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TMI Blog2024 (10) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... reatment) that grant in aid is to be spent only on Technical Civil Works and Plant Machineries for the project and has held that same shall go to reduce the cost of acquisition of such assets. Thus the concept of actual cost recognised under section 43(1) read with explanation 10 has rightly been applied. See Dalmia Cement (Bharat) Ltd. [ 2007 (6) TMI 237 - ITAT DELHI-C] Actual cost is required to be determined in fact of this case u/s 43(1) to be read with explanation 10 for purposes of Section 32. We are interpreting the fiscal statute as it is and are going by plain and simple meaning as the language utilised by the Parliament is clear and lucid. Needless to state such language is required to be construed as it is and that too strictly with no leeway whatsoever. We have gone by the fiscal rule of literal construction of Section 43(1) on actual cost r.w. Explanation 10. We have followed the path of language itself as it is clear and lucid and requires no assistance to ascertain it s meaning. We also hold that Ld. AR has failed to demonstrate before us in any manner whatsoever as to how the order of ITAT Patna Bench in case of Dayal Steel Ltd. [ 2017 (7) TMI 952 - ITAT PATNA] is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery and technical civil work only. Appeal of the Assessee is dismissed. - SHRI. VIKRAM SINGH YADAV, AM AND SHRI. PARESH M. JOSHI, JM For the Assessee: Shri Vineet Krishan, Advocate Revenue by: Shri Dharam Vir, JCIT, Sr. DR 31-07-2024Order PER PARESH M. JOSHI, J.M. : The present appeal has been preferred by the Assessee against the order dt. 22/06/2018 passed under Section 250 of the Income Tax Act, 1961 by the Ld. CIT(A)-4, Ludhiana, Punjab (hereinafter referred to as the impugned order ). The impugned order has sustained the findings of Ld. AO whose assessment order under section 143(3) is dt. 26/12/2016. Factual Matrix 2. The Assessee is a corporate entity under the Companies Act, 1956/2013. The relevant Assessment Year is 2014-15. The Financial Year is 01/04/2013 to 31/03/2014. The assessee is in the field of cold chain. 3. The assessee in Form No. 36 which is the form of appeal to the Appellate Tribunal has declared / stated that total income for the A.Y. 2014- 15 is Rs. 31,54,889/-. The total income as computed by the AO for the A.Y. 2014-15 is Rs. 74,29,889/-. The AO has passed the assessment order under section 143(3) of the Income Tax Act, 1961. There is no statement of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs. 7.50 crore has been subsequently received in the year 2014-15 and 2015-16 by the company and utilized for repayment of TL from IDBI bank and balance payment to machinery suppliers. The amount was part of the project cost and depreciation was claimed accordingly. Moreover, the grant was paid by the Govt, of India to boost the food processing industries to lower/reduced its interest burden of term loan taken by the company from the banks/financial institution. Therefore, adjustment of depreciation on fixed assets was considered as general transaction in the books of accounts. As the interest on TL reduced by repayment of TL, hence, profitability of the company increased and net profit for the year declared accordingly. 11. The assessee vide their letter dt. 20/12/2016 explained to AO as under: As explained earlier, the subsidy received was capital subsidies and is means of finance at the time of financing of the project which was actually received after the completion of the project in the year 2013-14 Rs. 2.50 crores. The subsidy was then applied to repay the term loan from bank and payment of creditors against supply of machinery. As regard treatment of grant in aid of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in aid of Rs. 10 crore as per the guidelines of the scheme for cold chain. 16. The Ld. AO has dealt with letters of assessee dt. 29/11/2016, which was in response to his letter dt. 23/11/2016 para 9 supra. 17. We notice that in addition to AO s letter dt. 23/11/2016 there is another letter of AO dt. 06/12/2016 which stated that assessee has not reduced the amount of cost of fixed assets for the equivalent amount of subsidy so received amounting to Rs. 2.50 Crores. In other words, you have claimed excess depreciation, please explain and justify you claim. 18. The letter dt. 06/12/2016 was dealt with by the assessee vide letter dt. 08/12/2016 para 10 supra. 19. We notice that again a letter dt. NIL was issued by the AO the relevant part of which is as under: Provide the detailed Government scheme under which subsidy of which 10 crore is availed now and 35 lac was availed earlier. Also provide complete set of documents that was submitted before the relevant agency for applying the subsidy of Rs. 10 crore and the communication between the relevant government department. As per documents provided the grant in aid has been specifically provided for acquisition of plant and machinery an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of capital account. 24. The Ld. AO in Para 3.10 3.11 has finally held as under: 3.10 It is quite surprising that the assessee company was following the mercantile system of accounting still it accounted for only 2.50 crores of subsidy specifically when the Ministry of Food Processing Industry, New Delhi has approved the sanction of 10 crores of subsidy as per letter submitted by the assessee company. It is necessary to prove that portion of cost of asset acquired by the assessee has been met directly or indirectly by the government or the authority established under any law or by any other person in the form of subsidy or grant or reimbursement by whatever name called. From the perusal of reply of the assessee it is evident that the subsidy so received amounting to Rs. 2.50 crores is on account of capital subsidy which means the cost of asset has to be reduced and accordingly depreciation will be reduced as claimed by it. Further, another subsidy of Rs. 35 lacs is also received on capital account from APEDA, Ministry of Commerce Industry, Government of India. 3.11 Keeping in view the facts of the case, the evidence brought on record and replies submitted by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted vide letter No. 4-85/2013-Infra (ICC) dated 24.01.2014 by Ministry of Food Processing Industries, New Delhi. It is specifically mentioned in the letter that the MFPI grant is spent only on technical civil works and plant machineries for the project. It is clear that capital cost of investment in the projects have been reimbursed to the appellant by way of subsidy. The assessing officer has rightly applied the provision of explanation 10 to section 43 (1) and reduced the cost of subsidy from the asset value for calculating depreciation. The appellant has admittedly got reimbursed the cost of investment from the Govt. as subsidy. The view taken by the assessing officer is upheld for the reasons recorded in the assessment order. It is further recorded in para 4.3 by the Ld. CIT(A) that the assessee has failed to controvert the fact that subsidy was received for specific purpose of investment and was liable to be deducted from the value of assets for determining the amount of depreciation. 26. Being aggrieved by the impugned order the assessee is before us, in second appeal under section 253 of the Act and has interalia raised the following grounds of appeal. 1. That the order pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 013 to 31/03/2014. After reading the letter it was pointed out to us that nature and character of subsidy / grant in aid is for setting up of an integrated cold chain facilities for fruits and vegetables and not for acquisition for a specific / specified asset. Subsidy is for initial set up of project as a whole. Capital receipt are not taxable at all and that the Department of Income Tax has erred in law by reducing subsidy. Reliance was placed on Policy document of Government of India for cold chain, value addition and preservation infrastructure during 11th Five Year Plan and balance period of 12th Five Year Plan to demonstrate that financial assistance / grant in aid is meant to meet total cost of plant and machinery and technical civil work and therefore such grant in aid partakes the character of Income as that of capital receipt only and not any other. Upon a query by Bench as to nature of project set up by the Corporate entity the Learned Counsel described in brief how plant and machinery are set up and how vegetables and fruits are protected in cold chain also known as cold storages. Technical nature how cooling and freezing are done was too emphasized. Moving on further t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) building or capital additions to the buildings etc. (b) equipment s, furniture and books and (c) revenue/recurring expenditure shall be furnished to this Ministry as early as possible after the close of the Financial Year, but in no case later than 12 months of the closure of the financial year in which the grant-in-aid has been sanctioned. 3. The assets, permanent or semi-permanent, acquired wholly or substantially out of this grant-in- aid shall not without prior concurrence of the Ministry of Food Processing Industries be disposed off or encumbered or utilized for purpose other than those for which this grant has been sanctioned. A register may also be maintained by the Center in the prescribed format of such assets and got audited along with the other accounts and Utilization Certificates. 7. The grantee Institutions/bodies shall be required to maintain subsidiary accounts of the Government grant and furnish to the Accounts Officer of Audited Statement of Accounts together with a copy of their constitution. These audited statement of accounts will also be required to be furnished after utilization of the grant-in-aid or whenever called for. 8. The know how and all other aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t instalment shall be submitted by the promoter at the time of making claim for the second instalment. c) 3rd and final instalment of remaining 25% of the grant assistance will be released after ensuring that the utilization of the second instalment and 100% of promoters contribution and 100% of term loan has been invested on the project and the project has achieved completion and commercial operation has started. Utilization certificate of the second instalment shall be submitted by the promoter at the time of making claim for the 3rd and final investment. 5.2 The implementation schedule for the project would be about 18 months from the date of the approval of each project. We observe that Ld. DR further during the course of hearing laid emphasis also on above guidelines which were revised on 20/11/2013 and in particular the following paragraphs:- 6. Ineligible components: 6.1 The following items will be considered as non technical civil works and will be considered ineligible for calculation of grant for the project (The list is only indicative and not exhaustive): (i) Compound Wall (ii) Approach Road/internal Roads (iii) Cost of Land (iv) Administrative Office Building (v) Cante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at project was completed with Term Loan from IDBI and PNB for an amount of Rs.20.00crores. Thereafter the company submitted application for grant of Rs. 10 crore as subsidy under this company. The first installment of Rs.2.50crores has been adjusted in Term Loan from IDBI and balance payment to machinery supplier (Utilisation Certificate issued by CA is enclosed). The balance amount grant which was of Rs.7.50crores has been subsequently received in year 2014-15 2015-16 by the company and utilized for repayment of Term Loan from IDBI and balance payment to machinery suppliers. It was also submitted that the grant was paid by GOI to boost the foods processing industries to lower/ reduce its interest burden of term loan taken by the company from bank/ financial institution. It was again confronted to the assessee who vide its letter dated 20.12.2016 re-iterated its earlier submission. The Assessing Officer after referring to Explanation 10 to section 43(1) and Hon'ble Supreme Court's judgments in the case of Sahney Steel Press Works-Limited and Ponni Sugar and Chemical Limited where the purpose test has been discussed, came to conclusion that subsidy received by the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion sites, reefer vans, and mobile cooling units also need to be assisted under the Integrated Cold Chain projects. Integrated cold chain and preservation infrastructure can be set up by individuals or groups of entrepreneurs with business interest in cold chain solutions and also by those who manage supply chain. They will enable linking groups of producers to the processors and market through well equipped supply chain and cold chain. Salient features: - The scope of components of Integrated Cold Chain, Value Added Centre, Packaging Centre and Irradiation Facilities has been broadened to allow flexibility in project planning. The Scheme will have the following components: a. Minimal Processing Centre at the farm level and this centre is to have facility for weighing, sorting, grading waxing, packing, pre-cooling, Controlled Atmosphere (CA) / Modified Atmosphere (MA) cold storage, normal storage and IQF. b. Mobile pre-cooling vans and reefer trucks. c. Distribution hubs with multi product and multi CA /MA chambers cold storage /Variable Humidity Chambers, Packing facility, CIP Fog treatment, IQF and blast freezing, d. Irradiation facility. To avail financial assistance, any two o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted. Utilization certificate of the second instalment shall be submitted by the promoter at the time of making claim for the 3rd and final instalment. The implementation schedule for the project would be about 18 months from the date of the approval of each project. 5. The perusal of the guidelines clearly reveals that it is misplaced to contend by the assessee that the scheme was formulated to boost the food processing industry and to repay the debts raised. The subsidies, aids, grants are always granted to promote particular objectives i.e. to give impetus to socio and economic growth through set up industry in particular sector, in particular area so as to serve the various socio and economic objectives at the macro level by the government. Such objectives are not met in vacuum. The broader chart, title is always given to any scheme. The fine prints of any scheme can-not be judged by seeing the title of the book. It is apparently clear that the subsidies under this scheme were given to set up food processing and allied industries as detailed above. The setting up of any industry consists of various phases starting from the conceptualization. It consists of selecting site, const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the centre in the prescribed format of such assets and got audited alongwith other accounts and utilization certification. Had the subsidy granted been nothing to do with the asset of the assessee, no such embargo of selling the facility without approval of the authorities would be there. Therefore, it is apparent that the submission of the assessee is devoid of facts and misplaced. The provision of section 43(1) and the explanation 10 is not repeated for the sake of brevity which is being relied herewith. The copy of assessment order for A. Yr. 2016-17 is also enclosed where the assessee himself furnished the calculation as per department's contention and accepted the assessment order to the best of the knowledge of the undersigned. Further the department shall rely upon the judgment of the Hon'ble ITAT Delhi Bench in the case of DCIT Vs. Dalmia Cement Bharat Ltd. 307 ITR 36. It was held that the incentive received by a sugar mill (by way of free sale quota of sugar) was capital in nature, as such incentive was to be utilized for payment of loan taken by sugar mill in respect of fixed asset. Further considering the manner of utilization of incentive (or subsidy), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istry of Food Processing Industries letter is dt. 04/10/2013 wherein the MFPI (Ministry of Food Processing Industries) has approved non recurring grant in aid of Rs. 10 Crores for 1st Location Distribution Hub Collection Centre: 1 Nos At Village Jalvehri Gehlan near Sadhugarh in District Fatehgarh Sahib, Punjab At village Gungrara, District: Ludhiana (Punjab) i. Pre-cooling (5Mt/Hr) and 50 MT cold store for Vegetables ii. MA Cold Storage (5000 MT) i. Sorting, grading, packing facility iii. IQF (5MT/Hr) iv. Frozen Cold Storage (3000 MT) v. Refer van (1 No. x 13 MT and 3 Nos. x 5 MT) That above was subject to the provisions of guidelines of scheme (supra). From bare reading of above table perse shows that grant in aid were for setting up pre cooling / cold storage for vegetables, Frozen Cold Storage, Ref Van , Sorting, grading, packing facility which broadly falls under setting up of integrated cold chain project under the scheme of Cold Chain Value Addition and Preservation Infrastructure. In brief it was for capital of the industry. Be it noted that the in addition to several conditions one of the condition was certificate of CE(Civil) and CE (Mechanical) for Technical Works and Pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme was to provide integrated Cold Chain Value Addition and Preservation Infrastructure facilities without any break, from the farm gate to the consumer. To achieve this objective pre-cooling facilities at production sites, reefer vans and mobile cooling units are also assisted under the Integrated Cold Chain projects. Integrated cold chain and preservation infrastructure can be set up by individuals, groups of entrepreneurs, cooperative societies, Self Help Groups (SHGs), Farmer Producer Organizations (FPOs), NGOs, Central/State PSUs, etc. with business interest in cold chain solutions and also by those who manage supply chain. This will enable linking groups of producers to processors and market through well equipped supply chain and cold chain. 28.9 We also observe and note that in Scheme of 2013 under caption components of scheme there is use of words to avail Financial assistance under this Scheme . Under caption Pattern of Assistance there is use of words Financial assistance . 28.10 We also observe and note that in scheme of 2013 under caption Ineligible Components following is stated : 6. Ineligible components: 6.1 The following items will be considered as non techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On perusing financial details note 2 Page 68 of Paper Book 2 we observe that assessee has received an amount of Rs. 35 lakhs from Agriculture and Processed Foods Products Export- Development Authority (APFDA) Ministry of Commerce Industry, Government of India towards financial assistance under the Scheme of Infrastructure Development for setting up hot water dip treatment during the F.Y. 2011-12. In brief total grant in aid for A.Y. 2014-15 upon consolidation comes to Rs. 2.85 Crores (Rs. 35 lakhs brought forward). We therefore hold and conclude in so far as amount of Rs. 2.5 Crores is concerned as Financial Assistance for Civil Work Technical, Plant Machinery for setting up of integrated Cold Chain facilities for fruits and vegetables under the scheme of setting up of integrated cold chain project under the Scheme of Cold Chain Value Addition and Preservation Infrastructure as enunciated in guidelines document of Government of India, Ministry of Food Processing Industries dt. 18/03/2010 and 20/11/2013 (pages 17 to 38 of Paper book 2). 28.14 We also hold after carefully perusing both the guidelines documents that nature of grant in aid is in the form of financial assistance subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation of the assessee for A.Y. 2014- 15, corresponding to financial year 2013-14. Definitions of certain items relevant to Income from profits and gains of business or profession: 43. In section 28 to 41 and in this section, unless the context otherwise requires:- (i) 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. [ 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: Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such assets bears to all the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n aid @ 15% an amount of Rs. 37,50,000/- is disallowed. Whereas against Rs. 35 lakh subsidy from APEDA @ 15% an amount of Rs. 5,25,000/- is disallowed. The aggregate disallowance towards depreciation is Rs. 42,75,000/-. 28.21. We also note that in so far as amount of Rs. 35 lakh is concerned which amount was received by the assessee as subsidy from APEDA in books of account at note 2 it is simply stated as subsidy from APEDA. No material or better particulars are stated on its nature. 28.22 We hold that material and better particulars of allowable components of grant in aid of Rs. 2.5 Crores as envisaged in scheme documents (supra) are not provided for before AO and CIT(A) including before us. By material and better particulars of allowable components of grant in aid we mean details of Technical Civil work and plant and machinery including actual cost / purchase price of each depreciable assets i.e; allowable under scheme / Income Tax laws. The material particulars of each component as envisaged in scheme and tax laws are absent. In Audit Report Note 2 a narration in broad term are given. Be that as it may we are of the considered opinion that it is incumbent upon the assessee both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise in the orders of the lower authorities. 28.24. We further hold that Section 43 where the expression actual cost is defined is plain and simple. There is no ambiguity in it. It is lucid on plain reading of it. It clearly means and imply that actual cost of assets means and imply that actual cost of assets means actual cost of assets to the assessee reduced by that portion of cost thereof if any as has been met directly or indirectly by any other person or authority. Going by this definition perse cost of assets must be actual but in this actual cost any addition is made directly or indirectly by any other person or authority (in this case by Government of India through MFPI and APEDA) then such cost is required to be reduced. This is therefore plain and simple. Admittedly funds of the assessee were in pool consisting of sources which were diverse i.e; Promoter s Funds, Bank Finance irrespective of terms used by bank like term loan etc, share capital money, secured loans, unsecured loans, grant in aid, subsidy etc the list could be exhaustive for any corporate entity and there is no big deal about it that invariably there is a common kitty of funds. When grants in aid / subsidy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes this. It is a statutory requirement as accounts of both are subject to CAG Audits too. Unfortunately this has not happened and both AO and CIT(A) have given their comments with reasoning in their respective orders. We agree with them. Before us nothing in brought on record as and by way of compliances both under Scheme and Income Tax Act. In brief assessee simply said that grant in aid are capital receipt but a simple assertion without any supporting both under scheme as well under Act has no meaning. There is thus total absentism of material particulars as to what constituted actual cost. How costing analysis is done in order to arrive at actual cost of depreciable asset is unknown or nothing is spelt out . Further Section 145(2) of the Income Tax Act has been given a convenient go by. Income computation and disclosure standard VII relating to Government grants have not been followed at all. Concept of actual cost read with explanation 10 of Section 43 which expressly state that 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of computation of income chargeable to Income Tax under the head profits and gains of business or profession or Income from other sources. No doubt this notification shall apply to A.Y. 2017-18 and subsequent years but for limited purpose an analogy briefly can be made by reading the following: G. Income computation and disclosure standard VII relating to Government grants. In 5 which deals with treatment of Government grant 5 it is stated that where the Government grant relates to a depreciable fixed assets or assets of a person, the grant shall be deducted from the actual cost of the assets or assets concerned or from the written down value of block of assets to which concerned asset or assets belong to. Be that as it may even before codification as aforesaid the Government grants were required to be reduced from actual cost. We gainfully refer to Indian Accounting Standards (Ind AS ) 20-Accounting for Government grants disclosure of Government assistance. We further hold irrespective of any treatment is given to the Government grants in the books of accounts the mandate of law with regard to the actual cost is clear and express. Statutory provisions of law under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n where such subsidy or grant or reimbursement is of such nature but the subsidy or grant or reimbursement cannot be directly relatable to the asset acquired by the assessee. In such a situation, the proviso envisages that so much of the amount which bears to the total subsidy or reimbursement or grant, the same proportion as such asset bears to all the assets in respect of or with reference to which subsidy or grant or reimbursement is so received shall not be included in the actual cost of the asset to the assessee. The proviso enables adjustment of subsidy in all the assets of the assessee. The language of the proviso is clear that the subsidy received without specifics shall have to be adjusted from the assets of the assessee. The object is to limit depreciation only on the actual cost of the assets of the assessee. The proviso takes care of the general financial assistance i.e. without specific purpose, received and the actual cost is worked as per the proviso. We follow the precedent in Sundaram Pillai case (supra) on the point and hold that the proviso is an independent expression on working of actual cost of assets of assessee. The assessee, under the ASIDE, in the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e one in the form of grant in aid for the plant and machinery and technical civil work and other in the form of value / cost of asset eligible for depreciation by not reducing its value by grant in aid amounts. It is for this reason the very definition of actual cost of assets under section 43(1) r.w. Explanation 10 means that the actual cost of the assets to the assessee reduced by that portion of cost thereof, if any, as has been met directly or indirectly by any other person or authority. This is coupled with Explanation 10. Explanation in statute clarify what is meant in substantive portion of the statute. The Ld. AR has failed to address us on Section 43(1) and Explanation 10 during the course of the hearing to demonstrate before us as to how the strict formula envisaged by law would not be applicable to the assessee. The Ld. AR also has failed to demonstrate before us as to on what basis assesee holds the view that grant in aid is not required to be reduced. Grant in aid is towards plant and machinery and technical civil work is therefore required to be deducted / reduced from the value/cost of the assets eligible for depreciation. It can therefore be said in law that grant i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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