The Green Environment Services Co.Op.So.Ltd., Ahmedabad V. The Income tax Officer,Ward-6(4), Ahmedabad

ITA 3276/AHD/2011

• Counselvise Citation: 327620514 RSA 2011
• Duration Of Justice: 2 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 23-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 28-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Principle of natural justice; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 147; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI T.R. M EENA, A.M.) I.T. A. NOS. 3332 TO 3334/AHD/2010 & 3276/AHD/2011) (ASSESSMENT YEAR: 2005-06, 2006-07, 2007 -08 & 2008-09) THE GREEN ENVIORNMENT SERVICES CO. OP. SERVICES LTD., PLOT NO. 244-251, PHASE-I, GIDC ESTATE, VATVA, AHMEDABAD V/S THE ITO, WARD 6(4), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAAAT 1191N APPELLANT BY : SHRI S.N. SOPARKAR RESPONDENT BY : SHRI O.P. MEENA, SR. D.R. ( )/ ORDER DATE OF HEARING : 23-04-201 4 DATE OF PRONOUNCEMENT : 23-05-2014 PER SHRI T.R. MEENA, A.M. 1. THE ASSESSEES APPEAL IS EMANATING FROM THE ORDE R OF CIT(A)-XVI, AHMEDABAD DATED 22.10.2010 FOR A.YS. 2005-06, 2006- 07 & 2007-08 AND ORDER DATED 25.10.2011 IN A.Y. 2008-09. 2. THESE 4 APPEALS ARE HEARD TOGETHER AND THEREFORE WE PASSING A SINGLE ORDER FOR ALL THE YEARS FOR THE SAKE OF CONVENIENCE. 3. THE EFFECTIVE GROUNDS OF ASSESSEE ARE AS UNDER:- 1. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING THE ACTION OF ID. AO IN REOPENING THE ASSESSMENT U/S 147 OF THE A CT. UNDER THE FACTS AND ITA NOS. 3332 TO 3334/A/10 & 3276/A/11 . A.YS. 2005-06 TO 2 008- 09 2 CIRCUMSTANCES OF THE CASE THE ACTION OF REOPENING I S WITHOUT JURISDICTION AND NOT PERMISSIBLE EITHER IN LAW OR ON FACTS. THE PRESENT PROCEEDINGS, THEREFORE, ARE REQUIRED TO BE QUASHED. 2. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF ID. AO IN ADDING ENTIRE SUBSIDY AMOUNT OF RS.1,31, 00,000/- RECEIVED FROM THE GOVT. OF GUJARAT IN THE YEAR UNDER CONSIDERATION . 3. BOTH THE LOWER AUTHORITIES OUGHT TO HAVE APPRECI ATED THAT THOUGH THE APPELLANT HAS RECEIVED ENTIRE SUBSIDY IN THE YEAR UNDER CONSIDERA TION, THE SAME HAS NOT BEEN ACCRUED ENTIRELY IN THE YEAR UNDER CONSIDERATION. 4. ALTERNATIVELY AND WITHOUT PREJUDICE TO ABOVE, IF THE ENTIRE AMOUNT OF SUBSIDY IS REQUIRED TO BE ADDED IN THE YEAR OF ITS RECEIPT, TH E CORRESPONDING ENTIRE COST OF THE SETTING UP OF SOLID WASTE TANK MAY ALSO KINDLY BE A LLOWED IN ITS ENTIRELY FOR THE YEAR UNDER CONSIDERATION. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN DISALLOWING RS. 12,81,768/- BEING T HE PROPORTIONATE COST OF LAND OUT OF SOLID WASTE TANK EXPENSES. 6. ALTERNATIVELY AND WITHOUT PREJUDICE, IF A VIEW I S TAKEN THAT THE SAID LAND EXPENSES OF RS. 12,81,768/- IS A CAPITAL EXPENDITURE, CONT RIBUTION THAT THE APPELLANT RECEIVED FROM ITS MEMBERS TOWARDS REIMBURSEMENT OF THE COST OF LAND HAS TO BE TREATED AS CAPITAL RECEIPT AND THE SAME IS REQUIRED TO BE EXCL UDED FROM ITS INCOME. 7. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF ID. AO IN INVOKING PROVISIONS OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT AND IN REDUCING ACCUMULATED AMOUNT OF MEMBER'S CONTRIBUTIO N FROM THE WDV OF PLANT & MACHINERY AND ACCORDINGLY ERRED IN DISALLOWING DEPR ECIATION OF RS.83,48,595/- PROPORTIONATELY. 8. ALTERNATIVELY AND WITHOUT PREJUDICE, CONTRIBUTIO NS RECEIVED DURING THE YEAR UNDER CONSIDERATION CAN ONLY BE REDUCED FROM THE WDV OF P LANT & MACHINERY AND NOT ACCUMULATED BALANCE OF MEMBERS CONTRIBUTION. 9. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORDER S WITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHER ERRED IN GROSSLY IGN ORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPEL LANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IM PUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN CLEAR BREACH OF LAW AND PRI NCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. 10.THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF ID. AO IN CHARGING INTEREST U/S 234B/C/D OF THE ACT. 11. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS M CONFIRMING THE ACTION OF ID. AO IN INITIATING PENALTY PROCEEDINGS U/S 271(L)(C) OF THE ACT. 4. ITA NO. 3333/AHD/2010 (FOR A.Y. 2006-07) THE GRO UNDS READS AS UNDER:- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN DISALLOWING RS.6,85,194/- BEING THE PROPORTIONAT E COST OF LAND OUT OF SOLID WASTE TANK EXPENSES. 2. ALTERNATIVELY AND WITHOUT PREJUDICE, IF A VIEW IS T AKEN THAT THE SAID LAND EXPENSES OF RS.6,85,194/- IS A CAPITAL EX PENDITURE, CONTRIBUTION THAT THE ITA NOS. 3332 TO 3334/A/10 & 3276/A/11 . A.YS. 2005-06 TO 2 008- 09 3 APPELLANT RECEIVED FROM ITS MEMBERS TOWARDS REIMBUR SEMENT OF THE COST OF LAND HAS TO BE TREATED AS CAPITAL RECEIPT AND THE SAME I S REQUIRED TO BE EXCLUDED FROM ITS INCOME. 3. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF ID. AO IN INVOKING PROVISIONS OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT AND IN REDUCING ACCUMULATED AMOUNT OF MEMBER'S CONTR IBUTION FROM THE WDV OF PLANT & MACHINERY AND ACCORDINGLY ERRED IN DISALLOWING DEPRECIATION OF RS.43,39,673/- PROPORTIONATELY. 4. ALTERNATIVELY AND WITHOUT PREJUDICE, CONTRIBUTIONS RECEIVED DURING THE YEAR UNDER CONSIDERATION CAN ONLY BE REDUCED FROM THE WDV OF PLANT & MACHINERY AND NOT ACCUMULATED BALANCE OF MEMBERS CONTRIBUTION. 5. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORDERS W ITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHER ERRED IN GROSSLY IGN ORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPEL LANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IM PUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN CLEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. 6. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF ID. AO IN CHARGING INTEREST U/S 234B/C/D OF THE ACT. 7. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF ID. AO IN INITIATING PENALTY PROCEEDINGS U/S 271(L)(C) OF THE ACT. 5. ITA NO. 3334/AHD/2010 (FOR A.Y. 2007-08) THE GRO UNDS READS AS UNDER:- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN DISALLOWING RS.8,68,107/-BEING THE PROPORTIONATE COST OF LAND OUT OF SOLID WASTE TANK EXPENSES. 2. ALTERNATIVELY AND WITHOUT PREJUDICE, IF A VIEW IS T AKEN THAT THE SAID LAND EXPENSES OF RS.8,68,107/- IS A CAPITAL EXPENDITURE, CONTRIBU TION THAT THE APPELLANT RECEIVED FROM ITS MEMBERS TOWARDS REIMBURSEMENT OF THE COST OF LAND HAS TO BE TREATED AS CAPITAL RECEIPT AND THE SAME IS REQUIRED TO BE EXCL UDED FROM ITS INCOME. 3. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF ID. AO IN INVOKING PROVISIONS OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT AND IN REDUCING ACCUMULATED AMOUNT OF MEMBER'S CONTRIBU TION FROM THE WDV OF PLANT & MACHINERY AND ACCORDINGLY ERRED IN DISALLOWING DE PRECIATION OF RS.41,98,715/- PROPORTIONATELY. 4. ALTERNATIVELY AND WITHOUT PREJUDICE, CONTRIBUTIONS RECEIVED DURING THE YEAR UNDER CONSIDERATION CAN ONLY BE REDUCED FROM THE WDV OF P LANT & MACHINERY AND NOT ACCUMULATED BALANCE OF MEMBER'S CONTRIBUTION. 5. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORDERS W ITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHER ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPEL LANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IM PUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN CLEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. ITA NOS. 3332 TO 3334/A/10 & 3276/A/11 . A.YS. 2005-06 TO 2 008- 09 4 6. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF ID. AO IN CHARGING INTEREST U/S 234B/C/D OF THE ACT. 7. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF ID. AO IN INITIATING PENALTY PROCEEDINGS U/S 271(L)(C) OF THE ACT. 6. ITA NO. 3276/AHD/2011(FOR A.Y. 2008-09) THE GROU ND READS AS UNDER:- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN DISALLOWING RS.5,63,983/-BEING THE PROPORTIONATE COST OF LAND OUT OF SOLID WASTE TANK EXPENSES. 2. ALTERNATIVELY AND WITHOUT PREJUDICE, IF A VIEW IS T AKEN THAT THE SAID LAND EXPENSES OF RS.5,63,983/- IS A CAPITAL EXPENDITURE, CONTRIBU TION THAT THE APPELLANT RECEIVED FROM ITS MEMBERS TOWARDS REIMBURSEMENT OF THE COST OF LAND HAS TO BE TREATED AS CAPITAL RECEIPT AND THE SAME IS REQUIRED TO BE EXCL UDED FROM ITS INCOME. 3. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF ID. AO IN INVOKING PROVISIONS OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT AND IN REDUCING ACCUMULATED AMOUNT OF MEMBER'S CONTRIBU TION FROM THE WDV OF PLANT & MACHINERY AND ACCORDINGLY ERRED IN DISALLOWING DE PRECIATION OF RS.43,17,124/- PROPORTIONATELY. 4. ALTERNATIVELY AND WITHOUT PREJUDICE, CONTRIBUTIONS RECEIVED DURING THE YEAR UNDER CONSIDERATION CAN ONLY BE REDUCED FROM THE WDV OF P LANT & MACHINERY AND NOT ACCUMULATED BALANCE OF MEMBER'S CONTRIBUTION. 5. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORDERS W ITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHER ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPEL LANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IM PUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN CLEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. 6. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF ID. AO IN CHARGING INTEREST U/S 234B/C/D OF THE ACT. 7. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF ID. AO IN INITIATING PENALTY PROCEEDINGS U/S 271(L)(C) OF THE ACT. 7. THE GROUND NO. 1 IN A.Y. 05-06 IS AGAINST THE RE -OPENING THE ASSESSMENT U/S 147 OF THE ACT. THE LD. COUNSEL HAD NOT PRESSED TH IS GROUND DURING THE HEARING THE SAME IS DISMISSED AS NOT PRESSED. 8. THE GROUND 2, 3 & 4 IN A.Y. 05-06 ARE AGAINST CO NFIRMING THE ACTION OF THE LD. A.O IN ADDING ENTIRE SUBSIDY AMOUNT OF RS. 1,31,00, 000/- RECEIVED FROM THE GOVERNMENT OF GUJARAT. THE A.O OBSERVED THAT DURING THE YEAR, THE ASSESSEE RECEIVED SUBSIDY OF RS/ 1,31,00,000/- FROM GOVERNME NT OF GUJARAT. HOWEVER THE ASSESSEE HAD NOT BROUGHT SAME FOR TAXATION DURI NG THE YEAR TOWARDS THE ITA NOS. 3332 TO 3334/A/10 & 3276/A/11 . A.YS. 2005-06 TO 2 008- 09 5 COMMON SOLID WASTE DISPOSAL PROJECT. THE COST OF CA PITAL WORK IN PROGRESS IS REDUCED BY THE AMOUNT OF SUBSIDY RECEIVED. FURTHER ON VERIFICATION OF BALANCE SHEET SCHEDULE 7, THE SOLID WASTE TANK HAD BEEN CON SIDERED BY THE ASSESSEE AS INVENTORY THAT REVENUE IN NATURE. THERE FORE THE PROVISIONS OF SECTION 43(1) COULD NOT BE APPLIED TO SET OFF THE R ECEIPT OF SUBSIDY AGAINST COST OF INVENTORY BY TREATING THE PROJECT AS CAPITA L WORK IN PROGRESS. FURTHER IN THE BALANCE SHEET SUBSIDY HAD NOT BEEN SHOWN AS CAP ITAL RECEIPT, THE PURPOSE OF INVENTORY IS TO CARRY ON BUSINESS OPERATION. THE LD. A.O FURTHER HELD THAT AS PER HONBLE SUPREME COURT DECISION IN THE CASE OF M /S. SAHNEY STEEL PRESS WORK LTD. VS. CIT 228 ITR 253. THE SUBSIDY FOR ASSI STING THE ASSESSEE IN CARRYING OUT BUSINESS OPERATION IS REVENUE RECEIPT. IN THE INSTANT CASE, AS THE SOLID WASTE TANK WAS TREATED BY THE ASSESSEE AS INV ENTORY. THE SUBSIDY RECEIPT WAS TOWARDS SOLID WASTE TANK IS IN THE NATU RE OF REVENUE RECEIPT. HOWEVER, THE SAME WAS NOT OFFERED TO TAX. ON THE OT HER HAND THE ASSESSEE HAD DEBITED NET INVENTORY AFTER SET OFF OF SUBSIDY IN THE PROFIT AND LOSS ACCOUNT PROPORTIONATE TO THE WASTE DUMPED INTO THE SOLID WASTE TANK EACH YEAR. THUS THE INCOME ACCRUED TO THE ASSESSEE BY WA Y OF SUBSIDY WAS SPREAD OVER TO FUTURE YEARS WITH IS NOT ADMISSIBLE IN VIEW OF THE MADRAS HIGH COURT DECISION IN THE CASE OF M/S. EID PARRY (I) LT D. AND HONBLE SUPREME COURT DECISION IN THE CASE OF ASHOKBHAI CHIMANBHAI. HE FURTHER OBSERVED THAT THE RIGHT TO RECEIVE SUBSIDY HAD ACCRUED DURIN G THE YEAR, THE INCOME COULD NOT BE SPREAD OVER TO FUTURE YEARS AND THE EN TIRE RECEIPT THE TOTALING RS. 1,31,75,000/- SHOULD BE TAXED DURING THE YEAR IT HA D ACCRUED. THE ASSESSEE ALSO MADE ALTERNATE PLEA BEFORE THE A.O THAT IF THE ENTIRE SUBSIDY IS TAXED IN THE YEAR OR RECEIPT, THE CORRESPONDING ENTIRE COST OF THE SETTING UP OF SOLID WASTE DISPOSAL TANK MIGHT BE ALLOWED IN ITS ENTIRTY FOR THE YEAR UNDER CONSIDERATION. THE LD. A.O HAD NOT ACCEPTED THE ASS ESSEES PLEA ON THE GROUND THAT THE ASSESSEE FOLLOWED THE METHOD OF ACC OUNTING AND THE NATURE OF THE EXPENDITURE. ACCORDINGLY THE A.O MADE ADDITI ON OF RS. 1,31,75,000/- IN THE INCOME OF THE ASSESSEE. ITA NOS. 3332 TO 3334/A/10 & 3276/A/11 . A.YS. 2005-06 TO 2 008- 09 6 9. BEING AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CA RRIED THE MATTER BEFORE CIT(A) WHO HAD DISMISSED THE ASSESSEES APPEAL BY O BSERVING AS UNDER:- 3.3.1 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE AO. THE APPELLANT HAS ADMITTED THAT THE SUBSIDY GIV EN BY THE GOVERNMENT IS TOWARDS REVENUE AND NOT CAPITAL EXPENDITURE, BECAUSE THE AP PELLANT HAS STATED THAT IT HAS NOT TREATED THE SUBSIDY AS CAPITAL RECEIPT, BUT IT HAS TREATED THE SAME AS REVENUE RECEIPT. THE APPELLANT HAS STATED THAT IT HAS ONLY APPORTION ED THE SUBSIDY RECEIVED IN THE CURRENT YEAR IN PROPORTION OF THE SOLID WASTE TANK AND THE BALANCE HAS BEEN DEFERRED OVER FUTURE YEARS TO BE APPORTIONED AS PER THE USER OF THE SOLID WASTE TANK. IN VIEW OF THIS, IT IS CLEAR THAT THE ASSESSEE ITSELF IS TREAT ING THE SUBSIDY AS REVENUE RECEIPT AND NOT A CAPITAL RECEIPT. IT IS A SETTLED LAW THAT IF THE SUBSIDY IS OF REVENUE IN NATURE THEN THE ENTIRE AMOUNT HAS TO BE TREATED AS REVENUE RECE IPT AND IF THE SUBSIDY IS TOWARDS MEETING OR THE CAPITAL COST THEN THE SAME HAS TO BE TREATED AS CAPITAL RECEIPT. ONCE IT IS DECIDED THAT THE SUBSIDY IS A REVENUE RECEIPT, T HE ENTIRE AMOUNT HAS TO BE TAXED IN THE YEAR OF RECEIPT AND IT CANNOT BE DEFERRED OVER SEVERAL YEARS FOR ANY REASON.HE RELIED UPON IN CASE OF PONNI SUGAR AND CHEMICALS LT D. 306 ITR 392 AND SAHNEY STEEL AND PRESS WORKS LTD. 228 ITR 253. 3.3.2 FROM THE TEST OF GIVEN BY THE SUPREME COURT IN THE ABOVE MENTIONED CASES, IT IS CLEAR THAT IN THE PRESENT CASE THE SUBSIDY IS A REV ENUE NATURE. IN FACT, THIS ISSUE HAS NOT BEEN DISPUTED BY THE APPELLANT AT ALL. THE APPE LLANT IS TREATING THE SUBSIDY AS REVENUE NATURE. ONCE THE SUBSIDY HAS BEEN TREATED A S OF REVENUE NATURE OF THE SAME CANNOT BE IS NO CONCEPT OF DEFERRED REVENUE INCOME IN THE SAM E WAY AS THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE. THE INCOME IS EITHER ACCRUED DURING THE YEAR, OR IT IS ADVANCE RECEIPT. THE ASSESSEE'S CASE IS NOT THAT THE INCOME RECEIVED FROM THE GOVERNMENT IN THE FORM OF SUBSIDY IS ADVANCE RE CEIPT AND THEREFORE, THE ENTIRE INCOME HAS TO BE TREATED AS TAXABLE DURING THE CURR ENT YEAR, IN VIEW OF THIS REASON THIS GROUND OF APPEAL IS DISMISSED. 10. NOW THE ASSESSEE BEFORE US IT IS SUBMITTED THAT THE SUBSIDY HAD BEEN RECEIVED FROM THE GOVERNMENT OF GUJARAT TOWARDS SET TING UP OF AND RUNNING COMMON SOLID WASTE DISPOSAL PROJECT AND IF THAT SUB SIDY WAS GIVEN ON THE BASIS OF THE COST INCURRED FOR THE PURPOSE OF CONST RUCTION AND IMPLEMENTATION OF THE SOLID WASTE DISPOSAL TANK. THE SUBSIDY IS D IRECTLY LINK WITH THE SETTING UP OF COMMON SOLID WASTE DISPOSAL TANK AND RUNNING THE ABOVE. THEREFORE THE APPELLANT HAD REDUCED THE SUBSIDY FROM THE COST OF SOLID WASTE DISPOSAL TANK. THE APPELLANT HAD NOT TREATED THE SUBSIDY AS CAPITAL RECEIPT AND TREATED AS REVENUE RECEIPT. THE SAME HAD OFFERED F OR TAX AS PER THE METHOD OF ACCOUNTING FOLLOWED BY IT CONSISTENTLY. AGAIN AS PER METHOD OF ACCOUNTING THE ENTIRE COST OF TANK IS NOT DEBITED TO THE PROFI T AND LOSS ACCOUNT IN THE YEAR UNDER WHICH THE SAID WASTE DISPOSAL TANK WAS S ET UP. THE APPELLANT ITA NOS. 3332 TO 3334/A/10 & 3276/A/11 . A.YS. 2005-06 TO 2 008- 09 7 DEBITED THE PORTION OF THE COST OF THE SOLID WASTE DISPOSAL TANK IN PROFIT AND LOSS ACCOUNT WHICH IS UTILIZED DURING THE YEAR UNDE R CONSIDERATION. IN OTHER WORDS, ON A YEAR TO YEAR BASIS THE SOLID WASTE DISP OSAL TANK IS SHOWN AS INVENTORY AND THE PORTION WHICH IS UTILIZED DURING THE YEAR IS DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE LD. A.O TREATED THE EN TIRE SUBSIDY RECEIVED DURING THE YEAR AS TAXABLE FOR THE CURRENT YEAR IN STEAD OF SPREADING IT TO FUTURE YEARS DURING THIS THE SOLID WASTE BANK WOULD BE UTILIZED. 11. A.R. FOR THE APPELLANT ALSO EXPLAIN THE PROCESS OF TREATMENT OF POLLUTED EFFLUENT DISCHARGE FROM VARIOUS MANUFACTURING UNIT SITUATED IN AN AROUND THE AREA OF VATVA. THE APPELLANT HAD FOLLOWED MERCANTILE SYSTEM OF THE ACCOUNTING, THE SUBSIDY HAD TO BE DIVIDED OVER THE YEARS FOR SETTIN G UP COMMON SOLID WASTE DISPOSAL PROJECT. THE TREATMENT THE SUBSIDY HAD TO BE GIVEN AS THE TREATMENT WAS GIVEN TO THE EXTENT ON SOLID WASTE TANK. IN VIE W OF THIS REASON, THE APPELLANT HAD TRANSFER PROPORTIONATE COST OF NET OF SUBSIDY TO THE PROFIT AND LOSS ACCOUNT OVER THE YEAR UNDER CONSIDERATION. IN THIS REGARD, THE APPELLANT HAD RELIED ON ACCOUNTING STANDARD AS-9 WHICH SAYS T HAT REVENUE FROM SERVICE TRANSACTION IS USUALLY RECOGNIZED AS THE SERVICE IS PERFORM EITHER BY THE PROPORTIONATE COMPLETION METHOD OR BY THE COMPLETED SERVICE CONTRACT METHOD. IN THIS REGARD, THE A.R. RELIED UPON (2013) 114 ITR (DELHI) IN CASE OF ACIT VS. SHYAM TELE LINK LTD WHEREIN PREPAID CARD S OLD BY THE ASSESSEE HAD TWO PARTS ONE FIXED AMOUNT KNOWN AS NUMBER ACTI VATION CHARGE BOOKED IMMEDIATELY AS INCOME AND SECOND TALK TIME CHARGE B OOKED AS REVENUE TO THE EXTENT TALK TIME ACTUALLY HAD BEEN UTILIZED. 22 5 ITR 802 (SC) IN CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. VS. C IT WHEREIN DISCOUNT HAD DEBENTURE WAS WRITTEN OFF PROPORTIONATELY EACH YEAR OVER PERIOD FOR REDEMPTION. ALTERNATE PLEA WAS THAT IF THE ENTIRE A MOUNT OF SUBSIDY AS REQUIRED TO BE ADDED IN THE YEAR OF ITS RECEIPTS, T HE CORRESPONDING ENTIRE COST OF SETTING UP OF SOLID WASTE TANK MAY ALSO BE ALLOW ED IN YEAR UNDER CONSIDERATION. AT THE OUTSET, THE LD. D.R. SUPPORTE D THE ORDER OF LOWER AUTHORITY AND RELIED UPON THE HONBLE SUPREME COURT DECISION IN CASE OF ITA NOS. 3332 TO 3334/A/10 & 3276/A/11 . A.YS. 2005-06 TO 2 008- 09 8 PONNI SUGAR & CHEMICALS LTD. & SAHNEY STEEL PRESS W ORK LTD. (SUPRA) AND REQUESTED TO CONFIRM THE ORDER OF CIT(A). 12. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAD SHOWN SUBSIDY AS REVENUE IN THE BOOKS OF ACCOUNTS. THE ASSESSEE HAD FOLLOWED MERCANTILE SYSTEM OF ACCOUNTI NG. IT HAD DEBITED THE EXPENSES ON SOLID WASTE TANK PROPORTIONATELY ON THE BASIS OF UTILIZATION, THE SUBSIDY WAS GIVEN BY THE GOVERNMENT OF GUJARAT TOWA RDS SETTING UP AND RUNNING COMMON SOLID WASTE DISPOSAL PROJECT. THE A PPELLANT HAD FOLLOWED THIS PRACTICE CONSISTENTLY ON MATCHING PRINCIPAL OF ACCOUNTING. THE EXPENSES FROM SOLID WASTE TANK HAD BEEN DEBITED BY THE ASSES SEE PROPORTIONATELY ON THE BASIS OF QUANTITY OF DUMPING OF SOLID WASTE DIS POSAL. ACCORDINGLY SUBSIDY IS ALSO REQUIRED TO BE ACCOUNTED FOR ON THE SAME PR OPORTIONATE BASIS, THE ACCOUNTING STANDARD AS-9 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA FOR REVENUE RECOGNITION IS AS UNDER:- 7. RENDERING OF SERVICES. 7.1 REVENUE FROM SERVICE TRANSACTIONS IS USUALLY RE COGNIZED AS THE SERVICE IS PERFORMED EITHER BY THE PROPORTIONAT4E COMPLETION M ETHOD OR BY THE COMPLETED SERVICE CONTRACT METHOD. 13. ON THE BASIS THE A.R. FOR THE ASSESSEE ARGUED T HAT REVENUE OF SUCH TRANSACTION IS USUALLY RECOGNIZED AS THE SERVICE IS PERFORM. THE ASSESSEE HAD FOLLOWED THE SAME ACCOUNT PRINCIPAL ON SUBSIDY AS WELL AS EXPENDITURE ON THE BASIS OF QUANTITY OF DUMPING OF SOLID WASTE DIS POSAL. THE CASE LAW CITED BY THE APPELLANT IS SQUARELY APPLICABLE. THEREFORE WE HAVE CONSIDERED VIEW THAT CIT(A) WAS NOT RIGHT TO CONFIRM THE ADDITION M ADE BY THE A.O. ACCORDINGLY WE DIRECT THE A.O TO BOOKED SUBSIDY AS INCOME PROPO RTIONATELY FOR THE YEARS TO WHICH IT PERTAIN. THUS THESE GROUNDS OF APPEAL A RE ALLOWED. 14. GROUND NO. 5 & 6 IN A.Y. 05-06 AND GROUND NO. 1 & 2 IN ALL THE REMAINING YEARS ARE AGAINST CONFIRMING THE ACTION OF THE A.O IN DISALLOWING PROPORTIONATE COST OF LAND OUT OF SOLID WASTE TANK EXPENSES. THE A.O OBSERVED THAT THE ITA NOS. 3332 TO 3334/A/10 & 3276/A/11 . A.YS. 2005-06 TO 2 008- 09 9 ASSESSEE HAD DEBITED RS. 12,81,768/- IN A.Y. 05-06, RS. 6,85,194/- IN A.Y. 06-07, RS. 8,68,107/- IN A.Y. 07-08 AND RS. 5,63,98 3/- IN A.Y. 08-09 COST OF LAND WHICH HAD BEEN WRITTEN OFF FROM THE BALANCE SH EET OF SCHEDULE 7. THE A.O GAVE REASONABLE OPPORTUNITY OF BEING HEARD AS T O WHY COST OF LAND SHOULD NOT BE TREATED CAPITAL EXPENDITURE. THE LD. A.O OB SERVED AFTER CONSIDERING THE ASSESSEES REPLY THAT THERE IS NO DEPRECIATION ON L AND BEING REASON THAT IT HAS ELEMENT OF PERMANENCY. THE LAND CONSUMABLE ITEM TH E ASSESSEE IS NOT IN SALE AND PURCHASING OF LAND OF PLOTTING OF LAND. T HUS HE MADE ADDITION ALL THE YEARS ON ACCOUNT OF COST OF LAND. 15. BEING AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO HAD DISMISSED THE APPEAL BY OBSERVING AS UNDER:- 4.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELL ANT AND OBSERVATION OF THE AO. THIS ISSUE IS EXACTLY THE SAME AS IN EARLIER AS SESSMENT YEARS. AS MENTIONED ABOVE, THIS ISSUE HAS BEEN DECIDED AGAINST THE APPE LLANT BY THE HONORABLE ITAT IN THE ABOVE MENTIONED ORDER DATED 16/05/2008. SINCE THE F ACTS ARE SAME IN THIS YEAR ALSO, THE ACTION OF THE AO IS CONFIRMED IN TREATING THE L AND AS CAPITAL ASSET AND NOT A REVENUE EXPENDITURE. FOR THE REASONS GIVEN BY THE H ONORABLE TRIBUNAL, THE ASSESSEE'S CLAIM IS DISMISSED AND THIS GROUND OF APPEAL IS DIS MISSED. SIMILARLY, FINDINGS HAS BEEN GIVEN BY THE LD. CIT(A) FOR REMAINING ASSESSMENT YEARS. 16. THE ASSESSEE IS BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE FAIRLY ACCEPTED THAT THIS ISSUE HAD BEEN DECIDED IN PRECEDING YEARS AGAINST THE ASSESSEE IN ITA NO. 953 & 954/AHD/2008 FOR A.Y. 03-04 & 04-05. THE LD. D.R. ALSO ARGUED THAT IDENTICAL ISSUES HAD BEEN CONFIRMED IN THE ASSESSEES OWN CASE IN PRECEDING YEARS. THUS THE SAME MAY BE CONFIRMED IN THESE YEARS ALSO. 17. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD. THE LAND IS NOT DEPRECITABLE AND ENTIRE IS NOT A COST O F ASSESSEES BUSINESS HAVING REVENUE NATURE. IT GENERALLY FETCHES APPRECIATION IN FUTURE. THE CO-ORDINATE ITAT C BENCH IN ASSESSEES OWN CASE FOR A.Y. 03-0 4 & 04-05 HELD AS UNDER:- ITA NOS. 3332 TO 3334/A/10 & 3276/A/11 . A.YS. 2005-06 TO 2 008- 09 10 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. THE CIT(A) HAS RIGHTLY OBSERVED THAT THE SCIENCE IS CHANGING FAST. THERE C OULD BE SOME DEVICE IN FUTURE TO MAKE USE OF THE SAID LANDS ALSO. THEREFORE, LAND BE ING FIXED ASSET AND ONLY FETCHES APPRECIATION IN FUTURE, IT CANNOT BE SAID SUCH PROP ERTY PURCHASE TO BE TREATED AS A REVENUE EXPENDITURE. IN OUR VIEW, THE CIT(A) HAS RI GHTLY DISMISSED THE APPEAL FILED BY THE ASSESSEE. THEREFORE, WE DO NOT FIND ANY ILLEGAL ITY OR INFIRMITY IN THE ORDER OF THE CIT(A) IN THIS REGARD. THE GROUND RAISED BY THE ASS ESSEE THUS STANDS DISMISSED. 18. BY RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION ON THIS ISSUE. WE HAVE CONSIDERED VIEW THAT COST OF LAND DEBITED BY T HE ASSESSEE IN PROFIT AND LOSS ACCOUNT IS NOT ALLOWABLE AS REVENUE EXPENDITUR E. ACCORDINGLY,THIS GROUND OF IN ALL THE YEARS ARE DISMISSED. 19. GROUND NOS. 6, 8 & 9 IN A.Y. 05-06 AND GROUND N OS. 3, 4 & 5 IN ALL THE YEARS ARE AGAINST INVOKING OF EXPLANATION 10 TO SECTION 4 3(1) OF THE I.T. ACT AND REDUCING ACCUMULATED AMOUNT OF MEMBERS CONTRIBUTIO N FROM THE WRITTEN DOWN VALUE OF PLANT AND MACHINERY. THE A.O OBSERVED THAT THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS. 83,86,938/- IN A.Y. 05- 06, RS. 43,82,467/- IN A.Y. 06-07, RS. 46,25,209/- IN A.Y. 07-08 AND RS. 54,65, 312 IN A.Y. 08-09 ON PLANT AND MACHINERY. ON VERIFICATION OF THE BALANCE SHEET IT WAS FOUND THAT ASSESSEE HAD CAPITALIZED MEMBERS CONTRIBUTION TOWA RDS FIX ASSETS FOR WATER TREATMENT I.E CETP AND DRAINAGE PIPELINE COMPRISING PART OF THE BLOCK OF PLANT AND MACHINERY. THE A.O. OBSERVED THAT AS PER EXPLAN ATION 10 TO PROVISIONS OF SECTION 43(1) OF THE I.T. ACT, 1961. ACTUAL COST M EANS THE ACTUAL COST OF ASSETS TO THE ASSESSEE, REDUCED BY THAT PORTION OF COST THEREOF, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. THE LD. A.O GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE WHICH WAS AVAILED BY THE APPELLANT. IT WAS SUBMITTED BY IT BEFORE THE A.O THAT SAID CONTRIBUTION MADE BY THE MEMBERS WAS RECEIVED SPECIALLY TOWARDS COST OF CETP AND DRAINAGE PIPELINES FORMING PART OF THE BLOCK OF ASS ETS OF PLANT AND MACHINERY ITA NOS. 3332 TO 3334/A/10 & 3276/A/11 . A.YS. 2005-06 TO 2 008- 09 11 WHICH HAD NATURE OF REIMBURSEMENT OF COST OF FIX AS SETS FOR WATER TREATMENT I.E. CETP AND DRAINAGE PIPELINES. THE A.O HELD THAT IT IS REQUIRED TO BE REDUCED FROM THE COST OF CETP AND DRAINAGE PIPELINE S ON THE BASIS OF EXPLANATION 10 TO SECTION 43(1) OF THE I.T. ACT. T HE APPELLANT HAD NOT REDUCED THIS CONTRIBUTION FROM THE COST OF FIX ASSETS BEFOR E CLAIMING DEPRECIATION. THE LD. A.O RELIED IN CASE OF CALCUTTA ELECTRIC SUPPLY CORPORATION LTD. VS. CIT (1992) 194 ITR 296 WHEREIN IDENTICAL ISSUES HAD BEE N DECIDED IN FAVOUR OF THE REVENUE. THE LD. A.O REDUCED THE CONTRIBUTION M ADE BY THE MEMBERS TOWARDS CETP FROM THE COST OF PLANT AND MACHINERY A ND ALLOWED THE DEPRECIATION ON REDUCED COST OF PLANT AND MACHINERY IN ALL THE YEARS. 20. BEING AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO HAD DISMISSED THE ASSESSEES APPEAL BY O BSERVING AS UNDER:- 4.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELL ANT AND OBSERVATION OF THE AO. THE PROVISIONS OF EXPLANATION 10 OF SECTION 43 [1] HAVE BEEN ON THE STATUTE FOR A VERY LONGTIME AND IT PROVIDES THAT THE MEMBERS CONT RIBUTION TOWARDS THE COST OF ASSET HAS TO BE REDUCED FOR CALCULATING THE DEPRECIATION. THE APPELLANT HAS NOT DENIED THAT THE MEMBERS CONTRIBUTION WAS SPECIFICALLY RECEIVED TOWARDS THE COST OF ASSETS, NAMELY CETP AND DRAINAGE PIPELINES. THE PROVISIONS OF EXPL ANATION 10 ARE VERY CLEAR AND THEREFORE BY NOT GIVING EFFECT TO THE SAME RIGHT FR OM THE FIRST YEAR THERE IS A MISTAKE APPARENT FROM RECORD. THE AO SHOULD HAVE RECTIFIED ALL THE EARLIER ASSESSMENT YEARS, AND BY GIVING EFFECT TO THIS PROVISION AND RECALCUL ATED THE WDV FROM THE FIRST YEAR TO THE CURRENT YEAR. THEREFORE, RIGHT FROM THE FIRST Y EAR THE APPELLANT SHOULD HAVE REDUCED THIS CONTRIBUTION FROM THE COST OF ASSETS. WHAT THE A.O HAS DONE IS GIVEN EFFECT TO THIS PROVISION AND RECALCULATED THE DEPRE CIATION FROM THE FIRST YEAR ITSELF ADDITION THEREFORE, THE ACTION OF THE A.O IS CORREC T AND THIS GROUND OF APPEAL IS DISMISSED. SIMILAR FINDINGS WERE GIVEN IN REMAINING YEARS BY T HE LD. CIT(A). 21. THE ASSESSEES BEFORE US, THE LD. A.R FOR THE APPELLANT CONTENDED THAT THE ASSESSEE HAD ACCUMULATED AMOUNT OF MEMBERS CONTRIBU TION WHICH HAS BEEN ITA NOS. 3332 TO 3334/A/10 & 3276/A/11 . A.YS. 2005-06 TO 2 008- 09 12 REDUCED BY THE A.O IN THE YEARS UNDER CONSIDERATION . DURING THE A.Y 05-06 THIS CONTRIBUTION WAS RS. 88,815/-, IN A.Y. 06-07 R S. 45,72,519/-, IN A.Y. 07- 08 RS. 45,75,943/- AND IN A.Y. 08-09 RS. 94,39,035/ -. THE LOWER AUTHORITIES HAD REDUCED THE TOTAL ACCUMULATED AMOUNT RECEIVED T OWARDS MEMBERS CONTRIBUTION FROM THE COST OF PLANT AND MACHINERY W HICH PARTLY PERTAINED TO EARLIER YEARS ALSO AS CONTRIBUTION OF THE MEMBERS. THEREFORE IT SHOULD NOT BE REDUCED U/S 43(1) OF THE I.T. ACT. ALTERNATIVELY HE ARGUED THAT IF THE ENTIRE AMOUNT OF SUBSIDY IS REQUIRED TO BE ADDED IN THE YE AR OF ITS RECEIPT, THE CORRESPONDING ENTIRE COST OF THE SETTING OFF OF SOL ID WASTE TANK MAY ALSO BE ALLOWED IN ITS ENTIRETY FOR THE YEAR UNDER CONSIDER ATION. AT THE OUTSET, THE LD. D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE LOWER AU THORITY. 22. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD. IT APPEARS THAT ACCUMULATED AMOUNT OF CONTRIBUTION MAD E BY THE MEMBERS IS PERTAINED TO EARLIER YEARS ALSO WHICH CANNOT BE RED UCED FROM THE COST OF PLANT AND MACHINERY UNDER THE YEAR OF CONSIDERATION AS PE R SECTION 43(1). THE ACTUAL COST MEANS THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE REDUCE BY THAT PORTION OF COST THEREOF, IF ANY, AS HAS BEEN M ET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. THE APPELLANT IS GET TING CONTRIBUTION FROM THE MEMBERS AS REIMBURSEMENT OF THE COST OF PLANT AND M ACHINERY DURING THE YEARS. THEREFORE WHATEVER CONTRIBUTION RECEIVED BY THE ASSESSEE IN RESPECTIVE ASSESSMENT YEARS SHOULD BE ALLOWED TO BE REDUCED FROM THE ACTUAL COST OF PLANT AND MACHINERY AND THEREAFTER DEPRECIA TION IS TO BE ALLOWED ON REMAINING COST OF THE PLANT AND MACHINERY BY THE A. O. THE A.O IS DIRECTED TO VERIFY THE ACTUAL COST OF PLANT AND MACHINERY IN EA CH YEAR AS OPENING WRITTEN DOWN VALUE OF THE PLANT AND MACHINERY ADDITION MADE DURING THE YEAR MINUS COST MET FROM THE CONTRIBUTION OF THE MEMBERS YEARW ISE. THEREAFTER CALCULATE THE DEPRECIATION IN EACH YEAR AND ALLOWED THE SAME. ACCORDINGLY THIS GROUND OF APPEAL IS SET ASIDE TO THE A.O FOR DE NOVO. IN T HE RESULT THE ASSESSEES APPEAL ON GROUND IS ALLOWED FOR STATISTICAL PURPOSE S. ITA NOS. 3332 TO 3334/A/10 & 3276/A/11 . A.YS. 2005-06 TO 2 008- 09 13 23. GROUND NO. 10 IN A.Y. 05-06 AND GROUND NO. 6 IN ALL THE YEARS ARE FOR CHARGING OF INTEREST U/S 234B, U/S 234C & U/S 234D IN ALL TH E YEARS ARE MANDATORY AND IS REQUIRED TO CALCULATE INTEREST AS PER LAW. 24. GROUND NO. 11 IN A.Y 05-06 AND GROUND NO. 7 IN ALL THE YEARS ARE FOR INITIATING PENALTY PROCEEDING ARE PREMATURE AND ARE NOT REQUIR ED ADJUDICATION AT THIS STAGE. THUS THESE GROUNDS OF APPEAL ARE DISMISSED. 25. THE ASSESSEES APPEAL IN ALL THE YEARS ARE ALLO WED PARTLY. ORDER PRONOUNCED IN OPEN COURT ON 23 - 05 - 2014. SD/- SD/- (G.C.GUPTA) (T.R. MEENA) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD