SASISRI EXTRACTIONS LIMITED Vs. A C I T
INCOME TAX APPELLATE TRIBUNAL
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D. Manmohan, Judicial Member -
(1.) THIS appeal, filed at: the instance of the assessee company, is directed against the order dt. 13.11.2006 passed by the Commissioner of Income Tax (Appeals), Guntur, and it pertains to the assessment year 2003-2004. Addition of Rs. 3,24,166/- made by the Assessing Officer and confirmed by the CIT(A) by applying the provisions of Section 43(1) of the Income Tax Act, is the subject matter of dispute before the Tribunal.
(2.) The facts of the case, in brief, are as follows. The assessee is engaged in the business of manufacturing/processing of edible oils. During the previous year relevant to the assessment year under consideration the assessee received an amount of Rs. 20,00,000/- as investment subsidy under a scheme floated by Andhra Pradesh State Government known as Target 2000'. The assessee has not declared the receipt as income of the year under consideration. During the course of assessment proceedings it was contended that the subsidy was given to the unit because of the fact that it has established an eligible industrial unit in the notified area and thus the receipt was capital in nature and not taxable. The Assessing Officer called upon the assessee to clarify as to why the subsidy received should not be reduced from the cost of the assets so that the assessee would get lesser depreciation than what was claimed in the return. The case of the assessee was that the subsidy was not given to acquire any asset either directly or indirectly and thus it need not be considered for calculation of depreciation. He further contended that subsidy was calculated based on the investment made by the assessee for establishing the unit and there is no embargo on the utilization of the subsidy in which event it cannot be said that the subsidy was directly relatable to the cost of the assets.
The Assessing Officer was, however, of the opinion that G.O.Ms. Nos. 117 and 108, dt. 17.3.1993 and 20.5.1996 respectively, issued by the A.P. State Government provides subsidy calculated at 20% of the fixed capital investment and thus it was clearly linked to the fixed capital cost of the assessee. Therefore, it is nothing but reimbursement of part of the capital investment in which event, it affects the actual cost of the fixed assets on which the eligible depreciation was claimed under Section 32 of the Act. The Assessing Officer thereupon considered the provisions of Section 43(1) of the Act and explanation 10 thereto (inserted with effect from 1.4.1999) to conclude that an investment subsidy calculated at a percentage of the fixed capital investment has to necessarily be reduced from the cost of the assets for the purpose of granting depreciation on such assets. It may be noticed that the assessee relied upon the following decisions in support of his contention that the impugned subsidy is not directly or indirectly connected to the assets and in the absence of clear mention that the subsidy was given to meet a portion of the cost of the asset, the same need not be considered for inclusion of actual cost of the assets.
1. C.I.T. v. Godavari Plywoods Ltd. 168 ITR 632 (AP)
2. C.I.T. v. PJ. Chemicals 210 ITR 830 (SC)
(3.) THE learned Assessing Officer was of the view that the case-law cited by the assessee are distinguishable on facts inasmuch as the said decisions were rendered prior to insertion of explanation 10 to Section 43(1) of the Act. In other words, the explanation makes it clear that any amount met directly or indirectly by the government in the form of a subsidy, then, so much of the cost as is relatable to the subsidy, shall not be included in the capital cost of the asset. He further noticed that the amount received in the form of subsidy was paid to the banker for repayment of term loan taken by the company on the purchase of the capital assets which makes it further clear that the subsidy given by the Government was used to offset the capital costs and thus the same has to be reduced from the cost of the fixed assets. He accordingly apportioned the subsidy amount against the opening WDV of the assets of the assessee and calculated the eligible depreciation.;
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