THAT IF ADMITTED, THEN ALSO THE ASS ESSEES CLAIM THAT IT SHOULD ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 37 NOT BE REDUCED FROM THE ACTUAL COST OF THE FIXED AS SET, DEFINITELY TO PROVE THAT IT WAS A REVENUE RECEIPT AND SHOULD BE TREATED AS I NCOME OF THE ASSESSEE. 53. AFTER HEARING BOTH THE SIDES, WE HOLD THAT THIS IS A LEGAL GROUND RAISED FIRST TIME BEFORE US. IN VIEW OF THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF NTPC VS. CIT, CITED SUPRA, THIS GROUND IS A DMITTED. HOWEVER, IN THE INTEREST OF JUSTICE AND EQUITY, WE RESTORE THIS ISS UE TO THE FILE OF CIT (A) TO BE DECIDED ON MERITS AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 54. IN THE RESULT, THE ADDITIONAL GROUND TAKEN IN A LL THE THREE APPEALS OF THE ASSESSEE FOR ASSESSMENT YEARS 2004-05 TO 2006-07 IS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.934 & 935/DEL/2011 55. BOTH THESE APPEALS FILED BY THE ASSESSEE ARE DI RECTED AGAINST THE COMMON ORDER OF CIT (A)-VI, NEW DELHI DATED 15.10.2 010 FOR ASSESSMENT YEARS 2004-05 & 2005-06. 56. IN BOTH THE APPEALS, THE ISSUE INVOLVED IS AGAI NST THE LEVY OF PENALTY U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961. THE BRIEF F ACTS OF THE CASE ARE AS UNDER :- THE ASSESSEE COMPANY CLAIMED ADDITIONAL DEPRECIATI ON OF RS.3,34,78,825/- AND RS.1,96,57,902/- IN THE ASSESS MENT YEARS 2004-05 AND ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 38 2005-06 RESPECTIVELY. THE CLAIM OF THE ADDITIONAL DEPRECIATION WAS PERTAINING TO THE ASSESSEE MADE DURING THE SECOND HALF OF THE IMMEDIATE PRECEDING YEAR WHERE THE ADDITIONAL DEPRECIATION @ 50% WAS CLAIMED AND ALL THE ADDITIONS ARE MADE AFTER 30 TH SEPTEMBER AND BALANCE 50% COULD NOT BE CLAIMED IN RESPECT OF THAT YEAR WHICH IS CLAIMED IN THE SUBSEQ UENT YEAR, I.E. 2004-05 AND 2005-06. THE ADDITIONAL DEPRECIATION CLAIMED BY TH E ASSESSEE WAS DISALLOWED BY HOLDING THAT THERE IS NO PROVISION OF CARRY FORW ARD OF DEPRECIATION. THE CIT (A) CONFIRMED THE ADDITION. THE ASSESSING OFFI CER LEVIED THE PENALTY U/S 271(1)(C) AND THE CIT (A) HAS CONFIRMED THE SAME B Y HOLDING AS UNDER :- IN THE PRESENT CASE, THE APPELLANT HAS MADE A CLA IM THAT IS UNTENABLE IN LAW AND HAS TRIED TO TAKE THE SHELTER OF LEGAL OPINION. HOWEVER, WHEN THE LANGUAGE OF THE ACT IS CLEAR AND THERE IS NO SCOPE OF DIFFERENT INTERPRETATION, SUCH AN ACT OF THE ASSESSEE CANNOT BE TAKEN AS BONAFIDE. HON'BLE DELH I HIGH COURT HAS OBSERVED IN THE ABOVE SAID CASE THAT IT C ANNOT BE DISPUTED THAT CLAIM NEEDS TO BE BONAFIDE. IF THE C LAIM BESIDES BEING INCORRECT TIN LAW IS MALA FIDE, EXPLANATION 1 TO SECTION 271(1)(C) WOULD COME INTO PLAY. IN VIEW OF THE ABOVE DISCUSSION AND FACTS OF THE P RESENT CASE, I FIND THAT THE ASSESSING OFFICER WAS JUSTIFI ED IN INVOKING THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT AND THE PENALTY IMPOSED BY HIM IS UPHELD. 57. THERE IS NO DIFFERENCE IN THE GROUNDS OF BOTH T HESE APPEALS EXCEPT THE FIGURES. IN THE BOTH THE APPEALS, THE GROUNDS OF A PPEAL ARE AS UNDER :- 1) THAT THE COMMISSIONER OF INCOME TAX (APPEALS)-V I, NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN LAW IN CONFIRMING PENALTY (RS.1,02,10,527/- IN ITA NO.934/DEL/2011 & RS.70,52,272/- IN ITA NO.935/DEL/2011) U/S 271(1)(C ) WITH ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 39 REFERENCE TO A BONA FIDE CLAIM FOR ALLOWANCE OF DED UCTION OF ADDITIONAL DEPRECIATION (RS.3,34,78,825/- IN ITA NO.934/DEL/2011& RS.4,07,69,572/- IN ITA NO.935/DEL /2011) IN THE ORIGINAL RETURN OF INCOME WITH A NOTE DISCLO SURE AND FURTHER BASED ON WRITTEN LEGAL ADVICE OBTAINED BY T HE APPELLANT COMPANY. 2) THAT THE COMMISSIONER OF INCOME TAX (APPEALS)-VI , NEW DELHI HAS GROSSLY ERRED ON FACTS AND IN THE CIR CUMSTANCES OF THE CASE AND IN LAW IN NOT APPRECIATING THE POIN T THAT CLAIM FOR ALLOWANCE OF DEDUCTION OF ADDITIONAL DEPRECIATI ON IS AN ARGUABLE, DEBATABLE AND CONTROVERSIAL QUESTION ON T HE APPLICATION OF LAW ON WHICH TWO VIEWS ARE POSSIBLE. 3) THAT THE ENTIRE TOTAL ACTION IN LEVYING PENALTY IN THE APPELLANTS CASE IS OUTSIDE THE JURISDICTION AND CL EARLY DEFIES THE SCHEME OF PENALTY ENSHRINED IN THE INCOME-TAX A CT, 1961. 4) THAT THE APPELLANT RESERVES THE RIGHT TO ADD, AL TER OR AMEND ANY OTHER GROUND AT THE TIME OF HEARING. 58. IN THE QUANTUM APPEALS, WE HAVE ALLOWED THE REL IEF TO THE ASSESSEE ON THE ISSUE OF ADDITIONAL DEPRECIATION AND THESE PENA LTIES HAVE BEEN LEVIED ONLY ON THE DISALLOWANCES MADE OF ADDITIONAL DEPRECIATIO N, SINCE WE HAVE DELETED THE ADDITION IN QUANTUM APPEAL, THEREFORE, THE PENA LTY LEVIED IN BOTH THE APPEALS COULD NOT BE SUSTAINED, HENCE DELETED. BOT H THE APPEALS ARE ALLOWED. 59. IN THE RESULT, THE APPEALS IN ITA NOS.934 & 935 /DEL/2011 FILED BY THE ASSESSEE ARE ALLOWED 60. TO SUM UP, APPEALS OF THE REVENUE AND ASSESSEE ARE DISPOSED OFF AS UNDER :- (I) ITA NO.2831/DEL/2007 FILED BY THE REVENUE FOR A SSESSMENT YEAR 2004-05 IS DISMISSED; ITA NOS.2831/DEL./2007, 2508/DEL./2007 1449/DEL./2008, 4040/DEL./2009, 1548/DEL./2008, 4010/DEL./2009 AND 934 & 935/DEL./2011 40 (II) ITA NO.2508/DEL/2007 FILED BY THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES; (III) ITA NO.1449/DEL/2008 FILED BY THE REVENUE FOR ASSES SMENT YEAR 2005-06 IS DISMISSED. (IV) ITA NO.1548/DEL/2008 FILED BY THE ASSESSEE FOR ASSE SSMENT YEAR 2005-06 IS ALLOWED FOR STATISTICAL PURPOSES. (V) ITA NO.4040/DEL/2009 FILED BY THE REVENUE FOR ASSES SMENT YEAR 2006-07 IS DISMISSED. (VI) ITA NO.4010/DEL/2009 FILED BY THE ASSESSEE FOR ASSE SSMENT YEAR 2006-07 IS PARTLY ALLOWED FOR STATISTICAL PURP OSES. (VII) APPEALS IN ITA NOS.934 & 935/DEL/2011 FILED BY THE ASSESSEE ARE ALLOWED ORDER PRONOUNCED IN OPEN COURT ON THIS 5 TH DAY OF AUGUST, 2011. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 5 TH DAY OF AUGUST, 2011 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-VI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.