TaxTMI 
TaxTMI 
2022 (10) TMI 1114
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....es required for high pressure transmission application for gas, crude oil, petrochemical products and portable water. The assessee had borrowed funds by issuing Foreign Currency Convertible Bonds (FCCB) during the financial year 2012-13. The same was issued at a premium and the total amount of premium paid Rs. 112.05 crores. The assessee was required to deduct TDS @ 10% from the above said payment. The assessee borne the TDS liability (also called as "withholding tax"). Accordingly the total premium paid by the assessee worked out to Rs. 124.45 crores, out of which the assessee claimed a sum of Rs.100.78 crores as revenue expenditure and capitalised the balance amount of Rs. 23.66 crores. The computation in this regard has been tabulated in the assessment order as under :- Particulars Amount (Rs.) Premium paid 1,12,05,07,097 10% WHT 12,40,33,655 Total Premium claimed 1,24,45,40,752 Less : Revenue expenditure claimed 1,00,78,62,838 Premium capitalized 23,66,77,914 The Assessing Officer noticed that, as per the agreement entered for receiving FCCB, the assessee would be liable to bear withholding tax only in excess of 10%. Since the withholding ....
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....de an identical disallowance of depreciation on withholding tax borne by the assessee in A.Y. 2013-14. He submitted that the Tribunal, vide its order dated 25.11.2021 passed in ITA No. 7530/Mum/2019, has deleted the disallowance by following the decision of Hon'ble Madras High Court in case of Standard Polygraph Machines (P) Ltd. (supra). He further submitted that the depreciation claimed during the years under consideration relate to the second year, third year and fifth year of claim after acquisition of asset. He submitted that, under block concept of depreciation, the eligibility of the assessee to claim depreciation has to be examined in the year in which concerned assets entered into the block. Once the asset enters into the block, it will lose its identity and hence no disallowance of depreciation could be made in the subsequent years. In support of this proposition the learned AR placed reliance on the decision rendered by Mumbai Bench of the Tribunal in the case of Bhavani Gems Vs. PCIT (ITA No. 766/Mum/2021 dated 29.4.2022), wherein the Tribunal, following the decision rendered by Ahmedabad Bench of the Tribunal in the case of Bodal Chemical Pvt. Ltd (ITA No. 139/Ahd/....
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.... also claimed depreciation thereon, which was disallowed by the assessing officer in AY 2013-14. The Ld CIT(A), however, deleted the disallowance and hence the revenue filed appeal before the Tribunal in that year. As stated by Ld A.R, the ITAT has confirmed the order passed by Ld CIT(A), vide its order dated 25.11.2021 passed in ITA No.7530/Mum/2019, with the following observations:- "98. The issue raised in the 6th ground of appeal is against the deletion of addition of Rs.1,68,96,638/- by CIT(A) as made by the AO on account of Depreciation of claimed on account of premium. 99. During the course of Assessment Proceeding the A.O. observed that the assessee has made excess payment to the bond holder to the extent of Rs.12,40,33,655/- and accordingly deprecation on capitalized premium amounting to Rs.1,68,96,338/- was claimed by the assesse. The AO during the assessment proceedings noted that depreciation on the excess payment made to FCCB holders can not be allowed and added the same to the income of the assessee. 100. The ld CIT(A) allowed the appeal of the assesse by observing that the AO has not disputed the fact that the withholding tax is paid actual....
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....hmedabad bench of ITAT in the case of Bodal Chemicals Ltd (supra), wherein it was held that the revenue, once allowed the deduction for the depreciation claimed by the assessee, then it is debarred to reject the claim of the assessee in the subsequent year on the WDV carried forward from the earlier assessment year. Though the AO had disallowed the claim of depreciation made in AY 2013-14, being the first year of claim, the same was deleted by Ld CIT(A) and the ITAT. As such the claim of depreciation made in the first year has been allowed. Hence, there is merit in the above said contention of the assessee. 11. In our view, the issue before us can be looked at from another angle also. There should not be any dispute that the identity and character of the asset, which has entered into the block of asset, would be lost. It was so held by Hon'ble Delhi High Court in the case of Bharat Aluminium Co Ltd (ITA No.532 and others of 2006 dated 15-10-2009) as under:- "(i) The rationale and purpose for which the concept of block asset was introduced, as reflected in the CBDT's Circular dated 23.09.1988 is that once the various assets are clubbed together and become 'block asset' w....
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....dard Polygraph Machines (P) Ltd (supra). In the above said decision, the Hon'ble Madras High Court held that the TDS liability borne by the assessee shall form part of the consideration. The decision rendered by Hon'ble Madras High Court is extracted below:- "2. The assessment year is 1981-82. The assessee claimed that the amount of income-tax paid by the assessee in respect of the consideration paid by the assessee to the foreign collaborator should also form part of the actual cost of the plant and machinery on which depreciation and investment allowance should be allowed. That claim was accepted by the ITO, but negatived by the Commissioner in suo motu revision under section 263 of the Income-tax Act, 1961. The Tribunal has held that the amount of tax paid by the assessee should be regarded as liability of the foreign collaborator which the assessee had undertaken to pay as per the agreement entered into with the collaborator. The Tribunal, therefore, held that it should be treated as part of the value of plant and machinery of the assessee. 3. This Court in the case of CIT v. Festo Elgi (P.) Ltd. [1981] 129 ITR 4991, has held that the technical know-how suppli....
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....mium amount. However, as submitted by Ld A.R, the fact would remain that the assessee has ultimately borne the liability of withholding tax of 10% also. Here, the question before us is not on the correctness or otherwise of the action of the assessee in bearing the TDS liability on its own account. We notice that the AO has not enquired on the developments subsequent to the entering of agreement, which compelled the assessee to bear the TDS liability, which in the normal course would be deducted from the amount payable to the payee. Be that as it may, once the assessee has borne the liability of withholding tax, as per the ratio laid down by the Hon'ble Madras High Court, the same would acquire the character of cost in the hands of the assessee and the same would go to increase the cost of asset. Once the cost of asset is increased, then the depreciation is allowable thereon. Accordingly, we are of the view that the ratio laid down by Hon'ble Madras High Court in the above said case would apply to the facts of the present case and the same was also applied in the assessee's own case in AY 2013-14 by the co-ordinate bench of Tribunal. Hence the above said view expressed by the tax a....