2013 (3) TMI 120 - AT - Income Tax

Depreciation - Block of assets - assessee discarded the assets in question in pursuance to the International Treaty called Montreal Protocol and received the compensation of 15.60 crores. - held that - It is clear that the provisions of sec. 32(1)(iii) stipulate the depreciation in case of the assets which is sold, discarded, demolished or destroyed is the amount, which is different between the written down value of the asset and scrap value. - the assessee has not claimed that the compensation received by the assessee in lieu of the discarded asset is short of its written down value; therefore, the claim of the assessee for depreciation on the written down value of the discarded assets is not permissible as per provisions of sec. 32 of the I T Act. MAT - Book profit - whether the Assessing Officer while computation book profit u/s 115JB can look into depreciation provided in the books of account on the assets which have already been discarded and not in use because of the activity permanently closed, is permitted as per the AS-6 as well as under the provisions of Companies Act. - held that - Once the assessee closed the factory then the decision of the assessee to book the depreciation of dismantled assets has to be decided as per the provisions of companies Act as well as AS-6. The fundamental principle for providing deprecation on asset is diminution in the value of the assets due to wear and tear as a result of use or retain for business of the assessee. Thus, underline rule for depreciation is use or retain of assets for the purpose of the business of the assessee. When the asset has been discarded and dismantled, then in the absence of physical existence of the useful assets, mere retention of the assets in the books of account would not entitled for any depreciation even under the provisions of Companies Act. Assessing Officer has power to examine whether the accounts are maintained as per the Accounting Standard and policies as provided under the Companies Act. The Special Bench of the Tribunal in Rain Commodities Ltd. v. Deputy Commissioner of Income-tax 2010 (7) TMI 794 - ITAT HYDERABAD , after considering the decision of the Hon ble Supreme Court in the case of Apollo Tyres Ltd. (2002 (5) TMI 5 - SUPREME COURT) as well as the decision of the Hon ble jurisdictional High Court in the case of Akshay Textiles Trading & Agencies (P.) Ltd. 2007 (10) TMI 251 - BOMBAY HIGH COURT & the decision of the Bombay High Court in the case of Veekaylal Investment Co. (P.) Ltd. 2001 (2) TMI 117 - BOMBAY HIGH COURT has taken a view that the decision in the case of Veekaylal Investment Co. P. Ltd. 2001 (2) TMI 117 - BOMBAY HIGH COURT has not been overruled by the decision in the case of Akshay Textile Trading & Agencies Pvt. 2007 (10) TMI 251 - BOMBAY HIGH COURT - Decided in favor of revenue.

Issues Involved:

1. Disallowance under section 14A read with Rule 8D.
2. Disallowance of depreciation on plant and machinery.
3. Disallowance of claim of obsolete stock.
4. Recasting of Audited Profit & Loss Account for calculating MAT under section 115JB.
5. Levy of interest under section 234B on MAT.
6. Non-consideration of written submissions and documents by CIT(A).
7. Additional ground regarding unabsorbed depreciation or unabsorbed loss.

Issue-wise Detailed Analysis:

1. Disallowance under section 14A read with Rule 8D:
The assessee contested the disallowance of Rs. 3,23,098 under section 14A read with Rule 8D. The Tribunal noted that Rule 8D is applicable prospectively from Assessment Year 2008-09. Therefore, the matter was remanded back to the Assessing Officer for fresh adjudication in light of the decision in Godrej Boyce Mfg Co Ltd vs DCIT.

2. Disallowance of depreciation on plant and machinery:
For AY 2006-07, the assessee claimed depreciation on assets that were part of a block of assets but not used due to the closure of the manufacturing activity. The Assessing Officer disallowed the claim, and the CIT(A) upheld this decision, noting that the assessee had accepted the disallowance in a revised computation of income. The Tribunal found no merit in the assessee's claim, stating that once assets are discarded and compensation received, the provisions of section 32(1)(iii) apply. The Tribunal dismissed the ground for AY 2006-07 and similarly for AY 2007-08.

3. Disallowance of claim of obsolete stock:
For AY 2007-08, the assessee wrote off stock value of Rs. 4,82,213 as obsolete. The Assessing Officer disallowed the claim, noting that the inventory was not actually disposed of and the Board resolution declaring the stock obsolete was passed after the closing of the accounting period. The CIT(A) upheld this decision. The Tribunal found no error in the lower authorities' findings and dismissed the ground.

4. Recasting of Audited Profit & Loss Account for calculating MAT under section 115JB:
The assessee challenged the adjustment made by the Assessing Officer in calculating book profit under section 115JB. The Tribunal noted that the depreciation on discarded assets was not as per the Companies Act or AS-6. The Tribunal upheld the lower authorities' decision, stating that the Assessing Officer has the power to examine whether accounts are maintained as per the Accounting Standards and Companies Act provisions. The Tribunal dismissed the ground.

5. Levy of interest under section 234B on MAT:
The Tribunal noted that the issue of levying interest under section 234B on MAT is covered against the assessee by the Supreme Court decision in Joint Commissioner of Income-tax v. Rolta India Ltd. The Tribunal decided this issue against the assessee.

6. Non-consideration of written submissions and documents by CIT(A):
The assessee claimed that the CIT(A) did not consider the written submissions and documents filed. The Tribunal did not specifically address this issue separately, implying that it found no merit in the claim.

7. Additional ground regarding unabsorbed depreciation or unabsorbed loss:
The assessee raised an additional ground concerning the determination of book profit under section 115JB without reducing unabsorbed depreciation or unabsorbed loss. The Tribunal remitted this issue to the Assessing Officer for verification and decision in accordance with the law.

Conclusion:
The appeals filed by the assessee were partly allowed, with specific issues remanded back to the Assessing Officer for fresh adjudication and verification. The Tribunal upheld the disallowance of depreciation and claim of obsolete stock and confirmed the levy of interest under section 234B on MAT.

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