2015 (6) TMI 517 - AT - Income Tax

Entitlement to claim depreciation on portion of plant and machinery received towards grant/subsidy from National Dairy Development Board under 70% loan and 30% grant scheme - whether 30% grant has been received towards the project as a whole and hence, it is entitled to depreciation on the entire cost of assets installed and put to use without deducting the grant portion? - Held that - In the light of the judgement of Mahesana District Co-operative Milk Producers Union Ltd. vs. CIT (1999 (12) TMI 4 - GUJARAT High Court) and CIT vs. Sun Fibre Optics (P.) Ltd.(2012 (6) TMI 502 - KERALA HIGH COURT ), we are of the considered view that the authorities below were not justified in excluding the grant portion of the amount from the actual cost. Hence, we hereby delete the disallowance and direct the AO to give deduction on the entire amount. - Decided in favour of assessee. Disallowance of expenditure contributed to Amul Research & Development Association (ARDA) - Held that - In the case in hand, undisputedly the assessee has made contribution for research, therefore such payments would fall under section 35 of the Act and for claiming deduction u/s.35 of the Act, the Association is required approved in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed. No material is placed on record that the Association is approved in the manner prescribed. Under these facts, we do not see any infirmity in the order of ld.CIT(A),same is hereby upheld. - Decided against assessee. Disallowance of interest expenditure by invoking the provisions of section 14A - Held that - Section 14A states that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not form part of the total income under this Act. It does not state that income which is entitled to deduction under Chapter VIA has to be excluded for the purpose of the said Section. The words do not form part of the total income under this Act is significant and important. As noticed above, before allowing deduction under Chapter VIA we have to compute the income and include the same in the total income. In this manner, the income which qualifies for deductions under Sections 80C to 80U has to be first included in the total income of the assessee. It, therefore, becomes part of the income, which is subjected to tax. Thereafter, deduction is to be allowed in accordance with and subject to the fulfillment of the conditions of the respective provisions. This is also subject to Section 80AB and 80A(1) and (2). Chapter VIA does not postulate or state that the incomes which qualify for the said deduction will be excluded and not form part of the total income. They form part of the total income but are allowed as a deduction and reduced. Therefore, respectfully following the judgement of the Hon ble Jurisdictional High Court rendered in the case of CIT vs. Banaskantha Dist.Co-op.Milk Producers Union Ltd.( 2014 (5) TMI 12 - GUJARAT HIGH COURT ), we hereby direct the AO to delete the disallowance. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of depreciation on plant and machinery received as a grant/subsidy from NDDB.
2. Disallowance of contribution to ARDA as business expenditure.
3. Disallowance of contribution to Anandalaya Education Society.
4. Disallowance of interest expense under Section 14A.
5. Disallowance under Section 40(a)(ia) for non-deduction of TDS on transportation charges.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Plant and Machinery Received as Grant/Subsidy from NDDB:
The assessee argued that the 30% grant received from NDDB should not be deducted from the cost of assets for depreciation purposes. The CIT(A) upheld the disallowance based on Explanation 10 to Section 43(1) of the Act, which mandates that the cost of an asset should exclude any portion met by a grant. The Tribunal considered the judgments of the Hon'ble Gujarat High Court in the case of Mahesana District Co-operative Milk Producers Union Ltd. and the Hon'ble Kerala High Court in CIT vs. Sun Fibre Optics (P.) Ltd., which held that the amendment is prospective and applies only to assets acquired after 01/04/1999. The Tribunal concluded that the authorities were not justified in excluding the grant portion from the actual cost and allowed the assessee's appeal on this ground.

2. Disallowance of Contribution to ARDA as Business Expenditure:
The assessee claimed a deduction for contributions to ARDA under Section 37 of the Act, arguing it was for business purposes. The CIT(A) disallowed the claim, stating that the expense falls under Section 35(1)(ii) and cannot be claimed under Section 37. The Tribunal upheld the CIT(A)'s decision, noting that the contributions were partly used for building capital assets and ARDA was not approved as required under Section 35(1)(ii). Therefore, the deduction was not permissible under either Section 35 or Section 37.

3. Disallowance of Contribution to Anandalaya Education Society:
The assessee claimed a deduction for contributions to Anandalaya Education Society for employees' children's education fees. The CIT(A) disallowed the claim, stating that the contribution was made from the general reserve fund and was an appropriation of profits, not a current year expense. The Tribunal upheld this decision, noting that the finding was not contested with any contrary material by the assessee.

4. Disallowance of Interest Expense under Section 14A:
The assessee contested the disallowance of interest expenses related to dividend income deductible under Section 80P(2)(d). The CIT(A) applied Section 14A, stating that the dividend income did not form part of the total income due to the deduction under Chapter VI-A. The Tribunal referred to the Hon'ble Gujarat High Court's judgment in CIT vs. Banaskantha Dist. Co-op. Milk Producers' Union Ltd., which held that Section 14A does not apply to deductions under Chapter VI-A. Consequently, the Tribunal directed the AO to delete the disallowance.

5. Disallowance under Section 40(a)(ia) for Non-deduction of TDS on Transportation Charges:
The AO disallowed expenses for non-deduction of TDS on transportation charges under Section 194C. The CIT(A) deleted the disallowance, following the ITAT's decision in M/s. Krishak Bharati Co-operative Ltd. The Tribunal upheld the CIT(A)'s order, noting no contrary decision was presented by the Revenue.

Conclusion:
The Tribunal partly allowed the assessee's appeals for the respective assessment years, granting relief on the disallowance of depreciation and interest expenses under Section 14A while upholding the disallowance of contributions to ARDA and Anandalaya Education Society. The Revenue's appeals were dismissed.