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TMI Blog1992 (9) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... pair expenditure of machinery amounting to Rs. 4,29,846 was debited therein. The net credit balance of Rs. 9,65,154 being the difference between the amount received from the Insurance Company and the amount spent on repairs was taken to the capital reserve account. The assessee-company claimed before the Assessing Officer that the cost of plant and machinery was the written down value of Rs. 10.71 lakhs as on 1-4-1984 plus enhancement by the amount of repairs of machinery amounting to Rs. 4.29 lakhs making thus a total of Rs. 15.01 lakhs. The Assessing Officer accepted this claim and after deducting the compensation amount arrived at the cost of assets as Rs. 1,06,489. The Revisionary Officer opined that the Assessing Officer failed to apply section 41(1) and (2) where any machinery was destroyed and the money payable amounting in this case to Rs. 13.95 lakhs in respect of such machinery exceeds the amount of scrap value then such excess shall be brought to tax. He also pointed out that no investment allowance was due as the asset was not existing on the last day of the accounting period and also that the nature of repairs was also not gone into by the Assessing Officer. He, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly and not in part was not correct. It is based on the misinterpretation of the Surveyors Report obtained by him and which was also not confronted to the assessee. The Appellate Officer further erred in not adjudicating upon the ground claiming allowance of repair charges of Rs. 1,64,781 as business expenditure instead of capital expenditure as held by the Assessing Officer. The Appellate Officer furthermore erred in fact and on law in upholding reassessment order in not allowing depreciation amounting to Rs. 1,95,215. The Appellate Officer has also erred in fact and on law in not allowing full relief with reference to the ground relating to charging of interest under sections 139(8) and 215/217 of the Act. Raliance is also placed on the following decisions :-- (a) CIT v. Engg. Works of India (P.) Ltd. [1977] 108 ITR 11 at 13 (Cal.) (b) CIT v. Sirpur Paper Mills Ltd. [1978] 112 ITR 776 (SC) at 778, 785 and 795. (c) CIT v. Bengal Assam Steamship Co. Ltd. [1986] 161 ITR 576 (Cal.) at 582. The emphasis particularly is that if a machinery damaged is restored to original level then there is nothing which could being in the mischief of section 41(2) of the Act. Only actual ph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities below including the Paper Book filed on behalf of the assessee. We have also duly and carefully examined the issues in question in the light of various case laws relied upon by the assessee. The stand of the assessee is that profit under section 41(2) cannot be attracted as the plant and machinery against which the insurance claim was received was not wholly destroyed but only partly damaged. The assessee has also incurred expenditure on the repairs of the plant and machinery by using indigenous skill. The assessee claims that it started production in January 1985. Thus, the assessee demonstrates that in November 1984 only the machinery was damaged in part but not fully destroyed. We have also perused in this connection on the admissibility of the assessee's claim, the decision in the case of Sirpur Paper Mills Ltd. The Appellate Officer has raised the question that for the applicability of the aforesaid decision it must be answered as to whether the whole of the machinery was damaged or destroyed or only a part of it. It has not been convincingly demonstrated before us that the assessee has claimed before the Insurance Company mentioning that the machinery insured was who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g only substantial damage to its plant. We, therefore, opine that the plant and machinery even though considerably damaged it cannot be said to be a total physical loss on the ground that most of it was reparable and that is what the assessee did by using the indigenous technical talents available and also by getting the local moulds. It appears that the machinery was repaired in a record time of five weeks and started functioning and produced 5590 cases containing 2000 cones each for the period from 18-1-1985 to 31-3-1985 against 5514 cases were sold, as evidenced by the statements showing details of production and sales date-wise supported by Photostat copies of sales-tax order dated 23-3-1989 of the Sales tax Officer confirming the sales stated. Hence these facts substantiate that the machinery was not wholly damaged but only partly and which was put to use immediately after repairs. 6. The decision in the case of CIT v. Vania Silk Mills (P.) Ltd. [1977] 107 ITR 300 (Guj.) is not applicable to the instant case, the assessee urged before us. In fact on being appealed against this decision, it has been reversed by the Hon'ble Supreme Court (sic) damage caused by fire making mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure. Out of the amount of Rs. 13.95 lakhs received by the assessee-company from the insurance company and credited to the insurance claim reserve account, the assessee-company opened separate account for machine maintenance reserve account and repair expenditure of machinery was debited which amounted to Rs. 4,29,846. Out of this claim for repair expenditure a sum of Rs. 2,65,065 was found by the Assessing Officer as not to fall during the period relevant to the assessment year in question. Hence the differences between these amounts coming to Rs. 1,64,781 was worked out as expenditure and would be capitalised to plant and machinery account besides allowing depreciation on it, according to the Assessing Officer. The assessee could not get relief on this ground before the Appellate Officer who has said that no comments are necessary on this ground in view of this being covered by his decision against the assessee on the grounds pertaining to assessability of Rs. 3.24 lakhs as profits under section 41(2) of the Act and the claim of expenses on repairs for Rs. 1,64,781. The reassessment order simply states by mentioning the bill number and date the claim of repairs of Rs. 2,65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of production and sales date-wise, besides producing sales-tax orders dated 23-3-1989 confirming the sales mentioned in the statement. 10. Thus we are convinced on the assessee's stand on a careful analysis of all these aspects and consequently set aside the order impugned on the point of repair charges of Rs. 1,64,781 also and direct the Assessing Officer to grant relief on this issue too. 11. The next grievance of the assessee is that depreciation amounting to Rs. 1,95,215 has not been allowed to it unjustly. Pursuant to our decision taken on the first two grounds on the aspects of assessability under section 41(2) of the Act and of allowance of repair charges in favour of the assessee, we are of the opinion on the logical examination of the issue that the allowance of depreciation amounting to Rs. 1,95,215 has also to go in favour of the assessee. We thus set aside the orders impugned on this ground also and direct the Assessing Officer to grant the relief prayed for herein. 12. The last grievance of the assessee is that it has not been given relief in full relating to charging of interest under sections 139(8) and 215/217. This ground being consequential, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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