TMI Blog2016 (2) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... ate enquiry with regard to applicability of Explanation 10 to section 43(1) of the Act to the subsidy received by the assessee. Thus it cannot be said that the incentive in question was granted to meet any portion of the actual cost of fixed assets and the same is not required to be excluded from the cost of fixed assets on which the depreciation is to be allowed. We also find force in the submissions of learned counsel for the assessee that AO has taken one of the possible view and at best it would be a case where the CIT in exercising his powers u/s 263 of the Act wants to substitute his view with that of the view by the AO. Such a course is not permissible in the proceedings u/s 263 of the Act. For the reasons given above, we quash the order u/s 263 of the Act and allow the appeal of the assessee. - ITA No.828/Kol/2012 - - - Dated:- 15-1-2016 - Shri N.V.Vasudevan, JM Shri Waseem Ahmed, AM For The Appellant : Shri Saumen Adak, FCA Shri Harish Agarwal,ACA For The Respondent : Shri Sandeep Chaube, CIT(DR) ORDER Per Shri N.V.Vasudevan, JM This is an appeal by the assessee directed against the order dated 27.03.2012 of CIT- I, Kolkata passed u/s 263 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectively. 1.3.2 On perusal of the West Bengal Incentive Scheme, 2000 it could be seen that the factory of the assessee falls under Croup-B area. As per Para No. 8 at Page No. 9 of the scheme it could be seen that the assessee will be entitled to State Capital Investment Subsidy of @ 15% of the Fixed Capital Investment subject to a limit of ₹ 150 Lacs. 1.3.3 In this regard, copy of the claim application form submitted by the assessee and sanction letter issued by the West Bengal Industrial Development Corporation Ltd. is enclosed as Annexure - 9 and Annexure -10 respectively. 1.3.4 At this juncture it is worthwhile to refer the Explanation 10 and proviso under section 43(1) of the LT. Act, 1961 which have material bearing on the issue under consideration:- Explanation 10.-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 includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 3. The CIT in exercise of his powers u/s 263 of the Act was of the view that the aforesaid order of the AO was erroneous and prejudicial to the interest of the revenue for the reason that the AO while framing the assessment order failed to consider the applicability of Explanation 10 to section 43(1) of the Act. In the opinion of CIT the subsidy should have been reduced from the value of plant and machinery for the purpose of allowing depreciation as per Explanation 10 to section 43(1) of the Act. Accordingly, the CIT issued show cause notice u/s 263 of the Act. 4. In reply to the show cause notice the assessee pointed out that a specific query was raised by the AO with regard to the taxability of the subsidy as revenue subsidy. The assessee also pointed out that in reply to the query of the AO in this regard the assessee sent a reply pointing out as to how the value of the subsidy need not be reduced from the value of plant and machinery for the purpose of allowing depreciation in view of the provision of Explanation 10 to section 43(1) of the Act. The Assessee thus took a stand that the AO has applied his mind to the issue in question and came to a particular concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and the learned DR. The learned counsel for the assessee reiterated the submissions as were made before CIT. It was further submitted by him that the incentive in question was for providing fiscal support for the promotion of industries in the state and not for meeting the cost of acquiring any fixed assets. The fact that the subsidy was on the basis of specified percentage of fixed capital cost cannot lead to a conclusion that the subsidy in question was granted for the purpose of acquiring fixed assets. It was therefore submitted by him that subsidy in question need not be reduced from the value of fixed assets under Explanation 10 to section 43(1) of the Act. Our attention was drawn to the decision of ITAT Kolkata Bench in the case of DCIT vs Rasoi Ltd. In ITA No.1398/Kol/2011 dated 02.04.2014 wherein an identical scheme of the State of West Bengal namely Incentive Scheme 1999 was considered by this Tribunal and it was held that the subsidy received therein was not for the purpose of acquiring any fixed asset and therefore value of the subsidy need not be reduced from the cost of the fixed assets for the purpose of allowing depreciation. In other words, it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidy received from the actual cost/WDV of the fixed assets while claiming depreciation. It is also a fact that revenue during scrutiny assessments of the assessee for AY 2003-04 and 2004-05, the above stated subsidy was considered as capital receipt accepting the contention of the assessee. For the sake of consistency also the AO should not have changed the stand now. Even Hon'ble Supreme Court in the case of CIT vs. P.J. Chemicals Ltd. (1994) 210 ITR 830 (SC) has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under sec. 43(1) for the purpose allowing depreciation. It is further held that if Government subsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f fact is necessary that an asset was acquired by directly or indirectly using the subsidy. The above Explanation and the proviso thereto do not dilute the finding of the Hon'ble Supreme Court in the case of P. J, Chemicals Ltd. that asset-wise subsidy alone can be reduced from the actual cost. The above Explanation and the proviso therein attempt to explain the law, They are not bringing any new law different from the law considered by the Horn ble Supreme Court in the above cases. 8. In view of the above facts and circumstances of the case and legal position explained by Hon'ble Supreme Court in the case of P. J. Chemicals Ltd. supra, we are of the view that CIT(A) has rightly allowed the claim of depreciation of assessee, We uphold the same. This issue of revenue's appeal is dismissed, 8.1. The aforesaid decision was rendered in the context of West Bengal Incentive Scheme 1999. In the present appeal we are concerned with West Bengal Incentive Scheme 2000. This scheme is identical to the West Bengal Incentive Scheme 1999. This would be clear from the foreword to the West Bengal Incentive Scheme 2000 which reads thus :- West Bengal Incentive Scheme 1999 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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