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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: SRI RAJESH KUMAR & SONJOY SARMA
order
: August 31st, 2023 ORDER
Per Rajesh Kumar, Accountant Member:
The captioned appeals preferred by the assessee are against the order of the Commissioner of Income Tax (Appeals)-20, Kolkata [in short ld. 'CIT(A)'] dated 08.08.2022 for the Assessment Years (in short ‘AY’) 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015- 16.
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). IT(SS)A No. 55/KOL/2022
The issue raised in the first ground of appeal is against the order of Ld. CIT(A) confirming the addition made by the AO in the assessment completed u/s 143(3) r.w.s. 153A of the Act dated 30.12.2016 wherein the addition was made without there being any incriminating material found during the course of search while the assessment was unabated on the date of search.
The facts in brief are that a search action u/s 132 of the Act was conducted in the office premises of the assessee on 27.08.2014 and subsequent dates. It is pertinent to note that the assessee company has filed the original return of income at a loss of Rs. 9,558/- on 30.09.2009. The notice u/s 153A of the Act was issued on 21.09.2015 which was complied with by the assessee by filing the return of income on 15.10.2015 declaring the same income as was declared in the original return of income filed u/s 139(1) of the Act. Thereafter, the AO during the course of assessment proceedings observed from the profit & loss account, balance sheet that the assessee has raised unsecured loans of Rs. 1.60 Cr during the year and accordingly called upon the assessee to furnish the details along with the evidences to prove the identity, creditworthiness of the creditors and genuineness of the transactions. The loan raised was from seven parties which are mentioned in para 3.1 of the assessment order. In order to independently verify the loan transactions, the AO also issued notice u/s 133(6) of the Act which in some cases were either returned or not complied with by the lenders. Thereafter, the AO Page 2 of 18
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). called upon the assessee to produce the directors of the lender companies. However, the assessee could not produce the directors of these lender companies. Thereafter, the AO issued notice u/s 131 of the Act to the above lender companies. The AO tried to serve notice u/s 131 of the Act by deputing the instructor however, the same could not be served due to these companies not being available at the given addresses. Finally, the AO made the addition by discussing that the report of the Investigation Wing wherein the Department has found these companies to be Jama-Kharchi companies. The AO also noted that the investigation was carried out against Mr. Manohar Lal Nangalia and as a part of investigation, statement of the said person was recorded. Mr. Nangalia son of Late Radha Kishan Nangalia was recorded u/s 131 of the Act and also the statement of different dummy directors such as Amit Kumar Choudhary, Ankit Todi were also recorded and it was admitted that he was providing accommodation entries through Jama-Kharchi companies. Finally, the AO added the said amount of Rs. 1.60 Cr to the income of the assessee in the assessment framed u/s 143(3) r.w.s. 153A of the Act.
Aggrieved by the order of the AO, the assessee challenged the order before Ld. CIT(A) but the appeal was simply dismissed.
Ld. Counsel for the assessee vehemently submitted before us that the impugned year was unabated on the date of search as this has attained finality on the date of search. Ld. A/R stated that during the course of search proceeding no incriminating material was found qua the said addition as is apparent from the Page 3 of 18
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). assessment order also wherein the AO has picked up this amount of unsecured loans from the balance sheet of the assessee. The Ld. A/R submitted that the only reliance was placed by the AO is on the statement of Mr. Nangalia recorded during the course of investigation by the Investigation Wing but that is not an incriminating material found during the course of search. Therefore, Ld. A/R contended that the addition in case of unabated assessment year can only be made on the basis of seized incriminating material and not otherwise. In defence of his argument, Ld. A/R relied on the decision of Hon'ble Apex Court in the case of PCIT Vs. Abhisar Buildwell (P.) Ltd. reported in [2023] 149 taxmann.com 399 (SC) wherein the Hon'ble Court has held that this addition in the case of unabated assessment on the date of search could only be made on the basis of seized incriminating material and not otherwise. Ld. A/R therefore prayed that the addition made by the AO is without jurisdiction and may kindly be deleted.
Ld. D/R on the other hand heavily relied on the orders of the authorities below by submitting that the Department on the basis of credible information which was in the form of statement of Mr. Nangalia conducted a search on the assessee and it was found that the assessee is beneficiary of unsecured loans taken from various shell companies and accordingly, addition was made. Therefore, the arguments of Ld. A/R that there was not incriminating material is devoid of merit and may kindly be dismissed.
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.).
We have heard rival contentions and perused the material available on record. From perusal of the impugned assessment order, we note that search action u/s 132(1) of the Act was conducted on the assessee on 27.08.2014. Undisputedly, the assessment attained finality on the date of search as no assessment proceedings were pending. In our opinion, in an unabated assessment year the addition can only be made on the basis of seized incriminating material which was found during the course of search and not otherwise. Upon perusal of the assessment order and after hearing rival contentions we observe that the AO has relied on the documents filed by the assessee during the course of assessment proceedings namely profit & loss account, balance sheet and details of unsecured loans and thus, we note that there is no seized incriminating material qua the said unsecured loans as added by the AO to the income of the assessee. The AO has referred to the statement of Mr. Nagalia which was recorded during the course of investigation by the Investigation Wing. However, in our opinion the statement recorded during the course of investigation by the Investigation Wing is not an incriminating search material upon which the addition can be made unless corroborating materials is there. Therefore, we have no doubt in our mind that addition has been made by the AO in the said year without there being any seized incriminating material found during the course of search and accordingly the same cannot be sustained. The case of the assessee finds support from the decision of Hon'ble Apex Court in the case of Abhisar Buildwell (P.) Ltd. (supra) in which the Hon'ble Court has held that in case of Page 5 of 18
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). unabated assessment the addition can only be made on the basis of the seized incriminating material and not otherwise. We therefore, respectfully following the ratio laid down by the Hon'ble Apex Court direct the AO to delete the addition as being without valid jurisdiction. Therefore, ground no. 1 raised by the assessee is allowed.
Since we have allowed the appeal of the assessee on legal issue, the other grounds raised by the assessee on merits are not being adjudicated at this stage.
In the result, the appeal filed by the assessee in IT(SS)A No. 55/KOL/2022 is allowed.
IT(SS)A Nos. 56 & 57/KOL/2022
The issue raised in ground no. 1 is identical to the ground as is settled by us in IT(SS)A No. 55/KOL/2022. Accordingly, our decision in IT(SS)A No. 55/KOL/2022 would, mutatis mutandis, apply to these appeals as well. Accordingly, these appeals in IT(SS)A Nos. 56 & 57/KOL/2022 are allowed.
IT(SS)A No. 58/KOL/2022
The facts in brief are that the return of income was filed u/s 139(1) of the Act on 29.07.2012 declaring the loss of Rs. 4,05,05,348/-. Thereafter the case of the assessee was selected for scrutiny under CASS and assessment u/s 143(3) of the Act was framed vide order dated 23.03.2015/- accepting the total loss. It is pertinent to state that the search u/s 132 of the Act was conducted Page 6 of 18
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). on the assessee on 27.08.2014. The assessment has abated in terms of provisions of Section 153A of the Act and as the assessment was pending on the date of search but despite that the assessment was framed vide order dated 23.03.2015. During the course of assessment proceedings notice u/s 153A of the Act was served upon the assessee on 21.09.2015 which was complied with by filing the return of income on 07.12.2015 declaring the same loss as was declared u/s 139(1) of the Act. Thereafter, statutory notice was duly issued and served upon the assessee. During the course of assessment proceedings, the AO observed that the assessee has raised share capital/share premium by issuing equity shares to the tune of Rs. 2.50 Cr from seven parties, the details thereof are given in para 3 of the assessment order. The AO noted that the assessee is engaged in the activities of job of manufacturing of biscuits for Parle Biscuits Ltd. and belongs to a group of companies. The assessee furnished before the AO the names, addresses, PAN, share application form, share allotment form, bank statement of the assessee as well as bank statement of the subscribers. Besides, the AO issued notice u/s 133(6) of the Act calling upon the assessee to furnish various details as mentioned in para 5 of the assessment order. However, the reply from the three was received whereas no compliance was made by two companies namely Blueprint Securities Ltd. and P.G. Securities Pvt. Ltd. Thereafter, the AO issued summons u/s 131 of the Act which not be served on these companies due to non- availability on the given addresses. Finally, the show cause notice was issued to the assessee to explain as to why Rs. 2.50 Cr should Page 7 of 18
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). not be added as unexplained cash credit u/s 68 of the Act which was duly replied by the assessee. Thereafter, the AO discussed the statement recorded during the course of investigation by the Investigation Wing of Mr. Nangalia and also of the dummy directors as noted in and came to the conclusion that the subscribing companies were Jama-Kharchi companies and were not real investors. Finally, the AO added the amount as unexplained cash credit to the income of the assessee on the ground that the assessee could not produce the directors of the subscribing companies for verification in the assessment framed u/s 143(3) r.w.s. 153A of the Act.
In the appellate proceedings, Ld. CIT(A) affirmed the order of the AO. Ld. CIT(A) simply dismissing the appeal of the assessee by relying on the decision of Hon'ble Apex Court in the case of PCIT Vs. NRA Iron & Steel (P.) Ltd. reported in [2019] 412 ITR 161 (SC) and also discussing several other judicial decisions by upholding the order of the AO. Ld. CIT(A) also noted that the notice issued u/s 133(6) of the Act also returned unserved.
Ld. A/R submitted before the Bench that the assessee has filed all the details/evidences concerning the seven subscribers such as names, addresses, PAN, share application forms, audited accounts of the assessee as well as share subscribers' share capital status. Ld. A/R stated that the AO also issued notice u/s 133(6) of the Act to all the seven shareholders copies of which have been filed at page 135 to 148 calling for the details such as date of purchase of shares, number of shares purchased, total amount Page 8 of 18
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). paid, date of payment along with cheque numbers, copy of bank statement, date of delivery of share scrip, copy of accounts, PAN/GIR number and the AO under whom the subscribers filed the returns of income and names of the directors of the company. Ld. A/R submitted that notices were issued and served on all the seven shareholders and their replies which are placed at page 142 to 148 of the paperbook and the same AO of Central Circle after examining the details completed the assessment u/s 143(3) of the Act vide order dated 23.03.2015 a copy of which is placed at page 133 to 134 of the paperbook and accepting the share capital during the year. Ld. A/R stated that the said order has become final and was not declared as invalid or set aside by any authority. Thereafter, again the AO issued notice u/s 153A of the Act on 21.09.2015 and called upon the assessee to furnish the details of share capital raised during the year. Accordingly, the same information were again submitted before the AO and the AO issued notices u/s 133(6) of the Act to all the seven parties a few of whom have replied to the notice. However, some parties did not reply to the notices. Thereafter, the AO has tried to serve summons u/s 131 of the Act but the same could not be done and thus, the parties could not be summoned before the AO for verification as per the AO’s perspective. Ld. A/R stated that in the first run of assessment which was completed vide order dated 23.03.2015 which falls after the date of search i.e. on 27.08.2014 it is was only after conducting all the necessary enquiries, the AO has accepted the share capital/share premium as genuine after calling for the information from the assessee as well as the share subscribers u/s 133(6) of Page 9 of 18
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). the Act. Now, Ld. A/R stated that the status of the assessment framed u/s 143(3) of the Act dated 23.03.2014 is not known but the subsequent issuance of notice u/s 133(6) of the Act dated 21.09.2015 reveals that earlier assessment was framed in response to scrutiny proceedings initiated in that year. Ld. A/R therefore, vehemently submitted that the assessment completed after the date of search has to be treated as assessment completed in pursuance to proceedings u/s 153A of the Act and therefore, subsequent proceeding, notice and proceeding and assessment framed is not valid in the eyes of law. Ld. A/R also submitted that the addition made by the same AO who has accepted the share capital/share premium from seven parties in the assessment completed u/s 143(3) of the Act dated 23.03.2015 can be explained in the subsequent proceeding conducted u/s 153A of the Act. Ld. A/R submitted that all the facts were before the AO in the original proceeding as well as in the proceeding u/s 153A of the Act and therefore, the addition made by the AO merely on the basis that the subscribers could not be produced for verification is bad in law. In defence of his argument Ld. A/R relied on the decisions of i) CIT vs. Orissa Corporation Ltd. in 159 ITR 78 (SC) ii) CIT Vs. Orchid Industries (P) Ltd. 397 ITR 136, iii) Crystal Networks (P) Ltd. Vs. CIT 353 ITR 171 & iv) M/s. Cygnus Developers India Pvt. Ltd. and M/s. Lucky Agencies Pvt. Ltd. vs. ITO in ITA No. 2501/KOL/2019 dated 23.02.2023 which are discussed as under: a) In the case of Orissa Corporation Ltd. (supra) the Hon’ble Apex Court has held as under: Page 10 of 18
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). “That in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. I f the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case.” b) The case of the assessee is also squarely covered by the decisions of Hon’ble Calcutta High Court in the case of Crystal Networks Pvt. Ltd. vs. CIT 353 ITR 171 (Cal ) wherein it has held that where all the evidences were filed by the assessee proving the identity and creditworthiness of the loan transactions , the fact that summon issued were returned un-served or no body complied with them is of little significance to prove the genuineness of the transactions and identity and creditworthiness of the creditors. The relevant portion of the decision is extracted below: “We find considerable force of the submissions of the learned Counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter creditworthiness. As rightly pointed out by the learned counsel that the Ld. CIT(A) has taken the trouble of examining of all other materials and documents viz., confirmatory statements, invoices, challans and vouchers showing supply of bidi as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued in our view is not important. The important is to prove as to whether the said cash credit was received as against the future Page 11 of 18
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). sale of the product of the assessee or note. When it was found by the Ld. CIT(A) on fact having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact findings. Indeed the Tribunal did not really touch the aforesaid fact finding of the Ld. CIT(A) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 463, the Supreme Court has observed as follows: “The Income-Tax Appellate Tribunals performs a judicial function under the Indian Income-tax Act. It is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and records its findings on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law.” The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its findings on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. Taking inspiration from the Supreme Court observation we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Ld. CIT(A). We also found no single word has been spared to upset the fact finding of the Ld. CIT(A) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Ld. CIT(A). The appeal is allowed.”
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). c)The case of is also covered by the decision of the coordinate bench by ITO Vs M/s Cygnus Developers India Pvt. Ltd. (ITA No. 282/Kol/2012) the operative part whereof is extracted below: “8. We have heard the submissions of the learned D.R, who relied on the order of AO. The learned counsel for the assessee relied on the order of Ld. CIT(A) and further drew our attention to the decision of Hon’ble Allahabad High Court in the case of CIT vs. Raj Kumar Agarwal vide dated 17.11.2009 wherein the Hon’ble Allahabad High Court took a view that non-production of the director of a Public Limited Company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO vs. Devinder Singh Shant in ITA No. 208/Kol/2009 vide order dated 17.04.2009.
9. We have considered the rival submissions. We are of the view that order of Ld. CIT(A) does not call for any interference. It may be seen from the grounds of appeal
raised by the revenue that the revenue disputed only the proof of identity of share holder. In this regard it is seen that for AY 2004
05. Shree Shyam Trexim Pvt. Ltd. was assessed by ITO, Ward-9(4), Kolkata and the order of assessment u/s 143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd. was assessed to tax u/s 143(3) for AY 2005- 06 by ITO, Ward-9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd. was assessed to tax for AY 2005-06 by the very same ITO, Ward-9(3), Kolkata assessing the assessee. In the light of the above factual position which is not disputed by the revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon’ble Allahabad High Court as well as ITAT, Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non-production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of Ld. CIT(A) and dismiss the appeal of the revenue.” In the instant case before us also, the assessee has furnished all the evidences proving identity and creditworthiness of the investors and genuineness of the transactions but AO has not commented on these I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). evidences filed by the assessee. Besides all the investors have also furnished complete details/evidences before the AO which proved the identity, creditworthiness of investors and genuineness of the transactions in the assessment framed u/s 143(3) of the Act.
14. We, therefore, respectfully following the ratio laid down by the Hon'ble Courts in the above decisions which are squarely applicable to the facts of the present case, set aside the order of Ld. CIT(A) and direct the AO to delete the said addition.
In the result, the appeal filed by the assessee in IT(SS)A No. 58/KOL/2022 is allowed.
IT(SS)A No. 59/KOL/2022
The issue raised in ground no. 1 is against the confirmation of disallowance of Rs. 3.75 lakh by Ld. CIT(A) as made by the AO by not allowing the depreciation.
The facts in brief are that the AO during the course of assessment proceedings observed that the assessee has received a subsidy/grant of Rs. 25 lakh during the year under consideration and accordingly, the assessee was asked to furnish the details of such subsidy/grant. The assessee submitted before the AO that the said subsidy/grant was received from the Ministry of Food Processing Industries against setting up a unit for manufacturing of bakery & biscuits at Dhulagarh, Howrah. The assessee also submitted the copy of the letter received from Ministry of Food Processing Industries which indicates that the assessee received the subsidy/grant as capital subsidy for the capital assets for setting up of industries in the backward areas. The AO called upon Page 14 of 18
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). the assessee during the assessment proceedings to show cause as to why the said subsidy should not be deducted from the total cost of the assets for new plant & machinery which was replied by the assessee by submitting that the company has applied for the capital subsidy of Rs. 50 lakh for capital investment by way of setting up of new industrial manufacturing unit at Dhulagarh, Howrah and subsidy was sanctioned vide letter no. F.No. AY 2007- 0892/2010-CBP and first instalment of Rs. 25 lakh was received during the FY 2013-14 and the balance amount of Rs. 25 lakh was received in FY 2014-15. The assessee referred to the Accounting Standard 12 which deals with the methods of accounting of Government grants of which the first method provides for deduction of capital subsidy from gross value of the assets and provides for depreciation on the reduced WDV whereas the second method provides for writing off the subsidy/grant in 10 equal instalments and provides for depreciation at the gross value of assets. The assessee has followed the second method and accordingly the depreciation has been provided. However, the said contention of the assessee did not find favour of the AO and he came to the conclusion that subsidy needs to be deducted from the cost of capital assets and only depreciation on the net amount would be allowed and consequently, computed the excess depreciation to the tune of Rs. 3.75 lakh which was disallowed and added back to the total income of the assessee.
Ld. CIT(A) simply affirmed the order of the AO on the ground that subsidy was not received against setting up the manufacturing
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). unit but it was received against the cost of assets and therefore, Ld. CIT(A) justified the making of addition by the AO on this ground.
After hearing rival contentions and perusing the material on record we find that undisputedly the assessee has set up a biscuit manufacturing unit at Dhulagarh, Howrah. The said subsidy was received from the Ministry of Food Processing Industries for setting up industrial unit in the backward area. In our opinion the quantification of subsidy on the basis of investments made by the assessee in the fixed assets which cannot be construed that the assessee has received the subsidy against cost of fixed assets but it is the subsidy which is granted by Govt. of India for setting up of biscuit manufacturing unit. It is settled position of law that where the subsidies are given as incentives for setting up industries the same is not reduced for the purpose of depreciation as it is an incentive provided to the industries to both in the backward area and set up the unit. Accordingly, we are not in convenience with the conclusion of Ld. CIT(A), hence, the order passed by Ld. CIT(A) is set aside and the AO is directed to delete the addition.
The second issue raised by the assessee in ground no. 2 is similar to that of ground no. 1 as decided by us in IT(SS)A No. 58/KOL/2022. Therefore, our finding in IT(SS)A No. 58/KOL/2022 would mutatis mutandis apply to ground no. 2 in IT(SS)A No. 59/KOL/2022. Accordingly, the addition of Rs. 29 lakh is deleted.
I.T.(S.S.)A. Nos.: 55, 56, 57, 58, 59 & 463/KOL/2022 Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13, 2014-15 & 2015-16 M/s. Bhagwati Foods Pvt. Ltd. (For the merged company Manis Baking Solutions Pvt. Ltd.). 21. In the result, the appeal filed by the assessee in IT(SS)A No. 59/KOL/2022 is allowed.
IT(SS)A No. 463/KOL/2022
The issue raised in ground no. 1 is similar to one as decided by us in ground no. 1 in IT(SS)A No. 59/KOL/2022. Therefore, our decision in IT(SS)A No. 59/KOL/2022 would mutatis mutandis apply to this ground as well. Consequently, the AO is directed to delete the disallowance of depreciation of Rs. 6,93,750/-.
The issue in ground no. 2 is against the confirmation of disallowance of interest on unsecured loans taken in the earlier years. Since we have allowed the appeal of the assessee on merit wherein we have deleted the addition in respect of the unsecured loans raised by the assessee, consequently, the issue of interest on this ground is consequential and accordingly, the addition made by the AO in respect of interest on unsecured loan of Rs. 3,18,443/- is deleted.
In the result, all the appeal filed by the assessee are allowed.