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2022 (10) TMI 1114 - AT - Income TaxDisallowance of claim of depreciation on the withholding tax (TDS liability) borne by the assessee, which has been capitalised - AO noticed that, as per the agreement entered for receiving FCCB, the assessee would be liable to bear withholding tax only in excess of 10% - contention of the assessee that the AO could not have disallowed in the subsequent years, since the depreciation has been allowed in the first year - HELD THAT:- We notice that the above said proposition of the assessee finds support from the decision rendered by Ahmedabad bench of ITAT in the case of Bodal Chemicals Ltd [2019 (10) TMI 914 - ITAT AHMEDABAD] wherein it was held that the revenue, once allowed the deduction for the depreciation claimed by the assessee, then it is debarred to reject the claim of the assessee in the subsequent year on the WDV carried forward from the earlier assessment year. Though the AO had disallowed the claim of depreciation made in AY 2013-14, being the first year of claim, the same was deleted by Ld CIT(A) and the ITAT. As such the claim of depreciation made in the first year has been allowed. Hence, there is merit in the above said contention of the assessee. There should not be any dispute that the identity and character of the asset, which has entered into the block of asset, would be lost. In the instant case also, the TDS liability borne by the assessee on the premium amount, after it is thrown into the common hotchpotch of block asset in AY 2013-14 has lost its identity and become an inseparable part of block asset insofar as calculation of depreciation is concerned. Hence the AO could not have disallowed the depreciation claim as made in the first year. We notice that the AO has not enquired on the developments subsequent to the entering of agreement, which compelled the assessee to bear the TDS liability, which in the normal course would be deducted from the amount payable to the payee. Be that as it may, once the assessee has borne the liability of withholding tax, as per the ratio laid down by the Hon’ble Madras High Court [1998 (11) TMI 49 - MADRAS HIGH COURT] the same would acquire the character of cost in the hands of the assessee and the same would go to increase the cost of asset. Once the cost of asset is increased, then the depreciation is allowable thereon. Accordingly, we are of the view that the ratio laid down by Hon’ble Madras High Court in the above said case would apply to the facts of the present case and the same was also applied in the assessee’s own case in First of all, it is not shown to us that the assessee has got refund of withholding tax. According to Ld D.R, the assessee is acting as representative of the payees. In case of an representative assessee, there is no personal benefit/consequences, i.e., the consequences/benefits arising from the transactions would belong to the principal and not to the representative. It is not shown to us that the refund, if any, that will be obtained out of the impugned withholding tax would be given back to the assessee by the payees to offset the TDS liability already borne by the assessee. If the above said scenario happens, it would happen in future and in that year of receipt, the AO is always be free to examine the tax liability, if any/ tax treatment to be given thereon. Hence, a future contingency, which may or may not happen, cannot be a ground to deny the depreciation claimed on the amount of withholding tax borne by the assessee and which has been capitalized. In view of the foregoing discussions, we are of the view that the depreciation claim by the assessee cannot be disallowed in all the three years under consideration. Accordingly, we set aside the orders passed by Ld CIT(A) on all the three years and direct the AO to allow the depreciation claimed by the assessee. - Decided in favour of assessee.
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