9911796707
TMI Blog2010 (10) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited on 12.2.2001 at a net consideration of Rs.2,75,00,000/-. The undertaking which the assessee had transferred was held by it for less than 36 months as the assessee started its business in the last year while capitalizing its assets and starting commercial production w.e.f. March, 2000. In this background Assessing Officer held that provision of section 50B of the I.T. Act are applicable in computing short term capital gain on the slump sale of the undertaking would be applicable. Assessee also filed a revised return. On going through the working of the capital gain u/s. 50B under the revised computation, Assessing Officer observed that assessee has not computed the net worth as provided in the Explanation to Section 50B in as much as the written down value of depreciable assets comprised in the block of assets transferred in the slump sale, has not been worked out in accordance with the provisions of section 43(6)(c)(i)(C) of the Income Tax Act. Referring the said provision Assessing Officer noted that in this case the assessee capitalized its plant and machinery and other assets in the previous year ending on 31.3.2000, but did not claim for depreciation on the same in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assets for the purpose of computing the depreciation which would have been allowable for arriving at the WDV for the purpose of computing the net worth of the assessee company. Assessing Officer further held that the entire assets comprised in the block of plant and machinery has been capitalized in the last year and commercial production started in March, 2000, the depreciation for the previous year @12.5% which comes out to be Rs.1,88,37,530/- the WDV of the block of assets is worked out to be Rs.13,18,62,711/- to be considered for working out the net worth of undertaking under section 50B. Thereafter, Assessing Officer made the computation. 4. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) confirmed the Assessing Officer 's action. He also held that assessee claim for allowance of depreciation in respect of A.Y. 2001-02 also cannot be considered. 5. Against this order the assessee is in appeal before us. 6. We have heard both the counsels and perused the records. In this regard, it would be apt to refer the provisions of section 50B which reads as under:- "50B. (1) Any profits or gains arising from the slump sale effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which the same rate of depreciation is prescribed in the Appendix to the Income Tax rules, are treated as forming part of block of assets. Under section 32 of the Act, deprecation is admissible on the written down value in respect of block of assets. The written down value of any block of assets is computed in terms of Section 43(6)(c) of the Act, which reads as under:- "43. Definitions of certain terms relevant to income from profits and gains of business or profession. In sections 28 to 41 and in this section, unless the context otherwise requires- ......... (6) "written down value" means- ....... (c) in the case of any block of assets,- (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,- (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide Circular No.469, dated 23.9.1986: 162 ITR (St.) 21, issued while explaining the amendments made by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986. The relevant portion of the aforesaid Circular is annexed hereto as Annexure 1. Once the assets form part of the block, the individual assets lose their identity and depreciation is allowed with reference to the written down value of the relevant block of assets. Even where an individual asset forming part of the block may not have worked or may have been sold, depreciation may still be admissible with reference to the written down value of such assets embedded in the block. It is important to note that provisions of section 43(6)(c)(C)(b) of the Act come into operation to determine the written down value of the remaining block of assets where part of the assets falling in the block are transferred by way of slump sale during the relevant previous year. Since part of the assets are transferred by way of slump sale, it is necessary to isolate the written down value of the assets transferred and for that purpose the said section enacts a deeming fiction by requiring the assessee to recalculate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary to interpret section 43(6)(c)(C)(b) of the Act in the context and taking into account the purpose for which the legal fiction was enacted. In the facts of the present case, the entire block of assets has been sold by way of slump sale. No assets remained with the assessee company subsequent to the transfer of business by way of slump sale. For that reason, the provisions of section 43(6)(c)(C)(b) have no application. In that view of depreciable assets transferred by way of slump sale by reducing depreciation that would be allowable for the assessment year 2000-01, ignoring the fact that no depreciation was claimed actually or allowed for that year. It is also important to note that the assessee opted not to claim depreciation for assessment year 2000-01, which was legally permissible as held by the Supreme Court in the case of Mahendra Mills v. C.I.T : 243 ITR 56. In the absence of depreciation having been claimed and actually allowed by the Assessing Officer for assessment year 2000-01, it is not possible for the Assessing Officer to reduce notional depreciation that could have been allowable for assessment year 2000-01 to arrive at written down value of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectfully submitted, that such expenses would have otherwise been reflected as part of assets/miscellaneous expenses in the balance sheet of the appellant for the year ending 31st March, 2000 or as on the date of slump sale of the undertaking Section 50B of the Act provides that net worth of the undertaking includes book value of assets other than depreciable assets of such undertaking. Since the appellant only had canpack division, the aforesaid preoperative expenses, otherwise includible under the head 'miscellaneous expenditure', were relatable to that undertaking and on slump sale thereof were liable to be transferred as part of other assets to the transferee. In view of the above, even otherwise, such pre-operative expenses, forming part of other assets of the undertaking transferred by way of slump sale, were liable to be reduced as part of the net worth of that undertaking, while computing capital gains under section 50B of the Act. For the aforesaid cumulative reasons, the aforesaid adjustment made by the Assessing Officer and sustained by the Ld. Commissioner of Income Tax (Appeals) needs to be deleted and computation of capital gains under section 50B of the Act m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales u/s 50B for the current assessment year. 6.10 As regards the issue of capitalization of pre-operative expenses in the previous year, we note that this capitalization was done in financial year ending 2000, falling part of the assessment year 2000-01. This return was accepted by the department. Now the Assessing Officer in the present assessment year is holding that this pre-operative expenses could not have been capitalized as they are not in such nature of expenses which are liable to be capitalized. Again we find ourselves in agreement with the contention that capitalization of preoperative expenses has already been done in assessment year 2000-01. The Assessing Officer cannot be allowed to reopen this issue during the relevant year while making the computation u/s 50B. Hence, we hold that capitalization of expenses already completed in the year ending 31.3.2001 cannot be raised for any disallowance made by the Assessing Officer in the current assessment year 2001- 02. 6.11 In this regard, we make it clear that we do not agree with the contention of the assessee that this pre-operative expenses were otherwise includible under the head misc. expenditure and in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
