NEW CHEMI INDUSTRIES LTD, MUMBAI V. ITO 3(2)(3), MUMBAI

ITA 7181/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83475 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-08-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 03-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA
• Keywords: Capital asset; Business income; Depreciation; Capital receipt
• Section: 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . . , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.7181/MUM/2012, A.Y. 2004-05 NEW CHEMIC INDUSTRIES LTD., 33, 3RD FLOOR, MAKER CHAMBERS VI, 220 NARIMAN POINT, MUMBAI 400021 PAN: AAACN 1170D (APPELLANT ) VS. INCOME TAX OFFICER 3(2)(3), ROOM NO.673, 6 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 (RESPONDENT) APPELLANT BY : MS. AARTI VISSANJI RESPONDENT BY : SHRI VI VEK BATRA DATE OF HEARING : 04/08/2014 DATE OF PRONOUNCEMENT : 04 /08/2014 ORDER PER I.P.BANSAL, J.M, THIS IS AN APPEAL FILED BY THE ASSESSEE AND IT IS DIRECTED AGAINST ORDER PASSED BY LD. CIT(A)-4, MUMBAI DATED 16/12/2011 FOR ASSESSMENT YEAR 2004-05. GROUNDS OF APPEAL READ AS UNDER: 1) THE LEARNED CIT(A) ERRED N NOT ACCEPTING YOUR AP PELLANTS CONTENTION THAT THE CASH SUBSIDY OF RS. 20,00,000/- RECEIVED BY THEM WAS NOT TAXABLE AT ALL AND DIRECTING THE ASSESSING OFFICER TO REDUCE THE SAME FROM THE COST OF CAPITAL ASSETS AND THEREBY REDUCING THE DEPRECIATION CLAIMED BY YOUR APPELLANT S. YOUR APPELLANTS SUBMIT THAT THE CASH SUBSIDY OF RS.20,00,000/- RECEIVED FROM ST ATE GOVERNMENT UNDER THE MAHARASHTRA PACKAGE SCHEME OF INCENTIVES 1988 IS CA PITAL IN NATURE NOT LIABLE TO BE TAXED AS INCOME. 2) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER OF REDUCING THE PROFITS OF BUSINESS BY 90% ON ACCOUNT OF SALES TAX REFUND OF RS.4,46,678/- INCLUDED IN MISCELLANEOUS INCOME OF R S. 10,82,970/- WHILE CALCULATING THE DEDUCTION U/S.8OHHC. YOUR APPELLANT S SUBMIT THAT THE SAID DEDUCTION FROM BUSINESS INCOME IS NOT WARRANTED AND THE SAME OUGHT TO BE DELETED. ITA NO.7181/MUM/2012, A.Y. 2004-05 2 YOUR APPELLANTS SUBMIT THAT DEDUCTION CLAIMED BY TH E ASSESSEE U/S 8OHHC IS CORRECT AND OUGHT TO BE ALLOWED AS CLAIMED. 2. THE FIRST GROUND IS WITH RESPECT TO AMOUNT OF RS .20.00 LACS RECEIVED AS CASH SUBSIDY FROM STATE GOVERNMENT UNDER THE MAHARASHTR A PACKAGE SCHEME OF INCENTIVES 1988, WHICH WAS CONSIDERED AS INCOME BY THE A.O. IN APPEAL IT WAS THE CLAIM OF THE ASSESSEE THAT THE SAME CANNOT BE T AXED AS THE RECEIPT IS IN THE NATURE OF CAPITAL RECEIPT. RELIANCE WAS PLACED ON SEVERAL DECISIONS TO CONTEND THAT THE SAID AMOUNT CANNOT BE TREATED AS REVENUE RECEIPT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND AFTER GOING THROUGH THE CONDITIONS OF THE SCHEME, LD. CIT(A) HAS COME TO THE CONCLUSION T HAT THE RECEIPT IS IN THE NATURE OF CAPITAL. HOWEVER, RELYING UPON THE PROVISIONS O F EXPLANATION 10 TO SECTION 43(1) WHICH IS ADDED W.E.F. 1/04/1999, LD. CIT(A) H AS COME TO A CONCLUSION THAT THE VALUE OF THE ASSETS IS REQUIRED TO BE REDUCED TO THE EXTENT OF SUBSIDY AND ACCORDINGLY HE HAS DIRECTED THE AO TO REDUCE THE AM OUNT OF SUBSIDY FROM THE ASSETS AND DEPRECIATION SHOULD BE ALLOWED AFTER RED UCTION OF SUCH AMOUNT. 3. THE ASSESSEE IS AGGRIEVED, HENCE, HAS RAISED GRO UND NO.1. 4. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. IT WAS PLEADED BY LD. AR THAT THIS ISS UE IS DIRECTLY COVERED BY THE DECISION OF MUMBAI TRIBUNAL IN FOLLOWING CASES: 1. DECISION DATED 17/09/2010 IN ITA NO.1629/MUM /09 IN THE CASE OF GODREJ AGROVIT LTD. VS. ACIT, COPY PLACED ON RECORD AND O UR ATTENTION WAS DRAWN TO THE FOLLOWING OBSERVATIONS: 11. GROUND NO.9 RAISED BY THE ASSESSEE IN THIS APP EAL READ AS UNDER: 9. BOTH THE LOWER AUTHORITIES ERRED IN REDUCING T HE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS IN RESPECT OF CAPITAL SUBSIDY RECEIVED BY THE APPELLANT FOR ITS POTHEPALLY UNIT (A.P). THE APPELLANT HAS FILED AN APPEAL TO T HE TRIBUNAL IN ASSESSMENT YEAR 2003-04 AND SUBMITS THAT CONSEQUENTIAL EFFECT BE GI VEN IN THE CURRENT YEAR DEPENDING ON THE ULTIMATE DECISION OF THE TRIBUNAL IN THAT YEAR. ITA NO.7181/MUM/2012, A.Y. 2004-05 3 12. THE ISSUE RAISED IN GROUND NO.9 THUS IS CONSE QUENTIAL TO THE DECISION OF THE TRIBUNAL IN A.Y 2003-04 WHICH AS POINTED OUT BY THE LEARNED COUNSEL HAS ALREADY BEEN RENDERED BY THE TRIBUNAL VIDE ITS ORDER DATED 10.09.09 (SUPRA) IN PARA NO.8 WHICH READ AS UNDER: IN THE CASE OF P.J.CHEMICALS LTD. (SUPRA), HONBL E SUPREME COURT IN THE CONTEXT OF SECTION 43(1) OF THE ACT HAS HELD THAT I F A SUBSIDY IS GRANTED WITH THE OBJECT OF INDUCING ENTREPRENEURS TO MOVE TO BACKWAR D AREA AND ESTABLISH INDUSTRY AND WHERE SUBSIDY IS GRANTED AS PERCENTAGE OF FIX ED CAPITAL COST TAKEN AS BASIS FOR DETERMINING THE SUBSIDY, THAT WOULD ONLY BE A MEASURE ADOPTED UNDER THE SCHEME TO QUANTITY SUBSIDY. THE COURT THEREFORE HEL D THAT IT WAS NOT A PAYMENT DIRECTLY OR INDIRECTLY TO MET ANY PORTION OF THE A CTUAL COST. LANGUAGE OF EXPLANATION 10 TO SECTION 43(1) IS ALSO IDENTICAL; AND THEREFOR E, BY VIRTUE OF INSERTION OF EXPLANATION 10, IT CANNOT BE SAID THAT DECISION IN THE CASE OF P.J. CHEMICALS (SUPRA.) HAS BEEN SUPERSEDED BY AMENDMENT IN LAW. THIS IS TI LE REASONING ADOPTED BY VISHAKHAPATNAM BENCH OF ITAT. RESPECTFULLY FOLLOW ING THE SAME, WE HOLD THAT THE AMOUNT OF SUBSIDY CANNOT BE REDUCED FROM THE BLOCK OF ASSET FOR COMPUTING DEPRECIATION. WITH REGARD TO THE ARGUMENTS OF LEARN ED DEPARTMENTAL REPRESENTATIVE THAT PROVISO TO EXPLANATION 10 MAKES IT CLEAR THAT IRRESPECTIVE OF THE NATURE OF THE SUBSIDY, AMOUNT OF SUBSIDY HAS TO BE REDUCED FROM THE ACTUAL COST OF CAPITAL ASSET, WE ARE OF THE VIEW THAT THE SAME IS APPLICABLE IN A CASE WHERE SUBSIDY IS GRANTED WITH AN INTENTION TO SUBSIDIZE THE COST OF THE CAP ITAL IN THE FORM OF CAPITAL ASSET AND WHERE SOME OF CAPITAL ASSETS ARE DEPRECIABLE ASSET AND SOME ARE NOT CAPITAL ASSET ON WHICH DEPRECIATION CAN BE ALLOWED. IT IS ONLY IN SUCH SITUATION THAT APPORTIONMENT HAS TO BE MADE TO THE COST OF DEPRECIABLE ASSET. FO R THE REASONS STATED ABOVE, WE ALLOW GROUND NO. I RAISED BY THE ASSESSEE. 13. THE TRIBUNAL THUS HAS HELD THAT THE SUBSIDY O F RS.20 LACS RECEIVED BY THE ASSESSEE COULD NOT BE REDUCED FROM THE VALUE OF BLO CK ASSETS FOR COMPUTING DEPRECIATION. WE, THEREFORE, ALLOW THIS GROUND OF THE ASSESSEES APPEAL AND DIRECT THE A.O TO RECOMPUTED THE DEPRECIATION ACCORDINGLY . 2. DECISION IN THE CASE OF CAPITAL FOOD EXPORT PVT. LTD., VS. ACIT , 139 ITD 584 (MUM). OUR ATTENTION WAS DRAWN TO THE FOLLOWIN G OBSERVATIONS: 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING TREATMENT OF SUBSIDY RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT IN THE COMPUTATION OF DEPRECIATION ON PL ANT AND MACHINERY. THE AO REDUCED THE SUBSIDY AMOUNT FROM THE COST OF PLANT A ND MACHINERY AND ACCORDINGLY DEPRECIATION WAS DISALLOWED TO THAT EXTENT. CIT(A) CONFIRMED THE ORDER OF AO. ON CAREFUL PERUSAL OF RECORD WE FIND THAT THERE IS NOT HING ON RECORD TO SHOW THAT SUBSIDY HAD BEEN GRANTED BY THE GOVT, TOWARDS ANY S PECIFIC ASSET OR PLANT AND MACHINERY. THE LETTER DATED 22.12.2006 REFERRED TO BY THE ID. CIT(A) ONLY SHOWS THAT SUBSIDY WAS FOR SETTING UP OF A UNIT FOR MANUFACTUR E OF READY TO EAT FOODS. THE LETTER DOES NOT SHOW THAT THE SUBSIDY HAD BEEN GIVEN SPECI FICALLY TO ACQUIRE ANY ASSET. THEREFORE, MERELY BECAUSE AMOUNT RECEIVED HAD BEEN UTILIZED FOR ACQUISITION OF PLANT AND MACHINERY, IT CANNOT BE SAID THAT SUBSIDY WAS T O MEET COST OF ANY ASSET. IT IS A ITA NO.7181/MUM/2012, A.Y. 2004-05 4 SETTLED LEGAL POSITION THAT ONLY SUBSIDY GRANTED SP ECIFICALLY TOWARDS A PARTICULAR ASSET HAS TO BE REDUCED FROM COST OF THAT ASSET WHI LE COMPUTING DEPRECIATION. SINCE THERE IS NO MATERIAL TO SHOW THAT THE SUBSIDY IN TH IS CASE HAD BEEN GRANTED TO MEET COST OF PLANT AND MACHINERY THE DISALLOWANCE OF DEP RECIATION CORRESPONDING TO SUBSIDY CANNOT BE UPHELD. THE ORDER OF CIT(A) IS, T HEREFORE, SET ASIDE AND CLAIM OF THE ASSESSEE IS ALLOWED. 5. HOWEVER, ON THE OTHER HAND, LD. DR RELIED UPON T HE ORDER PASSED BY LD. CIT(A). 6. IN THIS VIEW OF THE SITUATION, AFTER HEARING B OTH THE PARTIES WE FOUND THAT, THE ISSUE RAISED BY THE ASSESSEE IS DIRECTLY COVERE D BY THE AFOREMENTIONED TWO DECISION. NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE. RESPECTFULLY FOLLOWING THE SAME WE DECIDE GROUND NO.1 IN FAVOUR OF THE ASS ESSEE. 7. APROPOS GROUND NO.2, IT IS THE GRIEVANCE OF THE ASSESSEE THAT SALES TAX REFUND CANNOT BE CONSIDERED AS OTHER RECEIPTS SO AS TO REDUCE 90% THEREOF FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 HHC OF TH E ACT. 8. WE HAVE CAREFULLY GONE THROUGH THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE. LD. CIT(A) HAS UPHELD THE ACTION OF AO WI TH THE FOLLOWING OBSERVATIONS: SALES-TAX REFUND CANNOT BE SAID TO BE THE BUSINESS INCOME BECAUSE IT MAY RESULT FROM VARIOUS REASONS AND MAY PERTAIN TO ANY PERIOD. THEREFORE, THE DECISION OF THE A.O REGARDING SALES-TAX REFUND FOR EXCLUDING IT FROM BUSINESS INCOME IS CONFIRMED. 9. DURING THE COURSE OF HEARING WE REQUIRE THE LD. A.R TO PRODUCE THE RELEVANT ORDER VIDE WHICH SALES-TAX REFUND WAS GRA NTED TO THE ASSESSEE. THIS WAS SO DONE BECAUSE LD. CIT(A) HAS OBSERVED THAT SALE TAX REFUND COULD ARISE FOR VARIOUS REASONS AND IT COULD RELATE TO ANY PERIOD. FOR THESE REASONS LD. CIT(A) HAS REJECTED THE CLAIM OF THE ASSESSEE. THESE DET AILS WERE NOT FURNISHED AT ANY STAGE OF THE PROCEEDINGS. THOUGH LD. AR SUBMITTED THAT THIS MATTER MAY BE SENT BACK TO THE FILE OF AO TO EXAMINE SUCH DETAIL BUT WE FIND NO FORCE IN SUCH CLAIM MADE BY LD. AR. THE SOLE REASON FOR DISALLOWANCE B Y LD. CIT(A) IS ABSENCE OF ITA NO.7181/MUM/2012, A.Y. 2004-05 5 THESE DETAILS WHICH ASSESSEE EVEN HAS FAILED TO FI LE BEFORE US THESE DETAILS HAVE NEVER BEEN FURNISHED DESPITE THERE WERE SEVERAL P ROCEEDINGS IN THE PRESENT CASE. FIRST PROCEEDINGS ARE IN THE SHAPE OF ORDER PASSED UNDER SECTION 143(3); THE SECOND STAGE WAS ORDER PASSED U/S. 263, WHICH WAS UPHELD BY THE TRIBUNAL AND THIRD STAGE WAS THE IMPUGNED ASSESSMENT ORDER AND LATER THE MATTER WAS IN AN APPEAL BEFORE LD. CIT(A). THEREFORE, WE FIND NO F ORCE IN THE ARGUMENTS OF LD. AR EVEN FOR RESTORATION OF THE ISSUE. WE DECLINE TO INTERFERE IN THE DECISION OF LD. CIT(A) VIDE WHICH THIS CLAIM OF THE ASSESSEE HAS BE EN REJECTED AND THIS GROUND OF THE ASSESSEE IS DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 04/08/201 4 ! ' #$ % &'( 04/08/2014 ' ) SD/- SD/- ( /SANJAY ARORA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; &' DATED 04/08/2014 ! ! ! ! ' '' ' *+, *+, *+, *+, -,$+ -,$+ -,$+ -,$+ / COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. *0./ / THE RESPONDENT. 3. 1 ( ) / THE CIT(A)- 4. 1 / CIT 5. ,2) *+' , , / DR, ITAT, MUMBAI 6. )3 4 / GUARD FILE. !' !' !' !' / BY ORDER, 0,+ *+ //TRUE COPY// 5 55 5 / 6 6 6 6 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . ./ VM , SR. PS