2019 (11) TMI 133 - AT - Income Tax

Additional depreciation as claimed on capital subsidy which was required to be deducted from the cost of fixed assets - HELD THAT - In the present case it is an admitted fact that the A.O. reduced the total amount of subsidy of ₹ 32,59,741/- whereas the claim of the assessee is that the amount of ₹ 10,04,264/- was only received, the same was to be deducted from the cost of fixed assets and that no additional depreciation was to be worked out since the machinery was not purchased in the year of receipt of the subsidy where as the additional depreciation was allowable only in the year in which the machinery was purchased. The aforesaid claim of the assessee requires verification, therefore considering the totality of the fact deem it appropriate to set aside this issue back to the file of the A.O. to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. Calculation of the book profit u/s 115JB - not deducting the amount of Capital Subsidy from the book profit - HELD THAT - A.O. considered the Subsidy as capital receipt and reduced it from the cost of assets therefore it was not chargeable to tax at all under any head of the income, then it could not have been treated as part of the Net Profit as per Profit Loss Account, so could not have been held to be taxable as book profit under MAT in terms of Section 115JB of the Act. So respectfully following the case of M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 2017 (4) TMI 47 - ITAT MUMBAI this issue is decided in favour of the assessee.

Summary

Issues:
1. Disallowance of depreciation and additional depreciation claimed on capital subsidy.
2. Calculation of Book Profits under section 115JB of the Income Tax Act, 1961.

Analysis:

Issue 1: Disallowance of Depreciation and Additional Depreciation
The Assessee filed an appeal against the order of the Ld. CIT(A)-2, Ludhiana, regarding the disallowance of depreciation and additional depreciation claimed on a capital subsidy. The Assessing Officer (A.O.) noticed that the Assessee had reduced a subsidy amount from profits but did not deduct it from the actual cost of assets for depreciation calculation. The A.O. disallowed the excess claim of depreciation and added it back to the income. The Assessee contended that only the received subsidy should be deducted from fixed assets, not the whole amount. The Ld. CIT(A) upheld the A.O.'s decision, stating that the subsidy amount should have been reduced from the actual fixed asset cost for depreciation calculation. The ITAT set aside the issue for fresh adjudication by the A.O., emphasizing the need for verification and a fair hearing.

Issue 2: Calculation of Book Profits under Section 115JB
The Assessee challenged the calculation of book profits under section 115JB, arguing that the capital subsidy should not be included in the book profit calculation. Citing a precedent from ITAT Mumbai, the Assessee contended that if a capital receipt is not taxable, it should not be considered as part of the net profit or book profit under MAT. The ITAT agreed with the Assessee, stating that since the subsidy was treated as a capital receipt and not chargeable to tax, it should not be included in the book profit calculation. Consequently, the appeal was partly allowed in favor of the Assessee for statistical purposes.

In conclusion, the ITAT Chandigarh addressed the issues of disallowance of depreciation and additional depreciation claimed on a capital subsidy, as well as the calculation of book profits under section 115JB, providing detailed analysis and setting aside the first issue for fresh adjudication while deciding in favor of the Assessee on the second issue based on relevant legal precedents.