2015 (12) TMI 112 - HC - Income Tax

Tribunal Decisions Upheld, Revenue Appeal Dismissed. Depreciation, Fire Loss, Stock Valuation Approved.

Commissioner of Income Tax-7 Versus M/s. Sonic Biochem Extractions Pvt. Ltd.

The High Court upheld the Tribunal's decisions on all issues, dismissing the Revenue's appeal. The court allowed the depreciation claim for machinery of a ... Eligibility to claim depreciation in respect of plant & machinery of discontinued business - ITAT allowed claim - Held that:- The refining machinery was a part of the block of assets of plant and machinery. In such a case depreciation is granted to the entire block of assets whether or not an individual item therein has been used during the subject assessment year. In support the impugned order placed reliance upon its decision in the case of DCIT Vs. Boskalis Dredging India (P) Ltd. (2012 (8) TMI 447 - ITAT MUMBAI ) wherein it has been held that once the concept of block of assets was brought into effect from assessment year 1989-90 onwards then the aggregate of written down value of all the assets in the block at the beginning of the previous year along with additions made to the assets in the subject Assessment Year depreciation is allowable. The individual asset looses its identity for purposes of depreciation and the user test is to be satisfied at the time the purchased Machinery becomes a part of the block of assets for the first time. In the circumstances the respondent's appeal was allowed and the disallowance of depreciation was deleted. - Decided in favour of assessee. Disallowance of 'loss due to fire' - Held that:- Tribunal by the impugned order correctly accepted the respondent's contention that the amount returned as loss was revenue in nature as the amount claimed and not granted by the Insurance Company was expenditure for repair of factory Building and Plant & Machinery. This expenditure as repairs was allowable as revenue under Sections 30 and 31 of the Act in principle. In the circumstances the impugned order of the Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and restored the issue to the Assessing Officer to examine whether the expenditure claimed was incurred for repairs of Building and Plant & Machinery affected by the Fire.The view taken by the Tribunal in principle that the amounts spent on repairs has to be allowed under Sections 31 and 32 of the Act cannot be faulted.- Decided in favour of assessee. Upholding the method adopted by the assessee to devalue the closing stock - Held that:- We find that the entire exercise of devaluation of stocks is essentially a question of fact and before us the same is not urged as being perverse. The Revenue is contending that it is contrary to Section 145A of the Act. However nothing is shown to us in support of its contentions. Devaluation of stock due to obsolescence is a feature not unknown to business (See the decision of this Court in Alfa Laval India Ltd. Vs. Deputy Commissioner of Income tax, [2003 (9) TMI 43 - BOMBAY High Court] as upheld by the Supreme Court in Commissioner of Income Tax Vs. Alfa Laval (India) Ltd., [2007 (11) TMI 281 - SUPREME Court ] . Thus the findings of the Tribunal that the stock of packing materials had become obsolete warranting a reduction in its value is a finding of fact not shown to be perverse. - Decided in favour of assessee. Issues:1. Claim of depreciation for machinery of discontinued business.2. Claim of loss due to fire as revenue expenditure.3. Devaluation of closing stock and its treatment under Section 145A.Analysis:1. Claim of Depreciation for Machinery of Discontinued Business:- The respondent claimed depreciation for machinery used in the business of refining edible oil, which was discontinued during the assessment year. The Assessing Officer disallowed the claim as the machinery was not used. The Commissioner upheld this decision. However, the Tribunal allowed the claim, stating that depreciation is granted to the entire block of assets, irrespective of individual usage. The Tribunal relied on a previous case and held that the user test is satisfied when the machinery becomes part of the block of assets. The appeal was allowed, and depreciation disallowance was deleted.2. Claim of Loss Due to Fire as Revenue Expenditure:- The respondent claimed a loss due to a fire incident at the chemical plant. The Assessing Officer disallowed the loss claimed for repairs attributable to fixed assets. On appeal, the Commissioner upheld the decision. However, the Tribunal accepted the loss as revenue expenditure for repair of the factory building and machinery. The Tribunal set aside the Commissioner's order, directing the Assessing Officer to examine the expenditure for repairs. Subsequently, the Assessing Officer allowed the expenditure as revenue, in line with the Tribunal's view.3. Devaluation of Closing Stock and Treatment under Section 145A:- The respondent devalued the closing stock of packing material due to obsolescence. The Assessing Officer rejected the devaluation, citing Section 145A. The Commissioner upheld this decision. The Tribunal allowed the devaluation, considering the material obsolete and likely to be sold as scrap. The Tribunal's decision was based on factual findings and previous judgments supporting devaluation of stock due to obsolescence. The Tribunal's findings were not shown to be perverse, and the issue did not raise a substantial question of law.In conclusion, the High Court dismissed the appeal by the Revenue, upholding the Tribunal's decisions on all issues. No costs were awarded. The judgments were based on detailed analysis of legal provisions, precedents, and factual circumstances, ensuring proper application of the law in each case.