2018 (11) TMI 1774 - AT - Income Tax

Benefit of deduction u/s 80IC admissible on profits enhanced by disallowance made u/s 32 - HELD THAT - Claim of depreciation made by the assessee company is allowable deduction and as such, the benefit of deduction u/s 80IC is allowable on profits enhanced by the disallowance made u/s 32 of the Act and in these circumstances, the claim of depreciation is revenue neutral. So far as question of treating the refund of excise duty as part of the cost is concerned, it is the case of the assessee that the entire cost has been paid by the assessee for plant machinery and as such, it cannot be reduced from the cost of asset. Ld. AR for the assessee relied upon order passed by CIT (A) in assessee s own case for AYs 2012-13 2013-14 where in excise duty refund has not been treated in the form of capital subsidy or grant which can be reduced from the cost of assets. Since findings returned by the ld. CIT (A) are based upon the decision rendered by Hon ble Apex Court in CIT vs. Meghalaya Steels Ltd. 2016 (3) TMI 375 - SUPREME COURT we are of the considered view that the excise refund is in the nature of revenue receipt forming part of profits and gains arising from the business and as such cannot be reduced from the cost of plant machinery. So, the findings returned by ld. CIT (A) on this issue are confirmed. We are of the considered view that AO as well as CIT (A) have erred in making addition by disallowing the claim of depreciation of the asset made u/s 32 which would further entitle to the assessee the benefit of deduction u/s 80IC on profits enhanced by such disallowances made u/s 32 of the Act. - Decided in assessee s favour.

Summary

Issues:
Disallowance of depreciation under section 43(1) - Confirmation by CIT(A) - Additional grounds for statutory deduction u/s 80IC - Admissibility of additional grounds - Precedent set by Supreme Court - Benefit of deduction u/s 80IC on enhanced profits - Excise duty refund treatment in cost computation - Comparison with earlier ITAT order.

Analysis:
The appeal concerns the disallowance of depreciation under section 43(1) confirmed by the CIT(A). The assessee raised grounds challenging the CIT(A)'s decision, arguing that no incriminating material was found during the search. Additionally, the assessee sought to claim a statutory deduction u/s 80IC on the additional income arising from the disallowed depreciation. The assessee moved an application for admission of additional grounds, which the CIT DR opposed. However, the Tribunal admitted the additional grounds, citing the Supreme Court's judgment in National Thermal Power Corporation Vs CIT 229 ITR 383.

During the hearing, the assessee contended that the issue was decided in their favor in an earlier ITAT order for the assessment year 2011-12. The Tribunal considered the arguments and material on record, noting that the issue was similar to the one in the earlier order. The earlier order discussed the treatment of depreciation claims and excise duty refunds in the context of statutory deductions u/s 80IC. The Tribunal, following the precedent set by the earlier order, decided the issue in favor of the assessee, allowing their appeal against the disallowance of depreciation.

The earlier order highlighted that disallowances under specific sections of the Income-tax Act result in enhanced profits, making the deductions under Chapter VI-A admissible on the increased profits. The order also clarified the treatment of excise duty refunds in cost computations. Relying on this precedent, the Tribunal allowed the assessee's appeal, emphasizing the revenue-neutral nature of the depreciation claim and the eligibility for statutory deductions on enhanced profits. The comparison with the earlier ITAT order provided a strong basis for deciding the current appeal in favor of the assessee.