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TMI Blog2023 (6) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... urt judgments, which has in turn been followed by ld. CIT(A). But in factual matrix the capital subsidy as capital receipt cannot be the part of the calculation of deduction U/s 80IB of the Act. Claiming Depreciation u/s 32 in Building, Plant and Machinery - assessee had charged depreciation on the building, plant and machinery head @ 25%, which the rate of depreciation will be @ 10%. So the 15% was disallowed by the ld. AO - AO had calculated the depreciation considering the nature of assets. The issue was already covered by the order of assessee s own case in [ 2012 (7) TMI 188 - ITAT AMRITSAR] . We relied on the order of coordinate bench upheld the order of the ld. CIT(A). Bank Charges on Bank Guarantee - AO has not considered the bank charges for bank guarantee which has no nexus of the business accordingly the addition was made - As per CIT expenditure is to be treated as revenue allowable fully in the year in which, it is incurred and no part of the expenditure can be deferred or claimed in the subsequent years - HELD THAT:- CIT(A) has taken a correct view in relation to the bank guarantee charges paid on bank amount - We are not intervening in the order of the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statutory provision amply clarified that the payable include the amount paid during the previous year .CIT(A) is correct view to upheld the addition u/s 40(a)(ia). The section will be applicable in both paid payable. We confirmed the addition. - I.T.A. Nos.288 to 291/Asr/2015, I.T.A. Nos.292 to 294/Asr/2015, I.T.A. No.255/Asr/2015, I.T.A. No.470 to 471/Asr/2015, I.T.A. No.417/Asr/2015 - - - Dated:- 24-2-2023 - DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER For the Appellant : Sh. HitendraBhauraojiNinawe, CIT. DR For the Respondent : Sh. P. N. Arora, Adv ORDER Per, Bench: The batch of appeals and Cross appeal of the revenue and assessee were filed against the order of the ld. Commissioner of Income Tax (Appeals), Jammu, [in brevity the CIT (A) ] for A.Ys. 2001-02 to 2010-11. Order passed u/s 250 (6) of the Income Tax Act 1961, [in brevity the Act]. The impugned orders were emanated from the order of the ld. Dy. Commissioner of Income Tax, Circle-1, Jammu, (in brevity the AO) order passed u/s 143(3) of the Act. In the outset we advert that all the appeals are under the same factual backdrop and in the same issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015 3. The assessee has also raised the following grounds: 1. That the learned Commissioner of Income Tax (Appeals) has erred in sustaining the partial disallowance on account of depreciation claimed in respect of Capital Subsidy amounting to Rs. 23, 16, 393/- and such disallowance is entirely misconceived and is incorrect and has arbitrarily been made. 1.1 That while doing so, the learned Commissioner of Income Tax (Appeals) has failed to appreciate the basic fact that capital subsidy received is not equivalent to investment and thus, invocation of provisions of explanation 10 to section 43(1) in unwarranted and not proper, as the said subsidy so provided is only to promote setting up of cold storages and is not a reimbursement to meet the cost of asset acquired by the appellant company, as has been wrongly alleged by learned AO and learned CIT (A) and thus, the disallowance so made should have been deleted. 1.2 That the learned Commissioner of Income Tax (Appeals) has further erred in sustaining the aforesaid disallowance purely on assumptions, presumptions, surmises and conjectures and without any evidence or material to the contrary, and hence the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to be deleted. 5. That the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in sustaining the disallowance on account of expenditure claimed as prior period expenses amounting to Rs. 4, 35, 404/-, which disallowance is entirely misconceived, incorrect and has arbitrarily been made. 6. That the learned Commissioner of Income Tax (Appeals) has grossly erred in passing the impugned order against assessee - appellant without providing any fair and proper and meaningful opportunity of being heard, thereby violating the principles of natural justice and thus such an order of assessment is vitiated both on fact and in law. 4. Brief fact of the case is that for assessment years 2001-02 to 2010-11, except AY 2005-06 the revenue and assessee has filed an appeal before us. A chart is reinserted for understanding the better fact of the case. The said chart is inserted below: - REVENUE ASSESSEE SL NO ITA ASST YR ISSUE AGITATED ISSUE AGITATED ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and beverage division This division is manufacturing juices and has its setup at Srinagar iii) Consumer Division This unit is a 100% export-oriented unit for the manufacture of juice concentrates and is located at Srinagar. iv) Warehousing Division: - This unit has controlled atmosphere stores in Srinagar for the purpose of storing and preserving the fruits in controlled atmospheric conditions temperature. v) Engineering Division: - This division is involved in the construction of controlled atmosphere stores for M/s Concor on contract basis. vi) Electronic Division: - This division is involved in trading of electronic hardware items. In computation of income the assessee has claimed deduction u/s 80IB of the Act for Rs.6,61,35,694/-. Various issues are involved for claim of 80IB. The issue was already adjudicated by the ITAT, Amritsar Bench in 415/Asr/2009 for A.Y. 2005-06 order dated 27.06.2012. The issues are mostly decided by the Coordinate Benches. The revenue has challenged the same order of the ITAT before the Hon ble High Court of Jammu Kashmir but the appeal was withdrawn. The copy of the judgment of Hon ble High Court is annexed in APB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be taxed. Respectfully following the said judgment of Hon ble J K High Court, refund of excise duty of Rs.4,66,88,681/- is held to be as capital receipt . This ground of the assessee is allowed accordingly. 6.1 The ld. CIT DR further invited our attention in the assessment order and the observation of the ld.AO is as follows: On a similar issue, the Hon ble ITAT, Amritsar Bench, Amritsar in its order dated 26th Nov 2009 in the case of Shree Balaji Alloys v ITO in ITA No. 255(ASR)/2009 has held Central Excise duty refund to be a revenue receipt and not derived from Industrial undertaking. While delivering the said judgement, the Hon ble ITAT, Amritsar Bench, Amritsar has held that the expression derived from has been judicially defined by the Hon ble Supreme Court in the case of Liberty India, having regard to the text and context of the statutory provisions of section 80IB of the text and context of the statutory provisions of section 80IB of the Income tax Act, . The Hon ble ITAT has further observed that the expression derived from cannot embrace incidental income such as Excise Duty Refund and Interest subsidy, as the same don t have first degree nexus with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT vs. Ponni Sugars and Chemicals Ltd. reported in 306 ITR 392.The relevant paragraph is extracted as below:- 6. One more aspect needs to be mentioned. In Sahney Steel Press Works Ltd.'s case (supra) this Court found that the assessee was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In the case of Seaham Harbour Dock Co. (supra) assessee was obliged to spend the money for extension of its docks. This aspect is very important. In the present case also, receipt of the subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business. That a perusal of the grounds of appeal so raised by Revenue would make it amply clear that all the said grounds are identically worded and thus, it is apparent that the Revenue also believes that the aforesaid issue is common in all the 9 appeals. Thus, for the sake of brevity,ITA No. 293/Asr/2015 is taken as the lead case and it is directed that the orders to be applied mutatis mutandis for all the remaining appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Bench of ITAT, Amritsar in ITA No.415/Asr/2009 date of pronouncement 27/06/2012 the relevant paras 13 to 13.1 are inserted as below: 13. As regards the inquiries made during the assessment proceedings especially with Central Excise Authorities with regard to the reply dated 24.12.2007 of the Central Excise Division, Jammu that there is only unit registered with Central Excise Department. The said Department has confirmed that there were expansions carried out. In this regard, we are of the view that inspite of such reply, the fact does not in any manner detract from the claim that independent undertaking was not set up by the assessee, 52 since neither the AO nor the ld. counsel for the Revenue has brought on record that as per Central Excise Act, separate registration is required, if the assessee is manufacturing a different products at the same place, when they have different undertaking. In the case of J K Synthetic Limited; reported in (1991) 52 E.L.T. 116 (Trib) relied upon by the Ld. AR (supra), it was held that if two units falls within one premises then only one consolidated license for the manufacture of goods has to be obtained as the object behind the grant of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng at the same place of the assessee. As regards reply of the Inspectors of Factories and Boilers, the same cannot help the Revenue. As regards the Insecticides Act, 1968 and Insecticides Rules, 1971, under Rule 9(2) if manufacturing activities are carried out at more than one place, only then separate registration is required whereas the assessee is carrying out manufacturing only from the same premises as different units. Now the question arises whether any requirement under different provisions of different Acts can be a pre- condition to allow deduction u/s 80IB of the Act, especially when the assessee had fulfilled all the requirements of section 80IB of the Act. We are convinced with the arguments made by the ld. counsel for the assessee, Mr. C.S. Aggarwal, Advocate that section 80IB(3) of the Act read with Explanation (g) to section 80IB(14) of the Act, which specifically provides for fulfilment of condition u/s 11B of Industries (Development and Regulation) Act, 1951. Under section 80IB(3) read with Explanation (g) to section 80IB(14), if read show that deduction can only be claimed if the assessee is a small scale industrial undertaking under section 11B of the Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilding, Plant and Machinery. 13. The ld. CIT DR placed that the assessee had charged depreciation on the building, plant and machinery head @ 25%, which the rate of depreciation will be @ 10%. So the 15% was disallowed by the ld. AO. The relevant para of the assessment order page 84 to 85 is extracted as below: On the perusal of the details filed for additions to plant and machinery in respect of Kohinoor International Agro Products (C.A. Stores), Srinagar last year as per assessment order of 2006-07, it was found that expenditure on account of material for Mezzanine floors had been included in the grouping plant and machinery. However, since such expenditure is related to buildings, depreciation @ prescribed for building only was allowed. Depreciation on the above has been claimed @ 25.%. Depreciation would be available on the above @ of 10% Hence, excess depreciation of Rs. 5,29,265/- is disallowed and is added to the total income of the assessee. Depreciation disallowable is worked out as follows: Gross Block (adjusted from above) = 35,28,437/- Dep @ 12.5% claimed = 8,82,109/- Depreciation allowable = 3,52,843/- Excess Depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the plant and not to the building. The AO has gone with the assumption and the nature of the expenditure since the expenditure is on the construction material and erection material and therefore, it has to be treated as part of building. Once the said expenditure is part of the plant and machinery, which is not under dispute, such expenditure necessarily has to be part of plant and machinery and depreciation as claimed has to be allowed. Therefore, in the facts and circumstances, the order of the learned CIT(A) is reversed and the AO is directed to allow the claim raised by the assessee. Thus, ground no. 9 of the assessee is allowed. 15.2 Following the above order for Assessment Year 2005-06 and, since the disallowances made are based on the finding made in the order of assessment for A.Y. 2005-06, the same are deleted and thus grounds raised are allowed. 15. We heard the rival submission and considered the document available in the record. The ld. AO had calculated the depreciation considering the nature of assets. The issue was already covered by the order of assessee s own case in ITAT-Amritsar Bench, ITA No-415/Asr/2009 date of pronouncement 27/06/2012 in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue expenditure. The Assessing Officer was of the view that expenditure could not be termed expenditure relevant exclusively for the period of twelve months under consideration during the assessment year 2001-02. Such expenditure had a bearing on a period of five years and therefore, assessee could not claim the benefit in the year in which, expenditure was incurred. He accordingly, allowed l/5th of the expenditure and the balance was disallowed. Furthermore, the Assessing Officer also noticed that assessee had been financing hire-purchase of vehicles and homes etc. and the periods of such financing not less than one year up to five years. He noticed that on such transaction during the selling expenses, stamping fees and commission paid to selling agents, could not be treated as expenditure related to the year in which, the transaction took place as the period of financing was more than one year and on this basis, the Assessing Officer took the view that expenditure could not be termed as having chargeable in which, they were incurred. He therefore allowed l/3rd expenditure and balance was disallowed. The Tribunal on appeal, however, allowed the above claim which was further up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced by Ms. Bansal, the general principle stated was that ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business can be allowed in the year in which it is incurred. Some exceptional cases can justify spreading the expenditure and claiming it over a period of ensuing years. It is important to note that in that judgment, it was the assessee who wanted spreading the expenditure over a period of time as was justifying such spread. It was a case of issuing debentures at discount; whereas the .assessee had actually incurred the liability to pay the discount in the year of issue of debentures itself. The court found that the assessee could still be allowed to spread the said expenditure over the entire period of five years, at the end of which the debentures were to be redeemed. By raising the money collected under the said debentures, the assessee could utilize the said amount and secure the benefit over a number of years. This is discernible from the following passage in that judgment on which reliance was placed by the learned counsel for the Revenue herself: The Tribunal, however, held that since the entire liability to pay the discount had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the expenditure is to be allowed in the year in which it was incurred. Only at the instance of the assessee who wanted to spread over, the court had agreed to allow the assessee the benefit after finding that there was a continuing benefit to the company over the entire period. The ratio of this judgment was thus summarized in the following manner: What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the Income- tax Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of matching concept is satisfied, which up to now has been restricted to the cases of debentures. 12.3 Likewise, recently, the Apex Court in the case of Taparia Tools Ltd. Civil Appeal Nos 6366-6368 of 2003 in a judgment dated 23.3.2015 has held as under: - 18 What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, it is crystal clear that expenditure is to be treated as revenue allowable fully in the year in which, it is incurred and no part of the expenditure can be deferred or claimed in the subsequent years. In view of the above judgment, the claim of expenditure is held to be eligible for deduction and disallowance made of Rs. 38,31,384/- is deleted. The ground raised is thus allowed. 18. In our considered view that the ld. CIT(A) has taken a correct view in relation to the bank guarantee charges paid on bank amount of Rs.38,31,384/-. We are not intervening in the order of the ld. CIT(A) and accordingly ground No-4 of the revenue is dismissed. ITA No. 417/Asr/2015-Ground-1, 1.1 1.2. Disallowance on account of depreciation claimed in respect of Capital Subsidy 19. The ld. counsel vehemently argued and relied on the submission. We consider the assessee s submission of the relevant pages 4 to 9 are reproduced as under: 1.7 It is submitted that perusal of the aforesaid explanation would show 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 a State Government or any autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .000/- in the old store which is equivalent to Rs, 4.10,00,000/- out of which, Rs, 1.54.42,626/- was released in the instant year. However, total investment by the appellant company as would be evident from the financial statement is Rs. 64.24 crores at the close of the year. It may be added here that the total aggregate investment before depreciation for the cold storage is as under: Sr. No. Particulars Amount (pages of Paper Subsidy received (pages of Paper Book) i) Old storage 5,75,87,552/- (139) 10,00,000/- (Received in the AY 2009-10) ii) New Storage 58,48,50,242/- (145) 20000000/- (Received in the AY 2009-10) 1,54,42,626/- (Receipt in the instant 1.8 It may be thus, evident that such subsidy cannot be said to be an amount which has been received directly or indirectly to meet the cost of the assets acquired by the appellant company. It is a mere incentive received provided by the Central Government for promotion of settin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced at page 419 to 432 of of Paper Book. -II for AY 2009-10. In other words, the submission is that disallowance of depreciation of Rs. 23,16,393/- on the basis of invoking explanation 10 to section 43(1) of the Act is highly unjustified and uncalled for. Reliance is also placed on the following judicial pronouncements: i) 65 SOT 58 (Kofi DCIT vs. Rasoi Ltd. I. Section 43(1), read with section 32 of the Income-tax Act, 1961 - Actual cost (Subsidy) - Assessment year 2007-08 - Whether in order to invoke Explanation 10, it is necessary to show that subsidy was directly or indirectly used for acquiring an asset - Held, yes - Whether relatable subsidy to an asset can be reduced from its cost only if it is found that cost of acquiring that asset was directly or indirectly met out of subsidy - Held, yes - Whether likewise in proviso to Explanation 10, it is necessary to show that subsidy has been directly or indirectly used to acquire an asset but it is not possible to exactly quantify amount directly or indirectly used for acquiring asset - Held, yes - Assessee company received subsidy from Government of West Bengal as encouragement for setting up of industrial projects - Max ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurring expenditure for installation of plant and machinery and for fixed capital investment - Held, yes - Whether further, said subsidy receipt should not be reduced from actual cost of fixed assets for computing depreciation - Held, yes [Paras 7 and 9] [In favour of assessee] v)I.T.A No. 679/Kol/2013 dated 27.02.2015 Universal Cables Ltd. vs. PC1T In view of the above facts and circumstances of the case and legal position explained by Hon'ble Supreme Court in the case of P. J. Chemicals Ltd. (supra), we are of the view that subsidy receipt should not be reduced from the actual cost of fixed assets for computing depreciation under the provisions of the Act. Accordingly, this issue of revenue's appeal is dismissed and that of the assessee is allowed. 1.10 It is thus prayed that in nutshell, no disallowance is warranted in respect of the subsidy received of Rs. 1,54,42,626/- of the C.A. Store New. The purpose of the subsidy was only to setting up the project and not to meet the cost of the asset. 1.11 It is thus, prayed that disallowance so sustained by learned CIT (A) may kindly be deleted. 20. The ld. CIT DR vehemently argued and relied on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned AO, and once learned CIT (A) in principle agreed to allow the said claim, the said observations so recorded by learned AO should have also been expunged. It is prayed accordingly from Hon ble ITAT to direct learned AO to expunge the said observations. It is further, submitted that the said finding of ld. CIT (A) is also factually incorrect, whereas, the deduction so made by learned AO under section 80 IB of a sum of Rs. 2,11,80,352/-, includes the aforesaid figures of Rs. 10,14,174/- and Rs. 91,014/-. 22.2. We heard the rival submission observed the documents. There is factual difference in both the orders of the revenue. The ld. CIT-DR only relied on the orders of the revenue. We remit back the matter to the ld. CIT(A) and adjudicate the issue considering the submission of assessee. 22.3. In the result the appeal of the assessee ground no 3 3.1 and 4 4.1 are allowed for statistical purpose. ITA 417/Asr/2015- Ground-5regards to disallowance on account of prior period expenditure: - 23. the ld. Counsel argued that Ground Nos. 5 is with regards to disallowance on account of prior period expenditure of a sum of Rs. 4, 45, 404/-.It is most respectfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, there remains no justification to sustain the disallowance u/s 80HHC of the Act. Therefore, the same is deleted and the ground raised is thus allowed. 24.2. We heard the rival submission and considered the order of revenue. The order of the ld. CIT(A) is explanatory in remand report also in favour of assessee. We upheld the order of the ld. CIT(A). So, the ground of revenue in this issue is dismissed. In the result the appeal of the revenue inground no. 5 of ITA No. 290/Asr/2015 is dismissed. ITA No. 255/Asr/2015 25. In the appeal of the assessee, the following grounds are raised: - Grounds 1. The learned Commissioner of Income Tax (Appeals) has grossly erred both on facts and in law, in confirming the order of assessment framed under section 143(3) framed by the Additional Commissioner of Income Tax, Range-3, Srinagar. 2. That the learned Commissioner of Income Tax (Appeals) has erred in sustaining the partial disallowance of expenditure incurred when he has failed to appreciate that, the aggregate expenditure incurred of Rs. 5, 30, 421/- was on account of Directors Foreign Travelling expenses, which expenditure had been incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of natural justice and thus such an order of assessment is vitiated both on fact and in law. 25.1. In this appeal the assessee has taken 5 grounds of appeal. From Ground no-1 to 3.1 were already adjudicated in favour of assessee. The Ground no. 2 2.1 of ITA No. 417/Asr/2015 is mutatis mutandis applicable for ITA 255/Asr/2015. Related ground no 4 to 4.1 the assessee claimed that applicability of section 40(a)(ia) only on payable amount not in paid amount. We relied on the CBDT Circular No-10/DV/2013 dated 15/12/2013. The statutory provision amply clarified that the payable include the amount paid during the previous year . 25.2. We heard the rival submission relied on the order of revenue. The ld. CIT(A) is correct view to upheld the addition u/s 40(a)(ia). The section will be applicable in both paid payable. We confirmed the addition. Ground No 5 of the appeal is general in nature. 25.3. In the result appeal of the assessee ground no 4 to 4.1 are dismissed. 26. In the appeals of revenue assessee are adjudicated ITA No.293/Asr/2015 and 417/Asr/2015 as lead case which are mutatis mutandis applicable to all other cases. 27. In the result, the appeals of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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