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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 ..... the case in confirming the action of Id. AO in adding entire subsidy amount of Rs.1,31,00,000/- received from the Govt. of Gujarat in the year under consideration . 3. Both the lower authorities ought to have appreciated that though the Appellant has received entire subsidy in the year under consideration, the same has not been accrued entirely in the year under consideration. 4. Alternatively and without prejudice to above, if the entire amount of subsidy is required to be added in the year of its receipt, the corresponding 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 err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and 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. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educed from the WDV of Plant & Machinery and not accumulated balance of member's contribution. 5. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Being aggrieved by the order of A.O, Assessee carried the matter before CIT(A) who had dismissed the Assessee's appeal by observing as under:- 3.3.1 I have considered the submission made by the appellant and observation of the AO. The appellant has admitted that the subsidy given by the government is towards revenue and not capital expenditure, because the appellant has stated that it has not treated the subsidy as capital receipt, but it has treated 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 rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized. 11. A.R. for the appellant also explain the process of treatment of polluted effluent discharge from various manufacturing unit situated in an around the area of Vatva. The appellant had followed mercantile system of the accounting, the subsidy had to be divided over the years for setting up common Solid Waste Disposal Project. The treatment the subsidy had to be given as the treatment was given to the extent on Solid Waste Tank. In view of 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 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irming the action of the A.O in disallowing proportionate cost of land out of Solid Waste Tank expenses. The A.O observed that the Assessee had debited Rs. 12,81,768/- in A.Y. 05-06, Rs. 6,85,194/- in A.Y. 06-07, Rs. 8,68,107/- in A.Y. 07-08 and Rs. 5,63,983/- in A.Y. 08-09 cost of land which had been written off from the balance sheet of Schedule 7. The A.O gave reasonable opportunity of being heard as to why cost of land should not be treated 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 16/05/200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y. 07-08 and Rs. 54,65,312 in A.Y. 08-09 on plant and machinery. On verification of the balance sheet it was found that Assessee had capitalized member's contribution towards fix assets for water treatment i.e CETP and drainage pipeline comprising part of the block of plant and machinery. The A.O. observed that as per explanation 10 to provisions of Section 43(1) of the I.T. Act, 1961. Actual cost means the actual cost of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that if the entire amount of subsidy is required to be added in the year of its receipt, the corresponding entire cost of the setting off of Solid Waste Tank may also be allowed in its entirety for the year under consideration. At the outset, the ld. D.R. vehemently supported the order of the lower authority. 22. We have heard the rival contention and perused the material on record. It appears 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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