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2016 (3) TMI 909 - ITAT PUNE

2016 (3) TMI 909 - ITAT PUNE - TMI - Disallowance of Depreciation by reducing Written down value of assets by subsidy received - treatment of subsidy received by the assessee - Held that:- The comparison of the Package Scheme of Incentives, 1993 and Package Scheme of Incentives, 2001 reflects that two schemes are similarly offered for establishing SSI units in under-developed areas. Under the first Scheme, in the case of Rohit Exhaust Systems Pvt. Ltd. Vs. ACIT (2015 (3) TMI 1151 - ITAT PUNE), t .....

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assets. In view of the ratio laid down above we hold that there is no merit in the orders passed by the authorities below. The assessee had received the subsidy for setting up a unit in the specified area and such subsidy received by the assessee is a capital receipt in the hands of assessee, cost of which is not to be reduced from the written down value of fixed assets.

Further, the CIT(A) had placed reliance on series of decisions, which were also relied upon by the CIT(A) while de .....

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d the incentive received by the assessee before us is not covered under the provisions of Explanation 10 to section 43(1) of the Act. Consequently, the subsidy amount received by the assessee is not to be reduced from the cost of assets. The Assessing Officer is thus, directed to re-work the depreciation allowable in the hands of assessee on the aforesaid assets. - Decided in favour of assessee - ITA No.662/PN/2014 - Dated:- 10-2-2016 - MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM For T .....

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#8377; 2,91,807/- by reducing Written down value of assets by subsidy received ₹ 25 lakhs. Appellant prays to cancel the disallowance as subsidy received is for establishing unit in backward area and creating employment has no nexus with investment/cost of assets. 2. Appellant prays for just and equitable relief. 3. The only issue in the present appeal is in respect of treatment of subsidy received by the assessee. 4. Briefly, in the facts of the present case, the assessee was engaged in t .....

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er Explanation 10 to section 43 of the Act. In reply, the assessee explained that the said subsidy was received as an incentive for establishing an industry in the backward area and the same was not for meeting any part of the cost of the assets, although the quantification of the subsidy was on the value of investment to be made in the fixed assets. Thus, the value of the said subsidy was claimed to be a capital receipt, which was not to be reduced from the cost of assets. The explanation of as .....

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at the provisions of Explanation 10 to section 43(1) of the Act were introduced from assessment year 1999-2000 and the reliance placed upon by the learned Authorized Representative for the assessee on the ratio laid down by the Hon ble Supreme Court in CIT Vs. P.J. Chemicals Ltd. (1994) 210 ITR 830 (SC) was prior to the introduction of the said Explanation in Statute. The CIT(A) further noted that the subsidy was relatable to the cost of assets and had to be reduced from the cost of said assets. .....

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tressed that the subsidy received by the assessee was a capital subsidy since the same was received against establishment of an industry in the backward area. Our attention was drawn to the capital subsidy scheme floated by the Government of Maharashtra under Government Resolution of Package Scheme of Incentive, 2001, dated 31.03.2001. Our attention was also drawn to the various clauses of the said scheme and it was pointed out that the capital incentives were provided for establishing SSI units .....

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overnment of Maharashtra i.e. Package Scheme of Incentive, 1993. Our attention was drawn to the similarities between two schemes and it was also pointed out by him that the said scheme was also floated for the establishment of SSI units and the subsidy was quantified on the basis of percentage of fixed capital with ceiling provided for each of the areas. The learned Authorized Representative for the assessee further pointed out that the earlier scheme of incentive has been considered by Pune Ben .....

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idy received by the assessee for establishing a unit in the State of Maharashtra. The assessee was carrying on the business of cotton Ginning and Pressing and had set up a Small Scale Industry in the State of Maharashtra in Jalna District, which was a backward area. The Government of Maharashtra had floated an Incentive Scheme named as Package Scheme of Incentives, 2001 on 31.03.2001. As per preamble of the said scheme, the intention was to encourage dispersal of industries to the less developed .....

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, 2001. In furtherance, the Government recognized the need to address the emerging challenges in the phase of second generation economic reforms and the need for encouraging hi-tech and sunrise industries in the Information Technology and other fields. The Government thus, decided to revise 1993 Scheme and bring into force a new scheme Package Scheme of Incentives, 2001 for intensifying and accelerating the process of dispersal of industries to the less developed regions and promoting hi-tech in .....

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1 would be entitled to Special Capital Incentive at different rates specified year-wise. The assessee falls within the area D+, wherein the quantum as percentage of fixed capital investment was notified to be 35 against which, the ceiling on the subsidy was ₹ 25 lakhs. The assessee falls within the said category and had received sum of ₹ 25 lakhs thereunder. 10. The issue arising before us is the assessability of the said incentive received by the assessee, which is claimed to be a c .....

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of first Package Scheme of 1993 at pages 21 to 42 of the Paper Book and the Package Scheme of Incentives, 2001 at pages 1 to 20 of the Paper Book. The perusal of two Schemes reflects that the conditions for grant of subsidy are similar and the intention of the Scheme is to provide a platform for establishing units in under-developed areas and to provide employment within the State of Maharashtra. 11. The Pune Bench of Tribunal in Rohit Exhaust Systems Pvt. Ltd. Vs. ACIT (supra) had an occasion .....

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id 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 unde .....

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ion 10 to section 43(1) of the Act is applicable and the value of capital incentive is to be reduced from the cost of assets in respect of which the said subsidy had been received and the CIT(A) has applied the same. 10. The perusal of the Package Scheme of Incentive, 1993 placed at pages 21 to 44 reflect that the purpose of the scheme was to establish industries in the underdeveloped areas of the Maharashtra State under which the Government appointed SICOM Ltd. to act as an agent of the Governm .....

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f the capital incentive received under the Package Scheme Incentive, 1993 arose before the Tribunal in ACIT Vs. M/s. Endress + Hauser Flowtec (India) Pvt. Ltd., in ITA No.1206/PN/2011, M/s. Endress + Hauser Flowtec (India) Pvt. Ltd., Vs. ACIT in ITA No.1215/PN/2011 and Cross Objection, relating to assessment year 2007-08 and M/s. Endress + Hauser Flowtec (India) Pvt. Ltd., Vs. ACIT in ITA No.295/PN/2013, relating to assessment year 2008-09, order dated 25.02.2015 and in lead order i.e. ITA No. 1 .....

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identical to the incentive scheme of 1979 considered by the Special Bench of the tribunal in the case of CIT vs Reliance Industries Ltd 88 ITD 273 (Mum)(SB) and concluded that the receipt in question is capital receipt. 12. The Tribunal after considering the Scheme of 1993 observed as under:- 33. The contention 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 Evere .....

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73 (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 .....

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ch 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. It is further provided thereunder that where such subsidy or grant or reimbursement of such nature cannot be directly relatable to the asset acquired, so much of the amount which 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 .....

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also provided that it is necessary to show that the subsidy had been directly or indirectly used for the acquisition of an asset. The facts of each case in this regard have to be seen to determine whether the subsidy has been granted to meet the cost of asset directly or indirectly. Similar proposition has been laid down by the Kolkata Bench of the Tribunal in DCIT Vs. Rasoi Ltd. (supra) and also by Visakhapatnam Bench of the Tribunal in Sasisri Extractions Ltd. Vs. ACIT (supra). It has been fu .....

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ple 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 .....

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are of the view that the incentive in the form of subsidy cannot be considered as a payment directly or indirectly to meet any portion of the actual cost and thus it falls outside the ken of Expln. 10 to s. 43(1) of the Act. In the light of the above discussion, we are of the view that for the purpose of computing depreciation allowable to the assessee, the subsidy amount cannot be reduced from the cost of the capital asset. The AO is directed accordingly. 14. The perusal of the Package Scheme .....

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ons of Explanation 10 to section 43(1) of the Act and consequently, the subsidy amount was not to be reduced from the cost of the assets. Accordingly, the Assessing Officer is directed not to reduce the value of the subsidy from the cost of assets while allowing depreciation on the said assets of the assessee. 12. The comparison of the Package Scheme of Incentives, 1993 and Package Scheme of Incentives, 2001 as referred to by us in the paras hereinabove reflects that two schemes are similarly of .....

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