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2021 (12) TMI 1267 - AT - Income TaxDepreciation on demerger - AO has disallowed depreciation on the ground that the assessee had received assets free of cost from the Government of UP - AO noticed that the assessee took over the assets on transferred from UPJVNL but for the liability side did not take over the loans transferred in full form UPJVNL - AO had concluded that the assessee had only taken over the assets for which the liabilities were not ascertained till date - HELD THAT - We have gone through the entire contents and the history of the assessee. In this case the assets have been transferred from Uttar Pradesh Government (UPJVNL) to Uttaranchal Government (UJVNL). There is no claim of the depreciation twice by both the Governments. The demerger led to division of assets in a fixed ratio and the same was duly accounted for both the entities as per the written down value (WDV) as on that date. The depreciation on de-merger cannot be a forgone benefit owing to de-merger which is the result of state reorganization. Hence we decline to interfere with the reasoned order of the Ld. CIT (A). - Decided against revenue.
Issues Involved:
1. Depreciation on assets transferred from UPJVNL to UJVNL. Detailed Analysis: Depreciation: The primary issue in this appeal revolves around the disallowance of depreciation claimed by the assessee on assets transferred from UPJVNL to UJVNL. 1. Background and Initial Assessment: - The assessee filed a return declaring a total income of ?8,94,85,800 for the year under consideration. - The AO framed the assessment under section 143(3) of the Income Tax Act, 1961, assessing the total income at ?40,67,51,498. - The assessee appealed to the CIT (A), who provided partial relief, leading to further appeal to the ITAT. 2. First ITAT Order and Remand: - The ITAT, in its order dated 25th February 2011, set aside the matter with directions for reassessment, emphasizing the need for audited accounts to determine the true income of the assessee. - The ITAT directed the AO to reassess the issues based on the audited accounts and allowed the assessee another opportunity to present its case. 3. Fresh Assessment Proceedings: - Upon reassessment, the AO disallowed depreciation of ?29,95,08,702, arguing that the opening WDV for assets for A.Y. 2004-05 did not tally with the closing WDV for A.Y. 2003-04. - The AO concluded that the assets were taken over free of cost, thus disallowing depreciation on the balance amount of ?29,95,08,702. 4. Appeal to CIT (A): - The CIT (A) found merit in the assessee's claim and allowed the appeal, noting that the assets were not acquired free of cost. - The CIT (A) emphasized that the assets were transferred as part of a demerger, with the cost duly accounted for by both entities. - The CIT (A) referenced several appellate orders allowing similar claims in previous years, reinforcing the legitimacy of the depreciation claim. 5. Revenue's Appeal to ITAT: - The Revenue appealed against the CIT (A)'s decision, but the ITAT upheld the CIT (A)'s conclusions. - The ITAT recognized the situation as a demerger under section 2(19AA) of the Income Tax Act, noting that the assets were not obtained free of cost. - The ITAT referenced the Delhi High Court's decision in the case of M/s Bharat Sanchar Nigam Limited (BSNL), which negated the AO's inference that reserves represent a subsidy or grant. 6. Final Judgment: - The ITAT concluded that the assessee is entitled to depreciation on the written down value of the assets as per Explanation 2B of section 43(6) of the Income Tax Act, 1961. - The ITAT emphasized that the demerger led to a division of assets in a fixed ratio, duly accounted for by both entities. - The ITAT dismissed the Revenue's appeal, affirming the CIT (A)'s order and allowing the depreciation claim. 7. Conclusion: - The ITAT's final order pronounced on 1st December 2021, dismissed the appeal of the revenue, thereby allowing the assessee's claim for depreciation on the transferred assets. This comprehensive analysis highlights the legal reasoning and detailed examination of the facts leading to the final judgment, affirming the assessee's entitlement to depreciation on the transferred assets.
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