1999 (8) TMI 116 - AT - Income Tax

Tribunal decision: Depreciation upheld, theft loss claim allowed.

Gulati Saree Centre. Versus Assistant Commissioner Of Income-Tax.

Gulati Saree Centre. Versus Assistant Commissioner Of Income-Tax. - ITD 071, 073, TTJ 066, 286, [1999] 240 ITR (A. T.) 94 Issues Involved:1. Whether an individual item in a block of assets loses its identity post the amendment in section 32 and the applicability of section 38(2).2. The admissibility of a claim for loss on theft in the relevant assessment year.Issue 1: Depreciation on Block of Assets vs. Individual ItemsThe main question referred to the Special Bench was whether after the introduction of the concept of block of assets, an individual item within the block loses its identity, and depreciation should be allowed on the total block without considering the use of individual items for business purposes.The Division Bench referred this question due to conflicting interpretations. The Jabalpur Bench in Packwell Printers v. Asstt. CIT [1996] 59 ITD 340 held that post the amendment in section 32 effective from 1-4-1988, an individual asset loses its identity, and depreciation should be considered on the entire block. Conversely, the Chandigarh Bench in Singla Agencies v. Asstt. CIT [1997] 60 ITD 410 maintained that an asset does not lose its identity with the introduction of block of assets, and section 38(2) remains applicable.The assessee argued that the amended provisions of section 32 meant depreciation should be allowed on the block of assets, not individual items, citing the loss of identity of individual assets within the block. The Revenue countered, emphasizing the continued relevance of section 38(2), which restricts depreciation to a fair proportionate part if an asset is not exclusively used for business purposes.The Tribunal concluded that despite the amendments, section 38(2) continues to apply, allowing the Assessing Officer to restrict depreciation proportionately based on the asset's use for business purposes. The Tribunal upheld the CIT(A)'s decision to disallow 1/4th of the car's depreciation, affirming that individual assets within a block retain their identity for the purposes of section 38(2).Issue 2: Claim for Loss on TheftThe second issue concerned the addition of Rs. 95,901 claimed as a loss on theft. The Assessing Officer disallowed this claim, stating it did not relate to the relevant assessment year. The CIT(A) upheld this, questioning the genuineness of the theft and asserting that the loss should be claimed in the year it occurred.The assessee argued that the claim was made in the relevant year because the Insurance Company rejected the claim during that period. The Tribunal examined the evidence, including the FIR and correspondence with the Insurance Company, and found the loss to be genuine. It concluded that the loss should be allowed in the year the claim was rejected by the Insurance Company, aligning with the principle that a loss is recognized when there is no reasonable prospect of recovery.Thus, the Tribunal directed the Assessing Officer to allow the claim for the loss of Rs. 95,901 in the relevant assessment year.Conclusion:The appeal was allowed in part, affirming the disallowance of 1/4th depreciation on the car under section 38(2) while allowing the claim for the loss on theft in the relevant assessment year.