DCIT, New Delhi V. M/s. Abhisar Buildwell (P) Ltd., Delhi

ITA 5129/DEL/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5788 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 29-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR MAHAR
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition; Wholly owned subsidiary; Capital receipt
• Section: 43B; 143(3); 80IB; 80IC; 32; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A , NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO S . 5129 & 5130 /DEL/ 2016 ASSESSMENT YEAR S : 2012 - 13 & 2013 - 14 DCIT, CENTRAL CIRCLE - 4, NEW DELHI VS. M/S. ABHISAR BUILDWELL (P) LTD., 1711, S.P. MUKHARJEE MARG, DELHI PAN : AAFCA6845D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI MANOJ KUMAR MAHAR, SR.DR RESPONDENT BY S/SHRI R.S. SINGHVI & SATYAJEET GOEL, CA ORDER PER O.P. KANT, A.M.: THESE APPEALS HAVE BEEN PREFERRED BY REVENUE, AGAINST THE CONSOLIDATED ORDER DATED 15/07/2016 PASSED BY THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) - 30, NEW DELHI [IN SHORT THE LD. CIT(A) ]FOR ASSESSMENT YEAR S 2012 - 13 AND 2013 - 14 , INVOLVING A COMMON ISSUE IN DISPUTE IN SAME SET O F CIRCUMSTANCES AND THEREFORE, THESE APPEALS WERE HEARD TOGETHER AND DISPOSE OFF BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FOR THE SAKE OF BREVITY, T HE GROUNDS OF APPEAL RAISED IN ITA NO.5129/DEL/2016 FOR ASSESSMENT YEAR 2012 - 13 ARE AS UNDER: DATE OF HEARING 05.08.2019 DATE OF PRONOUNCEMENT 09.08.2019 2 ITA NO . 5129 & 5130/DEL/2016 1. ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAD ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO DELETE ADDITION OF RS. 5,58,42,712/ - MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION U/S 32(1) R.W.S.43(L) OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAD ERRED IN LAW AND ON FACTS BY HOLDING THAT EXCISE REFUND BEING REVENUE RECEIPT CANNOT BE REDUCED FROM THE COST OF PLANT & MACHINERY. 3. THAT THE ORDER PASSED BY LD. CIT(A) IS PERVERSE INASMUCH AS IT HAS FAILED TO APPRECIATE THE MATERIAL FACTS AND CIRCUMSTANCES OF THE CASE AS BROUGHT ON RECORD IN THE ASSESSMENT ORDER. 4. THE ORDER OF THE C1T (A) IS PERVERSE, ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. THAT THE GROUNDS OF APPEAL ARE WITHOUT PR EJUDICE TO EACH OTHER. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY/ ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARING OF THE APPEAL. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS CREATED BY WAY OF DEMERGER OF UNIT S OF M/S DHARMPAL SATYAPAL LTD. F OR ASSESSMENT YEAR 2012 - 13, THE ASSESSEE FILE D RETURN OF INCOME ON 2 9/09/2012 DECLARING LOSS OF RS.12, 7 0,68, 682/ - . F OR ASSES SMENT YEAR 2013 - 14, THE ASSESSEE FILED RETURN OF INCOME ON 30/09/2013 , DECLARIN G LOSS OF RS. 2,39,31,771 - . THE CASE OF THE ASSESSEE FOR BOTH ASSESSMENT YEARS WERE SELECTED FOR SCRUTINY AND ASSESSME NT UNDER SECTION 143(3) OF THE INCOME - TAX A CT, 1961 (IN SHORT T HE A CT ) WERE COMPLETED . THE ASSESSING OFFICER NOTICED THAT THE ASSETS OF T HE DEMERGE D UNIT S INCLUDED ASSET ACQUIRED OUT OF E XCISE DUTY EXEMPTION ( ACCOUNTED AS DEFERRED GOVERNMENT GRANTS IN THE BOOKS OF ACCOUNTS) AS PER SCHEME OF INVESTMENT. ACCORDING TO THE ASSESSING OFFICER SAID EXCISE DUTY REFUNDS SHOULD HAVE BEEN 3 ITA NO . 5129 & 5130/DEL/2016 REDUCED FROM THE ACTUAL COST OF THE ASSET IN TERMS OF SECTION 43(1) OF THE A CT. THE ASSESSING OFFICER ACCORDINGLY, REDUCE D THE COST OF THE ASSET AND DISALLOWED EXCESS DEPRECIATION IN ASSESSMENT YEAR 2012 - 13 OF RS.5,58,42, 712 - AND IN ASSESSMENT YEAR 2013 - 14 OF RS.4,80,25, 953/ - . ON FURTHER APPEAL, THE LD. CIT(A) DELETED THE DISALLOWANCE IN CONSOLIDATED ORDER FOR BOTH ASSESSMENT YEARS OBSERVING AS UNDER: 4.4 I HAVE CAREFULLY CONSIDERED ASSESSMENT ORDER, WRITTEN SUBMISSIONS, CASE LAWS RELIED UPON AND ORAL ARGUMENTS OF AR. THE OBJECTIONS/ ARGUMENTS OF THE APPELLANT ARE DISCUSSED AS UNDER: - (I) BRIEFLY STATED THE FACTS OF THE CASE, ARE THAT THE RUBBER THREAD UNIT AND FLEXIBLE PACKAGING UNIT OF EXISTING COMPANY M/S DHARAMPAL SATYAPAL LTD. GOT DEMERGED W.E.F. 01.4.2006, VIDE ORDER OF HON BLE DELHI HIGH COURT DATED 11.9.2007 AND THE RESULTANT COMPANIES WERE NAMED AS M/S ABHISAR BUILDWELL PVT. LTD. AND M/S AVICHAL BUILDCON PVT. LTD. AS PER OBSERVATIONS MADE BY THE SPECIAL AUDITOR , APPOINTED IN THE CASE OF M/S DHARAMPAL SATYAPAL LTD., THE ASSETS OF THE DEMERGED UNITS, INCLUDED ASSETS ACQUIRED OUT OF AMOUNT OF EXCISE DUTY EXEMPTION (ACCOUNTED AS DEFERRED GOVT. GRANT IN THE BOOKS OF THE DEMERGED COMPANY). THE YEAR WISE AMOUNT SPENT I N THE CASE OF THE ASSESSEE COMPANY IS GIVEN AS UNDER: (IN RS) PARTICULARS UP TO 31.3.2010 F.Y.2010 - 11 UPTO 31.3.2011 PLANT & MACHINERY 59,74,32,116 - 59,74,32,116 CIVIL WORKS 18,57,80,476 - 18,57,80,476 TOTAL 78,32,12,592 - 78,32,12,592 AS PER THE SCHEME OF DEMERGER, ALL THE ASSETS AND LIABILITIES, HAVE BEEN VESTED IN THE RESULTANT/ ASSESSEE COMPANY. FURTHER, ALL THE INCENTIVES, SUBSIDIES AND OTHER BENEFITS ENJOYED LIKE EXCISE DUTY, INCOME TAX CONCESSION AND EXEMPTIONS, INCENTIVES GRANTED BY CENTRAL AND STATE GOVTS., LOCAL AUTHORITY OR BY ANOTHER PE RSON, WHETHER AVAILED/ AVAILABLE TO THE ERSTWHILE UNIT OF M/S DHARAMPAL SATYAPAL LTD., SHALL VEST WITH AND BE AVAILABLE TO THE WHOLLY OWNED SUBSIDIARY RESULTANT/ ASSESSEE COMPANY, ON SAME TERMS AND CONDITIONS. (II) BASED ON THE AFORESAID OBSERVATIONS OF T HE SPECIAL AUDITOR, AND IN THE LIGHT OF PROVISION OF SECTION 43(1), EXPLANATION 7A, A.O. WAS OF 4 ITA NO . 5129 & 5130/DEL/2016 THE OPINION THAT THE ACTUAL COST OF CAPITAL ASSET TRANSFERRED TO THE APPELLANT COMPANY, SHALL BE TAKEN TO BE SAME, AS IT WOULD HAVE BEEN, IF THE DEMERGED COMPAN Y HAD CONTINUED TO HOLD THE CAPITAL ASSET FOR THE PURPOSE OF ITS OWN BUSINESS. (III) IN THE ASSESSMENT ORDER, A.O. HAS OBSERVED THAT THE ACTUAL COST , AS DEFINED IN SECTION 43(1) OF THE ACT, HAS BEEN STATED TO BE ACTUAL COST MEANS THE ACTUAL COST OF ASSETS TO THE ASSESSEE AS REDUCED BY THAT PORTION OF THE COST THEREOF, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY . IN THE ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THAT THE REFUND OF EXCISE DUTY PAID ON THE MANUFACTURING ACTIVITIES, CARRIED OUT IN THE NOTIFIED AREA, IS TO PROMOTE THE INDUSTRIES IN SUCH AREA. HOWEVER, A.O. WAS OF THE VIEWS THAT EXCISE DUTY REFUND, HAS BEEN INVESTED IN ASSETS IN THE NOTIFIED AREA AND THEREFORE, AS PER EXPLANATION 7 A AND 10 OF SECTION 43(1) THE ACT, SUCH REFUND OF EXCISE DUTY, HAS TO BE REDUCED FROM THE COST OF ASSETS, ON WHICH DEPRECIATION HAS BEEN CLAIMED. (IV) IN THE ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED BY THE ASSESSEE, THAT NO COST OF ASSETS HAS BEEN MET OUT FROM THE REFUND OF EXCISE DUTY BY THE EXISTING ASSESSEE COMPANY AFTER DEMERGER. HOWEVER, THE ABOVE SUBMISSIONS OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE A.O. AND THEREFORE, A.O. IN THE ASSESSMENT ORDER REDUCED THE EXCISE DUTY REFUND FROM THE BLOCK OF ASSETS, AS WAS DONE IN A.Y. 2007 - 08 TO A.Y. 2011 - 12. ACCORDINGLY, THE A.O. DETERMINED THE DEPRECIATION ON NET WDV, WHICH BECOMES NIL, AS IN THE OPINION OF THE A.O., ALL THE ASSETS FALLING IN BLOCK OF ASSETS, HAVE BEEN PURCHASED OUT OF EXCISE DUTY REFUND, WHICH RESULTED IN NIL DEPR ECIATION. ACCORDINGLY, A.O. OBSERVED THAT THE COST OF THE ASSETS MET OUT OF THE DEFERRED GOVT, GRANTS AS ON 31.3.2011, IS RS.78,32,12,592/ - AND NO FURTHER INVESTMENT HAS BEEN MADE OUT OF DEFERRED GOVT, GRANTS IN BLOCK OF ASSETS. THE A.O HAS RECOMPUTED THE CLAIM OF DEPRECIATION U/S 32(1) OF THE ACT, BY REDUCING THE ACTUAL COST OF ASSETS BY A SUM OF RS.78,32,12,592/ - AND THE EXCESS CLAIM OF DEPRECIATION MADE BY THE APPELLANT COMPANY TO THE TUNE OF RS.5,58,42,712/ - , HAS BEEN DISALLOWED. (V) IN THE APPELLA TE PROCEEDINGS, THE APPELLANT HAS REITERATED THE ARGUMENTS SUBMITTED IN THE ASSESSMENT PROCEEDINGS AND HAS ALSO SUBMITTED THAT THE EXCISE DUTY REFUND IS A REVENUE RECEIPT, WHICH HAS BEEN CREDITED TO THE P & L ACCOUNT. THE NATURE OF THE EXCISE DUTY REFUND R ECEIVED IS LIKE A BENEFIT OF CASH ASSISTANCE, ARISING FROM BUSINESS AND THEREFORE, SAME WILL FORM PART OF PROFITS AND GAINS FROM BUSINESS. ACCORDINGLY, IT IS SUBMITTED BY THE AR THAT IN VIEW OF THE FACT THAT THE EXCISE DUTY REFUND IS A REVENUE RECEIPT AND THEREFORE, SAME CANNOT BE FURTHER REDUCED FROM THE BLOCK OF ASSETS, FOR DETERMINING DEPRECIATION ON THE REDUCED WDV. FOR THE ABOVE VIEW, THE AR HAS ALSO RELIED UPON THE JUDGMENT OF THE APEX COURT IN THE CASE OF COMMISSIONER OF INCOME 5 ITA NO . 5129 & 5130/DEL/2016 TAX VS. MEGHALAYA ST EELS LTD. [2016] 383 ITR 217, WHEREIN IT HAS BEEN HELD THAT THE SUBSIDY FORMING PART OF P&L ACCOUNT, BEING REVENUE IN NATURE, HAS TO BE TREATED AS DERIVED FROM BUSINESS OR AN INDUSTRIAL UNDERTAKING AND WILL FORM PART OF BUSINESS INCOME, ON WHICH DEDUCTION U/S 80IB/ 80IC, IS ALLOWABLE. (VI) THE APPELLANT HAS FURTHER SUBMITTED THAT THE GRANT OF EXCISE DUTY EXEMPTION, WAS ACCORDED AS PER THE SCHEME OF CENTRAL GOVT, VIDE NOTIFICATIONS ISSUED IN THIS REGARD (NOTIFICATION NO. 8/2004 OF CENTRAL EXCISE DATED 02.01 .2004) TO THE EXISTING UNIT AND THE EXEMPTION OF EXCISE DUTY SO GRANTED, WAS TO BE UTILIZED IN THE DEVELOPMENT OF THE STATE BY SETTING UP OR BY MAKING INVESTMENT IN ANOTHER UNIT IN THE SAME STATE OR OTHER NOTIFIED STATE. THE QUANTUM OF SUCH EXCISE DUTY COL LECTED, BUT NOT DEPOSITED WITH GOVT., HAS BEEN THE PART OF REVENUE RECEIPTS DULY CREDITED IN THE P & L ACCOUNT ON YEAR TO YEAR BASIS, ON THE SALES AFFECTED BY THE ENTREPRENEURS. THEREFORE, IT IS FURTHER SUBMITTED THAT THE SPECIAL AUDITOR FAILED TO APPRECIA TE THE SCHEME OF EXCISE DUTY EXEMPTION NOTIFIED BY THE CENTRAL GOVT, AND WRONGLY OBSERVED THAT INVESTMENT IN PLANT & MACHINERY, WAS MADE OUT OF THE GOVT, GRANT BY THE ERSTWHILE COMPANY M/S DHARAMPAL SATYAPAL LTD. AS PER NOTIFICATION OF THE CENTRAL GOVT., S UCH EXCISE DUTY PAYABLE, BUT IS EXEMPT IN THIS NOTIFICATION, AND SAME SHALL BE UTILIZED BY THE MANUFACTURER, ONLY FOR INVESTMENT IN: P & M IN A MANUFACTURING UNIT LOCATED IN THE CONCERNED STATES, AND/ OR INFRASTRUCTURE OR CIVIL WORKS OR SOCIAL PROJECTS IN SUCH STATES. THEREFORE, THE UTILIZATION OF EXCISE DUTY REFUNDS, WERE MEANT NOT ONLY FOR P&M, BUT ALSO FOR INFRASTRUCTURE OR SOCIAL PROJECTS, NOT MEANT FOR REDUCTION THEREOF FROM THE COST OF INVESTMENTS MADE IN PLANT & MACHINERY. AT BEST, IT CAN BE SAID THAT SUCH REFUNDS WERE MEANT FOR PROMOTIONAL ACTIVITIES BY SETTING UP NEW UNITS IN THE AREA NOTIFIED ITSELF. IT IS FURTHER SUBMITTED BY THE AR THAT THE EXCISE DUTY REFUND IS NOT IN THE FORM OF CAPITAL SUBSIDY, BUT IS A REVENUE RECEIPT FORMING PART OF TAXA BLE INCOME. THEREFORE, SUCH KIND OF SUBSIDY CANNOT BE REDUCED FROM THE BLOCK OF ASSET TO DETERMINE THE ACTUAL COST OF ASSETS IN THE HANDS OF THE ASSESSEE. (VII) IN THE EARLIER A.Y. 2007 - 08 TO A.Y. 2011 - 12, THE SUBMISSION WERE MADE BEFORE THE A.O. AS WELL AS IN APPELLATE PROCEEDINGS, BEFORE LD. CIT(A) THAT THE SCHEME OF DEMERGER WAS APPROVED BY THE HON BLE HIGH COURT, AND THEREFORE, IT AMOUNTS TO APPROVAL OF THE COST OF ACQUISITION OF ASSETS IN THE HAND OF THE RESULTING COMPANIES, AFTER DEMERGER. THEREFORE, THE CLAIM OF DEPRECIATION HAS BEEN CORRECTLY MADE ON SUCH COST OF ASSETS TRANSFERRED TO THE RESULTING COMPANIES AND THERE IS NO SCOPE FOR MAKING ANY DISALLOWANCE AGAINST CLAIM OF DEPRECIATION MADE ON SUCH ACQUIRED VALUE OF ASSETS, WITHOUT REDUCING THE EXC ISE DUTY REFUND. HOWEVER, THE EXCISE DUTY REFUND, WAS ALWAYS CREDITED TO THE P & L ACCOUNT AND THEREFORE, IT WAS 6 ITA NO . 5129 & 5130/DEL/2016 ALWAYS TREATED AS REVENUE RECEIPT IN THE BOOKS OF ACCOUNT FROM A.Y. 2007 - 08 ONWARDS. HOWEVER, THE APPELLANT DID NOT MAKE SUBMISSION BEFORE THE A.O. AS WELL AS BEFORE LD. CIT(A), REGARDING NATURE OF EXCISE DUTY REFUND. HOWEVER, THE SUBMISSIONS NOW MADE ON ACCOUNT OF NATURE OF EXCISE DUTY REFUND AND DECISION OF APEX COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MEGHALAYA STEELS LTD. [2016] 383 ITR 217 (SC), WAS NOT AVAILABLE EARLIER. THEREFORE, IT IS SUBMITTED THAT NOW THE RATIO LED DOWN BY THE HON'BLE SUPREME COURT, IS EQUALLY APPLICABLE TO THE FACTS OF THE APPELLANT, SINCE THE EXCISE DUTY REFUND IS A REVENUE RECEIPT, FORMING PART OF PROFI TS AND GAINS, ARISING FROM BUSINESS. THEREFORE, AS PER AR, THIS EXCISE DUTY REFUND HAS ALREADY SUFFERED TAX. ON IDENTICAL FACTS, AS TO WHETHER EXCISE DUTY REFUNDS ARE REVENUE RECEIPT OR CAPITAL RECEIPT, THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V S. DHARAMPAL PREMCHAND LTD [2009] 317 ITR 353 - DELHI H.C] HAS HELD THAT THE EXCISE REFUNDS RECEIVED BY THE UNITS ARE ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT AND SUCH DEDUCTION IS INCLUSIVE OF EXCISE BENEFITS RECEIVED BY THE UNITS . THE SLP PREFERRED BY REVENUE AGAINST THIS JUDGMENT TO THE HON BLE SUPREME COURT, WAS DISMISSED, ON THE GROUND THAT REFUND OF EXCISE DUTY SHOULD NOT BE EXCLUDED IN ARRIVING AT PROFIT DERIVED FROM BUSINESS FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80IB OF THE ACT, AS HAS BEEN CO RRECTLY HELD BY THE JURISDICTIONAL HIGH COURT. THEREFORE, THE EXCISE DUTY REFUND CANNOT BE TREATED AS CAPITAL RECEIPT, IN ORDER TO REDUCE THE SAME FROM THE COST OF INVESTMENT MADE IN PLANT & MACHINERY, AS PER SECTION 43(1) OF THE ACT. THE AR HAS FURTHER SU BMITTED THAT THE HON'BLE SUPREME COURT, IN THE ABOVE REFERRED CASE OF COMMISSIONER OF INCOME TAX VS. MEGHALAYA STEELS LTD. [2016] 383 ITR 217 (SC), HAS ALSO APPROVED THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DHARAMPAL PREMCHAND LTD [ 2009] 317 ITR 353 - DELHI H.C]. (VIII) IT HAS BEEN FURTHER SUBMITTED BY THE AR THAT FROM THE RATIO OF THE AFORESAID JUDGMENTS, IT IS QUITE CLEAR THAT, EXCISE DUTY REFUND HAD DIRECT NEXUS WITH THE PROFITS AND GAINS OF THE BUSINESS OF THE EXISTING COMPANY BEF ORE DEMERGER, SUCH EXCISE DUTY REFUND CONSTITUTED REVENUE RECEIPTS IN THE HAND OF THE EXISTING COMPANY. CONSEQUENTLY, SUCH REVENUE RECEIPTS IN THE NATURE OF EXCISE DUTY REFUND, CANNOT AGAIN BE REDUCED FROM ACTUAL COST OF ASSETS WITHIN THE MEANING OF SECT ION 43(1) OF THE ACT, BECAUSE SUCH RECEIPTS ARE NOT GRANT OR SUBSIDY MEANT FOR DEDUCTION, AS HAS BEEN ENVISAGED IN EXPLANATION 10 OF SECTION 43(1) OF THE ACT. THE OBSERVATION OF THE SPECIAL AUDITOR THAT THE SAID ASSETS WERE ACQUIRED BY THE DE - MERGED COMPAN Y M/S DHARAMPAL SATYAPAL LTD., OUT OF THE AMOUNT OF EXCISE DUTY REFUND, ACCOUNTED AS DEFERRED GOVERNMENT GRANTS IN ITS BOOKS OF ACCOUNTS, DOES NOT CARRY ANY FORCE TO MAKE REDUCTION IN THE COST OF ASSETS. 7 ITA NO . 5129 & 5130/DEL/2016 THE APPELLANT HAS ALSO RELIED UPON A RECENT JUDGME NT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF ALPHA LAB VS. ITO REPORTED IN [(2016)(6) TMI 560,GUJARAT H.C] DATED 07.6.2016, WHEREIN IT HAS BEEN CLEARLY HELD THAT SUBSIDY RECEIVED AGAINST INVESTMENT MADE IN A BACKWARD AREA, WHERE INDUSTRIAL DEVELOPMENT A CTIVITIES HAVE BEEN UNDERTAKEN, IS BY WAY OF PROMOTION OF SUCH ACTIVITIES AND THAT WILL NOT REDUCE THE VALUE OF THE ASSETS, EVEN WHERE THE AMOUNT OF SUBSIDY RECEIVED WAS TRANSFERRED TO THE CAPITAL ACCOUNT OF THE PARTNERS, AND IT WAS HELD THAT THE COST OF A SSETS COULD NOT BE REDUCED BY THE AMOUNT OF SUBSIDY WHILE WORKING OUT THE DEPRECIATION ALLOWANCE. FROM THE ABOVE, FOLLOWING FACTS EMERGED: THE EXCISE DUTY REFUND IS GIVEN TO THE APPELLANT ON ACCOUNT OF THE MANUFACTURING ACTIVITIES CARRIED OUT IN THE NOTIF IED AREA, UPON FULFILLMENT OF CERTAIN CONDITIONS; AND THE EXCISE DUTY REFUND, IS DERIVED FROM THE MANUFACTURING ACTIVITIES AND PURCHASING THE ASSETS FROM THIS EXCISE DUTY REFUND ON FULFILLMENT OF CERTAIN CONDITIONS, IS NOTHING, BUT APPLICATION OF PROFITS, THE EXCISE DUTY REFUND IS OF THE NATURE OF REVENUE RECEIPT, FORMING PART OF PROFITS AND GAINS, ARISING FROM BUSINESS. THE SAME IS A REVENUE RECEIPT, AS HAS BEEN HELD BY HON'BLE SUPREME COURT, IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MEGHALAYA STEELS L TD. [2016] 383 ITR 217 (SC) AND THEREFORE, THIS EXCISE REFUND, BEING A REVENUE RECEIPT, CANNOT BE REDUCED FROM THE COST OF PLANT & MACHINERY. FROM THE ABOVE, IT IS CLEAR THAT THE EXCISE DUTY REFUND, IS A REVENUE RECEIPT, FORMING PART OF TOTAL TAXABLE IN COME AND THEREFORE, SAME CANNOT BE REDUCED FROM THE BLOCK OF ASSETS, IN ORDER TO DETERMINE THE ACTUAL COST OF ASSETS. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, I AM OF THE CONSIDERED OPINION THAT EXCISE DUTY REFUND, IS NOT IN THE FORM OF CAPITAL SUB SIDY OR GRANT, WHICH CAN BE REDUCED FROM THE COST OF ASSETS. THEREFORE, I AGREE WITH THE ARGUMENT OF THE APPELLANT AND IN FACTS AND CIRCUMSTANCES AS DISCUSSED ABOVE, WITH DUE RESPECT, I DIFFER FROM THE FINDINGS OF LD.CIT(A) IN THE EARLIER ASSESSMENT YEARS ON THE SAME ISSUE AND ALSO, IN VIEW OF THE RATIO LAID DOWN BY FLON'BLE SUPREME COURT, IN THE ABOVE REFERRED CASE. ACCORDINGLY, FINDINGS OF THE A.O. ARE ERRONEOUS AND THEREFORE, DISALLOWANCE OF RS.5,58,42,712/ - , IS DELETED. ACCORDINGLY, ALL THE GROUNDS, ARE HEREBY ALLOWED FOR A.Y. 2012 - 13 & A.Y. 2013 - 14. 3.1 A GGRIEVED , THE REVENUE IS IN APPEAL BEFORE THE T RIBUNAL. 8 ITA NO . 5129 & 5130/DEL/2016 4. AT THE OUTSET , BEFORE US , THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ISSUE IN DISPUTE IS COVERED BY THE ORDER OF THE T RIBUNAL IN IT A NO. 4990/DEL/2014 FOR ASSESSMENT YEAR 2010 - 11, AND IT A NO. 823/D EL/2015 FOR ASSESSMENT YEAR 2011 - 12. 5. THE LD. DR COULD NOT CONTROVERT THIS SUBMISSION OF LD. COUNSEL OF THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE T RIBUNAL IN IT A NO. 4990/ D EL/2014 FOR ASSESSMENT YEAR 2010 - 11 IN THE CASE OF THE ASSESSEE ITSELF ALLOWED THE APPEAL ON THE ISSUE IN DISPUTE OBSERVING AS UNDER: 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS WAS A SUBJECT MATTER OF THE ASSESSEE S APPEAL IN ITA NO. 823/DEL/2015 FOR THE ASSESSME NT YEAR 2011 - 12 WHEREIN VIDE ORDER DATED 17.09.2018, THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 6 TO 14 WHICH READ AS UNDER: 6. UNDISPUTEDLY, FLEXIBLE PACKAGING UNIT OF M/S. DHARAMPAL SATYAPAL LTD. WAS DEMERGED INTO THE ASSESSEE COMPANY. THE ID. AR F OR THE ASSESSEE CONTENDED THAT NO PORTION OF COST OF ASSET ACQUIRED BY THE ASSESSEE COMPANY WAS MET OUT OF THE GRANT OR SUBSIDY OR REIMBURSEMENT OF THE GOVERNMENT OR ANY OTHER PERSON RATHER COST OF THE ASSETS IN THE HANDS OF ASSESSEE COMPANY ARE AS PER DEM ERGER SCHEME APPROVED AND AS SUCH, THERE IS NO QUESTION OF REDUCING THE COST OF ASSET AND DEPRECIATION. 7. HOWEVER, THE AO AS WELL AS ID. CIT (A) BY INVOKING THE EXPLANATION 7 TO SECTION 43 (1) OF THE ACT PROCEEDED TO HOLD THAT THE ACTUAL COST OF THE ASSE T TO THE ASSESSEE COMPANY WHICH IS A RESULTING COMPANY SHALL BE THE SAME WHICH WAS TO BE DEMERGED COMPANY AND THEREBY RECOMPUTED THE CLAIM OF DEPRECATION U/S 32 (1) OF THE ACT BY REDUCING THE ACTUAL COST OF ASSET BY RS. 78,32,12,592/ - . 8. LD. AR FOR THE ASSESSEE BY RELYING UPON CBDT CIRCULAR NO. 37/2016 DATED 02.11.2016 CONTENDED THAT BENEFIT OF DEDUCTION U/S 80IC IS ADMISSIBLE ON PROFITS ENHANCED BY DISALLOWANCE MADE U/S 32 OF THE ACT WHICH MAKES THE CLAIM OF DEPRECIATION 9 ITA NO . 5129 & 5130/DEL/2016 AS REVENUE NEU TRAL AND FURTHER CONTENDED THAT THE ASSESSEE IS ENTITLED TO CLAIM BENEFIT OF STATUTORY DEDUCTIONS U/S 80IC ON ADDITIONAL INCOME ARISING FROM DISALLOWANCE OF CLAIM OF DEPRECIATION. 9. ON THE OTHER HAND, ID. DR ALSO BY RELYING UPON EXPLANATION 7 & 10 TO SEC TION 43 (1) CONTENDED THAT THE ACTUAL COST OF RESULTING COMPANY SHALL ALSO BE NIL AND AS SUCH, ACTUAL COST OF ASSET IS TO BE REDUCED BY THE AMOUNT OF RS. 78,32,12,592/ - . THE ID. DR FURTHER CONTENDED THAT THE EXCISE DUTY IS REIMBURSEMENT TO THE ASSESSEE. 1 0. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE AND ARGUMENTS ADDRESSED BY THE ID. AR OF THE PARTIES TO THE APPEAL, THE FIRST QUESTION ARISES FOR DETERMINATION IN THIS CASE IS: - AS TO WHETHER THE ASSESSEE IS ENTITLED TO CLAIM BENE FIT OF STATUTORY DEDUCTION U/S 80IC OF THE ACT ON ADDITIONAL INCOME ARISING FROM DISALLOWANCE OF CLAIM OF DEPRECIATION AND THAT THE BENEFIT OF DEDUCTION U/S 80IC IS ADMISSIBLE ON PROFITS ENHANCED BY THE DISALLOWANCE MADE U/S 32 OR THAT THE CLAIM OF DEPRECI ATION IS REVENUE NEUTRAL? 11. BEFORE PROCEEDING FURTHER, THE RELEVANT PARA OF CIRCULAR NO.37/2016 DATED 02.11.2016 ISSUED BY THE CBDT, RELIED UPON BY THE ID. AR FOR THE ASSESSEE, IS EXTRACTED AS UNDER : - CHAPTER VI - A OF THE INCOME - TAX ACT, 1961 ('THE A CT ), PROVIDES FOR DEDUCTIONS IN RESPECT OF CERTAIN INCOMES. IN COMPUTING THE PROFITS AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, SUCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(IA),40A(3), 43B ETC., OF TH E ACT. AT TIMES DISALLOWANCE OUT OF SPECIFIC EXPENDITURE CLAIMED MAY ALSO BE MADE. THE EFFECT OF SUCH DISALLOWANCES IS AN INCREASE IN THE PROFITS. DOUBTS HAVE BEEN RAISED AS TO WHETHER SUCH HIGHER PROFITS WOULD ALSO RESULT IN CLAIM FOR A HIGHER PROFIT - LINK ED DEDUCTION UNDER CHAPTER VI - A. 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SETTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A)(IA),40A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI - A DEDUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBLE BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI - A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALLOWANCE. 10 ITA NO . 5129 & 5130/DEL/2016 4. ACCORDINGLY, HENCEFORTH, APPEA LS MAY NOT BE FILED ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS ALREADY FILED IN COURTS/TRIBUNALS MAY BE WITHDRAWN / NOT PRESSED UPON. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED. 12. BARE PERUSAL OF THE OPERATIVE PART OF THE CI RCULAR (SUPRA) GOES TO PROVE THAT DISALLOWANCE MADE BY THE ASSESSEE U/S 32 OF THE ACT RELATING TO BUSINESS ACTIVITY AGAINST WHICH DEDUCTIONS HAVE BEEN CLAIMED UNDER CHAPTER VL - A, AS IN THE INSTANT CASE, RESULTS IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBLE BUSINESS AND THAT DEDUCTION UNDER CHAPTER VI - A IS ADMISSIBLE ON PROFITS SO ENHANCED BY THE DISALLOWANCE. IN THESE CIRCUMSTANCES, THE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE COMPANY OF RS.6,40,38,391/ - IS ALLOWABLE DEDUCTION AND AS SUCH, THE BENEFIT OF DEDUCTION U/S 80IC IS ALLOWABLE ON PROFITS ENHANCED BY THE DISALLOWANCE MADE U/S 32 OF THE ACT AND IN THESE CIRCUMSTANCES, THE CLAIM OF DEPRECIATION IS REVENUE NEUTRAL. 13. SO FAR AS QUESTION OF TREATING THE REFUND OF EXCISE DUTY AS PART OF THE COST IS CO NCERNED, IT IS THE CASE OF THE ASSESSEE THAT THE ENTIRE COST HAS BEEN PAID BY THE ASSESSEE FOR PLANT & MACHINERY AND AS SUCH, IT CANNOT BE REDUCED FROM THE COST OF ASSET. LD. AR FOR THE ASSESSEE RELIED UPON ORDER PASSED BY CIT (A) DATEDL5.07.2016 IN ASSESS EE S OWN CASE FOR AYS 2012 - 13 & 2013 - 14 WHERE IN EXCISE DUTY REFUND HAS NOT BEEN TREATED IN THE FORM OF CAPITAL SUBSIDY OR GRANT WHICH CAN BE REDUCED FROM THE COST OF ASSETS. 14. SINCE FINDINGS RETURNED BY THE ID. CIT (A) ARE BASED UPON THE DECISION RENDE RED BY HON BLE APEX COURT IN CIT VS. MEGHALAYA STEELS LTD. - (2016) 383 1TR 217 (SC), WE ARE OF THE CONSIDERED VIEW THAT THE EXCISE REFUND IS IN THE NATURE OF REVENUE RECEIPT FORMING PART OF PROFITS AND GAINS ARISING FROM THE BUSINESS AND AS SUCH CANNOT BE REDUCED FROM THE COST OF PLANT & MACHINERY. SO, THE FINDINGS RETURNED BY ID. CIT (A) ON THIS ISSUE ARE CONFIRMED. 14. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT AO AS WELL AS CIT (A) HAVE ERRED IN MAKING ADDITION OF RS. 6,40,38,391/ - BY DISALLOWING THE CLAIM OF DEPRECIATION OF THE ASSET MADE U/S 32 OF THE ACT WHICH WOULD FURTHER ENTITLE TO THE ASSESSEE THE BENEFIT OF DEDUCTION U/S 80IC ON PROFITS ENHANCED BY SUCH DISALLOWANCES MADE U/S 32 OF THE ACT. CONSEQUENTLY, APPEAL FILED BY THE ASSESSEE IS PARTLY'' ALLOWED. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 17.09.2018 IN ASSESSEE S OWN CASE, THE ISSUE UNDER CONSIDERATION IS DECIDED IN ASSESSEE S FAVOUR. 11 ITA NO . 5129 & 5130/DEL/2016 7. WE FIND THAT IN ASSESSMENT YEAR 2011 - 12, IN ITA NO. 823/D EL/2015 IN THE CASE OF THE ASSESSEE ITSELF, THE EXCISE REFUND HAS BEEN HELD AS REVENUE RECEIPT AND DISALLOWANCE MADE ON ACCOUNT OF DEPRECIATION HAS BEEN DELETED OBSERVING AS UNDER: 13. SO FAR AS QUESTION OF TREAT ING THE REFUND OF EXCISE DUTY AS PART OF THE COST IS CONCERNED, IT IS THE CASE OF THE ASSESSEE THAT THE ENTIRE COST HAS BEEN PAID BY THE ASSESSEE FOR PLANT & MACHINERY AND AS SUCH, IT CANNOT BE REDUCED FROM THE COST OF ASSET. LD. AR FOR THE ASSESSEE RELIE D UPON ORDER PASSED BY CIT (A) DATED 15.07.2016 IN ASSESSEE S OWN CASE FOR AYS 2012 - 13 & 2013 - 14 WHEREIN EXCISE DUTY REFUND HAS NOT BEEN TREATED IN THE FORM OF CAPITAL SUBSIDY OR GRANT WHICH CAN BE REDUCED FROM THE COST OF ASSETS. 14. SINCE FINDINGS RETUR NED BY THE ID. CIT (A) ARE BASED UPON THE DECISION RENDERED BY HON BLE APEX COURT IN CIT VS. MEGHALAYA STEELS LTD. - (2016) 383 ITR 217 (SC), WE ARE OF THE CONSIDERED VIEW THAT THE EXCISE REFUND IS IN THE NATURE OF REVENUE RECEIPT FORMING PART OF PROFITS AND GAINS ARISING FROM THE BUSINESS AND AS SUCH CANNOT BE REDUCED FROM THE COST OF PLANT & MACHINERY. SO, THE FINDINGS RETURNED BY ID. CIT (A) ON THIS ISSUE ARE CONFIRMED. 14. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT AO AS WELL AS CIT (A) HAVE ERRED IN MAKING ADDITION OF RS.6,40,38,391/ - BY DISALLOWING THE CLAIM OF DEPRECIATION OF THE ASSET MADE U/S 32 OF THE ACT WHICH WOULD FURTHER ENTITLE TO THE ASSESSEE THE BENEFIT OF DEDUCTION U/S 80IC ON PROFITS ENHANCED BY SUCH DIS ALLOWANCES MADE U/S 32 OF THE ACT. CONSEQUENTLY, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 8. IN VIEW OF THE IDENTICAL QUESTION OF WHETHER THE RECEIPT OF EXCISE REFUND IS CAPITAL RECEIPT OR REVENUE RECEIPT AND WHETHER SAME WILL GO TO REDUCE THE AC TUAL COST OF ASSET IS INVOLVED IN THE YEAR UNDER CONSIDERATION, AND THUS, RESPECTFULL Y FOLLOWING THE FINDING OF THE T RIBUNAL IN IT A NO. 4990/D EL/2014 AND IT A NO. 823/DEL/2015, WE UPHOLD THE FINDING OF THE LD. CIT( A) ON THE ISSUE IN DISPUTE. THE GROUNDS OF THE APPEAL RAISED BY THE R EVENUE IN BOTH ASSESSMENT YEARS ARE DISMISSED . 12 ITA NO . 5129 & 5130/DEL/2016 9. IN THE RESULT, BOTH THE APPEAL S OF THE REVENUE ARE DISMISED . ORDER IS PRONOUNCED IN THE OPEN COURT ON 9 T H AUGUST , 2019. S D / - S D / - [ AMIT SHUKLA ] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 9 T H AUGUST , 2019. RK/ - [D.T.D.S] COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI