SUNDARA VARADHAN,KANCHEEPURAM vs. ITO, WARD-2, KANCHIPURAM

Aforesaid appeal by assessee for Assessment Year (AY) 2012-13 arises out of the order of learned Commissioner of Income Tax (Appeals)-7, Chennai [CIT(A)] dated 17-10-2018 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s.143(3) of the Act on 30-03-2015.

The registry has noted a delay of 63 days in the appeal, the condonation of which has been sought by the assessee on the strength of affidavit of the assessee. It has been submitted that the order under challenge got misplaced and it took time to compile all the papers. It has also been submitted that the delay was unintentional and there was no undue benefit to the assessee in delaying the appeal. Though Ld. DR opposed the condonation, however, after going through the contents of the affidavit and considering the period of delay, the bench formed an opinion that the delay was to be condoned. Accordingly, we proceed to adjudicate the appeal on merit.

The grounds raised

Having heard rival submissions and after considering the orders of lower authorities, our adjudication would be as given in succeeding paragraphs.

Upon perusal of para-3 of the Assessment Order, it could be seen that the assessee received subsidy of Rs.41.51 Lacs which was offered for taxation during the course of assessment proceedings. The same was offered to taxation vide letter dated 27-03-2015, a copy of which is on record. The assessee has offered the same to taxation in view of the fact that since it was not certain that the same would be awarded to the assessee and accordingly, depreciation on full amount of fixed asset was claimed by the assessee in earlier years. 6. However, during appellate proceedings, the assessee contested this issue and a remand report was sought from Ld. AO. The Ld.AO maintained that the additions were accepted additions and it was only an after-thought on the part of the assessee to contest the same. The remand report was confronted to the assessee; however, the assessee did not make any representation. The Ld. CIT(A) noted that the subsidy was received during November, 2011 and the additions were accepted additions. Therefore, the action of Ld. AO was confirmed against which the assessee is in further appeal before us. 7. Before us, Ld. AR has submitted that considering the purpose test, the subsidy was a capital receipt not chargeable to tax as held by Hon’ble Apex Court in CIT V/s Ponni Sugars & Chemicals Ltd. (174 Taxman 87). The Ld. AR also submitted that the subsidy was received as an incentive and not intended to subsidize the cost of the asset and therefore, such receipts would not be covered by Explanation-10 to Section 43(1) of the Act. On the other hand, Ld. DR maintained that double benefit could not be granted to the assessee and the additions were accepted additions. 8. We find that in terms of Explanation 10 to Section 43(1), where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Government or any local authority, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It is the submission of Ld. AR that the subsidy was granted as on incentive and not towards meeting the cost of the asset and therefore, the depreciation on full amount would be allowable to the assessee and at the same time, the subsidy being capital in nature, would be capital receipts not chargeable to tax. We find that lower authorities has not considered these aspects of assessee’s submissions and merely gone by the admission made by the assessee. Therefore, we deem it fit to restore the matter back to the file of Ld. CIT(A) to bring on record factual matrix of the issue on record and adjudicate the same in the light of submissions made by Ld. AR before us. The assessee, in turn, is directed to substantiate the claim. We order so.

The appeal stand allowed for statistical purposes. Order pronounced on 13th December, 2021.