Subsidy under IPS Scheme 2007 should not reduce fixed asset cost for section 43(1) depreciation calculation

The ITAT Pune held that subsidy received under the IPS Scheme 2007 of Maharashtra Government should not be reduced from the actual cost of fixed assets under section 43(1) for depreciation calculation purposes. Following the precedent in Atharva Polymers Private Limited, the tribunal directed deletion of the depreciation addition made by the AO. Additionally, the tribunal upheld the CIT(A)'s decision allowing section 80IA deduction without deducting brought forward losses or unabsorbed depreciation prior to the initial year on a notional basis, consistent with earlier assessment years.

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Issues Involved:

1. Treatment of IPS subsidy under PSI Scheme 2007 as a capital asset.
2. Reduction of IPS subsidy from the cost of the asset and corresponding depreciation claim.
3. Deduction under Section 80-IA for windmill units.
4. Withdrawal of the appeal for the assessment year 2018-2019.

Issue-wise Detailed Analysis:

1. Treatment of IPS Subsidy under PSI Scheme 2007 as a Capital Asset:

The assessee argued that the IPS subsidy of Rs. 96,23,314/- received under the PSI Scheme 2007 should be treated as a capital asset, neither liable to tax nor to be reduced from the block of assets. The NFAC, however, treated the subsidy as one for acquiring fixed assets and reduced the subsidy amount from the addition to the block of plant and machinery, consequently reducing the depreciation allowance by Rs. 14,44,247/-. The assessee contended that the subsidy was given for developing backward areas, making it capital in nature and not liable for tax. The NFAC disagreed, citing that the subsidy was directly related to the acquisition of plant and machinery for expansion purposes, thus applicable under sec. 43(1) Explanation-10 of the Income Tax Act.

2. Reduction of IPS Subsidy from the Cost of the Asset and Corresponding Depreciation Claim:

The tribunal found no merit in the Revenue's stand, citing the tribunal's recent coordinate bench's order in ITA No. 1912/PUN./2019, which settled the issue in favor of the assessee. The tribunal concluded that the subsidy should not be reduced from the actual cost of fixed assets under sec. 43(1) for the purpose of calculating depreciation. The tribunal adopted judicial consistency and accepted the assessee's appeal ITA. No. 1156/PUN./2023, allowing the appeal.

3. Deduction under Section 80-IA for Windmill Units:

The Revenue's cross-appeal ITA. No. 1203/PUN./2023 challenged the CIT(A)'s decision on sec. 80-IA deduction. The CIT(A) held that the initial assessment year for sec. 80-IA deduction is the year chosen by the assessee, and the profit of the eligible business should be computed without deducting brought forward losses or unabsorbed depreciation prior to the initial year. The NFAC followed the tribunal's orders in the assessee's case for the preceding assessment years 2008-2009 and 2009-2010, supporting the assessee's claim. The tribunal upheld the NFAC's findings, affirming that the assessee is entitled to the deduction under sec. 80-IA without reducing brought forward losses or unabsorbed depreciation. The Revenue's cross-appeal was dismissed.

4. Withdrawal of the Appeal for the Assessment Year 2018-2019:

The assessee filed a letter seeking to withdraw the appeal ITA. No. 1157/PUN./2023 for the assessment year 2018-2019. The learned DR had no objection, and the tribunal dismissed the appeal as withdrawn.

Conclusion:

The assessee's appeal ITA. No. 1156/PUN./2023 for the assessment year 2014-2015 was allowed, the Revenue's cross-appeal ITA. No. 1203/PUN./2023 was dismissed, and the assessee's appeal ITA. No. 1157/PUN./2023 for the assessment year 2018-2019 was dismissed as withdrawn.

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