Income Tax Appellate Tribunal - Chennai
Sreenivas Shoes Pvt. Ltd., Chennai vs Assessee on 15 May, 1999
IN THE INCOMETAX APPELLATE TRIBUNAL: D- BENCH:CHENNAI
(Before Shri Hari Om Maratha, Judicial Member
and Shri Abraham P. George. Accountant Member)
ITA No. No.1723/Mds/99
Assessment Year 1996-97
M/s Sreenivas Shoes P.Ltd., vs. The ACIT,
118 Dr.Radhakrishnan Salai, Co.Cir.IV(6)
Chennai-600004 Chennai
(Appellant) (Respondent)
Appellant by: None
Respondent by: Sri K.E.B.Rengarajan,
Jr.Standing Counsel.
ORDER
PER SHRI ABRAHAM P. GEORGE, Accountant Member-
Before taking up the pertinent grounds relating to this appeal, we feel that it would be appropriate to give a gist of the circumstances leading us to the issues in hand.
2. Assessee, engaged in the business of manufacture and export of shoe upper, had during the relevant previous year received subsidy of Rs.20 lakhs from State Industries Promotion Corporation of Tamilnadu ITA NO.1723/Mds/09 2 ("SIPCOT" for short) as State Government capital subsidy. It had shown such amount under the head 'other income' in its profit and loss account and claimed deduction under sec. 80HHC of the Act from the total profits, including such subsidy. However, the AO was of the opinion that capital subsidy received could not be considered as profit derived from export of goods and merchandise and he, therefore, refused to give deduction under section 80HHC of the Act, claimed on such amount.
3. Assessee filed an appeal before the CIT(A) wherein two grounds were taken. First was that subsidy ought have been held as capital receipt and not have been included in the total income. Second was that such subsidy amount should not have been deducted for the purpose of calculation of depreciation. Ld. CIT(A) vide his order dated 15-05-1999 directed the AO to rework the assessment by treating subsidy as capital receipt. Nevertheless there was no decision vis-à-vis second issue regarding calculation of depreciation. AO, while giving effect to the order of the CIT(A), excluded the capital subsidy from the total income. But nevertheless the depreciation remained untouched. Later on, assessee filed an application for rectification under sec. 154 of the Act before the CIT(A), in which it was pointed out that the second ground raised by it was not adjudicated by him. Ld. CIT(A) vide his order dated ITA NO.1723/Mds/09 3 6-8-1999 dismissed the rectification application on a finding that subsidy was received towards acquisition of fixed assets, and hence it had to be deducted from the cost of such assets before calculating depreciation allowable under the Act.
4. Against this the assessee moved in appeal before this Tribunal. The grounds taken by it before this Tribunal were as under:
"1. The Commissioner (Appeals) erred in directing the assessing officer to deduct the subsidy from the capital value of asset for the purpose of depreciation.
2. The Commissioner (Appeals) erred in not following the Supreme Court decision in the matter.
3. The Commissioner (Appeals) ought to have allowed depreciation on the gross value of the asset without deducting (subsidy)."
This Tribunal in its order dated 18-3-2003 held that the subsidy was not related to any of the assets and therefore, question of reduction of the said receipt from the cost of fixed assets did not arise at all.
5. Pursuant to this, Revenue moved in appeal before the Hon'ble jurisdictional High Court. Question raised before the Hon'ble jurisdictional High Court was whether the Tribunal had enough material and was right in holding that the subsidy received from SIPCOT could not ITA NO.1723/Mds/09 4 be deducted from the cost of fixed assets. Hon'ble jurisdictional High Court, vide its order dated 26-7-2010 in TCA No.70 of 2004, held that the issue raised before the Tribunal which was the subject matter of rectification petition before the CIT(A), was not considered by the Tribunal. Their Lordships, therefore, has remitted the matter back to the Tribunal for reconsidering the issue.
6. Though notice of hearing of this appeal was issued to the assessee by registered post in the address given by the assessee in its appeal form No.36, the notice was returned with a noting by the postal authorities that the address was insufficient. There was no representation on behalf of the assessee. We also note that there was no representation on behalf of the assessee before the Hon'ble jurisdictional High Court also.
7. Now before us, the ld. DR submitted that the subsidy was granted for acquisition of assets particularly for setting up an industrial undertaking in a backward area. There was nothing, according to him, brought on record to show that the subsidy was a general subsidy and not for acquiring fixed assets. Ld. DR urged that such subsidy had to be deducted from the cost of fixed assets before calculating the eligible depreciation under the Act and Rules.
ITA NO.1723/Mds/09 5
8. We have perused the records and heard the contentions of the ld. DR. If we look at the assessment order, in para 5.1.1, AO himself noted that the subsidy of Rs.20 lakhs received by the assessee from SIPCOT was capital subsidy. However, ld. CIT(A) has given a finding that such subsidy was received in connection with setting up of factory and in particular for enabling acquisition of eligible fixed asserts. Ld. CIT(A) has noted that the letters issued by SIPCOT on 4-1-1996 and 29-1-1996 brought out that the subsidy was granted as a capital subsidy and in particular to acquire fixed assets. Thus, the question that is to be addressed is whether the subsidy was received as an incentive for meeting a portion of the cost of the assets and whether the character of the payment was intended directly or indirectly to meet the actual cost. Once it is shown that the amount was directly or indirectly received to meet the cost, then under sec. 43(1) of the Act it had to be deducted from the "actual cost". Thus, the real question is as to the character and nature of the subsidy, as to whether the intention was to subsidise the cost of capital or was intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries. Here the finding of the CIT(A) is that the subsidy given was in particular for enabling the acquisition of eligible fixed assets and this stands unrebutted. This being so, we are of ITA NO.1723/Mds/09 6 the opinion that by virtue of the decision of the Hon'ble Apex Court in the case of CIT vs. P.J. Chemicals Ltd. (210 ITR 830) the amount would go to reduce the actual cost as envisaged under sec. 43(1) of the Act. There is nothing on record available to show that the finding of the CIT(A) in this regard was incorrect. We are of the opinion that the order of the CIT(A) was not to be interfered with in this regard.
9. Appeal of the assessee having no merits is therefore, dismissed.
Order pronounced in the Open Court on 13-10 -2010
Sd/- Sd/-
( HARI OM MARATHA) (ABRAHAM P. GEORGE)
Judicial Member Accountant Member
Chennai: 13th October, 2010
Nbr"
Cc: Assessee/ Assessing Officer/ CIT(A)/ CIT/ D.R/ Guard File.