Case Law Details
Shapers India Private Limited Vs DCIT (ITAT Pune)
We find that the assessee spent hypothetical figure of Rs.100 on the purchase of the Machinery in the year ending 31.3.2003. This Rs.100 constitutes the actual cost to the assessee in that year in terms of section 43(1) without the aid of the Explanation 10. It was during the year ending 31.3.2006 that the assessee got waiver of loan of Rs. 40. Such waiver of loan is in the nature of `the cost of an asset … met directly or indirectly … by any other person, in the form of … reimbursement (by whatever name called)‘ as per the terminology of the Explanation 10. This amount qualifies to reduce the `actual cost‘ of the Machinery when such waiver vested in the assessee, that is, year ending 31.3.2006. The assessee did not reduce Rs.40 from Rs.100 in that year and appended a Note in this regard, which has been reproduced supra. The AO did not disturb the actual cost/written down value at gross value of Rs.100 for that year and also granted depreciation accordingly. Once the assessment for the A.Y. 2006-07 got concluded with such gross value of the asset, the stage for altering the actual cost/w.d.v. on account of the loan waiver got over. The AO got denuded of the power to reduce the amount of depreciation after so many years in the A.Y. 2011-12. As section 32(1) provides for granting depreciation on the w.d.v. of the block of asset, it is only such value which can be considered for depreciation. One cannot reduce the amount of depreciation on a part of the value of the block of asset without correspondingly reducing the w.d.v. of the block of assets as per a manner known to law. Presently, we are confronted with a situation in which the waiver took place in the year ending 31.3.2006. The AO did not reduce the amount of waiver from the value of block of asset for that year and allowed the gross value of the block to attain finality. The position continued as such in later years as well when the assessee kept on claiming depreciation on Rs. 40 after giving a similar Note in the Final accounts. In the year ending 31.3.2011 under consideration, no event activating either section 43(6) or the opening part of section 43(1) or the Explanation 10 has happened, which could have disturbed the w.d.v. or the actual cost so as to warrant reduction in the value of block of asset and the consequential depreciation thereon.
The logic behind section 2(24)(xviii) is simple and clear that if the assessee has received any subsidy or grant or waiver or concession or reimbursement etc. in respect of an asset, which is otherwise a capital receipt and further that the same cannot be reduced from the actual cost of the asset or the w.d.v., then it should be subjected to tax as an income of such a year. This provision runs on parity with section 41(1) of the Act, which provides for taxation of remission or cessation of a trading liability. One thing which is common to both – sections 2(24)(xviii) and 41(1) – is that the taxability takes place in the year of receipt of waiver or concession and not any other year. It is further relevant to accentuate that section 2(24)(xviii) has itself been introduced from the A.Y. 2016-17. As such, it can have no application either to the A.Y. 2003-04 when the Machinery was purchased or to the A.Y. 2006-07 when the waiver of loan was received or the year in appeal.
To sum up, the waiver of loan in the earlier year has no impact either on the actual cost u/s 43(1) or the w.d.v. u/s 43(6) for the year under consideration and further section 2(24)(xviii) also does not envelope such waiver within the ambit of `income‘ for the extant year. In that view of the matter, depreciation has to be allowed on the w.d.v. of the block of Machinery at the gross value without reducing the waiver of loan therefrom. Ex consequenti, disallowance of depreciation of Rs.6,54,950 cannot stand and is hereby deleted.
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