Income Tax Appellate Tribunal - Ahmedabad
Dy.Cit, Circle-6,, Ahmedabad vs Indo German Tool Room,, Ahmedabad on 1 May, 2017
आयकर अपील य अ
धकरण, अहमदाबाद यायपीठ - अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A'
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.78 and 79/Ahd/2014
नधा रण वष /Asstt. Year: 2007-2008 and 2008-2009
ACIT, Cir.6 Vs. M/s.Indo German Tool Room
Ahmedabad. Plot NO.5003, Phase-IV, GIDC
Mehmadabad Road, Vatva
Ahmedabad 382 445.
PAN : AAAJI 0033 P
अपीलाथ / (Appellant) तयथ
् / (Respondent)
Revenue by : Shri K. Madhusudan, Sr.DR
Assessee by : None
सन
ु वाई क तार ख/Date of Hearing : 18/04/2017
घोषणा क तार ख /Date of Pronouncement: 01/05/2017
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
Present two appeals are directed at the instance of the Revenue against order of ld.CIT(A)-XI, Ahmedabad dated 8.10.2013 and 9.10.2013 passed for the Asstt.Years 2007-08 and 2008-09 respectively.
2. The issue agitated in both the appeals is common, therefore, we heard them together and deem it appropriate to dispose of by this common order.
ITA No.78 and 79/Ahd/2014 2
3. Though the Revenue has taken four grounds of appeal in each assessment year, but its grievance revolves around a single issue viz. the ld.CIT(A) has erred in deleting the disallowance of Rs.2,58,77,712/- and Rs.1,70,51,660/- for the Asstt.Years 2007-08 and 2008-09 respectively, which were disallowed by the AO out of claim of depreciation on lease hold building and plant & machinery.
4. In response to the notice of hearing an adjournment application was filed by Shri Chirag Shah vide letter dated 24.1.2017.
"Respected Sir, With reference to above appeal has been fixed for hearing before you on Dt. 31/01/2017. However, as factual details are under preparation, so we have to urge upon your honor for kindly adjourning the hearing for some days.
Whilst we regret for the inconvenience caused to you on our seeking the adjournment, we shall be very grateful to you for kindly granting adjournment of the hearing.
Thanking You, For, Indo German Tool Room Sd/-"
5. On the request of Shri Chirag Shah, hearing was adjourned to 18.4.2017. Again on 17.4.2017 he moved an application which is somewhat identically worded. He seeks adjournment. We find that on record he has not filed his power of attorney and he has not assigned any reason for the adjournment. Application is vague and none has attended the hearing on behalf of the assessee. It appears that Shri Chirag Shah thought that once an application was moved, there was no need to appear on behalf of the assessee, and adjournment would be granted as matter of right. We do not appreciate this type of conduct at the end of the assessee. Therefore, we do not grant adjournment to the assessee and proceed to hear the appeals ex parte qua the assessee with the assistance of the ld.Departmental Representatives.
ITA No.78 and 79/Ahd/2014 3
6. Brief facts of the case are that the assessee is a Society set up by the Government of India with the assistance of Government of Germany and Government of Gujarat. The Society was registered vide Registration No.GUJ/1940/Ahmedabad. As per the agreement, land & building and infrastructure were provided by the Government of Gujarat, and machines and equipments for production and training were provided by the German Government. Government of India provided funds for training, furniture, duties & taxes and recurring costs. Object of the assessee-society was to carry out activities of providing technical, advisory and consultancy services for small scale units and are providing services for developing products and training of personnel in tool room. The assessee has filed its return of income for the Asstt.Year 2007-08 on 29.10.2007 declaring a loss of Rs.2,65,80,930/-. Similarly, for the Asstt.Year 2008-09, it has filed return on 17/0/2008 declaring total loss of Rs.54,50,675/-. The ld.AO has harboured a belief that since building and infrastructure were stated to have been provided by the Govt. of Gujarat/Govt. of India/German Government, depreciation claimed by the assessee and allowed in the assessment mainly on lease holding building and plant & machinery was not in order. This resulted in irregular allowance of depreciation, which has resulted escapement of tax, therefore, he issued notice of under section 148 on 28.3.2012 in both years. After hearing the assessee, he disallowed depreciation to the assessee.
7. Dissatisfied with the disallowance, the assessee carried out the matter in appeal before the ld.CIT(A). The ld.CIT(A) has allowed depreciation to the assessee by following order of the ITAT, Indore Bench. The ld.CIT(A) has observed that similar Societies were situated in Madhya Pradesh and Maharashtra, where identical activities were carried and depreciation under similar circumstances was allowed to ITA No.78 and 79/Ahd/2014 4 those units at Indore and Maharashtra. The finding of the ld.CIT(A) in the Asstt.Year 2007-08 in this connection reads as under:
"3.2 I have carefully considered the rival contentions. I find that the facts of the case are identical to its sister unit at Indore. The three Indo German Tool Rooks were set up in M.P., Maharashtra and Gujarat with identical Memorandum of Association and identical rules and regulations. For the purpose of I.T.Act they are independent distinguishable entities, however, their operations are identical. The decision of Hon'ble ITAT Indore Bench in the case of Indo German Tool Room, Indore is on identical facts and I do not agree with the contentions of the A.O. that in the case of Indore unit the assets have been acquired by utilizing Government funds as well as own funds whereas in the case of the appellant the facts are different. The contributions for various assets are being made to certain extent by the various promoting parties i.e. Government of India, Government of Germany and Govt. of Gujarat. In addition the appellant is also earning by way of fees received from the students. The Memorandum of Association in clause-49 deals with funding of the society which includes grants made by the respective governments, donations, loans and grants, income from investments and savings, receipt from trainees and from various other services etc. I agree with the contentions of the appellant that what has been provided by the various governments are in the nature of promoters contribution and have been duly reflected so in the balance sheet of the appellant. Applicability of explanation-10 to sec.43 will come into picture only when the receipts are in the form of subsidy.
The Hon'ble ITAT while dealing with the case of Indo German Tool Room Indore on identical facts has deleted the disallowance of depreciation claim made by the A.O. by invoking explanation-10 of sec.43 of the IT.Act. The Hon'ble Bench observed as under :-
"We have carefully considered the rival contentions and deliberated on the case laws cited by the Ld. Authorized Representative in the context of factual matrix of the case. In the instant case, the assessee being a society set up by the Government of India, for carrying on activity of providing technical and consultancy services for small scale unit. It got Government grant towards capital funds. By utilizing these funds and its own capital, it acquired plant and machinery and building. While allowing assessee's claim for depreciation on such plant and machinery and building, ITA No.78 and 79/Ahd/2014 5 the A.O. reduced the actual cost by the amount of grant after applying Explanation 10 to Section 43. Horrjble Supreme Court in the case of P.J. 'N Chemicals (supra) has elaborately dealt with such a situation t! and observed that where Government subsidy is intended as an incentive to encourage entrepreneurs, the same is not a payment directly or indirectly to meet any portion of the actual cost. The expression "actual cost" in Section 43(1) of the Income- tax Act, 1961, is to be interpreted liberally. Accordingly, such subsidy does not par-take all the incidents which attracts the condition for its deductibility from "actual cost."
It was, therefore, held that amount of subsidy is not liable to be deducted from the actual cost u/s.43(1) for the purpose of calculation of depreciation. Respectfully following the proposition of law as laid down by the Hon'ble Supreme Court and thereafter by various Courts, as narrated above, we do not find any merit in the action of the lower authorities for reducing the amount of Government grant from the actual cost of plant and machinery and building for the purpose of allowing assessee's claim for depreciation. Accordingly we reverse the order of lower authorities and decide the issue in favour of the assessee."
The facts of the case of the appellant being identical, respectfully following the decision of Hon'ble ITAT Indore Bench, the A.O. is directed to delete the disallowance of the claim of depreciation mad in the case of the appellant. The second ground of appeal is allowed. Appellant gets a relief of Rs.2,58,77,712/-."
8. With the assistance of the ld.DR we have gone through the record carefully. Short controversy involved in these appeals is whether the contributions made by three governments, viz. Govt. of India, Govt. of Gujarat and German Government was to be treated as a contribution on behalf of the promoters or it was to be treated as a subsidy by the Government. According to the AO, land etc. were granted by the Govt. of Gujarat is to be treated as subsidy, which does not carry any costs to the assessee, and therefore, it could not claim depreciation. On the other hand, the ld.CIT(A) pointed out that it was not subsidy, rather these three governments have participated for constituting a Society and they have provided contribution in the form of assets/kinds. The AO ought to have appreciated status of three Governments as of ITA No.78 and 79/Ahd/2014 6 promoters and in that view it could not be construed that these governments have given grant to the assessee as a subsidy. In our opinion, the ld.AO has misconstrued whole constitution of the Society. He was not justified to assume that three governments who are promoters of the Society have given subsidy instead of contribution for creation of the Society. Here the governments are doing business themselves by constituting the Society. It is not a benefit given by the government for any particular assessee or class of assessees by exercising its Legislative powers. The ld.CIT(A) has considered this aspect and therefore allowed the claim of the assessee. After going through the order of the ld.CIT(A), we do not find any error in it. It is confirmed. Appeals of the Revenue stand dismissed.
9. In the result, the appeals of the Revenue are dismissed.
Order pronounced in the Court on 1st May, 2017 at Ahmedabad.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 01/05/2017