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2021 (6) TMI 877 - ITAT DEHRADUNDepreciation on assets for which the actual cost as per section 43(1) of the Income Tax Act, 1961 was nil - demerger in terms of explanation 4 to section 2(19AA) recognised - second round of appellate proceedings - AO has disallowed depreciation on the ground that the assessee had received assets free of cost from the Government of Uttaranchal - HELD THAT:- As per settled accounting principles, every rupee invested in the business has a cost. The cost of borrowing from the bank is known to the business depending on the rate of interest but that does not mean that the capital introduced in the form of shareholders fund has no cost. In the present case, assets generating hydro power have been received by the assessee from the demerger of UP Jal Vidyut Nigam along with corresponding liabilities which it owns to the Uttaranchal Government and others. This liability represents nothing but the cost of the assets received on demerger. The assessee is entitled to depreciation on the written down value of these assets which been prescribed in Explanation 2B of section 43(6) of the Income Tax Act, 1961. The assessee is, therefore, entitled to depreciation. Somewhat similar situation arose in case of M/s Bharat Sanchar Nigam Limited (BSNL) when it got incorporated in 2000. Prior to BSNL’s incorporation, the telecommunication services were being provided by Government of India, Ministry of Communication through its two departments, namely Department of Telecommunication Services and Department of Telecommunication Operation. The AO in case of BSNL referred to the capital structure of the BSNL to draw an inference that the cost of assets was being met by the general reserve as reflected in the capital structure of the company. As per AO, a sum equal to the general reserve would be required to be reduced from the cost of the assets in terms of Explanation 10 of Section 43(1) of the Act. This has been negated by the Hon’ble Delhi High Court [2013 (5) TMI 416 - DELHI HIGH COURT] - Decided against revenue.
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