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Smt. Kaumudi Shamsunder Somani Versus The Asstt. Commissioner of Income Tax, Circle 2, Aurangabad

Reduction of amount of subsidy received from the block of assets for claiming depreciation - Held that:- We find that the ld. CIT(A) has given a finding that assessee had received subsidy from State Government under Capital Incentive Scheme on the basis of cost of capital asset acquired by the assessee and it was relatable to the cost of asset and was therefore required to be reduced from the cost of asset as per the provisions of Explanation-10 to section 43 of the Act. The ld. CIT(A) has furth .....

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ppellant : None For The Respondent : Shri P. L. Kureel ORDER PER ANIL CHATURVEDI, AM : This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Aurangabad dated 21.07.2014 for the assessment year 2010-11. 2. The relevant facts as culled out from the materials on record are as under :- 2.1 Assessee is an individual stated to be engaged in the business of manufacturing and trading of master batches and granuals in the name and style of M/s Sudarshan Pollya .....

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ing Officer, assessee carried the matter before ld. CIT(A), who vide order dated 21.07.2014 dismissed the appeal of the assessee. Aggrieved by the order of ld. CIT(A), assessee is now in appeal before us and has raised the following grounds :- 1. Honorable commissioner of Income Tax (Appeals) has erred in confirming disallowance of Depreciation of ₹ 1,23,398/- by reducing Written down Value of Assets by Subsidy received ₹ 10 Lakhs. Appellant Prays to cancel the disallowance as Subsid .....

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assessment proceedings, ld. Assessing Officer noticed that assessee had credited ₹ 10,00,000/- to Reserves and Surplus on account of subsidy received. The assessee was asked as to whether she had reduced the amount of subsidy from the respective block of asset as per the provisions of section 43 read with Explanation 10 to which assessee inter-alia submitted that the amount was received for doing business in backward area and to encourage the entrepreneurs and was therefore not taxable. T .....

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ld. Assessing Officer, assessee carried the matter before ld. CIT(A), who upheld the order of ld. Assessing Officer by holding as under :- 8. I have carefully considered the facts of the case and rival contentions. On perusal of the same, it has been noticed that Explanation-10 to section 43(1) was introduced with effect from A.Y.1999-2000 and the decision relied on by the appellant of Hon ble Supreme Court in the case of CIT Vs. P. J. Chemicals Ltd. (1994) 210 ITR 830 has been delivered much p .....

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n or authority- Explanation 10- Where a portion of cost of an asset acquired by the assessee has been met directly or indirectly by the Central 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 for 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. Provided that where such subsidy .....

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m State Government under Capital Incentive Scheme on the basis of cost of capital assets acquired by the appellant. The subsidy is certainly relatable to the cost of assets and certainly reduced the cost of assets incurred by the appellant. In view of the above provisions of Explanation-10 to section 43, the appellant should have deducted the proportionate subsidy from the cost of assets for arriving at allowable depreciation. This proposition is supported by the following decisions - (1) Alfa L .....

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es (P) Ltd. 179 ITR 536 (P & H) - In this case it has been laid down that capital subsidy received by the assessee should be deducted from the value of plant and machinery and building while working out WDV for allowing depreciation to the assessee u/s 32. (3) CIT Vs. Jindal Bros. Rice Mills 179 ITR 470 (P & H ) - In this case it has been laid down that capital subsidy of 15% allowed by the State Govt. on the cost of plant and machinery, building etc. for setting up industries in backwar .....

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omputing depreciation. The Hon'ble ITAT has not considered and discussed Explanation 10 to section 43. (2) DCIT Vs. Cosmo Films Ltd. & Ors. A.Y.2004-05 (2012) 13 ITR 340 (Delhi Trib.) & DCIT Vs. Reliance Industries Ltd. A.Y.1986-87 (2004) 88 ITD 273 (Mumbai SB) In these cases, the assessees have received Sales Tax subsidy for a period of 5 years under the Government of Maharashtra policy for dispersal of industries in under develop and developing areas of the State. The Hon'ble I .....

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he fact that no subsidy has been received towards investment in assets. (4) CIT Vs. Ponni Sugars and Chemicals Ltd. A.Y.1986-87 (2008) 306 ITR 392 (SC) In this case, it has been held that incentive subsidy under a scheme floated with a view to boost the tempo of establishing new sugar factories and substantial expansion of existing factories and to facilitate repayment of term loans tor that purpose was capital in nature, notwithstanding the mechanism of price and duty differential through which .....

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ved towards investment in assets. (6) Sasisri Extractions Ltd. Vs. ACIT A.Y.2003-04 (2010) 122 ITD 428 (Vizag) In this case, it has been held that incentive in the form of subsidy for settingup industries in the State of Andhra Pradesh under Target-2000 scheme cannot be considered as payment directly or indirectly to meet any portion of actual cost of asset and therefore cannot be reduced from capital assets for purpose of computing depreciation; the subsidy is out of the ken of Explanation-10 t .....

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ch the subsidy granted is different from the case of the appellant. Further, the decision of Hon'ble Jurisdictional ITAT, Pune in the case of Alfa Laval India Ltd. Vs. DCIT (2008) 117 TTJ 902 shall prevail over the decision of Non-Jurisdictional ITAT, Visakhapatnam. In view of the above facts and discussion and respectfully following the ratio laid down by the above referred decision of Hon'ble ITAT, Pune, I hold that the A.O. is justified in holding that Explanation-10 to section 43(1) .....

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