2022 (7) TMI 854 - AT - Income Tax

Nature of receipt - VAT subsidy received from the Andhra Pradesh Government - revenue or capital expenditure - AO held that the said receipt is in the form of an incentive and therefore it is taxable as income - HELD THAT - DR could not controvert the above decision of the Tribunal by filing any higher Court s decision having reversed or modified the above order of the Tribunal. Respectfully following the above decision of the Tribunal CIT(A) has rightly directed the AO to delete the addition made at Rs..10, 85, 54, 000/- on this count. We find no infirmity in the order passed by the ld. CIT(A). Thus the ground raised by the Revenue is dismissed. Allowability of corporate social responsibility expenditure - assessee has claimed corporate social responsibility expenses which was debited under the head miscellaneous expenses - assessee has not proved that the said expenses had been incurred for the business purposes and since there is no provision exists in the Income Tax Act to allow the expenses which are expended for non-business purposes ao disallowed the same - HELD THAT - Respectfully following the above decision of the Tribunal assessee s own case for the assessment year 2011-12 2016 (10) TMI 522 - ITAT CHENNAI CIT(A) has rightly directed the Assessing Officer to delete the addition - Thus we find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly the ground raised by the Revenue is dismissed. Disallowance of depreciation claimed u/s 32 - AO asked the assessee as to why the depreciation claimed at the rate of 80% should not be restricted to 15% since it will come under the category (xii) Renewable Energy devices being windmills and any specially designed device which run on windmills - HELD THAT - As on perusal of the assessment order or appellate order it is not clear as to whether the said windmills and any specially designed devices which run on windmills are installed on or before 31.03.2012 or on or after 01.04.2012. Accordingly we direct the Assessing Officer to verify as to whether the windmills are installed on or before 31.03.2012 or on or after 01.04.2012 and decide the issue afresh in accordance with law after affording an opportunity of being heard to the assessee. We make it clear that if the said windmills and any specially designed devices which run on windmills are installed on or before 31.03.2012 then the assessee would be eligible for depreciation at 80% and if the same was installed on or after 01.04.2012 then the assessee would be eligible for claiming depreciation at 15% only. Disallowance of additional depreciation under section 32(1)(iia) - When asked about the mismatch of invoices the assessee has submitted that the assets were purchased in earlier year and were kept in WIP and capitalized during the assessment year under consideration. However the assessee could not furnish the details of capitalization/work in progress of earlier years or any credible evidence in support of the claim of additional depreciation on plant and machinery for the assessment year under consideration. Accordingly the Assessing Officer disallowed the claim of additional depreciation for want of evidence. On appeal since the assessee failed to furnish any material evidence in support of its claim the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. Even before the Tribunal the assessee could not furnish any documentary evidence so as to justify the claim of additional depreciation. Thus the disallowance additional depreciation claimed by the assessee confirmed by the ld. CIT(A) is sustained. Disallowance of license fee - AO was of the view that the tenure of the agreement dated 29.07.2011 by which the license fee paid to the licensor M/s. Wind Direct GmbH a German company being long gives the assessee enduring benefit and therefore the same is capital in nature - HELD THAT - Once it is clear that the payment of license fee is revenue in nature in view of the above decision of the Tribunal reproduced hereinabove wherein the ratio laid down in the judgement of the Hon ble Supreme Court in the case of CIT v. I.A.E.C. (Pumps) Ltd. 1997 (4) TMI 14 - SUPREME COURT has been relied upon and no other higher Court s decision was brought on record to take a different view we have no hesitation to hold that the license fee paid by the assessee towards know-how and technical assistance in pursuance of the agreement dated 29.07.2011 is revenue in nature. Accordingly we set aside the order of the ld. CIT(A) on this issue and direct the Assessing Officer to allow deduction of license fee as claimed by the assessee. Thus the ground raised by the assessee is allowed.

Summary

Issues Involved:
1. Deletion of addition towards subsidy received from the Andhra Pradesh Government.
2. Claim of corporate social responsibility expenditure.
3. Confirmation of disallowance of depreciation claimed under section 32 of the Act.
4. Confirmation of disallowance of additional depreciation claimed under section 32(1)(iia) of the Act.
5. Confirmation of addition on account of disallowance of license fee.

Detailed Analysis:

1. Deletion of Addition towards Subsidy Received from the Andhra Pradesh Government:
The first effective ground raised by the Revenue relates to the deletion of an addition of Rs. 10,85,54,000/- made towards subsidy received from the Andhra Pradesh Government. The Assessing Officer (AO) considered the subsidy as taxable income, while the assessee claimed it as a capital receipt. The CIT(A) directed the AO to delete the addition based on the Tribunal's decision in the assessee's own case for the assessment year 2011-12. The Tribunal, following the Supreme Court's decision in Shree Balaji Alloys vs. CIT, upheld that VAT subsidy is in the nature of a capital receipt. The Revenue's appeal was dismissed as it could not provide any higher court's decision reversing the Tribunal's earlier order.

2. Claim of Corporate Social Responsibility Expenditure:
The second ground involves the claim of Rs. 24,52,625/- as corporate social responsibility (CSR) expenses. The AO disallowed the expenses, stating they were not incurred wholly and exclusively for business purposes as per section 37(1) of the Act. The CIT(A) directed the AO to delete the addition, following the Tribunal's decision in the assessee's own case for the assessment year 2011-12. The Tribunal noted that the explanation 2 to section 37 of the Act, inserted by Finance Act, 2014, is not applicable for the assessment year 2014-15. Respectfully following the earlier decision, the Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's ground.

3. Confirmation of Disallowance of Depreciation Claimed under Section 32 of the Act:
The assessee claimed Rs. 42,73,79,644/- as depreciation, including 80% on certain plant and machinery. The AO restricted the depreciation to 15%, categorizing the assets under "Renewable Energy devices being windmills and any specially designed device which run on windmills." The CIT(A) confirmed the AO's decision. The Tribunal directed the AO to verify whether the windmills were installed on or before 31.03.2012 or on or after 01.04.2012. If installed on or before 31.03.2012, the assessee would be eligible for 80% depreciation; otherwise, only 15%.

4. Confirmation of Disallowance of Additional Depreciation Claimed under Section 32(1)(iia) of the Act:
The assessee claimed Rs. 3,01,17,327/- as additional depreciation. The AO disallowed the claim due to a mismatch in invoice dates and lack of credible evidence. The CIT(A) confirmed the disallowance. The Tribunal upheld the CIT(A)'s order as the assessee failed to provide any documentary evidence to justify the claim of additional depreciation.

5. Confirmation of Addition on Account of Disallowance of License Fee:
The assessee claimed Rs. 5,88,18,500/- as a license fee paid to Wind Direct GmbH. The AO disallowed the claim, considering it a capital expenditure due to the enduring benefit of the 20-year agreement. The CIT(A) confirmed the disallowance. The Tribunal, following its earlier decision in the assessee's own case for the assessment year 2012-13, held that the license fee is revenue in nature. The Tribunal directed the AO to allow the deduction of the license fee as claimed by the assessee.

Conclusion:
- The appeal filed by the Revenue was dismissed.
- The appeal filed by the assessee was partly allowed.