2017 (5) TMI 123 - AT - Income Tax

Depreciation on lease hold building and plant & machinery - disallowance - case of Revenue is that since building and infrastructure were stated to have been provided by the Govt. of Gujarat/Govt. of India/German Government, depreciation claimed by the assessee and allowed in the assessment mainly on lease holding building and plant & machinery was not in order - whether the contributions made by three governments, viz. Govt. of India, Govt. of Gujarat and German Government was to be treated as a contribution on behalf of the promoters or it was to be treated as a subsidy by the Government? Held that - the ld.AO has misconstrued whole constitution of the Society. He was not justified to assume that three governments who are promoters of the Society have given subsidy instead of contribution for creation of the Society. Here the governments are doing business themselves by constituting the Society. It is not a benefit given by the government for any particular assessee or class of assessees by exercising its Legislative powers. The ld.CIT(A) has considered this aspect and therefore allowed the claim of the assessee. After going through the order of the ld.CIT(A), we do not find any error in it - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
- Disallowance of depreciation on leasehold building and plant & machinery for Asstt. Years 2007-08 and 2008-09.

Analysis:
1. Adjournment Request and Ex Parte Hearing:
- The assessee requested adjournment for hearing, but the application lacked details and reasons. As a result, the Tribunal did not grant adjournment and proceeded ex parte.

2. Background of the Case:
- The assessee, a Society set up by the Government of India with assistance from Germany and Gujarat, provided technical services for small-scale units. The dispute arose over the disallowance of depreciation claimed on assets provided by the governments.

3. AO's Disallowance and Notice under Section 148:
- The Assessing Officer disallowed depreciation, suspecting irregular allowance due to assets provided by governments. This led to a notice under section 148 for both assessment years.

4. Appeal to CIT(A) and ITAT Order:
- The assessee appealed to the CIT(A), who allowed depreciation based on a similar case at the ITAT, Indore Bench. The ITAT's decision emphasized that government contributions were not subsidies but promoter contributions, allowing depreciation.

5. Controversy Over Government Contributions:
- The main issue was whether government contributions were subsidies or promoter contributions. The AO considered them as subsidies, disallowing depreciation, while the CIT(A) viewed them as promoter contributions, allowing the claim.

6. Decision of the Tribunal:
- The Tribunal agreed with the CIT(A), stating that the governments' contributions were not subsidies but promoter contributions for creating the Society. The AO's interpretation was deemed incorrect, and the CIT(A)'s decision to allow depreciation was upheld.

7. Final Decision and Dismissal of Revenue's Appeals:
- The Tribunal dismissed the Revenue's appeals, confirming the CIT(A)'s decision to allow depreciation on the assets provided by the governments.

This comprehensive analysis of the judgment highlights the issues involved, the arguments presented, and the final decision rendered by the Tribunal, providing a detailed understanding of the legal proceedings and outcomes.