Case Law Details
Gujarat Urja Vikas Nigam Ltd Vs CIT (ITAT Ahmedabad)
ITAT Ahmedabad held that government grants received in lieu of FRP i.e. Financial Restructuring Plant is not required to be reduced from the cost of capital assets. Accordingly, reopening of assessment unjustified.
Facts- The case of the assessee was reopened exercising revisionary jurisdiction finding the assessment order to be erroneous causing prejudice to the Revenue on account that the Book Profits of the assessee, for the purposes of paying taxes thereon u/s. 115JB of the Act, having not been enhanced by the depreciation, to the tune of Rs.29.28 crores, was incorrectly allowed to be set off against the same by the AO. The case of the PCIT being that Government grant of Rs.250 crores received by the assessee was taken to reserves & surplus, when as per the applicable Accounting Standards, it should have gone to reduce value of the asset and as a consequence reduce the assessee’s claim of depreciation to the tune of Rs.29.28 crores and that resultant book profits of the assessee for the purpose of paying taxes as per Section 115JB of the Income Tax Act to be enhanced to the extent of Rs.29.63 crores on account of incorrect claim of depreciation allowed to the assessee.
The case made out by the PCIT is that the government grant of Rs.250 Crs received by the assessee during the year ought to have been accounted for by reducing the value of Fixed assets, as per normal accounting principles/standards, which would have resulted in wiping off the entire fixed assets entitling the assessee to no claim of depreciation.
Conclusion- Held that the grants were received in lieu of FRP of the subsidiary and therefore held that the Book Profits of the assessee had been correctly computed in terms of applicable accounting standards and the finding of error by the Ld.PCIT was therefore incorrect.
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