Reduction of waiver of loan granted to meet cost of assets from actual cost

Reduction of waiver of loan granted to meet cost of assets from actual cost is not required u/s 43(1) (Expln 10) for calculating depreciation since Explanation 10 covers subsidy or reimbursement and not waiver of loan; however, where assessee reduces loans waived from cost of assets for accounting purposes, same will be reduced from actual cost to calculate depreciation u/s 32 also as such accounting practice will show that assessee understood receipt of loans from Government as having been given towards meeting part of cost of assets and will bring assessee's case within mischief of main provision of section 43(1) itself and it will not even be necessary to invoke Explanation 10 to section 43(1)

• Manner in which entries are made in books of account is not conclusive of question, which has to be resolved on a true interpretation of provisions of law

• However, real nature of a transaction can be understood by reference to contemporaneous act of parties, which would throw considerable light on their true intention and their understanding of transaction; it is therefore not impermissible to look into entries made in books of account, in absence of any other evidence; they show that assessee understood receipt of loans from Government as having been given towards meeting a part of cost of assets

[2012] 20 taxmann.com 198 (Delhi)
HIGH COURT OF DELHI

Steel Authority of India Ltd. v. Commissioner of Income-tax