TaxTMI 
TaxTMI 
2013 (1) TMI 311
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....1 1 1 1 1 1 1 Validity of reassessment Proceedings 2 2 2 - - - - Validity of proceedings u/s. 155(4) - - - 2 - - - Reduction of:- Waiver of loan amount from WDV, Depreciation allowance, Carryforward of unabsorbed depreciation 3(a,b&c) 3(a,b,c &d) 3(a,b,c &d) 3(a,b&c) 2(a,b&c) 1(a,b,c &d) 2 to 8 Not setting off brought forward business loss first against total income and setting off of unabsorbed depreciation first. - - - - - - 9 Revenue's Appeal No. &AY 771/10 2001-02 772/10 2002-03 773/10 2003-04 2004-05 2005-06 1164/10 2006-07 Proceedings under section 147/148 147/148 147/148 155(4) 143(3) 143(3) Issues Ground No. Ground No. Ground No. Appeal not filed by the Deptt. Ground No. Reduction of:- Waiver of loan amount from WDV, Depreciation allowance, Carryforward of unabsorbed depreciation 1,2,3,4,5 1,2,3,4,5 1,2,3,4,5 1,2,3,4,5 Reliance on case laws placed by the AO 6,7 6,7 6,7 - 3. The material facts necessary for adjudication of these appeals are as follows: ....
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....pect of in respect of supply of machineries to the assessee. Thus, the assessee was the beneficiary of the waiver of loan to the extent of Rs. 13,48,09,000. This waiver of the loan was in April, 2000. 7. In respect of the plant & machinery which was purchased by the assessee for which the assessee did not make payments and the amount outstanding for such purchases were made by the parent company and ultimately waived by the parent company, the assessee claimed depreciation right from the A.Y. 1997-98 upto A.Y. 2000-01. It is important to mention that the Assessee considered the actual cost of the machinery at that point of time i.e., in AY 97-98 as the monies payable to the supplier of machineries viz., Rs.13,48,09,000. The assessee was allowed depreciation in the assessment proceedings. In the A.Y. 2001-02, the original return was processed u/s. 143(1) of the Act. This assessment was however reopened by the AO by issuing notice u/s. 148 of the Act. The facts with regard to the waiver of the loan payable for acquiring the machineries came to the knowledge of the AO in the course of assessment proceedings for AY 04-05. According to the AO, on the waiver of loan by the parent comp....
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....ry creditors balance in its books of account. This fact implies cessation of liability on account of the cost of the assets and cannot be construed as waiver of loan. Thus, there is no merit in the appellant's contention. Hence, it is not tenable. 4.6 The appellant has also made the following submissions: 2.7.7 Without prejudice to our aforesaid submissions, the Appellant further objects to the method of determination of written down value of assets. In these calculations, entire cost of the imported asset has been reduced and not the value arrived net of depreciation. As the Hon'ble CIT (A) may notice, what opening written down value represents are the written down value of the assets and not the original cost of the asset. Hence, if at all anything is to be reduced, then it shall be written down value of underlying assets and not the original cost of the asset itself. If original cost of asset purchased during FY 1994-95 to FY 1996-97 is reduced from the written down value of assets for the assessment year 2001-02, that would amount to incorrect value of assets for the purpose of depreciation and the depreciation so calculated will not be in accordance with the provisions o....
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....t falling within that block acquired during the previous year and by increasing the monies payable in respect of any asset falling with that block which is sold or discarded or demolished or destroyed during the previous year. It was the submission that the AO's action in reducing the amount of loan waived by the supplier of machinery cannot be said to be falling within the expression "sold, discarded, demolished, or destroyed". It was his submission that consequently the WDV cannot be disturbed by the AO. Further reference was also made by the ld. counsel for the assessee to the decision of the Hon'ble Supreme Court in the case of CIT v. Tata Iron & Steel Co. Ltd. [1998] 231 ITR 285, wherein the Hon'ble Supreme Court held that the manner of repayment of loan availed by an assessee for the purchase of an asset on which depreciation is claimed, cannot have any impact on allowing depreciation on such assets. Reference was also made to the decision of the Hon'ble Kerala High Court in the case of CIT v. Cochin Co. (P.) Ltd. [1990] 184 ITR 230 for identical proposition. 11. Further submissions were made on the concept of block of assets and as to how once an asset enters the block of....
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....count of depreciation. The apex court in the case of ACIT v. Rajesh Jhavery Stock Brokers P. Ltd. reported in [2007] 291 ITR 500 after considering various decisions rendered by it in the past, construed the words 'reason to believe' in section 147 of the Act and held that, if the AO has cause or justification to know or suppose that any income has escaped assessment, then it could be said that the AO had reason to believe that the income chargeable to tax has escaped assessment. The apex court further held that the expression 'reason to believe' in section 147 of the Act cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The apex court further held that, at the stage of issue of notice u/s 148 of the Act, the only question to be considered is, whether there was relevant material on which a reasonable person could have formed a requisite belief and not whether the materials would conclusively prove escapement of income. '16. Section 147 authorises and permits the Assessing officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word ....
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....s assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words, if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the provision to section 147. The case at hand is covered by the main provision and not the proviso. 18. So long the ingredients of section are fulfilled, the Assessing officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued." (i) Applying the ratio laid down by the apex court in the aforesaid case, it has to be seen in the present case whether the AO had any cause or justification to form a reasonable belief that income....
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....epreciation claim. 15. We have considered the rival submissions on the above issue. The facts are not in dispute. The assessee acquired plant & machinery for its Hoskote plant in April, 1996. The assessee did not make any payments for the purchase of plant & machinery, ultimately the CEL, UK, one of the group company made payments of the machinery to the suppliers. The assessee thereafter recognized this liability for payment for purchase of machinery as payable to CEL, UK. Later on, CEL, UK was taken over by Akzo International BV. Akzo International BV waived repayment of monies due on purchase of machinery. It is not in dispute that in April, 1996 when the machinery was purchased, the actual cost was recorded in the books of account including the monies payable to the supplier of machineries. Even today the Assessee has not made any adjustment in its books of accounts recognizing the write of amounts payable for purchase of machineries. The benefit as a result of waiver of the loan was shown in the books of accounts of the Assessee in the balance sheet as a capital receipt not chargeable to tax. The above claim of the Assessee has also been accepted by the Revenue. The assesse....
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....crease by the actual cost of any asset falling within that block, acquired during the previous year; (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and 17. The term "block of assets" is defined in Section 2(11) of the Act as under: - "2(11) "block of assets" means a group of assets falling within a class of assets comprising - (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, in respect of which the same percentage of depreciation is prescribed;" 18. Prior to the introduction of new concept of block of assets with effect from 01.04.1988, depreciation used to be claimed separately on each asset. The Legislature found that this was a cumbersome procedure leading to various difficulties. This neces....
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....lace, viz., when a particular asset is sold, discarded or destroyed in the previous year (other than the previous year in which first brought in use). Even in that event, the amount by which the moneys payable in respect of that particular building, machinery, etc. together with the amount of scrap value is to be deducted from total written down value of the 'block asset'. It is thus clear from the aforesaid provisions that the only way by which the written down value on which depreciation is to be allowed as per the provisions of Sec.32(1) (ii) can be altered is as per the situation referred to in Sec.43(6)(c)(i) A and B. Neither was there purchase of the relevant assets during the previous year nor was there sale, discarding or demolishing or destruction of those assets during the previous year. Thus the recourse by the revenue to those provisions on the facts and circumstances of the present case, in our view, cannot be sustained. 20. We shall examine the issue from the provisions of Sec.43(1) of the Act and Explanation 10 thereto also. Section 43(1) of the Act is reproduced hereunder: - "(1) "actual cost" means the actual cost of the assets to the assessee, reduced by tha....
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....anation 10 will take effect from 1st April, 1999, and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years." 22. Even the aforesaid provisions of Expln. 10 will apply only when there is a subsidy or grant or reimbursement. In the present case there was no such subsidy or grant or reimbursement. There was only a waiver of the amounts due for purchase of machinery which cannot fall within the scope of any of the aforesaid expressions used in Expln.10. Even otherwise Sec 43(1) is applicable only in the year of purchase of machinery and in the present case the purchase of the machinery in question was not in AY 01-02. Therefore the actual cost which has already been recognised in the books in the AY prior to AY 01-02 cannot be disturbed in AY 01-02. In this regard there is a lacuna in the law and it is for the legislature to provide appropriate safeguards in this regard. It is true that the Assessee on the one hand gets the waiver of monies payable on purchase of machinery and claims such receipt as not taxable because it is capital receipt. On the other hand the Assessee claims depreciation on the value of the machinery for which it did not inc....