2001 (11) TMI 248 - AT - Income Tax

Issues Involved:
1. Addition of Rs. 5,98,458 in respect of fixed assets claims received.
2. Disallowance of Rs. 65,394 being provisions for bad and doubtful debts and advances written off.
3. Disallowance of initial depreciation on assets worth Rs. 2,07,634.
4. Rebate claimed under s. 80HH.
5. Disallowance of claim under s. 35E.
6. Claim for higher depreciation on plant-buildings.

Detailed Analysis:

1. Addition of Rs. 5,98,458 in respect of fixed assets claims received:
The appellant contested the addition of Rs. 5,98,458 under s. 41(2) of the IT Act, 1961, which included Rs. 5,89,055 from insurance claims for machinery lost in a fire. The CIT(A) upheld this addition, but the appellant argued that destruction by fire does not constitute a transfer under s. 41(2). The Tribunal referenced the Supreme Court's decision in Vania Silk Mills (P) Ltd. vs. CIT, which clarified that capital gains tax is attracted by transfer, not by the mere extinguishment of rights due to destruction. Therefore, the Tribunal concluded that the addition under s. 41(2) was erroneous and directed its deletion.

2. Disallowance of Rs. 65,394 being provisions for bad and doubtful debts and advances written off:
The appellant claimed that provisions for bad debts were consistently added back to the returned income and not claimed as expenditure. The Tribunal noted that a similar issue was previously remanded to the AO for reconsideration. Consequently, this issue was also remanded to the AO for fresh consideration, following the Tribunal's earlier directions.

3. Disallowance of initial depreciation on assets worth Rs. 2,07,634:
The appellant claimed initial depreciation under s. 32(1)(iv) for various assets, including a cycle stand, union office, and co-operative store. The CIT(A) disallowed the claim, stating that these assets did not fall under the categories listed in the section. The Tribunal upheld this decision, referencing the Karnataka High Court's ruling in CIT vs. Bharat Earth Movers Ltd., which held that a co-operative store building does not qualify as a canteen and therefore is not eligible for initial depreciation.

4. Rebate claimed under s. 80HH:
The appellant pressed this ground without prejudice, contingent on the income being assessed at a positive figure. The Tribunal noted that this claim could only be considered if the income was ultimately positive.

5. Disallowance of claim under s. 35E:
The appellant claimed deduction under s. 35E for expenses incurred prior to 1st April 1970, related to Matoon Mines. The CIT(A) disallowed the deduction, as s. 35E only allows deductions for expenses incurred after 31st March 1970. The appellant alternatively argued for deduction under s. 37, citing the Supreme Court's decision in Madras Industrial Investment Corpn. Ltd. vs. CIT. However, the Tribunal concluded that the expenditure was capital in nature and not allowable under either s. 35E or s. 37.

6. Claim for higher depreciation on plant-buildings:
The appellant claimed higher depreciation for plant buildings, arguing that they were integral to the machinery and production process. The CIT(A) noted the lack of details and disallowed the claim. The Tribunal referenced multiple judgments, including CIT vs. Dr. B. Venkata Rao and CIT vs. Karnataka Power Corporation, which supported the classification of certain specialized buildings as plant. The Tribunal remanded the issue to the AO for fresh consideration, directing a detailed appraisal of the facts and inspection of the buildings.

Conclusion:
The appeal was allowed in part, with specific issues remanded to the AO for reconsideration and others upheld as decided by the CIT(A).

← Previous Next →