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TMI Blog2018 (7) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO or CIT(A) to prove that such capital subsidy has been received pertains to earlier period on assets already created. No doubt, any capital subsidy received from the government under incentive scheme is to be reduced from the assets already acquired in earlier period - issue needs to be re-examined by the AO in the light of the claim of the assessee that capital subsidy received from state government pertains to earlier period. If the AO found that such subsidy pertains to earlier period, then the AO is directed to allow deduction from opening WDV of respective block of assets. The assessee is directed to file necessary evidence to prove its claim. Insofar capital subsidy as revenue receipt, we find that the AO has wrongly treated capital subsidy received from state government as revenue receipt without appreciating the basic fact that the state government has given capital subsidy @15% of total investment made in assets. When the state government has given subsidy amount of 15% of total assets created by the assessee, there is no meaning for the AO to reduce it from the assets created during the current year to treat the balance amount as revenue receipts. Therefore, set asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alongwith detailed questionnaire were issued. In response to notices, the authorized representative of the assessee appeared from time to time and filed various details, as called for. The assessment has been completed u/s 143(3) on 31-12-2009 determining the total income at ₹ 22,94,16,980 by making various additions including addition towards disallowance of stock written off aggregating to ₹ 58,62,102 and re- working depreciation claim on plant & machinery after adjusting capital subsidy received from Government of West Bengal of ₹ 86,64,458. 3. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has filed elaborate written submissions on the issue of disallowance of stock written off which has been reproduced by the Ld.CIT(A) at para 2 on pages 4 & 5 of his order. The assessee also filed elaborate submissions on the issue of wrong claim of depreciation and treatment of capital subsidy amounting to ₹ 31,63,319 as revenue receipt which has been reproduced by the Ld.CIT(A) on page 6 of his order. Insofar as addition towards disallowance of stock written off, the sum and substance of the argument of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ger he submission makes it very clear that these items are part of production process or manufacturing as these have lost the surface finish after prolonged use. As regards the fresh submission that these are part of stock in trade no supporting evidence is produced in the form of stock register etc either before A.O or during appellate proceeding. Further, if these are part of stock in trade, then there is no corresponding scrap value is shown as substantial amount of ₹ 5,8,62,102/- has been written off. Looking into the facts of the case, in my opinion the AO has correctly taken action on the basis of submission made and facts of the case." As regards capital subsidy received from Government of West Bengal under industrial development Incentive Scheme, 2000 for expansion programme of Kharagpur factory of the assessee, the CIT(A) observed that the entire subsidy has been received for this year, therefore, to say that such subsidy is in respect of earlier years is without any supporting evidences and hence cannot be accepted. Further, in that case, the matching of the subsidy of the items in the respective year needs to be done which is also not done. Under these facts, he o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R further submitted that the assessee has written off bevel sets consisting of bevel gears and bevel finion shafts which are used in the production process of gear box. It is further submitted that, owing to higher frictional loss under load transmission, lower surface finish and accuracy it was decided by the assessee not to use such stock any longer in the production process, and accordingly, the same being unusable was written off in the books of account. The AO on complete misunderstanding of the aforesaid facts has disallowed impugned amount by stating that stock written off is in the nature of capital expenditure. 6. The Ld.DR, on the other hand, strongly supported the order of the Ld.CIT(A). 7. We have heard both the parties and perused the material available on record. Although the assessee claims to have furnished necessary evidence to prove that the amount written off pertains to raw materials. No doubt, stocks written off in respect of raw materials is chargeable to P&L account, but it is the duty of the assessee to prove beyond doubt before the authorities that such write off is raw materials, which are used in the production process of final products. Since the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lock of assets. 8. We have heard both the parties and perused the material available on record. The assessee has reduced capital subsidy received from Government of West Bengal from opening WDV of respective block of assets, viz. plant and machinery and from the non residential building and computed depreciation accordingly. The assesee further claims that capital subsidy received from government pertains to earlier period on account of assets already created. Although assessee claims to have received capital subsidy towards assets already created in the books of account, no evidence has been filed before the AO or CIT(A) to prove that such capital subsidy has been received pertains to earlier period on assets already created. No doubt, any capital subsidy received from the government under incentive scheme is to be reduced from the assets already acquired in earlier period. Therefore, we are of the considered view that the issue needs to be re-examined by the AO in the light of the claim of the assessee that capital subsidy received from state government pertains to earlier period. If the AO found that such subsidy pertains to earlier period, then the AO is directed to allow dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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