2014 (7) TMI 1001 - HC - Income Tax

Allowability of depreciation on enhanced value Approval of DCIT before application of Explanation 3 of section 43(1) Held that - Tribunal has not considered the issue with respect to depreciation on enhanced value to the successor firm and not written down the value on merits and had held against the revenue solely on the ground that the AO had not obtained approval of the Deputy Commissioner before applying Explanation 3 of Section 43(1) of the Act - Tribunal has not properly appreciated and considered the relevant provision of Section 43(1), more particularly, explanation 3 of Section 43(1) which was prevailing at the relevant time the matter is remitted back to the Tribunal Decided in favour of Revenue. Whether the Tribunal is right in confirming the order passed by the CIT(A) directing the AO to make two assessments for the two periods Held that - Mere change in the constitution of the firm within the meaning of section 187 was not correct and it must be held that this is a case of succession within the meaning of section 188 and the case did not fall under the provisions of section 187 of the Act - Following the decision in Commissioner of Income-Tax Versus Amritlal Nihalchand 992 (1) TMI 6 - SUPREME Court - there was succession of the firm and is held against the revenue Decided against Revenue.

Summary

Issues:
1. Depreciation allowance on enhanced value to successor firm.
2. Extra shift allowance calculation based on successor firm's value.
3. Revision of penalty calculation based on two assessments for two periods.
4. Confirmation of order directing two assessments due to firm succession.

Analysis:
1. The first issue involves the allowance of depreciation on enhanced value to the successor firm. The assessee claimed depreciation based on revalued assets, which was rejected by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals). However, the Appellate Tribunal allowed depreciation on the enhanced value to the successor firm, emphasizing the lack of approval before applying Section 43(1). The Court noted that the Tribunal did not consider the relevant provision of Section 43(1) properly, as the AO, being the Inspecting Assistant Commissioner, did not need prior approval from himself. The matter was remitted to the Tribunal to reconsider the issue on merits.

2. The second issue pertains to the calculation of extra shift allowance based on the value adopted by the successor firm, not the written down value as directed by the CIT(A). The Tribunal's decision was based on the lack of approval by the Deputy Commissioner before applying Explanation 3 of Section 43(1). The Court held in favor of the revenue, noting that the Tribunal failed to properly analyze the law prevailing at the relevant time. The matter was remitted for further consideration.

3. The third issue involves the revision of penalty calculation based on two assessments for two periods. The Assessing Officer had levied a penalty under Section 273(2)(a) of the Act, which was directed to be revised by the CIT(A) based on two assessments. The Appellate Tribunal confirmed the CIT(A)'s order, which was held against the revenue in favor of the assessee due to the firm's succession.

4. The final issue concerns the confirmation of the order directing two assessments due to the firm's succession, as observed in the case law Commissioner of Income Tax vs. Amritlal Nihalchand. The Court noted that this issue was squarely covered against the revenue by the Supreme Court's decision, leading to a ruling in favor of the assessee. The questions referred to the Court were decided against the revenue in favor of the assessee, and the Income Tax Reference was disposed of accordingly.