Income Tax Appellate Tribunal - Ahmedabad
Dcit, Circle-8, Ahmedabad vs Sakar Glazed Tiles Pvt.Ltd.,, ... on 29 May, 2017
आयकर अपील
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IN THE INCOME TAX APPELLATE TRIBUNAL
" SMC " BENCH, AHMEDABAD
सव ी एन.के. ब लैया, लेखा सद य एवं महावीर साद, या यक सद य के सम ।
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER And
SHRI MAHAVIR PRASAD, JUDICIAL MEMBER
आयकर अपील सं./ITA No.1588/Ahd/2013
&
Cross Objection No.199/Ahd/2013(in ITA No.1588/Ahd/2013)
( नधा रण वष / Assessment Year :2009-10)
DCIT, बनाम/ Sakar Glazed Tiles
Circle-8, Vs. Pvt. Ltd.
Ahmedabad 401, Shefali Centre,
Paldi Char rasta,
Ahmedabad.
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AADCS 3760 K
(अपीलाथ' /Appellant) .. ( (यथ' / Respondent
& Cross Objector)
Assessee by : Shri P.S. Choudhary, Sr. DR
Revenue by : Shri Sakar Sharma, AR
ु वाई क+ तार-ख /
सन Date of Hearing 10/03/2017
घोषणा क+ तार-ख /Date of Pronounce ment 29/05/2017
आदे श / O R D E R
PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER :
This appeal has been filed by the Department and the Cross- objection thereof filed by the assessee are directed against the order of the Commissioner of Income Tax(Appeals)-XIV, Ahmedabad, dated ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10 -2- 22/03/2013 for the Assessment Year (AY) 2009-10. Department has taken following grounds of appeal:
1a). The learned Commissioner of Income-tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.2,25,000/- being depreciation on Capital subsidy of Rs.15,00,000/- considered by the Assessing Officer.
1b). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts to hold that the Capital subsidy received by Assessee wasn't granted to meet the cost of Plant & Machinery.
1c). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts to ignore the fact that the same subsidy was granted for the specific purpose of technology up-gradation & was calculated w.r.t. the purchase price of Plant & Machinery.
2a). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.32,73,544/- made on account of transport payments, by invoking provisions of Section 40A(3) of the Act, read with Rule. 6DD(g).
2b). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts to ignore the fact that the payments were made throughout the year not to individual truck Drivers but who were having Banking facilities & hence not covered under exception in Rule 6DD(g) of Income-Tax Rules.
3). On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer.ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013)
DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10 -3-
2. The relevant facts as culled out from the materials on record are as under:-
In this case from the Balance Sheet of the assessee, it was noticed that the assessee was in receipt of Rs.15,00,000/- as capital subsidy during the year. Accordingly, the A.R. of the assessee vide questionnaire dated 04/08/2011 was asked to furnish the details of capital subsidy of Rs.15,00,000/- and its impact on the assets side of the Balance Sheet along with necessary evidences. The assessee filed a reply on 22/08/2011 which is reproduced below:
"Your honour has asked to furnish evidence regarding capital subsidy during the year and its treatment in the books of accounts. In this regards, it is submitted that Capital subsidy is received under Credit Linked Capital Subsidy Scheme (CLCSS) amounting to Rs. 15,00,000/- which has been carried directly to the Balance Sheet under the head 'Reserve & Surplus' treating it to be a capital receipt based on appreciation of Govt. Policy. A Xerox copy of the same is being enclosed and further stated on identical facts ITAT- Vishakhapatnam in the case of Sasisri Extractions Ltd. Vs. CIT122 ITD 428 (VSK) hence held that subsidy of this nature would fall in the category of capital receipt."
3. Further stated that assessee received capital subsidy of Rs. 15,00,000/- under CLCSS through disbursing agency and salient features of scheme as available with the assessee were as under:
"CLCSS:
The Ministry of Micro & Small Enterprises is operating a scheme for technology up gradation of MSE units, called the Credit Linked Capital Subsidy Scheme.ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013)
DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10 -4- Objective: The objective of the scheme is to facilitate technology up gradation of micro and small enterprises in the 45 specified products / sub-sectors by providing capital subsidy for induction of proven technologies approved under the scheme.
Duration of the Scheme: Initially, the scheme was to be in operation for 5 years (Oct 1, 2000 to Sept 30, 2005) or till the time sanctions of capital subsidy by the nodal agency reach Rs.600 crore (whichever earlier). It provided for 12% capital subsidy, on institutional finance availed of by MSE unit. Further, the eligible amount of subsidy calculated was based on actual loan amount not exceeding Rs.40 lakh.
Modifications: The scheme was modified w.e.f. Sept 29, 2005 as under:
(a) The ceiling on loans has been raised from Rs. 40 lakh to Rs. 1 crore;
(b) The rate of subsidy has been enhanced from 12 per cent to15 per cent;
(c) The admissible capital subsidy is to be calculated with reference to the purchase price of plant and machinery, instead of term loan disbursed to the unit;
(d) The practice of categorization of SSI units in different slabs on the basis of their present investment, for determining the eligible subsidy, done away with.
(e) The operation of the Scheme has been extended subsequently for period (As per RBI Master Cir dated July 01, 2010, Govt. of India, of Micro, Small and Medium Enterprises has conveyed approval for continuation of the scheme from X Plan to XI Plan (2007-12) Eligible units:
a) Existing MSE units registered with the State Directorate of Industries which upgrade with the state-of-the-art technology, with or without expansion.
b) New MSE units which are registered with the State Directorate of Industries and which set up their facilities only with the appropriate eligible am proven technology duly approved by the Governing and Technology approval Board (GTAB).ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013)
DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10 -5- Amount of subsidy: 15% of the cost of eligible Plant & machinery or Rs.15 lakh whichever is less.
Ceiling on the Loan amount: Rs. 100 lakh Nodal agencies: SIDBI and NABARD Act as the Nodal Agencies for the implementation of this scheme. In February 2006, the Governing and Technology Approval Board (GTAB) of the Credit Linked Capital Subsidy Scheme (CLCSS) included nine Public Sector Banks/Government Agencies as nodal banks/agencies for implementation and release of capital subsidy under the CLCSS:
Eligible Primary Lending Institutions (PLI) : All Scheduled Commercial Bank, Scheduled Cooperative Banks [including the urban cooperative banks co-opted by the SIDBI under the Technological Up gradation Fund Scheme(TUFS) of the Ministry of Textiles], Regional Rural Banks (RRBs), State Financial Corporation's (SFCs) and North Eastern Development Financial Institution (NEDFI) are eligible as PLI under this scheme after they execute a General Agreement (GA) with any of the nodal agencies, i.e., the Small Industries Development Bank of India (SIDBI) and National Bank for Agriculture and Rural Development (NABARD).
Other conditions for loans
i) Promoters contribution, security, debt-equity ratio, up-front fee, etc. will be determined by the lending agency as per its existing norms.
ii) Units availing subsidy under the CLCSS shall not avail any other subsidy for technology up gradation from the Central/State/UT Government. However, cases covered under National Equity Fund (NEF) Scheme, which are otherwise eligible under the CLCSS, can also be covered under this scheme.
iii). Units in the North-Eastern Region which are availing financial incentives/subsidy under any other scheme from the Government in the Region would, however, be eligible for subsidy under the CLCSS.ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013)
DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10 -6-
iv). One of the main requirements for sanction of assistance under the technology upgradation scheme will be availability of competent management in the unit concerned to carry out the upgradation programme and to manage the operation of the unit efficiently. Towards this end, the lending agencies may stipulate conditions as may be considered necessary.
Under the above referred scheme your assessee received capital subsidy of Rs. 15 Lacs which was the maximum permissible amount from the Govt. through disbursing agency SBI. Copy of approval cum disbursement letter is enclosed herewith for ready reference.
Your assessee has considered this amount of Rs.15 lacs as capital receipt in the books and therefore, this amount has not been routed through profit and loss account and has been directly credited to the Reserve and Surplus account. Your assessee for this purpose relied upon the decision of ITAT
-- Vishakhapatnam in the case of Sasisri Extractions Ltd VS CIT 122 ITD 428(VSK) and ITAT-Ahmedabad Bench A in the case of Gujarat Water Resources Development Ltd vs. JCIT in ITA No 167-168/A/2004 vide order dated 16/10/2009 wherein identical receipts have been held to be in the nature of capital receipts and hence this amount is not eligible for taxation."
From the perusal of the above reply of the assessee, it is evident that the subsidy was given to the assessee against the plant & machinery as the admissible capital subsidy was calculated with reference to purchase price of Plat & Machinery instead of the term loan disbursed to the unit. Since, the subsidy was received against the plant & machinery, the value of plant and machinery had to be reduced to that extent. During the discussion, the A.R. of the assessee was told as to why depreciation to the extent of Rs.15,00,000/- claimed against plant & machinery should not be disallowed. On this specific question also, the A.R. of the assessee did not furnish any reply. It is relevant here to reproduce the explanation 10 to section 43 of the IT. Act.
"Explanation 10:- Where a portion of the cost of an asset acquired by the assessee has been directly or indirectly by the Central Government or a State Government or any authority ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10 -7- 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 for 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."
Since the subsidy against the principal amount of loan taken against the plant and machinery, had resulted into reduction of WDV of the assets (Plant & Machinery against which the loan was utilized), the depreciation pertaining to corresponding assets acquired from such loan and claimed as expenditure during the year was to be reduced to that extent. Accordingly, the depreciation @ 15% 7 on plant & machinery amounting to Rs.15,00,000/- (against which subsidy received) which comes to Rs.2,25,000/- is disallowed and added to the total income of the assessee Hence, the assessee is not eligible for depreciation amounting to Rs.2,25,000/- claimed against plant & machinery against which capital subsidy was received. Thus, depreciation of Rs.2,25,000/- is disallowed and added to the total income of the assessee. Penalty u/s. 271(1) (c) of the IT. Act is being initiated separately.
Disallowance u/s.40A(3) From the perusal of the tax audit report filed by the assessee, it was noticed that the auditor had given his remark in Para 17(h)(B) as under:
Amount admissible Rs. NIL in view of exception provided in Rule u/s. 40A(3) r.w.r. 6DD (g) by which the assessee considers itself 6DD with breakup of to be covered and therefore, according to the ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10 -8- inadmissible amounts assessee no disallowance u/s. 40A (3) is need to be made. However, details of payments made in excess of Rs.20,000/- per day per person/party noticed by us in the course of audit are being reported by way of Annexure 4 of this report totaling Rs.32,73,544/-.
It is relevant here to reproduce auditor's remark given below the above mentioned Annexure 4 as Note 1 and 2.
"Note 1: The above payments do not include vehicle expenses reimbursed to the staffs and employees for filing petrol/diesel in company's vehicles at the end of the each month. Amount paid does not exceed Rs.20,000/- per day per employee of the assessee Co.
Note 2: According to the assessee no disallowance u/s.40A (3) is requires to be made in view of exception provided in Rule 6DD
(g). According to the assessee there are no banking facilities available at Village Rajpura where units of the assessee are located and where goods is delivered by the transporters and who refused to accept cheques towards transportation cost against delivery of goods carried by them."
In view of the above remarks of the Auditors, the A.R. of the assessee was asked to furnish explanation as to why such payments made in cash contrary to the provisions of section 40A(3) of the IT. Act, should not be disallowed due to following reasons:
(i) The above remarks of the auditor are not specific.
(ii) The Auditor has not qualified in his report that the conditions mentioned in rule 6DD (g) is applicable to the case of the assessee.
(ii) The responsibility for qualification of eligibility of rules 6DD (g) in the case of the assessee was shifted to the assessee company as stated by the auditors in his report. In the Note 1 and Note 2 above also, the auditors had shown entire responsibility on the assessee. When an Auditor had given a very comprehensive ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10 -9- report on each and every point of audit, it is surprising to note that the auditor had given an escaping remark on the point of verification of cash payment above Rs.20,000. In view of the above remarks of the auditors, the circumstances mentioned in the report with regard to rule 6DD (g) is not at all found justified.
Thus, the assessee has violated the provisions of section 40A (3) of the IT. Act and not fulfilled the eligibility conditions mentioned in rule 6DD (g) of the IT. Rules. The provisions of section 40A(3)and Rule 6DD (g) are reproduced below:
"40A Expenses or payments not deductible in certain circumstances (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. "
Rule 6DD (g) Where the payment is made in a village or a town, which on the date of such payment is not served by any bank, to any person who ordinarily reside, or is carrying on any business, profession or vocation, in any such village or town"
Accordingly, the A.R. of the assessee was asked vide order sheet entry dated 16/11/2011 to submit the evidences for eligibility of benefit of rule 6DD (g) as mentioned in the auditors' remarks. In response, the assessee filed reply dated 21/11/2011 which is reproduced below.
"Rule 6 DP (a) for Rs. 3273544 Your honour has sought information as to under which conditions a benefit of Rule 6 DD (g) as qualified by Tax Auditor in Tax audit reports in para 17(B)for Rs.32,73,554/. In this regard it is submitted that your assessee company has made cash payment to the truck drivers of the transport company who were transporting raw materials from Rajasthan & other ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10
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state to the assessee's factories in village - Rajpura of district Gandhinagar insisted on payment in cash and there are no banking facilities available at village Rajpura where units of the assessee are located and where goods is delivered by the transporters and who refused to accept cheques towards transportation cost against delivery of goods carried by them.
Enclosed herewith a Xerox copy of Certificate obtained from Village -Rajpura Talati that there are no banking facilities is available at village -- Rajpura for your honour kind verifications.
In view of exception provided in Rule 6DD (g) by which your assessee company to be covered and therefore, no disallowance u/s. 40A (3) is need to be made."
The above reply of the assessee along with the certificate obtained from Village -Rajpura Talati has been perused but it cannot be accepted as valid evidence for the benefit of rule 6DD (g). It is not certified by the assessee as to whether the payment was made to persons who ordinarily resided or had been carrying out any business or profession or vocation in village Rajapura. Further, the details annexed with the Auditors' Report as Annexure 4 clearly indicate that the payment was not made to any individual person, who had no bank account just because of the fact that in that village there was no banking facility. All the payments were made to various Transport Companies and all these payments were of recurring nature, therefore, the assessee could not prove the onus on its part that these transport companies do not have any bank account and they forced/compelled the assessee to make the payment in cash only and the assessee in business expediency had to make the payment in cash. No proof with regard to the fact that the transport companies mentioned in Annexure 4 are owned by individual who resides in the said village and who do not have any bank account anywhere and who were not accepting payment from the assessee otherwise than in cash.
In view of the above, the assessee had not furnished evidence with regard to fulfillment of conditions in Rule 6DD (g) read with section 40 A (3) of the IT Act, the entire amount of Rs.32,73,544/- is ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10
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disallowed u/s. 40A (3) of the Act and added to the total income of the assessee.
Disallowance of Professional Tax - Rs.3,900/-
During the course of scrutiny, the assessee was asked to furnish the details of professional tax. In response, the assessee filed a reply dated 08/11/2011 in which it is noticed that the payment was not made within the due date of filing of return of income u/s. 139(1) of the Act. It was paid on 09/10/2010 whereas the date of filing of return u/s. 139(1) was 30/09/2009. Therefore, the payment of professional tax of Rs.3,900/- is disallowed u/s. 43B of the IT Act and added back to the total income of the assessee.
Disallowance of Capital expenditure of electricity connection-Rs.63,750/-
From perusal of the details filed by the assessee, it was noticed that the assessee debited a sum of Rs.63,750/- as electricity expenses in Profit & Loss Account. The assessee was asked to furnish the copy of ledger and the bills for payment of electricity expense. In response, vide letter dated 08/11/2011, the assessee filed copy of the bill 07/10/2008 which was issued by Uttar Gujarat VIJ Co. Ltd. In the Bill, it was clearly mentioned that it was a contribution towards cost of capital assets. Thus, it is a capital expenditure which was to be capitalized with the plant & machinery, but the assessee had debited it in the P & L A/c. During the discussion, the A.R. of the assessee failed to offer any explanation on this issue. In view of the above, Rs.63,750/- is treated as capital expenditure and is disallowed. However, depreciation @ 7.5% which comes to Rs.4,781/- is allowed to the assessee on capitalization of above expenditure towards plant & Machinery. Thus, net disallowance of Rs.58,969/- is added to the total income of the assessee treating the same as capital expenditure.
Proof of interest on TDS payment.
From the details available on records, it was noticed that the assessee had shown TDS payable of Rs.1,44,313/- as on 31/03/2009. The assessee was asked to furnish the details of deposit of TDS. In response, the assessee filed copy of challan dated 30/09/2009 which shows that the total payment of TDS was Rs. 1,39,657/- as against ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10
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actual TDS payable of Rs.1,44,313/-. Thus, TDS in respect of interest payment amounting to Rs.4,656/- was not paid by the assessee upto the date of filing of return. Thus, the assessee failed to pay the TDS of Rs.4,656/- and is not eligible for claim of interest payment of proportionate amount u/s. 40(a) (ia) of the Act. During the discussion, the A.R. of the assessee agreed for the proportionate disallowance of interest u/s. 40(a) (ia) of the Act for the above default of TDS of Rs.4,656/-. In view of the above, the proportionate amount of interest payment of Rs.41,094/- is disallowed u/s. 40(a) (ia) and added to the total income of the assessee.
Allowability of claim of unabsorbed depreciation loss The assessee was also asked to furnish proof of claim of unabsorbed depreciation to be set off against the income. The assessee filed a statement of the auditors as under:
Unabsorbed depreciation to be carried forward and available for set off in A.Y. 2009-10:
A.Y. 2002-03 Rs. 17,93,015/-
A.Y. 2003-04 Rs. 29,47,847/-
The assessee was asked to furnish the copy of return and the evidences in support of claim of depreciation. In response, the assessee filed acknowledgement copy of return for A.Y. 2002-03 which shows that the assessee was eligible for depreciation loss of Rs.5,97,291/- for that asst. year only instead of claim of Rs. 17,93,015/-. However, the claim of depreciation with regard to assessment year 2003-04 at Rs.29,47,847/- is found in accordance with the Auditors report. Accordingly, set off of unabsorbed depreciation of assessment year 2002-03 and 2003-04 is given on the basis of above verification only and not statement given by the auditors as stated above."
4. Against the said order assessee preferred first statutory appeal before the learned CIT(A). In this case, learned CIT(A) allowed the appeal of the assessee.ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013)
DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10
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5. Now Department is before us.
6. We have gone through the relevant record and impugned order. In this case, learned AR stated that appellant submitted a copy of the Vishakhapatnam Bench in the case of Sasisri Extractions Ltd. vs. CIT 122 ITD 428 (VSK) to support its contention that the subsidy so received would fall in the category of capital receipt is liable for the reduction from the cost of plant and machinery even after insertion of Explanation 10 to Section 43 of the Act. The operative part of the decision of the Tribunal is reproduced here below:
"This appeal, filed at the instance of the assessee-company, is directed against the order dated November 13, 2006, passed by the Commissioner of Income-tax (Appeals), Guntur, and it pertains to the assessment year 2003-04. Addition of Rs.3,24,166 made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) by applying the provisions of section 43(1) of the Income-tax Act, 1961, is the subject matter of dispute before the Tribunal.
The facts of the case, in brief, are as follows. The assessee is engaged in the business of manufacturing/processing of edible oils. During the previous year relevant to the assessment year under consideration the assessee received an amount of Rs.20,00,000/- as investment subsidy under a scheme floated by the Andhra Pradesh State Government known as "Target 2000". The assessee has not declared the receipt as income of the year under consideration. During the course of assessment proceedings it was contended that the subsidy was given to the unit because of the fact that it has established an eligible industrial unit in the notified area and thus the receipt was capital in nature and not taxable. The Assessing Officer called upon the assessee to clarify as to why the subsidy received should not be reduced from the cost of the ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10
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assets so that the assessee would get lesser depreciation than what was claimed in the return. The case of the assessee was that the subsidy was not given to acquire any asset either directly or indirectly and thus it need not be considered for calculation of depreciation. He further contended that subsidy was calculated based on the investment made by the assessee for establishing the unit and there is no embargo on the utilization of the subsidy in which event it cannot be said that the subsidy was directly relatable to the cost of the assets.
The Assessing Officer was, however, of the opinion that G. O. Ms. Nos. 117 and 108, dated March 17, 1993 and May20, 1996, respectively, issued by the Andhra Pradesh State Government provides subsidy calculated at 20 per cent, of the fixed capital investment and thus it was clearly linked to the fixed capital cost of the assessee. Therefore, it is nothing but reimbursement of part of the capital investment in which event, it affects the actual cost of the fixed assets on which the eligible depreciation was claimed under section 32 of the Act. The Assessing Officer thereupon considered the provisions of section 43(1) of the Act and Explanation 10 thereto (inserted with effect from April 1,1999) to conclude that an investment subsidy calculated at a percentage of the fixed capital investment has to necessarily be reduced from the cost of the assets for the purpose of granting depreciation on such assets. It may be noticed that the assessee relied upon the following decisions in support of his contention that the impugned subsidy is not directly or indirectly connected to the assets and in the absence of clear mention that the subsidy was given to meet a portion of the cost of the asset, the same need not be considered for inclusion of actual cost of the assets.
CIT v. Godavari Plywoods Ltd. [1987] 168 ITR 632 (AP); and CIT v. P.J. Chemicals Ltd. [1994] 210ITR 830 (SC). The learned Assessing Officer was of the view that the case-laws cited by the assessee are distinguishable on facts inasmuch as the said decisions were rendered prior to the insertion of Explanation 10 to section 43(1) of the Act. In other words, the Explanation makes it clear that any amount met directly or indirectly by the Government in the form of a subsidy, then, so much of the cost as is relatable to the subsidy, shall not be included in the actual cost of the asset. He further noticed that the amount received in the form of subsidy was paid to the ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10
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banker for repayment of term loan taken by the company on the purchase of the capital assets which makes it further clear that the subsidy given by the Government was used to offset the capital costs and thus the same has to be reduced from the cost of the fixed assets. He accordingly apportioned the subsidy amount against the opening WDV of the assets of the assessee and calculated the eligible depreciation.
Aggrieved, it was contended before the Commissioner of Income-tax (Appeals) that the incentive scheme which was considered by the Andhra Pradesh High Court in the decision cited supra and the "Target 2000" scheme are identical and meant for the purpose of encouraging the entrepreneurs to establish new industry. In both the schemes the amount of subsidy was linked to fixed capital costs for determination of the amount of subsidy without any direction as to how the subsidy amount has to be utilized. It was further contended that the decision of the apex court in the case of P.J. Chemicals Ltd. [1994] 210 ITR 830 and the decision of the Andhra Pradesh High Court in Godavari Plywoods Ltd. [1987] 168 1TR 632 are applicable mutatis mutandis to the facts of the instant case.
The learned Commissioner of Income-tax (Appeals) was, however, of the opinion that Explanation 10 to section 43(1) inserted with effect from April 1, 1999, enlarges the scope of the expression "actual cost".
Though in the present case the subsidy is not given directly to meet the cost of the asset, indirect motive of the State Government in giving subsidy was to bring down the cost of the investment of the assesses and therefore it can be said that the State Government has met the cost indirectly. He accordingly affirmed the action of the Assessing Officer. Further aggrieved, the assessee is in appeal before us.
Learned counsel appearing on behalf of the assessee filed a paper book containing sixty pages and by adverting our attention to pages 12, 18, 35, 46 and 47 of the paper book it was submitted that the scheme under which subsidy was granted to the assessee does not indicate that it was specifically meant to offset the cost of the capital assets purchased by the assessee. On the other hand, the scheme under which the assessee was granted subsidy and the schemes which were considered by the ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10
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Supreme Court as well as the Andhra Pradesh High Court in the cases cited supra were identical and the main purpose under both the schemes was to give a fillip to the entrepreneurs who establish new industrial units in eligible notified areas and for the purpose of working out the amount of subsidy to be given fixed capital investment was considered, but the fact remains that there is an outer ceiling of Rs.20,00,000/- irrespective of the capital investment which only goes to show that the subsidy was not meant to offset the cost of the assets. He has adverted our attention to pages 35 to 37 of the paper book, i.e., abstract of the "Target 2000" industrial policy.
Learned counsel adverted our attention to Explanation 10 to section 43(1) to submit that there is no material difference in the language of Explanation 10 section 43(1) of the Act and also the language used in section 43(1). Both define actual cost stating that a portion of the cost met directly or indirectly by any authority has to be reduced from the cost of the asset. Explanation 10 to section 43(1) of the Act does not materially differ from the language used in section 43(1) but merely clarifies that the cost met by the authority in the form of subsidy or grant or reimbursement (by whatever name called) has to be reduced from the cost of the asset. Thus Explanation 10 to section 43(1) as well as the main provision of section 43(1) is couched in an identical manner stressing upon the fact that only the cost which is "met directly or indirectly" has to be reduced from the cost of the asset. Section 43(1) of the Act was the subject-matter of consideration by the apex court in the case of P. J. Chemicals Ltd. [1994] 210ITR 830, wherein their Lordships observed at page 839 of the report as under:
"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 a subsidy whether it was really intended to subsidise the cost of the capital or was intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, 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 ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10
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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 at a percentage of the fixed capital cost."
At page 841 of the report, their Lordships further observed as under:
"The Government subsidy, it is not unreasonable to say, is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to a percentage of such cost. If that be so, it does not partake of the character of a payment intended either directly or indirectly to meet the 'actual cost'."
Learned counsel, therefore, submitted that even after introduction of Explanation 10 to section 43(1) of the Act there is no change in the basic concept and the first test to be satisfied is that portion of the cost of the asset should be met either directly or indirectly by an authority either in the form of a subsidy or otherwise. So long as the subsidy was intended to encourage entrepreneurs to establish industries, the mere fact that a specified percentage of the fixed capital cost was taken as the basis for determining the subsidy should not be mistaken as a payment intended to subsidise the cost of capital of the new industry. He thus strongly relied upon the afore- cited decisions.
On the other hand, the learned Departmental representative relied upon the orders of the tax authorities and submitted that "Target 2000"
scheme is a different concept from the schemes considered by the apex court in the case of P.J. Chemicals Ltd. [1994] 210 ITR 830 and the Andhra Pradesh High Court in the case of Godavari Plywoods Ltd. [1987] 168 ITR 632. In the afore-cited decisions, the intention of the Government was to induce the entrepreneurs to move to backward areas, whereas in the instant case, "Target 2000" scheme is merely to accelerate industrial development of the State and all the districts in the State have been categorized as eligible are Rs. Further, the utilization of the subsidy amount for the purpose of repayment of term loan is also a pointer in support of the contention of the Revenue that the subsidy amount has helped in reduction of the cost of the assets. He thus ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10
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submitted that the decisions cited supra are not applicable to the facts of the case.
We have carefully considered the rival submissions and perused the record. In our considered opinion, even after insertion of Explanation 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 Lordships 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 subsidy received merely to accelerate the industrial development of the State cannot be considered as payments made specifically to meet a portion of the cost of the assets.
A careful perusal of "Target 2000" scheme shows that the scheme was intended to accelerate industrial 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 specifically 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.
In the result, the appeal filed by the assessee is allowed."
7. In our considered opinion, this case is covered by the aforesaid judgment. Therefore, this Ground of the Department is dismissed. So far as disallowance of Rs.32,73,544/- was made on account of transport ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10
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payments, by invoking provisions of Section 40A(3) of the Act, read with Rule. 6DD(g) are concerned.
8. Learned AR filed relevant portion of the judgment of Jurisdictional High Court [2014] 366 ITR 122 (Gujarat), in the case of Anupam Tele Services vs. ITO:
"Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limits (Rule 6DD(j)) -Assessment year 2006-07 - Assessee was working as an agent of Tata Tele Services Limited for distributing mobile cards and recharge vouchers - Principal company Tata insisted that cheque payment from assessee's co-operative bank would not do, since realization took longer time and such payments should be made only in cash in their bank account - If assessee would not make cash payment and make cheque payments alone, it would have received recharge vouchers delayed by 4/5 days which would severely affect its business operation - Assessee, therefore, made cash payment - Whether in view of above, no disallowance under section 40A(3) was to be made in respect of payment made to principal - Held, yes [Paras 21 to 23] [In favour of assessee]"
9. Respectfully, following the above said judgment, we dismiss the Ground of the Department with regard to disallowance of Rs.32,73,544/- made on account of Transport payments. Therefore, appeal filed by the Department is dismissed.
ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013)DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10
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Assessee's Cross Objection in CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013) for the A.Y.2009-10:
10. Assessee has taken following objections:
i. The learned CIT(A) erred both on facts and in law in upholding the action of the Assessing Officer in making disallowance of Rs.41,094/- u/s. 40(a)(ia) of the Act for short payment of TDS.
ii. The learned CIT(A) erred both on facts and in law in upholding the action of the Assessing Officer in restricting carry forward of unabsorbed depreciation to Rs.5,97,291/- against eligible amount of Rs.17,93,015/- pertaining to A.Y.2002-03.
11. In support of its contention, assessee has filed Annexure 7 of Tax Audit Report: Statement given details of available unabsorbed business loss & depreciation for setoff against Income before setoff for A.Y. 2009-10 based on re-Income filed by the assessee and submitted for the purpose of tax audit u/s. 44AB of the Act.
12. The details of the said facts has given in Page No.10 at Para10 of the AO and learned CIT(A) has given in Page No. 26 at Para 5.3.
13. Looking to the facts and circumstances of the case, we remit the issue raised in the CO by the assessee back to the file of the AO for verification at his end. The AO will provide reasonable opportunity of being heard to the assessee. The assessee is hereby directed to co-operate with the AO and furnish the details well in time before the AO.
ITA No.1588/Ahd/2013 & CO No.199/Ahd/2013 (in ITA No.1588/Ahd/2013)DCIT vs. Sakar Glazed Tiles Pvt. Ltd.
Asst.Year -2009-10
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Accordingly, the Cross Objection filed by the assessee is allowed for statistical purposes.
14. In the result, appeal of the revenue in ITA No.1588/Ahd/2013 is dismissed and Cross Objection 199/Ahd/2013 (in ITA No.1588/Ahd/2013) is allowed for statistical purpose.
This Order pronounced in Open Court on 29/05/2017
Sd/- Sd/-
एन.के. ब लैया महावीर साद
(लेखा सद य) ( या यक सद य)
( N.K. BILLAIYA ) ( MAHAVIR PRASAD )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 29/05/2017
Priti Yadav, sr. PS
आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to :
1. अपीलाथ' / The Appellant
2. (यथ' / The Respondent.
3. संबं5धत आयकर आयु7त / Concerned CIT
4. आयकर आयु7त(अपील) / The CIT(A)-XIV, Ahmedabad.
5. 8वभागीय त न5ध, आयकर अपील-य अ5धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स(या8पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad True Copy