AI Drafter 
TaxTMI 
TaxTMI 
2024 (11) TMI 492
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....on the perusal of the provisions of section 43(1) r.w, Explanations thereto, it can be dearly inferred that its provisions can be applied in the subsequent years also for reworking of deprecation allowance. * 3. "Whether on the facts, in the circumstances of the case and in law, the CIT(A) has erred in not appreciating that actual cost as defined in the section 3(4) of the Income Tax Act, shall mean the actual cost to the assessee (incurred) for acquisition of the asset and accordingly, the cost of acquisition of the asset on which depreciation shall be allowed, shall be the actual cost to the assessee. 4. "Whether on the facts, in the circumstances of the case and in law, the CIT(A) has erred in relying on the judgment in the case of Mahindra 8s Mahindra Ltd.(404 ITR 1) ignoring that it has been rendered in respect of the nature of receipt (le. whether Revenue or Capital) by way of waiver of loan, where as the issue involved in this appeal is allowability of depreciation claimed by the assessee on the inflated cost. 5. "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 judgement....
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....an. On 16/09/2010, the assessee paid US$ 400,000 (INR 2,01,20,000) and entered into an agreement with ECB holder for waiver of loan. The said waiver of loan was treated as capital receipt and shown as non-taxable. 4.1. The AO was of the opinion that the treatment of asset of the said waiver as capital receipt is not correct because as per Section 43(1) of the Act, actual cost of plant and machinery should be cost borne by the assessee and depreciation should be given on actual cost only. 4.1.1. The AO further observed that till FY 2012-13, the assessee has not made any payment against ECB and only after 02/12/2013, the assessee entered into a loan waiver agreement with the borrower. The AO found that the assessee has claimed depreciation on cost of US$ 33,00,000 (INR 16,61,16,683) instead of cost US$ 400,000 (INR 2,01,20,000). 4.2. The assessee was asked to show-cause as to why this capital receipt should not be treated as business receipt and why depreciation should not be computed on actual cost as per Section 43(1) of the Act. The assessee filed detailed reply which did not find any favour with the AO. Invoking provisions of Section 43(1) of the Act, the AO re-computed ....
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....ore) has held as under:- "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....
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....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 necessitated introduction of the concept of block assets and allowability of depreciation on such a block. The rationale behind such a....
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....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 that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authori....
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.... 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 incur any cost. Thus the Assessee's stand to benefit both ways. As per the ....
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....r of the ld. CIT(A) on the issue of validity of initiation of reassessment proceedings u/s. 148 of the Act. 25. On the merits of the addition made by the AO in all the assessment years, we are of the view that the disallowance of depreciation cannot be sustained. The CIT(A), in our view, ought to have deleted the disallowance of depreciation in full. We hold accordingly and allow the relevant grounds of appeal of the assessee." 9. Similarly, the Hon'ble Supreme Court in the case of Tata Iron & Steel Co. (1998) 231 ITR 285 (SC), had the occasion to consider the appeal against the order of the Hon'ble High Court, wherein the Hon'ble High Court was considered with the following two questions:- "2. Whether, on the facts and in the circumstances of the case, and having regard to the fact that the net gain of Rs. 48,984 was made by the assessee-company from fluctuations in the rate of foreign exchange while repaying the instalments of the foreign loan for the assessment year 1960-61, the appropriate part of the said gain (i.e., after excluding that portion of it which is attributable to the element of interest) was gain on capital account which went to reduce the ....