The ACIT, B.K.Circle, Palanpur V. The Banaskantha Dist. Milk Producers Union Ltd, Palanpur

ITA 902/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9036 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-09-2009
• Assessment Year: 1997-1998
• Appeal Filed On: 24-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C PANDIT
• Assessee Lawyers: TALATI
• Keywords: Depreciation; Capital receipt; Capital expenditure; Set aside
• Section: 143(3); 250; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI H. L. KARWA, JM AND N. S. SAINI, AM) ITA NO.902/AHD/20009 A. Y.: 1997-98 THE A. C. I. T., B. K. CIRCLE, 2 RD FLOOR, SHRI HARI COMPLEX, ABU HIGHWAY, PALANPUR 385 001 VS THE BANASKANTHA DISTRICT CO- OPERATIVE MILK PRODUCERS UNION LTD., BANAS DAIRY, PB NO.20, PALANPUR, 385 001 PA NO. AAAAB 0575 E (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI S. H. TALATI, AR DEPARTMENT BY SHRI M. C. PANDIT, DR O R D E R PER H. L. KARWA: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-XV, AHMEDABAD DATED 21-02-2009 RELATING TO ASSESSMENT YEARS 1997-98. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS: 1. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (A) -XV, AHMEDABAD HAS ERRED IN LAW AND IN FACTS IN DELETIN G THE ADDITIONS OF RS.71,98,529/- MADE BY THE A. O. ON A/ C OF GRANT RECEIVED FROM NDDB TREATING THE SAME AS CAPITAL NAT URE WHICH WAS ADDED BY THE A. O. TREATING THE SAME AS OF REVE NUE NATURE. 2. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (A)- XV, AHMEDABAD HAS ERRED IN LAW AND IN FACTS IN ALLOWING DEPRECIATION OF RS.28,82,664/- ON THE ASSETS INSTAL LED ON A/C OF SUCH GRANTS. 3. BRIEFLY STATED, THE FACTS OF THE CASE FOR THE AS SESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE FILED ITS RETURN OF INCO ME ON 29-10-1997 ITA NO.902/AHD/2009 BANASKANTHA DISTRICT CO-OPERATIVE MILS PRODUCERS U NION 2 DECLARING INCOME OF RS.75,25,500/-. THE AO COMPLETE D THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961(IN SHORT THE ACT) ON 22-3-2000 DETERMINING TOTAL INCOME AT RS.97,31,026/-. THE AO MADE ADDITION OF RS.10,401, RS.14,75,529/- AND RS. 22,383/- IN RESPE CT OF NSC INTEREST, GRANT RECEIVED FROM NATIONAL DAIRY DEVELOPMENT BOAR D (IN SHORT NDDB) AND DEPRECIATION ON GUEST HOUSE RESPECTIVELY. THE A SSESSEE CHALLENGED THE ORDER OF THE AO IN APPEAL BEFORE THE CIT(A)-IX, AHMEDABAD, WHO VIDE HIS ORDER DATED 26-3-2001 PARTLY ALLOWED THE ASSESS EES APPEAL. IN THE MEANWHILE, THE CIT, GANDHINAGAR OBSERVED THAT THE A SSESSMENT ORDER FOR ASSESSMENT YEAR 1997-98 PASSED BY THE AO WAS ERRONE OUS, PREJUDICIAL TO THE INTERESTS OF THE REVENUE IN AS MUCH AS THE ENTI RE GRANT AMOUNTING TO RS.71,98,529/- RECEIVED FROM NDDB WAS REQUIRED TO B E TREATED AS REVENUE RECEIPT AND INCLUDED TO THE TOTAL INCOME O F THE ASSESSEE IN THE ASSESSMENT ORDER DURING THE YEAR UNDER CONSIDERATIO N. THE CIT PASSED ORDER U/S 263 OF THE ACT ON 13-11-2000 AND SET ASID E THE ORDER PASSED U/S 143(3) OF THE ACT DATED 22-3-2000 AND DIRECTED THE AO TO VERIFY THE NATURE OF THE RECEIPT BY THE ASSESSEE FROM NDDB AND EXAMINE WHETHER THE SAME WERE IN THE NATURE OF CAPITAL RECEIPT OR R EVENUE RECEIPT. THE ASSESSEE CHALLENGED THE ORDER OF THE CIT, GANDHINAG AR IN APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDER DATED 20-7-2006 IN ITA NO.226/AHD/2001 AND 133/AHD/2001 SET ASIDE THE ORDE R OF THE CIT, GANDHINAGAR AND RESTORED THE MATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUE AFRESH AFTER EXAMINING THE RELEVANT DOCUM ENTS AND DETERMINING THE TRUE NATURE OF THE GRANT IN QUESTION AFTER PROV IDING REASONABLE OPPORTUNITY. 4. IN PURSUANCE TO THE ORDER OF THE TRIBUNAL, THE A O PASSED ORDER U/S 143(3) READ WITH SECTION 250 OF THE ACT ON 11-12- 2007 STATING THAT THE ENTIRE GRANT AMOUNTING TO RS. 71,98,529/- (RS.14,75 ,529/- PLUS RS.57,23,000/-) IS CONSIDERED AS REVENUE RECEIPT. T HE AO HAS ALSO DISALLOWED CLAIM OF DEPRECIATION AMOUNTING TO RS.28 ,82,664/-. ITA NO.902/AHD/2009 BANASKANTHA DISTRICT CO-OPERATIVE MILS PRODUCERS U NION 3 5. ON APPEAL, THE CIT(A) DIRECTED THE AO TO TREAT T HE GRANT AMOUNTING TO RS.71,98,529/- AS CAPITAL RECEIPT. AS REGARD DEP RECIATION OF RS.28,82,664/-, THE CIT(A) HELD THAT AS THE GRANT R ECEIVED HAS BEEN HELD TO BE CAPITAL RECEIPT, THE AO IS DIRECTED TO ALLOW THE DEPRECIATION. 6. NOW, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNA L AGAINST THE ORDER OF THE CIT(A) DATED 21-1-2009. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI S. H. TALATI, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUND NO.1 OF THE APPEAL IS DIRECTLY COVERED BY THE ORDER OF THE TRIBUNAL, AHME DABAD BENCH A DATED 26-9-2006 IN THE CASE OF GUJARAT CO-OPERATIVE MILK MARKETING FEDERATION LTD., VS ACIT, ANAND CIRCLE, ANAND IN ITA NO.102/AH D/2006 RELATING TO ASSESSMENT YEAR 2000-01. THE TRIBUNAL FOLLOWING ITS EARLIER ORDER PASSED IN THE CASE OF GUJARAT CO-OPERATIVE MILK MARKETING FEDERATION LTD. HELD AS UNDER: 16. WE HAVE HEARD THE PARTIES AND CONSIDERED TH E RIVAL SUBMISSIONS. IN OUR OPINION, THE CIT(A) IS RI GHT IN HOLDING THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF P. J. CHEMICALS WORKS LTD. (SUPRA). THE ASSESSEE HAS SET UP A MILK PROCESSING PLANT CAL LED MOTHER DAIRY PLANT AT GANDINAGAR HAVING MILK PROCESSING C APACITY OF 4 LAC LITERS PER DAY. THE SAID PROJECT INITIALLY ESTI MATED AT A COST OF RS.16.04 CRORES WAS FINANCED UNDER THE NATIONAL DAI RY DEVELOPMENT BOARD. THE FINANCING BY THE NDDB IS UND ERTAKEN BY 70% LOAN AND 30% GRANT BASIS. AS PER THE AGREEMENT DATED 30 TH OCTOBER, 1991 SIGNED BETWEEN THE ASSESSEE AND NDDB WHAT COMES OUT IS THAT BY CLAUSE (1) OF THE AGREEMENT ND DB HAS GIVEN DISBURSEMENT TO BORROWERS A SUM OF RS.13058.98 LACS AS GRANTS TOWARDS PART-FINANCE FOR THE PROJECT AS PER THE TER MS AND CONDITIONS. SUBJECT TO PARAGRAPH 4 OF THE AGREEMENT , THE ESTIMATED COST FOR DISBURSEMENT IS STATED AS UNDER: ITEM ESTIMATED TOTAL COST AMOUNT OF GRANT (30% OF COST) PROCESSING FACILITIES 37914.23 LACS 11,247.07 TECHNICAL INPUTS ` 4009.86B LACS 1,202.95 MILK MARKETING 395.09 LACS 118.53 ITA NO.902/AHD/2009 BANASKANTHA DISTRICT CO-OPERATIVE MILS PRODUCERS U NION 4 17. THE NDDB BY CLAUSE (4) OF THE AGREEMENT HAS GIVEN OPTION THAT INSTEAD OF GIVING THE AMOUNT OF G RANT BY WAY OF CASH THEY CAN GIVE SPECIFIC MACHINERY AND/OR EQU IPMENT REQUIRED FOR THE PROJECT AS GRANT. IN SUCH A CASE T HE ACTUAL COST OF PLANT, EQUIPMENT OR MACHINERY WILL BE CONSIDERED TOWARDS GRANT FOR PURPOSE OF PARAS 2 AND 3, AND SUCH ACTUAL COST WILL BE THE AMOUNT AS COMPUTED BY THE NDDB AND MAY INCLU DE DIRECT AND INDIRECT EXPENSES AND ALL COSTS OF PURCH ASING, ACQUISITION, TRANSPORTATION, INSURANCE, TRIAL RUNS, INVENTORY HOLDING COSTS, SERVICE CHARGES AND INTEREST CHARGED AS COMPUTED BY THE NDDB AND THE AMOUNT OF COST OF THE MACHINERY AND/OR EQUIPMENT SO SUPPLIED TO THE BORRO W AND ONLY THE BALANCE OF THE AMOUNT IF ANY, WILL BE GRANTED/PAYABLE BY THE NDDB IN CASH. THE ASSESSEE H AS NOT BEEN GIVEN ANY SPECIFIC MACHINERY. IT HAS BEEN GIVE N A GRANT, WHICH IS NOT GIVEN AS A DIRECT COST OF THE PLANT AN D MACHINERY BUT IT WAS GIVEN AS A GRANT FOR THE PROJECT AS A WH ILE INCLUDING PROCESSING FACILITY, TECHNICAL INPUTS, MILK MARKETI NG. THE CIT(A) IS, THEREFORE, RIGHT IN HOLDING THAT IT IS A GRANT THAT WAS NOT GIVEN FOR PURCHASE OF ANY SPECIFIC PLANT OR MAC HINERY OR ACQUISITION OF ASSETS. IT HAS BEEN GIVEN FOR THE EN TIRE PROJECT AND ACCORDINGLY, THE CASE OF THE ASSESSEE IS COVERE D BY THE DECISION OF THE SUPREME COURT IN THE CASE OF P. J. CHEMICALS WORKS LTD. (SUPRA). THE RELIANCE ON THE EXPLANATION (10) TO SEC. 43(1) ALSO CANNOT BE ANY HELP TO THE REVENUE, AS IT WAS INCORPORATED W. E. F. 1.4.1999 AND WOULD NOT BE APP LICABLE TO THE YEAR UNDER CONSIDERATION. THE DECISION OF SAHNE Y STEEL & PRESS WORKS LTD. (SUPRA) IS ALSO OF NO HELP AS THE ISSUE IN THAT CASE WAS WHETHER THE AMOUNT RECEIVED BY THE AS SESSEE WAS A REVENUE INCOME OR CAPITAL EXPENDITURE AND NOT HING TO DO WITH COST OF THE ASSETS. WE, ACCORDINGLY, UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUND OF THE REVENUE. 8. IN VIEW OF THE SAID DECISION OF THE TRIBUNAL WE HOLD THAT THE CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO TREAT THE AMOU NT OF RS.71,98,529/- AS CAPITAL RECEIPT. 9. GROUND NO.2 OF THE APPEAL IS CONSEQUENTIAL. SINC E WE HAVE TREATED GRANT AMOUNT OF RS.71,98,529/- AS CAPITAL RECEIPT, THEREFORE, THE ASSESSEE IS ENTITLED TO DEPRECIATION ON THE AFORESA ID AMOUNT. OTHERWISE, THE ISSUE IS COVERED BY THE DECISION OF GUJARAT CO- OPERATIVE MILK MARKETING FEDERATION LTD. (SUPRA). ITA NO.902/AHD/2009 BANASKANTHA DISTRICT CO-OPERATIVE MILS PRODUCERS U NION 5 10. IN VIEW OF THE ABOVE, WE DISMISS BOTH THE GROUN DS OF APPEAL OF THE REVENUE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18-09 -2009 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (H. L. KARWA) JUDICIAL MEMBER DATE : 18-09-2009 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD