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TMI Blog2014 (6) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... ss having revenue nature. It generally fetches appreciation in future – Following The Green Enviornment Servicves Co. Op. Services Ltd. Versus The ITO, Ward 6(4), Ahmedabad [2014 (4) TMI 1003 - ITAT AHMEDABAD] - CIT(A) has rightly observed that the science is changing fast - There could be some device in future to make use of the said lands also - land being fixed asset and only fetches appreciation in future, it cannot be said such property purchase to be treated as a revenue expenditure - CIT(A) has rightly dismissed the appeal filed by the assessee – cost of land debited by the Assessee in Profit and Loss account is not allowable as revenue expenditure - thus, there was no illegality in the order of the CIT(A) – Decided against Assessee. Invocation of explanation 10 to section 43(1) of the Act – Reduction in accumulated amount of member’s contribution from the written down value of plant and machinery – Held that:- Accumulated amount of contribution made by the members is pertained to earlier years also which cannot be reduced from the cost of plant and machinery under the year of consideration as per Section 43(1) - The actual cost means the actual cost of the assets to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding entire cost of the setting up of solid waste tank may also kindly be allowed in its entirely for the year under consideration. 5. The learned CIT(A) has erred in law and on facts in confirming the action of AO in disallowing Rs. 12,81,768/- being the proportionate cost of land out of Solid Waste Tank expenses. 6. Alternatively and without prejudice, if a view is taken that the said land expenses of Rs. 12,81,768/- is a capital expenditure, contribution that the appellant received from its members towards reimbursement of the cost of land has to be treated as capital receipt and the same is required to be excluded from its income. 7. The Id. CIT(A) has erred in law and on facts of the case in confirming the action of Id. AO in invoking provisions of Explanation 10 to Section 43(1) of the Act and in reducing accumulated amount of member's contribution from the WDV of Plant Machinery and accordingly erred in disallowing depreciation of Rs.83,48,595/- proportionately. 8. Alternatively and without prejudice, contributions received during the year under consideration can only be reduced from the WDV of Plant Machinery and not accumulated balance of member s cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Id. AO in charging interest u/s 234B/C/D of the Act. 7. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings u/s 271(l)(c) of the Act. 5. ITA No. 3334/AHD/2010 (for A.Y. 2007-08) The grounds reads as under:- 1. The learned CIT(A) has erred in law and on facts in confirming the action of AO in disallowing Rs.8,68,107/-being the proportionate cost of land out of Solid Waste Tank expenses. 2. Alternatively and without prejudice, if a view is taken that the said land expenses of Rs.8,68,107/- is a capital expenditure, contribution that the appellant received from its members towards reimbursement of the cost of land has to be treated as capital receipt and the same is required to be excluded from its income. 3. The Id. CIT(A) has erred in law and on facts of the case in confirming the action of Id. AO in invoking provisions of Explanation 10 to Section 43(1) of the Act and in reducing accumulated amount of member's contribution from the WDV of Plant Machinery and accordingly erred in disallowing depreciation of Rs.41,98,715/- proportionately. 4. Alternatively and without prejudice, contributions re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Principles of Natural Justice and therefore deserves to be quashed. 6. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in charging interest u/s 234B/C/D of the Act. 7. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings u/s 271(l)(c) of the Act. 7. The ground no. 1 in A.Y. 05-06 is against the re-opening the assessment u/s 147 of the Act. The ld. counsel had not pressed this ground during the hearing the same is dismissed as not pressed. 8. The ground 2, 3 4 in A.Y. 05-06 are against confirming the action of the ld. A.O in adding entire subsidy amount of Rs. 1,31,00,000/- received from the Government of Gujarat. The A.O observed that during the year, the Assessee received subsidy of Rs/ 1,31,00,000/- from Government of Gujarat. However the Assessee had not brought same for taxation during the year towards the common Solid Waste Disposal Project. The cost of capital work in progress is reduced by the amount of subsidy received. Further on verification of balance sheet Schedule 7, the Solid Waste Tank had been considered by the Assessee as inventory that revenue in nature. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same as revenue receipt. The appellant has stated that it has only apportioned the subsidy received in the current year in proportion of the solid waste tank and the balance has been deferred over future years to be apportioned as per the user of the solid waste tank. In view of this, it is clear that the assessee itself is treating the subsidy as revenue receipt and not a capital receipt. It is a settled law that if the subsidy is of revenue in nature then the entire amount has to be treated as revenue receipt and if the subsidy is towards meeting or the capital cost then the same has to be treated as capital receipt. Once it is decided that the subsidy is a revenue receipt, the entire amount has to be taxed in the year of receipt and it cannot be deferred over several years for any reason.He relied upon in case of Ponni Sugar and Chemicals Ltd. 306 ITR 392 and Sahney Steel and Press Works Ltd. 228 ITR 253. 3.3.2 From the test of given by the Supreme Court in the above mentioned cases, it is clear that in the present case the subsidy is a revenue nature. In fact, this issue has not been disputed by the appellant at all. The appellant is treating the subsidy as revenue natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this reason, the appellant had transfer proportionate cost of net of subsidy to the Profit and Loss account over the year under consideration. In this regard, the appellant had relied on accounting standard AS-9 which says that revenue from service transaction is usually recognized as the service is perform either by the proportionate completion method or by the completed service contract method. In this regard, the A.R. relied upon (2013) 114 ITR (Delhi) in case of ACIT vs. Shyam Tele Link Ltd wherein prepaid card sold by the Assessee had two parts one fixed amount known as number activation charge booked immediately as income and second talk time charge booked as revenue to the extent talk time actually had been utilized. 225 ITR 802 (SC) in case of Madras Industrial Investment Corporation Ltd. vs. CIT wherein discount had debenture was written off proportionately each year over period for redemption. Alternate plea was that if the entire amount of subsidy as required to be added in the year of its receipts, the corresponding entire cost of setting up of Solid Waste Tank may also be allowed in year under consideration. At the outset, the ld. D.R. supported the order of lower auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated capital expenditure. The ld. A.O observed after considering the assessee s reply that there is no depreciation on land being reason that it has element of permanency. The land consumable item the Assessee is not in sale and purchasing of land of plotting of land. Thus he made addition all the years on account of cost of land. 15. Being aggrieved by the order of A.O, Assessee carried the matter before CIT(A) who had dismissed the appeal by observing as under:- 4.3 I have considered the submission made by the appellant and observation of the AO. This issue is exactly the same as in earlier assessment years. As mentioned above, this issue has been decided against the appellant by the honorable ITAT in the above mentioned order dated 16/05/2008. Since the facts are same in this year also, the action of the AO is confirmed in treating the land as capital asset and not a revenue expenditure. For the reasons given by the honorable tribunal, the assessee's claim is dismissed and this ground of appeal is dismissed. Similarly, findings has been given by the ld. CIT(A) for remaining assessment years. 16. The Assessee is before us, the ld. counsel for the Assessee fairly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets to the Assessee, reduced by that portion of cost thereof, if any, as has been met directly or indirectly by any other person or authority. The ld. A.O gave reasonable opportunity of being heard on this issue which was availed by the appellant. It was submitted by it before the A.O that said contribution made by the members was received specially towards cost of CETP and drainage pipelines forming part of the block of assets of plant and machinery which had nature of reimbursement of cost of fix assets for water treatment i.e. CETP and drainage pipelines. The A.O held that it is required to be reduced from the cost of CETP and drainage pipelines on the basis of explanation 10 to Section 43(1) of the I.T. Act. The appellant had not reduced this contribution from the cost of fix assets before claiming depreciation. The ld. A.O relied in case of Calcutta Electric Supply Corporation Ltd. vs. CIT (1992) 194 ITR 296 wherein identical issues had been decided in favour of the revenue. The ld. A.O reduced the contribution made by the members towards CETP from the cost of plant and machinery and allowed the depreciation on reduced cost of plant and machinery in all the years. 20. Bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of contribution made by the members is pertained to earlier years also which cannot be reduced from the cost of plant and machinery under the year of consideration as per Section 43(1). The actual cost means the actual cost of the assets to the Assessee reduce by that portion of cost thereof, if any, as has been met directly or indirectly by any other person or authority. The appellant is getting contribution from the members as reimbursement of the cost of plant and machinery during the years. Therefore whatever contribution received by the Assessee in respective assessment years should be allowed to be reduced from the actual cost of plant and machinery and thereafter depreciation is to be allowed on remaining cost of the plant and machinery by the A.O. The A.O is directed to verify the actual cost of plant and machinery in each year as opening written down value of the plant and machinery addition made during the year minus cost met from the contribution of the members yearwise. Thereafter calculate the depreciation in each year and allowed the same. Accordingly this ground of appeal is set aside to the A.O for de novo. In the result the Assessee s appeal on ground is allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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