TMI Blog2006 (8) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... s removed from the reactor forming part of Plant Machinery in assessment year 1996-97 and was sold in the assessment year 1998-99, as made by Deputy Commissioner of Income-tax, Range 3(3), Mumbai (DCIT). 2. CIT(A) has failed to appreciate and ought to have held that : ( a )After the introduction of the concept of Block of Assets from the assessment year 1988-89, an individual item in a Block of Assets loses its identity and gets merged into a Block of Assets having the same rate of depreciation. ( b )Depreciation is permissible on the entire Block of Assets and there is no separate written down value of any individual item/asset within the Block of Assets for the computation of depreciation. ( c )Block of Assets under Plant Machinery including Catalyst will be reduced by Rs. 46,93,071 in the year 1997-98 relevant to the assessment year 1998-99, as correctly done by the appellant and there is no need to disturb the depreciation calculation for the assessment years 1996-97 and 1997-98. 3. The appellant prays that disallowance of depreciation of Rs. 9,11,798 be deleted. II.1 CIT(A) erred in confirming the action of DCIT in treating the Interest Income of Rs. 90,62, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n use since the assessment year 1991-92 and the depreciation was being claimed on it. The catalyst was discarded in the books of account of the company on 15-5-1995 (assessment year 1996-97) and the net realizable value of the asset was determined at Rs. 33,32,000 as per the assessee. The catalyst was subsequently sold for a consideration of Rs. 46,93,071 in the assessment year 1998-99 relevant to financial year 1997-98. During the assessment proceedings, Assessing Officer found a catalyst in question was not used during the instant year and subsequent years and the assessee claimed depreciation on this discarded asset without the sanction of the law. Assessing Officer called for an explanation of the assessee before denying the depreciation claim. The assessee submitted that the concerned sale of the catalyst took place in subsequent assessment year and the adjustment was made to the WDV of the Block of Assets in that year and not in the instant assessment year 1996-97. Accordingly, the Assessing Officer proceeded to adjust the WDV of Block of Assets in the beginning of the previous year related to the instant assessment year. The assessment was completed for assessment year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orts v. Dy. CIT [2003] 86 ITD 445 (Hyd.) and in the case of Asstt. CIT v. SRF Ltd. [2008] 21 SOT 122 (Delhi) for the proposition that the assets ready for use and not used actually are entitled to depreciation. The Ld. DR for revenue argued that the assessee discarded the catalyst on 15-5-1995 and the books of account support the same. In this regard, the Ld. DR relied on page 5 of the paper books filed before us, which is Schedule V relating to fixed assets. DR especially referred to the Note No. 3 pertaining to the Schedule V. He further argued that the decision of the various Benches of the Tribunal relied upon by the Ld. AR for assessee is distinguishable on facts. 7. We have heard the rival submissions and perused the orders of the lower authorities as well as paper books filed before us consisting of the annual accounts, Schedules and the various decisions relied on by both the parties. We have perused the Schedule No. V appended to the 11th Annual Report 1996-97 relevant to assessment year 1997-98. Relevant note No. 2 reads as under : "Net block as on 31-3-1997 of plant and machinery includes an item of discarded machinery pending for disposal which has been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... troyed during that previous year together with the amount of the scrap value, if any . It is necessary to know the meaning of the discard and the amount of scrap value if any used in the above provisions. In this context, we find that similar language is used in clause ( iii ) of section 32(1) in the context of the terminal allowance. It is noticed, that the Hon ble Madras High Court in the case of CIT v. Ashoka Betelnut Co. (P.) Ltd. [2003] 259 ITR 733 held that value of scrap to be taken into account and not the amount realized by the assessee. The relevant parts of the judgment is as under : "The scrap value will arise for consideration where assets are discarded or demolished or destroyed and will not arise for consideration where the asset are sold. When the asset is discarded, demolished or destroyed, the asset, which is no longer put to use or which has suffered damaged or destruction, may even after being so discarded, damaged or destroyed still have value as scrap. If it has such a value, if is immaterial as to whether the assessee has chosen to convert that value into cash. What is required to be taken into account is the value of the scrap and not the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the balance in the Block of Assets as at the end of the year after reducing the money payable in respect of the scrapped assets together with the scrap value, if any. 12. We have also perused the order of the co-ordinate Bench in the case of Citicrop Overseas Software Ltd. ( supra ) along with the Ahmedabad Bench of the Tribunal s decision in the case of Inductotherm (India) Ltd. ( supra ) where it is held unless and until scrap value of the discarded machinery during the previous year is ascertained, the same cannot be reduced for the purposes of computing depreciation and therefore nothing could be reduced a present from the WDV and the depreciation is allowable without any reduction. However, in view of the judgment of the High Court in the case of Ashoka Betelnut Co. (P.) Ltd. ( supra ) and also the decision in the case of Gaurav Khullar ( supra ) which is dated subsequent to the co-ordinate Bench decision, we proceed to go with the afore-mentioned judgment of the Madras High Court. Therefore, we are of the opinion the Assessing Officer has rightly adjusted the WDV by reducing an amount before the denial of the depreciation of Rs. 12,15,729 for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges are not derived from manufacturing activity of the business. He further held that other interest from the margin money from bank guarantee, security deposit of MSEB, Interest on Income-tax refunds, Interest on ICD s and Interest on late payment of allotment money of Right shares, are also not derived from the manufacturing activity. He, accordingly, recomputed the allowable deduction under section 80-I after excluding the above amount of Rs. 90,62,046 and the effect of such re-computation is the denial of deduction under section 80-I to the tune of Rs. 27,17,615. Aggrieved with the above, the assessee filed an appeal before the CIT(A). The CIT(A) confirmed the decision of the Assessing Officer for the reasons given in paras 10 to 23 of the impugned order. 15. Aggrieved with the above decision of the CIT(A), the assessee filed an appeal before the Tribunal. The Ld. AR for assessee explained the receipt-wise details arguing that they are derived from the business of the assessee. Regarding late payment charges on the debtors. Ld. AR, relied on the judgment in the case of GSC Toughened Glass (P.) Ltd. v. Asstt. CIT [2007] 13 SOT 668 (Delhi) for the proposition that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 402 , where it is held that the interest incidental to late payment of sales debts bears the same character as the sale amounts itself. Accordingly, we find that the interest of this kind has direct nexus with the industrial undertaking and therefore, we find that the assessee is entitled to deduction under section 80-I. Such interest receipts cannot be termed as not derived from the business as held by the decisions relied on by the assessee. Therefore, the order of the CIT(A) needs to be set aside on this issue and Assessing Officer is directed to allow deduction under section 80-I in respect of the interest receipts Rs. 77,81,652 received from the debtors. 17. Regarding other interest receipts, such as, ( a ) the margin money from bank guarantee, security deposit of MSEB, ( b ) Interest on Income-tax refunds, ( c ) Interest on ICD s and ( d ) Interest on late payment of allotment money of Right shares, rule of nexus is the rule to be followed in deciding the allowability of deduction under section 80-I on such receipts. 18. Interest receipts earned in connection with the Income-tax Refunds is the income from other sources . Similarly, the interest income derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground is partly allowed . 20. In the result, appeal of the assessee is partly allowed for statistical purpose. 2. ITA No. 4094/Mum./2003 - Assessment year 1997-98 21. There are 4 grounds in this appeal with many sub-grounds and the ground without prejudice. Ground 1 relates to disallowance of depreciation of Rs. 9,11,798 on the value of the catalyst. The facts relating to this issue are identical to our decision as narrated in above paragraphs while dealing with ITA No. 4093/Mum./2003 above. We have held in paragraphs 12 and 12( a ) above that the WDV has to be adjusted and the depreciation is not allowable in respect of the discarded asset in view of the provisions of section 43(6)( c ) of the Act. For the sake of rule of consistency, we uphold the order of the CIT(A) in this regard. Accordingly, ground 1 is partly allowed. 22. Ground 2 relates to the failures of the CIT(A) in not adjudicating the ground relating to disallowance of provisions of Rs. 4,71,274 made on account of leave encashment liability claimed by the assessee as allowable deduction under section 37(1) of the Income-tax Act. 23. We have heard both parties in this regard and perused th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on the record as to what is the nature of these receipts and how they are earned by the assessee. These are the vital facts necessary to understand the nature of the receipts and applicability of nexus rule to arrive at the decision, if they are derived from the business or not. The orders of the revenue authorities do not speak of the same. Accordingly, these two receipts have to be referred to the files of the Assessing Officer for want of primary details. Assessing Officer shall bring the relevant facts onto the records after giving reasonable opportunity of being heard and decide the same in the light of the relevant provisions of the Act. Accordingly, this part of ground is set aside . 27. In the result, the appeal is partly allowed for statistical purposes. 3. ITA No. 4095/Mum./2003 - Assessment year 1998-99 28. Grounds read as under : "I1. CIT(A) erred in deciding the grounds of the appeal in respect of claim of further depreciation of Rs. 5,13,305 based on revised written down value of plant and machinery as computed by the then Assessing Officer in the assessment year 1997-98. 2. The appellant prays that further depreciation of Rs. 5,13,305 be granted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-I of the Act thereby reducing the claim under section 80-I of the Income-tax Act by Rs 65,90,616. The details are tabulated as under. Receipts excluded denied claim of deduction under section 80-I Figures in Rs. ( a ) Miscellaneous income 2,44,506 ( b ) Sundry Balances of Customers Written back 2,73,415 ( c ) Interest received from the debtors 6,252 ( d ) Interest received on fixed deposits with bank 8,70,242 ( e ) Interest received on Income-tax refund 1,84,285 ( f ) Interest received from MSEB MIDC 1,13,075 ( g ) Interest received on ICDs 1,55,66,851 ( h ) Interest received in connection with application money of Rights shares 3,340 ( i ) Octroi Refund 5,035 ( j ) Job Charges Received 1,09,144 ( k ) Service charges of housing colony 34,138 ( l ) Service charges 54,00,000 Total 2,19,68,992 Assessee is aggrieved against the CIT(A) s decision in confirming the action ..... X X X X Extracts X X X X X X X X Extracts X X X X
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