2013 (7) TMI 956

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.... Officer, Assessee carried the matter before CIT(A). CIT(A) vide order dated 01.02.2010 granted partial relief to the assessee. Aggrieved by the aforesaid order of CIT(A) the Assessee is now in appeal before us and has raised the following effective grounds:- 2. (i) The learned CIT(A) erred in confirming the disallowance of the claim of depreciation of ₹ 37,63,298/- on portion of plant and machinery received towards grant/subsidy from National Dairy Development Board under "70% loan and 30% grant" scheme. Your appellant submits that 30% grant has been received towards the project as a whole and hence, it is entitled to depreciation on the entire cost of assets installed and put to use without deducting the grant portion. It is submitted that it be so allowed now. (ii) The learned CIT(A) erred in law and on facts in holding that Explanation 10 to section 43(1) of the Act would apply in respect of assets acquired prior to 1-4-99 and also in respect of grants received prior to 1-4- 99 and thereby would apply from assessment year 1999-00 irrespective of the year of acquisition of assets or year of disbursement of grant. The learned CIT (A), thus erred in denying bene....

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....was disbursed to Gujarat Agriculture University ( GAU) towards Model Dairy, which was at that time known as GAU Training & Research Dairy till 3.11.1993 and renamed as Vidya dairy, an AOP w.e.f. 3.11.1993. Even though the grant disbursements were made prior to 1995, a grant agreement between appellant and NDDB was executed on 21.7.1999. Appellant, for the first time in A.Y.2005-06 claimed depreciation in respect of that portion of cost of its assets, which was financed out of grant received from NDDB. The grant is claimed to be received prior to 1995. Appellant has worked out depreciation of ₹ 37,63,278/- in respect of grant amount of ₹ 3,90,68,828/- by first calculating notional depreciation for financial years 2001-02 to 2003-04, thereby arriving at amount of ₹ 1,99,36,050/-as on 1.4.2004, on which depreciation of ₹ 37,63,278/- was claimed at applicable rates for F.Y.2004 05/A.Y.2005-06. No depreciation has been worked out for the period prior to 1.4.2001, even though grant was received prior to 1995 on the ground that provisions making allowance of depreciation mandatory, i.e. Explanation 5 to section 32 inserted w.e.f. 1.4.2002 and thus, became applicab....

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....04 by reducing notional depreciation from the grant component of cost of assets for the period 1,4,2001 to 31.3,2004. As per decision in the case of Saharanpur Electric Supply Co. Ltd. (1992) 194 ITR 294 (SC), actual cost of assets for the purpose of computing depreciation if so required to be, can be altered in later years. It would be therefore justified to reduce grant component of actual cost for the purpose of computing depreciation, even if such grant was received prior to the previous year, i.e. F.Y. 04-05 in this case. It is therefore, held that Explanation 10 to section 43(1) can be applied to redetermine actual cost of assets acquired prior to 1.4.1999 by reducing grants received including grants received prior to 1.4.1999. Moreover, so far as appellant is concerned, part of cost of assets received from previous entities got categorised as "grant" only after 21.7.1999, i.e. when Explanation 10 was on the statute book. The assets in question were financed through 70% loan and 30% grant, both received from NDDB and the loan as well as grant agreement was also executed on 21.7.1999. Even though the loan and the grant were received prior to 1995 by Training & Resear....

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....lor of Gujarat Agriculture University to set up a Model Dairy Plant as per the MOU. It was agreed that the Gujarat Agriculture University shall treat the Model Dairy Plant as autonomous unit and the financial assistance for the project shall be given NDDB based on the basis of feasibility report to be approved by NDDB (70% loans and 30% grant). Pursuant to the MOU, NDDB completed the project and handed over the Model Dairy University to Vidya Dairy in 1994. Vidya Dairy was converted into company under Section 25 of the Companies Act, 1956 on 10th June, 1998. 6. The learned A.R further submitted that the amount has been received from NDDB under 70% loan and 30% grant basis prior to 1.04.1999 i.e. prior to insertion of Explanation 10 to section 43(1) of the IT Act and the grant was received towards the project as a whole. The learned A.R. further submitted that in view of Explanation 2 to section 43(1). The Assessee was entitled to depreciation on the entire cost of asset without deducting the grant portion. The learned A.R. further submitted that though the grant agreement was executed on 21st July, 1999. It was only the formalities which was required to be completed and it covered....