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2015 (3) TMI 1151

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..... the value of the subsidy from the cost of assets while allowing depreciation on the said assets of the assessee. - Decided in favour of assessee - ITA No.1880/PN/2013 - - - Dated:- 31-3-2015 - SHRI G.S. PANNU, ACCOUNTANT MEMBER AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER For the Appellant : Shri S.N. Puranik For the Respondent : Shri Achal Sharma ORDER PER SUSHMA CHOWLA, JM: This appeal filed by the assessee is against the order of CIT(A), Aurangabad dated 13.09.2013 relating to assessment year 2008-09 passed under section 143(3) of the Income-tax Act, 1961. 2. The assessee has raised the following grounds of appeal: 1. The Commissioner (Appeals) has erred in holding that Capital Incentive subsidy received for establishing industry in Backward area is to be reduced from actual cost of asset Appellant prays to hold that Capital Subsidy, is not to be reduced from Actual Cost 2. The Commissioner (Appeals) has erred in not following jurisdictional Pune ITAT decision in case of Balaprasad Agarwal referred to him. 3. Appellant prays to add, alter, amend, modify and / or withdrawn the grounds as and when necessary. 3. The brief facts of the .....

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..... A) held that the Special Capital Incentive received under Package Incentive Scheme of Government of Maharashtra for establishing industry in backward area of Aurangabad, as revenue receipt, could not be accepted, in view of the decision of Hon ble Bombay High Court in CIT Vs. Reliance Industries Ltd. (2011) 339 ITR 632 (Bom). The first contention of the Assessing Officer was thus rejected by the CIT(A). The second contention of the Assessing Officer that the said investment was to be added as income under section 41(1) of the Act, as depreciation was an item of expenditure claimed by the assessee, in respect of assets on which subsidy had been received, was also rejected by the CIT(A), in view of the ratio laid down by Hon ble Supreme Court in Nector Beverages (P) Ltd. Vs. DCIT 314 ITR 314 (SC). However, the third contention of the Assessing Officer that Explanation 10 to section 43(1) of the Act was applicable and the capital incentive received had to be reduced from the cost of the assets, was applied, in view of the Explanation 10 inserted to section 43(1) of the Act w.e.f. assessment year 1999-2000. Reliance in this regard was placed on the following decisions:- i) Alfa Lava .....

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..... ons and perused the record. The assessee during the year under consideration had received Capital Incentive Subsidy under the Package Incentive Scheme, 1993 of Government of Maharashtra for establishing industries in the backward area of Aurangabad. The assessee had claimed the said receipt to be capital in nature as the object of the subsidy was to set up units in backward areas. The said plea of the assessee has been accepted by the CIT(A), in turn, relying on the ratio laid down by Hon ble Bombay High Court in CIT Vs. Reliance Industries Ltd. (supra), against which the Revenue is not in appeal, hence, the said proposition is accepted in the hands of the assessee. The second proposition raised by the Assessing Officer that the said subsidy is to be added as income under section 41(1) of the Act, in view of the ratio laid down by Hon ble Bombay High Court in Nector Beverages (P) Ltd. Vs. DCIT (2004) 267 ITR 385 (Bom) has been reversed by the CIT(A) since the Hon ble Supreme Court has reversed the decision of Hon ble Bombay High Court in Nector Beverages (P) Ltd. Vs. DCIT (supra). The Revenue is also not in appeal against the said proposition and the same stands accepted. The third .....

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..... of the learned Authorised Representative for the assessee was that 1993 scheme formulated by the Government of Maharashtra has been considered by the Mumbai Bench of the Tribunal in Everest Industries Vs. ACIT (Supra), wherein it has been held that the incentive received under the scheme was capital receipt. It has also been held by the Mumbai Bench of the Tribunal that the scheme referred to in the case of Reliance Industries Ltd., i.e. 1979 scheme was identical to the 1993 scheme. The Hon ble Bombay High Court in the case of CIT Vs. Reliance Industries Ltd., (Supra) in the appeal filed by Revenue against the order of Special Bench of Mumbai Tribunal reported in (2004) 88 ITD 273 (SB) (Mum) have held that the subsidy received under the 1979 scheme for setting up new units in backward areas was a capital receipt. Applying the same ratio to the facts of the present case, we are in conformity with the order of the CIT(A) in holding that the grant of ₹ 30 lakhs received by the assessee during the year under consideration was a capital receipt and not taxable in the hands of the assessee. Further, there is no merit in invoking of the provisions of either section 41(1) or section .....

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..... considered opinion, even after insertion of Expln. 10 to s. 43(1) of the Act, the basic principle underlying in the decision of the apex Court in the case of PJ. Chemicals Ltd. (supra) still holds the field. Their Lordships analysed the expression met directly or indirectly to come to the conclusion that only in a case where a subsidy or other grant was given to offset the cost of an asset, such payment/grant would fall within the expression 'met', whereas the subsidy received merely to accelerate the industrial development of the State cannot be considered as payments made specifically to meet a portion of the cost of the assets. 11. A careful perusal of 'Target 2000' scheme shows that the scheme was intended to accelerate industrial development of the State and the incentive was given for setting up of industries in Andhra Pradesh and for the purpose of determining the amount of subsidy to be given, cost of eligible investment was taken as the basis, though it was not specifically intended to subsidise the cost of the capital. Under the circumstances, we are of the view that the incentive in the form of subsidy cannot be considered as a payment directly or i .....

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