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Income Tax Appellate Tribunal, “A”
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the Assessee directed against the order of ld.Commissioner of Income Tax(Appeals)-1, Punedated 25.07.2019for the A.Y.2014-15.The Assessee has raised the following grounds of appeal: “1. The ld. CIT(A) erred in passing ex party order.
2. The ld. AO erred and CIT(A) erred in confirming the addition made of Rs.1,93,452/- on account of delayed contribution made to PF although the same was paid before the due date of furnishing of return u/s 139(1).
3. The ld. AO erred and ld. CIT(A) erred in confirming the treatment made w.r.t. subsidy received of Rs.2,72,696/- under IP scheme by deducting the receipt from block of asset.
4. The ld. AO erred and ld. CIT(A) erred in not treating the subsidy received under IP Scheme as capital receipt.
A.Y. 2014-15 Atharva Polymers Pvt. Ltd., Vs. Dy.CIT, Circle1(1), Pune (A)
5. The ld. AO erred and ld. CIT(A) erred in addition of Rs.48,000/- on account of dividend received while the same was already offered to tax under “Income From Other Sources.” 2. Brief facts of the case are that the appellant company is engaged in the business of manufacturing of all kind of plastic materials of injection moulding for automobiles, home appliances (Refrigerator) parts, industry styrene, polystyrene, etc. The appellant company filed its return of income on 22.11.2014 declaring total income of Rs.61,64,790/-. The case was selected for scrutiny and the assessment was framed under section 143(3) of the Act at the income of Rs.66,78,940/-.
2.1 In the assessment order the Assessing Officer(AO) disallowed Rs.1,93,452/-, which was employees’ contribution to Provident Fund, which was deposited by the assessee after the due date mentioned in the EPF Act but before the due date mentioned under section 139(1) of the Income Tax Act.The AO also observed that the assessee received Rs.43,25,000/- subsidy from Govt. of Maharashtra. AO took the view that the said amount has been received by the assessee as Capitalsubsidy, the Assessing Officer made proportionate disallowance of Rs.2,72,696/- as wrong claim of depreciation. AO also added Dividend income of Rs.48,000/-.
Being aggrieved, the assessee filed appeal before the ld.CIT(A). Before the ld.CIT(A), despite several opportunities of A.Y. 2014-15 Atharva Polymers Pvt. Ltd., Vs. Dy.CIT, Circle1(1), Pune (A)
hearing, none appeared on behalf of the assessee, therefore, under the circumstances, ld.CIT(A) adjudicated the appeal on the materials available on record i.e. Grounds of Appeal, Statement of Fats, Assessment Order and Submissions on record. After perusal of the records of the assessee and the assessment order, the ld.CIT(A) confirmed the order passed by the Assessing Officer.
Being aggrieved by the order of ld.CIT(A), the assessee filed appeal before this Tribunal.The ld.Authorised Representative(ld.AR) of the assessee submitted that on merit, the grounds of appeal are covered in favour of assessee by the decision of Hon’bleITAT Pune bench in the case of ITO vs Shrinivas Engineering Auto Components Pvt Ltd., in dated 27.04.2022.
We have heard both the parties, perused the material available on record and have gone through the orders of Lower Authorities. We have also deliberated on various case laws relied by the ld.CIT(A) in his order as well as various case laws relied by ld.AR of the Assessee.
5.1 Ground No.2 of the appellant assessee is regarding delayed payment of employees’ contribution towards EPF. The said issue is covered in favour of assessee by the decision of various Hon’ble High Courts i.e. in the case of CIT vs. Nipso Polyfabriks Ltd. (2013)
A.Y. 2014-15 Atharva Polymers Pvt. Ltd., Vs. Dy.CIT, Circle1(1), Pune (A)
350 ITR 327 (HP) the Hon’ble High Court has held that “there exists no difference between employees or employer’s contribution and both are to be allowed as deduction if deposited before the due date.”
5.2 The Hon’ble Jurisdictional High Court held in the case of CIT Vs. Ghatge Patil Transports Ltd., IT APPEAL Nos.1002 & 1034 of 2012 vide order dated 14/10/2014 as under: Quote ,“ In this manner, the amendment provided by Finance Act, 2003 put on par the benefit of deductions of tax, duty, cess and fee on the one hand with contributions to various Employees' Welfare Funds on the other. All this came up for consideration before the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra). The Tribunal in the case at hand relied upon the said judgment. There is no reason to fault the order passed by the Tribunal. We are of the view that the decision of the Supreme Court in Alom Extrusions Ltd. (supra) applies to employees' contribution as well as employers' contribution. Question Nos.2, 3 & 4 are accordingly answered in favour of the assessee and against the revenue.” Unquote.
5.3 Thus respectfully following the Hon’ble High Court it is held that the payment of employee’s contribution beyond the due date mentioned in the relevant statute but before the due date of filling the return of income under section 139(1) is allowable expenditure. Thus, the Ground No.2 of the assessee is allowed .
Ground No.3 is regarding Subsidy received from Govt of Maharashtra. It is a fact that Govt. of Maharashtra vide letter dated
A.Y. 2014-15 Atharva Polymers Pvt. Ltd., Vs. Dy.CIT, Circle1(1), Pune (A)
13.12.2013 sanctioned Provisional Industrial Promotion Subsidy of Rs.69.84 lacs under the Package Scheme of Incentives -2007, subject to the conditions mentioned in the letter. As per Govt. of Maharashtra letter dated 03.03/2012 (ref no.DIC/PUNE/PSI- 2007/EC-29/2012) this subsidy was for making investment towards the project at Gat No.596, Hissa No.1,Dhoke, Sanghavi Dist. Pune which was called as eligible project. Assessee was granted Electricity Duty Exemption for the period of 14 years 4 months. Industrial Promotion Subsidy equivalent to 27.14% of eligible investment Rs.151.35 lacs, 6 years and 4 months. The Govt. of Maharashtra had specifically asked to make investment in the eligible project and directed the assessee to communicate the value of fixed assets acquired during the specified period.
We find that in this case the substantive issue involved is subsidy under Industrial Promotion Scheme (IPS). The ITAT Pune Bench on identical issue, in the case of DCIT Vs. Bhagyalaxami Rolling Mills Pvt. Ltd in IT(SS)A No.7 to 10/PUN/2019 vide order dated 08/05/2022 has held as under : Quote, “3. The only issue for adjudication in all these appeals is whether the assessee having received subsidy from Government of Maharashtra under Package Scheme of Incentives of 2007 (hereinafter referred to as „PSI 2007‟ for short) whether the said subsidy is capital receipt or a revenue receipt. Taking the lead case IT(SS)A No. 7/PUN/2019 for A.Y. 2011012 for the narration of A.Y. 2014-15 Atharva Polymers Pvt. Ltd., Vs. Dy.CIT, Circle1(1), Pune (A)
facts, we find that the assessee being a private limited company is engaged in manufacturing of steel at Jalna. The assessee-company had set up a mega project as defined in Government of Maharashtra‟s PSI 2007 in Jalna. Under the scheme PSI 2007 mega project the assessee has received capital incentive subsidy in different years from A.Y. 2010-11 to 2015-16………………..
10. Reverting to the facts of the present case, we find that in view of the above referred judgment, the whole purpose and the grant of subsidy under PSI 2007 by Government of Maharashtra was to promote industrial growth in the less developed areas of the State and also to provide employment in the area. Once this purpose is established the subsidy has to be a capital receipt. However, the position has changed w.e.f. 01.04.2016 relevant to A.Y. 2017-18 onwards with the amended provision of sub-clause (xviii) to sec. 2(24) of the Act. However, at present, we are concerned with A.Y. 2011-12 to 2015-16. Therefore, the amended provision of sec. 2(24) sub-clause (xviii) is not applicable to the years under consideration and thus as a natural consequence the subsidy received by the assessee would therefore, not form part of its total income. In view of the aforestated facts and circumstances and the judicial pronouncements, we do not find any reason to interfere with the findings of the ld. CIT(A) and the reliefs provided to the assessee is sustained. Therefore, the appeal of the Revenue in IT(SS)A No.07/PUN/2021 for A.Y. 2011-12 is dismissed.”Unquote.
On identical facts, the ITAT Pune Bench in the case of ITO, Ward-6(1) Vs. Shrinivas Engineering Auto Components Pvt. Ltd., in vide order dated 27/4/2022 has held as under :
A.Y. 2014-15 Atharva Polymers Pvt. Ltd., Vs. Dy.CIT, Circle1(1), Pune (A)
Quote, “ 10. We heard the rival submissions and perused the material on record. We have carefully gone through the Package Scheme of Incentives, 2007, the preamble of the scheme, extracted above, clearly indicates the intention behind grant of subsidy was to encourage the setting up the new industries in under developed region in the State of Maharashtra. Indisputably, it is not the case of the Assessing Officer that the subsidy is revenue in nature, as the Assessing Officer himself had invoked the provisions of Explanation 10 to section 43(1) of the Act. Therefore, the issue that arises for our consideration in the present appeal is whether the amount of subsidy received from the Government of Maharashtra shall go to reduce the actual costs of assets u/s 43(1) for the purpose of allowing the depreciation u/s 32 of Act. No doubt, the subsidy was granted in terms of the certain percentage of fixed assets to be disbursed in the form of refund of octroi, electricity duty exemption, entry tax refund, VAT etc. over a period of 8 years. Then the next question, that arises for consideration in such circumstances is that, can be it said that subsidy is granted to meet the cost of the actual fixed assets, merely because the amount of subsidy is calculated in term of certain percentage of investment in fixed assets. The Hon’ble Supreme Court had an occasion to consider the identical issue in the case of CIT vs. P.J. Chemicals Ltd., 210 ITR 830 and after review of the case law on the point, the Hon’ble Supreme Court held as under :- “Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the 'actual cost. The expression 'actual cost in section 43(1) of the Income-tax Act, 1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from 'actual cost'. The A.Y. 2014-15 Atharva Polymers Pvt. Ltd., Vs. Dy.CIT, Circle1(1), Pune (A) amount of subsidy is not to be deducted from the 'actual cost' under section 43(1) for the purpose of calculation of depreciation etc.”
The Hon’ble Gujarat High Court in the case of CIT vs. Swastik Sanitary Works Ltd., 286 ITR 544 (Guj.) following the principle laid down by the Hon’ble Supreme Court in the case of P.J. Chemicals Ltd. (supra) held that the subsidy is intended as an incentive to encourage entrepreneurs to move and establish industries,, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the “actual cost” as defined under the provisions of section 43(1) of the Act. Similarly, the Hon’ble Bombay High Court in the case of PCIT vs. Welspun Steel Ltd., 264 Taxman 252 followed the ratio of the decision of the Hon’ble Gujarat High Court (supra).
As regards to the applicability of Proviso to Explanation 10 to section 43(1) which was inserted in the Statute w.e.f. 1.4.1999 by the Finance Bill (2) of 1998, the Proviso take cares of situation where such subsidy, grant or reimbursement is such nature that subsidy, grant or reimbursement cannot be directly relatable to the assets acquired by an assessee. In such a situation, the Proviso envisages that so much of amount which bears to the total subsidy, reimbursement or grant, the proportion as such assets bears to all the assets in respect of or with reference to which subsidy or grant is so received shall be deducted in the actual cost of the asset of the assessee. Thus, the proviso envisages adjustment of subsidy in the assets of the assessee. In case the subsidy grant is not directly relatable to particular asset. Since in the preceding paras we held that the provisions of Explanation 10 to section 43(1) have no application to the facts of the present case, the question of applicability of Proviso does not arise. In the light of the above, we hold that the amount of subsidy is not to be deducted from the A.Y. 2014-15 Atharva Polymers Pvt. Ltd., Vs. Dy.CIT, Circle1(1), Pune (A)
actual cost u/s 43(1) for the purpose of calculation of depreciation and the provisions to Explanation 10 to section 43(1) have no application to the facts of the present case. We are forfeited in taking this view by the decision of the Hon’ble Bombay High Court in the case of Welspun Steel Ltd. cited supra. This decision being that of Jurisdictional High Court is binding on us. ” Unquote.
8.1 In the case under consideration the assessee has received subsidy for the same scheme i.e IPS. The facts are identical to the facts of the above referred case.Thus, respectfully following the decision of ITAT(supra) , it is held that the subsidy shall not be reduced from the actual cost of fixed assets u/s 43(1) for the purpose of calculation of depreciation. Thus, respectfully following the ITAT Pune Bench (supra), the AO is directed to delete the addition of depreciation. Accordingly, Ground No.3 and 4 raised by the assessee are allowed.
Ground No.5 is regarding addition of Dividend. The ld.AR submitted that the assessee has already offered the said dividend for taxation, hence there is double addition. The assessee shall file the required documents before the AO and AO shall verify the facts. If the assessee has already offered the said amount in the return of income there shall not be any double addition. Accordingly, this issue is set aside to the file of the AO for factual verification. Accordingly, the ground number 5 is allowed for statistical purpose.
A.Y. 2014-15 Atharva Polymers Pvt. Ltd., Vs. Dy.CIT, Circle1(1), Pune (A)
In the result, appeal of the Assessee is Partly Allowed.
Order pronounced in the open Court on 6th July, 2022.