IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "B"
[BEFORE SH. D T G ARASI A,JM & SH. A N P AHUJ A, AM]
ITA No.3782/Ahd/2007
(Assessment Year:-2004-05)
Gujarat Co-operative Milk
Marketing Federation
Limited, Amul Dairy Road,
Anand
[PAN: AAACG7189H]
V/s
Assistant Commissioner of
Income-tax, Anand Circle,
Anand
[Appellant]
[Respondent]
ITA No.3806/Ahd/2007
(Assessment Year:-2004-05)
Assistant Commissioner of
Income-tax, Anand Circle,
Anand
V/s
Gujarat Co-operative Milk
Marketing Federation
Limited, Amul Dairy Road,
Anand
[Appellant]
Assessee by :Revenue by:-
[Respondent]
Shri D K Parikh,AR
Shri B S Gahlot, DR
O R D E R
A N Pahuja: These cross appeals against an order dated 05-072007 of the ld. CIT(A)-IV,Baroda raise the following grounds:
ITA No.3782/ Ahd/2007[ Assessee]
1.
The learned C.IT.(Appeals) erred both in law and on facts in
confirming the disallowance of deduction of Rs.1,82,75,000/- being amount
transferred under statutory requirement to the Reserve Fund. In view of
the statutory requirement of Sec. 67 of the Gujarat Co-Op. Societies Act,
the deduction of the amount compulsorily transferred ought to have been
allowed. The same be directed to be allowed as claimed.
2.
The learned C.IT.(Appeals) further erred both in law and on facts in
confirming the disallowance of repairs and maintenance expenses
amounting to Rs.11,74,002 out of Rs.13,61,602/- various by treating
expenses as capital expenses. On the facts and circumstances of the case
and in view of the legal position, these expenses of Rs.6,34,666/- and
Rs.1,51,700/- and Rs.3,87,636 as submitted before CIT(A) being of
1
revenue in nature and incurred wholly and exclusively for the purpose of
business, the same ought to have been allowed as claimed. The same be
so held now and the expenses be allowed as revenue.
The learned C.IT.(Appeals) erred in law and on facts in not appreciating
the fact that by the detailed submissions with regard to the expenses the
nature of expenses were fully explained along with the necessary
documents. In view of the facts and legal decisions the addition of
Rs.11,74,002/- out of Repairs and Maintenance expenses treating them as
capital expenditure deserves to be deleted. The same be deleted.
3.
The learned C.I.T. (Appeals) erred both in law and on facts in not
allowing the ground of the appellant regarding allocation of expenses while
calculating the deduction u/s. 80HHC of the Income Tax Act. The learned
C.I.T.(Appeals) erred in not following the order of Hon’ble ITAT for A.Y.
1993-94 whereby the ITAT had remitted the issue to the file of Assessing
Officer. Also on the facts and circumstances of the case the calculation of
deduction u/s. 80HHC was correctly made on correct allocation of
expenses by the appellant and the deduction claimed ought to have been
allowed in full. The same be allowed as claimed.
4
The learned C.I.T.(Appeals) also erred in holding that the provisions
of Sec.234 D were applicable to the facts of the appellant’s case. In view
of the facts and correct legal position and legal decisions cited before him,
the learned C.I.T. (Appeals) ought to have held that interest u/s. 234 D
was not chargeable. The same be so held now and Interest u/s.234D be
deleted.
5
The order passed by the learned CIT(A) is bad in law and
contrary to the provisions of law and facts.It is submitted that
the same be held so now.
6 The learned CIT(A) ought to have allowed the appeal in toto
7 Your appellant craves leave to add,alter and/or to amend all or
any of the grounds before the final hearing.””
ITA No.3806/ Ahd/2007[Revenue]
1
On the facts and in the circumstances of the case and in law, the
learned CIT(A) erred in directing the AO to allow depreciation on the
cost of plant and machinery of Mother Dairy at Gandhinagar on the
gross value of the fixed assets without reducing the amount of grant /
subsidy received from N. D. D. B. despite the clarification made in
Explanation 10 inserted vide Finance Act (No.2) 1998 w.e.f. 01-041999.
2
2
On the facts and in the circumstances of the case and in law, the
learned CIT(A) erred in directing the AO to treat the expenditure
incurred for replacement of automatic gate in place of manual gate as
revenue expenditure though in it new asset was created and the
assessee earned enduring benefit out of it.
3
On the facts and in the circumstances of the case, the
learned CIT(A) ought to have upheld the order of the
Assessing Officer.
4
The appellant craves leave to add to, amend or alter the
above grounds as may be deemed necessary.”
2
Adverting first to ground no.1 in the appeal of the
assessee,
facts in brief as per relevant orders are that return
declaring income of Rs.16,02,59,350/- filed on 26.10.2004 by the
assessee, manufacturing and marketing milk and milk products, after
being
processed
on
15.2.2005
u/s
143(1)
of
the
Income-tax
Act,1961[hereinafter referred to as the ‘Act’], was taken up for
scrutiny with the issue of notice u/s 143(2) of the Act on 28.2.2005.
During
the
course
of
assessment
proceedings,
the
Assessing
Officer[AO in short] noticed that the assessee claimed deduction of
an amount of Rs.1,82,75,000/- , being 25% of the profit, transferred
to a reserve fund,
in terms of
the
provisions of sec. 67 of the
Gujarat Co-operative Societies Act .
Relying upon the decision of
the ld. CIT(A) for the AY 2001-02 and of the ITAT for the AY 1994-95
in the assessee’s own case ,the AO disallowed the claim.
3
On appeal, the ld. CIT(A) upheld the disallowance with
the following observations:
“The assessee has transferred Rs.1,82,75,000/- to the Reserve Fund
being 25% of the profit as per the requirement of section 67 of the Gujarat
Co-operative Societies Act and claimed it as a revenue expenditure. The
I.T.A.T. Ahmedabad Bench “B" in its decision ITA No.2091/Ahd/9/1990
dated 31.8.1995 in the case of Mehsana District Milk Producers Union had
decided an identical issue in favour of the department. In the case of the
appellant also, the Hon'ble Tribunal has decided the issue against the
appellant in earlier assessment years. The Tribunal has differentiated the
judgement given by the M. P. High Court in the case of Keshkai Co-op.
Marketing Society Ltd Vs. CIT, 165 ITR 437 (M.P.) with the cases falling in
3
the Gujarat Region by holding that the M. P. High Court judgement was
based on the provisions of section 43 and 44 of the M. P. State Co-op.
Societies Act under which, the reserve fund of the society could be
invested or utilized only in such manner and on such terms and conditions
as may be laid down by the Registrar of Co-operative Societies in this
behalf. Thus, there was clear prohibition and restriction regarding
utilization of statutory reserve in the business of the society, falling under
M. P. State Co-op, Societies Act, whereas, in section 67 of the Gujarat Coop. Societies Act, there was no such restriction which permits the use of
statutory reserve in the business of the concerned society. Hence, the
assessee continues to remain the beneficiary of the Reserve Fund.
Accordingly, it was held in all such cases adjudicated by the Hon. ITAT,
Ahmedabad that the amount transferred to the reserve fund cannot be
allowed as a deduction.
Since, the above issue is a covered matter and the appellant has also
accepted this fact at the time of the hearing of appeal, therefore, keeping
in view the above mentioned decisions, I hold that 25% of profit amounting
to Rs.1,82,75,000/- transferred to reserve fund is appropriation of profit
which has been set apart for future use, hence, no deduction of this
amount is permissible. Therefore, the disallowance made by the AO on
this account is confirmed.”
4.
The assessee is now in appeal before us against the aforesaid
findings of the ld. CIT(A). At the outset, both the parties agreed that
issue is squarely covered in favour of the Revenue by the decision
dated
26.9.2006
in
the
assessee’s
own
case
in
ITA
no.102/Ahd./2006 for the AY 2000-01, followed in decision dated
23.3.2007 in ITA nos. 1884 to 1888/Ahd./2004 for the AYs. 199293,1995-96,1996-97,1999-2000 & 2001-02.
5.
W e have heard both the parties and gone through the facts of
the case as also the decisions relied upon. W e find that the issue is
squarely covered in favour of the Revenue the decision 26-09-2006
of the Tribunal in the assessee’s own case in ITA No.102/Ahd/2006
for AY 2000-01, wherein it was held:
“4.
The second ground is against the confirmation of
disallowance of Rs.1,44,62,415 being transfer of reserve fund
u/s.67 of the Gujarat C-operative Societies Act. This issue stands
covered against the assessee by the decision of the Tribunal in
4
the case of assessee's own case for Asst.Year 1994-95 wherein
the Tribunal decided the matter against the assessee vide
discussion in paragraph 8 of the order, which reads as under:-.
"8. The only ground which remains to be considered in Revenue's appeal
is Ground No. J which is reproduced below:“0n the facts and in the circumstances of the case and in law, the learned
C1T(A) erred in directing to allow the assessee's claim for deduction for
the sum ofRs.19,71,528/- transferred to Rcsen>e Fund Account.'
8.1
At the outset, the learned representatives of both sides contended
that this issue is also covered against the assessee by earlier decision of
the Tribunal in assessee's o\vn case foi> .Y. 1993-94 (supra). The
Tribunal in para 2.1 of their--order tyave given the following findings:
2.1
It is common contention that issue involved in this ground of appeal
is covered against the assessee by order of the Tribunal dated 19.12.2002
in assessee’s own case for the AYs 1984-85, 1987-88 & 1988-89 in appeal
Nos.252 to 1253/Ahd/ 95. In the said order this Tribunal following the
decision of 1TAT Ahmedahad Bench in the case of Mehsana Dist. Co-op.
Milk Producers Union Ltd. in ITA No.2091/Ahd/90 and others dated
31.8.95 held that the AO had rightly denied deduction in respect of amount
transferred to Retake Fund Account as required u/s.67 of the Gujarat Cooperative Societies Act. We, therefore, respectfully the same, reverse the
order of Id. ClT(A) and restore the addition of Rs.7619692/-:
8:2
We therefore respectfully following the aforesaid order of the
Tribunal, hold that the CIT(A) has erred in directing the AO to allow
deduction for the sum of Rs.19,71,528/- transferred to Reserve Fund
Account. The order passed by the CIT(A) is set aside and that of the AO is
restored in relation to this point.”
5.
Since the facts and circumstances in the aforesaid
case
are
similar
to
that
of
the
issue
under
consideration, on the same, line, we uphold the order of
the CIT(A) in this year as well.”
6.
The aforesaid decision was followed by the ITAT in the
assessee’s own case in the AYs1992-93,1995-96,1996-97,19992000
& 2001-02. Undisputedly, since the facts in the year under
consideration are similar to the facts
96,1996-97,1999-2000
in the AYs.1992-93,1995-
2000-01& 2001-02, following the aforesaid
decision of co-ordinate Benches, we uphold the findings of the ld.
5
CIT(A) in this year also. Therefore, ground No.1 in the assessee’s
appeal is dismissed.
7.
Ground no.2 in the appeal of the assessee and ground no.2 in
the appeal of the Revenue relate to disallowance out of repair and
maintenance
expenses
to
buildings.
During
the
course
of
assessment proceedings, the AO noticed that the assessee debited
a sum of Rs.582.04 lacs under the head “repairs and maintenance”,
of which Rs.96.35 lacs
pertained to repairs and maintenance of
building of Mother Dairy-Bhat - Gandhinagar. To a query by the AO,
the assessee explained that
(i)
expenditure of Rs.6,34,666/- was incurred for the addition of
certain facilities like toilet, despatch dock etc. in the existing
building at Mother Dairy, Gandhinagar and the same was in the
nature of replacement of old facilities. The assessee pleaded that no
new asset had come in to existence and therefore, the expenditure
was revenue in nature. However, on perusal of the relevant work
order and bills, the AO noticed that the scope of work was "Civil
works of constructing despatch dock, new toilet block, septic tanks,
soak pits, change room and miscellaneous works etc. Accordingly,
the AO concluded that a new asset had come into existence and
therefore, the expenditure was capital in nature. On appeal, the ld.
CIT(A)observed that the very term 'addition' connotes something
new. Since it was neither repair nor replacement, the ld. CIT(A)
upheld the findings of the AO.
(ii)
expenditure of Rs.1,87,600/- had been incurred for automation
of the front gate and rolling shutter at Mother Dairy, Gandhinagar.
Since the existing manual gate was replaced with an automatic gate,
the assessee contended that no new asset had come in to existence.
However, on perusal of the relevant work order and bills, the AO
noticed that the replacement resulted in an asset of an enduring
6
nature and therefore, expenditure was capital in nature. On appeal,
the ld. CIT(A) allowed the claim on the ground that since
the
expenditure was on replacement of an existing asset, it was revenue
in nature.
(iii)
expenditure of Rs.1,51,700/- had been incurred for supply and
installation of Hoist with structure for lift. The AO on perusal of
relevant bill
treated the expenditure capital in nature. On appeal,
since the A.R. could not shed any light on the nature of this
expenditure and nor explained as to how the claim constituted a
revenue expenditure, the ld. CIT(A) upheld the findings of the AO.
(iv) expenditure of Rs.3,87,636/- had been incurred for the purpose
of miscellaneous civil work for septic work and soak well, roofing on
powder despatch dock and roofing on fire fighting systems. Since
these repairs
construction
were carried out in the existing building and not on
of
a
new
building,
the
assessee
claimed
the
expenditure revenue in nature. However, on verification of the copy
of work order, the AO observed that a meagre 10 sq. meters
construction was dismantled whereas civil construction work was
done on an area more than what was dismantled. He therefore,
concluded that the expenditure was capital in nature and disallowed
the claim of the assessee. On appeal, the ld. CIT(A) held as under:
“In appeal, the Authorized Representative merely reiterated
what was submitted before the Assessing Officer. A reading of
the description of the work done links it to item No.l discussed
above. Both the works involved construction of toilet block,
soak pits and septic tanks. The payments have also been
made to the same contractor. I therefore, hold that this
expenditure is capital in nature and addition made by the
Assessing Officer is confirmed.”
7
8.
The assessee is now in appeal before us against upholding the findings of
the AO in respect of expenditure of Rs.11,74,002/-[6,34,666+1,51,700+3,87,636]
while the Revenue is in appeal in respect of expenditure on replacement of
manual gate with automatic gate. The learned AR on behalf of the assessee
while inviting our attention to relevant pages of the paper book contended that
the entire expenditure debited under the head “repairs and maintenance” was on
replacement and no new asset has been added. The assessee claimed
depreciation of about Rs.19 crores on various assets of more than Rs.100 crores,
it was submitted. In this connection, while referring to the decision of the Hon’ble
Jurisdictional High Court in the case of Mihir Textiles 219 CTR 35 (Guj) , the
learned AR contended that the repairs expenditure being nominal vis-à-vis huge
assets owned by the assessee, no disallowance could be made. The learned
AR further referred to the decision of the Tribunal in the case of Power Build, 126
TTJ 551 (Ahd) in support of his argument that the entire expenditure was revenue
in nature. On the other hand, the learned DR, while referring to the decisions in
the case of CIT vs. Saravana Spinning Mills P. Ltd. (2007) 293 ITR 201 (SC),
Commissioner Of Income-Tax.vs Sri Mangayarkarasi Mills (P) Ltd.,182 Taxman
141 (SC) and an unreported decision of the ITAT Chandigarh Bench
in ITA No.781/Chd/05 contended that since the expenditure has
been incurred on new assets, it could not be termed as current
repairs and thus supported the findings of the AO. Despite request
made, the ld. DR did not make available copy of the said unreported
decision.
9.
W e have heard both the parties and gone through the facts of
the case as also the decisions relied upon by both the parties. The
issue before us is as to whether the aforesaid expenditure incurred
on replacement of /addition to assets is revenue in nature or capital
in nature. At the outset, we notice that the expenditure is stated to
have been incurred on repairs to buildings. In this connection
relevant provisions of sec. 30 of the Act allow deduction for current
repairs. An explanation has been inserted by Finance Act,2003 w.e.f
1.2004 ,clarifying that expenditure on repairs or current repairs shall
8
not include any expenditure in the nature of capital expenditure. An
allowance is granted by clause a(i) &(ii) of section 30 in respect of amount
expended on repairs or current repairs to buildings. The expression "current
repairs" denotes repairs which are undertaken when the need for them arises
from the viewpoint of a businessman. The word "repair" involves renewal.
However, the words used in section 30 are "current repairs". The object behind
section 30 is to preserve and maintain the asset and not to bring in a new asset.
As held by the Hon’ble Apex Court in the case of CIT Vs. Saravana Spinning Mills
P Ltd.,293 ITR 201, relied on by the Revenue, the relevant provisions of section
30 limit the scope of allowability of expenditure as deduction in respect of repairs
made to buildings by restricting it to the concept of "current repairs", if
expenditure is incurred otherwise than as a tenant. There is no material before us
suggesting that expenditure has been incurred by the assessee as a tenant.
Moreover,all repairs are not current repairs. Section 37(1) allows claim for
expenditure which are not of capital nature. Even section 37(1) excludes those
items of expenditure which expressly fall in sections 30 to 36. The basic test to
find out as to what would constitute current repairs is that the expenditure must
have been incurred to "preserve and maintain" an already existing asset, and the
object of the expenditure must not be to bring a new asset into existence or to
obtain a new advantage. The Saravana Spinning Mills (P) Ltd. case holds that
expenditure is deductible under s. 37 only if it (a) is not deductible under ss. 3036, (b) is of a revenue nature, (c) is incurred during the current accounting year
and (d) is incurred wholly and exclusively for the purpose of the business. The
dispute before us is with respect to the nature of expenditure, that is, whether it
is revenue or capital in nature. In fact, in the present case, as is apparent from
the impugned ordrs, the assessee had added new assets or new advantage. The
assessee, while replacing a manual gate with an automatic gate have obtained a
new advantage and we are of the opinion that it can not be categorized as
current repairs or even repairs. This replacement by automatic gate resulted in
effacing an old asset and bringing into existence a totally new asset. The only
probable reason for the replacement of the asset would have been to obtain an
enduring benefit from the asset so replaced Thus, expenditure on installation of
an automatic gate, in our opinion, is capital in nature and is not deductible in
9
terms of provisions of sec. 30 or sec. 37 of the Act. Moreover, as is apparent
from the findings of the ld. CIT(A) in the impugned order, expenditure of Rs.
6,34,666/- & Rs. 3,87,636/- was incurred on construction of toilet block, soak pits
and septic tanks as also dispatch docks. The ld. CIT(A) found that expenditure
was admittedly on addition of certain facilities and was ,thus ,neither repair nor
replacement. As regards expenditure of Rs. 1,51,700/-, the assessee did not
explain even the nature of expenditure before the ld. CIT(A) nor even before us.
In the light of these undisputed facts, especially when the expenditure has been
incurred on ‘addition on certain facilities’, while no material has been brought to
our notice so as to enable us to take a different view in the matter, we are not
inclined to interfere with the findings of the ld. CIT(A) in respect claim for
deduction of expenditure
of
Rs.11,74,002
[6,34,666+
1,51,700+
3,87,636]. Besides, the ld. AR has not demonstrated as to how the
facts in the decisions cited by him were parallel to the facts in the
case under consideration.
In Mihir Textiles(supra) relied on on
behalf of the assessee, the ld. CIT(A) found that no new assets came into
existence and the entire expenditure was incurred for the purpose of running of
existing auto loom shed in a more efficient manner. It was further found that the
quantum of expenditure, when compared with gross block of assets, cannot be
termed to be very high. These findings were confirmed by the Tribunal. In the
light of these facts, the Hon’ble High Court observed that the order of CIT(A)
shows that CIT(A) examined in detail each and every item of expenditure before
recording the aforesaid findings and thus, there was no error of law in the order
of the CIT(A).
But such are not the facts in the case under consideration.
Therefore, reliance on the decisions by the ld. AR is totally misplaced
while the decisions of the Hon’ble Apex Court relied on by the ld. DR support the
case of the Revenue. In view thereof, ground no.2 in the appeal of the assessee
is dismissed while ground no.2 in the appeal of the Revenue is allowed.
10
Ground no.3 in the appeal of the assessee relates to allocation
of expenses while calculating the deduction u/s 80HHC of the Act in
the light of view taken by the ITAT in the assessee’s own case for
the AY 1993-94. During the course of assessment proceedings, the
10
AO while referring to the orders of the ld. CIT(A) for the AYs 200203 & 2003-04, allocated all the indirect expenses in the ratio of
turnover of trading goods to the total turnover while computing
deduction u/s 80HHC of the Act and accordingly restricted deduction
u/s 80HHC of the Act to Rs.5.47 lacs. On appeal, though the
assessee relied upon the decision of the ITAT for the AY 1993-94,
they did not furnish any bifurcation of direct and indirect expenses in
accordance with guidelines laid down by the ITAT. Accordingly, the
ld. CIT(A) while observing that the provisions of sec. 80HHC of the
Act do not provide for unit wise classification of direct and indirect
expenses, upheld the findings of the AO.
11
The assessee is now in appeal before us. The ld. AR on
behalf of the assessee without furnishing any reason as to why the
assessee did not furnish any bifurcation of direct and indirect
expenses in accordance with guidelines laid down by the ITAT in
their decision for the AY 1993-94, before the ld. CIT(A), merely
contended that
the matter may be remitted to the AO in the light of
decision dated 23.3.2007 in ITA nos. 1884 to 1888/Ahd./2004 for the
AYs. 1992-93,1995-96,1996-97, 1999 -2000
& 2001-02. On the
other hand, the ld. DR merely supported the findings of the ld.
CIT(A).
12.
W e have heard both the parties and gone through the facts of
the case as also the decisions relied upon. W e find that while
adjudicating a similar issue , the Tribunal in their decision in ITA
No.3224/Ahd/1996 for AY 1993-94 in the assessee’s own case,
concluded as under:
"6.1 At the time hearing before us Id. counsel appeared for the assessee
contended, that in the A.O. in paragraph 8.1 Assessing Officer has stated
that assessee has not computed the interest cost correctly. According to
Assessing Officer, Explanation (e) to section 80 HHC (3) indirect cost not
being direct costs allocated in the ratio of' export turnover in respect of the
trading goods to the total turnover. If this definition is read in conjunction
11
with the words "indirect costs attributable to such exports" in section 80
HHC (3)(b), it is apparent that the word costs used in the definition or in
direct costs can referred only to the costs attributable to the export of
trading goods. In case the assessee who carries on export, activities as
well as other lines of business, the indirect cost has to be determined on
proportionate basis with respect to the export turnover and the total
turnover. The counsel of the assessee submitted that when some cost arc
directly relatable to other line of business other than export turnover in that
event same is to be allocated without using any formula and only in case
of indirect cost which cannot be directly related to any other two lines of
business in that event same is to be allocated as per formula applied by
AO.
Counsel of the assessee accordingly submitted that in the
computation u/s 80 HHC assessee had adopted the method of direct
allocation of cost and only indirect cost are to be allocated as per formula
applied by AO. Therefore, AO be directed to re-work out the deduction u/s
80 HHC.”
12.1
Following the aforesaid decision, the ITAT in their decision dated
23.3.2007 in ITA nos. 1884 to 1888/Ahd./2004 for the AYs. 199293,1995-96,1996-97, 1999 -2000
& 2001-02. restored a similar issue
back to the file of A.O. In the light of view taken in these decisions by the ITAT in
the preceding assessment years , the matter
regarding allocation of indirect
expenses while computing deduction u/s 80HHC of the Act, is restored to the file
of the AO for the year under consideration. The assessee is also directed to
furnish
bifurcation of direct and indirect expenses in accordance
with guidelines laid down by the ITAT in their decision for the AY
1993-94. The AO shall, thereafter , pass appropriate orders in
accordance with law after allowing sufficient opportunity to the
assessee. In the event, the assessee fails to furnish the desired
details, the findings of the ld. CIT(A) shall stand affirmed .W ith these
observations, ground no. 3 in the appeal of the assessee is disposed
of.
13
Ground No.4 in the appeal
of the assessee relates to
charging of interest u/s 234D of the Act. There is no discussion on
this aspect in the assessment order except that the AO while
completing the assessment levied interest u/s 234D of the Act.On
appeal, the ld. CIT(A) while referring to decision of the Hon’ble Apex
12
Court in Commissioner Of Income Tax. vs Anjum M. H. Ghaswala And
Others,252 ITR 1(SC) and JCIT vs. Sardar Sarovar Narmada Nigam ltd,93 ITD
321(Ahmedabad) as also in the assessee’s own case for the AY 2003-04, upheld
the levy of interest u/s 234D of the Act,
14.
The assessee is now in appeal before us against the aforesaid
findings of the ld. CIT(A). Before us, both the parties agreed that
issue may be adjudicated in the light of decision of the ITAT Special
Bench in the case of ITO v Ekta Promoters (P) Ltd. (2008) 113 ITD
719 (Delhi) (SB).
15
W e have heard both the paties and gone through the
facts of the case.We find that the ITAT Special Bench in the case of
ITO v Ekta Promoters (P) Ltd. (2008) 113 ITD 719 (Delhi) (SB), held
that section 234D which has been brought on the statute from 01-062003 cannot be applied to the Assessment Year 2003-04 and earlier
years but it will have application only with effect from AY 2004-05.
In the light of view taken by the Special Bench and no contrary
decision having been brought to our notice, we have no alternative
but to uphold the findings of the ld. CIT(A). Therefore, ground no. 4
in the appeal of the assessee is dismissed.
15
Now coming to ground no.1 in the
Revenue relating to
appeal of the
allowance of depreciation on the cost of plant
and machinery of Mother Dairy at Gandhinagar without reducing the
amount of grant/subsidy received from NDDB, the AO noticed that
the assessee
had received plant and machinery from NDDB under
"Operation Flood Project". 30% of the total cost of plant and
machinery from NDDB was treated as grant and 70% as loan. During
the year under consideration, the assessee claimed depreciation of
Rs.85,58,663/- attributable to grant portion of the machiney acquired
until 31.3.1998. No new grant had been received in the year under
consideration. To a query by the AO, the assessee explained that
13
the ld. CIT(A) had deleted a similar disallowance in earlier years on
the basis of decision of the Hon’ble jurisdictional High Court in the
case
of
Mehsana
District
Co-op.
Milk
Producers
Union
Ltd.
However, since the Revenue had not accepted the decision of the ld.
CIT(A) referred to by the assessee while the ld. CIT(A)-IV,Baroda in
the assessee’s own case for the AY 2000-01 & 2001-02 had decided
the issue in favour of the Revenue, relying upon explanation 10 to
sec. 43(1) of the Act, introduced w.e.f 1.4.1999 ,the AO disallowed
the
claim
for
depreciation/addl.
depreciation
corresponding
to
subsidy received from NDDB in the earlier years.
16
On appeal, the ld. CIT(A) held as under:
“This is again a covered issue in the orders of the I.T.A.T. dated
22.09.2006 and 26.09.2006 in the appellant's own case for Asstt. Years
1997-98, 1998-99 and 2000-01. The Honourable Tribunal held that "the
assessee has not been given any specific machinery. It has been given a
grant, which is not given as a direct cost of the plant and machinery but it
was given as a grant for the project as a whole including processing
facility, technical inputs, milk marketing. The CIT(A) is, therefore, right in
holding that it is a grant that was not given for purchase of any specific
plant or machinery or acquisition of assets. It has been given for the entire
project and accordingly, the case of the assessee is covered by the
decision of the Supreme Court in the case of P. J. Chemicals Works Ltd.
(210 ITR 230). The reliance on the Explanation (10) to Sec. 43(l) also
cannot be of any help to the Revenue, as it was incorporated w.e.f.
1.4.1999 and would not be applicable to the year under consideration. The
decision of Sahney Steel & Press Works Ltd. (220 ITR 253) is also of no
help as the issue in that case was whether the amount received by the
assessee was a revenue income or capital expenditure and nothing to do
with cost of assets. We, accordingly, uphold the order of the CIT(A) and
reject the ground of the Revenue". Respectfully following the order of the
I.T.A.T., the Assessing Officer is directed to allow the depreciation on the
plant 'Mother Dairy' at Gandhinagar on the gross value of the fixed assets
without reducing the amount of grant/subsidy received from N.D.D.B. after
considering the depreciation admissible in the earlier years.”
17
The Revenue is now in appeal before us against the
aforesaid findings of the ld. CIT(A). The learned DR contended that
explanation 10 introduced by the Finance Act (No.2), 1998 with
effect from 01-04-1999 had not been considered by the Tribunal in
14
their earlier decision and thus, the decision relied upon by the
CIT(A)
was
not
applicable
to
the
facts
of
the
case
under
consideration. On the other hand, the learned AR on behalf of the
assessee, while referring to
relevant page of the paper book
contended that the said explanation 10 has been considered in the
decision of this Tribunal.
19
W e have heard both the parties and gone through the
facts of the case as also the decisions of the ITAT in the assessee’s
own case. W e find that the Tribunal Ahmedabad Bench-B in ITA
No.958/Ahd/2007 for
the AY 2003-04 in the assessee’s own case,
in their decision dated 4.5.2007 have decided the issue in favour of
the assessee, holding as under:
“2
At the very outset, it was the common contention of both the
parties that this issue is covered in favour of the assessee by the decision
of the ITAT Ahmedabad Bench “A” in the case of the assessee in ITA
No.102/Ahd/2006 [copy of order is placed on record] for AY 2000-01,
dated 26-09-2006.
3.
We have carefully considered the rival submissions, and
perused the material on record and have also gone through the orders of
the authorities below as well as the order of the Tribunal in the assessee’s
case cited supra. The Tribunal has dealt with the issue in great detail vide
paras-8 & 9 of the order, which are as under:
“8.
The next ground is against the confirmation of disallowance
of depreciation of Rs.2,45,04,358 on grants received in earlier year
by reducing W.D.V. Similar matter came up before the Tribunal and
the Tribunal in its earlier order allowed the claim of the assessee
vide discussion in paragraphs 16 and 17, which read as under:‘16. We have heard the parties and considered the rival
submissions. In our opinion, the CIT(A) is right in holding
that the case of the assessee is squarely covered by the
decision of the Supreme Court in the case of
P.J.Chemicals Works Ltd. (supra). The assessee has set
up a milk processing plant called “Mother Dairy Plant” at
Gandhinagar having milk processing capacity of 4 lac liters
per day. The said project initially estimated at a cost of
Rs.16.04 crores was financed under the National Dairy
Project-II/Operation Flood-III by the National Dairy
15
Development Board. The financing by the NDDB is
undertaken by 70% loan and 30% grant basis. As per the
agreement dated 30th October, 1991 signed between the
assessee and NDDB what comes out is that by clause (1)
of the agreement NDDB has given disbursement to
borrowers a sum of Rs.13058.98 lacs as grants towards
part-finance for the project as per the terms and
conditions. Subject to paragraph 4 of the agreement, the
estimated cost for disbursement is stated as under:Item
Processing
facilities
Technical inputs
Milk marketing
Estimated
Amount of grant
Total
(30%
of
cost
cost)
37914.23 lacs
11,247.07
4009.86 lacs
395.09 lacs
1,202.95
118.53
17.
The NDDB by clause (4) of the agreement has
been given option that instead of giving the amount of
grant by way of cash they can give specific machinery
and/or equipment required for the project as grant. In such
a case the actual cost of plant, equipment or machinery
will be considered towards grant for purpose of paras 2
and 3, and such actual cost will be the amount as
computed by the NDDB and may include direct and
indirect expenses and all costs of purchasing, acquisition,
transportation, insurance, trial runs, inventory holding
costs, service charges and interest charged as computed
by the NDDB and the amount of grant to be given will be
reduced by the amount of cost of the machinery and/or
equipment so supplied to the borrower and only the
balance of the amount if any, will be granted / payable by
the NDDB in cash. The assessee has not been given any
specific machinery. It has been given a grant, which is not
given as a direct cost of the plant and machinery but it was
given as a grant for the project as a whole including
processing facility, technical inputs, milk marketing. The
CIT(A) is, therefore, right in holding that it is a grant that
was not given for purchase of any specific plant or
machinery or acquisition of assets. It has been given for
the entire project and accordingly, the case of the
assessee is covered by the decision of the Supreme Court
in the case of P.J.Chemicals Works Ltd. (supra). The
reliance on the Explanation (10) to Sec.43(1) also cannot
be any help to the Revenue, as it was incorporated w.e.f.
1.4.1999 and would not be applicable to the year under
consideration. The decision of Sahney Steel & Press
Works Ltd. (supra) is also of no help as the issue in that
16
case was whether the amount received by the assessee
was a revenue income or capital expenditure and nothing
to do with cost of the assets. We, accordingly, uphold the
order of the CIT(A) and reject the ground of the Revenue.”
9.
Since facts and circumstances are similar in this year, we
allow the claim of the assessee, in this year as well.”
Respectfully following the aforesaid decision of the Tribunal, we uphold the
order of the CIT(A) and reject the ground raised by the Revenue.”
19.1
The aforesaid decision dated 26.9.2006 for the AY 2000-01
was also followed while adjudicating a similar issue in
the
assessee’s own case for the AYs. 1996-97,1999-2000 & 2001-02 in
their decision dated 23.3.2007. In the light of view taken by the coordinate Benches ,we have no alternative but to uphold the order of
the ld. CIT(A) and reject ground no.1 raised by the Revenue.
20.
Ground nos. 5 & 6 in the appeal of the assessee and ground
no. 3 in the appeal of the appeal of the Revenue, being general in
nature,
do
not
require
any
separate
adjudication
nor
any
submissions have been made before us on these grounds while no
additional ground having been raised in terms of residuary ground
no. 7 in the appeal of the assessee and ground no.4 in the appeal of
the Revenue, all these grounds are dismissed.
21
In the result, the appeal filed by the assessee is partly
allowed for statistical purpose while the appeal filed by the Revenue
is partly allowed.
Order pronounced in the open court today on 26 -05-2010
Sd/-
Sd/-
(D T G AR ASI A)
JUDICI AL MEMBER
Date
:
(A N PAHUJ A)
ACCOUNTANT MEMBER
26 -05-2010
Copy of the order forwarded to :
17
1.
2.
3.
4.
5.
6.
Gujarat Co-operative Milk Marketing Federation Limited,
Amul Dairy Road, Anand
The ACIT, Anand Circle, Anand
CIT concerned
CIT(A)-IV, Baroda
The DR, ITAT, Ahmedabad
Guard File
BY ORDER
Deputy Registrar
Assistant Registrar
ITAT, AHMEDABAD
18