GARWARE INDUSTRIES LTD, MUMBAI V. A.C.I.T.- 8(1), MUMBAI

ITA 6364/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88179 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 11-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-09-2011
• Court: TRIBUNAL
• Department Lawyers: R N DSOUZA
• Keywords: Capital asset; Depreciation
• Section: 143(3); 115JB; 10

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 6364/M/2011 ( / ASSESSMENT YEAR : 2007 - 2008 ) GARWARE INDUSTRIES LTD., 50A, SWAMI NITYANAND MARG, WESTERN EXPRESS HIGHWAY, VILEPARLE (E), MUMBAI - 57. / VS. ACIT - 8(1), MUMBAI. ./ PAN : AAACG 4011G ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI VIJAY MEHTA / RESPONDENT BY : SHRI R.N. DSOUZA, DR / DATE OF HEARING : 9.12.2014 / DATE OF PRONOUNCEMENT : 21 .01.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE 15.9.2011 IS AGAINST THE ORDER OF THE CIT (A) - 16, MUMBAI DATED 15.7.2011 FOR THE ASSESSMENT YEAR 2007 - 2008. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUND WHICH READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD CIT (A) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN REDUCING RS. 3 0 LAKHS FROM THE COST OF PLANT AND MACHINERY, BEING SPECIAL CAPITAL INCENTIVE RECEIVED BY THE APPELLANT FROM SICOM UNDER SCHEME FOR INCENTIVE 1993 FOR THEIR WALUJ PL ANT. THE CIT (A) GROSSLY ERRED IN NOT APPRECIATING THE EVIDENCES FILED DURING THE COURSE OF APPELLATE PROCEEDINGS TO SUBSTANTIATE THAT THE SUBSIDY RECEIVED BY THE APPELLANT WAS NOT AGAINST ANY SPECIFIC ASSETS AND THUS SHOULD NOT BE REDUCED FROM THE COST O F THE ASSETS. 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PLASTIC PACKAGING GOODS AND COLOUR LAMINATED FILM. ASSESSEE FILED THE RETURN OF INCOME DECLARING THE LOSS OF RS. 1,59,04,099/ - AND BOOK PROFIT U/S 115JB AT RS. 2,56,33,478/ - . ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 2,39,390/ - UNDER THE NORMAL PROVISIONS AND RS. 3,15,35,175/ - U/S 115JB OF THE ACT. DURING THE ASSESSMENT PROCEED INGS ASSESSING OFFICER OBSERVED THAT DURING THE ASSESSEE ASSESSEE HAS 2 RECEIVED SPECIAL CAPITAL INCENTIVE OF RS. 30,00,000/ - FROM GOVERNMENT OF MAHARASHTRA UNDER THE DISPERSAL OF INDUSTRIES PACKAGE SCHEME OF INCENTIVES, 1993. I N THIS REGARD, IT IS THE OPIN ION OF THE ASSESSING OFFICER THAT THE ASSESSEE IS SUPPOSED TO REDUCE THE SUBSIDY RECEIVED FROM C O S T O F THE PLANT AND MACHINERY TO ARRIVE AT THE ACTUAL COST OF THE PLANT AND MACHINERY. THE SAME WAS NOT DONE BY THE ASSESSEE AND THEREFORE, THE ASSESSING OFFICER OPIN ED THAT THE ASSESSEE HAS CLAIMED EXCESS DEPRECIATION OF RS. 10,50,000/ - . ACCORDINGLY, HE DISALLOWED THE SAME AND COMPUTED THE TOTAL INCOME. AGGRIEVED WITH THE SAID DECISION OF THE ASSESSING OFFICER, ASSESSEE FILED CARRIED THE MATTER IN APPEAL BEFORE THE F IRST APPELLATE AUTHORITY. 3. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) DISMISSED THE APPEAL VIDE PARA 2.3.7 OF THE IMPUGNED ORDER. AGGRIEVED WITH THE SAID DECISION OF THE CIT (A) , ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUND. 4. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE FILED A COPY OF THE DECISION OF THE ITAT, PUNE BENCH IN THE CASE OF SOHAM ELECTROPLAST PVT LTD VS. ITO VIDE ITA NO.1578/PN/2008 (AY 2005 - 2006) DATED 28.10.2010. HE BROUGHT OUR ATTENTION TO PARA 4 AND 5 OF THE SAID ORDER OF THE TRIBUNAL AND MENTIONED THAT AN IDENTICAL ISSUE CAME UP BEFORE THE ITAT AND THE SAME WAS DECIDED IN FAVOUR OF THE ASSESSEE. IN THIS REGARD HE READ OUT THE RELEVANT PARAS. 5. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED ORDERS OF THE TRIBUNAL IN THE CASE OF SOHAM ELECTROPLAST PVT LTD (SUPRA). ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL DATED 28.10.2010, WE FIND PARAS 4 AND 5 OF THE TRI BUNALS ORDER ARE RELEVANT IN THIS REGARD AND THE SAME READS AS UNDER: 4. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS AD VANCED BY THE PARTIES IN VIEW OF THE ORDERS OF THE LOWER AUTHORITIES, MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. THE RELEVANT FACTS ARE THAT THE ASSESSEE COMPANY ESTABLISHED SSI UNIT IN BACKWARD AREA AND DURING THE YEAR, RECEIVED SUM OF R S. 12,73,000/ - UNDER PACKAGE SCHEME OF INCENTIVES 1993 FROM STATE GOVERNMENT. THE AMOUNT WAS CREDITED TO CAPITAL RESERVE A/C. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS PER EXPLANATION - 10 TO SECTION 43(1) OF THE ACT, ANY SUBSIDY BY WHATEVER NAME CALLE D RECEIVED FROM THE GOVERNMENT IS REQUIRED TO BE REDUCED FROM THE ACTUAL COST OF THE ASSETS FOR THE 3 PURPOSE OF DEPRECIATION UNDER THE INCOME TAX ACT, 1961., THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND FINALLY CONCLUDED THAT THE AMOUNT OF RS. 12,73,000/ - SHOULD BE EXCLUDED FROM THE COST OF ASSETS FOR THE DEPRECIATION AND MADE AN ADDITION AFTER RE - WORKING THE SAME. THE LD CIT (A) HAS UPHELD THE ACTION OF THE ASSESSING OFFICER, AGAINST WHICH ASSESSEE IS IN APPEAL BEFORE U S. 5. AN IDENTICAL ISSUE WAS RAISED UNDER SIMILAR MATERIAL FACT S IN THE CASE OF M/S. SAPNA RE - ROLLING INDUSTRIES VS. ITO (SUPRA) WHEREIN FOLLOWING THE DECISION OF VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF SASISRI EXTRACTIONS LTD VS. ACIT (2008), 3 07/(AT) 127, THE PUNE BENCH HAS COME TO THE CONCLUSION THAT THE ASSESSING OFFICER WAS NOT TO MAKE ANY ADJUSTMENT FOR THE PURPOSE OF DEPRECIATION, ON ACCOUNT OF SUBSIDY IN QUESTION RECEIVED BY THE ASSESSEE. IN THE SAID CASE OF M/S. SAPNA REROLLING INDUSTR IES VS. ITO (SUPRA) BEFORE THE PUNE BENCH, THE ASSESSEE WAS A REGISTERED FIRM ENGAGED IN THE MANUFACTURING OF M.S. BARS. IN THE AY 2002 - 2003, THE ASSESSEE RECEIVED AND AMOUNT OF RS. 6,50,871/ - AS STATE GOVERNMENT SUBSIDY, WHICH THE ASSESSEE DIRECTLY TRANS FERRED TO RESERVE & SURPLUS. THE ASSESSING OFFICER WAS, HOWEVER, OF THE VIEW THAT THE SUBSIDY WAS CAPITAL IN NATURE AND ACCORDINGLY, THE SAME SHOULD HAVE BEEN REDUCED FROM THE COST OF ASSETS IN TERMS OF EXPLANATION - 10 TO SECTION 43(1) OF THE ACT. THE TRI BUNAL OBSERVED THAT SUBSIDY IN QUESTION IS NOT AN ASSET SPECIFIC SUBSIDY BUT A GENERAL SUBSIDY FOR LOCATION OF INDUSTRIAL UNIT IN BACKWARD AREAS. THE TRIBUNAL, THEREAFTER, FOLLOWING THE DECISION OF VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF SASISR I EXTRACTIONS LTD VS. ACIT (SUPRA) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PARA 12 & 13 OF THE DECISION IN THE CASE OF SASISRI EXTRACTIONS LTD VS. ACIT (SUPRA) IS BEING REPRODUCED HERE - UNDER FOR A READY REFERENCE: 1.2. WE HAVE CAREF ULLY CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE RECORD. IN OUR CONSIDERED OPINION, EVEN AFTER INSERTION OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT, THE BASIC PRINCIPLE UNDERLYING IN THE DECISION OF THE APEX COURT IN THE CASE OF P.J. CHEMICALS LTD [1994] 210 ITR 830, STILL HOLDS THE FIELD. THEIR LORDSHIPS ANALYSED 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 WOU LD FALL WITHIN THE EXPRESSION MET WHEREAS THE SUBSIDY RECEIVED MERELY TO ACCELERATE THE INDUSTRIAL DEVELOPMENT OF THE STATE CANNOT BE CONSIDERED AS PAYMENTS MADE SPECIFICALLY TO MEET A PORTION OF THE COST OF THE ASSETS. 1.3. A CAREFUL PERUSAL OF TARGET 2000 SCHEME SHOWS THAT THE SCHEME WAS INTENDED TO ACCELERATE INDUSTRIAL DEVELOPMENT OF THE STATE AND THE INCENTIVE WAS GIVEN FOR SETTING UP OF DETERMINING THE AMOUNT OF SUBSIDY TO BE GIVEN THE COST OF ELIGIBLE INVESTMENT WAS TAKEN AS THE BASIS, THOUGH IT WAS NOT SPECIFICALLY INTENDED TO SUBSIDIZE THE COST OF THE CAPITAL. UNDER THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE INCENTIVE IN THE FORM F SUBSIDY CANNOT BE CONSIDERED AS A PAYMENT DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE ACTUAL COST OF THUS IT FALLS OUTSIDE THE KEN OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT. IN THE LIGHT OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT FOR THE PURPOSE OF COMPUTING DEPRECIATION ALLOWABLE TO THE ASSESSEE, THE SUBSIDY AMOUNT CANNOT BE REDUCED FROM THE ACTUAL COST OF THE CAPITAL ASSET. THE ASSESSI NG OFFICER IS DIRECTED ACCORDINGLY. WE, THUS, FOLLOWING THE ABOVE DECISIONS, SET ASIDE ORDERS OF THE LOWER AUTHORITIES ON THE ISSUE WITH DIRECTION TO THE ASSESSING OFFICER TO DECIDE THE ISSUE IN VIEW OF THE ABOVE CITED DECISION OF PUNE BENCH IN THE CASE OF M/S. SAPNA RE - ROLLING INDUSTRIES VS. ITO (SUPRA). THE GROUND IS, ACCORDINGLY ALLOWED IN FAVOUR OF THE ASSESSEE. 7. CONSIDERING THE ABOVE SETTLED NATURE OF THE I SSUE AND RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT, PUNE BENCH, WE ISSUE THE IDENTICA L DIRECTIONS TO THE ASSESSING OFFICER TO DECIDE THE ISSUE IN VIEW OF ABOVE MENTIONED ORDER OF THE ITAT, PUNE BENCH IN THE CASE OF M/S. SAPNA RE - ROLLING INDUSTRIES (SUPRA). ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. 4 8. IN THE RES ULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONO UNCED IN THE OPEN COURT ON 2 1 S T JANUARY, 2015. S D / - S D / - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 2 1 .1.2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI