TMI Blog2009 (6) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... 41(2) just are not attracted - Decided in favor of the assessee Disallowance of repairs as capital in nature - To support the claim that the building used for office premises necessitating repairs and maintenance are of revenue in nature, while concluding it was strongly argued by the learned Authorised Representative that no new assets come into existence. no benefits of enduring nature and the nature and description of the expenses themselves go to prove that they are of revenue in nature - Decided in favor of the assessee - - - - - Dated:- 5-6-2009 - Member(s) : MAHAVIR SINGH., A. N. PAHUJA. ORDER-MAHAVIR SINGH, J.M.: This appeal by the assessee is arising out of the order of CIT(A)-IV, Baroda, in Appeal No. CAB/IV-A-96/2005-06, dt. 6th Dec., 2005. The assessment was framed by the Asstt. CIT, Anand Circle under s. 143(3) r/w s. 147 of the IT Act. 1961 (hereinafter referred to as 'the Act') vide his order dt. 1st March, 2005 for the asst. yr. 1999-2000. 2. The first issue in this appeal of the assessee is against the order of CIT(A) in confirming the action of the AO in reopening the assessment by issuing notice under s. 148 r/ w s. 147 of the Act. At the outset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely damaged due to cyclone and assessee company had received net insurance claim amounting to Rs. 1,57,69,136. It was revealed, after going through the correspondence that the General Insurance Company from which assessee company has received the insurance claim, it had also received salvage of Rs. 6,12,000 in respect of NEPC 250KW and Rs. 8.30,000 in respect of Elecon 300KW. Thus, the scrap value i.e., salvage aggregating to Rs. 14,42,000 was received by it. Assessee had thus, received an amount of Rs. 1,72,11,136, which was inclusive of scrap value of Rs. 14,42,000 as against the WDV of Rs. nil. The difference between the actual cost and the WDV was Rs. 1,72,11,136, according to the AO, which attracts the provisions of s. 41 (2) of the Act and therefore chargeable to income-tax as income of the business of the previous year relevant to asst. yr. 1999-2000. The AO finally held the amount as chargeable to tax under s. 41(2) of the Act by giving following finding in para 5: "5. As is evident from the above, the assessee has not submitted anything further than what was stated earlier. In the show-cause notice dt. 31st Dec., 2004 this office had thrashed out all the points and the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged wind turbine generator NEPC 250KW and Rs. 8,30,000 for the damaged wind turbine generator Elecon 300KW. The manner of computation for both the damaged wind turbine generators was as under: ----------------------------------------------------------- Computation of salvage value for damaged wind turbine generator NEPC 250KW ----------------------------------------------------------- Sl. Depreciation Quantity Rate Amount (Rs.) No. (Rs.) ----------------------------------------------------------- 1. Steel/iron scrap 2,50,000 kgs. 6 1,50,000 ----------------------------------------------------------- 2. Copper scrap 800 kgs. 90 72,000 ----------------------------------------------------------- 3. Cables scrap L.S. L.S. 25,000 ----------------------------------------------------------- 4. Transformer and 1 set L.S. 3,25,000 control and control panels and 11KV line etc. ----------------------------------------------------------- 5. Control room and L.S. L.S. 40,000 other miscellaneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 6 per kg. If this amount only is accepted, then also, the value of scrap of iron/steel alone amounts to Rs. 3,30,000. Further, the quantity of copper scrap is shown at 1,800 kgs. which has been valued at a reasonable rate of Rs. 90 per kg. The value of copper scrap amounts to Rs. 1,62,000. Other high end items like transformers and control panals have been valued at Rs. 17,75,000. Remaining items pertain to cables, scrap and control room and other miscellaneous items. Hence, as against the above items valued at Rs. 14,42 lacs, the declaration of salvage value at Rs. 75,000 only is unbelievably understated. Therefore, in the circumstances, I hold that the salvage value of Rs. 14,42,000 (Rs. 6,12,000 + Rs. 8,30,000) determined in the joint final survey/assessment report based on mutual agreement is the correct salvage value. Hence, the addition made by the AO adopting the salvage value at Rs. 14,42,000 is right and justified and accordingly, the same is confirmed. The appellant's alternate claim that insurance claims received against the damaged windmills should be assessed under s. 145(1A) instead of under s. 41 (2) is not acceptable for the reason that there is a specific prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 13 of his order held that the windmill was completely damaged, which could not be recommissioned and therefore, upheld the contention of the AO that the entire amount of Rs. 1,72,11,136 is a revenue receipt chargeable under s. 41(2). In view of these facts, he argued that it can be seen that both the AO as well as CIT(A) have grossly erred in giving the incorrect finding on p. 5, para 5 of the assessment order and on p. 7 of the CIT(A)'s order that the assessee had availed depreciation under s. 32(1)(i). This is totally incorrect. Sec. 32(1)(i) was inserted w.e.f. 1st April, 1998, i.e. asst. yr. 1998-99, whereas as clearly mentioned by the AO and CIT(A) themselves, the depreciation was claimed by the assessee in asst. yrs. 1993-94 and 1994-95. This is clear from the fact that in the asst. yr. 1993-94 the depreciation was claimed under s. 32 r/w r. 5. As provided therein the rate of depreciation has been prescribed in Appendix I, III(3)(xiii)(i). Under this there is renewal energy devices named windmills, which is entitled to depreciation at 100 per cent. Therefore, in asst. yr. 1993-94 same being installed after September, 50 per cent was granted and balance 50 per cent was grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) confirmed. The Tribunal held that provisions of s. 41 (2) being charging provision could not be applied to those cases where depreciation had been claimed prior to the amendment effective from 1st April, 1998 and therefore, the amount received from insurance company could not be assessed under s. 41 (2). Though the AO reopened assessment under s. 41(1) the income is finally taxed under s. 41(2). It was not taxed under s. 50 and as mentioned by the AO capital gain could not be levied at that time due to Supreme Court judgment in case of Vania Silk Mills (P) Ltd. vs. CIT (1991) 98 CTR (SC) 153 : (1991) 191 ITR 647 (SC). In fact this is the only year when the assessee is outside the provisions of s. 41 (2) and to cover such situation a new section was introduced in s. 45(1A) w.e.f. 1st April, 2000, i.e. asst. yr. 2000-01. So in this year i.e., asst. yr. 1999-2000 the assessee is not hit by s. 41 (2) nor by s. 45(1A) and not by capital gain tax. Therefore, addition made is incorrect and illegal and requires to be deleted. 7. On the other hand, the learned Departmental Representative very strongly relied upon the orders of AO and CIT(A). He stated that the AO and CIT(A) are corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of s. 45(1A) was not in the statute, the assessee could not be taxed under the said section and simultaneously as the assessee had not claimed and was not allowed depreciation under s. 32(1)(i), the same cannot be also taxed under s. 42(1). While concluding the argument it was submitted that this is the very point on which Bombay Tribunal in case of Rajhans Metals (P) Ltd. vs. ITO held the claim in assessee's favour. 8, We have heard the rival contentions and gone through the facts and circumstances of the case. We have also perused the case records including the assessment order as well as the order of CIT(A). We have also perused the paper book filed by the assessee as well as the case laws relied on by both sides. The facts are undisputed as narrated above. The assessee has claimed depreciation and was also allowed on windmill in asst. yrs. 1993-94 and 1994-95 under s. 32 r/w r. 5 of the IT Rules, 1962. The AO has summarily held that the assessee received salvage value of Rs. 14.42 lakhs and Rs. 1,57,69,136 from General Insurance Company, when the windmill on which depreciation at 100 per cent was claimed was damaged due to cyclone. Thus, the assessee totally received Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbit of charging sections, then the assessee cannot be charged to tax by construing the provisions liberally. Sec. 41(2) as brought on the statute book w.e.f. 1st April, 1998 is being reproduced as under: '41(2) Where any building, machinery, plant or furniture, (a) which is owned by the assessee; (b) in respect of which depreciation is claimed under cl. (i) of sub-s. (1) of s. 32; and (c) which was or has been used for the purposes of business, is sold discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be together with the amount of scrap value, if any, exceeds the WDV, much of the excess as does not exceed the difference between the actual cost and the WDV shall be chargeable to income-tax as income of the business of the previous year in which the moneys payable for the building, machinery, plant or furniture became due. Explanation: Where the moneys payable in respect of the building, machinery, plant or furniture referred to in this sub-section become due in a previous year in which the business for the purpose of which the building, machinery, plant or furniture was being used is no l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute book w.e.f. 1st April, 1998. Therefore, while enacting s. 41(2) w.e.f. 1st April, 1998, in our opinion, the legislature referred to the amended provisions of s. 32(1)(i) effective from 1st April, 1998. Therefore, in our humble opinion, the provisions of s. 41(2) being the charging provisions could not be applied to those cases where the depreciation has been claimed prior to the amendment effective from 1st April, 1998. Had the legislature intended to apply the provisions of s. 41 (2) to all the cases, then it could have used the words and figures "under sub-s. (1) of s. 32" instead of the words and figures 'under cl. (i) of sub-s. 32(1)' in s. 41 (2)(b). It is the wisdom of the legislature which must prevail. The Courts are not supposed to supply or remove the words to or form the language used by the legislature. If any lacuna is there, then it is only the legislature which can remove the same by making suitable amendment. Accordingly, we are of the view that the provisions of s. 41(2) are not applicable in the present case and consequently, the sum of Rs. 2,25,37,301 could not be assessed to tax by invoking the provisions of s. 41 (2) of the Act. The order of the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid contention is considered however here it is pertinent to note that the assessee has not used the aforesaid premises for the office use during the year. The said premises was prepared for giving it on hire. Therefore the claim of the assessee for revenue expenditure for business purposes is untenable. The assessee had given premises for hire therefore the expenses incurred for its repairs are separately allowed under the provisions meant for income from house property. In view of the foregoing the claim of the assessee for aforesaid expenditure of Rs. 9,66,047 fails which is disallowed and added to the total income." As regards to the consultancy charges, the AO held as under: "As stated above, the consultancy charges paid by the assessee naturally does not qualify for business expenditure in view of the aforesaid factual position. Therefore, consultancy fees paid are disallowed and an addition of Rs. 2,61,518 is made to the total income of the assessee." 12. Aggrieved, the assessee preferred appeal before CIT(A). The CIT(A) also confirmed the disallowance agreeing with the views of the AO. The learned Authorised Representative submitted that expenditure were ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s otherwise required to be so reported. It was therefore submitted that the assessee has correctly claimed the same as revenue expenditure and the same should be allowed. In view of the above facts, we are of the view that these expenses are in the nature of revenue expenditure and even the consultancy charges are for the purposes of business expenditure and accordingly we allow both the expenses. These issues of the assessee's appeal are allowed. 14. The next issue in this appeal of the assessee is against the order of CIT(A) in confirming the action of the AO in making disallowance of amount paid to Shri Aurbindo Service Trust in the nature of donation. At the outset, the learned counsel for the assessee has not pressed this issue. Accordingly, this issue of the assessee's appeal is dismissed as not pressed. 15. The next issue in this appeal of the assessee is against the order of CIT(A) in confirming the action of the AO in making disallowance of vehicle registration expenses in the nature of capital expenditure. At the outset, the learned counsel for the assessee has not pressed this issue. Accordingly, this issue of the assessee's appeal is dismissed as not pressed. 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
