2018 (5) TMI 127 - AT - Income Tax

Tribunal upholds CIT-A decision on depreciation for capital subsidy, citing legal principles

The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to delete the addition of depreciation on capital subsidy. The Tribunal ... Depreciation on capital subsidy - Held that:- Referring to legal position explained by Hon’ble Supreme Court in the case of P.J Chemicals Ltd.[1994 (9) TMI 1 - SUPREME Court]. We are of the view that CIT(A) has rightly allowed the claim of depreciation of assessee. Issues:Whether the Commissioner of Income Tax (Appeals) was justified in deleting the addition of depreciation on capital subsidy.Analysis:The appeal by the Revenue was directed against the order of the Commissioner of Income Tax (Appeals) for the A.Y 2011-12. The main issue was whether the CIT-A was correct in deleting the addition of Rs. 35,59,939 made on account of depreciation on capital subsidy. The Tribunal referred to previous orders in the assessee's case and the decision of the Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. The Tribunal found that the subsidy received by the assessee was not intended to meet a portion of the cost of the asset and therefore should not be deducted from the actual cost while claiming depreciation. The Tribunal upheld the decision of the CIT-A based on the legal position explained by the Hon'ble Supreme Court.The Tribunal noted that the Coordinate Bench of the Tribunal and the CIT-A had previously followed the decision of the Hon'ble High Court of Calcutta in similar cases. The Tribunal reiterated that if a subsidy is intended to encourage setting up of the industry and not for meeting the cost of the assets, it should not reduce the actual cost for the purpose of computing depreciation. The Tribunal also discussed Explanation 10 under sec. 43(1) which provides guidelines on when a subsidy can be excluded from the actual cost of the asset. The Tribunal concluded that the CIT-A was justified in deleting the impugned addition and dismissed the appeal of the Revenue.In summary, the Tribunal upheld the decision of the CIT-A to delete the addition of depreciation on capital subsidy based on the legal principles established by the Hon'ble Supreme Court and the consistent application of those principles in previous cases. The Tribunal found no infirmity in the CIT-A's order and dismissed the appeal of the Revenue.