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| The Tax Publishers2020 TaxPub(DT) 3764 (Mum-Trib) INCOME TAX ACT, 1961
Section 32
Where assessee credited amount of capital subsidy directly under the head 'capital reserve' in reserves and surplus in the balance sheet but the AO proceeded to reduce the capital subsidy of Rs. 4.54 lakhs from the value of plant and machinery and correspondingly, reduced the claim of regular depreciation and additional depreciation claimed thereon in the assessment then such action of AO was not justified because the said capital subsidy need to be directly credited only to capital reserve and not to be reduced from the value of plant and machinery as per Explanation 10 to section 43(1).
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Depreciation - Disallowance of depreciation - Capital subsidy received under Technology Upgradation Fund (TUF) scheme -
Assessee was engaged in manufacturing, trading and exporting of fabrics. AO observed that assessee had shown capital reserve which included capital subsidy received and this subsidy was given to assessee for setting up of an industry and for making investment in capital intensive projects. Assessee submitted that the capital subsidy was granted to the assessee under TUF scheme and the said subsidy was not directly or indirectly linked with any particular asset purchased by assessee. It pleaded that the receipt of capital subsidy need not be credited to the value of plant and machinery in accordance with Explanation 10 to section 43(1) which would have a consequential impact on the depreciation claimed by assessee. However, AO proceeded to reduce the capital subsidy from the value of plant and machinery and correspondingly, reduced the claim of regular depreciation and additional depreciation claimed thereon in the assessment. CIT(A) held that even after introduction of Explanation 10, there is no change in the basic concept and the test to be satisfied for reduction in actual cost is that a portion of the cost of asset should be met directly or indirectly by an authority either in the form of a subsidy or otherwise. So long as the subsidy is intended to encourage entrepreneurs to establish industries, the mere fact that a specified percentage of the fixed capital cost was taken as the base for determining the subsidy should not be mistaken as a payment intended to subsidise the cost of capital of the new industry. Held: Decision of Supreme Court in the case of Ponni Sugars (2008) 306 ITR 392 (SC) : 2008 TaxPub(DT) 2302 (SC) and in the facts and circumstances of the case, no infirmity in the order of CIT(A) deleting the disallowance of depreciation on capital subsidy and accepting the plea of assessee that the said capital subsidy need to be directly credited only to capital reserve and not to be reduced from the value of plant and machinery as per Explanation 10 to section 43(1). Therefore, appeal of Revenue was dismissed.
Relied:Spectrum Coal & Power Ltd. (Formerly ST-CLI Coal Washeries Ltd.) v. ACIT & (Vice-Versa) [ITA No. 1295/Mum/2012, dt. -8-2017] : 2017 TaxPub(DT) 3900 (Mum-Trib) Dayal Steel Ltd. v. Addl. CIT (2017) 83 taxmann.com 221 (Pat) : 2017 TaxPub(DT) 2006 (Pat-Trib) CIT v. PJ Chemicals Limited (& Other Appeals) (1994) 210 ITR 830 (SC) : 1994 TaxPub(DT) 1271 (SC) Sasisri Extractions Ltd. v. ACIT (2008) 122 ITD 428 (Viz) : 2008 TaxPub(DT) 1439 (Visakhapatnam-Trib)Followed:CIT v. Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392 (SC) : 2008 TaxPub(DT) 2302 (SC)
REFERRED :
FAVOUR : In assessee's favour
A.Y. : 2013-14
INCOME TAX ACT, 1961
Section 4
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