2011 (4) TMI 1455 - AT - Income Tax

Summary

Issues involved: Appeal against CIT(A) order for assessment years 2001-02, 2005-06, and 2006-07.

Depreciation Disallowance:
The appellant contested the disallowance of depreciation on assets purchased from a Government Grant, arguing that the grant was received towards the entity's corpus, and thus, no depreciation disallowance should be made. The appellant also highlighted the pending application for registration u/s 12A/12AA, asserting that the assessment should have been framed as per provisions of Section 11 to 13 of the Income-tax Act, 1961. The CIT(A) was criticized for upholding the reopening of assessment as not invalid.

Factual Background:
The appellant, a Government of India Enterprise, received contributions from the Government of India, Government of Germany, and Government of M.P. to establish a society providing technical services. The AO disallowed depreciation on assets purchased using grants, leading to a 25% reduction in depreciation. The appellant challenged this action, citing relevant case laws.

Judgment:
The Tribunal considered the case laws cited by the appellant, emphasizing the liberal interpretation of "actual cost" in Section 43(1) of the Income-tax Act, 1961. Referring to the decision in P.J. Chemicals case, it was held that Government subsidies aimed at encouraging entrepreneurs should not reduce the actual cost for depreciation calculation. Relying on various court decisions, the Tribunal ruled in favor of the appellant, reversing the lower authorities' decision to reduce the Government grant from the actual cost of assets for depreciation calculation.

Conclusion:
Given the favorable decision on the depreciation claim, the issue regarding registration u/s 12A/12AA was deemed academic and not addressed. Consequently, the appellant's appeal for all years was allowed, and the order was pronounced on 26th April 2011.