ITAT Chandigarh: Depreciation Disallowance Set Aside for Reassessment

The ITAT Chandigarh set aside the issue of disallowance of depreciation and additional depreciation claimed on a capital subsidy for fresh adjudication by the Assessing Officer. Regarding the calculation of book profits under section 115JB, the ITAT ruled in favor of the Assessee, stating that the capital subsidy should not be included in the book profit calculation based on the treatment of the subsidy as a non-taxable capital receipt. The appeal was partly allowed in favor of the Assessee for statistical purposes.

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Issues:
1. Disallowance of depreciation and additional depreciation claimed on capital subsidy.
2. Calculation of Book Profits under section 115JB of the Income Tax Act, 1961.

Analysis:

Issue 1: Disallowance of Depreciation and Additional Depreciation
The Assessee filed an appeal against the order of the Ld. CIT(A)-2, Ludhiana, regarding the disallowance of depreciation and additional depreciation claimed on a capital subsidy. The Assessing Officer (A.O.) noticed that the Assessee had reduced a subsidy amount from profits but did not deduct it from the actual cost of assets for depreciation calculation. The A.O. disallowed the excess claim of depreciation and added it back to the income. The Assessee contended that only the received subsidy should be deducted from fixed assets, not the whole amount. The Ld. CIT(A) upheld the A.O.'s decision, stating that the subsidy amount should have been reduced from the actual fixed asset cost for depreciation calculation. The ITAT set aside the issue for fresh adjudication by the A.O., emphasizing the need for verification and a fair hearing.

Issue 2: Calculation of Book Profits under Section 115JB
The Assessee challenged the calculation of book profits under section 115JB, arguing that the capital subsidy should not be included in the book profit calculation. Citing a precedent from ITAT Mumbai, the Assessee contended that if a capital receipt is not taxable, it should not be considered as part of the net profit or book profit under MAT. The ITAT agreed with the Assessee, stating that since the subsidy was treated as a capital receipt and not chargeable to tax, it should not be included in the book profit calculation. Consequently, the appeal was partly allowed in favor of the Assessee for statistical purposes.

In conclusion, the ITAT Chandigarh addressed the issues of disallowance of depreciation and additional depreciation claimed on a capital subsidy, as well as the calculation of book profits under section 115JB, providing detailed analysis and setting aside the first issue for fresh adjudication while deciding in favor of the Assessee on the second issue based on relevant legal precedents.

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