9911796707
TMI Blog2010 (7) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Madras Industrial Development Corp. Ltd., Vs CIT 225 ITR 802 [SC]. 3.1 Both the authorities below have erred in treating the liability on account of Employees Benefit Scheme [for liability for employees becoming incapacitated or loosing life in accidents while on duty] as deferred revenue and thereby disallowing 80% of it. 3.2 Without prejudice to the above ground, the quantum of disallowance worked out at ₹ 7,469 lacs as 80% of the effective claim of ₹ 2,410 lacs is wrong. 4.1 The authorities below have erred in disallowing u/s 43B of the Income Tax Act 1961, the PF dues of ₹ 5,582.97 lakhs deposited beyond due dates but before the due date for filing of the return in utter disregard to many decisions, including the Hon'ble Supreme Court, on this issue holding it to be allowable. 4.2 The authorities below have erred in not allowing the additional claim u/s 43B of the Income Tax Act 1961, of the PF dues of ₹ 1,088 lakhs disallowed in AY 2002-03 which were deposited in the current year in utter disregard to the provisions of the Act and many decisions, including the Hon'ble Supreme Court, on this issue holding it to be al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assets met by Government of India on behalf of the assessee. According, the Assessing Officer allowed the depreciation on the assets after downward revaluation of such assets by the said amount of ₹ 3001 crores. Learned AR submitted that the depreciation under the Income-tax Act is an allowable only on the WDV of the assets forming part of the gross block. Whether the assessee revalued the assets upward or downward is immaterial for the purpose of depreciation under the Income-tax Act. If the value of asset is enhanced higher quantum of depreciation would not be allowed to the assessee. Similarly, if the value of assets is reduced then also the lower quantum of depreciation should not be brought down. The depreciation should be allowed as per the WDV according to the books maintained by the assessee for income-tax purposes only. He also pleaded that the amount of loan was not waived with intention of reducing the cost of assets or subsidizing the cost of assets in any manner. This loan was waived to reduce the debt liability of the assessee company, which was under huge debt burden during the relevant period. 3. On the other hand, the learned DR relied on the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r SDF loans were waived by the Govt. of India, the assessee waived corresponding loans to Scope of ₹ 381 crores. The assessee further waived / wrote off SDF loans of ₹ 2,073 crores due from Scope. This loan consisted of ₹ 1,566 crores as principal and ₹ 506 crores as interest. The assessee company did not claim as a revenue expenditure in spite of the fact that SAIL and Scope, its subsidiaries were in the same line of business. 4. The assessee company reduced WDV of its fixed assets by the balance of loan of ₹ 3,001 crores i.e. [Rs.5,073 minus ₹ 2,072]. The assessing officer further noted that out of loan of ₹ 2,072 crores advanced by the Govt. to Scope through the assessee company, the assessee had charged interest of ₹ 506 crores on outstanding loan amount, which has been duly credited in the profit and loss account and balance amount of ₹ 1,566 crores was only waived off. This accrued interest included in the loan waived off had been accounted for as income by the assessee in respective assessment years. The assessing officer further noted that although the assessee has reduced the WDV of fixed assets by an amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the difference in the amount of depreciation on the original WDV and reduced WDV and an addition of ₹ 6,40,62,069/- was made on this account. 6. On appeal before CIT (A) it was submitted that the assessee was incurring heavy losses and the Govt. of India decided to waive loans of ₹ 5,073 crores outstanding out of various SDF loans given to the assessee much earlier and other similar loans of ₹ 381 crores. The assessee in turn waived a loan of ₹ 2,453 crores given to Scope. Consequently, the assessee was left with capital reserve of ₹ 3,001 crores [Rs.5,073 + ₹ 381 ─ ₹ 2,453], which was not available for distribution of dividends or profits. The total value of assets shown in the accounts of the company was suitably modified downwards in order to depict a realistic position. Since the loan was a capital receipt, the waiver of loan by the Govt. of India was claimed as not taxable and similarly the loan amount to Scope waived by the assessee was added back as non-tax deductible expense or expenses in capital field. The ld. AR of the assessee thus had contended that it was wellsettled that the depreciation was allowable on actu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment was brought with effect from 1/04/1999 and, therefore, it was relatable to assessment year 1999-2000 and subsequent years. The ld. CIT (Appeals) further noted that from the letters dated 31st March, 1989, 7/09/1989, 12/07/1989, 30th March, 1990 and 24th December, 1991 of the Govt. of India, Department of Steel, that these grants were sanctioned as reimbursement of payments by Scope, was subsidy to assessee for major modernization of its plants. The perusal of other sanction letters of the Govt. of India releasing funds from Steel Development Fund to assessee clearly showed that these funds were granted to the assessee on capital account for modernization of its various plants such as, additions, modifications / replacement in 4 Metric Tonne expansion in Bokaro Steel Plant and for Captic Power Plant for Rourkela Steel Plant. The funds were similarly released through various letters for up-gradation, additions, replacement and modernization of Bhilai, Rourkela and Durgapur Steel Plants. Consequent to these capital loans, the assessee company carried out its modernization programme and major additions, modifications / replacements were made in its capital assets. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nery for the purpose of calculating depreciation and investment allowance. 9. Before us the ld. AR of the assessee submitted that subsidies or grants relatable to the cost of machine are to be reduced for purpose of working out actual cost of the machinery. Loan and purchase are two different transactions. Similarly the loan and subsidy are two different things. The loan was given by the Central Govt. for modernization of the plant of the assessee company and the same was used for purchase of assets. The waiver of loan on subsequent date will not, therefore, affect the cost of assets. He further submitted that the assessee was not given subsidy at the time when the re-structuring was done. Explanation (10) to section 43(1) of the Act is applicable where assessee gets subsidy or grant or the money is reimbursed. The loan cannot be taken as subsidy or grant or reimbursement of the cost of acquisition. Therefore, waiver of the loan subsequently will have no affect on cost of the asset. He placed reliance on the decision of Hon ble Supreme Court in the case of CIT Vs. Tata Iron Steel Company Ltd. 231 ITR 285 (SC) for the proposition that waiver of loan will not alter the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 240 ITR 702, wherein it has been held that the Tribunal was right in holding that the grant given by the foreign company was deductible from the original cost/written down value of machinery for the purpose of depreciation and investment allowance. He also submitted that ITAT, Mumbai A -Bench in the case of ACIT Vs. Jagdish C. Seth (2006)101 ITD 360 (Mumbai) held that where assets were not used for the purpose of business, the value of block of assets was to be reduced by the cost of such assets and on the balance depreciation was allowable. Therefore, it was not correct on the part of the assessee that once a particular asset becomes part of the asset its value could not be disturbed and the assessee will be entitled for allowance of deduction under section 32 on all machineries constituting the part of block of assets. 11.1 We have heard both the parties and gone through the relevant material placed on record. In this case the Government of India had advanced loan from Steel Development Fund for modernisation of various plants of the assessee. The assessee had utilised those loans in acquisition of plant and machinery. The assessee had not paid the said loan including int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that there was some defect in the machinery. The liability to the foreign supplier was shown in the books of account and balance-sheet of the assessee. But in 1960 by making appropriate entries the assessee wrote back the amount of ₹ 30,572 being the price of machinery, debited the amount in the account of the foreign supplier and credited the same amount in the capital reserve account. On the question whether the assessee was entitled to depreciation on the actual cost computed at ₹ 30,572 for the assessment years 1961-62 to 1965-66. The Hon ble High Court held that, ... in view of the fact that the foreign supplier had not recovered the amount of ₹ 30,572 and no legal steps had been taken towards its recovery for so long a time, it was not unreasonable to infer that the foreign supplier had treated the liability of the assessee to itself as having ceased and in fact and in substance there had been a cessation of this liability. The Act of 1922 applied to the assessment year 1961-62, and as the foreign supplier was neither Government nor public nor local authority, though there was cessation of liability the assessee was entitled to have the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, it never came to possess the assets in reality. The assets were not shown in the schedule annexed to the balance sheet of the assessee. It was also found that the assessee had never declared the scrap value of assets during their life time even though their written down value had become zero. The assets on which the depreciation was claimed were consumer durables like TV, VCR, Refrigerators and Scooters etc., and therefore there was no question of those assets being put to any commercial use by the assessee. On these findings the assessing authority concluded that the transactions entered into by the assessee with its customers were in fact not leasing transactions inasmuch as the goods were never returned to the assessee at the end of the lease period. The Assessing Officer, therefore, declined to allow depreciation on the assets. The assessee being aggrieved by the order of the assessing authority filed appeal before the Commissioner (Appeals). On appeal both the Commissioner (Appeals) and the Tribunal concurred with the view taken by the assessing authority and dismissed the appeal. On reference the Hon ble Karnataka High Court has held that the assessee immedia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1962-63. There are also other decisions which make it clear that the original cost of an asset may change after the year of installation or erection as a result of further liabilities arising later: CIT v. U.P. Hotel-Restaurant Ltd. [1980] 123 ITR 626 (All.) and Kilkotagiri Tea Coffee Estate Ltd. v. CIT [1978] 113 ITR 729 (Ker.) decided in the context of depreciation allowance and CIT v. Mithlesh Kumari [1973] 92 ITR 9 (Delhi) and Addl. CIT v. KS. Gupta [1979] 119 ITR 372 (AP) decided in the context of the allied concept of 'cost of acquisition' for purposes of capital gains. These apart, there are clearly situations in which the actual cost does get altered prospectively and not retrospectively. One such instance is where the cost of an asset increases or decreases on account of fluctuation in the value of the currency. . Therefore, in view of decision of Hon ble Supreme Court the actual cost may change prospectively as in the cases falling u/s 43A of Act. Thus on waiver of loan by the Central Government would amount to meeting the cost of assets directly or indirectly on behalf of assessee in the year under consideration. Therefore the cost of assets ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian Income-tax Act, 1922 (11 of 1922) in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and (b) by the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988 as if the asset was the only asset in the relevant block of assets, so, however, that the amount of such decrease does not exceed the written down value;] (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item (i). In order to ascertain the written down value of a particular block of asset in any assessment year the actual cost of the assets both acquired during the year under consideration and earlier years have to be ascertained. While ascertaining the actual costs of each asset the portion of cost of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count for the relevant assessment year. The section does not say that the computation of the actual cost of the asset has to be based only on the facts or law as they stood at the time of acquisition of the asset and as could have been taken into account for the assessment year relevant to previous year of acquisition. Where subsequent information, factual or legal, reveals that the actual cost determined originally was wrong, there can be no doubt that the original figure of actual cost has to be altered, if need be, and, if possible, by re-opening earlier assessment and, if that be not possible, at least for the future. It is not correct to say that, when an assessee acquires an asset, he acquires a right to obtain depreciation thereon equal to the actual cost of the asset as originally determined for tax purposes. The effect of clause (c) to proviso 10(2)(vi) of the 1922 Act and section 34(2) of the 1961 Act is only that while allowing depreciation in respect of any asset, the assessing officer should be careful to see that the aggregate of the depreciation allowed to the assessee in respect of that asset does not exceed the actual cost of the asset. In other words, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee or has been met by someone else in whole or in part. The words has been met squarely fit into this region of the section and the use of those words does not restrict the definition in section 43(1) to assets acquired in previous year. Thus from the decision of Hon ble Supreme Court it is clear that the first step, statutorily prescribed for the determination of the written down value of any asset for any year, is for the assessing officer to determine its actual cost irrespective of fact that the actual cost of the asset had already been determined in one or more earlier years. The section does not say that the computation of the actual cost of the asset has to be based only on the facts or law as they stood at the time of acquisition of the asset and as could have been taken into account for the assessment year relevant to previous year of acquisition. Under section 43(1) read with section 43(6), the officer has to determine the actual cost for all assets, new or old and the definition of section 43(1) only requires that, at the time of doing so, he has to examine whether the actual cost has been fully laid out by the assessee or has been met by someone else in whole o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.] The object of insertion of Explanation 10 by the Finance Act (No.2), 1998 with effect from 1/04/1999 has been clarified by the Departmental Circular No. 772 dated 23rd December, 1998 as under :- 22.2 Explanation 10 provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or 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), than 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. Cost incurred / payable by the assessee alone could be the basis for any tax allowance. This explanation further provides that where such subsidy or grant for reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le or a part of moneys borrowed by him from any person directly or indirectly, in foreign currency specifically for the purpose of acquiring the asset, the amount by which the liability is so increased or reduced during the previous year shall be added to or as the case may be deducted from, the actual cost of asset as defined in clause (1) of section 43 etc. 16.2 Explanation 10 to section 43(1) has been inserted w.e.f. 01.04.1999. As per the provisions of Explanation 10 where a portion of cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or State Government or any authority established any law or by any other person in form of a subsidy or a grant or reimbursement (by whatever name called), then so much of the cost as is relatable to such subsidy or grant of reimbursement shall not be included in the actual cost of the asset of the assessee. In the case before us the Central Government has waived off the loan given to the assessee for acquiring of the assets. The waiver of loan therefore would be in nature of a subsidy or a grant. Under the provisions of Explanation 10 the amount of loan waived by the Central Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is issue is the same which has been decided by ITAT against the assessee, respectfully following the same, we dismiss ground nos.1.1 1.2 of the assessee s appeal. GROUND NOS.2.1 2.2 6. Ground Nos.2.1 2.2 related to the expenditure incurred on account of removal of overburden of mines. The Department treated these expenses as deferred revenue expenditure and held to be allowable spread over in five years by holding that benefit of expenditure would be enjoyed by the assessee over the period of time as the assessee would continue to enjoy the benefits over a long period. The CIT (A) has decided the issue against the assessee by holding as under : I have considered the submissions of the ld.AR and the facts of the case. I find that this issue has been agitated since AY 2000-01. My Ld. predecessor has decided this issue against the appellant vide order dated 26.3.04 for AY 2000-01, Assessee s appeal is pending before the ITAT. This issue was also decided by myself against the assessee in AY 2002-03 vide order dated 17.01.2008. The facts remain the same this year also. According, following the rationale of my ld. Predecessor it is held that the A.O. was just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olly and exclusively for the purposes of assessee. Therefore, the sum paid under voluntary retirement scheme was deductible. In our considered view, the expenditure in respect of voluntary retirement scheme, cost reduction studies, development of expenses on alternative method of production and removal of over-burden was in the field of revenue expenditure and was incurred wholly and exclusively for the purpose of business. Therefore, the authorities below were not justified in treating the expenditure as capital expenditure and allowing the expenditure over a period of five years. The assessing officer is directed to allow the claim of the assessee in the year in which the expenditure was incurred. In this decision, the expenditure incurred for the removal of overburden of mines has been allowed as a revenue expenditure. Therefore, respectfully following the same, we allow this ground of appeal of the assessee. GROUND NOS.3.1 3.2 8. In Ground Nos.3.1 3.2, the issue involved is treating the liability on account of Employees benefit Scheme as deferred revenue expenditure and allowing only 20% of it. This is covered against the assessee by the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. GROUND NOS.4.1 4.2 9. In ground nos.4.1 4.2, the issue is regarding disallowance u/s 43B of Incometax Act, provident fund dues of ₹ 5582.97 lacs deposited beyond due date but before the due date for filing the return. At the time of hearing, learned AR for the assessee submitted that grounds raised in Nos.4.1 4.2 are covered in favour of the assessee by the court decisions including the judgment of Hon'ble Supreme Court in CIT vs. Vinay Cement Ltd. 313 ITR (St.) 1. 10. After hearing both the sides and going through the case laws, we find that these grounds are covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of CIT vs. Vinay Cement Ltd., SLP (C) No.4619 of 2007 and Hon'ble Supreme Court held as under : 7.3.2007 : Their Lordships S.H. Kapadia and P.K. Balasubramanyan JJ. Dismissed the Department s special leave petition against the judgment dated June 26, 2006 of the Gauhati High Court in I.T.A. Nos.2 of 2005 and 56 and 80 of 2003 reported in 284 ITR 619 whereby the High Court held that the contributions made towards provident fund, etc., after the close of the accounting period but before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of arrangers fee, bank charges, under writing fee etc., which had been debited to share premium reserve in the books of accounts, but in the return of income the expenditure was claimed under section 36(1)(iii) of the Act. The assessing officer was of the view that section 36(1)(iii) of the Act allows interest on borrowed capital as revenue expenditure whereas the expenditure incurred by the assessee was in the nature of bank charges, under-writing commission, expenditure on literature etc. and it was clearly outside the scope of section 36(1)(iii) of the Act. The assessing officer also noted that the assessee, at the time of assessment, has however, agreed that in case the expenditure was to be treated as capital expenditure, then 1/10th should be allowed as per the provisions of section 35-D of the Act. The assessing officer accepted the submissions made by the assessee and allowed 1/10th of the expenses in the year under consideration and the balance was added in the income of the assessee. 27. On appeal the ld. CIT (Appeals) relying on the order for assessment year 1998-99 upheld the order passed by the assessing officer. While upholding the order he held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to issue of bonus as claimed. Since the issue is squarely covered by the decision of ITAT in favour of the assessee, respectfully following the same, we direct the Assessing Officer to allow the assessee s claim in relation to the issue of bonus as claimed. GROUND NOS.6.1 6.2 12. Ground Nos.6.1 6.2 read as under :- 6.1 Both the authorities below have erred in disallowing ₹ 1,248 lacs or 8.00% out of the interest at 8.75% payable to KFW Germany. 6.2 Without prejudice to the foregoing they should have allowed the expenses incurred [Rs.2,841 + 1,593 lacs] which have been set-off towards the subsidies of 8% received from KFW, Germany in this and earlier years. 12.1 The CIT(A) decided the issue as under : I have considered the submissions of the Ld. AR and the facts of the case. I find that the identical issue was considered by my Ld predecessor in the appeal for AY 1998-99. vide order dated 5.2.04, it was held that the appellant would be entitled for the deduction on account of interest on foreign currency loan only to the extent that it had been remitted. The same decision of CIT (A) was followed in subsequent years includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er disallowed 8 per cent of interest. On appeal, the ld. CIT (Appeals) upheld the order of the assessing officer following his order for assessment year 1998-99. He held that only 0.75 per cent has been remitted and, therefore, the assessee will be entitled for deduction on account of interest on foreign currency loan to the extent it has been remitted. 23. Before us the ld. AR of the assessee submitted that ITAT, Delhi Bench H in ITA. No. 1927 (Del) of 2004 for assessment year 1998-99 order dated 28/11/2008 has deleted the addition. Therefore, it has been pleaded that the issue is squarely covered by the decision of the ITAT. On the other hand, the ld. Sr. DR supported the order of the ld. CIT (Appeals). 24. We have heard both the parties. We have gone through the order of the ITAT in assessee s own case. We find that ITAT vide order dated 28th November, 2008 directed the assessing officer to allow the claim of interest liability at the rate of 8.75 per cent as claimed. While directing the assessing officer, ITAT held as under :- 16. We have heard the parties and considered the rival submissions. The assessee has taken a loan from M/s.KFW, Germany. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 1998-99 show the opening balance of the provision was 17.3.06 which tallied with the schedule to the balance sheet and P L account in clause 1.15 (Provision) the additions during the year was 12.59 and what was utilized during the year was 29.95 thereby the balance at the year end was nil . The assessee has not made any claim on account of the foreign exchange fluctuation loss either in profit loss account or in the assessment proceedings of this year and subsequent years. The chart in regard to the expenses incurred in relation to the Pollution Control and Environmental Management Schemes also shows that the assessee has not claimed any depreciation on the same. That being so, we are of the view that the liability of interest as per the loan agreement is absolute and the assessee has rightly claimed the expenses of the interest. It cannot be reduced by the provision for the foreign currency loss. The action of the assessee in allocating 4% out of the 8.75% towards provision for the use exclusively to cover the exchange rate loss has also been complied with. Similarly, the balance 4% has also been used for the Pollution Control Environmental Management Schemes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that the assessee in the computation of income had itself added back an amount of ₹ 98.44 lakhs representing depreciation on mining rights treating it as disallowable claim. The claim of allowability in earlier years was not pressed before the appellate authority. However, during the course of assessment proceedings for assessment year under consideration, the assessee claimed the depreciation on mining rights. The assessing officer rejected the claim of the assessee on the ground that the mining rights have not even enumerated amounts the list of eligible intangible assets. 46. On appeal the ld. CIT (Appeals) observed that change in law on depreciation on intangible assets has been brought in the statutes from 1/04/1999 and the assessee has raised the ground for the first time before the ld. CIT (Appeals). He, therefore, upheld the order passed by the assessing officer on the ground that mining rights have not been enumerated in the section as intangible rights. 47. Before us the ld. AR of the assessee submitted that depreciation on intangible assets is available under section 32(1)(ii) of the Act with effect from 1/04/1999 i.e. on assets acquired after ..... X X X X Extracts X X X X X X X X Extracts X X X X
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