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TMI Blog2014 (7) TMI 771X X X X Extracts X X X X X X X X Extracts X X X X ..... e of depreciation must be same for the items to be included in each block. Section 43 (6) of the Act provided for working out of Written Down Value (WDV) as a step in the process of determining the allowable depreciation. The procedure to workout WDV in respect of block assets is prescribed under clause (c) therein. 2. The applicant submitted its returns for the assessment year 1988-89. It was mentioned that certain items, which formed part of a block assets, valued at Rs. 68,06,562/- were destroyed in a fire accident. It was also stated that the applicant has taken out Reinstatement Value insurance policies and accepting the claim submitted thereunder, the insurer paid a sum of Rs. 1,54,99,051/-. They, however, deducted only a sum of Rs. 68,06,562/- in the process of working out the WDV, and accordingly, claimed deprecation, in accordance with the relevant provisions. The Assessing Authority, however, passed an order, dated 20.03.1991, stating that irrespective of the WDV of the destroyed items, the amount that is received on the basis of the insurance claim must be taken into account and deducted. Not satisfied with that order, the applicant filed an appeal before the Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 43 (6) (c) (i) of the Act. He submits that once the value of the items that were destroyed in a fire accident was available with the department, the only course open to them was to reduce the WDV to that extent and noting more. Learned counsel further submits that the question as to how much amount was recovered either from the Insurance Company or towards scrap value, is totally outside the consideration of an assessing authority except in the limited context of ensuing that the reduction shall not exceed the WDV, which is increased on account of the addition of new items in the concerned assessment year. He contends that the view taken by the appellate authority accords with the provisions of the Act and the Tribunal was not justified in reversing it. Ultimately it is urged that both the questions deserve to be answered in the negative. 5. Sri S.R. Ashok, learned Senior Counsel for the Income Tax Department, on the other hand, submits that the concept of block assets was introduced with a view to ensure that the assets for which the identical depreciation value is provided are put together, and just as the value of the items destroyed in a fire accident must be reduced, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of the assets that were destroyed in the fire accident. The appellate authority took the view that irrespective of the amount, which the assessee may get either as scrap value or otherwise for any destroyed item, the deduction from the WDV can be only of the value of the concerned items. 9. In the appeals preferred by the assessee as well as the department, the Tribunal took the view, that the reduction in the WDV of the block assets must be equivalent to the value of the newly acquired item, being Rs. 1,38,03,407/-. 10. The concept of extending the benefit of depreciation on various items, is almost as old as the income tax law. Except for small variation as to the procedure or the extent of benefit, it is in vogue for the past several decades. If an item of machinery or a vehicle or other asset is acquired by an assessee, depreciation upto the permissible limit is allowed. While in some cases it is a one time event, in others it is a graduated one. From the point of view of the income tax, the book value gets reduced to the extent of depreciation. Instances are not liking, where the actual reduction in the market value of the asset is same as the depreciation permitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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). 13. While sub-Clause (i) of Section 43 (6) (c) deals with the procedure to be adopted for the financial year 1988-89, sub- clause (ii) deals with the subsequent financial years. A perusal of clause (i) discloses that if any item of asset, forming part of the block, is acquired during the previous year meaning thereby that the very assessment year, the cost thereof must be added to the WDV. Similarly, if any item which formed part of block of assets, was sold or was destroyed during that very period, the amount, equivalent its value must be reduced. The only rider is that the reduction should not result in the setting off the increase in the WDV on account of the addition of the value of an item, that is acquired during that year. 14. There is no dispute that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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