TaxTMI 
TaxTMI 
2017 (11) TMI 1353
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....nature. 3. Briefly stated, the facts of the case are that the assessee declared receipt of Rs. 2.5 crore as capital in nature, being, the amount subsidy from West Bengal Government under West Bengal Incentive Scheme, 2000. It was submitted that same was 'Capital Investment subsidy' given to incentivize the setting up of units in West Bengal and, hence, not a revenue receipt. The Assessing Officer treated the same as revenue. The ld. CIT(A) overturned the assessment order on this point. 4. Having heard both the sides and perused the relevant material on record, it is seen, as an admitted position, that the subsidy of Rs. 2.50 crore was given for setting up of unit in West Bengal and the same has been characterized as 'Capital investment su....
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....ssment order, the Assessing Officer observed that the business did not commence during the year and, hence, interest should be capitalized. This led to the addition of Rs. 1,68,33,194/-. The ld. CIT(A) observed that the business of the assessee started in assessment year 2004-05, which fact was duly admitted by the Assessing Officer while framing assessment for such preceding year. That being the position, it was held that the disallowance of interest was not called for. The Revenue is aggrieved against the deletion of disallowance. 6. We have heard both the sides and perused the relevant material on record. Case of the AO is that since the business was not set up, hence interest relatable to such assets should not be allowed as deduction.....
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....in respect of capital borrowed for acquisition of an asset (whether capitalized in the books of account or not) for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be deducted as allowed.' In view of this clear proviso set out in section 36(1)(iii), it becomes abundantly clear that any interest paid in respect of capital borrowed for acquisition of asset shall not be allowed as deduction for the period till such asset is first put to use. Since the Pineapple unit of the assessee was not admittedly operational throughout the year, interest on capital borrowed for acquisition of assets meant for the Pineapple unit cannot be allo....
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....en actually set up in July, 2004. In view of this fact, the expenses relating to Pineapple unit are required to be capitalized and those relating to Mango pulp unit should be allowed as deduction. 9. The only issue raised by the assessee in its appeal is against the reduction of the amount of subsidy under West Bengal Incentive Scheme, 2000 from the value of fixed assets for the purposes of granting deduction. The ld. AR contended that the amount of subsidy of Rs. 2.50 crore should not have been reduced from the value of fixed assets. He relied on the judgment of the Hon'ble Supreme Court in the case of CIT vs. P.J. Chemicals (1994) 210 ITR 830 (SC) in which it has been held that the amount of subsidy received under Central Scheme shou....
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....ture 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 included in the actual cost of the asset to the assessee. 11. It is obvious from a perusal of the Explanation that where a portion of the cost of an asset has been met even indirectly by the Government or any other person 'in the form of a subsidy', such an amount of subsidy or reimbursements etc. shall not be included in the actual cost of the asset to the assessee. Thus, it is clear that the judgment in the case of P.J. Chemicals ....