Kaira Dist.Co.Op.Milk Producers Union Ltd., Anand V. The Dy.CIT.,Anand Circle, Anand

ITA 563/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89586 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-04-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 23-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P SHAH; SANJAY R SHAH CA ARS
• Keywords: Capital asset; Gift; Depreciation; Business expenditure; Earning of tax free income; Question of law; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 80C; 14A; 194C; 32; 37; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD .., , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER SL. NO(S) ITA NO(S) ASSESSMENT YEAR (S) APPEAL(S) BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 563/AHD/2011 2002-03 KAIRA DIST.CO- OPERATIVE MIL PRODUCERS UNION LTD. AMUL DAIRY ROAD ANAND PAN: AAACK 9062 D THE DCIT/ACIT ANAND CIRCLE ANAND 2. 564/AHD/2011 2004 - 05 ASSESSEE REVENUE 3. 565/AHD/2011 2005-06 ASSESSEE REVENUE 4. 566/AHD/2011 2006-07 ASSESSEE REVENUE 5. 567/AHD/2011 2007-08 ASSESSEE REVENUE 6. 651/AHD/2011 2005 - 06 REVENUE ASSESSEE 7. 652/AHD/2011 2006-07 REVENUE ASSESSEE ASSESSEE BY : SHRI J.P. SHAH, ADV. & SHRI SANJAY R.SHAH, CA, ARS REVENUE BY : SHRI ROOPCHAND, SR.DR / DATE OF HEARING 29/04/2015 !' / DATE OF PRONOUNCEMENT 05/06/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS BUNCH OF SEVEN APPEALS; FIVE APPEALS BY THE ASSESSEE AND TWO APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE SEP ARATE ORDERS OF THE ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 2 - LD.COMMISSIONER OF INCOME TAX(APPEALS)-IV, BARODA ( CIT(A) IN SHORT) DATED 16/12/2010 & 20/12/2010 PERTAINING TO ASSESSMENT YEARS (AYS) 2002-03, 2004-05 TO 2007-08. SINCE COMMON I SSUES AND FACTS ARE INVOLVED IN THESE APPEALS, THESE WERE HEARD TOGETHE R AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER FOR T HE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP THE ASSESSEES APPEAL IN ITA N O.563/AHD/2011, WHEREIN FOLLOWING GROUNDS HAVE BEEN RAISED:- YOUR APPELLANT BEING DISSATISFIED WITH THE ORDER P ASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV, BARODA PRESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOW ING AMONGST OTHER GROUNDS, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: 1. THE ORDER PASSED BY THE LEARNED CIT (A) IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW & FACTS. IT IS SU BMITTED THAT IT BE SO HELD NOW. 2.(I) THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE CLAIM OF DEPRECIATION OF RS.3,00,06,370/- ON PORTIO N OF PLANT AND MACHINERY RECEIVED TOWARDS GRANT/SUBSIDY FROM NATIO NAL DAIRY DEVELOPMENT BOARD UNDER '70% LOAN AND 30% GRANT' SC HEME. YOUR APPELLANT SUBMITS THAT 30% GRANT HAS BEEN RECEIVED TOWARDS THE PROJECT AS A WHOLE AND HENCE, IT IS ENTITLED TO DEP RECIATION ON THE ENTIRE COST OF ASSETS INSTALLED AND PUT TO USE WITH OUT DEDUCTING THE GRANT PORTION. IT IS SUBMITTED THAT IT BE SO ALLOWE D NOW. ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 3 - (II) THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN HOLDING THAT EXPLANATION 10 TO SECTION 43(1) OF THE ACT WOULD AP PLY IN RESPECT OF ASSETS ACQUIRED PRIOR TO 1-4-99 AND ALSO IN RESPECT OF GRANTS RECEIVED PRIOR TO 1-4-99 AND THEREBY WOULD APPLY FROM ASSESS MENT YEAR 1999- 00 IRRESPECTIVE OF THE YEAR OF ACQUISITION OF ASSET S OR YEAR OF DISBURSEMENT OF GRANT. THE LEARNED CIT(A) THUS ERRE D IN DENYING BENEFIT OF DEPRECIATION IN RESPECT OF VALUE OF GRAN T/SUBSIDY IN RESPECT OF ASSETS ACQUIRED PRIOR TO A.Y. 1999-00 EVEN THOUG H IN RESPECT OF THESE VERY ASSETS FULL DEPRECIATION IS ALLOWED IN E ARLIER YEARS WITHOUT DEDUCTING VALUE OF GRANT FROM ACTUAL COST OR WDV OF ASSETS. IT IS SUBMITTED THAT IT BE SO HELD NOW. (III) THE ACTION OF LEARNED CIT (A) IN HOLDING THAT SUBSIDY IS DEDUCTIBLE FROM ACTUAL COST U/S 43(1) IS PATENTLY I NCORRECT AND UNJUSTIFIED. PARTICULARLY WHEN IN THE YEAR UNDER CO NSIDERATION, THE APPELLANT IS CLAIMING DEPRECIATION ON WDV OF ASSETS WHICH HAVE ALREADY ENTERED THE BLOCK IN THE ASSESSMENT YEARS P RIOR TO ASSESSMENT YEAR 1999-2000. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DEPRECIATION AS CLAIMED BY THE APPELLANT BE ALLOWED . 3. (I) THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.2,50,00,000/- BEING C ONTRIBUTION TO ARDA (ANAND RESEARCH DEVELOPMENT ASSOCIATION) FOR D AIRY DEVELOPMENT/RESEARCH EXPENSES ON THE GROUND THAT TH E SAME IS NOT ALLOWABLE AS BUSINESS EXPENDITURE, EVEN THOUGH ACCO RDING TO APPELLANT SUCH CLAIM IS ALLOWABLE U/S 37 OF THE ACT . (II) THE LEARNED AO GROSSLY ERRED IN APPLYING OBSER VATIONS OF HON'BLE SUPREME COURT IN CASE OF SARVANNA SPINNING MILLS PVT. LTD. 293 ITR 201 WHICH WERE IN DIFFERENT CONTEXT AND ON DIFFERENT FACTS. (III) THE ACTION OF LEARNED CIT (A) IN HOLDING THA T CONTRIBUTION MADE TO ARDA IS NOT ALLOWABLE AS EXPENSES U/S.37 IS PATE NTLY INCORRECT AND UNJUSTIFIED AS SUCH CONTRIBUTION IS FOR THE PURPOSE OF THE BUSINESS OF ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 4 - THE APPELLANT. IT IS SUBMITTED THAT IT BE SO HELD N OW AND CONTRIBUTION MADE TO ARDA AS CLAIMED AS DEDUCTION BY THE APPELLA NT BE ALLOWED. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF APPEAL. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 24/03/2005. WHILE FRAMING THE ASSESSMENT, TH E ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE OF RS.3,00,06,370/- IN RESPECT OF ASSETS ACQUIRED THROUGH NDDB GRANT. THE AO MADE DISALLOWA NCE OF CLAIM OF THE ASSESSEE IN RESPECT OF PAYMENT TO GUJARAT STATE EDUCATION FUND AMOUNTING TO RS.3 LACS, DISALLOWANCE OF RS.2,50,00 ,000/- BEING CONTRIBUTION TO AMUL RESEARCH & DEVELOPMENT ASSOCIA TION (ARDA) FOR DAIRY DEVELOPMENT/RESEARCH EXPENSES, DISALLOWANCE O F OTHER BUSINESS EXPENSES AMOUNTING TO RS.4,88,263/-. AGAINST THIS, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, PARTLY ALLOWED THE APPEAL. WHILE PAR TLY ALLOWING THE APPEAL, THE LD.CIT(A) CONFIRMED THE DISALLOWANCE OF CLAIM O F DEPRECIATION OF PORTION OF PLANT AND MACHINERY RECEIVED THROUGH GRA NT SUBSIDY AMOUNTING TO RS.3,00,06,370/- AND ALSO CONFIRMED THE DISALLOW ANCE OF CONTRIBUTION OF RS.2,50,00,000/-. AGAINST THESE TWO ADDITIONS, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL. ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 5 - 3. FIRST GROUND OF THE APPEAL IS GENERAL IN NATURE AND NEEDS NO INDEPENDENT ADJUDICATION. 4. GROUND NOS.2(I) TO 2(III) ARE INTER-CONNECTED, T HEREFORE THE SAME ARE DECIDED TOGETHER. THE LD.COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISAL LOWANCE. HE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGEMENT OF HONBLE KERALA HIGH COURT RENDERED IN THE CASE OF CIT VS. S UN FIBRE OPTICS (P.)LTD. REPORTED AT (2012) 20 TAXMANN.COM 143 (KER .). THE LD.COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE LD.CIT(A). THE LD.COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE DISALLOWANCE HAS BEEN MADE ON CERTAIN ASSUMPTIONS A ND PRESUMPTIONS. HE SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN REDUC ING THE CLAIM OF DEPRECIATION ON GRANT PORTION. HE SUBMITTED THAT 30% GRANT HAS BEEN RECEIVED FROM NATIONAL DAIRY DEVELOPMENT BOARD (NDD B) AND 70% LOAN AND THAT TOO PRIOR TO 1 ST APRIL01999, I.E. PRIOR TO INSERTION OF EXPLANATION 10 TO SECTION 43(1) OF THE I.T. ACT. HE SUBMITTED THAT GRANT HAS BEEN RECEIVED TOWARDS PROJECT AS A WHOLE. THE APPELLANT IS ENTITLED TO DEPRECIATION ON THE ENTIRE COST OF ASSETS WITHOUT D EDUCTING THE GRANT PORTION. HE SUBMITTED THAT SIMILAR CLAIM OF DEPREC IATION MADE IN EARLIER YEARS HAS BEEN ALLOWED. THE SUBSIDY PORTION ALSO H AS BEEN ALLOWED. HE SUBMITTED THAT THE HONBLE KERALA HIGH COURT HAS CO NFIRMED THE VIEW OF ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 6 - THE TRIBUNAL THAT BY HOLDING THAT THE AMENDMENT IN EXPLANATION TO SECTION 43(1) OF THE ACT IS W.E.F. 01/04/1999. THE AMENDMENT IS PROSPECTIVE IN NATURE AND THE SAME APPLIES TO INVES TMENT MADE ON PLANT AND MACHINERY AND OTHER DEPRECIABLE ASSETS AFTER 01 /04/1999. HE SUBMITTED THAT IN VIEW OF THE JUDGEMENT OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. SUN FIBRE OPTICS (P.) LTD., GRO UND RAISED IN THE APPEAL DESERVES TO BE ALLOWED. 4.1. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT UNDER THE IDENTICAL FACTS, THIS TRIBUNAL (ITAT A BENCH AHMEDABAD) IN THE CASE OF VIDYA DAIRY VS. ACIT FOR AY 2005-06, DATED 12/07/2013 HAS DECIDED THE ISSUE AGA INST THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE AO DISALLOWED THE CLAIM OF DEPRECIATION ON THE GRANT PORTION BY RELYING ON THE EXPLANATION-10 TO SECTION 43(1) OF T HE ACT. THE LD.CIT(A) CONFIRMED THE DISALLOWANCE BY OBSERVING AS UNDER:- 5.2. I HAVE CAREFULLY CONSIDERED APPELLANTS SUBMI SSIONS AND FACTS OF THE CASE. APPELLANTS CONTENTION AT SR.NO.(V) IS T AKEN UP FIRST. DOCTRINE OF RESJUDICATA OR ESTOPPELS BY RECORD DOES NOT APPL Y TO DECISIONS GIVEN BY ITO OVER DIFFERENT ASSESSMENT YEAR AND THE DECIS ION IN ONE ASSESSMENT YEAR DOES NOT AFFECT OR BIND DECISION FO R ANOTHER YEAR [NEW JAHANGIR VAKIL MILLS CO. LTD. (1963) 49 ITR 137 (SC )]. DECISION GIVEN IN EARLIER YEAR HAS NO BINDING FORCE IN NEXT ASSESS MENT [H. A. SHAH & ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 7 - CO. (1956) 30 ITR 618]. MOREOVER, LAW WAS AMENDED B Y FINANCE ACT, 1998 AND EXPLANATION 10 TO SECTION 43(1) WAS INSERT ED W.E.F. 1.4.1999. THE DECISION IN EARLIER ASSESSMENT YEARS WAS WITH R EFERENCE TO DIFFERENT POSITION IN LAW AND CANNOT BE APPLIED TO A.Y.2002-0 3. 5.2.1. APPELLANT'S CONTENTIONS AT SR. NO. (II) AS A BOVE IS NOW TAKEN UP. EXPLANATION 2 TO SECTION 43(1) IS APPLICABLE WHEN A N ASSET IS ACQUIRED BY WAY OF GIFT OR INHERITANCE AND PROVIDES FOR DETE RMINATION OF ACTUAL COST OF ASSET TO BE SAME AS ACTUAL COST TO THE PREV IOUS OWNER AS REDUCED BY AMOUNT OF DEPRECIATION ALLOWED/ALLOWABLE TILL TH EN. IN APPELLANT'S CASE, THE ASSETS IN QUESTION WERE NOT ACQUIRED BY W AY OF GIFT OR INHERITANCE. AS SUCH, THERE IS NO APPLICATION OF EX PLANATION 2 TO SECTION 43(1). 5.2.2. APPELLANT'S CONTENTION AT SR.NO.(I) IS NOW T AKEN UP. AS FAR AS- ALLOWANCE OF DEPRECIATION ON GRANT PORTION IN ASSES SMENT YEARS PRIOR TO A. Y. 1999-2000 IS CONCERNED, SINCE EXPLANATION 10 WAS INSERTED W.E.F, 1.4.1999, POSITION IN LAW WAS DIFFERENT FOR EARLIER ASSESSMENT YEARS AND ITAT/HIGH COURT DECISIONS FOR THOSE ASSESSMENT YEAR S CANNOT BE APPLIED TO A.Y. 1999-2000 OR ASSESSMENT YEARS AFTER A.Y. 1999-2000. IN GCMMF'S CASE TOO FOR A.YRS. 1997-98 AND 1998-99, TH E ITAT, AHMEDABAD DECIDED THE ISSUE IN APPELLANT'S FAVOUR O N THE BASIS OF SUPREME COURT'S DECISION IN THE CASE OF P. J. CHEMI CALS AND BY OBSERVING THAT EXPLANATION 10 TO SECTION 43(1) WAS INCORPORATED W.E.F. 1.4.1999. IN A.Y.2000-01 IN CASE OF GCMMF, THE ITAT , AHMEDABAD DECIDED THE ISSUE BY REFERRING TO ITS DECISION IN G CMMF'S CASE FOR A.YRS. 1997-98 AND 1998-99 ONLY, WITHOUT GOING INTO THE ISSUE ABOUT DIFFERENT POSITION IN LAW DUE TO INSERTION OF EXPLA NATION 10 TO SECTION 43(1) W.E.F. 1.4.1999. THE MATTER WAS BROUGHT TO TRIBUNAL'S NOTICE; HOWEVER, IT ONLY REFERRED TO ITS DECISIONS IN A.YRS . 1998-99 AND 1997-98. WHERE THE OBSERVATION OF ITAT REGARDING EXPLANATION 10 TO SECTION 43(1) WAS THAT IT WAS NOT RELEVANT FOR A.YRS. 1997- 98 AND 1998-99 DUE TO ITS INSERTION W.E.F. 1.4.1999. EVEN THE GUJARAT HIGH COURT IN ITS DECISION FOR A.Y. 1999-2000 IN THE CASE OF GCMMF IN ORDER DATED 26.4.2010 HAS NOT CONSIDERED THE ISSUE REGARDING IN SERTION OF EXPLANATION 10 BELOW SECTION 43(1) AND HAS RELIED U PON THE DECISION BY ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 8 - GUJARAT HIGH COURT IN THE CASE OF MEHSANA DISTRICT COOPERATIVE MILK PRODUCERS' UNION LTD. 258 ITR 780, I.E. FOR ASSESSM ENT YEARS PRIOR TO 1999-2000. GUJARAT HIGH COURT IN GCMMF'S AFORESAID CASE FOR A.Y. 1999-2000 ALSO REFERRED TO ITAT, AHMEDABAD'S DECISI ON FOR A.Y.2000- 01; HOWEVER, AS MENTIONED ABOVE, IN A.Y.2000-01, TH E ISSUE REGARDING INSERTION OF EXPLANATION 10 BELOW SECTION 43(1) WAS NOT CONSIDERED BY THE HON'BLE TRIBUNAL, WHICH DECIDED THE ISSUE BY FO LLOWING ITS DECISIONS IN A.YRS. 1997-98 AND 1998-99 ONLY. APPELLANT'S CON TENTION AT SR.NO.(I) IS THEREFORE, NOT TENABLE. IT CANNOT BE SAID THAT T HE ISSUE IN THIS YEAR IS COVERED BY THE DECISIONS RELIED UPON BY THE APPELLA NT. 5.2.3. APPELLANT'S CONTENTION AT SR.NO.(IV) IS NOW TAKEN UP. THE DECISION BY ITAT, VISHAKHAPATNAM'S BENCH RELIED UPON BY THE APPELLANT IS NOT AT ALL APPLICABLE TO THE FACTS OF APPELLANT'S CASE. IN THE SAID CASE, SUBSIDY UNDER TARGET 2000 SCHEME TO ACCELERATE INDUSTRIAL D EVELOPMENT IN THE STATE OF ANDHRA PRADESH WAS RECEIVED BY THE ASSESSE E, SASISRI EXTRACTIONS LTD., WHEREAS APPELLANT RECEIVED GRANT FROM NDDB FOR ESTABLISHMENT OF AMUL-III DAIRY AT ANAND, KHEDA DAI RY, KHATRAJ AND BREAD SPREAD PROJECT AT MOGAR AS PER LETTER FROM ND DB FILED BY THE APPELLANT. IN APPELLANT'S CASE, THE GRANT WAS RECEI VED FOR ESTABLISHING THE SAID DAIRIES/BREAD SPREAD PROJECT AND NOT TO AC CELERATE INDUSTRIAL DEVELOPMENT OF STATE AS WAS THE CASE IN P. 3. CHEMI CALS LTD./SASISRI EXTRACTIONS LTD. IN APPELLANT'S CASE, GRANT WAS REC EIVED TO OFFSET THE COST OF ASSETS ONLY. DECISION IN CASE OF SASISRI EX TRACTIONS LTD. IS THEREFORE NOT APPLICABLE. AS FAR AS APPELLANT'S CON TENTION ABOUT ,THE GRANT BEING TOWARDS PROJECT AS A WHOLE IS CONCERNED , THE GRANT IN APPELLANT'S CASE WAS TOWARDS THE ASSETS IN QUESTION ONLY. MOREOVER, THIS ASPECT IS CLEARLY COVERED BY PROVISO BELOW EXPLANAT ION 10 TO SECTION 43(1). APPELLANT'S CONTENTION AT SR.NO.(IV) ABOVE I S THEREFORE, NOT ACCEPTABLE. 5.2.4. I NOW TAKE UP APPELLANT'S CONTENTION AT SR.NO.(III), I.E. EXPLANATION 10 TO SECTION 43(1) IS NOT APPLICABLE F OR ASSETS ACQUIRED PRIOR TO F.Y. 1998-99. AS MENTIONED EARLIER, HON'BL E ITAT, AHMEDABAD IN THE CASE OF GCMMF IN A.Y.2000-01 HAS NOT CONSIDERED THE IMPACT OF EXPLANATION 10 TO SECTION 43(1) AND HAS FOLLOWED ITS ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 9 - DECISIONS FOR EARLIER YEARS, WHEN EXPLANATION 10 WA S NOT ON THE STATUTE BOOK. REGARDING VIEW THAT ASSESSING OFFICER HAS TO ALLOW DEPRECIATION ON WDV BROUGHT FORWARD FROM EARLIER ASSESSMENT YEAR , THE SUPREME COURT IN CASE OF SAHARANPUR ELECTRIC SUPPLY CO. LTD . HELD AS UNDER: '.....THE PHRASEOLOGY OF THE ACT DOES NOT BEAR OUT THE CONTENTION THAT THE ACTUAL COST OF ASSET HAS TO BE DETERMINED ONLY ONCE VIZ., IN THE PREVIOUS YEAR OF ITS ACQUISITION, SEC. 43(B) SPECIF ICALLY DEALS WITH TWO CATEGORIES OF ASSETS: (I) THOSE ACQUIRED DURING THE RELEVANT PREVIOUS YEAR, AND (II) THOSE ACQUIRED EARLIER TO THAT. EVEN IN RESPECT OF THE LATTER CLASS OF ASSETS, THE ACT ENVISAGES A COMPUTA TION OF THE ACTUAL COST OF THE ASSET AND THE DEDUCTION THEREFROM OF AL L DEPRECIATION ALLOWED IN EARLIER YEARS IN RESPECT OF THAT ASSET. THUS THE FIRST STEP, STATUTORILY PRESCRIBED, FOR THE DETERMINATION OF TH E WRITTEN DOWN VALUE OF ANY ASSET FOR ANY YEAR, IS FOR THE ASSESSI NG OFFICER TO DETERMINE ITS ACTUAL COST. THIS IS A MANDATORY STEP WHICH THE OFFICER CANNOT BE PREVENTED FROM TAKING MERELY BECAUSE THE ACTUAL COST OF THE ASSET HAS ALREADY BEEN DETERMINED IN ONE OR MOR E EARLIER YEARS'. FURTHER, EXPLANATION 10 READS AS UNDER: 'EXPLANATION 10: WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY L AW OR BY ANY OTHER PERSON IN THE J FORM OF SUBSIDY OR GRANT OR REIMBUR SEMENT (BY WHATSOEVER NAME CALLED), THEN SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR/REIMBURSEMENT SHALL NOT B E INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE'. THE EXPLANATION DOES NOT REFER TO ASSETS ACQUIRED A FTER 1.4.1999 OR THE GRANT AMOUNTS RECEIVED AFTER 1.4.1999. IT ONLY SAYS THAT WHERE ANY PORTION OF COST OF AN ASSET IS MET THROUGH GRANT OR SUBSIDY, THE SAME SHALL NOT BE INCLUDED IN ACTUAL COST OF ASSETS. THU S, FOR A.Y. 1999-2000 ONWARDS, EXPLANATION 10 IS TO BE APPLIED IRRESPECTI VE OF THE YEAR OF ACQUISITION OF ASSETS AS WELL AS YEAR OF DISBURSEME NT OF GRANT. FOR THIS PURPOSE, WDV OF ASSETS ON THE FIRST DAY OF PREVIOUS YEAR IS TO BE ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 10 - ACCORDINGLY RECOMPUTED BY REDUCING GRANT COMPONENT FROM 'ACTUAL COST'. APPELLANT'S CONTENTION AT SR.NO.(III) IS THE REFORE, NOT ACCEPTABLE. 5.2.5. ALL THE CONTENTIONS OF THE APPELLANT HAVE TH EREFORE, BEEN CONSIDERED AND FOUND TO BE NOT ACCEPTABLE. DISALLOW ANCE OF DEPRECIATION ON GRANT PORTION OF COST OF ASSETS IS UPHELD. DISALLOWANCE OF RS.3,00,06,370/- IS CONFIRMED. 5.1. IT IS NOT DISPUTED THAT THE CLAIM OF THE ASSES SEE WAS ALLOWED IN EARLIER YEARS. HOWEVER, IN THE PRESENT CASE, THE C LAIM IS REJECTED ON THE GROUND THAT EXPLANATION-10 TO SECTION 43(1) OF THE ACT INSERTED W.E.F. 01/04/1999 ENVISAGES THAT WHERE A PORTION OF THE C OST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR I NDIRECTLY BY THE CENTRAL GOVERNMENT OR ANY AUTHORITY ESTABLISHED UND ER ANY LAW OR BY ANY OTHER PERSON IN THE FORM OF SUBSIDY OR GRANT OR REI MBURSEMENT (BY WHATSOEVER NAME CALLED), THEN SO MUCH OF THE COST A S IS RELATABLE TO SUCH SUBSIDY OR GRANT OR/REIMBURSEMENT SHALL NOT BE INCL UDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. IT IS THE SUBMISSION OF THE ASSESSEE THAT THIS EXPLANATION WOULD APPLY TO THE ASSETS WHICH ARE ACQ UIRED POST-INSERTION OF THIS EXPLANATION. 5.2. THE ISSUE WHICH REQUIRES EXAMINATION IS WHETHE R THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE ENTIRE AMOUNT INCL UDING THE GRANT POTION. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F ACIT VS. GUJARAT CO-OP.MILK MKTG. FEDERATION LTD. IN TAX APPEAL NO .113 OF 2008 DATED ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 11 - 20/04/2010 HAD FORMULATED QUESTION OF LAW WHICH REA DS AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE ITAT WAS RIGHT IN LAW IN HOLDING THAT ASSE SSEE IS ENTITLED TO CLAIM DEPRECIATION ON THE 30% OF THE VALUE OF TH E PLANT AND MACHINERY RECEIVED BY WAY OF GRANT FROM NDDB UNDER 70% LOAN AND 30% GRANT SCHEME?. THE HONBLE COURT ANSWERED THE ABOVE QUESTION IN P ARA-3 OF THE JUDGEMENT AS UNDER:- 3. MOREOVER, IT IS AN ACCEPTED POSITION BETWEEN T HE PARTIES THAT THE CONTROVERSY INVOLVED IN THE PRESENT CASE STANDS CONCLUDED BY A DECISION OF THIS HIGH COURT IN THE CASE OF MAHESANA DISTRICT CO- OPERATIVE MILK PRODUCERS UNION LTD. VS. COMMISSIONE R OF INCOME TAX, (2002) 258 ITR 780, WHEREBY THE QUESTION HAS B EEN ANSWERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. 5.3. THE HONBLE GUJARAT HIGH COURT HAS DECIDED THE ISSUE IN THE CASE OF MAHESANA DISTRICT CO-OPERATIVE MILK PRODUCERS UN ION LTD. VS. CIT REPORTED AT (2002) 258 ITR 780 (GUJ.) BY HOLDING AS UNDER:- 6. SO FAR AS THE SECOND QUESTION IS CONCERNED, ONE HAS TO REFER TO THE DECISION OF THE APEX COURT IN CIT VS. P.J. CHEMICAL S LTD. (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC) : TC 29R.367 . IN THAT CASE, GOVERNMENT SUBSIDY WAS INTENDED AS AN INCENTIVE TO ENCOURAGE ENTREPRENEURS TO MOVE TO BACKWARD AREAS AND ESTABLI SH INDUSTRIES. THE SPECIFIED PERCENTAGE OF THE FIXED CAPITAL COST, WHI CH IS THE BASIS FOR DETERMINING THE SUBSIDY, BEING ONLY A MEASURE ADOPT ED UNDER THE SCHEME TO QUANTIFY THE FINANCIAL AID, IS NOT A PAYM ENT, DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE 'ACTUAL COST' . THE EXPRESSION 'ACTUAL COST' IN S. 43(1) OF THE ACT NEEDS TO BE IN TERPRETED LIBERALLY. ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 12 - SUCH A SUBSIDY DOES NOT PARTAKE OF THE INCIDENTS WH ICH ATTRACT THE CONDITIONS FOR ITS DEDUCTIBILITY FROM 'ACTUAL COST' . THE AMOUNT OF SUBSIDY IS NOT TO BE DEDUCTED FROM THE 'ACTUAL COST ' UNDER S. 43(1) FOR THE PURPOSE OF CALCULATION OF DEPRECIATION, ETC. TH E TRIBUNAL APPEARS TO HAVE BEEN GUIDED BY THE VIEW THAT DEPRECIATION SHOU LD BE ALLOWED ONLY ON 'ACTUAL COST' TO THE ASSESSEE. THE TRIBUNALS OR DER CANNOT BE SAID TO BE REASONED ORDER ON THIS QUESTION. BUT READING THE ORDER, IT APPEARS THAT TRIBUNAL WAS GUIDED BY THE REASONINGS RECORDED BY THE CIT(A), THE RELEVANT PORTION OF WHICH IS REPRODUCED HEREUNDER : 'INDIAN DAIRY CORPORATION HAD IMPORTED THE MACHINER Y IN QUESTION AND SUPPLIED THE SAME TO THE APPELLANT UND ER LOAN-CUM- GRANT ASSISTANCE SCHEME. TO THE EXTENT TO WHICH THE COST OF THE MACHINERY WAS COVERED BY THE GRANT, IT AMOUNTS TO T HE COST BEING MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR A UTHORITY AND, THEREFORE, THE VALUE OF SUCH GRANT IS RIGHTLY REDUC ED BY THE ITO FROM THE ACTUAL COST OF THE MACHINERY IN QUESTION W HILE ALLOWING THE DEPRECIATION. THE APPEAL ON THIS POINT FAILS'. THE APEX COURT HAS POINTED OUT THAT EXPRESSION 'ACT UAL COST' NEEDS TO BE INTERPRETED LIBERALLY. SUBSIDY OF THE NATURE WE ARE CONCERNED WITH, DOES NOT PARTAKE OF THE INCIDENTS WHICH ATTRACT THE CONDITIONS FOR THEIR DEDUCTIBILITY FROM 'ACTUAL COST'. IN VIEW OF THAT, ANSWER TO QUESTION NO. 2 MUST BE I N THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 5.4. THE REVENUE HAS PLACED RELIANCE ON THE DECISIO N OF COORDINATE BENCH (ITAT A BENCH AHMEDABAD) PASSED IN ITA NO.1 372/AHD/2010 FOR AY 2005-06 IN THE CASE OF VIDYA DAIRY VS. ACIT, DATED 12/07/2013, WHEREIN THE COORDINATE BENCH HAS DECIDED THIS ISSUE IN PARA-8 BY OBSERVING AS UNDER:- ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 13 - 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAD RECEIVED GRANT FROM NDDB PRIOR TO 1995 BUT THE AGREEMENT WAS EXECU TED BETWEEN THE ASSESSEE AND NDDB ON 21.7.1999. THE ASSESSEE HAS NO T WORKED OUT THE DEPRECIATION FOR THE PERIOD PRIOR TO 1.4.2001 THOUG H THE GRANT WAS RECEIVED PRIOR TO 1995 AS ACCORDING TO THE ASSESSEE EXPLANATION 5 TO SECTION 32 WERE INSERTED WITH EFFECT FROM 1.4.2002 AND BECAME APPLICABLE FROM AY 2002-03 ONWARDS. CIT(A) IN HIS O RDER HAS NOTED THAT AO HAS APPLIED EXPLANATION 10 TO S. 43(1) IN A Y 2005-06 AND NOT IN ASSESSMENT YEAR PRIOR TO AY 1999-2000. EXPLANATI ON 10 WHICH HAS BEEN INTRODUCED WITH EFFECT FROM 1.4.1999 STATES TH AT 'WHERE A PORTION OF THE ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR ANY OTHER AUTHORITY ES TABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SU BSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), THEN, SO M UCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEM ENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASS ESSEE'. PERUSAL OF AFORESAID EXPLANATION IT CAN BE SEEN IT HAS BEEN IN TRODUCED WITH EFFECT FROM 1.4.1999. FURTHER IT DOES NOT REFER TO ASSETS ACQUIRED AFTER 1.4.1999 OR GRANT/SUBSIDY RECEIVED AFTER 1.4.1999 A ND THEREFORE WE ARE OF THE VIEW THAT IT HAS TO BE APPLIED FROM AY 1999- 2000 ONWARDS IRRESPECTIVE OF THE YEAR OF ACQUISITION OF ASSETS O R THE YEAR OF DISBURSEMENT OF GRANT. SEEN IN THE LIGHT OF THE EXP LANATION 10, IT IS AN UNDISPUTED FACT THAT THE ASSET ACQUIRED BY THE ASSE SSEE HAS BEEN MET FROM THE GRANT RECEIVED FROM NDDB AND THEREFORE THE COST RELATABLE TO SUCH SUBSIDY SHALL NOT BE INCLUDED IN THE ACTUAL CO ST OF THE ASSET. FURTHER THE DECISION IN THE CASE OF A.P. SHRIMP SEE D PRODUCTION SUPPLY AND RESEARCH CENTRE (SUPRA) WHICH HAS BEEN RELIED B Y ASSESSEE IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE BECAUSE IN THAT CASE THE ASSESSMENT YEAR IN QUESTIO N WAS 1991-92 WHEREAS IN THE PRESENT CASE THE ASSESSMENT YEAR IS 2005-06. CONSIDERING THE AFORESAID FACTS, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR TO THE ORDER OF CIT(A) AND THUS THIS GROUND OF ASSESSEE IS DISMISSED. ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 14 - 5.5. THE HONBLE KERALA HIGH COURT IN THE CASE OF C IT VS. SUN FIBRE OPTICS (P.) LTD.(SUPRA) HELD AS UNDER:- 4. EVEN THOUGH THE CIT (APPEALS) REJECTED THE APPE AL, THE 2ND APPEAL FILED BY THE ASSESSEE WAS ALLOWED BY THE TRIBUNAL T HE TRIBUNAL HELD THAT SUBSIDY HAVING BEEN RECEIVED BEFORE 31/03/1998 AND DEPRECIATION WAS GRANTED FOR SUBSEQUENT YEARS BASED ON THE ACTUAL CO ST WITHOUT REDUCING THE SUBSIDY AMOUNT UNDER EXPLANATION 10 TO SECTION 43(1), THE ASSESSEE IS ENTITLED TO DEPRECIATION ON THE WRITTEN DOWN VAL UE FOR THE ASSESSMENT YEAR 2002-03. THE MAIN REASONING OF THE TRIBUNAL IS THAT THE PROVISION FOR REDUCTION OF SUBSIDY FROM COST OF MACHINERY WAS INTRODUCED BY THE ABOVE AMENDMENT ONLY WITH EFFECT FROM 01/04/1999 AN D SO MUCH SO, IT DOES NOT APPLY TO INVESTMENTS MADE ANY TIME PRIOR T O THAT WHICH IN THIS CASE IS BEFORE 31/03/1998. SINCE THE TRIBUNAL ALLOW ED ASSESSEE'S APPEAL, THE DEPARTMENT FILED THIS APPEAL BEFORE US CHALLENGING THE FINDINGS OF THE TRIBUNAL 5. AFTER HEARING BOTH SIDES WE ARE UNABLE TO INTERF ERE WITH THE ORDERS OF THE TRIBUNAL BECAUSE THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE HONOURABLE SUPREME COURT IN THE CASE OF CIT V. P.J. CHEMICALS LTD. [1994] 210 ITR 830 / 76 TAXMAN 611 . FURTHER WE DO NOT KNOW ON WHAT BASIS THE DEPARTMENT CAN INTRODUCE RETROSPECTIVITY TO THE AMENDMENT INTRODUCED WHEN THE LEGISLATURE HAS NOT DONE SO. OB VIOUSLY, THE ABOVE AMENDMENT IS PROSPECTIVE IN NATURE AND THE SAME APP LIES TO INVESTMENTS 'MADE ON PLANT AND MACHINERY AND OTHER DEPRECIABLE ASSETS AFTER 01/04/1999. SO MUCH SO, WE UPHOLD THE ORDER OF THE TRIBUNAL AND DISMISS THE APPEAL ON THIS ISSUE. THEREFORE, IN THE LIGHT OF THE JUDGEMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF MAHESANA DISTRICT CO-OPERATIV E MILK PRODUCERS UNION LTD. VS. CIT(SUPRA) AND THE JUDGEMENT OF KE RALA HIGH COURT IN THE CASE OF CIT VS. SUN FIBRE OPTICS (P.) LTD.(SUPR A), WE ARE OF THE ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 15 - CONSIDERED VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN EXCLUDING THE GRANT PORTION OF THE AMOUNT FROM THE ACTUAL COS T. HENCE, WE HEREBY DELETE THE DISALLOWANCE AND DIRECT THE AO TO GIVE D EDUCTION ON THE ENTIRE AMOUNT. THUS, THESE GROUNDS OF THE ASSESSEES APPE AL ARE ALLOWED. 6. GROUND NOS.3(I) TO 3(III) ARE INTER-CONNECTED AN D, THEREFORE, THE SAME ARE DECIDED TOGETHER. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN REJECTI NG THE CLAIM OF THE ASSESSEE FOR EXPENDITURE OF RS.2,50,00,000/- CONTRI BUTED TO AMUL RESEARCH & DEVELOPMENT ASSOCIATION (ARDA). HE SUBM ITTED THAT THE LD.CIT(A) DISALLOWED THE CLAIM BY OBSERVING THAT TH E CONTRIBUTION TO ARDA FALLS U/S.35(1)(II) OF THE ACT AND, THEREFORE, THE SAME CANNOT BE CLAIMED U/S.37 OF THE ACT. HE SUBMITTED THAT THE LD.CIT(A) GROSSLY ERRED IN OBSERVING THAT UNLESS ARDA IS APPROVED AND NOTIF IED FOR THE PURPOSE OF SECTION 35(1)(II), THE EXPENDITURE IS NOT ADMISS IBLE. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPENDITURE IS INCU RRED FOR THE BUSINESS PURPOSE OF THE ASSESSEE. THE CONTRIBUTION IS MADE FOR THE BENEFIT OF THE MEMBERS FROM WHOM THE ASSESSEE PURCHASES THE MILK. HE SUBMITTED THAT IT IS ESSENTIALLY FOR BUSINESS EXPENDITURE. THE LD .COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DY.CIT VS. GUJARAT NARMADA VALLEY FERTILIZE RS CO.LTD. REPORTED AT (2013) 356 ITR 460 (GUJ.) ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 16 - 6.1. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT FOR AVAILING THE BENEFIT OF DEDUCTION U/S.37 OF THE ACT, THE ASSESSEE IS REQUIRED TO DEMONSTRATE TH AT THE EXPENDITURE IS NOT OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 OF THE ACT AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPEN SES OF THE ASSESSEE LAID OUT OR EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF BUSINESS OR PROFESSION. HE SUBMITTED THAT IN THE CASE IN HAND, THE ASSESSEE HAS MADE CONTRIBUTION TO AN ORGANIZATION FALLS UNDER SECTION 35(1) OF THE ACT. HOWEVER, THE LD.CIT(A) DID NOT ALLOW THE DEDUCTION AS CONDITION ENVISAGED U/S.35(1) OF THE ACT IS NOT COMPLIED WITH . HE SUBMITTED THAT UNDER THESE FACTS, THE ASSESSEE CANNOT BE ALLOWED T HE CLAIM OF DEDUCTION U/S.37 OF THE ACT. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE WITH RATED TO THE FACT THAT THE ASSESSEE HAS MADE CONTRIBUTION TO ARDA. IT IS PERTINENT TO NOTE THAT THIS ENTITY WAS CREATED BY THE ASSESSEE ITSELF WHICH IS ENGAGED IN THE FIEL D OF RESEARCH AND DEVELOPMENT RELATED TO CATTLE-FEED,ETC. IT IS ALSO NOT DISPUTED THAT THE CONTRIBUTION IS AS PER BYE-LAWS OF THE ASSESSEE. THE CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE IS THAT THE CONTRIBUTIO N BEING MADE FOR THE BUSINESS PURPOSES AND FOR COMMERCIAL EXPEDIENCY, SU CH EXPENDITURE IS ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 17 - REQUIRED SHOULD BE ALLOWED AS A BUSINESS EXPENDITUR E. THE LD.CIT(A) DID NOT ALLOW THE CLAIM BY OBSERVING AS UNDER:- 8.2. I HAVE CONSIDERED FACTS OF THE CASE AND APPEL LANT'S SUBMISSIONS. AT THE TIME OF ASSESSMENT, APPELLANT DID NOT SPECIFY P ARTICULAR SECTION OF THE INCOME TAX ACT, UNDER WHICH THE CONTRIBUTION MA DE TO ARDA WAS CLAIMED AS A DEDUCTIBLE EXPENSE. AT THE TIME OF AP PELLATE PROCEEDINGS, APPELLANT HAS SUBMITTED THAT THE CLAIM IS U/S.37. U NDER SECTION 37, 'ANY EXPENDITURE NOT BEING EXPENDITURE OF THE NATURE DES CRIBED IN SECTIONS 30 TO 36....' CAN ONLY BE CLAIMED. THE SUPREME COURT I N THE CASE OF SARAVANA SPINNING MILLS PVT. LTD., 293 ITR 201 (SC) HELD THAT 'SOME OF THE DECISIONS CITED ON BEHALF OF ASSESSEES ARE NOT X BEING DISCUSSED BY US AS THEY DEAL WITH CASES FALLING UNDER 37. THAT SECTION IS A RESIDUARY SECTION. UNDER SECTION 37, A PARTICULAR ITEM OF EXP ENDITURE MAY BE DEDUCTIBLE IF THE EXPENDITURE DOES NOT FALL WITHIN .SECTIONS 3 0 TO 36...... HENCE WE DO NOT WISH TO EXPRESS ANY OPINION ON APPL ICABILITY OF SECTION 37(1)'. THE SUPREME COURT DECLINED TO ENTERTAIN ASSESSEE'S REQUEST TO CLAIM DEDUCTION U/S.37(L) ON THE GROUND THAT EVEN I F EXPENDITURE INCURRED WAS REVENUE IN NATURE, IT DID NOT FALL IN THE CONNOTATION OF THE WORDS 'CURRENT REPAIRS' U/S.31(I). TO SUM UP, SUPREME COURT'S DECISION IN THIS CASE WAS THAT IF AN EXPENDITURE IS OF NATURE DESCRIBED IN SECTIONS 30 TO 36, IT CANNOT BE CLAIMED U/S.37 IRRE SPECTIVE OF ITS ADMISSIBILITY OTHER-WISE U/S.37. THE EXPENSE IN QUE STION IN APPELLANT'S CASE, BEING CONTRIBUTION TO ARDA, A SCIENTIFIC AND RESEARCH ORGANIZATION FALLS UNDER SECTION 35(1)(II) AND CAN THEREFORE, NOT BE CLAIMED U/S.37. APPELLANT HAS NOT MADE THE CLAIM U/ S.35. IN ANY CASE, CLAIM U/S.35(1)(II) WOULD NOT BE ADMISSIBLE, UNLESS ARDA IS APPROVED AND NOTIFIED FOR THE PURPOSE OF SECTION 35(1)(II). DECISIONS RELIED UPON BY THE APPELLANT ARE NOW TAKEN UP. THESE ARE ALL O N THE ISSUE OF EXPENSES BEING INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, EVEN IF OTHER PARTIES TOO BENEFIT FROM IN CURRING OF EXPENDITURE. THESE DECISIONS ARE ALL IN THE CONTEXT OF SECTION 3 7 AND WOULD NOT BE APPLICABLE IN APPELLANT'S CASE. IT IS FURTHER NOTED THAT THE CONTRIBUTIONS TO ARDA WERE PARTLY UTILIZED FOR BUILDING CAPITAL A SSETS AND THE EXPENDITURE THEREFORE, WAS PARTLY CAPITAL IN NATURE . UNDER SECTION 35, ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 18 - CAPITAL EXPENDITURE IS TO BE ALLOWED SUBJECT TO CON DITIONS IN SUB SECTION 2, WHEREAS CAPITAL EXPENDITURE IS NOT ALLOWABLE AT ALL U/S.37. IT IS HELD THAT THE CONTRIBUTION OF RS.2,50,00,000/- MADE TO A RDA IS NOT ALLOWABLE AS EXPENSE U/S.37 AND ALTHOUGH CLAIM HAS NOT BEEN M ADE U/S.35, THE DEDUCTION WOULD NOT HAVE BEEN ADMISSIBLE U/S.35 ALS O DUE TO CONDITIONS UNDER THAT SECTION BEING NOT SATISFIED. TO SUM UP, DISALLOWANCE OF RS.2,50,00,000/- IS CONFIRMED. 7.1. THERE IS NO DISPUTE WITH REGARD TO THE FACT TH AT THE SECTION 37 IS A RESIDUARY SECTION WITH REGARD TO AVAILABILITY OF EX PENDITURE UNDER THE HEAD BUSINESS OR PROFESSION. FOR THE PURPOSE OF AVAILING THE DEDUCTION U/S.37 OF THE ACT, THE ASSESSEE IS REQUIRED TO DEMO NSTRATE THAT THE EXPENDITURE IS NOT IN THE NATURE DESCRIBED UNDER SE CTIONS 30 TO 36 OF THE ACT AND NOT BEING IN NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE, LAID OUT FOR COMMERCIAL EXPEDIENCY WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THE CA SE IN HAND, THE CONTRIBUTION HAS BEEN MADE TO AN ENTITY FOR CARRYIN G OUT CERTAIN RESEARCH AND THE SAID ENTITY IS UTILIZED FOR CONTRIBUTION PA RTLY FOR THE PURPOSE OF CARRYING OUT THE SCIENTIFIC RESEARCH AND PARTLY FOR BUILDING CAPITAL ASSETS. THE LD.CIT(A) WAS OF THE OPINION THAT ALTHOUGH THE CLAIM HAS NOT BEEN MADE U/S.35, THE DEDUCTION WOULD NOT HAVE BEEN AVAI LABLE TO THE ASSESSEE U/S.35 ALSO DUE TO THE CONDITIONS U/S.35 IS BEING N OT SATISFIED. THE LD.COUNSEL FOR THE ASSESSEE ARGUED AT LENGTH TO BUT TRESS THE CONTENTION THAT THE EXPENDITURE IS ESSENTIALLY IN THE NATURE OF BUS INESS EXPENDITURE AND WOULD MEET THE CONDITION AS PRESCRIBED U/S.37 OF TH E ACT. THE LD.CIT(A) ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 19 - DENIED THE DEDUCTION ON THE BASIS THAT THE EXPENSE IN QUESTION IN THE INSTANT CASE BEING CONTRIBUTION TO ARDA, A SCIENTIF IC AND RESEARCH ORGANIZATION FALLS U/S.35(1)(II) AND, THEREFORE, CA NNOT BE CLAIMED U/S.37 OF THE ACT. SECTION 35(1)(II) IS REPRODUCED AS UNDER: - SECTION 35: EXPENDITURE ON SCIENTIFIC RESEARCH. (1) IN RESPECT OF EXPENDITURE ON SCIENTIFIC RESEARCH, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED (I) ANY EXPENDITURE (NOT BEING IN THE NATURE OF CAP ITAL EXPENDITURE) LAID OUT OR EXPENDED ON SCIENTIFIC RESEARCH RELATED TO THE BUSINE SS. [ EXPLANATION : WHERE ANY SUCH EXPENDITURE HAS BEEN LAID OUT OR E XPENDED BEFORE THE COMMENCEMENT OF THE BUSINESS (NOT BEING EXP ENDITURE LAID OUT OR EXPENDED BEFORE THE 1ST DAY OF APRIL, 1973), ON PAYMEN T OF ANY SALARY [AS DEFINED IN EXPLANATION 2 BELOW SUB-SECTION (5) OF SE CTION 40A] TO AN EMPLOYEE ENGAGED IN SUCH SCIENTIFIC RESEARCH, OR ON THE PURCH ASE OF MATERIALS USED IN SUCH SCIENTIFIC RESEARCH, THE AGGREGATE OF THE EXPENDITU RE SO LAID OUT OR EXPENDED WITHIN THE THREE YEARS IMMEDIATELY PRECEDING THE COM MENCEMENT OF THE BUSINESS SHALL, TO THE EXTENT IT IS CERTIFIED BY THE PRESCRIB ED AUTHORITY TO HAVE BEEN LAID OUT OR EXPENDED ON SUCH SCIENTIFIC RESEARCH, BE DEEMED T O HAVE BEEN LAID OUT OR EXPENDED IN THE PREVIOUS YEAR IN WHICH THE BUSINESS IS COMMENCED;] (II) [AN AMOUNT EQUAL TO [ONE AND THREE-FOURTH] TIME S OF ANY SUM PAID] TO A [RESEARCH ASSOCIATION] WHICH HAS AS ITS OBJECT THE U NDERTAKING OF SCIENTIFIC RESEARCH OR TO A UNIVERSITY, COLLEGE OR OTHER INSTITUT ION TO BE USED FOR SCIENTIFIC RESEARCH: [PROVIDED THAT SUCH ASSOCIATION, UNIVERSITY, COLLEGE OR OTHER INSTITUTION FOR THE PURPOSES OF THIS CLAUSE (A) IS FOR THE TIME BEING APPROVED, IN ACCORDANCE WITH THE GUIDELINES, IN THE MANNER AND SUBJECT TO SUCH CONDITIONS AS MAY BE PRESC RIBED; AND (B) SUCH ASSOCIATION, UNIVERSITY, COLLEGE OR OTHER IN STITUTION IS SPECIFIED AS SUCH, BY NOTIFICATION IN THE OFFICIAL GAZETTE, BY THE CENT RAL GOVERNMENT;] ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 20 - 7.2. IN THE CASE IN HAND, UNDISPUTEDLY THE ASSESSEE HAS MADE CONTRIBUTION FOR RESEARCH, THEREFORE SUCH PAYMENTS WOULD FALL UNDER SECTION 35 OF THE ACT AND FOR CLAIMING DEDUCTION U/ S.35 OF THE ACT, THE ASSOCIATION IS REQUIRED APPROVED IN ACCORDANCE WITH THE GUIDELINES, IN THE MANNER AND SUBJECT TO SUCH CONDITIONS AS MAY BE PRESCRIBED. NO MATERIAL IS PLACED ON RECORD THAT THE ASSOCIATION I S APPROVED IN THE MANNER PRESCRIBED. UNDER THESE FACTS, WE DO NOT SE E ANY INFIRMITY IN THE ORDER OF LD.CIT(A),SAME IS HEREBY UPHELD. THUS, TH ESE GROUNDS OF ASSESSEES APPEAL IS REJECTED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.563/AHD/2011 FOR AY 2002-03 PARTLY ALLOWED. 9. NOW, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO. 564/AHD/2011 FOR AY 2004-05, WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN:- YOUR APPELLANT BEING DISSATISFIED WITH THE ORDER P ASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV, BARODA P RESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING AMONGST OTHER GRO UNDS, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: 1. THE ORDER PASSED BY THE LEARNED CIT (A) IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW & FACTS. IT IS SUBMITTED T HAT IT BE SO HELD NOW. 2.(I) THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE CLAIM OF DEPRECIATION OF RS.1,76,62,673/- ON PORTI ON OF PLANT AND MACHINERY RECEIVED TOWARDS GRANT/SUBSIDY FROM NATIO NAL DAIRY DEVELOPMENT BOARD UNDER '70% LOAN AND 30% GRANT' SC HEME. YOUR ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 21 - APPELLANT SUBMITS THAT 30% GRANT HAS BEEN RECEIVED TOWARDS THE PROJECT AS A WHOLE AND HENCE, IT IS ENTITLED TO DEPRECIATION O N THE ENTIRE COST OF ASSETS INSTALLED AND PUT TO USE WITHOUT DEDUCTING THE GRAN T PORTION. IT IS SUBMITTED THAT IT BE SO ALLOWED NOW. (II) THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN HOLDING THAT EXPLANATION 10 TO SECTION 43(1) OF THE ACT WOULD AP PLY IN RESPECT OF ASSETS ACQUIRED PRIOR TO 1-4-99 AND ALSO IN RESPECT OF GRA NTS RECEIVED PRIOR TO 1- 4-99 AND THEREBY WOULD APPLY FROM ASSESSMENT YEAR 1 999-00 IRRESPECTIVE OF THE YEAR OF ACQUISITION OF ASSETS OR YEAR OF DIS BURSEMENT OF GRANT. THE LEARNED CIT(A) THUS ERRED IN DENYING BENEFIT OF DEP RECIATION IN RESPECT OF VALUE OF GRANT/SUBSIDY IN RESPECT OF ASSETS ACQUIRE D PRIOR TO A.Y. 1999-00 EVEN THOUGH IN RESPECT OF THESE VERY ASSETS FULL DE PRECIATION IS ALLOWED IN EARLIER YEARS WITHOUT DEDUCTING VALUE OF GRANT FROM ACTUAL COST OR WDV OF ASSETS. IT IS SUBMITTED THAT IT BE SO HELD NOW. (III) THE ACTION OF LEARNED CIT (A) IN HOLDING THAT SUBSIDY IS DEDUCTIBLE FROM ACTUAL COST U/S 43(1) IS PATENTLY INCORRECT AN D UNJUSTIFIED. PARTICULARLY WHEN IN THE YEAR UNDER CONSIDERATION, THE APPELLANT IS CLAIMING DEPRECIATION ON WDV OF ASSETS WHICH HAVE A LREADY ENTERED THE BLOCK IN THE ASSESSMENT YEARS PRIOR TO ASSESSMENT Y EAR 1999-2000. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DEPRECIATION A S CLAIMED BY THE APPELLANT BE ALLOWED. 3. (I) THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.3,50,00,000/- BEING CONTRIBUTION TO ARDA (ANAND RESEARCH DEVELOPMENT ASSOCIATION) FOR DAIRY DEVELOP MENT/RESEARCH EXPENSES ON THE GROUND THAT THE SAME IS NOT ALLOWAB LE AS BUSINESS EXPENDITURE, EVEN THOUGH ACCORDING TO APPELLANT SUC H CLAIM IS ALLOWABLE U/S 37 OF THE ACT. (II) THE LEARNED AO GROSSLY ERRED IN APPLYING OBSER VATIONS OF HON'BLE SUPREME COURT IN CASE OF SARVANNA SPINNING MILLS PV T. LTD. 293 ITR 201 WHICH WERE IN DIFFERENT CONTEXT AND ON DIFFERENT FA CTS. ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 22 - (III) THE ACTION OF LEARNED CIT (A) IN HOLDING THA T CONTRIBUTION MADE TO ARDA IS NOT ALLOWABLE AS EXPENSES U/S.37 IS PATENTL Y INCORRECT AND UNJUSTIFIED AS SUCH CONTRIBUTION IS FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. IT IS SUBMITTED THAT IT BE SO HELD NOW A ND CONTRIBUTION MADE TO ARDA AS CLAIMED AS DEDUCTION BY THE APPELLANT BE AL LOWED. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF APPEAL. 9.1. FIRST GROUND OF THE APPEAL IS GENERAL IN NATUR E AND NEEDS NO INDEPENDENT ADJUDICATION. 9.2. PARTIES HAVE ADOPTED THEIR ARGUMENTS AS WERE R AISED IN ITA NO.563/AHD/2011 FOR AY 2002-03. SINCE THE GROUNDS AND FACTS ARE IDENTICAL TO THAT OF AY 2002-03 IN ASSESSEES OWN C ASE(SUPRA), FOR THE SAME REASONING, THIS YEAR ALSO GROUND NOS.2(I) TO 2 (III) OF ASSESSEES APPEAL ARE ALLOWED AND GROUND NOS.3(I) TO 3(III) OF ASSESSEES APPEAL ARE REJECTED. 9.3. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.564/AHD/2011 FOR AY 2004-05 IS PARTLY ALLOWED. 10. NOW, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO .565/AHD/2011 FOR AY 2005-06, WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN:- YOUR APPELLANT BEING DISSATISFIED WITH THE ORDER P ASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV, BARODA P RESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING AMONGST OTHER GRO UNDS, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 23 - 1. THE ORDER PASSED BY THE LEARNED CIT (A) IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW & FACTS. IT IS SUBMITTED T HAT IT BE SO HELD NOW. 2.(I) THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE CLAIM OF DEPRECIATION OF RS.1,36,14,060/- ON PORTI ON OF PLANT AND MACHINERY RECEIVED TOWARDS GRANT/SUBSIDY FROM NATIO NAL DAIRY DEVELOPMENT BOARD UNDER '70% LOAN AND 30% GRANT' SC HEME. YOUR APPELLANT SUBMITS THAT 30% GRANT HAS BEEN RECEIVED TOWARDS THE PROJECT AS A WHOLE AND HENCE, IT IS ENTITLED TO DEPRECIATION O N THE ENTIRE COST OF ASSETS INSTALLED AND PUT TO USE WITHOUT DEDUCTING THE GRAN T PORTION. IT IS SUBMITTED THAT IT BE SO ALLOWED NOW. (II) THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN HOLDING THAT EXPLANATION 10 TO SECTION 43(1) OF THE ACT WOULD AP PLY IN RESPECT OF ASSETS ACQUIRED PRIOR TO 1-4-99 AND ALSO IN RESPECT OF GRA NTS RECEIVED PRIOR TO 1- 4-99 AND THEREBY WOULD APPLY FROM ASSESSMENT YEAR 1 999-00 IRRESPECTIVE OF THE YEAR OF ACQUISITION OF ASSETS OR YEAR OF DIS BURSEMENT OF GRANT. THE LEARNED CIT(A) THUS ERRED IN DENYING BENEFIT OF DEP RECIATION IN RESPECT OF VALUE OF GRANT/SUBSIDY IN RESPECT OF ASSETS ACQUIRE D PRIOR TO A.Y. 1999-00 EVEN THOUGH IN RESPECT OF THESE VERY ASSETS FULL DE PRECIATION IS ALLOWED IN EARLIER YEARS WITHOUT DEDUCTING VALUE OF GRANT FROM ACTUAL COST OR WDV OF ASSETS. IT IS SUBMITTED THAT IT BE SO HELD NOW. (III) THE ACTION OF LEARNED CIT (A) IN HOLDING THAT SUBSIDY IS DEDUCTIBLE FROM ACTUAL COST U/S 43(1) IS PATENTLY INCORRECT AN D UNJUSTIFIED. PARTICULARLY WHEN IN THE YEAR UNDER CONSIDERATION, THE APPELLANT IS CLAIMING DEPRECIATION ON WDV OF ASSETS WHICH HAVE A LREADY ENTERED THE BLOCK IN THE ASSESSMENT YEARS PRIOR TO ASSESSMENT Y EAR 1999-2000. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DEPRECIATION A S CLAIMED BY THE APPELLANT BE ALLOWED. 3. (I) THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.3,50,00,000/- BEING CONTRIBUTION TO ARDA (ANAND RESEARCH DEVELOPMENT ASSOCIATION) FOR DAIRY DEVELOP MENT/RESEARCH EXPENSES ON THE GROUND THAT THE SAME IS NOT ALLOWAB LE AS BUSINESS ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 24 - EXPENDITURE, EVEN THOUGH ACCORDING TO APPELLANT SUC H CLAIM IS ALLOWABLE U/S 37 OF THE ACT. (II) THE LEARNED AO GROSSLY ERRED IN APPLYING OBSER VATIONS OF HON'BLE SUPREME COURT IN CASE OF SARVANNA SPINNING MILLS PV T. LTD. 293 ITR 201 WHICH WERE IN DIFFERENT CONTEXT AND ON DIFFERENT FA CTS. (III) THE ACTION OF LEARNED CIT (A) IN HOLDING THA T CONTRIBUTION MADE TO ARDA IS NOT ALLOWABLE AS EXPENSES U/S.37 IS PATENTL Y INCORRECT AND UNJUSTIFIED AS SUCH CONTRIBUTION IS FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. IT IS SUBMITTED THAT IT BE SO HELD NOW A ND CONTRIBUTION MADE TO ARDA AS CLAIMED AS DEDUCTION BY THE APPELLANT BE AL LOWED. 4.(I) THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF DISALLOWANCE OF RS.10,56,741/- BEIN G AMOUNT PAID TO ANANDALAYA EDUCATION SOCIETY, ANAND TOWARDS CONTRIB UTION FOR EDUCATION FEES FOR CHILDREN OF THE EMPLOYEES FROM THE GENERAL RESERVE FUND. (II) THE ACTION OF LEARNED CIT(A) IN HOLDING THAT SCHOOL FEE IS THE PART OF PERQUISITE AND REQUIRED DEDUCTION OF TAX AT SOURCE IS PATENTLY INCORRECT AND UNJUSTIFIED. IT IS SUBMITTED THAT IT BE SO HELD NO W AND DEPRECIATION AS CLAIMED BY THE APPELLANT BE ALLOWED. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF APPEAL. 10.1. FIRST GROUND OF THE APPEAL IS GENERAL IN NATU RE AND NEEDS NO INDEPENDENT ADJUDICATION. 10.2. PARTIES HAVE ADOPTED THEIR ARGUMENTS AS WERE RAISED IN ITA NO.563/AHD/2011 FOR AY 2002-03 IN RESPECT OF GROUND NOS.2(I) TO 2(III) AND GROUND NOS.3(I) & 3(III). SINCE THE GROUNDS AN D FACTS ARE IDENTICAL TO THAT OF AY 2002-03 IN ASSESSEES OWN CASE(SUPRA), F OR THE SAME REASONING, FOR THIS YEAR ALSO GROUND NOS.2(I) TO 2( III) OF ASSESSEES APPEAL ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 25 - ARE ALLOWED AND GROUND NOS.3(I) TO 3(III) OF ASSESS EES APPEAL ARE REJECTED. 10.3. APROPOS TO GROUND NO.4, THE LD.COUNSEL FOR TH E ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DI SALLOWING THE AMOUNT OF RS.10,56,741/- PAID TO ANANDALAYA EDUCATION SOCIETY , ANAND TOWARDS CONTRIBUTION FOR EDUCATION FEES FOR CHILDREN OF THE EMPLOYEES FROM THE GENERAL RESERVE FUND. THE LD.COUNSEL FOR THE ASSES SEE PLACED RELIANCE ON THE DECISION OF THIS COORDINATE BENCH PASSED IN ITA NOS.1833 TO 1835/AHD/06 WITH CO NOS. 234 TO 236/AHD/2006 IN TH E CASE OF INSTIUTTE OF RURAL MANAGEMENT ANAND, DATED 13/10/2006. 10.4. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE EXPENDITURE WAS MADE OUT OF PROF ITS, THEREFORE THE SAME CANNOT BE CLAIMED AS EXPENDITURE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS GIVEN A FINDING ON F ACT IN PARA-8.2 OF HIS ORDER, AS UNDER:- 8.2. I HAVE CONSIDERED THE MATTER. DEDUCTION IN Q UESTION OF RS.10,56,741/- WAS CLAIMED SEPARATELY IN THE COMPUT ATION OF INCOME FILED WITH THE RETURN OF INCOME. THE SAID AMOUNT O F RS.10,56,741/- WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT AS ALSO CLEAR FROM NOTE NO.8 TO THE COMPUTATION OF INCOME. ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 26 - DURING THE YEAR, THE ASSESSEE HAS PAID RS.10,56,74 1/- TO ANANDALAYA EDUCATION SOCIETY, ANAND TOWARDS CONTRIBUTION FOR E DUCATIONAL FEES OF THE CHILDREN OF EMPLOYEES FROM GENERAL RESERVE FUND S, THE SAME IS IN THE NATURE OF STAFF WELFARE EXPENDITURE ALLOWABLE A S BUSINESS REVENUE EXPENDITURE AND HENCE CLAIMED ACCORDINGLY. FROM THE ABOVE, IT IS CLEAR THAT CONTRIBUTION TOWAR DS EDUCATION FEES TO ANANDALAYA EDUCATION SOCIETY WAS OUT OF GENERAL RES ERVE FUNDS, I.E. IT WAS APPROPRIATION OF PROFITS ONLY AND NOT AN EXPENS E OF THE CURRENT YEAR. THE SAME CANNOT BE CLAIMED AS AN EXPENDITURE IN CURRENT YEAR. ANY EXPENDITURE OUT OF GENERAL RESERVE IS OUT OF AC CUMULATED PROFITS AND IS EVEN OTHERWISE NOT ELIGIBLE FOR DEDUCTION AS EXP ENSE IN A>Y. 2005-06. THE DECISION RELIED UPON BY THE APPELLANT IN THE CA SE OF INSTITUTE OF RURAL MANAGEMENT ANAND IS ON A DIFFERENT ISSUE, I.E . WHETHER BEARING OF PART OF SCHOOL FEES BY THE EMPLOYER AMOUNTED TO PER QUISITE, THEREBY REQUIRING DEDUCTION OF TAX AT SOURCE. IT IS HELD T HAT CONTRIBUTION OF RS.10,56,741/- TO ANANDALAYA EDUCATION SOCIETY IS N OT ALLOWABLE AS DEDUCTION IN A.Y. 2005-06. THIS GROUND OF APPEAL I S DISMISSED. 11.1. THIS FINDING OF LD.CIT(A) IS NOT CONTROVERTED BY THE ASSESSEE BY PLACING ANY CONTRARY MATERIAL ON RECORD, THEREFORE WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) , SAME IS HEREBY UPHELD. THUS, THIS GROUND OF ASSESSEES APPEAL IS REJECTED. 11.2. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.565/AHD/2011 FOR AY 2005-06 IS PARTLY ALLOWED. 12. NOW, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO .566/AHD/2011 FOR AY 2006-07, WHEREIN FOLLOWING GROUNDS HAVE BEEN TAK EN:- ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 27 - YOUR APPELLANT BEING DISSATISFIED WITH THE ORDER P ASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV, BARODA P RESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING AMONGST OTHER GRO UNDS, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: 1. THE ORDER PASSED BY THE LEARNED CIT (A) IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW & FACTS. IT IS SUBMITTED T HAT IT BE SO HELD NOW. 2.(I) THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE CLAIM OF DEPRECIATION OF RS.70,95,684/- ON PORTION OF PLANT AND MACHINERY RECEIVED TOWARDS GRANT/SUBSIDY FROM NATIONAL DAIRY DEVELOPMENT BOARD UNDER '70% LOAN AND 30% GRANT' SCHEME. YOUR APPELLA NT SUBMITS THAT 30% GRANT HAS BEEN RECEIVED TOWARDS THE PROJECT AS A WHOLE AND HENCE, IT IS ENTITLED TO DEPRECIATION ON THE ENTIRE COST OF A SSETS INSTALLED AND PUT TO USE WITHOUT DEDUCTING THE GRANT PORTION. IT IS SUBM ITTED THAT IT BE SO ALLOWED NOW. (II) THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN HOLDING THAT EXPLANATION 10 TO SECTION 43(1) OF THE ACT WOULD AP PLY IN RESPECT OF ASSETS ACQUIRED PRIOR TO 1-4-99 AND ALSO IN RESPECT OF GRA NTS RECEIVED PRIOR TO 1- 4-99 AND THEREBY WOULD APPLY FROM ASSESSMENT YEAR 1 999-00 IRRESPECTIVE OF THE YEAR OF ACQUISITION OF ASSETS OR YEAR OF DIS BURSEMENT OF GRANT. THE LEARNED CIT(A) THUS ERRED IN DENYING BENEFIT OF DEP RECIATION IN RESPECT OF VALUE OF GRANT/SUBSIDY IN RESPECT OF ASSETS ACQUIRE D PRIOR TO A.Y. 1999-00 EVEN THOUGH IN RESPECT OF THESE VERY ASSETS FULL DE PRECIATION IS ALLOWED IN EARLIER YEARS WITHOUT DEDUCTING VALUE OF GRANT FROM ACTUAL COST OR WDV OF ASSETS. IT IS SUBMITTED THAT IT BE SO HELD NOW. (III) THE ACTION OF LEARNED CIT (A) IN HOLDING THAT SUBSIDY IS DEDUCTIBLE FROM ACTUAL COST U/S 43(1) IS PATENTLY INCORRECT AN D UNJUSTIFIED. PARTICULARLY WHEN IN THE YEAR UNDER CONSIDERATION, THE APPELLANT IS CLAIMING DEPRECIATION ON WDV OF ASSETS WHICH HAVE A LREADY ENTERED THE BLOCK IN THE ASSESSMENT YEARS PRIOR TO ASSESSMENT Y EAR 1999-2000. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DEPRECIATION A S CLAIMED BY THE APPELLANT BE ALLOWED. ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 28 - 3. (I) THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.3,50,00,000/- BEING CONTRIBUTION TO ARDA (ANAND RESEARCH DEVELOPMENT ASSOCIATION) FOR DAIRY DEVELOP MENT/RESEARCH EXPENSES ON THE GROUND THAT THE SAME IS NOT ALLOWAB LE AS BUSINESS EXPENDITURE, EVEN THOUGH ACCORDING TO APPELLANT SUC H CLAIM IS ALLOWABLE U/S 37 OF THE ACT. (II) THE LEARNED AO GROSSLY ERRED IN APPLYING OBSER VATIONS OF HON'BLE SUPREME COURT IN CASE OF SARVANNA SPINNING MILLS PV T. LTD. 293 ITR 201 WHICH WERE IN DIFFERENT CONTEXT AND ON DIFFERENT FA CTS. (III) THE ACTION OF LEARNED CIT (A) IN HOLDING THA T CONTRIBUTION MADE TO ARDA IS NOT ALLOWABLE AS EXPENSES U/S.37 IS PATENTL Y INCORRECT AND UNJUSTIFIED AS SUCH CONTRIBUTION IS FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. IT IS SUBMITTED THAT IT BE SO HELD NOW A ND CONTRIBUTION MADE TO ARDA AS CLAIMED AS DEDUCTION BY THE APPELLANT BE AL LOWED. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF APPEAL. 12.1. FIRST GROUND OF THE APPEAL IS GENERAL IN NA TURE AND NEEDS NO INDEPENDENT ADJUDICATION. 12.2. PARTIES HAVE ADOPTED THEIR ARGUMENTS AS WERE RAISED IN ITA NO.563/AHD/2011 FOR AY 2002-03. SINCE THE GROUNDS AND FACTS ARE IDENTICAL TO THAT OF AY 2002-03 IN ASSESSEES OWN C ASE(SUPRA), FOR THE SAME REASONING, FOR THIS YEAR ALSO GROUND NOS.2(I) TO 2(III) OF ASSESSEES APPEAL ARE ALLOWED AND GROUND NOS.3(I) TO 3(III) OF ASSESSEES APPEAL ARE REJECTED. 12.3. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.566/AHD/2011 FOR AY 2006-07 IS PARTLY ALLOWED. ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 29 - 13. NOW, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.567/AHD/2011 FOR AY 2007-08, WHEREIN FOLLOWING GROUNDS HAVE BEEN TAK EN:- YOUR APPELLANT BEING DISSATISFIED WITH THE ORDER P ASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV, BARODA P RESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING AMONGST OTHER GRO UNDS, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: 1. THE ORDER PASSED BY THE LEARNED CIT (A) IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW & FACTS. IT IS SUBMITTED T HAT IT BE SO HELD NOW. 2.(I) THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE CLAIM OF DEPRECIATION OF RS.61,28,699/- ON PORTION OF PLANT AND MACHINERY RECEIVED TOWARDS GRANT/SUBSIDY FROM NATIONAL DAIRY DEVELOPMENT BOARD UNDER '70% LOAN AND 30% GRANT' SCHEME. YOUR APPELLA NT SUBMITS THAT 30% GRANT HAS BEEN RECEIVED TOWARDS THE PROJECT AS A WHOLE AND HENCE, IT IS ENTITLED TO DEPRECIATION ON THE ENTIRE COST OF A SSETS INSTALLED AND PUT TO USE WITHOUT DEDUCTING THE GRANT PORTION. IT IS SUBM ITTED THAT IT BE SO ALLOWED NOW. (II) THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN HOLDING THAT EXPLANATION 10 TO SECTION 43(1) OF THE ACT WOULD AP PLY IN RESPECT OF ASSETS ACQUIRED PRIOR TO 1-4-99 AND ALSO IN RESPECT OF GRA NTS RECEIVED PRIOR TO 1- 4-99 AND THEREBY WOULD APPLY FROM ASSESSMENT YEAR 1 999-00 IRRESPECTIVE OF THE YEAR OF ACQUISITION OF ASSETS OR YEAR OF DIS BURSEMENT OF GRANT. THE LEARNED CIT(A) THUS ERRED IN DENYING BENEFIT OF DEP RECIATION IN RESPECT OF VALUE OF GRANT/SUBSIDY IN RESPECT OF ASSETS ACQUIRE D PRIOR TO A.Y. 1999-00 EVEN THOUGH IN RESPECT OF THESE VERY ASSETS FULL DE PRECIATION IS ALLOWED IN EARLIER YEARS WITHOUT DEDUCTING VALUE OF GRANT FROM ACTUAL COST OR WDV OF ASSETS. IT IS SUBMITTED THAT IT BE SO HELD NOW. (III) THE ACTION OF LEARNED CIT (A) IN HOLDING THAT SUBSIDY IS DEDUCTIBLE FROM ACTUAL COST U/S 43(1) IS PATENTLY INCORRECT AN D UNJUSTIFIED. PARTICULARLY WHEN IN THE YEAR UNDER CONSIDERATION, THE APPELLANT IS ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 30 - CLAIMING DEPRECIATION ON WDV OF ASSETS WHICH HAVE A LREADY ENTERED THE BLOCK IN THE ASSESSMENT YEARS PRIOR TO ASSESSMENT Y EAR 1999-2000. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DEPRECIATION A S CLAIMED BY THE APPELLANT BE ALLOWED. 3. (I) THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.4,000,00,000/- BEING CONTRIBUTIO N TO ARDA (ANAND RESEARCH DEVELOPMENT ASSOCIATION) FOR DAIRY DEVELOP MENT/RESEARCH EXPENSES ON THE GROUND THAT THE SAME IS NOT ALLOWAB LE AS BUSINESS EXPENDITURE, EVEN THOUGH ACCORDING TO APPELLANT SUC H CLAIM IS ALLOWABLE U/S 37 OF THE ACT. (II) THE LEARNED AO GROSSLY ERRED IN APPLYING OBSER VATIONS OF HON'BLE SUPREME COURT IN CASE OF SARVANNA SPINNING MILLS PV T. LTD. 293 ITR 201 WHICH WERE IN DIFFERENT CONTEXT AND ON DIFFERENT FA CTS. (III) THE ACTION OF LEARNED CIT (A) IN HOLDING THA T CONTRIBUTION MADE TO ARDA IS NOT ALLOWABLE AS EXPENSES U/S.37 IS PATENTL Y INCORRECT AND UNJUSTIFIED AS SUCH CONTRIBUTION IS FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. IT IS SUBMITTED THAT IT BE SO HELD NOW A ND CONTRIBUTION MADE TO ARDA AS CLAIMED AS DEDUCTION BY THE APPELLANT BE AL LOWED. 4.(I) THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF DISALLOWANCE OF RS.21,54,714/- OUT OF INTERST EXPENSE AND OTHER EXPENSES INCURRED BY THE APPELLANT BY INVOKIN G PROVISIONS OF SECTION 14A. (II) THE LEARNED CIT(A) GROSSLY ERRED IN INVOKING P ROVISIONS OF SECTION 14A IN RESPECT OF DIVIDEND EARNED BY THE APPELLANT WHIC H IS NOT EXEMPT BUT ONLY DEDUCTIBLE U/S.80P(2)(D). (III) THE LEARNED ASSESSING OFFICER ERRED IN FACT AND IN LAW IN INVOKING PROVISIONS OF RULE 8D. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF APPEAL. ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 31 - (IV) THE LEARNED ASSESSING OFFICER ERRED IN FACT A ND IN LAW IN HOLDING THAT INTEREST BEARING FUNDS HAVE BEEN UTILIZED TO MAKE I NVESTMENT EARNING EXEMPT INCOME. (V) WITHOUT PREJUDICE TO THE ABOVE, YOUR APPELLANT SUBMITS THAT IN ANY EVENT, THE ADDITION MADE IS VERY EXCESSIVE AND THE SAME SHOULD BE SUBSTANTIALLY REDUCED. 13.1. FIRST GROUND OF THE APPEAL IS GENERAL IN NATU RE AND NEEDS NO INDEPENDENT ADJUDICATION. 13.2. PARTIES HAVE ADOPTED THEIR ARGUMENTS AS WERE RAISED IN ITA NO.563/AHD/2011 FOR AY 2002-03 IN RESPECT OF GROUND NOS.2(I) TO 2(III) AND GROUND NOS.3(I) & 3(III). SINCE THE GROUNDS AN D FACTS ARE IDENTICAL TO THAT OF AY 2002-03 IN ASSESSEES OWN CASE(SUPRA), F OR THE SAME REASONING, FOR THIS YEAR ALSO GROUND NOS.2(I) TO 2( III) OF ASSESSEES APPEAL ARE ALLOWED AND GROUND NOS.3(I) TO 3(III) OF ASSESS EES APPEAL ARE REJECTED. 13.2. APROPOS TO GROUND NO.4 OF ASSESSEES APPEAL I S AGAINST DISALLOWANCE OF INTEREST EXPENDITURE BY INVOKING TH E PROVISIONS OF SECTION 14A OF THE ACT. THE LD.COUNSEL FOR THE AS SESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING THE DISALLOWANCE AND CONFIRMING THE SAME. HE PLACED RELIANCE ON THE JUD GEMENT OF HONBLE GUJARAT HIGH COURT AT AHMEDABAD IN THE CASE OF CIT VS. BANASKANTHA ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 32 - DIST.CO-OP.MILK PRODUCERS UNION LTD. IN TAX APPEAL NO.271 OF 2014, DATED 31/03/2014. 13.3. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDER S OF THE AUTHORITIES BELOW. 13.4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS CONFIRMED THE ADDITI ON BY OBSERVING AS UNDER:- 5.2. I HAVE CONSIDERED APPELLANT'S SUBMISSIONS. AP PELLANT'S CONTENTION REGARDING NON APPLICABILITY OF SECTION 14A IS FIRST TAKEN UP. ALTHOUGH, THE DIVIDEND INCOME IN QUESTION WAS INCLUDED IN GROSS T OTAL INCOME, THE SAME WAS EXCLUDED AGAIN FROM THE TOTAL INCOME, DUE TO DEDUCT ION U/S.80P(2)(D) OF RS.70,40,970/-. IN OTHER WORDS, DIVIDEND FROM COOPE RATIVE SOCIETIES WAS NOT INCLUDED IN APPELLANT'S TOTAL INCOME'. APPELLANT HAS NOT MADE ANY SUBMISSIONS IN RESPECT OF AO'S RELIANCE ON DECISION OF ITAT, CHANDIGARH BENCH IN THE CASE OF PUNJAB STATE COOPERATIVE MILK PRODUCERS' FEDERATION LTD. (2007) 104 ITD 408 (CHANDIGARH), WHICH IS SQUA RELY APPLICABLE TO APPELLANT'S CASE. IN THIS CASE, THE ITAT HELD AS UN DER: 'A PLAIN READING OF S. 14A REVEALS THAT ANY EXPENDI TURE WHICH IS RELATED TO THE INCOME WHICH DOES NOT FORM PART OF T OTAL INCOME UNDER THE ACT WILL NOT BE ALLOWED AS A DEDUCTION. IN ORDE R TO CONSIDER WHAT IS THE TOTAL INCOME OF THE ASSESSEE, EFFECT HAS TO BE GIVEN TO ALL THE PROVISIONS OF THE ACT INCLUDING THE DEDUCTIONS PERM ISSIBLE UNDER CHAPTER VI-A. IT MAY BE PERTINENT TO MENTION THAT- THE FIRST STEP FOR COMPUTATION OF TOTAL INCOME IS TO DETERMINE THE INC OME UNDER VARIOUS HEADS OF INCOME AS SPECIFIED UNDER S. 14 OF THE ACT . AFTER WORKING OUT THE GROSS TOTAL INCOME, DEDUCTIONS AS PERMISSIBLE U NDER CHAPTER VI ARE TO BE MADE WHICH GIVES THE TOTAL INCOME. THERE IS DISTINCTION BETWEEN GROSS TOTAL INCOME AND TOTAL INCOME. GROSS TOTAL INCOME IS THE ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 33 - INCOME AS COMPUTED UNDER THE PROVISIONS OF THE ACT BEFORE DEDUCTIONS UNDER CHAPTER VI-A. THE LEGISLATURE HAS CONSCIOUSLY USED THE WORDS 'TOTAL INCOME' IN CONTRAST TO GROSS TOTAL INCOME' IN S. 14A. THEREFORE, FOR THE PURPOSE OF ATTRACTING PROVISIONS OF S. 14A, ONE WILL HAVE TO CONSIDER AS TO WHETHER THE INCOME SPECIFIED UNDER S . 80P(2)(D) IS INCLUDED IN THE 'TOTAL INCOME' OR NOT. ADMITTEDLY, THE INCOME REFERRED IN S. 80P(2)(D) IS INCLUDED IN THE GROSS TOTAL INCO ME BUT ONCE THE SAID INCOME IS EXCLUDED BY VIRTUE OF S.80P(2)(D) IT NO L ONGER CAN BE SAID TO BE INCLUDED IN THE TOTAL INCOME. SINCE DEDUCTION UNDER S.80P(2)(D) IS ALLOWED TO THE ASSESSEE OUT OF THE GROSS TOTAL INCOME, THE INCOME DESCRIBED IN S.80P(2)(D) NO LONGER IS INCLUDED IN T HE TOTAL INCOME NOTWITHSTANDING THE FACT THAT THE SAID INCOME IS INCLUDED IN THE GROSS TOTAL INCOME. ACCORDINGLY S.14A IS APPLICABLE EVEN IN RESPECT OF THE INCOMES WHICH ARE EXCLUDED FROM THE TOTAL INCOME BY VIRTUE OF DEDUCTIONS UNDER CHAPTER VI-A. THIS VIEW GETS FURTHER SUPPORT FROM THE PRESCRIBED FORM OF RETURN OF INCOME. SERIAL NO. 18 PROVIDES FOR THE GROSS TOTAL INCOME, SERIAL NO. 19 PROVIDES FOR DEDU CTIONS UNDER CHAPTER VI-A AND SERIAL NO.20 PROVIDES FOR THE TOTA L INCOME. IT IS THEREFORE, EVIDENT THAT TOTAL INCOME AS PER THE RET URN DOES NOT INCLUDE THE INCOME REFERRED TO IN S.80P(2)(D). THEREFORE, T HE PROVISIONS OF S. 14A INSERTED W.E.F. 1 ST APRIL, 1962 ARE DEARLY ATTRACTED IN THIS CASE. THEREFORE, DEDUCTIONS PERMISSIBLE TO THE ASSESSEE U NDER S.80P(2)(D) IS IN RESPECT OF THE NET INCOME AFTER EXCLUDING THE EX PENSES ATTRIBUTABLE TO THE INCOME REFERRED TO IN- S. 80P(2)(D). IN CASE SOME EXPENDITURE IS INDIVISIBLE, VIS-A-VIS OTHER RECEIPTS OF BUSINESS, THE SAME SHALL HAVE TO BE APPORTIONED BETWEEN THE VARIOUS TYPES OF RECEIPT S AND DEDUCTION UNDER S.80P(2)(D) COMPUTED ACCORDINGLY. CONCLUSION: SEC. 14A APPLIES TO DEDUCTION UNDER S. 80P(2)(D) AN D DEDUCTION UNDER SAID SECTION IS ALLOWABLE IN RESPECT OF NET INCOME AFTER DEDUCTION OF EXPENSES ATTRIBUTABLE TO THE EARNING OF SUCH INCOME .' IN VIEW OF THIS, APPELLANT'S CONTENTION REGARDING N ON APPLICABILITY OF SECTION 14A DUE TO DIVIDEND FROM COOPERATIVE SOCIETIES BEIN G NOT EXEMPT. U/S,10 BUT DEDUCTIBLE U/S.80P IS NOT TENABLE. ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 34 - 5.2.1. CONTENTION OF APPELLANT THAT RULE 8D IS NOT APPLICABLE FOR A.Y. 2007-08 IS NOW TAKEN UP. THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD., MUMBAI VS. DCIT IN ITA 626/ 10 AND WP 758 OF 2010, AFTER CONSIDERING ITAT'S SPECIAL BENCH DECISI ON IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. HELD THAT RULE 8D WOUL D APPLY W.E.F. A.Y. 2008-09. HOWEVER, THE COURT ALSO HELD THAT EVEN PRIOR TO A.Y .2008-09, WHEN RULE 8D WAS NOT APPLICABLE, ASSESSING OFFICER HAS T O ENFORCE THE PROVISIONS OF SUB-SECTION 1 OF SECTION 14A AND FOR THAT PURPOS E, ASSESSING OFFICER IS DUTY BOUND TO DETERMINE EXPENDITURE INCURRED IN REL ATION TO INCOME NOT FORMING PART OF TOTAL INCOME UNDER THE ACT. THE COU RT DIRECTED TO ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER PROVIDING REASONABLE OPPORTUNIT Y TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON RECORD. THUS, WHILE RULE 8D IS NOT APPLICABLE TO THE ASSESSMENT YEAR IN QUESTION, EXPENDITURE IN RELATION TO EXEMPT INCOME IS STILL TO BE DETERMINED AS PER A REASONABLE METHO D. THE DECISIONS RELIED UPON BY THE APPELLANT TO CONTEND THAT SUB-SECTION 2 OF SECTION 14A CANNOT BE APPLIED FOR THE YEAR UNDER CONSIDERATION ARE NOT AC CEPTABLE IN VIEW OF DECISION OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 5.2.2. THE QUESTION TO BE EXAMINED NOW IS WHETHER A NY INTEREST AND OTHER EXPENDITURE INCURRED BY THE APPELLANT AND CHARGED A GAINST TAXABLE INCOME WAS IN RELATION TO DIVIDEND INCOME CLAIMED TO BE FU LLY DEDUCTIBLE U/S.80P AND IF YES, DETERMINATION OF SUCH EXPENSES ON A REASONA BLE BASIS. APPELLANT'S CONTENTION THAT INVESTMENT IN COOPERATIVE SOCIETIES WAS OUT OF OWN FUNDS ONLY IS NOT ACCEPTABLE. THERE IS NOTHING ON RECORD TO PR OVE THAT INVESTMENT IN COOPERATIVE SOCIETIES WAS MADE OVER THE YEARS EXCLUSIVELY OUT OF APPELLANT'S OWN FUNDS, WHEREAS INTEREST BEARING FUNDS WERE USED ONLY FOR EARNING INCOME OTHER THAN DIVIDEND FROM COOPERATIVE SOCIETIES. IN THE CASE OF DATAMATICS LTD., THE MUMBAI ITAT HELD AS UNDER: 'THE CONTENTION OF APPELLANT THAT NO INTEREST BEARI NG FUND HAS BEEN UTILIZED FOR INVESTMENT/TAX FREE INCOMES CAN ONLY B E PROVED BY CASH FLOW STATEMENTS. APPELLANT HAS TO EXPLAIN THAT AT PARTICULAR MOVEMENT OF INVESTMENT, IT HAD SUFFICIENT INTEREST FREE FUNDS AT ITS DISPOS AL'. APPELLANT HAS NOT FILED ANY CASH FLOW STATEMENT AND IT IS NOT ESTABLISHED THAT AT THE TIME OF MAKING INVESTMENT IN COOPERATIVE SOC IETIES, THE FUNDS USED WERE EXCLUSIVELY OUT OF INTEREST FREE FUNDS. APPELLANT HAS THEREFORE, NOT BEEN ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 35 - ABLE TO ESTABLISH CORRECTNESS OF ITS CLAIM THAT NO INTEREST EXPENDITURE WAS INCURRED IN RESPECT OF INVESTMENT IN COOPERATIVE SO CIETIES. DETERMINATION OF INTEREST EXPENDITURE IN RELATION TO DIVIDEND INCOME IS THEREFORE, MANDATED BY SECTION 14A(2). REASONABLE BASIS TO APPORTION SUCH INTEREST WOULD BE THE RATIO OF AVERAGE VALUE OF INVESTMENTS AND AVERAGE VALUE O F TOTAL ASSETS, I.E. IN THE SAME MANNER AS DONE UNDER RULE 8D. ACCORDINGLY, INT EREST OF RS.21,29,714/- AS WORKED OUT BY THE ASSESSING OFFICER IS CONSIDERE D TO BE REASONABLE INTEREST EXPENSE OUT OF TOTAL INTEREST EXPENSE OF RS.7,05,14 ,000/- AS INCURRED TOWARDS EARNING OF DIVIDEND FROM COOPERATIVE SOCIETIES. THE SAME IS TO BE DISALLOWED U/S,14A. FURTHER, SINCE MOST OF THE INVESTMENTS WER E MADE BY THE APPELLANT IN EARLIER YEARS, ADMINISTRATIVE AND MANAGERIAL EXPENS ES ATTRIBUTABLE TO EARNING OF EXEMPT DIVIDEND INCOME WOULD NOT BE MUCH AND THE SAME ARE ESTIMATED AT RS.25,000/- AS AGAINST RS.2,16,513/- COMPUTED UNDER RULE 8D. TO SUM UP, DISALLOWANCE OF RS.21,54,714/- IS DIRECTED TO BE MA DE U/S.14A. 13.5. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. BANASKANTHA DIST.CO-OP.MILK PRODUCERS UNION LTD.(S UPRA) FORMULATED THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW:- '(I) WHETHER IN FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED ITAT HAS ERRED IN LAW IN CONFIRMING THE ORDER OF CIT(A) DELE TING THE ADDITION OF RS.87,39,536/- MADE BY THE ASSESSING OFFICER U/S. 14A OF INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES? (II) WHETHER, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED ITAT HAS ERRED IN LAW IN HOLDING TO THE EFFECT THAT THE PROVISIONS OF SECTION 14A DOES NOT APPLY TO INCOME FOR WHICH DEDUCTION UNDER CHAPTER VI-A (SECTION 80A TO 80U) OF THE INCOME TAX ACT IS AVAILABLE? (III) WHETHER THE WORDS 'INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THIS ACT' USED IN SECTION 14A OF THE INCOME T AX ACT, 1961 INCLUDE THE INCOME WHICH IS NOT CHARGEABLE TO TAX PURSUANT TO P ROVISIONS OF CHAPTER VIA (SECTION 80A TO 80U) OF THE INCOME TAX ACT?' ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 36 - 13.6. THE HONBLE HIGH COURT ANSWERED THE SAME ARE AS UNDER:- 7. QUESTION TO BE ADDRESSED IS AS TO WHETHER SECTI ON 14A WOULD APPLY TO PROVISION OF CHAPTER VIA. PROVISION OF SECTION 14A WHEN EXAMINED , IT OPERATES IN RESPECT OF THE INCOME NOT FORMING PART OF THE TOTAL INCOME. IT COU LD BE NOTED THAT PROVISIONS OF CHAPTER VIA (SECTIONS 80A TO 80U) REFER TO DEDUCTIO NS TO BE MADE IN COMPUTING THE TOTAL INCOME. SUCH DEDUCTIONS, IN NO MANNER, CAN BE COMPARED WITH THE EXEMPTED INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOM E AS PROVIDED IN SECTIONS 10 TO 13A UNDER CHAPTER III OF THE ACT. SECTION 14A WAS I NTRODUCED RETROSPECTIVELY WITH EFFECT FROM 1.4.1962 BY FINANCE ACT, 2001, FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER CHAPTER IV. AND, ANY EXPENDITURE INCUR RED BY THE ASSESSEE IN RELATION TO EXEMPTED INCOME, FOR THE PURPOSE OF COMPUTING TH E TOTAL INCOME, WHILE APPLYING SECTION 14A, NO DEDUCTION SHALL BE ALLOWED. HOWEVER , THERE IS A CLEAR ABSENCE OF ANY REFERENCE OF DEDUCTION TO BE MADE IN COMPUTING THE TOTAL INCOME AS PER PROVISION OF CHAPTER IVA IN SECTION 14A. UNDOUBTEDLY, AS PROVIDE D UNDER CHAPTER VIA WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE FROM HIS GROSS TOTAL INCOME IN ACCORDANCE WITH AND SUBJECT TO THE PROVISION OF THIS CHAPTER, THE DEDUCTIONS SPECIFIED ARE PERMISSIBLE. AS A RESULTANT EFFECT, THE TAXABLE INC OME OF THE ASSESSEE WOULD SURELY GET REDUCED AND YET THERE IS MARKED DIFFERENCE BETWEEN THE EXEMPTED INCOME AND THE DEDUCTION PROVIDED UNDER CHAPTER VIA. WE NOTICE THA T THE INVESTMENT IN SHARES MADE BY THE ASSESSEE WHICH EARNED HIM THE DIVIDEND WAS F ROM HIS OWN INCOME. MOREOVER, FROM THE VERY PROVISION OF SECTION 14A, THE SAME WO ULD HAVE NO APPLICATION IN RESPECT OF THE INCOME NOT BEING TAXABLE ON ACCOUNT OF DEDUC TION UNDER SECTION 80P(2)(D). BOTH THE AUTHORITIES HAVE RIGHTLY HELD THAT THERE I S NO APPLICATION OF SECTION 14A AS FAR AS THE DEDUCTION UNDER SECTION 80A TO 80U UNDER CHAPTER VIA OF THE ACT ARE CONCERNED. 8. WE NOTICE THAT THE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. KRIBHCO REPORTED IN [2012]349 ITR 618(DELHI) DECIDED IDENTICAL QUESTION OF LAW BY ELABORATELY DISCUSSING THE LAW ON THE SUBJECT WH EREBY IT HAS HELD THAT SECTION 14A WOULD HAVE NO APPLICABILITY IN RELATION TO DEDUCTIO NS TO BE MADE WHILE COMPUTING TOTAL INCOME UNDER CHAPTER IV.IN THE WORDS OF THE D ELHI HIGH COURT IT WAS OBSERVED AS UNDER:- 31. WHILE DEALING WITH THE DETAILED ARGUMENTS RAIS ED BY THE REVENUE, THE DIVISION BENCH OF THIS COURT OBSERVED THAT BROADLY SPEAKING THE FIGURE OF TOTAL INCOME IS ARRIVED AT, AS PER THE ACT, IN FOUR STAGES. FIRSTLY, THE INCOME OF THE RESIDENT ASSESSEE IS COMPUTED BY INCLUDING ALL INCOMES, PROFITS AND GAINS ARISING IN INDIA OR OUTSIDE. SIMILARLY INCOME OF RE SIDENT BUT NOT ORDINARY ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 37 - RESIDENT OR NONRESIDENT, ARE COMPUTED IN ACCORDANCE WITH SECTION 5 CHAPTER II, WHICH FORMS THE BASIS OF CHARGE. SECONDLY, CHAP TER III WITH THE HEADING INCOMES NOT INCLUDED IN THE TOTAL INCOME, COMPRIS ES OF SECTIONS 10 TO 13 AND THESE INCOMES ARE NOT INCLUDED IN TOTAL INCOME BUT SOME EXEMPTIONS ARE ONLY PARTIAL AND NOT TOTAL. THIRDLY, EVEN IN CASE O F INCOME, PROFIT AND GAINS INCLUDED FOR ARRIVING AT THE TOTAL INCOME, THE ENTI RE INCOME IS NOT LIABLE TO TAX. DEDUCTIONS AS STIPULATED IN CHAPTER IV CAN APPLY, E .G.. SECTIONS 34, 35A AND 35B ETC. EVEN IN CHAPTER VI, DEDUCTIONS FOR SET OFF OR CARRY FORWARD OF LOSS IS ALLOWED. FOURTHLY AND LASTLY, CERTAIN DEDUCTIONS WE RE PERMISSIBLE UNDER CHAPTER VII AND CHAPTER VIII AND WHICH HAD BEEN SUB STANTIAL OR PARTLY REPLACED AND WERE PLACED UNDER CHAPTER VI-A. THESE WERE DEDUCTIONS WHICH WERE REDUCED FROM THE INCOME COMPUTED IN ACCORDANCE WITH THE EARLIER PROVISIONS/CHAPTERS OF THE ACT. THESE DEDUCTIONS WE RE MADE IN THE COMPUTATION OF TOTAL INCOME AND, THEREFORE, DEFINIT ION OF GROSS TOTAL INCOME, WHICH WAS/IS ARRIVED AT WITHOUT REFERENCE TO THE DEDUCTION ALLOWABLE UNDER CHAPTER VI-A, WAS INTRODUCED. THE D EDUCTIONS AVAILABLE UNDER CHAPTER VI-A WERE EITHER WHOLLY OR PARTLY RED UCED FROM THE GROSS TOTAL INCOME. THE CONTENTION OF THE REVENUE THAT O NCE DEDUCTION STANDS ALLOWED, THE INCOME IN VIEW OF THE DEDUCTION CEAS ES TO BE A PART OF THE TOTAL INCOME, WAS REJECTED BY THE DIVISION BENCH OF THIS COURT IN DALMIA CEMENT (BHARAT) LTD. [1980] 126 ITR 736 (DELHI), FOR THE F OLLOWING ADDITIONAL REASONS:- (1) THE WORD PART USED IN THE RULE WAS TO DESCRIB E INCOME FULFILLING THE DESCRIPTION I.E.THE CATEGORY OR CLASS OF THE INCOME . IN OTHER WORDS IT SHOULD INDICATE AN IDENTIFIABLE SECTION, CATEGORY OR CLASS OF INCOME RATHER THAN MERE PORTION OR AMOUNT OF SUCH INCOME. THE QUESTION RAIS ED SHOULD BE WHETHER THIS INCOME WAS INCLUDED AND NOT WHETHER ANY DEDU CTION WAS ALLOWED. THE USE OF THE WORD PART CONTEMPLATES A TYPE OF I NCOME WHICH BY ITS VERY NATURE DOES NOT FORM PART OF THE TOTAL INCOME. THE WORD INCLUDIBLE SUPPORTS THAT REFERENCE TO THE GENERAL NATURE AND CLASS OF I NCOME RATHER THAN FACTUAL INCLUSION. (2) IT IS NOT THE ACTUAL QUANTIFICATION OF THE INCO ME WHICH MATTERS BUT WHETHER OR NOT INCOME WAS EXCLUDED FROM THE TOTAL INCOME. I T IS THE CLASS OF INCOME RATHER THAN THE AMOUNT WHICH WOULD DETERMINE WHETHE R OR NOT THE SAID CLASS OF INCOME FORMS PART OF THE TOTAL INCOME. INCOMES O F THE CATEGORIES REFERRED TO IN CHAPTER VI-A WERE TO BE TAKEN INTO ACCOUNT AS A PART OF TOTAL INCOME AND THEY DO FORM PART OF THE GROSS TOTAL INCOME WHICH W AS THE FIRST STEP IN THE ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 38 - PROCESS. ACCORDINGLY, EVEN AFTER THE DEDUCTION ALLO WABLE UNDER CHAPTER VI-A, THEY FORM A PART OF THE TOTAL INCOME AND DO NOT GET EXCLUDED MERELY BECAUSE DEDUCTION IS ALLOWED. (3) THE LEGISLATURE HAD ENACTED SECTIONS 80C TO 80U IN CHAPTER VI-A, AS A MEASURE OF RELIEF FROM TAXABLE LIABILITY. IT INCORP ORATES AND ALLOWS DEDUCTIONS. THE INCOME FROM THESE SOURCES WAS INCLUDED IN THE INCOME, BUT SUBJECTED TO DEDUCTION. QUALIFICATION WOULD VARY FROM SECTION TO SECTION. FURTHER IN SOME CASES THE DEDUCTION WAS FULL AND IN SOME CASES IT WAS PARTIAL BUT THIS WAS NOT MATERIAL AND IT DID NOT MEAN THAT IF AN AMO UNT WAS DEDUCTED IT DID NOT FORM PART OF THE TOTAL INCOME. 32. THUS, THE INCOME ON WHICH THE DEDUCTION IS ALLO WED FORMS A PART OF THE TOTAL INCOME, THOUGH NOT INCLUDED IN THE AMOUNT OR QUANTUM ON WHICH TAX IS PAID. 33. IT CAN BE URGED (THOUGH IT WAS NOT SPECIFICALLY ARGUED BY THE REVENUE) THAT IN CASE OF COMPLETE OR ENTIRE DEDUCTION OF THE GROS S AMOUNT, SECTION 14A WILL BE APPLICABLE, AND SECTION 14A WILL NOT APPLY IN CA SE ONLY THE NET AMOUNT (AS STIPULATED IN SEVERAL SECTIONS IN CHAPTER VIA OF TH E ACT) IS ALLOWABLE AS A DEDUCTION. THERE WILL BE A FALLACY IN THIS ARGUMENT . EVEN WERE PARTIAL OR NET AMOUNT IS TO BE ALLOWED AS A DEDUCTION, THE FIGURE CAN BE MINUS OR IN A LOSS. LOGICALLY, AS A SQUITER, IT WILL FOLLOW THAT IN CAS E THE ASSESSEE HAS A NEGATIVE/MINUS FIGURE AS PER THE COMPUTATION MADE A NY OF THE PROVISIONS OF CHAPTER VIA, THE EXPENDITURE INCURRED CANNOT ALLOWA BLE UNDER SECTION 37 OF THE ACT, IN VIEW OF SECTION 14A. THE SAID POSITION CANNOT BE ACCEPTED. INCOME WILL INCLUDE NEGATIVE INCOME OR A LOSS. THE COROLLA RY IS THAT THE ENTIRE INCOME IS INCLUDED UNDER THE PROVISIONS OF THE ACT BY FIRS TLY INCLUDING THE ENTIRE RECEIPTS OR INCOMES AS STIPULATED IN THE CHARGING S ECTION BUT AFTER EXCLUDING THE INCOME STIPULATED IN CHAPTER III. THEREAFTER, T OTAL INCOME IS COMPUTED UNDER THE ACT BY APPLYING PROVISIONS OF CHAPTER IV, V AND VI. FROM THIS INCOME, DEDUCTIONS ARE PERMITTED AND ALLOWED IN TER MS OF CHAPTER VIA. DEDUCTIONS DO NOT MEAN THAT DEDUCTION ALLOWED HAS T HE EFFECT THAT THE INCOME, ON WHICH DEDUCTION IS ALLOWED, CEASES TO BE PART OF THE TOTAL INCOME. THIS IS NOT THE SCHEME, EFFECT AND PURPORT OF THE ACT. THE EXPRESSION INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME REFERS TO T HE NATURE, CHARACTER OR TYPE OF INCOME AND NOT THE QUANTUM. ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 39 - 34. SECTION 14A STATES THAT FOR THE PURPOSE OF COMP UTING TOTAL INCOME UNDER CHAPTER IV, NO DEDUCTION SHALL BE ALLOWED IN RESPEC T OF EXPENDITURE INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. IT DOES NOT STATE THAT INCOME WHICH IS EN TITLED TO DEDUCTION UNDER CHAPTER VIA HAS TO BE EXCLUDED FOR THE PURPOSE OF T HE SAID SECTION. THE WORDS DO NOT FORM PART OF THE TOTAL INCOME UNDER THIS AC T IS SIGNIFICANT AND IMPORTANT. AS NOTICED ABOVE, BEFORE ALLOWING DEDUCT ION UNDER CHAPTER VIA WE HAVE TO COMPUTE THE INCOME AND INCLUDE THE SAME IN THE TOTAL INCOME. IN THIS MANNER, THE INCOME WHICH QUALIFIES FOR DEDUCTI ONS UNDER SECTIONS 80C TO 80U HAS TO BE FIRST INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IT, THEREFORE, BECOMES PART OF THE INCOME, WHICH IS SUBJECTED TO T AX. THEREAFTER, DEDUCTION IS TO BE ALLOWED IN ACCORDANCE WITH AND SUBJECT TO THE FULFILLMENT OF THE CONDITIONS OF THE RESPECTIVE PROVISIONS. THIS IS AL SO SUBJECT TO SECTION 80AB AND 80A(1) AND (2). CHAPTER VIA DOES NOT POSTULATE OR STATE THAT THE INCOMES WHICH QUALIFY FOR THE SAID DEDUCTION WILL BE EXCLUD ED AND NOT FORM PART OF THE TOTAL INCOME. THEY FORM PART OF THE TOTAL INCOME BU T ARE ALLOWED AS A DEDUCTION AND REDUCED. 35. IT IS CLEAR FROM THE AFORESAID REASONING THAT T HE DECISIONS IN THE CASE OF DISTRIBUTORS (BARODA) PRIVATE LIMITED AND CAMBAY EL ECTRIC SUPPLY INDUSTRIAL CO. LTD (SUPRA) HAVE PROCEEDED ON THE SPECIFIC LANG UAGE OF THE SAID SECTIONS, WHEREAS IN THE OTHER DECISIONS STUMPP SCHUELE AND S OMAPPA PRIVATE LIMITED AND SOUTH INDIAN BANK (SUPRA) AND THOSE OF THE HIGH COURTS MENTIONED ABOVE HAVE GONE ON THE GENERAL PRINCIPLE RELATING TO DEDU CTIONS ALLOWED AND WHETHER A DEDUCTION ONCE ALLOWED HAS THE EFFECT THA T THE INCOME ON WHICH DEDUCTION CEASES TO BE PART OF THE TOTAL INCOME. IT HAS BEEN UNIFORMLY AND CONSISTENTLY HELD THAT IN THE ABSENCE OF EXPRESS LA NGUAGE TO THE CONTRARY, DEDUCTION IF ALLOWED DOES NOT MEAN THAT THE SAID IN COME CEASES TO BE PART OF THE TOTAL INCOME. 36. IN VIEW OF THE AFORESAID POSITION, WE ANSWER TH E QUESTIONS OF LAW MENTIONED ABOVE IN AFFIRMATIVE, I.E., AGAINST THE A PPELLANT-REVENUE AND IN FAVOUR OF THE RESPONDENT-ASSESSEE.IN THE FACTS OF T HE PRESENT CASE, THERE WILL BE NO ORDER AS TO COSTS. 9. WE CHOOSE TO FOLLOW RATIO LAID DOWN IN THE SAID DECISION OF DELHI HIGH COURT AND SEE ANY REASON TO INTERFERE WITH THE FINDINGS/CONCL USIONS RENDERED BY BOTH THE REVENUE AUTHORITIES, NAMELY, CIT(APPEALS)AND THE TR IBUNAL AND ANSWER THE QUESTION ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 40 - IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. TAX APPEAL IS ACCORDINGLY DISPOSED OF. 13.7. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEME NT OF THE HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF C IT VS. BANASKANTHA DIST.CO-OP.MILK PRODUCERS UNION LTD.()SUPRA), WE H EREBY DIRECT THE AO TO DELETE THE DISALLOWANCE. THUS, THIS GROUND OF A SSESSEES APPEAL IS ALLOWED. 13.8. INA THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.567/AHD/2011 FOR AY 2007-08 IS PARTLY ALLOWED. 14. NOW, WE TAKE UP THE REVENUES APPEALS IN ITA NOS.651 & 652/AHD/2011 FOR AYS 2005-06 & 2006-07 RESPECTIVELY , WHEREIN FOLLOWING COMMON GROUNDS HAVE BEEN TAKEN:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN CANCELLING THE DISALLOWANCE OF 28,63,740/- (FOR AY 2005-06) AND OF 29,49,652/- (FOR AY 2006-07) MADE U/S.40(A)(IA) WITHOUT APPRECIATING THE FACT THAT AS PER THE ARTICLE-4 OF CONTRACT DATED 17.01.1998 ENTERED INTO WITH GAIL, T HE CONTRACT FOR SALE AND DELIVERY (TRANSPORTATION) WERE SEPARATE AND BEI NG SEPARATELY CHARGED BY GAIL, THEREFORE IN VIEW OF CLEAR CUT PRO VISIONS OF SECTION 194C OF THE ACT, THE TDS WAS REQUIRED FROM TRANSPOR TATION CHARGE WHICH THE ASSESSEE HAD FAILED TO DEDUCT. 2. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND OR ALTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. RELIEF CLAIMED IN APPEAL ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 41 - THE ORDER OF THE CIT(A) ON THE ISSUES RAISED IN THE AFORESAID GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE R ESTORED. 14.1. THE LD.SR.DR SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. HE SUBMITTED THAT THE A O HAS GIVEN A CATEGORICAL FINDING THAT THE PROVISIONS OF SECTION 194C OF THE ACT IS APPLICABLE, THEREFORE THE ASSESSEE OUGHT TO HAVE DE DUCTED THE TAX. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESSEE SUPPORT ED THE ORDER OF THE LD.CIT(A). 14.2. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS FOLLOWED THE DECISIO N OF THE COORDINATE BENCH (ITAT D BENCH AHMEDABAD) RENDERED IN THE CA SE OF M/S.KRISHAK BHARATI CO-OPERATIVE LTD. VS. ITO IN I TA NOS.1702,1703/AHD/2007(ASSESSEE), 2473,2474/AHD/200 7(REVENUE), 4573 & 4574(ASSESSEE)/AHD/2007, DATED 05/09/2008. THE LD.SR.DR COULD NOT POINT OUT ANY CONTRARY DECISION, THEREFOR E WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A), SAME IS HE REBY UPHELD. THUS, COMMON GROUND RAISED IN THE REVENUES APPEAL IS REJ ECTED FOR BOTH THE YEARS. ITA NOS.563 TO 567/AHD/2011(BY ASSESSEE) AYS - 2002-03,2004-05, 2005-06, 2006-07, 2007-08 RE SPECTIVELY AND ITA NO.651 & 652/AHD/2011 AYS- 2005-06 & 2006-07 RESPECTIVELY KAIRA DIST. CO-OP.MILK PRODUCERS UNION LTD. VS. D CIT - 42 - 15. IN THE COMBINED RESULT, ALL THE FIVE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED, WHEREAS BOTH THE APPEALS OF THE REV ENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 5 TH DAY OF JUNE, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 05/ 06 /2015 (..,.../ T.C. NAIR, SR. PS !'#'$ / COPY OF THE ORDER FORWARDED TO : 1. )* +, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. /0/12 3 / CONCERNED CIT 4. 3 ( )* ) / THE CIT(A)-IV, BARODA 5. 45-12 , )* )12' , )0 / DR, ITAT, AHMEDABAD 6. 5789 / GUARD FILE. / BY ORDER, .4*- //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 13/18.5.15 (DICTATION-PAD 31+PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..22/25.5.15 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.5.6.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 5.6.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER