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TMI Blog2015 (3) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... us year, then the provision of Section 50 (2) would not apply. The Section creates a deeming fiction. It cannot be extended beyond the purpose for which it has been enacted. - Decided against revenue. Depreciation claim rejected - After Sales, assessee was only left with 30% of the plant and machinery therefore, the assessee’s claim of depreciation of ₹ 3,11,660/- disallowed by AO - CIT(A) allowed the claim - Held that:- No reason to interfere with the order of CIT(A). Firstly, because the block of plant and machinery continued to exist and the manufacturing activities had temporarily been suspended and the business was not closed down. Secondly, the machinery was kept ready for future use and, therefore, the assessee’s claim was rightly allowed by ld. CIT(A). See Capital Bus Service (P) Ltd. v. CIT [1980 (2) TMI 69 - DELHI High Court] - - Decided against revenue. Sales service charges disallowed - CIT(A) sustained the part addition - Held that:- reason to interfere with the order of ld. CIT(A) because the AO has not disputed the rendering of after sales service by assessee. His only objection was that assessee was not bearing the entire cost of rendering after sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts law. 2. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in restricting the addition on account of interest and penalty to ₹ 1,25,8466/- as against ₹ 2,05,705/- made by the A. . 2.l. The Ld. CIT(A) ignored the finding recorded by the A.O. and the fact that the expenses in question are penal in nature. 3.0n the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) has erred in deleting the addition of ₹ 2,22,865/- made by A.O. on account of short term capital gain on account of sale of assets. 3.l.The Ld.CIT(A) ignored the finding recorded by the A.O. and the fact that the assessee itself has confirmed the sale of machinery vide letter dated 24/12/2009.. 4.0n the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of ₹ 3,11,610/- made by A.O. u/s 32(1) of the Act on account of depreciation. 4. 1. The Ld.CIT(A) ignored the finding recorded by the A.O. and the fact that the assessee itself has confirmed the sale of machinery vide letter dated 24112/2009. 5. On the facts and in the circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 88,453/-. 5.2. Ld. CIT(A) noted that out of ₹ 88,453/-, ₹ 8,594/- was penal in nature and, therefore, he allowed a relief of ₹ 79,859/- and restricted the addition at ₹ 1,25,846/-. 5.3. Ld. counsel for the assessee pointed out that in AY 2009-10 and 2010- 11, the AO has restricted the disallowance accordingly to ₹ 12,000/- and ₹ 2500/- respectively. 5.4. Having heard both the parties, we do not find any infirmity in the order of ld. CIT(A), because only those payments, which were penal in nature, could be disallowed. Ground is rejected. 6. Ground no. 3 3.1.:From the fixed assets chart, the AO noticed that assessee had sold machinery worth written down value of ₹ 47,50,500/-. In terms of section 50, he computed the short term capital gains at ₹ 2,22,865/- as under: Sale consideration ₹ 70,36,357/- Opening written down value ₹ 68,13,492/- Short term capital gain ₹ 2,22,865/- 6.1. Ld. CIT(A) in para 3 of his order observed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year. A bare reading of the provision of sub-section (2) of Section 50 of the Act would show that, the very fact that, there is a reference to, in arriving at the cost of acquisition, to the written down value of the block of assets‟ at the beginning of the previous year as increased by actual cost of assets falling within the block of assets acquired during the previous year would show that what is required to be seen is that whether at the end of the previous year, the block of assets‟ have ceased to exist or, in other words what is to be seen is that whether throughout the course of‟ or after the commencement and before the expiration of the previous year‟ (i.e., the financial year immediately preceding the relevant assessment year) there was an asset which fell within the block of assets . In the event the block of assets i.e., a class of asset(s) bearing same rate of depreciation exist(s) was with the assessee at the end of the previous year, then the provision of Section 50 (2) would not apply. The Section creates a deeming fiction. It cannot be extended beyond the purpose for which it has been enacted. The section is a special provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant, various judicial pronouncements relied upon by the Id. AR, the findings recorded by the Id. AO as per the assessment order and the facts of the case on record. It has been consistently. held by various judicial authorities that if the assets are kept ready for use, the claim of depreciation is allowable to an assessee. The same view was held by the Jurisdictional High Court in the cases relied upon by the appellant. In the instant case, although, there was no manufacturing activity during the year under consideration but in the next year the same took place as can be seen from the submissions filed by the Id. AR. The appellant has submitted the details of raw material consumption and manufacturing of goods for the succeeding year when the plant and machinery was actually put to use. This establishes the fact that during the year under consideration, the assets were, in fact kept ready for use. Therefore, in the light of the rulings of the Hon'ble Jurisdictional High Court relied upon by the appellant and after considering the submissions filed by the Ld. AR, I am of the opinion that the claim of depreciation is legitimately allowable to the appellant. The addition of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portionment of sales and service expenses was made on the basis of region wise sales achieved by the appellate and FEMPL. He also produced a station wise list of sale and service franchisee to which apportionment was made as under: 51 No. Centre Franchisee Sales service claim 1 Lucknow MIs. Electrical solutions 144296/- 2 Kolkatta M/s.Europa sales service 2165001- 3 Indore M/s.Glacier Aircon 1500001- 4 Jaipur M/s.Maharaja Services point 123365/- 5 Ludhiana M/s.Orion Appliances 116459/- 6 Chennai M/s.G.K.M. Customer Care Centre 2750001- 1025620/ 7.3 While discussing the submissions and on verification of the documents lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engineers Pvt. Ltd., M/s Hindustan Appliances. As regards the issue of sales service charges, he pointed out that the transactions of the assessee with its sister concerns were found to be not at arm s length. He apportioned the following expenses between assessee and sister concerns, as under: Personnel Expenses ₹ 1069844/- Books periodicals ₹ 894/- Telephone Expenses ₹ 485219/- Office Water Electricity ₹ 1147076/- Total: ₹ 2692133/- 9.1. The AO, accordingly, allowed the expenses of ₹ 4,48,688/- being 1/6th of such expenditure and the balance sum of ₹ 22,43,445/- was disallowed. 9.2. The ld. CIT(A) restricted the disallowance to ₹ 98,123/- by observing as under: 8.2.1 The Ld. AR in his submissions before me contended that the addition was arbitrary in nature. He stated that the expenses claimed as per the P L account pertained not only to the premises situated at 1/7, West Patel Nagar, New Delhi but to other premises also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - - Asiatic Engineers Pvt. Ltd .. - - - - - - - Hindustan Appliances - - - - - - - 8.2.2 The Ld. AR also mentioned that the sister concerns of the appellant were also assessed at the same rates of income tax. Hence, there was no intention/ requirement to transfer the booking of the expenditure incidence in a tax neutral scenario. 8.3 The Ld. AR further submitted that out of the total expenses of 2692133/- allocated by the Ld. AO., only Rs.?,46,146/- relate to the premises located at 117, West Patel Nagar, New Delhi and, therefore, there was no question of allocation of the expenditure of ₹ 20,45,993/- incurred at other premises to the sister concerns situated at 117, West Patel Nagar, New Delhi. 8.4 I have carefully considered the detailed submissions made by the appellant and findings recorded by the Id. AO as per the assessment order and the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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