ITA No 1558 of 2014 Teck Band Lab P Ltd Hyderabad IN INCOME TAX APPELLATE TRIBUNAL Hyderabad Bench, Hyderabad Before Smt. P.Madhavi Devi, Judicial Member & Shri S. Rifaur Rahman, Accountant Member ITA No.1558/Hyd/2014 (Assessment Year: 2010-11) M/s.Teck Bond Dy. Commissioner of Income Laboratories Pvt. Ltd. Vs. Tax, Circle 2(3) Hyderabad Hyderabad PAN: AABCT 9977 B (Appellant) (Respondent) For Assessee : Shri A.V. Raghuram For Revenue : Shri A. Sitarama Rao, DR Date of Hearing : 04.08.2016 Date of Pronouncement : 03.10.2016 ORDER Per Smt. P. Madhavi Devi, J.M. This is assessees appeal for A.Y 2010-11 against order of CIT (A) dated 22.08.2014 confirming disallowance and addition made by AO u/s 143(3) of Act. assessee has raised following 7 grounds of appeal:- 1. order of learned CIT(A) is erroneous both on facts and in law and also perverse in not following judicial pronouncements. 2. learned CIT(A) erred in observing that appellant has not responded to AO during remand proceedings without giving opportunity to assessee to find out reasons for such failure. 3. learned CIT(A) deprived assessee of explaining that investors when summoned could not Page 1 of 8 ITA No 1558 of 2014 Teck Band Lab P Ltd Hyderabad attend proceedings due to pre occupation with farming activities and filed letters to that effect and AO without providing another opportunity has concluded that investors has not responded and thereby arrived at adverse conclusion. 4. Without prejudice to above ground, learned CIT(A) erred in holding that ratio in case of Lovely exports of Supreme Court has no application, when assessee has filed all details of investors including their bank accounts thereby demonstration their identity and mode of investment through banking channel discharging onus that lies on him and thereby erred in confirming addition of Rs.53,68,000made u/s.68 being share application money. 5. learned CIT(A) erred in confirming disallowance of ESI & P.F. of Rs.3,84,344 following decision of Gujarat High Court in spite of contrary decision of other High Court which is in favour of assessee and ruling of Supreme Court in Vegetable products that when two views are possible one in favour of assessee should be followed. 6. learned CIT (A) erred in confirming disallowance of depreciation inspite of judicial pronouncement by merely stating that facts are different without even referring to facts of case relied upon facts of assessee case. 7. Any other ground that may be urged at time of hearing . 2. Grounds No.1 & 7 are general in nature and need no adjudication. 3. As regards Grounds No.2 & 3, assessee s contention is that assessee was not given sufficient opportunity of hearing during remand proceedings to present his case. However, Page 2 of 8 ITA No 1558 of 2014 Teck Band Lab P Ltd Hyderabad while going through order of CIT (A), we find that assessee was given several opportunities to explain his case and also to produce relevant parties to prove investment made by them in assessee company. However, assessee could not produce same. In view of same, we do not find any merit in grounds raised by assessee and they are accordingly rejected. 4. As regards Ground No.4, brief facts of case are that assessee which is engaged in business of manufacturing of pharmaceutical intermediates, filed its return of income for A.Y 2010-11 on 10.09.2009, declaring total income of Rs.60,66,939. During assessment proceedings u/s 143(3) of Act, AO observed that assessee has received investment from various parties to extent of Rs.1,12,94,418. assessee also submitted copies of confirmation letters of share applicants. AO asked assessee to furnish copy of bank a/c statements along with copies of I.T. returns of said parties in order to prove their creditworthiness. Assessee submitted copies of bank statement along with copies of returns of income in respect of some of share applicants. However, with regard to 6 parties, total of whose share application money comes to Rs.53,68,000, some of applicants have stated that their only source of income for investment towards share application money is Agricultural Income and that they have filed copies of patta pass books as proof of agricultural land holdings. Holding that assessee could not provide any substantial evidence to prove net agricultural income derived by such parties and also Page 3 of 8 ITA No 1558 of 2014 Teck Band Lab P Ltd Hyderabad genuineness of above share application, AO treated same as unexplained credits u/s 68 of Act and added it to total income and brought it to tax. Further, he also observed that assessee company, during course of assessment proceedings, submitted that it has paid P.F contribution to employees belatedly for months of June to September, October, December 2009 and upto February, 2010, amounting to Rs.3,48,344. Since same was paid well beyond due date, AO added it also to total income of assessee. On similar ground, addition of Rs.33,463 being belated ESI payment was also brought to tax. AO also perused schedules forming part of balance sheet as on 31.03.2010 and observed that company has received State Investment Subsidy of Rs.10.00 lakhs. Assessee was asked to furnish details of investment subsidy and assessee explained that investment subsidy of Rs.10.00 lakhs was received on 12.07.2005 for building constructed at factory and is credited to capital a/c which is part and parcel of reserves. AO noticed that assessee has claimed depreciation on factory building @10% without reducing subsidy received and claimed depreciation on entire value of asset. Therefore, he disallowed excess claim of depreciation by reducing 10% of depreciation on factory building and added it to total income of assessee. Aggrieved by this addition, assessee preferred appeal before CIT (A), who confirmed order of AO. Further aggrieved, assessee is in further appeal before us. Page 4 of 8 ITA No 1558 of 2014 Teck Band Lab P Ltd Hyderabad 5. As regards unexplained share application money, learned Counsel for assessee submitted that most of share application money has been received in earlier A.Y and forms part of opening balance as on 31.03.2009. He submitted that both authorities below have not verified claim but have made addition of entire share application money to extent AO was not satisfied. learned DR, however, supported orders of authorities below. 6. Having regard to rival contentions and material on record as well as documents filed by assessee, we find that assessee had opening balance of share money and shares were allotted to respective parties during relevant A.Y. This is evident from balance sheet as on 31.03.2010 at page 76 of paper book wherein closing balance of share application as on 31.03.2010 was Rs.3,50,005. Further, we also find that amount mentioned against respective parties did not match figures taken by CIT (A). In view of same, we remand this issue to file of AO for re-verification of facts. If it is found that these share application money was received by assessee in financial year 2009-10, only then can same be brought to tax in relevant A.Y i.e. A.Y 2010-11. With these directions, Ground No.4 is remanded to file of AO. 7. As regards disallowance of contributions of employees towards ESI & PF, we find that this issue is covered in favour of assessee by decision of Hon'ble Gujarat High Court in case of CIT vs. Gujarat State Road Transport Corporation Page 5 of 8 ITA No 1558 of 2014 Teck Band Lab P Ltd Hyderabad (223 Taxman 0398 (2014). It is stated by learned Counsel for assessee that payment was made before date of filing of return of income by assessee. Further, we find that this issue is also covered by judgment of Hon'ble Supreme Court in case of Alom Extrusion, reported in (2009) 319 ITR 306 (S.C) wherein it has been held that both employees as well as employers contribution are allowable as deduction u/s 36(1)(va) provided assessee makes payment before due date of filing of return. In view of same, we allow ground No.5 of appeal. 8. As regards Ground No.6 against disallowance of claim of depreciation on investment subsidy of Rs.10.00 lakhs, we find that same is covered in favour of assessee by decision of Coordinate Bench of this Tribunal at Visakhapatnam in case of Sasisri Extractions Ltd. Vs. ACIT (2010) 122 ITD 0428. learned Counsel for assessee submitted that assessee herein is also granted subsidy by virtue of same G.O Ms. No.117, Ind. & Comm. (FR) Deptt. Dated 17.03.1993 as in case of Sasisri Extractions Ltd and therefore, assessee is eligible to claim depreciation on entire cost of factory and building. On perusal of copy of order of Tribunal in case of Sasisri Extractions Ltd, we find that Tribunal at Paras 11 & 12 of its order, has held as under: 11. We have carefully considered rival submissions and perused record. In our considered opinion, even after insertion of Expln. 10 to s. 43(1) of Act, basic principle underlying in decision of apex Court in case of P.J. Chemicals Ltd. (supra) still Page 6 of 8 ITA No 1558 of 2014 Teck Band Lab P Ltd Hyderabad holds field. Their Lordships analyzed expression "met directly or indirectly" to come to conclusion that only in case where subsidy or other grant was given to offset cost of asset, such payment/ grant would fall within expression 'met', whereas subsidy received merely to accelerate industrial development of State cannot be considered as payments made specifically to meet portion of cost of assets. 12. careful perusal of 'Target 2000' scheme shows that scheme was intended to accelerate industrial development of State and incentive was given for setting up of industries in Andhra Pradesh and for purpose of determining amount of subsidy to be given, cost of eligible investment was taken as basis, though it was not specifically intended to subsidise cost of capital. Under circumstances, we are of view that incentive in form of subsidy cannot be considered as payment directly or indirectly to meet any portion of actual cost and thus it falls outside ken of Expln. 10 to s. 43(1) of Act. In light of above discussion, we are of view that for purpose of computing depreciation allowable to assessee, subsidy amount cannot be reduced from cost of capital asset. AO is directed accordingly . 9. Respectfully following same, we allow Ground No.6 of assessee. 10. In result, assessee s appeal is partly allowed. Order pronounced in Open Court on 3rdOctober, 2016. Sd/- Sd/- (S. Rifaur Rahman) (P. Madhavi Devi) Accountant Member Judicial Member Hyderabad, dated 3rd October, 2016. Vnodan/sps Page 7 of 8 ITA No 1558 of 2014 Teck Band Lab P Ltd Hyderabad Copy to: 1. K. Vasantkumar, A.V.Raghu Ram, Advocates,610 Babukhan Estate, Basheerbagh, Hyderabad-1 2. Dy. CIT, Circle 2(3) IT Towers, Hyderabad 3. CIT(A) III Hyderabad 4. CIT II Hyderabad 5. DR, ITAT, Hyderabad 6. Guard File By Order Page 8 of 8 M/s. Teck Bond Laboratories Pvt. Ltd. v. Dy. Commissioner of Income-tax, Circle-2(3), Hyderabad