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TMI Blog2014 (4) TMI 1084X X X X Extracts X X X X X X X X Extracts X X X X ..... e reduced from the actual cost. The above Explanation and the proviso therein attempt to explain the law. They are not bringing any new law different from the law considered by the Hon’ble Supreme Court in the above cases. CIT(A) has rightly allowed the claim of depreciation of assessee. We uphold the same. - Decided against revenue. Disallowance of expenses at 1% of exempted income by invoking the provisions of section 14A - Held that:- We find that the relevant assessment year involved is 2007-08 and Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT ] wherein it is held that Rule 8D of the Rules as inserted by the I. T (Fifth Amendment) Rules, 2008 w.e.f. 24.3.2008 is prospective and not retrospective. The CIT(A) restricted the disallowance at 1% of the exempted income u/s. 14A of the Act. We find no infirmity in the order of CIT(A) and hence, the same is confirmed. - Decided against revenue. - I.T.A No. 1398/Kol/2011 - - - Dated:- 2-4-2014 - Shri Mahavir Singh, JM Shri Shamim Yahya, AM For the Appellant: Shri Biswanath Das, JCIT, Sr. DR For the Respondent: Shri S. M. Surana, Advocate Per Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Govt. of West Bengal was given as encouragement for setting up of industries in the State of West Bengal and no portion of cost of any asset acquired by the assessee has been made directly or indirectly by the said incentive scheme. 4. Aggrieved against the disallowance of depreciation, assessee preferred appeal before CIT(A), who allowed the claim of the assessee vide para 4.3 of his appellate order as under: 4.3. I have carefully considered the submission made by appellant and facts narrated by A.O. in assessment order. The facts which is not disputed for the year under consideration, the A0 had considered the subject Govt. subsidy as capital receipt accepting the appellant s contention that the said subsidy was given for encouraging the setting up of industries to realize the possibility of industrial resurgence of the State of West Bengal. It is also undisputed that in the scrutiny assessments of the appellant for asst. yr. 2003-04 and 2004-05, the said subsidy was considered as capital receipt accepting the appellant s said contention. In those assessments, the respective subsidy amounts were not reduced from the cost of assets for calculation of depreciation acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be reduced from the actual cost of the capital asset. The Assessing officer is directed accordingly. Respectfully following the aforesaid judgements, considering the fact that no such reduction of subsidy from cost of assets was done in scrutiny assessment of earlier years and also considering that there is no dispute about the proposition that the subject subsidy had been given as an encouragement for setting up of industries for real zation of possibility of industrial resurgence of the State, the action of the A/O in reducing the subsidy from the cost of the assets is not justified and consequent reduction of depreciation cannot be upheld. Accordingly, this ground of appeal is allowed. As the main ground has been allowed there is no need to adjudicate about alternative grounds to ground no. 1. Aggrieved, revenue is in appeal before us. 5. We have heard rival submissions and gone through facts and circumstances of the case. Before us Ld. counsel for the assessee relied on assessee s paper book and referred to pages 1 to 50. Ld. counsel for the assessee first of all drew our attention to copy of West Bengal Incentive Scheme 1999 (in short Scheme ), which is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100% 150% Relevant clause 10.1.7 specifies about percentage ceiling and maximum limit, which reads as under: 10.1.7. Notwithstanding the percentage ceiling specified at Clause 1, 2, 3, 4 5 of sub-paragraph 10.1, the maximum limit of deferment of sales tax or remission of sales tax due for payment by a unit under the provisions contained above, is ₹ 75.00 crore. Whenever the aggregate amount of sales tax due for payment for which deferment/remission has been allowed, exceeds the percentage ceiling of ₹ 75.00 crore, whichever is less, the deferment or remission will be discontinued even before the specified period. The assessee has also drew our attention to the relevant excerpts from the budget statement of Finance Minister of Govt. of West Bengal dated 19.03.1999 made at the time of presentation of budget. The Finance Minister made specific statement as regards to resurgence of positive climate for industrialization and the relevant extracts is as under: 2.11 In this positive climate of industrial resurgence, we therefore desire all the common industrialists and the common businessmen to come forward f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of subsidy cannot be deducted from the actual cost under sec. 43(1) for the purpose allowing depreciation. It is further held that if Government subsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to meet the actual cost . By implication, the above judgment also provides that if the subsidy is intended for meeting a portion of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon ble Supreme Court, law is that if the subsidy is asset specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. 7. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec.43(1). The said Explanation provides that where a portion of the cost of an asset acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empted income by invoking the provisions of section 14A of the Act. For this, revenue has raised following ground no.2: That on the facts and circumstances of the case, Ld. CIT(A) erred in law in restricting the disallowance u/s. 14A at 1% of the exempted income since the decision of the Ld. CIT(A) is without any basis and in contravention to the judgments of Godrej Boycee Mft. Co. Ltd. Vs. DCIT (2010) 328 ITR 81 (Bom) which Ld. CIT(A) highlighted in his order. 10. Briefly stated facts are that the assessee derived dividend income at ₹ 27,16,737/- and Long Term Capital Gain at ₹ 81,03,426/- and claimed the same as exempt u/s. 10(34) and 10(38) of the Act respectively. The AO during the course of assessment proceedings invoked section 14A of the Act read with Rule 8D of the I. T. Rules, 1962 and made disallowance a sum of ₹ 11,30,790/-. Aggrieved, assessee preferred appeal before CIT(A), who restricted the disallowance at 1% of the exempted income and directed the AO accordingly. Aggrieved, revenue came in appeal before us. 11. We have heard rival contention and gone through facts and circumstances of the case. We find that the relevant assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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