2024 (5) TMI 952 - AT - Income Tax

Depreciation - Determination of Cost / WDV of assets - Nature of receipt of subsidy under IPS Scheme 2007 of the Government of Maharashtra - AO treated the subsidy for acquiring the fixed assets and accordingly reduced the subsidy amount from addition to block of plant and machinery - Since the block of assets gets reduced AO reduced the deprecation allowance by adopting 15% depreciation and added the same to the income of the appellant - HELD THAT - Considering vehement rival submissions against and in support of the impugned sec.43(1) Explanation-10 disallowance and find no merit in Revenue s stand. This is for the precise reason that the tribunal s recent coordinate bench s order in Atharva Polymers Private Limited 2022 (7) TMI 1513 - ITAT PUNE as already settled the issue in assessee s favour and against the department regarding the very PSI scheme vis- -vis applicability of sec.43(1) Explanation -10 qua cost of acquisition of the fixed asset in the case under consideration the assessee has received subsidy for the same scheme i.e IPS. The facts are identical to the facts of the above referred case. Thus respectfully following the decision of ITAT it is held that the subsidy shall not be reduced from the actual cost of fixed assets u/s 43(1) for the purpose of calculation of depreciation. Thus respectfully following the ITAT Pune Bench (supra) the AO is directed to delete the addition of depreciation. Disallowance of claim u/s. 80-IA - brought forward loss or unabsorbed depreciation prior to initial year on notional basis - HELD THAT - As decided in in assessee s case itself in preceding assessment years 2008- 2009 and 2009-2010 2014 (7) TMI 1270 - ITAT PUNE CIT(A) was justified in directing the AO to allow the deduction u/s. 80IA(4)(iv)(a) without deducting brought forward loss or unabsorbed depreciation prior to initial year on notional basis. This reasoned factual and legal finding of CIT(A) needs no interference from our side.

Issues Involved:

1. Treatment of IPS subsidy under PSI Scheme 2007 as a capital asset.
2. Reduction of IPS subsidy from the cost of the asset and corresponding depreciation claim.
3. Deduction under Section 80-IA for windmill units.
4. Withdrawal of the appeal for the assessment year 2018-2019.

Issue-wise Detailed Analysis:

1. Treatment of IPS Subsidy under PSI Scheme 2007 as a Capital Asset:

The assessee argued that the IPS subsidy of Rs. 96,23,314/- received under the PSI Scheme 2007 should be treated as a capital asset, neither liable to tax nor to be reduced from the block of assets. The NFAC, however, treated the subsidy as one for acquiring fixed assets and reduced the subsidy amount from the addition to the block of plant and machinery, consequently reducing the depreciation allowance by Rs. 14,44,247/-. The assessee contended that the subsidy was given for developing backward areas, making it capital in nature and not liable for tax. The NFAC disagreed, citing that the subsidy was directly related to the acquisition of plant and machinery for expansion purposes, thus applicable under sec. 43(1) Explanation-10 of the Income Tax Act.

2. Reduction of IPS Subsidy from the Cost of the Asset and Corresponding Depreciation Claim:

The tribunal found no merit in the Revenue's stand, citing the tribunal's recent coordinate bench's order in ITA No. 1912/PUN./2019, which settled the issue in favor of the assessee. The tribunal concluded that the subsidy should not be reduced from the actual cost of fixed assets under sec. 43(1) for the purpose of calculating depreciation. The tribunal adopted judicial consistency and accepted the assessee's appeal ITA. No. 1156/PUN./2023, allowing the appeal.

3. Deduction under Section 80-IA for Windmill Units:

The Revenue's cross-appeal ITA. No. 1203/PUN./2023 challenged the CIT(A)'s decision on sec. 80-IA deduction. The CIT(A) held that the initial assessment year for sec. 80-IA deduction is the year chosen by the assessee, and the profit of the eligible business should be computed without deducting brought forward losses or unabsorbed depreciation prior to the initial year. The NFAC followed the tribunal's orders in the assessee's case for the preceding assessment years 2008-2009 and 2009-2010, supporting the assessee's claim. The tribunal upheld the NFAC's findings, affirming that the assessee is entitled to the deduction under sec. 80-IA without reducing brought forward losses or unabsorbed depreciation. The Revenue's cross-appeal was dismissed.

4. Withdrawal of the Appeal for the Assessment Year 2018-2019:

The assessee filed a letter seeking to withdraw the appeal ITA. No. 1157/PUN./2023 for the assessment year 2018-2019. The learned DR had no objection, and the tribunal dismissed the appeal as withdrawn.

Conclusion:

The assessee's appeal ITA. No. 1156/PUN./2023 for the assessment year 2014-2015 was allowed, the Revenue's cross-appeal ITA. No. 1203/PUN./2023 was dismissed, and the assessee's appeal ITA. No. 1157/PUN./2023 for the assessment year 2018-2019 was dismissed as withdrawn.

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