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TMI Blog2019 (9) TMI 623X X X X Extracts X X X X X X X X Extracts X X X X ..... out any basis on merits. The assessee has full proof case. On this issue, we allow the claim of the assessee. Allowability of capital expenditure - assets acquired but not put to use during the year ended 31.03.2009 claimed under section 35(1)(vi) read with section 35(2) - HELD THAT:- For the purpose of availing deduction of capital expenditure u/s. 35(1)(iv) of the Act, an assessee has to incur expenditure of capital in nature on scientific research relating to its business. The language employed in Section 35 of the Act, nowhere provides for the purpose of allowability of capital expenditure u/s. 35(1)(iv) of the Act that the assessee has to use the asset for research and development purposes during the relevant previous year in which such expenditure is incurred. The assessee becomes entitled to deduction even if the asset in question is not actually used, provided it has incurred capital expenditure during the previous year on scientific research. For the purpose of claiming deduction of capital expenditure u/s. 35(1)(iv) read with Section 35(2) of the Act, what is necessary is incurrence of expenditure, which the assessee company has incurred and not the user of the asset duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Counsel practically this ground is arising out of the main ground and is on merits of the case. For this, the learned Counsel for the assessee drew our attention to the additional ground which read as under: - "The Order dated 24.01.2014 passed by the Commissioner of Income Tax u/s 263 of the Act should be held as bad-in-law on account of the following and accordingly be quashed/ cancelled: (a) For claim of depreciation U/s. 32 of the Act, it is not necessary that the assets should be used throughout the previous year and in relation to block of assets, the identity of the individual assets is not there and accordingly, so long as block of assets continues to be used for the purpose of business, depreciation allowance is admissible on that block of assets even though some of the assets may have impaired/ became obsolete: and/ or (b) The adjustment U/s. 145A of the Act of ₹ 1,32,86,625/- was made by the AO himself on the basis followed in AY. 2007-08 and the same basis has been followed in subsequent assessment years till A.Y. 2016-17: and/ or (c) For claim of capital expenditure incurred during the year U/s. 35(1)(iv) r.w, 35(2) of the Act amounting to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warranted on facts and circumstances of the case." 5. The learned Counsel for the assessee argued that the first issue i.e. MAT credit is against the assessee and to that extent she agreed that the revision is within the framework of law. 6. The learned Counsel for the assessee, as regards to the second issue argued that the AO during the original course of assessment proceedings allowed the admissible depreciation under section 32 of the Act on assets for which impairment loan was provided during the year ended 31.03.2009. The learned Counsel for the assessee stated that once the asset is part of the block of asset and depreciation is granted on that block it cannot be denied as deprecation in subsequent year on the ground that one of the assets is not used by the assessee in the year under consideration. She argued that that user of assets has to be upon block as a whole instead of individual asset. For this, the assessee relied on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Yamaha Motor India Pvt. Ltd. (2010) 328 ITR 297 (Delhi), wherein it is held as under: - "8. The matter can be looked at from another angle also. No doubt, the expression used in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier years for which depreciation has been allowed." 7. The learned Counsel for the assessee explained the fact that the "retired fixed assets" for which impairment loan has been provided for, related to the assessee company's one of the industrial undertaking situated at Dewas which were installed/constructed and put to use in the relevant year of installation and construction and continued to be used thereafter and the same were retired on account of restructuring of assessee company's organic chemicals activities including deploying some of the assets of it's Dewas unit in other projects currently under implementation. The assessee company had a business plan to utilize its Dewas Site for a value added "Contract Research and Manufacturing Business". The retired fixed assets were used during the year ended 31st March, 2009. The retired fixed assets have no connection vis-a-vis compensation received pursuant to the Montreal Protocol for phasing out the production of ozone depleting substances. 8. On the other hand, the learned CIT Departmental Representative, Shri GLV Prasad, relied on the order of Commissioner of Income Tax (Appeals). 9. We have heard riv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt Dewas units were used during the year ended 31.03.2009 for the purpose of business and block of assets to which these assets utilized were used for the purpose of business. Therefore, we are of the view that the conditions depreciation allowance under section 32 of the Act were duly satisfied with respect to fixed assets forming part of Dewas Undertaking, though the same were retired as of the year end. Hence, we find that the AO has rightly allowed the claim of the assessee. In any case, there could be to two views possible and AO has taken one of the possible view on the issue. In view of the decision of Hon'ble Supreme Court in the case of 83 ITR 243 Malabar Industries, the revision order passed by CIT on this issue is bad in law and hence, the same is quashed. 11. The next issue is as regards to the adjustment made under section 145A of the Act as the assessee company has claimed deduction of ₹ 1,34,86,625/- on account of adjustment made to the value of the closing stock in the earlier years and has been allowed as deduction. However, similar claim of deduction made in the AY 2008-09 was disallowed by the AO and in accordance with the action taken in AY 2008-09, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment is required to be made U/s. 145A of the Act in assessing the income U/s. 143(3) of the Act and directed to work out the adjustment on similar lines as done in Assessment Year 2007-2008. Based on the said working, the income was required to be reduced by ₹ 1,32,86,625/-. The assessee filed copy of letter dated 15.11.2011 submitted in the course of assessment proceedings in this regard, which brings out the fact that the AO had not carried out any adjustment in assessing the income for the assessment year 2008-09. The AO, after examining the facts of the case, including the manner of adjustment carried out in the assessment year 2007-08 and to the fact that no adjustment was done in assessment year 2008-09, carried out the adjustment of ₹ 1,32,86,6251- under section 145A of the Act in assessing the income under section 143(3) of the Act. The said adjustment is proper in law as the value of Opening Stock has to be taken at a value assigned to it in assessment of income for immediate preceding year. Accordingly, it was argued that the adjustment which has been carried out under section 145A of the Act in assessing the income for the assessment year 2009-2010 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as under: - Sr. No. Particulars Amount in Amount in Deduction claimed 1. Revenue expenditure laid out or expended on scientific research related to the business of the assessee company 1,88,97,581/- 35(1)(i) 2 Capital expenditure incurred on scientific research related to the business of the assessee company a. Equipments installed and Building Capitalised 6,75,52,867/- 35(1)(iv) r.w.s 35(2) b. Equipment un-installed and Building in progress 2,58,19,534 9,33,72,401/- 35(1)(iv) r.w.s 35(2) Total 11,22,69,982/- 19. We noted that, the CIT in revision proceeding, required the assessee to justify as to why deduction under section 35(1)(iv) read with section 35(2) of the Act should be granted for equipments which are un-installed as in your opinion, the assets have to be actually used for the purpose of claiming deduction of capital expenditure under section 35(1)(iv) of the Act. The assessee replied that the assessee had claimed the deduction under section 35 of the Act and relevant portion of Section 35 of the Act is as under: "Expenditure on scientific research - (i) In respect of expenditure on scientific research, the following deductions sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming deduction is the year of incurrence of such expenditure. In view of above, it will be observed that as per Section 35(I)(iv) read with Section 35(2) of the Act, deduction for capital expenditure incurred is allowable under the said section, as under: "(i) Deduction under the provisions of Section 35 of the Act is given only during the previous year in which the expenditure is incurred; (ii) Accordingly, an assessee cannot be deprived off the benefit of deduction in respect of capital expenditure under the provisions of Section 35 of the Act if the asset is not used in the previous year in which the capital expenditure is incurred; (iii) Consequently, once it is established that the capital expenditure has been incurred for the purpose of scientific research, the same is allowable in the year of incurrence." 22. We also noted that the Central Board of Direct Taxes vide their Circular No. 5-P (LXXVI63) of 1967 also endorses the above proposition. The relevant extract of the said Circular as quoted by the Hon High Court of Gujarat in the matter of CIT v. Gujarat Aluminium Extrusions Private Limited, reported in 263 ITR 453, is as under: - "('ii) The amount of cap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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