Facts of the Case

The present appeal pertains to Assessment Year 2009–10, wherein the assessee, Nestle India Ltd, filed its return declaring total income of ₹728.92 crores. The case was subjected to scrutiny assessment under Section 143(3), resulting in several additions including:

  • Disallowance of license fee
  • Disallowance under Section 14A
  • Disallowance of depreciation on UPS
  • Disallowance of depreciation on energy-saving devices
  • Treatment of subsidy received from the Government of Goa
  • Interest under Section 244A

The CIT(A) partly allowed the appeal, deleting most additions and holding the subsidy as capital in nature but directing proportionate reduction from the block of assets. Both Revenue and assessee preferred cross-appeals before ITAT, which ruled largely in favour of the assessee.

The Revenue thereafter filed an appeal before the Delhi High Court.

 Issues Involved

  1. Whether UPS qualifies for higher depreciation @60% as part of computer systems?
  2. Whether subsidy received from the Government of Goa is a capital receipt?
  3. Whether such subsidy should be reduced from the block of assets under Section 43(1)?
  4. Validity of disallowance under Section 14A and other additions (already covered by precedents).

 Petitioner’s Arguments (Revenue)

  • UPS is not an integral part of a computer and should be eligible for depreciation at 15% instead of 60%.
  • The ITAT erred in relying on earlier judgments such as BSES Rajdhani Power Ltd.
  • Subsidy received should be reduced from the cost of assets as per Section 43(1).
  • ITAT wrongly deleted additions under Section 14A and other heads.

Respondent’s Arguments (Assessee)

  • UPS forms an integral part of computer systems and qualifies for depreciation @60%.
  • The issue is already settled by Delhi High Court judgments in favour of the assessee.
  • Subsidy received was for promoting industrialization in backward areas and not for meeting the cost of assets.
  • Hence, subsidy is a capital receipt and cannot be reduced from the block of assets.

 Court Findings / Judgment

1. Depreciation on UPS

  • The Court upheld that UPS is an integral part of computer systems.
  • It ensures uninterrupted power supply, preventing data loss, and is essential for computer functioning.
  • Therefore, depreciation @60% is allowable.
  • The issue is covered by precedents like:
    • CIT vs BSES Rajdhani Power Ltd.
    • CIT vs BSES Yamuna Power Ltd.

 Court Order

  • The Delhi High Court held that no substantial question of law arises.
  • The appeal filed by the Revenue was dismissed.

 Important Clarifications

  • UPS qualifies as part of a computer system only when functionally integrated with computers.
  • Not all UPS equipment (e.g., industrial UPS) will automatically qualify for 60% depreciation.
  • Subsidy classification depends on purpose, not method of calculation.
  • Capital subsidy not intended to meet asset cost cannot be reduced under Section 43(1).

 Sections Involved

  • Section 14A – Expenditure relating to exempt income
  • Section 32 – Depreciation
  • Section 43(1) – Actual cost of assets
  • Section 244A – Interest on refunds
  • Section 143(1) & 143(3) – Assessment provisions

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/RAS04072023ITA3032023_142946.pdf

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