TaxTMI 
TaxTMI 
2018 (9) TMI 623
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....es for generation of hydro electric energy to harness the water of Rivers allocated to the State of Maharashtra under the Water Disputes Tribunal Award and other allied and incidental activities including flood control. 4. In the course of assessment proceedings, the Assessing Officer ('A.O.' for short) noticed that the assessee company has received grants from Govt of Maharashtra towards raising of capital assets in form of dams, canals etc. It was further noticed that on the said capital assets, the assessee has claimed depreciation. Though the company has also used its own fund in the form of issue of bonds, interest income etc, however considering the fact that most of the funds have been received by the company from Govt of Maharashtra, the A.O. opined that the provisions of section 43(1) of the I.T. Act becomes applicable to the case of the assessee as far as computation of depreciation is concerned which reads as under: "for calculating actual cost for determining depreciation means the actual cost of the assets to the assessee reduced by that portion of cost thereof if any as has been met directly or indirectly by any other person or authority." 5. In terms of the above....
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....essee's case and it has been requested that the claim of depreciation may be allowed in toto. 8. However, the A.O. was not satisfied. He referred to the provision of section 43(1) and Explanation 10 as under: Section 43(1): "actual cost" means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority" Explanation (10) to section 43(1): " Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or State Government or any authority established under any law or by any other person in the form of a subsidy or g rant 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: 9. Referring to the above, the A.O. observed that it is very clear that any amount by whatever name called if received by the Central Government or State Government has to be reduced from the actual cost of the asset. Accordingly, he proceeded to disallow the depreciation. 10. Upon thi....
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....rrive at the actual cost of the assets. As this explanation was brought on the statute after the judgment of the Hon'ble SC, the appellant could not have relied on the decision of the Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. 13. However, the ld. CIT(A) found that the second explanation of the assessee regarding the bonafide and inadvertent error in not giving effect to the provisions of section 43(1) r.w Explanation 10 of the Act has been found to have a lot of merit. He proceeded to hold that since it was a capital contribution of Govt. of Maharashtra, the assessee's belief that Explanation 10 of section 43(1) is not attracted was bonafide. In this regard, the ld. CIT(A) placed reliance upon the decision of the Hon'ble Apex Court in the case of Reliance Petroproducts (P.) Ltd. (supra) and accordingly he proceeded to delete the levy of penalty. The concluding portion of the ld. CIT(A) in this regard can be gainfully referred as under: 17. The appellant's second explanation however regarding bonafide and inadvertent error in not giving effect to the provisions of section 43(1) r.w. Explanation 10 of the I.T. Act has been found to have a lot of merit. I....
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....Explanation 10 of the I.T. Act. Therefore, it cannot be said that the appellant had overstated the depreciation with any motive to lower its liability for tax. Moreover, on perusal of the Audit report Schedule-I of the Liabilities forming part of the balance-sheet it is seen that the appellant had duly disclosed government contribution for works. The depreciation chart as per Income-tax Rules was filed as per Annexure-A to the audit report. Therefore, as far as the particulars of income are concerned, it is seen that neither any inaccurate particulars of income were filed nor any particulars of income were concealed. The appellant had made a claim of depreciation which claim was not acceptable being not in accordance with law and the claim was allowed at a reduced amount after correct application of law. In this regard it is seen that the Hon'ble Apex Court in the case of Reliance Petroproducts, 322 ITR 158 (SC) has held as under - Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(l)(c). If we accept the contention of the Re....
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....ver 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: 17. Hence, they have opined that the capital contribution would also be encompassed in the term "subsidy or grant or reimbursement (by whatever name called)". Hence, assessee's plea on merits has been negated. However, the assessee's belief that in terms of the above provision of the Act it was entitled to claim deprecation out of purchases from capital contribution for Government has been found to be bonafide by the ld. CIT(A). In this regard, the ld. CIT(A) has also referred to Hon'ble Apex Court decision in the case of Reliance Petroproducts (P.) Ltd. (supra). 18. In our considered opinion, there is no infirmity on the plank of the ld. CIT(A) under which he has deleted this penalty. It is settled law that the assessment proceedings and penalty proceedings are distinct. Sustenance of the additions by the ld. CIT(A) and assessee's not contesting the same before ITAT cannot be said to be adversely affecting the assessee's plea that penalty u/s. 271(1)(c) is not leviable on the facts and circumstances of the cas....