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Issues involved: Appeal against order of Commissioner of Income-tax(Appeals) regarding reduction of investment subsidy from opening WDV of assets and disallowance of depreciation on electrical fittings.
Reduction of investment subsidy: The assessee, engaged in manufacturing and trading, received an investment subsidy of Rs. 20,00,000 from the government. The Assessing Officer reduced this subsidy from the written down value of assets, leading to disallowance of depreciation. The assessee argued that the subsidy was not linked to the purchase of any asset but was a pecuniary assistance to encourage industry establishment. Citing precedent cases, the assessee contended that the subsidy should not reduce the asset's cost for depreciation calculation. The Tribunal agreed, stating that the subsidy did not meet the criteria under Explanation 10 to S.43(1) for reducing asset cost, thus allowing depreciation without subtracting the subsidy amount. Disallowance of depreciation on electrical fittings: The Assessing Officer disallowed depreciation on electrical fittings at 25% claimed by the assessee, restricting it to 15%. The assessee argued that the fittings were part of plant and machinery and were previously depreciated at 25%. However, the Officer maintained that electrical fittings were not classified as part of plant and machinery for depreciation purposes. The Tribunal upheld the Officer's decision, noting that the assessee had previously claimed depreciation on fittings at 15% in audit reports. The Tribunal ruled that the claim for higher depreciation did not justify perpetuating the error, affirming the disallowance at 15% depreciation rate. Conclusion: The Tribunal partly allowed the assessee's appeal, overturning the reduction of investment subsidy from asset value but upholding the disallowance of depreciation on electrical fittings.
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