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TMI Blog1995 (11) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... n the building and Rs. 1,19,73,538 on the plant and machineries belonging to this unit. The Assessing Officer rejected the claim of the assessee on the ground that the building as well as the plant and machineries had not been used inasmuch as the actual production of marine containers started on 10-11-1991 when the unit was inaugurated by the assessee. The submission of the assessee that each machinery was subjected to test and trial run and, therefore, depreciation should be allowed on that basis was also rejected by the Assessing Officer. He observed in his order that the assessee had incurred a substantial amount of Rs. 4.13 crores on modifications and additions in the subsequent year in respect of plant and machineries installed in the second division which, according to him, indicated that plant and machineries as on 31-3-1991 were incapable of being used for production. On appeal, the CIT(A) specifically asked the assessee to produce the evidence to show in what manner the building as well as the plant and machineries were used for the purpose of the business. In spite of this request, assessee did not produce any evidence in this regard. Hence, after taking into considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the decision of the Bombay High Court reported as Whittle Anderson Ltd v. CIT [1971] 79 ITR 613. Regarding the third contention it was submitted by him that building isused for the purpose of the business which includes installation of plant and machineries. Once the plant and machineries are installed, the building is said to be used for the purpose of the business and, therefore, assessee is entitled to the depreciation. In support of his contention, he relied upon the decision of the Gujarat High Court reported as Khimji Visram & Sons (Gujarat) (P.) Ltd v. CIT [1995] 79 Taxman 112. Regarding the last contention his submission is that after the amendment w.e.f. 1-4-1988, a new concept has been introduced. According to him, the depreciation is to be allowed on plant and machineries forming part of block of assets on its written down value and, therefore, the actual user of the machinery is not necessary. He referred to the definition clause-11 of section 2 and the provisions of section 43(6)(c). His submission is that once the plant and machineries form part of the block of assets, the Assessing Officer is bound to allow the depreciation allowance. In support of his contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amendment assessee has to prove the user of the machineries.The concept of block of assets is only for computing the depreciation allowance. It support of his contentions, the learned Departmental Representative relied upon the recent decisions of the Bombay High Court in the case of B. Malani & Co. v. CIT [1995] 214 ITR 192 and the Gujarat High Court in the case of CIT v. Suhrid Geigy Ltd. [1982] 133 ITR 884. 5. Both the parties have been heard at length. The material placed before us has been considered carefully. The perusal of section 32(1) clearly shows that assessee must satisfy two conditions, viz., (i) that it is the owner of the assets and (ii) such assets are used for the purpose of the business or profession. These two conditions are sine qua non for claiming depreciation under section 32. If any authority is required, reference can be made to the judgment of the Supreme Court in the case of Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265. That clearly shows that user of the plant and machineries must be there in order to claim the depreciation. Same view has been taken by the Gujarat High Court in the case of Suhrid Geigy Ltd. So, the question before us whether on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. But non-furnishing of the same, in spite of our specific request, lead to an only inference that plant and machineries in the second unit were not utilised. The increase in the electric consumption as well as the production might have been possible in the first unit itself by using the machineries on extra shift basis or by putting more time on such machineries. The circumstantial evidence in this case is not sufficient to prove the user. Hence, we confirm the finding of the CIT(A) regarding the plant and machineries. The first contention of the assessee, therefore, fails. 6. As far as the user of building is concerned, it is an admitted fact that plant and machineries were installed during the year in the building premises of the second unit. Installation of the machinery is the purpose of the business and, therefore, it can be said that the building was utilised for the purpose of the business once the plant and machineries are installed therein. No further evidence is required for this purpose. The lower authorities had not given any specific reasons for disallowing the claim of the assessee regarding depreciation on building. We, therefore, accept this contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstallations had not been used by the assessee as admitted by the assessee in his submissions before the Assessing Officer and, therefore, it cannot be said that even plant and machineries were tested or were subjected to trial. On these facts, it cannot be said that plant and machineries were ready for production. The decision of the Calcutta High Court in the case of Kanoria General Dealers (P.) Ltd. relied upon by the assessee does not help the case of the assessee. In that case, the question was whether a business unit has been set up by the assessee for the purpose of claiming the depreciation. Their Lordships had held that where a unit has been set up, which is ready to commence production, then the assessee will be entitled to claim deduction of an expenditure and the same cannot be disallowed on the ground that it had been incurred prior to commencement of actual business of commercial production. In the present case, the issue before us is not whether the assessee has set up a unit or not. Even otherwise, on the facts of the case, the machineries installed by the assessee cannot be said to be ready for production keeping in view the substantial modification in the plant an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that actual user must be there. The learned counsel for the assessee has also relied upon the Board's Circular No. 469 dated 23-9-1986 in support of his contention. Perusal of the said circular, in our opinion, does not advance the case of the assessee. It says that the present system of calculating depreciation, is a time consuming process on account of difference in rates of depreciation and different type of machineries. It says that in order to simplify the process, the concept of block of assets was introduced. He has emphasised the words "intensity of use" mentioned in the circular. In our opinion, this does not mean that actual user is not required. Earlier the extra shift allowance, etc., were allowed on certain machineries and it is in this reference the words "intensity of use" have been mentioned in the circular. Even otherwise, the circular cannot take away the requirement of the provisions in the Act which are unambiguous. In our opinion, the circular does not say that actual user is not required. Had the Legislature intended to take away such requirement, it would have amended the main provisions of section 32(1). In the absence of the same, it cannot be said that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This expenditure was treated for the purpose of business by the Assessing Officer. However, a disallowance of Rs. 1 lakh was made on this account on an estimate basis as the assessee had not made available the details to compute the disallowance under rule 6B. The assessee furnished the details before the CIT(A) and it was found by him that expenditure on presentation articles was on account of calculators, jewellery, etc., and the assessee had not provided the names of the customers to whom such articles were distributed. In the absence of the same, the claim was rejected by the CIT(A). He further held that since the expenditure was not for the purpose of business, the entire expenditure of Rs. 2,18,738 was to be disallowed. 13. The learned counsel for the assessee argued before us that it is an undisputed fact that presentation articles did not carry any logo, as is evident from the order of assessment and, therefore, it could not be said that presentation of articles carried any advertisement value. He relied on the decision of the Bombay High Court in the case of CIT v. Allana Sons (P.) Ltd. [1993] 70 Taxman 288. He also drew our attention to the details of such expenditure w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Otis Elevator Co. (India) Ltd. wherein it has been held that subscriptions to the clubs are allowable expenditures. The order of the CIT(A) is modified accordingly. 16. Ground No. 5 relating to share issue expenses has not been pressed by the learned counsel for the assessee. Hence the same is dismissed as being not pressed. 17. The last ground relates to deduction under section 80HHC. The brief facts are that the assessee had claimed a deduction of Rs. 2,58,11,685 under section 80HHC and for this purpose, total turnover taken into consideration by the assessee is Rs. 41,36,46,065. The Assessing Officer found that assessee had not included indenting commission and sale of packing material amounting to Rs. 31,96,981 and Rs. 17,67,554. Hence, the Assessing Officer included both these figures in the total turnover of the assessee. The CIT(A) has found that the assessee has received this commission on goods supplied by other parties. The CIT(A) was of the view that if the profits arising from the commission are included in the total income, then there is no reason to exclude the gross receipts on account of commission in the total turnover of the appellant. He, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are few blocks of assets and the same percentage of depreciation is prescribed for each block of assets. The percentage of depreciation for each block of assets is dealt with by Rule 5 read with Appendix 1. The CBDT, in Circular No. 469 of 23-9-1986, explained the new scheme in the following terms :-- "Para 6.3 : "As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the dates of purchase, the type of asset, the intensity of use, etc., the more disaggregated has to be the record-keeping. Moreover, the practice of granting the terminal allowance as per section 32(1)(iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has intr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeds of these assets wipe out the entire value of the block, no depreciation would be available even though some assets of the block continue to be used for business purposes. Therefore, the new scheme as introduced does not require use of individual assets for the grant of depreciation. 23. The Legislature also has fully taken into account the possibility of some assets enjoying depreciation without really being put into use. In such a case, when such asset is sold, then the moneys payable in respect of the assets sold exceeding the actual cost would not be taxable as short-term gains and not as long-term gains as under the old law. Therefore, there is no likelihood of the assessee using the new scheme as means to avoidance of tax. The new scheme is self-contained and there can be no loss to the revenue in the ultimate analysis. 24. The assessee in this case is having fixed assets to the tune of Rs. 4,32,10,326 at the beginning of the year. It made an addition to the extent of Rs. 8,89,78,660 to the block of assets. The addition to the fixed assets is in the nature of expansion of the existing business. Normally, the claim of the assessee would be allowed. However, as per Notes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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