Capital subsidy for hydro power plants and its effect on "actual cost" for depreciation, sent back for fresh decision.

Whether capital subsidy received for setting up hydro power units must be reduced from the "actual cost" of plant and machinery for computing depreciation under the Act was disputed, the AO holding that depreciation was allowable only on adjusted WDV after reducing the subsidy. The ITAT held that the character and depreciation impact of the same subsidy had arisen in earlier AYs and was pending adjudication at the appellate level; consistency required that the determination in those earlier AYs govern AY 2014-15. The matter was remitted to the CIT(A) to decide afresh in accordance with law by applying, mutatis mutandis, the findings in the prior AYs; the appeal was allowed for statistical purposes.

---

---

1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the disallowance of depreciation in the relevant assessment year, made by reducing capital subsidy from the cost/WDV of plant and machinery, should be sustained when the subsidy was received in earlier years and the effect of such subsidy on depreciation is already under adjudication for those earlier years.

(ii) What is the proper appellate course for determining depreciation in the relevant year where the dispute originates from, and is dependent upon, determinations to be made for preceding assessment years.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii): Depreciation disallowance by adjusting capital subsidy in the relevant year despite pending adjudication for earlier years

Legal framework (as discussed in the order): The assessment under consideration arose from an assessment made under section 143(3). The Court noted that earlier years were reopened under section 147 to make adjustments connected with subsidy receipts and their impact on depreciation; appeals for those years were stated to be pending before the first appellate authority.

Interpretation and reasoning: The Court noted that the assessee received financial support by way of capital subsidy for setting up hydro power units, but the receipts were in earlier assessment years (2012-13 and 2013-14). The present depreciation adjustment for the relevant year was traced to the same subsidy, and the "issue attributable to receipt of subsidy and its effect on quantum of depreciation" was already pending adjudication at the appellate level for those earlier years. Given that those earlier-year determinations "has given genesis to the present dispute," the Court held that the appropriate course was to align the determination for the relevant year with the findings to be rendered in the earlier years, rather than decide the matter independently in the relevant year.

Conclusions: Without expressing any opinion on the merits regarding the nature of the subsidy or its ultimate effect on depreciation, the Court set aside the order under appeal and remitted the matter to the first appellate authority for fresh determination in accordance with law. The first appellate authority was directed to apply, mutatis mutandis, the findings rendered in assessment years 2012-13 and 2013-14 to the relevant assessment year while deciding the depreciation issue. The appeal was allowed for statistical purposes on this remand direction.

---