2008 (2) TMI 321 - HC - Income Tax

Block of assets - additions made by treating the difference between the S.P. of entire machinery installed at unit no.1 of the factory of the respondent company & the W.D.V. of the said machinery by invoking Sec. 41(2) - there was addition as well as sale but the Plant and Machinery as a whole remained in existence Sec. 32(1) were rightly made applicable and the depreciation had been correctly claimed on the W.D.V. merged after making the adjustment of addition & sale in the block of assets

Summary

Issues:
1. Interpretation of Section 41(2) of the Income Tax Act, 1961.
2. Application of Section 32(1) and Section 50 of the Income Tax Act.
3. Assessment of depreciation on the sale of machinery.

Analysis:
1. The appeal was filed by the revenue under Section 260 A of the Income Tax Act against the Income Tax Appellate Tribunal's order for the assessment year 1998-99. The substantial question of law raised was whether the Tribunal was justified in ignoring clause (b) of section 41(2) of the Act when the machinery owned by the respondent for business, on which depreciation was claimed, was sold in the previous year. The Commissioner of Income Tax (Appeals) had allowed the appeal of the assessee, holding that Section 41(2) was not applicable to the case as it was related to Plant and Machinery engaged in power generation and distribution. The Tribunal upheld this decision, emphasizing that the block of assets remained intact, and depreciation was correctly claimed under Section 32(1) of the Act.

2. The respondent company had filed its return for the assessment year 1998-99, and the Assessing Officer added an amount by invoking Section 41(2) due to the sale of machinery at a higher price than the written down value. The Commissioner of Income Tax (Appeals) and the Tribunal both found that Section 41(2) did not apply in this case, and the block of assets under Plant and Machinery was not sold entirely. The Tribunal determined that depreciation was correctly claimed under Section 32(1) of the Act, and there was no infirmity in the order of the Commissioner, Income Tax (Appeals), leading to the dismissal of the revenue's appeal.

3. The Tribunal's finding that the block of assets remained intact was upheld, and it was established that the Plant and Machinery as a whole was not sold, despite additions and sales. The provisions of Section 32(1) were rightly applied, and depreciation was correctly claimed on the written down value after adjustments for additions and sales in the block of assets. The Court found no substantial question of law in the appeal and dismissed it, affirming the Tribunal's decision regarding the interpretation and application of relevant sections of the Income Tax Act in the assessment of depreciation on the sale of machinery.