Subsidy or Grant Cannot be Reduced from WDV Unless Specified
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
1. Assessee is a public limited company and a non-profit company incorporated u/s.25 of the Companies Act, 1956, engaged in the business of food processing and storage, and filed return of income on 28.09.2011 with a loss of Rs. 1,46,92,104/-
2. Subsequently, the return of income was selected for scrutiny under CASS and notice u/s.143(2) was issued to the assessee on 31.07.2012
3. During the assessment proceedings, the AO found that the assessee has received capital subsidy of Rs. 29,07,09,000/- from Central Government of India vide approval order dated 07.11.2004 and the assessee company claimed depreciation on the cost of assets without deducting the grant-in-aid from the cost of the assets
4. The ld.A.R argued before the AO that it is a non-profit company and acts as the Special Purpose Vehicle(SPV) under the Ministry of Commerce and Industries and the grant-in-aid received from GOI was capital in nature and it is not for any specific asset of the assessee and entitled to claim depreciation
5. Ld. Assessing Officer is of the opinion that grant of Rs. 29.97 crores is not an incentive, but only a subsidiary to meet the assets’ cost
6. Therefore, the AO apportioned the subsidy amount against the opening WDV of the assets and disallowed excess depreciation of `1,89,06,167/- claimed by the assessee, which was added to the return of income along with other additions in the assessment order passed u/s.143(3) of the Act on 18.03.2014
7. Aggrieved with the order of AO, the assessee has preferred an appeal before the CIT(A)
8. COT(A) observed that Apex Court decision relied by the assessee is not applicable after introduction of Explantion-10 to Sec.43(1) of the Act. Ld.CIT(A) has agreed with the findings of the AO at pages 2 to 7 of his order and upheld the addition made by the ld. Assessing Officer on this issue
9. Aggrieved with the order of Ld. CIT, the assessee has preferred an appeal before the Tribunal
10. Honb. Tribunal following case laws of Saisri Extractions Ltd. Vs. ACIT reported in (2008) 119 TTJ (Visakha) 976 decided the issue in favour of the Assessee
Ld.A.R further explained the objects, aims and referred to the memorandum of articles of the organization and supported his arguments with various decisions of the Tribunal including the decision in the case of Saisri Extractions Ltd. Vs. ACIT reported in (2008) 119 TTJ (Visakha) 976 where the similar issue was adjudicated in contrast with the decision of Apex Court in the case of P.J.Chemicals Ltd.,(supra) and the Tribunal observed as follows:-
"11. We have carefully considered the rival submissions and perused the record. In our 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 P.J. Chemicals Ltd. (supra) still holds the field. Their Lordships analyzed 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.
12. 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 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."
The present case of the assessee is similar to the above decision of the Tribunal cited supra where the provisions are discussed elaborately and the subsidiary amount shall not be deducted from the cost of the asset. Respectfully following the decision of the Tribunal, we set aside the order of the Ld.CIT(A) and allow the grounds of the assessee.
Cases Referred to