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2016 (3) TMI 909 - AT - Income TaxDisallowance of Depreciation by reducing Written down value of assets by subsidy received - treatment of subsidy received by the assessee - Held that - The comparison of the Package Scheme of Incentives, 1993 and Package Scheme of Incentives, 2001 reflects that two schemes are similarly offered for establishing SSI units in under-developed areas. Under the first Scheme, in the case of Rohit Exhaust Systems Pvt. Ltd. Vs. ACIT (2015 (3) TMI 1151 - ITAT PUNE), the assessee therein had established a unit in the district of Aurangabad. However, the assessee before us has established a unit in the district of Jalna. The claim of the assessee before us has been that though the quantification of the claim is linked to the cost of fixed assets, however, the provisions of Explanation 10 to section 43(1) of the Act are not to be invoked since the incentive has been given to the assessee for establishing a unit and not for meeting the cost of fixed assets. In view of the ratio laid down above we hold that there is no merit in the orders passed by the authorities below. The assessee had received the subsidy for setting up a unit in the specified area and such subsidy received by the assessee is a capital receipt in the hands of assessee, cost of which is not to be reduced from the written down value of fixed assets. Further, the CIT(A) had placed reliance on series of decisions, which were also relied upon by the CIT(A) while deciding the appeal in the case of Rohit Exhaust Systems Pvt. Ltd. Vs. ACIT (supra). The Tribunal has considered the said reliance and had decided the issue holding that the incentive received by the assessee under Package Scheme of Incentive, 1993 in the form of subsidy was not covered under the provisions of Explanation 10 to section 43(1) of the Act. Following the same parity of reasoning, we hold that the Package Scheme of Incentives 2001 is similar to the Package Scheme of Incentives, 1993 and the incentive received by the assessee before us is not covered under the provisions of Explanation 10 to section 43(1) of the Act. Consequently, the subsidy amount received by the assessee is not to be reduced from the cost of assets. The Assessing Officer is thus, directed to re-work the depreciation allowable in the hands of assessee on the aforesaid assets. - Decided in favour of assessee
Issues Involved:
1. Treatment of subsidy received by the assessee under the "Special Capital Incentive" Scheme. 2. Applicability of Explanation 10 to Section 43(1) of the Income-tax Act, 1961. Detailed Analysis: Issue 1: Treatment of Subsidy Received by the Assessee The primary issue revolves around the treatment of the Rs. 25 lakhs subsidy received by the assessee from the State Government under the "Special Capital Incentive" (PSI-2001) Scheme. The assessee argued that the subsidy was a capital receipt given for establishing an industry in a backward area and not for meeting any part of the cost of the assets. Consequently, they did not reduce the subsidy amount from the cost of fixed assets. However, the Assessing Officer (AO) attributed the subsidy to the building and plant & machinery, reducing their cost and consequently re-working the depreciation, adding Rs. 2,91,807/- to the total income of the assessee. Issue 2: Applicability of Explanation 10 to Section 43(1) of the Income-tax Act, 1961 The CIT(A) upheld the AO's decision, referencing Explanation 10 to Section 43(1) of the Act, which mandates reducing the cost of assets by the amount of subsidy received. The CIT(A) also noted that the Supreme Court's decision in CIT Vs. P.J. Chemicals Ltd. (1994) 210 ITR 830 (SC) was prior to the introduction of Explanation 10. Analysis and Judgment: 1. Arguments by the Assessee: - The learned Authorized Representative for the assessee emphasized that the subsidy was a capital receipt meant for establishing an industry in a backward area. The subsidy was quantified based on the percentage of fixed capital investment but was not intended to meet the cost of the assets. - Reference was made to the Package Scheme of Incentive, 1993, which had similar provisions and was previously held by the Pune Bench of Tribunal in Rohit Exhaust Systems Pvt. Ltd. Vs. ACIT to be a capital receipt. 2. Arguments by the Revenue: - The learned Departmental Representative for the Revenue supported the orders of the authorities below, asserting that the subsidy should be adjusted against the cost of assets. 3. Tribunal's Findings: - The Tribunal reviewed the Package Scheme of Incentives, 2001, noting its similarity to the 1993 Scheme, both aimed at promoting industrial development in under-developed areas and generating employment. - The Tribunal referenced the decision in Rohit Exhaust Systems Pvt. Ltd. Vs. ACIT, where the subsidy under the 1993 Scheme was treated as a capital receipt and not reduced from the cost of assets. - The Tribunal also discussed the applicability of Explanation 10 to Section 43(1), emphasizing that it is necessary to show that the subsidy was directly or indirectly used for acquiring the asset. The Tribunal found that the subsidy was intended to accelerate industrial development rather than meet the cost of assets. 4. Conclusion: - The Tribunal concluded that the subsidy received by the assessee under the Package Scheme of Incentives, 2001, was a capital receipt and not covered under the provisions of Explanation 10 to Section 43(1) of the Act. - Consequently, the subsidy amount was not to be reduced from the cost of assets, and the AO was directed to re-work the depreciation allowable on the assets without reducing the subsidy amount. Final Judgment: The appeal of the assessee was allowed, and the order pronounced on the 10th day of February, 2016, directed the AO to re-work the depreciation allowable in the hands of the assessee on the aforesaid assets without reducing the subsidy amount.
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