Income Tax Appellate Tribunal - Ahmedabad
Vidya Dairy, Anand vs Assessee on 26 April, 2013
1 ITA No 1372/Ahd/2010
. A.Y. 2005-06
IN THE INCOME TAX APPELLATE TRIBUNAL " A " BENCH, AHMEDABAD
(BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI, A.M.)
I.T. A. No.1372 /AHD/2010
(Assessment Year:2005-06)
Vidya Dairy Vs. The ACIT, Anand Circle,
Anand Agricultural University Anand.
Campus
Anand.
(Appellant) (Respondent)
PAN: AACCV 4664 J
Appellant by : Shri Yogesh G. Shah A.R.
Respondent by : Shri Rahul Kumar Sr. D.R.
आदे श)/ORDER
(आदे Date of hearing : 26-04-2013 Date of Pronouncement : 12 -07-2013 PER SHRI ANIL CHATURVEDI,A.M. This appeal is filed by the Assessee against the order of CIT(A)-IV, Baroda dated 1.02.2010 for A.Y. 2005-06.
1. The facts as culled out from the order of lower authorities are as under.
2. Assessee is a company incorporated under Section 25 of the Companies Act, 1956 and is engaged in the activity of procuring and processing the milk manufacturing and marketing of milk and milk products. It filed its return of income for A.Y. 2005-06 on 28.10.2005 declaring total income at 2 ITA No 1372/Ahd/2010 . A.Y. 2005-06 Rs. Nil. The case was selected for scrutiny and thereafter the assessment was framed under Section 143(3) vide order dated 27.12.2007 and the gross total income before adjustment of unabsorbed depreciation of earlier years was determined at Rs. 91,49,138/-. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) vide order dated 01.02.2010 granted partial relief to the assessee. Aggrieved by the aforesaid order of CIT(A) the Assessee is now in appeal before us and has raised the following effective grounds:-
2. (i) The learned CIT(A) erred in confirming the disallowance of the claim of depreciation of Rs.37,63,298/- on portion of plant and machinery received towards grant/subsidy from National Dairy Development Board under "70% loan and 30% grant" scheme. Your appellant submits that 30% grant has been received towards the project as a whole and hence, it is entitled to depreciation on the entire cost of assets installed and put to use without deducting the grant portion. It is submitted that it be so allowed now.
(ii) The learned CIT(A) erred in law and on facts in holding that Explanation 10 to section 43(1) of the Act would apply in respect of assets acquired prior to 1-4-99 and also in respect of grants received prior to 1-4- 99 and thereby would apply from assessment year 1999-00 irrespective of the year of acquisition of assets or year of disbursement of grant. The learned CIT (A), thus erred in denying benefit of depreciation in respect of value of grant/subsidy in respect of assets acquired prior to A.Y. 1999-00. It is submitted that it be so held now.
(iii) The learned CIT (A) grossly erred in relying on Supreme Court decision in the case of Saharanpur Electric Supply Co. Ltd. 194 ITR 294 , which is not applicable to the facts of the appellant and more particularly which was rendered for assessment years prior to introduction of concept of block of assets.
(iv)The action of learned CIT(A) in holding that subsidy is deductible from actual cost u/s 43(1) is patently incorrect and unjustified. It is submitted that it be so held now and depreciation as claimed by the appellant be allowed.
The only effective ground is with respect to considering subsidy as part of cost of assets.
3. During the course of assessment proceedings Assessing Officer noticed that Assessee had claimed depreciation of Rs. 94,08,198/- in the original 3 ITA No 1372/Ahd/2010 . A.Y. 2005-06 return to assessee. Subsequently Assessee filed a revised return on 12.10.2006 and claimed a further depreciation on Grant of Rs. 37,63,278/- The Assessee was asked to justify the claim of depreciation and also to justify that the amount was "Grant in kind". The Assessee interalia submitted the copies of Memorandum of Understanding, Agreement, Sanctioned letters etc. After considering the submissions made by the Assessee, Assessing Officer was of the view that the supplementary claim of depreciation made in the revised return on the grant portion amounting to Rs. 37,63,228/- cannot be allowed for the reason that no capital asset was transferred to the Assessee by National Dairy Development Board (NDDB). He was further of the view that the expenditure incurred by the Project Authority was met by the funds sanctioned by NDDB and the mere bifurcation of fund into loan amount and grant amount does not establish that the capital asset namely the Model Dairy was transferred from the ownership of (NDDB) to the Assessee for allowing depreciation on the grant portion. Aggrieved by the aforesaid order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions of the Assessee upheld the order of Assessing Officer by holding as under:-
3.2. I have carefully considered facts of the case and appellant's submissions.
Appellant was incorporated as a section 25 company in 1998 and the grant was disbursed to Gujarat Agriculture University ( GAU) towards Model Dairy, which was at that time known as GAU Training & Research Dairy till 3.11.1993 and renamed as Vidya dairy, an AOP w.e.f. 3.11.1993. Even though the grant disbursements were made prior to 1995, a grant agreement between appellant and NDDB was executed on 21.7.1999. Appellant, for the first time in A.Y.2005-06 claimed depreciation in respect of that portion of cost of its assets, which was financed out of grant received from NDDB. The grant is claimed to be received prior to 1995. Appellant has worked out depreciation of Rs.37,63,278/- in respect of grant amount of Rs.3,90,68,828/- by first calculating notional depreciation for financial years 2001-02 to 2003-04, thereby arriving at amount of Rs.1,99,36,050/-as on 1.4.2004, on which depreciation of Rs.37,63,278/- was claimed at applicable rates for F.Y.2004 05/A.Y.2005-06. No depreciation has been worked out for the period prior to 1.4.2001, even though grant was received prior to 1995 on the ground that provisions making allowance of depreciation mandatory, i.e. Explanation 5 to 4 ITA No 1372/Ahd/2010 . A.Y. 2005-06 section 32 inserted w.e.f. 1.4.2002 and thus, became applicable from A.Y. 2002-03 onwards. In this brief background of facts, I proceed to take up appellant's contentions regarding disallowance made by the Assessing Officer. Appellant's contention is that the assets were transferred to the appellant in F.Y. 1994-95 relevant to A.Y.1995-96/the grant was received prior to 1995 and hence applying Explanation 10 to section 43(1) introduced w.e.f. 1.4.1999 would amount to retrospective application of provisions of Explanation 10. Appellant has referred to CBDT Circular No. 772 dated 23.12.1998 to contend that the amendment w.e.f. 1.4.1999 is prospective. Circular No, 772 only clarified that the "Amendment made through Explanation 10 will take effect from 1st April, 1999 and will accordingly apply in relation to A.Y. 1999-2000 and subsequent years". In the present case, Assessing Officer has applied Explanation 10 to section 43((1) in A.Y. 2005-06 and not an assessment year prior to A.Y. 1999-2000 and as such appellant's contention about retrospective application is not tenable. Related issue could be whether Explanation 10 could be applied in A.Ys subsequent to A.Y. 1999-2000 in respect of assets acquired prior to 1.4.1999 and also in respect of grants received prior to 1.4.1999. Explanation 10 to section 43(1) reads as under:-
"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 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 reimbursement shall not be included in the actual cost of the asset to the assessee".
The Explanation does not refer to assets acquired after 1.4.1999 or the grant amounts received after 1.4.1999. It only says that where any portion of cost of an asset is met through grant or subsidy, the same shall not be included in the actual cost of assets. Thus, for A.Y. 1999-2000 onwards, Explanation 10 is to be applied irrespective of the year of acquisition of assets as well as year of disbursement of grant. For this purpose, WDV of the assets as on first day of previous year would be accordingly recomputed by reducing grant component from 'actual cost'. Appellant has itself recalculated WDV of assets as on 1.4.2004 by reducing notional depreciation from the grant component of cost of assets for the period 1,4,2001 to 31.3,2004. As per decision in the case of Saharanpur Electric Supply Co. Ltd. (1992) 194 ITR 294 (SC), actual cost of assets for the purpose of computing depreciation if so required to be, can be altered in later years. It would be therefore justified to reduce grant component of actual cost for the purpose of computing depreciation, even if such grant was received prior to the previous year, i.e. F.Y. 04-05 in this case. It is therefore, held that Explanation 10 to section 43(1) can be applied to re- determine actual cost of assets acquired prior to 1.4.1999 by reducing grants received including grants received prior to 1.4.1999. Moreover, so far as appellant is concerned, part of cost of assets received from previous entities got categorised as "grant" only after 21.7.1999, i.e. when Explanation 10 was on the statute book. The assets in question were financed through 70% loan and 30% grant, both received from NDDB and the loan as well as grant agreement was also executed on 5 ITA No 1372/Ahd/2010 . A.Y. 2005-06 21.7.1999. Even though the loan and the grant were received prior to 1995 by Training & Research Dairy GAU/Vidya Dairy, AOP, so far as appellant, i.e. the section 25 company is concerned, liability towards loan crystallized only on 21.7.1999 and the balance portion of the cost of assets was categorized as grant only on 21.7.1999. Further, even prior to insertion of Explanation to section 43(1), w.e.f 1.4.1999, as per CBDT Circular No.190 dated 1.3.1976, subsidy received in relation to various assets or the cost met directly or indirectly by any other person or authority was to be reduced from cost of assets for the purpose of allowing depreciation on such assets. Appellant has relied on certain decisions in its support in respect of assessment years prior to A.Y. 1999-2000. These decisions have followed Supreme Court's decision in the case of P. J. Chemicals Ltd. (1994) 210 ITR 830 (SC). However, the said decision of Supreme Court is applicable only where subsidy from the Government was received as an incentive and not for specific purpose of meeting a portion of cost of assets. In the case of Associated Stone Industries Kota Ltd.(1995) 215 ITR 226 (Raj), Hon'ble High Court of Rajasthan distinguished the decision in the case of P. J. Chemicals to hold that where the subsidy met cost of assets directly, it was to be reduced from "actual cost" u/s.43(l) for the purpose of computing depreciation. The decision of Rajasthan High Court was for A.Ys. 1980-81 and 1981-82. In appellant's case, the grant was received as assets themselves, as evident from the sanction letters filed at pages 130-66 of the Paper Book, i.e. it was a case of receipt of grant for specific purpose of meeting a portion of cost of assets. Thus, even prior to 1.4.1999, when Explanation 10 to section 43(1) was not brought on to the I.T. Act, grant portion disbursed to meet cost of assets directly was deductible from the actual cost u/s. 43(1) before computing depreciation. Disallowance of claim of depreciation on grant portion of cost of assets, i.e. Rs. 37,63,278/- is confirmed.
4. Aggrieved by the aforesaid order of CIT(A), Assessee is now in appeal before us.
5. Before us, the learned A.R. submitted that the Assessee carries on the business of milk and milk products and also gives training to the students of dairy associates. He further submitted that the National Dairy Development Board entered into a Memorandum of Understanding (MOU) with the Vice-Chancellor of Gujarat Agriculture University to set up a Model Dairy Plant as per the MOU. It was agreed that the Gujarat Agriculture University shall treat the Model Dairy Plant as autonomous unit and the financial assistance for the project shall be given NDDB based on the basis of feasibility report to be approved by NDDB (70% loans and 30% grant). Pursuant to the MOU, NDDB completed the project and handed over the Model Dairy University to Vidya Dairy in 1994. Vidya 6 ITA No 1372/Ahd/2010 . A.Y. 2005-06 Dairy was converted into company under Section 25 of the Companies Act, 1956 on 10th June, 1998.
6. The learned A.R further submitted that the amount has been received from NDDB under 70% loan and 30% grant basis prior to 1.04.1999 i.e. prior to insertion of Explanation 10 to section 43(1) of the IT Act and the grant was received towards the project as a whole. The learned A.R. further submitted that in view of Explanation 2 to section 43(1). The Assessee was entitled to depreciation on the entire cost of asset without deducting the grant portion. The learned A.R. further submitted that though the grant agreement was executed on 21st July, 1999. It was only the formalities which was required to be completed and it covered all the grants which was received or to be received. The learned A.R. further submitted that the total grant amount sanctioned to the Assessee was Rs. 4,16,41,802/- against which the Assessee had received grant of Rs. 3,98,06,486/-. The Assessee has not claimed any depreciation on grant in A.Y. 2004-05. The Assessee had opted not to claim depreciation in respect to subsidy in earlier years in the claim of depreciation of subsidy was made for the first time in A.Y. 2005-06. However, in view of Explanation 5 inserted from A.Y. 2002-03 notional depreciation was reduced from A.Y. 2002-03 to A.Y. 2004-05 and WDV of the subsidy amount, the depreciation has been claimed in respect of assets at the applicable rate. He further submitted that Explanation 5 to section 32 has been introduced by Finance Act, 2001 with effect from 1.04.2002 and therefore apply to assessment years 2002-03 and subsequent years. The learned A.R. further submitted that Explanation 10 to Section 43(1) would not apply as the same was introduced by Finance Act, 1998 with effect from 1.04.1999. The clarification that the grant is prospective was clarified by CBDT vide Circular No. 772 dated 23.12.1998. and the decision in the case of A.P. Shrimp Seed Production Supply and Research Centre vs. DCIT 2000 69 TDJ (Hyd.) 226 also support the case of Assessee.
7 ITA No 1372/Ahd/2010
. A.Y. 2005-06
7. The learned D.R. on the other hand relied on the order of Assessing Officer and CIT(A) and further submitted that the ratio of decision of Hyderabad Tribunal was not applicable as in that case, the assessment year in question was 1991-92 whereas in the case of Assessee. The assessment year involved is A.Y. 2005-06. He thus supported the order of Assessing Officer and CIT(A).
8. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the Assessee had received grant from NDDB prior to 1995 but the agreement was executed between the Assessee and NDDB on 21.7.1999. The Assessee has not worked out the depreciation for the period prior to 1.4.2001 though the grant was received prior to 1995 as according to the Assessee Explanation 5 to section 32 were inserted with effect from 1.4.2002 and became applicable from AY 2002-03 onwards. CIT(A) in his order has noted that AO has applied Explanation 10 to s. 43(1) in AY 2005-06 and not in assessment year prior to AY 1999-2000. Explanation 10 which has been introduced with effect from 1.4.1999 states that "where a portion of the asset acquired by the assessee has been met directly or indirectly by the Central Government or any other 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 reimbursement shall not be included in the actual cost of the asset to the assessee". Perusal of aforesaid Explanation it can be seen it has been introduced with effect from 1.4.1999. Further it does not refer to assets acquired after 1.4.1999 or grant/subsidy received after 1.4.1999 and therefore we are of the view that it has to be applied from AY 1999-2000 onwards irrespective of the year of acquisition of assets or the year of disbursement of grant. Seen in the light of the Explantion 10, it is an undisputed fact that the asset acquired by the assessee has been met 8 ITA No 1372/Ahd/2010 . A.Y. 2005-06 from the grant received from NDDB and therefore the cost relatable to such subsidy shall not be included in the actual cost of the asset. Further the decision in the case of A.P. Shrimp Seed Production Supply and Research Centre (supra) which has been relied by Assessee is distinguishable and not applicable to the facts of the present case because in that case the assessment year in question was 1991-92 whereas in the present case the assessment year is 2005-06. Considering the aforesaid facts, we are of the view that no interference is called for to the order of CIT(A) and thus this ground of Assessee is dismissed.
9. In the result the appeal of the Assessee is dismissed.
Order pronounced in Open Court on 12 - 07 - 2013.
Sd/- Sd/-
(G.C.GUPTA) (ANIL CHATURVEDI)
VICE PRESIDENT ACCOUNTANT MEMBER
Ahmedabad. TRUE COPY
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad