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Order PER PARESH M. JOSHI, J.M. : The present appeal has been preferred by the Assessee against the order dt. 22/06/2018 passed under Section 250 of the Income Tax Act, 1961 by the Ld. CIT(A)-4, Ludhiana, Punjab (hereinafter referred to as the “impugned order”). The impugned order has sustained the findings of Ld. AO whose assessment order under section 143(3) is dt. 26/12/2016. Factual Matrix 2. The Assessee is a corporate entity under the Companies Act, 1956/2013. The relevant Assessment Year is 2014-15. The Financial Year is 01/04/2013 to 31/03/2014. The assessee is in the field of cold chain.
3. The assessee in Form No. 36 which is the form of appeal to the Appellate Tribunal has declared / stated that total income for the A.Y. 2014- 15 is Rs. 31,54,889/-. The total income as computed by the AO for the A.Y. 2014-15 is Rs. 74,29,889/-. The AO has passed the assessment order under section 143(3) of the Income Tax Act, 1961. There is no statement of facts accompanying the Form No. 36, dt. 31/07/2018. However the grounds of appeal are urged and stated.
We therefore after carefully perusing all the records of the case including paper book which is on record determine the following facts for purpose of adjudging and adjudicating the present appeal under section 253 of the Income Tax Act, 1961.
5. That the Assessee had filed return of income on 29/11/2014 showing an income of Rs. 31,54,889/- as income from business which was set off against brought forward unabsorbed depreciation for A.Y. 2012-13. 6. The assessee the corporate body is into the business of growing, collection, processing and distribution of frozen vegetables with facility of 5000 MT capacity, multi chamber modified atmosphere cold store chambers, and 3000 MT to store fresh vegetables.
It is required to be noted that the assessee had started its production from 10.03.2012.
The Ld. AO while completing the assessment made on addition of Rs. 4,27,5000/- by reducing the subsidy of Rs. 35,00,000/- and Rs. 2.50 Crores, from the cost of assets and disallowance of depreciation @ 15%.
During the course of the above assessment proceedings the AO vide letter dt. 23/11/2016 had asked the assessee to justify the subsidy of Rs. 2.50 Crores added to capital reserve, to which reply vide letter dt. 29/11/2016 was as under: “ The subsidy received is capital subsidy part of means of finance to set up the unit with the condition that proceed of subsidy will be used to pay off the debts raised from the bank. The subsidy received of Rs. 2.50 Crores has been used to repay the term loan of Rs. 1.25 crores and cash credit limit of Rs. 1.25 crores to IDBI. The repayment of bank loan means saving in the interest payable to the Bank and saving in expenditure. “
The assessee vide their letter dt. 08/12/2016 explained to AO as under: “The profit was completed with Term loan from IDBI Bank and Punjab National bank for an amount of Rs. 20.00 crore. Thereafter company submitted application for grant of Rs. 10.00 crore for MOFPI under the scheme of "Integrated cold chain, value addition and preservation infrastructure'. The 1st installment of which was Rs. 2.50 crore received during the year has been adjusted in Term Loan from IDBI Bank and balance payment to machinery suppliers (Utilisation certificate issued by CA is enclosed). The balance amount grant which was of Rs. 7.50 crore has been subsequently received in the year 2014-15 and 2015-16 by the company and utilized for repayment of TL from IDBI bank and balance payment to machinery suppliers. The amount was part of the project cost and depreciation was claimed accordingly. Moreover, the grant was paid by the Govt, of India to boost the food processing industries to lower/reduced its interest burden of term loan taken by the company from the banks/financial institution. Therefore, adjustment of depreciation on fixed assets was considered as general transaction in the books of accounts. As the interest on TL reduced by repayment of TL, hence, profitability of the company increased and net profit for the year declared accordingly."
The assessee vide their letter dt. 20/12/2016 explained to AO as under: "As explained earlier, the subsidy received was capital subsidies and is means of finance at the time of financing of the project which was actually received after the completion of the project in the year 2013-14 Rs. 2.50 crores. The subsidy was then applied to repay the term loan from bank and payment of creditors against supply of machinery. As regard treatment of grant in aid of Rs. 10 crores as receivable during the year, we submit that grant in aid was received only of Rs. 2.5 crore in the current relevant asstt. Year and the remaining subsidy was received in the following years i.e. 5 crore in FY 2014-15 and Rs. 2.5 crores in financial year 2015-16. The said grant was received released in parts considering the investment made by the company in the relevant years and its implementation after thorough physical inspection of the unit. Keeping in view the same, the subsidy was accounted for as and when paid by the Government as per the terms and conditions laid down for releasing the subsidy.”
The Ld. AO order dt. 26/12/2016 in respect of A.Y. 2014-15 was perused by us. It is an assessment order under section 143(3) of the Income Tax Act, 1961.
The Ld. AO in the assessment order dt. 26/12/2016 has stated that return declaring income of profit of business is of Rs. 31,54,889/- filed on 29/11/2014 and same is set off against depreciation of 2012-13. The balance depreciation is as under: A.Y Amount of brought forward Amount of dep. Set Balance carried unabsorbed depreciation off against the forward to the next current year income year 2012-13 25199906 3154889 22045017 2013-14 7027382 0 7027382 Total 32227288 3154889 29072399
The Ld. AO has stated as under in assessment order dt. 26/12/2016:
The assessee company is promoted to set up an integrated project for Growing, Collection, Processing and Distribution of frozen vegetables with facility of 5000 MT capacity Multi chamber Modified Atmosphere Cold Store chambers and 3000 MT to store fresh vegetable in its year around operation with capital lay out of Rs. 40 crore in Punjab state. The assessee company has set up its plant in Jalvehri Gehlan near village Sadhugarh Distt. Fatehgarh Sahib in Punjab. The assessee company has started production from 10.03.2012.”
The Ld. AO has further stated that during the course of assessment proceedings , it was noticed that the assessee company has received subsidy from APEDA amounting to Rs. 35,00,000/- under the scheme of Infrastructure development for setting up hot water dip treatment during F.Y.2011-12 vide letter No. APEDA/B&F dated 09.03.2012. During F.Y 2013-14 the assessee has received Rs. 2.5 crore from Ministry of Food INFRA(ICC) dated 24th Jan 2014 being the first instalment of grant in aid out of the approved non recurring Grant in aid of Rs. 10 crore as per the guidelines of the scheme for cold chain.”
The Ld. AO has dealt with letters of assessee dt. 29/11/2016, which was in response to his letter dt. 23/11/2016 para 9 supra.
We notice that in addition to AO’s letter dt. 23/11/2016 there is another letter of AO dt. 06/12/2016 which stated that assesse has not reduced the amount of cost of fixed assets for the equivalent amount of subsidy so received amounting to Rs. 2.50 Crores. In other words, you have claimed excess depreciation, please explain and justify you claim.
The letter dt. 06/12/2016 was dealt with by the assessee vide letter dt. 08/12/2016 para 10 supra.
We notice that again a letter dt. NIL was issued by the AO the relevant part of which is as under: “ Provide the detailed Government scheme under which subsidy of which 10 crore is availed now and 35 lac was availed earlier. Also provide complete set of documents that was submitted before the relevant agency for applying the subsidy of Rs. 10 crore and the communication between the relevant government department. As per documents provided the grant in aid has been specifically provided for acquisition of plant and machinery and technical civil works the same to our understanding are chargeable to depreciation at 15%. Considering that the a grant in aid of Rs. 10 crore is receivable from Ministry of food processing for acquisition of assets, why not depreciation claimed on such grant be disallowed and why not depreciation claimed in previous year be also disallowed."
The assessee vide letter dt. 20/12/2016 replied the aforesaid letter dt. NIL para 11 supra.
The Ld. AO in Para 3.8 of assessment order has stated as under: 3.8 At last when cornered the counsel of the assessee vide letter dated 23.12.2016 gives the working of subsidy claimed and subsidy received as under:
S.No. Assets Dep rate Dep Original Subsidy Subsidy % charge during cost before dep claimed received the year 1 Factory 10% 10017607 116458194 8509500 7886542 building 2 PLANT & 15% 16181170 138113402 18465250 17113458 machinery It is quite clear that Subsidy is nothing but reduction to specific cost due to incentives offered by Government. Further, the basis on which the subsidy amount has been bifurcated between assets charged @10% and 15% is not explained.
The Ld. AO in Para 3.9 of assessment order has stated / spoken about – Explanation 10 to Section 43(1) which states as under:- [Explanation 10: “ Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called) then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee] w.e.f 01/04/1999.
The learned AO therefore further has stated that the intention of the legislature is apparent from the explanation 10 to section 43(1) of the Act which indicates that the cost of the asset is to be reduced if the same is on account of capital account.
The Ld. AO in Para 3.10 & 3.11 has finally held as under: 3.10 It is quite surprising that the assessee company was following the mercantile system of accounting still it accounted for only 2.50 crores of subsidy specifically when the Ministry of Food Processing Industry, New Delhi has approved the sanction of 10 crores of subsidy as per letter submitted by the assessee company. It is necessary to prove that portion of cost of asset acquired by the assessee has been met directly or indirectly by the government or the authority established under any law or by any other person in the form of subsidy or grant or reimbursement by whatever name called. From the perusal of reply of the assessee it is evident that the subsidy so received amounting to Rs. 2.50 crores is on account of capital subsidy which means the cost of asset has to be reduced and accordingly depreciation will be reduced as claimed by it. Further, another subsidy of Rs. 35 lacs is also received on capital account from APEDA, Ministry of Commerce& Industry, Government of India. 3.11 Keeping in view the facts of the case, the evidence brought on record and replies submitted by the assessee and also the legal position as discussed above, the depreciation is to be reduced from the said cost of asset as claimed by the assessee company. Further, the assessee was given various opportunities to provide complete set of communication that was exchanged with relevant authorities pertaining to the sanctioned subsidies of Rs.35 Lakhs and Rs.10 Crores from making of application till date of order, however the assessee has only provided selective communication. In the absence of complete communication and explanations, the undersigned is unable to ascertain the rate at which depreciation has been charged on the subsidised assets of the company. The amount of subsidy that has been availed on the assets was supposed to be disclosed in the tax audit report in accounts of the assessee and by not providing such details the auditor of the assessee has failed in provision of his duties. In absence of sufficient information, the undersigned is assuming that the assessee has claimed depreciation on plant & machinery and technical civil works (which qualify for subsidy and on which subsidy has been received) at full rate of 15% and is disallowing the depreciation on subsidised assets as hereunder: Rs. 2.50 crores @ 15% = Rs. 37,50,000/- 35 lacs @ 15% = Rs. 5,25,000/- The profits of assessee after disallowing the depreciation are assessed as hereunder: Returned Income: Rs. 31,54,889/- Add back Depreciation (Disallowed) Rs. 42,75,000/- Assessed Income: Rs. 74,29,889/- Less BF Losses: A.Y. Amount of brought Amount of dep. Set Balance carried forward unabsorbed off against the forward to the next depreciation current year income year 2012-13 25199906 7429889 17770017 2013-14 7027382 0 7027382 Total 32227288 7429889 24797399 Losses to be carried forward Rs. 2,47,97,399/-. Assessed. Issue requisite documents. Charge Interest u/s 234A/B/C, if any. Penalty proceedings u/s 271(1)(c) of the I.T. Act is being initiated separately for furnishing inaccurate particulars of income.
The Assessee feeling aggrieved and dissatisfied with the AO’s order dt. 26/12/2016 had filed first appeal before Ld. CIT(A) who vide impugned order has dismissed the same. The core finding of CIT(A) is as follows: “4.3 I have carefully considered the facts of the case and submissions of the appellant. The assessing officer has noted that grant of Rs. 2.50 crore i.e. 25% of Rs. 10.00 crore has been granted vide letter No. 4-85/2013-Infra (ICC) dated 24.01.2014 by Ministry of Food Processing Industries, New Delhi. It is specifically mentioned in the letter that the “MFPI grant is spent only on technical civil works and plant & machineries for the project.” It is clear that capital cost of investment in the projects have been reimbursed to the appellant by way of subsidy. The assessing officer has rightly applied the provision of explanation 10 to section 43 (1) and reduced the cost of subsidy from the asset value for calculating depreciation. The appellant has admittedly got reimbursed the cost of investment from the Govt. as subsidy. The view taken by the assessing officer is upheld for the reasons recorded in the assessment order.” It is further recorded in para 4.3 by the Ld. CIT(A) that the assessee has failed to controvert the fact that subsidy was received for specific purpose of investment and was liable to be deducted from the value of assets for determining the amount of depreciation.
Being aggrieved by the impugned order the assessee is before us, in second appeal under section 253 of the Act and has interalia raised the following grounds of appeal.
1. That the order passed by Ld. Commissioner of Income Tax (Appeals)-4, Ludhiana vide appeal No. 47/ROT(10725)/CHD/IT/CIT(A)-4/LDH/2016-17 dated 22.06.2018 is contrary to law and facts of the case.
2. That in the facts and circumstances of the case, the ld. Commissioner of Income Tax (Appeals) gravelly erred in upholding the action of the Id. Assessing Officer who had reduced subsidy from the cost of machinery. 3. That in the facts and circumstances of the case, the ld. Commissioner of Income Tax (Appeals) gravelly erred in upholding the action of the ld. Assessing Officer who had disallowed depreciation of Rs. 42,75,000/-.
4. That the appellant craves to add, amend or alter any ground of appeal
before or at the time of hearing of appeal, with the permission of the Hon'ble Income Tax Appellate Tribunal, Chandigarh. The core objection is that the AO and the Ld. CIT(A) ought not to have reduced the grant in aid/ subsidy from the cost of machinery. The disallowed depreciation is of Rs. 42,75,000/- which ought not to have been made. Record of Hearing
27. The physical hearing took place on 21/05/2024 before us when both the parties appeared and were patiently heard on merits of their respect cases. At the outset and threshold the Ld AR for assessee contended that subsidy received partakes the character of capital receipt i.e 2.50 crores and received by them from the Ministry of Food Processing Industries, Government of India and Rs. 35.00 Lakhs from APEDA and that the same is for setting up of integrated cold chain project under the scheme of cold chain, value addition of preservation infrastructure. It was contended that in response to their application dt. 04/07/2012 against EOI dt. 07/05/2012 the Government of India, Ministry of Food Processing Industries, Panchseel Bhawan, August Kranti Marg, New Delhi-110049 vide their letter dt. 04/10/2013 has approved non recurring grant in aid of Rs. 1000.00 Lakhs (Rs. Ten Crores) for setting up of an integrated cold chain facilities for fruits and vegetables as per descriptions as given in the said letter dt. 04/10/2013. The contents of the said letter were read out in the course of the hearing. Our attention was invited to page 2 of the aforesaid letter to show that amount of 2.5 crores was received being the amount of first instalment i.e 25% of total approved grant which was received during A.Y. 2014-15, corresponding to F.Y. 01/04/2013 to 31/03/2014. After reading the letter it was pointed out to us that nature and character of subsidy / grant in aid is for setting up of an integrated cold chain facilities for fruits and vegetables and not for acquisition for a specific / specified asset. Subsidy is for initial set up of project as a whole. Capital receipt are not taxable at all and that the Department of Income Tax has erred in law by reducing subsidy. Reliance was placed on Policy document of Government of India for cold chain, value addition and preservation infrastructure during 11th Five Year Plan and balance period of 12th Five Year Plan to demonstrate that financial assistance / grant in aid is meant to meet total cost of plant and machinery and technical civil work and therefore such grant in aid partakes the character of Income as that of capital receipt only and not any other. Upon a query by Bench as to nature of project set up by the Corporate entity the Learned Counsel described in brief how plant and machinery are set up and how vegetables and fruits are protected in cold chain also known as cold storages. Technical nature how cooling and freezing are done was too emphasized. Moving on further the Ld. AR placed reliance on order dt. 13/04/2017 in of Patna Bench of ITAT in case of Dayal Steel Ltd. Vs. Addl. CIT. Reliance was also placed on judgement of Hon’ble Bombay High Court dt. 26/02/2019 in case of Principal Commissioner of Income Tax vs. M/s Welspun Steel Ltd. in support of proposition that amount received from Government of India through Ministry of Food Processing Industry are capital receipts and Department is not entitled in law to deduct the same in arriving the correct depreciate value by deducting the same from actual cost of asset/assets. Per contra the Ld. DR has supported the orders of both AO and Ld. CIT(A). The Ld. DR has stated that grant in aid given to assesse cannot partake the character of capital receipt. Further the assessee is not entitled in law to add such amount of grant in aid to cost of asset and but by virtue of explanation 10 to Section 43 such amounts by whatever name called are not liable to be added while arriving at cost of an asset. Moving forward the Ld. DR placed heavy reliance on letter dt. 24/01/2014 of Government of India, Ministry of Food Processing Industries, which is titled as sanction for grants in aid to M/s Pagro Frozen Foods Private Limited, Punjab under the scheme for cold chain, value addition and preservation infrastructure for setting up of integrated cold chain facilities for fruits and vegetables at village Jalvehri Gehlan near Sadhugarh in District Fatehgarh Sahib, Punjab, by virtue of which sum of Rs. 2.5 Creos is sanctioned by President of India to IDBI Bank Ltd. for passing on to Pagro Frozen Foods Private Ltd. (A/c No. 0685655100000037) being the 1st instalment of grants in aid as per guidelines of the scheme for cold chain, value addition and preservation infrastructure for setting up of integrated cold chain facilities for fruits and vegetables at village Jalvehri Gehlan near Sadhugarh, Dist: Fatehgarh Sahib, Punjab. He then relied upon certain conditions which are part of said letter as under:
1.
The grant in aid shall be utilised exclusively for the purposes for which it is sanctioned. 2 A detailed account of expenditure incurred out of the Grant-in-aid shall be maintained and got audited by Chartered Accountant or other recognized body of auditors. The audited statements of accounts together with separate utilization certificates in the prescribed Performa for (a) building or capital additions to the buildings etc. (b) equipment’s, furniture and books and (c) revenue/recurring expenditure shall be furnished to this Ministry as early as possible after the close of the Financial Year, but in no case later than 12 months of the closure of the financial year in which the grant-in-aid has been sanctioned.
3. The assets, permanent or semi-permanent, acquired wholly or substantially out of this grant-in- aid shall not without prior concurrence of the Ministry of Food Processing Industries be disposed off or encumbered or utilized for purpose other than those for which this grant has been sanctioned. A register may also be maintained by the Center in the prescribed format of such assets and got audited along with the other accounts and Utilization Certificates.
7. The grantee Institutions/bodies shall be required to maintain subsidiary accounts of the Government grant and furnish to the Accounts Officer of Audited Statement of Accounts together with a copy of their constitution. These audited statement of accounts will also be required to be furnished after utilization of the grant-in-aid or whenever called for.
8. The know how and all other aspects of Intellectual property generated as result of the project will be owned wholly by Ministry of Food Processing Industries.
Moving further the Ld. DR placed heavy reliance on endorsement in the letter at Serial No. 1 where copy of the letter was forwarded to “ The Director M/s Pagro Frozen Foods Private Limited, House No. 1763, Phase III-B2, Mohali, Punjab. It may be ensured that the MFPI grant is spent only on technical civil works and Plant & Machineries for the project. Also the grantee should fully cooperate and provide required information to any study team authorized by the Ministry for assessing the performance of the project. Other conditions for release of remaining instalments will remain same as indicated in the “In- principal” approval letter of this Ministry. The utilization certificate duly signed by and certified by Chartered Accountant may be sent expeditiously.”
The Ld. DR strongly contended that grants in aid were strictly for technical civil works and plant and machinery for the project and the same is liable to be deducted while arriving at the cost of such asset for purpose of determining cost of asset for depreciation purpose in view of express provision contained in explanation 10 to Section 43. The Ld. DR then placed reliance on revised operational guidelines of the scheme for cold chain, value addition and preservation infrastructure during the 11th Five Year Plan revised as on 18/03/2010 wherein he laid emphasis on “4. Pattern of assistance Financial assistance (grant in aid) of 50% the total cost of plant and machinery and technical civil works in General areas and 75% for NE region and difficult areas (North East including Sikkim and J&K, Himachal Pradesh and Uttarakhand) subject to a maximum of Rs. 10 Crore.” “5. Pattern for release of grant: 5.1 The grant-in-aid amount will be admissible for payment only after the private investor has paid his share fully as per the following schedule:- a) 1st instalment of 25% of the totaf grant under the scheme will be released after ensuring that 25% of the promoters contribution and 25% of the term loan has been spent on the project. b) 2nd instalment of another 50% of the total grant under the scheme will be released after ensuring that utilization of first instalment of grant and 75% of promoters contribution and 75% of term loan have been spent on the project. Utilization certificate of the first instalment shall be submitted by the promoter at the time of making claim for the second instalment. c) 3rd and final instalment of remaining 25% of the grant assistance will be released after ensuring that the utilization of the second instalment and 100% of promoters contribution and 100% of term loan has been invested on the project and the project has achieved completion and commercial operation has started. Utilization certificate of the second instalment shall be submitted by the promoter at the time of making claim for the 3rd and final investment.
5.2 The implementation schedule for the project would be about 18 months from the date of the approval of each project.
We observe that Ld. DR further during the course of hearing laid emphasis also on above guidelines which were revised on 20/11/2013 and in particular the following paragraphs:- “6. Ineligible components:
6.1 The following items will be considered as non technical civil works and will be considered ineligible for calculation of grant for the project (The list is only indicative and not exhaustive): (i) Compound Wall (ii) Approach Road/internal Roads (iii) Cost of Land (iv) Administrative Office Building (v) Canteen (vi)Toilets (vii) Labour Rest Room and quarters for workers (viii) Septic tank, drainage, etc. (ix) Security / Guard Room or enclosure (x) Consultancy fee, taxes, etc. (xi) Non-technical civil works not related to cold chain or storage infrastructure In this respect decision of the IMAC will be final. 6.2 The following items of the plant and machinery will not be eligible for calculating the eligible grant for the project(The list is only indicative and not exhaustive):- (i) Margin money, working capital and contingencies (ii) Fuel, consumables, spares ad stores (iii) Computers and allied office furniture (iv) Transport vehicles other than the reefer trucks/vans/refrigerated carrier / insulated milk tankers (v) Pre-operative expenses (vi) Second hand/ old machines (vii) All types of service charges, carriage and freight charges (viii) Expenditure on painting of machinery (ix) AC ducting, furniture, computers and other items for office (x) Closed Circuit TV Camera and security system related equipment (i) Consultancy Fee, Taxes, Freights, etc. (ii) Stationary items (iii) Plant & machinery not directly related to cold chain infrastructures In this respect decision of the IMAC will be final.
The Ld. DR vide written submission dt. 02/01/2024 has interalia contended as follows:
1. In this case, the specific issue is disallowance of depreciation to the tune of Rs.42,75,000/-. The assessee company has received Rs.2.5crores as first installment of grant-in-aid out of approved non-recurring grant-in-aid of Rs. lOcrores from Ministry of Food Processing vide their letter dated 24.01.2014. The perusal of the letter received that the same has been given for setting up of Integrated Cold Chain Project under the scheme of cold chain, value addition and preservation infrastructure. Before the Assessing Officer, the assessee contended that the subsidy received is capital subsidy part of means of finance to set up unit with the condition that proceed of subsidy will be used to pay off debts raised from the bank. The repayment of bank loan means saving in interest payable to bank and saving in expenditure. The Assessing Officer noticed that there is mandate in the said scheme that this grant of subsidy is to be spent only on technical civil works and plant & machineries for the project. The assessee company was again confronted with this fact. The assessee company contended that project was completed with Term Loan from IDBI and PNB for an amount of Rs.20.00crores. Thereafter the company submitted application for grant of Rs. 10 crore as subsidy under this company. The first installment of Rs.2.50crores has been adjusted in Term Loan from IDBI and balance payment to machinery supplier (Utilisation Certificate issued by CA is enclosed). The balance amount grant which was of Rs.7.50crores has been subsequently received in year 2014-15 & 2015-16 by the company and utilized for repayment of Term Loan from IDBI and balance payment to machinery suppliers. It was also submitted that the grant was paid by GOI to boost the foods processing industries to lower/ reduce its interest burden of term loan taken by the company from bank/ financial institution. It was again confronted to the assessee who vide its letter dated 20.12.2016 re-iterated its earlier submission. The Assessing Officer after referring to Explanation 10 to section 43(1) and Hon'ble Supreme Court's judgments in the case of Sahney Steel & Press Works-Limited and Ponni Sugar and Chemical Limited where the purpose test has been discussed, came to conclusion that subsidy received by the assessee shall go to reduce the cost of acquisition. Further observations of the Assessing Officer in the assessment order is as under:- i) Despite providing various opportunities, the assessee company never submitted complete set of communication that was exchanged with relevant authorities pertaining to sanctioned subsidies of Rs.35 lakhs and Rs.l0 crores for making application till date of order. The assessee ha only provided selective communication. ii) The amount of subsidy that has been received on the assets were supposed to be disclosed in tax audit report in accounts of the assessee and by not providing such details, the auditor has failed in provision of duties. Therefore, the Assessing Officer disallowed the depreciation by adjusting the two capital subsidy of Rs.35 lakhs and first instalment of Rs.2.5crores subsidy received by the assessee.
2. The CIT(A) rejected the appeal of the assessee. It was observed by the CIT(A) that it is mentioned in the said letter that the grant is to be spent only on technical civil works and plant & machinery for the project and therefore capital cost of the project has been reimbursed by assessee company by way of subsidy. The CIT(A) also noticed that Explanation 10 to section 43(1).
To summarize the issue involved, the assessee's thrust is on subsidy being given to boost the food processing industries to lower/ reduce its burden of term loan and has not been given specifically against any component of cost of project. The Asseessee has also relied upon ITAT Patna Tribunal case named as Dayal Steel Ltd. vs Addl CIT passed in on 13.04.2017. 4. The assessee's application for subsidy has been approved vide letter dated 04.10.2013. As per the assessee, the grant of subsidy is governed by Revised Operational Guidelines of the Scheme For Cold Chain, Value Addition and Preservation Infrastructure during 11th Five Year Plan. The background of the scheme was the Scheme for Cold Chain, Value Addition and Preservation Infrastructure launched during 2008 and the guidelines were notified on 18.03.2010 which was subsequently revised on 20.11.2013. The main features of the scheme are as under:- Objective:- The objective of the scheme is to provide integrated and complete cold chain and preservation infrastructure facilities without any break, from the farm gate to the consumer. Pre-cooling facilities at production sites, reefer vans, and mobile cooling units also need to be assisted under the Integrated Cold Chain projects. Integrated cold chain and preservation infrastructure can be set up by individuals or groups of entrepreneurs with business interest in cold chain solutions and also by those who manage supply chain. They will enable linking groups of producers to the processors and market through well equipped supply chain and cold chain. Salient features: - The scope of components of Integrated Cold Chain, Value Added Centre, Packaging Centre and Irradiation Facilities has been broadened to allow flexibility in project planning. The Scheme will have the following components: a. Minimal Processing Centre at the farm level and this centre is to have facility for weighing, sorting, grading waxing, packing, pre-cooling, Controlled Atmosphere (CA) / Modified Atmosphere (MA) cold storage, normal storage and IQF. b. Mobile pre-cooling vans and reefer trucks. c. Distribution hubs with multi product and multi CA /MA chambers cold storage /Variable Humidity Chambers, Packing facility, CIP Fog treatment, IQF and blast freezing, d. Irradiation facility. To avail financial assistance, any two of the components, from (a), (b) or (c) above will have to be set-up by the units. Considering the functional nature of the facility, Irradiation facility can be treated as a stand alone one for the purpose of availing grant. • To provide integrated and complete cold chain facilities without any break from the farm gate to the consumer, Pre-cooling facilities at production sites, reefer vans, and mobile cooling units has been covered under the Integrated Cold Chain facilities projects. Stand alone facilities, except irradiation facility will not be considered for assistance. • Horticulture produces has also been included for support under Integrated Cold Chain Facilities. • Value addition Centres may also include infrastructural facilities including processing / multi-line processing / collection centres, etc. for horticulture including organic produce, marine, dairy, meat and poultry, etc.
• Irradiation facilities may also cover warehousing, cold storage facilities etc. for storage of raw material and finished products for efficient utilization of the facility. Pattern of assistance Financial assistance (grant-in-aid) of 50% the total cost of plant and machinery and technical civil works in General areas and 75% for NE region and difficult areas (North East including Sikkim and J&K, Himachal Pradesh and Uttarakhand) subject to a maximum of Rs 10 Crore. Pattern of release of grant: The grant-in-aid amount will be admissible for payment only after the private investor has paid his share fully as per the following schedule:- 1st instalment of 25% of the total grant under the scheme will be released after ensuring that 25% of the promoters contribution and 25% of the term loan has been spent on the project. 2nd instalment of another 50% of the total grant under the scheme will be released after ensuring that utilization of first instalment of grant and 75% of promoters contribution and 75% of term loan have been spent on the project. Utilization certificate of the first instalment shall be submitted by the promoter at the time of making claim for the second instalment. 3rd and final instalment of remaining 25% of the grant assistance will be released after ensuring that the utilization of the second instalment and 100% of promoters contribution and 100% of term loan has been invested on the project and the project has achieved completion and commercial operation has started. Utilization certificate of the second instalment shall be submitted by the promoter at the time of making claim for the 3rd and final instalment. The implementation schedule for the project would be about 18 months from the date of the approval of each project.
The perusal of the guidelines clearly reveals that it is misplaced to contend by the assessee that the scheme was formulated to boost the food processing industry and to repay the debts raised. The subsidies, aids, grants are always granted to promote particular objectives i.e. to give impetus to socio and economic growth through set up industry in particular sector, in particular area so as to serve the various socio and economic objectives at the macro level by the government. Such objectives are not met in vacuum. The broader chart, title is always given to any scheme. The fine prints of any scheme can-not be judged by seeing the title of the book. It is apparently clear that the subsidies under this scheme were given to set up food processing and allied industries as detailed above. The setting up of any industry consists of various phases starting from the conceptualization. It consists of selecting site, constructing building, setting plant & machinery, raising finances including self and borrowed funds, starting operations, procuring the raw material, sales and marketing etc. If we see revised guidelines dated 18.03.2010 (supra), all these information has been specifically mentioned and has been asked for, from the assessee by the authority. If we read this scheme in with revised guidelines on 20.11.2013, there is more clarity on the purpose, objective and guidelines on this issue. There is complete list of items which are included in the definition of technical civil work and plant & machinery (which item of civil work and plant & machinery will be included and which not). One of the condition in this guideline was there is requirement of minimum of term loan to the tune of 10% of project cost. It means that availing of the term loan above the threshold limit of 10% has been left to the applicant. For example, in the case of the assessee, it has been contended that the project cost was Rs.40 crores and the term loan is Rs.20 crores. Therefore, the assessee was under obligation to take minimum only Rs.4crores as term loan as per the scheme in order to avail subsidy. If the contention of the assesse is accepted then there will be two different treatment of subsidy in case of the person who take loan of Rs.4crores (as the condition is only to take minimum 10% of cost of project) and one who take loan of Rs.20 crore as in the case of assessee. This has never been the intention of the section 43(1) of the Act. The perusal of the scheme reveal that the assessee was under obligation to provide the details of technical civil works duly certified by engineers and chartered accountants (the information not supplied by the assessee to the AO). Therefore, it is apparent that the subsidy has been given to meet the cost off setting up industry and not to repay the loans. This fact is, more so, collaborated from the issue letter dated 24.1.2014 (page no. 15 of paper book of the assessee) issued by the department granting the subsidy. The para 3 read as under:- 3. The asset, permanent or semi permanent, acquired wholly or subsequently out of this grant-in-aid shall not without prior concurrence of the Ministry of Food Processing Industries be disposed off or encumbered or utilized for purpose other than those for which this grant has been sanctioned. A register may also be maintained by the centre in the prescribed format of such assets and got audited alongwith other accounts and utilization certification. Had the subsidy granted been nothing to do with the asset of the assessee, no such embargo of selling the facility without approval of the authorities would be there. Therefore, it is apparent that the submission of the assessee is devoid of facts and misplaced. The provision of section 43(1) and the explanation 10 is not repeated for the sake of brevity which is being relied herewith. The copy of assessment order for A. Yr. 2016-17 is also enclosed where the assessee himself furnished the calculation as per department's contention and accepted the assessment order to the best of the knowledge of the undersigned. Further the department shall rely upon the judgment of the Hon'ble ITAT Delhi Bench in the case of DCIT Vs. Dalmia Cement Bharat Ltd. 307 ITR 36. It was held that the incentive received by a sugar mill (by way of free sale quota of sugar) was capital in nature, as such incentive was to be utilized for payment of loan taken by sugar mill in respect of fixed asset. Further considering the manner of utilization of incentive (or subsidy), the Tribunal held that such incentive would be reduced from actual cost of assets under explanation 10 / main clause of section 43(1).
It is relevant to mention that the assessment under section 143(3) of the Act in the case of this assessee for the period relevant to A. Yr. 2016-17 was completed on 15.12.2018 by readjusting the depreciation allowable as done in the assessment year under consideration. The assessee has accepted the said assessment order and no appeal have been filed by the assessee against the said disallowance as per information available on the record. The copy of the said assessment order in the case of this assessee for A. Yr. 2016-17 dated 15.12.2018 is enclosed for perusal. It is humbly prayed that the appeal of the assessee may kindly be dismissed. The undersigned craved to submit any additional information if required.
Findings & Conclusion 28. We now have to adjudge and adjudicate the broad issue i.e; whether the grant in aid received by the assessee during the year under consideration is liable to be reduced / deducted from the cost of assets i.e; plant and machinery / technical civil work for purpose of arriving at the actual cost of such assets for the depreciation purposes? We also have judge legality, validity and proprietary of impugned order of Ld. CIT(A) which as upheld the order of assessment dt. 26/12/2016 supra.
28.1. We have perused all the papers and proceedings of the case including paper books, written submissions of DR very minutely. We have heard them patiently too and have treated both parties equally.
28.2. We are of the considered view that development is key to nation building. Both Government of India and State Government have to encourage development. Ours is developing economy. We have to develop those sectors which are lagging behind. Rightly so, Government of India through Ministry of food processing thought of developing what is broadly called setting up of integrated cold chain project under the scheme of Cold Chain Value Addition and Preservation Infrastructure. In pursuance thereof the assessee made an application dt. 04/07/2012 against EOI dt. 07/05/2012. There are two revised operational guidelines of scheme for Cold Chain Value Addition and Preservation Infrastructure during the 11th Plan which is dt. 18/03/2010 and another dt. 20/11/2013. The date of approval for on recurring grant in aid issued by Ministry of Food Processing Industries letter is dt. 04/10/2013 wherein the MFPI (Ministry of Food Processing Industries) has approved non recurring grant in aid of Rs. 10 Crores for 1st Location Distribution Hub Collection Centre: 1 Nos At Village Jalvehri Gehlan near Sadhugarh At village Gungrara, District: Ludhiana in District Fatehgarh Sahib, Punjab (Punjab) i. Pre-cooling (5Mt/Hr) and 50 MT cold store i. Sorting, grading, packing facility for Vegetables ii. MA Cold Storage (5000 MT) iii. IQF (5MT/Hr) iv. Frozen Cold Storage (3000 MT) v. Refer van (1 No. x 13 MT and 3 Nos. x 5 MT)
That above was subject to the provisions of guidelines of scheme (supra). From bare reading of above table perse shows that grant in aid were for setting up pre cooling / cold storage for vegetables, Frozen Cold Storage, Ref Van , Sorting, grading, packing facility which broadly falls under setting up of integrated cold chain project under the scheme of Cold Chain Value Addition and Preservation Infrastructure. In brief it was for capital of the industry. Be it noted that the in addition to several conditions one of the condition was certificate of CE(Civil) and CE (Mechanical) for Technical Works and Plant & Machinery respectively, indicating item wise progress, cost, quantity, manufacture / supplier and comment on quality as per format prescribed in support of CA Certificate.
28.3 We have also observed and noted from said approval letter that before release of instalment of grant in aid eligible grant in aid for the project will be recalculated based on the cost given in the DPR appraised by the bank/actual cost incurred whichever is less, of the items / components approved by Ministry for this project.
28.4 We have also observed and noted that expenditure by MFPI for the year 2013-14 was debitable to the following heads:
2408- Food Storage and warehousing (Major Head) 01.103- Food Processing (Minor Head) 13- Scheme for infrastructure development (sub head) 13.03 – Assistance for setting up cold chain, value addition and preservation infrastructure (detailed head) 13.03..31- Grants in aid general (object head) 28.5 We have also observed and noted that copy of letter dt. 24/01/2014 wherein Rs. 2.5 Crore is sanctioned was sent to assessee’s Director to ensure that the MFPI grant is spent only on technical civil works and plant & machinery for the project.
28.6 We have also observed and noted from guidelines dt. 18/03/2010 that background is to revise the scale and quantum of financial assistance. The objectives are “to provide integrated and complete cold chain and preservation infrastructure facilities without any break, from the farm gate to the consumer. Pre-cooling facilities at production sites, reefer vans, and mobile cooling units also need to be assisted under the Integrated Cold Chain projects. Integrated cold chain and preservation infrastructure can be set up by individuals or groups of entrepreneurs with business interest in cold chain solutions and also by those who manage supply chain. They will enable linking groups of producers to the processors and market through well equipped supply chain and cold chain ”
28.7 We have also observed and noted form guidelines dt. 18/03/2020 that the pattern of assistance is financial assistance (grant in aid) of 50% of the total cost of plant & machinery and technical civil works in general areas and 75% for NE region and difficult areas (North East including Sikkim & J&K, H.P. & U.K) subject to maximum of Rs. 10 Crores.
28.8 We also observe that guidelines dt. 18/03/2010 were revised on 20.11.2013 where main objectives of the scheme was “ to provide integrated Cold Chain Value Addition and Preservation Infrastructure facilities without any break, from the farm gate to the consumer. To achieve this objective pre-cooling facilities at production sites, reefer vans and mobile cooling units are also assisted under the Integrated Cold Chain projects. Integrated cold chain and preservation infrastructure can be set up by individuals, groups of entrepreneurs, cooperative societies, Self Help Groups (SHGs), Farmer Producer Organizations (FPOs), NGOs, Central/State PSUs, etc. with business interest in cold chain solutions and also by those who manage supply chain. This will enable linking groups of producers to processors and market through well equipped supply chain and cold chain. 28.9 We also observe and note that in Scheme of 2013 under caption “components of scheme” there is use of words “ to avail Financial assistance under this Scheme”. Under caption “ Pattern of Assistance there is use of words” “Financial assistance”.
28.10 We also observe and note that in scheme of 2013 under caption “ Ineligible Components” following is stated : “6. Ineligible components: 6.1 The following items will be considered as non technical civil works and will be considered ineligible for calculation of grant for the project (The list is only indicative and not exhaustive): (i) Compound Wall (ii) Approach Road/internal Roads (iii) Cost of Land (iv) Administrative Office Building (v) Canteen (vi)Toilets (vii) Labour Rest Room and quarters for workers (viii) Septic tank, drainage, etc. (ix) Security / Guard Room or enclosure (x) Consultancy fee, taxes, etc. (xi) Non-technical civil works not related to cold chain or storage infrastructure In this respect decision of the IMAC will be final.
6.2 The following items of the plant and machinery will not be eligible for calculating the eligible grant for the project(The list is only indicative and not exhaustive):- (i) Margin money, working capital and contingencies (ii) Fuel, consumables, spares ad stores (iii) Computers and allied office furniture (iv) Transport vehicles other than the reefer trucks/vans/refrigerated carrier / insulated milk tankers (v) Pre-operative expenses (vi) Second hand/ old machines (vii) All types of service charges, carriage and freight charges (viii) Expenditure on painting of machinery (ix) AC ducting, furniture, computers and other items for office (x) Closed Circuit TV Camera and security system related equipment (i) Consultancy Fee, Taxes, Freights, etc.
(ii) Stationary items (iii) Plant & machinery not directly related to cold chain infrastructures In this respect decision of the IMAC will be final.
28.11 We have also observed that Inter Ministerial Approval Committee for release of such huge grant in aid is high powered para 9 of Scheme dt. 20.11.2013. 28.12 We have noted that in scheme of 2013 dt. 20/11/2013 the Assessee / entity is required to submit amongst other details the necessary item wise details of Technical Civil Works envisaged duly certified by Chartered Engineer (Civil) item wise cost details of plant and machinery envisaged duly certified by Chartered Engineer (Mechanical). The quotations from suppliers of plant and machinery and equipment etc for the project.
28.13. In view of the aforesaid we say that assessee has received financial assistance in form of grant in aid of Rs. 2.50 Crores on 24/01/2014 from MFPI New Delhi as per guidelines of the Scheme for Cold Chain Value Addition and Preservation Infrastructure for setting up of integrated cold chain facilities for fruits and vegetable in Punjab. On perusing financial details note 2 Page 68 of Paper Book 2 we observe that assessee has received an amount of Rs. 35 lakhs from Agriculture and Processed Foods Products Export- Development Authority (APFDA) Ministry of Commerce & Industry, Government of India towards financial assistance under the Scheme of Infrastructure Development for setting up hot water dip treatment during the F.Y. 2011-12. In brief total grant in aid for A.Y. 2014-15 upon consolidation comes to Rs. 2.85 Crores (Rs. 35 lakhs brought forward). We therefore hold and conclude in so far as amount of Rs. 2.5 Crores is concerned as Financial Assistance for Civil Work Technical, Plant & Machinery for setting up of integrated Cold Chain facilities for fruits and vegetables under the scheme of setting up of integrated cold chain project under the Scheme of Cold Chain Value Addition and Preservation Infrastructure as enunciated in guidelines document of Government of India, Ministry of Food Processing Industries dt. 18/03/2010 and 20/11/2013 (pages 17 to 38 of Paper book 2).
28.14 We also hold after carefully perusing both the guidelines documents that nature of grant in aid is in the form of financial assistance subject to maximum of 10 crores for setting up of Cold Chain Value Addition and Preservation Infrastructure so that India usher’s into a new dawn. However we hold that nature of such grant in aid is restricted to technical civil work, plant and machinery.
28.15 We also hold that following items comes in to the category of ineligible components i.e; non technical civil works:- (i) Compound wall, (ii) Approach Road / Internal Roads (iii) Cost of land (iv) Administrative office building (v) Canteen (vi) Toilets (vii) Labour rest room and quarters for workers (viii) Septic tank, drainage, etc (ix) Security / guard room or ecnlsure (x) Consultancy fee, taxes, etc (xi) Non technical civil works not related to cold chain or storage infrastructure.
28.16 We also hold that following items of the plant and machinery will not be eligible for calculating the eligible grant for the project. (i) Margin Money, working capital and contingencies (ii) Fuel consumables, spares and stores (iii) Computers and allied office furniture (iv) Transport vehicles other than the reefer trucks / vans/ refrigerated carrier / insulated milk tankers (v) Pre operative expenses (vi) Second hand / old machines (vii) All types of service charges, carriage and freight charges (viii) Expenditure on painting of machinery (ix) AC ducting, Furniture, computers and other items for office
(x) Closed circuit TV camera and security system related equipment (i)Consultancy fee, taxes, freight etc (ii) Stationary items, (iii) Plant and machinery not directly related to cold chain infrastructure Be it noted that above items classified by us is based on guidelines (supra) and are only illustrative and not exhaustive as per guidelines itself.
28.17. We also hold that broadly the financial assistance i.e grant in aid are for technical civil work and plant and machinery and nothing else in broad scheme of Government of India, MFPI which was called “ Scheme for Cold Chain Value Addition and Preservation Infrastructure”. It is also required to be noted that sanction for grants in aid is dated 24/01/2014, relevant to A.Y 2014-15 for previous year 01/04/2013 to 31/03/2014. 28.18. We now deal with statutory scheme under the Income Tax Act, 1961 and we reproduce below following relevant sections of law which needs both judicial and accounting determination of aforesaid grants in aid of Rs. 2.50 crores vis a vis claim of depreciation of the assessee for A.Y. 2014- 15, corresponding to financial year 2013-14. Definitions of certain items relevant to Income from profits and gains of business or profession: 43. In section 28 to 41 and in this section, unless the context otherwise requires:- (i) “actual cost” means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. [ Explanation 10- Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called) then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such assets bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received shall not be included in the actual cost of the asset to the assessee.
Depreciation:- 32. (1) In respect of depreciation of- (i) buildings, machinery , plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, [not being goodwill of a business or profession, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed Explanation 3. For the purposes of this sub-section, the expression "assets" shall mean- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature[, not being goodwill of a business or profession]. (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub- section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.
28.19. We notice that assessee has been disallowed an amount of Rs. 42,75,000/- from the returned income of Rs. 31,54,889/- consequently the assessed income is coming to Rs. 74,29,889/- as profits of the assessee.
28.20. We also notice that against Rs. 2.50 crores grant in aid @ 15% an amount of Rs. 37,50,000/- is disallowed. Whereas against Rs. 35 lakh subsidy from APEDA @ 15% an amount of Rs. 5,25,000/- is disallowed. The aggregate disallowance towards depreciation is Rs. 42,75,000/-.
28.21. We also note that in so far as amount of Rs. 35 lakh is concerned which amount was received by the assessee as subsidy from APEDA in books of account at note 2 it is simply stated as subsidy from APEDA. No material or better particulars are stated on its nature.
28.22 We hold that material and better particulars of allowable components of grant in aid of Rs. 2.5 Crores as envisaged in scheme documents (supra) are not provided for before AO and CIT(A) including before us. By material and better particulars of allowable components of grant in aid we mean details of Technical Civil work and plant and machinery including actual cost / purchase price of each depreciable assets i.e; allowable under scheme / Income Tax laws. The material particulars of each component as envisaged in scheme and tax laws are absent. In Audit Report Note 2 a narration in broad term are given. Be that as it may we are of the considered opinion that it is incumbent upon the assessee both before MFPI as well as before Income Tax Authority to give better and material particulars of each component, unit, sub unit having character of Tech Civil Work and Plant and Machinery alongwith its costing particularly so in the very first year of the receipt of huge amount of Rs. 2.50 Crores received as grant in aid towards Technical Civil Work, Plant and Machinery. We find assessee deficient in terms of scheme as well as with regard to tax laws. We also observe and notice from the observations of lower authorities that assessee was given various opportunities to provide complete set of communication that was exchanged with relevant authorities pertaining to the sanctioned subsidies of Rs. 35 lakhs and Rs. 10 Crores [ Rs. 2.5 Crores sanctioned] right from making of application till date or order [AO order], however the assessee has provided selective communication. In the absence thereof we hold that lower authorities were completely handicapped in ascertaining how rate of depreciation has been charged on the eligible assets of the company in the terms of Income Tax Act & Rules. We are also in agreement with the observations made by lower authority i.e; AO whose order is upheld by Ld. CIT that “the amount of subsidy that has been availed on the assets was supposed to be disclosed in Tax Audit Report in accounts of the assessee and by not providing such details, the Auditor has failed in provision(terms) of his duties.” (“Terms” emphasised by us). 28.23 We are also in agreement with finding of lower authorities that “In absence of sufficient information, the undersigned is assuming that the assessee has claimed depreciation on plant and machinery and technical civil work (which qualify for subsidy and on which subsidy has been received) at full rate of 15% and is disallowing the depreciation on subsidised assets as hereunder: Rs. 2.50 Crores @ 15% = Rs. 37,50,000/- Rs. 35 Lakhs @ 15% = Rs. 5,25,000/- The Ld. CIT(A) too has upheld the above view of AO by having held in the impugned order “ The view taken by the Assessing Officer is upheld for the reasons recorded in the assessment order”. The Ld. CIT(A) has held that “Appellant has failed to controvert the fact that subsidy was received for the specific purpose of investment and was liable to deducted from the value of assets for determining the amount of depreciation.”
We therefore find no infirmities legal or otherwise in the orders of the lower authorities.
28.24. We further hold that Section 43 where the expression actual cost is defined is plain and simple. There is no ambiguity in it. It is lucid on plain reading of it. It clearly means and imply that actual cost of assets means and imply that actual cost of assets means actual cost of assets to the assessee reduced by that portion of cost thereof if any as has been met directly or indirectly by any other person or authority. Going by this definition perse cost of assets must be actual but in this actual cost any addition is made directly or indirectly by any other person or authority (in this case by Government of India through MFPI and APEDA) then such cost is required to be reduced. This is therefore plain and simple. Admittedly funds of the assessee were in pool consisting of sources which were diverse i.e; Promoter’s Funds, Bank Finance irrespective of terms used by bank like term loan etc, share capital money, secured loans, unsecured loans, grant in aid, subsidy etc the list could be exhaustive for any corporate entity and there is no big deal about it that invariably there is a common kitty of funds. When grants in aid / subsidy has come and joined this common pool of fund becomes immaterial. Outflow be it capital or otherwise flows from such common kitty particularly during initial setting up of a unit which consists of both technical and non technical civil works, then purchase of plant and machinery, its fixation, installation phase, commissioning phase and finally the launch. The launch pad is final stage (put to use). In the present case assessee was already in similar business and this cold chain facilities was added to existing business. An entrepreneur first finds the funds (with his initial corpus) ascertain its location, then takes steps to obtain the same, acquires it. Looks for incentives, grant in aid, subsidies, exemption so as to minimise his cost of initial set up of a unit or industrial enterprises. The aim of any enterprise / corporate entity is to make maximum profit with bare minimum cost. Be that as it may, the actual cost has a statutory teeth in the definition itself. While procuring and acquiring the assets which in this case is technical civil work and plant and machinery for which there is Government grant in aid then such grant in aid cannot be part of actual cost by very definition of actual cost (supra) particularly so when source of such grants are identifiable which is clearly identifiable in present case i.e; Government of India MFPI / APEDA. Be it noted whatever is spent / expended in acquiring such assets i.e; Civil Work Technical and Plant and Machinery is mandated to be not a part of such actual cost. If it is made a part of actual cost which assessee has done then there is clear infraction of law and violence to the very definition of actual cost. We hold assessee wrong on this front at the outset.
28.25. We hold that scheme (supra) and Income Tax laws mandates proper accounting of these grant in aid in first place as enumerated supra. It requires strict accounting of civil work which should be technical in nature, plant and machinery. Components of both technical civil work, plant and machinery in initial set up of a project is mandated by both to be strictly be maintained. The description of each items, components, assembly, sub assembly, part, sub part, accessory, components of civil work technical etc is required to be maintained, with due certification of Chief Engineers and Chartered Accountants. Both scheme(supra) and Income Tax Act mandates this. It is a statutory requirement as accounts of both are subject to CAG Audits too. Unfortunately this has not happened and both AO and CIT(A) have given their comments with reasoning in their respective orders. We agree with them. Before us nothing in brought on record as and by way of compliances both under Scheme and Income Tax Act. In brief assessee simply said that grant in aid are capital receipt but a simple assertion without any supporting both under scheme as well under Act has no meaning. There is thus total absentism of material particulars as to what constituted actual cost. How costing analysis is done in order to arrive at actual cost of depreciable asset is unknown or nothing is spelt out . Further Section 145(2) of the Income Tax Act has been given a convenient go by. Income computation and disclosure standard VII relating to Government grants have not been followed at all. Concept of actual cost read with explanation 10 of Section 43 which expressly state that “Explanation 10- Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called ), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.” Are all ignored by the Assessee. 28.26. We hold that primarily the actual cost of assets for purpose of depreciation under section 32 of the Income Tax is required to be determined under section 43(1) where there is express definition of actual cost (supra). It expressly provide that actual cost shall be reduced by that portion of the cost thereof if any as has been met directly or indirectly by any other person or authority. Therefore in the present case the Ld. AO and the Ld.CIT(A) has rightly reduced the amount of grant in aid of Government of India amounting to Rs. 2.5 Crores and 35 lakhs in arriving at actual cost of assets over which depreciation is claimed. Needless to repeat and reiterate that books of account, audit reports, absence of further better and material particulars on fixed assets which ought to have been furnished by the assessee were not furnished which are mandated both under the Scheme (supra) and under Income Tax Act, 1961. AO’s observation of lack of assistance sustained by CIT(A) is proof enough. In appeal before us no remedial measures have been taken despite Tribunal being final fact finding authority. We also hold that by virtue of notification No. 87/2016 dated 29/09/2016 which is issued by Central Government by virtue of sub-section (2) of Section 145 of Income Tax Act, Central Government has notified the Income Computation and disclosure standards which are mandatory required to be followed by all assesses(other than an individual or a Hindu Undivided Family who is not required to get his accounts of the previous year audited in accordance with the provisions of 44AB of the said Act) following the mercantile system of accounting for the purposes of computation of income chargeable to Income Tax under the head profits and gains of business or profession or Income from other sources. No doubt this notification shall apply to A.Y. 2017-18 and subsequent years but for limited purpose an analogy briefly can be made by reading the following: “ G. Income computation and disclosure standard VII relating to Government grants. “ In 5 which deals with treatment of Government grant 5 it is stated that where the Government grant relates to a depreciable fixed assets or assets of a person, the grant shall be deducted from the actual cost of the assets or assets concerned or from the written down value of block of assets to which concerned asset or assets belong to.” Be that as it may even before codification as aforesaid the Government grants were required to be reduced from actual cost. We gainfully refer to Indian Accounting Standards (Ind AS ) 20-Accounting for Government grants & disclosure of Government assistance. We further hold irrespective of any treatment is given to the Government grants in the books of accounts the mandate of law with regard to the actual cost is clear and express. Statutory provisions of law under section 43(1) r.w. Explanation 10 would however prevail over any standard of accounting for calculating the cost of assets for purposes of depreciation.
28.27. We are in full agreement with the contentions canvassed by the Ld. DR in his written submissions as well as during arguments in the hearing that AO has rightly noticed that there is a mandate in Scheme (supra) that grant in aid is to be spent only on Technical Civil Works and Plant & Machineries for the project and has held that same shall go to reduce the cost of acquisition of such assets. Thus the concept of actual cost recognised under section 43(1) read with explanation 10 has rightly been applied. We agree with Ld. DR and so also reliance by him in order in case of Dy. CIT Vs. Dalmia Cement (Bharat) Ltd. case reported in (2008) 307 ITR (AT)36 Delhi wherein the Tribunal at para 24 has held as under: “Having decided the receipt to be capital in nature, it is a corollary that the amount of such capital receipt should be deducted from the cost of machinery and plant, as provided under Explanation 10 to section 43(1), inserted in the Act with effect from April 1, 1999, if the receipts are taken as subsidy, grant or reimbursement. However, the receipts are capital in nature because of attached obligation in relation to payment of loan in respect of fixed assets, therefore, the receipts will go to reduce the actual cost even without reference to Explanation 10. Therefore, the Assessing Officer is directed to reduce the cost of fixed assets by the impugned amount for the purpose of deduction of depreciation. In the result, this ground is dismissed.” 28.28 We gainfully refer to and rely upon the judgment of Hon’ble Kerala High Court in case of M/s K Infra Export Promotion Vs. The JCIT dt. 07/04/2022 in of 2018 on Indian Kanoon online wherein on para 16.1 it is held as under: “16.1 In VKC Footsteps case, in para 92.3, 92.4, laid down the use of a proviso may shed light on the true meaning of the section; as a matter of abundant caution; acquires the tenor and color of the substantive enactment. we are hence not agreeing with the argument of assessee that the proviso be read as a qualification alone. Such interpretation, in our considered view, goes against the text of the very proviso inserted with Explanation 10 by Finance (No.2) Bill, 1998. The proviso, however, as it stands, takes care of a situation where such subsidy or grant or reimbursement is of such nature but the subsidy or grant or reimbursement cannot be directly relatable to the asset acquired by the assessee. In such a situation, the proviso envisages that so much of the amount which bears to the total subsidy or reimbursement or grant, the same proportion as such asset bears to all the assets in respect of or with reference to which subsidy or grant or reimbursement is so received shall not be included in the actual cost of the asset to the assessee. The proviso enables adjustment of subsidy in all the assets of the assessee. The language of the proviso is clear that the subsidy received without specifics shall have to be adjusted from the assets of the assessee. The object is to limit depreciation only on the actual cost of the assets of the assessee. The proviso takes care of the general financial assistance i.e. without specific purpose, received and the actual cost is worked as per the proviso. We follow the precedent in Sundaram Pillai case (supra) on the point and hold that the proviso is an independent expression on working of actual cost of assets of assessee. The assessee, under the ASIDE, in the assessment year 2008-09 received Rs.3,75,00,885/- and for the assessment year 2009-10 though has not received any financial assistance, the actual cost of the asset has been reworked by deducting the financial assistance received up to the financial year 2000-01. Any other interpretation or construction of Explanation 10 and proviso would be contrary to the explicit words used by the parliament for achieving a particular object of granting depreciation on the actual cost incurred by the assessee. The Explanation and the proviso, in our understanding, are clear and do not suffer from ambiguity. This relates other substantial questions of law and would be considered independently.”
28.29 We again gainfully refer to and rely upon para 17 which is reproduced below: “17. Hence, we hold that financial assistance received without reference to specific purpose, still by application of proviso to Explanation 10 of section 43(1) of the Act the actual cost is apportioned and reduced from the cost of the assets of the assessee for the purpose of computing the depreciation. For the above reasons, the common question in both the appeals is answered in favour of Revenue and against the assessee.”
28.30. Our view is that actual cost is required to be determined in fact of this case u/s 43(1) to be read with explanation 10 for purposes of Section 32. We are interpreting the fiscal statute as it is and are going by plain and simple meaning as the language utilised by the Parliament is clear and lucid. Needless to state such language is required to be construed as it is and that too strictly with no leeway whatsoever. We have gone by the fiscal rule of literal construction of Section 43(1) on actual cost r.w. Explanation 10. We have followed the path of language itself as it is clear and lucid and requires no assistance to ascertain it’s meaning. We also hold that Ld. AR has failed to demonstrate before us in any manner whatsoever as to how the order of ITAT Patna Bench in case of Dayal Steel Ltd. (supra) is applicable to the facts and circumstances of the present case. In the instant case grant in aid where for the plant and machinery and technical civil work. Both the scheme document (supra) expressly say so as aforesaid. The Parliament in its collective wisdom be it in the terms of the scheme (supra) and as per Income Tax Act, 1961 does not intend to give double benefit to the assessee one in the form of grant in aid for the plant and machinery and technical civil work and other in the form of value / cost of asset eligible for depreciation by not reducing its value by grant in aid amounts. It is for this reason the very definition of actual cost of assets under section 43(1) r.w. Explanation 10 means that the actual cost of the assets to the assessee reduced by that portion of cost thereof, if any, as has been met directly or indirectly by any other person or authority. This is coupled with Explanation 10. Explanation in statute clarify what is meant in substantive portion of the statute. The Ld. AR has failed to address us on Section 43(1) and Explanation 10 during the course of the hearing to demonstrate before us as to how the strict formula envisaged by law would not be applicable to the assessee. The Ld. AR also has failed to demonstrate before us as to on what basis assesee holds the view that grant in aid is not required to be reduced. Grant in aid is towards plant and machinery and technical civil work is therefore required to be deducted / reduced from the value/cost of the assets eligible for depreciation. It can therefore be said in law that grant in aid basis the scheme (supra) is directly attributable to meet plant and machinery and technical civil works and hence such portion of it is to be reduced / deducted. The judgement of the Hon’ble Bombay High Court in case of Pr. CIT Vs. M/s Welspun Steel Ltd. (2019) 264 Taxmann 0252, relied upon is therefore distinguishable in view of the peculiar facts and circumstances of the present case. The nature of incentive in that case was in the form of sales tax benefit whereas in the instant case it is directly towards plant and machinery and technical civil works which are eligible for depreciation by virtue of the concept of the actual cost under section 43(1) r.w. Explanation 10. It cannot be said that the grant in aid is only a measure under the scheme but it can correctly be said that grant in aid is for plant and machinery and technical civil work only.
In the forgoing we uphold the order of Ld. CIT(A).
The appeal of the Assessee is dismissed.