THE DCIT CIR 3(1), MUMBAI V. M/S. DWARIKESH SUGAR INDUSTRIES LTD, MUMBAI

ITA 4513/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 9282 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 05-01-2010
• Assessment Year: 1998-1999
• Appeal Filed On: 13-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN BHARAT
• Keywords: Depreciation
• Section: 143(3); 147; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, SR.VP AND SHRI P.M. JAGTAP, AM I.T.A. NO.4513/MUM/2007 (ASSESSMENT YEAR : 1998-99) THE DEPUTY COMMISSIONER OF INCOME TAX, CIR.3(1), R.NO.607, AAYAKAR BHAVAN, MUMBAI-400 020. VS. DWARIKESH SUGAR INDUSTRIES LTD., MAKER CHAMBERS-V, 221, NARIMAN POINT, MUMBAI-400 021. PAN:AABCD8192N (APPELLANT) (RESPONDENT) APPELLANT BY : MR. ARUN BHARAT, DR RESPONDENT BY : MR. NITESH JOSHI O R D E R PER R.V.EASWAR, SENIOR VICE PRESIDENT: THE FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE DEPARTMENT IN THIS APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDI NG THAT THE PROVISION TO EXPLANATION 10 TO SECTION 43 OF I.T.ACT, 1961 HAVE BEEN INSERTED FROM 1.4.1999 AND ARE THEREFORE EFFECTIVE FROM ASSESSMENT YEAR 1999- 2000 AND HENCE ACCORDING TO HIM IT IS NOT APPLICABL E FOR ASSESSMENT YEAR 1998-99 AND THEREBY DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FROM THE ALLOWABLE DEPRECIATION. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. THE APPEAL RELATES TO THE ASSESSMENT YEAR 1998-9 9. WHILE FRAMING THE REASSESSMENT ORDER PASSED ON 14.3.2006 UNDER SECTION 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT, THE ASSESSING OFFICER NOTICED THAT AN AMOUNT OF RS.5,77 ,30,910/- WAS UTILIZED FOR REPAYMENT OF THE LOAN BORROWED FOR PURCHASE OF FIXED ASSETS. THE ASSESSING OFFICER TOOK THE VIEW T HAT THIS INCENTIVE AMOUNT SHOULD BE DEDUCTED FROM THE CAPITA L COST OF ITA NO.4513/MUM/07 2 THE FIXED ASSETS PURCHASED OUT OF THE BORROWED FUND S AS PER EXPLANATION 10 BELOW SECTION 43(1) OF THE ACT. THE ASSESSEES SUBMISSION WAS THAT THE SECURED LOANS WERE UTILIZED FOR THE PURPOSE OF EXPANSION OF THE SUGAR UNIT AND WERE NOT ATTRIBUTABLE TO THE ACQUISITION OF ANY SPECIFIC ASS ET. ALTERNATIVELY, IT WAS SUBMITTED THAT THE AFORESAID STATUTORY PROVISION, WHICH WAS INVOKED BY THE ASSESSING OFFIC ER, WAS APPLICABLE ONLY FROM THE ASSESSMENT YEAR 1999-2000 AND NOT FOR THE YEAR UNDER APPEAL. THIS ALTERNATIVE SUBMISSION WAS REJECTED BY THE ASSESSING OFFICER WHO OBSERVED THAT THE LEGI SLATIVE INTENT HAS ALWAYS BEEN THAT ANY PART OF THE COST OF THE AS SETS ACQUIRED BY THE ASSESSEE WHICH WAS MET DIRECTLY OR INDIRECTL Y BY THE GOVERNMENT HAS TO BE REDUCED FROM THE COST AND DEPR ECIATION SHOULD BE ALLOWED ONLY ON THE BALANCE. IN OTHER WO RDS, IT WAS HIS VIEW THAT THE EXPLANATION WAS MERELY CLARIFICAT ORY IN NATURE. IN THIS VIEW, HE REDUCED THE WRITTEN DOWN VALUE OF THE PLANT AND MACHINERY BY RS.5,77,30,910/- WHICH RESULTED IN TH E DISALLOWANCE OF DEPRECIATION OF RS.1,44,32,727/-. F OR THE SAKE OF COMPLETENESS WE MAY REPRODUCE THE ABOVE EXPLANAT ION:- WHERE A PORTION OF COST OF AN ASSET ACQUIRED BY A ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVT. OR STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR ANY PERSON IN THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), THE THEN, SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASS ET TO THE ASSESSEE. 3. ON APPEAL, THE CIT(A) ACCEPTED THE ASSESSEES A LTERNATIVE CONTENTION THAT EXPLANATION 10 BELOW SECTION 43(1), INTRODUCED BY FINANCE (NO.2) ACT, 1998 WAS APPLICABLE ONLY FRO M THE ASSESSMENT YEAR 1999-2000 AND NOT FROM THE ASSESSME NT YEAR 1998-99. HE REFERRED TO PARAGRAPH 22.3 OF THE CBDT CIRCULAR NO.772 DATED 23.12.1998 (238 ITR ST 35) IN WHICH IT WAS STATED THAT THE EXPLANATION WILL TAKE EFFECT FROM THE ASSE SSMENT YEAR ITA NO.4513/MUM/07 3 1999-2000. HE ACCORDINGLY DIRECTED THE ASSESSING OF FICER NOT TO REDUCE THE COST OF THE ASSET BY THE INCENTIVE AMOU NT OF RS.5,77,30,910/- FOR THE PURPOSE OF CALCULATING DEP RECIATION. 4. THE REVENUE IS IN APPEAL AGAINST THE ABOVE DECIS ION OF THE CIT(A). AT THE TIME OF THE HEARING, THE LEARNED COU NSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF A.P.SHRIMP SEED PRODUCTION SUPPLY & RESEARCH CENTRE VS. DCIT.,(2000) 69 TTJ 226, DATED 12 TH JULY, 2000. A COPY OF THE SAID ORDER WAS FILED IN WHICH I T HAS BEEN HELD THAT EXPLANATION 10 TO SECTION 43(1) TAKES EFF ECT ONLY FROM THE ASSESSMENT YEAR 1999-2000 AND PRIOR TO THE SAID ASSESSMENT YEAR, THE QUESTION WHETHER THE INCENTIVE CAN BE REDUCED FROM THE COST OF THE ASSETS IS GOVERNED BY THE JUDGEMENT OF THE SUPREME COURT IN CIT VS. P.J.CHEMI CALS (1994) 210 ITR 830 IN WHICH IT WAS HELD THAT THE IN CENTIVE CANNOT BE DEDUCTED WHILE CALCULATING THE COST OR WR ITTEN DOWN VALUE OF THE ASSETS FOR THE PURPOSE OF CALCULATING DEPRECIATION. WE FIND THAT THE PRESENT CASE IS FULLY COVERED BY T HE AFORESAID ORDER OF THE TRIBUNAL SINCE THE CONTROVERSY IS THE SAME. THEREFORE RESPECTFULLY FOLLOWING THE SAID ORDER, WE CONFIRM THE DECISION OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED ON THIS 7 TH DAY OF JANUARY, 2010. SD/- ( P.M. JAGTAP ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VICE PRESIDENT MUMBAI, DATED 7 TH JANUARY, 2010. SOMU ITA NO.4513/MUM/07 4 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-3, MUMBAI. 4. THE CIT(A)-XXVIII , MUMBAI 5. THE DR D BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI