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TMI Blog2010 (10) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2000-01, but had not been claimed or actually allowed in the assessment for that year. - Decided in favor of assessee. Pre-operative expenses in the previous year - do not agree with the contention of the assessee that this pre-operative expenses were otherwise includible under the head misc. expenditure and in that view such preoperative expenditure forming part of the undertaking transferred by way of slump sales were liable to be reduced as part of the net worth of the undertaking. We are of the considered opinion that the misc. expenditures cannot tantamount to any assets having any worth and hence, taking the same into account while computing capital gains u/s 50B is not tenable. But this aspect is only of academic interest as we have already held that this aspect pertaining to earlier assessment year and cannot be raked up in current assessment year - Decided in favour of assessee. - ITA No. 5510/Del/2004, - - - Dated:- 29-10-2010 - A.D. Jain, Shamim Yahya, JJ. Ajay Vohra, Adv. and Gaurav Jain, CA for the Appellant N.K. Chand, Sr. DR, for the Respondent ORDER Shamim Yahya: This appeal by the assessee is directed against the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in computing net worth, the provisions of section 43(6)(c)(i)(C) shall operate independently in its application i.e. provisions of section 43(6)(c)(i)(C) have been borrowed for the limited purpose of working out the written down value of depreciable assets. In other words, applying the provisions, the WDV of depreciable assets shall be calculated simply by deducting from the actual cost of the assets the depreciation as actually allowed to the assessee in respect of the assessment year commencing before 1.4.1988 and for the assessment years commencing from 1.4.1988 and thereafter, the depreciation that would have been allowable to the assessee as if the asset was the only asset in the relevant block of asset, shall be considered irrespective of the fact whether the assessee has claimed the depreciation or the depreciation has otherwise not been allowed on account of any reason. 3.1 Assessing Officer further noted that assessee has capitalized the entire indirect expenditure incurred prior to the commercial production to cost of plant and machinery. Going through the details of expenditure incurred during preoperative period as per Schedule 5 to the balance sheet as on 31.3.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of its transfer shall be deemed to be the capital gains arising from the transfer of short-term capital assets. (2) In relation to the capital assets being an undertaking or division transferred by way of such sale, the "net worth" of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of sections 48 and 49 and no regard shall be given to the provision contained in the second proviso to section 48. (3) Every assessee, in the case of slump sale, shall furnish in the prescribed form along with the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 288, indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section. Explanation 1:- For the purposes of this section, "net worth" shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year relevant to the assessment year commencing before the 1st day of April, 1988; and (b) by the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988 as if the asset was the only asset in the relevant block of assets, so, however, that the amount of such decrease does not exceed the written down value; (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item (i). .........." 6.2 Further submissions of Ld. counsel of the assessee read as under:- As per the said definition, the written down value of any block of assets (for the previous year) is arrived at by making the following adjustments: i) Reducing from the written down value of that block of assets for the immediately preceding year, the depreciation actually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset was the only asset in the relevant block of assets" would be rendered superfluous. In other words, the said section has no application where the entire assets forming part of the block are sold by way of slump sale. Where the entire assets forming part of the block are transferred by way of slump sale, the written down value of the block of assets, which are transferred in entirety, is to be computed by reducing the depreciation actually allowed in terms of section 43(6)(c)(C)(b)ii) of the Act. The Supreme Court in the case of Madeva Upendra Sinai vs. UOI and Others : 98 ITR 209 held by majority that the WDV of an asset has to be computed on the basis of depreciation actually allowed to an assessee and cannot be stretched to an allowance on a notional basis. It is impermissible to invoke section 43(6)(c)(C)(b) of the Act to calculate the written down value of the assets transferred by way of slump sale by taking into account the depreciation that would have been allowable. To reiterate, the fiction in section 43(6)(c)(C)(b) has been enacted for limited purpose. In case of slump sale, section 43(6)(c)(C)(b) requires the assessee to recalculate depreciation that would h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, while calculating the net worth of the undertaking for purposes of computing capital gains under section 50B of the Act, in assessment year 2001-02 is, even otherwise, inequitable. For the aforesaid reasons, the Assessing Officer/C.I.T.(A) erred in not accepting the computation of short term capital gains on slump sale of the undertaking and in seeking to reduce depreciation that could have been allowable for assessment year 2000-01, but had not been claimed or actually allowed in the assessment for that year. 6.3 As regards the capitalization of pre-operative expenses, assessee's submissions are as under:- As regards, the adjustment made by the Assessing Officer to the computation of capital gains under section 50B by reducing the pre-operative expenses, aggregating to Rs.58,10,089/- (incurred in the earlier years and capitalized to the cost of assets) from the net worth of the undertaking, it is respectfully submitted that the same was capitalized as part of the cost of assets in the assessment year 2000-01, which has been accepted by the Department. It is respectfully submitted, that the capitalization of such expenses as part of the cost of assets, which had beco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find ourselves in agreement with the assessee's contention that written down value here would mean the WDV of that block of assets in the preceding year as reduced by the depreciation actually allowed. The assessee has filed its return of income for the previous year without claiming depreciation and the production started in March, 2000. The said return has been accepted by the department. 6.7 The reliance placed by the revenue on the provisions of section 43(6)(c)(C)(b) is misplaced as the same would be applicable to determine the WDV of remaining block of assets where part of assets falling in the block are transferred by way of slump sales during the relevant previous year. This is meant to isolate the WDV of assets falling in the block which are partly transferred. We are of the considered opinion that the said sub-section has no application where the entire asset forming part of the block are sold by way of slump sale. The assessee applying the option for not claiming depreciation in the previous assessment year 2000-01 was also legally permissible on the touch stone of the Hon'ble Apex Court decision in the case of Mahindra Mills vs. C.I.T. 243 ITR 56. 6.8 The alte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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