9911796707
TMI Blog2023 (6) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... as not covered by section 28(iv) of the Income Tax Act. But in the case on hand, the assessee had purchased assets and created liability and later on it found that the assets were not suitable for the business and the assets were returned to the vendor. Therefore the case law relied on by the ld. AR of Mahindra Mahindra Ltd. [ 2018 (5) TMI 358 - SUPREME COURT] is distinguishable on facts of the case on hand. CIT(A) has passed a good and reasoned order and find no reason to interfere with his order. Accordingly the grounds of the assessee are rejected. Computation of revised profits as per the section 10A if disallowance of the depreciation on assets and liability written off is upheld - HELD THAT:- Since we have upheld the order of the CIT(A) treating the disallowance made as business income and the issue has not been examined in the light of section 10A, therefore considering the documents submitted by the assessee, remit this issue to the AO for examination in light of section 10A of the Act and decision in accordance with law, after providing opportunity of being heard to the assessee. The assessee is directed not to seek unnecessary adjournments and cooperate in early disposal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ", by failing to appreciate that computers & systems do not last for 16 years. 3.6. As regards denial of depreciation of Rs. 2,05,57,909/- in respect of software tools: 3.6.1. The Learned Commissioner (Appeals) ought to have allowed depreciation of Rs. 2,05,57,909/-, when the Learned Assessing Officer in the remand report had stated that "However, considering the nature of business the assessee is engaged in i.e. Software development, it is possible that these software tools were used for assessee business purpose". 3.6.2. Without prejudice to the above, the Learned Commissioner (Appeals) is not justified in denying depreciation by stating that "tools requires registration at the time of installation as at that point of time some 'PIN' is required to be entered. So the date of first usage of such tools can always be ascertained', by failing to appreciate that such information would not be available with the Appellant as the shelf life of software does not last for 16 years. 3.6.3. The Learned Commissioner (Appeals) ought to have allowed depreciation on software tools on the same principles on which the depreciation on plant and machinery [Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant that the same wee used for housekeeping work and pantry/ cafeteria for the welfare of the employees, could have some weight, being a normal practice" ,ought to have allowed depreciation on office equipments. 4. As regards the addition of Rs. 26,03,654/- [Rs. 10,62,493/- + Rs. 15,41,161/-] in respect of liability written off: 4.1. The Learned Commissioner (Appeals) is not justified in making addition of Rs. 26,03,654/- [Rs. 10,62,493/- + Rs. 15,41,161/-] in respect of liability written off by erroneously invoking section 28(iv) of the IT Act. 4.2. The Learned Commissioner (Appeals) is not justified in failing to appreciate that liability written off in respect of depreciable asset (i.e., software tool) falls under section 43(6)(c)(i)(B) and not under section 28(iv) of the IT Act. 4.3. The Learned Commissioner (Appeals) is not justified in failing to appreciate that there are no provisions under IT Act to treat the depreciation allowed in the past years as income in the subsequent year. 4.4. Without prejudice to the above, the Learned Commissioner (Appeals) has failed to appreciate that waiver of any amount payable would amount to receipt of cash which therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets. The assessee's AR expressed his difficulty to furnish the evidence with regard to the ownership of the new assets acquired by the assessee during the previous year except for two sample invoices. Hence, it is reasonably presumable that the assessee does not own the properties and thus it is not eligible for claim of depreciation. Hence, the depreciation claimed on the new assets, except the assets relating to which the invoices have been produced is rejected and added to the income returned. The computation of depreciation disallowed on the new assets is as under;- Depreciation claimed by the assessee Rs. 2,23,01,236 Les: Depreciation allowed Rs. 94,848 Amount Disallowed Rs. 2,22,06,388 3. Further, the AO noticed that the assessee has reduced Rs. 10,62,493/- from the total assessable income towards extinguishment of liability in the computation of income statement. In this regard, the assessee explained vide letter dated 24.12.2008 that cost of software tool purchased from M/s. Magma Design Automation Inc. of Rs. 1,47,79,575/- was capitalized and tool was returned when it did not help to develop/design of software and he further stated that the transaction resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant of not timely producing the necessary evidence. This is also noted that the appellant had delayed even the appellate proceedings by not attending the hearings repeatedly. In earlier stages it had not even intimated the correct address for service of hearing notices. The AO has correctly examined the additional evidence in details and so the arguments of the appellant on this issue are found to be devoid of any merit. 4.5 The appellant has relied upon the report of the Auditors and claimed that the fixed assets were verified by them. It has relied upon Form 3CD report to claim that the details of days 'put to use' is given therein. However these arguments are also devoid of any merit. The Audit report and the verification by the auditors are based on the details produced by the company before them. If these aspects were actually verified by the Auditors, the appellant was free to produce such details before the AO to substantiate its claim about the date on which the assets were put to use. However, the appellant has not done so. So, a mere reliance on Form 3CD or Auditors comment would not suffice. 4.6 As regards allowing depreciation in subsequent year, the same wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of installation as at that point of time some `PIN' is required to be entered. So the date of first usage of such tools can always be ascertained. However the appellant has not brought anything on record to show the same. Unless installed, these tools can also not be considered as ready to use. So the action of the AO in disallowing depreciation on these software tools is upheld. 4.11 As regards Computers and Systems, here too it is a common knowledge that their initial usage requires a proper installation and such date can always be ascertained from the system. So the date of first usage of those computers could ays have- been provided by the appellant if it didn't have anything to hide. This is especially due to the fact that the appellant itself is in the field of computer technology and well aware of this aspect. However the appellant has not brought anything on record to show the same. Unless installed, the computers can also not be considered as ready to use. So the action of the AO in disallowing depreciation on these Computers and Systems is upheld. 4.13 As regards, washing machine, fridge, iron box and mixer grinder, the argument of the appellant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation claimed 1 Plant & Machinery 19,126 2 Computer & Systems 16,49,963 3 Software Tools 2,05,57,908 4 Vehicles 57,067 5 Office Equipment 36,928 Total 2,23,20,361 1.6. The breakup of the depreciation denied by the Learned Assessing in respect of aforesaid fixed assets is as under: Sl. No. Description of Assets Depreciation claimed 1 Computer & Systems 16,49,963 2 Software Tools 2,05,57,908 3 Vehicles 57,067 4 Office Equipment 36,928 Total 2,23,01,237 Less: Depreciation Allowed 94,848 Depreciation Disallowed 2,22,06,388 1.7. It is submitted that the Learned Assessing Officer, in fact, records the submission of the Appellant that during the assessment proceeding the Appellant could furnish sample copies of invoices (i.e., 2 invoices) were furnished. 1.8. During the assessment proceeding [during 17.11.2008 to 31.12.2008] the Learned Assessing Officer insisted all of the invoices. In this regard, it is submitted that during preceding previous year the Assessee was known as "Purple Vision Technologies Private Limited" and the Appellant did not have any stake in it. During the impugned previous year, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation when the Appellant satisfied all the conditions to justify its claim. 1.16. A reference may be made to section 32 of the IT Act. 1.17. It is submitted that the undisputed fact is that lower authorities have accepted that the Appellant is the owner of the fixed assets acquired during the impugned year. Hence, it is submitted that the condition of owning the asset has been satisfied by the Appellant in the instant case. 1.18. It is submitted that the Learned Commissioner (Appeals) is not justified in denying the depreciation on the basis that the Appellant did not demonstrate that the assets have been put to use. 1.19. It is submitted that the Appellant in fact put to use all the assets in the impugned previous year. 1.20. A reference may be made to the relevant extract from the Auditor's Report, which reads as follows: 2. a) The company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets. b) The fixed assets were physically verified during the year by the management in accordance with a programme of verification, which in our opinion provides for physical verification of all the fixed assets a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Annexures 5 & 5A to the Tax Audit Report, it has been specifically mentioned about no. of days [i.e., less than 180 days or more than 180 days] the asset has been put to use. 1.26. It is amply clear that the Chartered Accountant has verified the Fixed Asset register, verified the invoices and certified that the aforesaid assets have been put to use. Further, in the tax audit report the Chartered Accountant has noted the no. of days for which each of the aforementioned assets were put to use during the impugned previous year. 1.27. It is submitted that the lower authorities are not justified in denying deprecation by completely ignoring the audited financial statements and the tax audit reports which have certified the truthfulness and correctness of the aforesaid additions to fixed assets. They have failed to appreciate that the statutory auditors have verified the additions to fixed assets under CARO and the tax auditors have certified the additions for reporting in Form 3CD. 1.28. It is submitted that the statutory audit and tax audit were conducted by one of the most reputed audit firms i.e., Deloitte Haskins & Sells. The lower authorities ought not to have brushed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anbhaiKukadia (2012) 138 ITD 255 (Ahm. - Trib.) (para 15); 1.35. It is also submitted that lower authorities ought not to have denied depreciation relating to the additions during the year when they have otherwise accepted that the Appellant company carried out its business operations. They are not justified in impractically assuming that the business operations with a turnover of Rs. 16,96,66,456/- of the Appellant company could have been carried out without the impugned assets. 1.36. It is also submitted that the Learned Assessing Officer in his remand report having stated "However, considering the nature of business the assessee is engaged in i.e. Software development, it is possible that these software tools were used for assessee business purpose", ought to have allowed the depreciation. Such being the case, it is submitted that the depreciation could have been allowed on the basis of business exigency. 1.37. Without prejudice to the above, it is submitted that the Learned Commissioner (Appeals), having not doubted that the Appellant acquired the impugned assets at the stated costs during the course of the previous year, is not justified in insisting on absolute evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [2013] 212 Taxman 620 (Madras) [Paras 27 & 28]. The departmental appeal against the said decision was dismissed by the Honourable Supreme Court in DCIT vs. T. Jayachandran (2018) 406 ITR 1 (SC) σ Monisha R. Jaising vs. DCIT [2019] 101 taxmann.com 519 (Mumbai - Trib.) [Para 16] σ GTC Industries Ltd. v. ACIT [2017] 164 ITD 1 (Mum. - Trib.) (SB) [Para 46] σ Smt. MadhuKilla vs. ACIT [2018] 100 taxmann.com 264 (Kolkata - Trib.) [Para 17] σ Jaya Aggarwal vs. ITO [2018] 254 Taxman 398 (Delhi) [Paras 8 & 9] σ Nihal Chand Harish Chand & Suresh Chand vs. ACIT [1995] 52 TTJ 585 (Delhi) [Para 5.1] σ Om ParkashNahar vs. ITO [2022] 100 ITR(T) 345 (Delhi - Trib.)/[2023] 198 ITD 312 (Delhi - Trib.) [Para 10] 1.47. We also rely on the following decisions wherein Courts have applied the principles of "preponderance of probabilities": • UOI vs. GanpatiDealcom (P.) Ltd., [2022] 447 ITR 108 (SC); • PCIT vs. Ennoble Construction [2022] 447 ITR 444 (Kar.); 1.48. It is submitted that the lower authorities are not justified in denying depreciation without looking into substance over form. In this regard, we rely on the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 532(Luck.) (paras 26-30); * CIT vs. Empire Builtech Pvt. Ltd. [2015] 228 Taxman 346 (Del)(Mag.); * Umakant B. Agrawal vs. Dy. CIT [2014] 369 ITR 220 (Bom); * CIT vs. Narinder Kumar Sekhri [2015] 228 Taxman 35 (P&H)(Mag); * Edayanal Constructions vs. CIT [1990] 183 ITR 671 (Ker). 1.58. It is also submitted that the lower authorities in insisting on absolute evidence of use after the lapse of 16 years is not in accordance with the recognised principle of lex non cogitadimpossibilia, i.e., the law does not demand the impossible and impotentiaexcusatlegem, i.e., when there is a disability that makes it impossible to obey the law, the alleged disobedience of the law is excused. In this regard, we rely on the following decisions: ¤ Global One India P. Ltd. vs. ACIT [2014] 31 ITR (Trib.) 722 (Delhi) [Para 12] ¤ Swami Premananda vs. CIT [2009] 180 Taxman 368 (Mad) ¤ In the following decisions, Courts have recognised the principles of impossibility of performance: → Dalmia Power Ltd., vs. ACIT (2020) 420 ITR 339 (SC) [Para 8]; → Life Insurance Corporation of India vs. CIT [1996] 219 ITR 410 (SC); → Karnataka State Industrial and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant furnished the copies of the invoices of fixed assets during the first appellate proceedings for the AYs 2006-07 to 2007-08. The Learned predecessor Commissioner (Appeals) called for the remand report for the AYs 2006-07 and 2007-08. Copies of the remand reports for the AYs 2006-07 & 2007-08 are herewith enclosed as Annexure 4 & 5. 1.66. Upon perusal of remand report for the AY 2007-08, it may be noted the Learned Assessing Officer has not applied user lest for the purpose of depreciation. 1.67. In fact, for the AY 2007-08, both, Learned Assessing Officer and the Learned Commissioner (Appeals) have allowed depreciation on assets without applying the user test. Copy of the order of the Learned Commissioner (Appeals) for the AY 2007-08 is herewith enclosed as Annexure 6. 1.68. In identical facts and circumstances, for AY 2007-08 the user test was never the basis of the Learned Assessing Officer of denying the depreciation during the assessment proceeding or during the remand proceeding. 1.69. We rely on the decision in PCIT vs. Petronet V K Ltd., 2016-TIOL-3066HC-AHM-IT, [Paras 1, 2 & 3]. 1.70. It is submitted that during the remand proceeding before the Learned Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required to be entered. So the date of first usage of such tools can always be ascertained", by failing to appreciate that such information would not be available with the Appellant as the shelf life of both hardware and software does not last for 16 years. 2.3. It may be noted that the depreciation was allowed by the cit(a) on Scan Emulator Pod. Applying the same principles and reasoning, it is submitted that the Learned Commissioner (Appeals) ought to have allowed depreciation on software tools as well. 2.4. Without prejudice to the above, it is submitted that the Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 2,05,57,909/- for the impugned AY 2006-07, when the Learned Assessing Officer has accepted that depreciation should be allowed and the Learned Commissioner (Appeals) allowed depreciation in an identical facts and circumstances in the Appellant's own case for the AY 2007-08. Copy of the order of the Learned Commissioner (Appeals) for the AY 2007-08 is enclosed as Annexure 6. 3. As regards denial of depreciation of Rs. 12,808/- in respect of plant and machinery: [Ground Nos. 3.7.1 & 3.7.2] 3.1. It is submitted that the Learned Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Assessing Officer to advise on denial of depreciation (i.e., in the remand report) and for the Learned Commissioner (Appeals) to deny the depreciation claimed by the Appellant on plant and machinery. 3.10. Without prejudice to the above, it is submitted that the Learned Commissioner (Appeals) ought to have allowed depreciation of Rs. 12,808/- on same principles on which the depreciation on plant and machinery of Rs. 84,240/- was allowed by him. 4. As regards denial of depreciation of Rs. 57,067/- in respect of vehicles: [Ground Nos. 3.8.1 & 3.8.2] 4.1. It is submitted that the Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 57,067/- in respect of addition to Vehicles of Rs. 7,60,896/-, when in fact the Learned Assessing Officer had not denied the same in the assessment order. In this regard, we rely on the submission made in paragraphs 5.2 to 5.6 (supra). 4.2. Without prejudice to the above, it is submitted that the Learned Commissioner (Appeals) is not justified in denying depreciation by stating that "the appellant could have brought on record the documents relating to the registration of vehicle and it's insurance to show that the same w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he party's account towards the above software tool was Rs. 1,08,48,556/- at the time of decapitalisation. The said balance was credited to 'Extinguishment of Liability' by debiting the party's account. Post this entry, the party's account stood closed. d) The closing balance in 'Extinguishment of Liability' account showed gain of Rs. 10,62,493/-. The same was credited to P&L Account being grouped under 'Other Income'. Copies of the relevant extract of the P&L Account and Schedule of 'Other Income' are herewith enclosed as Annexures 8 & 9. 6.4. It is submitted that, as the above gain is on capital account, the same was reduced from the profits as per P&L Account in the statement of computation of total income. 6.5. It is submitted that the Learned Assessing Office taxed the aforesaid amount of Rs. 10,62,493/- under section 41(1) of the IT Act. 6.6. As regards applicability of section 41(1), the Appellant submitted the following to CIT (A) as under: (1) It is submitted that the software tool written off in the books of accounts is not an expenditure allowable under the IT Act, as the same is capital in nature. Further, admittedly, the same was also never claimed as deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his regard, a reference may be made Circular No. 772, dated 23.12.1998 [Para 16.1]. (10) Therefore, it is submitted that the amount of Rs. 10,62,493/- cannot be treated as income in the hands of the Appellant by invoking section 41(1) of the IT Act. 6.7. A reference may be made to paragraph 5.2 of the Order of the Learned Commissioner (Appeals). 6.8. It is submitted that the aforesaid nothings of the Learned Commissioner (Appeals) are perverse for the reason that (i) in so far as applicability of section 41(1), the Appellant had furnished submissions dated 09.08.2011 and 13.12.2022 and (ii) in so far as applicability of section 50, it was explained during the appellate proceedings that the Appellant had reduced the amount of Rs. 1,08,48,556/- from the WDV as per the section 50 and also furnished explanation vide submission dated 13.12.2022. 6.9. It is submitted that during the appellate proceeding, the Learned Commissioner (Appeals) accepted that contention of the Appellant that the amount of Rs. 10,62,493/- cannot be taxed as income in the hands the Appellant under section 41(1), by way of issuing notice vide ITBA/APL/F/APL_1/2022-23/1047700761(1), dated 29.11.2022, to tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit or perquisite provided is in cash or in kind or partly in cash and partly in kind does not fall within the ambit of section 28(iv). It may be noted that the aforesaid amendment is proposed to come into effect prospectively i.e., FY 2023-24/ AY 2024-25 onwards. Hence, it is submitted that for the impugned AY 2006-07, cash benefit does not fall under section 28(iv) of the IT Act. 6.23. Therefore, it is submitted that section 28(iv) of the IT Act does not apply in the instant case. 6.24. It is submitted that the Learned Commissioner (Appeals) has enhanced the income by erroneously relying on the decision in Binjrajka Steel Tubes Ltd. vs. ACIT [2011] 130 ITD 46 (Hyd.). 6.25. It is submitted that the Learned Commissioner (Appeals) is not justified in failing to appreciate that liability written off in respect of depreciable asset (i.e., software tool) falls under section 43(6)(c)(ii) read with section 43(6)(c)(i) and not under section 28(iv) of the IT Act. 6.26. A reference may be made to section 43 (6) of the IT Act (As applicable for the impugned year). 6.27. Section 43(6)(c), defining WDV of a block of assets, clearly stipulates a reduction from the opening WDV for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant is that the asset (i.e., software tool) is 'discarded' and not a case of 'sale'. 6.38. The undisputed fact is that the balance amount of Rs. 1,08,48,556/- was payable by the Appellant to the vendor (i.e., M/s.Magma Design Automation Inc.) in respect of aforesaid discarded software tool and the said entire amount was waived by the said vendor (i.e., M/s.Magma Design Automation Inc.). 6.39. As submitted earlier, as per the Hon'ble Supreme Court in Mahindra and Mahindra Ltd (supra), waiver of liability amounts to receipt of cash/ money in the hands of debtor. 6.40. Applying the ratio of the Hon'ble Supreme Court (supra), the amount of Rs. 1,08,48,556/- waived by the vendor (i.e., M/s.Magma Design Automation Inc.) needs to be regarded as amount received by the Appellant towards discarding of the software tool. 6.41. As demonstrated earlier, the Appellant reduced entire amount of Rs. 1,08,48,556/- [which is waived by the vendor] has been reduced from the WDV of the block of asset as per the mandate of section 43(6)(c)(ii) read with section 43(6)(c)(i). 6.42. It is submitted that the Learned Commissioner (Appeals) is not justified in failing to appreciate that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinary principles of commercial accounting. 6.51. It is submitted that the Learned Commissioner (Appeals) has erred in treating the deprecation allowed in the earlier year as income for the impugned year. 6.52. In the following decision, Courts have held that depreciation is an allowance: - CIT vs. Bombay State Transport Corporation (1979) 118 ITR 399, 405 (Bom.); - CIT vs. EleconEngg. Co. Ltd., (1974) 96 ITR 672 (Guj.) affirmed by the Hon'ble Supreme Court in (1987) 166 ITR 66 (SC); - CIT vs. Oswal Agro Mills Ltd., [2012] 341 ITR 467 (Delhi); - JCIT vs. Essar Shipping Ltd., (2006) 102 ITD 71 (Mum.); 6.53. Explanation 5 to section 32 of the IT Act mandates that depreciation shall be allowed whether or not the assessee has claimed depreciation in computing total income. 6.54. A reference may be made to Circular No. 14/ 2001, dated 12.12.2001 [Paras 30.1 to 30.5]. 6.55. It is submitted that depreciation is an allowance and mandatorily allowable under the provisions of the IT Act. 6.56. Such being the case, it is submitted that depreciation allowed in the past cannot be regarded as 'income' of the subsequent year. 6.57. It is also submitted that it is never ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of Rs. 6 Crores and claimed depreciation on the same. During the subsequent year i.e., FY 2004-05 (i.e., AY 2005-06), by virtue of out of court settlement of dispute, the cost machinery was reduced from Rs. 6 Crores to Rs. 4 Crores. However, in the instant case, there is no dispute with respect to consideration and the consideration remained unchanged. It is rather a case of the vendor consenting for waiver resulting in write back of balance payable of Rs. 1,08,48,556/-. (b) In the said case, the machinery was not sold or discarded or demolished or destroyed during the year. Hence, there was no occasion for the assessee to reduce the same from the written down value of the block of asset under section 43(6)(c)(i)(B) of the IT Act. In the instant case, the software tool was discarded. Therefore, the instant case fell within the ambit of section 43(6)(c)(ii) read with section 43(6)(c)(i)(B) of the IT Act. As per the said provision, the moneys payable in respect of any asset discarded should be reduced from the WDV. (c) Accordingly, as per the said section, the Appellant treated the waiver of Rs. 1,08,48,556/- as moneys payable and reduced same from the WDV. (d) It is sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome increased as a result of disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act. 7.7. It is submitted that though the above circular deals with deduction under Chapter VI-A, the same should apply to section 10A as well as the section 10A is a deduction provision after amendment by the Finance Act, 2000 with effect from 1.4.2001. As per CIT v. Yokogawa India Ltd. [2017] 391 ITR 274 (SC), section 10A/ 10AA has to be given at Chapter IV level. 7.8. As per section 29, profits and gains will have to be computed by applying provisions of sections 28-43D. Hence, income as increased as a result of denial of depreciation claimed under section 32 and income enhanced under section 28(iv) being part of profits and gains of eligible undertaking will be eligible for deduction under section 10A deduction. 7.9. If law intended to restrict benefit of enhanced deduction, they would have expressly stated so. 7.10. One such example would be 1st proviso to section 92C(4) which provides that no deduction under section 10A or section 10AA or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the judgement of the ITAT Delhi in ITA No. 2743/Del/2016 in the case of DCIT vs. M/s Railtel Corporation of India Ltd.in which it has been held as under:- "(3.2) The Ld. AR of the assessee failed to bring to our attention any judicial precedents or any statutory provisions to show that the audit report by statutory auditors and/or the opinion of the statutory auditor is binding or final for all statutory authorities; even if the statutory auditor is appointed by the office of CAG and further even if the office of CAG conducts supplementary audit. The report(s)/opinion(s) of statutory auditor(s) are meant to aid and assist the statutory authorities and are not aimed to curtail their discretion, power or role; unless specifically provided under law or intended by necessary implication of specific provisions under law, or so held by binding judicial precedents. This applies even in respect of report(s)/opinion(s) of supplementary audit conducted by the office of CAG. (3.2.1) In this context, the following portion of the order of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs CIT 255 ITR 273, at page 279 (supra) are relevant: "…… Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Legislature to amend, modify or repeal it, if deemed necessary--Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd. [2000] 5 SCC 515 'The legislative casus omissus cannot be supplied by judicial interpretative process. Language of section 6(1) is plain and unambiguous. There is no scope for reading something into it, as was done in N. Narasimhaiah's case (supra). In D.C. Nanjudaiah's case (supra), the period was further stretched to have the time period run from date of service of the High Court's order. Such a view cannot be reconciled with the language of section 6(1). If the view is accepted it would mean that a case can be covered by not only clauses (i) and/or (ii) of the proviso to section 6(1), but also by a non-prescribed period. Same can never be the legislative intent. 12. Two principles of construction - one relating to casus omissus and the other in regard to reading the statute as a whole - appear to be well settled. Under the first principle a casus omissus cannot be supplied by the Court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively to the extent that cases where awards have been made and the compensations have been paid, shall not be reopened, by applying the ratio of the present judgment. The appeals are accordingly disposed of and the subsequent notifications containing declaration under section 6 are quashed." 9. The ld. DR has further relied on the judgment of the Hon'ble Bombay High Court in the case of Dinesh kumar Gulabchand Agrawal v. CIT (2004) 267 ITR 768 (Bom) where it was held that the word "used" in section 32 denotes actually used and not merely ready for use. He also strongly relied on the para 4.5, 4.6 & 4.7 of the CIT(A)'s order. Reliance was also placed on the decision of the coordinate Bench of the Tribunal in G Nataraja v. ITO, ITA No.2198/Bang/2019 which relates to the power of Tribunal in applying the correct provisions of the law. 10. The ld. DR submitted that the ld. AR of the assessee has relied on number of case laws which are not applicable to the present facts of the case. 11. I have heard both the sides, perused the entire material on record and the orders of the lower authorities. According to the assessee, the assessee has satisfied the ownership of assets and is eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee on 26.8.2005 and 17.8.2005 and part of the computer s & systems of Rs. 26,46,706 as evident from page 83 of PB. The CIT(A) has decided the issue only on the disallowance of depreciation on assets considered by the AO and therefore, there was no requirement of giving enhancement notice by the CIT(A) separately. 12. The argument of the assessee that depreciation has been allowed in the successive year is also not tenable since every year is independent assessment year based on the facts of the case. The issue of claim of depreciation u/s. 32 is settled by the decision of the Hon'ble Karnataka High Court in the case of DCIT v. Yellamma Dasappa Hospital, [2007] 159 Taxman 58 (Karnataka) where it has been held as under:- "6. Section 32 of the Indian Income-tax Act would provide for depreciation. The said section would show that deduction on depreciation is permissible in the event of machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. The said wordings used have been considered by the Courts of law. 7. The assessee strongly relies on various case laws in support of his submissions. BPL Display Devices Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, another construction, permissible in the context, should not be adopted. 12. CST v. Jaswant Singh Charan Singh [1967] 19 STC 469 (SC) is also a judgment of the Supreme Court in which the Supreme Court has said that while interpreting items in Statutes like the Sales-tax Acts, resort should be had not to the scientific or technical meaning of such terms but to their popular meaning or the meaning attached to them by those dealing in them, that is to say, to their commercial sense. There cannot be any quarrel over these well-accepted principles of law. The question is as to whether ready for use is used in terms of section 32. 13. Director of Entry Tax v. Mahindra & Mahindra [2003] 11 SCC 749 was a case with regard to refund of entry tax. The Court notices that this is not a case where a machine had only been displayed. In other words, the machine was started up and its working was shown. It was, therefore, used and it is of no consequence that the use was not for the purpose for which it was made. On facts, the Court ruled that the said machine was used. None of the case laws cited by the assessee is of any help to the assessee in the given situation. On the other hand, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Pursa Ltd. v. CIT [1954] 25 ITR 265 (SC), and thereafter it ruled that under sub-section (1) of section 32 there should be actual user of plant and machinery for the purposes of business. 18. The Bombay High Court has ruled that the word 'used' in section 32 of the Income-tax Act, 1961, denotes that the asset has been actually used and not that it is merely ready for use. The expression 'used' means actually used for the purposes of the business. A Special Leave Petition filed against the said judgment stood dismissed ([2004] 266 ITR (St.) 106). We are in agreement with the views expressed by the Bombay, Calcutta and Madhya Pradesh High Courts. In the light of these judgments directly, available on record, we are of the view that the kept ready theory is not available to the assessee for the purpose of claiming depreciation when the Legislature has chosen to use the word 'used' we have to give a full meaning to it and avoid reading something not intended by the Legislation. Afterall, these benefits are provided for certain purposes. That purpose is used in terms of the Statute. If the machinery is not used, section 32 is not applicable and hence, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the allowable depreciation up to 31.12.2005 (as per Company Act) at Rs. 49,93,512/- and the depreciated value of the asset at Rs. 97,86,063/- {Rs. 1,47,79,575(-) Rs. 49,93,512} as on 31.12.2005. Since the amount payable to M/s Magma Design as on 31.12.2005 was Rs. 1,08,48,556/-, by extinguishing this liability it arrived at a gain of Rs. 10,62,493/- {Rs. 1,08,48,556 (-) Rs. 97,86,063), which it had treated as being on capital account but disputed by the AO. As regards treatment given in block of asset, it just reduced Rs. 1,08,48,556/-from the block of asset. The amount of Rs. 10,62,493/- was treated as capital receipt and not offered to tax. 5.6 A perusal of the above details shows that although the appellant had treated its liability of Rs. 1,08,48,556/- as extinguished, however it had already claimed a depreciation of Rs. 65,09,134/- {@60% on Rs. 1,08,48,556/-} on this amount in AY 2004-05. So when the liability was extinguished, the benefit of Rs. 65,09,134/- was required to be offered by it to tax as per provisions of Section 28(iv) of the Act. The reliance of the appellant on the decision in the case of Mahindra and Mahindra Ltd (supra) is misplaced as the said case wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is properly so disallowable. In this view of the matter, the ground raised by the assessee on this issue is partly allowed:" 5.8 Considering above the amount of Rs. 65,09,134/-, being the excess depreciation claimed in AY 2004-05, was required to be offered to tax by the appellant as per provisions of Section 28(iv) of the Act. The argument of the appellant that the above decision of the ITAT was no longer holds good in view of the decision of SC in the case of Mahindra and Mahindra Ltd (Supra), is misplaced as the facts of this case is entirely different from the case under consideration and the same has already been discussed supra. 5.9 Although the appellant has tried to distinguish the facts of the decision in the case of Binjrajka Steel Tubes Ltd.(supra) from its own case, however the same is also of no consequence as it is the ratio of the decision which is to be followed. It is important to note that in the case under consideration as well as in the case of Binfrafka Steel Tubes Ltd.(supra) there was purchase of asset at certain price and depreciation was claimed in an earlier year. In subsequent year the cost4ftlie asset was reduced by way of mutual settlement and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the act and the same is stated to be as per Explanation below Section 41(4) of the Act. The same reads as follows: "Explanation.--For the purposes of sub-section (3),-- (1) "moneys payable" in respect of any building, machinery, plant or furniture includes-- (a) any insurance, salvage or compensation moneys payable in respect thereof; (b) where the building, machinery, plant or furniture is sold, the price for which it is sold, 5.12 As such the amount of Rs. 1,08,48,556/- is not the money payable which is required to be reduced from wdv. 5.13 Considering above, effectively an amount of Rs. 43,39,422/- only would be required to be reduced from wdv of this asset. Since the appellant had reduced Rs. 1,08,48,556/- from the block, so it had claimed lesser depreciation on this block. The same works out to be Rs. 39,05,480/- {60% of Rs. 65,09,134 [being Rs. 1,08,48,556(-) Rs. 43,39,422]). Considering this, since an amount of Rs. 39,05,480/- has already been offered to tax by way of claim of lesser depreciation to that extent, the addition which was required to be made in the case of the appellant would be Rs. 26,03,654/- {Rs. 65,09,134(-) Rs. 39,05,480}, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 to 127 of PB which are copies of STP certificates, customs bonded warehouse licence (customs certificate and Form 56F) etc. furnished before the AO on 14.11.2008. 19. During the course of hearing, the ld. AR of assessee relied on the judgment of Hon'ble Karnataka High Court in the case of Course5 Intelligence P. Ltd. v. ITO in ITA No.389/2014 & connected case dated 1.9.2021 and Hon'ble Rajasthan High Court in the case of PCIT v. Ajmer Vidyut Vitran Nigam Ltd. in D.B. I.T.A. No.158/2019 and connected cases [2022] 447 ITR 186 (Raj). He submitted that the issue has not been examined in the light of section 10A of the Act by the lower authorities. Since I have upheld the order of the CIT(A) treating the disallowance made as business income and the issue has not been examined in the light of section 10A, therefore considering the documents submitted by the assessee, I remit this issue to the AO for examination in light of section 10A of the Act and decision in accordance with law, after providing opportunity of being heard to the assessee. The assessee is directed not to seek unnecessary adjournments and cooperate in early disposal of the case. This ground is allowed for statistical ..... X X X X Extracts X X X X X X X X Extracts X X X X
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