2016 (2) TMI 700

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....fer 13(b) of the TAR Subsidy received Rs.,2708125/- of which Rs. 1988215/- was considered in Depreciation schedule of the TAR. Please explain the difference. (b) In ref. to 13(e) of the TAR, capital subsidy receivable Rs. 1.5 crore was credited to Capital reserve a/c Interest subsidy of Rs. 15003609/- was credited in the P&L a/c. Another subsidy of Rs. 720000/- was received from Ministry of Textile, Govt. of India. Again as per point no.2 of Notes forming part of Return Income, subsidies were Rs. 2016226/- and Rs. 12987383/- under Tuff Scheme and WBIS scheme respectively. Please submit a reconciled statement taking also into account subsidy mentioned in 13(b) of the TAR. (c) All the above subsidies are claimed as capital receipts. Please submit copies of following documents :- i) Copies of the related scheme. ii) Copies of claim form along with all attachments. iii) Copies of subsidy release orders issued by the Authorities." 2.1. The assessee vide its reply dated 15.12.2009 submitted as follows with regard to the subsidy of Rs. 1.5 crore received by the assessee under the West Bengal Incentive Scheme 2000 (State Capital Investments S....

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....t has been directly or indirectly met by any form of subsidy then the subsidy amount should be reduced from the cost of Asset. Plain reading of the above provisions leave no doubt in the mind that the above Explanation shall be applicable only in the following circumstances:- - in case of direct payment to the vendor by the Central Government, etc., - in case the scheme provides for claim for reimbursement of cost to the vendor or the purchaser. 1.3.6 In the assessee case, subsidy is mainly granted for the purpose of inducing the industry to set up units in certain selected backward areas and not for the purpose of meeting a portion of the cost of the assets. The total amount of subsidy to be granted though has been quantified on the basis of specified percentage of the fixed capital cost, is nothing but a measure adopted under the scheme to quantify the financial aid to be granted over a certain period. 1.3.7. The above view is fortified by the decision of Hon'ble Visakhapatnam Tribunal in the case of Sasisri Extractions Ltd -vs.- ACIT (2008) 207 ITR 127 (Visakhapatnam) (Tri.) wherein it has been held that where the assessee received subsidy fro....

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....egard to the applicability to Explanation 10 to section 43(1) of the Act and it was only a general question about whether the subsidy in question is a capital subsidy not chargeable to tax and revenue subsidy chargeable to tax. CIT was of the view that AO has not examined or considered the question of reducing the value of subsidy from the cost of plant and machinery for the purpose of depreciation. The CIT therefore concluded that the order of AO was erroneous and prejudicial to the interest of revenue. CIT also observed that since the subsidy in question was to establish or expand industry in a backward and in other area and since the subsidy is related to capital assets in the sense that it is intended to compensate for acquiring assets, the effect of the subsidy is therefore reimbursement wholly and partly of the amount spent in acquiring plant and machinery. Therefore Explanation 10 to section 43(1) of the Act would be attracted. Though the CIT made the aforesaid observations by way of a passing a reference, the aforesaid observations were not rendered in the form of a finding to come to a conclusion that the order of AO was erroneous and prejudicial to the interest of the rev....

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....tion has to be reduced from the value of fixed assets for the purpose of allowing depreciation invoking the provisions of Explanation 10 to section 43(1) of the Act. The assesse in its reply to the notice u/s 142(1) of the Act has clearly set out that the subsidy in question need not be reduced from the value of fixed assets. We have extracted the reply of the assessee in the earlier part of this order. Therefore the CIT in exercising his powers u/s 263 of the Act cannot come to a conclusion that there is a failure on the part of the AO to have made proper and adequate enquiry with regard to applicability of Explanation 10 to section 43(1) of the Act to the subsidy received by the assessee. 8. As far as the merits of the order u/s 263 of the Act, the question is as to whether the subsidy in question can be said to the payment to meet any portion of the actual cost of fixed assets. It is only in such an event that Explanation 10 to section 43(1) of the Act can be invoked by the AO. Similar issue had come for consideration before this Tribunal in the case of DCIT vs Rasoi Ltd (supra). This Tribunal has held as follows :- "6. From the above facts and circumstances, admitte....

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....s not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. 7. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec.43(l). The said Explanation provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called) then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It is further, provided there under, that where such subsidy or grant or reimbursement of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be includ....