TaxTMI 
TaxTMI 
2017 (6) TMI 74
X X X X Extracts X X X X
X X X X Extracts X X X X
....#39;t granted to meet the cost of Plant & Machinery. 1c). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts to ignore the fact that the same subsidy was granted for the specific purpose of technology up-gradation & was calculated w.r.t. the purchase price of Plant & Machinery. 2a). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs. 32,73,544/- made on account of transport payments, by invoking provisions of Section 40A(3) of the Act, read with Rule. 6DD(g). 2b). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts to ignore the fact that the payments were made throughout the year not to individual truck Drivers but who were having Banking facilities & hence not covered under exception in Rule 6DD(g) of Income-Tax Rules. 3). On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. 2. The relevant facts as culled out from the materials on record are as under:- In this case from the Balance Sheet of the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubsidy is to be calculated with reference to the purchase price of plant and machinery, instead of term loan disbursed to the unit; (d) The practice of categorization of SSI units in different slabs on the basis of their present investment, for determining the eligible subsidy, done away with. (e) The operation of the Scheme has been extended subsequently for period (As per RBI Master Cir dated July 01, 2010, Govt. of India, of Micro, Small and Medium Enterprises has conveyed approval for continuation of the scheme from X Plan to XI Plan (2007-12) Eligible units: a) Existing MSE units registered with the State Directorate of Industries which upgrade with the state-of-the-art technology, with or without expansion. b) New MSE units which are registered with the State Directorate of Industries and which set up their facilities only with the appropriate eligible am proven technology duly approved by the Governing and Technology approval Board (GTAB). Amount of subsidy: 15% of the cost of eligible Plant & machinery or Rs. 15 lakh whichever is less. Ceiling on the Loan amount: Rs. 100 lakh Nodal agencies: SIDBI and NABARD Act as the Nodal Agencies for the implemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....credited to the Reserve and Surplus account. Your assessee for this purpose relied upon the decision of ITAT - Vishakhapatnam in the case of Sasisri Extractions Ltd VS CIT 122 ITD 428(VSK) and ITAT-Ahmedabad Bench A in the case of Gujarat Water Resources Development Ltd vs. JCIT in ITA No 167-168/A/2004 vide order dated 16/10/2009 wherein identical receipts have been held to be in the nature of capital receipts and hence this amount is not eligible for taxation." From the perusal of the above reply of the assessee, it is evident that the subsidy was given to the assessee against the plant & machinery as the admissible capital subsidy was calculated with reference to purchase price of Plat & Machinery instead of the term loan disbursed to the unit. Since, the subsidy was received against the plant & machinery, the value of plant and machinery had to be reduced to that extent. During the discussion, the A.R. of the assessee was told as to why depreciation to the extent of Rs. 15,00,000/- claimed against plant & machinery should not be disallowed. On this specific question also, the A.R. of the assessee did not furnish any reply. It is relevant here to reproduce the explanation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the course of audit are being reported by way of Annexure 4 of this report totaling Rs. 32,73,544/-. It is relevant here to reproduce auditor's remark given below the above mentioned Annexure 4 as Note 1 and 2. "Note 1: The above payments do not include vehicle expenses reimbursed to the staffs and employees for filing petrol/diesel in company's vehicles at the end of the each month. Amount paid does not exceed Rs. 20,000/- per day per employee of the assessee Co. Note 2: According to the assessee no disallowance u/s.40A (3) is requires to be made in view of exception provided in Rule 6DD (g). According to the assessee there are no banking facilities available at Village Rajpura where units of the assessee are located and where goods is delivered by the transporters and who refused to accept cheques towards transportation cost against delivery of goods carried by them." In view of the above remarks of the Auditors, the A.R. of the assessee was asked to furnish explanation as to why such payments made in cash contrary to the provisions of section 40A(3) of the IT. Act, should not be disallowed due to following reasons: (i) The above remarks of the auditor are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....village - Rajpura of district Gandhinagar insisted on payment in cash and there are no banking facilities available at village Rajpura where units of the assessee are located and where goods is delivered by the transporters and who refused to accept cheques towards transportation cost against delivery of goods carried by them. Enclosed herewith a Xerox copy of Certificate obtained from Village -Rajpura Talati that there are no banking facilities is available at village - Rajpura for your honour kind verifications. In view of exception provided in Rule 6DD (g) by which your assessee company to be covered and therefore, no disallowance u/s. 40A (3) is need to be made." The above reply of the assessee along with the certificate obtained from Village -Rajpura Talati has been perused but it cannot be accepted as valid evidence for the benefit of rule 6DD (g). It is not certified by the assessee as to whether the payment was made to persons who ordinarily resided or had been carrying out any business or profession or vocation in village Rajapura. Further, the details annexed with the Auditors' Report as Annexure 4 clearly indicate that the payment was not made to any individ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lanation on this issue. In view of the above, Rs. 63,750/- is treated as capital expenditure and is disallowed. However, depreciation @ 7.5% which comes to Rs. 4,781/- is allowed to the assessee on capitalization of above expenditure towards plant & Machinery. Thus, net disallowance of Rs.58,969/- is added to the total income of the assessee treating the same as capital expenditure. Proof of interest on TDS payment. From the details available on records, it was noticed that the assessee had shown TDS payable of Rs. 1,44,313/- as on 31/03/2009. The assessee was asked to furnish the details of deposit of TDS. In response, the assessee filed copy of challan dated 30/09/2009 which shows that the total payment of TDS was Rs. 1,39,657/- as against actual TDS payable of Rs. 1,44,313/-. Thus, TDS in respect of interest payment amounting to Rs. 4,656/- was not paid by the assessee upto the date of filing of return. Thus, the assessee failed to pay the TDS of Rs. 4,656/- and is not eligible for claim of interest payment of proportionate amount u/s. 40(a) (ia) of the Act. During the discussion, the A.R. of the assessee agreed for the proportionate disallowance of interest u/s. 40(a) (ia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Income-tax Act, 1961, is the subject matter of dispute before the Tribunal. The facts of the case, in brief, are as follows. The assessee is engaged in the business of manufacturing/processing of edible oils. During the previous year relevant to the assessment year under consideration the assessee received an amount of Rs. 20,00,000/- as investment subsidy under a scheme floated by the Andhra Pradesh State Government known as "Target 2000". The assessee has not declared the receipt as income of the year under consideration. During the course of assessment proceedings it was contended that the subsidy was given to the unit because of the fact that it has established an eligible industrial unit in the notified area and thus the receipt was capital in nature and not taxable. The Assessing Officer called upon the assessee to clarify as to why the subsidy received should not be reduced from the cost of the assets so that the assessee would get lesser depreciation than what was claimed in the return. The case of the assessee was that the subsidy was not given to acquire any asset either directly or indirectly and thus it need not be considered for calculation of depreciation. He f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as used to offset the capital costs and thus the same has to be reduced from the cost of the fixed assets. He accordingly apportioned the subsidy amount against the opening WDV of the assets of the assessee and calculated the eligible depreciation. Aggrieved, it was contended before the Commissioner of Income-tax (Appeals) that the incentive scheme which was considered by the Andhra Pradesh High Court in the decision cited supra and the "Target 2000" scheme are identical and meant for the purpose of encouraging the entrepreneurs to establish new industry. In both the schemes the amount of subsidy was linked to fixed capital costs for determination of the amount of subsidy without any direction as to how the subsidy amount has to be utilized. It was further contended that the decision of the apex court in the case of P.J. Chemicals Ltd. [1994] 210 ITR 830 and the decision of the Andhra Pradesh High Court in Godavari Plywoods Ltd. [1987] 168 1TR 632 are applicable mutatis mutandis to the facts of the instant case. The learned Commissioner of Income-tax (Appeals) was, however, of the opinion that Explanation 10 to section 43(1) inserted with effect from April 1, 1999, enlarges t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... manner stressing upon the fact that only the cost which is "met directly or indirectly" has to be reduced from the cost of the asset. Section 43(1) of the Act was the subject-matter of consideration by the apex court in the case of P. J. Chemicals Ltd. [1994] 210ITR 830, wherein their Lordships observed at page 839 of the report as under: "The question in the present context is not whether if a portion of the cost is met directly or indirectly by any other person or authority, it should be deducted or not. Quite obviously, the plain meaning of the section is that it shall be. But the real question is as to the character and nature of a subsidy whether it was really intended to subsidise the cost of the capital or was 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. The contention is that it is not a payment, directly or indirectly, to meet any portion of the "actual cost" but intended as an incentive to entrepreneurs, its quantification determined at a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he case of P. J. Chemicals Ltd. [1994] 210 ITR 830, still holds the field. Their Lordships analysed the expression "met directly or indirectly" to come to the conclusion that only in a case where a subsidy or other grant was given to offset the cost of an asset, such payment/grant would fall within the expression "met" whereas the subsidy received merely to accelerate the industrial development of the State cannot be considered as payments made specifically to meet a portion of the cost of the assets. A careful perusal of "Target 2000" scheme shows that the scheme was intended to accelerate industrial development of the State and the incentive was given for setting up of industries in Andhra Pradesh and for the purpose of determining the amount of subsidy to be given the cost of eligible investment was taken as the basis, though it was not specifically intended to subsidise the cost of the capital. Under the circumstances, we are of the view that the incentive in the form of subsidy cannot be considered as a payment directly or indirectly to meet any portion of the actual cost and thus it falls outside the ken of Explanation 10 to section 43(1) of the Act. In the light of the ab....