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2017 (5) TMI 431 - HC - Income TaxBenefit of Section 32 (1) (iii) - assets written off - claim of loss on account of writing off - Held that - Section 32 (1) (iii) makes an express reference to building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year Clearly, the only sub-clause (i) under which the deprecation could be claimed and allowed is second sub-clause (i) and not the first sub-clause (i). Provisions of clause (i) of sub- section (1) of section 32 do not apply in respect of the assets claimed to have become unusable and written off. See Commissioner of Income Tax v. Zoom Communication Pvt. Ltd. 2010 (5) TMI 34 - DELHI HIGH COURT The Court is, therefore, unable to concur with the view taken by the ITAT, which, in turn, affirmed the view of the CIT(A) that the claim of the Assessee fell within the scope of Section 32 (1) (iii) of the Act. This is based on an erroneous reading of the provision as explained by this Court hereinbefore.Consequently, the question farmed is answered in the negative i.e. in favour of the Revenue and against the Assessee.
Issues:
- Interpretation of Section 32(1)(iii) of the Income Tax Act, 1961 regarding the allowance of writing off assets. - Application of Section 32(1)(iii) to a case where the Assessee is not a power generation company. Analysis: 1. The case involved an appeal by the Revenue under Section 260A of the Income Tax Act against the order passed by the Income Tax Appellate Tribunal (ITAT) for the Assessment Year 2005-2006. The primary question for consideration was whether the ITAT was correct in granting the benefit of Section 32(1)(iii) of the Act to the Assessee. 2. The Assessee had filed its return for the relevant year declaring a loss and claimed a write-off of a certain sum under the head 'assets written off'. The Assessing Officer rejected this claim, leading to an addition to the taxable income. However, the Commissioner of Income Tax (Appeal) accepted the Assessee's contention that the loss on account of writing off was allowable under Section 32(1)(iii) of the Act. 3. The ITAT, in its order, upheld the decision of the CIT(A) by stating that the claim of the Assessee fell within the scope of Section 32(1)(iii). It emphasized that the assessing officer did not dispute the genuineness of the claim and that the difference in the amount was allowable under the said provision. 4. The High Court analyzed the relevant provisions of Section 32(1) of the Act, particularly focusing on sub-clauses (i) and (iii). It highlighted that sub-clause (i) applies to undertakings engaged in power generation, while sub-clause (iii) pertains to assets sold, discarded, demolished, or destroyed. The Court referred to a previous judgment to clarify the applicability of Section 32(1)(iii) in cases where the Assessee is not a power generation company. 5. Relying on the interpretation provided in the earlier judgment, the High Court concluded that the claim of the Assessee did not fall within the scope of Section 32(1)(iii) due to the nature of the Assessee's business. The Court disagreed with the view of the ITAT and CIT(A) and set aside their orders. Consequently, the addition made by the Assessing Officer was restored, and the appeal was allowed in favor of the Revenue. 6. In summary, the High Court's judgment clarified the interpretation of Section 32(1)(iii) of the Income Tax Act, emphasizing its applicability to specific types of assets and undertakings. The decision highlighted the importance of aligning the Assessee's business activities with the provisions of the Act to determine the eligibility for claiming deductions under relevant sections.
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