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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Before: Shri M. Balaganesh & Shri S.S. Viswanethra Ravi
ORDER Shri S.S.Viswanethra Ravi, JM:
This appeal by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals), 2, Kolkata dt. 04-04-2016 for the A.Y 2011-12.
The only issue is to be decided as to whether the CIT-A justified in deleting the addition of Rs.35,59,939/- made on account of depreciation on capital subsidy in the facts and circumstances of the case.
After hearing both the parties, we find that the issue raised in the appeal is covered by the order dt. 02-04-2014, copy of the same is on record, in assessee’s own case in for the A.Y 2007-08, wherein the Tribunal following the decision of the Hon’ble Supreme Court in the case of P.J. Chemicals Ltd upheld the order of the CIT-A in allowing the claim on depreciation on capital subsidy. The ld. AR submits that the said order was challenged by the appellant revenue before the Hon’ble High Court of Calcutta, wherein the Hon’ble High Court of Calcutta was pleased to dismiss the question of law framed by the revenue in challenging the finding dt.
02-04-2014 of the Tribunal, thereby the order dt. 02-04-2014 supra is binding on the appellant Revenue. We further find that the Co- ordinate Bench of this Tribunal in assessee’s case in & 1010/Kol/2013 for the A.Ys 2008-09 & 2009-10 vide its order dt. 14- 08-2015 followed the decision of the Hon’ble High Court of Calcutta and dismissed the appeal of revenue. We also find that the CIT-A followed the decision of the Hon’ble High Court of Calcutta in the case of CIT Vs. Rasoi Limited in GA No. 2684 of 2014/ITAT No. 138 of 2014 dt. 05-09-2014 for the year under consideration and deleted the addition made by the AO in this year also, copy of the same is on record. For the sake of convenience the relevant portion of order dt. 02-04-2014 is reproduced herein below:-
“6. From the above facts and circumstances, admitted facts are that during the year under consideration assessee company received incentive subsidy from Govt. of West Bengal under West Bengal Incentive Scheme, 1999 (WBIS) as encouragement for setting up of industrial project. It is also a fact that maximum limit of the subsidy was restricted with reference to the value of fixed capital investments in land, building, plant and machinery but no part of the subsidy was specifically intended to subsidize the cost of any fixed asset, therefore, it cannot be said that the subsidy was to meet a portion of cost of the asset. According to us, the assessee has rightly not reduced the amount of subsidy received from the actual cost/WDV of the fixed assets while claiming depreciation. It is also a fact that revenue during scrutiny assessments of the assessee for A.Y 2003-04 and 2004-05, the above stated subsidy was considered as capital receipt accepting the contention of the assessee. For the sake of consistency also the AO should not have managed the stand now. Even Hon’ble Supreme Court in the case of CIT vs. P.J. Chemicals Ltd (1994) 210 ITR 830(SC) has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount 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 implementation, 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.
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 acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of 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 further, provided thereunder that where such subsidy or grant or reimbursement of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. In order to invoke Explanation 10, it is necessary to show that the subsidy was directly or indirectly used for acquiring an asset. This is a question of fact. The relatable subsidy to such asset can be reduced from the cost only if it is found that the cost for acquiring that asset was directly or indirectly met out of the subsidy. Likewise in the proviso, it is necessary to show that the subsidy has been directly or indirectly used to acquire an asset but it is not possible to exactly quantify the amount directly or indirectly used for acquiring the asset. Here also, a finding of fact is necessary that an asset was acquired by directly or indirectly using the subsidy. The above Explanation and the proviso thereto do not dilute the finding of the Hon’ble Supreme Court in the case of P.J Chemicals Ltd. that asset-wise subsidy alone can be 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.
In view of the above facts and circumstances of the case and legal position explained by Hon’ble Supreme Court in the case of P.J Chemicals Ltd. supra. We are of the view that CIT(A) has rightly allowed the claim of depreciation of assessee. We uphold the same. This issue of revenue’s appeal is dismissed. “
In view of above, we find that the CIT-A was justified in deleting the impugned addition. We find no infirmity in the impugned order of the CIT-A. Ground no. 1 raised by the revenue is dismissed.
In the result, the appeal of revenue is dismissed.
Order pronounced in the open court on 28-03-2018