M/s. Rai Bahadur Narain Singh Sugar Mills Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 703/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86997 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 12-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Keywords: Business income; Depreciation; Diversion of income; Revenue expenditure
• Section: 115JB; 32; 12; 10; 11

Judgement Text

ITA NO.703/DEL/2013 AY 2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `F NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.703/DEL/2013 ASSESSMENT YEAR : 2009-10 RAI BAHADUR NARAIN SINGH SUGAR MILLS VS A DDL.CIT, LTD., PLOT NO.5, B BLOCK, RANGE-15, MIDDLE CIRCLE, C.R. BUILDING, OPP. INDRA PALACE BUILDING, NEW DELHI. CONNAUGHT PLACE, NEW DELHI-110001 (PAN: AAACR0924M) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI M.P. RASTOGI, CA RESPONDENT BY : SHRI VIKRAM SAHAY, SR . DR DATE OF HEARING: 12.2.2015 DATE OF PRONOUNCEMENT:20.03.2015 O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER OF THE CIT(A)-XVIII, NEW DELHI DATED 4.12.2012 IN APPEAL NO. 263/11-12 FOR AY 2009-10. IN THE BEGINNING OF THE ARGUMENT, LD. COU NSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE DOES NOT WANT TO PRESS GROUND NO. 1(A) AND (B), THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. R EMAINING GROUND NOS. 2 TO 5 READ AS UNDER:- ITA NO.703/DEL/2013 AY 2009-10 2 2. THAT THE LEARNED CIT (A) HAS ERRED BOTH ON FACT S IN LAW IN HOLDING THAT THE AMOUNT CONTRIBUTED UNDER U.P. SHEERA NIYANTRAN ADHINIYAM IS REQUIRED TO BE ADDED FOR THE PURPOSES OF COMPUTING 'BOOK PROFIT' UNDER SECTION 1 15JB OF THE ACT AS THE SAME IS IN THE NATURE OF RESERVE NOT SPECIFIED UNDER SECTION 33AC OF THE ACT. 3. (A) THAT THE LEARNED CIT (A) HAS ERRED IN SUSTAINING THE ADDITION MADE BY THE LEARNED ASSESSI NG OFFICER IN RESPECT OF THE AMOUNT OF CAPITAL SUBSIDY TO THE BOOK PROFITS WHILE COMPUTING INCOME UNDER THE SECTION 115JB OF T HE ACT, ON THE ALLEGED CONTENTION THAT THE APPELLANT HAS TRANS FERRED RS. 27,55,420/- TO A RESERVE WHICH HAS NOT BEEN SPECIFI ED UNDER SECTION 33AC OF THE ACT AND THEREFORE THE SAME HAS TO BE ADDED BACK FOR COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. (B) THAT, IN THIS CONNECTION, THE LEARNED CIT (A) H AS ERRED IN INTERPRETING THE PROVISIONS OF SECTION 115 JB OF THE ACT STATING THAT THE APPELLANT HAD TRANSFERRED THE AMOU NT OF RS. 27,55,420/- TO A RESERVE WHICH HAS NOT BEEN SPECIFI ED UNDER SECTION 33AC, WITHOUT GIVING CREDENCE TO THE FACT T HAT THE AMOUNT OF RS. 27,55,420/- IS NOT AN APPROPRIATION O F PROFITS AND THERE IS NO SUCH DEBIT TO PROFIT & LOSS ACCOUNT FOR THE ALLEGED APPROPRIATION. 4. THAT THE LEARNED CIT (A) WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF DEPRECIATION OF RS. 7,76,433/- CLAIMED IN RESPECT OF DISCARDED ASSETS. 5. (A) THAT THE LEARNED CIT (A) HAS ERRED IN TREATI NG THE ENTIRE AMOUNT OF MISCELLANEOUS RECEIPTS OF RS. 70,8 1,529/- UNDER THE HEAD INCOME FROM OTHER SOURCES BY STATING THAT THE LEARNED ASSESSING OFFICER HAS WRONGLY TREATED ONLY RS. 8,19,660/- UNDER HEAD INCOME FROM OTHER SOURCES. (B) THAT, IN THIS CONNECTION, THE LEARNED CIT(A) HA S IGNORED THE FACT THAT OUT OF AN AMOUNT OF RS. 70,31 ,529/- OF MISCELLANEOUS RECEIPTS THE LEARNED ASSESSING OFFICE R HAD TREATED ONLY RS. 8,19,660/- AS INCOME FROM OTHER SO URCES AFTER GOING THROUGH THE DETAILS FURNISHED BY THE APPELLAN T DURING THE ASSESSMENT PROCEEDINGS. (C) THAT IN THIS CONNECTION, THE LEARNED CIT (A) HA S ERRED IN LAW IN STATING THAT THE MISCELLANEOUS RECE IPTS ITA NO.703/DEL/2013 AY 2009-10 3 AMOUNTING TO RS. 70,31,529/- DO NOT FALL UNDER THE PURVIEW OF THE TERM 'PROFIT DERIVED BY AN INDUSTRIAL UNDERTAKI NG FROM MANUFACTURING ACTIVITY' MENTIONED UNDER SECTION 80 IC OF THE ACT AND THUS, IT IS NOT A PART OF BUSINESS INCOME, BEING INELIGIBLE FOR DEDUCTION UNDER SECTION 80 IC OF THE ACT. (D ) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) HAS NOT GIVEN ANY OPPORTUNITY TO THE APPELLANT TO S UBSTANTIATE ITS CLAIM WITH REGARD TO THE MISCELLANEOUS RECEIPTS OF RS. 70,31,529/-, BEING A PART OF BUSINESS INCOME ONLY A ND ELIGIBLE FOR DEDUCTION UNDER SECTION 80LC OF THE ACT. THE LE ARNED CIT (A) HAS, THEREFORE, NOT FOLLOWED THE PRINCIPLE OF N ATURAL JUSTICE DURING THE COURSE OF THE APPELLATE PROCEEDINGS. (E) THAT THE ACTION OF THE LEARNED CIT (A) HAS RESU LTED IN AN ENHANCEMENT OF ASSESSABLE INCOME WHICH HAS BEEN MADE WITHOUT AFFORDING AN OPPORTUNITY TO THE APPELLANT A S REQUIRED UNDER THE PROVISIONS OF THE ACT. GROUND NO. 2 2. APROPOS GROUND NO. 2, LD. COUNSEL OF THE ASSESSE E SUBMITTED THAT LEARNED CIT (A) HAS ERRED BOTH ON FACTS IN LAW IN HOLDING T HAT THE AMOUNT CONTRIBUTED UNDER U.P. SHEERA NIYANTRAN ADHINIYAM IS REQUIRED T O BE ADDED FOR THE PURPOSES OF COMPUTING 'BOOK PROFIT' UNDER SECTION 1 15JB OF THE ACT AS THE SAME IS IN THE NATURE OF RESERVE NOT SPECIFIED UNDER SEC TION 33AC OF THE ACT. LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT THE NET PROFIT OF THE ASSESSEE REMAINS THE SAME BECAUSE OF TWO REASONS, FIRST, RES ERVE FUND IS AN ALLOWABLE EXPENDITURE AND SECONDLY, THE ASSESSEE HAS NO RIGHT OVER THE AMOUNT TRANSFERRED TO MOLASSES RESERVE FUND DUE TO OVERRIDING TITLE. 3. REPLYING TO THE ABOVE, LD. DR SUPPORTED THE ORDE RS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE AMOUNT OF CONTRIBUTION TO MOLASSES RESERVE FUND ITA NO.703/DEL/2013 AY 2009-10 4 IS A PROVISION WHICH IS CONTINGENT IN NATURE AND IN THIS SITUATION, THE CLAIM OF THE ASSESSEE THAT IT REPRESENTS DIVERSION OF INCOME ON ACCOUNT OF OVERRIDING OBLIGATION CANNOT BE ACCEPTED. LD. DR FURTHER CONT ENDED THAT THE ASSESSEE COMPANY HAS TRANSFERRED RS.1,78,447 TO A RESERVE WH ICH HAS NOT BEEN SPECIFIED U/S 33AC OF THE ACT, THEREFORE, IN ACCORDANCE WITH EXPLANATION 1 TO THE PROVISIONS OF SECTION 115JB, THE BOOK PROFIT WOULD BE INCREASED BY THE AMOUNT CARRIED TO ANY RESERVE. 4. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSION, WE NOTE THAT THE CIT(A) HAS DISMISSED THE CONTENTIONS OF THE ASSESSEE AND C ONFIRMED THE ORDER OF THE AO WITH FOLLOWING OBSERVATIONS AND CONCLUSIONS:- 7.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSIONS FILED BY THE APPELLANT. THE FA CTS OF THE CASE AS PER ASSESSMENT ORDER ARE THAT THE AO HAD AD DED BACK RS.1,78,447/- I.E. THE CONTRIBUTION TO MOLASSES RES ERVE FUND, WHILE COMPUTING INCOME UNDER SECTION 115JB OF THE I NCOME TAX ACT, 1961, ON THE BASIS THAT IT IS A PROVISION WHICH IS CONTINGENT IN NATURE AND THE CLAIM THAT IT REPRESEN TS DIVERSION OF INCOME ON ACCOUNT OF AN OVERRIDING OBLIGATION CA NNOT BE ACCEPTED. UNDER SECTION 115JB OF THE ACT, THE NET PROFIT AS P ER PROFIT AND LOSS ACCOUNT IS TO BE INCREASED BY THE F OLLOWING, PROVIDED THE SAME IS DEBITED TO THE PROFIT AND LOSS ACCOUNT: A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AND TH E PROVISION THERE FOR, OR B) THE AMOUNTS CARRIED TO ANY RESERVES, BY WHATEVER NAME CALLED, OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC; OR ITA NO.703/DEL/2013 AY 2009-10 5 C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINE D LIABILITIES; OR D) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF SUBSIDIARY COMPANIES; OR E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROPOSED; OR F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE T O ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROV ISIONS CONTAINED IN CLAUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 APPLY; OR G) THE AMOUNT OF DEPRECIATION, OR H) THE AMOUNT OF DEFERRED TAX AND THE PROVISION THE RE FOR, I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET. THE APPELLANT COMPANY HAS TRANSFERRED RS. 1,78,4471 - TO A RESERVE WHICH HAS NOT BEEN SPECIFIED UNDER SEC TION 33AC, THEREFORE, IN ACCORDANCE WITH THE EXPLANATION I TO PROVISIONS OF SECTION 115JB, THE BOOK PROFIT WOULD BE INCREAS ED BY THE AMOUNT CARRIED TO ANY RESERVE. THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED AND THE GROUND OF AP PEAL IS, THEREFORE, DISMISSED. 5. IN VIEW OF ABOVE, AT THE VERY OUTSET, WE NOTE TH AT THE ASSESSEE COMPANY HAS TRANSFERRED IMPUGNED AMOUNT TO A RESERVE WHICH HAS NOT BEEN SPECIFIED U/S 33AC OF THE ACT, THEREFORE, AS PER EXPLANATION 1 AT TACHED TO PROVISIONS OF SECTION 115JB OF THE ACT, THE BOOK PROFIT IS REQUIR ED TO BE INCREASED BY THE AMOUNT CARRIED TO ANY RESERVE ACCOUNT. WE ALSO NOT E THAT THE AO HAS RIGHTLY RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF STATE BANK OF PATIALA REPORTED AS 219 ITR 706(SC) WHEREIN IT WAS CLEARLY HELD THAT THE ISSUE OF WHAT CONSTRUES RESERVE AND PROVISION AND THE RATIO LAID DOWN IN THESE ITA NO.703/DEL/2013 AY 2009-10 6 DECISIONS CLEARLY ENLIGHTEN US THAT TO CONSTITUTE A RESERVE, A PARTICULAR AMOUNT SET ASIDE OUT OF THE PROFIT AND OTHER SURPLUSES, SHOULD BE SUCH AS NOT DESIGNATED TO MEET A LIABILITY, CONTINGENCY, COMMITMENT OR DIMINU TION IN THE VALUE OF ASSETS KNOWN TO AT THE DATE OF BALANCE SHEET. HENCE, THE RESERVE CAN BE SET ASIDE OUT OF THE PROFITS AND SURPLUSES AND THE SAME CANNOT BE CL AIMED AS DEDUCTION BECAUSE IT IS NOT AN EXPENSE LAID OUT FOR THE PURPOSE OF BU SINESS. COMING TO THE FACTS OF THE PRESENT CASE, THE CONTRIBUTION TO THE MOLASSES RESERVE FUND CAN BE VIEWED AS A PROVISION IN NATURE AND IT IS NOT AN ACTUAL LIABI LITY AND THE PROVISION CREATED FOR ADDITIONAL STORAGE FACILITY IS OBVIOUSLY IN THE NAT URE OF PROVISION FOR CONTINGENT LIABILITY, THEREFORE, THE IMPUGNED AMOUNT BEING CON TINGENT IN NATURE DESERVES TO BE ADDED BACK WHILE COMPUTING INCOME U/S 115JB OF T HE ACT. FINALLY, WE REACH TO A CONCLUSION THAT THE ACTION OF THE AO AS WELL A S ORDER OF THE CIT(A) IS WELL FOUNDED AND JUSTIFIED AND WE ARE UNABLE TO SEE ANY PERVERSITY, INFIRMITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE SAME ON TH IS ISSUE. ACCORDINGLY, GROUND NO. 2 OF THE ASSESSEE BEING DEVOID OF MERITS IS DIS MISSED. 6. APROPOS GROUND NO.3, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS ERRED IN SUSTAINING THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER IN RESPECT OF THE AMOUNT OF CAPITAL SUBSIDY TO THE BOOK PROFITS WHILE COMPUTING INCOME UNDER THE SECTION 115JB OF THE ACT , ON THE ALLEGED CONTENTION THAT THE APPELLANT HAS TRANSFERRED RS. 27,55,420/- TO A RESERVE WHICH HAS NOT BEEN SPECIFIED UNDER SECTION 33AC OF THE ACT AND, T HEREFORE, THE SAME HAS TO BE ITA NO.703/DEL/2013 AY 2009-10 7 ADDED BACK FOR COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. THE LD. COUNSEL STRENUOUSLY CONTENDED THAT THE CIT(A) WAS N OT JUSTIFIED AND CORRECT IN INTERPRETING THE PROVISIONS OF SECTION 115JB OF THE ACT BY STATING THAT THE ASSESSEE HAD TRANSFERRED THE IMPUGNED AMOUNT TO A R ESERVE WHICH HAS NOT BEEN SPECIFIED U/S 33AC OF THE ACT WITHOUT GIVING CREDEN CE TO THE FACT THAT THE ALLEGED AMOUNT IS NOT AN APPROPRIATION OF PROFITS A ND THERE IS NO SUCH DEBIT OF PROFIT AND LOSS ACCOUNT FOR THE ALLEGED APPROPRIATI ON. LD. COUNSEL HAS FURTHER DRAWN OUR ATTENTION TOWARDS PARA 4 OF THE IMPUGNED ORDER AND SUBMITTED THAT THE ASSESSEE FILED DETAILED WRITTEN SUBMISSIONS ON THIS ISSUE VIDE LETTER DATED 9.8.2012. LD. AR FURTHER SUBMITTED THAT AS PER SEC TION 115JB OF THE ACT, WHILE PREPARING ACCOUNT INCLUDING PROFIT AND LOSS ACCOUNT , THE ACCOUNTING POLICIES, ACCOUNTING STANDARDS AND METHODS AND RATES ADOPTED FOR CALCULATING CHARGES SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURP OSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVI SIONS OF SECTION 210 OF THE COMPANIES ACT 1956. LD. AR STRENUOUSLY CONTENDED T HAT THE TREATMENT FOLLOWED BY THE ASSESSEE COMPANY IS IN ACCORDANCE W ITH THE GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND POLICES AND THE AO, WHILE COMPUTING THE BOOK PROFITS OF A COMPANY U/S 115JB OF THE ACT HAS ONLY TH E POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNTS ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT. THE AR FURTHER SUBMITTED THAT T HE AO, THEREAFTER HAS A LIMITED POWER OF MAKING ANY CHANGE TO THE BO OK PROFIT AS PROVIDED FOR IN ITA NO.703/DEL/2013 AY 2009-10 8 EXPLANATION 1 TO SECTION 115JB OF THE ACT AS THE AO DOES NOT HAVE THE JURISDICTION TO GO BEYOND THE NET PROFIT SHOWN IN T HE P&L ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN EXPLANATION THERETO. TO SUPPORT THE ABOVE CONTENTIONS, LD. AR PALED RELIANCE ON THE DECISION OF CIT VS HCL COMNET SYSTEMS & SERVICES LTD. (2008) 305 ITR 409 AND APOLLO TYRES L TD. VS CIT (2002) 255 ITR 273 AND SUBMITTED THAT THE AO HAS TO ACCEPT THE AUTHEN TICITY OF THE ACCOUNTS MAINTAINED IN ACCORDANCE WITH THE PROVISIO NS OF THE COMPANIES ACT, WHICH ARE ALSO CERTIFIED BY THE AUDITORS AND PASSED BY THE COMPANY IN ITS ANNUAL GENERAL MEETING. 7. REPLYING TO THE ABOVE, LD. DR SUPPORTED THE IMPU GNED ORDER AND SUBMITTED THAT U/S 115JB OF THE ACT, NET PROFIT AS PER PROFIT AND LOSS ACCOUNT IS TO BE INCREASED AND THE AMOUNTS CARRIED OUT TO ANY RESERVES, BY WHATEVER NAME CALLED, OTHER THAN A RESERVE SPECIFIED U/S 33AC OF THE ACT, THEREFORE, IN ACCORDANCE WITH EXPLANATION 1 TO PROVISIONS OF SECT ION 115JB OF THE ACT, THE BOOK PROFIT WOULD BE INCREASED BY THE AMOUNT CARRIE D TO ANY RESERVE. 8. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSI ONS, AT THE VERY OUTSET, IT IS PERTINENT TO NOTE THAT AS PER FACTS NOTED BY THE AO, THE ASSESSEE RECEIVED AN AMOUNT OF RS.27,55,420 CAPITAL SUBSIDY AGAINST THE INTEREST PAID ON CENTRAL GOVERNMENT LOAN AND CAPITAL SUBSIDY WHICH WAS DEBIT ED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY. AS PER FINAL STAT EMENT OF ACCOUNT, A SIMILAR CORRESPONDING AMOUNT WAS SHOWN AS CAPITAL SUBSIDY I N THE BALANCE SHEET IN ITA NO.703/DEL/2013 AY 2009-10 9 SCHEDULE II UNDER THE HEAD OF RESERVES AND SURPLUSE S. AT THIS JUNCTURE, WE ALSO TAKE COGNIZANCE OF NOTE NO. 14 SCHEDULE 12 TO BALAN CE SHEET (AS ON 31.3.2008) WHICH READS AS UNDER:- 5.0.1 THIS IS AS PER NOTE NO. 14 (SCHEDULE 12 TO BALANCE SHEET AS AT 31.03.08), WHICH READS AS UNDER : 'UNDER THE AGREEMENT DATED 31.01.1986, AS AMENDED THEREAFTER, THE INTEREST LIABILITY AGGREGATING TO R S.27,55,420/- ON LOAN FROM THE CENTRAL GOVT. IS TREATED AS HAVING BEEN DISCHARGED IN VIEW OF THE FACT THAT AN EQUIVALENT A MOUNT IS RECEIVED AS CASH SUBSIDY FOR THE SPECIFIC PURPOSE T O THE COMPANY'S UNDERTAKING BY THE GOVT. THE HON'BLE ITAT , NEW DELHI, FOR THE A.Y. 1990-91 IN THE COMPANY'S OWN CA SE, HAS HELD THAT THE SUBSIDY RECEIVED FROM THE CENTRAL GOV T. IS CAPITAL IN NATURE. ACCORDINGLY, THE INTEREST AMOUNTING TO RS.27,55,420/- HAS BEEN DEBITED TO THE STATEMENT OF PROFIT AND LOSS UNDER THE HEAD 'FINANCIAL EXPENSES' AND THE CORRESPONDING AMOUNT HAS BEEN CREDITED TO CAPITAL S UBSIDY UNDER THE HEAD' RESERVES AND SURPLUS'.' 9. IT IS ALSO UNDISPUTED THAT THE AMOUNT OF INTERES T PAID BY THE ASSESSEE TO THE CENTRAL GOVERNMENT ON LOAN FOR 1990-91 HAS BEEN ALL OWED AS REVENUE EXPENDITURE BY THE ITAT, NEW DELHI, WHEREIN IT WAS HELD THAT THE CORRESPONDING SUBSIDY IS A CAPITAL SUBSIDY. WE ALS O NOTE THAT THE APPEAL OF THE REVENUE AGAINST THE ORDER OF THE TRIBUNAL HAS BEEN DISMISSED BY HONBLE HIGH COURT ON THE CONTENTION THAT NO SUBSTANTIAL QUESTIO N OF LAW ARISES OUT OF THE ORDER OF THE TRIBUNAL. FROM BARE READING OF THE IMP UGNED ORDER, WE OBSERVE THAT THE LD. AR, DURING FIRST APPELLATE PROCEEDINGS PLAC ED THIS FACT BEFORE THE CIT(A) WHICH WAS ALSO NOTED AT PAGE 2 AND 3 AND PAGE 18 OF THE IMPUGNED ORDER AND THE CIT(A) GRANTED RELIEF FOR THE ASSESSEE ON GROUND NO. 4A AN D 4B BY HOLDING THAT THE ISSUE HAS ITA NO.703/DEL/2013 AY 2009-10 10 BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE EARLI ER YEARS BY THE CIT(A), ITAT DELHI AND HONBLE JURISDICTIONAL HIGH COURT OF DELH I AND, THEREFORE, RESPECTFULLY FOLLOWING THE SAME, THE FIRST APPELLAT E AUTHORITY GRANTED RELIEF FOR THE ASSESSEE WITH A FINAL CONCLUSION THAT THE INTER EST ON LOAN ADVANCED BY THE CENTRAL GOVERNMENT IS ALLOWABLE AND THE CAPITAL SUB SIDY RECEIVED BY THE ASSESSEE COMPANY IN THIS REGARD IS NOT TAXABLE. 10. COMING BACK TO THE ISSUE INVOLVED IN GROUND NO. 3(A) AND (B) OF THE EXTANT APPEAL, AT THE VERY OUTSET, WE NOTE THAT AS PER RATIO OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS HCL COMNET SYSTEMS & SERVICES LTD. (SUPRA) AND APOLLO TYRES LTD. VS CIT (SUPRA), THE AO HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS MAINTAINED IN ACCORDAN CE WITH THE PROVISIONS OF THE COMPANIES ACT WHICH ARE ALSO CERTIFIED BY THE AUDIT ORS AND PASSED BY THE COMPANY IN ITS ANNUAL GENERAL MEETING. IN THIS CON NECTION, WE MAY ALSO POINT OUT THAT THE LD. DR HAS NOT DISPUTED THE FACT THAT THE SUBSIDY AGAINST THE INTEREST PAID BY THE ASSESSEE COMPANY ON CENTRAL GOVERNMENT LOAN IS GRANTED WITH THE OBJECT OF INCENTIVE FOR THE ENTREPRENEUR TO ESTABLI SH SUGAR INDUSTRY OR TO EXPAND THE CAPACITY OF THE EXISTING SUGAR INDUSTRY IN THE STATE OF UP AND THUS, THE SAID SUBSIDY IS GIVEN FOR SETTING UP OF AN INDUSTRY OR E XPANSION OF EXISTING INDUSTRY. WE FURTHER FIND IT APPROPRIATE TO NOTE THAT SASISRI EXTRACTIONS LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX 122 ITD 42 8 , COORDINATE BENCH OF THIS TRIBUNAL HAS HELD THAT WHE RE SUBSIDY IS GRANTED AS ITA NO.703/DEL/2013 AY 2009-10 11 PERCENTAGE OF FIXED CAPITAL COST TAKEN AS THE BASIS FOR DETERMINING THE SUBSIDY THAT WOULD ONLY BE A MEASURE ADOPTED UNDER THE SCHE ME TO QUANTIFY THE FINANCIAL AID. THE CONTENTION IS THAT IT IS NOT A P AYMENT, DIRECTLY OR INDIRECTLY, TO MEET ANY PORTION OF THE ACTUAL COST BUT INTENDED AS AN INCENTIVE TO ENTREPRENEURS, ITS QUANTIFICATION DETERMINED AT A P ERCENTAGE OF THE FIXED CAPITAL COST.' WE FURTHER NOTE THAT THE HONBLE APEX COURT IN THE CASE OF P.J. CHEMICALS (SUPRA) HAS HELD THAT THE EXPRESSION ACT UAL COST IN SECTION 131(1) OF THE ACT NEEDS TO BE INTERPRETED LIBERALLY AND S UBSIDY DOES NOT PARTAKE OF THE CHARACTER OF A PAYMENT INTENDED EITHER DIRECTLY OR INDIRECTLY TO MEET THE ACTUAL COST.' AS WE HAVE NOTED ABOVE THAT IT HAS ALREADY BEEN ACCEPTED BY THE HONBLE HIGH COURT IN ASSESSEES OWN CASE FOR AY 19 90-91 THAT THE SUBSIDY RECEIVED BY THE ASSESSEE IS IN THE NATURE OF CAPITA L SUBSIDY, HENCE, THE SAME CANNOT BE TREATED AS REVENUE AND THUS, THE INCOME A PPROACH OF ACCOUNTING FOR CAPITAL SUBSIDY RECEIVED AS GOVERNMENT GRANT IS NOT APPLICABLE IN THIS CASE AS PER AS-12 WHERE IN PARA 5.2 IT HAS BEEN MADE CLEAR THA T THE CAPITAL APPROACH IS TO BE FOLLOWED IN RESPECT OF GOVERNMENT GRANTS AND IT IS INAPPROPRIATE TO RECOGNISE GOVERNMENT GRANTS IN PROFIT AND LOSS STATEMENTS BEC AUSE THEY ARE NOT EARNED TO REPRESENT AN INCENTIVE PROVIDED BY THE GOVERNMENT. ACCORDINGLY, CONCLUSION OF THE CIT(A) ON THIS ISSUE IS NOT FOUND TO BE SUSTAIN ABLE AND WE DEMOLISH THE SAME BY DIRECTING THE AO THAT THE AMOUNT OF CAPITAL SUBSIDY TO THE BOOK PROFITS WHILE COMPUTING THE INCOME U/S 115JB OF THE ACT IS NOT AN APPROPRIATION OF PROFITS AND THERE IS NO SUCH DEBIT TO THE PROFIT AN D LOSS ACCOUNT FOR THE ALLEGED ITA NO.703/DEL/2013 AY 2009-10 12 APPROPRIATION AND, THEREFORE, THE SAME CANNOT BE AD DED WHILE COMPUTING THE INCOME U/S 115JB OF THE ACT. ACCORDINGLY, GROUND N O. 3(A) AND (B) OF THE ASSESSEE ARE ALLOWED. GROUND NO. 4 11. LD. AR SUBMITTED THAT THE AO DENIED THE CLAIM O F THE ASSESSEE FOR DEPRECIATION OF RS.7,76,433 ON DISCARDED ASSETS BY WRONGLY HOLDING THAT THE PRECONDITION OF DEPRECIATION IS THAT IT HAS TO BE U SED FOR THE PURPOSE OF BUSINESS AND PROFESSION. LD. AR FURTHER CONTENDED THAT THE CIT(A) WAS ALSO NOT JUSTIFIED IN CONFIRMING THE CONCLUSION OF THE AO ON THE ISSU E BY HOLDING THAT THE DEPRECIATION ON MACHINES DISCARDED BY THE ASSESSEE COMPANY AS TRANSFER TO STORES AND SPARES CANNOT BE SAID TO SATISFY THE CON DITIONS MENTIONED IN SECTION 32(1) OF THE ACT FOR THE PURPOSE OF CLAIMING DEPREC IATION AND THE USER OF MACHINES WOULD NOT INCLUDE A PASSIVE USER. LD. AR PLACING RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE C ASE OF CIT VS OSWAL AGRO MILLS LTD. (2012) 341 ITR 461 (DEL) SUBMITTED THAT THE PASSIVE USER OF THE ASSET IS ALSO RECOGNISED AS USER FOR TH E PURPOSE OF BUSINESS AND THE MEANING OF PASSIVE USER HAS TO BE INTERPRETED TO ME AN THAT THE ASSET IS KEPT READY FOR USE. LD. AR ALSO CONTENDED THAT IF THIS CONDITION IS SPECIFIED, THEN EVEN IF THE MACHINERY IS NOT USED FOR CERTAIN REASO N IN THE CONCERNED ASSESSMENT, THE ASSESSEE WOULD NOT BE DENIED THE CL AIM OF DEPRECIATION. FURTHER, PLACING RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT ITA NO.703/DEL/2013 AY 2009-10 13 OF DELHI IN THE CASE OF CIT VS YAMAHA MOTOR INDIA PVT. LTD. (2010) 328 ITR 297 (DELHI) , LD. AR SUBMITTED THAT THE ASSESSEE COMPANY CLAIME D DEPRECIATION ON ASSETS WRITTEN OFF WHICH WAS DISALL OWED BY THE AO ON THE CONTENTION THAT THE DISCARDED MACHINERY HAD NOT BEE N USED IN THE RELEVANT PREVIOUS YEAR, THEN THE HONBLE HIGH COURT IN THE S IMILAR SET OF FACTS AND CIRCUMSTANCES HELD THAT THE ACTUAL USER OF MACHINER Y WAS NOT REQUIRED WITH RESPECT TO DISCARDED MACHINERY FOR THE PURPOSE OF C LAIMING DEPRECIATION, THE PHRASE MACHINERY BEING USED FOR THE PURPOSE OF BUS INESS WOULD MEAN THAT THE DISCARDED MACHINERY WAS USED FOR THE PURPOSE OF BUS INESS DURING THE YEAR FOR WHICH DEPRECIATION HAS BEEN ALLOWED. 12. REPLYING TO THE ABOVE, LD. DR SUPPORTED THE ORD ERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE DEPRECIATION IS ALLOWE D ON BLOCK OF ASSETS IF THE SAME HAVE BEEN USED FOR BUSINESS PURPOSES AS PROVID ED IN SECTION 32 OF THE ACT AND THE DEPRECIATION IS GIVEN ON THE WEAR AND TEAR OF THE ASSET AND THE MAIN PRE- CONDITION OF ALLOWABILITY OF DEPRECIATION IS THAT I T HAS TO BE USED FOR THE PURPOSE OF BUSINESS AND PROFESSION. LD. DR FURTHER SUBMITT ED THAT THE ASSESSEE HAS BEEN CONSCIOUSLY NOT USING THE SAME FOR ITS BUSINESS PUR POSE AND THE MACHINERY WAS NOT ONLY DISCARDED, SHIFTED TO THE STORES AND SPARE S, THEREFORE, CLAIM OF DEPRECIATION OF THE ASSESSEE IS NOT ACCEPTABLE ON D ISCARDED ASSETS. 13. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISS IONS ON THE ISSUE, AT THE VERY OUTSET, WE NOTE THAT THE ISSUE OF ALLOWABILITY ON DEPRECIATION OF DISCARDED ITA NO.703/DEL/2013 AY 2009-10 14 ASSET IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS YAMAHA MOTOR PVT. LT D.(SUPRA), WHEREIN DISMISSING THE APPEAL OF THE REVENUE, THEIR LORDSHI PS HELD THAT THE CONDITION FOR ELIGIBILITY FOR DEPRECIATION WHEN THE MACHINERY BEI NG USED FOR THE PURPOSE OF BUSINESS WOULD MEAN THAT THE DISCARDED MACHINERY WA S USED FOR THE PURPOSE OF BUSINESS IN THE EARLIER YEARS FOR WHICH DEPRECIATIO N HAD BEEN ALLOWED. WE FURTHER RESPECTFULLY TAKE NOTE OF THE DECISION OF H ONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS OSWAL AGRO MIL LS LTD. (SUPRA) WHEREIN IT WAS HELD THAT WHILE THE ASSET IS FORMING PART OF A BLOCK OF ASSETS, THEN THE DEPECIATION U/S 32(1) OF THE ACT WAS TO BE ALLOWED EVEN IF ANY ASSET OR ASSETS OF THE BLOCK WAS NOT USED FOR THE RELEVANT FINANCIAL Y EAR. 14. THEREFORE, WE ARE INCLINED TO HOLD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE DEPRECIATION TO THE ASSESSEE ON THE ASSETS WHICH WERE DISCARDED AND TRANSFERRED TO THE STORES AND SPARES DURING THE FINANCIAL YEAR UNDER CONSIDERATION. THE CIT(A) WAS NOT CORRECT IN CONFI RMING THE ORDER OF THE AO ON THIS ISSUE AND THUS, WE DISMISS THE SAME AND DIR ECT THE AO TO ALLOW THE DEPRECIATION TO THE ASSESSEE ON DISCARDED ASSETS IN THE LIGHT OF OUR FOREGOING DISCUSSION ON THIS ISSUE. ACCORDINGLY, GROUND NO. 4 OF THE ASSESSEE IS ALLOWED. GROUND NO.5 15. APROPOS GROUND NO. 5(A), (B), (C), (D) AND (E) OF THE ACT, THE LD. COUNSEL SUBMITTED THAT THE CIT(A) HAS NOT GIVEN ANY OPPORTU NITY TO THE ASSESSEE TO ITA NO.703/DEL/2013 AY 2009-10 15 SUBSTANTIATE ITS CLAIM WITH REGARD TO MISCELLANEOUS RECEIPT OF RS. 70,31,529/- BEING A PART OF BUSINESS INCOME AND INELIGIBLE FOR DEDUCTION UNDER SECTION 80 IC OF THE ACT. LD. AR FURTHER CONTENDED THAT THE AO HAD TREATED ONLY RS.8,19,660 AS INCOME FROM OTHER SOURCES AFTER GOIN G THROUGH THE DETAILS FURNISHED BY THE ASSESSEE DURING ASSESSMENT PROCEED INGS OUT OF AN AMOUNT OF RS.70,31,529 OF MISCELLANEOUS RECEIPTS BUT THE CIT( A) DISALLOWED ENTIRE AMOUNT OF MISCELLANEOUS RECEIPTS AS INCOME FROM OTH ER SOURCES AND ENHANCED THE ADDITION WITHOUT ISSUING ANY NOTICE TO THE ASSE SSEE AND WITHOUT AFFORDING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. LD. AR VEHEMENTLY CONTENDED THAT THE ACTION OF THE CIT(A) HAS RESULTED IN AN ARBITRA RY ENHANCEMENT OF ASSESSABLE INCOME WHICH HAS BEEN MADE OUT WITHOUT AFFORDING AN OPPORTUNITY TO THE ASSESSEE PRIOR TO ENHANCEMENT OF INCOME AS REQUIRED UNDER THE PROVISIONS OF THE ACT AND AGAINST THE PRINCIPLES OF NATURAL JUSTI CE. LD. AR FINALLY PRAYED THAT THE IMPUGNED ORDER IS NOT SUSTAINABLE AND THEREFORE , THE SAME SHOULD BE DISMISSED. 16. REPLYING TO THE ABOVE, LD. DR FAIRLY ACCEPTED T HAT THE AO MADE PART DISALLOWANCE OF RS.8,19,660 OUT OF TOTAL MISCELLANE OUS RECEIPTS AND THE CIT(A) ENHANCED THE SAME DISALLOWANCE WITHOUT AFFORDING DU E OPPORTUNITY OF HEARING FOR THE ASSESSEE AND WITHOUT ISSUING ANY NOTICE TO THE ASSESSEE IN THIS REGARD. LD. DR WAS FAIR ENOUGH TO SUBMIT THAT IF IT IS FOUN D JUST AND PROPER, THEN THE ITA NO.703/DEL/2013 AY 2009-10 16 DEPARTMENT HAS NO OBJECTION IF THE ISSUE IS RESTORE D TO THE FILE OF THE CIT(A) FOR A FRESH ADJUDICATION ON THIS LIMITED ISSUE ONLY. 17. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, WE NOTE THAT THE CIT(A) ENHANCED THE ADDITION WITHOUT ISSUING ANY NOTICE AN D AFFORDING DUE OPPORTUNITY OF HEARING FOR THE ASSESSEE, THEREFORE, THE ORDER O F ENHANCEMENT IS NOT SUSTAINABLE AS PER PROVISIONS OF THE ACT AND WELL-A CCEPTED PRINCIPLES OF JURISPRUDENCE. IN THIS SITUATION, WE ARE OF THE CO NSIDERED VIEW THAT THE ENDS OF JUSTICE WOULD BE MET IF THE ISSUE IS RESTORED TO TH E FILE OF THE CIT(A) FOR A FRESH ADJUDICATION AFTER AFFORDING DUE OPPORTUNITY OF HEA RING FOR THE ASSESSEE FOR THIS LIMITED PURPOSE ONLY. WE ORDER ACCORDINGLY AND GRO UND NO. 5 OF THE ASSESSEE IS DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSES IN TH E MANNER AS INDICATED ABOVE FOR THIS LIMITED PURPOSE ONLY WITH A DIRECTION THAT THE CIT(A) SHALL DECIDE THE ISSUE AFRESH WITHOUT BEING PREJUDICED OR INFLUENCED BY THE EARLIER ORDERS ON THIS ISSUE. 18. TO SUM UP, THE APPEAL OF THE ASSESSEE ON GROUND NO. 1 AND 2 OF THE ASSESSEE IS DISMISSED, GROUND NO. 3 AND 4 ARE ALLOW ED AND GROUND NO. 5 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.703/DEL/2013 AY 2009-10 17 ORDER PRONOUNCED IN THE OPEN COURT ON 20.03.2015. SD/- SD/- (R.S. SYAL) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 20TH MARCH 2015 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ASSTT.REGISTRAR