East India Petroleum Pvt. Ltd., Hyd, Hyderabad V. DCIT, Circle-2(2), Hyd, Hyderabad

ITA 442/HYD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3835 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 31-01-2019
• Assessment Year: 2005-2006
• Appeal Filed On: 29-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P MURALIKRISHNA
• Keywords: Capital asset; Depreciation; Capital receipt
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO S.442 TO 444 /HYD/ 2016 ( ASSESSMENT YEAR S : 20 05 - 06 TO 2007 - 08 ) ITA NOS. 445 & 446/ HYD/ 2016 (ASSESSMENT YEARS: 2009 - 10 & 2011 - 12) EAST INDIA PETROLEUM PVT LTD., 202, ROXANA TOWERS - B, 7 - 1 - 24/1, GREENLANDS, BEGUMPET, HYDERABAD. PAN: AAACE 4494 K VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE - 2(2), 8 TH FLOOR, B - BLOCK, R.NO. 826, IT TOWERS, IT TOWERS, AC GUARDS, HYDERABAD 500 003. (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI P. MURALI KRISHNA REVENUE BY: SMT MATTA PADMA, DR DATE OF HEARING: 3 1. 0 1 .201 9 DATE OF PRONOUNCEMENT: 31 . 01 .201 9 ORDER PER SMT. P. MADHAVI DEVI, J.M.: ALL THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE COMMON AND CONSOLIDATED ORDER OF THE CIT(A) - 5, HYDERABAD DATED 31/12/2015 FOR THE ASSESSMENT YEARS 2005 - 06 TO 2007 - 08, 2009 - 10 AND 2011 - 12. SINCE THE ISSUE IN VOLVED IN ALL THESE APPEALS IS IDENTICAL, THEY WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON AND CONSOLIDATED ORDER. 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE - COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF POL & LPG STORAGE AND RELATED OPERATIONS, FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEARS. THE ASSESSMENTS WERE COMPLETED BY ISSUANCE OF NOTICE U/S 148 OF THE ACT. DURING THE COURSE OF RE - ASSESSM ENT PROCEEDINGS FOR THE A.Y. 2008 - 09, THE ASSESSEE HA D FILED REVISED COMPUTATION OF INCOME, CLAIMING THAT THE WAIVER OF PRINCIPAL OF A BANK LOAN AMOUNTING TO RS. 9,26,00,305/ - WAS OFFERED TO TAX BY MISTAKE AND CLAIMED THAT SINCE THE SAID AMOUNTS RECEIVED A RE CAPITAL IN NATURE, THE SAME CANNOT BE BROUGHT TO TAX. SINCE THE ASSESSEE HAD NOT MADE ANY CLAIM IN THE RETURN OF INCOME, THE A.O. FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZ INDIA LTD VS. CIT REPORTED IN 284 ITR 323 AND REJE CTED THE CLAIM. ON APPEAL, THE CIT(A) VIDE ORDERS DATED 24/12/2012 HELD THAT THE ASSESSEE HAD OBTAINED THE LOAN FOR PURCHASE OF PLANT AND MACHINERY AND THEREFORE, IT IS A CAPITAL RECEIPT AND DIRECTED THE ASSESSING OFFICER TO CONSIDER THE COST OF ACQUISITI ON OF THE CAPITAL ASSETS CONNECTED TO THIS LOAN AMOUNT AS ZERO AND DISALLOW DEPRECIATION IN ALL THE YEARS STARTING FROM THE YEAR IN WHICH THE ASSETS WERE ACQUIRED. FOLLOWING THE DECISION OF THE CIT(A), THE ASSESSMENTS FOR THE AYS 2005 - 06 TO 2007 - 08 WERE REOPENED AND EVEN IN THE ASSESSMENTS FOR THE A.Y. 2009 - 10 AND 2011 - 12 THE ASSESSEE WAS ASKED TO EXPLAIN AS WHY THE DEPRECIATION SH OULD NOT BE DISALLOWED ON THE SAID AMOUNT. THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TATA IRON AND STEEL 3 COMPANY LTD (282 ITR 285) (SC). THE A.O. HOWEVER, DID NOT ACCEPT THE CONTENTION S OF THE ASSESSEE AND HELD THAT THE ASSESSEE UTILISED THE LOANS OBTAINED FROM IDBI AND ABN AMRO BANK FOR ACQUISITION OF ASSETS AND ASSESSEE HAD NOT PAID T HE SAID LOAN INCLUDING INTEREST THEREON. HE OBSERVED THAT SUBSEQUENTLY , THE PRINCIPAL AMOUNT OF LOAN AND INTEREST THEREON HAD BEEN WAIVED OFF BY THE BANKS. HE CONSIDERED THE DEFINITION OF ACTUAL COST U/S 43(1) AND EXPLANATION 10 THERETO WHICH HAS BEEN INSERTED W.E.F 01/04/1999 AND HELD THAT THE ACTUAL COST TO THE ASSESSEE ONLY SHOULD BE TAKEN INTO CONSIDERATION AND AS CONSEQUENT TO THE LOAN WAIVER, THE COST OF THE ASSET WAS ZERO . THEREFORE, HE DISALLOWED THE CLAIM OF DEPRECIATION AND BROUGHT TO TAX. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE A.O. AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REVENUE HAD FILED AN APPEAL AGAINST THE ORDER OF T HE CIT(A), GRANTING RELIEF TO THE ASSESSEE IN THE ASSESSMENT YEAR 2008 - 09 BY DIRECTING THE A.O. TO TREAT THE LOAN WA I VER AS A CAPITA L RECEIPT , AND THAT THE ITAT , IN ITS ORDER DATED 22/09/2017 (ITA NOS. 876/H/2015 AND OTHERS), BY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA (261 ITR 501) , HAD HELD THAT THE AMOUNT OF WAIVER IS A CAPITAL RECEIPT AND IS NOT ASSESSABLE U/S 41(1) OF THE ACT AND IT DOES NOT GO TO 4 REDUCE THE COST OF ACQUIS ITION OF THE PLANT AND MACHINERY AND THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION ON SUCH PLANT AND MACHINERY. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DEPARTMENT HAS NOT FILED ANY APPEAL AGAINST THIS ORDER OF THE TRIBUNAL BEFORE THE HONBLE HIGH COURT AND THEREFORE, THE ORDER OF THE ITAT HAS BECOME FINAL. HE THUS, PRAYED FOR SIMILAR DIRECTIONS ALSO FOR THE ASSESSMENT YEARS BEFORE US. 6. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. TATA IRON AND STEEL CO. LTD (231 ITR 285) (SC) HAS HELD THAT THE ACTUAL COST DEPENDS ON THE AMOUNTS PAID BY THE ASSESSEE TO ACQUIRE THE ASSET AND THE MANNER OF REPAYMENT OF A LOAN CANNOT AFFECT THE COST OF ASSET ACQUIRED BY THE ASSESSEE AND EVEN IF THE ASSESSEE DID NOT REPAY THE LOAN, IT WILL NOT ALTER THE COST OF THE ASSET. IT WAS ALSO HELD THAT EVEN IF AN ASSET IS PURCHA SED WITH NON - REPAYABLE SUBSIDY RECEIVED FROM THE GOVERNMENT, THE COST OF THE ASSET WILL BE THE PRICE PAID BY THE ASSESSEE FOR ACQUIRING THE ASSET AND THE MANNER OR MODE OF REPAYMENT OF LOAN HAD NOTHING TO DO WITH THE COST OF AN ASSET ACQUIRED BY THE ASSESS EE FOR THE PURPOSE OF ITS BUSINESS. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA AND MAHINDRA LTD (261 ITR 501) (BOM.) HAS HELD THAT 5 WHERE A LOAN I S TAKEN FOR PURCHASE OF A CAPITAL ASSET AND NOT FOR STOCK - IN - TRADE , THE WAIVER OF THE LOAN WILL ALS O BE A CAPITAL ASSET AND THEREFORE, NOT TAXABLE AND IT WILL NOT GO TO REDUCE THE COST OF THE ASSET. SINCE THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y. 2008 - 09 HAS HELD THAT THE DEPRECIATION IS ALLOWABLE ON THE COST OF ASSET AND IT IS NOT AFFECTED BY THE WAIVER OF LOAN, RESPECTFULLY FOLLOWING THE SAME AND THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT AND THE BOMBAY HIGH COURT IN THE CASES CITED ABOVE , WE ALLOW ALL THE APPEALS FILED BY THE ASSESSEE. 8. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2019 . SD/ - SD/ - (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 31 ST JANUARY, 2019 OKK COPY TO: - 1) P. MURALI KRISHNA, ADVOCATE, 5 - 9 - 22/1, ADARSHNAGAR, HYDERABAD. 2) DCIT, CIRCLE - 2(2), HYDERABAD. 3) THE CIT(A) - 5 , HYDERABAD 4) THE PR. CIT - 5 , HYDERABAD 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE