SIPCOT subsidy and depreciation cost base: revisionary jurisdiction failed because the assessment was not erroneous.

SIPCOT subsidy was held not to require reduction from the actual cost of machinery for depreciation purposes, following the governing Supreme Court principle on subsidy treatment. Because the assessment orders correctly allowed depreciation on the unreduced cost, they were not erroneous or prejudicial to the interests of the Revenue. On that basis, the Commissioner could not invoke revisionary jurisdiction to revise the assessments, and section 263 relief failed.

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Issues: Whether the subsidy received from SIPCOT was required to be reduced from the actual cost of the assets for computing depreciation and whether the Commissioner could invoke revisionary jurisdiction under section 263 of the Income-tax Act, 1961 on the footing that the assessment orders were erroneous and prejudicial to the interests of the Revenue.

Analysis: The assessment orders had allowed depreciation without deducting the SIPCOT subsidy from the cost of the machinery. The Tribunal held that the subsidy was not liable to be deducted from the actual cost and that the original assessment orders were not erroneous. Relying on the Supreme Court ruling that such subsidy need not be reduced from the actual cost for depreciation purposes, the Court held that the assessment orders suffered from no error and, therefore, the Commissioner lacked jurisdiction to revise them under section 263.

Conclusion: The revision under section 263 was not sustainable, and the questions referred were answered in favour of the assessee and against the Revenue.

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