2010 (10) TMI 772 - AT - Income Tax

Tribunal partially allows appeal, upholds CIT(A) on WDV calculation, remands deduction issue for verification.

The Tribunal partly allowed the appeal for statistical purposes. It upheld the CIT(A)'s decision on the calculation of Written Down Value (WDV) and ... Depreciation - AO found that assessee has claimed depreciation of Rs. 12,79,784/- while computing profits for deduction under section 80IB whereas according to the AO such amount works out to Rs. 9,34,071 - Section 80IA contains both substantive and procedural provisions for computing such special deduction and any device adopted to reduce or inflate the profits of eligible business has to be rejected - The claim of higher depreciation or lower depreciation may not ultimately affect the tax liability of the assessee as whatever profit is derived after deducting depreciation would be eligible for 100% deduction under section 80IB - Therefore, such finally assessed income could not be disturbed by considering notionally allowable depreciation and then work out WDV for the current year - Decided against the assessee Deduction u/s 80IA - According to the AO, majority of the expenditure written off are of capital in nature - In other words any tax under section 41(1) will not be eligible for deduction under section 80IA - If such deduction was claimed and allowed in any earlier year then clearly there was reduction of profit in those earlier years and once the creditors remit the liability or liability ceased to exist and assessee declared it as part of the profit then nexus of such profit written back with the industrial undertaking is not severed - The deduction under section 80IA or 80IB is available on profits and gains computed in accordance with section 20A- 43D which includes section 41(1) also - Accordingly this ground of assessee is allowed for statistical purposes The ld. AO disallowed the claim of sum of Rs. 3,10,000/- by holding that it is not derived from business or industrial undertaking - Thus like interest receipt of FDR insurance claims also cannot be said to be derived from business of industrial undertaking and thus they are not eligible for deduction under section 80IA - In the result, appeal filed by the assessee is partly allowed but for statistical purposes Issues Involved:1. Calculation of Written Down Value (WDV) of depreciable assets.2. Deduction under section 80IA for sundry balance written back.3. Deduction under section 80IA for insurance claim.Issue-wise Detailed Analysis:1. Calculation of Written Down Value (WDV) of Depreciable Assets:The appellant challenged the order of the CIT(A) Valsad, which confirmed the AO's calculation of the WDV of depreciable assets by assuming depreciation was actually allowed during the assessment years 2000-01 and 2001-02, even though the appellant had opted not to claim depreciation for those years. The appellant argued that this approach was contrary to law and facts, especially since the ITAT had quashed the order u/s 154 for the assessment year 2000-01, which had thrust the allowance of depreciation upon the appellant.The AO calculated the depreciation by notionally deducting depreciation for the years 2000-01, 2001-02, and 2003-04, and then adopting the WDV so arrived at the beginning of the assessment year 2004-05. This approach was supported by the decisions of the Hon. Supreme Court in Cambay Electric Supply Co. vs. CIT and Indian Rayon Corporation Ltd. vs. CIT. The CIT(A) upheld the AO's order, relying on the Tribunal's decision in Vahid Paper Converters & others.The appellant argued that for calculating deduction under section 80IB, depreciation should be worked on the basis of WDV without adjusting it by notional depreciation, citing various Tribunal decisions. However, the Tribunal followed the judgment of the Hon. Bombay High Court in Plastiblends India Ltd. vs. Addl. CIT & Anr., which held that the quantum of deduction under section 80IA should be computed after deducting all deductions allowable under sections 30 to 43D of the Act, regardless of whether the depreciation was claimed or not.The Tribunal concluded that the deduction under section 80IA should be given on the correct amount of profits calculated after deducting allowable deductions under sections 28 to 43D, upholding the CIT(A)'s order.2. Deduction under Section 80IA for Sundry Balance Written Back:The appellant claimed a deduction under section 80IA on an amount of Rs. 3,98,386 written back, which was due to be paid to four parties. The AO disallowed the claim, stating that the amounts written off were of a capital nature and did not pertain to manufacturing profits, thus not eligible for deduction under section 80IA. The CIT(A) confirmed this view.The appellant argued that these amounts were claimed as deductions in earlier years and now written back, making them part of the profits eligible for deduction under section 80IA. The Tribunal held that the matter required re-examination to determine if the amounts written back were claimed as deductions in any earlier year. If so, the profits written back under section 41(1) should be considered derived from the industrial undertaking, thus eligible for deduction under section 80IA. The matter was restored to the AO for verification.3. Deduction under Section 80IA for Insurance Claim:The appellant claimed a deduction under section 80IA on an insurance claim amount of Rs. 3,10,000. The AO disallowed the claim, stating that the amount was not derived from the business or industrial undertaking but from the insurance company. The CIT(A) confirmed this disallowance.The Tribunal agreed with the lower authorities, stating that the immediate source of the receipt was the insurance company, not the business of the industrial undertaking. The insurance claim was not derived from the business but from the insurance company, and thus, it did not have a direct nexus with the business of the industrial undertaking. Consequently, the insurance claim was not eligible for deduction under section 80IA.Conclusion:The appeal filed by the assessee was partly allowed for statistical purposes. The Tribunal upheld the CIT(A)'s order regarding the calculation of WDV and the disallowance of the insurance claim deduction under section 80IA. However, it restored the matter of the deduction under section 80IA for the sundry balance written back to the AO for further verification.