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TMI Blog2021 (6) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... section 43(6) of the Income Tax Act, 1961. The assessee is, therefore, entitled to depreciation. Somewhat similar situation arose in case of M/s Bharat Sanchar Nigam Limited (BSNL) when it got incorporated in 2000. Prior to BSNL s incorporation, the telecommunication services were being provided by Government of India, Ministry of Communication through its two departments, namely Department of Telecommunication Services and Department of Telecommunication Operation. The AO in case of BSNL referred to the capital structure of the BSNL to draw an inference that the cost of assets was being met by the general reserve as reflected in the capital structure of the company. As per AO, a sum equal to the general reserve would be required to be reduced from the cost of the assets in terms of Explanation 10 of Section 43(1) of the Act. This has been negated by the Hon ble Delhi High Court [ 2013 (5) TMI 416 - DELHI HIGH COURT] - Decided against revenue. - ITA No.5724/Del/2015 - - - Dated:- 31-5-2021 - Shri Sudhanshu Srivastava, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Appellant : Sh. N.C.Uppadhay, Sr. DR For the Respondent : Dr. Rakesh G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mit all the issues taken up in the assessment order before the assessing officer for readjudication. We direct the assessee to cooperate with the Assessing Officer and submit the requisite details. We further direct the assessee that it should remain vigilant for getting its accounts audited in the subsequent assessment years. 2.1 Post the set aside by this Tribunal, fresh assessment proceedings were initiated by the AO. The AO again made a disallowance of depreciation of ₹ 29,95,08,702/- and assessed the total income of the assessee at ₹ 38,89,94,500/-. In this regard, vide order dated 28th March 2013, it has been held by the AO as under: During the year under consideration it is noticed that the opening WDV for the assets for A.Y. 2004-05 do not tally with the closing WDV for A.Y.2003-04. Hence for the purpose of coming to the amount to be disallowed for depreciation on assets taken over at the time of inception free of cost, the following method is being adopted. For the additions made during the year, the depreciation permissible under the I.T. Act, 1961 is to be allowed, as in the previous years there is no addition to the fixed assets as per the Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -11-2001 was considered by UJVNL. Since these Assets represented share capital in the Balance sheet of UPJVNL hence it cannot be said that these assets have been obtained free of cost from UPJVNL. The difference of Assets and Liabilities have been shown as reconstruction reserve under the Capital Reserve in the Balance Sheet. As such this would be a demerger for the purpose Income Tax Act 1961. In case of demerger only a portion of the assets and liabilities of the company are assigned to the demerged company which in this case did not involve any payment of cash and shares for the assets and liabilities transferred from UPJVNL to UJVNL. Hence it may be stated that both the share capital as well as reserves including the reconstruction reserve which belongs to subscriber of the share capital I.e., in this case the State of Uttaranchal had been utilized for getting the assets. The Ld. Commissioner of Income Tax Appeal-I, Dehradun, has also given due relief on account of depreciation on fixed assets while disposing of appeals for the following Assessment Years. A.Y. Appeal No. Date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders (as mentioned in the extract of submissions above) which have allowed the claim of depreciation. Following those orders the claim is allowed for this year also with the direction that the closing value of WDV for AY 2003-04 shall be adopted from the audited accounts of that year and taken as opening value for the present year as per audited accounts for AY 2004-05. This ground is accordingly allowed with the deletion of addition of ₹ 29,95,08,702. 3.0 Being aggrieved, revenue in appeal before us now. During the course of appellate proceedings, the Ld DR vehemently supported the disallowance made by the the AO. However, when specifically questioned, the Ld DR was unable to rebut the conclusions recorded by the Ld CIT (A) that when the Central Government, vide its order dated 5th November 2001, had transferred all hydro power plants located in the State of Uttaranchal to the assessee, it had recognized the assets in its balance sheet and for the value of assets taken over consideration was paid by the assessee through issuance of share capital. Hence, it cannot be said that these assets have been obtained free of cost by the assessee. 4.0 On the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y entailed incorporation of a wholly owned government company (i.e, the petitioner company) and the transfer of the business as a going concern along with all its assets and liabilities to the company. The net assets were transferred at book value, which was agreed to be at least ₹ 63,000/- Crores and in consideration of this the petitioner company accepted a liability of ₹ 7500 Crores and issued both equity and preference share capital of the face value of ₹ 5000 Crores and ₹ 7,500 Crores, respectively. The balancing figure was reflected as reserves which is an integral part of the shareholders funds. The Government of India has transferred the assets to the petitioner company at their book value i.e., the value at which the said assets are reflected in the books of DTS and DTO and the book value of the Government of India's holding in the petitioner company as shareholder and a creditor aggregates the book value of the assets transferred. The configuration of the capital structure of the petitioner has no impact on the value of the Government's holding in the petitioner company as reserves of a company are subsumed in the book value of its c ..... 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