Nirma Ltd. Vs DCIT (ITAT Ahmedabad)
Sales Tax Subsidy Held Capital Receipt, 80IA Deduction for Captive Power Allowed, Depreciation on Goodwill Restored – Nirma Ltd. Gets Major Relief – ITAT Ahmedabad
Ahmedabad Tribunal decided cross appeals of Assessee & Revenue arising from large disallowances & additions relating to subsidy, depreciation, 80IA deduction, goodwill & allied issues.
Assessee, a public limited company engaged in manufacturing consumer & industrial products under the brand “Nirma”, had undergone amalgamations including with Saurashtra Chemicals Ltd. AO framed assessments for A.Y. 2015-16 & 2016-17 with major additions – treating sales tax subsidy as revenue receipt, disallowing depreciation on intangibles & goodwill, denying deduction u/s 80IA on captive power units, disallowing product registration expenses, PF/ESIC payments, & making MAT adjustments.
CIT(A) granted partial relief by holding sales tax subsidy as capital receipt, allowing 80IA claim, deleting disallowance of product registration expenses & excess depreciation on intangibles, but confirmed disallowance of depreciation on goodwill & delayed ESIC/PF.
On further appeal, Tribunal ruled issue-wise. It upheld CIT(A)’s view that sales tax subsidy of Rs.7.22 crore was capital in nature applying the “purpose test” laid down in Ponni Sugars & affirmed by SC in Chaphalkar Brothers, & directed exclusion of such subsidy from MAT book profit also. Disallowance of excess depreciation on intangibles was deleted following consistent rulings in Assessee’s own case approving Rs.500 crore base valuation. Disallowance of Rs.15.79 lakh product registration expenses was also deleted following Gujarat HC in Torrent Pharma & Cadila Healthcare holding such outlays to be revenue.
