ADVIK HI TECH PVT LTD,PUNE vs. DY.COMM.OF INCOME TAX, CIRCLE 8, PUNE, AKURDI PUNE

PER SATBEER SINGH GODARA, J.M. :

The instant batch of three appeals pertains to a

single assessee viz., Advik Hi Tech Pvt. Ltd. Former

assessment year 2014-2015 herein involves assessee’s and

Revenue’s cross-appeals I.T.A.Nos.1156 & 1203/PUN./2023;

preferred against the National Faceless Appeal Centre [in short

the “NFAC”] Delhi’s Din and Order No. ITBA/NFAC/S/250/

2023-24/1056268156(1), dated 19.09.2023; whereas, the

latter assessment year 2018-2019 contains the taxpayer’s

appeal in ITA.No.1157/PUN./2023 arising against the very

authority’s Din and Order No.ITBA/NFAC/S/250/2023-

2 ITA.No.1156, 1157 & 1203/PUN./2023 24/1056406394(1), dated 22.09.2023, involving proceedings

u/sec.143 of the Income Tax Act, 1961 (in short "the Act");

respectively.

Heard both the parties at length. Case files

perused.

We proceed assessment year-wise for the sake of

convenience and brevity.

ITA.No.1156/PUN./2023 – A.Y. 2014-2015 :

grounds in the instant appeal :

subsidy received of Rs.96,23,314/- under PSI scheme as

Capital Asset neither liable to tax nor to be reduced from

Block of asset.

the amount of IPS subsidy of Rs.96,28,314/- to be reduced

from the cost of asset and thereby reducing the claim of

depreciation by Rs.14,44,247/-.

2.1. The Ld AO and Ld CIT(A) erred in not considering the fact

though quantum of subsidy is based on investment in

various assets the subsidy is given for developing

backward areas and therefore it is capital in nature and

3 ITA.No.1156, 1157 & 1203/PUN./2023 not liable for tax and the said subsidy is received as one of

incentives under PSI 2007.

Grounds of Appeal at any time before or during the course

of hearing of the case.”

attention to the NFAC’s detailed discussion affirming the

assessment findings invoking sec.43(1) Explanation-10 to

reduce the assessee’s cost of acquisition of the relevant fixed

‘assets’ involving disallowance of Rs.96,28,314/- as follows :

“4.3. Ground No.3 relates to treatment of PSI subsidy

received. During the year, the appellant has received an

amount of Rs.96,28,314/- as subsidy under PSI Scheme

2007 of the Government of Maharashtra. The AO treated

the subsidy for acquiring the fixed assets and accordingly

reduced the subsidy amount from addition to block of

plant and machinery. Since the block of assets gets

reduced, the AO reduced the deprecation allowance by

Rs.14,44,247/- by adopting 15% depreciation and added

the same to the income of the appellant.

4.3.1. The appellant has contended that it has considered

the subsidy so received as capital receipt not liable for tax

and not to be reduced from block of asset. The appellant

has further contended that quantum of subsidy is

4 ITA.No.1156, 1157 & 1203/PUN./2023 received/accrued is computed based on the capex

investment made by the appellant and is not by way of

reimbursement of cost of capex made by it.

On examination of the eligibility certificate for

expansion unit issued by Directorate of Industries dated

28.01.2013 under the Package Scheme of Incentives 2007,

it is observed that the amount of subsidy is quantified on

the basis of investment in capital asset (plant &

machinery) for expansion of the present capacity of

manufacturing automobile engine parts, which is to the

tune of Rs.151.20 Lakhs i.e. 12.50% of accepted

investment for expansion project of Rs.1209.57 Lakhs. All

these facts clearly show that the quantum of subsidy is

based on amount of capital expenditure in plant &

machinery installed for expansion of the manufacturing

capacity and therefore, appellant’s argument that the

subsidy is not for meeting capital expenditure is not

supported by any evidence. Further, the decision in the

case laws relied upon by the appellant is not applicable in

the present case because the subsidy is directly related to

the acquisition of plant & machinery for expansion of the

existing capacity in the present case whereas the subsidy

under consideration in the cited case laws relate to new

5 ITA.No.1156, 1157 & 1203/PUN./2023 investment in backward areas and not directly linked to

investment in any asset.

4.3.2. In the assessment order, the AO has stated that

the subsidy amount has to be reduced from the cost of

assets as per the provision of section 43(1) of the Act

whereas the appellant contended during the assessment

proceedings that section 2(24)(xviii) is applicable from

1.4.2017 and doesn’t apply for the present financial year.

Perusal of section 2(24)(xviii) of the Act reveals that it is

inserted by the Finance Act, 2015 w.e.f 01.04.2016 but

this provision has also an exclusion of subsidy which is

considered for determination of actual cost of the assets as

per Explanation 10 to clause (1) of section 43. Therefore,

the section 2(24)(xvii) is applicable for subsidy other than

the subsidy for capital investment and the AO has rightly

applied the Explanation 10 below to section 43(1) of the

Act in the present case. It is pertinent to mention here that

the appellant contests the applicability of Explanation 10

below to section 43(1) of the Act during the appellate

proceedings.

In view of above discussion, I am of the considered

view that the subsidy received by the appellant on

expansion of unit by investment in plant & machinery is

capital in nature. Therefore, the amount of subsidy needs

6 ITA.No.1156, 1157 & 1203/PUN./2023 to be reduced from the cost of the asset resulting into

reduction in quantum of depreciation on such assets.

Therefore, the addition of Rs.14,44,247/- made by the AO

wherein depreciation rate is applied by reducing the

amount of subsidy received in cost of assets is hereby

confirmed. Thus, this ground of appeal is dismissed.”

vehement rival submissions against and in support of the

impugned sec.43(1) Explanation-10 disallowance and find no

merit in Revenue’s stand. This is for the precise reason that

the tribunal’s recent coordinate bench’s order in

ITA.No.1912/PUN./2019 dated 06.07.2022 Atharva Polymers

Private Limited vs. DCIT has already settled the issue in

assessee’s favour and against the department regarding the

very PSI scheme vis-à-vis applicability of sec.43(1) Explanation

-10 qua cost of acquisition of the fixed assets as under:

“6. Ground No.3 is regarding Subsidy received from Govt of

Maharashtra. It is a fact that Govt. of Maharashtra vide letter

dated 13.12.2013 sanctioned Provisional Industrial Promotion

Subsidy of Rs.69.84 lacs under the Package Scheme of

Incentives -2007, subject to the conditions mentioned in the

letter. As per Govt. of Maharashtra letter dated 03.03/2012 (ref

no.DIC/PUNE/PSI-2007/EC-29/2012) this subsidy was for

making investment towards the project at Gat No.596, Hissa

7 ITA.No.1156, 1157 & 1203/PUN./2023 No.1,Dhoke, Sanghavi Dist. Pune which was called as eligible

project. Assessee was granted Electricity Duty Exemption for the

period of 14 years 4 months. Industrial Promotion Subsidy

equivalent to 27.14% of eligible investment Rs.151.35 lacs, 6

years and 4 months. The Govt. of Maharashtra had specifically

asked to make investment in the eligible project and directed the

assessee to communicate the value of fixed assets acquired

during the specified period.

subsidy under Industrial Promotion Scheme (IPS). The ITAT

Pune Bench on identical issue, in the case of DCIT Vs.

Bhagyalaxami Rolling Mills Pvt. Ltd in IT(SS)A No.7 to

10/PUN/2019 vide order dated 08/05/2022 has held as under :

Quote, “3. The only issue for adjudication in all these

appeals is whether the assessee having received subsidy from Government of Maharashtra under Package Scheme of Incentives of 2007 (hereinafter referred to as „PSI 2007‟ for short) whether the said subsidy is capital receipt or a revenue receipt. Taking the lead case IT(SS)A No. 7/PUN/2019 for A.Y. 2011012 for the narration of facts, we find that the assessee being a private limited company is engaged in manufacturing of steel at Jalna. The assessee-company had set up a mega project as defined in Government of Maharashtra‟s PSI 2007 in Jalna. Under the scheme PSI 2007 mega project the assessee has

8 ITA.No.1156, 1157 & 1203/PUN./2023 received capital incentive subsidy in different years from A.Y. 2010-11 to 2015-16………………..

that in view of the above referred judgment, the whole purpose and the grant of subsidy under PSI 2007 by Government of Maharashtra was to promote industrial growth in the less

developed areas of the State and also to provide employment in the area. Once this purpose is established the subsidy has to be a capital receipt. However, the position has changed w.e.f.

01.04.2016 relevant to A.Y. 2017-18 onwards with the amended provision of sub-clause (xviii) to sec. 2(24) of the Act. However, at present, we are concerned with A.Y. 2011-12 to 2015-16. Therefore, the amended provision of sec. 2(24) sub-clause

(xviii) is not applicable to the years under consideration and thus as a natural consequence the subsidy received by the assessee would therefore, not form part of its total income. In

view of the aforestated facts and circumstances and the judicial pronouncements, we do not find any reason to interfere with the findings of the ld. CIT(A) and the reliefs provided to the

assessee is sustained. Therefore, the appeal of the Revenue in IT(SS)A No.07/PUN/2021 for A.Y. 2011-12 is dismissed.”Unquote.

Ward-6(1) Vs. Shrinivas Engineering Auto Components Pvt. Ltd.,

9 ITA.No.1156, 1157 & 1203/PUN./2023 in ITA No. 2992/Pune/2017 vide order dated 27/4/2022 has

held as under :

Quote, “ 10. We heard the rival submissions and perused the

material on record. We have carefully gone through the Package Scheme of Incentives, 2007, the preamble of the

scheme, extracted above, clearly indicates the intention behind grant of subsidy was to encourage the setting up the new industries in under developed region in the State of

Maharashtra. Indisputably, it is not the case of the Assessing Officer that the subsidy is revenue in nature, as the Assessing Officer himself had invoked the provisions of Explanation 10 to section 43(1) of the Act. Therefore, the issue that arises for our

consideration in the present appeal is whether the amount of subsidy received from the Government of Maharashtra shall go to reduce the actual costs of assets u/s 43(1) for the purpose of

allowing the depreciation u/s 32 of Act. No doubt, the subsidy was granted in terms of the certain percentage of fixed assets to be disbursed in the form of refund of octroi, electricity duty

exemption, entry tax refund, VAT etc. over a period of 8 years. Then the next question, that arises for consideration in such circumstances is that, can be it said that subsidy is granted to

meet the cost of the actual fixed assets, merely because the amount of subsidy is calculated in term of certain percentage of investment in fixed assets. The Hon’ble Supreme Court had an

occasion to consider the identical issue in the case of CIT vs.

10 ITA.No.1156, 1157 & 1203/PUN./2023 P.J. Chemicals Ltd., 210 ITR 830 and after review of the case

law on the point, the Hon’ble Supreme Court held as under :-

“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 is 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. The expression 'actual cost in section 43(1)

of the Income-tax Act, 1961, needs to be interpreted liberally.

Such a subsidy does not partake of the incidents which attract

the conditions for its deductibility from 'actual cost'. The

amount of subsidy is not to be deducted from the 'actual cost'

under section 43(1) for the purpose of calculation of

depreciation etc.” 11. The Hon’ble Gujarat High Court in the

case of CIT vs. Swastik Sanitary Works Ltd., 286 ITR 544 (Guj.)

following the principle laid down by the Hon’ble Supreme

Court in the case of P.J. Chemicals Ltd. (supra) held that the

subsidy is intended as an incentive to encourage entrepreneurs

to move and establish industries,, the specified percentage of

the fixed capital cost, which is 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” as defined

under the provisions of section 43(1) of the Act. Similarly, the

11 ITA.No.1156, 1157 & 1203/PUN./2023 Hon’ble Bombay High Court in the case of PCIT vs. Welspun

Steel Ltd., 264 Taxman 252 followed the ratio of the decision of

the Hon’ble Gujarat High Court (supra).

Explanation 10 to section 43(1) which was inserted in the

Statute w.e.f. 1.4.1999 by the Finance Bill (2) of 1998, the

Proviso take cares of situation where such subsidy, grant or

reimbursement is such nature that subsidy, grant or

reimbursement cannot be directly relatable to the assets

acquired by an assessee. In such a situation, the Proviso

envisages that so much of amount which bears to the total

subsidy, reimbursement or grant, the proportion as such assets

bears to all the assets in respect of or with reference to which

subsidy or grant is so received shall be deducted in the actual

cost of the asset of the assessee. Thus, the proviso envisages

adjustment of subsidy in the assets of the assessee. In case the

subsidy grant is not directly relatable to particular asset. Since

in the preceding paras we held that the provisions of

Explanation 10 to section 43(1) have no application to the facts

of the present case, the question of applicability of Proviso does

not arise. In the light of the above, we hold that the amount of

subsidy is not to be deducted from the actual cost u/s 43(1) for

the purpose of calculation of depreciation and the provisions to

Explanation 10 to section 43(1) have no application to the facts

of the present case. We are forfeited in taking this view by the

12 ITA.No.1156, 1157 & 1203/PUN./2023 decision of the Hon’ble Bombay High Court in the case of Welspun Steel Ltd. cited supra. This decision being that of Jurisdictional High Court is binding on us. ” Unquote.

8.1. In the case under consideration the assessee has

received subsidy for the same scheme i.e IPS. The facts are

identical to the facts of the above referred case. Thus,

respectfully following the decision of ITAT (supra) , it is held that

the subsidy shall not be reduced from the actual cost of fixed

assets u/s 43(1) for the purpose of calculation of depreciation.

Thus, respectfully following the ITAT Pune Bench (supra), the

AO is directed to delete the addition of depreciation.

Accordingly, Ground No.3 and 4 raised by the assessee are

allowed.”

already considered the very subsidy scheme in the foregoing

detailed discussion whilst deciding the issue in assessee’s

favour. We thus adopt judicial consistency to accept the

assessee’s instant sole substantive ground and main appeal

ITA.No.1156/PUN./2023 in very terms. Ordered accordingly.

2023 pleads the following substantive grounds :

that for the purpose of section 80-IA the year in which the

13 ITA.No.1156, 1157 & 1203/PUN./2023 assessee chooses to claim deduction has to be treated as

initial assessment year.

profit of the eligible business has to be computed without

deducting therefrom brought forward losses or unabsorbed

depreciation prior to the initial year of claim de hors the

provision u/s 80IA(5) of the Act.

that the assessee was in power generation business and

holding that each windmill has to be taken as independent

eligible business.

each windmill unit has to be treated as standalone basis

de hors the specific stipulation in Section 80-IA(5) of the

Act. that ‘profit and gains of eligible business’ being power

generation business have to be taken ?”

NFAC’s detailed discussion has followed the tribunal’s order(s)

in assessee’s case itself in preceding assessment years 2008-

2009 and 2009-2010 as under :

“4.1. Ground No.1 relates to disallowance of Claim

u/s.80-IA of Rs.3,60,83,614/-. In this case, the appellant

has claimed deduction of Rs.3,60,83,614/- u/s

80IA(4)(iv)(a) of the Act. The AO has emphasized on the

14 ITA.No.1156, 1157 & 1203/PUN./2023 provisions of sec 80IA(5) of the Act. In this regard, the AO

has noted that the deductions claimed by the appellant is

disallowed in respect of wind mill units as there was no

profit in AY 2014-15 after accounting for the earlier years

depreciation and losses. The appellant has contended that

once the assessee chooses initial year for claim of

deduction u/s 80IA, notionally brought forward losses and

set-off of earlier year’s losses cannot be set off against

current years eligible unit’s profits. The losses which have

already set-off are to be ignored. The appellant has

contended that the AO has notionally brought forward the

losses which were incurred and set off before the initial

year and disallowed the claim.

On perusal of the written submissions furnished by

the appellant, it is observed that the this issue is squarely

covered in favour of the appellant in its own case decided

by Pune ITAT and CIT(A) in their orders of previous

assessment years. The Hon’ble ITAT Pune Bench vide its

Order no.1743/PN/2012 of AY 2008-09 and 2009-10 has

held in its decision on this issue in favour of the appellant.

The extract of the relevant para is reproduced herewith :-

“9.2. After going through the rival submissions

and material on record, we find that as per

sec.80IA(2) of the IT. Act, the assessee has option to

15 ITA.No.1156, 1157 & 1203/PUN./2023 exercise the choosing of initial assessment year out

of fifteen years beginning with the year in which the

undertaking starts production. The Assessing Officer

was not correct in asserting that there was no option

to the Assessing Officer to exercise option in choosing

the initial assessment year. As regards the issue of

losses and unabsorbed deprecation of the

undertaking already adjusted against the other

income it was found that the same is covered by the

decision of Pune Tribunal in case of Poonawala

Finvest (supra) in favour of the assessee. The

Assessing Officer has relied upon Special Bench

decision of Ahmedabad Tribunal In the case of

Goldmine Shares & Finance (P.) Ltd. (supra).

However, the same could not be followed in view of

the Hon'ble Madras High Court judgment in case of

Velayudhaswamy Spinning Mills (P) Ltd. v. Asstt. CIT

[2012] 21 taxmann.com 95/340 ITR 477. ITAT,

Bangalore Bench in the case of Anil H Lad v. Dy.CIT

[2012] 25 taxmann.com 454 (Bang.-Trib) did not

follow the Special Bench decision of the Ahmedabad

Bench Tribunal in view of above judgment of Madras

High Court. Relevant portion of the order is

reproduced for the sake of clarity:

16 ITA.No.1156, 1157 & 1203/PUN./2023 "From reading of the above, it is clear that the

eligible business were the only source of

income, during the previous year relevant to

initial assessment year and every subsequent

assessment years. When the assessee exercise

option, the only losses of the years beginning

from initial A. Y. alone are to be brought

forward and no losses of earlier years which

were already set off against the income of the

assessee. Looking forward to a period of ten

years from the initial assessment is

contemplated. It does net allow the Revenue to

look backward and find out if there is any loss

of earlier years and bring forward notionally

even though the same were set off against other

income of the assessee and the set off against

the current income of the eligible business. Once

the set off is taken place in earlier year against

the other income of the assessee, the Revenue

cannot rework the set off amount and bring it

notionally. Fiction is created only for the limited

purpose and the same cannot be extended

beyond the purpose for which it is created."

17 ITA.No.1156, 1157 & 1203/PUN./2023 27. Thus, the Hon'ble Madras High Court

has clearly held that where the depreciation

and loss of earlier assessment years have

already been set off against other business

income of those assessment years, there is no

need for notionally carrying forward and setting

off of the same depreciation and loss in

computing the quantum of deduction available

u/s.80l. The Hon'ble Court has held further that

the year of commencement alone need not be

the 'initial year', but depending upon the facts of

the case and the option exercised by the

assessee, the year of claim also can be

considered as "initial assessment year". The

court has also examined the issue from a

different legal angle and held that the

proposition argued by the Revenue is not

compatible with the scheme of gross total

income conceptualized in the IT Act especially in

the light of section 80AB which are all relevant

while considering the deduction u/s.80IA which

is falling under Chapter VIA of the I.T. Act,

1961. Where the earlier depreciation and losses

have already been set off, those loss and

depreciation do not go to reduce the gross total

18 ITA.No.1156, 1157 & 1203/PUN./2023 income of an assessee within the meaning of

sec. 80AB and therefore, bringing the notional

concept of carrying forward and set off will be

contrary to the scheme of sec. 80AB and

concept of gross total income.

issue is squarely covered by the above

discussed judgement of the Hon'ble Madras

High Court in the case of Velayudhaswamy

Spinning Mills P. Ltd. v. AC IT (38 DTR 57).

Where such an overriding judgement of the

constitutional court is governing the issue, we

are not permitted to rely on the decision of the

Special Bench of the Ahmedabad Tribunal.

judgement of the Hon'ble High Court of Madras,

we accept the contention of the assessee and

reverse the order of the Commissioner of

Income-tax(A) on this point an direct the

Assessing authority to grant deduction to the

assessee u/s. 801 A for the quantum claimed

by the assessee without diluting the same by

the notional deduction of earlier loss and

depreciation.'

19 ITA.No.1156, 1157 & 1203/PUN./2023 9.3. In view of above, the CIT(A) was justified in

directing the Assessing Officer to allow the deduction

u/s.80IA(4)(iv)(a) of the Act without deducting brought

forward loss or unabsorbed depreciation prior to initial

year on notional basis. This reasoned factual and legal

finding of CIT(A) needs no interference from our side. We

uphold the same.

9.4. As a result, the appeal filed by the Revenue is

dismissed.

assessee's own case in ITA.No.2041/PN/2012 for A.Y.

2009-10. Facts being similar, so following the same

reasoning, we uphold the order of CIT(A) on this issue.”

Respectfully following the decision of the

jurisdictional ITAT in appellant’s own case on identical

issue, I hold that the appellant is entitled for deduction

u/s.80IA(4)(iv)(a) of the Act. Therefore, AO is directed to

delete the disallowance made u/s 80IA(4)(iv)(a) of the Act.

Thus, the ground of appeal number-1 is allowed.”

pinpointing any distinction on facts in all these assessment

years so far as the instant issue of sec.80IA deduction is

concerned. We thus adopt judicial consistency to affirm the

20 ITA.No.1156, 1157 & 1203/PUN./2023 learned NFAC’s findings under challenge. The Revenue fails in

it’s instant cross-appeal ITA.No.1203/PUN./2023 in very

terms.

ITA.No.1157/PUN./2023 for assessment year 2018-2019

wherein it has filed it’s letter seeking to withdraw the same as

under :

ITA.No.1157/PUN./2023 as withdrawn in above terms.

Ordered accordingly.

21 ITA.No.1156, 1157 & 1203/PUN./2023 12. To sum-up, the assessee’s former appeal

ITA.No.1156/PUN./2023 for assessment year 2014-2015 is

allowed and Revenue’s cross-appeal ITA.No.1203/PUN./2023

is dismissed and the assessee’s latter appeal ITA.No.1157/

PUN./2023 for the assessment year 2018-2019 is dismissed

as withdrawn in above terms. A copy of this common order be

placed in the respective case files.

Order pronounced in the open Court on 14.05.2024.

Sd/- Sd/- [DR. DIPAK P. RIPOTE] [SATBEER SINGH GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated 14th May, 2024

VBP/-

Copy to

//By Order//

//True Copy //

Sr. Private Secretary, ITAT, Pune Benches, Pune.