TMI Blog2023 (12) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... also very reasonable considering the volume of imports and exports done by assessee. Therefore, we do not find any justification in the disallowance made by lower-authorities, consequently we delete the same. Depreciation on plant and machinery - Determination of WDV - Cost of Acquisition - waiver or write of loan taken for purchase of asset - AO disallowed fully and the CIT(A) upheld disallowance partly - assessee took loan from bank for purchase of plant and machinery, but subsequently, was declared as a sick company by Board for Industrial and Financial Reconstruction (BIFR) and assessee entered into One Time Settlement (OTS) with its lending Bank whereunder the assessee got waiver of the principal amount of loan and once waiver was granted, then assessing authority adopted Nil value of the opening W.D.V. of fixed assets and thereby disallowed the depreciation claimed - HELD THAT:- As various decisions relied upon by assessee it can be concluded that waiver or write of loan taken for purchase of asset cannot reduce the WDV of asset. Regarding the decision of Hon ble Supreme Court in Tata Iron Steels [ 1997 (12) TMI 5 - SUPREME COURT ] we find that the said decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance made by AO. Revenue s ground is allowed. Cessation of liability - addition u/s 41(1) - amounts payable to 11 creditors (list is made by AO in assessment-order) were due for last three years - HELD THAT:- We find that the AO has simply invoked section 41(1) because the amounts were outstanding for three years but there is no evidence brought by him that the liability has really ceased to exist. It is now a settled judicial view that the time-factor is not relevant for the purpose of section 41(1), the revenue has to either demonstrate that the liability has really ceased to exist or the assessee has written off liability in books of account. But, in present case, there is none. Therefore, Ld. CIT(A) is very much correct in deleting the addition. We subscribe to the order of CIT(A). Revenue s ground is dismissed. - Shri Vijay Pal Rao, Judicial Member And Shri B.M. Biyani, Accountant Member For the Assessee : Shri S.S.Solanki, CA Ld. AR For the Revenue : Shri P.K.Mishra, CIT DR ORDER PER BENCH: Feeling aggrieved by undermentioned appeal-orders passed by Commissioner of Income-tax (Appeal) [ CIT(A) ], the assessee and revenue both ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in maintaining disallowance of Rs. 2,70,708/- out of foreign travel expenses by alleging that these expenses are personal in nature. That the expenditure were incurred wholly and exclusively for the purpose of business, the same is allowable. 2. That the Ld. CIT(A) erred in maintaining disallowance of depreciation to the extent of Rs. 1,82,66,673/-. That the assessee has used the plant and machinery in its business, the claim of depreciation of Rs. 3,89,37,375/- requires to be allowed fully. Revenue s ITA No. 22/Ind/2019 for AY 2012-13: 1. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) was justified in deleting the disallowance made on account of delayed payment of employee s share of PF. 2. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) was justified in deleting the disallowance made on account of prior period expenses. 3. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) was justified in restricting the disallowance on account of depreciation on plant and machinery at Rs. 1,82,66,673/- instead of total disallowance of Rs. 3,89,37,375/- because the Ld. CIT(A) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation and the same cannot be worked out on the basis of figures available in various schedules and audit report filed electronically? 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance made on account of delayed payment of employee s share of PF. Assessee s ITA No. 13/Ind/2019 for AY 2015-16: 1. That the Ld. CIT(A) erred in maintaining disallowance of deprecation to the extent of Rs. 2,55,75,306/- (actually this figure should have been 1,26,75,306/-) out of claim of depreciation of Rs. 3,82,51,252/-. That since the assessee has used plant and machinery in the business during the year, entire claim of Rs. 3,82,51,252/- was to be allowed. The same require to be now allowed. Revenue s ITA No. 24/Ind/2019 for AY 2015-16: 1. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) was justified in restricting the disallowance on account of depreciation on plant and machinery at Rs. 2,55,75,306/- instead of total disallowance of Rs. 3,82,51,252/- because the Ld. CIT(A) has not given exact working and basis of disallowable depreciation and the same cannot be worked out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f personal or non-business nature. Hence, the lower-authorities are not justified in disallowing expenditure without looking into the details and on a superficial observation of personal/non-business nature. He also argued that the quantum of expenditure is also very nominal as compared to the volume of import and export done by assessee. Finally, Ld. AR prayed to delete the disallowance. On other hand, Ld. DR supported the AO s order. He submitted that the AO has made disallowance simpliciter but the CIT(A) has not only upheld the disallowance made by AO but also initiated penalty proceeding us/ 271(1)(c) which itself shows that the CIT(A) has a strong objection against assessee. Therefore, he prayed to uphold the disallowance. 9. We have considered rival submission of both sides and perused the details/data of expenditure, import and export to which our attention is drawn. After a careful consideration, we find that the AO has made general observation of personal/non-business expenditure which is not at all supported by the details/data analysed by Ld. AR. Further, the CIT(A) has merely approved the AO s notings. Ld. DR is true in arguing that that the CIT(A) has stepped furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s acquired after OTS. Accordingly, he upheld disallowance partly to the extent of Rs. 1,82,66,673/- and deleted extra disallowance. This way, the assessee got part relief in first-appeal. 12. Immediately after narration of these facts, we enquired from Ld. AR the status of AY 2007-08, whether the assessee filed any appeal contesting the issue and if yes, what is present position? Ld. AR requested to give some time to check the status and the hearing was adjourned. On the next date of hearing, Ld. AR apprised that the assessee contested issue in AY 2007-08 (as well as AY 2008-09 and 2010-11) and for that matter filed appeals to CIT(A) but the CIT(A) dismissed assessee s appeals for non-prosecution. Thereafter, the assessee went in further appeals to ITAT, Indore in ITA No. 223 to 225/Ind/2016 whereupon the matter was remanded back to CIT(A) for a proper adjudication. Thus, the appeals of those years are now pending at CIT(A) stage. Therefore, as of now, there is no decision of appellate forum over the issue. 13. Having apprised this, Ld. AR made a vehement submission on merit of the issue. He submitted that the present issue calls for interpretation of main body of section 43( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. or any authority or any person. These provisions of law are very much clear and applicable only to a situation where the cost at the time of purchase is met directly or indirectly. Such direct or indirect meeting of cost can be in the form of a subsidy, grant or reimbursement. But the situation of present case is totally different. Here, the assessee has incurred full cost from own pocket and even if some part of cost was financed by borrowal from bank, the whole cost is met by assessee himself and not by bank. The subsequent waiver of loan by bank under OTS is altogether a different event and the revenue is unnecessarily getting confused. Ld. AR submitted that it will be stretching too far if long after purchase of asset a debt incurred is written off, it could be equated with the situation contemplated in main body of section 43(1) or Explanation 10. Ld. AR submitted that the amount of waiver of principal amount is nothing but a capital receipt and it cannot reduce the cost or WDV of asset. To support his contention, Ld. AR placed reliance upon following judicial rulings: (a) CIT Vs. Cochin Co. (P) Ltd. (1990) 184 ITR 230 (Kerala HC): Held: 3. We heard counsel. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that remission by Atlanta Corporation could not be reduced from the cost of the machinery of the assessee for the purpose of incometax. (b) Akzo Nobel Coatings India Private Ltd. Vs. DCIT (Bangalore ITAT) (2012) 139 ITD 612: Held: 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 authority: By the Finance (2) Act, 1998, Explanation 10 to Section 43(1) was inserted with effect from 1.4.1999. It reads as under: Explanation 10 - Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assessees stand to benefit both ways. As per the law as it prevails as on date, we are of the view that the revenue is without any remedy. The only way that the revenue can ITA No.751 to 755 1131/10, 349/11 771 to 773 1164/Bang/10 remedy the situation is that it has to reopen the assessment for the year in which the asset was acquired and fall back on the provisions of Sec.43(1) of the Act which says that actual cost means the actual cost of the assets to the assessee. Even this can be done only when after the waiver of the loan which was used to acquire machinery. By that time if the assessments for that AY gets barred by time, the revenue is without any remedy. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication. Ground No. 2 raised by the revenue reads as under:- On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the AO not to reduce the WDV of the assets by the principal amount of loan waived without appreciating the facts that the AO had rightly reduced the principal amount of loan written off of Rs. 4,91,16,833/- from the WDV of building, plant and machinery by invoking explanation (1) to section 43(1) of the Act. 21. The AO reduced the principal amount of loan written off of Rs. 4,91,16,833/- from WDV of building, Plant Machinery and thereby arriving at the closing WDV at Rs. Nil by invoking explanation (10) to s. 43(1) of the Act, observing that cost of assets is reimbursed by IDBI and SBH to the extent of the waiver of the loan amount. On appeal, before the CIT(A) the learned AR of the assessee submitted that it had obtained loan from financial institution and bank which are repayable with interest as per the terms of such loan arrangement. He further submitted that these loans are neither a subsidy nor a grant nor a reimbursement and hence explanation (10) to s. 43(1) of the Act, is not applicable. It was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities below. It is observed that the finding of the CIT(A) that explanation (10) to s. 43(1) does not apply to the facts of the case and therefore WDV of assets is not to be reduced by the amount of loan waived by the banks., is in consonance with the judgment of the Hon ble High Court of Kerala in the case of CIT Vs. Kochin Co. P. Ltd. (supra). The relevant portion of the said judgment is extracted below: The short question that arises for consideration I whether, on the facts of this case, section 43(1) of the Income Tax Act is attracted. The said section provides that 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 authority. Counsel for the Revenue stressed the fact that when Atlanta Corporation wrote off the amounts due from the assessee, which included at least a portion of the liability of the assessee, towards the purchase of the machinery in 1968, it should be considered that Atlanta Corporation met either directly or indirectly the cost of such machinery and so the ITO was justified in his view that in working out the written down va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the actual cost of the asset to the assessee . 27. On plain reading of the above Explanation, it is clear that the assessee not received any subsidy or grant or reimbursement, therefore, the above Explanation is not applicable to the case of the asssesee. In view of the above, we do not find any infirmity in the order of the CIT(A) and the same is hereby upheld and the ground of revenue is dismissed. 15. Ld. AR also relied upon the decision of Hon ble Supreme Court in CIT Vs. Tata Iron Steels Co. Ltd. (1998) 2 SCC 366, the relevant paragraphs are re-produced below: 4. Coming to the questions raised, we find it difficult to follow how the manner of repayment of loan can affect the cost of the assets acquired by the assessee. What is the actual cost must depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee. But even if the assessee did not repay the loan it will not alter the cost of the asset. If the borrower defaults in repayment of a part of the loan, cost of the asset will not change. What has to be borne in mind is that cost of an asset and cost of raising money for purchase of the asset are two differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of the asset. The assessee may have raised the funds to purchase the asset by borrowing but what the assessee has paid for it, is the price of the asset. That price cannot change by any event subsequent to the acquisition of the asset. In our judgment the manner or mode of repayment of the loan has nothing to do with the cost of an asset acquired by the assessee for the purpose of his business. We hold that the questions were rightly answered by the High Court. The appeals are dismissed. There will be no order as to costs. 17. Thus, the Ld. AR submitted that in the aforementioned decisions, exactly same issue has been analysed and the Hon ble Courts have held that waiver or write of loan taken for purchase of asset cannot reduce the WDV of asset. In view of these decisions, Ld. AR prayed that the AO was not justified in disallowing any part of depreciation claimed by assessee. Therefore, the depreciation, as claimed by assessee, in return of income must be allowed fully. 18. Per contra, Ld. DR for the revenue placed a heavy reliance on the words directly or indirectly used at both places in section 43(1) i.e. in the main body as well as Explanation 10. He argued th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions, we too hold that the AO is not justified to reduce WDV of assets to Rs. Nil and thereby disallow any part of depreciation. Consequently, we direct the AO to allow depreciation fully as claimed by assessee. Assessee s ground is allowed. Revenue s ITA for AY 2012-13: Ground No. 1: 20. This ground relates to the disallowance of Rs. 7,48,230/- made by AO on account of delayed payment of employees contribution to Provident Fund (PF) but deleted by CIT(A). 21. Short facts relating to the issue are such that the assessee received contributions from employees towards PF but deposited/paid to the PF after due dates under PF law but before due date u/s 139(1) of Income-tax Act, 1961 for filing of return. The AO made disallowance by holding that the payments made after due dates under PF law, were not allowable as deduction u/s 36(1)(va). In first appeal, the CIT(A) reversed AO s action by following certain ruling of ITAT and High Court wherein it was held that section 36(1)(va) is to be read with section 43B and accordingly if the relevant sum is paid upto due date u/s 139(1) for filing of return, deduction is allowable. 22. Now, Ld. DR for revenue submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The words not being expenditure of the nature described in section 30 to 36 mentioned therein are clear enough to demonstrate that any expenditure of the nature described in section 30 to 36, cannot come within the scope and ambit of section 37(1). To make it more clear, once the expenditure is of the nature described in section 30 to 36 , it cannot fall within section 37(1) irrespective of whether it is allowed or allowed as deduction u/s 30 to 36. There is no doubt that employees contribution to staff welfare funds like PF is nature-wise covered u/s 36(1)(va) and thereafter deduction is not allowed because of failure by assessee to satisfy the requirement of payment by due date under PF law. When the expenditure of employees contribution to PF is of the nature described in section 36(1)(va), which is so, it cannot fall u/s 37(1) at all. We arrive at the same interpretation by one more logic. The scheme of section 30 to 36 is such that several expenses, described therein, are to be considered under respective and specific provisions of those sections only. Section 37(1) is a residuary section to cater those expenses which have different nature and cannot fall u/s 30 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be sustained. Hence, the addition so made by the AO is hereby deleted and accordingly, this ground of appeal is allowed. 28. Ld. DR for the revenue took lead to argue on this issue. He submitted that the order passed by CIT(A) is very much contradictory. In the opening part of said para, the CIT(A) has himself mentioned the said expenses do not pertain to the year under consideration but in the later part he mentioned therefore the addition on the same cannot be sustained. Hence, the addition so made by the AO is hereby deleted . Ld. DR submitted that from a bare reading of para, it is very clear that the CIT(A) has given a finding that the expenses did not pertain to current year, which clearly means that he intended to uphold the disallowance rather than deleting, but some mistake has crept into in the final verdict while drafting order and he has deleted rather than upholding. Ld. DR submitted that the same issue has come in immediate next AY 2013-14 where the CIT(A) has upheld identical disallowance and now the assessee is in appeal. Therefore, Ld. DR submitted, the adjudication by CIT(A) in both the years was against assessee, hence the revenue s ground should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have any merit and the same is dismissed. Assessee s ITA for AY 2013-14: Ground No. 1: 33. This ground relates to the disallowance of depreciation on plant and machinery. The ground is similar to Ground No. 2 of Assessee s appeal for AY 2012-13 already adjudicated by us in foregoing paragraph. Hence, our same view shall apply mutadis mutandis . Respectfully applying the same, Assessee s ground is allowed. Ground No. 2: 34. This grounds relates to disallowance of prior period expenses of Rs. 1,50,946/-. Lower-authorities have disallowed this item for the reason that the assessee could not file any detail to substantiate that the expenditure was crystallised during current year. Before us also, Ld. AR showed inability to furnish any detail. Being so, we do not have any reason to interfere with the conclusion taken by lower-authorities. The disallowance is upheld. Assessee s ground is dismissed. Revenue s ITA for AY 2013-14: Ground No. 1: 35. This ground relates to the disallowance of depreciation on plant and machinery. The ground is similar to Ground No. 3 of Revenue s appeal for AY 2012-13 already adjudicated by us in foregoing paragraph. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income- tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or 7.4 The limitation of time is not a determining factor in the matters relating to remission or cessation of liabilities. This view is supported by the Apex Court judgments in the case of Chief CIT vs. Kesaria Tea Company Limited, 254 ITR 434. This judgment in the case of Keasaira Tea Co. Ltd.(supra) was delivered after following the Apex Court Judgment in the case of CIT vs. Sugauli Sugar Works (P) Ltd, (1999) 152 CTR (SC) 46: (1999) 236 ITR 518(SC) and aftger distinguishing the judgment in the case of CIT vs. T. V. Sundaram Iyengar Sons Limited, (1996) 136 CTR (S.C.) 444: (1996) 222 ITR 344 (SC). 7.5 Relying upon the above decisions, the Hon'ble Jurisdictional Bench of ITAT Indore vide its Order dated 16.03.2017 in the case of Smt. Abha Devi Agrawal in I.T.A.No. 58/Ind/2015 has allowed the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is applied it is clear that some entry in the books of accounts of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the Section. The other decision as relied by the Ld. AR has mentioned above are also supports his view. Therefore, we are of the considered opinion that the provision of Section 41(1)(a) of the Act can only be invoked when the assessee has written off the liability in its books of accounts by unilateral act. Since, the assessee has not written off the aforesaid amount in its books of accounts and the payment has been settled in the subsequent year, therefore, the addition so made by the AO, is not sustainable in the law. Accordingly, the same is deleted. This ground of appeal is therefore allowed. 7.6. Thus, it is clear from the above discussions that the period of limitation prescribed under the Limitation Act is for sundry creditors for the limited purpose of filing of suit. It has no relevance as far as cessation of liabilities is concerned. Thus, I find that there is no r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. The ground is similar to Ground No. 2 of Assessee s appeal for AY 2012-13 already adjudicated by us in foregoing paragraph. Hence, our same view shall apply mutadis mutandis . Respectfully applying the same, Assessee s ground is allowed. Revenue s ITA for AY 2015-16: Ground No. 1: 44. This ground relates to the disallowance of depreciation on plant and machinery. The ground is similar to Ground No. 3 of Revenue s appeal for AY 2012-13 already adjudicated by us in foregoing paragraph. Hence, our same view shall apply mutatis mutandis . Respectfully applying the same, Revenue s ground is dismissed. Ground No. 2: 45. This ground relates to the disallowance delayed payment of employees contribution to Provident Fund (PF) made by AO but deleted by CIT(A). The ground is similar to Ground No. 1 of Revenue s appeal for AY 2012-13 already adjudicated by us in foregoing paragraph. Hence, our same view shall apply mutatis mutandis . Respectfully applying the same, Revenue s ground is allowed. 46. In the final result, these appeals are disposed of as under: Appeal No. Appeal by AY Result ..... X X X X Extracts X X X X X X X X Extracts X X X X
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