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TMI Blog1987 (10) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of gas cylinders. As per the balance sheet of the said firm as on 31-3-1981 it had held gas cylinders worth Rs. 29,70,725-80. This value was shown on the assets side of the balance sheet. In fact, the whole of this value was granted as depreciation while finalising the assessments against the said firm as gas cylinders are entitled for 100 per cent depreciation as per the depreciation schedule provided under the Income-tax Rules. However, the value of the gas cylinders did not suffer any depreciation in the books of account of the said firm as the firm consistently suffered losses. The 1/3rd interest of the assessee in the depreciation granted comes to Rs. 9,90,242. This amount was determined as the assessee's share of loss in the earlier years as follows, while assessing the said firm. Asst. Year Amount 1976-77 5,84,559 1979-80 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance sheet as on 31-3-1981 at its original cost and did not suffer any reduction in value, due to depreciation, to any extent both the assessing authority, as well as the appellate authority are not correct, in adopting the original value for determining the interest of the assessee in the said firm for asst. year 1981-82. He further contended that gas cylinders fall under the category of plant and machinery and are liable for frequent wear and tear in transshipment and transport to various customers located at distant places. He also argued that in the earlier years right from 1976-77 onwards, as there was no allocable surplus or there was no profit earned, in the business of the said firm, and as losses were sustained year after year the depreciation was not adjusted against the cost of the gas cylinders in the earlier years and simply because cylinders were shown at their original value in the balance sheet, it does not amount to an admission that the gas cylinders bear some value or their market value remained at their original cost even on 31-3-1981. He further argued that the WTO wrongly taken the original cost of the gas cylinders as their WDV as on 31-3-1981. He relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Delhi High Court decision in CWT v. Y. P. Punj [1983] 140 ITR 578 to show that when the assets become valueless they should be excluded from the balance sheet for proposes of evaluating the value of the equity share of a company under break up value of the equity share of a company under break up value method and for allied purposes. The learned Departmental Representative sought to counter the arguments advanced on behalf of the assessee by stating that in this case the WTO who passed the asst. order dated 24-3-1986 should be taken to have involved rule 2B (2) of the WT Rules and he should be taken to have held that market value of an empty gas cylinder was more then 20 per cent of its cost value as on the valuation date. Rule 2B (2), he argued, presupposes that market value is different from WDV. However, he admitted that the WTO nowhere stated what was the market value of an empty cylinder on the relevant valuation date and therefore he pleaded that the matter should be restored to the WTO to ascertain its market value. 4. Thus, we heard the arguments on both sides, and also considered the orders of the lower authorities, as well as the paper compilation which is filed befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instead of noting its WDV the cost value itself was mentioned in the balance sheet then in such case an adjustment can be made in the balance sheet and the cost value can be replaced with the written down value of the asset. However, this ordinary rule is subject to an exception carved out and specifically stated in sub rule (2). Under the said sub rule the value of the asset should be reflected at this market value instead of at its written down value. However, in order to attract the provision of sub rule (2) there must be tangible evidence to show that the market value of an asset is 20 per cent more than the written down value. This excess of 20 per cent over the written down value should be objectively established by tangible and cogent evidence. The burden of proof that the market price is 20 per cent over and above the WDV is always on the Department. In this case the WTO did not bring in any cogent evidence to establish that the market price of an empty cylinder is 20 per cent more than the WDV nor cited any sale instance where such a sale had taken place in order to justify his stand. The mere opinion of the WTO regarding the market value of an empty cylinder for which 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re too general and wide to commend acceptation. The WTO did not spot out even a single sale transaction entered into by the assessee whereby the assessee sold an empty cylinder at any price whatsoever, nor did he secure into record any comparable sale instance which would justify the inference as to the market price of an empty gas cylinder, on the relevant valuation date. In 22 ITD para 9 at page 20 in the submissions made on behalf of the assessee before the special bench a reference was made to the letter dated 30-12-1986 addressed by the Chief Controller of Explosives to M/s. Ideal Engineers Hyderabad Pvt. Ltd. wherein it was stated that no cylinder meant for filling compressed gas, including LPG, can be sold as per Gas Cylinder Rules 1981, without obtaining specific permission or approval from the Department of Chief Controller of Explosives. In view of this letter, the submission, that there is no open market for sale of empty gas cylinders but there is only a very restrictive market should be accepted. Further depreciation rules, in our opinion, would be formulated only after careful consideration and they may be regarded as the fruit of experience over series of years. Unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vanshi Mills Ltd.'s case the question which squarely arose before the Bombay High Court was whether the value of the fixed assets is to be taken according to the balance sheet values as on 31-3-1957 and 31-3-1958 and not according to depreciation record of the income tax assessments. In that case the assessee was a company carrying on business of manufacture and sale of textiles. The question of valuation of a fixed block of assets held by the said company was the subject matter of the first question which cropped up before the Bombay High Court. In that case the balance sheet figures of the fixed assets were higher than the written down values of those assets in accordance with the provisions of Indian Income-tax Act. It was contended before the Wealth-tax Officer that the values of those assets should have been taken according to the depreciation to be provided in accordance with the Indian Income-tax Act. The Wealth-tax Officer rejected the said contention. For one year the AAC rejected the assessee's appeal and for another year he had allowed the assessee's appeal. Therefore, both the assessee as well as the Department came up in second appeal before the Tribunal. The tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons Pvt. Ltd., which had a face value of Rs. 17,85,600 were valueless. In that case the WTO accepted the face value of the shares held by the assessee in M/s. Punj Sons Pvt. Ltd. However, the commissioner raised the said order of assessment on the ground that it was prejudicial and erroneous to the interests of the revenue and valued the shares of M/s. Punj Sons Pvt. Ltd under rule 1D of the WT Rules at Rs. 192 per share. The Tribunal set aside the revisionary orders of the commissioner and found that there was an error in the order of the WTO. The Delhi High Court held affirming the decision of the Tribunal that there was a special rule which allowed valueless assets being excluded from the balance sheet of a company whose shares were being evaluated under rule 1D. No. question of law arose for reference. The same ratio holds good even for computing the interest of a partner in a firm on global value method. When once the asset reflected in the balance sheet was found to be valueless, it should be excluded and assets of the firm to that extent would get reduced. Therefore, in our view, the amount of Rs. 9.90 lakhs is liable to be adjusted while competing the interest of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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