Referred Sections:
Section 143(3) of the Income-tax Act, 1961
Section 43(1) of the Act.
Sections 32,40(a)(ia),40A(3),43B etc., of the Act.
Referred Cases / Judgments:
Commissioner of Income Tax vs. Meghalaya Steels Ltd. [2016] 383 ITR 217,
CIT vs. Dharampal Premchand Ltd [2009] 317 ITR 353-Delhi H.C]
Gujarat High Court in the case of Alpha Lab vs. ITO reported in [(2016)(6) TMI 560,Gujarat H.C]
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `A', NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER
AND
SHRI O.P. KANT, ACCOUNTANT MEMBER
ITA Nos. 5129 & 5130/Del/2016
Assessment Years: 2012-13 & 2013-14
DCIT, Vs. M/s. Abhisar Buildwell (P)
Central Circle-4, New Delhi Ltd.,
1711, S.P. Mukharjee Marg,
Delhi
PAN :AAFCA6845D
(Appellant) (Respondent)
Appellant by Shri Manoj Kumar Mahar, Sr.DR
Respondent by S/Shri R.S. Singhvi & Satyajeet
Goel, CA
Date of hearing 05.08.2019
Date of pronouncement 09.08.2019
ORDER
PER O.P. KANT, A.M.:
These appeals have been preferred by Revenue, against the
consolidated order dated 15/07/2016 passed by the Ld.
Commissioner of Income-tax (Appeals)-30, New Delhi [in short
`the Ld. CIT(A)']for assessment years 2012-13 and 2013-14,
involving a common issue in dispute in same set of circumstances
and therefore, these appeals were heard together and dispose off
by way of this consolidated order for the sake of convenience.
2. For the sake of brevity, the grounds of appeal raised in ITA
No.5129/Del/2016 for assessment year 2012-13 are as under:
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ITA No.5129 & 5130/Del/2016
1. On the facts and in the circumstances of the case, the Ld. CIT(A) had
erred in law and on facts in directing the AO to delete addition of Rs.
5,58,42,712/- made on account of disallowance of depreciation u/s
32(1) r.w.s.43(l) of the Act.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) had
erred in law and on facts by holding that excise refund being
revenue receipt cannot be reduced from the cost of plant &
machinery.
3. That the order passed by Ld. CIT(A) is perverse inasmuch as it has
failed to appreciate the material facts and circumstances of the case
as brought on record in the assessment order.
4. The order of the C1T (A) is perverse, erroneous and is not tenable on
facts and in law.
5. That the grounds of appeal are without prejudice to each other.
6. The appellant craves leave to add, alter or amend any/ all of the
grounds of appeal before or during the course of the hearing of the
appeal.
3. Briefly stated facts of the case are that the assessee
company was created by way of demerger of units of M/s
Dharmpal Satyapal Ltd. For assessment year 2012-13, the
assessee filed return of income on 29/09/2012 declaring loss of
Rs.12,70,68,682/-. For assessment year 2013-14, the assessee
filed return of income on 30/09/2013, declaring loss of
Rs.2,39,31,771-. The case of the assessee for both assessment
years were selected for scrutiny and assessment under section
143(3) of the Income-tax Act, 1961 (in short `the Act') were
completed. The Assessing Officer noticed that the assets of the
demerged units included asset acquired out of Excise duty
exemption (accounted as deferred government grants in the books
of accounts) as per scheme of investment. According to the
Assessing Officer said excise duty refunds should have been
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ITA No.5129 & 5130/Del/2016
reduced from the actual cost of the asset in terms of section 43(1)
of the Act. The Assessing Officer accordingly, reduced the cost of
the asset and disallowed excess depreciation in assessment year
2012-13 of Rs.5,58,42,712- and in assessment year 2013-14 of
Rs.4,80,25,953/-. On further appeal, the Ld. CIT(A) deleted the
disallowance in consolidated order for both assessment years
observing as under:
"4.4 I have carefully considered assessment order, written
submissions, case laws relied upon and oral arguments of AR. The
objections/ arguments of the appellant are discussed as under:-
(i) Briefly stated the facts of the case, are that the `Rubber Thread
Unit' and `Flexible Packaging Unit' of existing Company M/s
Dharampal Satyapal Ltd. got demerged w.e.f. 01.4.2006, vide order
of Hon'ble Delhi High Court dated 11.9.2007 and the resultant
companies were named as M/s Abhisar Buildwell Pvt. Ltd. and M/s
Avichal Buildcon Pvt. Ltd. As per observations made by the Special
Auditor, appointed in the case of M/s Dharampal Satyapal Ltd., the
assets of the demerged Units, included assets acquired out of
amount of Excise Duty Exemption (accounted as Deferred Govt.
Grant in the books of the demerged company). The year wise
amount spent in the case of the assessee company is given as
under:
(in Rs)
Particulars Up to 31.3.2010 F.Y.2010-11 Upto 31.3.2011
Plant & Machinery 59,74,32,116 - 59,74,32,116
Civil Works 18,57,80,476 - 18,57,80,476
Total 78,32,12,592 - 78,32,12,592
As per the scheme of demerger, all the assets and liabilities,
have been vested in the resultant/ assessee Company. Further, all
the incentives, subsidies and other benefits enjoyed like excise duty,
income tax concession and exemptions, incentives granted by
Central and State Govts., local authority or by another person,
whether availed/ available to the erstwhile unit of M/s Dharampal
Satyapal Ltd., shall vest with and be available to the wholly owned
subsidiary resultant/ assessee company, on same terms and
conditions.
(ii) Based on the aforesaid observations of the Special Auditor, and
in the light of provision of Section 43(1), Explanation 7A, A.O. was of
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ITA No.5129 & 5130/Del/2016
the opinion that the actual cost of capital asset transferred to the
appellant company, shall be taken to be same, as it would have
been, if the demerged company had continued to hold the capital
asset for the purpose of its own business.
(iii) In the assessment order, A.O. has observed that the `actual cost',
as defined in Section 43(1) of the Act, has been stated to be `actual
cost means the actual cost of assets to the assessee as reduced by
that portion of the cost thereof, as has been met directly or indirectly
by any other person or authority'. In the assessment proceedings,
the assessee submitted that the refund of excise duty paid on the
manufacturing activities, carried out in the notified area, is to
promote the industries in such area. However, A.O. was of the views
that excise duty refund, has been invested in assets in the notified
area and therefore, as per Explanation 7 A and 10 of Section 43(1)
the Act, such refund of excise duty, has to be reduced from the cost
of assets, on which depreciation has been claimed.
(iv) In the assessment proceedings, it was submitted by the
assessee, that no cost of assets has been met out from the refund of
excise duty by the existing assessee company after demerger.
However, the above submissions of the assessee did not find favour
with the A.O. and therefore, A.O. in the assessment order reduced
the excise duty refund from the block of assets, as was done in
A.Y.2007-08 to A.Y. 2011-12.
Accordingly, the A.O. determined the depreciation on net
WDV, which becomes NIL, as in the opinion of the A.O., all the
assets falling in block of assets, have been purchased out of Excise
duty refund, which resulted in NIL depreciation.
Accordingly, A.O. observed that the cost of the assets met out
of the deferred Govt, grants as on 31.3.2011, is Rs.78,32,12,592/-
and no further investment has been made out of deferred govt,
grants in block of assets. The A.O has recomputed the claim of
depreciation u/s 32(1) of the Act, by reducing the actual cost of
assets by a sum of Rs.78,32,12,592/- and the excess claim of
depreciation made by the appellant company to the tune of
Rs.5,58,42,712/-, has been disallowed.
(v) In the appellate proceedings, the appellant has reiterated the
arguments submitted in the assessment proceedings and has also
submitted that the excise duty refund is a revenue receipt, which
has been credited to the P & L Account. The nature of the excise duty
refund received is like a benefit of cash assistance, arising from
business and therefore, same will form part of profits and gains from
business. Accordingly, it is submitted by the AR that in view of the
fact that the excise duty refund is a revenue receipt and therefore,
same cannot be further reduced from the block of assets, for
determining depreciation on the reduced WDV.
For the above view, the AR has also relied upon the
judgment of the Apex Court in the case of Commissioner of Income
5
ITA No.5129 & 5130/Del/2016
Tax vs. Meghalaya Steels Ltd. [2016] 383 ITR 217, wherein it has
been held that the subsidy forming part of P&L Account, being
revenue in nature, has to be treated as derived from business or an
industrial undertaking and will form part of business income, on
which deduction u/s 80IB/ 80IC, is allowable.
(vi) The appellant has further submitted that the grant of excise duty
exemption, was accorded as per the scheme of Central Govt, vide
notifications issued in this regard (Notification No. 8/2004 of Central
Excise dated 02.01.2004) to the existing unit and the exemption of
excise duty so granted, was to be utilized in the development of the
state by setting up or by making investment in another unit in the
same state or other notified state. The quantum of such excise duty
collected, but not deposited with Govt., has been the part of revenue
receipts duly credited in the P & L Account on year to year basis, on
the sales affected by the entrepreneurs. Therefore, it is further
submitted that the Special Auditor failed to appreciate the scheme of
excise duty exemption notified by the Central Govt, and wrongly
observed that investment in Plant & Machinery, was made out of the
Govt, grant by the erstwhile company M/s Dharampal Satyapal Ltd.
As per notification of the Central Govt., such excise duty payable,
but is exempt in this notification, and same shall be utilized by the
manufacturer, only for investment in:
Ø P & M in a manufacturing unit located in the concerned states,
and/ or
Ø Infrastructure or civil works or social projects in such states.
Therefore, the utilization of excise duty refunds, were meant
not only for P&M, but also for infrastructure or social projects, not
meant for reduction thereof from the cost of investments made in
Plant & Machinery. At best, it can be said that such refunds were
meant for promotional activities by setting up new units in the area
notified itself. It is further submitted by the AR that the excise duty
refund is not in the form of capital subsidy, but is a revenue receipt
forming part of taxable income. Therefore, such kind of subsidy
cannot be reduced from the block of asset to determine the actual
cost of assets in the hands of the assessee.
(vii) In the earlier A.Y. 2007-08 to A.Y. 2011-12, the submission
were made before the A.O. as well as in appellate proceedings,
before Ld. CIT(A) that the scheme of demerger was approved by the
Hon'ble High Court, and therefore, it amounts to approval of the cost
of acquisition of assets in the hand of the resulting companies, after
demerger. Therefore, the claim of depreciation has been correctly
made on such cost of assets transferred to the resulting companies
and there is no scope for making any disallowance against claim of
depreciation made on such acquired value of assets, without
reducing the Excise duty refund. However, the excise duty refund,
was always credited to the P & L Account and therefore, it was
6
ITA No.5129 & 5130/Del/2016
always treated as revenue receipt in the books of account from A.Y.
2007-08 onwards. However, the appellant did not make submission
before the A.O. as well as before Ld. CIT(A), regarding nature of
excise duty refund.
However, the submissions now made on account of nature of
excise duty refund and decision of Apex court in the case of
Commissioner of Income Tax Vs. Meghalaya Steels Ltd. [2016] 383
ITR 217 (SC), was not available earlier. Therefore, it is submitted
that now the ratio led down by the Hon'ble Supreme Court, is
equally applicable to the facts of the appellant, since the excise duty
refund is a revenue receipt, forming part of profits and gains, arising
from business. Therefore, as per AR, this excise duty refund has
already suffered tax.
On identical facts, as to whether excise duty refunds are
revenue receipt or capital receipt, the jurisdictional High Court in the
case of CIT vs. Dharampal Premchand Ltd [2009] 317 ITR 353-Delhi
H.C] has held that `the excise refunds received by the Units are
eligible for deduction u/s 80IB of the Act and such deduction is
inclusive of excise benefits received by the Units'. The SLP preferred
by revenue against this judgment to the Hon'ble Supreme Court, was
dismissed, on the ground that refund of excise duty should not be
excluded in arriving at profit derived from business for the purpose
of claiming deduction u/s 80IB of the Act, as has been correctly held
by the jurisdictional High Court. Therefore, the excise duty refund
cannot be treated as capital receipt, in order to reduce the same from
the cost of investment made in Plant & Machinery, as per section
43(1) of the Act. The AR has further submitted that the Hon'ble
Supreme Court, in the above referred case of Commissioner of
Income Tax Vs. Meghalaya Steels Ltd. [2016] 383 ITR 217 (SC), has
also approved the decision of jurisdictional High Court in the case of
CIT vs. Dharampal Premchand Ltd [2009] 317 ITR 353-Delhi H.C].
(viii) It has been further submitted by the AR that from the ratio of
the aforesaid judgments, it is quite clear that, excise duty refund
had direct nexus with the profits and gains of the business of the
existing company before demerger, such excise duty refund
constituted revenue receipts in the hand of the existing company.
Consequently, such revenue receipts in the nature of excise duty
refund, cannot again be reduced from `Actual Cost' of assets within
the meaning of Section 43(1) of the Act, because such receipts are
not grant or subsidy meant for deduction, as has been envisaged in
Explanation 10 of section 43(1) of the Act. The observation of the
special auditor that the said assets were acquired by the de-merged
company M/s Dharampal Satyapal Ltd., out of the amount of excise
duty refund, accounted as deferred government grants in its books
of accounts, does not carry any force to make reduction in the cost of
assets.
7
ITA No.5129 & 5130/Del/2016
The appellant has also relied upon a recent judgment of
Hon'ble Gujarat High Court in the case of Alpha Lab vs. ITO reported
in [(2016)(6) TMI 560,Gujarat H.C] dated 07.6.2016, wherein it has
been clearly held that subsidy received against investment made in
a backward area, where industrial development activities have been
undertaken, is by way of promotion of such activities and that will
not reduce the value of the assets, even where the amount of
subsidy received was transferred to the capital account of the
partners, and it was held that the cost of assets could not be
reduced by the amount of subsidy while working out the
depreciation allowance.
From the above, following facts emerged:
Ø The excise duty refund is given to the appellant on account of
the manufacturing activities carried out in the notified area,
upon fulfillment of certain conditions; and
Ø The Excise duty refund, is derived from the manufacturing
activities and purchasing the assets from this excise duty
refund on fulfillment of certain conditions, is nothing, but
application of profits,
Ø The excise duty refund is of the nature of revenue receipt,
forming part of Profits and Gains, arising from business. The
same is a revenue receipt, as has been held by Hon'ble
Supreme Court, in the case of Commissioner of Income Tax Vs.
Meghalaya Steels Ltd. [2016] 383 ITR 217 (SC) and therefore,
this excise refund, being a revenue receipt, cannot be reduced
from the cost of Plant & Machinery.
From the above, it is clear that the Excise duty refund, is a
revenue receipt, forming part of total taxable income and therefore,
same cannot be reduced from the block of assets, in order to
determine the actual cost of assets.
In view of the above facts and circumstances, I am of the
considered opinion that Excise duty refund, is not in the form of
capital subsidy or grant, which can be reduced from the cost of
assets. Therefore, I agree with the argument of the appellant and in
facts and circumstances as discussed above, with due respect, I
differ from the findings of Ld.CIT(A) in the earlier Assessment years
on the same issue and also, in view of the ratio laid down by
Flon'ble Supreme Court, in the above referred case. Accordingly,
findings of the A.O. are erroneous and therefore, disallowance of
Rs.5,58,42,712/-, is deleted.
Accordingly, all the grounds, are hereby allowed for A.Y. 2012-13 &
A.Y. 2013-14."
3.1 Aggrieved, the Revenue is in appeal before the Tribunal.
8
ITA No.5129 & 5130/Del/2016
4. At the outset, before us, the Ld. counsel of the assessee
submitted that issue in dispute is covered by the order of the
Tribunal in ITA No. 4990/del/2014 for assessment year 2010-11,
and ITA No. 823/Del/2015 for assessment year 2011-12.
5. The Ld. DR could not controvert this submission of Ld.
counsel of the assessee.
6. We have heard the rival submission and perused the
relevant material on record. We find that the Tribunal in ITA No.
4990/Del/2014 for assessment year 2010-11 in the case of the
assessee itself allowed the appeal on the issue in dispute
observing as under:
"9.We have considered the submissions of both the parties and
perused the material available on the record. It is noticed that an
identical issue having similar facts was a subject matter of the
assessee's appeal in ITA No. 823/Del/2015 for the assessment year
2011-12 wherein vide order dated 17.09.2018, the relevant findings
have been given in paras 6 to 14 which read as under:
"6. Undisputedly, flexible packaging unit of M/s. Dharampal
Satyapal Ltd. was demerged into the assessee company. The
Id. AR for the assessee contended that no portion of cost of
asset acquired by the assessee company was met out of the
grant or subsidy or reimbursement of the Government or any
other person rather cost of the assets in the hands of assessee
company are as per demerger scheme approved and as such,
there is no question of reducing the cost of asset and
depreciation.
7. However, the AO as well as Id. CIT (A) by invoking the
Explanation 7 to section 43 (1) of the Act proceeded to hold that
the actual cost of the asset to the assessee company which is a
resulting company shall be the same which was to be
demerged company and thereby recomputed the claim of
deprecation u/s 32 (1) of the Act by reducing the actual cost of
asset by Rs. 78,32,12,592/-.
8. Ld. AR for the assessee by relying upon CBDT Circular No.
37/2016 dated 02.11.2016 contended that benefit of deduction
u/s 80IC is admissible on profits enhanced by disallowance
made u/s 32 of the Act which makes the claim of depreciation
9
ITA No.5129 & 5130/Del/2016
as revenue neutral and further contended that the assessee is
entitled to claim benefit of statutory deductions u/s 80IC on
additional income arising from disallowance of claim of
depreciation.
9. On the other hand, Id. DR also by relying upon Explanation 7
& 10 to section 43 (1) contended that the actual cost of resulting
company shall also be nil and as such, actual cost of asset is to
be reduced by the amount of Rs. 78,32,12,592/-. The Id. DR
further contended that the excise duty is reimbursement to the
assessee.
10. In the backdrop of the aforesaid facts and circumstances of
the case and arguments addressed by the Id. AR of the parties
to the appeal, the first question arises for determination in this
case is:-
"as to whether the assessee is entitled to claim benefit of
statutory deduction u/s 80IC of the Act on additional
income arising from disallowance of claim of depreciation
and that the benefit of deduction u/s 80IC is admissible
on profits enhanced by the disallowance made u/s 32 or
that the claim of depreciation is revenue neutral? "
11. Before proceeding further, the relevant para of Circular
No.37/2016 dated 02.11.2016 issued by the CBDT, relied upon
by the Id. AR for the assessee, is extracted as under:-
"Chapter VI-A of the Income-tax Act, 1961 ("the Act"),
provides for deductions in respect of certain incomes. In
computing the profits and gains of a business activity, the
Assessing Officer may make certain disallowances, such
as disallowances pertaining to sections 32,
40(a)(ia),40A(3),43B etc., of the Act. At times disallowance
out of specific expenditure claimed may also be made. The
effect of such disallowances is an increase in the profits.
Doubts have been raised as to whether such higher profits
would also result in claim for a higher profit-linked
deduction under Chapter VI-A.
3.In view of the above, the Board has accepted the settled
position that the disallowances made under sections 32,
40(a)(ia),40A(3), 43B, etc. of the Act and other specific
disallowances, related to the business activity against
which the Chapter VI-A deduction has been claimed, result
in enhancement of the profits of the eligible business, and
that deduction under Chapter VI-A is admissible on the
profits so enhanced by the disallowance.
10
ITA No.5129 & 5130/Del/2016
4.Accordingly, henceforth, appeals may not be filed on this
ground by officers of the Department and appeals already
filed in Courts/Tribunals may be withdrawn / not pressed
upon. The above may be brought to the notice of all
concerned. "
12. Bare perusal of the operative part of the Circular (supra)
goes to prove that disallowance made by the assessee u/s 32
of the Act relating to business activity against which deductions
have been claimed under Chapter Vl-A, as in the instant case,
results in enhancement of the profits of the eligible business
and that deduction under Chapter VI-A is admissible on profits
so enhanced by the disallowance. In these circumstances, the
claim of depreciation made by the assessee company of
Rs.6,40,38,391/- is allowable deduction and as such, the
benefit of deduction u/s 80IC is allowable on profits enhanced
by the disallowance made u/s 32 of the Act and in these
circumstances, the claim of depreciation is revenue neutral.
13. So far as question of treating the refund of excise duty as
part of the cost is concerned, it is the case of the assessee that
the entire cost has been paid by the assessee for plant &
machinery and as such, it cannot be reduced from the cost of
asset. Ld. AR for the assessee relied upon order passed by CIT
(A) datedl5.07.2016 in assessee's own case for AYs 2012-13 &
2013-14 where in excise duty refund has not been treated in
the form of capital subsidy or grant which can be reduced from
the cost of assets.
14. Since findings returned by the Id. CIT (A) are based upon
the decision rendered by Hon'ble Apex Court in CIT vs.
Meghalaya Steels Ltd. - (2016) 383 1TR 217 (SC), we are of the
considered view that the excise refund is in the nature of
revenue receipt forming part of profits and gains arising from
the business and as such cannot be reduced from the cost of
plant & machinery. So, the findings returned by Id. CIT (A) on
this issue are confirmed.
14.In view of what has been discussed above, we are of the
considered view that AO as well as CIT (A) have erred in
making addition of Rs. 6,40,38,391/- by disallowing the claim
of depreciation of the asset made u/s 32 of the Act which
would further entitle to the assessee the benefit of deduction
u/s 80IC on profits enhanced by such disallowances made u/s
32 of the Act.
Consequently, appeal filed by the assessee is partly'' allowed. "
So, respectfully following the aforesaid referred to order dated
17.09.2018 in assessee's own case, the issue under
consideration is decided in assessee's favour."
11
ITA No.5129 & 5130/Del/2016
7. We find that in assessment year 2011-12, in ITA No.
823/Del/2015 in the case of the assessee itself, the excise refund
has been held as revenue receipt and disallowance made on
account of depreciation has been deleted observing as under:
"13. So far as question of treating the refund of excise duty as part
of the cost is concerned, it is the case of the assessee that the entire
cost has been paid by the assessee for plant & machinery and as
such, it cannot be reduced from the cost of asset. Ld. AR for the
assessee relied upon order passed by CIT (A) dated 15.07.2016 in
assessee's own case for AYs 2012-13 & 2013-14 wherein excise
duty refund has not been treated in the form of capital subsidy or
grant which can be reduced from the cost of assets.
14. Since findings returned by the Id. CIT (A) are based upon the
decision rendered by Hon 'ble Apex Court in CIT vs. Meghalaya
Steels Ltd. - (2016) 383 ITR 217 (SC), we are of the considered view
that the excise refund is in the nature of revenue receipt forming part
of profits and gains arising from the business and as such cannot be
reduced from the cost of plant & machinery. So, the findings
returned by Id. CIT (A) on this issue are confirmed.
14. In view of what has been discussed above, we are of the
considered view that AO as well as CIT (A) have erred in making
addition of Rs.6,40,38,391/- by disallowing the claim of
depreciation of the asset made u/s 32 of the Act which would
further entitle to the assessee the benefit of deduction u/s 80IC on
profits enhanced by such disallowances made u/s 32 of the Act.
Consequently, appeal filed by the assessee is partly allowed."
8. In view of the identical question of whether the receipt of
excise refund is capital receipt or revenue receipt and whether
same will go to reduce the actual cost of asset is involved in the
year under consideration, and thus, respectfully following the
finding of the Tribunal in ITA No. 4990/Del/2014 and ITA No.
823/del/2015, we uphold the finding of the Ld. CIT(A) on the
issue in dispute. The grounds of the appeal raised by the Revenue
in both assessment years are dismissed.
12
ITA No.5129 & 5130/Del/2016
9. In the result, both the appeals of the Revenue are dismised.
Order is pronounced in the open court on 9th August, 2019.
Sd/- Sd/-
[AMIT SHUKLA] [O.P. KANT]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 9th August, 2019.
RK/-[d.t.d.s]
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
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