TMI Blog2019 (9) TMI 623X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the assessee. Allowability of capital expenditure - assets acquired but not put to use during the year ended 31.03.2009 claimed under section 35(1)(vi) read with section 35(2) - HELD THAT:- For the purpose of availing deduction of capital expenditure u/s. 35(1)(iv) of the Act, an assessee has to incur expenditure of capital in nature on scientific research relating to its business. The language employed in Section 35 of the Act, nowhere provides for the purpose of allowability of capital expenditure u/s. 35(1)(iv) of the Act that the assessee has to use the asset for research and development purposes during the relevant previous year in which such expenditure is incurred. The assessee becomes entitled to deduction even if the asset in question is not actually used, provided it has incurred capital expenditure during the previous year on scientific research. For the purpose of claiming deduction of capital expenditure u/s. 35(1)(iv) read with Section 35(2) of the Act, what is necessary is incurrence of expenditure, which the assessee company has incurred and not the user of the asset during the previous year in which such expenditure is incurred. Further, the eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us, the learned Counsel for the assessee drew our attention to additional ground raised, and according to the learned Counsel practically this ground is arising out of the main ground and is on merits of the case. For this, the learned Counsel for the assessee drew our attention to the additional ground which read as under: - The Order dated 24.01.2014 passed by the Commissioner of Income Tax u/s 263 of the Act should be held as bad-in-law on account of the following and accordingly be quashed/ cancelled: (a) For claim of depreciation U/s. 32 of the Act, it is not necessary that the assets should be used throughout the previous year and in relation to block of assets, the identity of the individual assets is not there and accordingly, so long as block of assets continues to be used for the purpose of business, depreciation allowance is admissible on that block of assets even though some of the assets may have impaired/ became obsolete: and/ or (b) The adjustment U/s. 145A of the Act of ₹ 1,32,86,625/- was made by the AO himself on the basis followed in AY. 2007-08 and the same basis has been followed in subsequent asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee claimed and have been allowed deduction of the capital expenditure amounting to ₹ 2,58,19,434/- which is pending for completion and was transferred to the fixed asset account. This has been done without making any enquiry prima facie warranted on facts and circumstances of the case. 5. The learned Counsel for the assessee argued that the first issue i.e. MAT credit is against the assessee and to that extent she agreed that the revision is within the framework of law. 6. The learned Counsel for the assessee, as regards to the second issue argued that the AO during the original course of assessment proceedings allowed the admissible depreciation under section 32 of the Act on assets for which impairment loan was provided during the year ended 31.03.2009. The learned Counsel for the assessee stated that once the asset is part of the block of asset and depreciation is granted on that block it cannot be denied as deprecation in subsequent year on the ground that one of the assets is not used by the assessee in the year under consideration. She argued that that user of assets has to be upon block as a whole instead of individual asset. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the written down value of the block of assets. Actual user of the machinery is not required with respect to discarded machinery and the condition for eligibility for depreciation that the machinery being used for the purpose of the business would mean that the discarded machinery is used for the purpose of the business in the earlier years for which depreciation has been allowed. 7. The learned Counsel for the assessee explained the fact that the retired fixed assets for which impairment loan has been provided for, related to the assessee company's one of the industrial undertaking situated at Dewas which were installed/constructed and put to use in the relevant year of installation and construction and continued to be used thereafter and the same were retired on account of restructuring of assessee company's organic chemicals activities including deploying some of the assets of it's Dewas unit in other projects currently under implementation. The assessee company had a business plan to utilize its Dewas Site for a value added Contract Research and Manufacturing Business . The retired fixed assets were used during the year ended 31st March, 2009. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of CIT vs. Sonal Gum Industries (2010) 322 ITR 542 (Gujarat), wherein it is held that in case of block of assets, which is not possible to segregate items falling within the block of assets for the purpose of granting depreciation or restricting the claim thereof. Once, it was found that the assets were used for business it was not necessary that all the items falling within the plant and machinery have to be used simultaneously for being entitled depreciation. In our view, the fixes assets forming part of the block of assets of the Dewas undertaking, the assessee is entitled for the claim. In the present case before us, the assets were acquired in prior years on which depreciation allowance under section 32 of the Act was allowed. The fixed assets forming part Dewas units were used during the year ended 31.03.2009 for the purpose of business and block of assets to which these assets utilized were used for the purpose of business. Therefore, we are of the view that the conditions depreciation allowance under section 32 of the Act were duly satisfied with respect to fixed assets forming part of Dewas Undertaking, though the same were retired as of the year end. Hence, we find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of the order for the assessment year 2007-2008 before us. 13. Similarly, in Assessment Year 2008-2009 the AO did not accept the contention of the assessee company that no adjustment is required to be made U/s. 145A of the Act in assessing the income u/s. 143(3) of the Act and directed to work out the adjustment on similar lines as done in Assessment Year 2007-2008. Based on the said working, the income was required to be reduced by ₹ 31,98,8791/-. However, the AO did not made any adjustment while assessing the income for said the assessment year. The assessee filed copy of letter dated 24.11.2010 submitted in the course of assessment proceedings in this regard. 14. Similarly, for Assessment Year 2009-2010, the AO did not accept the contention of the assessee company that no adjustment is required to be made U/s. 145A of the Act in assessing the income U/s. 143(3) of the Act and directed to work out the adjustment on similar lines as done in Assessment Year 2007-2008. Based on the said working, the income was required to be reduced by ₹ 1,32,86,625/-. The assessee filed copy of letter dated 15.11.2011 submitted in the course of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. The next issue is as regards to the order of allowability of capital expenditure by the AO in respect of assets acquired but not put to use during the year ended 31.03.2009 claimed under section 35(1)(vi) of the Act read with section 35(2) of the Act amounting to ₹ 2,58,19,534/-. 18. We have heard rival contentions and gone through facts and circumstances of the case. We noted the facts that the assessee company has an in-house Research Development Unit at Rhestan, Surat, which has been accorded approval by the Government of India, Ministry of Science Technolgy, Department of Scientific Industrial Research, Technology Bhavan, New Delhi - 110016. The assessee had filed copy of the said approval letter in its paper book as Annexure 40. We noted that during the year, the assessee company has incurred expenditure on scientific research as under: - Sr. No. Particulars Amount in Amount in Deduction claimed 1. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness, the aggregate of the expenditure so incurred within the three years immediately preceding the commencement of the business shall be deemed to have been incurred in the previous year in which the business is commenced. 20. From the above bare provision of Section 35(l)(iv) of the Act, it is clear that it provides for deduction in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, as may be admissible under the provisions of Subsection (2) of Section 35 of the Act. Clause (iv) of sub-section (2) of Section 35 of the Act provides for deduction of whole of such capital expenditure (other than on land) in the previous year in which it is incurred. Accordingly, for the purpose of availing deduction of capital expenditure U/s. 35(1)(iv) of the Act, an assessee has to incur expenditure of capital in nature on scientific research relating to its business. The language employed in Section 35 of the Act, nowhere provides for the purpose of allowability of capital expenditure U/s. 35(1)(iv) of the Act that the assessee has to use the asset for research and development purposes during the relevant p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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