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Gloster Limited (Formerly known as Gloster Jute Mills Ltd.) Versus C.I.T – I, Kolkata

2016 (2) TMI 700 - ITAT KOLKATA

Revision u/s 263 - subsidy received by the assessee under the West Bengal Incentive Scheme 2000 was capital or revenue subsidy - Held that:- It is clear from the order passed by AO u/s 143(3) of the Act and enquiry made by the AO before passing such order that the AO went in to the question as to whether the subsidy received by the assessee under the West Bengal Incentive Scheme 2000 was capital or revenue subsidy. Though the AO had not raise any specific query as to whether the subsidy in quest .....

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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.

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 co .....

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ellant : 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 of the Act relating to A.Y.2007-08. 2. The Assessee is a company engaged in the business of manufacture, sale and export of jute. For A.Y.2007-08 the assessee filed return of income declaring total income of ₹ 2,87,56,904/-. In the course .....

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xplain the difference. (b) In ref. to 13(e) of the TAR, capital subsidy receivable ₹ 1.5 crore was credited to Capital reserve a/c Interest subsidy of ₹ 15003609/- was credited in the P&L a/c. Another subsidy of ₹ 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 ₹ 2016226/- and ₹ 12987383/- under Tuff Scheme and WBIS scheme respectively. Please submit a reconciled state .....

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ive Scheme 2000 (State Capital Investments Subsidy) 1.3. State Capital Investment Subsidy under WBIS, 2000 - 1.3.1 During the previous year relevant to the assessment year under consideration the assessee was eligible to receive state capital investment subsidy of ₹ 1,50,00,000/- under the West Bengal Incentive Scheme, 2000. In the audited accounts the said subsidy has been shown under the head 'Capital Reserve' in Schedule 2 (Reserves and Surplus). In this regard copy of the West .....

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egard, 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 .....

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o 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. 1.3.5 From perusal of above, it can be inferred that in case cost of asset has been directly or indirectly met by any form of subsidy then the subsidy amount should be reduced from the cost of Ass .....

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eting 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 .....

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bsidy. AO had also not reduced the value of the subsidy from the value of fixed assets on which depreciation has to be allowed. The AO passed the order on 16.12.2009 u/s 143(3) of 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 Ac .....

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is 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 conclusion, which conclusion cannot be said to be unsustainable in law. Therefore the CIT in exercise of his powers u/s 263 of the .....

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ct 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 .....

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red 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 revenue. This is because the CIT after making the aforesaid observations has observed that the matter requires re-examination to verify the utilisation of the fund and to see whether in plant and machinery was purchased out of this subsidy directly or indirectly. The CIT finally gave a direction to the AO to pass a fresh assessment order after reducing the value of the a .....

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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 Kol .....

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) of the Act will not be applicable. The learned DR placed strong reliance on the order of the CIT. 7. We have given a careful consideration to the rival submissions. It is clear from the order passed by AO u/s 143(3) of the Act and enquiry made by the AO before passing such order that the AO went in to the question as to whether the subsidy received by the assessee under the West Bengal Incentive Scheme 2000 was capital or revenue subsidy. Though the AO had not raise any specific query as to wh .....

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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 b .....

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cted with reference to the value of fixed capital investments in land, building, plant and machinery but no part of the subsidy was specifically intended to subsidize the cost of any fixed asset, therefore, it cannot be said that the subsidy was to meet a portion of cost of the asset. According to us, the assessee has rightly not reduced the amount of subsidy received from the actual cost/WDV of the fixed assets while claiming depreciation. It is also a fact that revenue during scrutiny assessme .....

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e 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 porti .....

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- specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does 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 b .....

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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, In order to invoke Explanation 10, it is necessary to show that the subsidy was directly or indirectly used for acquiring an asset. Thi .....

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ired 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 .....

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