TMI Blog2012 (8) TMI 770X X X X Extracts X X X X X X X X Extracts X X X X ..... sible view. For assuming jurisdiction u/s.263 the twin conditions namely (i) the order is erroneous and (ii) the order is prejudicial to the interest of the revenue must be satisfied. In the instant case the order may be prejudicial to the interest of the revenue because of higher allowance of depreciation but cannot be said to be erroneous since the AO has taken a possible view. See Malabar Industrial Company Ltd. (2000 (2) TMI 10 - SUPREME COURT ). Therefore, CIT in our opinion is not justified in assuming jurisdiction u/s 263 - Decided against Revenue - ITA No. 827/PN/2008 - - - Dated:- 8-6-2012 - Shri Shailender Kumar Yadav And Shri R.K. Panda JJ. Assessee by : Sri Percy Pardiwala Nishant Thakkar Respondent by : Sri S.K. Singh ORDER Per R.K. Panda, AM This appeal filed by the assessee is directed against the order dated 27-03- 2008 passed under section 263 by the CIT-II, Kolhapur relating to assessment year 2003-04. 2. The assessee in its various grounds of appeal has challenged the order passed u/s. 263 by the learned CIT. 3. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing of Detergents and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be eligible to be depreciated as part of block of asset. Only money payable is required to be reduced for computing the WDV as per provision of the Act. 6. The assessee also claimed that provisions of section 32 read with section 43(6)(c) support it s claim that the write off of values of the assets in the books of accounts is immaterial for the purpose of calculating depreciation under section 32 of the Act in as much as depreciation is allowable on the closing written down value of the block of assets as per the provision contained in the Income Tax Act, 1961. It was claimed that once an asset become part of the block of assets then it loses its individual identity and depreciation is allowable on the entire block. The assessee also relied on the following decisions in support of it s arguments. 1. G.N. Agrawal (1996) 217 ITR 250 (Bombay High Court). 2. Packwell Printers Vs. ACIt (1996) 59 ITD 340 (Jabalpur) 3. Natco Exports Vs. DCIT (2003) 86 ITD 445 (Hyd) 4. South Eastern Coalfields Ltd., Vs. JCIT (2003) 260 ITR (AT) 1(Nagpur). 5. DCIT Vs. Udaipur Distillery Co. Ltd., (2002) 74 TTJ 193 (jodhpur) It was accordingly requested to drop the proceedings u/s. 263 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled along with the Return, no reference was made to the above and the depreciation was claimed on the entire WDV of the gross block of assets. Moreover, unlike the case of the new fixed assets added during the year for which complete details were furnished, including their location with appropriate code numbers on the basis of the Assets Register, no such information was provided regarding the assets that were said to have been written off etc. 11. He noted that the submissions made by the assessee company during the course of assessment and the current proceedings reflect the following : During the course of assessment proceedings, the assessee has furnished a list of the assets written off, discarded as Annexure-14 to its letter dated 15-11-2005. In the said letter, the same list was once again furnished under the Head Details of old and obsolete assets written off/discarded . The list contained 240 assets with their date of purchase, Gross book value (GBV) and the Net book value (NBV) totalling to Rs. 5,61,15,127/- and Rs. 3,47,45,651/-, respectively. Surprisingly, this list too did not indicate the location of these assets, unlike the case of the new assets that were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing grounds : 1. The learned CIT erred in passing order u/s.263 of the Act. 2. The learned CIT erred in setting aside the assessment order. 3. The learned CIT erred on facts and in law in holding that, order of Assessing Officer is erroneous and prejudicial to the interest of the revenue. 4. He further erred in directing the Assessing Officer to reframe fresh assessment after re-examining the entire claim of depreciation. 5. The learned CIT failed to appreciate that, Assessing Officer after proper enquiry in this respect had correctly accepted depreciation claim of appellant and passed the order u/s.143(23). Thus, the order passed by Assessing Officer u/s.143(3) was neither erroneous nor prejudicial to the interest of the revenue. 13. The learned counsel for the assessee referring to the Profit and Loss Account for the year ending 31-03-2003, (a copy of which is placed at Page 18 of the Paper Book) drew the attention of the Bench to the manufacturing and other expenses shown at Rs. 42,93,90,167/- as per Schedule 15. Referring to the copy of Schedule 15 placed at Page Nos. 23 and 24 of the Paper Book he drew the attention of the Bench to the item Loss of fixed assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the AO (copy of which is placed at Paper Book Page 88) he submitted that the assessee as per Clause 7 has given the details of loss of Rs. 3.47 Crores on sale of fixed assets as per Annexure-7. Referring to the letter dated 06-12-2005 addressed to the AO during the course of assessment proceedings (Paper Book Page 89) the learned counsel for the assessee submitted that as per Clause 1 of the said letter the assessee has given the details of loss of Rs. 3.47 Crores on sale of fixed assets as per Annexure-1. Referring to the letter dated 06-12-2005 addressed by the AO to the assessee (Paper Book Page 90) he drew the attention of the Bench to the show cause notice wherein the AO categorically has asked the assessee as per Clause 1 and 2 of the said letter which reads as under : (i) You have debited assets of Rs. 3,47,45,615/- (Written off) to Profit Loss Account under the head Manufacture and other Expenses . These are Capital Expenses and therefore not allowable as Revenue Expenses. Secondly, these are the depreciable assets. Therefore the same require to be deducted from the Block of Plant Machinery. Please state as to why Rs. 3,47,45,615/- should not be disallowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of depreciation and not the write off value. It was explained that the company had correctly not reduced the same from the block of assets for the purpose of claiming depreciation. 18. Referring to Para 6 of the 263 order the learned counsel for the assessee drew the attention of the Bench to the observations of the learned CIT wherein he has stated that all material facts relating to the assets of the company have not been properly verified and the claim of depreciation on the above assets has been allowed even without ascertaining their existence or use in the business. He submitted that the notice is on different footing, whereas the order speaks of no proper verification and no enquiry. Referring to the decision of the Hon ble Kolkata High Court in the case of Bagsu Devi Bafna Vs. CIT reported in 62 ITR 506 he submitted that if the order passed u/s.263 is different from the queries in the notice then the order passed u/s.263 cannot be sustained. 19. He submitted that it is the allegation of the learned CIT that no depreciation is allowable since the assets are not used. He submitted that the issue as to whether depreciation is allowable on these assets which hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal has since been upheld by the Hon ble High Court and the appeal filed by the revenue has been dismissed. 23. Referring to the decision of Hon ble Delhi High Court in the case of CIT Vs. Bharat Aluminium Co. Ltd. reported in 187 Taxmann 111 he submitted that the expression used for the purpose of business when applied to block of assets would mean use of block of assets and not any specific building, machinery, plant or furniture in the said block of assets as individual assets lose their identity after becoming inseparable part of block of assets. 24. Coming to another proposition the learned counsel for the assessee submitted that this is not a case for invoking provisions of section 263. Referring to the decision of the Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT reported in 243 ITR 83 he submitted that Hon ble Supreme Court in the said decision has held that when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the ITO has taken one view with which the CIT does not agree it cannot be treated as an erroneous order prejudicial to the interest of the revenue u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for A.Y. 2003-04 has been completed in your case on 16-12- 2005 determining total income at Rs. NIL and Book Profit of Rs. 5,09,89,141/- u/s.115 JB of the Act. 2. However, on going through the Profit and Loss Account it is seen that Manufacturing Other Expenses of Rs. 42,93,90,167/- include an amount of Rs. 3,47,45,651/- under the head Operation and other expenses with the narration loss on fixed assets sold, written off, discarded etc.(Net) While computing the total income you have added back this amount. 2.1. Further as per your submission dated 16-12-2005 filed during the course of assessment proceedings, it is seen that the said assets were not reduced from the block of assets and depreciation has been claimed on such assets as there was no sale of assets written off. 3. In fact, depreciation has to be allowed on the assets used for the purpose of business. In your case the assets under consideration are sold/written off/discarded . The claim of depreciation of Rs. 86,86,413/- @25% of Rs. 2,47,45,651/- has been wrongly allowed during the course of assessment. 4. In the light of the above, the assessment framed on 16-12-2005 is erroneous so far as it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identity after becoming inseparable part of block of assets. We find the Jabalpur Bench of the ITAT in the case of Packwell Printers (Supra) has also held that no disallowance of depreciation can be made when the assets have entered into the Block of assets but not put to use. Therefore, the issue of claim of depreciation on assets which were sold, discarded or written off and not put to use during the year but had entered in the Block of assets is a highly debatable issue. 30. It has been held by the Hon ble Supreme Court in the case of Malabar Industrial Company Ltd. (Supra) that when the AO adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the AO is unsustainable in law. The allegation of the Ld. CIT that depreciation has been wrongly allowed on assets which were sold, discarded or written off and therefore not used in the business in our opinion is a possible view. It has been held in a number of decisions that for assuming jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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