Income Tax Appellate Tribunal - Rajkot
Gujarat Co-Operative Oilseeds ... vs Deputy Commissioner Of Income-Tax on 16 June, 2000
Equivalent citations: [2001]78ITD308(RAJKOT)
ORDER
Shri Behari Lal, A.M.
1. This appeal has been directed against the order of learned CIT (Appeals)-I, Rajkot dated 31-8-1992, for the assessment year 1985-86.
2. Various grounds of appeal taken up by the assessee are as follows :--
(i) The order passed by learned CIT (Appeals) is bad in law and contrary to the provisions of law and facts.
(ii) Learned CIT (Appeals) erred in holding that reopening of the assessment proceedings initiated under section 147(b) is valid.
(iii) Learned CIT (Appeals) erred in confirming the disallowance of depreciation of Rs. 15,81,189 (Rs. 11,71,203+Rs. 3,09,946) considering the same as claim on the cost of Plant and Machinery and various assets purchased out of plant received from National Dairy Development Board, Anand.
(iv) Learned CIT (Appeals) erred in confirming the interest charged under section 139(8) of the Act.
(v) The learned CIT (Appeals) erred in charging interest under section 215 of the Act.
3. The appellant is a Co-operative Society carried on the business of marketing, agricultural produce of its members. The return of income was filed on 4-8-1985 declaring the total income of Rs. 11,07,230. The regular assessment was made on 28-3-1988 on an income of Rs. 27, 16, 600. This order was revised under section 154 on 14-9-1998 and accordingly the total income was determined at Rs. 15,57,223. On giving effect to learned CIT (Appeals)'s order, the income was further revised to Rs. 9,49,746. During the previous year relevant to assessment year under consideration, the assessee received capital grants from National Dairy Development Board, Anand (for short--'NDDB') amounted to Rs. 16,72,632 for procurement of agricultural equipments. The capital amounts have been shown under the head "Reserve and Surplus" in the Balance Sheet. The capital grants were not deducted from the cost/written down value of any asset for the purpose of claiming depreciation in the original assessment. Therefore, the Assessing Officer reopened the assessment under section 147(b) of the Act and issued a notice under section 148 of the Act dated 27-3-1990. In response to this notice, the assessee filed a return of income on 20-4-1990 showing the taxable income at Rs. 26,80,677.
4. The Assessing Officer in his order has stated that the assessee received capital grant of Rs. 85,24,749 from NDDB. The assessee contended before the Assessing Officer that capital grants from NDDB had been received for restructuring of the production and marketing of iron sheds and vegetable oil and not for the acquisition of any specific assets. Therefore, according to the assessee, the question of reducing the grant amount from the actual cost of asset within the meaning of Section 43(1) does not arise. In the alternative, the assessee submitted that out of grant of Rs. 85,24,749, the amount of Rs. 30,16,690 represents the cost of house, which is not actually installed and accounted under the head "Work in progress" on which no depreciation has been claimed. The Assessing Officer, however, did not accept the contention of the assessee that grant has not been given towards the cost of various assets purchased. The Assessing Officer accepted the contention of the assessee regarding the amount of Rs. 30,60,690, which represented the cost of seeds house and, therefore, for the purpose of reduction of written down value of the asset, he considered the amount of Rs. 55,08,059 [Rs. 85,24,739 (-) Rs. 30,16,690]. Thus, he reduced the cost of various assets and accordingly reduced the claim of depreciation of Rs. 12,71,203 on the amount of Rs. 55,08,060. He further reduced the cost of various assets for capital grant of Rs. 16,72,632 received from NDDB, Anand for the purpose of procurement of agricultural equipment, furniture, fixture and vehicles etc.
5. The learned CIT (Appeals) after going through the various agreements . entered into by the assessee with NDDB and also various contentions raised before him, he fully agreed with the Assessing Officer and confirmed the addition made by him. He concluded that the grant was toward meeting the cost of the capital asset. Regarding the opening of assessment under section 147(b) of the Act, the learned CIT (Appeals) has stated that the information from the other party certainly constitutes information within the meaning of Section 147(b) of the Act. Thus, according to him, the assessment was validly reopened.
6. During the course of hearing, the learned counsel of the assessee contended that all the facts and details were thereon record at the time of original assessment. The reopening, therefore, is a change of opinion as no new information was in possession of the Assessing Officer consequent upon which he could have reason to believe that income chargeable to tax has escaped assessment. Therefore, he contended that the order passed in consequence of reopening the assessment is bad in law. According to him, the audit partycan point out any mistake of fact, but it is not competent to give interpretation of law. The learned counsel of the assessee relied on the following court cases to support his contention :--
(I) Atul Products Ltd. v. ITO[1980] 125 ITR 452 (Guj.) (II) Rajan Silk v. ITO [1985] 154 ITR 474 (Guj.) (III) Rajath Leasing & Finance Ltd. v. Asstt CIT[1996]217 ITR 115(Guj.) (IV) Indian & Eastern Newspaper Society v. CIT[1979] 119 ITR 996 (SC).
7. The learned Counsel further relied on the following cases to support his contention that reopening under section 147(b) was bad in law.
(A) VXL India Ltd. v. Asstt. CIT [1995] 215 ITR 295 (Guj.) (B) Birla VXL Ltd. v. Asstt CIT [1996] 217 ITR 1 (Guj.) (C) Garden Silk Mills Ltd v. Dy. CIT (No. 2) [1996] 222 ITR 68 (Guj.).
8. Regarding the disallowance of depreciation of Rs. 15,81,139, the learned Counsel contended that capital granted was received from NDDB for restructuring production and marketing of oil seeds and vegetable oil. According to him, the grant was not given by NDDB towards the cost of acquisition of any specific assets. He contended that the grant was received for implementation of project as a whole. Therefore, he contended that there was no justification in reducing grant amount from actual cost of the asset purchased and thereby making reduction in the claim of depreciation made by the assessee. The learned counsel of the assessee invited our attention to para 12 of page 12 of the paper book, which pertains to the amount of Rs. 85,24,749 granted by NDDB. It has been mentioned in the notes attached to the computation of income that no deduction has been made from the written down value of any asset for the purpose of claiming depreciation as the grant has not been given for acquiring any particular asset or plant or equipment. The learned counsel of the assessee contended that it was made very clear in the statement of total income for assessment year under consideration that the grant was not for acquiring any particular asset. He also invited our attention to pages 16, 17 and 19 of the compilation, which pertain to various details filed before the Assessing Officer during the course of assessment proceedings, He specially pointed out that all the details regarding the grant and other correspondence was brought to the notice of the Assessing Officer. He also referred to pages 20, 22 and 23 of the compilation. Item No. 10 of page 20 pertains to the details of depreciation chart filed before the Assessing Officer and item No. 19 on page 20 pertains to the copy of the sanction letter received from NDDB filed before the Assessing Officer. On page 22, there is a letter written by NDDB to the assessee in which it has been mentioned that financial assistance by NDDB to the assessee is for implementation of oil seeds and vegetable oil purchase. On the next page of the same letter, it has been stated by the NDDB that "if the aforesaid equipment, building, as per the appended table are not utilized in accordance with the agreed stipulation and conditions or within the permitted time limit, the cost will be liable to be refunded to the NDDB in one instalment with interest @ 10.5 per cent compounded half yearly."
9. The learned Counsel also invited our attention to the various agreements with theNDDB placed at pages 25, 33 and 72 of the compilation. The learned Counsel, thus, contended that it is quite obvious from the various documents referred above that the grant was not given for the purchase of any specific asset.
10. Regarding the interest charged under section 139(8), the learned Counsel contended that the return was filed within the time limit, which was extended up to 16-8-1985. Therefore, no interest under section 139(8) is payable.
11. Regarding interest under section 215, the learned Counsel submitted that there was no default in payment of advance tax. He further stated that the assessee was to pay interest only because certain unexpected additions/disallowances of the claim had been made. He relied on the following cases :--
(a) Asstt CIT v. Manmohan D. Mehta [1996] 57 ITD 461 (Ahd.) (6) CIT v. Gortthanbhai Jethabhai [1994] 205 ITR 279 (Guj.).
12. The learned Departmental Representative contended that the reopening of the assessment under section 147(b) of the Act has been validly done. According to him, obvious matters of law and facts can be a reason for reopening under section 147(b). He also pointed out that the law was applicable for reopening the assessment which was prevalent at the time of taking the action. He contended that the law as per the provisions of Section 43(1) was not applied by the Assessing Officer at the time of original assessment, therefore, the assessment was validly reopened, when an information regarding this was received from the audit party. So far as the grant is concerned, the learned Departmental Representative stated that the same was specific for purchasing the machinery. According to him, the grant was not towards project, but the same was towards assets. The learned Departmental Representative also fully relied on the orders of the authorities below. He also placed his reliance on the following court cases :--
(I) CWT v. Smt. Arundhati Balkrishna Trust [l977] 108 ITR 78 (Guj.) (II) CIT v. P.V.S. Beedies (P.) Ltd. [1999] 237 ITR 13 (SC).
13. We have heard the rival parties. The first issue is regarding reopening of the assessment under the provisions of Section 147(b) of the Income-
tax Act, 1961. According to the learned Counsel the reopening ot the assessment is based merely on change of opinion, as no new information was in possession of the Assessing Officer consequent upon which he could have reason to believe that the income chargeable to tax has escaped assessment. On the other hand, the learned Departmental Representative contended that the reopening has been done as per the provisions of law and on the basis of an information received by the Assessing Officer is subsequent to the passing of the original assessment order.
14. As per the provisions of Section 147(6) of the Act, the Assessing Officer may proceed to "back assess", if he has (i) reason to believe, (ii) that income chargeable to tax, (iii) has escaped assessment. In addition to the above, the following further conditions have necessarily to be satisfied before the Assessing Officer can act under section 147(b), namely, (i) the Assessing Officer has certain information in his possession, (ii) he forms a belief that a certain income has escaped assessment, and (iii) the belief is based on such information. In general, the "information" means the act or process of informing, communication or reception of knowledge. It may be knowledge acquired directly or by observation or study or derived inferentially or from communication from others as laid down in the case of CIT v. Jagan Nath Maheshwary [1957] 32 1TR 418 (Punj.).
15. In the above case, the Assessing Officer had suspicion of concealment at the time of original assessment, but he did not pursue the inquiry. The reopening of assessment later, on information received from another Assessing Officer was held to be proper and valid. The Hon'ble High Court also held that word "information" is synonymous with knowledge or awareness in contradiction to apprehension, suspicion or misgiving. In Kalyanji Mavji & Co. v. CIT [1976] 102 ITR 287, the Hon'ble Supreme Court observed that "information" is of the widest amplitude and comprehends a' variety of factors. Nevertheless, the power of reassessment, however, wide it may be, is not plenary, because the discretion of the Assessing Officer is controlled by the words "reason to believe". The word "information" cannot be construed in universal sense as observed by the Supreme Court in the case of A.N. Lakshman Shenoy v. ITO [1958] 34 ITR 275. Its meaning must depend upon and must necessarily vary with the circumstances of each case. It is necessary that the information should be more than mere guess, gossip or rumour, but it need not be information of fact, nor need it be information of actual escape to tax. It may well be information or circumstances not themselves amounting to "escaped assessment", but leading to the belief of such escape. Indirect or circumstantial evidence may constitute information. The information must have come into the possession of the Assessing Officer after previous assessment, but even if the information be such that it could have been obtained during the previous assessment from investigation of the materials on the record or the facts disclosed thereby or from other inquiry or research into facts or law, but was not, in fact, obtained, the Assessing Officer will have jurisdiction to "back'-assess". Information may corne from external sources or even the material already on record or may be derived from the discovery of the new and important matters or fresh facts. There is no difficulty in cases where subsequent to the original assessment, fresh facts or information came into possession of the Officer, which shows that income had escaped assessment. It has been held by the Courts that the details available to the Assessing Officer in the papers already filed before him does not become an item of information by its mere availability. But it is transmitted into an item of information, when its existence is realized and its implications are realized. The awareness of the Assessing Officer subsequent to the completion of original assessment would constitute information as held by the Hon'ble Kerala High Court in the case of United Mercantile Co. Ltd. v. CIT [1967] 64 ITR 218. Madras High Court in the case of CIT v. Rathinasabapathy Mudaliar [1964] 51 ITR 204, laid down that information need not be wholly extraneous to the record of the original assessment and may be gathered from the record of the original assessment itself.
16. Regarding the information from external sources, the Hon'ble Supreme Court in the case of Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1, has held that the word "information" as used in clause (b) would embrace information as to fact as well as also to law. The circumstances in which though there is no fresh external information, a reassessment can be validly initiated from the facts and material already on record and available with the Officer which have already been referred to. Turning to information from external sources, the cases abound in instances of factual information received from outside sources. These informations received in various forms such as survey report, general information circulated by the Directorate of Income-tax and other Authorities, information received from other Assessing Authorities, Expert Reports, Valuation Reports, subsequent returns and admission by the assessee himself, fact discussed during assessment proceedings of a subsequent year, tangible, anonymous information and so on. So also decision and information of Appellate Authorities or Higher Forum in the case of the same assessee or connected assessee will constitute "information" in R.B. Bansilal Abirchand Firm v. CIT [1968] 70 ITR 74 (SC). There was a firm of four partners and three minors were financing another firm 'B' in which an outsider was partner at 50 per cent share and four partners of the firm 'A' held the balance 50 per cent. Interest paid by 'B' was disallowed by the Assessing Officer as interest paid to partners, but the Tribunal allowed the same. Original assessment of 'A' did not include interest paid by 'B' to it and the proceedings started under section 34(1)(b) of the old Act after the Tribunal's decision. These proceedings were held to be valid and proper by the Supreme Court.
17. The main contention raised by the learned Counsel was that the notice issued under section 148 was bad in law. Since the Assessing Officer failed to disclose the reasons recorded under section 148(2). As per the provi-
sions of Section 148(2) recording of reasons is obligatory, but the reasons so recorded need not be communicated to the assessee alongwith the notice under section 148(2). It is also not open to the assessee to straightaway call upon the Assessing Officer to disclose or communicate the reason to him as soon as he received a notice under section 148(2). He must first file his return or revise return as the case may be and if he raises a contention either that no reasons were recorded or that the reasons recorded were not relevant or germane, then the Assessing Officer has to communicate the reasons to him. So far as the material/information on the basis of which the assessment is reopened is concerned, there is no obligation upon the Assessing Officer to disclose all the material and information that might have been gathered by him. His obligation is to disclose such material/information as he wished to use against the assessee. This is principle of natural justice. In the case of S. Narayanappa v. CIT [1967] 63 ITR 219 (SC) and Ajantha Industries v. CBDT [1976] 102 ITR 281, it was held by the Apex Court that "the reasons for reopening the assessment though required to be recorded are not required to be communicated to the assessee". Similarly, Madras High Court in the case of Thanthi Trust v. ITO [l989] 177 ITR 307, held that "It cannot be claimed as of right that in every case where the notice under section 147 are challenged, the assessee would be entitled to know the reasoning". Therefore, the contention raised by the learned Counsel that the Assessing Officer failed to disclose the reasons recorded under section 148(2), therefore, the notice issued under section 148(2) is invalid is without any substance and the same is, therefore, not entertained.
18. Another contention raised by the learned Counsel is regarding the information available for reopening the assessment under section 147(b) of the Act. According to him, all the facts were before the Assessing Officer at the time of original assessment, which were duly verified before the assessment was made. He also contended that reopening of assessment was based on mere change of opinion. This contention of the learned Counsel is also without any substance. The assessee-company received capital grants from NDDB, Anand, amounting to Rs. 85,24,749 for its Jamnagar Project and Rs. 16,72,632 for procurement of agriculture equipment. This capital grant was not deducted from the cost/written . down value of the asset for the purpose of claiming depreciation as per the provisions of Section 43(1) of the Act. This information was received by the Assessing Officer from the Audit Parly, subsequent to the passing of the original order. This information was sufficient to resort to the provisions of Section 147 (b) of the Act. The Assessing Officer while framing the original assessment ignored the provisions of Section 43(1) and the depreciation on the cost/written down value of the assets was allowed without deducting the capital as grant received by the assessee for such capital assets. Thus, the Assessing Officer while passing the original order overlooked the legal provisions of Section 43(1) of the Act. These legal provisions were pointed out by the audit party to the Assessing Officer. Therefore, this was an information, which was received by the Assessing Officer subsequent to the passing of the original assessment order. Therefore, the same constituted an information for reopening the assessment under section 147(b) of the Act. The Hon'ble Supreme Court in the case of Maharaj Kumar Kamal Singh (supra) observed that the word "information" in Section 147(b) includes information as to true and correct state of law and would cover information as to the relevant judicial decision. Regarding the contention of the learned Counsel that Audit can only point out facts and not law, we would like to refer to the case of A.L.A. Firm v. CIT [1991] 189 ITR 285, wherein the Hon'ble Supreme Court has held that "The Assessing Officer's ignorance of law could also be "information". Similar view has been held by the Madras High Court in the case of G.R. Ramachari & Co. v. CIT [1961] 41 ITR 142. In the case of Peirce Leslie & Co. v. CIT, the Madras High Court held that "Audit note making ITO aware of the facts overlooked by him at the time of original assessment is 'information', for the purpose of Section 147(b) of the Act". Similar views have been held by the Madras High Court in the case of Smt. Indira Devi v. CIT [1994] 210 ITR 537, and also by the Kerala High Court in the case of G.T.N. Textiles Ltd. v. CIT [1990] 184 ITR 366.
19. The various cases relied upon by the learned Counsel are not relevant to the facts of this case. In the case of VXL India Ltd. (supra), the Hon'ble Gujarat High Court held that "the order did not say that the basis of valuation adopted in the assessment order was incorrect. It did not disclose any reasons as to why the Assessing Officer considered that taking into consideration the fluctuation of the exchange rate for the purpose of valuing cost of assets in the present case was erroneous. The necessary conditionfor issuing notice under section 148 read with Section 147 of the Act were not satisfied".
20. But, in the present case, the necessary conditions for issuing notice under section 148 read with Section 147 of the Act were fully satisfied. The Assessing Officer subsequent to the passing of his original assessment order received an information from the Audit party that the provisions of Section 43(1) of the Act in this case were applicable, but ignorantly these provisions have not been invoked. The provisions of Section 43(1) of the Act were overlooked by the Assessing Officer while passing the original order. Therefore, this was not mere change of opinion on the interpretation of a particular provision, but the Assessing Officer obviously missed to take note of the law laid down in the statute. Therefore, the Assessing Officer was having information in his possession and on the basis of that information, he formed a belief that a certain income has escaped assessment. His belief was based on the information received subsequent to the passing of original assessment order. Therefore, he was fully justified in resorting to the provisions of Section 147 (b) of the Act.
21. The facts of the case, Birla VXL Ltd. (supra) relied upon by the learned Counsel are also totally different from the facts of the present case. In the above case, essential requirement for initiating proceedings under section 148 of the Act was not satisfied. There was no sufficient material for holding the belief that income has escaped assessment. There was only a change of opinion that excessive loss or depreciation had been allowed. Therefore, the Hon'ble Court held that the necessary condition for issuing notice under section 148 read with Section 147 of the Act had not been satisfied. But in the present case, the Assessing Officer had certain information in his possession on the basis of which he formed a belief that certain income has escaped assessment. Therefore, the Assessing Officer was fully justified to issue the notice under section 148 read with Section 147(b) of the Act.
22. The facts of the case, Garden Silk Mills Ltd. (supra) relied upon by the learned Counsel of the assessec arc also different from the facts of the present case. In the above case, the Assessing Officer had applied his mind to the computation of income. There was nothing to indicate that the Assessing Officer in consequence of information in his possession had reason to believe that income had escaped assessment. Under these circumstances, the Hon'ble High Court held that reassessment proceedings were not valid. But in the present case the Assessing Officer did not apply his mind to the legal provisions of Section 43(1) of the Act. These provisions were overlooked by the Assessing Officer. In consequence of the information, which he received from the Audit party, the Assessing Officer had reason to believe that income had escaped assessment. As has been laid down in the case of A.L.A. Firm (supra), the Assessing Officer's ignorance of law could also be "information".
23. The learned Counsel also pointed out that the audit objection cannot be a good basis for reopening the assessment under section 147(b) of the Act. We fully agree with the learned Counsel that audit reports which point out mistake in law would not constitute information, since the auditors are not interpreters of law. This has been held by the Madras and Kerala High Courts in the case of M.A. Chidambaram v. CIT [1995] 216 ITR 175 (Mad.) and Bharat Plywood & Timber Products Ltd. v. CIT [1992] 198 ITR 692. But it has also been pointed out by the Hon'ble High Courts that if any omission in respect of any income is pointed out by the Audit party, it would be "information", satisfying the requirement of Section 147(b) of the Act. In the present case, the auditors have not interpreted the law, they have simply made aware of the facts, which were overlooked by the Assessing Officer at the time of original assessment.
24. The various cases of the Gujarat High Court relied upon by the learned Counsel have no application to the facts of the present case. In the case of Atul Products Ltd. (supra), it was found that the audit party has based its objection on its own interpretation of the provisions of the Income-tax Act and the C.B.D.T. Circulars and had not drawn attention to any authoritative source of law, namely, either to Legislature enactment or to an interpretation by a Court of a quasi-judicial Tribunal. On that basis, the Hon'ble High Court quashed the proceedings. But in the present case, the audit party had not interpreted the law, but had drawn the attention of the Assessing Officer to the authoritative source of law i.e. the provisions of Section 43(1) of the Act. Therefore, it was not interpretation of law, but the Assessing Officer was made aware of the law, which was already on the statute. In the case of Rajan Silk (supra) also the Gujarat High Court held that "the opinion of an internal audit party of the Income-tax Department on a point of law cannot be regarded as information within the meaning of Section 147 (b) of the Income-tax Act, 1961. For the purpose of reopening an assessment, since a statement by a person or body not competent to create or define law cannot be regarded as law". In the present case, as we have discussed above, the Audit Party has not expressed any opinion on the application of law. The Audit party only made aware of the fact, which was overlooked by the Assessing Officer while framing the original assessment. Hence the above case has no application to the facts of the present case.
25. In the case of Rajath Leasing & Finance Ltd. (supra) relied upon by the learned Counsel, the notice under section 148 had been issued on the basis of audit report and approval of the CIT without their having satisfaction and application of mind on the part of the ITO. We do not understand how the facts of this case are relevant to the facts of the present case. In the present case, a notice under section 148 has been issued only after full satisfaction of the Assessing Officer that the income has escaped assessment. There was information in the possession of the Assessing Officer which he received from the audit party. On the basis of that information, he formed a belief that income has escaped assessment. Thus, there was full application of mind and satisfaction on the part of the Assessing Officer before he issued notice under section 148 of the Act, in the present case.
26. In the case of Indian & Eastern Newspaper Society (supra), the Hon'ble Supreme Court has laid down that "while the law may be enacted or laid down only by a person or body with an authority in that behalf, the knowledge or awareness of the law may be communicated by any one. No authority is required for the purpose. That part alone of the note of an audit party, which mentions the law which escaped the notice of the ITO constitutes "information" within the meaning of Section 147(b), the part which embodies the opinion of the audit party in regard to the application for interpretation of the law cannot be taken into account by the ITO". So, in the above case, the Apex Court has also madeit absolutely clear that the Assessing Officer can resort to the provisions of Section 147(b) on receipt of the information from the audit party. Under the circumstances, discussed above, the various cases relied upon by the learned Counsel have no application with the facts of the present case.
27. In the case of Smt. Arundhati Balkrishna Trust (supra) relied upon by the learned Departmental Representative, the Hon'ble Gujarat High Court has held that the word 'information' in SC 17(1)(b) of the Wealth-tax Act, 1957, has the widest amplitude and comprehends variety of factors. "Information" may come from external sources or even from the materials already on the record. It may be consist of oversight or inadvertent mistake committed by the WTO or he may discover an error on the face of record from further enquiry or research into the facts of law. Similarly in the case of P.V.S. Beedies (P.) Ltd. (supra) relied upon by the Department, the Hon'ble Supreme Court has held that the reopening of the case on the basis of factual error pointed out by the internal audit party is permissible under the law.
28. In view of the detailed discussion above, the case of the assessee is fully covered with the various cases referred in the preceding paragraphs. The Assessing Officer was having information in his possession and this information came to its possession subsequent to the making of original assessment order. On the basis of information in his possession, he formed a belief that income has escaped assessment. Therefore, he correctly resorted to the provisions of Section 147(b) of the Act. Therefore, the contention of the learned Counsel that the order passed is illegal and bad in law is without any basis. In our opinion, the order passed is as per the provisions of law and the reopening of the assessment under section 147(6) is fully justified. The learned CIT (Appeals) has confirmed the findings of the Assessing Officer and we fully endorse his views. The order of the learned CIT (Appeals), therefore, does not require any interference from our side.
29. The next issue is regarding the disallowance of depreciation of Rs. 15,81,189 claimed on the cost of Plant and Machinery and various other assets purchased out of grant received from NDDB, Anand. It is contended by the learned Counsel that it had received the capital grant from NDDB for restructuring production, marketing of oil seeds and vegetable oil. According to the learned Counsel the grant was not given by NDDB towards the cost of acquisition of any specific asset. He also contended that the grant was received for implementation of Project as a whole. Therefore, according to him, there was no justification in reducing grant amount from actual cost of the assets purchased and thereby making reduction in the claim of depreciation made by the assessee. On the other hand, the learned Departmental Representative contended that grant was given towards the cost of various assets purchased. The learned C1T (Appeals) agreed with the finding of the Assessing Officer.
30. We have considered the submissions made by the rival parties and the material on record produced by the learned Counsel during the course of hearing. The actual cost as per the provisions of Section 43(1} of the Act means the cost minus the portion if any met by any person or authority. The cost should be normally meant cost minus subsidy received from the Government or any other authority. But Government subsidy need not be deducted from the cost in all cases and circumstances. The question whether the subsidy should be deducted from the cost under all circumstances was a subject-matter of judicial controversy for a long time. The issue was settled by the Apex Court in the case of CIT v. P.J. Chemicals Ltd. [1994] 210 ITR 830. It was held by the Hon'ble Supreme Court that "the question in the present context is not whether if a portion of the cost is met directly or indirectly by any other person or authority, it should be deducted or not ? Quite obviously, the plain meaning of the section is that it shall be. But the real question is as to the character and nature of subsidy whether it was really intended to subsidize the cost of the capital or was intended as an incentive to encourage enterprises to move to backward areas and establish an industry; the specified percentage 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. The contention is that it is not a payment directly or indirectly to meet any portion of the "actual cost" but intended as an incentive to entrepreneurs, its quantification determined as a percentage be of the fixed capital assets". Hence the deductibility of subsidy will depend on the character and nature of the subsidy i.e. whether it was intended to subsidize the cost of capital or it was intended to encourage entrepreneurs to move to backward areas etc. Thus, the subsidy received from the Central Government or State Government need not be deducted in all cases or circumstances specially when the same is granted to the entrepreneurs to move to the backward areas. In all other cases, the subsidy received for purchasing the assets has to be deducted for allowing the depreciation. In the case of Associated Stone Industries Kota Ltd. v. CIT [1995] 215 ITR 226 (Raj.), the Hon'ble High Court held that "the amount received under the subsidized housing scheme is a subsidy by the State Government to meet the cost of housing directly and the assessee is not entitled to get reduction for depreciation on that amount".
31. In the present case, the grant has been received from the National Dairy Development Board, which is neither the Central Government nor the State Government. The grant has also not been given for establishing the industry in the backward areas. This grant has been given to meet the cost of plant, machinery and other assets. Therefore, the same is deductible from the cost of plant, machinery and other assets before allowing depreciation as per the provisions of Section 43(1) of the Act. Now the only point remains for consideration whether the grant has been received for purchasing the capital asset or the same is for restructuring the production and marketing of oil seeds and vegetable oil. In this connection, the reference is made to the letter dated 10th October, 1984, written by NDDB to the Managing Director of Gujarat Coop. Oil Seeds, which reads as follows :--
"We hereby sanction by way of grant an amount of Rs. 116.40 lakhs for the issue of equipment, construction and/or the acquisition of building pertaining to the groundnut processing plant at Jamnagar. This would be a part of the financial assistance being provided to G.C.O.G.F. by N.D.D.S. (O.V.O.W.) for implementation of its oil seeds and vegetable oil project in the State of Gujarat. This will be supplied to the following conditions."
One of the conditions is that the assistance is to be utilized on the proposed Project and as for other details indicated in the table appended hereto. In the table, it has been clearly mentioned that the grant is for acquiring and/ or constructing building and construction of the seed houses. This clearly goes to prove that the grant was for acquiring capital assets. The condition Nos. 3 and 4 laid down in the above letter of NDDB reads as follows :--
"3. A certificate about installation/commissioning of the equipment as per bills in the appended table should be furnished by the Federation at the earliest.
4. If the aforesaid equipment, building as per appended table are not utilized in accordance with the agreed stipulation and condition or within the permitted time limit, this cost will be liable to be refunded to the NDDB (O.V.O.W.) in one instalment with interest @ 10.5 per cent compounded half yearly."
The above two conditions laid down by the NDDB make it abundantly clear that the entire grant was made for purchasing the plant, machinery and other capital assets.
32. We would now like to refer to the agreement dated 10th January, 1984, made between the assessee and the NDDB, which is placed at page 29 of the compilation filed by the learned Counsel during the course of hearing. The clauses 2 and 3 of this agreement reads as follows :--
"2. Subject to para (3), the grant amounts as indicated below will be disbursed to the Borrower alongwith the loan under the loan agreement in such a manner that out of every amount disbursed, 70 per cent will be the loan and 30 per cent will be the grant :
Item Cost Amount of grant 30% of cost Acquisition, renovation and expansion of Groundnut processing complex at Jamnagar.
Rs. 388.00 Lakhs 116.40 Lakhs
3. The Board may instead of giving the amount of grant by way of cash give specific machinery and/or equipment required for the project as grant. In such a case the actual cost of the plant and/or machinery will be considered towards grant for purpose of para 2 above. Such actual cost will be the amount as computed by the Board and may include direct or indirect expenses and interest charges borne by the Board. The amount of grant to be given will be reduced by the amount of the actual cost of the machinery and/or equipment so supplied to the Borrower and only the balance of the amount if any will be the grant payable by the Board in cash."
33. The above two clauses of the agreement fully support the view that the grant was for the purchase of plant and specific machinery and other capital assets. Hence the contention of the learned Counsel that the grant was not for the purchase of plant, machinery and other assets is without any substance and the same cannot be entertained in view of the specific evidence mentioned above.
34. The learned CIT (Appeals) has also discussed this issue in his order. He has also pointed out the various clauses of agreement, which fully supports the view that the grant was towards meeting the cost of the capital assets. In view of the detailed discussion above and the material on record, we are fully convinced that the grant was towards meeting the cost of capital asset and the Assessing Officer has rightly reduced the cost/ written down value of various assets, while granting depreciation. The views of the learned CIT (Appeals) are, therefore, fully endorsed by us and the disallowance is confirmed.
35. The next ground is regarding the charging of interest under section 139(8) of the Act.
36. During the course of hearing, the learned Counsel of the assessee pointed out that the return of income was filed within the extended period, which was allowed up to 16-8-1985. The learned Counsel also referred to the case of Manmohan D. Mehta (supra). The Assessing Officer is directed to verify the contention of the appellant and if the return is filed within the extended period, the interest charged should be treated as deleted.
37. The final ground of appeal is regarding charging of interest under section 215 of the Act.
38. According to the learned Counsel of the assessee no default in payment of advance tax was committed by the assessee. Only because of certain unexpected additions/disallowances of the claims were made, the assessee was required to pay taxes. The learned Counsel of the assessee relied upon the following court cases :--
(i) Gordhanbhai Jethabhai (supra)
(ii) ITO v. Maniklal Harilal Spg. & Mfg. Co. Ltd. [LT. Appeal No. 2491 (Ahd.) of 1985 dated 16-9-1987].
The learned Departmental Representative, however, fully relied on the orders of the authorities below.
39. We have considered the submissions made by both the parties. In the case of Modi Industries Ltd. v. CIT [1995] 216 ITR 759, it was held by the Apex Court that the expression "regular assessment" means and refers to the original assessment made under section 1437144. In view of the above Supreme Court decision, we find sufficient force in the arguments of learned Counsel that interest under section 215 has to be paid up to the date of the regular assessment only. This ground is, therefore, allowed.
40. During the course of hearing, the assessee also filed an additional ground vide its letter dated 23-2-2000. It is submitted by the assessee that the disallowance made by the Assessing Officer at Rs. 15,81,139 confirmed by the learned CIT (Appeals) should be reduced from Rs. 15,81,139 to Rs. 9,79,945, this ground has been taken up by the assessee without prejudice to the claim made in ground No. 3 discussed above.
41. After going through the facts of this case, we find that this ground was neither taken up before the Assessing Officer nor before the learned CIT (Appeals). Therefore, the question of admitting this appeal at this stage does not arise. This ground of appeal is, therefore, not admitted.
42. In the result, the assessee's appeal is partly allowed.