DCIT, Cir-10, Kolkata, Kolkata V. M/s Akzo Nobel Coatings India (P) Ltd., Kolkata

ITA 743/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1646 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 24-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SARBARI MUKHOPADHYAY JCIT SRDR
• Assessee Lawyers: CHIRAG LAKHAMI
• Keywords: Business income; Depreciation; Capital receipt; Unabsorbed depreciation
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 743 / KOL / 2014 ASSESSMENT YEAR :2008-09 DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-10, P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKATA-700 069 V/S . M/S AKZO NOBEL COATINGS INDIA (P) LTD. GEETANJALI APARTMENTS, 1TS FLOOR, 8B, MIDDLETON ROW, KOLKATA-71 [ PAN NO.AAACC 5072 B ] /APPELLANT .. / RESPONDENT /BY APPELLANT SMT. SARBARI MUKHOPADHYAY, JCIT, SR-DR /BY RESPONDENT SHRI CHIRAG LAKHAMI, AR /DATE OF HEARING 22-05-2017 /DATE OF PRONOUNCEMENT 02-06-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XII, KOLKATA D ATED 20.01.2014. ASSESSMENT WAS FRAMED BY ACIT, LTU, BANGALORE U/S 1 43(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 04.11.2011 FOR ASSESSMENT YEAR 2008-09. SMT. SARBARI MUKHOPADHYAY, LD. DEPARTMENTAL REPRESE NTATIVE REPRESENTED ON BEHALF OF REVENUE AND SHRI CHIRAG LAKHAMI LD. AU THORIZED REPRESENTATIVE. ITA NO.743/KOL/2014 A.Y. 2008-09 DCIT, CIR-10 KOL. VS. M/S AKZO NOBEL COATINGS INDIA (P) LTD. PAGE 2 2. REVENUE HAS RAISED PER ITS GROUNDS RAISED AS UND ER:- 1. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD. CIT(A) ERRED IN ALLOWING THE DEPRECIATION AMOUNTING TO RS.13417836/-. 2. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD. CIT(A) ERRED IN ALLOWING THE DEPRECIATION ON THE COST OF THE MACHINERY PURCHASED FROM SISTER CONCERN WHICH WAS NOT ULTIMATELY PAID BY THE ASSESSEE-COMPA NY DUE TO WAIVER OF CLAIM BY THE SISTER CONCERN (SELLER) . 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PRIV ATE LIMITED COMPANY AND IS A MANUFACTURER AND TRADER OF POLYMER BASED INDUSTRI AL PAINTS AND SEALANT PRODUCTS. THE ASSESSEE HAS FILED ITS RETURN OF INCO ME DECLARING BUSINESS INCOME OF 36,67,72,500/- AND INCOME FROM OTHER SOURCES OF 14.59 LAKH AGGREGATING GROSS TOTAL INCOME OF 36,82,31,500/- ONLY. THE AFORESAID GROSS INCOME OF THE ASSESSEE WAS SET OFF BY THE AMOUNT OF UNABSORBED DEPRECIATION PERTAINING TO THE EARLIER YEARS WHICH WAS BROUGHT F ORWARD TO THE YEAR UNDER CONSIDERATION TO THE EXTENT OF 20,47,17,870/-. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS IMPORTED CERTAIN MACHINERIES FROM ITS PARENT COMPAN Y (IN THE FINANCIAL YEARS 1997-98 TO 1996-97) BASED IN UNITED KINGDOM AGGREGA TING TO 13,48,09,000/- ONLY. ACCORDINGLY, THE ASSESSEE WAS CLAIMING THE DE PRECIATION IN ITS BOOKS OF ACCOUNT ON SUCH MACHINERIES. THESE MACHINERIES WERE ACQUIRED ON CREDIT AND LIABILITY WAS ACCORDINGLY BOOKED IN ITS BOOKS OF AC COUNT. HOWEVER, THE ASSESSEE FAILED TO OBTAIN PERMISSION FROM THE RESER VE BANK OF INDIA (RBI) FOR REMITTING THE PAYMENT TO THE PARENT COMPANY IN CONN ECTION WITH THE AFORESAID MACHINERIES SUPPLIED BY IT. THUS, THE ASSESSEE FAIL ED TO MAKE THE PAYMENT TO ITS PARENT COMPANY. FINALLY, THE PARENT COMPANY WAI VED OFF THE AMOUNT WHICH WAS DUE FROM THE ASSESSEE ON ACCOUNT OF MACHINERY S UPPLIED. THEREFORE, THE ASSESSEE HAS TRANSFERRED THE AMOUNT OF LOAN IN CONN ECTION WITH THE MACHINES FOR 13.48 CRORES TO CAPITAL RESERVE IN THE FINANCIAL YE AR 2000-01. HOWEVER, THE AO OBSERVED THAT THE COST OF MACHINES HAVE BEEN MET BY THE PARENT COMPANY OF THE ASSESSEE AND THEREFORE IT IS NOT ENT ITLED FOR THE DEPRECIATION ON THE AMOUNT WAIVED OFF FOR 13.48 CRORES. ACCORDINGLY, THE AO WORKED OUT THE AMOUNT OF DEPRECIATION PERTAINING TO THE IMPUGN ED MACHINERY TO THE TUNE ITA NO.743/KOL/2014 A.Y. 2008-09 DCIT, CIR-10 KOL. VS. M/S AKZO NOBEL COATINGS INDIA (P) LTD. PAGE 3 OF RS.1,34,17,836/- AND DISALLOWED THE SAME BY ADDI NG TO THE TOTAL INCOME OF ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT THE INSTA NT ISSUE IN THE EARLIER YEARS 2001-02 TO 2007-08 HAS BEEN DECIDED IN FAVOUR OF ASSESSEE IN ITA NO.751 TO 755 & 1131/BANG/2010 DATED 14.09.2012. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HAS DELE TED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER:- 5.2.4 DURING THE COURSE OF THE HEARING THE AR OF TH E APPELLANT DRAWN MY ATTENTION TOWARDS THE DECISION OF THE HON'BLE BANGA LORE TRIBUNAL IN APPELLANTS OWN CASE FOR AY 2001-02 TO AY 2007-08 WHEREIN THE H ON'BLE TRIBUNAL HAS DULY ACCEPTED THE VIEW OF THE COMPANY AND HAS HELD THAT THE AMOUNT RECEIVED BY THE COMPANY WOULD BE TREATED AS CAPITAL RECEIPT AND THE SAME COULD NOT BE ADJUSTED FROM THE BLOCK OF ASSETS FOR THE PURPOS E OF COMPUTING INCOME-TAX DEPRECIATION. SUBSEQUENTLY, THE HON'BLE DISPUTE RES OLUTION PANEL, KOLKATA BENCH IN THE APPELLANTS OWN CASE FOR AY 22009-10 H AS DULY ALLOWED THE APPELLANTS CLAIM OF DEPRECIATION. WHILE DOING SO, THE HON'BLE BENCH HAS DULY RELIED UPON THE CAPTIONED ORDER OF THE BANGALORE TR IBUNAL. 5.2.5 AFTER CAREFULLY CONSIDERING THE ARGUMENTS OF THE APPELLANT AS WELL AS THE JUDICIAL DECISIONS RELIED UPON BY IT AND RESPECTFUL LY FOLLOWING THE DECISION OF THE HON'BLE TRIBUNAL ON THE ISSUE DECIDED IN FAVOUR OF THE APPELLANT COMPANY, DISALLOWANCE OF DEPRECIATION OF RS.1,34,17,836/- MA DE BY THE AO IS DELETED. THUS, THIS GROUND OF APPEAL IS ALLOWED. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S ON THE FOLLOWING GROUNDS:- 1. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD . CIT(A) ERRED IN ALLOWING THE DEPRECIATION AMOUNTING TO RS.13417836/-. 2. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD. CIT(A) ERRED IN ALLOWING THE DEPRECIATION ON THE COST OF THE MACHINERY PURCHASED FROM SISTER CONCERN WHICH WAS NOT ULTIMATELY PAID BY THE ASSESSEE-COMPA NY DUE TO WAIVER OF CLAIM BY THE SISTER CONCERN (SELLER). 5. BEFORE US LD. DR SUBMITTED THAT IN THE INSTANT C ASE, THE COST OF MACHINERY HAS BEEN DIRECTLY MET BY THE PARENT COMPA NY OF THE ASSESSEE AND THEREFORE AMOUNT WAIVED OFF BY THE PARENT COMPANY S HOULD BE REDUCED FROM THE WRITTEN DOWN VALUE OF THE ASSESSEE. LD. DR IN R EGARD TO ASSESSEES CLAIM HAS RELIED IN THE JUDGMENT OF HON'BLE DELHI HIGH CO URT IN THE CASE OF STEEL AUTHORITY OF INDIA VS. CIT IN ITA NO. 37/2010, 38/2010, 41/2010 AND 29/2011 ITA NO.743/KOL/2014 A.Y. 2008-09 DCIT, CIR-10 KOL. VS. M/S AKZO NOBEL COATINGS INDIA (P) LTD. PAGE 4 DATED 30.03.2012. THE RELEVANT OPERATIVE PORTION OF THE JUDGMENT IS REPRODUCED BELOW:- 12. WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE CASE IS NOT COVERED BY THE MAIN PROVISIONS OF SECTION 43(1) BECAUSE OF THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. WE H AVE EARLIER NOTICED THAT IN THE BOOKS OF ACCOUNT, THE ASSESSEE HAD ACTUALLY RED UCED THE COST/WDV OF THE ASSETS BY THE AMOUNT OF THE LOANS WAIVED BY THE GOV ERNMENT OF INDIA. IN THE RETURNS, HOWEVER, THE DEPRECIATION WAS CLAIMED WITH OUT REDUCING THE LOANS FROM THE COST/WDV OF THE ASSETS. IT IS TRUE THAT TH E MANNER IN WHICH ENTRIES ARE MADE IN THE BOOKS OF ACCOUNT IS NOT CONCLUSIVE OF THE QUESTION, WHICH HAS TO BE RESOLVED ON A TRUE INTERPRETATION OF THE PROV ISIONS OF LAW. HOWEVER, THE REAL NATURE OF A TRANSACTIONS CAN BE UNDERSTOOD BY REFERENCE TO THE CONTEMPORANEOUS ACT OF THE PARTIES, WHICH WOULD THR OW CONSIDERABLE LIGHT ON THEIR TRUE INTENTION AND THEIR UNDERSTANDING OF THE TRANSACTIONS. IT IS THEREFORE NOT IMPERMISSIBLE TO LOOK INTO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT, IN THE ABSENCE OF ANY OTHER EVIDENCE THEY SHOW THAT THE AS SESSEE UNDERSTOOD THE RECEIPT OF THE LOANS FROM THE GOVERNMENT AS HAVING BEEN GIVEN TOWARDS MEETING A PART OF THE COST OF THE ASSETS. THE WAIVE R CANNOT, THEREFORE, HAVE A DIFFERENT EFFECT ON SUCH INTENTION. THE INTENTION O F THE PARTIES, AS REFLECTED BY THE ACCOUNTS OF THE ASSESSEE, APPEARS TO BE THAT TH E LOANS HAD BEEN GRANTED TOWARDS A PART OF THE COST OF THE ASSETS. IT IS ALS O TO BE NOTED THAT THE ASSESSEE IS A GOVERNMENT OF INDIA UNDERTAKING AND T HE LOANS HAVE BEEN GIVEN BY THE GOVERNMENT OF INDIA FROM THE SDF. IT I S APPARENT TO US THAT EVEN WHEN THE LOANS WERE GRANTED, THEY WERE GRANTED TOWA RDS COST OF THE ASSETS. THE ASSESSEES CASE IS, THEREFORE, CAUGHT WITHIN TH E MISCHIEF OF SECTION 43(1) ITSELF AND IN THIS VIEW OF THE MATTE IT MAY NOT BE NECESSARY TO EXAMINE THE IMPACT OF EXPLANATION 10 TO THE SECTION INSERTED WI TH EFFECT FROM 1.4.1999. FOR THE SAME REASON IT IS ALSO NOT NECESSARY TO REFER T O THE OTHER JUDGMENTS CITED ON BEHALF OF THE ASSESSEE. LD. DR VEHEMENTLY RELIED IN THE AFORESAID JUDGMENT OF HONBLE DELHI HIGH COURT AND ON THE ORDER OF AO. ON THE OTHER HAND, LD. AR BEFORE US SUBMITTED THAT THE ISSUE HAS ALREADY BEEN COVERED BY THE ORDER OF ITAT BANGALORE BENCH I N ASSESSEES OWN CASE AS DISCUSSED ABOVE. LD. AR ALSO SUBMITTED THAT THE HON'BLE ITAT DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AFTER HAVING RELIANCE I N THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TATA IRON & STEEL CO. REPORTED IN 231 ITR 285 (SC). THE LD. AR RELIED ON THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD RIVAL CONTENTIONS OF THE PARTIES A ND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE RAISED BEFORE US REV OLVE TO THE AMOUNT OF DISALLOWANCE MADE BY THE AO ON ACCOUNT OF DEPRECIAT ION ON THE AMOUNT OF ITA NO.743/KOL/2014 A.Y. 2008-09 DCIT, CIR-10 KOL. VS. M/S AKZO NOBEL COATINGS INDIA (P) LTD. PAGE 5 LOAN WAIVED OFF BY THE MACHINE SUPPLIER. FROM THE R ECORD, IT IS ADMITTED FACT THAT ASSESSEE FAILED TO MAKE THE PAYMENT AGAINST TH E PURCHASE OF MACHINERIES DUE TO THE REASON OF NOT GETTING PERMIS SION FROM RBI. IT IS IMPORTANT TO NOTE THAT FOR REMITTANCE OF ANY AMOUNT TO A COUNTRY OUTSIDE INDIA, THERE IS NEED TO HAVE THE PERMISSION FROM THE RBI. IN THE CASE BEFORE US IT IS UNDISPUTED FACT THAT ASSESSEE FAILED TO MAKE THE PA YMENT FOR THE REASON OF NOT GETTING APPROVAL FROM THE RBI. THEREFORE, THE A SSESSEE HAD NO OPTION BUT TO TRANSFER THE LOAN LIABILITY TO ITS RESERVE ACCOU NT. THUS, FROM THE FACTS IT CAN BE CONCLUDED THAT THE COST OF THE MACHINERIES HAD N EVER BEEN MET OUT BY THE MACHINE SUPPLIER EITHER DIRECTLY OR INDIRECTLY AS E VIDENT FROM THE PECULIAR FACTS AND CIRCUMSTANCES OF THE INSTANT CASE. 6.1 THE CASE LAW RELIED UPON BY THE LD. DR IS DISTI NGUISHABLE IN TERMS OF THE FACT THAT CASE THE ASSESSEE HAS GIVEN EFFECT TO THE AMOUNT OF LOAN WAIVED OFF BY THE GOVT. OF INDIA BY ADJUSTING WITH THE WRI TTEN DOWN VALUE OF THE ASSET WHEREAS IN THE CASE BEFORE US NO SUCH ADJUSTMENT WA S MADE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THUS THE ADJUSTMENT IN THE BOOKS OF ACCOUNT FOR THE WAIVED OFF AMOUNT REFLECTS THE INTENTION OF THE ASS ESSEE AS OBSERVED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF STEEL AUTHORITY OF INDIA VS. CIT (SUPRA). ALTHOUGH, IT IS AN ADMITTED FACT THAT THE ACCOUNTIN G ENTRIES ARE NOT DECISIVE TO CHANGE THE CHARACTER OF ANY TRANSACTION S. THE ASSESSEE IN THE PRESENT CASE HAS NOT MADE ANY SUCH ACCOUNTING ENTRI ES. WE ALSO FIND THAT THE ITAT BENGALORE IN ASSESSEES OWN CASE HAS DECIDED T HE ISSUE IN FAVOUR OF ASSESSEE IN ITA NO. 751 TO 755 & 1131/BANG/2010 DAT ED 14.09.2012. THE RELEVANT EXTRACT OF THE ORDER READS AS UNDER : 18, PRIOR TO THE INTRODUCTION OF NEW CONCEPT OF BL OCK OF ASSETS WITH EFFECT FROM 01.04,1988, DEPRECIATION USED TO BE CLAIMED SEPARAT ELY ON EACH ASSET. THE LEGISLATURE FOUND THAT THIS WAS A CUMBERSOME PROCED URE LEADING TO VARIOUS DIFFICULTIES. THIS NECESSITATED INTRODUCTION OF THE CONCEPT OF BLOCK ASSETS AND ALLOWABILITY OF DEPRECIATION ON SUCH A BLOCK. THE R ATIONALE BEHIND SUCH A PROVISION IS CONTAINED IN CIRCULAR NO.469 DATED 23, 09,1986 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES (CBDT), AFTER REFERRI NG TO THE BUDGET SPEECH OF THE FINANCE MINISTER WHEREIN REFERENCE WAS MADE TO THE PROPOSAL TO INTRODUCE A SYSTEM OF ALLOWING DEPRECIATION IN RESPECT OF BLO CK OF ASSETS INSTEAD OF THE PRESENT SYSTEM OF DEPRECIATION ON INDIVIDUAL ASSETS AT PARAGRAPH 6.3, THE BOARD STATED AS FOLLOWS: ITA NO.743/KOL/2014 A.Y. 2008-09 DCIT, CIR-10 KOL. VS. M/S AKZO NOBEL COATINGS INDIA (P) LTD. PAGE 6 AS MENTIONED BY THE ECONOMIC ADMINISTRATION REFORMS COMMISSION (REPORT NO12, PARA 20), THE EXISTING SYSTEM IN THIS REGARD REQUIRES THE CALCULATION OF DEPRECIATION IN RESPECT OF EACH CAPI TAL ASSET SEPARATELY AND NOT IN RESPECT OF BLOCK OF ASSETS. THIS REQUIRE S ELABORATE BOOK- KEEPING AND THE PROCESS OF CHECKING THE ASSESSING O FFICER IS TIME CONSUMING. THE GREATER DIFFERENTIATION IN RATE, AC CORDING TO THE DATE OF PURCHASE, THE TYPE OF ASSET, THE INTENSITY OF USE, ETC., THE MORE DISAGGREGATE HAS TO BE THE RECORD KEEPING. MOREOVER , THE PRACTICE OF GRANTING THE TERMINAL ALLOWANCE AS PER SECTION 32(1 )(III) OR TAXING THE BALANCING CHARGE AS PER SECTION 41(2) OF THE INCOME -TAX ACT, NECESSITATE THE KEEPING OF RECORDS OF DEPRECIATION ALREADY AVAILED OF BY EACH ASSET ELIGIBLE FOR DEPRECIATION. IN ORDER TO S IMPLIFY THE EXISTING CUMBERSOME PROVISIONS, THE AMENDING ACT HAS INTRODU CED A SYSTEM OF ALLOWING DEPRECIATION ON BLOCK OF ASSETS. THIS WILL MEAN THE CALCULATION OF LUMP-SUM AMOUNT OF DEPRECIATION FOR THE ENTIRE B LOCK OF DEPRECIABLE ASSETS IN EACH OF THE FOUR CLASSES OF ASSETS NAMELY , BUILDING, MACHINERY, PLANT AND MACHINERY. 19. THE RATIONALE AND PURPOSE FOR WHICH THE CONCEPT OF BLOCK ASSET WAS INTRODUCED, AS REFLECTED IN THE CBDT'S CIRCULAR DAT ED 23.09.1988 IS THAT ONCE THE VARIOUS ASSETS ARE CLUBBED TOGETHER AND BECOME 'BLOCK ASSET' WITHIN THE MEANING OF S. 2(11), IT BECOMES ONE ASSET. EVERY TI ME, A NEW ASSET IS ACQUIRED, IT IS TO BE THROWN INTO THE COMMON HOTCHP OTCH, I.E., BLOCK ASSET ON MEETING THE REQUIREMENT OF DEPRECIATION BEING ALLO WABLE AT THE SAME RATE. INDIVIDUAL ASSETS LOSE THEIR IDENTITY AND BECOME AN INSEPARABLE PART OF BLOCK ASSET IN SO FAR AS CALCULATION OF DEPRECIATION IS C ONCERNED. THE MERGER OF VARIOUS ASSETS INTO THE BLOCK ASSET CAN BE ALTERED ONLY WHEN THE EVENTUALITY CONTAINED IN CLAUSE (C) OF S. 43(6) TAKES PLACE, VI Z., WHEN A PARTICULAR ASSET IS SOLD, DISCARDED OR DESTROYED IN THE PREVIOUS YEAR ( OTHER THAN THE PREVIOUS YEAR IN WHICH FIRST BROUGHT IN USE). EVEN IN THAT E VENT, THE AMOUNT BY WHICH THE MONEYS PAYABLE IN RESPECT OF THAT PARTICULAR BU ILDING, MACHINERY, ETC. TOGETHER WITH THE AMOUNT OF SCRAP VALUE IS TO BE DE DUCTED FROM TOTAL WRITTEN DOWN VALUE OF THE 'BLOCK ASSET'. IT IS THUS CLEAR F ROM THE AFORESAID PROVISIONS THAT THE ONLY WAY BY WHICH THE WRITTEN DOWN VALUE O N WHICH DEPRECIATION IS TO BE ALLOWED AS PER THE PROVISIONS OF SEC.32( 1) (II) CAN BE ALTERED IS AS PER THE SITUATION REFERRED TO IN SEC.43(6)(C)(I) A AND B. N EITHER WAS THERE PURCHASE OF THE RELEVANT ASSETS DURING THE PREVIOUS YEAR NOR WA S THERE SALE, DISCARDING OR DEMOLISHING OR DESTRUCTION OF THOSE ASSETS DURING T HE PREVIOUS YEAR. THUS THE RECOURSE BY THE REVENUE TO THOSE PROVISIONS ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, IN OUR VIEW, CANNOT BE SUSTAIN ED. 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 T HE ACT IS REPRODUCED HEREUNDER:- '(1) ' ACTUAL COST ' MEANS THE ACTUAL COST OF THE ASSETS TO THE ASSESS EE, 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 SEC TION 43(1) WAS INSERTED WITH EFFECT FROM 1.4.1999. IT READS AS UNDER: ITA NO.743/KOL/2014 A.Y. 2008-09 DCIT, CIR-10 KOL. VS. M/S AKZO NOBEL COATINGS INDIA (P) LTD. PAGE 7 'EXPLANATION 10 - WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY THE CE NTRAL 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 REIMBU RSEMENT (BY WHATEVER NAME CALLED), SO MUCH OF THE COST AS IS RELATABLE TO SUC H SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL C OST OF THE ASSET TO THE ASSESSEE: PROVIDED THAT WERE SUCH SUBSIDY OR GRANT OR REIMBUR SEMENT IS OF SUCH NATURE THAT IT CANNOT BE DIRECTLY RELATABLE TO THE ASSET A CQUIRED, SO MUCH OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURS EMENT OR GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSIDY OR GRANT OR REIMBURSEMENT IS S O RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO ASSESSE E.' 21. THE AFORESAID EXPLANATION WAS EXPLAINED BY THE BOARD IN CIRCULAR NO.772 DATED 23.12.1998 [REPORTED IN (1999) 235 ITR (ST.)3 5]. THE RELEVANT PART OF THE CIRCULAR IS REPRODUCED BELOW: '22.2 EXPLANATION 1 () PROVIDES THAT WHERE A PORTIO N OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN NET DIRECTLY OR I NDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY E STABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSID Y OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), THEN SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCL UDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. COST INCURRED/PAYABLE BY THE ASSESSEE ALONE COULD BE THE BASIS FOR ANY TAX ALLOWANCE. THIS EXPLANATIO N FURTHER PROVIDES THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT IS OF SUCH NATURE THAT IT CANNOT BE DIRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUC H OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT OR GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSIDY OR GRANT OR REIMBURSEMENT SO RECEIVED, SHAL L NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. THE AMEND MENT MADE THROUGH EXPLANATION 10 WILL TAKE EFFECT FROM 1ST APRIL, 199 9, AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 1999-2000 AND SU BSEQUENT YEARS.' 22. EVEN THE AFORESAID PROVISIONS OF EXPLN. 10 WILL APPLY ONLY WHEN THERE IS A SUBSIDY OR GRANT OR REIMBURSEMENT. IN THE PRESENT C ASE THERE WAS NO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT. THERE WAS ONLY A WAIVER OF THE AMOUNTS DUE FOR PURCHASE OF MACHINERY WHICH CANNOT FALL WIT HIN THE SCOPE OF ANY OF THE AFORESAID EXPRESSIONS USED IN EXPLN.10. EVEN OT HERWISE SEC43(1) IS APPLICABLE ONLY IN THE YEAR OF PURCHASE OF MACHINER Y AND IN THE PRESENT CASE THE PURCHASE OF THE MACHINERY IN QUESTION WAS NOT I N AY 01-02. THEREFORE THE ACTUAL COST WHICH HAS ALREADY BEEN RECOGNIZED IN TH E BOOKS IN THE AY PRIOR TO AY 01-02 CANNOT BE DISTURBED IN AY 01-02. IN THIS R EGARD THERE IS A LACUNA IN THE LAW AND IT IS FOR THE LEGISLATURE TO PROVIDE AP PROPRIATE SAFEGUARDS IN THIS REGARD. IT IS TRUE THAT THE ASSESSEE ON THE ONE HAN D GETS THE WAIVER OF MONIES PAYABLE ON PURCHASE OF MACHINERY AND CLAIMS SUCH RE CEIPT AS NOT TAXABLE BECAUSE IT IS CAPITAL RECEIPT. ON THE OTHER HAND TH E ASSESSEE CLAIMS DEPRECIATION ON THE VALUE OF THE MACHINERY FOR IT D ID NOT INCUR ANY COST. THUS THE ASSESSEE STAND TO BENEFIT BOTH WAYS. AS PER THE LAW AS IT PREVAILS AS ON DATE, WE ARE OF THE VIEW THAT THE REVENUE IS WITHOU T ANY REMEDY. THE ONLY, ITA NO.743/KOL/2014 A.Y. 2008-09 DCIT, CIR-10 KOL. VS. M/S AKZO NOBEL COATINGS INDIA (P) LTD. PAGE 8 WAY THAT THE REVENUE CAN REMEDY THE SITUATION IS TH AT IT HAS TO REOPEN THE ASSESSMENT FOR THE YEAR IN WHICH THE ASSET WAS ACQU IRED 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 THI S CAN BE DONE ONLY WHEN AFTER THE WAIVER OF THE LOAN WHICH WAS USED TO ACQU IRE MACHINERY. BY THAT TIME IF THE ASSESSMENTS FOR THAT AYS GETS BARRED BY TIME , THE REVENUE IS WITHOUT ANY REMEDY. EVEN THE PROVISIONS OF SEC. 155 DO NOT PROVIDE FOR ANY REMEDY TO THE REVENUE IN THIS REGARD. 23. THE AO HAS MADE A REFERENCE TO THE PROVISIONS O F SECTION 43(6)(B) OF THE ACT. IN OUR OPINION, THESE PROVISIONS WERE NOT APPL ICABLE TO THE PRESENT CASE. THE APPLICABLE PROVISIONS TO THE PRESENT CASE ARE S ECTION 43(B)(C) OF THE ACT. IT IS ALSO NOTICED THAT THE HON'BLE SUPREME COURT I N THE CASE OF CIT V. TATA IRON & STEEL CO. LTD. (SUPRA) HAS TAKEN A VIEW THAT REPAYMENT OF LOAN BORROWED BY AN ASSESSEE FOR THE PURPOSE OF ACQUIRIN G ASSET HAS NO RELEVANCE TO THE COST OF ASSETS ON WHICH DEPRECIATION HAS TO BE ALLOWED. SIMILAR VIEW WAS ALSO EXPRESSED BY THE HON'BLE KERALA HIGH COURT IN THE CASE OF CIT V. COCHIN CO. PVT. LTD. (184 ITR 230) (KER) , AS ALREA DY STATED, AS FOLLOWS:- WDV AS AT THE BEGINNING OF THE PRECEDING YEAR AS W ELL AS THE DEPRECIATION ACTUALLY ALLOWED IN THAT YEAR HAVE REACHED FINALITY AND CANNOT BE CHANGED IN THE ASSESSMENT YEAR UNDER APPEAL. THEY COULD HAVE B EEN CHANGED ONLY IF THE ASSESSMENT OF THAT OR EARLIER YEARS COULD BE RE-OPE NED. SUCH AN ACTION WAS BARRED BY LIMITATION. FURTHER, AS PER SECTION 43(6)(C)(II) & (I), THE ONL Y ADJUSTMENTS PERMITTED IN THE WDV OF THE BLOCK WITH REFERENCE TO THE YEAR IN WHIC H DEPRECIATION IS TO BE ALLOWED ARE (A) ADDITION ACTUAL COST OF ASSET ACQUI RED DURING THE YEAR AND (B) REDUCTION OF MONIES 24.--------- 25. ON THE MERITS OF THE ADDITION MADE BY THE AO IN ALL THE ASSESSMENT YEARS, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF DEPRECI ATION CANNOT BE SUSTAINED. THE CIT(A), IN OUR VIEW, OUGHT TO HAVE DELETED THE DISALLOWANCE OF DEPRECIATION IN FULL. WE HOLD ACCORDINGLY AND ALLOW THE RELEVANT GROUNDS OF APPEAL OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, WE FIND NO REASONS TO INTERFERE WITH THE FINDINGS ARRIVED BY THE LD. CIT(A). UNDER THE CIRCU MSTANCES, THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 02/ 06/2017 SD/- SD/- ( !') ( !') (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S $!% &- 02 / 06 /201 7 ITA NO.743/KOL/2014 A.Y. 2008-09 DCIT, CIR-10 KOL. VS. M/S AKZO NOBEL COATINGS INDIA (P) LTD. PAGE 9 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CIRCLE-10, P-7, CHOWRINGHEE SQUARE, 3 RD FL, KOLKATA-69 2. /RESPONDENT-M/S AKZO NOBEL COATINGS INDIA (P) LTD. GE ETANJALI APARTMENTS, 1 ST FLOOR, 8B, MIDDLE TON ROW, KOLKATA-71 3. %.%/0 1 1 2 / CONCERNED CIT KOLKATA 4. 1 1 2- / CIT (A) KOLKATA 5. 567 /0, 1 /0 , / DR, ITAT, KOLKATA 6. 7:; <= / GUARD FILE. BY ORDER/ 1! , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 1 /0 ,