TaxTMI 
TaxTMI 
2015 (5) TMI 650
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....f balance 50% additional depreciation u/s 32(1)(ii) of the Act in respect of new plant and machinery, purchased and put to use for less than 180 days in the immediately preceding year. For the sake of brevity, we dispose of the issue by taking the facts of the case from AY 2008-09. The relevant ground raised by assessee in ITA No. 679/K/2013 is as under:- "1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in not directing the AO to allow balance 50% of initial depreciation to the extent of Rs. 4,17,51,970/- u/s. 32(1)(ii) on Plant & Machinery put to use for a period of less than 180 days during the financial year 2005-06 relevant to AY 2006-07." 3. Brief facts are that during financial year 2007-08 relevant to AY 2008-09, the assessee purchased and installed new plant and machinery for its manufacturing unit. Such plant and machinery was put to use for a period less than 180 days during the aforesaid financial year and claimed balance 50% of additional depreciation u/s 32(1)(iia) of the Act in view of the second proviso to Sec. 32(1) of the Act. During the current financial year 2007- 08 relevant to AY 2008-09, the year under consideration, the asses....
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....by the decision of Coordinate Bench of ITAT "A" Bench, Kolkata in the case of ITA No. 683/K/2011, Birla Corporation Ltd. Vs. DCIT for AY 2007-08 dated 08.12.2014, wherein it has been held as under: "15. We have heard rival submissions and gone through facts and circumstances of the case. The facts are admitted and there is no dispute on the facts. Only issue for adjudication is whether the assessee is entitled for the balance 50% additional depreciation in view of sec. 32(1)(iia) of the Act in the next assessment year for remaining unutilized additional depreciation. We have gone through the relevant provisions of second proviso to section 32(1)(ii) and 32(1)(iia) of the Act. In the present case before us, the assessee has purchased and installed new plant and machinery for its manufacturing unit and put to use for a period of less than i.e. 180 days, during the FY 2005-06 relevant to AY 2006-07 and claimed 50% additional depreciation u/s. 32(1)(iia) of the Act in view of the second proviso to section 32(1)(ii) of the Act. Further, the balance 50% of additional depreciation on such plant and machinery has been claimed by the assessee company during the year under consideration i.e....
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....w that the assessee now is entitled for 50% additional depreciation, because in the year in which the machinery was first put to use the assessee claimed only 50% of additional depreciation for the reason that the same was put to use for less than 180 days, in this assessment year for the balance of depreciation. 16. Before us, Ld. counsel for the assessee relied on the decision of Coordinate Bench of ITAT of Cochin in the case of Apollo Tyres Ltd. Vs. ACIT in ITA No. 616/Coch/2011 for AY 2007-08 dated 20.12.2013 (unreported), wherein the Bench has decided the issue as under: "10. We have also carefully gone through the Second Proviso to section 32(1)(ii) of the Act, which reads as follows: "Provided further that where an asset referred to clause (i) or clause (ii) or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purpose of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause ....
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.... in the case of ACIT vs. SIL Investment Ltd. 148 TTJ 213 (Del). This issue was considered by the Delhi Bench of this Tribunal in the case of Cosmo Films Ltd. (supra), wherein considering the provisions of section 32(1)(iia) and second proviso to section 32(1)(ii) of the Act found that when there is no restriction in the Act to deny the benefit of balance 50%, the assessee is entitled for the balance additional depreciation in the subsequent assessment year and observed as under: "... Thus, the intention was not to deny the benefit to the assessee who have acquired or installed new machinery or plant. The second proviso to section 32(1)(iia) restricts the allowances only to 50% where the assts have been acquired and put to use for a period less than 180 days in the year of acquisition. This restriction is only on the basis of period of use. There is no restriction that balance of one time incentive in the form of additional sum of depreciation shall not be available in the subsequent year. Section 32(2) provide for a carry forward set up of unabsorbed depreciation. This additional benefit in the form of additional allowance u/s. 32(1)(iia) is onetime benefit to encourage the indust....
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....tion u/s. 32(1)(iia) of the Act in these assessment years also. We direct the AO accordingly. This issue of assessee's appeals is allowed. 6. The next common issue in these two appeals of assessee is as regards to the estimated disallowance u/s.14A of the Act. For the sake of brevity, we dispose of the issue by taking the facts of the case from AY 2008-09. The relevant ground raised by assessee in ITA No. 679/K/2013 is as under:- "2. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in not deleting the disallowance of Rs. 1,54,73,515/- treated by ld. Addl. CIT as expenses attributable to earning Dividend income and did not hold that no expenses have been incurred to earn the said income." 7. Briefly stated facts are that during the year under consideration i.e. AY 2008-09 the assessee company earned dividend income of Rs. 11,27,555/- and claimed the same as exempt u/s. 10(34) of the Act. The AO during the course of assessment proceedings applied the provisions of Rule 8D of the I. T. Rules, 1962 and allocated a sum of Rs. 1,54,73,515/- as expenses attributable for earning dividend income i.e. exempt income and disallowed the same. Aggrieved, assess....
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....n the absence of any such materials placed by the assessee, in our opinion, the authorities below rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt source. In the absence of any material disclosing the source of acquisition of shares which is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in assessment." Ld. Counsel for the assessee referred to this very para and stated that the Hon'ble High court has confirmed the disallowance only on the reasoning that the assessee is unable to produce documentary evidence that the shares purchased from the amount taken in loan 5 or 10 years ago, whether, the same have been paid back for the relevant AY and consequently no interest is payable by the assessee for acquiring those shares. According to Ld. Counsel, this means that the nexus is very much important even in term of the judgment of Hon'ble Calcutta High court in Dhanika & Sons, supra. For this, Ld. Counsel for the assessee requested that neither the AO nor the CIT(A) has gone into the nexus of the investment of the shares and loan taken by assessee on....
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....hat the assessee is engaged in the business of manufacturing and sale of Cables and Cable wires. The assessee had put up a new project viz. Technical Upgradation-cum- Expansion Project for manufacture of XLPE Underground Power Cables using Vertical Continuous Vulcanization (VCV) technology. The total capital investment cost for this project was 61 Crores. The State Government after evaluation of the proposed project of the company, granted certain fiscal incentives including Industrial Investment Promotion Assistance (UP A) for a period of 7 years from the date of Commencement of Commercial Production subject to fulfilment of condition as regarding infusion of capital investment as committed by the Company. Since the Project of the Company was of special importance and located in a backward district of category 'A', the government accorded the assistance for a period of 7 years instead of normal eligibility period of 5 years. However the maximum ceiling of the assistance was equivalent to fixed capital investment only. As per the Scheme, the amount of assistance which is to be claimed on yearly basis is determined @ 75% of total Commercial tax (MP VAT + CST) deposited (net ....
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....sessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account." 50. The Hon'ble Jurisdictional High Court has held on the issue of Industrial promotion assistance in the case of CIT vs. Rasoi Ltd. (2011) 335 ITR 438 (Calcutta) as follows:- "4. The Assessing Officer opined that the assessee received the abovementioned amount as industrial promotion assistance from the Government of West Bengal during the year under consideration, and in its accounts, the assessee had shown this amount as income under the head "Other income". It was, however, pointed out that in the notes of accounts, the assessee mentioned that although the amount had been accounted for in the above manner, the company had been legally advised that it was of the nature of capital receipt for the purpose of computation o....
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....r only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly, the matter was decided against the assessee." [Emphasis supplied] 18. In the aforesaid case, it was held that if the object of the Subsidy Scheme was to enable the assessee to run the business more profitably the receipt is on revenue account. On the other hand, if the object of the assistance under the Subsidy Scheme was to enable the assessee to set up a new unit or to expand the existing unit the receipt of the subsidy was on capital account. Therefore, the Court proceeded; it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant. 19. In the case before us, the object of the subsidy is for expansion of t....
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....rther directed that since, he has treated Industrial Promotion Assistance (IPA) as revenue subsidy and whole of it has been added as income. The appellant has not deducted this subsidy out of its capital assets for depreciation purposes even although specifically provided in issue Explanation 10 to Section 43 w.e.f. 01-04-1999 provides that {"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 ..... and 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 sub....
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....The Hon'ble jurisdictional High Court has not considered the amendment carried out as per explanation 10 to subsection 5 of section 43 in the case of CIT vs. Rasoi Ltd. (supra) regarding the depreciation on the capital assets since the matter involved was assessment year 1995-96 and the amendment in the explanation 10 was brought into force w.e.f 1.4.1999. Therefore, the Assessing Officer is directed that after taking into consideration Explanation 10 to section 43; to re-compute the depreciation on all depreciable assets taking in to account that capital subsidies have been received by the appellant for depreciable assets. The value of the depreciable assets as on the date of applicability of the scheme on the appellant will be taken in to account and it will reduce the value of assets accordingly. This ground of appeal is partly allowed." Aggrieved, both revenue and assessee, came in second appeal before Tribunal. 14. Before us Ld. Senior Advocate Shri J P Khaitan on behalf of assessee argued that the industrial investment promotion assistance of Rs. 2,61,93,863/- received by it in terms of the Madhya Pradesh Industrial Investment Promotion Assistance Scheme, 2004 (hereinaf....
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.... to be satisfactory. (e) Before disbursement of the assistance, the unit was required to enter into an agreement with the State Government in terms of which the unit was to undertake to make the requisite investment in fixed assets within the agreed time span. (f) It was a mandatory requirement for the unit to be operative as on the date of application, during the period of grant of assistance and for five years thereafter. If the unit remained closed for more than six months, the entire assistance was to be recovered as arrears of land revenue. (g) The said Scheme was to be operative from April I, 2004 to March 31, 2009 and commercial production had to commence on or after April 1, 2004 but before April 1 2009. (h) Benefit under the said Scheme was not to be granted to specified traditional units, closed units sought to be revived, new units set up by transferring, shifting or dismantling or closing an existing unit within the State, units undertaking process which did not amount to manufacture, public sector undertakings of the Government of India and joint sector units of such undertakings and industrial undertaking wholly owned by the Government of India or the State Govern....
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....that it was the object for which the subsidy/assistance was given which determined its nature and the form or the mechanism through which the subsidy was given was irrelevant. He referred to CIT v Rasoi Ltd. (2011) 335 ITR 438 (Cal), wherein Hon'ble Calcutta High Court dealt with grant of industrial promotion assistance equivalent to 90% of the sales tax paid. It was held by the Hon'ble Calcutta High Court that the object of the assistance was for expansion of capacities, modernisation and improving marketing capability and the same was on capital account. Mere quantification of the amount of assistance with reference to the amount of sales tax paid did not imply that there was refund of sales tax paid. In view of the above tests laid down in the aforesaid judgments, he explained that there can be no manner of doubt that the assistance granted to the assessee was a capital receipt. The object of the said Scheme was clearly to enable the setting up of a new unit or expansion of an existing unit and the assistance was, therefore, on capital account. The extent of assistance and the period for which it was to be granted was linked to the fixed capital investment. Projects with....
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....e. 16. We have carefully considered the observations of the Assessing Officer in the assessment order and submissions of the assessee. The subsidy was received in terms of Madhya Pradesh Industrial Investment Promotion Assistance Scheme, 2004 in respect of Technological up-gradation - cum - Expansion project for manufacture of XLPE underground power cables using Vertical Continuous Vulcanization Technology in India. The scheme has been framed with an objective to increase employment and establishing new industrial unit by enhancing new capital investment in the state of Madhya Pradesh. Some of the features of the scheme are as follows: "25.The Scheme was applicable in respect of new industrial units having capital investment in fixed assets of more than Rs. 1 core. In respect of expansion / diversification / technological upgradation / modernisation, minimum capital investment of Rs. 5 crore in fixed assets was mandatory. Capital investment in fixed assets was defined to mean investment made in factory premises on land, building, plant and machinery, electrical establishments and pollution control devices and apparatus. Industries having fixed capital investment of Rs. 25 crore a....
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....f raw material) deposited by the unit in the preceding year would be given to the industry having fixed capital investment more than Rs. 10.00 crores. Provision for this purpose would be made in the departmental budget. The assistance would be available as per the following chart :- S. No. Category of District Minimum eligible fixed capital investment Duration of Assistance 1. Advanced district Rs. 25 crore 3 Years 2. Backward District A Rs. 20 crore 5 Years 3. Backward District B Rs. 15 crore 7 Years 4. Backward District C Rs. 10 crore 10 Years Amount of assistance will not be more than fixed capital investment." The Industrial Promotion Policy 2004 was formulated by the State Government of Madhya Pradesh for the promotion of industry in the State. The scheme does not mention explicitly regarding the subsidy as sales tax subsidy but says it to be Industrial Investment Promotion Assistance. It provides that IPA will be calculated @ 75% of the sales tax, deposited. It was applicable in respect of units to be set up and also to expansion projects of existing units having investment in fixed assets. The sales tax payable is adjusted up to 75% by way of incentive ....
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....CV technology as capital receipt for the reason that the overall limit of exemption is linked to the fixed capital investment and is in the nature of subsidy for setting up a new unit / expansion of existing unit. The subsidy received as above, is in the nature of capital receipt and CIT(A) has rightly held so. On this issue we confirm the order of CIT(A). 17. Even Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. (supra) has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under sec. 43(1) for the purpose allowing depreciation. It is further held that if Government subsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does no....
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.... was acquired by directly or indirectly using the subsidy. The above Explanation and the proviso thereto do not dilute the finding of the Hon'ble Supreme Court in the case of P. J. Chemicals Ltd.(supra) that asset-wise subsidy alone can be reduced from the actual cost. The above Explanation and the proviso therein attempt to explain the law. They are not bringing any new law different from the law considered by the Hon'ble Supreme Court in the above cases. 18. This issue has been considered by the Coordinate Bench decision of this ITAT, Visakhapatnam Bench in the case of Sasisri Extractions Ltd. Vs. ACIT (2008) 307 ITR (AT) 127 (Vizag) wherein exactly identical investment subsidy was under consideration and even Explanation (10) of sec. 43(1) of the Act was considered and decided as under: "We have carefully considered the rival submissions and perused the record. In our considered opinion, even after insertion of Explamatopm 10 to section 43(1) of the Act, the basic principle underlying in the decision of the apex court in the case of P. J. Chemicals Ltd. (1994) 210 ITR 830, still holds the field. Their Lordships analysed the expression "met directly or indirectly" to co....
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....claimed entry tax amounting to Rs. 1,01,09,282/- as deduction without taking it through P&L Account. The AO made addition of this amount. Aggrieved, assessee preferred appeal before CIT(A) claiming the entry tax as exempt being capital receipt similar to the scheme of Govt. of Madhya Pradesh being Industrial Investment Promotion Assistance. But CIT(A) confirmed the action of the AO by observing in para 72 to 76 as under: "72. The provisions of section 43B are very clear and it starts with a non abstante clause stating that notwithstanding anything contained in any other provision of this Act certain deductions are to be only on actual payment. Any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. It further provides that for the purposes of clause (a), as in force at all material times, "any sum payable"....
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....National Housing Bank Act, 1987 does not overrides the Income Tax Act, 1961 and further observed as follows:- "19. Question No. (iv) is as to whether the National Housing Bank Act, 1987 overrides the Income Tax Act, 1961? Though both the Acts are Central Act they are occupying different fields. The purpose of enacting both the Acts are different. Income Tax Act has been enacted to levy tax on income which is covered under Entry No.82 of List-IUnion List of Seventh Schedule to the Constitution. The National Housing Bank Act, 1987 has been enacted to promote housing finance institutions both at local and regional levels to provide financial and other support to such institutions which are covered under Entry-45 of List-I- Union List of Seventh Schedule to the Constitution of India. There is no such provision in the National Housing Bank Act that it will override the Income Tax Act. Since the impugned orders are passed under the Income Tax Act, 1961, they are governed by the provisions of Income Tax Act. Therefore, the contention of the petitioner that National Housing Bank Act, 1987 overrides the Income Tax Act, 1961 is wholly untenable in law." 76. The appellant has not paid the ....