TMI Blog2009 (8) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing." 2. The assessee has filed cross-objection taking the following grounds : "(1)( a ) The CIT(A) erred on the facts of case and in law in dismissing the ground challenging the initiation of proceeding under section 147 of the Income-tax Act. The CIT(A) failed to appreciate that none of the conditions precedent for assumption of jurisdiction under section 147 of the Act existed and/or were complied with. ( b ) The CIT(A) failed to appreciate that admittedly the reassessment proceedings for year under consideration were initiated after the period of four years. The CIT(A) has not at all alleged that the appellant has not disclosed all the basic facts and materials fully and truly. ( c ) On proper appreciation of the facts of the case and correct construction of law, the CIT(A) should have quashed the proceedings initiated under section 147 of the Act. (2) The CIT(A) should have allowed the expenditure of Rs. 3,76,96,350 on sale of assets as revenue expenditure without prejudice to the contention of the appellant that the said expenditures were rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidential building 10 % block Rs. 2,67,83,269 Plant Machinery 25 % block Rs. 98,75,195 Computers 60 % block Rs. 51,934 Furniture 15 % block Rs. 1,26,477 Vehicles 20 % block Rs. 55,497 Total Rs. 3,76,96,350 4.1 Accordingly, the assessee filed the return disclosing total loss from business for Rs. 1,15,75,11,320. With the return filed, the assessee enclosed a letter dated 9-2-2001 addressed to the Assessing Officer stating the above facts of sale of EED unit and adjustment of the expenses aggregating Rs. 6,57,82,046, the details of which have been mentioned hereinabove. A copy of the said letter is placed at pp. 21 to 23 of the paper book. The said return was processed under section 143(1) of the Act on 27-12-2001. 5. Subsequently, the Assessing Officer initiated reassessment proceedings by issuing notice under section 148 of the Act on the ground that the assessee did not reduce the gross consideration in depreciation chart on the amount received on sale of EED unit. This resulted in allowance of excess depreciation. A copy of the reasons recorded is pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was processed under section 143(1) of the Income-tax Act. The Assessing Officer was of the belief that the assessee had not adjusted the sale consideration in full against the depreciable assets, which formed part of block of assets and accordingly, the assessee had claimed excess depreciation. Therefore, the income chargeable to tax had escaped assessment. The learned Departmental Representative referred to Explnation 2 to section 147 of the Income-tax Act and submitted that it is a case of deemed escapement of income and the Assessing Officer is within his right to initiate reassessment proceedings under section 147 of the Act by issuing notice under section 148 of the Act. The learned Departmental Representative submitted that the assessee only furnished along with the return the details of pro rata expenses and not the whole information. The learned Departmental Representative relying on the decision of the Hon ble Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 (SC) submitted that at the time of initiation of reassessment proceedings only reason to belief that income chargeable to tax has escaped assessment is suffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it cannot be said that the assessment has been done. Further, the expression "reason to belief" that income has escaped assessment and to confer jurisdiction on the Assessing Officer to initiate reassessment proceedings is only a subjective satisfaction of the Assessing Officer. The Hon ble apex Court has further held in the above case, that at the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief as to whether an income chargeable to tax had escaped assessment. The said expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. Whether material would conclusively prove escapement of income is not the concern at that stage. The Hon ble apex Court has also held that failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings when intimation under section 143(1) has been issued. Considering the facts of the case before us and the decision of the Hon ble Apex Court ( supra ), we are of the considered view that the Assessing Officer has valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther appeal before the Tribunal. 12. The learned Departmental Representative referred clause ( iii ) of section 32(1) of the Income-tax Act and submitted that in respect of sale of depreciable assets, the gross consideration received is to be adjusted in the block of assets. To substantiate his submission, the learned Departmental Representative referred to section 43(6) of the Income-tax Act, which defines the WDV of block of assets. The learned Departmental Representative, submitted that Explnation 4 thereof provides that the expression money payable on sale of depreciable assets is to be read along with the Explanation to sub-section (4) of section 41 of the Income-tax Act and it states that the price for which the depreciable asset is sold is to be considered as the money payable. Thus the money received by the assessee on transfer of depreciable assets which forms part of the block of assets is to be taken and not the net consideration. The learned Departmental Representative submitted that no deduction on account of expenses is to be allowed from money received by the assessee on sale of part of the block of assets. The learned Departmental Representative submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efully considered the submissions of the learned representatives of both the parties and the orders of the authorities below. The issue before us is as to whether the net amount on sale of a part of the block of assets is to be reduced or the gross amount received by the assessee is to be reduced for the purpose of allowing depreciation to the assessee. 15. There is no dispute to the fact that the assessee has allocated an expenditure of Rs. 3,76,96,350 from the gross consideration received on transfer of a part of the depreciable assets. The Department has not doubted the expenses claimed by the assessee on transfer of the said assets. There is also no dispute to the fact that the assets transferred are depreciable assets to which provisions relating to block of assets apply. There is also no dispute to the fact that the assessee has been allowed depreciation under section 32 of the Act and as such the assets transferred are from a part of the block of assets. Clause ( iii ) of sub-section (1) of section 32 of the Income-tax Act provides that in case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause ( i ) is sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved or accrued. Similarly section 50 of the Act, which is a special provision for computation of capital gain in case of depreciable assets provides that where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed, the provisions of section 48 and. section 49 shall be subject to the following modifications : (1) Where the full value of consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of assets during the previous year, exceeds the aggregate of the following amounts : ( i )expenditure incurred wholly and exclusively in connection with such transfer or transfers; ( ii )the WDV of the block of assets at the beginning of the previous year; and ( iii )the actual cost of any asset falling within the block of assets acquired during the previous year. Such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets. Therefore, while computing capital gains, the expenditure incurred in connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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