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TMI Blog2015 (6) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of ₹ 3,00,06,370/- on portion of plant and machinery received towards grant/subsidy from National Dairy Development Board under "70% loan and 30% grant" scheme. Your appellant submits that 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. It is submitted that it be so allowed now. (ii) The learned CIT (A) erred in law and on facts in holding that Explanation 10 to section 43(1) of the Act would apply in respect of assets acquired prior to 1-4-99 and also in respect of grants received prior to 1-4-99 and thereby would apply from assessment year 1999- 00 irrespective of the year of acquisition of assets or year of disbursement of grant. The learned CIT(A) thus erred in denying benefit of depreciation in respect of value of grant/subsidy in respect of assets acquired prior to A.Y. 1999-00 even though in respect of these very assets full depreciation is allowed in earlier years without deducting value of grant from actual cost or WDV of assets. It is submitted that it be so held now. (iii) The action of learned CIT (A) in ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of claim of depreciation of portion of plant and machinery received through grant subsidy amounting to ₹ 3,00,06,370/- and also confirmed the disallowance of contribution of ₹ 2,50,00,000/-. Against these two additions, the assessee has preferred the present appeal. 3. First ground of the appeal is general in nature and needs no independent adjudication. 4. Ground Nos.2(i) to 2(iii) are inter-connected, therefore the same are decided together. The ld.counsel for the assessee submitted that the ld.CIT(A) was not justified in confirming the disallowance. He submitted that the issue is squarely covered by the judgement of Hon'ble Kerala High Court rendered in the case of CIT vs. Sun Fibre Optics (P.)Ltd. reported at (2012) 20 taxmann.com 143 (Ker.). The ld.counsel for the assessee reiterated the submissions as were made before the ld.CIT(A). The ld.counsel for the assessee submitted that the disallowance has been made on certain assumptions and presumptions. He submitted that the AO was not justified in reducing the claim of depreciation on grant portion. He submitted that "30% grant" has been received from National Dairy Development Board (NDDB) and "70% loan" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(1) is applicable when an asset is acquired by way of gift or inheritance and provides for determination of actual cost of asset to be same as actual cost to the previous owner as reduced by amount of depreciation allowed/allowable till then. In appellant's case, the assets in question were not acquired by way of gift or inheritance. As such, there is no application of Explanation 2 to section 43(1). 5.2.2. Appellant's contention at Sr.No.(i) is now taken up. As far asallowance of depreciation on grant portion in assessment years prior to A. Y. 1999-2000 is concerned, since Explanation 10 was inserted w.e.f, 1.4.1999, position in law was different for earlier assessment years and ITAT/High Court decisions for those assessment years cannot be applied to A.Y. 1999-2000 or assessment years after A.Y. 1999-2000. In GCMMF's case too for A.Yrs. 1997-98 and 1998-99, the ITAT, Ahmedabad decided the issue in appellant's favour on the basis of Supreme Court's decision in the case of P. J. Chemicals and by observing that Explanation 10 to section 43(1) was incorporated w.e.f. 1.4.1999. In A.Y.2000-01 in case of GCMMF, the ITAT, Ahmedabad decided the issue by referring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant's contention about ,the grant being towards project as a whole is concerned, the grant in appellant's case was towards the assets in question only. Moreover, this aspect is clearly covered by Proviso below Explanation 10 to section 43(1). Appellant's contention at Sr.No.(iv) above is therefore, not acceptable. 5.2.4. I now take up appellant's contention at Sr.No.(iii), i.e. Explanation 10 to section 43(1) is not applicable for assets acquired prior to F.Y. 1998-99. As mentioned earlier, Hon'ble ITAT, Ahmedabad in the case of GCMMF in A.Y.2000-01 has not considered the impact of Explanation 10 to section 43(1) and has followed its decisions for earlier years, when Explanation 10 was not on the statute book. Regarding view that Assessing Officer has to allow depreciation on WDV brought forward from earlier assessment year, the Supreme Court in case of Saharanpur Electric Supply Co. Ltd. held as under: ".....the phraseology of the Act does not bear out the contention that the actual cost of asset has to be determined only once viz., in the previous year of its acquisition, Sec. 43(b) specifically deals with two categories of assets: (i) those acquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any authority established under any law or by any other person in the form of subsidy or grant or reimbursement (by whatsoever name called), then so much of the cost as is relatable to such subsidy or grant or/reimbursement shall not be included in the actual cost of the asset to the assessee. It is the submission of the assessee that this Explanation would apply to the assets which are acquired post-insertion of this Explanation. 5.2. The issue which requires examination is whether the assessee is entitled for depreciation on the entire amount including the grant potion. The Hon'ble Jurisdictional High Court in the case of ACIT vs. Gujarat Co-op.Milk Mktg. Federation Ltd. in Tax Appeal No.113 of 2008 dated 20/04/2010 had formulated question of law which reads as under:- "Whether on the facts and in the circumstances of the case and in law, the ITAT was right in law in holding that assessee is entitled to claim depreciation on the 30% of the value of the plant and machinery received by way of grant from NDDB under "70% Loan and 30% Grant Scheme?". The Hon'ble Court answered the above question in para-3 of the judgement as under:- "3. Moreover, it is an accepted position betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out that expression "actual cost" needs to be interpreted liberally. Subsidy of the nature we are concerned with, does not partake of the incidents which attract the conditions for their deductibility from "actual cost". In view of that, answer to question No. 2 must be in the affirmative, i.e., in favour of the assessee and against the Revenue." 5.4. The Revenue has placed reliance on the decision of Coordinate Bench (ITAT "A" Bench Ahmedabad) passed in ITA No.1372/Ahd/2010 for AY 2005-06 in the case of Vidya Dairy vs. ACIT, dated 12/07/2013, wherein the Coordinate Bench has decided this issue in para-8 by observing as under:- "8. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the Assessee had received grant from NDDB prior to 1995 but the agreement was executed between the Assessee and NDDB on 21.7.1999. The Assessee has not worked out the depreciation for the period prior to 1.4.2001 though the grant was received prior to 1995 as according to the Assessee Explanation 5 to section 32 were inserted with effect from 1.4.2002 and became applicable from AY 2002-03 onwards. CIT(A) in his order has note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s introduced by the above amendment only with effect from 01/04/1999 and so much so, it does not apply to investments made any time prior to that which in this case is before 31/03/1998. Since the Tribunal allowed assessee's appeal, the Department filed this appeal before us challenging the findings of the Tribunal 5. After hearing both sides we are unable to interfere with the orders of the Tribunal because the Tribunal has followed the decision of the Honourable Supreme Court in the case of CIT v. P.J. Chemicals Ltd. [1994] 210 ITR 830 / 76 Taxman 611 . Further we do not know on what basis the Department can introduce retrospectivity to the amendment introduced when the Legislature has not done so. Obviously, the above amendment is prospective in nature and the same applies to investments 'made on plant and machinery and other depreciable assets after 01/04/1999. So much so, we uphold the order of the Tribunal and dismiss the appeal on this issue." Therefore, in the light of the judgement of Hon'ble Gujarat High Court in the case of Mahesana District Co-operative Milk Producers Union Ltd. vs. CIT(supra) and the judgement of Kerala High Court in the case of CIT vs. Sun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne through the orders of the authorities below. There is no dispute with rated to the fact that the assessee has made contribution to ARDA. It is pertinent to note that this entity was created by the assessee itself which is engaged in the field of research and development related to cattle-feed,etc. It is also not disputed that the contribution is as per bye-laws of the assessee. The contention of the ld.counsel for the assessee is that the contribution being made for the business purposes and for commercial expediency, such expenditure is required should be allowed as a business expenditure. The ld.CIT(A) did not allow the claim by observing as under:- "8.2. I have considered facts of the case and appellant's submissions. At the time of assessment, appellant did not specify particular section of the Income tax Act, under which the contribution made to ARDA was claimed as a deductible expense. At the time of appellate proceedings, appellant has submitted that the claim is u/s.37. Under section 37, "any expenditure not being expenditure of the nature described in sections 30 to 36...." can only be claimed. The Supreme Court in the case of Saravana Spinning Mills Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of availing the deduction u/s.37 of the Act, the assessee is required to demonstrate that the expenditure is not in the nature described under sections 30 to 36 of the Act and not being in nature of capital expenditure or personal expenses of the assessee, laid out for commercial expediency wholly and exclusively for the purpose of business. In the case in hand, the contribution has been made to an entity for carrying out certain research and the said entity is utilized for contribution partly for the purpose of carrying out the scientific research and partly for building capital assets. The ld.CIT(A) was of the opinion that although the claim has not been made u/s.35, the deduction would not have been available to the assessee u/s.35 also due to the conditions u/s.35 is being not satisfied. The ld.counsel for the assessee argued at length to buttress the contention that the expenditure is essentially in the nature of business expenditure and would meet the condition as prescribed u/s.37 of the Act. The ld.CIT(A) denied the deduction on the basis that the expense in question in the instant case being contribution to ARDA, a scientific and research organization falls u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the result, the appeal of the assessee in ITA No.563/Ahd/2011 for AY 2002-03 partly allowed. 9. Now, we take up the assessee's appeal in ITA No.564/Ahd/2011 for AY 2004-05, wherein following grounds have been taken:- "Your appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & facts. It is submitted that it be so held now. 2.(i) The learned CIT(A) erred in confirming the disallowance of the claim of depreciation of ₹ 1,76,62,673/- on portion of plant and machinery received towards grant/subsidy from National Dairy Development Board under "70% loan and 30% grant" scheme. Your appellant submits that 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. It is submitted that it be so allowed now. (ii) The learned CIT (A) erred in law and on facts in hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's own case(supra), for the same reasoning, this year also ground Nos.2(i) to 2(iii) of assessee's appeal are allowed and ground Nos.3(i) to 3(iii) of assessee's appeal are rejected. 9.3. In the result, the appeal of the assessee in ITA No.564/Ahd/2011 for AY 2004-05 is partly allowed. 10. Now, we take up the assessee's appeal in ITA No.565/Ahd/2011 for AY 2005-06, wherein following grounds have been taken:- "Your appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & facts. It is submitted that it be so held now. 2.(i) The learned CIT(A) erred in confirming the disallowance of the claim of depreciation of ₹ 1,36,14,060/- on portion of plant and machinery received towards grant/subsidy from National Dairy Development Board under "70% loan and 30% grant" scheme. Your appellant submits that 30% grant has been received towards the project as a whole and hence, it is entitled to dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and towards contribution for education fees for children of the employees from the General Reserve Fund. (ii) The action of learned CIT(A) in holding that school fee is the part of perquisite and required deduction of tax at source is patently incorrect and unjustified. It is submitted that it be so held now and depreciation as claimed by the appellant be allowed. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal." 10.1. First ground of the appeal is general in nature and needs no independent adjudication. 10.2. Parties have adopted their arguments as were raised in ITA No.563/Ahd/2011 for AY 2002-03 in respect of ground Nos.2(i) to 2(iii) and ground Nos.3(i) & 3(iii). Since the grounds and facts are identical to that of AY 2002-03 in assessee's own case(supra), for the same reasoning, for this year also ground Nos.2(i) to 2(iii) of assessee's appeal are allowed and ground Nos.3(i) to 3(iii) of assessee's appeal are rejected. 10.3. Apropos to ground No.4, the ld.counsel for the assessee submitted that the authorities below were not justified in disallowing the amount of ₹ 10,56,741/- paid to Anandalay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, this ground of assessee's appeal is rejected. 11.2. In the result, the appeal of the assessee in ITA No.565/Ahd/2011 for AY 2005-06 is partly allowed. 12. Now, we take up the assessee's appeal in ITA No.566/Ahd/2011 for AY 2006-07, wherein following grounds have been taken:- "Your appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & facts. It is submitted that it be so held now. 2.(i) The learned CIT(A) erred in confirming the disallowance of the claim of depreciation of ₹ 70,95,684/- on portion of plant and machinery received towards grant/subsidy from National Dairy Development Board under "70% loan and 30% grant" scheme. Your appellant submits that 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 withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir arguments as were raised in ITA No.563/Ahd/2011 for AY 2002-03. Since the grounds and facts are identical to that of AY 2002-03 in assessee's own case(supra), for the same reasoning, for this year also ground Nos.2(i) to 2(iii) of assessee's appeal are allowed and ground Nos.3(i) to 3(iii) of assessee's appeal are rejected. 12.3. In the result, the appeal of the assessee in ITA No.566/Ahd/2011 for AY 2006-07 is partly allowed. 13. Now, we take up the assessee's appeal in ITA No.567/Ahd/2011 for AY 2007-08, wherein following grounds have been taken:- "Your appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & facts. It is submitted that it be so held now. 2.(i) The learned CIT(A) erred in confirming the disallowance of the claim of depreciation of ₹ 61,28,699/- on portion of plant and machinery received towards grant/subsidy from National Dairy Development Board under "70% loan and 30% gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and on facts in confirming disallowance of disallowance of ₹ 21,54,714/- out of interst expense and other expenses incurred by the appellant by invoking provisions of Section 14A. (ii) The learned CIT(A) grossly erred in invoking provisions of section 14A in respect of dividend earned by the appellant which is not exempt but only deductible u/s.80P(2)(d). (iii) The learned Assessing Officer erred in fact and in law in invoking provisions of Rule 8D. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal. (iv) The learned Assessing Officer erred in fact and in law in holding that interest bearing funds have been utilized to make investment earning exempt income. (v) Without prejudice to the above, your appellant submits that in any event, the addition made is very excessive and the same should be substantially reduced. 13.1. First ground of the appeal is general in nature and needs no independent adjudication. 13.2. Parties have adopted their arguments as were raised in ITA No.563/Ahd/2011 for AY 2002-03 in respect of ground Nos.2(i) to 2(iii) and ground Nos.3(i) & 3(iii). Since the grounds and facts are id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which gives the total income. There is distinction between gross total income and total income. Gross total income is the income as computed under the provisions of the Act before deductions under Chapter VI-A. The legislature has consciously used the words 'total income' in contrast to 'gross total income' in s. 14A. Therefore, for the purpose of attracting provisions of s. 14A, one will have to consider as to whether the income specified under s. 80P(2)(d) is included in the "total income' or not. Admittedly, the income referred in s. 80P(2)(d) is included in the gross total income but once the said income is excluded by virtue of s.80P(2)(d) it no longer can be said to be included in the total income. Since deduction under s.80P(2)(d) is allowed to the assessee out of the gross total income, the income described in s.80P(2)(d) no longer is included in the total income notwithstanding the fact that the said income is included in the gross total income. Accordingly S.14A is applicable even in respect of the incomes which are excluded from the total income by virtue of deductions under Chapter VI-A. This view gets further support from the prescribed form of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under consideration are not acceptable in view of decision of Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. 5.2.2. The question to be examined now is whether any interest and other expenditure incurred by the appellant and charged against taxable income was in relation to dividend income claimed to be fully deductible u/s.80P and if yes, determination of such expenses on a reasonable basis. Appellant's contention that investment in cooperative societies was out of own funds only is not acceptable. There is nothing on record to prove that investment in cooperative societies was made over the years exclusively out of appellant's own funds, whereas interest bearing funds were used only for earning income other than dividend from cooperative societies. In the case of Datamatics Ltd., the Mumbai ITAT held as under: "The contention of appellant that no interest bearing fund has been utilized for investment/tax free incomes can only be proved by cash flow statements. Appellant has to explain that at particular movement of investment, it had sufficient interest free funds at its disposal". Appellant has not filed any cash flow statement and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A would apply to provision of Chapter VIA. Provision of section 14A when examined, it operates in respect of the income not forming part of the total income. It could be noted that provisions of Chapter VIA (sections 80A to 80U) refer to deductions to be made in computing the total income. Such deductions, in no manner, can be compared with the exempted income, which does not form part of the total income as provided in sections 10 to 13A under Chapter III of the Act. Section 14A was introduced retrospectively with effect from 1.4.1962 by Finance Act, 2001, for the purpose of computing the total income under Chapter IV. And, any expenditure incurred by the assessee in relation to exempted income, for the purpose of computing the total income, while applying section 14A, no deduction shall be allowed. However, there is a clear absence of any reference of deduction to be made in computing the total income as per provision of Chapter IVA in section 14A. Undoubtedly, as provided under Chapter VIA while computing the total income of the assessee from his gross total income in accordance with and subject to the provision of this chapter, the deductions specified are permissible. As a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These deductions were made in the computation of total income and, therefore, definition of "gross total income", which was/is arrived at without reference to the deduction allowable under Chapter VI-A, was introduced. The deductions available under Chapter VI-A were either wholly or partly reduced from the "gross total income". The contention of the Revenue that once deduction stands allowed, the "income" in view of the deduction ceases to be a part of the total income, was rejected by the Division Bench of this Court in Dalmia Cement (Bharat) Ltd. [1980] 126 ITR 736 (Delhi), for the following additional reasons:- (1) The word "part" used in the Rule was to describe income fulfilling the description i.e.the category or class of the income. In other words it should indicate an identifiable section, category or class of income rather than mere portion or amount of such income. The question raised should be "whether this income was included" and not "whether any deduction was allowed". The use of the word "part" contemplates a type of income which by its very nature does not form part of the total income. The word "includible" supports that reference to the general nature and clas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputed under the Act by applying provisions of Chapter IV, V and VI. From this income, deductions are permitted and allowed in terms of Chapter VIA. Deductions do not mean that deduction allowed has the effect that the income, on which deduction is allowed, ceases to be part of the total income. This is not the scheme, effect and purport of the Act. The expression "income which does not form part of the total income" refers to the nature, character or type of income and not the quantum. 34. 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely, wherein following common grounds have been taken:- 1. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in cancelling the disallowance of ₹28,63,740/- (for AY 2005-06) and of ₹29,49,652/- (for AY 2006-07) made u/s.40(a)(ia) without appreciating the fact that as per the article-4 of contract dated 17.01.1998 entered into with GAIL, the contract for sale and delivery (transportation) were separate and being separately charged by GAIL, therefore in view of clear cut provisions of section 194C of the Act, the TDS was required from transportation charge which the assessee had failed to deduct. 2. The appellant craves leave to add, to amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal The order of the CIT(A) on the issues raised in the aforesaid Grounds be set aside and that of the Assessing Officer be restored. 14.1. The ld.Sr.DR submitted that the ld.CIT(A) was not justified in deleting the disallowance. He submitted that the AO has given a categorical finding that the provisions of section 194C of the Act is applicable, therefore the assessee ought to have deducted the tax. On the other hand, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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