2014 (12) TMI 249 - AT - Income Tax

Disallowance on depreciation reduction of subsidy amount from the cost of fixed assets - The amount of ₹ 2.78 crore being an advance subsidy received by the lending banks was kept under subsidy reserve account At what stage the subsidy actually accrued to the assessee Held that - The subsidy was released to the lending banks with the stipulation that the equivalent loan amount would not be charged with interest and subsidy amount would also not earn any interest till the final repayment of loan - since the Corporation had no access to the fund till the satisfactory compliance with the terms and conditions of the scheme and liquidation of the loan, therefore, it cannot be said that the subsidy had accrued to the assessee - If the assessee failed to comply with those terms and conditions and defaulted in liquidation of loans, then the subsidy could not be released to the assessee - the accrual of receipts was in favour of the assessee only in the year in which all the terms and conditions of the scheme were duly complied and the loans to the banks were liquidated assessee rightly contended that it could be adjusted in the AY in which it was actually received Decided in favour of assessee. Disallowance of claim of deduction u/s 80IB Whether new warehouses are mere extension or expansion of the existing business and should not be considered as an undertaking for the purpose of the provisions of section 80- IB Held that - Following the decision in A.P. State Warehousing Corporation vs DCIT 2014 (5) TMI 730 - ITAT HYDERABAD there is no restriction in section 80-IB that an existing business unit cannot set up new undertakings to carry on the integrated business of handling, storage and transportation of food grains - The godowns where this business is to be carried on need not be owned by the assessee - The assessee had collected rentals for storing food grains and had engaged outsiders to transport the food grains - the assessee had been carrying on similar business would not disentitle the assessee from claiming relief u/s 80IB(11A) - deduction under Chap VIA, in respect of new undertakings set up by the assessee by way of expansion of the existing undertakings. Sec 80IB(11A) is applicable to income derived from the integrated business of handling, storage and transportation of food grains - it is engaged in the integrated business of handling, storage and transportation of food grains thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO to verify the claim for deduction u/s. 80IB in respect of new undertaking set up on or after 1.4.2001 and allow the deduction in accordance with law and after giving adequate opportunity of being heard to the assessee - Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of the reassessment under Section 147 of the Income Tax Act.
2. Disallowance of depreciation on the basis of subsidy received.
3. Eligibility for deduction under Section 80-IB(11A) of the Income Tax Act for new undertakings.

Issue-wise Detailed Analysis:

1. Validity of the Reassessment under Section 147:

The assessee contended that the reassessment under Section 147 was invalid as there were no new facts available to the Assessing Officer (AO), and it was merely a change of opinion. The CIT(A) upheld the AO's action. The Tribunal noted that the assessee did not press this ground during the hearing, and hence, it was dismissed as not pressed.

2. Disallowance of Depreciation on the Basis of Subsidy Received:

The assessee received a subsidy of Rs. 2.78 crore under the Gramin Bhandaran Yojana for creating fixed assets (godowns). The AO added Rs. 27.80 lakh to the income, claiming that the subsidy should have been deducted from the cost of the assets, thereby reducing the depreciation claimed. The CIT(A) upheld the AO's view, stating that the subsidy was received and should have been adjusted against the cost of the assets.

The Tribunal, however, disagreed with the CIT(A). It held that the subsidy had not accrued to the assessee since it was subject to compliance with the scheme's terms and the liquidation of loans. The subsidy could only be considered received when these conditions were fulfilled. Therefore, the Tribunal allowed the assessee's ground, stating that the adjustment should be made in the year the subsidy was actually received.

3. Eligibility for Deduction under Section 80-IB(11A):

The AO denied the deduction under Section 80-IB(11A), arguing that the new warehouses were merely an extension of the existing business and not new undertakings. The CIT(A) upheld this view. The assessee argued that each new warehouse constituted a new undertaking eligible for the deduction.

The Tribunal referred to the ITAT Hyderabad Bench decision in the case of A.P. State Warehousing Corporation, which held that new warehouses set up after 1.4.2001 qualify as new undertakings eligible for deduction under Section 80-IB(11A). The Tribunal restored the matter to the AO to verify the claim for deduction in respect of new undertakings set up on or after 1.4.2001 and allow the deduction accordingly.

Conclusion:

1. The ground regarding the validity of reassessment under Section 147 was dismissed as not pressed.
2. The Tribunal allowed the assessee's appeal on the issue of disallowance of depreciation, holding that the subsidy should be adjusted in the year it was actually received.
3. The Tribunal restored the matter of eligibility for deduction under Section 80-IB(11A) to the AO for verification and appropriate action, following the precedent set by the ITAT Hyderabad Bench.

Result:

The appeals were partly allowed and partly allowed for statistical purposes, with specific directions for the AO to verify and allow claims in accordance with the Tribunal's findings.