Tribunal rules in favor of assessee on subsidy treatment and disallowances under Income Tax Act

The tribunal ruled in favor of the assessee, directing the Assessing Officer to treat the subsidy received from the Government of India as a capital receipt linked to setting up a new power plant, reducing it from the asset's actual cost for depreciation purposes. Additionally, the tribunal instructed the deletion of disallowances made under section 14A read with Rule 8D for book profit computation under section 115JB of the Income Tax Act, following a precedent established by the ITAT Special Bench. The appeal was partly allowed, with the judgment delivered on 10th May 2023 in Chennai.

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Issues Involved:
The judgment involves the assessment of subsidy received from the Government of India and additions towards disallowance under section 14A read with Rule 8D of the Income Tax Act, 1961.

Assessment of Subsidy Received:
The assessee received a capital subsidy of Rs. 84 lakhs from the Government of India for implementing a program on 'Biomass Co-generation in Industries'. The Assessing Officer treated this subsidy as a revenue receipt, while the assessee claimed it to be a capital receipt. The tribunal examined the scheme's objectives and concluded that the subsidy was a capital receipt directly linked to setting up a new power plant. The tribunal directed the Assessing Officer to treat the subsidy as a capital receipt and reduce it from the actual cost of the asset for claiming depreciation.

Disallowance under Section 14A - Rule 8D:
The issue of disallowance under section 14A read with Rule 8D of the Income Tax Rules, 1962, to book profit computed under section 115JB of the Act was considered. The tribunal referred to a decision by the ITAT Special Bench and ruled in favor of the assessee, directing the Assessing Officer to delete the additions made towards disallowance under section 14A read with Rule 8D to book profit computed under section 115JB of the Act.

The judgment addressed the contention regarding the nature of subsidy received from the Government of India, emphasizing the distinction between capital and revenue receipts based on the scheme's objectives. It also resolved the issue of disallowance under section 14A read with Rule 8D concerning book profit computation under section 115JB of the Act, following a precedent set by the ITAT Special Bench. The tribunal partly allowed the appeal filed by the assessee, pronouncing the order in court on 10th May 2023 in Chennai.

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