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2019 (12) TMI 367 - AT - Income TaxDisallowances of depreciation - determination of WDV - Actual cost of acquisition - increase in cost of assets on account of loss arising on cancellation of forward, foreign exchange contracts. - Held that:- since forward foreign exchange contracts were taken for acquiring capital assets, the profits/loss arising on settlement of such contracts had to be adjusted against the cost of the concerned capital asset in terms of section 43A of the Act, and depreciation was to be allowed on such adjusted value of the capital assets. - Decision in the case of assessee own case [2010 (5) TMI 716 - ITAT BANGALORE] followed. Disallowances of depreciation - increased WDV of assets transferred on amalgamation - Held that:- the WDV of assets transferred on amalgamation in the hands of the amalgamating company has to be necessarily computed in terms of Explanation (2) to section 43(6) of the Act. As can be seen from the above, in terms of Explanation (2) to section 43(6), while computation the WDV on amalgamation, depreciation actually allowed has to be reduced. - Explanation (3) being a deeming fiction, operates only in a particular conditions and in order to remove an anomaly, which otherwise would have been created under the other provisions of the Act. It thus follows that while interpreting Explanation (3), one needs to be aware of the intention of the statute. These provisions along with their intent have been explained elaborately by the Hon'ble Bombay High Court [1990 (7) TMI 44 - BOMBAY HIGH COURT] Accordingly, in terms of Explanation (3) to section 43(6), in the present case, unless the unabsorbed depreciation of the amalgamating companies is carried forward in the hands of the amalgamated company u/s 32(2) of the Act, Explanation (3) cannot be read into Explanation (2) to simply conclude that depreciation 'actually allowed' also includes unabsorbed depreciation. The meaning of the term actually allowed is interpreted by the Hon'ble Supreme Court, in the case of CIT v. Doom Dooma India Ltd. [2009 (2) TMI 9 - SUPREME COURT] The WDV in the hands of the amalgamated company was to be calculated without considering the unabsorbed depreciation of the amalgamating companies, for which set off was never allowed. - Decided in favor of assessee. Treatment of interest income - business income or income from other sources - The fixed deposits were kept with banks in the normal course of business for extending guarantee to the Government authorities - Held that:- till the company commences its business and earns income, if they have kept their surplus funds in short deposits in order to earn interest that income is chargeable under section 56 of the Act. However, once the assessee commences its business and earns income and in additions to the income so earned, the company also earns interest by way of such deposits, then the said income cannot be construed as income from other sources." - Ld.CIT(A) has rightly treated the interest income from fixed deposits under the head income from business. Treatment of sales tax subsidy as capital in nature instead of revenue in nature - Held that:- one has to understand the purpose for which said subsidy was given by the State Government. - the subsidy was granted to the assessee for setting up of a unit and to incentives was given to promote industry in a backward area of Karnataka and thereby generating employment in the state. Thus, the purpose of the concession/incentives was clearly not to provide general assistance to carry on its business as alleged by the Ld.AO. The said subsidy, although was qualify in terms of sales tax exemption on purchase of raw materials and plant and machinery and also, on sale of finished goods after commencement of production, but the purpose of the subsidy was to reimburse the cost of expenditure incurred for setting up the new industry. - Therefore, we are of the considered view that when, the subsidy was given with an object to effect new industries in the backward area of the state in terms of sales tax exemption, then the said subsidy shall be treated as capitol receipt. Interest u/s 234B - advance tax - assessment of income u/s 115JB - MAT - Held that:- In the current year, as well the liability for interest under section 234B of the Act has arisen only on account of a retrospective amendment to the provision of section 115JB of the Act, 1961 with effect from AY 2001-02. Accordingly, the assessee would not have anticipated the retrospective amendment at the time of making the payments for advance tax, but to estimate the liability to pay advance tax on the basis of existing provisions. - No interest liability.
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