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2006 (1) TMI 449 - AT - Income TaxDisallowance of depreciation - Rent - rates - taxes - disallowance of loss - foreign currency fluctuations - bad debts/advances written off - Maintenance and Repairs of Building - HELD THAT - The assessee s contention that after the introduction of the concept of block of assets assets loose their identity as there may not be any record which may facilitate the process of computing depreciation on individual asset is not valid because the assessee is a company therefore it has to maintain register of fixed assets as per the provisions of the Companies Act 1956 and it is required to provide depreciation on individual assets as per the provisions of the Companies Act 1956. In respect of non-corporate assessee also details of individual assets are recorded in the books of account even though the same may be under particular head and accordingly depreciation is claimed on the aggregate value of such head of assets. If such details are not available then the assessee cannot claim depreciation correctly e.g. where assets have been used for less than 180 days the assessee would be eligible for depreciation at half of the prescribed rates for which such details are required. Thus the introduction of the concept of block of assets has not given a go bye to the maintenance of proper books of account with regard to the assets of the business. The assessee also relied up to the decision of the Tribunal in the case of Inductotherm India Ltd. 1999 (6) TMI 45 - ITAT AHMEDABAD-C wherein it was held that if a single asset in a particular block was not to be used in a particular year and depreciation had been claimed on such asset earlier then depreciation would be allowed subsequently irrespective of the fact that whether the asset was used or not. We are of the considered opinion that the ratio of the decision of the Special Bench of the Tribunal in the case of Gulati Saree Centre 1999 (8) TMI 116 - ITAT CHANDIGARH would be equally applicable with reference to the concept of the block of assets vis-a-vis the provisions of section 32 of the Act. It is also settled judicial proposition that the decision of the Special Bench of the Tribunal would have to be followed as against the decision of the Co-ordinate Bench on the same issue. Therefore respectfully following the ratio of the decision of the Special Bench of the Tribunal in aforesaid case we hold that the basic conditions of section 32 are necessarily to be complied to enable the assessee to claim depreciation. Thus we are of the considered opinion that the orders of the revenue authorities are in accordance with law and accordingly we decline to interfere. Thus these grounds of the assessee are rejected. Disallowance of loss - It is also not in dispute that the assessee has not claimed the losses on account of fluctuations in the foreign currency rates in the year of actual payment. The Income-tax Act is a self-contained code for determining the taxable income of the assessee. The Act provides for deduction of provision made for accrued and ascertained liabilities. From the facts of the case it is apparently clear that the provision made in the books of account merely represent a notional amount which is not an actual liability. The assessee s contention for allowance of total liability incurred is perfectly justified and which has to be allowed in the year in which the remittance is actually made. There may also be a case of appreciation/gain in such transaction therefore the gain if any would be chargeable to tax in the year wherein such gain is realized. In this view of the matter we are of the considered opinion that the order of the revenue authorities is in accordance with law therefore we confirm the same. Accordingly this ground of the assessee is rejected. Bad debts/advances written off - The assessee is a Limited Company therefore it cannot be said that no records/details were available with regard to this amount regardless of the fact that the amount is appearing for quite long and the genuineness of this amount has not been doubted by the Revenue Authorities. Apparently the case of the assessee pears to be in accordance with law because this amount may either be allowed as Bad Debt or as Trading Loss. Thus in the interest of justice we deem it fit and proper to give one more chance to the assessee to justify its claim and accordingly we restore this issue to the file of the Assessing Officer to decide this issue de novo in accordance with law after giving adequate opportunity to the assessee who shall discharge his onus by substantiating the claim through corroborative evidences. Thus this ground of the assessee stands allowed for statistical purpose. In the result the assessee s appeal stands partly allowed for statistical purposes. Maintenance and Repairs of Building - On perusal of the details of the expenses incurred for both premises i.e. one situated at Kolkata and the other situated at Mumbai it is noted that the assessee had incurred the expenses more or less of similar nature although the amount is different. Once the Assessing Officer has held the expenses relating to the premises at Kolkata as of Revenue nature expenses of similar nature incurred for repairs of the premises at Mumbai cannot be held as of Capital nature. It is also undisputed fact that the assessee is in possession of premises at Mumbai since 1952 at monthly rent of Rs. 1, 945 only and the assessee is required to maintain this premises in good condition. We are also in agreement with the findings of the ld. CIT(A) that keeping of the premises in a good condition implies the responsibility to undertake repairs and maintenance thereto. We also find force in contention of the assessee that the expenditure was incurred to facilitate operational process of the assessee therefore the same is of revenue nature. Thus we are of the considered opinion that the order of the ld. CIT(A) is in accordance with law and accordingly we decline to interfere. Thus this ground of the revenue is rejected. In the result the appeal filed by the revenue is dismissed.
Issues Involved:
1. Disallowance of depreciation on Baroda Plant and Titan Machine. 2. Disallowance of loss on account of foreign currency fluctuations. 3. Disallowance of bad debts/advances written off. 4. Disallowance of maintenance and repairs expenses of building at Mumbai. Issue-wise Detailed Analysis: 1. Disallowance of Depreciation on Baroda Plant and Titan Machine: The assessee's appeal raised the issue of disallowance of depreciation of Rs. 11,27,779 for the Baroda Plant and Rs. 10,93,837 for the Titan machine. The Assessing Officer (AO) disallowed the depreciation on the grounds that the assets were not used for the business purposes of the assessee. The CIT(A) upheld the AO's decision, stating that the Baroda Plant never commenced operations and there was no evidence of the Titan machine being used for business purposes. The assessee argued that under the concept of block of assets, once an asset is part of a block, it loses its individual identity, and depreciation should be allowed on the block as a whole. However, the Tribunal held that the basic conditions for claiming depreciation under section 32, including actual use of the asset, must be met. The Tribunal cited the decision of the Hon'ble Jurisdictional High Court in Dineshkumar Gulabchand Agarwal v. CIT, which emphasized actual use over mere readiness for use. Consequently, the Tribunal upheld the disallowance of depreciation by the revenue authorities. 2. Disallowance of Loss on Account of Foreign Currency Fluctuations: The assessee claimed a loss of Rs. 2,95,011 due to foreign currency fluctuations, which was disallowed by the AO on the grounds that it was a notional loss and not an actual liability. The CIT(A) confirmed the AO's decision. The Tribunal noted that the provision made by the assessee at the year-end was reversed in the succeeding year, and the actual loss or gain was accounted for in the year of payment. The Tribunal held that under the Income-tax Act, only ascertained liabilities are deductible, and not notional amounts. Therefore, the Tribunal upheld the disallowance of the provision for foreign currency fluctuation losses. 3. Disallowance of Bad Debts/Advances Written Off: The AO disallowed the claim of Rs. 1,18,535 for bad debts/advances written off, as the assessee failed to provide details to ascertain whether the conditions under section 36 were met. The CIT(A) confirmed the AO's decision. The assessee argued that the amount was advanced in the course of business and should be allowed as a business loss. The Tribunal noted that the assessee, being a limited company, should have records of the advance. In the interest of justice, the Tribunal restored the issue to the AO for a fresh decision, giving the assessee an opportunity to substantiate its claim with corroborative evidence. 4. Disallowance of Maintenance and Repairs Expenses of Building at Mumbai: The revenue appealed against the CIT(A)'s decision to delete the disallowance of Rs. 7,72,900 for maintenance and repairs of the building at Mumbai. The AO disallowed the expenses on the grounds that the lease agreement did not specify that the tenant should bear the repair expenses, and the nature of the expenses was capital. The CIT(A) held that maintaining the premises in good condition implied the responsibility of repairs. The Tribunal agreed with the CIT(A), noting that similar expenses for the Kolkata premises were allowed as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, stating that the expenses were incurred to facilitate the assessee's operations and were of revenue nature. Conclusion: The assessee's appeal was partly allowed for statistical purposes, and the revenue's appeal was dismissed.
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