TaxTMI 
TaxTMI 
2024 (10) TMI 350
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....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 facts accompanying the Form No. 36, dt. 31/07/2018. However the grounds of appeal are urged and stated. 4. We therefore after carefully perusing all the records of the case including paper book which is on record determine the following facts for purpose of adjudging and adjudicating the present appeal under section 253 of the Income Tax Act, 1961. 5. That the Assessee had filed return of income on 29/11/2014 showing an income of Rs. 31,54,889/- as income from business which was set off against brought forward unabsorbed depreciation for A.Y. 2012-13. 6. The assessee the corporate body is into the business of growing, collection, processing and distribution of frozen vegetables with facility of 5000 MT capacity, multi chamber modified atmosphere cold store chambers, and 3000 MT to store fresh vegetables. 7. It is required to be noted that the assessee had started its production from 10.03.2012. 8. The Ld. AO while completing the assessment made on addition of Rs. 4,27,5....
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....e 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. 10 crores as receivable during the year, we submit that grant in aid was received only of Rs. 2.5 crore in the current relevant asstt. Year and the remaining subsidy was received in the following years i.e. 5 crore in FY 2014-15 and Rs. 2.5 crores in financial year 2015-16. The said grant was received released in parts considering the investment made by the company in the relevant years and its implementation after thorough physical inspection of the unit. Keeping in view the same, the subsidy was accounted for as and when paid by the Government as per the terms and conditions laid down for releasing the subsidy." 12. The Ld. AO order dt. 26/12/2016 in respect of A.Y. 2014-15 was perused by us. It is an assessment order under section 143(3) of the Income Tax Act, 1961. 13. The Ld. AO in the assessment order dt. 26/12/2016 has stated that return declaring income of profit of business is of Rs. 31,54,889/- filed ....
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....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 and technical civil works the same to our understanding are chargeable to depreciation at 15%. Considering that the agrant in aid of Rs. 10 crore is receivable from Ministry of food processing for acquisition of assets, why not depreciation claimed on such grant be disallowed and why not depreciation claimed in previous year be also disallowed." 20. The assessee vide letter dt. 20/12/2016 replied the aforesaid letter dt. NIL para 11 supra. 21. The Ld. AO in Para 3.8 of assessment order has stated as under: 3.8 At last when cornered the counsel of the assessee vide letter dated 23.12.2016 gives the working of subsidy claimed and subsidy received as under: S.No. Assets Dep rate% Dep charge during the year Original cost before dep Subsidy claimed Subsidy received 1 Factory building 10% ....
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....e 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 and also the legal position as discussed above, the depreciation is to be reduced from the said cost of asset as claimed by the assessee company. Further, the assessee was given various opportunities to provide complete set of communication that was exchanged with relevant authorities pertaining to the sanctioned subsidies of Rs.35 Lakhs and Rs.10 Crores from making of application till date of order, however the assessee has only provided selective communication. In the absence of complete communication and explanations, the undersigned is unable to ascertain the rate at which depreciation has been charged on the subsidised assets of the company. The amount of subsidy that has ....
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....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 passed by Ld. Commissioner of Income Tax (Appeals)-4, Ludhiana vide appeal No. 47/ROT(10725)/CHD/IT/CIT(A)-4/LDH/2016-17 dated 22.06.2018 is contrary to law and facts of the case. 2. That in the facts and circumstances of the case, the ld. Commissioner of Income Tax (Appeals) gravelly erred in upholding the action of the Id. Assessing Officer who had reduced subsidy from the cost of machinery. 3. That in the facts and circumstances of the case, the ld. Commissioner of Income Tax (Appeals) gravelly....
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.... 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 the Ld. AR placed reliance on order dt. 13/04/2017 in ITA No. 86/PAT/2014 of Patna Bench of ITAT in case of Dayal Steel Ltd. Vs. Addl. CIT. Reliance was also placed on judgement of Hon'ble Bombay High Court dt. 26/02/2019 in case of Principal Commissioner of Income Tax vs. M/s Welspun Steel Ltd. in support of proposition that amount received from Government of India through Ministry of Food Processing Industry are capital receipts and Department is not entitled in law to deduct ....
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....ot 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 aspects of Intellectual property generated as result of the project will be owned wholly by Ministry of Food Processing Industries. Moving further the Ld. DR placed heavy reliance on endorsement in the letter at Serial No. 1 where copy of the letter was forwarded to "The Director M/s Pagro Frozen Foods Private Limited, House No. 1763, Phase III-B2, Mohali, Punjab. It may be ensured that the MFPI grant is spent only on technical civil w....
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.... 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) Canteen (vi)Toilets (vii) Labour Rest Room and quarters for workers (viii) Septic tank, drainage, etc. (ix) Security / Guard Room or enclosure (x) Consultancy fee, taxes, etc. (xi) Non-technical civil works not related to cold chain or storage....
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....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 shall go to reduce the cost of acquisition. Further observations of the Ass....
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....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 facil....
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....nd 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 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 proc....
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....ce 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 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) w....
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....ed operational guidelines of scheme for Cold Chain Value Addition and Preservation Infrastructure during the 11th Plan which is dt. 18/03/2010 and another dt. 20/11/2013. The date of approval for on recurring grant in aid issued by Ministry 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 t....
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....sistance (grant in aid) of 50% of the total cost of plant & machinery and technical civil works in general areas and 75% for NE region and difficult areas (North East including Sikkim & J&K, H.P. & U.K) subject to maximum of Rs. 10 Crores. 28.8 We also observe that guidelines dt. 18/03/2010 were revised on 20.11.2013 where main objectives of 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 sc....
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....ls of Technical Civil Works envisaged duly certified by Chartered Engineer (Civil) item wise cost details of plant and machinery envisaged duly certified by Chartered Engineer (Mechanical). The quotations from suppliers of plant and machinery and equipment etc for the project. 28.13. In view of the aforesaid we say that assessee has received financial assistance in form of grant in aid of Rs. 2.50 Crores on 24/01/2014 from MFPI New Delhi as per guidelines of the Scheme for Cold Chain Value Addition and Preservation Infrastructure for setting up of integrated cold chain facilities for fruits and vegetable in Punjab. 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 ....
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....chain infrastructure Be it noted that above items classified by us is based on guidelines (supra) and are only illustrative and not exhaustive as per guidelines itself. 28.17. We also hold that broadly the financial assistance i.e grant in aid are for technical civil work and plant and machinery and nothing else in broad scheme of Government of India, MFPI which was called "Scheme for Cold Chain Value Addition and Preservation Infrastructure". It is also required to be noted that sanction for grants in aid is dated 24/01/2014, relevant to A.Y 2014-15 for previous year 01/04/2013 to 31/03/2014. 28.18. We now deal with statutory scheme under the Income Tax Act, 1961 and we reproduce below following relevant sections of law which needs both judicial and accounting determination of aforesaid grants in aid of Rs. 2.50 crores vis a vis claim of depreciation 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 o....
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....ull effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub- section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years. 28.19. We notice that assessee has been disallowed an amount of Rs. 42,75,000/- from the returned income of Rs. 31,54,889/- consequently the assessed income is coming to Rs. 74,29,889/- as profits of the assessee. 28.20. We also notice that against Rs. 2.50 crores grant in 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 depr....
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....s, the Auditor has failed in provision(terms) of his duties." ("Terms" emphasised by us). 28.23 We are also in agreement with finding of lower authorities that "In absence of sufficient information, the undersigned is assuming that the assessee has claimed depreciation on plant and machinery and technical civil work (which qualify for subsidy and on which subsidy has been received) at full rate of 15% and is disallowing the depreciation on subsidised assets as hereunder: Rs. 2.50 Crores @ 15% = Rs. 37,50,000/- Rs. 35 Lakhs @ 15% = Rs. 5,25,000/- The Ld. CIT(A) too has upheld the above view of AO by having held in the impugned order " The view taken by the Assessing Officer is upheld for the reasons recorded in the assessment order". The Ld. CIT(A) has held that "Appellant has failed to controvert the fact that subsidy was received for the specific purpose of investment and was liable to deducted from the value of assets for determining the amount of depreciation." We therefore find no infirmities legal or otherwise 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 ....
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....ernment of India MFPI / APEDA. Be it noted whatever is spent / expended in acquiring such assets i.e; Civil Work Technical and Plant and Machinery is mandated to be not a part of such actual cost. If it is made a part of actual cost which assessee has done then there is clear infraction of law and violence to the very definition of actual cost. We hold assessee wrong on this front at the outset. 28.25. We hold that scheme (supra) and Income Tax laws mandates proper accounting of these grant in aid in first place as enumerated supra. It requires strict accounting of civil work which should be technical in nature, plant and machinery. Components of both technical civil work, plant and machinery in initial set up of a project is mandated by both to be strictly be maintained. The description of each items, components, assembly, sub assembly, part, sub part, accessory, components of civil work technical etc is required to be maintained, with due certification of Chief Engineers and Chartered Accountants. Both scheme(supra) and Income Tax Act mandates this. It is a statutory requirement as accounts of both are subject to CAG Audits too. Unfortunately this has not happened and both ....
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....in arriving at actual cost of assets over which depreciation is claimed. Needless to repeat and reiterate that books of account, audit reports, absence of further better and material particulars on fixed assets which ought to have been furnished by the assessee were not furnished which are mandated both under the Scheme (supra) and under Income Tax Act, 1961. AO's observation of lack of assistance sustained by CIT(A) is proof enough. In appeal before us no remedial measures have been taken despite Tribunal being final fact finding authority. We also hold that by virtue of notification No. 87/2016 dated 29/09/2016 which is issued by Central Government by virtue of sub-section (2) of Section 145 of Income Tax Act, Central Government has notified the Income Computation and disclosure standards which are mandatory required to be followed by all assesses(other than an individual or a Hindu Undivided Family who is not required to get his accounts of the previous year audited in accordance with the provisions of 44AB of the said Act) following the mercantile system of accounting for the purposes of computation of income chargeable to Income Tax under the head profits and gains of business....
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....bligation in relation to payment of loan in respect of fixed assets, therefore, the receipts will go to reduce the actual cost even without reference to Explanation 10. Therefore, the Assessing Officer is directed to reduce the cost of fixed assets by the impugned amount for the purpose of deduction of depreciation. In the result, this ground is dismissed." 28.28 We gainfully refer to and rely upon the judgment of Hon'ble Kerala High Court in case of M/s K Infra Export Promotion Vs. The JCIT dt. 07/04/2022 in ITA No. 65 of 2018 on Indian Kanoon online wherein on para 16.1 it is held as under: "16.1 In VKC Footsteps case, in para 92.3, 92.4, laid down the use of a proviso may shed light on the true meaning of the section; as a matter of abundant caution; acquires the tenor and color of the substantive enactment. we are hence not agreeing with the argument of assessee that the proviso be read as a qualification alone. Such interpretation, in our considered view, goes against the text of the very proviso inserted with Explanation 10 by Finance (No.2) Bill, 1998. The proviso, however, as it stands, takes care of a situation where such subsidy or grant or reimbursement is of....
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....red 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. (supra) is applicable to the facts and circumstances of the present case. In the instant case grant in aid where for the plant and machinery and technical civil work. Both the scheme document (supra) expressly say so as aforesaid. The Parliament in its collective wisdom be it in the terms of the scheme (supra) and as per Income Tax Act, 1961 does not intend to give double benefit to the assessee one in the form of grant in aid ....