The ITO, Ward-4(3),, Ahmedabad v. Finessee Pharmaceuticals Pvt.Ltd.,, Ahmedabad

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI G.D. AGARWAL VICE-PRESIDENT AND T.K. SHARMA JUDICIAL MEMBER) ITA.NO.4054/AHD/2007 ASSTT.YEAR : 1999-2000 ITO WARD-4(3) AHMEDABAD. VS. FINESSEE PHARMACEUTICALS PVT. LTD. MANGALYA HOUSE CELLAR B/H. AAYKAR BHAVA ASHRAM ROAD AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI M.G.PANDIT ASSESSEE BY : SHRI K.H. SHAH O R D E R PER G.D. AGARWAL VICE-PRESIDENT: THIS IS REVENUES APPEAL AGAINST THE ORDER OF THE CIT(A) DATED 27-8-2007 ARI SING OUT OF THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) R.W.S . 147 OF THE INCOME TAX ACT 1961. THE ONLY GROUND RAISED BY THE REVENUE IN THIS APPEAL IS AS UNDER: 1.THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN DIRECTING TO DELETE THE ADDITION OF RS.9 58 343/- MADE BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF SUBSIDY RECEIV ED BY THE ASSESSEE BEING REVENUE RECEIPT. 2. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATER IAL PLACED BEFORE US. THE AO MADE THE ADDITION OF RS.9 58 343/- BEING THE SUBSIDY RECEIVED BY THE ASSESSEE TREATING THE SAME AS A REVENUE RECEIPT. THE CIT(A) HAS RECORDED THE FINDING THAT IT WAS CAPITAL SUBSIDY GIVEN AT 20% OF THE COST OF LAND BUILDING PLANT & MACHINERY AND LABORATORY EQUIPMENT. HE THE REFORE DIRECTED THE AO TO TREAT THE SAME AS CAPITAL RECEIPT AND DEDUCT FROM T HE COST OF FIXED ASSETS AS PER THE EXPLANATION 10 TO SECTION 43(1) OF THE I.T.ACT. THE RELEVANT FIN DINGS OF THE CIT(A) IN THIS REGARDS READS AS UNDER: 2.3 .. A COPY OF SANCTION LETTER DATED 9-7-1998 I S AVAILABLE IN THE ASSESSMENT RECORDS FROM WHICH IT IS SEEN THAT THE SUBSIDY HAS BEEN CALCULATED 205 OF COST OF THE PROJECT OF RS.50 50 000/- WHICH ITA.NO.4054/AHD/2007 -2- INCLUDED COST OF LAND NEW BUILDING PLANT AND MACH INERY AND LABORATORY EQUIPMENTS. IT HAS BEEN ALSO SUBMITTED BY THE APPELLANT BEFORE THE ASSESSING OFFICER BY LETTER DATED 28-2-2 006 THAT IT HAS SETTLED THE TERM LOAN ACCOUNT WITH GUJARAT STATE FI NANCIAL CORPORATION AND IN THE PROCESS OF SETTLEMENT OF THA T LOAN ACCOUNT GSFC HAS ADJUSTED CAPITAL SUBSIDY OF RS.9 58 341/AG AINST THE OUTSTANDING LOAN ACCOUNT. THE GSFC LOAN OUTSTANDING WAS OF RS.38 07 258/- AS ON 1-4-98 AND IT HAS BEEN SQUARED UP BY 31-3-99 AFTER THE ADJUSTMENT OF CAPITAL SUBSIDY OF RS.9 58 343/- LEAVING THE BALANCE OF RS.7857/-. THUS THE SUBSIDY HAS BEEN DIR ECTLY RELEASED BY THE GUJARAT STATE FINANCIAL CORPORATION AND HAS BEE N CREDITED TO THE LOAN ACCOUNT. FROM THE DETAILS FILED BY THE APPELLA NT BEFORE THE A.O. REGARDING THE SANCTION LOAN AND SUBSIDY AND THE RES OLUTION OF THE GOVT. IT IS ABUNDANTLY CLEAR THAT THE APPELLANT HAD RECEIVED THE SUBSIDY FOR SETTING UP OF THE UNIT FOR CREATION OF FIXED ASSETS. THUS IN NO CIRCUMSTANCES IT CAN BE TREATED AS REVENUE RECE IPT THOUGH THE APPELLANT HAS RECEIVED THE SUBSIDY IN F.Y. RELEVANT TO THE YEAR UNDER APPEAL BY ADJUSTMENT OF TERM LOAN OF GSFC WHICH WAS SANCTIONED IN F.Y. 1993-94 WHEN THE UNIT WAS SET UP AND THEREFORE THE RATIO LAID DOWN BY THE HON'BLE MADRAS HIGH COURT IN PONNI SUGA RS AND CHEMICALS WOULD BE APPLICABLE. ACCORDINGLY THE SUB SIDY AMOUNT OF RS.9 58 343/- IS TREATED AS CAPITAL RECEIPT AND THE ADDITION IS DELETED. HOWEVER THE SAME SHOULD BE DEDUCTED FROM THE COST O F FIXED ASSETS AND DEPRECIATION NEEDS TO BE REWORKED AS PER EXPLAN ATION 10 TO SECTION 43(1) OF THE I.T.ACT. ACCORDINGLY THE ASSES SING OFFICER IS DIRECTED TO REWORK THE DEPRECIATION ON REDUCED COST OF FIXED ASSETS. 3. AT THE TIME OF HEARING BEFORE US THE LEARNED DR COULD CONTROVERT TO THE ABOVE FINDINGS RECORDED BY THE CIT(A). THE ORDER O F THE CIT(A) IS IN CONFORMITY WITH THE EXPLANATION 10 TO SECTION 43(1) OF THE I.T.ACT WHICH PROVIDES 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 E STABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON IN THE FORM OF A SU BSIDY OR GRANT OR REIMBURSMENT (BY WHATEVER NAME CALLED) THEN SO MU CH 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 ASS ESSEE : PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBU RSEMENT 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 R EIMBURSEMENT OR GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO AL L THE ASSETS IN RESPECT ITA.NO.4054/AHD/2007 -3- OF OR WITH REFERENCE TO WHICH THE SUBSIDY OR GRANT OR REIMBURSEMENT IS SO RECEIVED SHALL NOT BE INCLUDED IN THE ACTUAL CO ST OF THE ASSET TO THE ASSESSEE. IN THIS CASE OF THE ASSESSEE 20% OF THE COST OF THE PROJECT IS MET BY THE GOVERNMENT BY WAY OF PROVIDING THE SUBSIDY TO THE A SSESSEE. THEREFORE THE SUBSIDY CANNOT BE TREATED AS REVENUE RECEIPT BUT I S TO BE REDUCED FROM THE COST OF THE VARIOUS ASSETS. DIRECTION OF THE CIT(A) IS IN ACCORDANCE WITH THE LAW. ACCORDINGLY THE SAME IS SUSTAINED AND THE REVENUE S APPEAL IS DISMISSED. 4. IN THE RESULT THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN OPEN COURT ON 14 TH MAY 2010. SD/- SD/- (T.K. SHARMA) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 14-05-2010 VK* COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER AR ITAT AHMEDABAD