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TMI Blog2015 (3) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... ese are sold, the profit is offered for taxation. This method of accounting is being followed consistently by the assessee. When the assets are recapitalized at the nominal value at which it is decapitalised then there is no effect on the taxability of the assessee. Similarly, whenever these used assets are converted into stock-in-trade and sold subsequently and the surplus on the sale is offered for taxation then there is no harm to the revenue. Considering all these facts, we allow this ground of assessee’s appeal. - Decided in favour of assessee. Disallowance of depreciation on the fixed assets which has been written off in the books of account and where the assets ceased to exist - Held that:- This issue is covered in favour of the assessee by the decision of Hon’ble Delhi High Court in assessee’s own case in assessment year 2008-09 to held that tax authorities were not justified in working out the depreciation on block of assets by reducing the value of assets which have either to be discarded or destroyed or sold or written off. - Decided in favour of assessee. Addition on changing the accounting policy - recognising the sale on completion of installation and acceptance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act, 1961 is erroneous in law and on facts. 2. Whether on the facts and in law, the Dispute Resolution Panel is justified in directing the Assessing Officer to disallow depreciation of ₹ 28,21,208/- on De-capitalized assets by stating that assets converted into stock in trade at nominal value of Re.1/- are not eligible for depreciation as such assets were not put to use for the purpose of business of the assessee company? That the above direction given by the Dispute Resolution Panel is not correct as the assessee consistently follows the same accounting policy year to year and no understatement of income has been reported by adopting such accounting policy. 3. Whether on the facts and in law, the Dispute Resolution Panel is justified in directing the Assessing Officer .to disallow depreciation of ₹ 6,03,122/- on fixed assets written off in the books, details of which were filed before the Panel, on the ground that these assets ceased to exist and were not used during the year? 4. Whether on the facts and in law, the Dispute Resolution Panel is justified in directing the Assessing Officer to add a sum of ₹ 1,39,94,000/- on the ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... converted into stock-in-trade had either been outlived their useful functional life or were not cost effective. Further, certain assets became defective due to which they had to be de-capitalised. In these circumstances, the assessee was justified in reducing the nominal value from running WDV of the block of the assets under which such assets fell. He further submitted that for the tax treatment, the depreciation under the amended provisions of section 32 of the Act is calculated by applying the specified rate to the WDV of block of assets. He further submitted that after introduction of depreciation on block of assets concept w.e.f. 01.04.1988, depreciation is available on the relevant block of assets and not on individual assets as the individual item or asset loses its identity when it is mixed with the block of assets. The depreciation is allowable on the WDV at the end of the relevant previous year for a block of assets which was computed by adding to the opening WDV of the said block of assets, actual cost of the assets acquired during the year and deducting therefrom moneys payable including scrap value, if any, in respect of assets sold or discarded during the year. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough these fixed assets were written off, the depreciation shall be continued to be allowed on the block of assets after deducting the scrap value of these assets from the block of assets, if any. The assessee s case of de-capitalisation / discarding of assets from the block of assets is also covered by the decision of ITAT in assessee s own case, hence, depreciation cannot be disallowed on the assets so discarded during the year under consideration. He finally submitted that the legal position on allowability of depreciation on the assets forming a part of the block of assets which have been sold or written off or not found, discarded or destroyed or demolished that once an asset is a part of the block of assets and it is put to use, the depreciation will be allowed till the block of assets continued to exist even if the relevant assets are sold, discarded, destroyed or demolished. Such a proposition has been upheld by Hon ble Delhi High Court in assessee s own case where an asset forming part of the block of assets is not found or is not traceable or is lost, then also depreciation continued to be allowed on such assets as long as the block of assets do exist. In this case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther leasing. This nominal value is reduced from the block of assets. In some of the cases, these assets are again leased out then they are recapitalized in the block of assets at the nominal value at which these were decapitalised. However, certain used assets remained in stock-in-trade and whenever these are sold, the profit is offered for taxation. This method of accounting is being followed consistently by the assessee. When the assets are recapitalized at the nominal value at which it is decapitalised then there is no effect on the taxability of the assessee. Similarly, whenever these used assets are converted into stock-in-trade and sold subsequently and the surplus on the sale is offered for taxation then there is no harm to the revenue. Considering all these facts, we allow this ground of assessee s appeal. 9. In the ground no.3, the issue involved is disallowance of depreciation of ₹ 6,03,122/- on the fixed assets which has been written off in the books of account and where the assets ceased to exist. The Assessing Officer made an addition of ₹ 20,99,837/- in respect of fixed assets written off during the year. The DRP in its direction dated 24.08.2011 has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere not justified in working out the depreciation on block of assets by reducing the value of assets which have either to be discarded or destroyed or sold or written off. The ITAT's decision to remit the matter back to the A.O. to recompute the depreciation only after ascertaining the scrap value of assets which have been discarded or written off in the books during the year under consideration was endorsed by Delhi High Court assessee submitted that the assets written off do not have an scrap value and section 43(6)(c) which defines WDV of a block assets states that the WDV of the assets has to be reduced by the money payable in respect of any asset falling within that block which is sold or discarded or demolished or destroyed during the previous year together with the amount of scrap value, if any. The assessee submitted that there is no value of these assets and hence no reduction needs to be made. Similar issue had come up in the asstt. year 2007-08 and DRP-II vide its direction dated 24.08.2011 decided not to interfere with the draft asstt. order as the order of the High Court was awaited. But now the order of Delhi High Court has been received and the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee for the business as the revenue is recognised when significant risks and rewards on the ownership has been transferred to the buyers and the assessee that is seller retains no effective control over the goods. Therefore, the change in accounting policy was necessitated to align the same to comply with the requirement of accounting standards. It is also submitted that assessee, after adopting this accounting policy, is consistently following this policy in the subsequent years. The DRP s observation that there was frequent change in the method of accounting is unjustified and unsustainable. Ld. AR also relied on the decision of Hon ble Supreme Court in the case of CIT vs. M/s. Excel Industries Ltd. Reported in 2013- TIOL-52-SC-IT-LB. 13. Ld. DR relied on the orders of the authorities below. 14. We have heard both the sides on the issue. The assessee has adopted the accounting policy of recognising the sales on completion of installation and acceptance of the goods at customer s premises. This policy is in compliance to the Accounting Standard 9 of the Institute of Chartered Accountants. The accounting policy adopted by the assessee is subsequently being follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oms authorities to pass on the benefit of duty free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is therefore not the income of the assessee; applying the tests laid down by various decisions of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realisation of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and Section 28(iv) of the Act would be inapplicable the facts and circumstances of the case. Essentially, the Assessing Officer is required to be pragmatic and not pedantic; secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the questions raised, starting ..... X X X X Extracts X X X X X X X X Extracts X X X X
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