TaxTMI 
TaxTMI 
2017 (8) TMI 915
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....udication, read as under: "2. That in the facts & circumstances of the case, the CIT(A) and Assessing Officer has erred on facts and in law in reducing the value of plant and machinery by Rs. 9,97,28,611/- for A.Y. 2000-01 for the purpose of allowing depreciation under the Income Tax Act, 1961. 3. That the Assessing Officer has erred on facts and in law in treating the amount of Rs. 9,97,28,611/- as "cost borne by any other person or authority" and reducing the same from the cost of plants and machinery for the purpose of allowing depreciation for A.Y. 2000-01 and CIT(A) has erred in law and facts in upholding the same. 4. That the CIT(A) and Assessing Officer has failed to appreciate that the said amount of Rs. 9,97,28,611/- received as a conditional grant which is in the shape of a loan repayable @200% of the said amount under the PACER agreement." 3. At the outset, both the parties agreed that similar grounds have been taken as ground nos.4 & 5 in A.Y. 2004-05, ground no.3 in A.Ys. 2005-06, 2006-07 and 2007-08. Both the parties agreed that the grounds relate to the claim of depreciation by the assessee. It was also agreed that these grounds be decid....
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.... to agree with the views of the assessing officer that this amount of Rs. 9,97,28,611/- received by the Appellant Company is a Conditional grant and not a loan, It is noted that the first agreement was signed between ICICI Ltd. and US Agency for International Development (USAID) dated 31/08/1987 wherein USAID had agreed to give project grant for Programme for Acceleration for Commercial Energy Research (PACER) and ICICI Ltd was to disburse the grant funds received under AID grant for financing of approved sub-projects. USAID had contributed 20 Million Dollars for this project. And in this agreement, there was no provision for return of grant by the ICICI Ltd. back to USAID. The ICICI Ltd was to provide in kind support sufficient to meet the purposes of the project and the sub project participants to contribute an amount of not less than 40% of the total cost of the project. Whereas in the Second agreement between the ICICI Ltd. and the Appellant Company dated 12 Sept, 1996 titled "Agreement for PACER assistance" the ICICI Ltd. has agreed to provide finance for the implementation of the proposal given by the Appellant Company. This conditional grant was to be disbursed only up to 31....
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....paid or repayable by the Appellant company to the ICICI Ltd. after making a payment of Rs. 20 lacs to the ICICI Ltd. Therefore, I find no infirmity in the assessment order of Assessing Officer wherein he has held that this amount given by ICICI Ltd. to the Appellant Company is basically an aid/assistance/grant/subsidy and not in the nature of loan given to the Appellant Company. In case, the amount given by the ICICI Ltd. was a loan in that case, the ICICI Ltd, should have charged interest on the amount given to the Appellant Company. However, the agreement between the Appellant Company and the ICICI Ltd. does not show any clause wherein it is written that loan was repayable on interest. Consequently, I find no merit in the argument of the authorized representative of the Appellant Company that such amount may be treated as a loan when the entire transaction as per agreements deals with aid or grant given to the Appellant Company under PACER agreement. Therefore, all these grounds No. 2 to 5 are dismissed. Further, the sixth ground of appeal is also decided against the Appellant Company because no provision for payment of royalty to the ICICI Ltd, was made in the books of accounts ....
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.... agreement has been given not by any person or the authority; it has been given by USA, which is sovereign. Our attention was also drawn towards Explanation 10 to Section 43. On the basis of this explanation, it was contended that only that portion of the cost of assets acquired by the assessee, which has been met directly or indirectly by the Central Government or the State Government or any authority established under any law or by any person in the form of subsidy or grant or reimbursement has to be reduced from the actual cost of assets for the purpose of depreciation. USA is neither Central Government/State Government entity nor any authority established under any law in India. Even otherwise, it was contended that in view of the decision of the Visakhapatnam Bench of this Tribunal in the case of Sasisri Extractions Limited v. ACIT (122 ITD 428) and the decision of Kolkata Bench of the Tribunal in the case of Universal Cables Limited vs. DCIT (57 taxmann.com 95), even after insertion of Explanation 10 to Section 43(1), there is no change in the basic concept and the first test has to be satisfied is that the portion of the cost of asset should be met either directly or indirec....
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....r after examining the issue, allowed the claim of the assessee by passing order u/s. 143(3). Therefore, in view of res adjudicate and following the principle of consistency, depreciation should be allowed to the assessee. In this regard reliance was placed on the following decisions: CIT vs. Gopal Purohit 336 ITR 287 (Bom) CIT vs. Neo Poly Pack (P) Ltd. 245 ITR 492 (Del) Our attention was also drawn towards the queries raised and the submissions made by the assessee during the assessment years 2003-04 and 2008-09 in respect of claim of depreciation by the assessee while framing the assessment u/s. 143(3). Lastly, it was submitted that the fact that the assessee has transferred the said amount to the machinery account will not make any difference as the entry will not determine the real income. 6. The learned DR, on the other hand, referred to the findings given by the CIT(A) and on that basis it was contended that the true nature of the amount received by the assessee was not loan but it was a grant. The preponderance of probability suggests that origin of this project is the grant by US aid through ICICI under the Program for Acceleration of Commercial Ener....
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.... "5) In accordance with the provisions of the PACER Agreement, the appropriate authority has examined and approved the Proposal for financing out of the PACER Grant Resources and ICICI has agreed to provide finance for the implementation of the Proposal on the terms and conditions hereinafter set forth." Similarly, clause B of the terms and conditions read as under: "B. PROJECT FINANCING B1. ICICI hereby agrees to finance, by Conditional Grant, the implementation of the Proposal up to the maximum amount of Rs. 188 lacs and US$ 2,243,011 equivalent in aggregate to US $ 2,765,233 or 75% percent of the actual expenditure whichever is less. The Approved Proposal Budget as contemplated is set forth in Annex A. hereto. B1. The portion of the actual expenditure on the project which ICICI provides to the Proposers by way of Conditional Grant shall hereinafter be described as 'Conditional Grant'. B2. The Proposers shall provide in timely fashion their contribution as budgeted in the 'Annex A and in the event the proposers do not avail of the conditional grant on or before Project Assistance Completion Date which is August 31. 1997....
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....nd shall include all specific export incentives or bonuses received by the Main Proposer but shall exclude sales tax and excise duties." On the basis of this clause, it is apparent that the assessee has to repay the said conditional grant subject to the condition that the maximum repayment amount will not exceed to 200% of the conditional grant and till that the assessee has to pay 2% of the gross annual sales of the coal beneficiated under the proposed commercial project. The grant from this agreement is conditional. The grant so received by the assessee is a financial arrangement and cannot be regarded to be a subsidy grant. Since this grant has been given under the agreement which ICICI has entered into with USA therefore, we have also gone through the agreement entered into between them, copy of which is available at pages 116 to 130 of the paper-book. From the said agreement, it is apparent that the agreement is for financing the project grant under PACER. The project has been defined under Article 2, which reads as under: Article 2: The Project SECTION 2.1. Definition of Project. The Project, with three interrelated components, which is further described ....
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....to the assessee." From the reading of the said explanation, it is explicitly clear that if a portion of a cost of an asset acquired by the assessee has been met directly or indirectly by Central Government or State Government or any authority established under any law or by any other person in the form of a subsidy or a grant or reimbursement, said subsidy grant or reimbursement as is relatable to the asset shall be reduced out of the actual cost of the assessee to the assessee. USA is a sovereign and cannot be Central Government or State Government or any authority established by any law in India. Now the question arises, whether USA can be regarded to be a person. A person has been defined u/s. 2(31) as under: "person includes - (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of person or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses. (Explanation - For the purposes of this clause, an association of persons or a body of in....
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.... the assessment years 2003-04, 2008-09 and 2009-10, the Assessing Officer, under the same set of facts, after examining the issue in detail, allowed depreciation to the assessee. The learned DR even though vehemently relied on the order of the CIT(A) could not distinguish that the facts involved in assessment years 2003-04, 2008-09 and 2009-10 were different from the impugned assessment years. We, therefore, on the basis of the principle of consistency, respectfully, following the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Gopal Purohit 336 ITR 287 (Bom) and that of Hon'ble Delhi High Court in the case of CIT vs. Neo Poly Pack (P) Ltd. 245 ITR 492 (Del) hold that the conditional grant received by the assessee cannot be reduced out of the WDV of the assets for the purpose of computing the depreciation. In our view, the contention of the learned DR that the assessee has credited the said amount to the assets in the books of account will not make any difference. As to claiming of the depreciation by the assessee in the income tax return, in view of the decision of the Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT 82 IT....
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....also submitted. The Assessing Officer did not agree with the assessee and treated the same as capital expenditure in view of the provisions of Section 32(1)(ii), which categorizes that technical know-how acquired by the assessee as an intangible asset and any expenditure incurred towards acquisition of such asset as capital expenditure, eligible for depreciation. The Assessing Officer therefore rejected the claim of the assessee treating the sum of Rs. 4 crores as revenue expenditure. Aggrieved the assessee went in appeal before the CIT(A). The CIT(A) as per the findings given by him under para 4 to 8 rejected the claim of the assessee. Hence, the assessee is in appeal before us. 13. We have heard the rival submissions and have carefully considered the same along with the orders of the tax authorities below. The question before us is whether the sum of Rs. 4 crore paid by the assessee as per technical knowhow agreement dated 23.08.2003 between the assessee and BSES is capital expenditure or a revenue expenditure. We have gone through the said agreement, copy of which is placed at pages 59 to 66 of the paperbook. As per clause 5 of this agreement, the assessee has to pay a sum of....
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....c Chemical Works Co. Ltd. vs. CIT 177 ITR 377 (SC) to support the contention that the expenditure incurred for the improvement of the existing business is revenue expenditure. We have gone through the decision and noted that at page 390, the Hon'ble Supreme Court has held as under: "In the present case, the principal reason that influenced the option of the High Court was that the initiation and exploitation of the new process brought in their wake a new venture requiring an altogether new plant. We are afraid this view may not be justified. Clauses 2, 4 and 6 of the agreement provide : "(2) For and in consideration of the sub-cultures, design, flow sheet and written description to be furnished by Meiji to ALEMBIC pursuant to paragraph (1) hereof, Alembic shall pay to MEIJI in advance and in lump sum, such an amount as MEIJI is able to collect fifty thousand U. S. Dollars ($ 50,000) net in Tokyo after deducting any taxes and charges to be imposed in India upon MEIJI with respect to the said payment to MEIJI." "(4) MEIJI will give advice, to the extent considered necessary by MEIJI on any difficulty ALEMBIC may encounter in applying the subcultures and inf....
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....ted a note on what does coal beneficiation mean. We have gone through that note. We noted that coal beneficiation has been defined as cost effective and significant step towards improving power plant efficiency and reducing the GHG emissions from the coal fired power plants in India would be to increase the availability of clean beneficiated coals using appropriate beneficiation technologies. In fact, it improves the quality of coal. From the note it is not denied that it is not for the improvement in the coal beneficiating activity for power grade coal. Power grade coal is the existing business of the assessee. This means improvement in the coal beneficiation effects the day to day business of the assessee and improves the operations of the existing business. It does not relate to a new product and, therefore, in our view the case of the assessee is duly covered by the aforesaid finding of the Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. We also noted that the Supreme Court in the case of Empire Jute Co0. Ltd. vs. CIT 124 ITR 1 (SC) has observed that here may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, n....
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....have gone through the judgments of Hon'ble High Courts in the case of Gujarat Mineral Development Corporation Ltd and Indian Aluminium Co. Ltd (supra), and noted that in both these cases the land does not belong to the assessee. The land was taken on a long term lease as is the case of the assessee. On the leasehold land the assessee has incurred expenses for construction of approach bridge, for laying the pipelines to the beneficiating plant. In each of the cases the Hon'ble High Court took a view that the expenditure so incurred is capital expenditure. Therefore, in our view the expenditure incurred on the construction of roads and bridges, although termed as 'repairs and maintenance of roads and bridges' has to be regarded as capital expenditure. Further, we also noted that, the Assessing Officer while making assessment u/s. 143(3) for A.Ys 2003-04 and 2009-10, similar expenditure has been allowed by in as revenue expenditure. There is no change in the facts in the impugned assessment years as compared to A.Ys. 2003-04 and 2009-10. In view of the decision of jurisdictional High Court in the case of CIT vs. Gopal Purohit (336 ITR 287), the principle of consistency has to be follo....
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....the issue in accordance with law in each year and how much amount the assessee shall be entitled for deduction. Needless to state that while adjudicating this ground, the CIT(A) must appreciate there is no dispute between the assessee and the revenue that the said expenditure is revenue expenditure. Thus, ground nos. 9 & 10 in A.Y. 2004-05 and ground no.6 in A.Y. 2005-06 are allowed for statistical purpose. 22. Ground no.14 is consequential in nature and, therefore, the Assessing Officer is directed to compute interest u/s. 234A and 234D after giving effect to this order. This disposes off the appeal for A.Y. 2004-05. 23. ITA No. 1881/Mum/2010 Assessment Year 2005-06 Ground nos. 1, 7, 8, 9 and 12 are general in nature and does not require any adjudication. Ground no.2 is the summary of all the other grounds. Ground no.3 relating to the claim of depreciation on plant & machinery has already been disposed off while disposing of the ground nos. 2, 3, and 4 for A.Y. 2000-01 in the preceding paragraphs. Ground no.4 was not pressed hence, stands dismissed as not pressed. Ground nos. 5 and 6 stands disposed of while disposing of ground nos. 7 & 9 for A.Y. 2004-05. 24. Ground n....
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....his appeal has been filed by the Revenue against the order of the CIT(A) by taking the following effective ground of appeal: "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing additional depreciation on Plant & Machinery without appreciating the fact that the assessee is in the business of coal beneficiation only and no new product is manufactured?" The facts relating to this ground are that the Assessing Officer noted that the assessee is carrying on the business of coal beneficiation. The assessee claimed additional depreciation amounting to Rs..1,18,56,604/- The Assessing Officer was of the view that the assessee is not producing any new product but is processing raw coal to bring out marketable coal. Therefore, he disallowed the claim of the assessee in respect of additional depreciation u/s. 32(1)(iia) of the I.T Act. The assessee went in appeal before the CIT(A). The CIT(A) after analyzing various decisions as well as the decision of the Hon'ble Supreme Court in the case of Aspinwall and Co. Ltd. vs. CIT 251 ITR 323 (SC) took a view that beneficiated coal is commercially different product than the natural coa....