2024 (10) TMI 350 - AT - Income Tax

Computation of actual cost of assets for the depreciation purposes - Nature and character of subsidy / grant in aid - Reduction of grant in aid/ subsidy from the cost of machinery for the purpose of calculating depreciation - DR strongly contended that grants in aid were strictly for technical civil works and plant and machinery for the project and the same is liable to be deducted while arriving at the cost of such asset for purpose of determining cost of asset for depreciation purpose in view of express provision contained in explanation 10 to Section 43 Whether the grant in aid received by the assessee during the year under consideration is liable to be reduced / deducted from the cost of assets i.e; plant and machinery / technical civil work for purpose of arriving at the actual cost of such assets for the depreciation purposes? - HELD THAT - AO has rightly noticed that there is a mandate in Scheme (scheme of Infrastructure development for setting up hot water dip treatment) that grant in aid is to be spent only on Technical Civil Works and Plant Machineries for the project and has held that same shall go to reduce the cost of acquisition of such assets. Thus the concept of actual cost recognised under section 43(1) read with explanation 10 has rightly been applied. See Dalmia Cement (Bharat) Ltd. 2007 (6) TMI 237 - ITAT DELHI-C Actual cost is required to be determined in fact of this case u/s 43(1) to be read with explanation 10 for purposes of Section 32. We are interpreting the fiscal statute as it is and are going by plain and simple meaning as the language utilised by the Parliament is clear and lucid. Needless to state such language is required to be construed as it is and that too strictly with no leeway whatsoever. We have gone by the fiscal rule of literal construction of Section 43(1) on actual cost r.w. Explanation 10. We have followed the path of language itself as it is clear and lucid and requires no assistance to ascertain it s meaning. We also hold that Ld. AR has failed to demonstrate before us in any manner whatsoever as to how the order of ITAT Patna Bench in case of Dayal Steel Ltd. 2017 (7) TMI 952 - ITAT PATNA is applicable to the facts and circumstances of the present case. In the instant case grant in aid where for the plant and machinery and technical civil work. Both the scheme documents expressly say so as aforesaid. The Parliament in its collective wisdom be it in the terms of the scheme and as per Income Tax Act 1961 does not intend to give double benefit to the assessee one in the form of grant in aid for the plant and machinery and technical civil work and other in the form of value / cost of asset eligible for depreciation by not reducing its value by grant in aid amounts. It is for this reason the very definition of actual cost of assets under section 43(1) r.w. Explanation 10 means that the actual cost of the assets to the assessee reduced by that portion of cost thereof if any as has been met directly or indirectly by any other person or authority. This is coupled with Explanation 10. Explanation in statute clarify what is meant in substantive portion of the statute. AR has failed to address us on Section 43(1) and Explanation 10 during the course of the hearing to demonstrate before us as to how the strict formula envisaged by law would not be applicable to the assessee. AR also has failed to demonstrate before us as to on what basis assesee holds the view that grant in aid is not required to be reduced. Grant in aid is towards plant and machinery and technical civil work is therefore required to be deducted / reduced from the value/cost of the assets eligible for depreciation It can therefore be said in law that grant in aid basis the scheme (supra) is directly attributable to meet plant and machinery and technical civil works and hence such portion of it is to be reduced / deducted. The judgement of the Hon ble Bombay High Court in case of Pr. CIT Vs. M/s Welspun Steel Ltd. 2019 (3) TMI 397 - BOMBAY HIGH COURT relied upon is therefore distinguishable in view of the peculiar facts and circumstances of the present case. The nature of incentive in that case was in the form of sales tax benefit whereas in the instant case it is directly towards plant and machinery and technical civil works which are eligible for depreciation by virtue of the concept of the actual cost under section 43(1) r.w. Explanation10. It cannot be said that the grant in aid is only a measure under the scheme but it can correctly be said that grant in aid is for plant and machinery and technical civil work only. Appeal of the Assessee is dismissed.

Summary

Issues Involved:

1. Whether the grant in aid received by the assessee is liable to be reduced from the cost of assets for depreciation purposes.
2. The legality and validity of the impugned order upholding the assessment order.
3. The treatment of subsidy as capital receipt and its impact on depreciation claims.

Issue-wise Detailed Analysis:

1. Treatment of Grant in Aid:

The primary issue revolves around whether the grant in aid received by the assessee should be deducted from the cost of assets for calculating depreciation. The assessee received a grant of Rs. 2.5 Crores from the Ministry of Food Processing Industries and Rs. 35 Lakhs from APEDA. The grant was intended for setting up integrated cold chain facilities, specifically for technical civil works and plant and machinery. The Income Tax Act's Section 43(1) and Explanation 10 stipulate that any subsidy or grant received for acquiring an asset must be deducted from the asset's actual cost. The tribunal held that the grant was indeed meant for specific assets and should be deducted from the asset's cost to determine depreciation.

2. Legality and Validity of the Impugned Order:

The tribunal examined the order passed by the CIT(A), which upheld the AO's decision to reduce the cost of assets by the amount of the grant received. The CIT(A) found that the subsidy was received specifically for investment in assets, and thus, the AO rightly applied Explanation 10 to Section 43(1) to reduce the cost of the asset for depreciation calculation. The tribunal agreed with this view, emphasizing that the statutory definition of actual cost must be adhered to, which includes reducing the cost by any grant received.

3. Subsidy as Capital Receipt and Impact on Depreciation:

The assessee argued that the subsidy should be treated as a capital receipt, not affecting the depreciation calculation. However, the tribunal noted that the subsidy was directly linked to the acquisition of specific assets. The statutory provisions under Section 43(1) and Explanation 10 require that such grants be deducted from the asset's cost. The tribunal also referenced accounting standards and income computation standards that support the deduction of government grants from the asset's cost. The tribunal found no merit in the assessee's argument and upheld the lower authorities' decision to disallow depreciation based on the reduced asset cost.

Conclusion:

The tribunal concluded that the grant in aid received by the assessee must be deducted from the cost of assets for calculating depreciation, as mandated by Section 43(1) and Explanation 10 of the Income Tax Act. The tribunal upheld the CIT(A)'s order, finding no legal or factual infirmities. The appeal by the assessee was dismissed, affirming the reduction of the asset's cost by the grant amount for depreciation purposes.