VARDHMAN POLYTEX LIMITED,LUDHIANA vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1, LUDHIANA

Since the issues involved in all the above appeals are common and appeals were heard together therefore they are being disposed off by this consolidated order for the sake of convenience and brevity.

We shall take up appeal of the Assessee in ITA No. 543/Chd/2025 for the Assessment Year 2012-13 as a lead case for discussion, wherein the assessee has raised following grounds:

1 Pursuant to the directions of the Tribunal, the Assessing Officer passed an order under section 143(3) read with section 254 reiterating the disallowance.

Against the order of the AO the assessee went in appeal before the Ld. CIT(A), Ld. CIT(A) confirmed the action of the Assessing Officer.

Aggrieved by the same, the assessee is in further appeal before us.

The Ld. AR, drawing our attention to the assessment order dated 30.03.2015, submitted that the Assessing Officer himself has categorically

1 The Ld. AR vehemently contended that the aforesaid reasoning adopted by the Assessing Officer is contrary to the settled position of law as laid down by the Hon’ble Supreme Court in the case of CIT vs. Tata Iron & Steel Co. Ltd., wherein it has been categorically held that the actual cost of an asset is determined by the price paid for acquiring the asset and the manner of repayment of loan, including any waiver or reduction in liability, does not alter such cost. It was submitted that merely because the assessee has repaid a lesser amount of FCCB liability, the same cannot be construed as leading to reduction in the cost of acquisition or the written down value of the assets.

2 The Ld. AR further submitted that the Ld. CIT(A), while confirming the addition, has failed to adjudicate the issue in the correct perspective and has not dealt with the specific contention of the assessee. It was contended that the issue being squarely covered by the decision of the Hon’ble Apex Court, the matter does not warrant any further remand and deserves to be decided on merits in favour of the assessee. It was also submitted that the Revenue cannot be granted repeated opportunities to re-examine an issue which stands settled by binding judicial precedent.

Per contra, the Ld. DR relied upon the orders of the lower authorities.

We have heard the rival submissions and perused the material available on record. The undisputed facts emerging from the record are that the assessee had acquired capital assets out of the proceeds of Foreign

1 In view of the above, the short issue arising for our consideration is whether such waiver or reduction of FCCB liability can be regarded as a subsidy, grant or reimbursement so as to warrant reduction of actual cost within the meaning of section 43(1) of the Act and consequently justify reduction in the written down value of the assets for the purpose of depreciation.

2 On a careful consideration of the statutory framework, we find that section 43(1), read with its Explanations, contemplates the reduction of actual cost. However, the assessee did not provide the full details before the lower authorities.

3 In the present case, the FCCB proceeds were admittedly utilised as a source of finance for the acquisition of capital assets, and the cost of such assets was fully incurred and recorded at the time of acquisition.

4 In our view, the subsequent settlement of FCCB liability at a reduced amount may be an independent financial event having no direct bearing on the original cost at which the asset was acquired; in view of the non- furnishing of the requisite, it is difficult to conclude.

5 We further find that this position stands supported by the judgment of the Hon’ble Supreme Court in the case of CIT vs. Tata Iron & Steel Co. Ltd., wherein it has been held that the actual cost of an asset is determined at the point of acquisition and the subsequent manner or mode of repayment of loan does not ordinarily alter such cost. However, this decision of the Hon'ble Supreme Court is required to be applied to the facts of the present case.

6 Further , at the same time, we are of the considered opinion that the issue requires deeper factual and legal examination by the Assessing Officer in the light of the peculiar nature of FCCB transactions and the manner in which the settlement has taken place in the present case. The Assessing Officer is therefore directed to examine the true nature and character of FCCB, namely, whether the same constitutes a pure debt liability or carries any distinct legal or financial attributes under the regulatory framework governing such instruments. The Assessing Officer shall also examine the relevant scheme, guidelines and regulatory framework issued by the Reserve Bank of India governing issuance and settlement of FCCBs, particularly with regard to settlement of such liability at a reduced value and the consequential effect, if any, on the actual cost, written down value and depreciation relatable to the capital assets acquired out of such funds.

7 The Assessing Officer shall further examine the applicability of the principles underlying section 36 of the Act in the context of the utilisation of borrowed capital for the acquisition of capital assets. In particular, if it is found that the entire FCCB proceeds had been utilized for acquiring capital assets and corresponding statutory benefits had been granted to the assessee on such capitalization, then the consequential question requiring adjudication would be whether, upon subsequent waiver or settlement of a portion of such liability at a lesser amount, the corresponding actual cost, written down value and depreciation are liable to be recomputed or reduced in accordance with law.

8 We make it clear that we have not expressed any final opinion on the merits of the controversy and all contentions are left open. The Assessing Officer shall independently examine the issue in accordance with law after considering the submissions, documentary evidence, and judicial precedents

9 Accordingly, the issue relating to reduction of written down value and consequential disallowance of depreciation is restored to the file of the Assessing Officer for fresh adjudication in terms of the observations made hereinabove. The grounds raised by the assessee are accordingly allowed for statistical purposes.

Both the parties fairly submitted that the facts and circumstances of the other appeal, i.e., ITA Nos. 544 & 545/Chd/2025, are exactly identical to those in ITA No. 543/Chd/2025, and that similar contentions raised therein may be considered. Therefore, our findings and directions given in ITA No. 543/Chd/2025 shall apply mutatis mutandis to the other appeal as well. Accordingly, the same are allowed for statistical purposes.

In the result, all the above appeals are allowed for statistical purposes.

""थ"/ The Respondent 3. आयकर आयु"/ CIT 4. आयकर आयु" (अपील)/ The CIT(A) 5. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"ीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File