Income Tax Appellate Tribunal - Kolkata
Dcit, Cc-Xi, Kolkata, Kolkata vs M/S Himalaya Granites Pvt. Ltd., ... on 26 April, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "C", BENCH KOLKATA
BEFORE SHRI N.V.VASUDEVAN, JM & DR. A.L.SAINI, AM
ITA No.1280, 1281 & 1283/Kol/2014
( नधा रण वष / Assessment Years :2002-03, 2003-04 & 2006-07)
DCIT, CC-XI, Room Vs. M/s Himalaya Granites Pvt.
rd
No.311,3 Fl. Aayakar Ltd. 16A, Shakespeare Sarani,
Bhawan Poorva, 110- Kolkata-700071
Shantipally, Kolkata-
700107
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACH 5121 L
(अपीलाथ /Appellant) .. ( यथ / Respondent)
राज व क ओर से /Revenue by : Shri Rajat Kumar Kureel, JCIT(DR)
नधा रती क ओर से /Assessee by : A.K. Tulsyan, AR
सन
ु वाई क तार ख / Date of Hearing : 06/04/2017
घोषणा क तार ख/Date of Pronouncement 26/04/2017
आदे श / O R D E R
Per Dr. Arjun Lal Saini, AM:
These three captioned appeals filed by the Revenue, pertaining to Assessment Years 2002-03, 2003-04 and 2006-07, are directed against orders passed by the ld. Commissioner of Income Tax (Appeals) Central- III, Kolkata, in appeal No.167 & 168 & 166/CC-II/CIT(A) C-III/2008-09/ Kolkata, dated 31.03.2014, 07.04.2014 & 07.04.2014, which in turn arise out of assessment orders passed by the Assessing Officer u/s.147/263/143(3) of the Income Tax Act 1961, (hereinafter referred to as the 'Act'), all dated 31.12.2008.
2. These appeals relate to same assessee, pertaining to different assessment years and common issues involved therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. Appeal of Revenue in ITA No. 1281/K/2014 is taken as a lead case. 2 ITA No.1280/1281/1283/Kol/2014 M/s Himalaya Granites Pvt. Ltd.
3. The facts of the case is that the assessee company is engaged in the business of manufacturing of granite monuments, mining of granite blocks and processing of dimensional granite blocks. The Company also does export of goods and claims deductions under section 80HHC. The company have fixed assets, by name, Quarry Land & Development and claims depreciation thereon. The Assessing disallowed the depreciation on Quarry Land & Development based on the comment given by the Tax Auditor in Tax audit Report. The Tax Auditor stated that creation of block of assets is not in conformity with the provisions of section 2(11) on the Income Tax Act, 1961 therefore, the depreciation allowable to the company is not in accordance with Section 32 of the Act and based on these comments the Assessing Officer held that assessee company is not entitled to claim the depreciation on Quarry and Land Development. The Assessing Officer also disallowed the claim of the assessee under section 80HHC stating that different High Courts have given different views on the same issue and the law is not settled on the issue.
4. Not being satisfied with the order of the Assessing Officer, the assessee filed appeal before the ld. CIT(Appeals), who has deleted the addition made by the Assessing Officer. In respect of the addition made by the Assessing officer on account of deduction under section 80HHC, the ld. CIT(Appeals) held that the Explanation (baa) to section 80HHC implicitly implies "Net of interest", therefore he directed the Assessing Officer to take the "net of interest" to compute the deduction under section 80HHC. The ld. CIT(Appeals) observed that if borrowed money is 3 ITA No.1280/1281/1283/Kol/2014 M/s Himalaya Granites Pvt. Ltd.
utilized for making advances on which interest is received, then interest paid on such borrowing should be reduced from interest received and from the resultant amount, being net interest, 90% is to be reduced as per Explanation (baa) to section 80HHC(4B) for working out deduction. The Explanation (baa) provides for reduction of 90% of receipt by way of interest included in such interest, therefore, one has to consider only such receipt by way of interest, which is included in profit. If the contention of the revenue that 90% of gross receipt was to be considered ignoring 'interest payment', was accepted, the words 'included in such profit' would be redundant. Moreover, if profit was computed as pleaded by the Revenue, it would give a distorted feature of export profit. Therefore, only 'net interest' can be disallowed and not 'gross interest'. Based on this, the ld. CIT(Appeals) directed the Assessing Officer to take into account the 'net interest'.
5. Regarding claim for depreciation under section 32 on Quarry Land & Development, the ld. CIT(Appeals) observed that as per books of account the asessee has been maintaining for the depreciation in the accounting manner of Group depreciation method/declining balance method. Considering the nature of the business, this would have been the appropriate accounting method to provide for the depreciation in the books of account. But for income-tax purposes, for computing the depreciation allowance, the different class of assets comprised in the Project, i.e. Quarries, has to be rearranged as per the Block of Assets and the appropriate depreciation rate allowable as per the depreciation table 4 ITA No.1280/1281/1283/Kol/2014 M/s Himalaya Granites Pvt. Ltd.
in the Income Tax Rules. The ld. CIT(Appeals) observed that the depreciation upon grouping the respective assets under the respective block of asset and compared with original claim in income tax return, the assessee has rearranged under the appropriate block of asset for all the five Quarries (at Sendur, Titlagarh, Jagalpet, Charanadaspuram & Gourala). The ld. CIT(Appeals) satisfied with the arrangement of the different intangible assets under the appropriate Block of Assets and the applicable rate of depreciation as per the Income Tax Rules done by the assessee. However, the ld. CIT(Appeals) observed that there is a slight variation as regards 'Lease Premium of Quarries', which is a intangible asset being in the nature of license for commercial right, and for which the prescribed rate of depreciation as per the Income Tax Rules is at 25%. However, the assessee has claimed at much lesser allowance by adopting the lease years duration periods as basis. The ld. CIT(Appeals) considered the said method adopted by the assesese as an appropriate method considering the nature of the long lease periods. The ld. CIT(Appeals) also observed that the Assessing Officer has disallowed depreciation claimed on the Quarry Land & Development, mainly based on the tax audit report, which is totally wrong. The Tax auditor did not put any remark in the Tax Audit Report that the assessee is not eligible to claim depreciation. Therefore, the end -note remark of the Tax Auditor is not so much in the context that the claim is wrong in toto but that the manner of presentation as a separate Block of Assets is not in conformity with section 2(11), which requires that the block of assets be Buildins, 5 ITA No.1280/1281/1283/Kol/2014 M/s Himalaya Granites Pvt. Ltd.
Maxhinery , Plant and Furniture. There is no dispute about the existence of the assets, depreciation will have to be allowed. The issue was simply, considering the very nature of the business of quarries, to rearranging the different assets as per the appropriate Class of Assets, and Block of Assets as per the Income Tax Rules. Based on the above findings, the ld. CIT(Appeals) had directed the Assessing Officer to allow the depreciation claim of the assessee at Rs.28,70,141/-.
6. Not being satisfied with the order of the ld. CIT(Appeals), the Revenue is in appeal before us and has taken the following grounds of appeal:-
(i) That on the facts and circumstances and in law ld.
CIT(A) has erred in deleting the disallowance of depreciation on Quarry land & Development amounting to Rs.29,42,646/- made by the Assessing Officer in accordance with the provisions of section 32 of I.T. Act.
(ii) That on the facts and circumstances and in law ld. CIT(A) has erred in deleting the disallowance of deduction u/s 80HHC of I.T. Act made by the Assessing Officer in accordance with the provisions of the I.T. Act.
(iii) That on the facts and circumstances of the case, the order of the ld. CIT(A) be vacated and the order of the Assessing officer be restored.
7. The first ground raised by the Revenue relates to the depreciation on Quarry Land & Development amounting to Rs.29,42,646/-.
6
ITA No.1280/1281/1283/Kol/2014 M/s Himalaya Granites Pvt. Ltd.
7.1. The ld. D.R. for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para, and is not being repeated for the sake of brevity. 7.2. The ld. A.R. for the assessee has submitted that the Assessing Officer disallowed the claim of depreciation on Quarry Land & Development based on the clarification of the Tax Audit Report, which is entirely wrong. The Tax Auditor in his Tax Audit Report do not say anything that the assessee is not eligible to claim the depreciation, he has just explained that there is no block for such asset in the Income Tax Act to claim depreciation U/s 32 of the Act. The ld. A.R. further explained the nature of 'premium for quarry' is that, the assessee makes the payment to the Government and the Government allows the assessee to exploit the natural resource of Granite for some period. It may be noted that under the Constitution, all natural wealth belongs to the Republic and no individual or company can hold any right to own them, but the company can acquire right to use these natural wealth and pays license fee to the government and after the expiry of the period of mining granted to the asessee, the land reverts back to the Government/owner. So the premium which purchases a commercial right extinguishes after lapse of a period. Therefore, the right to explore depreciates and depreciation is allowable only on the same right in terms of section 2(11)(b) of the Income Tax Act, 1961 read with section 32(1)(ii) and Rule 5(1) of the Income Tax Rules. On such assets, the Income Tax Rules provides the depreciation rate of 25%. The ld. A.R. also submitted that the Quarry Land & Development 7 ITA No.1280/1281/1283/Kol/2014 M/s Himalaya Granites Pvt. Ltd.
are intangible assets being the nature of license for commercial right and for which the prescribed rate of depreciation as per the Income Tax Rules is at 25%. However, the assessee has claimed at much lesser allowance by adopting the lease years duration periods as basis. 7.3. Having heard the rival submissions, perused the relevant material available on record, we noticed that quarry land & development is an intangible asset being in nature of license for commercial right and for which the prescribed rate of depreciation as per the Income Tax Rules is at 25%. The assessee has submitted before the Assessing Officer as well as before the ld. CIT(Appeals) the various charts of depreciation explaining the provision on the amount of depreciation claimed by the assessee. Therefore, considering the nature of the business, we are of the view that the method adopted by the assessee to compute the depreciation on Quarry Land & Development is appropriate and, therefore, we confirm the order passed by the ld. CIT(Appeals). 7.4 In the result, Ground No. 1 of the Revenue's appeal stands dismissed.
7.5. The issue involved in Ground No. 1 in ITA No. 1283/KOL/2014 is identical with the Ground No. 1 in ITA NO. 1281/KOL/2014. As we have already decided the Ground No. 1 in ITA No. 1281/KOL/2014 in favour of the assessee, the Ground No. 1 of ITA NO. 1283/KOL/2014 raised by the Revenue is also dismissed.
8
ITA No.1280/1281/1283/Kol/2014 M/s Himalaya Granites Pvt. Ltd.
8. Ground No. 2 raised by the Revenue relates to the disallowance of deduction under section 80HHC of the Income Tax Act, 1961.
8.1. The ld. D.R. for the Revenue has submitted before us that the assesee-company had earned interest of Rs.45,52,146/- and paid interest expenditure of Rs.1,49,83,526/-. The assessee-company has not considered the interest income of Rs.45,52,146/- while computing the profit of the business for the purpose of section 80HHC. As per Explanation (baa) below sub-section (4C) of section 80HHC, 90% of any receipt by way of brokerage, commission, interest, rent, charges of any other receipt of a similar nature included in the profit of the business is to be excluded from the profit of the business to arrive at the eligible profit of the business for deduction under section 80HHC. As per explanation (baa) of section 80HHC, the assessee has not reduced the interest income at Rs. 45,52,146/- while computing the profit of the business for the purpose of section 80HHC. The ld AR explained that the main issue in this appeal is that the assessee took the Net of interest, whereas the contention of the Assessing Officer was that it should be Gross interest. 8.2. The ld. A.R. for the assessee has further submitted that the issue regarding Explanation (baa) to section 80HHC gives controversy about net profit or gross profit. The plain meaning of the words "profits and gains of business or profession" implies that it has to be 'Net profit'. The computation of the profits and gains of business is always 'net' as it is the Net Profit of the Profit & Loss Account. The majority of the judicial 9 ITA No.1280/1281/1283/Kol/2014 M/s Himalaya Granites Pvt. Ltd.
pronouncements which advocating that it should be 'Net Profit'. The assessee, while making submissions before ld CIT(A), relied on the following judgments:
(i) S. Damanjit Singh -vs.- ACIT (2002) 121 Taxman 303 (Delhi((Mag.);
(ii) Pink Star -vs.- DCIT (2002) 72 ITD 137 (Mum.);
(iii) Honda Steel Power Products Limited -vs.- DCIT (2000) 69 TTJ (Del.) 97
(iv) Hindustan Gum & Chemicals Ltd. -vs.- ITO (2008) 23 SOT 143 (Kol.);
(v) ACIT -vs.- Arun Puri (2008) 23 SOT 380 (Delhi) ;
(vi) Priyanka Gems -vs.- ACIT (2005) 3 SOT 817 (Ahm.). All these judgments hold that the word "interest" in clause (baa) of the Explanation connotes "net interest" and not "gross interest". Therefore, the Assessing officer will have to take into account the net interest, i.e. gross interest as reduced by expenditure incurred for earning such interest. In view of the above, the assessee submitted that in calculating deduction under section 80HHC, the 'net interest' has to be considered which is in 'such profit' as referred in Explanation (baa). Therefore, where the interest income is inextricably connected with the business of the assesese, then for determining the profit and gains of business as per Explanation (baa) to section 80HHC(4B) the 'net interest income' should be considered instead of the 'gross interest receipt'. 8.3 Having heard the rival submissions, perused the relevant material available on record, we are of the view that there is merit in the 10 ITA No.1280/1281/1283/Kol/2014 M/s Himalaya Granites Pvt. Ltd.
submisisns of the assesee, as propositions canvassed by the ld. A.R. for the assessee are supported by the judgments cited(supra). We notice that various Hon'ble High Courts have explained the terminology that Explanation (baa) to section 80HHC implicitly implies 'Net interest' and not the 'gross interest'. We, therefore, confirm the order of the ld. CIT(Appeals).
8.4. In the result, the appeal filed by the Revenue being ITA NO. 1281/KOL/2014 is dismissed.
9. Now we come to the ITA No. 1280/KOL/2014 filed by the Revenue for Assessment Year 2002-03. This appeal is not maintainable because of low tax effect. At the time of hearing, the ld. counsel for the assessee, at the outset, has pointed out that the tax effect involved in this appeal of the Revenue is less than the revised monetary limit fixed by the CBDT vide Circular No. 21/2015 dated 10th December, 2015 at Rs.10,00,000/- for filing the appeal by the Revenue before the Tribunal and this position clearly evident from the grounds raised by the Revenue in this appeal is not disputed even by the ld. D.R. In Circular No. 21/2015 (supra) issued by the CBDT, the monetary limit for filing the appeals by the Revenue before the Tribunal has been increased to Rs.10,00,000/- and as clarified in the said Circular, the said monetary limit is applicable retrospectively even to the appeals pending before the Tribunal. The CBDT has also instructed that such pending appeals below this specified tax limit of Rs.10,00,000/- may be withdrawn/ not pressed. Keeping in view the instruction given by the CBDT vide Circular No. 21/2015 dated 11 ITA No.1280/1281/1283/Kol/2014 M/s Himalaya Granites Pvt. Ltd.
10.12.2015, which is squarely applicable in the present case, the appeal filed by the Revenue in this case is treated as withdrawn/not pressed and dismissed accordingly.
10 In the result, the appeal of the Revenue ( In ITA No.1280/Kol/2014), is dismissed.
11. To sum up, in the result, all the appeals filed by the Revenue are dismissed.
Order pronounced in the open court on this 26/04/2017.
Sd/- Sd/-
(N.V.VASUDEVAN) (DR. A.L.SAINI)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
कोलकाता /Kolkata; $दनांक Dated 26/04/2017
काश (म*ा/Prakash Mishra,Sr.PS.
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant-DCIT, Central Circle-XI, Kolkata
2. यथ / The Respondent.-M/s Himalaya Granites Pvt. Ltd.
3. आयकर आयु4त(अपील) / The CIT(A), Kolkata.
4. आयकर आयु4त / CIT ु ार/ BY आदे शानस 5वभागीय त न8ध, आयकर अपील य अ8धकरण, कोलकाता / DR, ITAT, Kolkata ORDER,
5.
6. गाड फाईल / Guard file.
स या5पत त //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपील%य अ&धकरण, कोलकाता / ITAT, Kolkata