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TMI Blog2009 (10) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudice to the aforesaid, the learned CIT(A) has grossly erred in estimating the disallowance of depreciation @ 10 per cent on the fixed assets written off and thereby confirming the disallowance of Rs. 92,52,253. (iii) The learned CIT(A) has erred in law in summarily disregarding the various legal pronouncements in favour of the appellant company, while confirming the addition of Rs. 92,52,253. 3. That on the facts and circumstances of the case the learned CIT(A) has erred in failing to adjudicate on the grounds relating to the levy of interest under ss. 234A, 234B and 234D of the Act." The Revenue has taken following grounds in its appeal: 1. On the facts and in the circumstances of the case learned CIT(A) has erred in allowing the exemption/deduction under s. 10A of IT Act, 1961 ignoring the fact that as per provisions of paras 2.2 and 2.5 of modification, any software production unit has to be physically located within software technology park in order to be considered as STP unit. 2. On the facts and in the circumstances of the case learned CIT(A) has erred in law in restricting the disallowance of depreciation on fixed assets to 10 per cent as made against @ 20 per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties, perused the record and carefully gone through the orders of tax authorities below as well as the case laws cited by the parties. On going through the orders of tax authorities below, we find that in the instant case, out of the fixed assets worth Rs. 9,25,22,535, the AO estimated the disallowance of depreciation @ 20 per cent as the assets were not located on physical verification and the same were written off by the assessee to the extent of the value of said assets. It means that in the instant case on the principle followed the AO should have disallowed the entire amount of deprecation claimed by the assessee, whereas on the contrary the AO estimated the disallowance @ 20 per cent. Similarly, on appeal, the CIT(A) also restricted the disallowance to the extent of 10 per cent against 20 per cent made by the AO. In doing this, the CIT(A) observed that as the assets in the instant case were not destroyed/discarded or sold as scrap and as admitted by the assessee, the assets vanished from the scene of action which would tantamount to being removed from the scene of activity for utility these were not available for use the CIT(A), therefore, restricted the disallowance as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual use of a particular asset in the later years is not relevant for allowing depreciation in respect of the same. The Revenue's stand in this regard is that as per the meaning of 'WDV' given in s. 43(6)(c) with reference to the block of asset and in view of r. 5(1) of the IT Rules, 1962, the identity of a particular asset has not been done away with and for the purpose of depreciation allowance, the use of such asset during the relevant previous year has to be established. It is, therefore. pertinent to refer to the provisions of s. 43(6)(e) as well as r. 5(1) which arc reproduced below: "43(6) 'Written down value' means- (a) ............. (b) ............. (c) in the case of any block of assets,- (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the WDVs of all the assets falling within that block of assets at the beginning of the previous year and adjusted,- (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; and (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s forming part of a block are sold and if the sale proceeds of these assets wipe out the entire value of the block, no depreciation would be available even though some assets of the block continue to be used for business purpose. Therefore, the new scheme as introduced does not require use of individual assets for the grant of depreciation. The legislature also has fully taken into account the possibility of some assets enjoying depreciation without really being put into use. In such a case, when such asset is sold, then the moneys payable in respect of the assets sold exceeding the actual cost would be taxable as short-term gains and not as long-term gains as under the old law. Therefore, there is no likelihood of the assessee using the new scheme as means to avoidance of tax. The new scheme is self-contained and there can be no loss to the Revenue in the ultimate analysis.' The Ahmedabad Bench of the Tribunal also had an occasion to consider this change of system for the purpose of allowing depreciation and after critically examining the relevant amendments made in the Act in the light of the purpose and intention of making such amendment as clarified in the CBDT Circular No. 469 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can now be adjusted only in the manner as provided in sub-s. (6) of s. 43. The assessment year involved is asst. yr. 2000-01. Therefore, the WDV for this assessment year would be the WDV of the block of assets as at the beginning of the current assessment year under consideration which is to be increased by the actual cost of any asset falling within that block which is acquired by the assessee during the previous year and shall be reduced by the moneys payable in respect of any asset falling within that block, which is sold or discarded or damaged or destroyed during the relevant year under consideration, together with the amount of scrap value, if any, so, however, that amount of such deduction does not exceed the WDV of the block of assets as so increased. It is an admitted position that no money was payable in respect of the assets written off during the year. However, the amount of scrap value of the assets which has been discarded and written off in the year under consideration, is invariably to be reduced from the WDV as provided in s. 43(6). The AO has reduced the WDV of a block of assets by WDV of individual assets, by working out the same an the basis of asset-wise depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any. Unless and until scrap value of the machinery which has been discarded, demolished or destroyed during the previous year is ascertained the same cannot be reduced for the purpose of computing depreciation. In the instant case, the machinery in question was only scrapped during the year, that meant it had not been used during the previous year. The scrap value of the same had not been ascertained as yet which would be possible only after selling the same. Therefore, nothing could be reduced at present from the WDV of the block of assets." 10. Now reverting to the facts of the instant case of the assessee, 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. In these circumstances, applying the ratio of the decisions of Tribunal, it is clear that the tax authorities below we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident that industrial undertaking has (sic-not) begun production in any electronic hardware technology or software technology park. The word "in" itself indicates that the undertaking should be located in software technology park. The assessee has started availing exemption from asst. yr. 1995-96 and this is 8th year of claim of exemption. This also signifies that the assessee is availing exemption by virtue of provision introduced and applicable from financial year 1994-95 relevant to asst. yr. 1995-96. Therefore, the assessee does not fulfill the condition in regard to income derived from software technology park because the undertaking is not located in software technology park, Noida (UP) but is located at Gurgaon, Haryana. Therefore, according to AO, the assessee company is not entitled for deduction under s. 10A amounting to Rs. 5,52,66,870. 13. On appeal, the CIT(A) observed that the AO was fully aware of the notification issued by the Ministry of Commerce vide No. 33/(RE)/9297, dt.22nd March, 1994. The content of the notification was also discussed in the assessment order. 14. In order to examine the correctness of the claim made by the assessee regarding exemptions of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce notifies the particular unit in a particular location as STP. It is, therefore, pertinent to examine whether the particular unit of the assessee is covered under the specific notification of the Government of India or not. 20. The CIT(A) also noted in his order that the assessee produced before the CIT(A) copies of all the approvals granted by the competent authority for declaring the assessee's premises as STP. Such copies were also given to the AO. Thereafter, the CIT(A) was of the opinion that the interpretation of the AO that the assessee was not entitled to exemption under s. 10A due to the fact that the undertaking is not located in Software Technology Park, Noida (STP Noida) but is located at Gurgaon, Haryana is not in accordance with para 2.2 of the notification. 21. Further, according to CIT(A), the AO did not analyse the content given in para 2.2 and subsequent approvals given to the assessee's unit as an individual unit based on para 2.2 of the notification. There is no requirement of notification under para 2.2 of a particular unit to be located inside a park. It is enough if the individual unit at a particular location is notified as STP. In the case of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder ss. 234A, 234B and 234D of the IT Act. 26. Learned Authorised Representative for the assessee submitted that levy of interest under ss. 234A and 234B is consequential in nature. Accordingly, we direct the AO that while giving appeal effect to the order of the Tribunal, he should recompute the levy of interest under ss. 234A and 234B. 27. As far as levy of interest under s. 234D is concerned, learned Authorised Representative for the assessee submitted that in the instant case, the assessment pertains to asst. yr. 2002-03. Hence no interest could be charged against the assessee under s. 234D in view of the decision of Special Bench of Tribunal (Delhi) in the case of ITO vs. Ekta Promoters (P) Ltd. (2008) 117 TTJ (Del) (SB) 289 : (2008) 10 DTR (Del)(SB)(Trib) 563. 27.1 In this case, before the Tribunal, the question involved was regarding the chargeability of interest under s. 234D in respect of asst. yrs. 1998-99, 1999-2000 and 2000-01. 27.2 The Tribunal observed that s. 234D inserted by Finance Act, 2003 w.e.f. 1st June, 2003, being substantive in nature has no retrospective effect, hence applicable from asst. yr. 2004-05 and interest under s. 234D could not be charged for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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