Capital Grant Receipt for Assets with Depreciation Rate Differing from 15% to be Calculated to Applicable Rate: ITAT directs Re-Adjudication [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) directed re-adjudication for the calculation of capital grant receipts for assets with depreciation rates differing from 15% to be done at the applicable rate.

Cross appeals were filed by the assessee and the revenue against separate appellate orders dated 30.03.2023 issued by the Commissioner of Income Tax ( Appeals ), National Faceless Appeal Centre, Delhi, [CIT(A)] pertaining to assessment orders under section 143(3) of the Income Tax Act, 1961, for the Assessment Years (A.Ys) 2017-18 & 2018-19.

The assessee, a company operating in the electricity distribution business, submitted its eReturn of Income on 26.10.2017, declaring zero income after adjusting unabsorbed depreciation losses of Rs.36,26,50,987/, while reporting a book profit of Rs.136,80,76,197/-.

It was alleged that authorities confirmed the addition of 15% Capital Grants as against 10% offered by the assessee. The Assessing Officer made addition of Rs. 60,71,40,000/- on account of Capital Grants and Subsidies and Consumers’ Contribution of Rs.88,88,08,000/- on the ground that the assessee should transfer 15% of the total Grants/subsidies/consumer contribution received during the year as against 10% offered by the assessee.

The Assessing Officer followed the earlier assessment year and thereby made the disallowance, which has been confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

M.K. Patel representing the assessee argued that a uniform rate of 15% cannot be applied for making disallowance. He submitted that the grant should be apportioned according to the value of the asset given in the balance sheet. He argued that the rate of depreciation on land was zero percent, building was 5% and the plant & machinery was 15%, and hence, the disallowance at the uniform rate at 15% is not justified.

On the other hand, Mr. Kamlesh Makwana argued and submitted that the order of the CIT (A) was correct, and he after appreciating the entire facts had reduced the disallowance from Rs.30.97 crores to Rs.18.93 crores. 

The bench observed that as per provisions of Section 43(1) of the Income Tax Act, the capital grant should be reduced from the cost/WDV of the relevant asset, and thereafter the depreciation is to be calculated. Thus, the capital grant receipt in respect of asset, on which depreciation was allowable at the rate different from 15% should be worked out as per the applicable rate.

The tribunal set aside the orders of the lower authorities on this issue, and restored the matter back to the file of the AO for adjudication afresh after verifying the proportionate amount of grant relating to different assets, and applying the actual rate of depreciation which relate to these assets.

The two member bench of the tribunal comprising Waseem Ahemed ( Accountant member ) and T.R Senthil Kumar ( Judicial member ) find it fit and proper to remand the issue to the file of the AO for re-adjudication of the same and to pass orders upon verification of the proportionate amount of grant relating to different assets and to pass orders accordingly.

To Read the full text of the Order CLICK HERE

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