2023 (7) TMI 1265 - AT - Income Tax

Nature of receipt - Sales Tax subsidy - revenue or capital receipt - HELD THAT - Tribunal in 2012 (9) TMI 281 - ITAT DELHI and others have given a categorical finding that Sales Tax subsidy is of capital in nature, following the Special Bench decision in the case of Reliance Industries Ltd 2003 (10) TMI 255 - ITAT BOMBAY-J which was subsequently affirmed by the Hon ble High Court of Bombay 2009 (4) TMI 516 - BOMBAY HIGH COURT . Thus Sales Tax subsidy is treated as capital receipt. Recomputation of depreciation by reducing the capital subsidy from written down value of assets - CIT(A) was of the opinion that Sales Tax subsidy is solely meant to encourage setting up of industries in under-developed regions and merely because subsidy given was quantified according to investment made in fixed assets, it would not become payment for meeting cost of any or all the fixed assets. - HELD THAT - Hon ble Madras High Court in the case of Standard Fireworks Private Limited 2008 (6) TMI 344 - MADRAS HIGH COURT held that where subsidy was given based on specified percentage of fixed capital cost, is not a payment directly or indirectly made to meet any portion of the actual cost and, therefore, such subsidy was not to be reduced from the actual cost u/s 43(1) of the Act. This view was fortified by the decision of Eicher Tractors Ltd 2007 (5) TMI 688 - DELHI HIGH COURT . We do not find any error or infirmity in the findings of the ld. CIT(A). Disallowance of deduction u/s 10B - allocation of expenses - AO has computed the profits of EOU units on pro-rata basis in the ratio of sales turnover of EOU units and non-EOU units - HELD THAT - We find that the entire quarrel revolves around the payment of Senior Management Salary, which has been allocated by the Assessing Officer in the ratio of turnover of EOU and non-EOU units as against appellant s allocation of 5% of total expenses. In A.Y 2006 07, AO was not convinced with the allocation and in the year under consideration i.e A.Y 2007 08, the assessee itself has allocated the Senior Management Salary cost in the ratio of sales of EOU units and non-EOU units. Therefore, the adverse inference of the AO in A.Y 2006 07 has been taken care of in A.Y 2007 08. Thus no merit in the action of the Assessing Officer in reducing the claim of deduction u/s 10B of the Act. Therefore, we do not find any reason to interfere with the findings of the ld. CIT(A). Ground No. 1 is, accordingly, dismissed. Depreciation on computer accessories - @60% OR 15% - HELD THAT - CIT(A) was of the correct opinion that the ratio laid down in the case of BSES Rajdhani Ltd 2010 (8) TMI 58 - DELHI HIGH COURT squarely apply wherein the Hon'ble High Court has held that peripherals, such as printers, scanners, server, formed, integral part of computer, and therefore, eligible for deduction of depreciation, @ 60%. Addition on account of loan processing charges - CIT(A) deleted the addition - HELD THAT - We find that the loan was utilized for business purpose is not in dispute. Merely because it was one-time payment made by assessee for loan processing charges would not make it a capital expenditure. As decided in India cement case 1965 (12) TMI 22 - SUPREME COURT loan obtained is not an asset or advantage of an enduring nature, expenditure was made for securing the use of money for a certain period and it is irrelevant to consider the object with which the loan was obtained. Consequently, in the circumstances of the case, the expenditure was revenue expenditure - Decided in favour of assessee.

Summary

Issues involved: Interpretation of Sales Tax subsidy as revenue or capital receipt, allowability of depreciation, disallowance of deduction u/s 10B, addition of depreciation on computer accessories, addition of capital subsidy, addition of loan processing charges.

The judgment addressed a bunch of appeals by the Revenue against separate orders of the ld. CIT(A) for A.Ys 2004-05 to 2008-09. The primary issue was determining whether Sales Tax subsidy should be treated as a revenue or capital receipt affecting the allowability of depreciation. The Tribunal affirmed that Sales Tax subsidy is of capital nature, following precedents, and should not reduce the written down value of assets for depreciation purposes.

In one of the appeals for A.Y 2007-08, the Assessing Officer disallowed deduction u/s 10B, alleging disproportionate profits of EOU units compared to non-EOU units. The ld. CIT(A) disagreed, noting separate accounts, assets, and processes for EOU units, leading to different depreciation and expenses. The Tribunal upheld the ld. CIT(A)'s decision, finding no merit in the Assessing Officer's action.

Another issue concerned the addition of depreciation on computer accessories. The Assessing Officer disallowed excess depreciation claimed on accessories, but the ld. CIT(A) and Tribunal followed a High Court decision, allowing the higher depreciation rate for peripherals integral to computers.

In a separate appeal for A.Y 2008-09, the Tribunal dismissed the Revenue's grounds, including the addition of capital subsidy and loan processing charges. The Tribunal upheld the decisions based on previous rulings and the nature of the expenses incurred. The appeals by the Revenue were ultimately dismissed in all instances.

The judgment provided detailed analysis and legal reasoning for each issue, referencing relevant case law and precedents to support the decisions made by the Tribunal.