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TMI Blog2014 (5) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... was originally completed under section 143(3) accepting the net loss declared by the assessee. However, the A.O. consequent to the audit objections raised, initiated proceedings under section 147 by issuing notice under section 148. In the re-assessment proceedings, assessee was asked to furnish details of grants received from Government of A.P. utilisation to various fixed assets and accounting thereon in the books of account. Not only that A.O. was also of the opinion that the depreciation claimed by the assessee was not calculated correctly as he was of the opinion that the WDV at the beginning of the year for the purpose of allowing depreciation was to be calculated on the value of assets from the inception of Board, as reduced by various capital grants received by the assessee towards the assets. In A.Y. 2004-05 the matter was referred to the special audit under section 142(2A) and consequent to that report which was submitted that with certain reservations, the A.O. concluded the assessment proceedings on the basis of the audit report determining the depreciation at a lesser figure while modifying the receipts and expenditure. 3. Assessee has carried the matter in appeal to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been acquired to find out the cost thereby not only trying to add words to the provision which is not permitted but making the definition provided for cost in the same section 43 redundant." 3.1. One more ground contested by assessee in A.Y. 2003-04 is with reference to the reopening of assessment. Even though the assessment was reopened for A.Y. 2004-05, as briefly stated above that issue was concluded against the assessee by the order of the ITAT (supra) in that year. Assessee, however, carried the matter to the Hon'ble High Court of A.P. Even though by the time the matter was takenup by the Hon'ble High Court of AP the Ld. CIT(A) passed the impugned appellate order, this fact was not brought to the notice of the Hon'ble High Court. Therefore, Hon'ble High Court allowed the assessee to agitate the matters afresh before the Ld. CIT(A) vide orders dated 01-10-2013. Since the orders of the Hon'ble High Court of A.P. could not be implemented as Ld. CIT(A) already passed the order by that time the directions of the Hon'ble High Court were issued, the assessee did not press the issue of reopening under section 147 before us in the present proceedings. Therefore, the issue of reopen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Referring to the provisions of section 43(6) and amendment brought to the IT Act by Finance Act, 2008 w.e.f. 01.04.2003, it was the contention of the Ld. Counsel that the action of the A.O./Special Auditor in re-working out the written down values/value of assets w.e.f. 01.11.1989 to 31.03.2004 is not correct as the Act provides for computation of actual cost in the books of accounts as reduced by the total amount of depreciation of such adjustment provided in the books of accounts. Therefore, the WDV as at the beginning of the year i.e., as n 01.04.2003 can only be considered as WDV for the purpose of determining the depreciation for A.Y. 2003- 04. Therefore, the entire exercise done by the Special Auditor in re-determining the value of assets/written down values for each year from 1989-90 onwards is not warranted. Referring to the orders of the Ld. CIT(A), it was submitted that Ld. CIT(A) also ignored the specific Explanation-(6) brought on the statute retrospectively and confirmed the order of the A.O. on the basis of the provisions of section 43(6) which was interpreted by the Hon'ble ITAT in the case of Kandla Port Trust vs. ACIT 296 ITR 88. In that case, it was held that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (vi) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922 (11 of 1922), where such depreciation was not deductible in determining the written down value for the purposes of the said clause (vi);] [(c) in the case of any block of assets,- (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,- (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and [(C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduced- (a) by the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany for the immediately preceding previous year shall be reduced by the 4[written down value of the assets] transferred to the resulting company pursuant to the demerger. Explanation 2B.-Where in a previous year, any asset forming part of a block of assets is transferred by a demerged company to the resulting company, then, notwithstanding anything contained in clause (1), the written down value of the block of assets in the case of the resulting company shall be the written down value of the transferred assets [***] of the demerged company immediately before the demerger. Explanation 3.-Any allowance in respect of any depreciation carried forward under sub-section (2) of section 32 shall be deemed to be depreciation "actually allowed". [Explanation 4.-For the purposes of this clause, the expressions "moneys payable" and "sold" shall have the same meanings as in the Explanation below subsection (4) of section 41.] [Explanation 5.-Where in a previous year, any asset forming part of a block of assets is transferred by a recognised stock exchange in India to a company under a scheme for corporatisation approved by the Securities and Exchange Board of India established under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Kandla Port Trust vs. ACIT 296 ITR 88 held that in the case of such previously exempt entity, since there was no liability to tax, there was no occasion to compute the income of such assessee under the provisions of Income Tax Act. Hence, the depreciation provided in the books in the years when the income was exempt cannot be treated as the depreciation "actually allowed". Accordingly, it was held that when the assessee was not required to compute profits and gains of business or profession under the Income Tax Act, mere passing of accounting entry made for depreciation in the books of accounts was not the depreciation "actually allowed" as there was no liability to tax and hence, no assessment for this period. It was further held that the written down value for the purpose of assessment would be the original cost, less, NIL. Therefore, the original cost becomes WDV. As this interpretation of the ITAT is not in accordance with/ conformity with the intention and purpose of the provision of depreciation, Explanation-6 has been inserted in sub-section 6 of Section 43. It was clarified as under : 14.2 Some persons were exempt from tax and! therefore, not required to compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned A.Y.2003-04 becomes WDV for the purpose of section 43(6). Therefore, the A.O's. exercise under the guise of 'reference' to special audit to re-determine the depreciation from the inception to A.Y. 2002-03 is not only bad in law but also futile, in view of the specific Explanation-6 introduced by the Legislature in order to settle the disputes that may arise in view of different interpretations. Therefore, since Explanation-6 has overriding effect and is clearly applicable to the assessee's case, the entire exercise of redetermining the WDV from year of inception till A.Y. 2002-03 cannot be upheld at all. Therefore, on principles of law, assessee's contention that WDV at the beginning of A.Y. 2003- 04 in the books of accounts should be considered as WDV for the purpose of Income Tax Act is upheld. 12. Now coming to the working of claim of depreciation, the issue which is also agitated and on which, there is a dispute is with reference to capital grants sanctioned by the Government of A.P. towards various projects, which are required to be adjusted when the assets being capitalized or acquired by the assessee as part of various projects in the course of its operations. The majo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts shown in Income and Expenditure Account, the gross expenditure were shown at Rs.215.62 crores. However, out of this, an amount of Rs.13.10 crores of expenditure was capitalized vide Schedule-9 and an amount of Rs.12.78 crores was shown as expenditure adjusted from grants received from Government of A.P. Thus, as against Rs.215.62 crores expenditure, assessee charged Rs.189.74 crores in the expenditure statement, arriving at excess of income at Rs.22.82 crores, which is the basis for computation of income. Thus, as can be seen, out of Rs.24.81 crores grant amount received, Rs.12.78 crores grant was taken as revenue grant. Therefore, question of capitalising the same and adjusting in the asset cost should not arise. That leaves with the balance amount of Rs.12 crores which may be taken towards cost of new assets. As against this, the special audit report indicates that capital grant was taken at Rs.46.48 crores which is nothing but the entire amount of assets capitalized during the year. Therefore, the basis for working out the amount itself being wrong, we are not in a position to approve the working given by the Special Auditor in this regard. 15. Similarly, for A.Y. 2004-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the ITAT and assessee also did not press the issue in A.Y. 2004-05. Even though assessee raised various issues on reopening of the assessment in A.Y. 2003-04 considering that depreciation details were not given fully even as of today so as to consider the depreciation allowable, we are of the opinion that the reopening of assessment is to be upheld at least for the purpose of determining the depreciation allowable in A.Y. 2003-04, so that WDV for A.Y. 2004-05 can be arrived at. Even otherwise, reopening of assessment in AY 2004-05 was already upheld by the coordinate bench and assessee did not press the same in these proceedings, even after directions of Honble High Court to the CIT(A). The reasons for reopening are same in AY 2003-04. For these reasons, even though assessee has raised certain legal issues on issue of reopening, considering the facts of the case, we uphold the reopening for A.Y. 2003-04 also on the same reasons as in AY 2004-05. The grounds on this issue are accordingly rejected. This order, however, should not be taken as a precedent in any other case either for upholding the order or for cancellation of proceedings under section 147, as this issue was d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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