TaxTMI 
TaxTMI 
2013 (8) TMI 277
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....79,870. The Assessing Officer made the following additions to the returned income: a) Computed the capital gains on the sale of Factory Building, Borewell, and Plant & Machinery after providing for notional depreciation for the unused assets (unused since 6.2.2003). b) Disallowing interest u/s 43B to the extent of Rs.1,93,96,881 claimed by the assessee as a result of one time settlement (OTS) scheme of the Banker. 2.1 Aggrieved by the aforesaid order passed u/s 143(3) of the Act, the assessee filed an appeal before the first appellate authority. The CIT (A) reejected the contentions raised by the assessee and dismissed the appeal preferred by the assessee. The assessee being aggrieved is in appeal before us raising 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 Commission....
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....t Rs.1,19,90,389 admitted by the assessee. 3.3 Aggrieved, the assessee preferred an appeal before the CIT (A). The CIT (A) dismissed the contentions raised by the assessee. The relevant findings of the CIT (A) are as follows: "7. I have considered the rival submissions. The normal commonsense as well as principles of law state that there no obligation to give or allow something when the same is not asked for as in this case the appellant has not asked for the depreciation claim. But here is an exception. Explanation 5 to section 32 which clarifies that depreciation has to be mandatorily allowed whether the same had been claimed by the assessee or 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 b....
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....so as to use them for the conduct of the business. There was neither active nor passive use of the said assets as they remain seized by the Banks. The assets were auctioned by the banks to the best bidder and the assets were directly handed over by the bank to the buyer. 3.5.1 In order to claim depreciation, the assessee needs to satisfy the conditions as stipulated u/s 32(1) of the Act. The relevant portion of the section read as follows: "Section 32(1): In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) Know-how, patents, copyrights, trade marks, licenses, franchises or any other business or 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 ....
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.... High Court effectively counters the stance of the learned CIT (A) that depreciation would need to be provided even for natural wear and tear. 3.5.4 On the aspect of 'usage' is concerned, there is a number of case law which has held that the term needs to be understood in a wider sense and even 'passive use' would be considered. For the purpose of 'passive use' it has been held that even the aspect of where the assets are 'kept ready for use', the same would be considered as usage. The assessee not being in possession of the assets, it cannot be said the seized assets were kept in a state of readiness. 3.5.5 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. 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 ord....
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............... In gist, the assessee has stated that he has made one-time settlement of Rs.3,78,72,000/- as against total dues of Rs.6,65,26,962/- (sic) Rs.6,35,26,962/-. Further, the assessee stated that there is a waiver of interest of Rs.260.77 lakhs and has pleaded that when the interest liability has been waived there is no requirement of addition u/s 41(1). The assessee's contention is not correct. The assessee has not paid the interest liability because the same is waived by the bank. Hence, the interest has to be disallowed for the asst. year 2008-09 as the same is not paid. The provisions of section 43B are very clear in respect of the issue. According to section 43B, 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 t....
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....d due 1,11,74,019 D. Funded interest 82,22,862 1,93,96,881 - that the assessee originally understood the appropriation of OTS of Rs.3,78,72,000/- as under: A. Entire amount of OTS Rs,3,78,72,000 B. Towards settlement of interest booked (as per table above) .1,93,96,881 C. Balance towards principal repayment Rs.1,84,75,119 - that on the above basis, the assessee had passed the entries in its books and thereby considered Rs.2,57,08,826/- as loan written back on the:- Particulars Rs. Rs. A. Term 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....
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....ent, namely: A. Entire amount of OTS Rs.3,78,72,000 B. Towards settlement of interest booked Rs.1,93,96,881 C. Balance towards principal repayment Rs.1,84,75,119 D Waived principal sum Rs.2,56,54,965 - that if the OTS were to first appropriated towards principal and then towards interest, the following table reflects the tax treatment, namely: A. Entire amount of OTS Rs.3,78,72,000 B. Towards principal Rs.3,78,72,000 C. Balance towards interest Rs. Nil D. Unpaid interest Rs.1,93,96,881 E. Waived 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 inadv....
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.... that the principal amount of Rs.2,57,08,826/- wrongly credited in the books of account of the assessee, the same requires to be excluded while computing the total income. 4.3.3 On the other hand, the learned DR supported the findings of the authorities below on the issue. It was submitted that the learned CIT (A), had analysed the issue in depth and came to the right conclusion that the AO was justified in making the addition of Rs.1,93,96,881/- u/s 43B of the Act. It was, therefore, pleaded that the assessee's appeal deserves to be dismissed. 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.1,93,96,88....