The DCIT, Circle-6, Ahmedabad V. M/s. Indo German Tool Room, Ahmedabad

ITA 78/AHD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5943 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-04-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 10-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 148; 10

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO.78 AND 79/AHD/2014 / ASSTT. YEAR: 2007-2008 AND 2008-2009 ACIT, CIR.6 AHMEDABAD. VS. M/S.INDO GERMAN TOOL ROOM PLOT NO.5003, PHASE-IV, GIDC MEHMADABAD ROAD, VATVA AHMEDABAD 382 445. PAN : AAAJI 0033 P / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI K. MADHUSUDAN, SR.DR ASSESSEE BY : NONE ! / DATE OF HEARING : 18/04/2017 '#$ ! / DATE OF PRONOUNCEMENT: 01/05/2017 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: PRESENT TWO APPEALS ARE DIRECTED AT THE INSTANCE OF THE REVENUE AGAINST ORDER OF LD.CIT(A)-XI, AHMEDABAD DATED 8.10 .2013 AND 9.10.2013 PASSED FOR THE ASSTT.YEARS 2007-08 AND 20 08-09 RESPECTIVELY. 2. THE ISSUE AGITATED IN BOTH THE APPEALS IS COMMON , THEREFORE, WE HEARD THEM TOGETHER AND DEEM IT APPROPRIATE TO DISP OSE OF BY THIS COMMON ORDER. ITA NO.78 AND 79/AHD/2014 2 3. THOUGH THE REVENUE HAS TAKEN FOUR GROUNDS OF APP EAL IN EACH ASSESSMENT YEAR, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE VIZ. THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANC E OF RS.2,58,77,712/- AND RS.1,70,51,660/- FOR THE ASSTT.YEARS 2007-08 AN D 2008-09 RESPECTIVELY, WHICH WERE DISALLOWED BY THE AO OUT O F CLAIM OF DEPRECIATION ON LEASE HOLD BUILDING AND PLANT & MAC HINERY. 4. IN RESPONSE TO THE NOTICE OF HEARING AN ADJOURNM ENT APPLICATION WAS FILED BY SHRI CHIRAG SHAH VIDE LETTER DATED 24. 1.2017. RESPECTED SIR, WITH REFERENCE TO ABOVE APPEAL HAS BEEN FIXED FOR H EARING BEFORE YOU ON DT. 31/01/2017. HOWEVER, AS FACTUAL DETAILS ARE UND ER PREPARATION, SO WE HAVE TO URGE UPON YOUR HONOR FOR KINDLY ADJOURNING THE HEARING FOR SOME DAYS. WHILST WE REGRET FOR THE INCONVENIENCE CAUSED TO YO U ON OUR SEEKING THE ADJOURNMENT, WE SHALL BE VERY GRATEFUL TO YOU FOR K INDLY GRANTING ADJOURNMENT OF THE HEARING. THANKING YOU, FOR, INDO GERMAN TOOL ROOM SD/- 5. ON THE REQUEST OF SHRI CHIRAG SHAH, HEARING WAS ADJOURNED TO 18.4.2017. AGAIN ON 17.4.2017 HE MOVED AN APPLICAT ION WHICH IS SOMEWHAT IDENTICALLY WORDED. HE SEEKS ADJOURNMENT. WE FIND THAT ON RECORD HE HAS NOT FILED HIS POWER OF ATTORNEY AND H E HAS NOT ASSIGNED ANY REASON FOR THE ADJOURNMENT. APPLICATION IS VAG UE AND NONE HAS ATTENDED THE HEARING ON BEHALF OF THE ASSESSEE. IT APPEARS THAT SHRI CHIRAG SHAH THOUGHT THAT ONCE AN APPLICATION WAS MO VED, THERE WAS NO NEED TO APPEAR ON BEHALF OF THE ASSESSEE, AND ADJOU RNMENT WOULD BE GRANTED AS MATTER OF RIGHT. WE DO NOT APPRECIATE T HIS TYPE OF CONDUCT AT THE END OF THE ASSESSEE. THEREFORE, WE DO NOT GRAN T ADJOURNMENT TO THE ASSESSEE AND PROCEED TO HEAR THE APPEALS EX PARTE QUA THE ASSESSEE WITH THE ASSISTANCE OF THE LD.DEPARTMENTAL REPRESENTATIVES. ITA NO.78 AND 79/AHD/2014 3 6. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SOCIETY SET UP BY THE GOVERNMENT OF INDIA WITH THE ASSISTANCE OF GOVE RNMENT OF GERMANY AND GOVERNMENT OF GUJARAT. THE SOCIETY WAS REGISTE RED VIDE REGISTRATION NO.GUJ/1940/AHMEDABAD. AS PER THE AGR EEMENT, LAND & BUILDING AND INFRASTRUCTURE WERE PROVIDED BY THE GO VERNMENT OF GUJARAT, AND MACHINES AND EQUIPMENTS FOR PRODUCTION AND TRAINING WERE PROVIDED BY THE GERMAN GOVERNMENT. GOVERNMENT OF I NDIA PROVIDED FUNDS FOR TRAINING, FURNITURE, DUTIES & TAXES AND R ECURRING COSTS. OBJECT OF THE ASSESSEE-SOCIETY WAS TO CARRY OUT ACTIVITIES OF PROVIDING TECHNICAL, ADVISORY AND CONSULTANCY SERVICES FOR SMALL SCALE U NITS AND ARE PROVIDING SERVICES FOR DEVELOPING PRODUCTS AND TRAI NING OF PERSONNEL IN TOOL ROOM. THE ASSESSEE HAS FILED ITS RETURN OF IN COME FOR THE ASSTT.YEAR 2007-08 ON 29.10.2007 DECLARING A LOSS OF RS.2,65,8 0,930/-. SIMILARLY, FOR THE ASSTT.YEAR 2008-09, IT HAS FILED RETURN ON 17/0/2008 DECLARING TOTAL LOSS OF RS.54,50,675/-. THE LD.AO HAS HARBOU RED A BELIEF THAT SINCE BUILDING AND INFRASTRUCTURE WERE STATED TO HA VE BEEN PROVIDED BY THE GOVT. OF GUJARAT/GOVT. OF INDIA/GERMAN GOVERNME NT, DEPRECIATION CLAIMED BY THE ASSESSEE AND ALLOWED IN THE ASSESSME NT MAINLY ON LEASE HOLDING BUILDING AND PLANT & MACHINERY WAS NOT IN O RDER. THIS RESULTED IN IRREGULAR ALLOWANCE OF DEPRECIATION, WHICH HAS R ESULTED ESCAPEMENT OF TAX, THEREFORE, HE ISSUED NOTICE OF UNDER SECTION 1 48 ON 28.3.2012 IN BOTH YEARS. AFTER HEARING THE ASSESSEE, HE DISALLO WED DEPRECIATION TO THE ASSESSEE. 7. DISSATISFIED WITH THE DISALLOWANCE, THE ASSESSEE CARRIED OUT THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE LD.CIT( A) HAS ALLOWED DEPRECIATION TO THE ASSESSEE BY FOLLOWING ORDER OF THE ITAT, INDORE BENCH. THE LD.CIT(A) HAS OBSERVED THAT SIMILAR SOC IETIES WERE SITUATED IN MADHYA PRADESH AND MAHARASHTRA, WHERE IDENTICAL ACTIVITIES WERE CARRIED AND DEPRECIATION UNDER SIMILAR CIRCUMSTANCE S WAS ALLOWED TO ITA NO.78 AND 79/AHD/2014 4 THOSE UNITS AT INDORE AND MAHARASHTRA. THE FINDING OF THE LD.CIT(A) IN THE ASSTT.YEAR 2007-08 IN THIS CONNECTION READS AS UNDER: 3.2 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS. I FIND THAT THE FACTS OF THE CASE ARE IDENTICAL TO ITS SISTER U NIT AT INDORE. THE THREE INDO GERMAN TOOL ROOKS WERE SET UP IN M.P., M AHARASHTRA AND GUJARAT WITH IDENTICAL MEMORANDUM OF ASSOCIATIO N AND IDENTICAL RULES AND REGULATIONS. FOR THE PURPOSE OF I.T.ACT THEY ARE INDEPENDENT DISTINGUISHABLE ENTITIES, HOWEVER, THEI R OPERATIONS ARE IDENTICAL. THE DECISION OF HON'BLE ITAT INDORE BENCH IN THE CASE OF INDO GERMAN TOOL ROOM, INDORE IS ON IDENTIC AL FACTS AND I DO NOT AGREE WITH THE CONTENTIONS OF THE A.O. THAT IN THE CASE OF INDORE UNIT THE ASSETS HAVE BEEN ACQUIRED BY UTILIZ ING GOVERNMENT FUNDS AS WELL AS OWN FUNDS WHEREAS IN TH E CASE OF THE APPELLANT THE FACTS ARE DIFFERENT. THE CONTRIBU TIONS FOR VARIOUS ASSETS ARE BEING MADE TO CERTAIN EXTENT BY THE VARI OUS PROMOTING PARTIES I.E. GOVERNMENT OF INDIA, GOVERNMENT OF GER MANY AND GOVT. OF GUJARAT. IN ADDITION THE APPELLANT IS ALSO EARNING BY WAY OF FEES RECEIVED FROM THE STUDENTS. THE MEMORANDUM OF ASSOCIATION IN CLAUSE-49 DEALS WITH FUNDING OF THE SOCIETY WHICH INCLUDES GRANTS MADE BY THE RESPECTIVE GOVERNMENTS, DONATIONS, LOANS AND GRANTS, INCOME FROM INVESTMENTS AND SAVIN GS, RECEIPT FROM TRAINEES AND FROM VARIOUS OTHER SERVICES ETC. I AGREE WITH THE CONTENTIONS OF THE APPELLANT THAT WHAT HAS BEEN PROVIDED BY THE VARIOUS GOVERNMENTS ARE IN THE NATU RE OF PROMOTERS CONTRIBUTION AND HAVE BEEN DULY REFLECTED SO IN THE BALANCE SHEET OF THE APPELLANT. APPLICABILITY OF EX PLANATION-10 TO SEC.43 WILL COME INTO PICTURE ONLY WHEN THE RECEIPT S ARE IN THE FORM OF SUBSIDY. THE HON'BLE ITAT WHILE DEALING WITH THE CASE OF IND O GERMAN TOOL ROOM INDORE ON IDENTICAL FACTS HAS DELETED THE DISA LLOWANCE OF DEPRECIATION CLAIM MADE BY THE A.O. BY INVOKING EXP LANATION-10 OF SEC.43 OF THE IT.ACT. THE HON'BLE BENCH OBSERVED AS UNDER :- 'WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND DELIBERATED ON THE CASE LAWS CITED BY THE LD. AUTHO RIZED REPRESENTATIVE IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. IN THE INSTANT CASE, THE ASSESSEE BEING A SOCIETY S ET UP BY THE GOVERNMENT OF INDIA, FOR CARRYING ON ACTIVITY O F PROVIDING TECHNICAL AND CONSULTANCY SERVICES FOR SM ALL SCALE UNIT. IT GOT GOVERNMENT GRANT TOWARDS CAPITAL FUNDS . BY UTILIZING THESE FUNDS AND ITS OWN CAPITAL, IT ACQUI RED PLANT AND MACHINERY AND BUILDING. WHILE ALLOWING ASSESSEE 'S CLAIM FOR DEPRECIATION ON SUCH PLANT AND MACHINERY AND BU ILDING, ITA NO.78 AND 79/AHD/2014 5 THE A.O. REDUCED THE ACTUAL COST BY THE AMOUNT OF G RANT AFTER APPLYING EXPLANATION 10 TO SECTION 43. HORRJB LE SUPREME COURT IN THE CASE OF P.J. 'N CHEMICALS (SUP RA) HAS ELABORATELY DEALT WITH SUCH A SITUATION T! AND OBSE RVED THAT WHERE GOVERNMENT SUBSIDY IS INTENDED AS AN INCENTIV E TO ENCOURAGE ENTREPRENEURS, THE SAME IS NOT A PAYMENT DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE A CTUAL COST. THE EXPRESSION 'ACTUAL COST' IN SECTION 43(1) OF TH E INCOME- TAX ACT, 1961, IS TO BE INTERPRETED LIBERALLY. ACCO RDINGLY, SUCH SUBSIDY DOES NOT PAR-TAKE ALL THE INCIDENTS WH ICH ATTRACTS THE CONDITION FOR ITS DEDUCTIBILITY FROM ' ACTUAL COST.' IT WAS, THEREFORE, HELD THAT AMOUNT OF SUBSIDY IS N OT LIABLE TO BE DEDUCTED FROM THE ACTUAL COST U/S.43(1) FOR T HE PURPOSE OF CALCULATION OF DEPRECIATION. RESPECTFULL Y FOLLOWING THE PROPOSITION OF LAW AS LAID DOWN BY THE HON'BLE SUPREME COURT AND THEREAFTER BY VARIOUS COURTS, AS NARRATED ABOVE, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AUTHORITIES FOR REDUCING THE AMOUNT OF GOVERNMENT G RANT FROM THE ACTUAL COST OF PLANT AND MACHINERY AND BUI LDING FOR THE PURPOSE OF ALLOWING ASSESSEE'S CLAIM FOR DEPREC IATION. ACCORDINGLY WE REVERSE THE ORDER OF LOWER AUTHORITI ES AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE.' THE FACTS OF THE CASE OF THE APPELLANT BEING IDENTI CAL, RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE ITAT INDORE BENCH , THE A.O. IS DIRECTED TO DELETE THE DISALLOWANCE OF THE CLAIM OF DEPRECIATION MAD IN THE CASE OF THE APPELLANT. THE SECOND GROUN D OF APPEAL IS ALLOWED. APPELLANT GETS A RELIEF OF RS.2,58,77,712 /-. 8. WITH THE ASSISTANCE OF THE LD.DR WE HAVE GONE TH ROUGH THE RECORD CAREFULLY. SHORT CONTROVERSY INVOLVED IN THESE APPE ALS IS WHETHER THE CONTRIBUTIONS MADE BY THREE GOVERNMENTS, VIZ. GOVT. OF INDIA, GOVT. OF GUJARAT AND GERMAN GOVERNMENT WAS TO BE TREATED AS A CONTRIBUTION ON BEHALF OF THE PROMOTERS OR IT WAS TO BE TREATED AS A SUBSIDY BY THE GOVERNMENT. ACCORDING TO THE AO, LAND ETC. WERE GRA NTED BY THE GOVT. OF GUJARAT IS TO BE TREATED AS SUBSIDY, WHICH DOES NOT CARRY ANY COSTS TO THE ASSESSEE, AND THEREFORE, IT COULD NOT CLAIM DEP RECIATION. ON THE OTHER HAND, THE LD.CIT(A) POINTED OUT THAT IT WAS N OT SUBSIDY, RATHER THESE THREE GOVERNMENTS HAVE PARTICIPATED FOR CONST ITUTING A SOCIETY AND THEY HAVE PROVIDED CONTRIBUTION IN THE FORM OF ASSETS/KINDS. THE AO OUGHT TO HAVE APPRECIATED STATUS OF THREE GOVERN MENTS AS OF ITA NO.78 AND 79/AHD/2014 6 PROMOTERS AND IN THAT VIEW IT COULD NOT BE CONSTRUE D THAT THESE GOVERNMENTS HAVE GIVEN GRANT TO THE ASSESSEE AS A S UBSIDY. IN OUR OPINION, THE LD.AO HAS MISCONSTRUED WHOLE CONSTITUT ION OF THE SOCIETY. HE WAS NOT JUSTIFIED TO ASSUME THAT THREE GOVERNMEN TS WHO ARE PROMOTERS OF THE SOCIETY HAVE GIVEN SUBSIDY INSTEAD OF CONTRIBUTION FOR CREATION OF THE SOCIETY. HERE THE GOVERNMENTS ARE DOING BUSINESS THEMSELVES BY CONSTITUTING THE SOCIETY. IT IS NOT A BENEFIT GIVEN BY THE GOVERNMENT FOR ANY PARTICULAR ASSESSEE OR CLASS OF ASSESSEES BY EXERCISING ITS LEGISLATIVE POWERS. THE LD.CIT(A) H AS CONSIDERED THIS ASPECT AND THEREFORE ALLOWED THE CLAIM OF THE ASSES SEE. AFTER GOING THROUGH THE ORDER OF THE LD.CIT(A), WE DO NOT FIND ANY ERROR IN IT. IT IS CONFIRMED. APPEALS OF THE REVENUE STAND DISMISSED. 9. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DI SMISSED. ORDER PRONOUNCED IN THE COURT ON 1 ST MAY, 2017 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 01/05/2017