2016 (11) TMI 1245 - AT - Income Tax

Appeal dismissed on depreciation disallowance due to subsidy - Importance of accurate asset cost accounting

The appellant's appeal against the disallowance of depreciation due to a subsidy received was dismissed. The lower authorities, supported by legal ... Reduction of amount of subsidy received from the block of assets for claiming depreciation - Held that:- We find that the ld. CIT(A) has given a finding that assessee had received subsidy from State Government under Capital Incentive Scheme on the basis of cost of capital asset acquired by the assessee and it was relatable to the cost of asset and was therefore required to be reduced from the cost of asset as per the provisions of Explanation-10 to section 43 of the Act. The ld. CIT(A) has further relied upon the decision of Pune Bench of the Tribunal in the case of Alfa Laval India Ltd. vs. DCIT, (2007 (2) TMI 277 - ITAT PUNE-B ) and had held that the decisions relied by the assessee in support her contention were not applicable to the present fact. Before us, no material has been placed on record by the assessee to controvert the findings of ld. CIT(A). - Decided against assessee. Issues:Disallowance of Depreciation due to Subsidy ReceivedAnalysis:The case involves an appeal against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The appellant, engaged in the business of manufacturing and trading, filed a revised return of income declaring total income and agricultural income. The assessment under section 143(3) of the Income Tax Act, 1961, determined the total income. The appellant contested the disallowance of depreciation of Rs. 1,23,398 due to reducing the Written Down Value of Assets by a subsidy of Rs. 10 lakhs. The appellant argued that the subsidy was for establishing a unit in a backward area and creating employment, not related to the investment or cost of assets. The Assessing Officer disagreed, reducing the subsidy amount from the block of assets and disallowing the excess depreciation. The Commissioner upheld this decision, citing Explanation-10 to section 43(1) and relevant case law. The appellant's reliance on other decisions was deemed inapplicable. The Tribunal concurred with the lower authorities, holding that the subsidy should be deducted from the cost of assets for claiming depreciation.In summary, the main issue revolved around whether the subsidy received by the appellant should be reduced from the block of assets for claiming depreciation. The lower authorities, supported by relevant legal provisions and precedents, concluded that the subsidy, being related to the cost of assets, must be deducted as per Explanation-10 to section 43(1). The appellant's arguments were deemed insufficient to overturn this decision, leading to the dismissal of the appeal.The judgment highlights the importance of correctly accounting for subsidies received in relation to asset costs for depreciation purposes. It underscores the application of statutory provisions and judicial precedents in determining the treatment of such subsidies in income tax assessments. The case serves as a reminder for taxpayers to align their claims with the specific provisions of the law and established legal interpretations to avoid disallowances and ensure compliance with tax regulations.