2015 (10) TMI 1442 - AT - Income Tax

Applicability of provisions of Explanation 3 to section 43(1) to the secondhand windmill purchased - adoption of cost - Held that - In the instant case, we have noticed that the assessee had purchased the windmill on March 23, 2009 and she has also claimed depreciation thereon during the assessment year 2009-10. Accordingly, it was pointed out to both parties that the question of determination of actual cost shall arise only in the assessment year 2009-10 and not during the year under consideration. On verification of details, both parties submitted that the assessment relating to the assessment year 2009-10 had been reopened by the Assessing Officer and the depreciation claim of the assessee has been restricted. It was further submitted that the assessee has preferred an appeal against the same and it is pending before the learned Commissioner of Income-tax (Appeals). Under these set of facts, the learned Departmental representative fairly agreed that the question of determination of actual cost during the year under consideration does not arise and in this year, the depreciation has to be allowed on the written down value of the windmill as determined in the assessment year 2009-10. Under these set of facts, we are of the view that the issue contested before us is consequential, i.e., it would depend upon the outcome of the identical disallowance made in the assessment year 2009-10. For the above said reason, the decision rendered by the learned Commissioner of Income-tax (Appeals) is liable to be set aside. Restore all the issues to the file of the Assessing Officer with the direction to re-work the amount of depreciation on the written down value determined in the assessment year 2009-10 after the receipt of appellate order of the learned Commissioner of Income-tax (Appeals). - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Applicability of Explanation 3 to section 43(1) on secondhand windmill purchase.
2. Determination of actual cost for depreciation calculation.
3. Discrepancy in cost valuation of secondhand machinery.
4. Appeal by Revenue against Commissioner's decision.
5. Cross-objection by assessee on cost determination.

Analysis:
1. The appeal and cross-objection in this case concern the order related to the assessment year 2010-11. The Revenue challenges the non-application of Explanation 3 to section 43(1) on a secondhand windmill purchase by the assessee. On the other hand, the assessee disputes the Commissioner's valuation of the secondhand machinery at Rs. 1.50 crores instead of the purchase cost of Rs. 2.36 crores.

2. The Assessing Officer initially determined the cost of the windmill at Rs. 43,28,388 due to the seller's prior depreciation claim. Subsequently, the Commissioner of Income-tax (Appeals) rejected the application of Explanation 3, stating the assessee's motive was not to reduce tax liability. However, the Commissioner set the windmill's cost at Rs. 1.50 crores, differing from the original purchase cost.

3. The crux of the matter lies in the interpretation of Explanation 3 to section 43(1), which pertains to determining the actual cost for depreciation purposes. The provision specifies that the actual cost is relevant at the time of purchase or when depreciation is first claimed. In this case, as the windmill was purchased in 2009 and depreciation claimed in 2009-10, the actual cost determination should align with those years.

4. Given the ongoing dispute regarding the depreciation claim in the assessment year 2009-10, both parties acknowledged that the determination of actual cost for the current year is premature. The Departmental representative concurred that the focus should be on the written down value from the prior assessment year. Consequently, the Commissioner's decision is deemed premature and subject to the outcome of the 2009-10 assessment.

5. Consequently, the Tribunal set aside the Commissioner's order and directed the Assessing Officer to recalculate the depreciation based on the written down value from the 2009-10 assessment after considering the appellate decision. The appeal by Revenue and the cross-objection by the assessee were treated as allowed for statistical purposes, pending further assessment adjustments.

In summary, the judgment revolves around the correct determination of actual cost for depreciation calculation, highlighting the importance of aligning the cost valuation with the relevant assessment years and pending appellate decisions for accurate tax assessment.