2009 (10) TMI 71 - AT - Income Tax

Claim of depreciation on fixed assets - written off - AO was of the opinion that since the fixed assets were not found on physical verification the assessee could not be allowed to get the benefit of depreciation on the fixed assets and thus made an estimated disallowance of these fixed assets @ 20 per cent and added to the total income of the assessee resulting in an addition. CIT(A) disagreeing with the submissions of the assessee upheld the order of AO but restricted the disallowance to 10 per cent in place of 20 per cent made by the AO. HELD THAT - We find that the assessee has furnished the details of the fixed assets as well as the value of the fixed assets written off but has not given the scrap value of the written off assets nor has informed whether these have been sold then sale value and in case not sold then their scrap value estimated by it. It means that in case some assets which formed part of the block of assets are discarded or destroyed or sold or written off their WDV is to be reduced from the WDV of the block of assets for the purposes of computing depreciation and not the WDV of individual assets by working out the same item-wise. Therefore the scrap value of the assets which have been written off discarded during the year. is to be reduced from WDV for the purpose of granting depreciation. In this view we direct that in the light of the decision the AO should recompute the depreciation only after ascertaining the scrap value of the assets which have been discarded or written off in the books during the year under consideration. Accordingly the orders of tax authorities below in this regard are set aside and the AO is directed to recompute the depreciation of the entire block of assets as directed hereinabove as well as as per observations of the Tribunal in the decisions. The ground No. 2 of appeal taken by the Revenue is rejected and ground No. 2 of the appeal of the assessee is allowed in the manner mentioned hereinabove in this order. Deduction claimed u/s 10A - CIT(A) the assessee fulfills all the requirements of s. 10A and is covered within the definitions given in Expln. 2 (vii) to this section and therefore he restored the exemption denied by the AO and allowed the appeal of the assessee and deleted the impugned addition made by the AO. HELD THAT - The assessee there is the approval of Government of India which indicates that the assessee s unit would be located in Gurgaon. Hence we are of the opinion that the CIT(A) in his well reasoned and well discussed order after analyzing the provisions of s. 10A as well as the notification and subsequent approvals of the Government of India in the case of assessee has rightly concluded that the assessee fulfils all the requirements of s. 10A and is covered within the definition given in Expln. 2(vii) to this section and so the CIT(A) rightly held that the assessee is entitled to exemption claimed under s. 10A of IT Act and has further rightly deleted the impugned addition. Accordingly the order of CIT(A) in this regard is upheld. Ground No. 1 of the appeal of the Revenue is rejected. Levy of Interest under ss. 234A 234B and 234D - respectfully following the decision of the Tribunal in the case of ITO vs. Ekta Promoters (P) Ltd. 2008 (7) TMI 452 - ITAT DELHI-E this issue is decided in favour of assessee and against the Revenue and consequent upon the same the order of CIT(A) in this regard is set aside and this part of ground No. 3 of the appeal of assessee stands allowed. During appellate proceedings learned Authorised Representative for the assessee has not advanced any arguments on the legal issue involved in ground No. 1 of the appeal of the assessee and so it is presumed that the assessee in fact has not pressed this ground before us. Otherwise also we have decided the appeal of the assessee on merits and so decision on this legal issue is merely academic one. In the circumstances stated above ground No. 1 of the assessee stands rejected. In the result the appeal filed by the assessee is partly allowed and appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
1. Validity of notice under Section 143(2)
2. Disallowance of depreciation on fixed assets
3. Levy of interest under Sections 234A, 234B, and 234D
4. Exemption/Deduction under Section 10A

Detailed Analysis:

1. Validity of Notice under Section 143(2):
The assessee contended that the notice under Section 143(2) was not served within the statutory time limit, rendering the assessment order under Section 143(3) illegal and void ab initio. However, this ground was not pressed during appellate proceedings, and thus, it was presumed to be abandoned. Consequently, this ground was rejected, and the decision on this legal issue was deemed academic.

2. Disallowance of Depreciation on Fixed Assets:
The core issue was whether the assessee could claim depreciation on fixed assets that were written off due to their non-availability during physical verification.

- Assessee's Argument: Depreciation should be allowed even if the assets were written off, relying on case laws such as South Eastern Coalfields Ltd. vs. Jt. CIT, CIT vs. C.N. Agrawal, and Packwell Printers vs. Asstt. CIT.
- AO's Stand: Disallowed depreciation at 20% on the grounds that the assets were not found during physical verification.
- CIT(A)'s Decision: Upheld the AO's disallowance but reduced it to 10%, reasoning that the assets had vanished and were not available for use.
- Tribunal's Analysis: The Tribunal emphasized that once assets are part of a block, individual asset identity is lost. Citing cases like South Eastern Coalfields Ltd., Yamaha Motor India (P) Ltd., and Inductotherm (India) Ltd., it held that depreciation should be allowed on the entire block, not just on individual assets. The Tribunal directed the AO to recompute depreciation after ascertaining the scrap value of the written-off assets.

3. Levy of Interest under Sections 234A, 234B, and 234D:
- Sections 234A and 234B: The levy of interest is consequential. The AO was directed to recompute the interest while giving effect to the Tribunal's order.
- Section 234D: The Tribunal, following the Special Bench decision in ITO vs. Ekta Promoters (P) Ltd., held that Section 234D, effective from June 1, 2003, does not apply to assessment years before 2004-05. Since the assessment year in question was 2002-03, the interest under Section 234D was deleted.

4. Exemption/Deduction under Section 10A:
The issue was whether the assessee's unit qualified for exemption under Section 10A, despite not being located within a designated Software Technology Park (STP).

- AO's Stand: Disallowed the exemption, arguing that the unit was not physically located within an STP.
- CIT(A)'s Decision: Allowed the exemption, interpreting that an individual unit could be designated as an STP if notified by the Ministry of Commerce, irrespective of its physical location within a designated park. The assessee had the necessary approvals for its Gurgaon unit.
- Tribunal's Analysis: Agreed with CIT(A), stating that the AO misinterpreted the notification and the requirements. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee fulfilled all conditions under Section 10A and was entitled to the exemption.

Conclusion:
The appeal filed by the assessee was partly allowed, while the appeal filed by the Revenue was dismissed. The Tribunal directed the AO to recompute depreciation and interest as per its observations and upheld the CIT(A)'s decision regarding the Section 10A exemption.