TMI Blog2012 (8) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... 74/Del/2011 - - - Dated:- 27-4-2012 - Diva Singh, A N Pahuja, JJ. For Appellant: Shri Niranjan Kauli, CIT, DR For Respondent: Shri P N Shastry, CA ORDER Per: Diva Singh: These are Cross Appeals filed by the Revenue and the Assessee against the order dt. 4.3.2011 of CIT(A)-XII, New Delhi pertaining to the A.Y. 2005-06 on the following grounds respectively. ITA 2698/Del/2011: 1. The CIT(A) has erred in confirming the disallowance of prorate depreciation of Rs.15191.18 lakhs on account of downward Revaluation of assets (by reduction) in A.Y. 2000-01. 2.1. The CIT(A) has erred in confirming the disallowance of depreciation on the intangible asset of mining rights despite changes in section 32 of the Income Tax Act, 1961, and/or in the alternate claim that the addition to Mining rights in the current year were of revenue in nature, despite the fact that the Hon ble ITAT had set aside similar issues besides in other years and the CIT(A) having allowed it as a revenue expenses in some years. 2.2. The CIT(A) has erred in not properly dealing with the issue of consequential allowance of the claim of depreciation on the intangible asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same the submissions advanced on behalf of the assessee are found reproduced in para 4.3 which are reproduced hereunder:- 4.3 Vide-reply dated 21.11.2007, the assessee has submitted as under: - "You are aware that there was a global glut in steel and consequent fall in steel prices around the year 1997 and 1998. This was consequent to an economic melt down or recession in South East Asia especially in Korea, Malaysia and Indonesia etc. This company being one of the largest steel producers in India was adversely affected and incurred huge losses. The Government of India in its wisdom and a measure of rehabilitating the company, waived loans to the extent of Rs 5073 crores availed by it from the SDF (Steel Development Fund)the Govt. of India plus its own loans of Rs. 381 crores. This waiver was done in the year-ended 31.3.2000 relevant to AY 2000-01. The company had given loans to its subsidiary - IISCO (Indian Iron Steel Co. Ltd) It had written off loan to the extent of 2072 crores and adjusted it against the waiver of SDF loans. When a loan is waived it does not become an expense since it is not the business of the company to extend loans. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following cases, where the waiver loan would not affect the actual cost or WDV of assets. CIT Vs Tata Iron Steel Co. Ltd 231 ITR 285 SC CIT Vs Cochin Co. Pvt. Ltd - 184 ITR 230 (Ker) Bharat Forge Ltd. Vs CIT - 205 ITR 339 However, the Department in AY 2000-01 took a view that the waiver of loan amounted to a cost of assets met by the GOI and consequently reduced it from WDV of the block of assets. This resulted in reduction of the amount of depreciation allowed This issue is pending in appeal before the ITAT. The Department has followed its stand in AY 2001-02, 2002- 03, 2003-04 AY 2004-05. The resultant affect of the deprecation for AY 2005-06 on the above basis of the department will be Rs. 15191.18Iakhs. (Note No. 3.8 of Annex-2 to ITR) This however is subject to the final outcome of the pending appeals on this issue. 3.1. The reasoning taken for disallowing the claim was on account of conjoint reading of S.43(1), 43(6) and 32(1) which makes it clear that depreciation is allowable on the reduced written down value of the assets read along with Explanation 10 to S.43(1) inserted by Finance no.2 Act of 1998 w.e.f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue to the A.O. and the A.O. as yet has not decided the issue. Referring to the copy of the said order dt. 25.6.2009 filed in the paper book it was stated had discussed the issue at pages 125. Accordingly request was made that the issue in the year under consideration also may be restored to the A.O. Ld.D.R. had placed reliance upon the impugned order however confronted with the order of the Tribunal no objection to the request of restoring the issue to the AO was made. 4.2. Before coming to the conclusion we consider it appropriate to set out the facts, arguments and reasoning taken by the Coordinate Bench in restoring the issue back to the file of A.O. by the said order in the consolidated order passed in the case of the assessee for the 3 A.Ys as found discussed in paras 45 to 48 in pages 125 of the paper book as under:- 45. The last issue for consideration relates to depreciation on mining rights. During the course of assessment proceedings the assessing officer noted that the assessee in. the computation of income had itself added back an amount of Rs.98.44 lakhs representing depreciation on mining rights treating it as disallowable claim. The claim of allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue whether mining rights are intangible assets has neither been examined by the assessing officer nor by the ld. CIT (Appeals). We are, therefore, of the considered view that this matter should be restored to the file of the assessing officer with the directions to verify the date of acquisition of mining rights and examine the case whether the mining rights are covered under intangible assets, as specified in old Appendix I applicable for assessment year 1988-89 to 2002-03. As. regards the alternative claim of the assessee as revenue expenditure, this issue has also not been examined by either of the authorities. We, therefore, set aside the matter to the file of the assessing officer with a direction to examine the claim of the assessee whether expenditure incurred on acquisition of mining right sis revenue expenditure or capital in nature. 4.3. Accordingly on consideration of the factual material in the light of the arguments of the parties advanced, respectfully following the order of the Tribunal the said issue is restored to the file of A.O. with the above directions., Ground no.2 raised by the assessee is allowed for statistical purposes. 5. The facts relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to depreciation as well as investment allowance. 5.4. Reliance was also placed upon ITO vs. Samiram Majumdar, 98 ITD 119 (Cal.) wherein it had been held that a printer and scanner being an integral part of a computer system have to be treated as computer for the purpose of allowing higher depreciation. 5.5. It was contended that in A.Y. 2006-07 the CIT(A) relying upon the order of the Delhi Bench of the Tribunal in case of Nestle India Ltd. vs DCIT 94 TTJ 498 in which it was held that UPS were not eligible for depreciation at rates applicable to computers since they were electrical equipments by nature. It was contended that the principle laid down in the said judgement was not applicable as UPS and computer net working are independently different types of equipment as such the said judgement has no applicability. 5.6. Considering the arguments the CIT(A) upheld the action of the AO vide para 12.1 holding as under:- 12.1. The submissions given by the appellant has been perused. There is a difference between a computer and its accessories and wiring. The Fiber Optic Computer Networking is a system of wiring which can be used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s opinion is necessary before it can be held if so warranted that fiber optics is an integral part of the computer. Accordingly the issue is restored with the above direction to the file of the A.O. 6. In the result the appeal of the assessee is partly allowed for statistical purposes. 7. Coming to the departmental appeal the facts qua the first issue are found discussed at pages 10 to 15 of the assessment order. A perusal of the same shows that the A.O. vide para 7 observed after hearing the assessee that disallowance of Rs.445 lakhs on account of adjustment relating to earlier year which are treated as prior period expenses had to be disallowed requiring the assessee to explain the prior period items claimed as per Schedule 2.13 of the Profit ad Loss a/c the A.O. accepted the explanation in regard to the extent of sales of Rs.11 lakhs. However in regard to stores and spares, power and fuel and repair and maintenance it appeared that the assessee could not prove that the liability had been incurred in the year under consideration. Relevant finding is at para 7.3 and 7.4 which are reproduced here under. 7.3. Submissions of assessee have been considered. The depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on filed by the appellant and it is seen that similar expenses have been allowed by CIT(A) in the earlier years. A perusal of the reply filed by the appellant shows that these expenses had crystallized during the year. Thus the addition of Rs.445 lakhs made by the Assessing Officer is hereby deleted. This ground is decided in favour of the appellant. 7.3. Ld.D.R. places reliance upon the assessment order. 7.4. The ld.A.R. apart from relying upon the submissions advanced before the CIT(A) contended that similar expenses on account of the stores and spares, power and fuel, repairs etc. have been allowed by CIT(A) in A.Y. 2001-02 on the basis of acceptance/accrual/crystallization of liability during the year on the basis of documentary evidences and the CIT(A) has followed this position in all the subsequent years. The said issue it was stated is covered in assessee s favour by the judgement of the Jurisdictional High Court in Shriram Pistons Rings Ltd. 174 Taxman 147 (Delhi) . 7.5. We have heard the rival submissions and perused the material available on record. On a perusal of the same we are of the view that the factual findings on record remains unre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of Rs.131.04 lakhs is disallowed. 8.2. In appeal before the First Appellate Authority taking cognizance of the fact that in the A.Y. 1995-96, 1996-97 the addition stood deleted the same view was taken by the CIT(A). 8.3. Aggrieved by this the department is in appeal before the Tribunal. Ld.D.R. places reliance upon the assessment order. 8.4. Ld.A.R. of the assessee on the other hand submitted that the Tribunal had decided the issue in favour of assessee in A.Y. 1995-96, 1996-97 and consistently thereafter in 1997-98, 1998-99, 2000-2001 and 2001-02 AYs and the claim has been consistently been allowed in 2002-03 to 2004-05 A.Ys by the CIT(A) and again in 2006-07, 2007-08 on the basis of orders of the Tribunal. It was argued that there is no change in position either of law or of fact. 8.5. We have heard the rival submissions and perused the material available on record. On a perusal of the same it is seen that the Coordinate Bench vide its order dt., 25.6.09 in 2001-02, 2002-03 copy of which is placed at pages 118 for A.Y. 19095-96 concluded the issue vide paras 33 and 34 as under:- 33. We have heard both the parties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 1986-87, this treatment given by the assessee was not disturbed by the department. In A.Y. 1988-89 and 1989-90, the said treatment given by the assessee was disturbed by the AO in reassessments completed u/s 147/143(3) albeit, the Tribunal having quashed the said assessment, the treatment given by the assessee to the water supply and sewerage plant as plant and machinery for the purpose of claiming depreciation stands undisturbed. Insofar as the A.Ys 1987-88, 1991-92 and 1992-93 are concerned, the similar issue is disputed by the assessee in the appeals filed before the Tribunal which are still pending. Having regard to this position on the issue under consideration in the subsequent years, we are of the view that the rule of consistency has no application to the facts of the case and rejecting the contention raised by the ld.DR based on the said rule, we set aside the impugned orders of the ld.CIT(A) on this issue and direct the AO to treat the entire water supply and sewerage plant of the assessee as a plant and machinery for the purpose of depreciation as held by the Mumbai bench of ITAT in the case of TISCO Ltd. (supra) . 34. In the year under consideration, the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the interest has been earned back as subsidy for purchase of pollution control equipment and therefore, it is not an expense. Another 4% credited to the foreign exchange fluctuation reserve to meet the future exigencies of devaluation of rupee vis- -vis the German Dutch Mark. The ultimate utilization of retained amount is of no consequence and it not a relevant factor for claiming deduction. The assessee s reliance on the decision of Hon ble ITAT in the case of RBNS Sugar Mills Ltd. Vs DCIT reported in 85 ITD 552 (Delhi) is misplaced in as much the facts are clearly distinguishable. In the aforesaid case, the issue at hand was deductibility of accrued interest during the moratorium period, as the liability of payment of interest was not waived. There was only a moratorium on the payment of interest. 10.4. Accordingly, out of total interest debited on this account during the year amounting to Rs.1554 lakhs, only 0.75% is allowable and the balance of Rs.1421 lakhs is disallowed. 9.2. In appeal before the First Appellate Authority relying upon the order of ITAT in assessee s own case in ITA 192/Del/2004 for A.Y. 1998- 99 the addition made was deleted. 9.3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 29.5.2006 which was followed in the subsequent years up to 2006-07 wherein also as per order dt. 30th March, 2010 the addition made by way of disallowance stood deleted allowed the claim of the assessee. 10.3. Aggrieved by this the Revenue is in appeal before the Tribunal. 10.4. Ld.D.R. relied upon the assessment order. Ld.A.R. of the assessee inviting attention to order dt. 29.5.2006 passed by the CIT(A)-XII New Delhi pertaining to A.Y. 2001-02 submitted that the said issue was discussed at page 135 of the paper book, internal page 9, para 8. For ready reference the same is reproduced hereunder:- 8. Ground no.7 is with respect to depreciation on assets not in active use. Briefly the facts are that the A.O. noticed from Schedule 1.5 of the fixed asset schedule that it included assets valued at Rs.11.78 crores which were retired from active use. In the note below the schedule, a remark had been appended by the auditors as under. Gross block as on 31.3.2001 includes Rs.11.78 crores being assets retired from active use. The AO held that depreciation on such assets was not allowable since the assets were idle and were not being used for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It has also been contended on behalf of the assessee that the department has not appealed on this point before the ITAT in 2001-02 A.Y. and consistently relying on this order of the CIT(A) in subsequent years the said view has been upheld even in 2006-07 and 2007-08 A.Ys. by way of disallowance in the earlier years. 10.6. We have heard the rival submissions and perused the material available on record. Taking into consideration the fact that the issue has emerged from A.Y. 2001-02 wherein the finding of the CIT(A) was accepted by the department, it is necessary to verify whether the said claim has been accepted by the department or not in subsequent years. Accordingly for necessary verification in regard to the past history of the assessee on the said issue it is restored back to the file of A.O. with the direction to verify the claim of assessee in regard to the departmental stand on this issue up to the ITAT stage. Accordingly ground raised by Revenue is allowed for statistical purposes. 11. In the result the appeal of the department is partly allowed for statistical purposes. 12. In the result ITA 2698/Del/11 of assessee and ITA 3274/Del/11 of department are partly allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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