TMI Blog2010 (9) TMI 751X X X X Extracts X X X X X X X X Extracts X X X X ..... only contention of the learned counsel for the assessee is that prior to the amendment, the sum received on key man insurance policy was exempt under section 10(10D) of the Act - Hence, the explanation inserted by the Finance (No.2) Act, 1996 with effect from 1-10-1996 to provide that any sum received under key man insurance policy shall not be exempt from tax, is only clarificatory in nature - Appeal is disposed of - ITA No.366/Hyd/09 & S.A. NO. 22/HYD./2010 - - - Dated:- 30-9-2010 - G.C. GUPTA, VICE-PRESIDENT AND AKBER BASHA, ACCOUNTANT MEMBER S. Rama Rao for the Appellant. Smt. Vasundhara Sinha for the Respondent. ORDER Per Akber Basha, Accountant Member: This appeal by the assessee is directed against order of the CIT (A)-II, Hyderabad dated 11-2-2009 and it pertains to the assessment years 2005-06. The assessee has also filed Stay Application No. 22/Hyd/10 arising out of same ITA No.366/Hyd/09. 2. Brief facts of the case are that the assessee M/s. Binjurajka Steel Tubes Pvt. Ltd., is a company carrying on the business of manufacturing of steel tubes. The assessee company had filed the return of income under section 139 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved that as per point No.3 in the Notes of Accounts, the auditors have pointed out that by virtue of settlement of dispute with M/s Tata SSL Ltd., the consideration of cost of machinery had been reduced to Rs. 4 crores against the original cost of Rs. 6 crores and consequently the depreciation for the year had been adjusted including withdrawal of excess charged depreciation of earlier years (including current year's) amounting to Rs. 1,19,01,058. The assessing officer issued show cause notice to the assessee as to why the depreciation allowed in the earlier year should not be added back as per the provisions of section 41[1] of the Act. In response to this notice, the assessee filed explanation stating that section 41[1] of the Act is applicable in respect of trading liabilities. Hence, short term capital gain arising out of the remission under dispute is correctly calculated as per section 50 of the Income-tax Act. Not convinced with the explanation of the assessee, the assessing officer treated the sum of Rs. 2 crores as income of the assessee under section 41[1] of the Act. Aggrieved by the order of the assessing officer, the assessee went in appeal before the CIT (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery under working condition. According to the income-tax provisions, there is no identity for the individual plant and machinery (asset) once it is put to use. The respective block of asset would absorb the new asset into it. The cost of acquisition is added back to the opening WDV and depreciation is allowed as per the rates prescribed. The profit or loss is taken into consideration while computing the total income because of transfer of the asset only when the entire block is seizes to exist. In this case, assessee continues to hold the ownership of the block of asset (plant and machinery) including individual asset planetary machine. Even if assessee discards that asset from the block of assets the block was still exists since assessee purchased the assets before the date of signing the "terms out of Court Settlement". As per the accounts, assessee gave effect to the transaction at the end of the financial year. Actually, assessee has not disturbed the planetary mill on or before 31-3-2005. This fact is clearly evident from the agreement between the assessee and M/s Tata Steel. Since the assessee knew the effect of the agreement entered in future will reduce the cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace. Section 41(3) specifically deals with balancing charge in respect of assets relating to scientific research and Section 41(4) deals with recovery of bad debts earlier allowed. Hence, Section 41(1), Section 41(2), Section 41(3) and Section 41(4) are operating in different situations and dealing with different and distinct circumstances. In the case under consideration, sections 41 [3] and 41 [4] of the Act are no way connected, therefore, leaving the aforesaid two sections, the rest available sections are 41 [1] of the Act and 41 [2] of the Act. The purpose of having Section 41(2) as a provision in addition to Section 41(1) is implied that the depreciation is neither a loss, nor expenditure, nor a trading liability, referred to in Section 41(1) of the Act. Hence, the benefit of depreciation obtained by the assessee in the earlier years can not be termed as an allowance or expenditure claimed by the assessee in the earlier years. Hence, any recoupment received by the assessee on this count, therefore, can not be taxed under section 41 [1] of the Act. Again, the balancing charge taxable under Section 41(2) of the Act arises only when any depreciable asset like building, machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration, as discussed above. 9. We may note at this juncture that even though the dispute before us and the arguments of the parties before us, centre around the provisions of S.41 of the Act, it is well within the powers of this Tribunal to consider any disallowance/addition that may be warranted under any other provision of the Income-tax Act, while giving relief to the assessee in the context of addition made under S.41 of the Act. We are fortified in this behalf by the decision of the Hon'ble Calcutta High Court in the case of Steel Containers Ltd. V/s. CIT (112 ITR 1995), wherein it was held that when the Tribunal finds that disallowance of a particular expenditure by the authorities below is not proper, the Tribunal is competent to sustain the whole or part of the disputed disallowance under a different section under which it is properly so disallowable. In this view of the matter, the ground raised by the assessee on this issue is partly allowed. 10. The second effective ground of appeal of the assessee is with regard to addition of Rs. 28,12,500 being the amount received by the assessee on maturity of key-man Insurance Policy. Since the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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