C.I.T.-V, BOMBAY. vs. M/S.K.C.A.LTD., BOMBAY.

IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION

INCOME INCOME INCOME TAX REFERENCE NO. 122 OF 1989. TAX REFERENCE NO. 122 OF 1989. TAX REFERENCE NO. 122 OF 1989.

The Commissioner of Income-tax,

Bombay City-V, Bombay.

... Applicant.

V/s.

M/s K.C.A. Limited.

... Respondent.

Shri Ashok Kotangale i/b K.C. Sidhwa for the

applicant.

Ms. V.B. Patel for the respondent.

CORAM CORAM CORAM : V.C.DAGA AND A.S.AGUIAR, JJ. : V.C.DAGA AND A.S.AGUIAR, JJ. : V.C.DAGA AND A.S.AGUIAR, JJ.

DATED DATED DATED : : :

13.7.2005 13.7.2005 13.7.2005

JUDGMENT JUDGMENT JUDGMENT : : : (Per V.C.Daga,J.) (Per V.C.Daga,J.) (Per V.C.Daga,J.)

By this reference under section 256(1) of

the Income-tax Act, 1961, (the ‘Act’) the Income Tax

Appellate

Tribunal has referred for the opinion

this

Court questions of law arising from the

order

dated 28.5.1987 in I.T.A. No.1769/Bom/84 for the

Assessment Year 1980-81 reproduced hereinbelow:

Whether,

the

facts

and

the

circumstances

of the case, the Tribunal

was

right

in law in holding

that

the

amount

received

under

the

Central

Government’s

outright grant of

subsidy

Scheme

of 1971 for industrial units get

selected backward

districts

areas

did

not go to reduce the

actual

cost

as defined in section 43(1) of the

Income-tax

Act, 1961 for the purpose of

computing the depreciation for the

assessment year 1980-81?

Whether,

the

facts

and

the

circumstances

of the case, the Tribunal

was

justified in holding that deduction

under

sub-section

(1) of section

35CC

could

not

denied to

the

assessee

although

the

statement of

expenditure

which was required to be furnished under

sub-section (3) of section 35CC had been

furnished

the course of

assessment

proceedings and not with the return

itself? CNR No : HCBM020011001989 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:15

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Question Question Question No.1: No.1: No.1:

Factual matrix with respect to this question

reveals

that the assessment year with which we

are

concerned

is 1980-81, of which the accounting

year

ended

31.12.1979 .

In the relevant

accounting

year

the assessee received a sum of Rs.

4,42,654/-

as a cash subsidy on its ‘New Vapi Project’ from the

Government

Gujarat.

This amount

was

directly

taken

the

balance-sheet and

credited

the

capital

reserve and shown as a liability under that

head.

The

Income-tax

Officer

found

that

the

assessee

had

received this sum under

the

Gujarat

State

Government

Scheme for 15% outright grant

subsidy

for

industrial units in selected

backward

areas

and

growth centres.

The subsidy amount

had

been

calculated on the basis of investments made on

the fixed assets by the company upto 30.6.1978.

The

investment

the

assessee company

came

Rs.

23,87,000/-

buildings and Rs.

35,54,000/-

plant and machinery.

The Income-tax Officer came to

the

conclusion

that

the subsidy received

the

assessee

was

towards meeting the cost incurred

the

assessee

in these investments and as such,

terms

the

provisions of section 43(1)

the

Income-tax

Act,

1961, the depreciation

should

allowed

the assessee only after

deducting

the

said

amount from the original costs of the

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The

Income-tax

Officer

allotted

Rs.1,77,851/-to

buildings

and

the balance sum of Rs.2,64,803/-

plant

and machinery out of the total subsidy of Rs.

4,42,654/-.

reduced the written down value

buildings

and plant and machinery by these sums

Rs.1,77,851/-

and Rs.

2,64,803/- respectively

and

allowed

depreciation

on the balance

amount.

The

assessee

went

appeal and the

Commissioner

Income-tax (Appeals) relying on certain decisions of

the Tribunal held that the subsidy amount was not to

deducted from the written down value of building

plant and machinery for computing depreciation.

The

department

came

in appeal before the Tribunal

and

the

ground raised was that the learned Commissioner

Income-tax (Appeals) had erred in directing

the

Income-tax

Officer

not

to deduct

the

amount

subsidy of Rs.

4,42,654/- received from the Gujarat

Government from the actual cost of the assets for

allowing depreciation.

The Tribunal held that the scheme in was

similar

the

Central

Investment

Subsidy

Scheme.

According

to the

Tribunal,

the

subsidy

was given by way of incentive to

establish

industries

in particular backward area.

The

whole

purpose

of subsidy was to encourage industries as a

whole

and

not to meet the cost of

any

particular

asset

providing

incentive

lure

the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:15

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entrepreneurs

move

to particular

areas.

The

subsidy,

though

measured

as a percentage

the

fixed

investment which included investment made

land,

buildings,

plant

and

machinery

etc.

yet

neverthless the subsidy amount could be utilised for

any

purpose

included

for the purpose

working

capital

even

for repaying

the

loans

already

borrowed.

Thus,

according to the Tribunal,

there

was

direct or indirect relationship to

meet

portion

of the actual cost and as such, the

amount

question would not come within the ambit of

the

term

"met" in section 43(1) of the Act and as such,

the amount in question was not liable to be deducted

from

the

written

down value of

land,

buildings,

plant and machinery for computing depreciation.

The

Tribunal relied on the decision of its Special Bench

in the case of Pioneer Match Works (1982) 1 BOT 331.

This question relating to the grant of cash

subsidy

under

the

Central

Government’s

outright

grant of subsidy Scheme of 1971 for industrial units

set up in selected backward districts or areas was a

subject

matter

consideration before

the

Apex

Court

the case of C.I.T.

vs.

P.J.

Chemicals C.I.T.

vs.

P.J.

Chemicals C.I.T.

vs.

P.J.

Chemicals

Ltd. Ltd. Ltd.

(1994)

210

ITR 830 (SC)

(1994)

210

ITR 830 (SC)

(1994)

210

ITR 830 (SC), wherein

the

Apex

Court

was pleased to hold that subsidy in did

not

reduce

the

actual

cost

defined

sec.43(1)

the

Income-tax

Act,

1961

for

the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:15

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purpose

of computing the depreciation, as such

the

amount

subsidy is not to be deducted

from

the

"actual cost" under section 43(1) for the purpose of

calculation

of depreciation.

Since the question is

covered

by the aforesaid judgment of the Apex Court

the

case of P.J.

Chemicals Ltd.

(supra),

that view of the matter, following the said judgment

we answer the question in the affirmative i.e. in

favour of the assesses and against the Revenue.

Question Question Question No.2: No.2: No.2: 5.

As far as the factual

aspect of the second question is concerned, it seems

that

the assessee had incurred expenses in the

sum

Rs.

51,825/- on account of rural

development.

The

assessee was, therefore, entitled to

deduction

the said amount under sub-section (3) of section

35CC

of the Income-tax Act.

The Income-tax Officer

rejected

the claim on the ground that the condition

mentioned

sub-section

(3)

section

35CC

regarding

furnishing of particulars along with

the

return

of income had not been fulfilled.

The

fact

that

the

assessee

had

furnished

the

necessary

particulars

before

the

Inspecting

Assistant

Commissioner

the proceeding under section

144B

that was not considered by the Income-tax Officer as

sufficient

compliance

with

the sub-section

(3)

of section 35CC of the

Act.

The Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:15

(6)

view

taken

by the Income-tax Officer was that

the

assessee would not be entitled to claim relief under

the

said

provision since the particulars

had

not

been

filed

along with the return.

the

appeal

filed

the

assessee,

the

Commissioner

Income-tax

(Appeals) relied on the decision of

the

Allahabad

High

Court in Addl.C.I.T.

vs.Murlidhar

Mathura

Prasad

(1979)

118 ITR 392 and

held

that

filing

particulars

the

proceedings

under

section

144B

of the Act was sufficient

compliance

with

the

provisions of sub-section(3)

section

35CC

of the Act.

Since the Income-tax Officer

had

not

considered

the particulars contained

form

No.3AA

filed

before

the

Inspecting

Assistant

Commissioner

in the proceedings under section 144B,

the

learned

Commissioner of

Income-tax

(Appeals)

directed

the

Income-tax

Officer to

consider

the

assessee’s claim on merits. Against this direction,

the department came in appeal before the Tribunal.

The Tribunal observed that it was not

disputed

that the statement of expenditure in

Form

No.3AA

issued

by M/s R.H.

Desai & Co.,

Chartered

Accountant

had

been filed by the assessee

the

course

assessment

proceedings,

such,

the was whether deduction under sub-section(3)

would

not

allowable

the

assessee

merely

because

the statement had not been filed physically Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:15

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with

return itself but had been filed subsequent to

the filing of the return in the course of assessment

proceedings.

The Tribunal discussed the

decisions

various

High

Courts on the

interpretation

similar

words

appearing in section 184(7)

the

Act,

viz.

"furnishes

along

with

return

income......"

and

held

that

requirement

furnishing

along with the return was directory

and

not

mandatory

and

that

filing

statement

expenditure

the

course

assessment

was

sufficient

compliance

with

the sub-section

(3)

of section 35CC of the

Act.

The

Tribunal held that all that the legislature intended

was

that

the return should be duly filed and

that

the

statement

of expenditure should also

duly

filed and that both these documents should be before

the

assessing

authority at the time when the

said

authority

is applying his mind to the assessment of

that

particular assessee.

Consequently,

according

to the Tribunal, the condition in sub-section (3) of

section

35CC

for

allowing

deduction

under

sub-section

(1) of section 35CC had been fulfilled.

The Tribunal accordingly, confirmed the direction of

the Commissioner of Income-tax (Appeals),

The answer to the said 2nd question, thus,

centres

around interpretation of sub-section (3) of

section

35 CC of the Income-tax Act, 1961,

wherein Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:15

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sub-clause

(3)

thereof provides that no

deduction

shall

be allowed in respect of expenses referred to

sub-section unless the assessee furnishes, along along along

with with with

return of income for the assessment year

return of income for the assessment year

return of income for the assessment year;

for

which

deduction

claimed, a statement

such

expenditure

in the prescribed form duly signed

and

verified

by an accountant as defined in sub-section

(2)

of section 288 along with particulars

thereof.

The aforesaid section, therefore, provides or rather

makes

it obligatory on the part of the assessee

furnish along along along with return the details of expenditure

with return the details of expenditure

with return the details of expenditure

referred referred referred

in section (1) in the prescribed

form

in section (1) in the prescribed

form

in section (1) in the prescribed

form

duly duly duly signed

signed

signed and verified by the accountant.

and verified by the accountant.

and verified by the accountant.

Now the which

falls

for

our

consideration

whether

or not it is mandatory to file statement of

expenditure along with return of income for that

particular assessment year.

The very same question referred to above was

the subject matter of consideration of this Court in

the

case

C.I.T.

vs.

Shivanand

Electronics C.I.T.

vs.

Shivanand

Electronics C.I.T.

vs.

Shivanand

Electronics

(1994) (1994) (1994)

209 ITR 63

209 ITR 63

209 ITR 63 while considering the of sub-section (6A) of section 80-J of the Act which

amongst

other

also

provided

the

necessity

furnishing along with return of income;

a statement

deductions claimed;

duly audited with report in

the prescribed form duly signed and verified by such

Accountant. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:15

(9)

While considering the above provision viz.

sub-section

(6A)

of section 80-J as stood

the

relevant

time,

the was

whether

the

requirement

filing of statement

along

with

return

mandatory

or directory.

The

Division

Bench

this

Court

the

case

Shivanand

Electronics (supra) reached to the conclusion

extracted hereinbelow:

" The requirement of filing the audit report

"along

with

the

return

income"

directory

and if the assessee complies with

the same before completion of the assessment

and

offers

a satisfactory explanation

for

his

failure to submit the same in time, the

Income-tax Officer may consider the same and

examine

the

claim

the

assessee

for

deduction

under section 80J on the basis of

such report."

Perusal

the aforesaid finding recorded by

this

Court

shows

that requirement of filing

report

along with return of income is held to be directory.

the

assessee

acquires and

files

such

report

complying

with the requirement of section

80-J(6A)

before

completion

assessment,

the

Income-tax

Officer

required

to consider and

examine

the

claim of the assessee for deduction under section

80J on the basis of such report.

10.

Having seen the finding recorded by this Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:15

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Court

while

considering the provision

section

80-J (6A) of the Act, it is now necessary to compare

sub-section (3) of section 35CC with that of section

80-J

(6A)

of the Act to examine and

consider

the

applicability

of the said judgment for deciding the

present case. Section 80J (6A) and sec. 35CC(3)

read as under:

Sub-section Sub-section Sub-section (6A) of (6A) of (6A) of

Section Section Section 35CC(3) 35CC(3) 35CC(3)

section section section 80-J 80-J 80-J

"Where

the

assessee

"No

deduction

shall be

allowed

person

other than a company

respect

of the expenditure

referred

a co-operative

society,

sub-section

(1)

unless

the

the

deduction

under

assessee

furnishes,

along with

the

sub-section (1) from profits

return

of income for the

assessment

and

gains

derived from

year

for

which

the

deduction

industrial undertaking shall

claimed,

statement

such

not be admissible unless the

expenditure

the prescribed

form

accounts

of the

industrial

duly

signed

and

verified

undertaking for the previous

accountant

defined

the

year

relevant

the

Explanation

below sub-section (2) of

assessment year for which

section 288 and setting forth such

the

deduction

claimed

particulars as may be prescribed"

have

been

audited

accountant,

defined

the

Explanation

below

sub-section

(2) of

section

288,

and

the

assessee

furnishes,

along

with

his

return of income, the report

such

audit

the

prescribed

form duly signed

and verified by such

accountant."

11.

The comparison of the above two sub-sections

the same legislation, put side by side, goes

show

that

both require

filing

statement

along

with

return of

income.

the

extent

requires

filing

statement,

both can be said to be paramateria.

that Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:15

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so, the interpretation put by this Court on

the

provision

section 80-J (6A) shall equally

hold

good

far

requirement

filing

the

statement

along

with

return

income

under

sub-section (3) of section 35CC is concerned and the

same view would be justified.

12.

In the above view of the matter, we are of

the opinion that provisions of section 35CC(3)of the

Act

which

provides

for

filing

statement

expenses

along

with

return

for

that

particular

assessment year is directory.

The Tribunal was thus

justified

in holding that the statement of expenses

which was required to be furnished under sub-section

(3)

section

35CC along with

return

could

furnished

during

the

course

assessment.

Reference is accordingly answered in the affirmative

i.e. in favour of assessee and against the revenue.

Reference accordingly stands disposed of

with no order as to costs.

(A.S. (A.S. (A.S. AGUIAR),J.) AGUIAR),J.) AGUIAR),J.)

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