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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER आदेश आदेश आदेश
PER D. KARUNAKARA RAO, AM :
This is the appeal filed by the Revenue against the order of CIT(A)- 1, Aurangabad dated 28-04-2016 for the A.Y.2011-12.
Grounds raised by the Revenue are extracted as under : “i. Whether on the facts and in the circumstances of the case, the Ld. CIT(A), Aurangabad is justified in deleting the depreciation of Rs.1,39,908/- on motor car which is registered in the name of director of Company. ii. Whether on the facts and in the circumstances of the case, the Ld. CIT(A),Aurangabad is justified in deleting the excess claimed depreciation of Rs.34,21,554/- on account of subsidy received to that extent. iii. Whether on the facts and in the circumstances of the case, the Ld. CIT(A),Aurangabad is justified in reducing the capital subsidy received from the profits for computation of book profits u/s. 115JB of the IT Act.
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iv. On the facts and in the circumstances of the case, the order of the AO be restored and that of the CIT(A)-1 be vacated. v. The appellant craves leave to add, amend or alter all or any of the grounds of Appeal.”
Ground No.1 relates to allowability of depreciation on car which is
purchased through the funds of the company, however, in the name of
the Director.
Briefly stated relevant facts of the case are that the assessee is a
company and engaged in the business of multipurpose oil extraction
plant and refinery. Assessee filed the return of income on 26-09-2011
declaring total income of Rs.1,10,97,906/- after claiming set off of
brought forward loss at Rs.3,74,58,857/-. On verification of the
schedule of fixed assets during the assessment proceedings, AO noticed
that assessee claimed depreciation for the year at Rs.4,27,44,763/-
which is inclusive of depreciation on vehicles (5 in number) at
Rs.8,35,981/-. AO called for the details to verify the genuineness of the
claim towards depreciation on cars. On scrutiny, AO noticed that the
cars are registered in the names of Directors of the assessee, i.e., Shri
Ashish O. Mantri, Shri Pradeep B. Totla and Sunil Wakharkar. The said
cars were used by the Directors and the depreciation was claimed in the
hands of the company. AO, relying on various decisions, concluded that
the company cannot be said to be the owner of the cars. Since, the
Directors used the cars, the assessee company cannot exercise its
domain over the said cars. Eventually, the AO disallowed the
depreciation claimed by the assessee company at Rs.1,39,908/-. In the
First Appellate proceedings, the CIT(A) deleted the addition made by the
AO.
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Aggrieved with the order of CIT(A) the Revenue is in appeal before
the Tribunal.
At the outset, Ld. Counsel for the assessee while narrating the
above facts submitted that are that the assessee company purchased
motor cars in the name of Director of the company. The said cars were
reflected in the balance sheet of the company under the head “assets”.
The expenses incurred on repairs and maintenance were borne by the
company. Ld. Counsel relied on the decision of Ahmedabad Bench of
the Tribunal in the case of Studio-3 Architect Pvt. Ltd. Vs. ITO, dated
21-01-2011.
After hearing both the sides on this issue and on perusal of the
orders of the Revenue authorities, we find it relevant to extract the
decision of Ahmedabad Bench of the Tribunal in the case of Studio-3
Architect Pvt. Ltd. Vs. ITO in ITA No.1841/Ahd/2009, dated 21-01-2011
wherein it was observed as under :
“5. We have heard both the parties and gone through the facts of the case. The relevant provisions of section 32 of the Act stipulate depreciation in respect of building, machinery, plant or furniture "owned by the assessee" and "used" for the purposes of the business or profession. Indisputably, the innova car was purchased with the funds of the company and used by the assessee for the purposes of its business. The controversy is in regard to ownership of the car. The contention of the assessee is that car being not registered under the Motor Vehicles Act in the name of the company, by itself is not sufficient to hold the contrary. The factual position as stated by the assessee is not disputed by the Revenue. The contention of the Revenue is that unless the car is registered in the name of the assessee under the Motor Vehicles Act, the assessee would not be entitled to deduction of depreciation allowance in respect thereof. We are of the opinion that the assessee, who had purchased the car for valuable consideration and used the same for its business, cannot be denied the benefit of depreciation on the ground that the transfer was not recorded under the Motor Vehicles Act or that the vehicle stood in the name of a director of the assessee company in the records of the authorities under the Motor Vehicles Act.
5.1 The aforesaid view is supported by the decision in the case of CIT Vs. Navdurga Transport Co., 235 ITR 150 (All), wherein the issue was as to whether firm was entitled to depreciation on cars, brought in to the firm for use of business of the firm, even though cars continued to be registered in the name partners. Hon'ble Allahabad High Court held that
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the Tribunal rightly reached the conclusion that the assessee owned and used the three vehicles within the meaning of s. 32 of the Act. Similar view was taken in the case of CIT Vs, Mohd. Bux Shokat Ali(No.2), 256 ITR357(Raj), CIT Vs Fazilka Dabwali TPT Co. Ltd. (2004) 270 ITR 398 (P&H), CIT v. Salkia Transport Associates [1983] 143 ITR 39/13 Taxman 191 (Cal.), CIT v. Nidish Transport Corpn. [1910] 185 ITR 669/[1989] 44 Taxman 351(Ker.), CIT v. Dilip Singh Bagga [1993] 201ITR 995/[1994] 77 Taxman 66(Bom.), CIT v. Navdurga Transport Co. [1999] 235 ITR 158 (All.) and CIT v. Basti Sugar Mills Co. Ltd. [2002] 257 ITR 88/123 Taxman 693 (Delhi)as also by the ITAT in their decision in the case of The Curious House (P) Ltd. v ITO (1980) 9 TTJ 348(Indore) and ITO Vs. Modi Agency, ITA no. 198/Gau/1977-78(Gauhati).
5.2 In the light of view taken in the aforesaid decisions, mere non- registration of a vehicle in the name of the company under the Motor Vehicles Act, cannot disentitle it in regard to its claim of depreciation, when the facts on record are undisputed that the assessee company has, in fact, made the investment in purchase of the vehicle and such vehicle is being used for its business. The requirement of section 32 is that the vehicle must be owned by the assessee and not that the assessee must be a 'registered owner' of the same under the Motor Vehicles Act. Therefore, we have no hesitation in upholding the findings of the ld. CIT(A).Consequently, ground no. 1 relating to disallowance of depreciation on motor car is dismissed.”
Considering the decision of the Tribunal above, we are of the
opinion that the facts of the present case are closely comparable with
that the decision of Tribunal (supra). Undisputedly, the investment was
made by the assessee in the cars and cars were used for business
purposes of the company. Therefore, we concur with the finding given
by the CIT(A) on this issue as the same is fair and reasonable.
Accordingly, Ground No.1 raised by the Revenue is dismissed.
The facts relating to excess depreciation qua the subsidy
segment raised by the Revenue vide Ground No.2 include that assessee
filed the revised return of income on 25-03-2014, wherein assessee
reported its claim of subsidy to the tune of Rs.2,29,41,974/- and
claimed depreciation on the said subsidy too. Initially, the assessee
credited the same to the profit and loss account. AO asked the assessee
to substantiate the claim. Assessee contended that the said subsidy is
received under the Mega Project Scheme of Maharashtra Government.
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The same constitutes eligible ‘Capital’ investment and not ‘Revenue’ in
nature. AO opined that if any assessee received any capital subsidy
against capital asset, the consequential effect is to reduce the same for
working out the allowable depreciation of that capital assets for that
particular assessment year from opening WDV. Rejecting the same, the
AO calculated the excess depreciation at Rs.34,21,554/- relatable to the
subsidy segment and disallowed the same (Para No.6 of the assessment
order).
In the First Appellate proceedings, the CIT(A), relying on his own
decision in the assessee’s own case for the A.Y. 2012-13, deleted the
disallowance of excess depreciation holding that the subsidy amount
could not be reduced from the actual cost of capital asset as per the
provisions of Explanation 10 to section 43(1) of the Act. Eventually, the
CIT(A) allowed the ground raised by the assessee.
Aggrieved with the order of CIT(A), the Revenue is in appeal
before the Tribunal.
After hearing both the sides on this issue, we find it relevant to
extract the finding given by the CIT(A) and the same reads as under :
“5. I have duly considered the submissions of the appellant. The issue under consideration in the favour of the assessee company by the appellate order of the undersigned in appeal No.ABD/CIT(A)/268/2014- 15 dated 17.11.2015 for A.Y. 2012-13 wherein elaborate discussion was made as to why the Mega Project Incentive, i.e. subsidy was not liable to be reduced from the cost of assets. There is no change in the facts and circumstances in the current year as compared to that in A.Y.2012-13. While rendering the decision on this issue, the undersigned had also placed reliance on the decision of Supreme Court in the case of CIT Vs. Ponni Sugars & Chemicals (306 ITR) 392, Sasisri Extraction Ltd. Vs. ACIT (307 ITR AT.127), Shree Cement Ltd. Vs. Addl.CIT (031 ITR Trib. 513), CIT Vs. Reliance Industries Ltd. (339 ITR 632), CIT Vs. Rasoi Ltd. (335 ITR 438), Indo Rama Synthetic Ltd. Vs. ACIT in ITA No.2002/Del/2008 for AY 2003-04 and Inventaa Chemical Ltd. Vs. ACIT (42 SOT 249). The scheme was intended to accelerate industrial development of the State and the incentive was given for setting up of industries in Maharashtra. The amount of subsidy to be given was determined by taking the cost
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of eligible investment as the basis. The incentive in the form of subsidy could not be considered as a payment directly or indirectly to meet any portion of the actual lost and thus it fell outside the ken of Explanation 10 to section 43(1) of the Income Tax Act, 1961. Accordingly it was held that the subsidy amount could not be reduced from the actual cost of the capital asset. Following the same, I direct the AO to delete the addition of Rs.34,21,554/- on account of disallowance of depreciation. This ground of appeal is allowed.”
There is no dispute on the fact that the Revenue did not file appeal for
the A.Y. 2012-13 against the relief granted by the CIT(A).
Ld. DR for the Revenue relied on the order of AO dutifully.
During the proceedings before us, Ld. Counsel for the assessee
filed the written submissions on this and submitted for confirming the
order of CIT(A). The said written submissions are extracted here as
under :
“1. The appellant company during the year under consideration has received Industrial Promotion Subsidy (IPS) against the MEGA PROJECT SCHEME by the State Government towards the eligible investments. We herby submit a brief of scheme for your reference.
“Industrial Promotion Subsidy” (IPS) in respect of Mega Projects under PSI 2001 & 2007 means an amount equivalent to the percentage of “Eligible Investments” which has been agreed to as a part of the customized package, of the amount of tax payable under Maharashtra Value Added Tax Act (MVAT) 2002 and Central Sales Tax (CST) Act, 1956 by the eligible Mega Projects in respect of sale of finished products eligible for incentives before adjustment of set off or other credit available for such period as may be sanctioned by the State Government, less the amount of benefits by way of Electricity Duty exemption, exemption from payment of Stamp Duty, refund of royalty and any other benefits(as may be specified by the Government) availed by the eligible Mega Projects under PSI 2001 / 2007, whichever is lower.
The purpose of subsidy of MEGA project was to encourage the dispersal of industries to the under developed areas of the State Government. The subsidy was granted as an initiative for accelerating industrial development in the State and backward.
The appellant company is located in Jalna district of Maharashtra which is a backward area and is considered under low Human Density Index (LHDI). The appellant aptly treated the subsidy received under MEGA Project as capital receipt and contended that the subsidy was given to the unit because of the fact that it has established an eligible industrial unit in the notified area and thus the receipt was capital in nature and not taxable.
There are various citations were in it was decided that subsidy of MEGA project received in the nature Excise duty refund, interest subsidy
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and insurance subsidy will be held to be capital receipts and not revenue receipts and further is not liable to be deducted from cost of assets.
14.1 Ld. Counsel for the assessee relied on the following case laws for
the proposition that where the purpose of subsidy was to accelerate
investment in backward areas then the amount received is to be treated
as Capital receipt and not to be deducted from cost of asset.
Innoventive Industries Limited Vs. DCIT – ITA No.601/PN/2013 2. Sunvijay Rolling and Engineering Vs. ACIT – ITA No.224/Nag/2015 3. Shri Balaji Alloys Vs. ITO – ITA No.163/ASR/2010 4. CIT Vs. Chaphalkar Brothers – ITA No.(2018) 161 DTR 41 (SC)
Considering the same, we find the order of CIT(A) is fair and
reasonable and does not call for any interference. Accordingly, the
Ground No.2 raised by the Revenue is dismissed.
Ground No.3 raised by the Revenue relates to addition of said
capital subsidy while quantifying the book profits of the assessee for the
purpose of taxation under the Special provisions of section 115JB of the
Act. Relevant facts are discussed in Para No.10 and 11 of the order of
CIT(A).
Ld. DR for the Revenue relied on the order of AO.
Before us, Ld. Counsel for the assessee demonstrated that making
addition of the capital subsidy for the purpose of enhancing the book
profits is not correct when the same is never considered as income
under the provisions of the Act. As such, this item is outside the scope
of provisions of section 115JB of the Act. Considering the same and
relying on the judgment of Apex Court in the case of Padmaraje R.
Kadambande Vs. CIT reported in 1992-TMI-5368-SC, Ld. Counsel
submitted that the said subsidy does not constitute income at all within
the meaning of section 2(24) of the Act. Accordingly, the CIT(A) directed
8 ITA No. 1423/PUN/2016 M/s. Abhay Cortex Pvt. Ltd.
the AO to exclude the same for the purpose of book profits u/s.115JB of
the Act. Therefore, Ld. Counsel prayed for confirming the order of CIT(A)
on this issue too.
On hearing both the parties and on perusing the order of CIT(A) in
general and contents of Para Nos.10 and 11, we find it relevant extract
the said finding given by the CIT(A). The said finding given by the CIT(A)
reads as under :
“10. In the fourth ground of appeal, the appellant has challenged the action of the AO in not calculating the book profit u/s.115JB correctly as he did not reduce the capital receipts from the book profits. Before me, the counsel of the appellant has argued that the AO failed to deduct the capital receipt, i.e. subsidy amount of Rs.2,29,41,974/- from book profits while calculating book profit u/s.115JB of the Income Tax Act, 1961. The said act of the AO was not justifiable as capital receipts were not a part of profit and loss account and it was not income u/s.2(24) of the Act. It was stated that the Hon’ble Apex Court in the case of Padmaraje R. Kadambande Vs. CIT (1992-TMI-5368-SC), has held that Capital Receipts were not income within the definition of section 2(24) of the Act and hence were not at all chargeable under the Income Tax Act. A receipt which was neither “Profit” nor 'Income' and which did not have any element thereof embedded there in, could not be part of 'Profit' as per Profit & Loss account prepared in terms of Part II of Schedule VI to Companies Act. The Delhi ITAT in the case of Indo Rama Synthetics (I) Ltd Vs. CIT held that inclusion of capital receipt in the computation of MAT would defeat two fundamental principles. In view of decision in the case of Apollo Tyres (2002- TMI-6081-SC), to fulfill requirement of Schedule VI, it needed to be excluded while computing Book Profit V/s 115JB. Capital receipts in the form of Sales Tax incentives needed to be excluded from profit as per P&L Account for the year in computing Book profit V/s 115JB of the Act. The ITAT, Jaipur in the case of Shree Cement Ltd., Ajmer Vs. ACIT, held that capital receipts though credited to Profit and loss account did not represent profit/income pertaining to a particular year. Its credit to P&L account did not reflect the result of the working of the company during the period covered by the account as per the requirement of Part II of Schedule hence it needed to be excluded while computing Book profit V/s 115JB to fulfill the requirement of part II of schedule VI of companies Act. Accordingly it was requested to direct the AO to exclude the capital receipts such as subsidy of Rs.2,29,41,974/- from the book profits V/s 115JB of the Income Tax Act.
I have duly considered the submissions of the appellant. The issue under consideration is covered in the favour of the assessee company by the appellate order of the undersigned in appeal No.ABD/CIT(A)/268/2014-2015 dated 17.11.2015 for AY 2012-13 wherein elaborate discussion was made as to why capital receipt i.e. subsidy has to be reduced from book profit for the purpose of computing the MAT profit under section 115JB of the Act. It was held that the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (255 ITR 273) had not overlooked the basic legislative intention regarding the nature of items to be excluded in computing, the book profits for the purpose of section 115JA. While rendering the decision on this issue, the undersigned had
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also placed reliance on the decision in the case of Balrampur Chini Mills Ltd (238 ITR 445), Pratappur Sugar & Industries Ltd vide order dated 03.09.2004 in ITA No.2619/Kol/02 for AY 1999-2000, CIT Vs. Essorope Mills Ltd (139 Taxman 180), ACIT Vs. Nilgiri Tea Estate Ltd. (65 SOT 14), CIT Vs. Gitanjali Mills Ltd. (136 Taxman 21) and ITAT, Mumbai ‘E’ Bench in the case of Pal Synthetics Ltd. Vs. Jt. CIT (IT Appeal No.1310 (Mum,) of 2003, dated 6-2-2007). There is no change in the facts & circumstances in the current year as compared to that in AY 2012-13. Accordingly I direct the AO to reduce the capital receipt of Rs.2,29,41,974/- from the profits for computation of book profits u/s.115JB of the Income Tax Act. This ground of appeal is allowed.”
Considering the above decision of CIT(A), we find the same is fair
and reasonable and it does not call for any interference. Accordingly,
Ground No.3 raised by the Revenue is dismissed.
Further, we find it is a case of appeal of the Revenue having tax
effect below Rs.20 lakhs. Therefore, the same is not maintainable in
view of CBDT Circular No.3/2018, dated 11-07-2018.
In the result, the appeal of the Revenue is dismissed.
Order pronounced on Wednesday, the 18th day of July, 2018.
Sd/- Sd/- िवकास अव�थी /Vikas Awasthy) (डी डी. क�णाकरा राव (िवकास अव�थी डी डी क�णाकरा राव/D. KARUNAKARA RAO) िवकास अव�थी िवकास अव�थी क�णाकरा राव क�णाकरा राव �याियक सद�य �याियक सद�य/JUDICIAL MEMBER लेखा सद�य �याियक सद�य �याियक सद�य लेखा सद�य लेखा सद�य/ACCOUNTANT MEMBER लेखा सद�य
पुणे / Pune; �दनांक / Dated : 18th July, 2018. Satish
आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-1, Aurangabad 4. The Pr. CIT-1, Aurangabad. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “बी बी” ब�च, बी बी 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, //True Copy //
व�र� िनजी सिचव/Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune