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Issues:
Depreciation on assets acquired by a firm after dissolution of an earlier firm; Interpretation of Explanation 3 to section 43(1) of the Income-tax Act, 1961; Change in the constitution of a firm vs. dissolution of a firm; Allowance of depreciation on the written down value of assets. Analysis: The main issue in this appeal was whether the assessee-firm, formed after the dissolution of an earlier firm, was entitled to depreciation on the assets acquired at the value assigned on dissolution or the earlier written down value of the assets. The assessee contended that a previous Tribunal decision supported their claim, citing similarities in facts and partnership deeds. The departmental representative disagreed, arguing that Explanation 3 to section 43(1) applied due to the revaluation of assets only through book entries. The Tribunal analyzed previous decisions, including one involving Bharat Cold Storage, and concluded that the issue was covered by their earlier decision in favor of the assessee. They rejected reliance on another case, Markanda Rice Mills, due to differences in facts and the nature of firm reconstitution. The Tribunal further examined the dissolution deed and subsequent formation of a new firm, emphasizing the valuation and transfer of assets from the old firm to the new one. They compared the clauses of the dissolution deed with those in Bharat Cold Storage's case, highlighting the similarities in asset valuation and partnership structure. The Tribunal accepted the assessee's contention that the case involved a dissolution of the firm with values assigned through an internal bid system, supporting the allowance of depreciation on the written down value of assets. Additionally, the Tribunal addressed the departmental representative's reliance on the cases of Dalmia Dadri Cement Ltd. and Alagappa Cotton Mills. They explained how the decisions in these cases did not contradict their ruling but rather supported the assessee's position regarding the genuine valuation of assets and the distinction between firm dissolution and reconstitution. The Tribunal ultimately reversed the action of the Assessing Officer and allowed the appeal in favor of the assessee, upholding the depreciation on the written down value of assets acquired after the dissolution of the earlier firm. In conclusion, the Tribunal's detailed analysis of the dissolution deed, valuation of assets, and legal precedents led to the decision in favor of the assessee, emphasizing the distinction between firm dissolution and reconstitution, and the application of depreciation rules under the Income-tax Act.
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