MODERN TERRY TOWELS LTD,MUMBAI vs. ASST CIT CIR 6(3), MUMBAI

In both the appeals, the assessee is contesting the assessment of income pertaining to the period from 1.1.2008 in its hands on the ground that the present assessee has since been merged with another company named M/s Modern Insulators Ltd w.e.f. 1.1.2008.

The Ld A.R submitted that the assessee company has since been merged with another company named M/s Modern Insulators Ltd w.e.f. 1.1.2008. He submitted that the order of BIFR was not received by the time the impugned assessments of both the years under consideration were completed. He submitted that the merged company has duly disclosed income pertaining to the period commencing from 1.1.2008 in its hands and the same has also been assessed. Accordingly he submitted that the assessment of same income again in the hands of the assessee would result in double assessment of same income. He submitted that the order of BIFR has since been received. Accordingly he pleaded for exclusion of income pertaining to the period from 1.1.2008 to 31.3.2008 in respect of AY 2008-09 and entire income in respect of AY 2009-10.

We heard Ld D.R and perused the record. There should not be any dispute that the assessment of income should be made in the hand of right person. We notice that the order of BIFR was not available by the time the impugned assessments were completed. The assessee has stated that the BIFR has approved merger of the assessee company with M/s Modern Insulators ltd w.e.f. 1.1.2008. Since the order of merger has been received subsequent to the completion of assessments and also subsequent to passing of the impugned appellate orders, the tax authorities had no occasion to examine the claim of the assessee. Accordingly we are of the view that the present claim of the assessee requires fresh examination at the end of the assessing officer by duly considering the order of BIFR, the assessment records of M/s Modern Insulators Ltd and such other record that may be found necessary to adjudicate this issue. Accordingly we restore this issue to the file of the AO for considering it afresh in both the years and for taking appropriate decision.

The next issue contested by the assessee in AY 2008-09 relates to the assessment of loan waived by the financial institution as income of the assessee u/s 41(1) and sec. 28(iv) of the Act. The Ld A.R fairly conceded that this issue has been decided against the assessee by the decision rendered by Hon’ble Bombay High Court in the case of Solid Containers Ltd (308 ITR 407). Accordingly we dismiss this ground of the assessee.

The last issue contested by the assessee in AY 2008-09 relates to the disallowance of depreciation on the capital portion of loan waived by the financial institution. The AO took the view that the capital portion of loan waived by the financial institution will go to reduce the cost of assets purchased out of the loan. Accordingly he reduced the same from the WDV of the capital assets and accordingly allowed the depreciation. The Ld CIT(A), by placing reliance on the decision rendered by Hon’ble Delhi High Court in the case of Steel Authority of India Ltd Vs. CIT (20 Taxmann.com 198), confirmed the disallowance of depreciation so made.

The Ld A.R placed reliance on the decision rendered by co-ordinate bench of the Tribunal in the case of JCIT Vs. M/s Garware Chemicals Ltd (ITA No.1438/Mum/2012 & 1478/Mum/2012 dated 08.11.2013) and submitted that the co-ordinate bench has followed the decision rendered by Hon’ble Kerala High Court in the case of CIT Vs. Cochin Co. (P) Ltd (184 ITR 230) and held that the principal portion of loan waived by banks cannot be reduced from the cost of assets u/s 43(1) of the Act. He submitted that the Ld CIT(A) has followed the decision rendered by Hon’ble Delhi High Court referred above. He submitted that the decision has been rendered by the Hon’ble Delhi High Court in the peculiar facts prevailing in that case and hence the same cannot be applied in the instant case.

We heard Ld D.R and perused the record. In the case of Steel Authority of India (supra), the facts show that the Government of India had granted loans to the assessee therein and later the GOI waived the loan. M/s Steel Authority of India also reduced the waived amount from the cost of assets. Hence after examining the purpose of waiver and the contemporaneous understanding of GOI and Steel Authority of India, the Hon’ble Delhi High Court came to the conclusion that the loan amount waived by the GOI was in the nature of subsidy and accordingly held that the same is required to be deducted from the Cost of assets. Hence we agree with the submission of the assessee that the facts prevailing in the case of Steel Authority of India (supra) are distinguishable. Accordingly, by following the decision rendered by the co-ordinate bench in the case of Garware Chemicals Ltd (supra), we hold that the principal portion of loan waived by the financial institution need not be deducted from the cost of asset u/s 43(1) of the Act for the purpose of computing depreciation. Accordingly we set aside the order passed by Ld CIT(A) on this issue.

In the result, the appeal filed by the assessee for AY 2008-09 is treated as partly allowed and the appeal filed for AY 2009-10 is treated as allowed. Order has been pronounced in the Court on 22.3.2017.