Appeal dismissed, cross-objection allowed. Tribunal decision on disallowances and remittance for verification.

The appeal filed by the Department was dismissed, and the cross-objection by the assessee was allowed for statistical purposes. The Tribunal upheld the deletion of disallowances related to capital subsidy depreciation and transport payments, while remitting the issue of unabsorbed depreciation back to the Assessing Officer for verification. The disallowances for professional tax, capital expenditure on electricity connection, and interest on TDS payment were upheld.

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Issues Involved:
1. Deletion of disallowance of Rs. 2,25,000/- being depreciation on Capital subsidy of Rs. 15,00,000/-.
2. Deletion of disallowance of Rs. 32,73,544/- made on account of transport payments by invoking provisions of Section 40A(3) of the Act, read with Rule 6DD(g).
3. Disallowance of Rs. 3,900/- for professional tax.
4. Disallowance of Rs. 63,750/- for capital expenditure on electricity connection.
5. Disallowance of Rs. 41,094/- for interest on TDS payment.
6. Restriction on carry forward of unabsorbed depreciation to Rs. 5,97,291/- against the eligible amount of Rs. 17,93,015/- for AY 2002-03.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Rs. 2,25,000/- Being Depreciation on Capital Subsidy of Rs. 15,00,000/-:
The Department contended that the Commissioner of Income Tax (Appeals) erred in deleting the disallowance of depreciation on the capital subsidy received by the assessee, arguing that the subsidy was granted for technology upgradation and was calculated with respect to the purchase price of plant and machinery. The Tribunal referred to the Vishakhapatnam Bench decision in the case of Sasisri Extractions Ltd. vs. CIT, which held that such subsidies fall under the category of capital receipts and are not liable for reduction from the cost of plant and machinery even after the insertion of Explanation 10 to Section 43 of the Act. The Tribunal concluded that the subsidy received was not meant to offset the cost of capital assets but was an incentive to encourage industrial development. Therefore, the ground of the Department was dismissed.

2. Deletion of Disallowance of Rs. 32,73,544/- Made on Account of Transport Payments by Invoking Provisions of Section 40A(3) of the Act, Read with Rule 6DD(g):
The Department argued that the payments were made to transport companies with banking facilities and thus should not be covered under the exception in Rule 6DD(g). The Tribunal referred to the Gujarat High Court decision in the case of Anupam Tele Services vs. ITO, which held that if cash payments were made due to business expediency and non-acceptance of cheques by the recipient, no disallowance under Section 40A(3) should be made. The Tribunal found that the assessee had provided a certificate from the village Talati confirming the absence of banking facilities and concluded that the payments were justified under Rule 6DD(g). Hence, the ground of the Department was dismissed.

3. Disallowance of Rs. 3,900/- for Professional Tax:
The Assessing Officer disallowed the professional tax payment of Rs. 3,900/- as it was not made within the due date of filing the return of income under Section 139(1) of the Act. The payment was made on 09/10/2010, whereas the due date for filing the return was 30/09/2009. Therefore, the disallowance was upheld.

4. Disallowance of Rs. 63,750/- for Capital Expenditure on Electricity Connection:
The Assessing Officer found that the assessee had debited Rs. 63,750/- as electricity expenses in the Profit & Loss Account, which was actually a contribution towards the cost of capital assets. The amount was treated as capital expenditure and disallowed from the revenue expenses. However, depreciation at 7.5% amounting to Rs. 4,781/- was allowed on the capitalized amount, resulting in a net disallowance of Rs. 58,969/-. This disallowance was upheld.

5. Disallowance of Rs. 41,094/- for Interest on TDS Payment:
The Assessing Officer disallowed a proportionate amount of interest payment of Rs. 41,094/- under Section 40(a)(ia) of the Act due to the short payment of TDS amounting to Rs. 4,656/-. The assessee agreed to the proportionate disallowance during the discussion. Therefore, the disallowance was upheld.

6. Restriction on Carry Forward of Unabsorbed Depreciation to Rs. 5,97,291/- Against the Eligible Amount of Rs. 17,93,015/- for AY 2002-03:
The Assessing Officer restricted the carry forward of unabsorbed depreciation to Rs. 5,97,291/- based on the verification of the return for AY 2002-03, despite the assessee's claim of Rs. 17,93,015/-. The Tribunal remitted the issue back to the Assessing Officer for verification, directing the assessee to cooperate and furnish the necessary details for proper adjudication. The cross-objection filed by the assessee was allowed for statistical purposes.

Conclusion:
The appeal filed by the Department was dismissed, and the cross-objection by the assessee was allowed for statistical purposes. The Tribunal upheld the deletion of disallowances related to capital subsidy depreciation and transport payments, while remitting the issue of unabsorbed depreciation back to the Assessing Officer for verification. The disallowances for professional tax, capital expenditure on electricity connection, and interest on TDS payment were upheld.

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