Tamilnadu Foodgrains Marketing Yard, Madurai V. DCIT, Madurai

ITA 635/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9228 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 24-05-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 18-03-2016
• Court: TRIBUNAL
• Assessee Lawyers: G GOPALAN ITP RETD
• Keywords: Capital asset; Depreciation
• Section: 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , ! , . ' # BEFORE SHRI A.MOHAN ALANKAMONY, , ACCOUNTANT MEMBER AND SHRI SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.635 /MDS./2016 ( / ASSESSMENT YEAR :2011-12) M/S.TAMILNADU FOODGRAINS MARKETING YARD , MADURAI-ALANGANALLUR ROAD, SIKKANDARCHAVADI, MADURAI 625 018. VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE I(I), MADURAI 625 002. PAN AABCT 1101 F ( $% / APPELLANT ) ( &'$% / RESPONDENT ) / APPELLANT BY : MR.G.GOPALAN, ITP RETD. JCIT / RESPONDENT BY : MRR.CLEMENT RAMESH KUMAR, ADDITIONAL JCIT, D.R ! / DATE OF HEARING : 24.05.2016 '# ! /DATE OF PRONOUNCEMENT : 31.05.2016 ( / O R D E R PER G.PAVAN KUMAR , JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME TAX, CHENNAI-1, MADUR AI IN ITA NO.635/MDS/2016 2 ITA NO.0112/2014-15, DATED 18.01.2016 PASSED REVI SION ORDER U/S.143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2011- 12. 2.1 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL FOR ADJUDICATION. 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -1, MADURAI 625 002 HAS ERRED IN CONFIRMING THE ADDITION BEING THE DISALLOWANCE OF DEPRECIATION MADE BY THE LEARNED ASSESSING OFFICER AMOUNTING TO RS. 1,89,06,167/-. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -1 HAS ERRED IN REDUCING ONE TIME GRANT-IN-AID BY THE APPELLANT UND ER INDUSTRIAL INFRASTRUCTURE UPGRADATION SCHEME (IIUS), DEPARTMEN T OF INDUSTRIAL POLICY & PROMOTION (DIPP), MINISTRY OF COMMERCE & I NDUSTRY GOI, VIZ., RS29,07,09,000, FROM THE COST OF THE CAPITAL ASSET FOR THE PURPOSE OF DETERMINING THE DEPRECIATION. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -1 HAS ERRED IN NOT APPRECIATING THE OBJECTIVE OF THE IIU SCHEME, WHICH IS TO ENHANCE INTERNATIONAL COMPETITIVENESS OF THE DOMESTIC INDUS TRY BY PROVIDING QUALITY INFRASTRUCTURE THROUGH PUBLIC PRIVATE PARTN ERSHIP (PPP) APPROACH IN SELECTED FUNCTIONAL CLUSTERS / LOCATION S WHICH HAVE POTENTIAL TO BECOME GLOBALLY COMPETITIVE. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -1 HAS FAILED TO CONSIDER THE CHARACTER AND NATURE OF THE GRANT-IN-A ID OF GOL, WHICH WAS INTENDED AS AN INCENTIVE TO ENCOURAGE THE ENTREPREN EURS VIZ., CEREALS, ITA NO.635/MDS/2016 3 PULSES & STAPLES (CPS) CLUSTER PLAYERS TO ESTABLISH QUALITY INFRASTRUCTURE FOR CPS INDUSTRIAL GROWTH TO BECOME GLOBALLY COMPETITIVE AND FOR EMPLOYMENT GENERATION. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS )-1 HAS NOT APPRECIATED THAT THE APPELLANT WAS SELECTED UNDER T HE SCHEME TO PROVIDE COMMON FACILITY CENTRE FOR THE FUNCTIONAL C EREALS, PULSES & STAPLES (CPS) INDUSTRY CLUSTER, TO BE AVAILED BY TH E MEMBERS OF THE NON PROFIT APPELLANT ORGANIZATION. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -1 HAS NOT APPRECIATED THAT THE CAPITAL INCENTIVE GRANT-IN-AID WAS FOR THE PURPOSE OF ESTABLISHING AND MAINTAINING QUALITY INFRASTRUCT URE FACILITY THROUGH PPP MODE AND NOT TO OFFSET ANY PORTION OF THE ACTUA L COST OF ANY SPECIFIC CAPITAL ASSET, DIRECTLY OR INDIRECTLY AND THUS IT FALLS OUTSIDE THE KEN OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -1 HAS ERRED IN NOT FOLLOWING THE DECISION OF THE APEX COURT AND DECISI ONS OF THE TRIBUNAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE IS A PUBLIC LIMITED COMPANY AND A NON-PROFIT COMPANY INCORPORAT ED U/S.25 OF THE COMPANIES ACT, 1956, ENGAGED IN THE BUSINESS OF FOO D PROCESSING AND STORAGE, AND FILED RETURN OF INCOME ON 28.09.2 011 WITH A LOSS OF `1,46,92,104 /-. SUBSEQUENTLY, THE RETURN OF INCOME WAS SELECT ED ITA NO.635/MDS/2016 4 FOR SCRUTINY UNDER CASS AND NOTICE U/S.143(2) WAS I SSUED TO THE ASSESSEE ON 31.07.2012. IN COMPLIANCE TO THE NOTIC E, THE AUTHORISED REPRESENTATIVE OF ASSESSEE APPEARED FROM TIME TO TI ME AND FURNISHED THE DETAILS CALLED FOR DURING ASSESSMENT PROCEEDINGS. 3.1 DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUN D THAT THE ASSESSEE HAS RECEIVED CAPITAL SUBSIDY OF ` 29,07,09,000/- FROM CENTRAL GOVERNMENT OF INDIA VIDE APPROVAL ORDER DAT ED 07.11.2004 AND THE ASSESSEE COMPANY CLAIMED DEPRECIATION ON TH E COST OF ASSETS WITHOUT DEDUCTING THE GRANT-IN-AID FROM THE COST OF THE ASSETS. THE LD.A.R ARGUED BEFORE THE AO THAT IT IS A NON-PR OFIT COMPANY AND ACTS AS THE SPECIAL PURPOSE VEHICLE(SPV) UNDER THE MINISTRY OF COMMERCE AND INDUSTRIES AND THE GRANT-IN-AID RECEIV ED FROM GOI WAS CAPITAL IN NATURE AND IT IS NOT FOR ANY SPECIFI C ASSET OF THE ASSESSEE AND ENTITLED TO CLAIM DEPRECIATION. THE L D. ASSESSING OFFICER WAS NOT SATISFIED WITH THE SUBMISSIONS AND WAS OF THE VIEW THAT IN TERMS OF EXPLANATION-10 TO SEC.43(1) OF THE ACT, THE SUBSIDIARY AMOUNT HAS TO BE REDUCED FROM THE COST OF THE ASSET , EVEN THOUGH IT DOES NOT HAVE DIRECT NEXUS IN RESPECT OF SPECIFIC A SSET. LD.A.R ITA NO.635/MDS/2016 5 SUBMITTED THAT THE BASIC MOTIVE OF THE CENTRAL GOVE RNMENT IS EXTENDING SUBSIDIARY TO THE ASSESSEE TO BRING DOWN THE PROJECT COST AND SUCH EXPENDITURE IS MADE INDIRECTLY. LD.A.R REL IED ON THE DECISIONS OF HONBLE APEX COURT IN THE CASE OF CIT VS. P.J.CHEMICALS LTD., (210 ITR 830). IN THE ASSESSMENT ORDER, THE L D. ASSESSING OFFICER OBSERVED THAT THE ABOVE APEX COURT DECISION RELIED BY THE ASSESSEE WAS RENDERED PRIOR TO INSERTION OF EXPLANT ION-10 TO SEC.43(1) OF THE ACT WHEREAS THE EXPLANATION-10 WAS INSERTED FROM 01.04.1999. ON PERUSAL OF THE APPROVAL ORDER OF GO VERNMENT OF INDIA DATED 07.11.2004, THE TOTAL COST PROJECT IS ` 39.96 CORES, OUT OF WHICH THE GRANT-IN-AID IS ` 29.97 CRORES (AMOUNTING TO 75% OF THE TOTAL PROJECT COST) AND THE BALANCE ` 9.99 CRORES HAS TO BE CONTRIBUTED BY THE USERS, LENDING AGENCIES AND STATE GOVERNMENT. W ITH THIS UNDERSTANDING, THE LD. ASSESSING OFFICER IS OF THE OPINION THAT GRANT OF ` 29.97 CRORES IS NOT AN INCENTIVE, BUT ONLY A SUBSID IARY TO MEET THE ASSETS COST. THEREFORE, THE AO APPORTIONED THE SUB SIDY AMOUNT AGAINST THE OPENING WDV OF THE ASSETS AND DISALLOWE D EXCESS DEPRECIATION OF ` 1,89,06,167/- CLAIMED BY THE ASSESSEE, WHICH WAS ADDED TO THE RETURN OF INCOME ALONG WITH OTHER ADD ITIONS IN THE ITA NO.635/MDS/2016 6 ASSESSMENT ORDER PASSED U/S.143(3) OF THE ACT ON 18 .03.2014. AGGRIEVED WITH THE ORDER OF AO, THE ASSESSEE HAS P REFERRED AN APPEAL BEFORE THE CIT(A). 3.2. IN THE APPELLATE PROCEEDINGS, THE LD.A.R EXPL AINED THE BASIC PURPOSE OF CENTRAL GOVERNMENT IN GRANTING SUBSIDIAR IES. LD.CIT(A) HAS CONSIDERED THE SUBMISSIONS OF LD.A.R, FINDINGS OF THE LD. ASSESSING OFFICER AND DISCUSSED ELABORATELY ON THE EXPLANTION-10 TO SEC.43(1) OF THE ACT AT PARA-3 OF HIS ORDER AND OB SERVED THAT APEX COURT DECISION RELIED BY THE ASSESSEE IS NOT APPLIC ABLE AFTER INTRODUCTION OF EXPLANTION-10 TO SEC.43(1) OF THE A CT. LD.CIT(A) HAS AGREED WITH THE FINDINGS OF THE AO AT PAGES 2 TO 7 OF HIS ORDER AND UPHELD THE ADDITION MADE BY THE LD. ASSESSING OFFIC ER ON THIS ISSUE. AGGRIEVED WITH THE ORDER OF LD. CIT, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US, LD.A.R REITERATED THE SUBMISSIONS MA DE IN THE ASSESSMENT, IN FIRST APPELLATE PROCEEDINGS AND RELI ED ON THE JUDICIAL DECISION AND EXPLAINED THE MAIN PURPOSE OF GRANTING SUBSIDIARY BY ITA NO.635/MDS/2016 7 CENTRAL GOVERNMENT. FURTHER, LD.A.R ARGUED THAT IT IS A GOVERNMENT SPECIAL PURPOSE VEHICLE WHICH GRANTS SUBSIDIARY AND ALSO SUBMITTED PAPER BOOK AND JUDICIAL PRONOUNCEMENTS OF TRIBUNAL IN SUPPORT OF HIS ARGUMENTS. THEREFORE, THE LD.A.R PLEADED THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON THE COST AND GRAN T CANNOT BE REDUCED FROM WDV VALUE. FURTHER, HE HAS PROVIDED A COPY OF MEMORANDUM AND THE RELEASE OF GRANT BY THE GOVERNMENT OF INDIA AND PRAYED THAT THE GROUND MAY BE ALLOWED. 5. CONTRA, LD.D.R RELIED ON THE FINDINGS OF THE LO WER AUTHORITIES AND RELIED ON THE OBSERVATIONS OF THE CIT(A) AND JUDICI AL DECISION OF APEX COURT CITED BY THE ASSESSEE IS NOT APPLICABLE TO TH E PRESENT CASE OF THE ASSESSEE AFTER INSERTION OF EXPLANTION-10 TO SE C.43(1) OF THE ACT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL ON RECORD AND JUDICIAL DECISION CITED. THE LD.A.R HAS EMPHASIZED THAT THE CAPITAL INCENTIVE GRANT-IN-AID WAS FOR THE PURP OSE OF ESTABLISHING AND MAINTAINING QUALITY INFRASTRUCTURE FACILITY THR OUGH PPP MODE AND NOT TO OFFSET ANY PORTION OF THE ACTUAL COST OF ANY SPECIFIC CAPITAL ITA NO.635/MDS/2016 8 ASSET, DIRECTLY OR INDIRECTLY AND THUS IT FALLS OUT SIDE THE KEN OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT. FURTHE R, LD.A.R SUBMITTED THAT THE ASSESSEE WAS SELECTED UNDER THE INDUSTRIA L INFRASTRUCTURE UPGRADATION SCHEME TO PROVIDE COMMON FACILITY CENT RE FOR THE FUNCTIONAL CEREALS, PULSES & STAPLES (CPS) INDUSTRY CLUSTER, TO BE AVAILED BY THE MEMBERS OF THE NON-PROFIT APPELLANT ORGANIZATION, AND DREW OUR ATTENTION TO PAGE -17 OF THE PAPER BOOK AN D PRAYED THAT THE GRANT RECEIVED FROM THE CENTRAL GOVERNMENT SHOULD N OT BE REDUCED FROM THE COST OF THE ASSET AND DEPRECIATION SHOULD BE ALLOWED. LD.A.R ALSO REFERRED TO THE VARIOUS CLAUSES & TERMS CONDITIONS, MONITORING, COST ESTIMATES, ROLE OF STATE GOVERNMEN T, ADMINISTRATIVE EXPENSES AND ASSETS ACQUIRED OUT OF GOVERNMENT ASSI STANCE AND THE ASSETS/ PROPERTIES OF THE GOVERNMENT ISSUED BY DEPA RTMENT OF INDUSTRIAL POLICY & PROMOTION VIDE APPROVAL ORDER D ATED 20.10.2004 MENTIONED AT PGE-29 OF THE PAPER BOOK AND THE GOVER NMENT SHALL APPOINT AN INDEPENDENT AUDITOR TO MONITOR AGENCY. THE GRANT WAS RELEASED ON 5 TH DECEMBER, 2011 WITH CERTAIN REQUISITE NECESSITIES TO BE COMPLIED BY THE ASSESSEE. LD.A.R FURTHER EXPLAIN ED THE OBJECTS, AIMS AND REFERRED TO THE MEMORANDUM OF ARTICLES OF THE ORGANIZATION ITA NO.635/MDS/2016 9 AND SUPPORTED HIS ARGUMENTS WITH VARIOUS DECISIONS OF THE TRIBUNAL INCLUDING THE DECISION IN THE CASE OF SAISRI EXTRAC TIONS LTD. VS. ACIT REPORTED IN (2008) 119 TTJ (VISAKHA) 976 WHERE THE SIMILAR ISSUE WAS ADJUDICATED IN CONTRAST WITH THE DECISION OF APEX C OURT IN THE CASE OF P.J.CHEMICALS LTD.,(SUPRA) AND THE TRIBUNAL OBSERVE D AS FOLLOWS:- 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. IN OUR CONSIDERED OPINION, EVEN AFTER I NSERTION OF EXPLN. 10 TO S. 43(1) OF THE ACT, THE BASIC PRINCIPLE UNDERLY ING IN THE DECISION OF THE APEX COURT IN THE CASE OF P.J. CHEMICALS LTD. ( SUPRA) STILL HOLDS THE FIELD. THEIR LORDSHIPS ANALYZED THE EXPRESSION 'MET DIRECTLY OR INDIRECTLY' TO COME TO THE CONCLUSION THAT ONLY IN A CASE WHERE A SUBSIDY OR OTHER GRANT WAS GIVEN TO OFFSET THE COST OF AN ASSET, SUCH PAYMENT/GRANT WOULD FALL WITHIN THE EXPRESSION 'MET ', WHEREAS THE SUBSIDY RECEIVED MERELY TO ACCELERATE THE INDUSTRIA L DEVELOPMENT OF THE STATE CANNOT BE CONSIDERED AS PAYMENTS MADE SPE CIFICALLY TO MEET A PORTION OF THE COST OF THE ASSETS. 12. A CAREFUL PERUSAL OF 'TARGET 2000' SCHEME SHOWS THAT THE SCHEME WAS INTENDED TO ACCELERATE INDUSTRIAL DEVELOPMENT O F THE STATE AND THE INCENTIVE WAS GIVEN FOR SETTING UP OF INDUSTRIE S IN ANDHRA PRADESH AND FOR THE PURPOSE OF DETERMINING THE AMOUNT OF SU BSIDY TO BE GIVEN, COST OF ELIGIBLE INVESTMENT WAS TAKEN AS THE BASIS, THOUGH IT WAS NOT SPECIFICALLY INTENDED TO SUBSIDISE THE COST OF THE CAPITAL. UNDER THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE INCENTIV E IN THE FORM OF SUBSIDY CANNOT BE CONSIDERED AS A PAYMENT DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE ACTUAL COST AND THUS IT FAL LS OUTSIDE THE KEN OF EXPLN. 10 TO S. 43(1) OF THE ACT. IN THE LIGHT OF T HE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT FOR THE PURPOSE OF COMPUTIN G DEPRECIATION ALLOWABLE TO THE ASSESSEE, THE SUBSIDY AMOUNT CANNO T BE REDUCED FROM THE COST OF THE CAPITAL ASSET. THE AO IS DIREC TED ACCORDINGLY. THE PRESENT CASE OF THE ASSESSEE IS SIMILAR TO THE ABOVE DECISION OF THE TRIBUNAL CITED SUPRA WHERE THE PROVISIONS ARE D ISCUSSED ELABORATELY AND THE SUBSIDIARY AMOUNT SHALL NOT BE DEDUCTED FROM THE ITA NO.635/MDS/2016 10 COST OF THE ASSET. RESPECTFULLY FOLLOWING THE DECI SION OF THE TRIBUNAL, WE SET ASIDE THE ORDER OF THE LD.CIT(A) AND ALLOW T HE GROUNDS OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON TUESDAY, THE 31 ST MAY, 2016 AT CHENNAI. SD/- SD/- ( . ) (A.MOHAN ALANKAMONY) ( . ) (G.PAVAN KUMAR) $ ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 31 ST MAY ,2016 . K S SUNDARAM. %&$$'($)( /COPY TO: $ 1. /APPELLANT 2. /RESPONDENT 3. $ *$+, /CIT(A) 4. $ * /CIT 5. (-. $/ /DR 6. .0$1 /GF