--Depreciation--Actual costWaiver of loan granted by government--The assessee is a public sector undertaking engaged in the manufacture and sale, including export, of iron and steel of various grades. It has several steel plants in India. At some point of time the Indian Iron and Steel Company Ltd. (IISCO) was taken over by the assessee and the steel plant of IISCO also became the steel plant of the assessee. In order to meet the requirements of the assessee company, the Government of India sanctioned huge loans from the Steel Development Fund (SDF). The loans were to bear interest and had been taken over a period of years (1979-80 to 1993-94) in the past. Such loans stood at Rs. 5,277.16 crores as on 31-3-1999 in the assessee's books of account. The assessee came under great stress and difficult times from 1997 on account of glut in the international steel market due to heavy production of steel in South East Asia and the meltdown in USA. As a result of the glut, the prices of steel fell rapidly and the assessee started incurring heavy losses. The assessee, therefore, approached the Government of India in the year 1998 for waiver of loans granted from the SDF as well as to take steps to help the steel industry in India. One of the measures taken by the Government of India to provide relief to the steel industry in general and to the assessee in particular was to waive repayment of the loans granted to the assessee. As noted earlier, the loans stood at Rs. 5,277.16 crores as on 31-3-1999. The Government waived the loans to the extent of Rs. 5,073 crores. There were certain other Government loans to the extent of Rs. 381 crores, which were also waived. The waiver of the loans in the case of the assessee took place during the financial year ended on 31-3-2000 relevant to the assessment year 2000-01. It is common ground that in its books of account the assessee reduced the cost of the assets such as building and plant and machinery by the amount of the loans waived by the Government of India and accordingly calculated depreciation. However, in the returns filed for the years under consideration, the assessee took a contrary stand and claimed depreciation on the assets without reducing the loans waived by the Government. In the assessments for all the years, the assessing officer took the view that depreciation ought to be allowed to the assessee in respect of the building and the plant and machinery and other assets on the reduced cost, after reducing the loans waived by the Government, in terms of section 43(1) of the Act. It was his case that the loans were granted by the Government to the assessee to meet a portion of the cost of the assets and therefore, depreciation could be allowed only on the reduced cost. According to the assessing officer, the waiver of the loan was a confirmation of the fact that they were originally granted by the Government towards the cost of the assets. Held: Act. The waiver of the loan is not a mere quantification of a subsidy granted generally for industrial growth. It was granted specifically to the assessee and the assessee in its books of accounts reduced the cost of the assets by the amount waived. This reflected a contemporaneous understanding of the purpose of the grant of the loan on the part of the assessee. As already mentioned earlier, the assessee is a public sector undertaking and the loan and the later waiver were from the Government of India. The loans under the SDF were specifically for meeting the capital cost of the assets, on which depreciation was being claimed. Waiver of loan would result in reduction of actual cost under section 43(1) of the Income Tax, 1961.