TaxTMI 
TaxTMI 
2015 (6) TMI 517
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "Your appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & facts. It is submitted that it be so held now. 2.(i) The learned CIT(A) erred in confirming the disallowance of the claim of depreciation of Rs. 3,00,06,370/- on portion of plant and machinery received towards grant/subsidy from National Dairy Development Board under "70% loan and 30% grant" scheme. Your appellant submits that 30% grant has been received towards the project as a whole and hence, it is entitled to depreciation on the entire cost of assets installed and put to use without deducting the grant portion. It is submitted that it be so allowed now. (ii) The learned CIT (A) erred in law and on facts in holding that Explanation 10 to section 43(1) of the Act would apply in respect of assets acquired prior to 1-4-99 and also in respect of grants received prior to 1-4-99 and thereby would apply from assessment year 1999- 00 irrespect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Fund amounting to Rs. 3 lacs, disallowance of Rs. 2,50,00,000/- being contribution to Amul Research & Development Association (ARDA) for Dairy Development/Research expenses, disallowance of other business expenses amounting to Rs. 4,88,263/-. Against this, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions of the assessee, partly allowed the appeal. While partly allowing the appeal, the ld.CIT(A) confirmed the disallowance of claim of depreciation of portion of plant and machinery received through grant subsidy amounting to Rs. 3,00,06,370/- and also confirmed the disallowance of contribution of Rs. 2,50,00,000/-. Against these two additions, the assessee has preferred the present appeal. 3. First ground of the appeal is general in nature and needs no independent adjudication. 4. Ground Nos.2(i) to 2(iii) are inter-connected, therefore the same are decided together. The ld.counsel for the assessee submitted that the ld.CIT(A) was not justified in confirming the disallowance. He submitted that the issue is squarely covered by the judgement of Hon'ble Kerala High Court rendered in the case of CIT vs. Sun Fibre Optics (P.)Ltd. reported at (2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....)]. Decision given in earlier year has no binding force in next assessment [H. A. Shah & Co. (1956) 30 ITR 618]. Moreover, law was amended by Finance Act, 1998 and Explanation 10 to section 43(1) was inserted w.e.f. 1.4.1999. The decision in earlier assessment years was with reference to different position in law and cannot be applied to A.Y.2002-03. 5.2.1. Appellant's contentions at Sr. No. (ii) as above is now taken up. Explanation 2 to section 43(1) is applicable when an asset is acquired by way of gift or inheritance and provides for determination of actual cost of asset to be same as actual cost to the previous owner as reduced by amount of depreciation allowed/allowable till then. In appellant's case, the assets in question were not acquired by way of gift or inheritance. As such, there is no application of Explanation 2 to section 43(1). 5.2.2. Appellant's contention at Sr.No.(i) is now taken up. As far asallowance of depreciation on grant portion in assessment years prior to A. Y. 1999-2000 is concerned, since Explanation 10 was inserted w.e.f, 1.4.1999, position in law was different for earlier assessment years and ITAT/High Court decisions for those asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ead project at Mogar as per letter from NDDB filed by the appellant. In appellant's case, the grant was received for establishing the said dairies/bread spread project and not to accelerate industrial development of State as was the case in P. 3. Chemicals Ltd./Sasisri Extractions Ltd. In appellant's case, grant was received to offset the cost of assets only. Decision in case of Sasisri Extractions Ltd. is therefore not applicable. As far as appellant's contention about ,the grant being towards project as a whole is concerned, the grant in appellant's case was towards the assets in question only. Moreover, this aspect is clearly covered by Proviso below Explanation 10 to section 43(1). Appellant's contention at Sr.No.(iv) above is therefore, not acceptable. 5.2.4. I now take up appellant's contention at Sr.No.(iii), i.e. Explanation 10 to section 43(1) is not applicable for assets acquired prior to F.Y. 1998-99. As mentioned earlier, Hon'ble ITAT, Ahmedabad in the case of GCMMF in A.Y.2000-01 has not considered the impact of Explanation 10 to section 43(1) and has followed its decisions for earlier years, when Explanation 10 was not on the statute boo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s is upheld. Disallowance of Rs. 3,00,06,370/- is confirmed." 5.1. It is not disputed that the claim of the assessee was allowed in earlier years. However, in the present case, the claim is rejected on the ground that Explanation-10 to section 43(1) of the Act inserted w.e.f. 01/04/1999 envisages 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 any authority established under any law or by any other person in the form of subsidy or grant or reimbursement (by whatsoever 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. It is the submission of the assessee that this Explanation would apply to the assets which are acquired post-insertion of this Explanation. 5.2. The issue which requires examination is whether the assessee is entitled for depreciation on the entire amount including the grant potion. The Hon'ble Jurisdictional High Court in the case of ACIT vs. Gujarat Co-op.Milk Mktg. Federation Ltd. in Tax Appeal No.113 of 2008 dated 20/04/2010 had formulated question of law wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce scheme. To the extent to which the cost of the machinery was covered by the grant, it amounts to the cost being met directly or indirectly by any other person or authority and, therefore, the value of such grant is rightly reduced by the ITO from the actual cost of the machinery in question while allowing the depreciation. The appeal on this point fails". The apex Court has pointed out that expression "actual cost" needs to be interpreted liberally. Subsidy of the nature we are concerned with, does not partake of the incidents which attract the conditions for their deductibility from "actual cost". In view of that, answer to question No. 2 must be in the affirmative, i.e., in favour of the assessee and against the Revenue." 5.4. The Revenue has placed reliance on the decision of Coordinate Bench (ITAT "A" Bench Ahmedabad) passed in ITA No.1372/Ahd/2010 for AY 2005-06 in the case of Vidya Dairy vs. ACIT, dated 12/07/2013, wherein the Coordinate Bench has decided this issue in para-8 by observing as under:- "8. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the Assessee had received grant from NDDB prior to 1995 bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3/1998 and depreciation was granted for subsequent years based on the actual cost without reducing the subsidy amount under Explanation 10 to Section 43(1), the assessee is entitled to depreciation on the written down value for the assessment year 2002-03. The main reasoning of the Tribunal is that the provision for reduction of subsidy from cost of machinery was introduced by the above amendment only with effect from 01/04/1999 and so much so, it does not apply to investments made any time prior to that which in this case is before 31/03/1998. Since the Tribunal allowed assessee's appeal, the Department filed this appeal before us challenging the findings of the Tribunal 5. After hearing both sides we are unable to interfere with the orders of the Tribunal because the Tribunal has followed the decision of the Honourable Supreme Court in the case of CIT v. P.J. Chemicals Ltd. [1994] 210 ITR 830 / 76 Taxman 611 . Further we do not know on what basis the Department can introduce retrospectivity to the amendment introduced when the Legislature has not done so. Obviously, the above amendment is prospective in nature and the same applies to investments 'made on plant and mach....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... organization falls under section 35(1) of the Act. However, the ld.CIT(A) did not allow the deduction as condition envisaged u/s.35(1) of the Act is not complied with. He submitted that under these facts, the assessee cannot be allowed the claim of deduction u/s.37 of the Act. 7. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. There is no dispute with rated to the fact that the assessee has made contribution to ARDA. It is pertinent to note that this entity was created by the assessee itself which is engaged in the field of research and development related to cattle-feed,etc. It is also not disputed that the contribution is as per bye-laws of the assessee. The contention of the ld.counsel for the assessee is that the contribution being made for the business purposes and for commercial expediency, such expenditure is required should be allowed as a business expenditure. The ld.CIT(A) did not allow the claim by observing as under:- "8.2. I have considered facts of the case and appellant's submissions. At the time of assessment, appellant did not specify particular section of the Income tax ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... have been admissible u/s.35 also due to conditions under that section being not satisfied. To sum up, disallowance of Rs. 2,50,00,000/- is confirmed." 7.1. There is no dispute with regard to the fact that the section 37 is a residuary section with regard to availability of expenditure under the head "business or profession". For the purpose of availing the deduction u/s.37 of the Act, the assessee is required to demonstrate that the expenditure is not in the nature described under sections 30 to 36 of the Act and not being in nature of capital expenditure or personal expenses of the assessee, laid out for commercial expediency wholly and exclusively for the purpose of business. In the case in hand, the contribution has been made to an entity for carrying out certain research and the said entity is utilized for contribution partly for the purpose of carrying out the scientific research and partly for building capital assets. The ld.CIT(A) was of the opinion that although the claim has not been made u/s.35, the deduction would not have been available to the assessee u/s.35 also due to the conditions u/s.35 is being not satisfied. The ld.counsel for the assessee argued at length t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed. No material is placed on record that the Association is approved in the manner prescribed. Under these facts, we do not see any infirmity in the order of ld.CIT(A),same is hereby upheld. Thus, these grounds of assessee's appeal is rejected. 8. In the result, the appeal of the assessee in ITA No.563/Ahd/2011 for AY 2002-03 partly allowed. 9. Now, we take up the assessee's appeal in ITA No.564/Ahd/2011 for AY 2004-05, wherein following grounds have been taken:- "Your appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & facts. It is submitted that it be so held now. 2.(i) The learned CIT(A) erred in confirming the disallowance of the claim of depreciation of Rs. 1,76,62,673/- on portion of plant and machinery received towards grant/subsidy from National Dairy Development Board under "70% loa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to add, alter and/or amend all or any of the grounds before the final hearing of appeal." 9.1. First ground of the appeal is general in nature and needs no independent adjudication. 9.2. Parties have adopted their arguments as were raised in ITA No.563/Ahd/2011 for AY 2002-03. Since the grounds and facts are identical to that of AY 2002-03 in assessee's own case(supra), for the same reasoning, this year also ground Nos.2(i) to 2(iii) of assessee's appeal are allowed and ground Nos.3(i) to 3(iii) of assessee's appeal are rejected. 9.3. In the result, the appeal of the assessee in ITA No.564/Ahd/2011 for AY 2004-05 is partly allowed. 10. Now, we take up the assessee's appeal in ITA No.565/Ahd/2011 for AY 2005-06, wherein following grounds have been taken:- "Your appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & facts. It is submitted that it be so held now. 2.(i) The learned CIT(A) e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the purpose of the business of the appellant. It is submitted that it be so held now and contribution made to ARDA as claimed as deduction by the appellant be allowed. 4.(i) The learned CIT(Appeals) erred in law and on facts in confirming disallowance of disallowance of Rs. 10,56,741/- being amount paid to Anandalaya Education Society, Anand towards contribution for education fees for children of the employees from the General Reserve Fund. (ii) The action of learned CIT(A) in holding that school fee is the part of perquisite and required deduction of tax at source is patently incorrect and unjustified. It is submitted that it be so held now and depreciation as claimed by the appellant be allowed. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal." 10.1. First ground of the appeal is general in nature and needs no independent adjudication. 10.2. Parties have adopted their arguments as were raised in ITA No.563/Ahd/2011 for AY 2002-03 in respect of ground Nos.2(i) to 2(iii) and ground Nos.3(i) & 3(iii). Since the grounds and facts are identical to that of AY 2002-03 in assessee's own case(supra), f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iring deduction of tax at source. It is held that contribution of Rs. 10,56,741/- to Anandalaya Education Society is not allowable as deduction in A.Y. 2005-06. This ground of appeal is dismissed." 11.1. This finding of ld.CIT(A) is not controverted by the assessee by placing any contrary material on record, therefore we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, this ground of assessee's appeal is rejected. 11.2. In the result, the appeal of the assessee in ITA No.565/Ahd/2011 for AY 2005-06 is partly allowed. 12. Now, we take up the assessee's appeal in ITA No.566/Ahd/2011 for AY 2006-07, wherein following grounds have been taken:- "Your appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the learned CIT (A) is bad in law and contrary to the provisions of law & facts. It is submitted that it be so held now. 2.(i) The learned CIT(A) erred in confirming the disallowance of the claim of depreciation o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it be so held now and contribution made to ARDA as claimed as deduction by the appellant be allowed. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal." 12.1. First ground of the appeal is general in nature and needs no independent adjudication. 12.2. Parties have adopted their arguments as were raised in ITA No.563/Ahd/2011 for AY 2002-03. Since the grounds and facts are identical to that of AY 2002-03 in assessee's own case(supra), for the same reasoning, for this year also ground Nos.2(i) to 2(iii) of assessee's appeal are allowed and ground Nos.3(i) to 3(iii) of assessee's appeal are rejected. 12.3. In the result, the appeal of the assessee in ITA No.566/Ahd/2011 for AY 2006-07 is partly allowed. 13. Now, we take up the assessee's appeal in ITA No.567/Ahd/2011 for AY 2007-08, wherein following grounds have been taken:- "Your appellant being dissatisfied with the order passed by the learned Commissioner of Income Tax (Appeals) - IV, Baroda presents this appeal against the same on the following amongst other grounds, which are without prejudice to each other: 1. The Order passed by the lear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n holding that contribution made to ARDA is not allowable as expenses u/s.37 is patently incorrect and unjustified as such contribution is for the purpose of the business of the appellant. It is submitted that it be so held now and contribution made to ARDA as claimed as deduction by the appellant be allowed. 4.(i) The learned CIT(Appeals) erred in law and on facts in confirming disallowance of disallowance of Rs. 21,54,714/- out of interst expense and other expenses incurred by the appellant by invoking provisions of Section 14A. (ii) The learned CIT(A) grossly erred in invoking provisions of section 14A in respect of dividend earned by the appellant which is not exempt but only deductible u/s.80P(2)(d). (iii) The learned Assessing Officer erred in fact and in law in invoking provisions of Rule 8D. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal. (iv) The learned Assessing Officer erred in fact and in law in holding that interest bearing funds have been utilized to make investment earning exempt income. (v) Without prejudice to the above, your appellant submits that in any event, the addition ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n to all the provisions of the Act including the deductions permissible under Chapter VI-A. It may be pertinent to mention that- the first step for computation of total income is to determine the income under various heads of income as specified under s. 14 of the Act. After working out the gross total income, deductions as permissible under Chapter VI are to be made which gives the total income. There is distinction between gross total income and total income. Gross total income is the income as computed under the provisions of the Act before deductions under Chapter VI-A. The legislature has consciously used the words 'total income' in contrast to 'gross total income' in s. 14A. Therefore, for the purpose of attracting provisions of s. 14A, one will have to consider as to whether the income specified under s. 80P(2)(d) is included in the "total income' or not. Admittedly, the income referred in s. 80P(2)(d) is included in the gross total income but once the said income is excluded by virtue of s.80P(2)(d) it no longer can be said to be included in the total income. Since deduction under s.80P(2)(d) is allowed to the assessee out of the gross total income, the inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing reasonable opportunity to the assessee to place all germane material on record. Thus, while Rule 8D is not applicable to the assessment year in question, expenditure in relation to exempt income is still to be determined as per a reasonable method. The decisions relied upon by the appellant to contend that sub-section 2 of section 14A cannot be applied for the year under consideration are not acceptable in view of decision of Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. 5.2.2. The question to be examined now is whether any interest and other expenditure incurred by the appellant and charged against taxable income was in relation to dividend income claimed to be fully deductible u/s.80P and if yes, determination of such expenses on a reasonable basis. Appellant's contention that investment in cooperative societies was out of own funds only is not acceptable. There is nothing on record to prove that investment in cooperative societies was made over the years exclusively out of appellant's own funds, whereas interest bearing funds were used only for earning income other than dividend from cooperative societies. In the case of Datamatics Ltd., t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of total income under this Act' used in section 14A of the Income Tax Act, 1961 include the income which is not chargeable to tax pursuant to provisions of Chapter VIA (section 80A to 80U) of the Income Tax Act?" 13.6. The Hon'ble High Court answered the same are as under:- "7. Question to be addressed is as to whether section 14A would apply to provision of Chapter VIA. Provision of section 14A when examined, it operates in respect of the income not forming part of the total income. It could be noted that provisions of Chapter VIA (sections 80A to 80U) refer to deductions to be made in computing the total income. Such deductions, in no manner, can be compared with the exempted income, which does not form part of the total income as provided in sections 10 to 13A under Chapter III of the Act. Section 14A was introduced retrospectively with effect from 1.4.1962 by Finance Act, 2001, for the purpose of computing the total income under Chapter IV. And, any expenditure incurred by the assessee in relation to exempted income, for the purpose of computing the total income, while applying section 14A, no deduction shall be allowed. However, there is a clear absence of any refere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or carry forward of loss is allowed. Fourthly and lastly, certain deductions were permissible under Chapter VII and Chapter VIII and which had been substantial or partly replaced and were placed under Chapter VI-A. These were deductions which were reduced from the income computed in accordance with the earlier provisions/Chapters of the Act. These deductions were made in the computation of total income and, therefore, definition of "gross total income", which was/is arrived at without reference to the deduction allowable under Chapter VI-A, was introduced. The deductions available under Chapter VI-A were either wholly or partly reduced from the "gross total income". The contention of the Revenue that once deduction stands allowed, the "income" in view of the deduction ceases to be a part of the total income, was rejected by the Division Bench of this Court in Dalmia Cement (Bharat) Ltd. [1980] 126 ITR 736 (Delhi), for the following additional reasons:- (1) The word "part" used in the Rule was to describe income fulfilling the description i.e.the category or class of the income. In other words it should indicate an identifiable section, category or class of income rather than mer....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 14A. The said position cannot be accepted. Income will include negative income or a loss. The corollary is that the entire income is included under the provisions of the Act by firstly including the entire receipts or incomes as stipulated in the charging section but after excluding the income stipulated in Chapter III. Thereafter, total income is computed under the Act by applying provisions of Chapter IV, V and VI. From this income, deductions are permitted and allowed in terms of Chapter VIA. Deductions do not mean that deduction allowed has the effect that the income, on which deduction is allowed, ceases to be part of the total income. This is not the scheme, effect and purport of the Act. The expression "income which does not form part of the total income" refers to the nature, character or type of income and not the quantum. 34. Section 14A states that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not form part of the total income under this Act. It does not state that income which is entitled to deduction under Chapter VIA has to be excluded for the purpos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-op.Milk Producers' Union Ltd.()supra), we hereby direct the AO to delete the disallowance. Thus, this ground of assessee's appeal is allowed. 13.8. Ina the result, the appeal of the assessee in ITA No.567/Ahd/2011 for AY 2007-08 is partly allowed. 14. Now, we take up the Revenue's appeals in ITA Nos.651 & 652/Ahd/2011 for AYs 2005-06 & 2006-07 respectively, wherein following common grounds have been taken:- 1. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in cancelling the disallowance of Rs.28,63,740/- (for AY 2005-06) and of Rs.29,49,652/- (for AY 2006-07) made u/s.40(a)(ia) without appreciating the fact that as per the article-4 of contract dated 17.01.1998 entered into with GAIL, the contract for sale and delivery (transportation) were separate and being separately charged by GAIL, therefore in view of clear cut provisions of section 194C of the Act, the TDS was required from transportation charge which the assessee had failed to deduct. 2. The appellant craves leave to add, to amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal The order of the CIT(A) on the issues raised in the afores....