Gloster Limitedn (Formerly known as Gloster Jute Mills Limited ), Kolkata V. CIT-1, Kolkata, Kolkata

ITA 828/KOL/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3313 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 01-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 22-05-2012
• Court: TRIBUNAL
• Department Lawyers: SANDEEP CHAUBE
• Assessee Lawyers: HARISH AGARWAL ACA; SAUMEN ADAK
• Keywords: Capital asset; Depreciation; Capital receipt
• Section: 143(3); 142(1); 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH D, KO LKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI WAS EEM AHMED, AM] ITA NO.828/KOL/2012 ASSESSMENT YEAR : 2007-08 GLOSTER LIMITED (FORMERLY KNOWN AS .-VERSUS- C.I.T I, KOLKATA GLOSTER JUTE MILLS LTD.)KOLKATA (PAN:AAACG 9800 B) (APPELLANT ) (RESPONDENT) FOR THE APPELLANT : SHRI SAUMEN ADAK, FCA & SHRI HA RISH AGARWAL,ACA FOR THE RESPONDENT : SHRI SANDEEP CHAUBE, CIT(DR) DATE OF HEARING : 16.12.2015. DATE OF PRONOUNCEMENT : ORDER PER SHRI N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE ASSESSEE DIREC TED 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 BUSINES S OF MANUFACTURE, SALE AND EXPORT OF JUTE. FOR A.Y.2007-08 THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.2,87,56,904/-. IN THE COURSE OF ASSESS MENT PROCEEDINGS, THE AO ISSUED NOTICE U/S 142(1) OF THE ACT DATED 20.07.2009 CALLI NG UPON THE ASSESSEE TO FURNISH EXPLANATION WITH REGARD TO MATTERS SET OUT IN A QUE STIONNAIRES ANNEXED TO THE SAID NOTICE. IN THIS APPEAL WE ARE CONCERNED ONLY WITH T HE FOLLOWING QUESTIONNAIRE RAISED BY THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS : - 9 (A) PLEASE REFER 13(B) OF THE TAR SUBSIDY RECEIV ED RS.,2708125/- OF WHICH RS.1988215/- WAS CONSIDERED IN DEPRECIATION SCHEDUL E OF THE TAR. PLEASE EXPLAIN THE DIFFERENCE. (B) IN REF. TO 13(E) OF THE TAR, CAPITAL SUBSIDY RE CEIVABLE RS.1.5 CRORE WAS CREDITED TO CAPITAL RESERVE A/C INTEREST SUBSIDY OF RS.15003609 /- WAS CREDITED IN THE P&L A/C. ANOTHER SUBSIDY OF RS.720000/- WAS RECEIVED FROM MI NISTRY OF TEXTILE, GOVT. OF INDIA. AGAIN AS PER POINT NO.2 OF NOTES FORMING PART OF RE TURN INCOME, SUBSIDIES WERE RS.2016226/- AND RS.12987383/- UNDER TUFF SCHEME AN D WBIS SCHEME RESPECTIVELY. ITA NO.828/KOL/2012 GLOSTER LIMITED A.YR.2007-08 2 PLEASE SUBMIT A RECONCILED STATEMENT TAKING ALSO IN TO ACCOUNT SUBSIDY MENTIONED IN 13(B) OF THE TAR. (C) ALL THE ABOVE SUBSIDIES ARE CLAIMED AS CAPITAL RECEIPTS. PLEASE SUBMIT COPIES OF FOLLOWING DOCUMENTS :- I) COPIES OF THE RELATED SCHEME. II) COPIES OF CLAIM FORM ALONG WITH ALL ATTACHMENTS . III) COPIES OF SUBSIDY RELEASE ORDERS ISSUED BY THE AUTHORITIES. 2.1. THE ASSESSEE VIDE ITS REPLY DATED 15.12.2009 S UBMITTED AS FOLLOWS WITH REGARD TO THE SUBSIDY OF RS.1.5 CRORE RECEIVED BY THE ASSE SSEE UNDER THE WEST BENGAL INCENTIVE SCHEME 2000 (STATE CAPITAL INVESTMENTS SU BSIDY) 1.3. STATE CAPITAL INVESTMENT SUBSIDY UNDER WBIS, 2000 - 1.3.1 DURING THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE WAS ELIGIBLE TO RECEIVE STATE CAPITAL INVE STMENT SUBSIDY OF RS. 1,50,00,000/- UNDER THE WEST BENGAL INCENTIVE SCHEME, 2000. IN TH E 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 BENGAL INCENTIVE SC HEME, 2000 AND RELEVANT EXTRACTS OF THE AUDITED ACCOUNTS IS ENCLOSED AS ANNEXURE - 7 AN D ANNEXURE - 8 RESPECTIVELY. 1.3.2 ON PERUSAL OF THE WEST BENGAL INCENTIVE SCH EME, 2000 IT COULD BE SEEN THAT THE FACTORY OF THE ASSESSEE FALLS UNDER CROUP-B AREA. A S PER PARA NO. 8 AT PAGE NO. 9 OF THE SCHEME IT COULD BE SEEN THAT THE ASSESSEE WILL BE E NTITLED TO STATE CAPITAL INVESTMENT SUBSIDY OF @ 15% OF THE FIXED CAPITAL INVESTMENT SU BJECT TO A LIMIT OF RS. 150 LACS. 1.3.3 IN THIS REGARD, COPY OF THE CLAIM APPLICATION FORM SUBMITTED BY THE ASSESSEE AND SANCTION LETTER ISSUED BY THE WEST BENGAL INDUSTRIA L DEVELOPMENT CORPORATION LTD. IS ENCLOSED AS ANNEXURE - 9 AND ANNEXURE -10 RESPECTIV ELY. 1.3.4 AT THIS JUNCTURE IT IS WORTHWHILE TO REFER T HE EXPLANATION 10 AND PROVISO UNDER SECTION 43(1) OF THE LT. ACT, 1961 WHICH HAVE MATER IAL 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 OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY L AW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), THEN, SO MUCH 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: PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBU RSEMENT IS OF SUCH NATURE THAT IT CANNOT BE DIRECTLY RELATABLE TO THE ASSET ACQUIR ED, SO MUCH OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT OR GRAN T 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 THA T IN CASE COST OF ASSET HAS BEEN DIRECTLY OR INDIRECTLY MET BY ANY FORM OF SUBSIDY THEN THE S UBSIDY AMOUNT SHOULD BE REDUCED ITA NO.828/KOL/2012 GLOSTER LIMITED A.YR.2007-08 3 FROM THE COST OF ASSET. PLAIN READING OF THE ABOVE PROVISIONS LEAVE NO DOUBT IN THE MIND THAT THE ABOVE EXPLANATION SHALL BE APPLICABLE ONLY IN THE FOLLOWING CIRCUMSTANCES:- - IN CASE OF DIRECT PAYMENT TO THE VENDOR BY THE CE NTRAL GOVERNMENT, ETC., - IN CASE THE SCHEME PROVIDES FOR CLAIM FOR REIMBUR SEMENT OF COST TO THE VENDOR OR THE PURCHASER. 1.3.6 IN THE ASSESSEE CASE, SUBSIDY IS MAINLY GR ANTED FOR THE PURPOSE OF INDUCING THE INDUSTRY TO SET UP UNITS IN CERTAIN SELECTED BACKWA RD AREAS AND NOT FOR THE PURPOSE OF MEETING A PORTION OF THE COST OF THE ASSETS. THE TO TAL AMOUNT OF SUBSIDY TO BE GRANTED THOUGH HAS BEEN QUANTIFIED ON THE BASIS OF SPECIFIE D PERCENTAGE OF THE FIXED CAPITAL COST, IS NOTHING BUT A MEASURE ADOPTED UNDER THE SCHEME T O QUANTIFY THE FINANCIAL AID TO BE GRANTED OVER A CERTAIN PERIOD. 1.3.7. THE ABOVE VIEW IS FORTIFIED BY THE DECISION OF HONBLE VISAKHAPATNAM TRIBUNAL IN THE CASE OF SASISRI EXTRACTIONS LTD VS.- ACIT ( 2008) 207 ITR 127 (VISAKHAPATNAM) (TRI.) WHEREIN IT HAS BEEN HELD THAT WHERE THE ASSE SSEE RECEIVED SUBSIDY FROM THE GOVT. FOR ACCELERATION OF INDUSTRIAL DEVELOPMENT IN THE S TATE WITH THE INCENTIVE ITSELF BEING AVAILABLE FOR SETTING UP OF INDUSTRY IN ANDHRA PRAD ESH AND NOT SPECIFICALLY WITH THE VIEW TO SUBSIDIZE THE COST OF CAPITAL, SUCH SUBSIDY CAN NOT FALL WITHIN EXPLANAITON 10 TO SEC 43(1), SO AS TO REDUCE ACTUAL COST. 2.2. THE AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT IN WHICH THE AO HAS NOT BROUGHT THE INCENTIVE OF RS.1.5 CRORES TO TAX A S REVENUE SUBSIDY. 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 PREJUDI CIAL TO THE INTEREST OF THE REVENUE FOR THE REASON THAT THE AO WHILE FRAMING THE ASSESS MENT ORDER FAILED TO CONSIDER THE APPLICABILITY OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT. IN THE OPINION OF CIT THE SUBSIDY SHOULD HAVE BEEN REDUCED FROM THE VALUE OF PLANT AND MACHINERY FOR THE PURPOSE OF ALLOWING DEPRECIATION AS PER EXPLANATION 10 TO SECTION 43(1) OF THE ACT. ACCORDINGLY, THE CIT ISSUED SHOW CAUSE NOTICE U/S 2 63 OF THE ACT. 4. IN REPLY TO THE SHOW CAUSE NOTICE THE ASSESSEE P OINTED OUT THAT A SPECIFIC QUERY WAS RAISED BY THE AO WITH REGARD TO THE TAXABILITY OF THE SUBSIDY AS REVENUE SUBSIDY. THE ASSESSEE ALSO POINTED OUT THAT IN REPL Y TO THE QUERY OF THE AO IN THIS 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 MACHINER Y FOR THE PURPOSE OF ALLOWING DEPRECIATION IN VIEW OF THE PROVISION OF EXPLANATIO N 10 TO SECTION 43(1) OF THE ACT. ITA NO.828/KOL/2012 GLOSTER LIMITED A.YR.2007-08 4 THE ASSESSEE THUS TOOK A STAND THAT THE AO HAS APPL IED 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 ACT CANNOT SUBSTITUTE HIS VIEW WITH THE VIEW OF AO. THE ASSESSEE SUBMITTED THAT SINCE PROPER AND ADEQUATE ENQUIRY HAS BEEN MADE OPPOSING THE ACTION OF CIT U/.S 263 OF THE ACT SHOULD BE DROPPED. 4.1. CIT, HOWEVER, DID NOT AGREE WITH THE AFORESAID SUBMISSIONS MADE BY THE ASSESSEE. ACCORDING TO CIT IN THE QUESTIONNAIRE ISS UED BY THE AO ALONG WITH THE NOTICE U/S 142(1) OF THE ACT DATED 20.07.2009 THERE WAS NO SPECIFIC QUERY WITH REGARD TO THE APPLICABILITY TO EXPLANATION 10 TO SECTION 4 3(1) OF THE ACT AND IT WAS ONLY A GENERAL QUESTION ABOUT WHETHER THE SUBSIDY IN QUEST ION 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 REDU CING THE VALUE OF SUBSIDY FROM THE COST OF PLANT AND MACHINERY FOR THE PURPOSE OF DEPR ECIATION. THE CIT THEREFORE CONCLUDED THAT THE ORDER OF AO WAS ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF REVENUE. CIT ALSO OBSERVED THAT SINCE THE SUBSIDY I N QUESTION WAS TO ESTABLISH OR EXPAND INDUSTRY IN A BACKWARD AND IN OTHER AREA AND SINCE THE SUBSIDY IS RELATED TO CAPITAL ASSETS IN THE SENSE THAT IT IS INTENDED TO COMPENSATE FOR ACQUIRING ASSETS, THE EFFECT OF THE SUBSIDY IS THEREFORE REIMBURSEMENT WH OLLY AND PARTLY OF THE AMOUNT SPENT IN ACQUIRING PLANT AND MACHINERY. THEREFORE EXPLAN ATION 10 TO SECTION 43(1) OF THE ACT WOULD BE ATTRACTED. THOUGH THE CIT MADE THE AFO RESAID OBSERVATIONS BY WAY OF A PASSING A REFERENCE, THE AFORESAID OBSERVATIONS WER E NOT RENDERED IN THE FORM OF A FINDING TO COME TO A CONCLUSION THAT THE ORDER OF A O WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THIS IS BECAUSE THE CI T 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 FINALL Y GAVE A DIRECTION TO THE AO TO PASS A FRESH ASSESSMENT ORDER AFTER REDUCING THE VALUE OF THE ASSETS TO THE EXTENT OF SUBSIDY AMOUNTING TO RS.1.5 CRORES FOR THE PURPOSE OF ALLOW ING DEPRECIATION. ITA NO.828/KOL/2012 GLOSTER LIMITED A.YR.2007-08 5 5. AGGRIEVED BY THE ORDER OF CIT THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED COU NSEL FOR THE ASSESSEE AND THE LEARNED DR. THE LEARNED COUNSEL FOR THE ASSESSEE RE ITERATED THE SUBMISSIONS AS WERE MADE BEFORE CIT. IT WAS FURTHER SUBMITTED BY HIM TH AT THE INCENTIVE IN QUESTION WAS FOR PROVIDING FISCAL SUPPORT FOR THE PROMOTION OF I NDUSTRIES 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 SECTI ON 43(1) OF THE ACT. OUR ATTENTION WAS DRAWN TO THE DECISION OF ITAT KOLKATA BENCH IN THE CASE OF DCIT VS RASOI LTD. IN ITA NO.1398/KOL/2011 DATED 02.04.2014 WHEREIN AN IDENTICAL SCHEME OF THE STATE OF WEST BENGAL NAMELY INCENTIVE SCHEME 1999 WAS CON SIDERED BY THIS TRIBUNAL AND IT WAS HELD THAT THE SUBSIDY RECEIVED THEREIN WAS NOT FOR THE PURPOSE OF ACQUIRING ANY FIXED ASSET AND THEREFORE VALUE OF THE SUBSIDY NEED NOT BE REDUCED FROM THE COST OF THE FIXED ASSETS FOR THE PURPOSE OF ALLOWING DEPRECIATI ON. IN OTHER WORDS, IT WAS HELD THAT EXPLANATION 10 TO SECTION 43(1) 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 RIV AL SUBMISSIONS. IT IS CLEAR FROM THE ORDER PASSED BY AO U/S 143(3) OF THE ACT AND EN QUIRY MADE BY THE AO BEFORE PASSING SUCH ORDER THAT THE AO WENT IN TO THE QUEST ION AS TO WHETHER THE SUBSIDY RECEIVED BY THE ASSESSEE UNDER THE WEST BENGAL INCE NTIVE SCHEME 2000 WAS CAPITAL OR REVENUE SUBSIDY. THOUGH THE AO HAD NOT RAISE ANY SP ECIFIC QUERY AS TO WHETHER THE SUBSIDY IN QUESTION HAS TO BE REDUCED FROM THE VALU E OF FIXED ASSETS FOR THE PURPOSE OF ALLOWING DEPRECIATION INVOKING THE PROVISIONS OF EX PLANATION 10 TO SECTION 43(1) OF THE ACT. THE ASSESSE IN ITS REPLY TO THE NOTICE U/S 142(1) OF THE ACT HAS CLEARLY SET OUT THAT THE SUBSIDY IN QUESTION NEED NOT BE REDUCED FR OM THE VALUE OF FIXED ASSETS. WE HAVE EXTRACTED THE REPLY OF THE ASSESSEE IN THE EAR LIER PART OF THIS ORDER. THEREFORE THE ITA NO.828/KOL/2012 GLOSTER LIMITED A.YR.2007-08 6 CIT IN EXERCISING HIS POWERS U/S 263 OF THE ACT CAN NOT COME TO A CONCLUSION THAT THERE IS A FAILURE ON THE PART OF THE AO TO HAVE MADE PRO PER AND ADEQUATE ENQUIRY WITH REGARD TO APPLICABILITY OF EXPLANATION 10 TO SECTIO N 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 TH E 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 BE INVOKED BY THE AO. SIMILAR ISSUE HAD COME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF DCIT VS RASOI L TD (SUPRA). THIS TRIBUNAL HAS HELD AS FOLLOWS :- 6. FROM THE ABOVE FACTS AND CIRCUMSTANCES, ADMITTE D FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE COMPANY RECEIVED INCEN TIVE SUBSIDY FROM GOVT. OF WEST BENGAL UNDER WEST BENGAL INCENTIVE SCHEME, 1999 (WB IS) AS ENCOURAGEMENT FOR SETTING UP OF INDUSTRIAL PROJECT. IT IS ALSO A FACT THAT MA XIMUM LIMIT OF THE SUBSIDY WAS RESTRICTED WITH REFERENCE TO THE VALUE OF FIXED CAPITAL INVEST MENTS IN LAND, BUILDING, PLANT AND MACHINERY BUT NO PART OF THE SUBSIDY WAS SPECIFICAL LY 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 HA S RIGHTLY NOT REDUCED THE AMOUNT OF SUBSIDY RECEIVED FROM THE ACTUAL COST/WDV OF THE FI XED ASSETS WHILE CLAIMING DEPRECIATION. IT IS ALSO A FACT THAT REVENUE DURING SCRUTINY ASSESSMENTS OF THE ASSESSEE FOR AY 2003-04 AND 2004-05, THE ABOVE STATED SUBSID Y WAS CONSIDERED AS CAPITAL RECEIPT ACCEPTING THE CONTENTION OF THE ASSESSEE. FOR THE S AKE OF CONSISTENCY ALSO THE AO SHOULD NOT HAVE CHANGED THE STAND NOW. EVEN HON'BLE SUPREM E COURT IN THE CASE OF CIT VS. P.J. CHEMICALS LTD. (1994) 210 ITR 830 (SC) HAS CON SIDERED THIS ISSUE AND HELD THAT WHERE GOVERNMENT SUBSIDY IS INTENDED AS AN INCENTIV E TO ENCOURAGE ENTREPRENEURS TO MOVE TO BACKWARD AREAS AND ESTABLISH INDUSTRIES, TH E SPECIFIED PERCENTAGE OF THE FIXED CAPITAL COST, WHICH IS THE BASIS FOR DETERMINING TH E 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 PURPOS E OF MEETING A PORTION OF THE COST OF THE ASSETS, THOUGH QUANTIFIED AS A PERCENTAGE OF SUCH C OST, IT DOES NOT PARTAKE THE CHARACTER OF PAYMENT INTENDED EITHER DIRECTLY OR INDIRECTLY T O MEET THE 'ACTUAL COST'. BY IMPLICATION, THE ABOVE JUDGMENT ALSO PROVIDES THAT IF THE SUBSIDY IS INTENDED FOR MEETING A PORTION OF THE COST OF THE ASSETS, THEN SUCH SUBS IDY SHOULD BE DEDUCTED FROM THE ACTUAL COST, FOR THE PURPOSE OF COMPUTING DEPRECIATION. AS PER HON'BLE SUPREME COURT, LAW IS THAT IF THE SUBSIDY IS ASSET- SPECIFIC, SUCH SUBSID Y 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 QUANTIF IED ON THE BASIS OF THE PERCENTAGE OF THE TOTAL INVESTMENT MADE BY THE ASSESSEE. ITA NO.828/KOL/2012 GLOSTER LIMITED A.YR.2007-08 7 7. THE LAW IS ALREADY SETTLED ON THE SUBJECT. NO W, THE ONLY WAVERING IS WITH REFERENCE TO EXPLANATION 10 PROVIDED UNDER SEC.43(L). THE SAI D EXPLANATION PROVIDES THAT WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASS ESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOV ERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, I N THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED) THEN, SO MU 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 THER E UNDER, THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT OF SUCH NATURE THAT IT CANNO T 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 AL L THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSIDY OR GRANT OR REIMBURS EMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASS ESSEE, IN ORDER TO INVOKE EXPLANATION 10, IT IS NECESSARY TO SHOW THAT THE SUBSIDY WAS DI RECTLY OR INDIRECTLY USED FOR ACQUIRING AN ASSET. THIS IS AGAIN A QUESTION OF FACT. THE REL ATABLE SUBSIDY TO SUCH ASSET CAN BE REDUCED FROM THE COST ONLY IF IT IS FOUND THAT THE COST FOR ACQUIRING THAT ASSET WAS DIRECTLY OR INDIRECTLY MET OUT OF THE SUBSIDY, LIKE WISE IN THE PROVISO, IT IS NECESSARY TO SHOW THAT THE SUBSIDY HAS BEEN DIRECTLY OR INDIRECT LY USED TO ACQUIRE AN ASSET BUT IT IS NOT POSSIBLE TO EXACTLY QUANTIFY THE AMOUNT DIRECTL Y OR INDIRECTLY USED FOR ACQUIRING THE ASSET. HERE ALSO, A FINDING OF FACT IS NECESSARY TH AT AN ASSET WAS ACQUIRED 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 AC TUAL 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 HORNBLE S UPREME COURT IN THE ABOVE CASES. 8. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND LEGAL POSITION EXPLAINED BY HON'BLE SUPREME COURT IN THE CASE OF P . J. CHEMICALS LTD. SUPRA, WE ARE OF THE VIEW THAT CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF DEPRECIATION OF ASSESSEE, WE UPHOLD THE SAME. THIS ISSUE OF REVENUE'S APPEAL IS DISMISSED, 8.1. THE AFORESAID DECISION WAS RENDERED IN THE CON TEXT OF WEST BENGAL INCENTIVE SCHEME 1999. IN THE PRESENT APPEAL WE ARE CONCERNED WITH WEST BENGAL INCENTIVE SCHEME 2000. THIS SCHEME IS IDENTICAL TO THE WEST B ENGAL INCENTIVE SCHEME 1999. THIS WOULD BE CLEAR FROM THE FOREWORD TO THE WEST B ENGAL INCENTIVE SCHEME 2000 WHICH READS THUS :- WEST BENGAL INCENTIVE SCHEME 1999 SCHEME HAD AN AT TRACTIVE PROVISION OF SALES TAX RELATED BY WAY OF REMISSION OF DEFERMENT . BUT IN PURSUANCE OF THE NATIONAL POLICY, THE STATE GOVT. HAD TO DISCONTINUE THE SALES TAX RE LATED INCENTIVES FROM 1 ST JANUARY, 2000. HOWEVER, AS THERE IS A STRONG NEED FOR FISCAL SUPPORT FOR THE PROMOTION OF INDUSTRY IN THE STATE, THE STATE GOVT. DECIDED TO INTRODUCE THE WEST BENGAL INCENTIVE SCHEME, 2000 WITH DIFFERENT AND NEW FEATURES, QUITE ATTRACT IVE FOR INDUSTRIES IN LARGE, MEDIUM, SMALL SCALE AND TOURISM SECTORS. ITA NO.828/KOL/2012 GLOSTER LIMITED A.YR.2007-08 8 8.2. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE AB OVE DISCUSSION 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 EXC LUDED FROM THE COST OF FIXED ASSETS ON WHICH THE DEPRECIATION IS TO BE ALLOWED. WE ALSO FIND FORCE IN THE SUBMISSIONS OF LEARNED COUNSEL FOR THE ASSESSEE THAT AO HAS TAKEN ONE OF THE POSSIBLE VIEW AND AT BEST IT WOULD BE A CASE WHERE THE CIT IN EXERCISING HIS POWERS U/S 263 OF THE ACT WANTS TO SUBSTITUTE HIS VIEW WITH THAT OF THE VIEW BY THE AO . SUCH A COURSE IS NOT PERMISSIBLE IN THE PROCEEDINGS U/S 263 OF THE ACT. FOR THE REA SONS GIVEN ABOVE, WE QUASH THE ORDER U/S 263 OF THE ACT AND ALLOW THE APPEAL OF TH E ASSESSEE. 9. IN THE RESULT THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 15.1.2016. SD/- SD/- [WASEEM AHMED] [N.V.VASUDEVAN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 15.1.2016. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1. GLOSTER LIMITED (FORMERLY KNOWN AS GLOSTER JUTE MILLS LIMITED), 21, STRAND ROAD, KOLKATA 700001. 2 THE C.I.T.-I, KOLKATA. 3. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES