TaxTMI 
TaxTMI 
2014 (4) TMI 1084
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....allowance by applying Explanation-10 to section 43(1)." 3. Briefly stated facts are that during the year under consideration, the assessee company received a sum of Rs. 4,50,07,248/- as incentive subsidy from Govt. of West Bengal under West Bengal Incentive Scheme, 1999 for setting up of Industrial Projects in the State of West Bengal. Vide this scheme the maximum limit of the subsidy was restricted with reference to the value of fixed capital invested in land, building and plant & machinery but no part of the subsidy was specifically intended to subside the cost of any fixed assets and, therefore, cannot be considered as payment made to meet a portion of the cost of the asset. Accordingly, the assessee made a claim and the amount of subsidy received was not reduced from the actual cost/WDV of fixed assets for the purpose of computing depreciation. The assessee claimed that during the year under consideration there was no addition to fixed assets if netted against deduction. The AO during the course of assessment proceedings allocated the amount of subsidy received during the year to various fixed assets and reduced allocated amount from the WDV of those brought forward from last ....
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....dered the rival submissions and perused the record. In our considered opinìon, even after insertion of Explanation- 10 to section 43(1) of the Act, the basic principle underlying in the decision of the apex court in the case of P.J. Chemicals Ltd. (1994) 210 ITR 830, still hold the field. Their Lordships analysed the expression 'met directly or indirectly' to come to the conclusion that only in a case where a subsidy or other grant was given offset the cost of an asset, such payment /grant would fall within the expression 'met' whereas the subsidy received merely to accelerate the industrial development of the State cannot be considered as payments made specifically to meet a portion of the cost of the assets. A careful perusal of Target 2000 scheme shows that the scheme was intended to accelerate industrial development of the State and the incentive was given for setting up of industrial in Andhra Pradesh and for the purpose of determining the amount of subsidy to be given the cost of eligible investment was taken as the basis, though it was not specifically intended to subsidise the cost of the capital. Under the circumstances, we are of the view that the incentive in the....
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....the end of previous year plus the fixed capital investment made during the year minus the value of fixed assets disposed of during the year." He further drew our attention to benefit given in sales tax and the relevant inner pages 17-18 of the Scheme reads as under: "10. SALES TAX: 10.1 Sales Tax Deferment/Remission on sale of finished goods. 10.1.1. A new Unit for its approved project shall be eligible for deferred payment of sales tax due for payment by it or alternatively for remission of sales tax due for payment by it, for the period and subject to ceiling as mentioned below depending on location of the unit: Group A area Group B area Group C area i) Deferment of Sales Tax due for payment by the unit Percentage ceiling in terms of gross value of Fixed Capital Assets of the approved project Nil 11 years 15 years Percentage ceiling in terms of gross value of Fixed Capital Assets of the approved project - 110% 175% ii) Remission of Sales Tax due for payment by the unit Nil 9 years 13 years Percentage ceiling in terms of the gross value of Fixed Capital Assets of the approved project --- 100% 150% Relevant clause 10.1....
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....f any fixed asset, therefore, it cannot be said that the subsidy was to meet a portion of cost of the asset. According to us, the assessee has rightly not reduced the amount of subsidy received from the actual cost/WDV of the fixed assets while claiming depreciation. It is also a fact that revenue during scrutiny assessments of the assessee for AY 2003-04 and 2004-05, the above stated subsidy was considered as capital receipt accepting the contention of the assessee. For the sake of consistency also the AO should not have changed the stand now. Even Hon'ble Supreme Court in the case of CIT vs. P.J. Chemicals Ltd. (1994) 210 ITR 830 (SC) has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under sec. 43(1) for the purpose allowing depr....
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....ndirectly used to acquire an asset but it is not possible to exactly quantify the amount directly or indirectly used for acquiring the asset. Here also, a finding of fact is necessary that an asset was acquired by directly or indirectly using the subsidy. The above Explanation and the proviso thereto do not dilute the finding of the Hon'ble Supreme Court in the case of P. J. Chemicals Ltd. that asset-wise subsidy alone can be reduced from the actual cost. The above Explanation and the proviso therein attempt to explain the law. They are not bringing any new law different from the law considered by the Hon'ble Supreme Court in the above cases. 8. In view of the above facts and circumstances of the case and legal position explained by Hon'ble Supreme Court in the case of P. J. Chemicals Ltd. supra, we are of the view that CIT(A) has rightly allowed the claim of depreciation of assessee. We uphold the same. This issue of revenue's appeal is dismissed. 9. The next issue in this appeal of revenue is as regards to order of CIT(A) restricting the disallowance of expenses at 1% of exempted income by invoking the provisions of section 14A of the Act. For this, revenue has raised following....