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Income Tax Appellate Tribunal, DELHI “F” BENCH: NEW DELHI
Before: SHRI KUL BHARAT & DR.B.R.R.KUMAR
ORDER PER KUL BHARAT, JM :
These three appeals filed by the Revenue pertaining to three different assessment years i.e. 2012-13, 2013-14 & 2014-15 are directed against the separate orders of Ld. CIT(A)-5, Delhi dated 23.03.2017, 23.03.2017 & 14.07.2017 respectively. Since the identical grounds have been raised, all these three appeals are taken up together and are being disposed off by this consolidated order.
Firstly, we take up (Assessment Year 2012-13) of the Revenue’s appeal. The Revenue has raised following grounds of appeal:-
1. "Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.7,11,35,236/- being depreciation on intangible assets while relying on the appellate orders of her predecessors, which have not been accepted by Department and the Departmental appeals are pending before Hon'ble ITAT.
2. Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.7,11,35,236/- being depreciation on intangible assets without appreciating the fact that the assessee has failed to furnish valuation of the intangible assets and substantiate the same. 3. Ld.CIT(A) is erred in law and on facts in deleting the addition on account of disallowance of depreciation of Rs.7,11,35,236/- on the block of intangible assets without appreciating that the valuation of intangible assets of 1246.69 Crore out of total consideration of Rs.1908 Crore is on account of going concern besides valuation of fixed assets i.e. building Plant and Machinery. 4. Ld.CIT(A) is erred in law and on facts in deleting the addition of Rs.7,11,35,236/- being depreciation on intangible assets claimed in the form of Gas Price Rights, Locational Benefits of present and future products and trained manpower without appreciating that Gas Price and products are under government control for which no intangible assets can be created and the assessee company is already claiming salary and wages of skilled manpower thus claiming double deduction for the same skilled manpower claimed as intangible assets as well as depreciation." 5. Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.5,75,53,800/- on account of loss on sale of investment in the form the fertilizers bonds while wrongly considering that loss on sale of fertilizers bonds will be revenue loss and equating the bonds with subsidy."
6. That the appellant craves leave to add, alter, amend or forego any ground(s) of the appeal raised above at the time of hearing."
The facts in brief are that the assessee company filed its return on 28.09.2012 declaring income at Rs.36,170/-. However, he has paid tax on book profit u/s 115JB of the Income Tax Act, 1961 (“the Act”) amounting to Rs.29,65,14,736/-. The case of the assessee was picked up for scrutiny assessment and the assessment was framed vide order dated 26.02.2015. By framing the assessment, the Assessing Officer made disallowance of depreciation on intangible assets of Rs.7,11,35,236/-; disallowance of ESIC contribution of employees on account of delay in payment of Rs.1,67,870/-; disallowance of depreciation on estimated assets of Rs.4,00,16,673/-; disallowance of depreciation on spare parts of Rs.52,27,624/-; disallowance out of repair and maintenance of vehicle of Rs.8,89,784/-; disallowance of loss on sale of investment of Rs.5,75,53,800/- and addition on account of income from other sources of Rs.9,29,56,064/-. Thus, the Assessing Officer computed the business income at Rs.18,46,46,556/- against declared income of Rs.10,26,11,633/-. Further, the Assessing Officer assessed the income at Rs.9,29,92,233/- and directed to charge tax on book profit u/s 115JB of the Act amounting to Rs.29,65,14,740/-.
Aggrieved against this, the assessee preferred appeal before Ld.CIT(A) who after considering the submissions, partly allowed the appeal. Thereby, Ld.CIT(A) deleted the addition of Rs.7,11,35,236/- and Rs.4,00,16,673/- made on account of disallowance of depreciation on intangible assets and depreciation on estimated assets. Further, Ld.CIT(A) in respect of depreciation on spare parts, disallowance on account of vehicle repairs and maintenance following the earlier order, allowed the claim of the assessee and in respect of the late payment of ESIC, was also allowed. In substance, Ld.CIT(A) had allowed the appeal of the assessee.
Aggrieved against this, the Revenue has filed the present appeal.
Ground Nos.1 to 4 raised by the Revenue are against the deletion of addition of Rs.7,11,35,236/- on account of depreciation on account intangible assets.
At the outset, Ld. Counsel for the assessee pointed out that the issues are covered against the Revenue by the decision of this Tribunal in earlier years. He submitted that in relating to Assessment Year 2006-07 in assessee’s own case wherein the issues have been decided in favour of the assessee.
Ld. Sr. DR could not controvert this fact that the issue has been decided against the Revenue by the Tribunal in earlier years.
We have heard the rival contentions and perused the material available on record. The Tribunal under the identical facts in for Assessment Year 2011-12 in assessee’s own case has allowed the depreciation on intangible assets by observing as under:-
“Following the decision rendered by Hon'ble High Court and coordinate Bench of the Tribunal discussed in the preceding paras, which are squarely applicable to the facts and circumstances of the case, we are of the considered view that when in the valuation report, which is given by 4 | P a g e
PDIL, a Government of India Undertaking, intangibles assets and their benefits have been specifically valued and the assessee had paid a sum of Rs.125 crores in a slump sale agreement for approvals, licences, permits, registration to run the business over and above the total price of fertilizer plant i.e. Rs.l,444 crores, the same are intangibles and deprecation thereon is allowable u/s 32(l)(ii) of the Act apart from the depreciation claimed by the assessee on tangible assets. So, finding no illegality or perversity in the findings returned by ld. CIT (A), Ground No.2 of (AY 2006-07) & ITA No.852/Del/2011 (AY 2007-08); Grounds No.2 & 3 of ITA No.3569/Del/20 11 (AY 2008-09), Grounds No.1 & 3 of ITA No.248/Del/2014 (AY 2009-10) & ITA No.5616/Del/2014 (Assessment Year 2010-11) and Grounds No.1 & 2 of ITA No.4963/Del/2015 (AY 2011-12) of Revenue's appeals are determined against the Revenue.”
Therefore, taking a consistent view, we do not see any infirmity into the finding of Ld.CIT(A), the same is hereby affirmed. Ground Nos. 1 to 4 raised by the Revenue are thus, dismissed as rejected.
Ground No.5 raised by the Revenue is against the deletion of addition of Rs.5,75,53,800/- on account of loss on sale of investment in the form of fertilizers bonds.
Ld. Sr. DR supported the order of the Assessing Officer and submitted that Ld.CIT(A) was not justified in deleting the addition.
On the contrary, Ld. Counsel for the assessee submitted that the issue is also decided in favour of the assessee.
We have heard the rival contentions and perused the material available on record. Ld.CIT(A) has decided the issue by observing as under:- 5 | P a g e
9.2. “I have considered the facts and circumstances of the case. Although the facts relating to why the addition was being made do not stand discussed in the assessment order, it is understood that the appellant is in the business of manufacture of fertilizers which is regulated by the Govt., in the sense, that the sale price of fertilizers is decided by Govt., normally at a subsidy. The appellant is granted subsidy to compensate the loss arising out of the manufacture and sale of fertilizers at lower than the cost price. The fertilizers bonds have been issued to the appellant by the Govt. in lieu of payment of subsidy. The impugned bonds were repurchased by the Govt. in 2 phases 50% of bonds in FY 2010-11 and 50% in FY 2011-12 to the RBI. The price of such buyback was also decided by the Govt. as per the formula prescribed. Consequently on such buyback by Govt. the appellant received a value less than the purchase value of the bond. Having considered these facts, it is clear to me that the loss had been incurred in the normal course of business and in the process of compensation accrued and due to the appellant vis a vis its manufacturing activities. It Is also pertinent to note that the loss has not been disallowed as such. On the other hand, the loss had been disallowed stating that the amount of the of the fertilizers bonds (subsidy) have been as a revenue receipt in the respective AYs in which they were received, either separately as revenue from operations (schedule 2.22 of the annual report for Assessment Year 2011-12) or as 'price support' included in the sales (net of discounts/rebates) in the financial statements for earlier years. Effectively, therefore, the final amount received on sale back of Govt. subsidy /Govt. bonds is a business loss which has to be reduced from the debit site of the P&L A/c. The appellant has compared it to the bad debts on account of lesser realization to outstanding debtors, with which I am in full agreement with. 9.3. The law is welt settled, that any profit or loss arising to an assessee on a trading asset or on Circulating capital, would ordinarily be trading profit or loss whereas if the same is incurred on a capital asset or on fixed capital, such profit or loss would be of capital nature. This is settled judicial proposition as per the Supreme Court decision In the case of Sutlej 6 | P a g e
Cotton Mills Ltd. (116 ITR 1). As held by the Apex Court in number of decisions, the nature of any subsidy depends upon the purpose for which it was paid/received by the assessee and it is this "purpose test” that holds the key to decide whether any loss incurred subsequently on sale of the said Govt. bonds is capital or revenue in nature. The Supreme Court in the case of Ponni Sugars &. Chemicals Ltd. (306 ITR 392) held the subsidy in the form of sales tax exemption, water tax exemption etc to be on revenue account as it enabled the' assessee to carry on its business more profitably and competitively, whereas in the case of Sahney Steel and Press Works Ltd. (228 ITR 253) the subsidy was paid for repayment of outstanding loans which were capital in nature and hence it was held to be the capital receipt.”
We find that the Ld.CIT(A) has recorded a finding on fact that the amount of the fertilizers bonds (subsidy) has been declared as a revenue receipt in the respective assessment years. This finding on facts is not rebutted by Revenue by placing any contrary material. Therefore, we do not see any reason to interfere in the finding of Ld.CIT(A). Ground No.5 raised by the Revenue is thus, dismissed.
Now, we take up [Assessment Year 2013-14] wherein the Revenue has raised following grounds of appeal:-
1. "Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.5,33,51,427/- being depreciation on intangible assets while relying on the appellate orders of her predecessors, which have not been accepted by Department and the Departmental appeals are pending before Hon'ble ITAT.
2. Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.5,33,51,427/- being depreciation on intangible assets without appreciating the fact that the assessee has failed to furnish valuation of the intangible assets and substantiate the same.
3. Ld.CIT(A) has erred in law and on facts in deleting the addition on account of disallowance of depreciation of Rs.5,33,51,427/- on the block of intangible assets without appreciating that the valuation of intangible assets of 1246.69 Crore out of total consideration of Rs.1908 Crore is on account of going concern besides valuation of fixed assets i.e. building Plant and Machinery.
5. Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.5,33,51 ,427/- being depreciation on intangible assets claimed in the form of Gas Price Rights, Locational Benefits of present and future products and trained manpower without appreciating that Gas Price and products are under government control for which no intangible assets can be created and the assessee company is already claiming salary and wages of skilled manpower thus claiming double deduction for the same skilled manpower claimed as intangible assets as well as depreciation. 5. "That the appellant craves leave to add, alter, amend or forego any ground(s) of the appeal raised above at the time of hearing."
15. The only effective ground is against the allowance of depreciation on intangible assets of Rs.5,33,51,427/-.
At the outset, Ld. Counsel for the assessee submitted that the issue is covered in favour of the assessee by the decision of the Tribunal in earlier years.
Ld. Sr. DR could not controvert these facts.
We have heard the rival contentions and perused the material available on record. Similar issue was decided in pertaining to Assessment Year 2012-13 wherein the issue has been decided in favour of the 8 | P a g e assessee by the Tribunal by following the orders of earlier years. We, therefore, do not see any infirmity in the order of Ld.CIT(A), the same is hereby affirmed.
Grounds raised by the Revenue in this appeal are thus, dismissed.
Now, we take up Year 2014-15] wherein the Revenue has raised following grounds of appeal:-
(1) “That on the facts & in the circumstances of the case & in law, the Ld.CIT(A) has erred in deleting the addition on account of disallowance of depreciation on intangible assets of Rs.4,00,13,570/- by merely relying on the orders of predecessors, which have not been accepted by Department and the appeal of Department is pending before ITAT. (2) That on the facts & in the circumstances of the case & in law, the Ld.CIT(A) has erred in deleting the addition on account of disallowance of depreciation claimed on intangible assets when assessee failed to establish that the intangible assets like licenses had not outlived their importance. (3) That on the facts & in the circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition on account of disallowance of depreciation on estimated assets of Rs.2,89,12,046/- and not appreciating the fact that the assessee was claiming depreciation on the intangibles acquired in the purchase, however no intangibles were specifically identified and valued. (4) That on the facts & in the circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition on account of disallowance of depreciation on spare machinery parts of Rs.37,76,959/-without appreciating the fact that the plant and machinery had not been put to use and assessee did not provide any details with regards to the same. (5) That on the facts & in the circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition on account of disallowance of expenses on vehicle Repair & Maintenance of Rs.10,09,679/-, when this amount of expenditure could not be supported by the vehicle shown in fixed asset schedule. (6) That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law. (7) That the grounds of appeal are without prejudice to each other. (8) That the appellant craves leave to add, alter, amend or forego any ground(s) of the appeal raised above at the time of hearing.”
20. Ground Nos. 1 to 3 raised by the Revenue on account of disallowance of depreciation on intangible assets of Rs.4,00,13,570/-.
At the outset, Ld. Counsel for the assessee submitted that the issues raised in this appeal are covered by the orders of Tribunal passed in earlier years.
Ld. Sr. DR could not controvert this fact.
We have heard the rival contentions and perused the material available on record. We find that similar issues have been raised in earlier years also.
The Tribunal vide consolidated order in [Assessment Year 2007-08] & 3569/Del/2011 [Assessment Year 2008-09], decided the same in favour of the assessee. The Revenue has not pointed out any change into facts and circumstances of the case. Ground Nos. 1 to 3 raised by the Revenue are thus, dismissed.
Ground No.4 raised by the Revenue is against the disallowance made on account of disallowance on depreciation on spare machinery parts of Rs.37,76,959/-.
At the outset, Ld. Counsel for the assessee submitted that this issue is also covered by the orders of Tribunal passed in earlier years.
Ld. Sr. DR could not controvert the submissions of the Ld. Counsel for the assessee. However, he relied upon the assessment order.
We have heard the rival contentions and perused the material available on record. The identical issues raised in [Assessment Year 2009-10]. The Tribunal in para 18 decided the issue by observing as under:-
18. “So, following the decision rendered by Hon'ble Delhi High Court in CIT vs. Insilco Limited (supra), we are of the considered view that the ld. CIT (A) has erred in disallowing the claim of the assessee on account of deprecation on capital spares during AYs 2006-07, 2007-08 & 2008-09, hence AO is directed to allow the same after due verification of capital spares purchased during the year under assessment. So, Ground No.4 in (AY 2006-07), Ground No.2 in ITA No.765/Del/2011 (AY 2007-08) and Ground No.1 in ITA No. 3508/Del/2011 (AY 2008-09) in assessee's appeals are determined in favour of the assessee.” The Revenue has not pointed out any change into facts and circumstances of the case. Ground No. 4 raised by the Revenue is thus, dismissed.”
Ground No.5 raised by the Revenue is against the disallowance of expenses on vehicle repair and maintenance of Rs.10,09,679/-.
Ld. Sr. DR relied upon the assessment order and submitted that Ld.CIT(A) was not justified in deleting the additions.
Per contra, Ld. Counsel for the assessee submitted that the expenditure has been made purely on the adhoc basis and has been rightly deleted by Ld.CIT(A).
We have heard the rival contentions and perused the material available on record. We find that ld.CIT(A) has followed the earlier year’s orders and coupled with the fact that the disallowances are made purely on adhoc basis.
Therefore, we do not see any reason to interfere in the finding of Ld.CIT(A), the same is hereby rejected. Ground No. 5 raised by the Revenue is thus, dismissed.
In the result, all appeals filed by the Revenue are dismissed.
Above decision was pronounced on conclusion of Virtual Hearing in the presence of both the parties on 30th September, 2021.