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TMI Blog2024 (11) TMI 1066X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that all the expenses claimed were wholly and exclusively for business purposes and further adhoc disallowance could not be made without any cogent material only on the basis of surmises. 2. Briefly stated the facts of the case are that the assessee company filed its return of income for the year under consideration on 30.11.2017, declaring total income at Rs. 36,17,54,200/- under the normal provisions of the Income Tax Act, 1961 ('the Act' for short) and book profit at Rs. 37,41,48,330/- u/s. 115JB of the Act. The return of income filed by the assessee was selected for scrutiny and statutory notices issued under the Act were issued and complied by the assessee. The assessment u/s. 143(3) of the Act was completed on 19.12.2019 wherein disallowance of the excess depreciation claimed on building amounting to Rs. 71,94,901/- and disallowance out of other expenses amounting to Rs. 89,003,154/- was made by the ld. learned Assessing Officer ('ld. A.O.' for short). 3. On further appeal, the ld. CIT(A) sustained both the disallowance/additions made by the ld. A.O. 4. Aggrieved, the assessee is in appeal before us, by way of raising the grounds as reproduced above. The ld. Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business'. However, the ld. CIT(A) did not accept the contention of the assessee. The ld. CIT(A) referred to the definition of the written down value provided in section 43(6) of the Act, wherein the definition of the 'moneys payable' is defined. According to the ld. CIT(A), the amount payable should be read as per the provision of section 50C of the Act, which is the amount deemed to be received on the sale of the immovable property in case the transfer value is less than the fair market value. The ld. CIT(A) also relied on the decision in the case of ITO vs. United Marine Academy [2011] 130 ITD 113 (Mum), wherein for computing the capital gain on transfer of depreciable asset, the sale consideration is directed to be substituted by the Stamp Duty Valuation of the said depreciable asset. The relevant finding of the ld. CIT(A) is reproduced as under: 6.5 In view of the above, the moot point of adjudication here is that the amount to be reduced on account of sale of building shall be actual amount received or notional amount as per section 50C while computing allowable depreciation. In this regard, the provision 1 of section 50C are re-produced hereunder: Section 50C(1): Where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer of depreciable capital assets covered by section 50 and in computing the capital gain arising from the said transfer by adopting the stamp duty valuation. We, therefore, answer the question referred to this special bench in the affirmative i.e. in favour of the Revenue and against the assessee. 6.9 In view of the above and having regard to special bench judgment, I am of the considerate view that the stand adopted by Ld. AO is appropriate and the addition carried out is justified. Therefore, the disallowance made by the Ld. AO are being upheld. 8. Before us, the ld. Counsel for the assessee relied on the decision of the Hon'ble Supreme Court in the case of Mancheri Puthusseri Ahmed vs. Kuthiravattam Estate Receiver [1996] 6 Supreme Court Cases 185, wherein the Hon'ble Supreme Court held that legal fiction cannot be extended beyond the purpose for which it is created. Accordingly, he submitted that the legal fiction of section 50C of the Act cannot be extended while working out the written down value for claiming depreciation on the block of asset. The ld. Counsel for the assessee relied on the decision of the co-ordinate bench of the Tribunal in the case of Futurz Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 43 of the Act. The relevant section is reproduced as under: 43. Definitions of certain terms relevant to income from profits and gains of business or profession. In sections 28 to 41 and in this section, unless the context otherwise re quires - (1) ......... (2) ... (6) "written down value" means- (a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force: [Provided that in determining the written down value in respect of buildings, machinery or plant for the purposes of clause (ii) of sub-section (1) of section 32, "depreciation actually allowed" shall not include depreciation allowed under sub-clauses (a), (b) and (c) of clause (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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpressions "moneys payable" and "sold" shall have the same meanings as in the Explanation below sub-section (4) of section 41.] [ Inserted by Act 46 of 1986, Section 8 (w.e.f. 1.4.1988).] [Explanation 5. - .............................. [Explanation 6. - ........................ [Explanation 7. - ............................. 11. The Explanation 4 above has prescribed that the expression "moneys payable" and "sold" shall have the same meanings as in the Explanation below sub-section (4) of section 41. Therefore, it is relevant to reproduce the said explanation below sub-section (4) of section 41, for ready reference, as under: 41. Profits chargeable to tax. (1) ........ (2) .......... (3) ...... (4) Where a deduction has been allowed in respect of a bad debt or part of debt under the provisions of clause (vii) of sub-section (1) of section 36, then, if the amount subsequently recovered on any such debt or part is greater than the difference between the debt or part of debt and the amount so allowed, the excess shall be deemed to be profits and gains of business or profession, and accordingly, chargeable to income-tax as the income of the previous year in which it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the computation of the depreciation under the head 'profits and gains of the business'. In the instant case, the sale consideration of the building sold is not more than the opening written down value (WDV) of the block including new building acquired, therefore, the section 50 of the Act does not result to nay short term capital, hence, said is not applicable over present facts of the case until all the buildings under the block are sold and in that case section 50 would get attracted and applying the ration in the case of United Marine Academy (supra), the Assessing officer could have substituted the sale consideration received by stamp duty valuation of the property. Therefore, in our opinion, the said deeming fiction of section 50C cannot be extended while working out the written down value for the purpose of claiming deprecation on the block of the asset. The Hon'ble Supreme Court in the case of Mancheri Puthusseri Ahmed vs. Kuthiravattam Estate Receiver (supra) has held that while interpreting the provision involving a legal fiction, the court is to ascertain as for what purpose the fiction is created, and after ascertaining this, the court is to assume all those fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, machinery, plant or furniture was being used is no longer in existence, the provision of this sub-section shall apply as if the business is in existence in that previous year.] 12.1 In view of above discussion, the fiction of section 50C can't be extended to the facts of the case, accordingly, we set aside the finding of the ld. CIT(A) on the issue in dispute and we delete the disallowance made by the lower authorities. Ground no. 1 raised by the assessee in appeal is accordingly allowed. 13. Ground no. 2 raised by the assessee in appeal is in relation of the disallowance of expenses of Rs. 89,03,154/- made by the ld. A.O. The facts in brief qua in dispute are that during the course of assessment proceeding, the ld. A.O. asked the assessee to provide party-wise details of the expenses along with the supporting documents and vouchers. However, the assessee requested the ld. A.O. to specify the expenses for which details were required. The assessee submitted that it had already disallowed certain expenses appearing in the profit and loss account in computation of total income. But in absence of any details or supporting documents, the ld. A.O. disallowed an amount of Rs. 89,03, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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