2023 (5) TMI 690 - AT - Income Tax

Nature of receipt - subsidy received from Government of India - revenue or capital receipt - Assessee stated that subsidy received by the assessee is neither directly used for acquisition of any asset and thus, the same has not been reduced from the cost of asset as required under provisions of section 43 - HELD THAT - As per the scheme, subsidy can be utilized either for setting up of new biomass cogeneration system or to promote the existing system and its benefits. In the present case, the assessee has set up 4.2 megavolts captive power plant with a cost of project of Rs. 18.90 crores. The assessee has claimed subsidy of Rs. 84 lakhs @ 20 lakhs per megavolt on total amount invested for setting up 4.2 megavolt power plant. From the above, it is very clear that subsidy received from Government of India is directly linked to investment made in setting up of new power plant. Therefore, we are of the considered view that the assessee needs to reduce the amount of subsidy received from Government of India from actual cost of asset installed in power plant, because said subsidy is directly linked to setting up of new power plant, as per the scheme promoted by the Government. Therefore, we are of the considered view that the Assessing Officer is completely erred in treating subsidy received from Government of India as revenue receipts taxable u/s. 2(24)(xviii) of the Act. Subsidy received by the assessee from Government of India through Tamilnadu Energy Development Agency, is capital subsidy given by the Government to enable the assessee to set up new power plant in line with program on biomass co-generation system in industry and thus, the assessee ought to have reduced amount of subsidy received from actual cost of plant and machinery installed in the plant for claiming depreciation. Therefore, we direct the AO to treat subsidy received from Government of India as capital receipts and also reduce from cost of asset acquired out of said subsidy and allow depreciation as per law. Disallowance u/s. 14A r.w.r. 8D to book profit computed u/s. 115JB - HELD THAT - This issue is covered in favour of the assessee by the decision of ACIT vs Vireet Investments Pvt Ltd 2017 (6) TMI 1124 - ITAT DELHI where it has been clearly held that the computation of clause (f) to Explanation (1) of section 115JB(2) of the Act, is to be made without resorting to the computation as contemplated u/s. 14A r.w.r. 8D of the I.T. Rules, 1962. Thus, by following the decision of ITAT Special Bench, we direct the Assessing Officer to delete additions made towards disallowance u/s. 14A r.w.r. 8D of the I.T. Rules, 1962 to book profit computed u/s. 115JB(2) of the Act.

Summary

Issues Involved:
The judgment involves the assessment of subsidy received from the Government of India and additions towards disallowance under section 14A read with Rule 8D of the Income Tax Act, 1961.

Assessment of Subsidy Received:
The assessee received a capital subsidy of Rs. 84 lakhs from the Government of India for implementing a program on 'Biomass Co-generation in Industries'. The Assessing Officer treated this subsidy as a revenue receipt, while the assessee claimed it to be a capital receipt. The tribunal examined the scheme's objectives and concluded that the subsidy was a capital receipt directly linked to setting up a new power plant. The tribunal directed the Assessing Officer to treat the subsidy as a capital receipt and reduce it from the actual cost of the asset for claiming depreciation.

Disallowance under Section 14A - Rule 8D:
The issue of disallowance under section 14A read with Rule 8D of the Income Tax Rules, 1962, to book profit computed under section 115JB of the Act was considered. The tribunal referred to a decision by the ITAT Special Bench and ruled in favor of the assessee, directing the Assessing Officer to delete the additions made towards disallowance under section 14A read with Rule 8D to book profit computed under section 115JB of the Act.

The judgment addressed the contention regarding the nature of subsidy received from the Government of India, emphasizing the distinction between capital and revenue receipts based on the scheme's objectives. It also resolved the issue of disallowance under section 14A read with Rule 8D concerning book profit computation under section 115JB of the Act, following a precedent set by the ITAT Special Bench. The tribunal partly allowed the appeal filed by the assessee, pronouncing the order in court on 10th May 2023 in Chennai.