9911796707
TMI Blog2020 (12) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... ons or by way of a substantial expansion or even in the regular course of business; a business enterprise being required to constantly upgrade itself as well as to replace the assets which have over time become obsolete, technologically or functionally, or otherwise worn out through user. The argument is de hors the express provision of law and, consequently, without reference to any judicial precedent. We do not consider the provision of s. 43(1) as applicable in the facts and circumstances of the case. There is nothing to show of any proposal for the acquisition of fixed assets. Rather, the capital infusion is a part of an all India exercise, undertaken covering all RRBs across India, under the aegis of RBI NABARD, under whose administrative control the RRBs function, to improve their capital adequacy. The non-issue of shares would have no material bearing in the matter as it does not, in view of contributions proportionate to their respective shareholdings, disturb the ratio of either their voting rights or the proportion of the risk borne by the promoters, the providers of the risk capital. While, therefore, it is not correct to say that the funds were not meant for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sole ground, reading as under: 1. On the facts and circumstances of the case, the ld. CIT(A) has erred in deleting the addition of ₹ 5,33,72,693/- on account of claim of depreciation as section 43 does not require establishing any direct relationship between the assistance received under (*) utilization of the same in purchase of assets. 2. Any other ground that may be adduced at the time of hearing. [(*) be read as and ] 3. The facts in brief are that the assessee, a Regional Rural Bank (RRB), established under the Regional Rural Bank Act, 1976, promoted by Government of India (GoI), Government of Madhya Pradesh, and Central Bank of India, (with shareholding of 50%, 15% and 35% respectively), received a capital support of ₹ 20 crores during the relevant previous year, being financial year (f.y.) 2011-12, from GoI, to maintain capital adequacy. The assessee purchased computer hardware for ₹ 1779.09 lacs during the relevant year, claiming depreciation thereon in the impugned sum, at 50% of the eligible rate of 60%, having been put to use for a period of less than 180 days during the year. In view of the Assessing Officer (AO), section 43(1) rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rant, received in May/June, 2011, i.e., much prior to the said purchase in December, 2011/January, 2012. It was, rather, on the contrary, for the assessee-bank to show that the money received had not been utilized for the purchase of computers. The nomenclature or the name given to the capital contribution is not relevant, but its nature. Reliance was placed on Shree Renuka Sugars Ltd. (supra). 4.2 The assessee s case, on the other hand, is that the amount had been received by the bank toward share capital. The same was for improving the Capital to Risk weighted Assets Ratio (CRAR), which had indeed shown an improvement, i.e., from 6.52% at the end of the immediately preceding year, to 7.62% at the end of the relevant year (PB pg. 125). The decision in Shree Renuka Sugars Ltd. (supra) is not applicable inasmuch as in the facts of that case the assessee had received capital subsidy from the State Government for commissioning a co-generation power plant. Further, though it was explained, on being enquired by the Bench, that the fixed assets are taken into account, and without any discount (i.e., at 100%), in computing the CRAR, so, however, that would not in any manner imply that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of a direct funding. That apart, wherever there is a time lag between the receipt of funds and the purchase of an asset, one preceding the other, it could always be contended that the cost was met from the common pool of funds, which included, or indeed did not as where the cost is paid prior to the receipt, the grant. Even as reimbursement would ordinarily apply in case of direct funding, it does clarify that the timing of the receipt of funds and the acquisition may not be in tandem, to though no consequence. In the facts of the case, it also needs to be appreciated that the AO was constrained for want of the necessary details. No cash-flow statement, that would be required for the purpose, was provided by the assessee at any stage. The reason as to the money being given for recapitalization is, again, neither here nor there, as it does not, in any manner, preclude the same from being utilized by the assessee-bank for acquiring the fixed assets of it s business. 5.3 Coming to the merits of the case, we shall consider the case of the assessee, which has not based it, or entirely so, case on the findings by the ld. CIT(A), and only rightly so. This is as, without doubt, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree different parties, would itself be over a period of time, it improves it s capital base to that extent, irrespective of it being kept as cash or advanced to parties or otherwise in short-term instruments, etc. It is not the case of the said money having been lost during the interim period (i.e., from May/June, 2011 to December, 2011); the bank in fact reporting a profit (even after depreciation) for the period. The money is thus for being applied toward the assets of the business, so that the time of their acquisition would not be material as long as it is, wholly or partly, attributable to the said sum. The plea, made w.r.t. the proviso to the Explanation 10, for applying the provision, where regarded as applicable, proportionately, i.e., though valid in principle, would also not be of much assistance to the assessee. This is as, as afore-stated, the gross acquisition of the fixed assets during the year is at ₹ 2130.85 lacs, almost matching the capital grant for ₹ 2000 lacs, so that it would cover almost (94%) the entire cost of the assets acquired during the year, inclusive of computer hardware at ₹ 1779.09 lacs. 5.4 We, however, for reasons discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d acquire fixed assets, i.e., subsequent to the receipt of funds, which it, facing shortage of capital, may not have otherwise, is of no consequence. Rather, as afore-noted, the same being reckoned in computing CRAR, investment therein shall improve the CRAR. The raising of money to finance the acquisition of an asset, as by way of borrowing, is a transaction separate and distinct from the transaction of acquiring an asset. The two signify separate transactions, the raising and application of funds, even as explained in CIT v. Tata Iron Steel Co. Ltd. [1998] 231 ITR 285 (SC). In the facts of that case, the assessee had borrowed funds in foreign exchange to acquire an asset. However, due to fluctuation in the foreign exchange rate, the assessee had to repay a much lesser amount than he would otherwise have. It was held that this was not a factor which could alter the cost incurred by the assessee for the purchase of the asset. The assessee might have raised funds to purchase the asset by borrowing, but what the assessee had paid for it was the price of the asset. That price could not change by any event subsequent to the acquisition of the asset. The manner or mode of repayment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduced from the cost to the assessee. That is, it is where the sum is allowed toward decreasing the risk of the recipient entity by reducing its financial exposure and, further, by a person who is otherwise not obliged to provide the risk capital so as to enable the recipient entity to bear risk, that the cost reduction to that extent takes place. The condition is implicit in the section as the funds for the acquisition of an asset, depreciable or otherwise, are to be in any case raised where the business enterprise is unable to generate sufficient funds on, or does not have adequate capital of, its own. It is this capital that has been raised by the assessee-bank. Borrowing of money would fall in the same category. It is for this reason that the enumeration of the nature of the capital, as by way of subsidy, grant or reimbursement, defining the character of the sum, in the Explanation 10 appended to the provision, assumes significance. One could argue, and not unreasonably so, that the contribution by GoI, and consequently by others, is by virtue of its status as the Central Government, and not in its capacity as a shareholder, which was only incidental. That is, the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with law. The money, it was stated, without showing where and how it was applied, was given to strengthen the capital structure of the bank, with the same, measured in terms of CRAR, showing an improvement. The fixed assets, being the assets of the business, could be acquired from the funds given (₹ 20 cr.), and were indeed acquired in a matching amount of ₹ 21.31 cr. during the year (refer para 5.3). How could it be then said that the amount was not applied, particularly considering that the bank was facing shortage of capital, so that it, being obliged to maintain other statutory ratios, viz. SLR, CRR etc., would not, at least ordinarily, divert its liquid resources for capital assets, as computers, which nevertheless are required to maintain its functional/business competence? The provision covers indirect meeting of cost as well. A one-to-one correspondence or direct nexus between the receipt and application of funds is therefore not required, even as the asset purchase, entail as it does different processes, would itself require some time to mature, as indeed would the receipt of the funds themselves, being from three different sources in the instant case, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
