FLACON PREFORMS PVT. LTD.,MADURAI vs. DCIT, CORP. CIRCLE-1, MADURAI

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ITA 1714/CHNY/2026Status: DisposedITAT Chennai06 August 2026AY 2023-248 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that depreciation disallowance was incorrect as the assessee had not received any subsidy. The issue of cash deposits was remitted back to the AO for fresh examination.

What were the facts?

The assessee claimed depreciation on assets acquired with a subsidy. The Assessing Officer disallowed depreciation on the subsidy amount, treating it as unexplained cash deposits. The CIT(A) upheld these disallowances.

What were the issues?

Whether depreciation can be disallowed on an alleged subsidy not received by the assessee, and whether cash deposits are unexplained.

Which sections of the Income-tax Act were involved?

Section 43(1),Section 69A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI

Before: SHRI GEORGE GEORGE K & MS. PADMAVATHY.S

For Respondent: Ms. D. Nithya, Addl. CIT

आदेश / O R D E R

PER PADMAVATHY.S, A.M: This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 16.01.2026 for Assessment Year (AY) 2023-24.

2.

The assessee is a private limited company engaged in the business of import, export and trading in bottle caps and closures and pet bottles etc. The assessee filed a return of income for AY 2023-24 declaring loss of Rs.55,64,767/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The A.O noticed form Form-3CD that the

ITA No1714/Chny/2026 Flacon Preforms Pvt. Ltd. :- 2 -: auditor has reported a sum of Rs.3,16,92,345/- as subsidy. The AO further noticed that the assessee has filed a letter with Government of Tamil Nadu claiming subsidy. The AO therefore held that depreciation claimed to the tune of Rs.23,93,272/- on the amount of subsidy cannot be claimed as deduction and disallowed the same. The A.O further noticed that the assessee during the year under consideration has deposited cash to the tune of Rs.2,34,42,915/- and since the assessee did not file any further details in this regard treated the same as unexplained money u/.s 69A of the Act. Aggrieved, the assessee filed further appeal before the CIT(A). With regard to disallowance of depreciation the assessee submitted before the CIT(A) that during the year under consideration the assessee has not received any subsidy and that the subsidy as per Income Computation and Disclosure Standards (ICDS) can be recognized only when there is reasonable assurance. The assessee further submitted that the impugned amount towards purchase of assets is from assessee's own funds and submitted purchase bills in support of the same. The CIT(A) in this regard called for remand report and the assessee during the remand proceedings submitted that the amount disclosed as subsidy in Form- 3CD is incorrect. The assessee also submitted certificate from the auditors of the assessee that no subsidy has been received. The CIT(A) however did not accept the submissions of the assessee and upheld the disallowance by holding that: 5.8 On considering the above cited facts and material available before the undersigned it is observed that the core issue for determination is that whether the Assessing Officer was justified in reducing the capital subsidy disclosed in Form 3CD from the actual cost of the asset for the purpose of computing depreciation, notwithstanding the appellant's contention that the subsidy had neither been received nor recognized in the books during the relevant year. Undisputed facts are that the appellant acquired capital assets eligible for depreciation and a capital subsidy under the Tamil Nadu District Industrial Centre Scheme was available in respect of such assets. The existence and quantum of such subsidy was specifically disclosed by the tax auditor in Clause 13(e) of

ITA No1714/Chny/2026 Flacon Preforms Pvt. Ltd. :- 3 -: Form 3CD. The appellant did not reduce the subsidy from the cost of assets while claiming depreciation and therefore, the Assessing Officer reduced the subsidy amount from the actual cost and recomputed depreciation. These facts are not in dispute.

5.9 Explanation 10 to Section 43(1) provides that where a portion of the cost of an asset has been met directly or indirectly by the Central Government or a State Government in the form of a subsidy or grant, the actual cost of the asset shall be reduced by the amount of such subsidy or grant. Here, the key aspects are that the provision is mandatory ("shall be reduced"), it operates independently of accounting treatment and applies even if subsidy is received indirectly or accrues. Thus, once the subsidy is relatable to the acquisition of the asset, reduction of cost is statutorily required. The appellant's argument hinges on absence of receipt/approval / reasonable assurance during the year. The argument is misplaced, because Section 43(1) is a computation provision, not a charging provision and depreciation is linked to "actual cost", not to income recognition principles. The statute does not make reduction contingent upon receipt of subsidy. The courts have consistently held that depreciation computation is governed by the Act, not by accounting entries and book treatment is not determinative for tax computation.

5.10 Further, Form 3CD is a Statutory Admission which is a statutory audit report under Section 44AB. Once the tax auditor certifies availability of subsidy, and its linkage with the capital asset, the same constitutes strong evidentiary value, and admission against interest, unless conclusively rebutted. The appellant has not disputed the availability or eligibility of subsidy, only its timing. Further, the appellant has also relied on Section 2(24) (xviii) and ICDS-V (Government Grants). However, ICDS governs income recognition, not asset cost determination and Section 2(24)(xviii) of the Act deals with taxability of subsidy as income, whereas Section 43(1), Explanation 10 operates in a different field-computation of depreciation. It is a settled principle that specific provisions override general provisions. Hence, Explanation 10 prevails over ICDS-V for depreciation purposes. Allowing depreciation on unreduced cost would result in higher depreciation allowance, and subsequent non-taxation or deferred taxation of subsidy. This would lead to a double unintended benefit, which Explanation 10 was specifically inserted to prevent. The legislative intent behind Explanation 10 is to ensure that depreciation is allowed only on the net investment of the assessee, and not on the portion financed by the Government. Accepting the appellant's plea would defeat the purpose of the provision. The appellant has not demonstrated that the subsidy was not linked to the acquisition of assets, or it was meant exclusively for operational assistance. In absence of such evidence, the subsidy remains capital-linked, warranting reduction from asset cost. In view of the clear mandate

ITA No1714/Chny/2026 Flacon Preforms Pvt. Ltd. :- 4 -:

of Explanation 10 to section 43(1), the statutory disclosure in Form 3CD, the irrelevance of book recognition for depreciation computation, and the need to prevent double benefit, the action of the Assessing Officer in reducing the subsidy from the actual cost of the asset while disallowing excess depreciation is found to be in accordance with law. 5.11 In view of the above discussion, statements of the facts submitted by the appellant and assessment order of the AO, other facts and material considered, I see no reason to disturb the categorical findings of the assessing officer regarding the disallowance of excess depreciation of Rs.23,93,272/-. Hence, ground no. 2 of the appeal raised by the appellant is dismissed.”

3.

On the issue of cash deposits, the CIT(A) upheld the addition stating that no prudent businessman would deposit such large amount of cash into the bank account and that the same ought to be the unaccounted personal cash. The assessee is in appeal before the Tribunal against the order of the CIT(A).

Disallowance of Depreciation: 4. The Ld. Authorized Representative (AR) of the assessee submitted that the amount declared in the subsidy coloumn in Form-3CD is actually the purchase value of the asset which has been inadvertently reported in the subsidy coloumn. The Ld. AR further submitted that the subsidy in Form- 3CD is reflected as a negative number whereas in the current year reporting the amount is reflected as a positive number which goes to prove that the assessee has not received any subsidy (page 27 & 29 of paper book). The Ld. AR also submitted that as per the Government Circular the assessee is required to fulfil certain conditions to receive the subsidy which has not been complied with and therefore the assessee has not received any subsidy during the year under consideration. The Ld. AR drew our attention to the fact that the assessee has received subsidy in the subsequent AYs and the same has been correctly disclosed. The Ld. AR argued that the disallowance is made

ITA No1714/Chny/2026 Flacon Preforms Pvt. Ltd. :- 5 -: solely on the basis of disclosure contained in Form-3CD ignoring the documentary evidences and other details submitted by the assessee in support of the claim that no subsidy is received during the year under consideration.

5.

The Ld. Departmental Representative (DR), on the other hand, relied on the order of the CIT(A).

6.

We have heard the parties, and perused the material available on record. The A.O noticed from the tax audit report that certain amount is reported as adjustments towards subsidy and accordingly held that the assessee is not entitled to claim depreciation on the amount mentioned as subsidy. In this regard, we notice that the AO has considered only the amount reported in Form-3CD in Schedule-DOA whereas in the same Form-3CD in the disclosure as per ICDS the auditor has stated that during the FY 2022-23, the assessee had not received any subsidy. We further notice that during the remand proceedings, the assessee has submitted the purchase bills substantiating the fact that the amount reported as subsidy is actually the purchase cost of the asset and the assessee also furnished a certificate from the Chartered Accountant stating that the assessee has not received any subsidy. We also notice in the certificate the CA has also stated that the amount reflected in clause-18 of Form-3CD represented only the purchase value of the asset and the assessee has also furnished an affidavit from the Director reiterating the same. However from the perusal of the order of the CIT(A), we notice that the CIT(A) has completely ignored the various details submitted, but went ahead to confirm the disallowance stating that the assessee has not recognised the subsidy and that the same has to be adjusted against the cost of the asset for the purpose of depreciation. We are unable to agree with the finding of the CIT(A) for the reason that the assessee has

ITA No1714/Chny/2026 Flacon Preforms Pvt. Ltd. :- 6 -: brought on record various evidences in support of the contention that the assessee has not received any subsidy from the Government during the year under consideration. Further, we are unable to agree with the findings of the CIT(A) who has placed heavy reliance only on the fact that the amount is stated as subsidy in Form-3CD completely ignoring the other evidences submitted by the assessee. Considering the facts and evidences on record, we see merit in the submission that the assessee has not received any subsidy during the year under consideration. Therefore we hold that the disallowance of depreciation towards the alleged subsidy received needs to be deleted and we direct the A.O accordingly.

Addition u/s. 69A towards capital assets:

7.

We have heard the parties, and perused the material available on record. During the year under consideration the assessee has deposited a sum of Rs.2,34,42,915/- in cash into the bank account of the assessee. The assessee in this regard has submitted cash book, sales invoices, party wise confirmation etc. in support of the claim that the cash deposits represent business receipts. However, we notice that the AO in the remand report has merely acknowledged the receipt of the documentary evidences without giving any findings with regard to the documents submitted by the assessee. From the perusal of the findings of the CIT(A) with regard to the cash deposits, we notice that the CIT(A) has confirmed the addition merely based on certain assumptions such as the businessman do not keep cash receipt and that the money deposited is usually the unaccounted money etc. We further notice that the CIT(A) has not examined the documentary evidences stating that they are self serving documents. It is relevant to mention here that the CIT(A) has also recorded a finding that the assessee has not submitted details such as stock moment, evidence of actual delivery of goods, explanation

ITA No1714/Chny/2026 Flacon Preforms Pvt. Ltd. :- 7 -: regarding business prudence for large cash receipts and comparative cash sales of earlier /subsequent years etc. From these facts, it is clear that the lower authorities had not examined the documentary details submitted by the assessee and have confirmed the addition for the reason that certain other evidences have not been submitted. In view of this discussion, we are of the considered view that the impugned issue needs to be examined afresh based on the documentary evidences submitted by the assessee and also the details as mentioned in the CIT(A)'s order. Therefore, we are remitting the issue back to the AO with a direction to examine the issue afresh considering the evidences already submitted by the assessee and to call for any other details as may be required to decide the issue in accordance with law. The assessee is directed to furnish the details as may be called for and cooperate with the assessment proceedings. It is ordered accordingly.

8.

In the result, the appeal of the assessee is partly allowed for statistical purposes.

Order pronounced on 06th day of August, 2026 at Chennai.

Sd/- Sd/- (जॉज� जॉज� के) (पदमावती यस) (Padmavathy.S) (George George K) उपा�� / Vice President लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य चे�नई/Chennai, �दनांक/Dated: 06th August, 2026. EDN, Sr. P.S EJTADA Digitally signed by EJTADA DURGA NARESH DURGA Date: 2026.08.10 NARESH 11:51:57 +05'30'

ITA No1714/Chny/2026 Flacon Preforms Pvt. Ltd. :- 8 -: आदेश क� �ितिल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF

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