D.C.I.T Cir - 6,kolkata., Kolkata V. M/s Universal Cables Ltd, Kolkata

ITA 910/KOL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87699 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 23-04-2013
• Court: TRIBUNAL
• Assessee Lawyers: J P KHAITAN; SANJAY BHAUMIK
• Keywords: Capital asset; Depreciation; Additional depreciation; Earning of tax free income; Bad and doubtful debts; Capital receipt; Revised return; Unabsorbed depreciation; Capital expenditure
• Section: 43B; 143(3); 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOLKATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA , AM ] I.T.A NO. 67 9 /KOL/201 3 ASSESSMENT YEAR : 200 8 - 0 9 UNIVERSAL CABLES LTD. VS. DEPUTY COMMISSIONER OF INCOME - TAX, (PAN:AAACU3547P) CIRCLE - 6, KOLKATA ( APPELLANT ) ( R ESPONDENT ) & I.T.A NO. 910 /KOL/201 3 ASSESSMENT YEAR : 2008 - 0 9 DEPUTY COMMISSIONER OF INCOME - TAX, VS. UNIVERSAL CABLES LTD. CIRCLE - 6, KOLKATA ( APPELLANT ) ( R ESPONDENT ) & I.T.A NO. 1051 /KOL/201 3 ASSESSMENT YEAR : 2009 - 1 0 UNIVERSAL CABLES LTD. VS. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 6, KOLKATA ( APPELLANT ) ( R ESPONDENT ) & I.T.A NO. 1906 /KOL/201 3 ASSESSMENT YEAR : 2009 - 1 0 DEPUTY COMMISSIONER OF INCOME - TAX, VS. UNIVERSAL CABLES LTD. CIRCLE - 6, KOLKATA ( APPELLANT ) ( R ESPONDENT ) DATE OF HEARING: 03 . 0 2 .201 5 DATE OF PRONOUNCEMENT: 27 . 0 2 .201 5 FOR THE A SSESSEE : S/ SHRI J. P. KHAITAN & SANJAY BHAUMIK , ADVOCATE S FOR THE RE VENUE : SHRI VIJAY KUMAR, CIT, DR / ORDER PER SHRI MAHAVIR SINGH, JM : TH E CROSS APPEAL S BEING NOS. 670 & 910/K/2013 BY ASSESSEE AND REVENUE ARE ARISING OUT OF ORDER OF CIT(A) - VI, KOLKATA IN APPEAL NO. 210 / CIT(A) / VI/ R - 6/2010 - 11/KOL DATED 28 .0 1 .201 3 AND THE CROSS APPEALS BEING NOS. 1051 & 1906/K/2013 BY ASSESSEE AND REVENUE ARE ARISING OUT OF ORDER OF CIT(A) - VI, KOLKATA IN APPEAL NO. 181/ CIT(A) - VI/R - 6/11 - 12 DATED 28.03.2013 . ASSESSMENT S W ERE FRAMED BY ADDL./J CIT, RANGE - 6, KOLKATA U/S. 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERR ED TO AS THE ACT ) FOR ASSESSMENT YEAR S 200 8 - 0 9 AND 2009 - 10 VIDE HIS SEPARATE ORDER S DATED 31 . 12 .20 1 0 AND 15.12.2011 RESPECTIVELY . 2 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 2. THE FIRST COMMON ISSUE IN THESE TWO APPEALS OF ASSESSEE (ITA NOS.679 & 1051/K/2013) IS AS REGARDS TO ALLOWANCE OF BALANC E 50% ADDITIONAL DEPRECIATION U/S 32(1)(II) OF THE ACT IN RESPECT OF NEW PLANT AND MACHINERY, PURCHASED AND PUT TO USE FOR LESS THAN 180 DAYS IN THE IMMEDIATELY PRECEDING YEAR. FOR THE SAKE OF BREVITY, WE DISPOSE OF THE ISSUE BY TAKING THE FACTS OF THE CAS E FROM AY 2008 - 09. THE RELEVANT GROUND RAISED BY ASSESSEE IN ITA NO. 679/K/2013 IS AS UNDER: - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN NOT DIRECTING THE AO TO ALLOW BALANCE 50% OF INITIAL DEPRECIATION TO THE EXTENT OF RS.4,17,51,970/ - U/S. 32(1)(II) ON PLANT & MACHINERY PUT TO USE FOR A PERIOD OF LESS THAN 180 DAYS DURING THE FINANCIAL YEAR 2005 - 06 RELEVANT TO AY 2006 - 07. 3. BRIEF FACTS ARE THAT DURING FINANCIAL YEAR 2007 - 08 RELEVANT TO AY 2008 - 09, THE ASSE SSEE PURCHASED AND INSTALLED NEW PLANT AND MACHINERY FOR ITS MANUFACTURING UNIT. SUCH PLANT AND MACHINERY WAS PUT TO USE FOR A PERIOD LESS THAN 180 DAYS DURING THE AFORESAID FINANCIAL YEAR AND CLAIMED BALANCE 50% OF ADDITIONAL DEPRECIATION U/S 32(1)(IIA) O F THE ACT IN VIEW OF THE SECOND PROVISO TO SEC. 32(1) OF THE ACT. DURING THE CURRENT FINANCIAL YEAR 2007 - 08 RELEVANT TO AY 2008 - 09, THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION (BALANCE 50%) ON THE SAME PLANT AND MACHINERY AS IT WAS ENTITLED TO GET BALANCE ADDITIONAL DEPRECIATION THIS YEAR ALSO. THE AO DISALLOWED THE CLAIM BY OBSERVING THAT FROM THE COPY OF THE COMPUTATION OF TOTAL INCOME, IT IS FOUND THAT THE ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION OF RS.4,17,51,970/ - IN RESPECT OF PLANT & MACHINERY WHICH WERE ACQUIRED DURING F.Y. 2006 - 07 AND USED FOR A PERIOD LESS THAN 180 DAYS. THIS CLAIM IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SEC. 32. HENCE IT IS DISALLOWED. AFTER DISALLOWING THE ADDITIONAL DEPRECIATION OF RS.4 ,17,51,970/ - , THE DEPRECIATION OF RS.18,30,93,752/ - (22,48,45,722 4,17,51,970) IS ALLOWED. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 4 . THE CIT(A) CONFIRMED THE ACTION OF THE AO BY OBSERVING IN PARA - 13 TO 15 AS UNDER: - 13. THE PROVISION O F SECTION 32(1) SPECIFICALLY RESTRICTS THAT THE DEPRECIATION WILL BE PROVIDED AT HALF THE RATE IF THE ASSETS IS USED FOR LESS THAN 180 DAYS IN THE YEAR. THEREFORE, THE SAME IS RIGHTLY DISALLOWED BY THE ASSESSING OFFICER. IT IS ALSO HELD THAT DEPRECIATION U/S. 32(1)(IIA) OF THE INCOME - TAX ACT, 1961 IS AVAILABLE TO THE APPELLANT AS PER PROVISION DEPENDING FROM THE PERIOD FOR WHICH IT IS USED. THEREFORE, IT IS HELD THAT THERE IS NO VESTED RIGHT TO THE APPELLANT TO CLAIM THE DEPRECIATION U/S. 32(1)(IIA) IN T HE YEAR IN WHICH THE MACHINERY WAS NOT INSTALLED. 14. IT IS HELD THAT THE ADDITIONAL DEPRECIATION CLAIMED BY THE APPELLANT IS PART OF THE CLAIM/DEDUCTION FILED IN THE STATEMENT OF INCOME IN THE RETURN. THEREFORE, ANY EXTRA CLAIM WHICH IS NOT ALLOWABLE A S PER LAW CAN BE DISALLOWED BY THE ASSESSING OFFICER. ACTION OF THE ASSESSING OFFICER IS UPHELD. THEREFORE, IT IS HELD THAT THE APPELLANT IS NOT 3 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 ENTITLED FOR DEPRECIATION OF RS.4,17,51,970/ - U/S. 32(1)(IIA) IN THE ASSESSMENT YEAR 2008 - 09. THIS GROUND OF APPEAL IS DISMISSED. 15. HOWEVER, IN VIEW OF THE REJECTION OF ASSESSEE S GROUND FOR ALLOWING ADDITIONAL DEPRECIATION AS CLAIMED, THE ASSESSING OFFICER IS DIRECTED TO RE - DETERMINE THE WRITTEN DOWN VALUE OF FIXED ASSETS AND ALLOW NORMAL DEPRECIATION ACCO RDINGLY AND HE WILL KEEP A NOTE OF THIS ADJUSTMENT IN THE RECORDS TILL THE ISSUE IS FINALLY SETTLED. AGGRIEVED, ASSESSEE IS IN APPEALS BEFORE US. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THI S ISSUE IS COVERED BY THE DECISION OF COORDINATE BENCH OF ITAT A BENCH, KOLKATA IN THE CASE OF ITA NO. 683/K/2011, BIRLA CORPORATION LTD. VS. DCIT FOR AY 2007 - 08 DATED 08.12.2014 , WHEREIN IT HAS BEEN HELD AS UNDER: 15. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE FACTS ARE ADMITTED AND THERE IS NO DISPUTE ON THE FACTS. ONLY ISSUE FOR ADJUDICATION IS WHETHER THE ASSESSEE IS ENTITLED FOR THE BALANCE 50% ADDITIONAL DEPRECIATION IN VIEW OF SEC. 32(1)(IIA) OF THE ACT IN THE NEXT ASSESSMENT YEAR FOR REMAINING UNUTILIZED ADDITIONAL DEPRECIATION. WE HAVE GONE THROUGH THE RELEVANT PROVISIONS OF SECOND PROVISO TO SECTION 32(1)(II) AND 32(1)(IIA) OF THE ACT. IN THE PRESENT CASE BEFORE US, THE ASSESSEE HAS PURCHASED AND INSTALLED NEW PLANT AND MACHINERY FOR ITS MANUFACTURING UNIT AND PUT TO USE FOR A PERIOD OF LESS THAN I.E. 180 DAYS, DURING THE FY 2005 - 06 RELEVANT TO AY 2006 - 07 AND CLAIMED 50% ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE ACT IN VIEW OF THE SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT. FURTHER, THE BALANCE 50% OF ADDITIONAL DEPRECIATION ON SUCH PLANT AND MACHINERY HAS BEEN CLAIMED BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION I.E. THE FY 2006 - 07 RELEVANT TO THIS ASSESSMENT YEAR 2007 - 08. A BARE READING OF CLAUSE (IIA) OF SECTION 32(1) OF THE ACT W.E.F. THE AY 2006 - 07, PROVIDES FOR ALLOWANCE OF ADDITIONAL DEPRECIATION EQUAL TO 20% OF ACTUAL COST OF NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED AFTER MARCH, 31 ST 2005 BY AN ASSESSEE EN GAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. SUCH ADDITIONAL DEPRECIATION IS TO BE ALLOWED AS DEDUCTION U/S. 32(1)(IIA) OF THE ACT BUT SECOND PROVISO TO SECTION 32(1)(II) RESTRICTS THE ALLOWANCE OF DEPRECIATION AT 50%, IF TH E PLANT AND MACHINERY IS ACQUIRED DURING THE PREVIOUS YEAR IS PUT TO USE FOR A PERIOD OF LESS THAN 180 DAYS IN THAT PREVIOUS YEAR. THE SECOND PROVISO SPECIFICALLY MAKES A REFERENCE TO AN ASSET REFERRED TO IN CLAUSE (IIA) OF THE SAID SECTION 32(1) OF THE A CT. AND IT IS BECAUSE OF THE SECOND PROVISO ASSESSEE CLAIMED ONLY 50% ADDITIONAL DEPRECIATION FOR AY 2006 - 07 AND ACCORDINGLY, CLAIMED THE BALANCE AMOUNT OF ADDITIONAL DEPRECIATION IN THE IMMEDIATELY SUBSEQUENT YEAR I.E. THE YEAR UNDER CONSIDERATION AY 200 7 - 08. WE ARE IN FULL AGREEMENT WITH THE ARGUMENT OF SHRI J. P. KHAITAN, SENIOR ADVOCATE THAT A BARE READING OF SECTION 32(1)(IIA) CLEARLY SHOWS THAT THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION IN CASE THE NEW MACHINERY AND PLANT WAS ACQUIRED AND INSTALLED AFTER 31 - 03 - 2005. THERE IS NO RESTRICTIVE CONDITION IN THE CLAUSE FOR THE ELIGIBILITY OF THE ASSESSEE TO CLAIM ADDITIONAL DEPRECIATION. WHEN THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION @ 20%, IN THE ABSENCE OF ANY SPECIFIC PROVISION, THE AO CANNOT CUT DOWN THE SCOPE OF DEDUCTION BY REFERRING TO SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT. HE ALSO POINTED OUT THAT EVEN IF THERE IS ANY CONTRADICTION BETWEEN SECTIONS 32(1)(IIA) AND SECOND PROVISO TO SECTION 32(1)(II), IT HAS TO BE RECONCILED SO AS T O GIVE HARMONIOUS EFFECT TO THE LEGISLATIVE INTENT. THE BENEFITS CONFERRED ON THE ASSESSEE BY WAY OF INCENTIVE PROVISION CANNOT BE TAKEN AWAY BY ADOPTING AN IMPLIED MEANING TO SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT. SINCE THE SECOND PROVISO TO SECT ION 32(1)(II) DOES NOT EXPRESSLY PROHIBIT THE 4 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 ALLOWANCE OF THE BALANCE 50% DEPRECIATION IN THE SUBSEQUENT YEAR, SECOND PROVISO TO SECTION 32(1)(II) SHALL NOT BE INTERPRETED TO MEAN THAT IT IMPLIEDLY RESTRICT THE ADDITIONAL DEPRECIATION TO BE ALLOWED IN THE SUBSEQUENT ASSESSMENT YEAR. WE ARE OF THE VIEW THAT THE ASSESSEE NOW IS ENTITLED FOR 50% ADDITIONAL DEPRECIATION, BECAUSE IN THE YEAR IN WHICH THE MACHINERY WAS FIRST PUT TO USE THE ASSESSEE CLAIMED ONLY 50% OF ADDITIONAL DEPRECIATION FOR THE REASON THAT THE SAME WAS PUT TO USE FOR LESS THAN 180 DAYS, IN THIS ASSESSMENT YEAR FOR THE BALANCE OF DEPRECIATION. 16. BEFORE US, LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF COORDINATE BENCH OF ITAT OF COCHIN IN THE CASE OF APOLLO TYRES LTD. VS. ACIT IN ITA NO. 616/COCH/2011 FOR AY 2007 - 08 DATED 20.12.2013 (UNREPORTED), WHEREIN THE BENCH HAS DECIDED THE ISSUE AS UNDER: 10. WE HAVE ALSO CAREFULLY GONE THROUGH THE SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT, WHICH READS AS FOLLOWS: PROVIDED FURTHER THAT WHERE AN ASSET REFERRED TO CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA), AS THE CASE MAY BE, IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSE OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN ONE HUNDRED AN D EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB - SECTION IN RESPECT OF SUCH ASSET SHALL BE RESTRICTED TO FIFTY PER CENT OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (I) OR CLAUSE (III) OR CLAUSE (IIA) AS THE CASE MAY BE. 11. A BARE READING OF THIS SECTION 32(1)(IIA) CLEARLY SAYS THAT IN CASE A NEW MACHINERY OR PLANT WAS ACQUIRED AND INSTALLED AFTER 31 - 03 - 2005 BY AN ASSESSEE, WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCE OF ARTICLE OR THING, TH E, A SUM EQUAL TO 20% OF THE ACTUAL COST OF THE MACHINERY AND PLANT SHALL BE ALLOWED AS A DEDUCTION. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS ACQUIRED AND INSTALLED THE MACHINERY AFTER 31 - 03 - 205. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF ARTICLE OR THING. THEREFORE THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION WHICH IS EQUIVALENT TO 20% OF THE ACTUAL COST OF SUCH MACHINERY. THE DISPUTE IS THE YEAR IN WHICH THE DEPRECIATION HAS TO BE ALLOWED. THE ASSESSEE HAS ALRE ADY CLAIMED 10% OF THE DEPRECIATION IN THE EARLIER ASSESSMENT YEAR SINCE THE MACHINERY WAS USED FOR LESS THAN 180 DAYS AND CLAIMING THE BALANCE 10% IN THE YEAR UNDER CONSIDERATION. SECTION 32(1)(IIA) DOES NOT SAY THAT THE YEAR IN WHICH THE ADDITIONAL DEPRE CIATION HAS TO BE ALLOWED. IT SIMPLY SAYS THAT THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION EQUAL TO 20% OF THE COST OF THE MACHINERY PROVIDED THE MACHINERY OR PLANT IS ACQUIRED AND INSTALLED AFTER 31 - 03 - 2005. PROVISO TO SECTION 32(1)(IIA) SAYS HAS T IF THE MACHINERY WAS ACQUIRED BY THE ASSESSING DURING THE PREVIOUS YEAR AND HAS PUT TO USE FOR THE PURPOSE OF BUSINESS LESS THAN 180 DAYS, THE DEDUCTION SHALL BE RESTRICTED TO 50% OF THE AMOUNT CALCULATED AT THE PRESCRIBED RATE. THEREFORE, IF THE MACHINE RY IS PUT TO USE IN ANY PARTICULAR YEAR, THE ASSESSEE IS ENTITLED FOR 50% OF THE PRESCRIBED RATE OF ADDITIONAL DEPRECIATION. THE INCOME - TAX ACT IS SILENT ABOUT THE ALLOWANCE OF THE BALANCE 10% ADDITIONAL DEPRECIATION IN THE SUBSEQUENT YEAR. TAKING ADVANTAG E OF THIS POSITION, THE ASSESSEE NOW CLAIMS THAT THE YEAR IN WHICH THE MACHINERY WAS PUT TO USE THE ASSESSEE IS ENTITLED FOR 50% ADDITIONAL DEPRECIATION SINCE THE MACHINERY WAS PUT TO USE FOR LESS THAN 180 DAYS AND THE BALANCE 50% SHALL BE ALLOWED IN THE N EXT YEAR SINCE THE ELIGIBILITY OF THE ASSESSEE FOR CLAIMING 20% OF THE ADDITIONAL DEPRECIATION CANNOT BE DENIED BY INVOKING SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT. 17. THE LD. SENIOR COUNSEL ALSO RELIED ON THE DECISION OF THE DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. COSMO FILMS LTD. 139 ITD 628 (DEL) AND IN THE CASE OF ACIT VS. SIL INVESTMENT LTD. 148 TTJ 213 (DEL). THIS ISSUE WAS CONSIDERED BY THE DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF COSMO FILMS LTD. (SUPRA), WHEREIN CONSIDERIN G THE PROVISIONS OF SECTION 32(1)(IIA) AND SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT FOUND 5 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 THAT WHEN THERE IS NO RESTRICTION IN THE ACT TO DENY THE BENEFIT OF BALANCE 50%, THE ASSESSEE IS ENTITLED FOR THE BALANCE ADDITIONAL DEPRECIATION IN THE SUBSEQU ENT ASSESSMENT YEAR AND OBSERVED AS UNDER: THUS, THE INTENTION WAS NOT TO DENY THE BENEFIT TO THE ASSESSEE WHO HAVE ACQUIRED OR INSTALLED NEW MACHINERY OR PLANT. THE SECOND PROVISO TO SECTION 32(1)(IIA) RESTRICTS THE ALLOWANCES ONLY TO 50% WHERE THE AS STS HAVE BEEN ACQUIRED AND PUT TO USE FOR A PERIOD LESS THAN 180 DAYS IN THE YEAR OF ACQUISITION. THIS RESTRICTION IS ONLY ON THE BASIS OF PERIOD OF USE. THERE IS NO RESTRICTION THAT BALANCE OF ONE TIME INCENTIVE IN THE FORM OF ADDITIONAL SUM OF DEPRECIATI ON SHALL NOT BE AVAILABLE IN THE SUBSEQUENT YEAR. SECTION 32(2) PROVIDE FOR A CARRY FORWARD SET UP OF UNABSORBED DEPRECIATION. THIS ADDITIONAL BENEFIT IN THE FORM OF ADDITIONAL ALLOWANCE U/S. 32(1)(IIA) IS ONETIME BENEFIT TO ENCOURAGE THE INDUSTRIALIZATION AND IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BAJAJ TEMP LTD (SUPRA), THE PROVISIONS RELATED TO IT HAVE TO BE CONSTRUED REASONABLY, LIBERALLY AND PURPOSIVE TO MAKE THE PROVISION MEANINGFUL WHILE GRANTING THE ADDITIONAL ALLOWANCE. TH IS ADDITIONAL BENEFIT IS TO GIVE IMPETUS TO INDUSTRIALIZATION AND THE BASIC INTENTION AND PURPOSE OF THESE PROVISIONS CAN BE REASONABLY AND LIBERALLY HELD THAT THE ASSESSEE DESERVES TO GET THE BENEFIT IN FULL WHEN THERE IS NO RESTRICTION IN THE STATUTE TO DENY THE BENEFIT OF BALANCE OF 50% WHEN THE NEW MACHINERY AND PLANT WERE ACQUIRED AND USED FOR LESS THAN 180 DAYS. ONETIME BENEFIT EXTENDED TO ASSESSEE HAS BEEN EARNED IN THE YEAR OF ACQUISITION OF NE MACHINERY AND PLANT. IT HAS BEEN CALCULATED @ 15% BUT R ESTRICTED TO 50 - % ONLY ON ACCOUNT OF USAGE OF THESE PLANT AND MACHINERY IN THE YEAR OF ACQUISITION. IN SECTION 32(1)(IIA), THE EXPRESSION USED IS SHALL BE ALLOWED . THUS, THE ASSESSEE HAD EARNED THE BENEFIT AS SOON AS HE HAD PURCHASED THE NEW MACHINERY AN D PLANT IN FULL BUT IT IS RESTRICTED TO 50% IN THAT PARTICULAR YEAR ON ACCOUNT OF PERIOD USAGES. SUCH RESTRICTIONS CANNOT DIVEST THE STATUTORY RIGHT. LAW DOES NOT PROHIBIT THAT BALANCE 50% WILL NOT BE ALLOWED IN SUCCEEDING YEAR. THE EXTRA DEPRECIATION ALL OWABLE U/S. 32(1)(IIA) IN AN EXTRA INCENTIVE WHICH HAS BEEN EARNED AND CALCULATED IN THE YEAR OF ACQUISITION BUT RESTRICTED FOR THAT YEAR TO 50% ON ACCOUNT OF USAGE./ THE SO EARNED INCENTIVE MUST BE MADE AVAILABLE IN THE SUBSEQUENT YEAR. THE OVERALL DEDUC TION OF DEPRECIATION U/S 32 SHALL DEFINITELY NOT EXCEED THE TOTAL COST OF MACHINERY AND PLANT. IN VIEW OF THIS MATTER, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT TO EXTEND THE BENEFIT. WE ALLOW GROUND NO.2 OF THE ASSESSEE S APPEAL. SINCE W E HAVE DECIDED GROUND NO.2 IN FAVOUR OF ASSESSEE, THERE IS NO NEED TO DECIDE THE ALTERNATIVE CLAIM RAISED IN GROUND NO.3. THE SAME IS DISMISSED. 18. IN VIEW OF THE ABOVE DISCUSSION AND CONSIDERING THE ORDERS OF COORDINATE BENCHES, CITED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE ACT IN THIS ASSESSMENT YEAR ALSO. WE DIRECT THE AO ACCORDINGLY. SINCE THE ISSUE IS SQUARELY COVERED BY THE DECISION OF COORDINATE BENCH, CITED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE ACT IN THESE ASSESSMENT YEARS ALSO. WE DIRECT THE AO ACCORDINGLY. THIS ISSUE OF ASSESSEE S APPEALS IS ALLOWED. 6. THE NEXT COMMON ISSUE IN THES E TWO APPEALS OF ASSESSEE IS AS REGARDS TO THE ESTIMAT ED DISALLOWANCE U/S.14A OF THE ACT. FOR THE SAKE OF BREVITY, WE DISPOSE OF THE ISSUE BY TAKING 6 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 THE FACTS OF THE CASE FROM AY 2008 - 09. THE RELEVANT GROUND RAISED BY ASSESSEE IN ITA NO. 679/K/2013 IS AS U NDER: - 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN NOT DELETING THE DISALLOWANCE OF RS.1,54,73,515/ - TREATED BY LD. ADDL. C IT AS EXPENSES ATTRIBUTABLE TO EARNING DIVIDEND INCOME AND DID NOT HOLD THAT NO EXPENSES HAVE BEEN INCURRED TO EARN THE SAID INCOME. 7. BRIEFLY STATED FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION I.E. AY 2008 - 09 THE ASSESSEE COMPANY EARNED DIVIDEND I NCOME OF RS.11,27,555/ - AND CLAIMED THE SAME AS EXEMPT U/S. 10(34) OF THE ACT. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS APPLIED THE PROVISIONS OF RULE 8D OF THE I. T. RULES , 1962 AND ALLOCATED A SUM OF RS.1,54,73,515/ - AS EXPENSES ATTRIBUTABLE FOR EARNING DIVIDEND INCOME I.E. EXEMPT INCOME AND DISALLOWED THE SAME. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO CONFIRMED THE ACTION OF AO BY RELYING ON THE DECISION OF HON BLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS VS. CIT (2 011) 339 ITR 319 (CAL) BY OBSERVING IN PARA 39 AS UNDER: 39. THEREFORE, THE ASSESSING OFFICER BEING NOT SATISFIED THAT THERE IS NO EXPENSES ON EARNING OF DIVIDEND OF RS.11,27,555/ - HAS RIGHTLY APPLIED RULE 8 D. THE APPELLANT HAS INCURRED AN AMOUNT OF RS.1480.17 LAKHS AS INTEREST DURING THE YEAR AND THE ASSESSING OFFICER ON PROPORTIONATE BASIS DISALLOWED ONLY RS.1,40,56,805/ - . THE APPELLANT HAS AN AVERAGE OF INVESTMENTS AMOUNTING TO RS.2833.42 LAKHS WHILE THE ASSE SSING OFFICER HAS DISALLOWED AN AMOUNT OF RS.1 ,54,73,515/ - ONLY. THE TOTAL DISALLOWANCE AMOUNTS TO 5.46% OF THE AVERAGE INVESTMENTS. THEREFORE, IN THE FACTS & CIRCUMSTANCES AS DISCUSSED AND FOLLOWING THE JUDGEMENTS OF THE HON'BLE APPELLATE AUTHORITIES INCL UDING THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ISG TRADERS LTD. VS. CIT - III, KOLKATA & D HANUKA & SONS V.CIT (CENTRAL) - 1; THE HON'BLE SPECIAL BENCH OF ITAT IN THE CASE OF CHEMINVEST LTD, V. INCOME - TAX OFFICER, NEW DELHI AND THE HON'BLE ITAT DELH I BENCH 'H' IN THE CASE OF TECHNOPAK ADVISORS (P.) LTD. V. ADDITIONAL COMMISSIONER OF INCOME - TAX, RANGE - 16, NEW DELHI, THE DISALLOWANCE OF RS.1 ,54,73,515/ - AS PER RULE 8D READ WITH SECTION 14A IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED. AGGRIEVED, AS SESSEE CAME IN APPEAL BEFORE US. 8. BEFORE US SHRI J. P. KHAITAN, SR. ADVOCATE DISTINGUISHED THE CASE LAW REFERRED BY CIT(A) IN OF THE CASE OF DHANUKA & SONS, SUPRA. HE PARTICULARLY REFERRED TO PARA 9 OF THE JUDGMENT OF HON BLE CALCUTTA HIGH COURT, WHICH READS AS UNDER: 9. IN OUR OPINION, THE MERE FACT THAT THOSE SHARES WERE OLD ONES AND NOT ACQUIRED RECENTLY IS IMMATERIAL. IT IS FOR THE ASSESSEE TO SHOW THE SOURCE OF ACQUISITION OF THOSE SHARES BY PRODUCTION OF MATERIALS THAT THOSE WERE ACQUIRED FROM THE FUNDS AVAILABLE IN THE HANDS OF THE ASSESSEE AT THE RELEVANT POINT OF TIME WITHOUT TAKING BENEFIT OF ANY LOAN. IF THOSE SHARES WERE PURCHASED FROM THE AMOUNT TAKEN IN LOAN, EVEN FOR INSTANCE, FIVE OR TEN YEARS AGO, IT IS FOR THE ASSESSEE TO SHOW BY TH E PRODUCTION OF DOCUMENTARY EVIDENCE THAT SUCH LOANED AMOUNT HAD ALREADY BEEN PAID BACK AND FOR THE RELEVANT ASSESSMENT YEAR, NO INTEREST IS PAYABLE BY THE ASSESSEE FOR ACQUIRING THOSE OLD SHARES. IN THE ABSENCE OF ANY SUCH MATERIALS PLACED BY THE ASSESSE E, IN OUR OPINION, THE AUTHORITIES BELOW RIGHTLY HELD THAT PROPORTIONATE AMOUNT SHOULD BE 7 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 DISALLOWED HAVING REGARD TO THE TOTAL INCOME AND THE INCOME FROM THE EXEMPT SOURCE. IN THE ABSENCE OF ANY MATERIAL DISCLOSING THE SOURCE OF ACQUISITION OF SHARES WHI CH IS WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE, THE ASSESSING AUTHORITY TOOK A MOST REASONABLE APPROACH IN ASSESSMENT. LD. COUNSEL FOR THE ASSESSEE REFERRED TO THIS VERY PARA AND STATED THAT THE HON BLE HIGH COURT HAS CONFIRMED THE DISALLOWANCE ONLY ON THE REASONING THAT THE ASSESSEE IS UNABLE TO PRODUCE DOCUMENTARY EVIDENCE THAT THE SHARES PURCHASED FROM THE AMOUNT TAKEN IN LOAN 5 OR 10 YEARS AGO , WHETHER, THE SAME HAVE BEEN PAID BACK FOR THE RELEVANT AY AND CONSEQUENTLY NO INTEREST IS PAYABLE BY TH E ASSESSEE FOR ACQUIRING THOSE SHARES. ACCORDING TO LD. COUNSEL, THIS MEANS THAT THE NEXUS IS VERY MUCH IMPORTANT EVEN IN TERM OF THE JUDGMENT OF HON BLE CALCUTTA HIGH COURT IN DHANIKA & SONS, SUPRA. FOR THIS, LD. COUNSEL FOR THE ASSESSEE REQUESTED THAT NEITHER THE AO NOR THE CIT(A) HAS GONE INTO THE NEXUS OF THE INVESTMENT OF THE SHARES AND LOAN TAKEN BY ASSESSEE ON WHICH INTEREST PAYMENT MADE IS DISALLOWED BY AO. ACCORDING TO HIM, THE ISSUE NEEDS RE - VERIFICATION AT THE LEVEL OF THE AO. ON THIS, LD. CI T, DR SHRI VIJAY KUMAR HAS NOT OBJECTED TO SETTING ASIDE THIS ISSUE TO THE FILE OF AO. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF CABLES AND CABLE WIRES. THE ASSESSEE COMPANY HAS HELD SHARES PURCHASED IN EARLI ER PERIODS AS INVESTMENT AND NOW THE AO HAS TO FIND OUT THAT THE SHARES HELD BY THE COMPANY HAS BEEN PURCHASED OUT OF ITS OWN FUND OR OUT OF LOANS TAKEN BY THE ASSESSEE. IN CASE, THE AO WANTS TO DISALLOW THE INTEREST HE HAS TO ESTABLISH THE NEXUS THAT THE LOAN TAKEN ON WHICH INTEREST PAYMENT IS MADE IS INVESTED IN PURCHASE OF SHARES , BY VIRTUE OF WHICH IT HAS EARNED DIVIDEND. IN TERM OF THE ABOVE, THIS ISSUE IN BOTH THE YEARS IS SET ASIDE TO THE FILE OF AO. THIS GROUND OF APPEAL OF BOTH THE YEARS IS ALLOW ED FOR STATISTICAL PURPOSES. 10 . THE NEXT COMMON ISSUE IN THESE CROSS - APPEALS OF BOTH THE YEARS IS AS REGARDS TO THE ORDER OF CIT(A) HOLDING THE INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE AS CAPITAL RECEIPTS RECEIVED FROM MADHYA PRADESH STATE GOVT. AT RS . 2,61,93,863/ - BUT DIRECTING THE AO TO REDUCE THE SAME FROM COST OF FIXED ASSETS FOR THE PURPOSE OF COMPUTING DEPRECIATION IN VIEW OF THE EXPLANATION - 10 TO SEC. 43(1) OF THE ACT. THE ASSESSEE IS AGAINST EXCLUSION OF COSTS OF THE ASSET IN TERM OF EXPLANATIO N 10 TO SEC. 43(1) OF THE ACT, WHEREAS REVENUE IS AGAINST TREATING THE ASSISTANCE AS CAPITAL RECEIPT. WE TAKE THE FACTS FROM AY 2008 - 09 AND DECIDE THE ISSUE. FOR THIS , ASSESSEE HAS RAISED FOLLOWING GROUND NO.3 : - THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) THOUGH HOLDING THAT INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE OF RS.2,61,93,863/ - ALLOWED BY THE STATE GOVT. IS THE NATURE OF CAPITAL RECEIPT BUT ERRED IN DIRECTING THE ASSESSING OF FICER (AO) FOR REDUCE THE SAME FROM THE COST OF FIXED ASSETS FOR THE PURPOSE OF COMPUTING DEPRECIATION BY APPLYING THE EXPLANATION 10 OF SEC. 43(1) OF I.T. ACT. 8 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 REVENUE HAS RAISED FOLLOWING GROUND NO. 1 : - WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, LD. CIT(A) - VI KOLKATA HAS ERRED IN LAW IN HOLDING THAT SUBSIDY RECEIVED AS INDUSTRIAL PROMOTION ASSISTANCE BE TREATED AS CAPITAL RECEIPTS . 1 1 . BRIE F FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF CABLES AND CABLE WIRES. THE ASSESSEE HAD PUT UP A NEW PROJECT VIZ. TECHNICAL UPGRADATION - CUM - EXPANSION PROJECT FOR MANUFACTURE OF XLPE UNDERGROUND POWER CABLES USING VERTICAL CONTINUOUS VULCANIZATION (VCV) TECHNOLOGY. THE TOTAL CAPITAL INVESTMENT COST FOR THIS PROJECT WAS 61 CRORES. THE STATE GOVERNMENT AFTER EVALUATION OF THE PROPOSED PROJECT OF THE COMPANY, GRANTED CERTAIN FISCAL INCENTIVES INCLUDING INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE (UP A) FOR A PERIOD OF 7 YEARS FROM THE DATE OF COMMENCEMEN T OF COMMERCIAL PRODUCTION SUBJECT TO FULFILMENT OF CONDITION AS REGARDING INFUSION OF CAPITAL INVESTMENT AS COMMITTED BY THE COMPANY. SINCE THE PROJECT OF THE COMPANY WAS OF SPECIAL IMPORTANCE AND LOCATED IN A BACKWARD DISTRICT OF CATEGORY 'A', THE GOVERN MENT ACCORDED THE ASSISTANCE FOR A PERIOD OF 7 YEARS INSTEAD OF NORMAL ELIGIBILITY PERIOD OF 5 YEARS. HOWEVER THE MAXIMUM CEILING OF THE ASSISTANCE WAS EQUIVALENT TO FIXED CAPITAL INVESTMENT ONLY. AS PER THE SCHEME, THE AMOUNT OF ASSISTANCE WHICH IS TO BE CLAIMED ON YEARLY BASIS IS DETERMINED @ 75% OF TOTAL COMMERCIAL TAX (MP VAT + CST) DEPOSITED (NET OF INPUT TAX REBATE) IN RESPECT OF SALE OF PRODUCTS PRODUCED USING VCV TECHNOLOGY ON AN YEARLY BASIS DURING THE ELIGIBILITY PERIOD. IN VIEW OF THESE FACTS ASS ESSEE CLAIMED A SUM OF RS. 2,61,93,863/ - BEING 75% OF THE TAX DEPOSITED (NET OF INPUT TAX REBATE) FOR THE Y EAR UNDER CONSIDERATION IN RESPECT OF SALE OF XLPE UNDERGROUND POWER CABLES USING VCV TECHNOLOGY AS CAPITAL RECEIPT FOR THE REASON THAT T HE OVERALL LI MIT OF EXEMPTION IS LINKED TO THE FIXED CAPITAL INVESTMENT AND IS IN THE NATURE OF SUBSIDY FOR SETTING UP A NEW UNIT / EXPANSION OF EXISTING UNIT. THE SUBSIDY RECEIVED AS ABOVE, ACCORDING TO THE ASSESSEE IS IN THE NATURE OF CAPITAL RECEIPT . BUT AO WAS OF T HE OPINION THAT SINCE THE SALES TAX EXEMPTION WAS RELATED TO SALES AND WAS NOT SPECIFICALLY EARMARKED TO PURCHASE OF ANY CAPITAL ASSETS SUCH SUBSIDY SHOULD BE TREATED AS A REVENUE RECEIPT. HE ALSO FIND THAT THE ASSESSEE DID NOT CAPITALIZE IT EITHER IN THE BALANCE - SHEET BY CREATING A SPECIAL RESERVE OR REDUCED THE VALUE OF WRITTEN DOWN VALUE OF BLOCK OF BUSINESS ASSETS BY THIS AMOUNT. THE AO RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD . V CIT (1997 ) 228 ITR 253. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 12. THE CIT(A) RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. PONNI SUGARS AND CHEMICALS LTD. (2008) 306 ITR 39 2 (SC) AND JURISDICTIONAL HIGH COURT 9 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 DECISION IN THE CASE OF CIT VS. RASOI LTD. (2011) 335 ITR 438 (CAL) ALLOWED THE CLAIM OF THE ASSESSEE BEING CAPITAL SUBSIDY BY OBSERVING IN PARA 49 TO 51 AS UNDER: 49. THE OBJECT OF THE SUBSIDY IS TO GENERATE EMPLOYMENT AND ENCOURAGE THE SETTING UP OF I NDUSTRIES IN THE BACKWARD AREA. THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. PONNI SUGARS & CHEMICALS LTD. [2008] 306 ITR 392 HAS HELD THAT THE TEST OF THE CHARACTER OF THE RECEIPT OF A SUBSIDY IN THE HANDS OF THE ASSESSEE UNDER A SCHEME HAS TO BE DETER MINED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY IS GRANTED AND FURTHER OBSERVED THAT IN SUCH CASES, WHAT HAS TO BE APPLIED IS THE PURPOSE TEST. THE POINT OF TIME AT WHICH THE SUBSIDY IS PAID IS NOT RELEVANT, THE SOURCE IS IMMATERIAL, WHILE FORM OF SUBSIDY IS MATERIAL BY HOLDING AS UNDER: - 'THE MAIN ELIGIBILITY CONDITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IS THAT THE INCENTIVE MUST BE UTILIZED FOR REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SET UP NEW UNITS OR FOR SUBSTANTIAL EXP ANSION OF EXISTING UNITS. ON THIS ASPECT THERE IS NO DISPUTE. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDE R THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT. 50. THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD ON THE ISSUE OF INDUSTRIAL PROMOTION ASSISTANCE IN THE CASE OF CIT VS. RASOI LTD. (2011) 335 ITR 438 (CALCUTTA) AS FOLLOWS: - '4. THE ASSESSING OFFICER OPINED THAT THE ASSESSEE RECEIVED THE ABOVEMENTIONED AMOU NT AS INDUSTRIAL PROMOTION ASSISTANCE FROM THE GOVERNMENT OF WEST BENGAL DURING THE YEAR UNDER CONSIDERATION, AND IN ITS ACCOUNTS, THE ASSESSEE HAD SHOWN THIS AMOUNT AS INCOME UNDER THE HEAD 'OTHER INCOME'. IT WAS, HOWEVER, POINTED OUT THAT IN THE NOTES OF ACCOUNTS, THE ASSESSEE MENTIONED THAT ALTHOUGH THE AMOUNT HAD BEEN ACCOUNTED FOR IN THE ABOVE MANNER, THE COMPANY HAD BEEN LEGALLY ADVISED THAT IT WAS OF THE NATURE OF CAPITAL RECEIPT FOR THE PURPOSE OF COMPUTATION OF TAXABLE INCOME AND IN THE RETURN FILE D BY THE ASSESSEE, IT CLAIMED THE AMOUNT TO BE IN THE NATURE OF CAPITAL RECEIPT. THE ASSESSING OFFICER, HOWEVER, TURNED DOWN SUCH CONTENTION AND CAME TO THE CONCLUSION THAT THE SUBSIDY HAD BEEN UTILIZED FOR MEETING REVENUE DISBURSEMENTS OF THE ASSESSEE AND , THEREFORE, THE SAID AMOUNT OF SUBSIDY RECEIVED FROM THE GOVERNMENT WAS NOTHING BUT SUPPLEMENTARY TRADE RECEIPTS AND SHOULD, THEREFORE, BE CONSIDERED AS REVENUE RECEIPTS. IN SUPPORT OF' SUCH CONTENTION, THE ASSESSING OFFICER RELIED UPON THE DECISION OF T HE SUPREME COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD V. CIT [1997] 228 I TR 253 / 94 TAXMAN 368. .......... 17. WE FIND THAT THE PRINCIPLES LAID DOWN IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. (SUPRA), RELIED UPON BY MR. NIZAMUDDIN HAS BEEN EXPLAINED BY THE SUPREME COURT IN A SUBSEQUENT DECISION IN THE CASE OF PONNI SUGARS & CHEMICALS LTD. (SUPRA), RELIED UPON BY MR. PODDAR IN THE FOLLOWING TERMS: 'IN OUR VIEW, THE CONTROVERSY IN HAND CAN HE RESOLVED IF WE APPLY THE TEST LAID DOWN IN THE JUDGMENT OF THIS COURT IN SAHNEY STEEL AND PRESS WORKS LTD. IN THAT CASE, ON BEHALF OF THE ASSESSEE, IT WAS CONTENDED THAT THE SUBSIDY GIVEN WAS UP TO 10 PER CENT O F THE CAPITAL INVESTMENT CALCULATED ON THE BASIS OF THE QUANTUM OF INVESTMENT IN CAPITAL AND, 10 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 THEREFORE, RECEIPT OF SUCH SUBSIDY WAS ON CAPITAL ACCOUNT AND NOT ON REVENUE ACCOUNT. IT WAS ALSO URGED IN THAT CASE THAT SUBSIDY GRANTED ON THE BASIS OF REFUND O F SALES TAX ON RAW MATERIALS, MACHINERY AND FINISHED GOODS WERE ALSO OF CAPITAL NATURE AS THE OBJECT OF GRANTING REFUND OF SALES TAX WAS THAT THE ASSESSEE COULD SET UP NEW BUSINESS OR EXPAND HIS EXISTING BUSINESS. THE CONTENTION OF THE ASSESSEE IN THAT CAS E WAS DISMISSED BY THE TRIBUNAL AND, THEREFORE, THE ASSESSEE HAD COME TO THIS COURT BY WAY OF A SPECIAL LEAVE PETITION. IT WAS HELD BY THIS COURT ON THE FACTS OF THAT CASE AND ON THE BASIS OF THE ANALYSES OF THE SCHEME THEREIN THAT THE SUBSIDY GIVEN WAS ON REVENUE ACCOUNT BECAUSE IT WAS GIVEN BY WAY OF ASSISTANCE IN CARRYING ON OF TRADE OR BUSINESS. ON THE FACTS OF THAT CASE, IT WAS HELD THAT THE SUBSIDY GIVEN WAS TO MEET RECURRING EXPENSES. IT WAS NOT FOR ACQUIRING THE CAPITAL ASSET. IT WAS NOT TO MEET PAR T OF THE COST. IT WAS NOT GRANTED FOR PRODUCTION OF OR BRINGING INTO EXISTENCE ANY NEW ASSET. THE SUBSIDIES IN THAT CASE WERE GRANTED YEAR AFTER YEAR ONLY AFTER SETTING UP OF THE NEW INDUSTRY AND ONLY AFTER COMMENCEMENT OF PRODUCTION AND, THEREFORE, SUCH A SUBSIDY COULD ONLY BE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE. CONSEQUENTLY, THE CONTENTIONS RAISED ON BEHALF OF THE ASSESSEE ON THE FACTS OF THAT CASE STOOD REJECTED AND IT WAS HELD THAT THE SUBSIDY RECEIVE D BY SAHNEY STEEL COULD NOT BE REGARDED AS ANYTHING BUT A REVENUE RECEIPT. ACCORDINGLY, THE MATTER WAS DECIDED AGAINST THE ASSESSEE.' [EMPHASIS SUPPLIED] 18. IN THE AFORESAID CASE, IT WAS HELD THAT IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE A SSESSEE TO RUN THE BUSINESS MORE PROFITABLY THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THE RECEIPT OF THE SUB SIDY WAS ON CAPITAL ACCOUNT. THEREFORE, THE COURT PROCEEDED; IT IS THE OBJECT FOR WHICH THE SUBSIDY/ASSISTANCE IS GIVEN WHICH DETERMINES THE NATURE OF THE INCENTIVE SUBSIDY. THE FORM OF THE MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN IS IRRELEVANT. 19. I N THE CASE BEFORE US, THE OBJECT OF THE SUBSIDY IS FOR EXPANSION OF THEIR CAPACITIES, MODERNIZATION, AND IMPROVING THEIR MARKETING CAPABILITIES AND, THUS, THOSE ARE FOR THE ASSISTANCE ON CAPITAL ACCOUNT. SIMILARLY, MERELY BECAUSE THE AMOUNT OF SUBSIDY WAS EQUIVALENT TO 90 PER CENT OF THE SALES TAX PAID BY THE BENEFICIARY DOES NOT IMPLY THAT THE SAME WAS IN THE FORM OF REFUND OF SALE TAX PAID. AS POINTED OUT BY THE SUPREME COURT IN THE CASE OF SENAIRAM DOONGARMALL V. CIT AIR 1961 SC 1579, IT IS THE QUALITY O F THE PAYMENT THAT IS DECISIVE OF THE CHARACTER OF THE PAYMENT AND NOT THE METHOD OF THE PAYMENT OR ITS MEASURE, AND MAKES IT FALL WITHIN CAPITAL OR REVENUE. THUS, IN THE CASE BEFORE US, THE AMOUNT PAID AS SUBSIDY WAS REALLY CAPITAL IN NATURE. 20. IN THE CASE OF CIT V. ABHISHEK INDUSTRIES LTD [2006] 156 TAXMAN 257 RELIED UPON BY MR. NIZAMUDDIN, A DIVISION BENCH OF THE PUNJAB AND HARYANA HIGH COURT WAS DEALING WITH A CASE OF SUBSIDY GRANTED IN THE FORM OF SALE TAX EXEMPTION AND THUS, THE DIVISION BENCH HELD THAT IN THE ABSENCE OF ANY DOCUMENT OR POLICY OF THE STATE GOVERNMENT TO SHOW THE KIND OF SUBSIDY IT HAD GRANTED IT SHOULD BE TREATED AS A REVENUE RECEIPT. IN THE CASE BEFORE US, HAVING REGARD TO THE OBJECTS AND REASONS BEHIND THE GRANT OF THE SUBSIDY WE FIND THAT IT IS A CASE OF CAPITAL RECEIPT AND THUS, THE SAID DECISION DOES NOT HELP THE REVENUE IN ANY WAY. (EMPHASIS SUPPLIED) 11 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 21. ON CONSIDERATION OF THE ENTIRE MATERIALS ON RECORD, WE, THUS, UPHOLD THE VIEW OF THE TRIBUNAL BELOW AND DISMISS THE APPEAL BY ANSWERING THE FIRST THREE QUESTIONS IN THE AFFIRMATIVE AND AGAINST THE REVENUE AND THE LAST QUESTION IN THE NEGATIVE AND AGAINST THE REVENUE. 51. I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. RESPECTFULLY, FOLLOWING THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RASOI LTD. (SUPRA), THIS GROUND OF APPEAL IS PARTLY ALLOWED AND INDUSTRIAL PROMOTION ASSISTANCE RECEIVED BY THE APPELLANT IS CONSIDERED AS CAP ITAL SUBSIDY. IT IS HELD THAT THE CLAIM OF INDUSTRIAL PROMOTION ASSISTANCE (IPA) OF THE APPELLANT IS CAPITAL IN NATURE. 13. BUT CIT(A) APPLIED EXPLANATION 10 TO SECTION 43(1) OF THE ACT AND DIRECTED THE AO THAT SUBSIDY AMOUNT BE REDUCED FROM THE ACTUAL C OST OF THE FIXED ASSETS FOR CALCULATING DEPRECIATION ALLOWABLE UNDER THE ACT. FOR THIS , HE OBSERVED IN PARA 53 TO 55 AS UNDER: 52. THE ASSESSING OFFICER IS FURTHER DIRECTED THAT SINCE, HE HAS TREATED INDUSTRIAL PROMOTION ASSISTANCE (IPA) AS REVENUE SUBSIDY AND WHOLE OF IT HAS BEEN ADDED AS INCOME. THE APPELLANT HAS NOT DEDUCTED THIS SUBSIDY OUT OF ITS CAPITAL ASSETS FOR DEPRECIATION PURPOSES EVEN ALTHOUGH SPECIFICALLY PROVIDED IN ISSUE EXPLANATION 10 TO SECTIO N 43 W.E.F. 01 - 04 - 1999 PROVIDES THAT {'ACTUAL COST' MEANS THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE, REDUCED BY THAT PORTION OF THE COST THEREOF, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY ..... AND EXPLANATION 10. - WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR R EIMBURSEMENT (BY WHATEVER NAME CALLED), THEN, SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE: PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT IS OF SUCH NATURE THAT IT CANNOT BE DIRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT OR GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSIDY OR GRANT OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. ']. 53. THE AMOUNT OF SUBSIDY REPRESENTS A PORTION OF THE COST OF THE ASSET MET BY THE GOVERNMENT AND, THEREFORE, DEPRECIATION WIL L BE ALLOWABLE ONLY ON THE ACTUAL COST OF THE ASSET AS REDUCED BY THE AMOUNT OF THE SUBSIDY IN TERMS OF SECTION 43(1) OF THE ACT. EXPLANATION 10 TO SECTION 43(1) OF THE ACT WAS NOT IN THE INCOME TAX ACT AT THE TIME MATERIAL TIME. THE SUPREME COURT HELD THAT THE PAYMENT OF SUBSIDY DID NOT PARTAKE OF THE CHARACTER OF A PAYMENT INTENDED EITHER DIRECTLY OR INDIRECTLY TO MEET THE ACTUAL COST. EXPLANATION 10 WAS INTRODUCED TO ENSURE APPROPRIATE COMPUTATION OF ACTUAL COST OF ASSETS IN CASE; SUBSIDY IS RECEIVED . AFTER THE INTRODUCTION OF EXPLANATION 10, IT IS NO LONGER POSSIBLE TO CONTEND THAT THE SUBSIDY GIVEN BY THE GOVERNMENT, BY WHATEVER NAME CALLED, CANNOT BE REDUCED FROM THE ACTUAL COST OF THE ASSETS IN TERMS OF SECTION 43(1) OF THE ACT FOR THE PURPOSE OF ALLOWING DEPRECIATION. BUT EXPLANATION 10 DOES NOT COVER THE CASE OF WAIVER OF THE LOAN. IT COVERS ONLY THE GRANT OF A SUBSIDY OR RE - IMBURSEMENT BY WHATEVER NAME CALLED. 54. THEREFORE, FOLLOWING THE JUDGEMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT VS. RASOI LTD. (SUPRA), THIS GROUND OF APPEAL HAS BEEN PARTLY ALLOWED AND INDUSTRIAL PROMOTION ASSISTANCE (IPA) HAS BEEN CONSIDERED AS CAPITAL SUBSIDY, THE ISSUE OF DEPRECIATION IS TO BE CONSIDERED ACCORDINGLY AS PER EXPLANATION 10 TO SEC TION 43. THE PROVISIONS OF EXPLANATION 10 TO SECTION 43 W.E.F. 01 - 04 - 1999 PROVIDES THAT 'ACTUAL COST' MEANS THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE REDUCED BY THAT PORTION OF THE COST THEREOF, IF ANY, AS HAS BEEN MET DIRECTLY OR 12 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 INDIRECTLY BY ANY O THER PERSON OR AUTHORITY AND FURTHER PROVIDES THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT IS OF SUCH NATURE THAT IT CANNOT BE DIRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT OR GRAN T THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSIDY OR GRANT OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE.' 55. THE HON'BLE JURISDICTIONAL HIGH COURT HAS NOT CONSIDERED THE AMENDMENT CARRIED OUT AS PER EXPLANATION 10 TO SUBSECTION 5 OF SECTION 43 IN THE CASE OF CIT VS. RASOI LTD. (SUPRA) REGARDING THE DEPRECIATION ON THE CAPITAL ASSETS SINCE THE MATTER INVOLVED WAS ASSESSMENT YEAR 1995 - 96 AND THE AMENDMENT IN THE EXPLANATION 10 WAS BROUGHT INTO FORCE W.E.F 1.4.1999. THEREFORE, THE ASSESSING OFFICER IS DIRECTED THAT AFTER TAKING INTO CONSIDERATION EXPLANATION 10 TO SECTION 43; TO RE - COMPUTE THE DEPRECIATION ON ALL DEP RECIABLE ASSETS TAKING IN TO ACCOUNT THAT CAPITAL SUBSIDIES HAVE BEEN RECEIVED BY THE APPELLANT FOR DEPRECIABLE ASSETS. THE VALUE OF THE DEPRECIABLE ASSETS AS ON THE DATE OF APPLICABILITY OF THE SCHEME ON THE APPELLANT WILL BE TAKEN IN TO ACCOUNT AND IT WI LL REDUCE THE VALUE OF ASSETS ACCORDINGLY. THIS GROUND OF APPEAL IS PARTLY ALLOWED. AGGRIEVED, BOTH REVENUE AND ASSESSEE, CAME IN SECOND APPEAL BEFORE TRIBUNAL. 14 . BEFORE US LD. SENIOR ADVOCATE SHRI J P KHAITAN ON BEHALF OF ASSESSEE ARGUED THAT THE INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE OF RS.2,61,93,863/ - RECEIVED BY IT IN TERMS OF THE MADHYA PRADESH INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE SCHEME, 2004 (HEREINAFTER REFERRED TO AS 'THE SAID SCHEME ') IN RESPECT OF THE TECHNOLOGICAL UPGRADATIO N - CUM - EXPANSION PROJECT FOR MANUFACTURE OF XLPE UNDERGROUND POWER CABLES USING VERTICAL CONTINUOUS VULCANISATION TECHNOLOGY IN INDIA FOR THE FIRST TIME IN TECHNICAL COLLABORATION WITH FURUKAWA ELECTRIC CO. LTD OF JAPAN SHOULD BE TREATED AS A CAPITAL RECEIP T. THE ASSESSING OFFICER HELD THAT THE ASSISTANCE WAS BY WAY OF REFUND OF COMMERCIAL TAX, A REVENUE ITEM, AND THE REFUND WAS PERIODIC AND RECURRING IN NATURE TO BE WANTED OVER A PERIOD OF SEVEN YEARS AND WAS A REVENUE RECEIPT. HE EXPLAINED THAT THE SAID SC HEME WAS FRAMED WITH A VIEW TO INCREASING EMPLOYMENT, ESTABLISHING NEW INDUSTRIAL UNITS AND TO ENHANCE NEW CAPITAL INVESTMENT IN THE STATE OF MADHYA PRADESH. THE SALIENT FEATURES OF THE SAID SCHEME WERE AS SUMMARISED BY HIM, READS AS UNDER: - (A) THE SAID SCH EME WAS APPLICABLE IN RESPECT OF NEW INDUSTRIAL UNITS HAVING CAPITAL INVESTMENT IN FIXED ASSETS OF MORE THAN RS .1 CORE. IN RESPECT OF EXPANSION/ DIVERSIFICATION/TECHNOLOGICAL UPGRADATION/MODERNISATION, MINIMUM CAPITAL INVESTMENT OF RS .5 CRORE IN FIXED ASSETS WAS MANDATORY. CAPITAL INVESTMENT IN FIXED ASSETS WAS DEFINED TO MEAN INVESTMENT MADE IN FACTORY PREMISES ON LAND, BUILDING, PLANT AND MACHINERY, ELECTRICAL ESTABLISHMENTS AND POLLUTION CONTROL DEVICES AND APPARATUS. (B) INDUSTRIES HAVI NG FIXED CAPITAL INVESTMENT OF RS .25 CRORE AND ABOVE WERE TREATED AS MEGA PROJECTS. THE ASSESSEE'S FIXED CAPITAL INVESTMENT WAS IN EXCESS OF RS.60 CRORE AND AS SUCH ITS PROJECT QUALIFIED AS A MEGA PROJECT. (C) THE INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE TO BE WANTED UNDER THE SAID SCHEME WAS 13 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 NOT TO EXCEED THE INVESTMENT MADE IN FIXED CAPITAL ASSETS AND WAS TO BE WANTED FOR THE PERIOD SPECIFIED DEPENDING UPON THE LOCATION OF THE UNIT AND INVESTMENT MADE. SUCH ASSISTANCE WAS TO BE QUANTIFIED ON AN ANNUAL BASI S AS THE AMOUNT EQUIVALENT TO 75% OF THE AMOUNT DEPOSITED AS COMMERCIAL OR CENTRAL SALES TAX. THE ASSISTANCE AMOUNT WAS TO BE RELEASED IN THE NEXT YEAR IN THE COMMERCIAL TAX ACCOUNT OF THE UNIT BY BANKER'S CHEQUE/DEMAND DRAFT. THE ASSISTANCE WAS NOT TO BE GRANTED IN RESPECT OF PRODUCTS NOT MANUFACTURED BY THE UNIT ITSELF. (D) THE UNIT WAS REQUIRED TO BE APPROVED BY A FINANCIAL INSTITUTION OR BANK. IN CASE OF SELF - FINANCE, THE PROJECT WAS REQUIRED TO BE APPRAISED BY A FINANCIAL INSTITUTION AND THE FINANCIAL PR OVISION HAD TO BE SATISFACTORY. (E) BEFORE DISBURSEMENT OF THE ASSISTANCE, THE UNIT WAS REQUIRED TO ENTER INTO AN AGREEMENT WITH THE STATE GOVERNMENT IN TERMS OF WHICH THE UNIT WAS TO UNDERTAKE TO MAKE THE REQUISITE INVESTMENT IN FIXED ASSETS WITHIN THE AGREED TIME SPAN. (F) IT WAS A MANDATORY REQUIREMENT FOR THE UNIT TO BE OPERATIVE AS ON THE DATE OF APPLICATION, DURING THE PERIOD OF GRANT OF ASSISTANCE AND FOR .FIVE YEARS THEREAFTER. IF THE UNIT REMAINED CLOSED FOR MORE THAN SIX MONTHS, THE ENTIRE ASSISTANCE WAS TO BE RECOVERED AS ARREARS OF LAND REVENUE. (G) THE SAID SCHEME WAS TO BE OPERATIVE FROM APRIL I, 2004 TO MARCH 31, 2009 AND COMMERCIAL PRODUCTION HAD TO COMMENCE ON OR AFTER APRIL 1, 2004 BUT BEFORE APRIL 1 2009. (H) BENEFIT UNDER THE SAID SCHEME WAS NOT TO BE GRANTED TO SPECIFIED TRADITIONAL UNITS, CLOSED UNITS SOUGHT TO BE REVIVED, NEW UNITS SET UP BY TRANSFERRING, SHIFTING OR DISMANTLING OR CLOSING AN EXISTING U NIT WITHIN THE STATE, UNITS UNDERTAKING PROCESS WHICH DID NOT AMOUNT TO MANUFACTURE, PUBLIC SECTOR UNDERTAKINGS OF THE GOVERNMENT OF INDIA AND JOINT SECTOR UNITS OF SUCH UNDERTAKINGS AND INDUSTRIAL UNDERTAKING WHOLLY OWNED BY THE GOVERNMENT OF INDIA OR THE STATE GOVERNMENT. (I) WITHOUT THE PRIOR PERMISSION OF THE STATE GOVERNMENT, DURING THE PERIOD OF GRANT OF ASSISTANCE AND/OR A FURTHER PERIOD OF FIVE YEARS THEREAFTER: - (I) THE LOCATION OF THE WHOLE OR PART OF THE INDUSTRIAL UNIT COULD NOT BE CHANGED; (II) THERE COULD BE NO SUBSTANTIAL CONTRACTION OR DISPOSAL OF SUBSTANTIAL PART OF THE TOTAL CAPITAL INVESTMENT IN THE UNIT; AND (II) THERE COULD BE NO CHANGE IN THE OWNERSHIP OF THE UNIT. (J) AN AFFIDAVIT HAD TO BE FURNISHED SPECIFYING THEREIN DETAILS OF EMPLOYME NT PROVIDED TO THE BONA FIDE RESIDENTS OF THE STATE OF MADHYA PRADESH. HE FURTHER EXPLAINED THAT ASSESSEE'S PROJECT INVOLVED FIXED CAPITAL INVESTMENT OF MORE THAN RS.60 CRORE AND USE OF NEW TECHNOLOGY FOR THE FIRST TIME IN INDIA, IT WAS ACCORDED THE STATU S OF A MEGA PROJECT OF SPECIAL IMPORTANCE BY THE APEX LEVEL EMPOWERED COMMITTEE FOR INDUSTRIAL INVESTMENT PROMOTION CONSTITUTED UNDER (THE CHAIRMANSHIP OF THE CHIEF MINISTER OF THE STATE OF MADHYA PRADESH AND THE PACKAGE SANCTIONED FOR IT, INTER ALIA, INCLUDED: - (I)INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE EQUIVALENT TO 75% OF THE STATE AND CENTRAL SALES TAX PAID FOR EVERY YEAR FOR A PERIOD OF SEVEN YEARS FROM MARCH 29, 2007 TO MARCH 28, 2014. SUCH ASSISTANCE WAS NOT TO EXCEED THE AMOUNT OF FIXED CAPI TAL INVESTMENT OF RS. 60. 25 CRORE (SANCTION LETTER AND CERTIFICATE OF REGISTRATION AT PP 84 AND 87 OF THE PAPER BOOK). (II)EXEMPTION FROM ENTRY TAX FOR A PERIOD OF FIVE YEARS FROM DECEMBER 9, 2006 TO DECEMBER 8, 14 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 2011 IN RESPECT OF SPECIFIED RAW MATERIALS, INCIDENTAL GOODS AND PACKING MATERIALS (CERTIFICATE OF ELIGIBILITY AT PAGE 103 OF THE PAPER BOOK). SH KHAITHAN RELIED ON THE JUDGEMENT OF HON BLE SUPREME COURT I N CIT V PONNI SUGARS & CHEMICALS LTD. (2008) 306 I TR 392 (SC), WHEREIN IT IS HELD THAT THE BASIC TEST TO BE APPLIED IN JUDGING THE CHARACTER OF A SUBSIDY WAS THE PURPOSE FOR WHICH THE SUBSIDY WAS GIVEN. IT WAS HELD THAT THE POINT OF TIME AT WHICH THE SUBSIDY WAS PAID WAS NOT RELEVANT. THE FORM OF THE SUBS IDY OR THE SOURCE THEREOF WAS ALSO IMMATERIAL. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY, THEN THE RECEIPT WAS ON REVENUE ACCOUNT. IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENAB LE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT. IT WAS HELD THAT IT WAS THE OBJECT FOR WHICH THE SUBSIDY/ASSISTANCE WAS GIVEN WHICH DETERMINED ITS NATURE AND THE FORM OR THE MECHAN ISM THROUGH WHICH THE SUBSIDY WAS GIVEN WAS IRRELEVANT. HE REFERRED TO CIT V RASOI LTD. (2011) 335 ITR 438 (CAL), WHEREIN HON'BLE CALCUTTA HIGH COURT DEALT WITH GRANT OF INDUSTRIAL PROMOTION ASSISTANCE EQUIVALENT TO 90% OF THE SALES TAX PAID. IT WAS HELD BY THE HON'BLE CALCUTTA HIGH COURT THAT THE OBJECT OF THE ASSISTANCE WAS FOR EXPANSION OF CAPACITIES, MODERNISATION AND IMP ROVING MARKETING CAPABILITY AND THE SAME WAS ON CAPITAL ACCOUNT. MERE QUANTIFICATION OF THE AMOUNT OF ASSISTANCE WITH REFERENCE TO THE AMOUNT OF SALES TAX PAID DID NOT IMPLY THAT THERE WAS REFUND OF SALES TAX PAID. IN VIEW OF THE ABOVE TESTS LAID DOWN IN T HE AFORESAID JUDGMENTS, HE EXPLAINED THAT THERE CAN BE NO MANNER OF DOUBT THAT THE ASSISTANCE GRANTED TO THE ASSESSEE WAS A CAPITAL RECEIPT. THE OBJECT OF THE SAID SCHEME WAS CLEARLY TO ENABLE THE SETTING UP OF A NEW UNIT OR EXPANSION OF AN EXISTING UNIT A ND THE ASSISTANCE WAS, THEREFORE, ON CAPITAL ACCOUNT. THE EXTENT OF ASSISTANCE AND THE PERIOD FOR WHICH IT WAS TO BE GRANTED WAS LINKED TO THE FIXED CAPITAL INVESTMENT. PROJECTS WITH INVESTMENTS OF RS.25 CRORE AND ABOVE WERE CLASSIFIED AS MEGA PROJECTS. TH E UNIT TO WHICH THE ASSISTANCE WAS GRANTED HAD TO BE ENGAGED IN MANUFACTURING OPERATIONS AND SUCH OPERATIONS WERE TO BE CARRIED OUT DURING THE ENTIRE PERIOD OF GRANT OF ASSISTANCE AND FOR FIVE YEARS THEREAFTER. IF THE UNIT WAS CLOSED FOR MORE THAN SIX MONT HS, THE WHOLE OF THE ASSISTANCE WAS RECOVERABLE AS ARREAR OF LAND REVENUE. MEASUREMENT OF THE AMOUNT OF ASSISTANCE WITH REFERENCE TO THE STATE AND CENTRAL SALES TAX PAID AND PAYMENT OF THE ASSISTANCE ON YEARLY BASIS MERELY RELATED TO THE FORM OR MECHANISM THROUGH WHICH THE ASSISTANCE WAS GRANTED AND DO NOT DETERMINE THE CHARACTER OF THE SUBSIDY. IT IS NOT A CASE OF REFUND OF SALES TAX AS ERRONEOUSLY HELD BY THE ASSESSING OFFICE. THE AMOUNT OF SALES TAX PAID IS ONLY THE MEASURE FOR DETERMINING THE QUANTUM OF ASSISTANCE. IT IS SUBMITTED THAT THE TREATMENT OF THE ASSISTANCE AS A REVENUE RECEIPT BY THE ASSESSING OFFICER IS CONTRARY TO THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT AND THE HON'BLE JURISDICTIONAL HIGH COURT. 15 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 15. IN RESPECT TO THE ISSUE OF APPLIC ABILITY OF EXPLANATION10 TO SECTION43 OF THE ACT, LD. SENIOR ADVOCATE ARGUED THAT T HE OBJECT OF THE SAID SCHEME WAS CLEARLY TO ENABLE THE SETTING UP OF A NEW UNIT OR EXPANSION OF AN EXISTING UNIT AND THE ASSISTANCE WAS, THEREFORE, ON CAPITAL ACCOUNT. THE E XTENT OF ASSISTANCE AND THE PERIOD FOR WHICH IT WAS TO BE GRANTED WAS LINKED TO THE FIXED CAPITAL INVESTMENT. PROJECTS WITH INVESTMENTS OF RS.25 CRORE AND ABOVE WERE CLASSIFIED AS MEGA PROJECTS. THE UNIT TO WHICH THE ASSISTANCE WAS GRANTED HAD TO BE ENGAGE D IN MANUFACTURING OPERATIONS AND SUCH OPERATIONS WERE TO BE CARRIED OUT DURING THE ENTIRE PERIOD OF GRANT OF ASSISTANCE AND FOR FIVE YEARS THEREAFTER. HE FURTHER EXPLAINED THAT ASSESSEE'S PROJECT INVOLVED FIXED CAPITAL INVESTMENT OF MORE THAN RS.60 CRORE AND USE OF NEW TECHNOLOGY FOR THE FIRST TIME IN INDIA, IT WAS ACCORDED THE STATUS OF A MEGA PROJECT OF SPECIAL IMPORTANCE BY THE APEX LEVEL EMPOWERED COMMITTEE FOR INDUSTRIAL INVESTMENT PROMOTION CONSTITUTED UNDER (THE CHAIRMANSHIP OF THE CHIEF MINISTER OF THE STATE OF MADHYA PRADESH ). HENCE, HE NARRATED THAT THIS INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE IS IN NO WAY RELATED TO, DIRECTLY OR INDIRECTLY, FOR ACQUIRING THE CAPITAL ASSET AND EXPLANATION 10 TO SECTION 43(1) WILL NOT APPLY IN THE GIVEN FACTS OF THE CASE. 16 . WE HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND SUBMISSIONS OF THE A SSESSEE . THE SUBSIDY WAS RECEIVED IN TERMS O F MADHYA PRADESH INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE SCHEME, 2004 IN RESPECT OF TECHNOLOGICAL UP - GRADATION - CUM - EXPANSION PROJECT FOR MANUFACTURE OF XLPE UNDERGROUND POWER CABLES USING VERTICAL CONTINUOUS VULCANIZATION TECHNOLOGY IN INDIA. THE SC HEME HAS BEEN FRAMED WITH AN OBJECTIVE TO INCREASE EMPLOYMENT AND ESTABLISHING NEW INDUSTRIAL UNIT BY ENHANCING NEW CAPITAL INVESTMENT IN THE STATE OF MADHYA PRADESH. SOME OF THE FEATURES OF THE SCHEME ARE AS FOLLOWS: '25.THE SCHEME WAS APPLICABLE IN RESPECT OF NEW INDUSTRIAL UNITS HAVING CAPITAL INVESTMENT IN FIXED ASSETS OF MORE THAN RS.1 CORE. IN RESPECT OF EXPANSION / DIVERSIFICATION / TECHNOLOGICAL UPGRADATION / MODERNISATION, MINIMUM CAPITAL INVESTMENT OF RS.5 CRO RE IN FIXED ASSETS WAS MANDATORY. CAPITAL INVESTMENT IN FIXED ASSETS WAS DEFINED TO MEAN INVESTMENT MADE IN FACTORY PREMISES ON LAND, BUILDING, PLANT AND MACHINERY, ELECTRICAL ESTABLISHMENTS AND POLLUTION CONTROL DEVICES AND APPARATUS. INDUSTRIES HAVING FI XED CAPITAL INVESTMENT OF RS.25 CRORE AND ABOVE WERE TREATED AS MEGA PROJECTS. THE ASSESSEE'S FIXED CAPITAL INVESTMENT WAS IN EXCESS OF RS.60 CRORE AND AS SUCH ITS PROJECT QUALIFIED AS A MEGA PROJECT. THE INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE TO BE GR ANTED UNDER THE SAID SCHEME WAS NOT TO EXCEED THE INVESTMENT MADE IN FIXED CAPITAL ASSETS AND FOR THE PERIOD SPECIFIED SUCH ASSISTANCE WAS TO BE QUANTIFIED ON AN ANNUAL BASIS AS THE AMOUNT EQUIVALENT TO 75% OF THE AMOUNT DEPOSITED AS COMMERCIAL OR CENTRAL SALES TAX. THE ASSISTANCE AMOUNT WAS TO BE RELEASED IN THE NEXT YEAR IN THE COMMERCIAL TAX ACCOUNT OF THE UNIT BY BANKER'S CHEQUE/DEMAND DRAFT. 26. THE ASSESSEE WAS REQUIRED TO ENTER INTO AN AGREEMENT WITH THE STATE GOVERNMENT IN TERMS OF WHICH IT WAS TO UNDERTAKE TO MAKE THE REQUISITE INVESTMENT IN FIXED ASSETS WITHIN THE AGREED 16 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 TIME SPAN. THE SAID SCHEME WAS TO BE OPERATIVE FROM 01.04.2004 TO 31.03.2009 AND COMMERCIAL PRODUCTION HAD TO COMMENCE ON OR AFTER 01.04.2004 BUT BEFORE 01.04.2009.' 27. SINCE THE ASSESSEE'S PROJECT INVOLVED FIXED CAPITAL INVESTMENT OF MORE THAN RS.60 CRORES AND USE OF NEW TECHNOLOGY FOR THE FIRST TIME IN INDIA, IT WAS ACCORDED THE STATUS OF A MEGA PROJECT OF SPECIAL IMPORTANCE BY THE APEX LEVEL EMPOWERED COMMITTEE FOR INDUSTRIAL INVESTMENT PROMOTION CONSTITUTED UNDER THE CHAIRMANSHIP OF THE CHIEF MINISTER OF THE STATE OF MADHYA PRADESH AND THE PACKAGE SANCTIONED FOR IT, INTER ALIA, INCLUDED INDUSTRIAL INVESTMENT PROMOTION ASSISTAN CE EQUIVALENT TO ....5% OF THE STATE AND CENTRAL SALES TAX PAID FOR EVERY YEAR FOR A PERIOD OF SEVEN YEARS FROM MARCH 29, 2007 TO MARCH 28, 2014 WITH A MAXIMUM CAP OF RS. 60.25 CRORE. INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE: - - , . AN INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE, EQUIVALENT TO 50% AMOUNT OF COMMERCIAL TAX AND CENTRAL SALES TAX (EXCLUDING COMMERCIAL TAX ON THE PURCHASE OF RAW MATERIAL) DEPOSITED BY THE UNIT IN THE PRECEDING YEAR WOULD BE GIVEN TO THE INDUSTRY; HAVING FI XED CAPITAL INVESTMENT BETWEEN RS. 1.00 CRORE TO RS 10 CRORES. PROVISION FOR THIS PURPOSE WOULD BE MADE IN THE DEPARTMENTAL BUDGET. THIS WOULD BE AVAILABLE FOR 3 YEARS IN ADVANCED DISTRICTS AND FOR 5 YEARS IN THE BACKWARD DISTRICTS. ASSISTANCE WILL NOT BE M ORE THAN FIXED CAPITAL INVESTMENT. AN INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE EQUIVALENT TO 75% AMOUNT OF COMMERCIAL TAX AND CENTRAL SALES TAX (EXCLUDING COMMERCIAL TAX ON THE PURCHASE OF RAW MATERIAL) DEPOSITED BY THE UNIT IN THE PRECEDING YEAR WOULD BE GIVEN TO THE INDUSTRY HAVING FIXED CAPITAL INVESTMENT MORE THAN RS 10.00 CRORES. PROVISION FOR TH IS PURPOSE WOULD BE MADE IN THE DEPARTMENTAL BUDGET. THE ASSISTANCE WOULD BE AVAILABLE AS PER THE FOLLOWING CHART : - S. NO. CATEGORY OF DISTRICT MINIMUM ELIGIBLE FIXED CAPITAL INVESTMENT DURATION OF ASSISTANCE 1. 2. 3. 4. ADVANCED DISTRICT BACKWARD DISTRICT A BACKWARD DISTRICT B BACKWARD DISTRICT C RS. 25 CRORE RS. 20 CRORE RS. 15 CRORE RS. 10 CRORE 3 YEARS 5 YEARS 7 YEARS 10 YEARS AMOUNT OF ASSISTANCE WILL NOT BE MORE THAN FIXED CAPITAL INVESTMENT. THE INDUSTRIAL PROMOTION POLICY 2004 WAS FORMULATED BY THE STATE GOVERNMENT OF MADHYA PRADESH FOR THE PROMOTION OF INDUSTRY IN THE STATE. THE SCHEME DOES NOT MENTION EXPLICITLY REGARDING THE SUBSIDY AS SALES TAX SUBSIDY BUT SAYS IT TO BE INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE. IT PROVIDES THAT IPA WILL BE CALCULATED @ 75% OF THE SALES TAX, DEPOSITED. IT WAS APPLICABLE IN RESPECT OF UNITS TO BE SET UP AND ALSO TO EXPANSION PROJECTS OF EXISTING UNITS HAVING INVESTMENT IN FI XED ASSETS. THE SALES TAX PAYABLE IS ADJUSTED UP TO 75% BY WAY OF INCENTIVE UNDER IPA. THE APPELLANT HAS TO PAY ONLY 25% OF SALES TAX COLLECTED BY IT AND THE BALANCE 75% IS ADJUSTED WITH THE SUBSIDY AS A CLAIM WHICH WILL BE REIMBURSED IN THE COURSE OF TIME AFTER THE CLAIM IS ENTERTAINED BY THE STATE GOVERNMENT. THE AMOUNT OF INDUSTRIAL PROMOTION ASSISTANCE TO WHICH THE ASSESSEE WAS ENTITLED WAS QUANTIFIED AT 75% OF THE SALES TAX PAID IN THE PRECEDING YEAR AND THE AMOUNT OF ASSISTANCE WAS TO BE ADJUSTED AGAI NST THE SALES TAX LIABILITY OF THE YEAR OF CLAIM. THE SUBSIDY AMOUNT IS CALCULATED @ 75% OF THE SALES TAX. THE SUBSIDY IS GIVEN FOR 5 YEARS FROM STARTING OF COMMERCIAL PRODUCTION. ALL THESE FEATURES OF THIS SCHEME SHOW THAT THE SUBSIDY IS NOT GIVEN FOR MEE TING A PART OF THE CAPITAL EXPENDITURE 17 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 INCURRED BY THE ASSESSEE BUT AS INCENTIVE FOR ESTABLISHING OR EXPANSION OF A UNIT AND NOT FOR THE SPECIFIC PURPOSE OF MEETING A PORTION OF THE COST OF THE ASSETS. THE SUBSIDY IS NOT DIRECTLY RELATABLE TO ANY CAPITAL A SSETS AND NOT FOR THE SPECIFIC PURPOSE OF MEETING A PORTION OF THE COST OF THE ASSETS BUT IT IS THE OVERALL INVESTMENT TO MAKE IT ELIGIBLE FOR AVAILING THE BENEFIT. IN THE PRESENT CASE BEFORE US, T HE TOTAL CAPITAL INVESTMENT COST FOR THIS PROJECT WAS 61 C RORES. THE STATE GOVERNMENT AFTER EVALUATION OF THE PROPOSED PROJECT OF THE COMPANY, GRANTED CERTAIN FISCAL INCENTIVES INCLUDING INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE (UP A) FOR A PERIOD OF 7 YEARS FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTIO N SUBJECT TO FULFILMENT OF CONDITION AS REGARDING INFUSION OF CAPITAL INVESTMENT AS COMMITTED BY THE COMPANY. SINCE THE PROJECT OF THE COMPANY WAS OF SPECIAL IMPORTANCE AND LOCATED IN A BACKWARD DISTRICT OF CATEGORY 'A', THE GOVERNMENT ACCORDED THE ASSISTA NCE FOR A PERIOD OF 7 YEARS INSTEAD OF NORMAL ELIGIBILITY PERIOD OF 5 YEARS. HOWEVER THE MAXIMUM CEILING OF THE ASSISTANCE WAS EQUIVALENT TO FIXED CAPITAL INVESTMENT ONLY. AS PER THE SCHEME, THE AMOUNT OF ASSISTANCE WHICH IS TO BE CLAIMED ON YEARLY BASIS I S DETERMINED @ 75% OF TOTAL COMMERCIAL TAX (MP VAT + CST) DEPOSITED (NET OF INPUT TAX REBATE) IN RESPECT OF SALE OF PRODUCTS PRODUCED USING VCV TECHNOLOGY ON AN YEARLY BASIS DURING THE ELIGIBILITY PERIOD. IN VIEW OF THESE FACTS ASSESSEE CLAIMED A SUM OF RS .2,61,93,863/ - BEING 75% OF THE TAX DEPOSITED (NET OF INPUT TAX REBATE) FOR THE YEAR UNDER CONSIDERATION IN RESPECT OF SALE OF XLPE UNDERGROUND POWER CABLES USING VCV TECHNOLOGY AS CAPITAL RECEIPT FOR THE REASON THAT THE OVERALL LIMIT OF EXEMPTION IS LINKE D TO THE FIXED CAPITAL INVESTMENT AND IS IN THE NATURE OF SUBSIDY FOR SETTING UP A NEW UNIT / EXPANSION OF EXISTING UNIT. THE SUBSIDY RECEIVED AS ABOVE, IS IN THE NATURE OF CAPITAL RECEIPT AND CIT(A) HAS RIGHTLY HELD SO. ON THIS ISSUE WE CONFIRM THE ORDER OF CIT(A). 17. EVEN HON BLE SUPREME COURT IN THE CASE OF P.J. CHEMICALS LTD. (SUPRA) HAS CONSIDERED THIS ISSUE AND HELD THAT WHERE GOVERNMENT SUBSIDY IS INTENDED AS AN INCENTIVE TO ENCOURAGE ENTREPRENEURS TO MOVE TO BACKWARD AREAS AND ESTABLISH INDUSTRIES, THE SPECIFIED PERCE NTAGE OF THE FIXED CAPITAL COST, WHICH IS THE BASIS FOR DETERMINING THE SUBSIDY, BEING ONLY A MEASURE ADOPTED UNDER THE SCHEME TO QUANTIFY THE FINANCIAL AID, IS NOT A PAYMENT, DIRECTLY OR INDIRECTLY, TO MEET ANY PORTION OF THE ACTUAL COST. THEREFORE, THE S AID AMOUNT OF SUBSIDY CANNOT BE DEDUCTED FROM THE ACTUAL COST UNDER SEC. 43(1) FOR THE PURPOSE ALLOWING DEPRECIATION. IT IS FURTHER HELD THAT IF GOVERNMENT SUBSIDY IS AN INCENTIVE NOT FOR THE SPECIFIC PURPOSE OF MEETING A PORTION OF THE COST OF THE ASSETS, THOUGH QUANTIFIED AS A PERCENTAGE OF SUCH COST, IT DOES NOT PARTAKE THE CHARACTER OF PAYMENT INTENDED EITHER DIRECTLY OR INDIRECTLY TO MEET THE ACTUAL COST . BY IMPLICATION, THE ABOVE JUDGMENT ALSO PROVIDES THAT IF THE SUBSIDY IS INTENDED FOR MEETING A PORTION OF THE COST OF THE ASSETS, THEN SUCH SUBSIDY SHOULD BE 18 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 DEDUCTED FROM THE ACTUAL COST, FOR THE PURPOSE OF COMPUTING DEPRECIATION. AS PER HON BLE SUPREME COURT, LAW IS THAT IF THE SUBSIDY IS ASSET - SPECIFIC, SUCH SUBSIDY GOES TO REDUCE THE ACTUAL COST . IF THE SUBSIDY IS TO ENCOURAGE SETTING UP OF THE INDUSTRY, IT DOES NOT GO TO REDUCE THE ACTUAL COST, EVEN THOUGH THE AMOUNT OF SUBSIDY WAS QUANTIFIED ON THE BASIS OF THE PERCENTAGE OF THE TOTAL INVESTMENT MADE BY THE ASSESSEE. THE LAW IS ALREADY SETTLED ON THE SUBJECT. NOW, THE ONLY WAVERING IS WITH REFERENCE TO EXPLANATION 10 PROVIDED UNDER SEC.43(1) OF THE ACT. THE SAID EXPLANATION PROVIDES THAT WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE C ENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), THEN, SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR R EIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. IT IS FURTHER, PROVIDED THEREUNDER, THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT OF SUCH NATURE THAT IT CANNOT BE DIRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT OR GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSIDY OR GRANT OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTU AL COST OF THE ASSET TO THE ASSESSEE. IN ORDER TO INVOKE EXPLANATION 10, IT IS NECESSARY TO SHOW THAT THE SUBSIDY WAS DIRECTLY OR INDIRECTLY USED FOR ACQUIRING AN ASSET. THIS IS AGAIN A QUESTION OF FACT. THE RELATABLE SUBSIDY TO SUCH ASSET CAN BE REDUCED F ROM THE COST ONLY IF IT IS FOUND THAT THE COST FOR ACQUIRING THAT ASSET WAS DIRECTLY OR INDIRECTLY MET OUT OF THE SUBSIDY. LIKEWISE IN THE PROVISO, IT IS NECESSARY TO SHOW THAT THE SUBSIDY HAS BEEN DIRECTLY OR INDIRECTLY USED TO ACQUIRE AN ASSET BUT IT IS NOT POSSIBLE TO EXACTLY QUANTIFY THE AMOUNT DIRECTLY OR INDIRECTLY USED FOR ACQUIRING THE ASSET. HERE ALSO, A FINDING OF FACT IS NECESSARY THAT AN ASSET WAS ACQUIRED BY DIRECTLY OR INDIRECTLY USING THE SUBSIDY. THE ABOVE EXPLANATION AND THE PROVISO THERETO DO NOT DILUTE THE FINDING OF THE HON BLE SUPREME COURT IN THE CASE OF P. J. CHEMICALS LTD. (SUPRA) THAT ASSET - WISE SUBSIDY ALONE CAN BE REDUCED FROM THE ACTUAL COST. THE ABOVE EXPLANATION AND THE PROVISO THEREIN ATTEMPT TO EXPLAIN THE LAW. THEY ARE NOT BRI NGING ANY NEW LAW DIFFERENT FROM THE LAW CONSIDERED BY THE HON BLE SUPREME COURT IN THE ABOVE CASES. 18. THIS ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH DECISION OF THIS ITAT, VISAKHAPATNAM BENCH IN THE CASE OF SASISRI EXTRACTIONS LTD. VS. ACIT (20 08) 307 ITR (AT) 127 (VIZAG) WHEREIN EXACTLY IDENTICAL INVESTMENT SUBSIDY WAS UNDER CONSIDERATION AND EVEN EXPLANATION (10) OF SEC. 43(1) OF THE ACT WAS CONSIDERED AND DECIDED AS UNDER: 19 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN OUR CONSIDERED OPINION, EVEN AFTER INSERTION OF EXPLAMATOPM 10 TO SECTION 43(1) OF THE ACT, THE BASIC PRINCIPLE UNDERLYING IN THE DECISION OF THE APEX COURT IN THE CASE OF P. J . CHEMICALS LTD. (1994] 210 ITR 830, STILL HOLDS THE FIELD. THEIR LOR DSHIPS ANALYSED THE EXPRESSION 'MET DIRECTLY OR INDIRECTLY' TO COME TO THE CONCLUSION THAT ONLY IN A CASE WHERE A SUBSIDY OR OTHER GRANT WAS GIVEN TO OFFSET THE COST OF AN ASSET, SUCH PAYMENT/GRANT WOULD FALL WITHIN THE EXPRESSION MET' WHEREAS THE SUBSID Y RECEIVED MERELY TO ACCELERATE THE INDUSTRIAL DEVELOPMENT OF THE STATE CANNOT BE CONSIDERED AS PAYMENTS MADE SPECIFICALLY TO MEET A PORTION OF THE ASSETS. 13 A CAREFUL PERUSAL OF 'TARGET 2000' SCHEME SHOWS THAT THE SCHEME WAS INTENDED TO ACCELERATE IN DUSTRIAL DEVELOPMENT OF THE STATE AND THE INCENTIVE WAS GIVEN FOR SETTING UP OF INDUSTRIES IN ANDHRA PRADESH AND FOR THE PURPOSE OF DETERMINING THE AMOUNT OF SUBSIDY TO BE GIVEN THE COST OF ELIGIBLE INVESTMENT WAS TAKEN AS THE BASIS, THOUGH IT WAS NOT SPEC IFICALLY INTENDED TO SUBSIDISE THE COST OF THE CAPITAL. UNDER THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE INCENTIVE IN THE FORM OF SUBSIDY CANNOT BE CONSIDERED AS A PAYMENT DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE ACTUAL COST AND THUS IT FALLS OUTSIDE THE KEN OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT. IN THE LIGHT OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT FOR THE PURPOSE OF COMPUTING DEPRECIATION ALLOWABLE TO THE ASSESSEE, THE SUBSIDY AMOUNT CANNOT BE REDUCED FROM THE ACTUAL COST OF THE CAPITAL ASSET. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 19. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND LEGAL POSITION EXPLAINED BY HON BLE SUPREME COURT IN THE CASE OF P. J. CHEMICALS LTD. (SUPRA), WE ARE OF THE VIEW THAT SU BSIDY RECEIPT SHOULD NOT BE REDUCED FROM THE ACTUAL COST OF FIXED ASSETS FOR COMPUTING DEPRECIATION UNDER THE PROVISIONS OF THE ACT. ACCORDINGLY, THIS ISSUE OF REVENUE S APPEAL IS DISMISSED AND THAT OF THE ASSESSEE IS ALLOWED. 20 . THE NEXT COMMON ISSUE I N THESE APPEALS OF ASSESSEE IS IN REGARD TO THE CLAIM OF ENTRY TAX TREATED BY AO AS REVENUE RECEIPT AND CONFIRMED BY CIT(A), WHEREAS ASSESSEE HAS CLAIMED THE SAME AS CAPITAL RECEIPT. THE FACTS AND CIRCUMSTANCES OF BOTH THE YEARS ON THIS ISSUE ARE IDENTICA L, HENCE, WE WILL TAKE THE ISSUE FROM AY 2008 - 09 AND THE GROUND RAISED BY ASSESSEE NO. 4 READS AS UNDER: 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN NOT DIRECTING THE AO TO TREAT EXEMPTION OF CLAIM FOR ENTRY TAX OF R S.1,01,09,282/ - AS CAPITAL RECEIPT. 21 . WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS CLAIMED ENTRY TAX AMOUNTING TO RS.1,01,09,282/ - AS DEDUCTION WITHOUT TAKING IT THROUGH P&L ACCOUNT . THE AO MADE ADDITION OF THIS AMOUNT. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A) CLAIMING THE ENTRY TAX AS EXEMPT BEING CAPITAL RECEIPT SIMILAR TO THE SCHEME OF GOVT. OF MADHYA PRADESH BEING INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE. BUT CIT(A ) CONFIRMED THE ACTION OF THE AO BY OBSERVING IN PARA 72 TO 76 AS UNDER: 20 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 72. THE PROVISIONS OF SECTION 43B ARE VERY CLEAR AND IT STARTS WITH A NON ABSTANTE CLAUSE STATING THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT CERTAIN DEDUCTIONS ARE TO BE ONLY ON ACTUAL PAYMENT. ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE, BY WHATEVER NAME CALLED, UNDER ANY LAW FOR THE TIME BEING IN FORCE SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM. IT FURTHER PROVIDES THAT FOR THE PURPOSES OF CLAUSE (A), AS IN FORCE AT ALL MATERIAL TIMES, 'ANY SUM PAYABLE' MEANS A SUM FOR WHICH THE ASSESSE E INCURRED LIABILITY IN THE PREVIOUS YEAR EVEN THOUGH SUCH SUM MIGHT NOT HAVE BEEN PAYABLE WITHIN THAT YEAR UNDER THE RELEVANT LAW WAS NOT PAYABLE UNDER IN THE RELEVANT PERIOD. 73. THE PROVISIONS OF INCOME TAX ACT, 1961 WILL OVER RIDE THE PROVISIONS OF A NY OTHER ACT BEING SPECIFICALLY PROVIDED IN THE INCOME TAX ACT TO ALLOW THE DEDUCTION ONLY ON THE BASIS OF PAYMENT ALTHOUGH THE RELEVANT ACTS UNDER WHICH THE CESS IS COLLECTED MAY PROVIDE TO PAY IN THE NEXT YEAR. IN THE MATTER OF TAXATION THE PROVISIONS OF INCOME TAX ACT, 1961 ONLY WILL DETERMINE THE ACCOUNTING OF RECEIPT FOR THE PURPOSES OF TAXATION. NO ACT WILL OVERRIDE THE PROVISIONS OF INCOME - TAX IN THE MATTER OF TAXATION UNLESS SPECIFICALLY PROVIDED TO OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT, 196 1. BOTH ACTS I.E. THE INDUSTRIAL PROMOTION POLICY 2004 WAS FORMULATED BY THE STATE GOVERNMENT OF MADHYA PRADESH FOR THE PROMOTION OF INDUSTRY IN THE STATE AND DOES NOT PROVIDE THAT IT WILL OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT, 1961 FOR INCOME TAX PURPOSES AND ACCOUNTING OF ENTRY TAX IN THE INCOME TAX ACT, 1961. 74. THE HON'BLE MADRAS HIGH COURT HAS HELD THAT THAT THE DIRECTIONS ISSUED BY RESERVE BANK OF INDIA TO PROVIDE FOR NON - PERFORMING ASSETS CANNOT OVERRIDE THE MANDATORY PROVISIONS OF THE INCO ME - TAX ACT CONTAINED IN SECTION 36(1 )(VIIA). IT OBSERVED IN THE ORDER AS UNDER: - 'FURTHER, THE COMMISSIONER (APPEALS), ON THE FACTS OF THE CASE, FOUND THAT MERELY BECAUSE THE RESERVE BANK OF INDIA HAS DIRECTED THE ASSESSEE TO PROVIDE FOR NON - PERFORMING ASSETS, THAT DIRECTION CANNOT OVERRIDE THE MANDATORY PROVISIONS OF THE INCOME - TAX AC T CONTAINED IN SECTION 36(1)(VIIA) WHICH STIPULATE FOR DEDUCTION NOT EXCEEDING 5 PER CENT, OF THE TOTAL INCOME ONLY IN RESPECT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS WHICH ARE PREDOMINATELY REVENUE IN NATURE OR TRADE RELATED AND NOT FOR PROVISION FOR NON - PERFORMING ASSETS WHICH ARE OF PREDOMINATELY CAPITAL NATURE, AND HELD THAT THE ASSESSING OFFICER WAS RIGHT IN DISALLOWING THE PROVISION OF RS. 30 LAKHS DEBITED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE TOWARDS NON - PERFORMING ASSETS.' 75. SIMILARLY, THE HON'BLE ORISSA HIGH COURT HAS HELD IN THE CASE OF ORISSA RURAL HOUSING DEVELOPMENT CORPN. LTD. V ASSISTANT COMMISSIONER OF INCOME - TAX REPORTED IN [2012] 17 TAXMANN.COM 186 (ORISSA): 20 TAXMANN 673 HAS HELD IN PARA 19 THAT NATIONAL HOUSIN G BANK ACT, 1987 DOES NOT OVERRIDES THE INCOME TAX ACT, 1961 AND FURTHER OBSERVED AS FOLLOWS: - '19. QUESTION NO. (IV) IS AS TO WHETHER THE NATIONAL HOUSING BANK ACT, 1987 OVERRIDES THE INCOME TAX ACT, 1961? THOUGH BOTH THE ACTS ARE CENTRAL ACT THEY ARE OCCUPYING DIFFERENT FIELDS. THE PURPOSE OF ENACTING BOTH THE ACTS ARE DIFFERENT. INCOME TAX ACT HAS BEEN ENACTED TO LEVY TAX ON INCOME WHICH IS COVERED UNDER ENTRY NO.82 OF LIST - I - UNION LIST OF SEVENTH SCHEDULE TO THE CONSTITUTION. THE NATIONAL HOUSING B ANK ACT, 1987 HAS BEEN ENACTED TO PROMOTE HOUSING FINANCE INSTITUTIONS BOTH 21 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 AT LOCAL AND REGIONAL LEVELS TO PROVIDE FINANCIAL AND OTHER SUPPORT TO SUCH INSTITUTIONS WHICH ARE COVERED UNDER ENTRY - 45 OF LIST - I - UNION LIST OF SEVENTH SCHEDULE TO THE CONSTITUT ION OF INDIA. THERE IS NO SUCH PROVISION IN THE NATIONAL HOUSING BANK ACT THAT IT WILL OVERRIDE THE INCOME TAX ACT. SINCE THE IMPUGNED ORDERS ARE PASSED UNDER THE INCOME TAX ACT, 1961, THEY ARE GOVERNED BY THE PROVISIONS OF INCOME TAX ACT. THEREFORE, THE C ONTENTION OF THE PETITIONER THAT NATIONAL HOUSING BANK ACT, 1987 OVERRIDES THE INCOME TAX ACT, 1961 IS WHOLLY UNTENABLE IN LAW. ' 76. THE APPELLANT HAS NOT PAID THE ENTRY TAX UNDER THE INDUSTRIAL PROMOTION POLICY 2004 FORMULATED BY THE STATE GOVERNMENT OF MADHYA PRADESH FOR THE PROMOTION OF INDUSTRY IN THE STATE AND DID NOT DEPOSIT WITH THE STATE GOVT. ENTRY TAX WAS CALCULATED BASED ON HYPOTHETICAL BASIS THAT IT WOULD AMOUNT RS.1,01 ,09,282/ - AT THE TIME OF PAYMENT, (IF WOULD NOT HAD BEEN EXEMPTED) TO THE STATE GOVT. THE APPELLANT'S CLAIM THAT SINCE THE ENTRY TAX UNDER THE INDUSTRIAL PROMOTION POLICY 2004 FORMULATED BY THE STATE GOVERNMENT OF MADHYA PRADESH FOR THE PROMOTION OF INDUSTRY IN THE STATE WAS EXEMPTED AND HENCE SAME IS ITS EXPENDITURE AND TO BE DEDUCTED FROM ITS TAXABLE INCOME AS EXPENDITURE DOES NOT HOLD GOOD IN VIEW OF THE CLEAR PROVISIONS OF SECTION 43B AND THE VARIOUS JUDGEMENTS OF THE APPELLATE AUTHORITIES INCLUDING OF HON'BLE APEX COURT. HENCE, THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF RS. 1,01,09,282/ - IS NOT ALLOWED. THIS GROUND OF APPEAL IS DISMISSED. WE FIND THAT EVEN NOW BEFORE US, LD. COUNSEL FOR THE ASSESSEE COULD NOT ESTABLISH THAT HOW THIS IS EQUIVALENT TO THE INDUSTRIAL INVESTMENT PROMOTION ASSISTANCE, THE SCHEME OF GOVT. OF MADH YA PRADESH. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND THE SAME IS CONFIRMED. THIS COMMON ISSUE IN BOTH THE YEARS OF ASSESSEE S APPEALS IS DISMISSED. 2 2 . THE NEXT COMMON ISSUE IN THESE APPEALS OF THE ASSESSEE FOR AYS 2008 - 09 AND 2009 - 10 IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN RESPECT OF DISALLOWANCE OF PROVISION FOR LEAVE LIABILITY IN TERMS OF CLAUSE (F) OF SECTION 43B OF THE ACT. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING GROUND NO. 5 IN AY 2008 - 09 : 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) FURTHER ERRED IN NOT HOLDING THAT PROVISION FOR LEAVE ENCASHMENT FOR RS.73,79,381/ - IS NEITHER A STATUTORY LIABILITY NOR CONTINGENT LIABILITY AND THEREFORE NOT TO BE CONSIDERED FOR THE PU RPOSE OF COMPUTING DISALLOWANCE U/S. 43B(F) OF I. T. ACT, 1961. 2 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE ASSESSING OFFICER OBSERVED IN ASSESSMENT ORDER THAT THE ASSESSEE HAS MADE A PROVISION FOR LEAVE ENCASHMENT FOR A TOTAL SUM OF RS. 7 3,79,381/ - . IN THE REVISED RETURN THE ASSESSEE MADE A FRESH CLAIM FOR ALLOWANCE OF THE SUM FOLLOWING THE JURISDICTIONAL ORDER IN THE CASE OF EXIDE INDUSTRIES LTD. THE DEPARTMENT AGGRIEVED BY THE SAID ORDER, FILED SLP ON THE ISSUE BEFORE THE APEX COURT, AN D NOW BY STATING THAT THE ISSUE REMAINS UNSETTLED JUDICIALLY, UNPAID PROVISION IS ADDED BACK TO TOTAL INCOME OF THE ASSESSEE. IN APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE AO. 22 ITA NO.67 9 ,910,1051 & 1906/K/2013 UNIVERSAL CABLES LTD. AY 2008 - 09 & 2009 - 10 24. LD. COUNSEL FOR THE ASSESSEE NOW REQUESTED FOR SETTING ASIDE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE IN TERM OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. EXIDE INDUSTRIES LTD. IN SLP (CIVIL) CC 12060/2008 DATED 08.09.2008 WHEREIN THE JUDGMENT OF HON'BLE CALCUTTA HIGH COURT IS STAYED BY OBSERVING AS UNDER: UPON HEARING COUNSEL THE COURT MADE THE FOLLOWING ORDER, ISSUE NOTICE, IN THE MEANTIME, THERE SHALL BE STAY OF THE IMPUGNED JUDGMENT, UNTIL FURTHER ORDERS. FURTHER, THE HON'BLE SUPREME COURT HAD GRANTED LEAVE TO THE DEP ARTMENT AND NOW ISSUE IS PENDING ADJUDICATION BEFORE HON'BLE SUPREME COURT. ON THIS, LD. CIT, DR HAS NOT OBJECTED TO SETTING ASIDE OF THIS ISSUE. IN VIEW OF THE GIVEN FACTS, WE REMIT THIS ISSUE BACK TO THE FILE OF AO TO DECIDE AFRESH IN TERM OF THE DECIS ION OF HON'BLE SUPREME COURT IN THE CASE OF EXIDE INDUSTRIES LTD., SUPRA. THIS ISSUE IN BOTH THE APPEALS OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 25. IN THE RESULT, BOTH THE APPEAL S OF REVENUE ARE DISMISSED AND THAT OF THE ASSESSEE ARE PARTLY ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON 27.02.2015 SD/ - SD/ - , , ( SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27 TH FEBRUARY , 2014 JD.(SR.P.S.) - COPY OF THE ORDER FORWARDED TO: 1 . / A PPELLANT UNIVERSAL CABLES LTD. BIRLA BUILDING, 4 TH FLOOR, 9/1, R. N. MUKHERJEE ROAD, KOLKATA - 700 001. . 2 / RESPONDENT DCIT, CIRCLE - 6, KOLKATA 3 . ( )/ THE CIT(A), KOLKATA 4. 5. / CIT KOLKATA / DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, / BY ORDER, /ASSTT. REGISTRAR .