M/s. Abhisar Buildwell Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 823/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0696 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 12-08-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 11-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANCHAL KHANDELWAL SENIOR
• Keywords: Depreciation
• Section: 43B; 153A; 32; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.823/DEL./2015 (ASSESSMENT YEAR : 2011-12) M/S. ABHISAR BUILDWELL PVT. LTD., VS. DCIT, CC 4, 1711, S.P. MUKHERJEE MARG, NEW DELHI. NEW DELHI 110 006. (PAN : AAFCA6845D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.S. SINGHVI, CA REVENUE BY : SMT. ANCHAL KHANDELWAL, SENIOR DR DATE OF HEARING : 30.08.2018 DATE OF ORDER : 17.09.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. ABHISAR BUILDWELL PVT. LTD. (H EREINAFTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESEN T APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 31.10.2014 PASSE D BY LD. CIT (APPEALS)-XXXIII, NEW DELHI QUA THE ASSESSMENT YEAR 2012-13 ON THE GROUNDS INTER ALIA THAT :- 1) THE ORDER PASSED BY THE ID CIT (A) IS BAD IN LA W & NATURE BECAUSE I) THE LD CIT(A) HAS UPHELD THE DISALLOWANCES OF TH E DEPRECIATION MADE U/S 153A WITHOUT ANY SEARCH MATER IAL ITA NO.823/DEL./2015 2 FOUND IN THE COURSES OF SEARCH BY THE AO WHICH IS N OT PERMISSIBLE IN THE LAW. II) THE LD CIT(A) HAS IGNORED THE FACT THAT THE EX CISE REFUNDS USED FOR THE DEVELOPMENT OF THE BACKWARD AR EA BY NEW INDUSTRIES AS PER INDUSTRIAL POLICY OF GOVER NMENT OF INDIA FOR NORTH EAST STATE IS NOT A PART OF GOVE RNMENT GRANTS. III) THE LD CIT(A) HAS IGNORED THE FACT THAT THE A SSESSEE HAS COMPLIED WITH THE RECOMMENDATIONS OF ICAI FOR RECORDING SUCH EXCISE REFUNDS IN BOOKS OF ACCOUNTS AND HAS COMPLIED WITH THE ACCOUNTING STANDARD ON 'DEFER RED GOVERNMENT GRANT' 2) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWA NCE OF THE DEPRECIATION AMOUNTING TO RS.6,40,38,391/- ILLEGALL Y. THEREFORE THE SAME IS LIABLE TO BE DELETED. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE DECLARED NET LOS S OF RS.4,45,60,774/- IN ITS BUSINESS DURING THE YEAR UN DER ASSESSMENT AND HAS CLAIMED DEPRECIATION OF RS.6,40,38,391/- IN ACCORDANCE WITH THE PROVISIONS OF SECTION 44AB OF THE INCOME-T AX ACT, 1961 (FOR SHORT THE ACT) IN RESPECT OF VARIOUS BLOCK O F ASSETS COMPRISING BUILDING, FURNITURE AND FIXTURES AND PLA NT & MACHINERY. WHILE COMPLETING THE ASSESSMENT U/S 153A/143 (3) OF THE ACT AS IT WAS A SEARCH CASE CONDUCTED AT THE PREMISES OF DS G ROUP OF CASES, M/S. DHARAMPAL SATYAPAL GROUP, ON 21.01.2011, DECLI NING THE DEFENCE RAISED BY THE ASSESSEE, AO DISALLOWED THE E XCESS CLAIM OF DEPRECIATION MADE BY THE ASSESSEE COMPANY AMOUNTING TO RS.6,40,38,391/- BY RECOMPUTING THE CLAIM OF DEPREC IATION U/S 32 ITA NO.823/DEL./2015 3 (1) OF THE ACT BY REDUCING THE ACTUAL COST OF ASSET BY A SUM OF RS.78,32,12,592/-. AO HAS ALSO HELD THAT THE EXCIS E REFUND USED BY THE ASSESSEE IS NOT PART OF THE GOVERNMENT GRANTS. 3. ASSESSEE CARRIED THE MATTER BY WAY OF APPEAL BEF ORE THE LD. CIT (A) WHO HAS PARTLY ALLOWED THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. ASSESSEE WHILE MOVING AN APPLICATION SOUGHT TO R AISE THE FOLLOWING ADDITIONAL GROUNDS :- (I) THAT EVEN OTHERWISE, ON FACTS AND CIRCUMSTANC ES OF THE CASE, THE APPELLANT IS ENTITLED TO CLAIM BENEFIT OF STATUTORY DEDUCTION U/S 80IC ON ADDITIONAL INCOME ARISING FRO M DISALLOWANCE OF CLAIM OF DEPRECIATION. (II) THAT IN VIEW OF CBDT CIRCULAR NO. 37/2016 DAT ED 02.11.2016, THE BENEFIT OF DEDUCTION U/S 801C IS AD MISSIBLE ON PROFITS ENHANCED BY THE DISALLOWANCE MADE U/S 32 AN D AS SUCH CLAIM OF DEPRECIATION IS REVENUE NEUTRAL. SINCE THE ADDITIONAL GROUNDS SOUGHT TO BE RAISED BY THE ASSESSEE ARE LEGAL GROUNDS WHICH GO TO THE ROOTS OF THE CASE AND NECESSARY FOR COMPLETE ADJUDICATION OF THE CONTROVERSY AT HAND, T HE ASSESSEE IS ALLOWED TO RAISE THE ADDITIONAL GROUNDS CHALLENGING THE AVAILABILITY ITA NO.823/DEL./2015 4 OF BENEFIT OF DEDUCTION U/S 8IC OF THE ACT ON THE I MPUGNED ADDITION. 6. UNDISPUTEDLY, FLEXIBLE PACKAGING UNIT OF M/S. DH ARAMPAL SATYAPAL LTD. WAS DEMERGED INTO THE ASSESSEE COMPAN Y. THE LD. AR FOR THE ASSESSEE CONTENDED THAT NO PORTION OF CO ST OF ASSET ACQUIRED BY THE ASSESSEE COMPANY WAS MET OUT OF THE GRANT OR SUBSIDY OR REIMBURSEMENT OF THE GOVERNMENT OR ANY O THER PERSON RATHER COST OF THE ASSETS IN THE HANDS OF ASSESSEE COMPANY ARE AS PER DEMERGER SCHEME APPROVED AND AS SUCH, THERE IS NO Q UESTION OF REDUCING THE COST OF ASSET AND DEPRECIATION. 7. HOWEVER, THE AO AS WELL AS LD. CIT (A) BY INVOKI NG THE EXPLANATION 7 TO SECTION 43 (1) OF THE ACT PROCEEDE D TO HOLD THAT THE ACTUAL COST OF THE ASSET TO THE ASSESSEE COMPAN Y WHICH IS A RESULTING COMPANY SHALL BE THE SAME WHICH WAS TO BE DEMERGED COMPANY AND THEREBY RECOMPUTED THE CLAIM OF DEPRECA TION U/S 32 (1) OF THE ACT BY REDUCING THE ACTUAL COST OF ASSET BY RS.78,32,12,592/-. 8. LD. AR FOR THE ASSESSEE BY RELYING UPON CBDT CIR CULAR NO.37/2016 DATED 02.11.2016 CONTENDED THAT BENEFIT OF DEDUCTION U/S 80IC IS ADMISSIBLE ON PROFITS ENHANCED BY DISAL LOWANCE MADE U/S 32 OF THE ACT WHICH MAKES THE CLAIM OF DEPRECIA TION AS REVENUE NEUTRAL AND FURTHER CONTENDED THAT THE ASSESSEE IS ENTITLED TO CLAIM ITA NO.823/DEL./2015 5 BENEFIT OF STATUTORY DEDUCTIONS U/S 80IC ON ADDITIO NAL INCOME ARISING FROM DISALLOWANCE OF CLAIM OF DEPRECIATION. 9. ON THE OTHER HAND, LD. DR ALSO BY RELYING UPON E XPLANATION 7 & 10 TO SECTION 43 (1) CONTENDED THAT THE ACTUAL COST OF RESULTING COMPANY SHALL ALSO BE NIL AND AS SUCH, ACTUAL COST OF ASSET IS TO BE REDUCED BY THE AMOUNT OF RS.78,32,12,592/-. THE LD . DR FURTHER CONTENDED THAT THE EXCISE DUTY IS REIMBURSEMENT TO THE ASSESSEE. 10. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRC UMSTANCES OF THE CASE AND ARGUMENTS ADDRESSED BY THE LD. AR OF T HE PARTIES TO THE APPEAL, THE FIRST QUESTION ARISES FOR DETERMINA TION IN THIS CASE IS:- AS TO WHETHER THE ASSESSEE IS ENTITLED TO CLAIM BE NEFIT OF STATUTORY DEDUCTION U/S 80IC OF THE ACT ON ADDITIONAL INCOME ARISING FROM DISALLOWANCE OF CLAIM OF DEPRECIATION AND THAT THE BENEFIT OF DEDUCTION U/S 80IC IS ADMISSIBLE ON PROFITS ENHANCE D BY THE DISALLOWANCE MADE U/S 32 OR THAT THE CLAIM OF DEPRE CIATION IS REVENUE NEUTRAL? 11. BEFORE PROCEEDING FURTHER, THE RELEVANT PARA OF CIRCULAR NO.37/2016 DATED 02.11.2016 ISSUED BY THE CBDT, REL IED UPON BY THE LD. AR FOR THE ASSESSEE, IS EXTRACTED AS UNDER :- CHAPTER VI-A OF THE INCOME-TAX ACT, 1961 ('THE AC T'), PROVIDES FOR DEDUCTIONS IN RESPECT OF CERTAIN INCOM ES. IN COMPUTING THE PROFITS AND GAINS OF A BUSINESS ACTIV ITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, S UCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT. AT TIMES DISALLOWANCE OUT OF SPEC IFIC EXPENDITURE CLAIMED MAY ALSO BE MADE. THE EFFECT OF SUCH DISALL OWANCES IS AN INCREASE IN THE PROFITS. DOUBTS HAVE BEEN RAISED AS TO WHETHER SUCH HIGHER PROFITS WOULD ALSO RESULT IN CLAIM FOR A HIGHER PROFIT- LINKED DEDUCTION UNDER CHAPTER VI-A. ITA NO.823/DEL./2015 6 .. 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SETTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A)(IA), 40A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DIS ALLOWANCES, RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT O F THE PROFITS OF THE ELIGIBLE BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DIS ALLOWANCE. 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FILE D ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS AL READY FILED IN COURTS/TRIBUNALS MAY BE WITHDRAWN / NOT PRESSED UPO N. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED . 12. BARE PERUSAL OF THE OPERATIVE PART OF THE CIRCU LAR (SUPRA) GOES TO PROVE THAT DISALLOWANCE MADE BY THE ASSESSE E U/S 32 OF THE ACT RELATING TO BUSINESS ACTIVITY AGAINST WHICH DED UCTIONS HAVE BEEN CLAIMED UNDER CHAPTER VI-A, AS IN THE INSTANT CASE, RESULTS IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBLE BUSINESS AND THAT DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON PROFI TS SO ENHANCED BY THE DISALLOWANCE. IN THESE CIRCUMSTANCES, THE C LAIM OF DEPRECIATION MADE BY THE ASSESSEE COMPANY OF RS.6,4 0,38,391/- IS ALLOWABLE DEDUCTION AND AS SUCH, THE BENEFIT OF DED UCTION U/S 80IC IS ALLOWABLE ON PROFITS ENHANCED BY THE DISALLOWANC E MADE U/S 32 OF THE ACT AND IN THESE CIRCUMSTANCES, THE CLAIM OF DEPRECIATION IS REVENUE NEUTRAL. 13. SO FAR AS QUESTION OF TREATING THE REFUND OF EX CISE DUTY AS PART OF THE COST IS CONCERNED, IT IS THE CASE OF TH E ASSESSEE THAT THE ENTIRE COST HAS BEEN PAID BY THE ASSESSEE FOR PLANT & MACHINERY AND AS SUCH, IT CANNOT BE REDUCED FROM THE COST OF ASSE T. LD. AR FOR THE ITA NO.823/DEL./2015 7 ASSESSEE RELIED UPON ORDER PASSED BY CIT (A) DATED 15.07.2016 IN ASSESSEES OWN CASE FOR AYS 2012-13 & 2013-14 WHERE IN EXCISE DUTY REFUND HAS NOT BEEN TREATED IN THE FORM OF CAP ITAL SUBSIDY OR GRANT WHICH CAN BE REDUCED FROM THE COST OF ASSETS. 14. SINCE FINDINGS RETURNED BY THE LD. CIT (A) ARE BASED UPON THE DECISION RENDERED BY HONBLE APEX COURT IN CIT VS. MEGHALAYA STEELS LTD. (2016) 383 ITR 217 (SC) , WE ARE OF THE CONSIDERED VIEW THAT THE EXCISE REFUND IS IN THE NATURE OF REVENUE RECEIPT F ORMING PART OF PROFITS AND GAINS ARISING FROM THE BUSINESS AND AS SUCH CAN NOT BE REDUCED FROM THE COST OF PLANT & MACHINERY. SO, THE FINDINGS RET URNED BY LD. CIT (A) ON THIS ISSUE ARE CONFIRMED. 14. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT AO AS WELL AS CIT (A) HAVE ERR ED IN MAKING ADDITION OF RS.6,40,38,391/- BY DISALLOWING THE CLA IM OF DEPRECIATION OF THE ASSET MADE U/S 32 OF THE ACT WH ICH WOULD FURTHER ENTITLE TO THE ASSESSEE THE BENEFIT OF DEDU CTION U/S 80IC ON PROFITS ENHANCED BY SUCH DISALLOWANCES MADE U/S 32 OF THE ACT. CONSEQUENTLY, APPEAL FILED BY THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 17 TH DAY OF SEPTEMBER, 2018. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 17 TH DAY OF SEPTEMBER, 2018/TS ITA NO.823/DEL./2015 8 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXXIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.