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TMI Blog2013 (8) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... on the user of the asset in the business of the assessee. There must be actual, effective and real user in the commercial sense and the user in the commercial sense and the user must be so linked with the business that it can be said that there is an immediate nexus between the user and the business, i.e. the real business of the assessee - Section 50 contains special provisions for computation of capital gains in the case of depreciable assets. The said section nowhere provides that certain deemed depreciation needs to be allowed - where the depreciation has been allowed as per the provisions of the Act after the fulfilling conditions prescribed u/s 32 of the Act and then the special provisions of section 50 would follow - Following decision of Commissioner Of Income-Tax, Gujarat Versus Suhrid Geigy Limited [1981 (4) TMI 79 - GUJARAT High Court] - Decided in favour of assessee. Disallowance u/s 43B - Interest liability not paid - CIT upheld disallowance - Held that:- The assessee understood the OTS of ₹ 378.72 lakhs as being first attributed towards interest and balance towards principal leaving a portion of principal unpaid and waived. On this basis, the assessee claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the following grounds: "1. The learned Commissioner of Income Tax (Apepals) is not justified in affirming the action of the learned Assessing Officer in computing the notional depreciation while determining capital gains u/s 50 by failing to appreciate that the impugned assets were seized by the bank towards recovery of loan as early as in 2003 and same were not put to use by the Appellant from the assessment year 2003-04 onwards. 2. The learned Commissioner of Income Tax (Apepals) ought not to have diallowed a sum of Rs.1,93,96,881 claimed by the Appellant u/s 43B on the basis that the one time settlement of loan was towards interest, particularly when the Department accepted the treatment of appellant in offering the principal amount of loan to tax to the extent of Rs.2,57,08,826 on the basis that the same was waived. 3. In the alternative and without prejudice to the above, the learned Commissioner of Income Tax (Appeals) is not justified in failing to appreciate that the principal amount of loan to the extent of Rs.2,57,08,826 offered to tax by the appellant on misunderstanding of fact and law, had to be necessarily excluded in computing the total income in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not. But before such allowance, the Assessing Officer is duty bound to examine the facts of each case and give a finding that the assessee is eligible for such claim i.e. other conditions have been fulfilled. To claim depreciation u/s 32 of I.T. Act, two conditions must be fulfilled. The first one is that the assessee must by the owner of the asset and secondly such asset must have been used for the purpose of business. The admitted facts of this case is that the sold assets viz., building, bore well and plant and machinery had not been used since 01-04-2003 for the purpose of business of production of refined oil. Thus one of the basic conditions for allowance of depreciation relief is missing. Explanation only clarifies the basic provisions of a substantive section and cannot act as substitute. Therefore, following the ratio of the jurisdictional High Court in the case of DCIT vs. Yellamma Dasappa Hospital (2007) 290 ITR 353 (Kar), it is held that the assessee is justified to consider the cost of the sold assets as the W.D.V. as on 01.04.2003 as per law. But the computation of STCG on sale of such capital assets is not dependent on the reduction of depreciation as per the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998. Owned, wholly or partly, by the assessee and used for the purpose of the business or profession, the following deductions shall be allowed". 3.5.2 From a plain reading of the section, it is evident that in order to claim depreciation u/s 32 of the Act, the assessee must be owning the assets and the same should be used for the purpose of the business. In the case of Tamil Nadu Civil Supplies Corporation Ltd v. CIT (1997) 228 ITR 399 (Mad)/(1999) 139 CTR 89/(1989) 26 Taxman 463 it has been held that one of the conditions precedent for claiming depreciation is that the assessee must be the owner of the asset on which depreciation is claimed. In the said case the rice mills belonging to the cooperative societies were taken over by the Govt. in 1972 and sale deeds were executed in 1978. In the light of such facts it was held that the assessee corporation was not the legal owner of the assets under consideration. Therefore, the assessee was not entitled to depreciation and development rebate for the assessment year 1973-74 and 1974-75. The aforesaid judgment of the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of capital gains in the case of depreciable assets. The said section nowhere provides that certain deemed depreciation needs to be allowed. Section 50 merely states "where depreciation has been actually allowed under this Act". The same, therefore, implies that where the depreciation has been allowed as per the provisions of the Act after the fulfilling conditions prescribed u/s 32 of the Act and then the special provisions of section 50 would follow. 3.5.6 For the aforesaid reasons, we are of the view that the order of the CIT (A) confirming the assessment order in respect of computation of capital gain is not correct. Therefore, we direct that grant of notional depreciation from the year 2003 for calculation of WDV as on 01.04.2006 is not warranted. Hence, we confirm the computation of capital gains made by the assessee u/s 50 of the Act. It is ordered accordingly. 3.6. In the result, Ground No.1 raised by the assessee is allowed. Disallowance u/s 43B of the Act (Ground No.2 3): 4. The assessee had claimed deduction u/s 43B of the Act for the alleged payment of interest of Rs.1.93 crores. However, the AO, after quoting column No.21 of 3 CD furnished by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction otherwise allowable in respect of any sum payable by the assessee as interest on any loan or borrowing from a scheduled bank shall be allowed in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. In the instant case, no interest is paid by the assessee. Hence, it goes without saying that interest has to be disallowed u/s 43B. In view of the above facts and circumstances, the assessee's contention is not acceptable. The Form 3CD filed by the assessee company also states that no interest has been paid during the year. Hence, the said interest is correctly disallowed u/s 43B." 4.2.1 With reference to the additional grounds raised, the CIT (A)dismissed the contentions therein by observing thus: "10.1 For this ground it is observed that the appellant has itself offered the said sum to tax in the return of income. This is neither an addition nor disallowance made by the Assessing Officer. Hence, no cause of action arises in respect of this issue. Hence, assessee's contention is liable to be dismissed. Additional ground of appeal is dismissed". 4.3. The assessee being aggrieved by the order of the CIT (A) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan from Canara Bank 3,87,82,000 B. Working capital loan from Canara Bank 53,48,081 Total loan 4,41,30,081 C. Less: Amount towards principal repayment (as per the above table 2,56,54,9621,84,75,119 D. Balance of loan understood as waived by the Bank 2,57,08,826 E. Amount shown as written back in the books 53,864 F. Excess offered by the assessee [25708826 - 25654962] - that the aforesaid OTS was evident from the letter of Canara Bank dated 10.8.2006 and also confirmation letter dated 31.12.2009 from the said bank and that the Bank had accepted the OTS of Rs.3,78,72,000/- while writing off of the book liability of Rs.1,96,30,000/- and that the said letter further also referred to the waiver of the balance unapplied interest to the extent of Rs.260.77 lakhs which exhibits that the recovery was towards principal of loan - relies on the ruling of the jurisdictional High Court in the case of Vinir Engineering P. Ltd v. DCIT (2009) 313 ITR 154 (Kar). - that in the above said case, the Hon'ble Court (supra) recognized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal sum Rs.62,58,081 - That (without prejudice to the above) the principal amount of loan waived which was offered to tax was a result of the misunderstanding of fact and the same be excluded for the purpose of computation of the income, and that the CIT (A), instead of deciding the issue on merits, dismissed the same on the basis of the assessee's admission; - That there cannot be an estoppel against an assessee in a case where an amount has been erroneously offered for taxation being not in lines with the provisions of law, that explicitly where an amount cannot be taxed under the law, but, the same has been offered to tax by the assessee inadvertently, the same cannot be taxed on the premise of estoppel against the assessee; - Relies on the following case laws: (i) Bhandari Metals and Alloys (P) Ltd v. State of Karnataka (2004) 146 ITR 292 (Kar); (ii) CCE (Appeals) v. KVR Construction (2012) 50 VST 469 (Kar); (iii) CIT v. C. Parakh and Cok (India) Ltd (1956) 29 ITR 661 (SC); (iv) Pullangode Rubber Produce Co. Ltd v. State of Kerala 91 ITR 18 (SC); (v) CIT v. Bharat General Reinsurance Co. Ltd (1971) 81 ITR 303 (Del); (vi) Board's Circular No.14(XL-35/195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.4. We have carefully considered the rival submissions, perused the relevant material on record and also the various case law on which both the parties have placed reliance on. The assessee understood the OTS of Rs.378.72 lakhs as being first attributed towards interest and balance towards principal leaving a portion of principal unpaid and waived. On this basis, the assessee claimed interest deduction u/s 43B and offered, though, wrongly the waived principal to tax. Even if one would understand the OTS of Rs.378.72 as being first attributed towards principal and balance towards interest, it means that unpaid interest of Rs.1,93,96,881 is to be disallowed u/s 43B. However, this would also mean that there is no waiver of principal amount. This will render the offer of waived principal sum of Rs.2,57,08,826 made by the assessee erroneous. The erroneous offer of tax of Rs.2,57,08,826 towards waiver of principal sum is more than the erroneous claim of interest u/s 43B of Rs.1,93,96,881. As both erroneous offer of waived principal sum to tax and erroneous claim of interest u/s 43B emanated from a single transaction/event i.e. OTS, both should be understood to have cancelled each other. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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