TMI Blog2007 (7) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... . [1993] 204 ITR 412 which is in favour of revenue." 3. The facts in brief are that the assessee-company is engaged in the business of laying of pipeline. The assessee belongs to Sheth and Sura group of companies and a search was conducted under section 132 in the cases of this group on 18-12-1992. During the search, the assessee declared additional income of Rs. 30 lakhs for assessment year 1993-94 as under: W.I.P. Rs. 20,00,000 Plant and machinery Rs. 7,00,000 Furniture and Fixtures Rs. 3,00,000 ------------- Rs. 30,00,000 ------------- 4. The return of income for assessment year 1993-94 was filed on 31-12-1993. In the assessment order under section 143(3) dated 29-3-1996, the Assessing Officer disallowed the assessee's claim for depreciation in respect of the value of plant and machinery and furniture and fixture declared under section 132(4) during the search at Rs. 7 lakhs and Rs. 3 lakhs respectively, in appeal, the CIT(A) allowed the assessee's claim. The order of the CIT(A) has been challenged by the department through Ground No. 1. 5. Shri M.M. Sriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer to furnish necessary details about these assets and the reply given by the assessee vide its letter dated 27-12-1995 as reproduced by the Assessing Officer in his order was as under: "We are unable to furnish inventory in respect of WIP, plant and machinery and furniture and fixtures declared at the time of search action under section 132." 9. While making a claim for depreciation under section 32 of the Act in respect of an asset, an assessee has to furnish details with relevant evidence about the particulars of the asset, its date of acquisition and its actual cost. In this case, the assessee failed to furnish these details in respect of its claim for depreciation under section 32 of the Act. The amount of Rs. 7 lakhs and Rs. 3 lakhs offered by the assessee for tax represented its undisclosed income and the assessee did not produce any evidence to show that these amounts represented the cost of a plant and machinery and furniture and fixture respectively qualifying for depreciation under section 32 of the Act. Merely because the disclosure of undisclosed income of Rs. 7 lakhs and Rs. 3 lakhs were made under the head 'Plant and Machinery' and 'Furniture and Fixt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities, the appellant has shown only civil work and 'Dewater' as extra claim. However, from the tender, find that the tender includes the work of laying and commissioning of large diameter pipeline and in my opinion, since this work is also included in the tender, the work of design manufacture and fabrication would be about Rs. 30 lakhs on estimate basis. Hence, I direct that manufacturing activities for Chandrapur work be taken at 70 per cent of Rs. 39.20 lakhs and the appellant be given deduction under section 80-I accordingly. 12. In respect of Sangli work, the appellant has claimed that the total manufacturing activities is of Rs. 2.12 crores and civil and other works at Rs. 37.32 lakhs. Since the scope of the work is similar as above, I direct that 70 per cent of Rs. 2.12 crores be considered as manufacturing activities eligible for deduction under section 80-I. 13. In case of Latur work, the appellant has shown Rs. 110.83 lakhs as work of manufacturing. For the reasons given above, I direct that 70 per cent of this be considered as work of manufacturing eligible for deduction under section 80-I." 12. The principle laid down by the Hon'ble Supreme Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er for the assessment year 1993-94: W.I.P. Rs. 20,00,000 Plant and machinery Rs. 7,00,000 Furniture and Fixture Rs. 3,00,000 ------------- Rs. 30,00,000 ------------- The assessee claimed depreciation on plant and machinery and furniture and fixtures. According to the Assessing Officer, the assessee made declaration under section 132(4) of Rs. 7,00,000 on account of plant and machinery and Rs. 3,00,000 on account of furniture and fixtures. The Assessing Officer required the assessee to produce inventory of the machinery. In response to the said query, the assessee vide its letter dated 27-12-1995 stated as under: "We are unable to furnish inventory in respect of WIP, Plant and Machinery and Furnitures and Fixtures declared at the time of search action under section 132." The Assessing Officer observed that under section 32 of the Act, in order to claim depreciation on a business asset, the same must be owned by the assessee and it must be used for the business of the assessee. According to the Assessing Officer, the assessee was not entitled to depreciation which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count by Rs. 7,00,000 and also increased the value at existing furniture and fixture in the books of account by Rs. 3,00,000. Accordingly, it was submitted that the CIT(A) has rightly held that the assessee is entitled to depreciation as per Rules. He accordingly submitted that the date of search wherein the claim was made and machinery etc. as shown and the declaration under section 132(4) was made should be considered as the date of acquisition of the assets. He further submitted that the CIT(A) has rightly directed the Assessing Officer to work out the depreciation accordingly. In the instant case, the assessee had declared undisclosed income of Rs. 30 lakhs for the assessment year under consideration out of which Rs. 7 lakhs was shown under the head 'Plant and machinery' and Rs. 3 lakhs was shown under the head 'Furniture and fixture'. The assessee claimed depreciation on plant and machinery and furniture and fixture, it is clear that the above amount was offered for taxation and the department has accepted the same. It is true that the above amounts offered for tax represented part value of existing plant and machinery and furniture and fixture. Thus, the plant and machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maybe described as passive user of the same in the business. An asset could be said to be used, when it was kept ready for use. Since the Tribunal had recorded the finding that there was positive material to show the existence of the asset at the work site, and about the passive user it could not be termed to be one without any basis or illegal. Accordingly, the claim for depreciation was allowable." From the above discussion, it would be clear that depreciable assets were owned by the assessee and it was used for the purpose of the assessee's business, in view of the decision of the Hon'ble Kerala High Court in the case of Geo Tech Construction Corpn., an asset could be said to be used, when it was kept ready for use. The word 'used' includes 'passive user'. Therefore, the Hon'ble Kerala High Court held that depreciation can be allowed on depreciable assets on the principle of passive user also in that view of the matter, the assessee is entitled to claim depreciation on the assets in question, I may add here that the CIT(A) has rightly observed that the date of declaration under section 132(4) should be considered as the date of acquisition of the assets. In view of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------- 3. The assessee, in the return for assessment year 1993-94, disclosed the above amount as income and also claimed depreciation on the value of plant, machinery, furniture and fixture declared under section 132(4). In other words, he claimed depreciation on Rs. 7 lakhs and Rs. 3 lakhs respectively. The Assessing Officer, in the course of assessment proceedings, asked the assessee to furnish necessary details of assets on which depreciation was claimed. The assessee was not able to furnish the same and in its letter dated 27-12-1995 wrote as under:- "We are unable to furnish inventory in respect of WIP, plant and machinery and Furniture and Fixtures declared at the time of search action under section 132." 4. The Assessing Officer disallowed the claim for depreciation as the assessee had failed to furnish necessary details. He held that assets on which depreciation was claimed were not in existence. 5. The disallowance of claim was challenged in appeal before the Commissioner of Income-tax (Appeals) who, after considering the facts and circumstances of the case, allowed the claim of the assessee. The revenue, being aggrieved, carried th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Rs. 3 lakhs in books of account. The ld. J.M. in his proposed order has further observed:- "In my opinion, once the department has accepted undisclosed investment in plant and machinery and furniture and fixtures and taxed the same, therefore, there was no justification in rejecting the rightful claim of the assessee. In my view, as regards depreciation on plant and machinery and furniture and fixture, the department cannot take an altogether different view stating that the assessee is neither owner of the assets nor it had used the same for the purpose of business. In other words, the department had accepted the investment made by the assessee in plant and machinery and furniture and fixtures, therefore, there was no justification in disallowing depreciation on the same having declared the investment in plant and machinery and furniture and fixture, the assessee could not be asked to prove the ownership of the assets." 8. In support of the above view, the ld. J.M. placed reliance on the decision of Kerala High Court in the case of Geo Tech Construction Corpn. Relevant extracts from the decision are quoted by him. In the light of observations of Hon'ble Kerala High Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposed order that amount disclosed represented enhanced value of existing plant and machinery, furniture and fixtures and that after the search, the value was modified and changed in the books of account as per declaration under section 132(4) of the Income-tax Act. The above finding, based on changed stand, in my view, does not reconcile with the admission made in letter dated 27-12-1995. The assessee could have very well explained what was disclosed by the assessee and whether whole or part of it represented machinery, furniture and fixture available with it, whether it represented the difference in the value of machinery/fixture already disclosed by the assessee. No clear stand was taken. It could have given inventory or detail of above assets sought to be disclosed. Why that afterthought plea was permitted to be raised is not at all clear from record. In the depreciation chart only amounts disclosed has been added without further claim. Be that as it may, the assessee, in my view is not entitled to claim depreciation even if the finding of ld. J.M. in the proposed order is accepted without any objection to the changed and new claim made by the assessee. As admitted earlier, as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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