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TMI Blog2015 (11) TMI 1298X X X X Extracts X X X X X X X X Extracts X X X X ..... is available only, if it is found that amount withdrawn out of the reserve had been offered for taxation u/s.41(4A). However, it is not clear from the record as to whether the amount so withdrawn by the assessee has been offered for tax. Therefore, we restore the matter back to the file of the AO for finding out the factual position and for deciding afresh. - Decided in favour of assessee for statistical purposes. Disallowance of depreciation on the plea assessee had wrongly classified these assets are falling under the head furniture and fixtures, in the plant and machinery - assessee had classified Air conditioners, ECR, Printers, Typewriters, Mobile Phones, Refrigerators, Water Coolers, Photocopiers, EPBX, Fax as machinery and plant and claimed depreciation @ 15% as against @ 10% made by AO - Held that:- Assessee’s claim of depreciation in respect of these items is in accordance with the New Appendix to the I.T. Rules. These are not furniture and fixtures. Accordingly, there is no merit in AO’s action for treating same as furniture and fixture so as to reduce to rate of depreciation from 15% to 10%. The AO is directed to allow depreciation @15% on these items. - Decided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin 4 years. As per ld. AR the reopening was on two counts withdrawal of excess deduction u/s.36(1)(viii) (applying the proviso to that clause limiting the quantum of deduction) and alleged excess claim for depreciation (by categorizing certain items of furniture and fixtures as plant and machinery). As per ld. AR this is a case of change of opinion, there was no tangible material before the AO to come to a conclusion different from the one reached while passing order u/s.143(3). Our attention was invited to the assessment year wherein claim for deduction u/s.36(1)(viii) and claim for deduction u/s.32 in respect of plant and machinery were examined and allowed by the AO on the basis of material on record. 7. Further ld. AR also relied on the order of ITAT in the assessee s own case for the assessment year 2004-05, wherein in an appeal filed against the order passed u/s.263, the Tribunal held that the AO has taken one possible view and taxability of amount withdrawn from special reserve being the other side of deduction u/s.41(4A). Accordingly, the CIT was held to be not justified in initiating the proceedings u/s.263. As per ld. AR before the assessment was reopened the CIT has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public company formed and registered in India with the main object of carrying on the business of providing long term finances for construction or purchase of houses in India for residential purposes and was eligible for deduction u/s. 36(1)(viii) to the extent of the lower of the following :- i. 40% of the profit derived from eligible business carried to the reserve a/c. ii. The aggregate of the. amount carried to reserve account does not exceed twice of the amount of share capital and of the general reserve. As per the computation, the profit derived from the eligible 'business worked out to ₹ 229,38,04,534/-, 40% of which was ₹ 91.75,21,814/-. The same amount was claimed as deduction u/s.36(1)(viii) of the Act. However, on perusal of the Schedule 2, it was noticed by AO that the assessee had carried only ₹ 91,00,00,000/- to the reserve created for this purpose as required under section 36(1)(viii). Further on a perusal of Schedule 2 of the Balance sheet filed along with the Annual Report, share capital and general reserve, it was noticed as under :- The share capital Rs.74,99,63,475/- The G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to reserve account does not exceed twice of the amount of share capital and of the general reserve, has to be allowed as deduction. There is no infirmity in the conclusion drawn by the AO in the light of such provisions that the assessee had claimed excess deduction to the extent of ₹ 20,47,92,181/-. For the purposes of working out the deductible amount, amount carried to reserve from time to time has to be considered. There is no dispute that the assessee did carry a sum of ₹ 484,22,01,385/- to the reserve from 1.4.1997 till 31.3.2003. There is also no dispute that twice of the share capital and general reserve worked out to ₹ 555,49,31,018/-. The amendment in section 36(1)(vii) did not affect the proviso in which the word 'maintained' was never used. 13. Prior to amendment by finance act 1997 the provision of section 36( 1 )(viii) read as under: (viii) [in respect of any special reserve created by a financial corporation which is engaged in providing long-term finance for, [industrial or [agricultural development in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has been allowed in respect of any special reserve created and maintained under clause (viii) of sub-section (1) of section 36, any amount subsequently withdrawn from such special reserve shall be deemed to be the profits and gains of business or profession and accordingly be chargeable to income-tax as the income of the previous year in which such amount is withdrawn. Explanation.-Where any amount is withdrawn from the special reserve in a previous year in which the business is no longer in existence, the provisions of this sub-section shall apply as if the business is in existence in that previous year.) 17. It may be noted that as per this amendment, any withdrawal from the reserve becomes taxable and the provision have been made that the reserve should be maintained. 18. The facts of the case are that the assessee created a special reserve in financial year 1989-90. The assessee withdraw following amounts from the reserve as per the details filed by the assessee during the course of hearing on 14.08.2015: S.No. Financial year Amount 1 1996-97 4,00,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee relates to disallowance of depreciation to the extent of ₹ 32.29 lakhs on the plea assessee had wrongly classified these assets are falling under the head furniture and fixtures, in the plant and machinery. 24. From the record we found that, the assessee had classified Air conditioners, ECR, Printers, Typewriters, Mobile Phones, Refrigerators, Water Coolers, Photocopiers, EPBX, Fax as machinery and plant and claimed depreciation @ 15%. As per AO these items could not be termed as machinery and plant and held that these items needed to be categorized in the head 'Furniture Fittings' which is eligible for depreciation @ 10%. We have considered rival contentions. Assessee s claim of depreciation in respect of these items is in accordance with the New Appendix to the I.T. Rules. These are not furniture and fixtures. Accordingly, there is no merit in AO s action for treating same as furniture and fixture so as to reduce to rate of depreciation from 15% to 10%. The AO is directed to allow depreciation @15% on these items. 25. In the result, appeals of the assessee for both the assessment years are allowed in part, in terms indicated hereinabove. Order pro ..... 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