2012 (8) TMI 666 - AT - Income Tax

Appeals partially allowed, excess depreciation disallowed, various issues referred for further examination.

The Tribunal partly allowed both the assessee's and the department's appeals for statistical purposes, restoring certain issues to the A.O. for further ... Depreciation allowance u/s 32 of the Act - Whether cost of assets has to be reduced by the amount of loan waived off during the year under – Held that:- Government of India waived loans - it was decided by the company to revalue its fixed assets downwards - actual cost of assets and WDV of assets for the purposes of allowances of depreciation is to be taken as per section 43(1) of the Income Tax Act 1961 - reduction done by the company in the Gross block of assets is on its own decision and on assets already capitalized in the past as well as put to use in the past - depreciation is allowable on the reduced written down value of the assets – In favor of assessee Expenses incurred for mining rights - capital expenditure or revenue – Held that:- Assessee contended that the payment to Govt. for mining rights mainly on account of mining charges claimed by assessee allowed is a revenue expenditure and are allowed as depreciation u/s 32 as intangible asset/right has not been considered by the CIT(A) - issue remanded back to the file of A.O. Issues Involved:1. Disallowance of prorate depreciation due to downward revaluation of assets.2. Depreciation on intangible assets, specifically mining rights.3. Depreciation on Fiber Optic Computer Networking.4. Disallowance of prior period expenses.5. Depreciation on water supply and sewerage plant.6. Disallowance on account of foreign exchange fluctuations.7. Depreciation on assets not in active use.Issue-wise Detailed Analysis:1. Disallowance of Prorate Depreciation Due to Downward Revaluation of Assets:The assessee claimed depreciation based on the original written down value of assets, not accounting for a reduction in asset value of Rs. 2578.14 crores in the year ended 31.3.2000. The A.O. disallowed this excess depreciation claim, citing sections 43(1), 43(6), and 32(1) of the Income Tax Act, supported by Explanation 10 to Section 43(1). The CIT(A) upheld this disallowance, relying on previous Tribunal orders and judgments from the Supreme Court and various High Courts. The Tribunal, following its earlier decision, rejected the assessee's ground.2. Depreciation on Intangible Assets - Mining Rights:The issue of depreciation on mining rights was debated, with the assessee arguing it should be treated as a revenue expenditure or as an intangible asset under Section 32. The CIT(A) had disallowed this claim, but the Tribunal noted that similar issues had been set aside in previous years and restored the matter to the A.O. for further examination, including verifying the acquisition date of mining rights and whether they qualify as intangible assets.3. Depreciation on Fiber Optic Computer Networking:The assessee claimed depreciation at 60% for Fiber Optic Computer Networking, treating it as part of the computer system, whereas the A.O. allowed only 25%, treating it as plant and machinery. The CIT(A) upheld the A.O.'s decision. The Tribunal, noting the lack of expert evidence on whether fiber optics are integral to computers, restored the issue to the A.O. for examination by a technical expert.4. Disallowance of Prior Period Expenses:The A.O. disallowed Rs. 445 lakhs claimed as prior period expenses, except for Rs. 11 lakhs related to sales. The CIT(A) allowed the entire claim, noting that similar expenses had been allowed in previous years and the liabilities had crystallized during the year. The Tribunal upheld the CIT(A)'s decision, citing consistent treatment in earlier years and the Jurisdictional High Court's judgment.5. Depreciation on Water Supply and Sewerage Plant:The A.O. disallowed 25% of the depreciation claimed on water supply and sewerage plants, treating it as used for residential purposes. The CIT(A) allowed the full claim, following the Tribunal's earlier decisions treating such plants as plant and machinery. The Tribunal upheld the CIT(A)'s decision, noting no change in facts or law.6. Disallowance on Account of Foreign Exchange Fluctuations:The A.O. disallowed Rs. 1421 lakhs of interest, arguing that 8% of the interest was received back as a subsidy, leaving only 0.75% as actual expense. The CIT(A) allowed the full claim, relying on the Tribunal's decision in the assessee's case for 1998-99. The Tribunal upheld the CIT(A)'s decision, following consistent Tribunal orders.7. Depreciation on Assets Not in Active Use:The A.O. disallowed Rs. 93.18 lakhs of depreciation on assets not in active use. The CIT(A) allowed the claim, noting that the issue had been decided in the assessee's favor in earlier years. The Tribunal restored the issue to the A.O. for verification of the departmental stand in subsequent years, given the consistent acceptance of the CIT(A)'s decision in earlier years.Conclusion:The Tribunal partly allowed both the assessee's and the department's appeals for statistical purposes, restoring certain issues to the A.O. for further examination and verification.