ITAT directs AO to allow Depreciation on Actual Cost of Assets without reducing the amount of Subsidy to Nestle India [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench directed AO to allow depreciation on the actual cost of assets without reducing the amount of subsidy to Nestle India.

The assessee company, Nestle India is a manufacturer of a wide range of food items covering beverages, baby food powders, chocolates and confectionery, culinary products, etc. The assessee filed its return of income declaring total income. After initially processing the return under Section 143(1) of the Income-tax Act, 1961, the case was selected for scrutiny.

Since during the year under consideration the assessee had entered into international transactions with its Associated Enterprise (AE) and the value of such transactions exceeded Rs.15 Crores, the case was referred to the Transfer Pricing Officer (TPO) under section 92 CA of the Act for computing the Arm’s Length Price (ALP). As per the order of the TPO, no adjustment was proposed on account of ALP of the international transactions.

However, the disallowance of license fee; disallowance under section 14A; addition of interest under section 244A; disallowance of depreciation, and addition of subsidy from Government of Goa were made by the Assessing Officer (AO) while completing the assessment proceedings.

The CIT(A), directed the AO to reduce, on a proportionate basis, the capital subsidy received during the relevant assessment year from the written down value of the respective block of assets for the purpose of computing depreciation allowance under the Act while directing that the subsidy should be treated as capital subsidy. The CIT (A) also upheld the addition with respect to the interest received under section 244A.

The tribunal headed by the Vice-President, G.S. Pannu held that CIT (A) was not correct in directing the Assessing Officer to reduce the amount of subsidy from the actual cost of fixed assets and, thereafter, allow depreciation on such actual costs so arrived at that.

“The action of the CIT (A) in deleting the addition of Rs.61,01,74,000/- made on account of the license fee. It is seen that the Assessing Officer, following the order of his predecessor for the immediately preceding the assessment year 2008-09, disallowed on ad hoc basis 40% of the general license fee paid by the assessee to M/s Societe des Produtis Nestle, S.A. Switzerland for use for know-how and technical assistance, alleging that the same was excessive and not reasonable and had not been incurred for the purposes of the business of the assessee. The Ld. CIT (A) on appeal, relying on the various orders of the Hon’ble High Court and the Tribunal in assessee’s own case deleted the disallowance,” the tribunal said.