DCIT, New Delhi V. M/s Radhu Products Pvt. Ltd., New Delhi

ITA 3466/DEL/2011

• Counselvise Citation: 346620114 RSA 2011
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 07-09-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 07-07-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Keywords: Depreciation; Opportunity of being heard
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `F: NEW DELHI BEFORE SHRI C.L.SETHI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER I.T. A. NO.3466/DEL/2011 ASSESSMENT YEAR : 2008-09 DY. COMMISSIONER OF INCOME-TAX, RADHU PRODUCTS PVT . LTD., CIRCLE 15(1), NEW DELHI. VS. GIANAND CINEMA BLDG. , G.T. ROAD, SHAHDARA, DELHI. PAN: AAACR0755J (APPELLANT) (RESPONDENT ) APPELLANT BY: SHRI R.S. NEGI, SR. DR. RESPONDENT BY: NONE O R D E R PER C.L. SETHI, JUDICIAL MEMBER: THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 15 .04.2011 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) PE RTAINING TO THE ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.4,04,595/- MADE BY THE AO ON ACCOUNT OF DISALLOW ANCE OF DEPRECIATION. 2 2. THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT TH E CAPITAL SUBSIDY RECEIVED BY THE ASSESSEE SHOULD HAVE BEEN R EDUCED FROM THE COST OF ASSETS FOR THE PURPOSE OF DEPRECIA TION. 3. WE HAVE HEARD THE LEARNED DR. A NOTICE OF HEARI NG WAS SENT TO THE ASSESSEE BY COURIER ON 14.07.2011, WHICH HAS BEEN R ECEIVED BY THE ASSESSEE ON 23.07.2011 AS IS EVIDENT FROM THE ACKNOWLEDGEMEN T RECEIPT PLACED ON RECORD. HOWEVER, NONE FOR THE ASSESSEE WAS PRESENT WHEN THIS APPEAL WAS CALLED ON FOR HEARING. WE, THEREFORE, PROCEEDED TO HEAR THE APPEAL AND THE DEPARTMENTAL REPRESENTATIVE PRESENT FOR THE DEPARTM ENT WAS HEARD. 4. IN THIS CASE, IT WAS FOUND BY THE AO THAT THE AS SESSEE RECEIVED CAPITAL INVESTMENT SUBSIDY OF RS.27,97,300/-, WHICH WAS SHO WN IN THE RESERVES AND SURPLUS ACCOUNT. ON PERUSAL OF THE TERMS OF THE GR ANT OF SUBSIDY, IT WAS FOUND BY THE AO THAT A SUM OF RS.27,97,300/- UNDER 15% CENTRAL INVESTMENT SUBSIDY SCHEME WAS GRANTED TO THE ASSESSEE BY THE D IRECTORATE OF INDUSTRIES, UTTARAKHAND. IN PARA 2 OF THE LETTER OF GRANTING S UBSIDY, IT WAS MENTIONED THAT THE CAPITAL SUBSIDY WAS GRANTED AND THE FOLLOW ING CAPITAL INVESTMENTS WERE CONSIDERED:- (I) BUILDING `NIL (II) PLANT & MACHINERY RS.1,86,48,674/-. IT WAS NOTED BY THE AO THAT THE AFORESAID AMOUNT OF SUBSIDY OF RS.27,97,300/- WAS NOT REDUCED FROM THE COST OF PLA NT AND MACHINERY FOR THE PURPOSE OF COMPUTING DEPRECIATION. THE AO NOTED TH AT AS PER PROVISION OF 3 EXPLANATION 10 TO SEC. 43(1) OF THE ACT, THE AMOUNT OF SUBSIDY SHOULD HAVE BEEN REDUCED FROM THE COST OF PLANT AND MACHINERY F OR THE PURPOSE OF DETERMINING THE COST OF THE ASSETS TO THE ASSESSEE. HE, THEREFORE, REDUCED THE SAME FROM THE COST OF PLANT AND MACHINERY AND ALLOW ED DEPRECIATION ON THE BALANCE. IN OTHER WORDS, THE AO DISALLOWED DEPRECI ATION ON RS.27,97,300/- AGAINST COST OF PLANT AND MACHINERY. THE NET DEPRE CIATION COMPUTED @ 15% DISALLOWED BY THE AO WAS OF RS.4,04,595/-. 5. ON AN APPEAL, THE LEARNED CIT(A) DELETED THE ADD ITION BY RELYING ON CERTAIN DECISIONS AND BY HOLDING THAT THE AO HAS WR ONGLY INVOKED THE PROVISIONS OF EXPLANATION 10 TO SEC. 43(1) OF THE A CT, WHICH IS NOT APPLICABLE IN RESPECT OF PUTTING UP INDUSTRY IN BACKWARD AREA AS PER THE INDUSTRIAL POLICY OF THE GOVERNMENT. THE LEARNED CIT(A) ALSO RELIED UPON VARIOUS DECISIONS MENTIONED IN HIS ORDER. THE CIT(A) HELD THAT THE S UBSIDY IN THIS CASE, THOUGH CALCULATED AS A PERCENTAGE OF COST OF ASSETS SUBJECT TO A CEILING, WAS IN THE NATURE OF INCENTIVE FOR PROMOTING INDUSTRIAL IZATION IN THE STATE OF UTTARAKHAND AND NOT FOR THE SPECIFIC PURPOSE OF MEE TING A PORTION OF THE COST OF ASSETS. THE LEARNED CIT(A) THEREFORE, DIRECTED THE AO TO ALLOW DEPRECIATION ON FULL COST OF PLANT AND MACHINERY WI THOUT REDUCING THEREFROM THE AMOUNT OF SUBSIDY OF RS.27,97,300/-. HENCE, TH E DEPARTMENT IS IN APPEAL BEFORE US. 4 6. WE HAVE HEARD THE LEARNED DR. THE TERMS AND CON DITIONS OF SUBSIDY HAVE NOT BEEN PLACED BEFORE US. THE ASSESSEE HAS N OT APPEARED DESPITE NOTICE OF HEARING SERVED UPON IT. IN ORDER TO DETER MINE AS TO WHETHER THE SUBSIDY RECEIVED BY THE ASSESSEE WAS WITH REGARD TO MEETING THE COST OF ASSET, IT IS NECESSARY TO EXAMINE THE SCHEME OF SUB SIDY GRANTED BY THE GOVERNMENT. THE AO, IN HIS ORDER, HAS NOT DELIBERA TED UPON THE BASIS OF GRANTING THE SUBSIDY TO THE ASSESSEE. THE LEARNED CIT(A) HAS ACCEPTED THE ASSESSEES SUBMISSION THAT SUBSIDY WAS GRANTED TO T HE ASSESSEE AS AN INCENTIVE FOR PROMOTING INDUSTRIALIZATION AND NOT F OR THE PURPOSE OF MEETING DIRECTLY OR INDIRECTLY THE PORTION OF COST OF ASSET S, WITHOUT EXAMINING HIMSELF THE SCHEME OF SUBSIDY GRANTED TO THE ASSESSEE. WE, THEREFORE, RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR HIS FRESH ADJ UDICATION AFTER EXAMINING AND VERIFYING THE SCHEME OF SUBSIDY AND AFTER ASCER TAINING AS TO WHETHER SUBSIDY WAS GRANTED TO THE ASSESSEE TO MEET DIRECTL Y OR INDIRECTLY THE ACTUAL COST OF ASSET OR THE SUBSIDY WAS GRANTED AS AN INCE NTIVE TO SET UP INDUSTRIES IN THE BACKWARD AREAS AND NOT WITH A VIEW TO MEET THE ACTUAL COST OF ASSET DIRECTLY OR INDIRECTLY. THE AO SHALL EXAMINE THE I SSUE AFRESH WITH REFERENCE TO THE PROVISIONS CONTAINED IN EXPLANATION 10 TO SE C. 43(1) OF THE ACT VIS-- VIS VARIOUS DECISIONS OF THE HIGH COURT RELIED UPON BY THE ASSESSEE BEFORE THE LEARNED CIT(A). THE ASSESSEE SHALL BE AT LIBER TY TO MAKE FURTHER 5 SUBMISSIONS AND CONTENTION BEFORE THE AO AS IT MAY SO ADVISED. THE AO SHALL PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER ACCORDINGLY. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S TREATED TO BE ALLOWED FOR A STATISTICAL PURPOSE. 8. THIS DECISION IS PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER, 2011. SD/- SD/- (B.C. MEENA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16 TH SEPTEMBER, 2011. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.