M/S. DARBARI WIRES PVT.LTD., MUMBAI V. I.T.O.6(2)(2), MUMBAI

ITA 5621/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7452 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-03-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 27-08-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Assessee Lawyers: B V JHAVERI
• Keywords: Depreciation; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, MUMBAI. BEFORE S/SHRI S.V.MEHROTRA, AM & R. S.PADVEKAR,JM I.T.A. NO. 5621/MUM/2007 ASSESSMENT YEAR: 2004-05 DARBARI WIRES PVT. LTD., V. THE I.T.O. 6(2)(2), 110, CHAMPAKLAL UDYOG BHAVAN, SION AAYAKAR BHAVAN, M.K. ROAD, KOLIWADA ROAD, SION (W), MUMBAI. MUMBAI-22 PA NO.AAACD 1531 G (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI B.V.JHAVERI RESPONDENT BY : SHRI T.T.JACOB O R D E R PER S.V.MEHROTRA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER DATED 15.6.2007 OF LD CIT (A)-VI, MUMBAI FOR THE ASSESSMENT YEAR 2 004-05. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE, A PRIVATE LIMITED COMPANY, IN THE RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN MANUFACTURING AND T RADING OF M.S. WIRES-BLACK, GALVANIZED AND COPPER COATED. IT HAD FILED ITS RET URN OF INCOME DECLARING TOTAL INCOME AT RS.8,64,620/-. THE ASSESSMENT WAS COMPLETED AT A T OTAL INCOME OF RS.13,66,730/-, INTER ALIA, MAKING ALLOCATION OF GRANT OF RS.15,09,600/- RECEIVED FROM STATE GOVERNMENT AGAINST BUILDING AND PLANT AND MACHINERY. LD CIT ( A) CONFIRMED THE AOS ACTION. BEING AGGRIEVED WITH THE ORDER OF LD CIT (A), THE ASSESSE E IS IN APPEAL BEFORE US AND HAS, INTER ALIA, PRESSED ONLY FOLLOWING TWO GROUNDS OF APPEAL OUT OF EIGHT GROUNDS OF APPEAL TAKEN ORIGINALLY: 1. THE LD CIT (A) HAS ERRED IN UPHOLDING THE ACTIO N OF THE AO OF REDUCING THE COST OF THE FIXED ASSETS (ONLY BUILDING AND PLA NT AND MACHINERY) BY RS.15,09,600/- BEING THE AMOUNT OF STATE SUBSIDY/IN CENTIVE RECEIVED DURING THE YEAR (RS.10,68,800/-) UNDER APPEAL AS WE LL AS RECEIVED IN THE EARLIER ASSESSMENT YEAR(S) (RS.4,40,800). 2. THE LD CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE AO OF NOT CONSIDERING THE FACT THAT THE CAPITAL SUBSIDY/INCEN TIVE OF RS.4,40,800/- WAS RECEIVED IN EARLIER ASSESSMENT YEAR9S) AND HENC E THE SAME CANNOT ITA NO.5621/M/2007 M/S. DARBARI WIRES PVT.LTD. 2 GO TOWARDS REDUCING THE COST OF THE FIXED ASSETS OF THE APPELLANT COMPANY IN THE YEAR UNDER APPEAL. 3. BRIEF FACTS APROPOS THE FIRST ISSUE ARE THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED FROM THE BALANCE SHEET THAT AN AMOUNT OF RS.15,09,600/- WAS KEPT AS SEPARATE RESERVE AS STATE SUBSIDY. OUT OF THIS, RS.4,40,800/- WAS CARRIED FROM LAST YEAR AND BALANCE I.E. RS.10,68,800/- PERT AINED TO THE CURRENT YEAR. HE NOTED THAT A SUM OF RS.10,68,800/- WAS RECEIVED FROM THE DEVELOPMENT CORPORATION OF KONKAN LTD. THIS AMOUNT HAD NOT BEEN OFFERED TO TAX. THE AO RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SAHNEY STEELS AND PRESS WORKS LTD V CIT, 228 ITR 253 (SC) AND AFTER CONSIDERING THE ASSESSEES D ETAILED SUBMISSIONS, HELD THAT SINCE THE GRANT HAD BEEN RECEIVED FOR SETTING UP A NEW UN IT AND THE GRANT HAD BEEN COMPUTED WITH REFERENCE TO ADDITION TO BE MADE TO FIXED CAPI TAL INVESTMENT IN THE NATURE OF FIXED ASSET, ETC, AND, THEREFORE, THE SAME HAD TO BE REDU CED FROM THE COST OF FIXED ASSET. HOWEVER, SINCE THE GRANT WAS A LUMPSUM AMOUNT AND N OT SPECIFIC TO AN INDIVIDUAL ASSET, THE AO MADE THE PROPORTIONATE ALLOCATION OF THE GRA NT ON THE BUILDING AND PLANT AND MACHINERY AS ONLY THESE ITEMS WERE ELIGIBLE FOR DEP RECIATION. HE, ACCORDINGLY, REDUCED THE BLOCK OF ASSET COMPRISING OF PLANT AND MACHINER Y AND BUILDING. 4. BEFORE LD CIT (A), IT WAS, INTER ALIA, SUBMITTED THAT THE SUBSIDY HAD BEEN GRANTED FOR SETTING UP A MANUFACTURING UNIT IN BACKWARD ARE A AND WAS BASED ON THE TOTAL COST OF THE PROJECT AND NOT ON INDIVIDUAL ITEMS OF FIXED AS SETS. IT WAS FURTHER POINTED OUT THAT THE SUBSIDY/GRANT WAS SANCTIONED FOR SETTING UP A PLAN T/INDUSTRY AND NOT FOR RUNNING THE INDUSTRY AND HENCE, THE SAME WAS CAPITAL RECEIPT. LD CIT (A) DID NOT ACCEPT THE ASSESSES CONTENTION RELYING ON CBDT CIRCULAR NO.19 0 DATED 1.3.1976. 5. LD COUNSEL FOR THE ASSESSEE REFERRED TO THE ELIG IBILITY CERTIFICATE ISSUED BY THE DEVELOPMENT CORPORATION OF KONKAN LTD AND POINTED O UT THAT THE SUBSIDY/GRANT HAD BEEN COMPUTER AS UNDER:- CAPITAL COST OF THE PROJECT OF THE PROPOSED UNIT UNDER:- 1. LAND & DEV. RS. 2,55,000/- 2. BUILDING RS. 7,76,000/- 3. PLANT & M/C RS.35,16,800/- 4. OTHERS RS. 2,32,300/- RS.48,80,100/- ITA NO.5621/M/2007 M/S. DARBARI WIRES PVT.LTD. 3 LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SUBS IDY HAD BEEN GRANTED TO SET UP A INDUSTRY IN THE BACKWARD AREA AT PLOT NO.G/66, MIDC , TARAPUR, TAL PALGHAR, DIST: THANE. HE SUBMITTED THAT SINCE THE SUBSIDY HAS BEEN GRANT ED WITH REFERENCE TO OVER ALL CAPITAL OUTLAY OF THE ASSESSEE IN THE NEW BUSINESS, THEREFO RE, IT CANNOT BE REDUCED FROM INDIVIDUAL FIXED ASSET. HE SUBMITTED THAT IT IS A LUMPSUM GRANT AND NOT ANY FIXED ASSET SPECIFIC. LD COUNSEL FOR THE ASSESSEE HAS RELIED ON THE FOLLOWING DECISIONS:- 1) CIT V. GOVIND POY OXYGEN LTD., 239 ITR 5432 (BO M) 2) CIT V. P.J.CHEMICALS LTD., 210 ITR 830 (SC) 3) CIT V. ELYS PLASTICS P.LTD., 188 ITR 11 (BOM) 4) CIT V. EICHER TRACTORS LTD., 164 TAXMAN 526 (DE L) 5) CIT V. HIMACHAL ENGG. CO.P.LTD., 301 ITR 116 (H P) 6) CIT V. H.P.AGRO IND. CORPORATION LTD., 301 ITR 118 (HP) 7) SASIRI EXTRACTIONS LTD V. ACTI, 307 ITR (AT) 12 7 (VISHAKHAPATNAM) 6. LD D.R. APPEARING FOR THE REVENUE RELIED ON THE ORDERS OF THE LOWER REVENUE AUTHORITIES. 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REC ORD OF THE CASE. THE ASSESSEE HAD SET UP A MANUFACTURING UNIT FOR M.S. W IRE AT TARAPUR, BOISAR, DIST- THANE, MAHARASHTRA, A STATE NOTIFIED BACKWARD AREA AND THE CAPITAL SUBSIDY WAS SANCTIONED TO THE ASSESSEE IN JUNE, 1993. THIS SUBSIDY WAS AS PE R THE TERMS OF THE SPECIAL CAPITAL INCENTIVE UNDER THE 1983 PACKAGE SCHEME OF INCENTIV E. FROM THE ELIGIBILITY CERTIFICATE CONTAINED AT PAGE 11 OF PB, IT IS EVIDENT THAT THE SUBSIDY HAS BEEN COMPUTED ON THE BASIS OF TOTAL CAPITAL COST OF THE PROJECT AND NOT WITH REFERENCE TO ANY SPECIFIC ASSET. LD CIT (A) HAS RELIED ON THE CBDT CIRCULAR NO.190 DT 1 .3.1976, WHICH HAD BEEN ISSUED WITH REFERENCE TO SUBSIDY RECEIVED UNDER 10% CENTRAL OUT RIGHT GRANT OF SUBSIDY SCHEME, 1971 AND NOT UNDER THE 1983 PACKAGE SCHEME OF INCEN TIVE. THEREFORE, THE RELIANCE ON THE SAID CIRCULAR IS MISPLACED. THIS PACKAGE SCHEM E HAD BEEN NOTIFIED BY THE GOVERNMENT OF MAHARASHTRA, INDUSTRIES, ENERGY AND LABOUR DEPARTMENT VIDE RESOLUTION NO.IDL-1088/(6603)/IND-8 DATED 30 TH SEPTEMBER, 1988. AS PER THE PREAMBLE, THIS PACKAGE WAS GRANTED IN ORDER TO ACHI EVE DISPERSAL OF INDUSTRIES OUTSIDE THE BOMBAY-THANE-PUNE BELT AND TO ATTRACT THE INVES TMENT TO THE UNDERDEVELOPED AND DEVELOPING AREAS OF THE STATE. THIS PACKAGE SCHEM E WAS BROUGHT IN ORDER TO REVISE 1983 SCHEME TO RATIONALIZE THE SCOPE OF INCENTIVES, THE VARIOUS SCALES AND MODE OF RELEASE OF INCENTIVES, TO INTENSIFY AND ACCELERATE THE PROCESS OF DISPERSAL OF INDUSTRIES ITA NO.5621/M/2007 M/S. DARBARI WIRES PVT.LTD. 4 FROM THE DEVELOPED AREAS AND FOR DEVELOPMENT OF THE UNDERDEVELOPED REGIONS OF THE STATE PARTICULARLY THOSE FARTHER AWAY FROM THE BOMB AY-THANE-PUNE BELT. THUS, IT IS EVIDENT FROM THE PREAMBLE ITSELF THAT IT WAS AN INC ENTIVE GRANTED FOR SETTING UP THE INDUSTRIES IN BACKWARD AREA AND NOT FOR RUNNING THE INDUSTRIES. THE HONBLE SUPREME COURT IN THE CASE OF P.J.CHEMICALS (SUPRA), HAS HEL D THAT WHERE GOVERNMENT SUBSIDY IS INTENDED AS AN INCENTIVE TO ENCOURAGE ENTREPRENEURS TO MOVE TO BACKWARD AREAS AND ESTABLISH INDUSTRIES, THE SPECIFIED PERCENTAGE OF T HE FIXED CAPITAL COST, WHICH IS THE BASIS FOR DETERMINING THE SUBSIDY, BEING ONLY A MEASURE A DOPTED UNDER THE SCHEME TO QUANTIFY THE FINANCIAL AID, IS NOT A PAYMENT, DIRECTLY OR IN DIRECTLY, TO MEET ANY PORTION OF THE ACTUAL COST. THE EXPRESSION ACTUAL COST IN SECTION 43( 1) OF THE I.T.ACT, 1961, NEEDS TO BE INTERPRETED LIBERALLY. SUCH A SUBSIDY DOES NOT PAR TAKE OF THE INCIDENTS WHICH ATTRACT THE CONDITIONS FOR ITS DEDUCTIBILITY FROM ACTUAL COST . THE AMOUNT OF SUBSIDY IS NOT TO BE DEDUCTED FROM THE ACTUAL COST UNDER SECTION 43(1) FOR THE PURPOSE OF CALCULATION OF DEPRECIATION, ETC. 8. WE FIND THAT IN THIS CASE, SINCE THE SUBSIDY HA S PRIMARILY BEEN GIVEN FOR MOTIVATING THE INDUSTRIALIST TO SET UP THE INDUSTRI ES IN THE BACKWARD AREA, THEREFORE, MERELY BECAUSE THE BASIS FOR QUANTIFYING THE SUBSID Y WAS COST OF THE PROJECT, WOULD NOT MAKE THE SUBSIDY ATTRIBUTABLE TO INDIVIDUAL FIXED A SSET AND, THEREFORE, THE VALUE OF FIXED ASSETS CANNOT BE REDUCED. THE AMOUNT IS PURELY CAP ITAL IN NATURE AND NOT TAXABLE. THEREFORE, WE ALLOW THIS GROUND. 9. AS WE HAVE HELD THAT THE AMOUNT OF SUBSIDY IS CA PITAL RECEIPT, THEREFORE, THE SECOND GROUND RAISED BY THE ASSESSEE STANDS ALLOWED IN SUBSTANCE BECAUSE, IN ANY CASE, THE COST OF FIXED ASSET COULD NOT BE REDUCED. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE STA NDS ALLOWED. PRONOUNCED ON 22 ND MARCH, 2010 SD/- (R.S.PADVEKAR) (JUDICIAL MEMBER) SD/- (S.V. MEHROTRA) (ACCOUNTANTMEMBER) MUMBAI, DATED 22 ND MARCH , 2010 PARIDA ITA NO.5621/M/2007 M/S. DARBARI WIRES PVT.LTD. 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-, MUMBAI 4. COMMISSIONER OF INCOME TAX, CITY-, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH D, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA NO.5621/M/2007 M/S. DARBARI WIRES PVT.LTD. 6 DATE INITIALS 1. DRAFT DICTATED ON 18.3.2010 PS 2. DRAFT PLACED BEFORE AUTHOR 19..3.2010 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM/JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5. APPROVED DRAFT COMES TO THE SR. PS PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER ITA NO.5621/M/2007 M/S. DARBARI WIRES PVT.LTD. 7