ACTUAL COST [SECTION 43(1)]

Actual Cost as per Income Tax Act, means

Sr. No.	In case where	Actual Cost would mean
1.	Asset is acquired by the assessee in previous year	Actual cost of asset to the assessee as reduced by cost met by any other person or authority (in the form of subsidy or grant or reimbursement) If such amount of subsidy or grant or reimbursement is of such nature that it cannot be directly related to asset acquired, then the cost of the asset would be reduced on proportionate basis In case of Motor car acquired before 01.03.1975 but after 31.3.1967 and not used for run it on hire the actual cost shall be restricted to Rs. 25000/-.
2.	Asset acquired and used for scientific research when ceases to be so used	The amount of actual cost of asset to the assessee less any deduction allowed u/s. 35(1)(iv) or similar deductions allowed under the Income-tax Act,1922
3.	An asset is acquired by way of gift or inheritance	Actual cost to the previous owner as reduced by a. the depreciation actually allowed under the Income-tax Act,1922 or this Act in respect of previous years prior to 01.04.1988 and b. the amount that would have been allowed to the assessee for assessment year starting from 01.04.1988 (taking the asset as individual asset in the block)
4.	The assets which were previously used by any other person and in the opinion of AO they are acquired to reduced the liability of Income Tax	If the AO is satisfied that the main purpose of transfer of assets is to reduce the tax liability the actual cost shall be an amount as determined by the AO with prior approval of JCIT.
5.	An asset once belonging to the assessee and was used by him for the purpose of his business or profession and thereafter it ceased to be his property which is reacquired by him	Actual cost when he first acquired it, as reduced by the depreciation actually allowed in respect of previous year prior to 01.04.1988 and the amount that would have been allowed to the assessee for assessment year starting from 01.04.1988 (taking the asset as individual asset in the block) OR The actual price for which the asset is reacquired WHICHEVER IS LESS
6.	Where the assessee acquires the assets which were previously used at any time by any other person for the purpose of his business or profession & depreciation was allowed to such other person and such other person acquires the same assets on lease, hire or otherwise from the assessee	The written down value of such assets at the time of transfer by the other person to the assessee in his books of account.
7.	A building previously the property of the assessee is brought into use for the purpose of the business or profession after 28.02.1946	Actual cost of building to the assessee as reduced by an amount equal to the depreciation calculated at the rate in force on that date that would have been allowable had the building been used for the business or profession since the date of its acquisition by the assessee.
8.	Any asset is transferred by a holding company to its subsidiary company or vice versa, and if conditions of clause (iv) or (v) of sec 47 are satisfied	The actual cost shall be the same as if the transferor company continued to hold the asset.
9.	In a scheme of amalgamation, asset transferred by amalgamating company to amalgamated Indian company	The actual cost shall be the same as if the amalgamating company had continued to hold the asset for the purpose of its own business.
10.	In a scheme of demerger, asset transferred by demerged company to resulting Indian company	The actual cost shall be the same as if the demerged company had continued to hold the asset for the purpose of its own business.
11.	Asset is acquired outside India by a non-resident assessee and is brought into India for the use in business or profession	Actual cost to the assessee as reduced by an amount equal to the depreciation calculated at the rate in force that would have been allowable had the asset been used in India for the business or profession since the date of its acquisition by the assessee.
12.	Any asset is acquired under a scheme of Corporatisation of a recognized stock exchange in India, approved by SEBI	The amount which would have been regarded as actual cost had there been no such Corporatisation

Notes:

• Any amount paid or payable as interest in connection with the acquisition of an asset and the same is related to the period after the asset is first put to use shall not be included in actual cost of the asset.

• The actual cost for the assets acquired on or after 01.03.1994 shall be reduced by the amount of duty of excise or additional duty leviable under Sec. 3 of The Customs and tariff Act,1975 in respect of which a claim of credit has been made and allowed under the Central Excise Rules,1944.

The term actual cost has not been defined under the Act and hence this expression has to be construed in accordance with the generally accepted principles of accounting. Accordingly, the actual cost of a depreciable asset comprises its purchase price (including import duties and other non-refundable taxes or levies) and any directly attributable cost of bringing the asset to its working condition for its intended use. Actual cost to the assessee would be what the assessee has in fact expended or laid out for the purpose of acquiring the asset.