2022 (2) TMI 1277 - AT - Income Tax

Depreciation on Government s Grants - reduction of the amount of Capital Grants Subsidies and Consumers Contribution from the total cost of the Plant Machinery for the purpose of allowing depreciation - HELD THAT - Since the Ld. CIT(A) has followed the order of the Ld. CIT(A) in the case of the assessee for assessment year 2006-07 2016 (12) TMI 946 - ITAT AHMEDABAD while treating the entire capital subsidy grant and consumers contribution as capital in nature thus reducing the cost of capital asset and as a consequence the claim of depreciation thereon and which issue has been restored back to the A.O. by the ITAT with the direction to determine the proportionate amount of grant relating to each asset the said decision will apply to the present case also following which the issue in the present case also is restored back to the A.O. to be decided in accordance with the direction of the ITAT in assessment year 2006-07. Disallowance under the head small low value items written off - HELD THAT - In view of the same since identical issue stands adjudicated in favour of the assessee in assessment year 2006-07 the issue stands covered by the said order of the ITAT. Accordingly the claim of the assessee to small and low value item written off is allowed. Disallowance of Miscellaneous losses and write offs - assessee pointed out that it had been submitted to the Ld. CIT(A) that the impugned losses and write off were on account of loss material through pilferage shortage of material in transit shortage arising on physical verification obsolescence of materials stores loss in sale of scrap etc. - HELD THAT - In view of the above since identical disallowance has been deleted by the ITAT in the case of sister concern of the assessee 2015 (6) TMI 1096 - ITAT AHMEDABAD the decision in the said case would squarely apply in the present case also following which the impugned disallowances of write offs amounting is deleted.

Summary

Issues Involved:
1. Reduction of Capital Grants, Subsidies, and Consumers' Contributions from the cost of Plant & Machinery for depreciation purposes.
2. Disallowance of small & low-value items written off.
3. Disallowance of miscellaneous losses and write-offs amounting to Rs. 47,88,340/-.

Issue-wise Detailed Analysis:

1. Reduction of Capital Grants, Subsidies, and Consumers' Contributions from the cost of Plant & Machinery for depreciation purposes:

The Assessing Officer (A.O.) observed that the assessee had reserves comprising deferred government grants, subsidies, and consumer contributions. The A.O. questioned the nature of these grants and why only 10% was written back as income. The assessee explained that the grants were for infrastructural development and were written back annually at 10%. The A.O. accepted that these contributions were capital in nature but held that the treatment of 10% transferred to the Profit & Loss account each year was not in accordance with the Income Tax Act, 1961. The A.O. reduced the aggregate amount from the cost of plant and machinery, resulting in a lower allowable depreciation.

The CIT(A) upheld the A.O.'s order, referencing a similar decision for the assessment year 2006-07. The ITAT, however, restored the issue back to the A.O. to adjudicate afresh after verifying the apportioned amount of grants relating to different assets, following the decision in the assessee's own case for the assessment year 2006-07. The ITAT directed the A.O. to determine the proportionate amount of grant relating to each asset and calculate depreciation accordingly.

2. Disallowance of small & low-value items written off:

The A.O. noted that the assessee had claimed Rs. 1,26,000/- towards small and low-value items written off, which was not in accordance with the provisions of the Income Tax Act, 1961. The CIT(A) upheld the disallowance. However, the ITAT referenced a similar issue in the assessee's case for the assessment year 2006-07, where the claim was allowed. The ITAT allowed the claim for the current year as well, stating that the expenditure was related to carrying on and conducting the business, and thus, the assessee's claim of Rs. 1,26,000/- was allowed.

3. Disallowance of miscellaneous losses and write-offs amounting to Rs. 47,88,340/-:

The A.O. disallowed the claim of Rs. 47,88,340/- on account of miscellaneous losses and write-offs due to a lack of documentary evidence. The CIT(A) upheld this disallowance. The assessee contended that these losses were due to pilferage, shortage in transit, obsolescence, etc., and were incurred in the day-to-day business activities. The ITAT noted that similar disallowances were deleted in the case of the assessee's sister concern, Gujarat Energy Transmission Corporation Ltd., for the assessment years 2006-07 and 2007-08. Following this precedent, the ITAT deleted the disallowance of Rs. 47,88,340/- in the present case as well.

Conclusion:

The appeal was allowed for statistical purposes, with the ITAT directing the A.O. to re-examine the issues related to capital grants and depreciation and allowing the claims for small & low-value items written off and miscellaneous losses and write-offs.