Case Law Details
Jubilant Infrastructure Ltd. Vs ACIT (ITAT Delhi)
If disallowance leading to enhancement in the profits of eligible business, then Section 80IAB deduction under Chapter-VIA of Income Tax Act is admissible.
Introduction: In the case of Jubilant Infrastructure Ltd. Vs ACIT (ITAT Delhi), the issue of deductibility under Chapter-VIA of the Income Tax Act was deliberated upon, particularly in relation to disallowance leading to an enhancement in the profits of eligible businesses. This case provides insights into the admissibility of deductions under specific circumstances.
The facts of the case is this that during the previous year the assessee company capitalized assets of Rs. 3,58,94,000/- as intangibles. The assessee company has made a onetime payment to Gujarat Industrial Development Corporation ( GDC) for use of water supply connection and drainage connection of Rs.3,58,94,000/- and the same has been capitalized in fixed assets schedule under other (Rights) head. It is also submitted by the assessee that it paid Rs.7,79,80,000/- to GIDC for use of water supply connection and drainage connection. Out of this amount the assessee company has recovered the amount of Rs.3,49,00,000/- from Jubilant Life Sciences Limited and Rs.71,86,000/- deposited as a security deposit to GIDC and balance of Rs.3,58,94,000/- capitalized in Fixed assets schedule under other (Rights) head. Further, that the assessee company has claimed depreciation @ 25% on Rs.85,17,815/- (358,94,000 – 89,73,500 – 67,30,125 – 50,47,593 – 37,85,695 – 28,39,272)which comes to Rs.21,29,453/-.
Such claim, however, has been rejected by the AO on the count that right to use water neither diminishes nor enhances by any means. The Government has just given a facility to the assessee to use the same and the assessee has clearly tried to claim the depreciation on the same, this cannot be allowed against the taxable income to reduce the same.
At the time of hearing of instant appeal the Ld. Counsel appearing for the assessee submitted before us that in the event the ground No.2 relating to non allowance deduction u/s. 80 IAB of the Act on the amount of depreciation disallowed if allowed, then ground No.1 being disallowance of claim of depreciation on intangible assets will become academic. As the assessee is eligible for deduction under Section 80IAB and the disallowance of depreciation of intangible assets under Section 32 of the Act since lead to the enhancement of the profit of the under taking, such enhancement of profit by way of disallowance of depreciation would also be eligible for deduction under Section 80 IAB of the Act. In this respect he has relied upon CBDT circular being No.37/2016 dated 02.11.2016.
“In view of the above, the Board has accepted the settled position that the allowances 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.”
On the perusal of the assessment orders, we find that there is no dispute that assessee is eligible for deduction u/s.801AB and the disallowance of depreciation amounting to Rs.67,30,125/-which was claimed as depreciation eligible on intangible assets u/s.32 has lead to the enhancement of the profit of the undertaking. We agree with the contention of the Id, counsel that such an enhancement of profit by way of disallowance of depreciation would be eligble for deduction u/s.80IAB and this position is now set at rest by CBDT Circular cited (supra). Accordingly, we direct the Assessing Officer to allow the deduction u/s.801AB on the disallowance of depreciation and gave consequential relief. In view of our aforesaid direction, the issue raised on merits on allowability of depreciation on intangible assets is purely academic. Hence, no separate adjudication is required. Ground No.3 is purely consequential in nature and specific adjudication is required. Accordingly, the appeal of the assessee is allowed.
Conclusion: The ruling in the case of Jubilant Infrastructure Ltd. Vs ACIT (ITAT Delhi) underscores the importance of understanding the interplay between deductions under Chapter-VIA of the Income Tax Act and enhancements in business profits due to disallowances. This decision provides clarity on the eligibility for deductions in scenarios where disallowances lead to an increase in business profits.
FULL TEXT OF THE ORDER OF ITAT DELHI
The instant appeal filed at the behest of the assessee is directed against the order dated 23.03.2022 passed by the National Faceless Assessment Centre, Delhi under Section 143 (3) r.w.s. 144 C r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to “the Act”) whereby and whereunder addition of Rs.21,29,453/-rejecting the claim of depreciation on Water-use Rights (Intangibles Asset) for A.Y. 2017-18 has been made.
2. The facts of the case is this that during the previous year the assessee company capitalized assets of Rs. 3,58,94,000/- as intangibles. The assessee company has made a onetime payment to Gujarat Industrial Development Corporation ( GDC) for use of water supply connection and drainage connection of Rs.3,58,94,000/- and the same has been capitalized in fixed assets schedule under other (Rights) head. It is also submitted by the assessee that it paid Rs.7,79,80,000/- to GIDC for use of water supply connection and drainage connection. Out of this amount the assessee company has recovered the amount of Rs.3,49,00,000/- from Jubilant Life Sciences Limited and Rs.71,86,000/- deposited as a security deposit to GIDC and balance of Rs.3,58,94,000/- capitalized in Fixed assets schedule under other (Rights) head. Further, that the assessee company has claimed depreciation @ 25% on Rs.85,17,815/- (358,94,000 – 89,73,500 – 67,30,125 – 50,47,593 – 37,85,695 – 28,39,272)which comes to Rs.21,29,453/-.
3. Such claim, however, has been rejected by the AO on the count that right to use water neither diminishes nor enhances by any means. The Government has just given a facility to the assessee to use the same and the assessee has clearly tried to claim the depreciation on the same, this cannot be allowed against the taxable income to reduce the same.
4. The payment cannot be considered to be on account of acquisition of capital asset and, therefore, no depreciation has been found to be allowed.
5. At the time of hearing of instant appeal the Ld. Counsel appearing for the assessee submitted before us that in the event the ground No.2 relating to non allowance deduction u/s. 80 IAB of the Act on the amount of depreciation disallowed if allowed, then ground No.1 being disallowance of claim of depreciation on intangible assets will become academic. As the assessee is eligible for deduction under Section 80IAB and the disallowance of depreciation of intangible assets under Section 32 of the Act since lead to the enhancement of the profit of the under taking, such enhancement of profit by way of disallowance of depreciation would also be eligible for deduction under Section 80 IAB of the Act. In this respect he has relied upon CBDT circular being No.37/2016 dated 02.11.2016.
6. In fact, a judgment passed by the Coordinate Bench in ITA No.7707/Del/2017 in assessee’s own case has considered this particular aspect of the matter and granted relief in favour of the assessee, copy whereof has also been submitted before us. Such fact has not been able to be converted by the Ld. DR.
7. We have heard the rival submissions made by the respective parties and perused the relevant materials available on record including the orders passed by the authorities below. On the issue involved as narrated above we further considered the judgment passed by the Coordinate Bench in ITA No.7707/Del/2017 in assessee’s own case. While dealing with the identical issue, the Coordinate Bench has been pleased to observe as follows :-
“2. The facts in brief are that the Appellant is a wholly owned subsidiary of Jubilant Life Sciences Limited (ULL). It has developed a sector specific Special Economic Zone (‘SEZ) for chemicals in Bharuch district of Gujarat. The SEZ for chemical products is conceptualized as a world-class industrial park, meeting all requirements of the chemical sector. The sector specific SEZ was developed with all utilities/ facilities required for the operation of chemical plants keeping the environmental management as the focal point. For Assessment Year (‘AY) 2013-14, the Appellant filed its return of income on November 27, 2013 declaring taxable income of Rs.17,40,660 after claiming deduction u/s 80 IAB of the Act. The Appellant had also declared book profit of Rs. 13,78,64,397 u/s 115JB of the Act on which taxes were paid. It has made a one-time payment to Gujarat Industrial Development Corporation (GIDC) for use of water supply connection and drainage connection and paid Rs. 7,79,80,000 to GIDC for use of water supply drainage connection and connection and recovered an amount of Rs 3,49,00,000 from JLL as mentioned in the lease deed and further an amount of Rs. 71,86,000 was deposited in the form of security deposit with GIDC. The balance amount ofRs.3,58,94,000 was capitalized in the fixed assets capitalized in the fixed assets schedule under Other (Rights) head, 125 Appellant claimed depreciation amounting to Rs. 67,30,125 at the rate of 25% on Rs. 2,69,20,500 being the WDV for the year under consideration.
3. Ld. Assessing Officer in the final assessment order disallowed the claim of depreciation on intangibles holdings that the facility has been put up by GDIC and assessee is using and not owning the facility and such facility is not a right. The tangible right is not depreciable in nature. The DRP had given the following directions:-
a. No ownership was transferred to the assessee and only the right to use was given and therefore, the payment cannot be considered to be on account of acquisition of capital asset and therefore, no depreciation is allowable on the same.
b. The Capitalization of the right to use has rightly been but it does not form a block of any assessee but asset on which depreciation can be allowed.
c. Since the amount of depreciation is not expenditure eligible for deduction, the contention of the assessee that the amount of depreciation disallowed should be allowed u/s. 80IAB of the Act is not acceptable.
4. Before us, ld. counsel submitted that in ground no.2 which relates to non allowance of deduction u/s.801AB on the amount of depreciation disallowed and if this ground is held to be allowable, then ground no.1 will become purely academic. In other words, if the depreciation is disallowed, then assessee is eligible for claim of deduction u/s.801AB on the amount of income enhanced by the Assessing Officer due to disallowance of depreciation on tangible assets, and now such an allowability of enhanced disallowance is now covered by CBDT Circular No. 37/2016 dated November 2, 2016, wherein the CBDT has accepted that if disallowance leading to enhancement in the profits of eligible business, then deduction under Chapter-VIA of the Act is admissible on the profits so enhanced by the disallowance. The relevant extract of the circular is reproduced hereunder:
“In view of the above, the Board has accepted the settled position that the allowances 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.”
5. Thus, he submitted that the deductions น/801AB should be allowed on the disallowance of depreciation as it only enhanced the profit from the impugned business.
6. On the other hand, ld. DR has strongly relied order of the Assessing Officer and DRP.
7. On the perusal of the assessment orders, we find that there is no dispute that assessee is eligible for deduction u/s.801AB and the disallowance of depreciation amounting to Rs.67,30,125/-which was claimed as depreciation eligible on intangible assets u/s.32 has lead to the enhancement of the profit of the undertaking. We agree with the contention of the Id, counsel that such an enhancement of profit by way of disallowance of depreciation would be eligble for deduction u/s.80IAB and this position is now set at rest by CBDT Circular cited (supra). Accordingly, we direct the Assessing Officer to allow the deduction u/s.801AB on the disallowance of depreciation and gave consequential relief. In view of our aforesaid direction, the issue raised on merits on allowability of depreciation on intangible assets is purely academic. Hence, no separate adjudication is required. Ground No.3 is purely consequential in nature and specific adjudication is required. Accordingly, the appeal of the assessee is allowed.
8. In the result, the appeal of the assessee is allowed.”
8. Under the facts and circumstances of the case we find that the issue is squarely covered in assessee’s own case as mentioned hereinabove and, therefore, respectfully relying upon the same we grant relief to the assessee allowing deduction under Section 80 IAB on the disallowance of depreciation. The Ld. AO is directed to give relief accordingly.
9. As ground No.2 is allowed, ground No.1 relating to depreciation on intangible asset has become purely academic. No order, therefore, needs to be passed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 03rd May, 2024.
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