9911796707
TMI Blog2024 (11) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... B. The waiver of loan is on capital account and the ratio laid down in the case of Mahindra Mahindra [ 2018 (5) TMI 358 - SUPREME COURT] squarely applies wherein, as held that waiver of loan in respect of capital equipment cannot be taxed u/s 41(1) of the Act. Since the assets were purchased in AY 2009-10, therefore provision of Section 43(1) of the Act are not applicable as in that year, the cost of asset was not directly or indirectly met by any other person. Also decided in Tata Iron Steel Co [ 1997 (12) TMI 5 - SUPREME COURT] we find it difficult to follow how the manner of repayment of loan can affect the cost of the assets acquired by the assessee. What is the actual cost must depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee, but even if the assessee did not repay the loan, it will not alter the cost of the asset. If the borrower defaults in repayment of a part of the loan, the cost of the asset will not change. What has to be borne in mind is that the cost of an asset and the cost of raising money for purchase of the asset are two different and independent transactions. Even if an asset is purchased with non-re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) has erred in ignoring the ratio laid down by the judgement of the Kerala High Court in the case of Commissioner Of Income-Tax Vs. Poulose And Mathen (Put.) Ltd. dated 03.02.1998, (1999) 236 ITR 416 Ker, wherein, the Hon ble High Court has held that the actual cost contemplated under Section 43(1) means the actual cost of the assets to the assessee, reduced by that portion of the cast met by any other person or authority directly or indirectly. 6. Whether on the facts, in the circumstances of the case and in law, the CIT(A) has erred in ignoring the ratio laid down by the Hon'ble Apex court judgment in the case of Jagta col Pvt, Ltd. Vs CIT (36 ITE 521), wherein it is has been held the cost which has to be calculated for the purpose of depreciation allowance is the cost to the assessed not to person, who makes the sale. 7. Whether on the facts, in the circumstances of the case and in law, the CIT(A) has erred in ignoring the ratio of the decision of ITAT, Bangalore in the case of Sango BPL Put. Ltd, Vs. DCIT, (2016] 75 taxmann.com253 (Bangalore - Trib.), dated 04.11.2016 wherein it was held that the Legislature has prefixed the word 'actual' to the word cost' i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, the AO re-computed the depreciation at Rs. 9,91,93,491/- and added the same. 5. The assessee carried the matter before the ld. CIT(A) and reiterated its claim of depreciation. It was strongly contended that the waiver of loan being capital receipt is not taxable. Strong reliance was placed on the decision of the Hon ble Supreme Court in the case of Mahindra Mahindra (2018) 414 ITR 1 (SC). 5.1. After considering the facts and submission, the ld. CIT(A) was of the opinion that re-working of depreciation based on the re-worked cost of acquisition and adding the depreciation of earlier years in the current assessment year is not an acceptable proposition as the taxable income of the assessee is required to be worked out for each of the AYs. Finding support from the decision of the Hon ble Supreme Court in the case of Mahindra Mahindra (supra), the ld. CIT(A) deleted the impugned disallowance. 6. Before us, the ld. D/R strongly supported the findings of the AO but could not point out any legal/factual error in the findings of the ld. CIT(A). Per contra, the ld. Counsel for the assessee reiterated what has been stated before the lower authorities. 7. It is an undisputed fact that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as claimed depreciation of those machineries from the A.Y. 1997-98. In April, 2000, Akzo International BV, the parent company waived the amounts payable by the assessee for purchase of machineries. This fact came to the knowledge of the AO in the course of assessment proceedings for the AY 2004-05. Thereafter action was initiated u/s. 148 to reduce the WDV of the relevant block of assets and withdraw the depreciation already granted to the assessee in the past. Such action was initiated only from A.Y. 2001-02 to 2006-07. A notice u/s. 148 for AY 2001-02 was issued by the AO on 01.02.2007. This is probably because the AO could not reopen the earlier assessment years as they could not be reopened in view of the limitation of time laid down in section 149 of the Act. The question now to be decided by the Tribunal is as to whether the action of the revenue could be justified. The relevant provisions of law in this regard have to be seen. The concept of block of assets was introduced with effect from 01.04.1988. Section 32 (1) of the Income Tax Act, 1961 (the Act) reads as follows: 32. (1) In respect of depreciation of - (i) building, machinery, plant or furniture, being tangible assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to the proposal to introduce a system of allowing depreciation in respect of block of assets instead of the present system of depreciation on individual assets at paragraph 6.3, the Board stated as follows: As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate book-keeping and the process of checking the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregate has to be the record keeping. Moreover, the practice of granting the terminal allowance as per section 32(1)(iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act, necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation of lump-sum amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that were such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. 21. The aforesaid Explanation was explained by the Board in Circular No.772 dated 23.12.1998 [reported in (1999) 235 ITR (St.)35]. The relevant part of the Circular is reproduced below: 22.2 Explanation 10 provides that where a portion of the cost of an asset acquired by the assessee has been net directly or indirectly by the Central Government or a State Government or any authority established under any law or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that actual cost means the actual cost of the assets to the assessee. Even this can be done only when after the waiver of the loan which was used to acquire machinery. By that time if the assessments for that AY gets barred by time, the revenue is without any remedy. Even the provisions of Sec. 155 do not provide for any remedy to the revenue in this regard. 23. The AO has made a reference to the provisions of section 43(6)(b) of the Act. In our opinion, these provisions were not applicable to the present case. The applicable provisions to the present case are section 43(6)(c) of the Act. It is also noticed that the Hon ble Supreme Court in the case of Tata Iron Steel Co. Ltd. (supra) has taken a view that repayment of loan borrowed by an assessee for the purpose of acquiring asset has no relevance to the cost of assets on which depreciation has to be allowed. Similar view was also expressed by the Hon ble Kerala High Court in the case of Cochin Co. (P.) Ltd s case (supra), as already stated, as follows:- WDV as at the beginning of the preceding year as well as the depreciation actually allowed in that year have reached finality and cannot be changed in the assessment year under ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1961-62, the appropriate part of each of the said two amounts (i.e., after excluding that portion of it which is attributable to the element of interest) was loss on capital account which went to increase the 'actual cost' of the depreciable assets for computing depreciation for the assessment year 1961-62 ? 9.1. And the Hon ble Supreme Court interalia held as under:- 3. Coming to the question raised, we find it difficult to follow how the manner of repayment of loan can affect the cost of the assets acquired by the assessee. What is the actual cost must depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee, but even if the assessee did not repay the loan, it will not alter the cost of the asset. If the borrower defaults in repayment of a part of the loan, the cost of the asset will not change. What has to be borne in mind is that the cost of an asset and the cost of raising money for purchase of the asset are two different and independent transactions. Even if an asset is purchased with non-repayable subsidy received from the Government, the cost of the asset will be the price paid by the assessee for acquiri ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
