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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: AMIT SHUKLA & SHRI RAMIT KOCHAR
Per Ramit Kochar, Accountant Member
This appeal by the assessee is directed against the order dated 12.01.2010 of Commissioner of Income Tax (appeals) for assessment year 2002-03. The assessee has raised following grounds of appeal:-
“1. The Ld. Commissioner of Income Tax (Appeals) dismissed the claim of Appellants in the matter of depreciation claim of Rs. 4,70,784 on certain Plant & Machinery, Furniture & fixtures, Office equipments, which the Assessing Officer had taken under different heads and with different amounts. The Appellant submit that the CIT (A) ought to have properly considered and appreciated the explanation rendered by the Appellants.
2. The Ld. CIT (A) has dismissed the Appellants' claim by disallowing Rs.4,00,200/- representing the amount paid as stamp fees for the agreement pertaining to the Co- Gen project in respect of the agreement entered into for US grant/aid.
The CIT (A) erred in confirming of charging of Rs. 19,37,524 under Sec. 41 m respect of sundry credit balance written off by the Appellant unilaterally.
4. The Ld. CIT (A) 'has erred in dismissing the Appellants' claim for additional sugar cane price of Rs. 1,14,59,037 which the Appellant had claimed on the basis of purchase of sugar cane. The Ld. CIT (A) disallowed the claim stating that the same has crystallized in the previous year 2004-05 relevant to Assessment Year 2005-06 and he further erred in stating that the same is to be allowed in the Assessment Year 2005-06 on merits.
The Ld. CIT (A) has erred in dismissing the Appellants' claim u/s 80HHC Considering the Assessee's income as assessed under book profit u/s 115JB. The Ld. CIT (A) has erred in following formulations in the case of CIT vs Ajanta Pharma (223 ITR 441 (2009)(Bombay) .”
Ground No. 1 is regarding depreciation of Rs. 417784/- on depreciation on account of addition made during the year between as per block of assets as per companies Act and block of asset as per Income Tax Rules.
Assessment year: - 2002-03 3. It was observed by the Assessing Officer that fixed assets of block of assets as per Companies Act on sugar division as well as chemical division and the statement of depreciation claimed as per income tax and there difference between two on account of addition of assets made in certain asset during the year as under:-
Division Addition made Cost of assets Addition Cost of assets in the fixed addition is made in the addition assets as per made (Rs. in statement of made (Rs.) Companies Act lakhs) fixed assets (i.e. block of assets ) as per I.T. Act Sugar Plant & 651.29 Plant & 67402311 Machinery Machinery Chemical Furniture & 49.32 Furniture & 6798026 fixture fixture 74200519
In reply the assessee submitted that in books of accounts addition to office equipment of Rs. 22,63,535/- was considered under “Furniture” while for the claim under the Income Tax Rules, the same is considered as “Machineries”. The AO observed that the assets like ceiling fans, fire extinguisher, AC etc. Assessee company has not explained the difference properly along with the supporting evidence and hence there is a Assessment year: - 2002-03 difference on account of plant & machinery of Rs. 22,73,311/- and in difference in furniture & fixture of Rs. 18,66,208/- respectively, which is not explained properly. AO disallowed depreciation by observing as under:- “i) Difference in plant & machinery of Rs. 22,73,311/- @ 12.5% (less than 180 days depreciation works out to Rs. 284,164/- ii) Difference in furniture and fixture of Rs. 1,86,620/- @ 10% (i.e. more than 180 days) depreciation works out to Rs. 1,86,620/-. Thus, the total depreciation on the difference of plant & machinery and furniture works out to Rs. 4,70,784/-. Accordingly, the same is disallowed and deducted from the total depreciation claimed.”
Aggrieved, the assessee carried the matter in appeal before CIT(A).
The assessee submitted before the CIT(A) that the difference in plant & machinery has been wrongly taken at Rs. 22,73,311/- as against Rs. 22.64 lacs. He submitted that there certain items which under the companies Act classified as furniture & fixture and equipments but under the Income Tax Act they are treated as plant & machinery. The Ld. AR duly filed the reconciliation statement as under:-
Division Item Addition as per Addition as per books Tax Audit Report Sugar Division Furniture & Fixture 651.29 651.29 Add: Furniture & 22.64 Fixture as per accounts
Assessment year: - 2002-03 673.93 Chemical Furniture & Fixture 49.32 49.32 division Less : Plant & (-) 22.63 Machinery as per I.T. Act (A) 49.32 26.69 Sugar Division Office Equipment 0 18.65 (Not considered by AO) Chemical Office Equipment 0 22.64 Division (Not Considered by the AO) (B) 0 41.29 (A)+(B) 67.98
The CIT(A) rejected the contention of the assessee and confirmed the addition.
Aggrieved by the order of CIT(A), the assessee is in appeal before us and filed the reconciliation statement as under:-
Distillery & Chemical Division Additions to fixed assets during the previous year.
[To the extent of the difference that is relevant for the appeal] Addition on account of As per book As per Income Tax [In Rs.] [In Rs. ] Plant & Machinery 3,02,59,000 2,86,22,687 Furniture & Fixtures 49,32,000 67,98,208
Assessment year: - 2002-03 Office Equipment 18,66,000 Total 3,70,57,000 3,54,20,95 Total Depreciation With respect to As per book As per Income Tax Rate of depreciation [In Rs.] [In Rs.] Plant & Machinery 1,69,19,000 2,72,67,807 [25% & 12.5%] Furniture & Fixtures 2,45,000 9,39,152 [10% & 5%] Office Equipment 1,94,000 Total 1,73,58,000 2,82,06,959
Sugar Division Additions to fixed assets during the previous year [To the extent of the difference that is relevant for the appeal]
Addition on account of As per book As per Income Tax [In Rs. ] [In Rs.] Agriculture Machinery 10,000 (General) 6,37,89,892 Plant & Machinery 6,51,29,000 (Special) 13,48,883 Furniture & Fixtures 18,02,000 6,51,38,775 Office Equipment 22,64,000 40,65,104 Total 6,91,95,000 6,92,03,879 Total Depreciation With respect to As per book As per Income Tax Rate of [In Rs.] [In Rs.] depreciation
Assessment year: - 2002-03 Agriculture Machinery 64,000 (General) 4,87,70,228 [25% & 12.5%] Plant & Machinery 2,07,74,000 (Special) 6,74,441 [100% & 50%] Furniture & Fixtures 3,90,000 7,41,038 [10% & 5%] Office Equipment 4,49,000 Total 2,16,77,000 5,01,85,707
The assessee submitted that the assessee has treated the item as furniture & fixture of Rs. 49,32,000/- as per books while office equipment of Rs. 18,66,000 in the distillery and chemical division while as per Income Tax Act, the same is treated as furniture & fixtures of Rs. 67,98,208/-. The assessee submitted that the asessee has claimed depreciation correctly in the Income Tax Act as per the treatment and no prejudice is caused to the Revenue and assessee has claimed less depreciation under the Income Tax Act because the furniture & fixture carries the depreciation at the rate of 10% while plant and machinery carries the depreciation at the rate of 25%. Similarly in the sugar division, the assessee has considered furniture & fixture of Rs. 1802000/- and office equipment at Rs. 22,64,000/- under the companies Act while as per Income Tax Act, the same is merged together under the head furniture & fixtures of Rs. 40,65,104/- and hence correct depreciation has been claimed. The assessee submitted that it has claimed lower depreciation @ 10% on furniture & fixture under the Income Tax Act
Assessment year: - 2002-03 while depreciation of plant & machinery @ 25% under the Income Tax Act and hence lower depreciation has been claimed and no prejudice is caused to the Revenue.
Ld. DR on the other hand relied upon the order of authorities below.
We have considered the rival contention and carefully perused the relevant material on record. We have observed that assessee has claimed depreciation on furniture & fixture of Rs. 67,98,208/- in distillery & chemical division and furniture & fixture of Rs. 40,65,104 in sugar division and has claimed lower depreciation while merging the office equipment into furniture & fixture an no prejudice is caused to the Revenue and hence the claim of assessee is hereby allowed.
Ground no. 2 is relating to stamp fee paid of Rs. 4,00,200/- for agreement pertaining to co-generation project in respect of the agreement entered into US grant/aid which was disallowed by the AO by considering the same to be capital expenditure as the grant of Rs. 167.30 lac received by the assessee has been considered as capital receipt.
Assessment year: - 2002-03 13. The assessee carried the matter in appeal before CIT(A) and submitted that the stamp fee has been incurred for getting a substantial benefit for the business and should not be disallowed only because the amount of benefit is on capital account. He relied upon the Judgment of Hon’ble Supreme Court in the case of India Cements Ltd. Vs. Cit 60ITR 32 (SC), where it has been held that interest on loans borrowed for investing is to be allowed. CIT(A) rejected the contention of the assessee and held that AO has correctly capitalized on account of stamp fee for bringing the asset into the company.
Aggrieved by the order of CIT(A), the assessee is in appeal before us.
Assessee submitted that the it has incurred the expenses for business towards stamp fee for executing the agreement for subsidy for co- generation project and the same should be allowed as it is a business expense. The assessee relied upon the Judgment of Hon’ble Supreme Court in the case of CIT Vs. General Insurance Corporation 286 ITR 232 (SC) and the Judgment of Hon’ble Bombay High Court in the case of CIT Vs. Cinecita (P.) Ltd. 137 ITR 652 (Bom.)
Assessment year: - 2002-03 16. Ld. DR submitted that these are capital expenditure which is linked towards the executing of the agreement for capital subsidy and hence the same has rightly been disallowed.
We have heard the rival submissions and carefully perused the relevant material on record. We are of the considered view that the expenditure of Rs. 4,00,200/- was incurred by the assessee towards the stamp fee is a capital expenditure which inextricably linked to the capital subsidy of Rs. 167.30 lacs and thus we find no reasons to interfere with the orders of authorities below and the same is hereby affirmed. We note that the assessee has relied upon the decision of Hon’ble Supreme Court in the case of CIT Vs. General Insurance Corporation (supra) which relates to stamp duty paid for increase in authorized capital pursuant to the bonus shares which was held to be the revenue expenditure because the bonus shares does not entail any increase in capital which only relates to the capitalization of existing profits and hence was held to be revenue expenditure by the Hon’ble Supreme Court. Similarly the Judgment of Hon’ble Bombay High Court in the case of CIT Vs. Cinecita (P.) Ltd. (supra) relied upon by the assessee is also distinguishable because it relates to the lease of 20 years entered into by the assessee, whereby the stamp duty, professional /registration charges paid for preparation and getting registered deed of lease was considered to be revenue expenditure.
Assessment year: - 2002-03 However, in the present case, the issue relates to the stamp fee paid for execution of agreement of capital subsidy.
Ground no. 3 is regarding confirming the charges of Rs. 19,37,524/- u/s 41 in respect of sundry credits balance written off by the appellant unilaterally.
At the outset, the Ld. AR of the assessee submitted that the assessee does not wish to press the grounds of appeal no. 3 and, therefore, the same is hereby dismissed as not pressed.
20. Ground no. 4 relates to the additional sugar cane price of Rs. 1,14,59,037/- which the assessee has claimed on the basis of purchase of sugar cane.
The assessee submitted that the assessee is in the business of sugar in which it purchases sugar cane from farmers. Normally the sugar cane prices are decided in three stages viz., 1st installment adhoc payment by Central Advisory committee, second installment of case price is recommended by State Government Committee and the third is decided by Sugarcane Growers Association in the relevant area of activity . Considering the same, the sugarcane price for season 2001-02 i.e. A.Y.
Assessment year: - 2002-03 2002-03 was decided at Rs. 8.25 per MT while the company had made provision and paid in books of account @ 8.14 per MT. The final price of the season 2001-02 was decided vide MOU with Cane Growers Association and on the basis of the same, vide Internal Order dated 6/9/2014 the final balance price works out as under:-
Season Previous A.Y. Quantity Rate per Amount (Rs.) Year QTL 2001-02 20.09.01 2002-03 10,41,730,.658 11.00 1,14,59,037.24 to 31.3.02
In the return for assessment year 2004-05, the assessee had made claim for the said additional cane price. However, the same was denied by the AO stating that the assessee’s contentioin is not acceptable since the final cane price is determined as per settlement dated 6/9/04 which does not fall in the previous year relevant to assessment year 2004-05. The assessee submitted that it is following the mercantile system of accounting and accordingly the claim should have been raised on accrual basis. The sugarcane were consumed during the assessment year 2002-03 and assessee is entitled to claim deduction of additional sugarcane of Rs. 1,14,59,037.24/-. Holding that assessee has not claimed these expenses in return of income and no provisions has been made in books of account ,
Assessment year: - 2002-03 this claim made before the CIT(A) as additional ground of appeal as the AO has also rejected the claim of the assessee for assessment year 2004-05. The CIT (A) observed that assessee is claiming these expense on the basis of agreement with the sugarcane grower association vide ………..order dated 06.09.2004 and hence the claim has crystallized in the assessment year 2005-06. The CIT(A) held that this claim cannot be allowed in the assessment year 2002-03 and it will be examined on merits in the assessment year 2004-05 or 2005-06 when it came up for hearing before him.
23. Aggrieved by the order of CIT(A), the assessee is in appeal before us. Assessee submitted that this claim of Rs. 1,14,59,063/- got crystallized in the assessment year 2005-06. Assessee submitted that in assessment year 2005-06, the CIT(A) presumed that it should be allowed in assessment year 2006-07. Assessee submitted that it has filed a rectification application u/s 154 before the CIT(A) for assessment year 2005-06 which is still pending. It was also submitted that his claim got crystallized in assessment year 2005-06 and hence should be allowed.
On the other hand, Ld. DR submitted that it needs to be verified that this be not allowed more than once as assessee is making claim in assessment year 2002-03, 2004-05, 2005-06 and 2006-07.
We have considered the rival submissions. We hold that assessee is following the mercantile system of accounting. Assessee is entitled for the claim of expense on Revenue/trading account on crystallization of the law. In the said amount in assessment year 2005-06 although it might pertain to assessment year 2002-03. Hence assessee will be entitled for the said claim for the assessment year 2005-06 subject to verification on merits by authorities below about the bonafide and genuineness of the claim. The authorities below are also directed to verify that the assessee’s claim is allowed not more than once. The assessee has claimed that this amount in assessment year 2002-03, 2004-05, 2005-06 and 2006-07. Subject to above verification additional claim should be allowed only in assessment year 2005-06 subject to verification and checking by the authorities below and hence the claim of assessee for impugned year is rejected.
Ground no. 5 relates to claim of deduction u/s 80HHC of the Act.
At the outset, we find that this ground of claim of deduction u/s 80HHC of the Act has been considered and decided by the Hon’ble Supreme Court in the case of Ajanta Pharma Ltd. Vs. CIT [2010] 327 ITR 305 (SC). Following observations of the Hon’ble Supreme Court is relevant.
Assessment year: - 2002-03 “10. One of the contentions raised on behalf of the Department was that if clause (iv) of Explanation to section 115JB is read in entirety including the last line thereof (which reads as "subject to the conditions specified in that section"), it becomes clear that the amount of profits eligible for deduction under section 80HHC, computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, is subject to the conditions specified in that section. According to the Department, the assessee herein is trying to read the various provisions of section 80HHC in isolation whereas as per clause (iv) of Explanation to section 115JB, it is clear that book profit shall be reduced by the amount of profits eligible for deduction under section 80HHC as computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, of that section and subject to the conditions specified in that section, thereby meaning that the deduction allowable would be only to the extent of deduction computed in accordance with the provisions of section 80HHC. Thus, according to the Department, both "eligibility" as well as "deductibility" of the profit have got to be considered together for working out the deduction as mentioned in clause (iv) of Explanation to section 115JB. We find no merit in this argument. If the dichotomy between "eligibility" of profit and "deductibility" of profit is not kept in mind then section 115JB will cease to be a self-contained code. In section 115JB, as in section 115JA, it has been clearly stated that the relief will be computed under section 80HHC(3)/(3A), subject to the conditions under sub- sections (4) and (4A) of that section. The conditions are only that the relief should be certified by the Chartered Accountant. Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in clause (iv) of Explanation to section 115JB [Subject to the conditions specified in sub-sections (4) and (4A) of that section] to obliterate the difference between "eligibility" and "deductibility" of profits as contended on behalf of the Department.
11. For the above reasons, we set aside the impugned judgment of the High Court and restore the judgment of the Tribunal. Accordingly, the civil appeal of the assessee is allowed with no order as to costs.”
Respectfully following the Judgment of Hon’ble Supreme Court in the case of Ajanta Pharma Ltd. Vs. CIT (supra), we decide this issue in favour of the assessee and against the revenue.
The assessee has also raised an Additional Ground, which reads as under:- “The Ld. CIT (A) erred in taxing the amount of Rs. 19,37,534/- in respect of sundry credit balance written off by the appellant unilaterally, u/s. 28(iv) of the Act”.
30.. At the time of hearing, the Ld. AR of the assessee submitted that the assessee does not wish to press this Additional Ground and the same may be dismissed. Accordingly, we dismiss the Additional Ground raised by the assessee as the same is not pressed.
In the result of appeal of the assessee is partly allowed. Order pronounced in the open court on this 21st day of October 2015.