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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ : NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
The appellant, M/s. Abhisar Buildwell Pvt. Ltd. (hereinafter
referred to as ‘the assessee’) by filing the present appeal, sought to
set aside the impugned order dated 31.10.2014 passed by Ld. CIT
(Appeals)-XXXIII, New Delhi qua the assessment year 2012-13 on
the grounds inter alia that :-
“1) The order passed by the Id CIT (A) is bad in law & nature because i) The ld CIT(A) has upheld the disallowances of the Depreciation made U/s 153A without any search material
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found in the courses of search by the AO which is not permissible in the law. ii) The ld CIT(A) has ignored the fact that the Excise Refunds used for the development of the backward area by New Industries as per Industrial Policy of Government of India for North East state is not a part of government grants. iii) The ld CIT(A) has ignored the fact that the assessee has complied with the recommendations of ICAI for recording such Excise Refunds in books of accounts and has complied with the Accounting Standard on "Deferred Government Grant" 2) That on the facts and circumstances of the case, the Ld. CIT(A) has grossly erred in upholding the disallowance of the depreciation amounting to Rs.6,40,38,391/- illegally. Therefore the same is liable to be deleted.”
Briefly stated the facts necessary for adjudication of the
controversy at hand are : Assessee declared net loss of
Rs.4,45,60,774/- in its business during the year under assessment
and has claimed depreciation of Rs.6,40,38,391/- in accordance
with the provisions of section 44AB of the Income-tax Act, 1961
(for short ‘the Act’) in respect of various block of assets
comprising building, furniture and fixtures and plant & machinery.
While completing the assessment u/s 153A/143 (3) of the Act as it
was a search case conducted at the premises of DS Group of Cases,
M/s. Dharampal Satyapal Group, on 21.01.2011, declining the
defence raised by the assessee, AO disallowed the excess claim of
depreciation made by the assessee company amounting to
Rs.6,40,38,391/- by recomputing the claim of depreciation u/s 32
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(1) of the Act by reducing the actual cost of asset by a sum of
Rs.78,32,12,592/-. AO has also held that the excise refund used by
the assessee is not part of the Government grants.
Assessee carried the matter by way of appeal before the ld.
CIT (A) who has partly allowed the appeal. Feeling aggrieved, the
assessee has come up before the Tribunal by way of filing the
present appeal.
We have heard the ld. Authorized Representatives of the
parties to the appeal, gone through the documents relied upon and
orders passed by the revenue authorities below in the light of the
facts and circumstances of the case.
Assessee while moving an application sought to raise the
following additional grounds :-
“(i) That even otherwise, on facts and circumstances of the case, the appellant is entitled to claim benefit of statutory deduction u/s 80IC on additional income arising from disallowance of claim of depreciation. (ii) That in view of CBDT Circular No. 37/2016 dated 02.11.2016, the benefit of deduction u/s 801C is admissible on profits enhanced by the disallowance made u/s 32 and as such claim of depreciation is revenue neutral.”
Since the additional grounds sought to be raised by the assessee are
legal grounds which go to the roots of the case and necessary for
complete adjudication of the controversy at hand, the assessee is
allowed to raise the additional grounds challenging the availability
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of benefit of deduction u/s 8IC of the Act on the impugned
addition.
Undisputedly, flexible packaging unit of M/s. Dharampal
Satyapal Ltd. was demerged into the assessee company. The ld.
AR for the assessee contended that no portion of cost of asset
acquired by the assessee company was met out of the grant or
subsidy or reimbursement of the Government or any other person
rather cost of the assets in the hands of assessee company are as per
demerger scheme approved and as such, there is no question of
reducing the cost of asset and depreciation.
However, the AO as well as ld. CIT (A) by invoking the
Explanation 7 to section 43 (1) of the Act proceeded to hold that
the actual cost of the asset to the assessee company which is a
resulting company shall be the same which was to be demerged
company and thereby recomputed the claim of deprecation u/s 32
(1) of the Act by reducing the actual cost of asset by
Rs.78,32,12,592/-.
Ld. AR for the assessee by relying upon CBDT Circular
No.37/2016 dated 02.11.2016 contended that benefit of deduction
u/s 80IC is admissible on profits enhanced by disallowance made
u/s 32 of the Act which makes the claim of depreciation as revenue
neutral and further contended that the assessee is entitled to claim
5 ITA No.823/Del./2015
benefit of statutory deductions u/s 80IC on additional income
arising from disallowance of claim of depreciation.
On the other hand, ld. DR also by relying upon Explanation
7 & 10 to section 43 (1) contended that the actual cost of resulting
company shall also be nil and as such, actual cost of asset is to be
reduced by the amount of Rs.78,32,12,592/-. The ld. DR further
contended that the excise duty is reimbursement to the assessee.
In the backdrop of the aforesaid facts and circumstances of
the case and arguments addressed by the ld. AR of the parties to
the appeal, the first question arises for determination in this case
is:-
“as to whether the assessee is entitled to claim benefit of statutory deduction u/s 80IC of the Act on additional income arising from disallowance of claim of depreciation and that the benefit of deduction u/s 80IC is admissible on profits enhanced by the disallowance made u/s 32 or that the claim of depreciation is revenue neutral?”
Before proceeding further, the relevant para of Circular
No.37/2016 dated 02.11.2016 issued by the CBDT, relied upon by
the ld. AR for the assessee, is extracted as under :-
“ Chapter VI-A of the Income-tax Act, 1961 ("the Act"), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit- linked deduction under Chapter VI-A.
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….. 3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. 4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts/Tribunals may be withdrawn / not pressed upon. The above may be brought to the notice of all concerned.”
Bare perusal of the operative part of the Circular (supra)
goes to prove that disallowance made by the assessee u/s 32 of the
Act relating to business activity against which deductions have
been claimed under Chapter VI-A, as in the instant case, results in
enhancement of the profits of the eligible business and that
deduction under Chapter VI-A is admissible on profits so enhanced
by the disallowance. In these circumstances, the claim of
depreciation made by the assessee company of Rs.6,40,38,391/- is
allowable deduction and as such, the benefit of deduction u/s 80IC
is allowable on profits enhanced by the disallowance made u/s 32
of the Act and in these circumstances, the claim of depreciation is
revenue neutral.
So far as question of treating the refund of excise duty as
part of the cost is concerned, it is the case of the assessee that the
entire cost has been paid by the assessee for plant & machinery and
as such, it cannot be reduced from the cost of asset. Ld. AR for the
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assessee relied upon order passed by CIT (A) dated 15.07.2016 in
assessee’s own case for AYs 2012-13 & 2013-14 wherein excise
duty refund has not been treated in the form of capital subsidy or
grant which can be reduced from the cost of assets.
Since findings returned by the ld. CIT (A) are based upon the decision rendered by Hon’ble Apex Court in CIT vs. Meghalaya Steels Ltd. – (2016) 383 ITR 217 (SC), we are of the considered view that the excise refund is in the nature of revenue receipt forming part of profits and gains arising from the business and as such cannot be reduced from the cost of plant & machinery. So, the findings returned by ld. CIT (A) on this issue are confirmed. 14. In view of what has been discussed above, we are of the
considered view that AO as well as CIT (A) have erred in making
addition of Rs.6,40,38,391/- by disallowing the claim of
depreciation of the asset made u/s 32 of the Act which would
further entitle to the assessee the benefit of deduction u/s 80IC on
profits enhanced by such disallowances made u/s 32 of the Act.
Consequently, appeal filed by the assessee is partly allowed. Order pronounced in open court on this 17th day of September, 2018.
Sd/- sd/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 17th day of September, 2018/TS
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