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2021 (8) TMI 853 - ITAT CHENNAIExcess depreciation on Capital subsidy received from Government of India - Whether said subsidy partake the nature of capital contribution and hence the same is in the nature of capital receipt, which cannot be taxed under the Act? - HELD THAT:- There is no merit in the reasons given by the AO to consider capital subsidy as part of cost of asset directly/indirectly met by third party, because capital subsidy received from Government of India is for setting up of new food processing industry as per the scheme of promotion of industries in the industrially backward areas - said subsidy partake the nature of capital contribution and hence the same is in the nature of capital receipt, which cannot be taxed under the Act. CIT-A Once the amount is in the nature of capital receipt, question of reduction of said subsidy from the cost of plant & machinery as per the provisions of section 43(1) of the Act does not arise. This proposition was supported by the decision of the Hon'ble Jurisdictional High Court of Madras in the case of M/s. Srinivas Industries [1991 (1) TMI 120 - MADRAS HIGH COURT] where it was held that amount of subsidy made available cannot be deducted from the cost of capital asset for the purpose of working out depreciation u/s. 43(1) - This proposition was further supported by the decision of the Hon'ble High Court of Rajasthan in the case of CIT vs. Ambica Electrolytic Capacitor, [1990 (9) TMI 24 - RAJASTHAN HIGH COURT]. We, therefore are of the considered view that the AO was erred in reducing capital subsidy received for setting up of new food processing industry from the plant & machinery for computing depreciation.CIT(A) rightly deleted addition made by the AO towards excess depreciation - Decided in favour of assessee.
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