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TMI Blog2017 (8) TMI 915X X X X Extracts X X X X X X X X Extracts X X X X ..... on or not will depend on the provision of the law relating thereto and not on the view which the assessee may take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. In view of our aforesaid discussion, we set aside the order of the CIT(A) in each of the assessment years on this issue and direct the Assessing Officer to allow depreciation to the assessee without deducting the amount of the conditional grant received by the assessee from the actual cost/WDV of the plant and machinery. Thus, this ground in each of the assessment years is allowed in favour of assessee Expenditure incurred on obtaining a technical report - expenditure incurred on acquiring a capital asset OR revenue expenditure - Held that:- We noted that coal beneficiation has been defined as cost effective and significant step towards improving power plant efficiency and reducing the GHG emissions from the coal fired power plants in India would be to increase the availability of clean beneficiated coals using appropriate beneficiation technologies. In fact, it improves the quality of coal. From the note it is not denied that it is not for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent marketable product. No contrary decision was brought to our knowledge. We, therefore, confirm the order of the CIT(A) and dismiss the ground taken by the Revenue. - ITA No. 1295/Mum/2012, ITA No. 1296/Mum/2012, ITA No. 1880/Mum/2010, ITA No. 1881/Mum/2010, ITA No. 898/Mum/2013, ITA No. 899/Mum/2013 And ITA No. 900/Mum/2013 - - - Dated:- 3-8-2017 - Shri P K Bansal, Vice President And Shri Pawan Singh, Judicial Member For The Revenue : Shri Ram Tiwari For The Assessee : Shri Salil Kapoor ORDER Per P K Bansal, Vice-President: All these appeals since relate to the same assessee, therefore, they are being disposed of by this common order. 2. The grounds of appeal in ITA No. 1295/Mum/2012 for AY 2000-01 ITA No. 1296/Mum/2012 for AY 2001-02 are common. In both these appeals the assessee has taken as many as eight grounds of appeal. Ground no.1, 7 8 are general in nature, therefore, does not require any adjudication. Ground nos. 5 6 were not pressed in both the ears and, therefore, dismissed as not pressed. The only common grounds, which survive for our adjudication, read as under: 2. That in the facts circumstances of the case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y dismissed the appeal of the assessee vide order dated 27.02.2006. When the matter went in first round before the ITAT, the Tribunal set aside the assessment and directed the Assessing Officer to adjudicate afresh the issue in accordance with law, after giving adequate opportunity of hearing to the assessee. The Assessing Officer took the view that the amount of the grant received under PACER from US aid through ICICI amounted to cost met by US aid on the purchase of plant and machinery by the assessee company as per the provisions of Section 43(1) of the IT Act and, therefore, he took the WDV of the plant and machinery for the purpose of calculation of depreciation at the cost of plant and machinery reduced by the amount of grant received by the assessee company from US aid through ICICI under PACER. The assessee went in appeal before the CIT(A). The CIT(A) confirmed the order of the Assessing Officer by observing as under: 3.3.1 On the first issue, whether the amount of grant received by the Appellant Company from ICICI Ltd. Mumbai under PACER agreement, is a loan or an assistance, I am inclined to agree with the views of the assessing officer that this amount of ₹ 9,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts and clauses therein, the preponderance of probability suggests that the origin of this amount is from a AID project run by USAID and the amount was given to the Ltd. for running a specific energy project under PACER. However, the ICICI Ltd. has turned this assistance into a conditional grant while extending this amount to the Appellant Company, repayable amount, being twice the amount of conditional grant given as a royalty linked to the sales. It is also a fact that the Appellant Company had returned a sum of ₹ 20 Lac to the ICICI Ltd. as a Royalty as per agreement, however thereafter no payments have been made by the Appellant Company to the ICICI Ltd. Neither the ICICI Ltd. has recovered the balance amount of royalty from the Appellant Company as per agreement nor the Appellant Company has provided for any Royalty payable to the ICICI Ltd, in its books of accounts. The conduct of the Appellant company and its method of accounting over many assessment years show that it has treated this conditional grant given by the ICICI Ltd. as an aid/assistance/grant/subsidy and not as a loan. No royalty was repaid or repayable by the Appellant company to the ICICI Ltd. after making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 118, it was pointed out that the purpose of this agreement was to set up the understandings of the parties with respect to the undertaking by ICICI of the project described at page 119 and with respect to the financing of the project. Referring to page 119 it was pointed out that the project is defined with three inter related components for seeking to create an institutional environment for relevant technology innovation in the energy sector. ICICI will disburse grand funds received under AID grant for financing of approved subprojects and related activities and organize secretariat for the executing of the project. Our attention was drawn towards Section 43(1), which defines the actual cost means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. On the basis of this definition, it was contended that for the purpose of determining the actual cost only that portions will be reduced from the actual cost which has to be met by any other person or authority. In this case, the grant under the agreement has been given not by any person or the authority; it has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was given for setting up advanced plant for beneficiation of high ash Indian coal as an integrated coal beneficiation plant. Our attention was also drawn towards agreement for PACER assistance entered into between ICICI and the assessee. On this basis, it was stated that as per clause C the agreement was for financing out the PACER Grant Resources and ICICI has agreed to provide finance for the implementation of the proposal. This grant was repayable by the assessee although there was no limitation for the repayment. The repayment has to be made @2% of the gross annual sales of the coal beneficiated in the proposed commercial project but subject to the condition that the repayment amount will not exceed 100% of conditional grant. The assessee has paid back a sum of ₹ 20 lacs. For the terms and conditions, our attention was drawn towards clause C.1. of the agreement appearing at page 98 of the paper-book. Thus, it was contended that it was a financing arrangement and in fact not a subsidy or a grant. Further, it was submitted that during the assessment years 2003-04, 2009-09 and 2009-10, the Assessing Officer after examining the issue, allowed the claim of the assessee by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has authorized ICICI Ltd to disperse grant of funds received under the head grant . It is not disputed that the assessee has received the said grant as per the agreement with ICICI Ltd for which the government of USA has agreed to contribute certain sum of money as per the agreement dated 31.08.1987. The agreement between the assessee and ICICI Ltd for special assistance was entered into on 12.09.1996. Under the said agreement, the assessee was given a special grant of ₹ 9,97,28,611/-. As per the Assessing Officer, said grant was to meet the part of the project cost under PACER and during the assessment year 2000-01, the assessee has adjusted the said grant against the cost of plant machinery. The Assessing Officer allowed depreciation to the assessee on the WDV of the plant machinery as has been worked out after reducing the said grant. Now the question before us is whether the said grant has to be reduced from the WDV of the plant machinery for the purpose of allowance of depreciation. From the agreement dated 12.09.1996, between ICICI Ltd and the assessee, we noted that clause 5 states as under: 5) In accordance with the provisions of the PACER Agreement, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditional - Grant in any event. a) An amount equivalent to one hundred percent of the conditional grant referred to in Sub-Section B1 above, shall be paid to ICICI at the rate of (1) 4% (four percent only) of the gross annual sales of the coal beneficiated in the future projects, (ii) 2% (two percent only ) of the gross annual sales of the coal beneficiated in the proposed commercial project. b) When payment of conditional grant has been completed according to sub section (a) above, the rate of further payment shall be paid to ICICI at the rate of (i) 4% (four percent only) of the gross annual sales of the coal beneficiated in the future projects, (ii) 2% (two percent only ) of the gross annual sales of the coal beneficiated in the proposed, commercial project. Such further payments to continue until a further amount equivalent to one hundred percent of Conditional Grant shall have been paid to ICICI. The term Gross Annual Sales means the gross income realised by way of washing charges received from the commercial exploitation of the Innovation in India or Abroad and shall include all specific export incentives or bonuses received by the Main Proposer but shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 43(1) defines the actual cost to mean the actual cost of the assets of the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by other person or authority. In the impugned case, we noted that what the ICICI has financed by way of conditional grant to the assessee is the amount received from USA under the project grant agreement for the Program for Acceleration of Commercial Energy Research. Now the question arises whether USA can be regarded to be a person or authority. In our view, this provision cannot be read without Explanation 10. Explanation 10 there to reads as under: Explanation 10 : Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever 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. From the reading of the said explanation, it is explicitly clear that if a portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as payment made specifically to meet a portion of the cost of assets. This decision in our view is equally applicable in the case of the assessee as the conditional grant was given under the Program for Acceleration of Commercial Energy Research. As per the agreement entered into between ICICI and USA, we noted that the same view has been taken by Kolkata Bench of this Tribunal in the case of Universal Cables Limited vs. DCIT 57 taxmann.com 95. While holding so, the Tribunal under para 18 of its order relied on the order of the order of the Visakhapatnam Bench in the case of Sasisri Extractions Limited (supra). In view of this fact, respectfully, following the decisions and legal position explained by the Hon ble Supreme Court in the case of P J Chemicals (supra), we are of the view that the condition of financial grant received by the assessee could not be reduced from the actual cost of fixed assets for computing the depreciation under the Income tax Act. 8. Now coming to the last bit of the submission made by the learned AR, we noted the fact that during the assessment years 2003-04, 2008-09 and 2009-10, the Assessing Officer, under the same set of facts, after exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessing Officer in treating the expenditure incurred on obtaining a technical report as expenditure incurred on acquiring a capital asset and hence not allowing the same as revenue expenditure. 4. The CIT(A) has failed in appreciating the fact that no new capital asset has been created/acquired by obtaining the technical report. 12. The facts relating to these grounds are that the Assessing Officer noted that the assessee has claimed technical knowhow as capital expenditure. However, during the course of assessment proceedings, the assessee vide letter dated 9.11.2006 by submitting a note claimed these expenditure as revenue expenditure. The assessee claimed that he has added in the balance sheet under the head Plant Machinery a sum of ₹ 4 crores as amount paid for technical knowhow and claimed depreciation. This expenditure has been incurred for coal beneficiation and, therefore it is in the nature of revenue expenditure and not a capital expenditure. In this regard a copy of the agreement dated 23.08.2003 between the assessee and BSES Ltd was also submitted. The Assessing Officer did not agree with the assessee and treated the same as capital expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental services to ST-BSES in connection with the Project as are required by ST-BSES to utilize the information and data contained in the Report in a beneficial manner and to provide all required clarifications in relation to any matter contained in the Report. 1.4 The Report shall be and remain the property of ST-BSES and BSES shall not be concerned with the purpose for which, or the manner in which ST-BSES uses the Report. From clause 1.2, it is apparent that the payment has been made by the assessee for improvement in the coal beneficiation activity for power grade coal. Now the question arises whether the payment so made is revenue expenditure or a capital expenditure. 14. The learned AR before us vehemently contended that the technical report obtained was to facilitate business as well as smooth and efficient functioning thereof. It is incurred for improvement of coal beneficiation activity for power grade coal, thereby improving the existing business of the assessee. Our attention was drawn towards the decision of the Hon ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. vs. CIT 177 ITR 377 (SC) to support the contention that the expenditure incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s * supplied). Having regard to the terms of clause 4 of the agreement, this conclusion is non sequitur. The improvisation in the process and technology in some areas of the enterprise was supplemental to the existing business and there was no material to hold that it amounted to a new or fresh venture. The further circumstance that the agreement pertained to a product already in the line of the assessee's established business and not to a new product indicates that what was stipulated was an improvement in the operations of the existing business and its efficiency and, profitability not removed from the area of the dayto- day business of the assessee's established enterprise. It appears to us that the answer to the questions referred should be on the basis that the financial outlay under the agreement was for the better conduct and improvement of the existing business and should, therefore, be held to be revenue expenditure. 15. The learned DR, on the hand, vehemently relied on the orders of the authorities below and submitted a note on what does coal beneficiation mean. We have gone through that note. We noted that coal beneficiation has been defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to this ground are the Assessing Officer noted from the profit and loss account that the assessee has incurred expenditure on repairs of the roads and bridges, which has been claimed as revenue expenditure. The Assessing Officer found that the assessee has constructed roads on the land taken from South East Coalfields Ltd for doing business of beneficiation of coal. According to the Assessing Officer the expenditure so incurred bring into existence the asset giving benefit of enduring nature. Similarly, the Assessing Officer took the view that the expenses made for the repairs to bridges are nothing but construction of bridges. Therefore, he took all these expenses to be capital in nature. The Assessing Officer relying on the decision of Hon ble Gujarat High Court in the case of Gujarat Mineral Development Corporation Ltd v. CIT (143 ITR 822) and Calcutta High Court decision in the case of Indian Aluminium Co. Ltd. vs. CIT (198 ITR 202 took a view that the expenditure incurred by the assessee was capital expenditure and allowed depreciation @10%. 19. We have gone through the judgments of Hon ble High Courts in the case of Gujarat Mineral Development Corporation Ltd and Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores and the balance ₹ 3.92 crores is added to the income of the assessee. The assessee during the appellate proceedings for A Y 2004-05 filed an additional ground before the CIT(A). But the CIT(A) did not adjudicate the additional ground. 21. After hearing the rival submissions and going through the orders of the authorities below, we have noted that the additional ground, in this respect, raised by the assessee before the CIT(A) for the A.Y. 2004-05 has not been adjudicated. We, therefore, restore this issue to the file of the CIT(A) with a direction that the CIT(A) shall adjudicate this ground and decide it on merit in accordance with law, as in our opinion this is a legal ground. So far as A.Y. 2005-06 is concerned, since the claim of deduction of entire amount of ₹ 6 crore will depend on the outcome of the additional ground for A.Y 2004-05 before the CIT(A), we set aside the issue to the file of the CIT(A) with a direction that the CIT(A) shall adjudicate this ground afresh in A.Y. 2005-06 viz-a-viz similar issue arising in A.Y. 2004-05, and re-decide the issue in accordance with law in each year and how much amount the assessee shall be entitled for deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has already been disposed off while disposing of the ground nos. 2, 3, and 4 for A.Y. 2000-01 in the preceding paragraphs. Ground no.4 was not pressed hence, stands dismissed as not pressed. Ground no.5 relates to the issue whether the expenses on repair and maintenance of road and bridges are capital expenditure. This ground stands disposed of while disposing ground no.7 for A.Y. 2004-05. Ground no.9 is consequential in nature and, therefore, the Assessing Officer is directed to compute interest u/s. 234B after giving effect to this order. 27. ITA No. 900/Mum/2013 Assessment Year 2008-09 Ground nos. 1, 3, 4 and 6 are general in nature and does not require any adjudication. Ground no.2 relates to the issue whether the expenses on repairs and maintenance of road and bridges are capital expenditure. This ground stands disposed of while disposing ground no.7 for A.Y. 2004-05. Ground no.5 is consequential in nature and, therefore, the Assessing Officer is directed to compute interest u/s. 234B after giving effect to this order. 28. ITA No. 1813/Mum/2013 Assessment Year 2006-07 This appeal has been filed by the Revenue against the order of the CIT(A) by taking the ..... 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