DCIT,CIRCLE-5(1)(1), AAYAKAR BHAWAN vs. COFFER CONSTRUCTION TECHNOLOGY PVT. LTD., TARDEO

Facts

The assessee purchased plant and machinery using an External Commercial Borrowing (ECB) loan, a portion of which was later waived. While the assessee treated the waiver as a non-taxable capital receipt, the Assessing Officer (AO) considered it a business receipt. The AO re-computed the 'actual cost' for depreciation under Section 43(1) and disallowed Rs. 9,91,93,491/- of depreciation, contending that the cost should reflect the waived amount.

Held

The CIT(A) deleted the disallowance, ruling that re-working depreciation for past years based on a re-worked acquisition cost due to loan waiver was not acceptable. The tribunal upheld the CIT(A)'s order, affirming that a loan waiver for capital equipment is a capital receipt not taxable under Section 41(1) and that Section 43(1) applies only in the year of purchase, thus preventing retrospective adjustments to the 'actual cost' of assets for depreciation.

Key Issues

Whether the waiver of an External Commercial Borrowing (ECB) loan for capital asset acquisition reduces the 'actual cost' under Section 43(1) for depreciation, and if such re-computation can be done for prior assessment years.