TMI Blog2008 (6) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of personal expenses out of certain accounts mentioned in Schedule N of the profit and loss account of the annual accounts. These accounts are business promotion expenses, travelling expenses, vehicle maintenance expenses, miscellaneous expenses etc. During the assessment proceedings and in response to the Assessing Officer s proposal to make disallowances of expenses of personal nature, the assessee submitted that the disallowance of the same was unwarranted and unjustified as there was no element of personal expenses in them. However, Assessing Officer held that the claim of expenditure in the said accounts was unverifiable and the personal element was not ruled out and therefore, disallowed ₹ 50,000 on estimate basis out of these expenses. 3. Aggrieved with the above, the assessee appealed to the CIT(A). During the first appellate proceeding before him, the CIT(A) observed that these expenses were incurred in cash and the verification of the genuineness of the assessee s claim involved many practical difficulties. Accordingly, the CIT(A) held that the expenses like car, travelling, vehicle, maintenance, advertisement expenses, miscellaneous and business promotion e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. Resultantly, the assessee increased the WDV to the extent of such capitalized expenditure and made a claim of depreciation under section 32 of the Income-tax Act, 1961 on such increased WDV. 6. During the assessment proceedings, the Assessing Officer found that tanks and terminals were struck by the earthquake and admittedly they were not used for business purposes during the year, the assessee received total sum of ₹ 1,57,28,124 from the Insurer but the assessee did not make requisite adjustments to the WDV of ₹ 2,28,76,504 relating to block of assets of Plant Machinery and further, the assessee claimed depreciation on the unused damaged tanks and terminals. In this regard, the assessee submitted that the said amount relates to the expenditure incurred for refurbishing the damaged plant and machinery by the earthquake on 26-1-2001 in Bhuj Area of Gujarat. Further the assessee submitted that net expenditure was capitalized and claimed depreciation in subsequent years. As far was the claim of depreciation on the unused tanks and terminals are concerned, assessee argued that he is entitled to depreciation in view of the various decisions of the judgments. The Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the receipt of any money or other assets under an insurance from an insurer on account of damage to or destruction of, any capital asset . The provisions of section 45(1A) do not apply to the case of the assessee as the expenditure incurred in respect of the damaged tanks and terminal exceeded the receipts from the insurer. In this context, assessee mentioned that the expenditure incurred on the damaged tanks and terminals was ₹ 3,83,04,364 as on 31-3-2002 and the total insurance receipt was only ₹ 1,57,28,127 and, therefore, mentioned the expenditure exceeded the receipts in the assessee s case yielding no profits or gains and thus, the provisions of section 45(1A) are inapplicable to the instant case. Further, commenting on the applicability of section 50, the AR argued the same do not apply to the assessee s case too. Whereas the section 50 is operational on in case of the depreciable assets where there is the transfer of asset or the block of assets ceases to exist . Further, he also argued without prejudice that the assets in question are neither sold nor discarded nor demolished nor destroyed during the previous year and they were actually damaged by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of the both parties on the issue of applicability of the provisions of the section 31 or 37 of the Income-tax Act to the expenditure claims of the assessee. 11. During the rehearing time, both the parties were informed of the inappropriate application of law by both of them. It was told to the assessee that he has erred in capitalizing the net expenditure on damaged assets without the legal support of the provisions of Income-tax Act and claiming depreciation on such capitalized amounts. Similarly, DR was informed of the inappropriate and the erroneous assumption of law by the revenue authorities in adjusting the insurance receipts from the WDV in respect of the block of plant and machinery and thereby restricting the depreciation against the provisions of section 43(6)(c)( B), which deals only with the money payable in respect of any asset falling in that block which is sold or discarded or demolished or destroyed and not which is damaged. In view of the above and in the interest of justice, a proposal was made to both the parties to send the issue to the files of the Assessing Officer for examining the allowability of the said expenditure under section 31 or under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B) relating to written down value are extracted and they read as follows : Section 43(6) written down value means- (a)****** (b)****** (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) ****** (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; Moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year, is an operative part of the provisions of section 43(6)(c)(i )(B), which excludes the assessee s case of damage of tanks and terminals. Further, we have also perused the judgment in the case of Engineering Works India (P.) Ltd. (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions for computation of capital gains in case of Depreciable Asset are extracted and the relevant provisions read as follows : 50. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or...., the provisions of sections 48 and 49 shall be subject to the following modifications :- (1)where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the asset during the previous year, exceeds the aggregate of the following amounts, namely : (i )****** (ii)****** (iii)****** (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be written down value of the block assets at the beginning of the previous year,....... From the above, we find that the provisions of section 50 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the definition of written down value as per section 43(6)(c) of the Income-tax Act. Although, the assessee has some remedy through the provisions of section 31 or 37, we refuse to interfere on this matter in view of the reasons given in the preceding paragraphs. 19. Therefore, the additions made by the Assessing Officer and the order of the CIT(A) confirming the same are set aside. Accordingly, the ground of the assessee is allowed. 20. Ground No. 3 relates to disallowance of ₹ 1,31,437 under section 14A on proportionate basis. The assessee has substantial investment in the mutual funds and has received dividend of ₹ 26,28,721 which is exempt from taxes. On finding that the assessee has maintained composite accounts of business income and other income, the Assessing Officer disallowed ₹ 1,31,437, i.e., 5 per cent of the dividend income towards working expenses under section 14A. Aggrieved with the above additions, assessee is before the CIT(A). The CIT(A) confirmed the disallowance to 5 per cent by stating that the assessee has to incur certain expenses on the maintenance of the investments, its records etc. 21. Aggrieved with the above, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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