Hyderabad Pharma Infrastructure & Technologies,, Hyderabad v. ACIT, Circle-2(2),, Hyderabad

ITA 139/HYD/2013 | 2008-2009
Pronouncement Date: 18-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 13922514 RSA 2013
Assessee PAN AABCH7419L
Bench Hyderabad
Appeal Number ITA 139/HYD/2013
Duration Of Justice 8 month(s) 11 day(s)
Appellant Hyderabad Pharma Infrastructure & Technologies,, Hyderabad
Respondent ACIT, Circle-2(2),, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 18-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 18-10-2013
Assessment Year 2008-2009
Appeal Filed On 07-02-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B' HYDERABAD BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER ITA NO.138/HYD/13 : ASSESSMENT YEAR 2007 - 08 ITA NO.139/HYD/13 : ASSESSMENT YEAR 2008 - 09 M/S. HYDERABAD PHARMA INFRAST R UCTURE & TECHNOLOGIES LTD. HYDERABAD (PAN AABCH 7419 L) V/S. ADDL. DIRECTOR OF INCOME - TAX(INTERNATIONAL TAXATION) - I HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.BALAJI RESPONDENT BY : SMT. T.H. VIJAYALAKSHMI (DR) DATE OF HEARING 19.08.2013 DATE OF PRONOUNCEMENT 18.10.2013 O R D E R PER SAKTIJIT DEY JUDICIAL MEMBER: THE S E TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST SIMILAR BUT SE PARATE ORDERS OF THE COMMISSIONER OF INCOME - TAX(APPEALS) III HYDERABAD DATED 15 TH NOVEMBER 2012 FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09. SINCE COMMON ISSUES ARE INVOLVED THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. SINCE ISSUES ARE COMMON AND FACTS ARE IDENTICAL FOR THE SAKE OF CONVENIENCE WE WILL DEAL WITH IN DETAILS THE FAC T S AS IN V OLVED IN ITA NO.138/HYD/2013 R E L A TING TO ASSESSMENT YEAR 2007 - 08. ITA NO. 138 /HYD/1 2 : ASSESSMENT YEAR 200 7 - 0 8 3. THE ASSESSEE IN ALL HAS RAISED 12 GROUN D S. GROUN D S NO.1 2 AND 11 AND 12 BEING GENERAL IN NATURE ARE NOT REQUIRED TO BE ADJU D I C ATED. THE LEARNED AUTHORISED REPRESENTATIVE AT THE VERY OUTSET ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 2 SUBMITTED THAT HE DOES NOT WANT TO PRESS G R OUNDS N O .4 AND 5. HENCE THESE TWO GROUNDS ARE DIS M ISSED AS NOT PRESSED. 4. IN G R OUN D NO.3 THE ASSESSEE HAS CONTESTED THE ACTION OF THE CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TR E ATING THE IN T EREST ON BAN K DEPOSITS AS INCOME O F TH E ASSESSEE F R OM OTHER SOU RC ES. 5. BRIEFLY THE FACTS ARE THE ASSESSEE COMPANY IS A SP E CIAL PURPOSE VEHICLE (SPV) CREATED FOR THE PURPOSE OF IMPLEMENTING THE PROJECTS FUNDED UNDER THE INDUSTRIAL I N FRAS TR UC T URE UPGRADATION SCHEME (IIUS) BY THE DEPARTMENT OF IN D U S TRIAL POLICY AND PROMOTION(DIPP) MINI S TRY OF COMMERCE GOVE R NMENT OF INDIA. FOR THE ASSESSMENT YEAR UNDER DISPUTE THE ASSESSEE FIL E D ITS RETURN OF INCOME ON 20.10.2007 DE C LARING TOTAL INCOME OF RS .39 51 981. THE RETURN WAS P R OCESSED UNDER S .143(1). SUBSEQUENTLY THE ASSESSING OFFICER HAVI N G REASON TO BELIEVE THAT THERE IS ESCAPEMENT O F INCOME ON ACCOUNT OF CL A IM OF DEDUCTION OF R S .26 55 625 UN D ER S.36(1)( V II) WHICH IS OTHERWISE NOT ALLO W AB L E IN THE AB S ENCE OF SPECIFI ED BUSINESS ACTIVITY REOPEN E D THE ASSESSMENT BY ISSUING A NOTICE UNDER S.148 OF THE ACT ON 26.2.2009. 6. IN TH E COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INTEREST ON BANK DEPOSIT SHALL NO T BE TREATED A IN C OM E OF THE ASSESSEE F R OM OTHER SOU R CES. THE ASSESSEE VIDE LETT E R DATED 10.10.2009 SUBMI T TED THAT A PROJECT ACCOUNT WITH A TRUSTEE BANK WAS CREATED BY THE ASSESSEE AS REQUIRED BY THE MINI S TRY OF COMMERCE AND INDUSTRY GOVERNMENT OF INDIA. IT WAS FU R THER STATED THAT THE COMPANY EARNED INTE RE ST FROM THE BANK ON THE FUN D S EARMARKED FOR BU S IN E SS AND HENCE THE SAME SHOULD B E TREATED AS THE BUSINESS INCOME O F TH E ASSESSEE AND NO T INCOME FROM OTHER SOU R CES. IT WAS SUBMI T TED T H A T IN THE PROCESS OF IMPLEMENTATION OF THE PROJECT FUNDS KEPT IN CERTAIN DEPO S I T S GENERATED IN T ER E ST INCOME. THE ASSESSING OFFICER HOWEVER DID ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 3 NO T A C CEP T THE CONTENTION O F THE ASSESSEE AND TR E ATED THE IN T EREST ON CERTAIN DEPO S ITS AS IN C OM E OF THE ASSESSEE F R OM OTHER SOU RC ES . ASSESSEE BEIN G AGGRI E VED BY SUCH ADDITION PREFERRED APPE A L BEFORE THE CIT(A). 7. DURING THE APPE L L A TE PROCEEDIN G S BEFORE THE CIT(A) IT WAS CONTENDED BY THE ASSESSEE THAT THE INTEREST INCOME HAS OVERRIDIN G CHARGE ON IT AND HENCE CANNOT B E TREATED AS ASSESSEES INCOME. THE ASSESSEE REFERRING TO A LETTER OF THE DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION DATED 5.12.2011 SUBMITTED THAT AS PER THE INSTRUCTIONS OF THE GOVERNMENT THE INTER E ST INCOME ON DEPO S ITS HAS TO B E RETURNED BACK TO THE GOVERNMENT OR ADJUSTED AGAINST FUTURE GRANT. HENCE IT CANNOT B E TR E ATED AS THE INCOME O F THE ASSESSEE . THE CIT(A) HOW E VER DID NO T ACCEPT THIS CONTENTION OF TH E ASSESSEE AND B Y RELYING ON THE DECI SI ON OF TH E HONBLE BOMBAY HIGH C OU R T IN THE CA S E OF COLABA CENTRAL COOPERATIVE CON S UMER WHOLESALE AND RE TAIL STORES LTD. V/S. CIT(229 ITR 209) CAME TO THE CONCLUSION THAT THERE CANNOT BE ANY OVERRIDING TITLE OVER THE INTEREST INCOME EARN E D BY THE ASSESSEE. TH E CIT(A) WAS OF THE VIEW THAT THE INCOME OF THE ASSESSEE I S DE RIVED PRIMARILY FROM THE GRANTS GIVEN BY THE GOVERNMENT WHICH OWNS MAJORITY SHAREHOLDING IN THE ASSESSEE COMPANY . THE GOVERNMENT PROVIDES GRANT TO THE ASSESSEE IN ADVANCE. THE AMOUNT TO B E PAID BY THE CE NT R AL GOVERNMEN T FOR ANY PARTICULAR PROJECT IS ALSO FIXED. BY LETT E R DATED 5.1.2011 THE GOVE R NMENT HAS MERELY PLACED RESTRICTION ON HOW THE INTER E ST INCOME IS TO BE UTILIZED. HENCE IT CANNOT BE STATED THAT THE INTER E ST INCOME DOES NO T BELONG TO THE ASSESSEE. THE CIT(A) FURTHER O BSERVED THAT THESE ARE ONLY ADMI NI STRA T IVE CO N DITION S PLACED BY T H E GO V ERNMENT ON THE USAGE OF IN T ER E ST INCOME. BUT THEY ARE NOT IN THE NATURE OF STATUTORY DI R ECTION WHICH T AKE A W AY THE TITLE O VER THE IN T ER E ST INCOM E . THE TITLE OF THE ORIGINAL GR A NT AS WELL AS THE INTER E ST INC OME REMAINS WITH THE ASSESSEE AND THE ASSESSEE IS BOUND TO USE THAT AMOUNT FOR THE PURPOSE OF ACHIEVING THE OBJECTS OF THE COMPA N Y. ACCO R D I NGLY THE CIT(A) UPHELD THE FINDINGS O F THE ASSESSING OFFICER IN ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 4 TR E ATING THE INT E R E ST ON CERTAIN DEPO S ITS AS IN C OM E O F TH E ASSESSEE F R OM OTHER SOU R CES. 8. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE REITERATING THE STAND TAKEN BEFORE THE CIT(A) SUBMI T T E D B R FORE US THAT WHEN THE GOVERNMENT WHICH IS THE GRANTING AUTHORITY HAS ISSUED IN S TRUC T IONS SPECIFICA LLY MA K ING IT CL E AR THAT THE IN T ER E ST INCOME EARNED ON DEPO S ITS SHOUL D BE RETURNE D OR WILL BE ADJUSTED AGAINST THE FUTURE GRANTS THEN IT WOULD EFFE C TIVELY MEAN THAT THE AMOUN T SANC T IONED FOR A PARTICULAR PROJECT IS REDUCED TO THE EXTENT OF QUANTUM OF I NTER E ST RECEIVED BY TH E ASSESSEE . THUS THE GOVERNMENT TREATS THE IN T ER E ST RECEIVED AS ITS IN C OME AND SUCH INCOME IS APPLIED BY THE GOVERNM E NT AS CONTRIBUTION IN ITS SHARE TO THE PROJECT. IT WAS THEREFORE SUBMITTED THAT THE EARNING OF THE IN C OM E AS WELL AS THE APPLICATION OF MONEY WAS IN THE HANDS O F THE GOVERNMENT. THE LEARNED AUTHORISED REPRESENTATIVE RELYING ON THE D ECISION OF THE HONBLE SUPR E ME COU R T IN THE CA S E OF SOORJI VALLABHDAS AND C O. (46 ITR 144) SUBMITTED THAT THOUGH IN BOOK - KEEPING AN EN TRY IS MADE ABO U T A HYPOTHETICAL INCOME IN REAL S E N S E THE INCOME DOES NO T RESULT AT ALL AND HENCE THERE CANNOT B E TAX ON SUCH INCOME. THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMI T TED THAT THE CIT(A) ALSO WRONGLY PLACED RELIANCE ON THE DECISION O F THE HO N BL E BOMBAY HIGH COU R T IN TH E CA S E OF CO LABA CO - OP. CONSUME R S WHOLESALE AND RETAIL STORES LTD. (SUPRA) AS THE FACTS IN THAT CA S E ARE TOTALLY D IFFE R ENT FROM THE ASSESSEE S CASE. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE CONTR A RY SUBMI TTED THAT WHEN TH E GRANT HAS BEEN RELEASED IN FAVOUR O F THE ASSESSEE AND THE ASSESSEE BY KEEPING THE GRANTS IN SHO R T TERM DEPOSITS H AS EARNED INTER E ST THE INCOME HAS ACCRUED TO THE ASSESSEE. THE LEARNED DEPARTMENTAL REPRESENTATIVE HOW E VER SUBMI T T E D THAT WHETHER THE INTEREST INCOME HAS BEEN REFUN D ED BACK TO THE GO V ERNMENT OR HAS B E EN ADJU S TED AGAINST FUTURE GRANT GIVEN TO THE ASSESSEE IS SUBJECT TO VERIFICATION. ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 5 10. WE HAVE HEARD THE SUBMI S SION S OF THE PARTIES AND PERUSED THE M A TERIALS ON RECORD. SO F AR AS THE FACTUAL ASP EC T OF THE ISSUE IS CON C ERNED IT IS NOT DISPUTED BY EITHER OF THE P A RTIES THAT THE GRANT RECEIVED FROM TH E CENTRAL GOVERNMENT WHICH WAS NO T IMMEDIATELY UTILIZED WAS KEPT IN SHO R T TERM DEPOSI T S IN THE BANKS AND IN T ER E ST INCOME WAS EA RNED ON SUCH DEPOSITS. I N FACT AS IT WOULD APPEAR FROM THE M A TERIALS ON RECORD THE ASSESSEE ITSELF WAS TR E ATING SUCH INTER E ST INCOME AS ITS BUSINESS IN C OM E AND CLAIMED DEDUCTION UNDER S .80IA OF THE ACT ON SUCH INCOME. HOWEVER THE FACT REM A IN S THAT T HE CE NTRAL GOVERNMENT IN THE MI NI STRY OF COMMERCE AND I NDUSTRY THROUGH ITS DEPARTMENT OF INDUSTRIAL POLICY AND P ROMOTION HAD ISSUED A LETTER DATED 5 TH DECEMBER 2011 TO ALL THE SPVS IMPLEMENTING THE IIUS PROJECTS GIVING CERTAIN IN S TRUC T IONS. CLAUSE 7 O F THE SAID LETTER READS AS UNDER - (VII) AMOUN T OF IN TE R E ST EARNED ACTUALLY SO FAR ON THE CENTRAL GRANT RELEASED TO THE SPV. THE SPV SHALL NO T UTILIZE THE INTER E ST EARNED ON THE GRANT SO RELEASED IT FOR ANY PU R PO S E. THE INTEREST EARNED SHALL B E IN D I C AT ED IN THE UC WHICH CAN EITHER BE ADJUSTED IN N E XT RELEASE OR TO BE REFU N DED TO GOVE R NMEN T OF INDIA AFTER GRANTS - IN - AID SANCTIONED IS UTILIZED. A PLAIN READING OF THE AFORESAID CLAUSE WOULD MAKE IT CLEAR THAT THE GOVERNMENT HAS GIVEN A CLEAR INSTRUCTION AND THAT INTER E ST ON SHORT TERM DEPOSITS EITHER HAS TO BE REFUNDED BACK TO THE GOVERNMENT OR TO BE ADJUSTED AGAINST THE FUTURE GRANTS TO BE RELEASED FOR IMPLEMENTING THE P R OJ E CT. IN OTHER WORDS THE AMOUNT TO THE EXTENT OF INTER E ST EARNED ON FIXED DEPOSIT S WILL BE REDUCED FROM THE GRANTS . TH E R E FORE IN REAL SENSE THE IN T ER E ST ON SHORT TERM DEPO S ITS PARTAKE THE CHARACTER O F GRANTS UNLESS IT IS R E FUN D ED BACK TO THE GOVERNMENT. IN EITHER CA S E IN T ER E ST EARNED ON SHORT TERM DEPO S I T S CANNOT B E SAID TO HAVE A CCRUED AS INCOME TO THE ASSESSEE. THE IN S TRUC T ION ISSUED BY TH E GO V ERNMENT IN TH E AFORESAID LETTER ALSO MAKES IT MANDATORY THAT HE SP V SHALL NO T UTILIZE THE IN TE R E ST EARNED ON THE GRANT FOR ANY PU R PO S E. I N THE FORESAID VIEW OF THE MATTER IN T ER E ST EARN ED ON SHORT TERM DEPO S ITS CANNOT B E TREATED AS INCOME O F TH E ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 6 AS SESSEE W HEN TH E ASSESSEE IN STRICT SENSE OF THE TERM HAS NO DOMINION OVER SUCH INCOME. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE CENTRAL GRANT RECEIVED IS ALSO INCOME OF THE ASSESSEE. TH E R E FORE IF THE INT E REST INCOME IS ADJUSTED AGAINST FUTURE GRANT IT PARTAKES THE CHARACTER OF THE GRANT ITSELF AND CANNOT BE TREATED AS INCOME O F TH E ASSESSEE . HO WEVER THESE FACTUAL ASPECTS NEED TO B E VERIFIED TO ASCERTAIN WH E TH E R THE INTER E ST HAS NO T LATER BEEN RE F UNDED BACK TO THE GOVERNMENT OR HAS BEEN ADJUSTED AGAINST ANY FUTURE GRANT RELEASED TO THE ASSESSEE. I N TH E SE FACTS AND CIRCUM S TAN C ES WE ARE INC L INED TO REMIT THE ISSUE B ACK TO THE FIL E O F THE ASSESSING OFFICER FOR PROPER VERIFICATION AND F RESH DECISION . W E DO SO ACCORDINGLY AND DIRECT THE ASSESSING OFFICER TO VERIFY WHETHER THE IN T ER E ST EARNED ON SHORT TERM DEPO S ITS HAS B E EN REFUNDED TO THE GOVERNMENT OR HAS B E EN ADJU S TED AGAINST ANY FUTURE GRANT RELEASED TO THE ASSESSEE AND DECIDE THE ISSUE ACCORDINGLY IN ACCOR D AN C E WITH LAW AND AF T ER GIVIN G REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. HOWEV E R WE MAKE IT CLEAR THAT SIN C E THE ASSESSEE HAS VOLUNTARILY FIL E D A RETURN ADMITTING INCOME THE ASSESSING OFFICER WHILE DECIDING ISSUE AN D COMPUTING THE INCOME MUST BEAR IT IN MIND THAT IN NO CASE THE ASSESSED INCOME STANDS DETERMINED BELOW THE RETURNED INCOME. ASSESSEES GROUNDS ON THIS ISSUE ARE THUS ALLOWED FOR STATISTICAL PURPOSES. 11. THE NE X T ISSUE INVOLVED IN THIS APPEAL R E L A TES TO DISALLOWANCE OF DEPRECIATION CLAIMED. 12. BRIEFLY FACTS ARE THAT DURING THE ASSESSMENT PROC E EDIN G S THE ASSESSING OFFICER NO T ICIN G THAT THE ASSESSEE HAS CLAIMED DEPRECIATION DISALLOWED THE SAME BY HOL D IN G THAT SIN C E THERE IS NO BUSINESS ASSET WHI CH WAS PUT TO USE OR EVEN USED IN GENERATING INCOME TH E CLAIM FOR DEPRECATION IS NO T ALLOWABLE. HE FURTHER NOTED THE FACT THAT AS P E R TH E FINANCIN G PA T TERN OF THE COMPANY 15% OF THE P ROJECT COST I S FUNDED BY CONTRIBUTION S FROM THE BENEFICIARIES AND BALAN CE 85% IS BY M E ANS OF ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 7 GRANTS AND CONTRIBUTION OF C E NTR A L AND STATE GOVERNMENTS. HE THEREFORE WAS OF THE VIEW THAT THE ASSESSEE COMPA N Y IS NO T THE OWNER OF THE ASS E T S ON WHICH THE DEPRECIATION IS CL A IM E D. THE ASSESSING OFFICER TH E R E FORE FOLLOWING THE RA TIO OF THE DECISION OF THE APEX C OU R T IN TH E CA S E OF ORIENT LONGMAN P. LTD. ( 2 27 ITR 68) HELD THAT SIN C E THE ASSESSEE HAS NO DOMINION OR CONTROL O V ER THE AS S ETS IN ITS OWN RIGHT DEPRECI A TION IS NO T ALLOWABLE. 13. THE ASSESSEE AGITATED THE IS S UE BEFORE THE CIT(A). THE CIT(A) ALSO CON F IRMED THE DI S ALLO W ANCE BY HOLDING THAT SIN C E THE ASSESSEE IS NO T THE OWNER OF THE ASSET DEPRECIATION IS NO T ALLOWABLE. 14. LEARNED AUTHORISED REPRESENTATIVE SU B MI T TED BEFORE US THAT THE ASSESSING OFFICER HAS COME TO HIS C ONCLUSION SOLE L Y RELYING UP O N THE FINANCING PATTERN. HOWEVER THE OWNERSHIP IS NO T DETERMINED BY TH E FINANCING PAT T ERN. IT WAS SUBMITTED THAT SOU R CE OF FINANCE AND OWNERSHIP ARE TWO DIFFE RE NT THINGS. IF THE SOURCE OF FINANCE IS TOWARDS THE SHARE OF THE PROJECT I.E. TOWARDS JOINT O WNERSHIP THEN TO THAT EXTENT THE OWNERSHIP HAS TO BE SHARED. IT WAS FURTHER SUBMITTED THAT SIN C E IN THE PRESENT CA S E THE GOVERNMENT HAS CREATED THE ASSESSEE COM P A N Y TO IMPLEMENT OWN AND O P ERATE THE PROJECT OWNERSHIP RELAT ING TO 85% OF THE COST OF THE PROJECT REMAIN S WITH TH E COMPANY WH E R E AS 15% OF TH E CO S T OF TH E PROJECT SHALL BE OWNED BY THE BENEFICIARIES AND NOT WITH THE ASSESSEE . HENCE THE ASSESSEE HAS CLAIMED DEPRECIATION ONLY IN RESPECT OF 85% AND NO T FULL VALUE. IT WAS SUBMITTED THAT SIN C E THE GOVE R NMENT ITSELF IS THE CREAT O R OF TH E ASSESSEE THROUGH THE SPV AND THE SPV ITSELF IS THE O WNER OF THE ASSET. HE FURTHER SUBMI T TED HAT SIN C E THE ASSESSEE HAS DOMINION AND CONTROL O V ER THE ASSETS IN ITS OWN RIGHT DEPR EC IATION IS ALLO W ABLE ON SUCH ASS E TS. ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 8 15. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUBMITTED THAT SIN C E 85% OF THE COST OF THE ASSET WAS BORNE BY THE CE NTRAL GOVE R NMENT AND ST ATE GOVERN MEN T AND BALANCE 15% BY THE BENEFICIARIES THE ASS ESSEE IN NO WAY CAN BE SAID TO BE OWNER OF THE ASSETS AND ACCORDINGLY DEPRECIATION CANNOT BE ALLOWED TO THE ASSESSEE. 16. W E HAVE CON S I D ERED THE SUBMI S SION S OF THE PARTIES AND PERUSED THE M A TERIALS ON RECORD. S.32 OF THE INCOM E - TAX ACT ALLOWS DEPRECIA TION ON SATI SF ACTION OF TWO CONDITIONS FIRSTLY THE ASSET MUST BE OWNED WHOLL Y OR PARTLY BY THE ASSESSEE ; AND SECON D LY SUCH ASSET SHOULD BE USED FOR THE PURPOSES OF BUSINESS OR PROFESSION OF THE ASSESSEE. I N TH E FACTS OF THE PR E SEN T CA S E IT IS NOT DIS PUTED THAT THE ENTIRE COST OF THE ASSET ON WHICH DEPRECIATION HAS BEEN CLAIM E D HAS BEEN MET NOT BY THE ASSESSEE BUT BY OTHER AGENCIES I.E. 85% BY TH E CE N T RAL AND STATE GO VERNMENTS AND 15% BY THE BENEFICIARIES. FURTHER THE LETTER DATED 11.5.2005 OF THE DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION MINI S TRY OF COMM E RCE AND I NDUSTRY GOVERNMENT OF INDIA TO TH E ASSESSEE LAYS DOWN THE TERMS AND CONDITIONS TO B E FOLLOWED. AS PER CLAUSE ( D ) OF THE AFORESAID TERMS AND CON D ITION S THE ASSETS ACQUIRED OUT OF T HE GOVERNMENT S ASSISTANCE CANNOT BE DISPOSED OF ENCUMBERED OR USED FOR THE PU R POSES OTHER THAN THE PU R PO S E FOR WHICH THE FUN D S H A VE BEEN RELEASED WITHOUT PRIOR SANCTION OF TH E GOVERNMEN T . THIS CONDITION PUT BY THE GOVERNMENT CLEARLY INDICATES THAT THE ASSESSEE I S NOT EITHER THE OWNER OF THE ASSET OR HOL D IN G ANY DOMI NION OR RIGHT OVER SUCH ASSET IN EXCLUSION OF OTHERS. WHEN THE COST OF THE ASSET HAS NO T BEEN MET BY THE ASSESSEE AND ASSESSEE IS ALSO NO T EXERCISING ABSOLUTE DOMINION OR RIGHT OVER THE ASS ET IT CANNOT BE SAID THAT THE ASSESSEE IS THE OWNER OF SUCH ASSET EITHER WHOLLY OR PARTLY. MERE DISCLOSURE OF TH E ASSETS IN THE B ALANCE S HEET OF THE ASSESSEE DOES NOT ESTABLISH THE OWNERSHIP O F THE ASSESSEE OVER SUCH ASS E TS WHOLLY OR PARTLY THEREBY MAK ING IT ELIGIBLE TO DEP RE CIATION TH E REON. CONSEQUENTLY ASSESSEE S GRO U NDS ON THIS ASPECT ARE REJECT E D. ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 9 17. THE LA S T ISSUE WHICH HAS BEEN RAISED IN GROUNDS NO.7 8 9 AND 10 RE LA TE TO TH E DIRECTION OF THE CIT(A) TO THE ASSESSING OFFICER TO ASSESS 3% OF TH E GRANT ALLOTTED TOWARDS ADMI N ISTRATIVE EXPENSES FOR IMPLEMENTATION O F THE PROJECT AS THE IN C OM E O F TH E ASSESSEE AND F U RTHER NOT ALLO W IN G ANY DEDUCTION TOWARDS EXPENDITURE THEREFROM . 18. BRIEFLY STATED FACTS REL A TING TO THE ISSUE ARE THAT IN THE COU R SE OF PROCEEDINGS BEFORE TH E FIRST APPELLATE AUTHORITY THE CIT(A) NOTICED THAT THE ASSESSEE H A D COMPL E TED VARIOUS PROJECTS AND OTHERS WERE IN VARIOUS STAGES OF COMPLETION. HE FURTHER NOTED THAT THOUGH AS PER THE AGREEMENT WITH THE GOVERNMENT PAYM E N T S WERE DUE TO THE ASSESSEE ON TH E WO R K DON E THE ASSESSEE HAS NOT SHOWN ANY ACC R UE D PAYMENTS. HE THER E FORE ISSUED A NOTICE FOR ENH A N C EMENT OF ASSESSMENT BY LETTER S DATED 9.12.2012 AND 17.12.2012. IN R E SPON S E TO THE AFORESAID LETT E RS THE ASSESSEE SUBMI T T E D THAT THE ASSESSEE IS A SPV CON C EIVED BY TH E DEPARTMENT OF INDUST R IAL POLICY AND PROMOTION AND SO FAR AS THE ADMINI S TRATIVE OVERHEADS ARE CON C ERN E D THE SANCTIONED PROCEEDINGS PROVIDED THAT THE ADMI NI STRATIVE EXPENSES H A VE TO BE MET FROM A 3% AMOUNT CALC ULATED FROM CENTRAL GRANT. FURTHER THIS EXPENDITURE HAS TO BE INCURRED B Y OR UNDER THE DIR E CTIONS OF DEPARTMENT OF INDU S TRIAL POLICY AND PROMOTION. IT WAS FURTHER SUBMITTED THAT THE AD M INI S TRATIVE EXPENSES HAVE BEEN DESCRIB E D AS EXPENSES INCUR R ED TO W ARDS DEVELOPM E N T OF PROJECT APPRAISAL MONITORING AS W ELL AS EVALUATION OF THE SCHEME BY A PROFESSIONAL INDEPENDENT AGENCY. BEST PRACTICES (TRANSFER) WITHIN/OUTSIDE THE COUNTRY CLUSTER NET - WO R KIN G WITHIN/OUTSIDE THE COUNTRY AND ANY OTHER INCIDENTAL EXPENSES A S PER THE PROCEEDINGS OF DIPP. IT WAS FURTHER SUBMITTED THAT DURING A MEETING HELD TO REVIEW THE DEVELOPMENT OF INDUSTRIAL CLUSTERS ON 9.12.2004 IT WAS POINTED OUT THAT 1% OF THE FUN D S ARE TO B E RETAINED BY THE DIPP FOR PRE - APPRAISAL AND INDEPENDENT EVAL UATION AND 2% SHALL BE MADE AVAILABLE FOR IN C URRING EXPENDITURE BY SPV. ACCORDINGLY RIGHT FROM THE BEGINNING T HE ASSESSEE I S CARVING OUT 2% ONLY OUT O F DISBURSEMENTS ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 10 BY TRANSFERRING THE SAME FROM TRUST AND RETENTION A/C. TO RES ERVE FUN D AC COUNT . IT W A S FURTHER SUBMI T TED THAT THOUGH THE ASSESSEE I S ENTITLED TO 2% OF THE GRANT TOWARDS THE ADMINISTRATIVE EXPENSES THE SAME HAS SO FAR NOT BEEN FINALLY SANCTIONED. HOWEVER AS A MEASURE OF CASH FLOW MANAGEMENT FOR OPERATION AND MAINTENANCE PU R POS ES THE T RU ST AND RE TENTION AND RESERVE FUN D A CCOUN TS ARE BEING MAINTAINED THE ASSESSEE SUBMITTED THAT THE INCOME COMPONENT IF ANY OUT OF THE ALLOCATION OF 2% TOWARDS ADMINISTRATIVE E X PENSES WAS N O T RECOGNIZED BY THE ASSESSEE AS THE FINAL SANCTION IS STILL AWAITE D. THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE IS ACTUALLY ENTITLED TO 2% ON THE PROJECTS IMPLEMENTED BUT IT CAN ONLY BE RECOGNIZED AT THE TIM E OF FINAL SA N C T ION AS THE ASSESSEE IS COMPLETELY UNDER THE CONTROL OF DEPARTMENT OF INDUSTRIAL POLICY AN D PROMOTION . 19. THE CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISED BY THE ASSESSEE AND HELD THAT AN ADDITION WORKED OUT AT 2% TO THE INCOME DECLARED IS WARRANTED AND CONSEQUENTLY ENHANCED ASSESSMENT VIDE PARA 7.8 OF THE IMPUGNED ORDER WHICH READS AS FOLLOWS - 7.8. THE APPELLANT ADMITTED THAT 3% OF THE AMOUNT OF THE PROJECTS IMPLEMENTED IS TO BE ALLOWED TO THE APPELLANT AS ITS INCOME. OUT OF THIS 1% IS TO BE USED AS MISCELLANEOUS EXPENSES ETC. AND THE BALANCE IS TO BE TAKEN AS INCOM E OF THE APPELLANT. TH E RE IS NO AMBIGUITY IN THESE TERMS AND CON D I TI ON S AS THE APPELLANT IS CLEARLY ENTITLED TO THIS AMOUNT. FURTHER THE FACT THAT THE MONEY HAS NOT YET BEEN SANCTIONED DOES NOT IN ANY AWAY TAKE AWAY THE RIGHT OF THE APPELLANTS INCOME. THE INCOME HAS ACCRUED AS PER THE AGREEMENT. FURTHER 1% OF THESE AMOUNTS IS ALREADY ALLOWED BY THE GOVERNMENT FOR ADMINISTRATIVE EXPENDITURE. THE BALANCE 2% IS THE SURPLUS. THE APPELLANTS CONTENTION THAT FURTHER EXPENDITURE IS TO BE ALLOWED IS NO T T ENABLE BECAUSE ALL OTHER EXPENDITURE HAS ALREADY BEEN MET OUT OF THE GRANTS GIVEN BY THE GOVERNMENT. NO MORE EXPENDITURE IS TO BE CHARGED AS SURPLUS. ACCORDINGLY I HOLD THAT IN ADDITION TO THE INCOME ALREADY DECLARED ANOTHER 2% SURPLUS AS DISCUSSED ABO VE IS TO BE ADDED TO THE INCOME ASSESSED AND THE ASSESSMENT INCOME WILL BE ENHANCED ACCORDINGLY. ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 11 20. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED BE F O R E US THAT THE IN S T R UC T ION S ISSUED BY THE DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION MAKES IT CLEAR THA T THE ASSESSEE I S ENTITLED TO O NL Y 2% OF THE C E N T RAL GRANT TOWARDS ADMINISTRATIVE EXPENSES AND THE ASSESSEE CAN GET THE CLAIM ONLY AFTER FURNISHING THE PROJECT COMPLETION CERTIF ICA TE. IT WAS THEREFORE SUBMI T TED THAT THE CIT(A)S OBSERVATION THAT 1% IS TO WA RDS MISCELLANEOUS EXPENS E S AND 2% OF THE GRANT IS AVAILABLE AS SURPLUS IS WITHOUT ANY BASIS. THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT SIN C E THE DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION HAS NOT SANCTIONED THE GRANT OF EVEN 2% TILL DATE ASSESSEE HAS NOT RECOGNI S ED THE SAME AS ITS IN C OM E . TH E LEARNED AUTHORISED REPRESENTATIVE ALTERNATIVELY SUBMITTED TH A T EVEN AS S UMIN G THAT 2% GRANT TO B E RECEIVED IS THE IN C OM E O F TH E ASSESSEE COR R ESPON D IN G EXPENDITURE IN C URRED BY THE ASSESSEE AMOUN T IN G TO R S .17 26 128 HAS TO BE ALLOWED AS DEDU CT ION TH E REFROM. 21. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON TH E CONTRARY T H OUGH SUPPO R T ED THE ORDER OF THE CIT(A) SUBMI T TED THAT THE I S SU E CAN BE REMITTED BACK TO THE ASSESSING OFFICER FOR FRESH CON S I D E R ATION. 22. WE HAVE HEARD THE SUBMI S SION S OF THE P A RTIES AND PERUSED THE MATERIALS ON R ECORD. IT I S THE C ONT ENTION OF THE ASSESSEE THAT OUT OF THE 3% ONLY 2% IS TO BE SANCTIONED AS GRANT TO THE ASSESSEE . A PERUSAL O F THE LETTER DATED 11.5.2005 OF DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION WOULD REVEAL SO. CLAUSE 8 OF THE AFORESAID LETT E R READS AS UNDER - 8. ADMINISTRATIVE EXPENSES: I . A SUM OF 3% OF THE CENTRAL GRA N T S HALL BE KEPT FOR ADMINISTRATIVE EXPENSES WHICH SHALL BE INCURRED BY OR UNDER DIRECTIONS OF THE DIPP. ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 12 II . EXPENSES INCURRED TOWARDS DEVELOPMENT OF PROJECT APPRAISAL OF THE PROJECT PROPOSAL MONITORING AS WELL AS EVALUATION OF THE SCHEME BY A PROFESSIONAL INDEPENDENT AGENCY BEST PRACTICES (TRANSFER) WITHIN OR OUTSIDE THE COUNTRY CLUSTER NETWORKING WITHIN OR OUTSIDE THE COUNTRY AND ANY OTHER INCIDENTAL EXPENSES SHALL BE CHARGED UNDER THE ADMINISTRATIVE EXPENSES.. . 2 3 . FURTHER AS P E R THE MINUTES OF THE MEETING A COPY O F WHICH IS AT P A GE 12 OF TH E P A P E R - BOOK SUB MITTED BEFORE US MAKES IT CLE A R THAT A DECISION WAS TAKEN THAT IN THE ENTIRE 3% FUN D S UNDER TH E H EA D ADMI NI STRATIVE EXPENSES ARE M E ANT FOR SPVS BUT AT LEAST 1% OF THOSE FUN D S HAS TO B E RETAINED FOR THE DIPP FOR PRE - AP P RAISAL OF THE PROJECTS AND FOR G ETTING THEM EVALUATED BY AN INDEPENDENT AGENCY. IT FURTHER MAKES IT CL E AR THAT ONLY 2% OF TH E SE FUNDS SHALL B E AVAILABLE FOR INCURRING EXPENDITURE BY THE SPV. AS A CONSEQUENCE OF TH E AFORESAID RESOLUTION DATED 9.12.2004 THE DEPARTMENT OF INDUSTRIAL POL ICY AND PROMOTION IN ITS LE T TER DATED 5.12.2011 CLEARLY INSTRUCTED TO THE SPVS THAT IF THEY WANT RELEASE OF 2% OF THE CENTRAL GRANT TOWARDS ADMI N ISTRATIVE EXPENSE S TH E N THEY SHOULD FURNISH PROJECT COMPLETION CERTIFICATE ALON G WITH REQUEST FOR RELEASING SUC H 2% GRANT. TH E SE FACTS MAKE IT CL E AR THAT ONLY 2% GRANT IS TO BE REL E ASED TO THE SPVS TOWARDS EXPENSES UNDER THE ADMI NI STRATIVE HE A D. TH E R E FORE TH E CIT(A) S OBSERVATION THAT 3% GRANT TOWARDS ADMINISTRATIVE EXPENSES HAS BEEN RELEASED TO THE ASSESSEE IS WI THOUT ANY BASIS AND CONSEQUENTLY HI S DIRECTION FOR TR E ATIN G THE BALANCE 2% AS IN C OM E ALSO IS NOT SUSTAINABLE. BEFOR E TR E ATING THE 2% O F GRA N T RECEIVED TO B E THE INCOME O F TH E ASSESSEE IT HAS TO BE FACTUALLY A SCERTAIN E D WHETHER SUCH GR A NT HAS ACTUALLY BE EN SANC T IONED TO THE ASSESSEE AND IF A T ALL IT HAS BEEN SANCTIONED AND RECEIVED BY THE ASSESSEE THEN THE EXPENSES ACTUALLY IN C U R RED BY TH E ASSESSEE UNDER ADMINISTRATIVE HEAD HAVE TO B E SET OFF AGAINST S UCH GRANT. SIN C E THESE FACTS HAVE NOT B E EN VERIFIED PROPERLY WE REMIT THE ISSUE BACK T O THE FILE O F TH E ASSESSING OFFICER WHO SHALL TAKE ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 13 A DECISION IN TH E MATER AFTER CON S I D ERING ALL THE FACTUAL ASPE C TS OF THE MATTER AND AFTER AFFORDING REASONABLE OPPORTU N ITY OF H E ARING TO THE ASSESSEE. 2 4 . IN THE RESULT THIS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.139/HYD/13 : ASSESSMENT YEAR 2009 - 10 25. GROUND NOS.1 2 11 & 12 BEING GENERAL IN NATURE ARE NOT REQUIRED TO BE ADJUDICATED. GROUND NOS. 4 AND 5 AR E DISMISSED AS NOT PRESSED 2 6 . THE FIRST ISSUE INVOLVED IN THIS APPEAL COVERED BY GROUND NO.3 RELATES TO ASSESSMENT OF INTEREST INCOME IN THE HANDS OF THE ASSESSEE. FACTS AND CIRCUMSTANCES OF THE CASE RELATING TO THIS ISSUE ARE IDENTICAL TO THE CORR ESPONDING GROUND RAISED IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008 - 09. HENCE FOR THE DETAILED REASONS DISCUSSED IN THE CONTEXT OF THE ASSESSEES APPEAL FOR THAT YEAR IN RELATION TO THIS ISSUE IN PARA 10 HEREINABOVE WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY WHETHER THE INTEREST EARNED ON CERTAIN DEPOSITS HAS BEEN REFUNDED TO THE GOVERNMENT OR HAS BEEN ADJUSTED AGAINST ANY FUTURE GRANT RELEASED TO THE ASSESSEE AND DECIDE THE ISSUE ACCORDINGLY IN ACCORDANCE WITH LAW AND AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ASSESSEES GROUNDS ON THIS ISSUE ARE THUS ALLOWED FOR STATISTICAL PURPOSES. 2 7 . THE NEXT ISSUE INVOLVED IN THIS APPEAL COVERED BY GROUND NO.6 RELATES TO DISALLOWANCE OF DEPR ECIATION. FACTS AND CIRCUMSTANCES OF THE CASE RELATING TO THIS ISSUE ARE IDENTICAL TO THE CORRESPONDING GROUND RAISED IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008 - 09. HENCE FOR THE DETAILED REASONS DISCUSSED IN THE CONTEXT OF THE ASSESSEES APPEAL FO R THAT YEAR IN RELATION TO THIS ISSUE IN PARA 16 HEREINABOVE WE REJECT THE GROUNDS OF THE ASSESSEE ON THIS ISSUE. ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 14 2 8 . THE NEXT ISSUE INVOLVED IN THIS APPEAL COVERED BY GROUNDS NO.7 TO 10 RELATE TO ENHANCEMENT OF ASSESSMENT BY THE CIT(A) AND BRINGI NG TO TAX THE 3% GRANT ALLOTTED TO THE ASSESSEE TOWARDS ADMINISTRATIVE EXPENSES . FACTS AND CIRCUMSTANCES OF THE CASE RELATING TO THIS ISSUE ARE IDENTICAL TO THE CORRESPONDING GROUND RAISED IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008 - 09. HENCE FOR TH E DETAILED REASONS DISCUSSED IN THE CONTEXT OF THE ASSESSEES APPEAL FOR THAT YEAR IN RELATION TO THIS ISSUE IN PARA 22 HEREINABOVE WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY AND DECIDE THE ISSUE AFRESH KEEPING IN VIEW OUR DIRECTIONS AS CONTAINED IN PARAGRAPH 22 OF THIS ORDER HEREINABOVE AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ASSESSEES GROUNDS ON THIS ISSUE ARE THUS ALLOWED FOR STATISTICAL PURPOSES. 2 9 . IN THE RESULT ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009 - 10 BEING ITA NO.139/HYD/2013 IS ALSO PARTLY ALLOWED FOR STATISTICAL PURPOSES. 30 . TO SUM UP BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 18.10.2013 SD/ - SD/ - (CHANDRA POOJARI) ( SAKTIJIT DEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED/ - 18 TH OCTOBER 2013 COPY FORWARDED TO: 1 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. 7 - 2 - 5/D - I ICWAI BHAWAN SANATH NAGAR HYDERABAD 500 018. 2 ASST. COMMISSIONER OF INCOME - TAX CIRCLE 2 (2) HYDERABAD ITA NO. 138 AND 139/ HYD/201 2 M/S. HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. HYDERABAD 15 3 COMMISSIONER OF INCOME - TAX(APPEALS) III HYDERABAD 4 COMMISSIONER OF INCOME - TAX II HYDERABAD 5 DEPARTMENTAL REPRES ENTATIVE ITAT HYDERABAD B.V.S