2015 (10) TMI 1878 - AT - Income Tax

Disallowance on account of depreciation - grant of subsidy by the DIC - Held that - The basic requirement is that the cost of an asset should be made by the grant of subsidy. As against that, the Assessing Officer has mentioned that the subsidy was in the form of liability which was to be re-paid by the assessee may be after a long period of 15 years. The Assessing Officer has not examined the exact claim of subsidy pronounced by the appropriate authority as also the terms of clauses of re-payment of the subsidy granted. The first appellate authority has also not appreciated this fact although it was very much mentioned in the assessment order. Therefore, in the interest of natural justice, this issue should go back to the file of the Assessing Officer to re-examine the facts of the case after perusing the scheme under which the subsidy was granted. Resultantly, the ground is restored back for denovo consideration by the Assessing Officer and, hence, this ground may be treated as allowed for statistical purposes only. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Addition of expenses for cleaning, traveling, and repair/maintenance.
2. Disallowance of depreciation due to subsidy received.

Analysis:

Issue 1: Addition of Expenses
The appeal was filed by the assessee against the order confirming the addition of Rs. 50,000 for cleaning, traveling, and repair/maintenance expenses. The Assessing Officer disallowed these expenses due to the possibility of non-verification and personal expenses. The CIT(A) affirmed the addition as the appellant did not press this ground. The Tribunal dismissed ground no.1 as the assessee had agreed to the addition earlier.

Issue 2: Disallowance of Depreciation
Regarding the disallowance of Rs. 40,357 in depreciation, the Assessing Officer recalculated depreciation due to a subsidy of Rs. 4,58,320 received from DIC, Government of Maharashtra. The subsidy was shown as a liability in the balance sheet, granted for 15 years against factory assets. The Assessing Officer added the excess depreciation claimed by the assessee to their income. The CIT(A) upheld this action citing Explanation-10 to section 43(1) of the Act.

Judgment
The Tribunal noted that the subsidy was mentioned as a liability to be repaid after 15 years, raising doubts on whether it should affect the asset's cost. The Assessing Officer did not thoroughly examine the subsidy's terms and repayment clauses. In the interest of natural justice, the Tribunal decided to send the issue back to the Assessing Officer for re-examination. The ground was restored for denovo consideration, allowing the appeal partly for statistical purposes. The decision was pronounced on 20.8.2015.