Monday, December 10, 2012

ITAT accepts lacuna in law as sec. 41(1) doesn’t tax depreciation claim if capital loan is waived off by lender

The assessee purchased a depreciable asset for which it took loan of same amount from a group company. Subsequently, parent company waived off the loan, which was shown as capital receipt by the assessee in its financial statements, without adjusting the book value of such asset. During assessment, the AO reduced the WDV of the asset to the extent of waived off loan and disallowed the claim for differential depreciation amount pertaining to the period when such loan was waived off and for the subsequent years.

On appeal, the Tribunal held in favour of assessee as under:

1) Since there was no sale or destruction of any assets comprising the block of assets, provisions of Section 43(6)(c)(i)(B) could not be invoked on ground of waiver of loan;

2) Further, concept of 'actual cost' as defined under section 43(1) could be applied only in year of purchase of assets. Therefore, the actual cost of asset recorded in the year of purchase could not be disturbed in the year of waiver;

3) In that regard there was a lacuna, in law, inasmuch as on one hand assessee got waiver of monies payable on purchase of machinery and claimed such receipt to be not taxable in view of it being a capital receipt and on other hand assessee claimed depreciation on value of machinery for which it did not incur any cost.

In view of above, it was held that under law revenue had no remedy and, therefore, disallowance of depreciation could not be sustained - Akzo Nobel Coatings India (P.) Ltd. v. DCIT [2012] 28 82 (Bangalore - Trib.)

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