TaxTMI 
TaxTMI 
2007 (7) TMI 373
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.... by the decision of Supreme Court in the case of N.C. Budharaja & Co. [1993] 204 ITR 412 which is in favour of revenue." 3. The facts in brief are that the assessee-company is engaged in the business of laying of pipeline. The assessee belongs to Sheth and Sura group of companies and a search was conducted under section 132 in the cases of this group on 18-12-1992. During the search, the assessee declared additional income of Rs. 30 lakhs for assessment year 1993-94 as under: W.I.P. Rs. 20,00,000 Plant and machinery Rs. 7,00,000 Furniture and Fixtures Rs. 3,00,000 ------------- Rs. 30,00,000 &n....
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.... the head 'Furniture and Fixture'. In respect of these sums of Rs. 7 lakhs and Rs. 3 lakhs the assessee claimed depreciation which was disallowed by the Assessing Officer. However, the CIT(A) accepted the assessee's claim. We find that the two requisites for depreciation allowance under section 32(1) are as under: (1) that the depreciable asset is owned [(with effect from 1-4-1997); wholly or partly] by the assessee; (ii) that it is used for the purposes of assessee's business or profession (subject to the provisions of section 34). 8. During assessment proceedings, the assessee was asked by the Assessing Officer to furnish necessary details about these assets and the reply given by the assessee vide its letter dated 27-12-1995 as reproduced by the Assessing Officer in his order was as under: "We are unable to furnish inventory in respect of WIP, plant and machinery and furniture and fixtures declared at the time of search action under section 132." 9. While making a claim for depreciation under section 32 of the Act in respect of an asset, an assessee has to furnish details with relevant evidence about the particulars of the asset, its date of acquisition and its ac....
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....rly, the deduction should be based on the proportion of turnover so that in respect of construction activities, the appellant will not be eligible for deduction under section 80-I. 11. The appellant has given the break-up of Chandrapur work, wherein the turnover for manufacturing and processing work is shown at Rs. 39.20 lakhs and the turnover for construction activities is shown at Rs. 5.69 lakhs. The tender is stated to be for design, manufacture, shop and site fabrication, deliver to site, fabrication of various owner supplied materials, laying and commissioning of large diameter piping etc. For construction activities, the appellant has shown only civil work and 'Dewater' as extra claim. However, from the tender, find that the tender includes the work of laying and commissioning of large diameter pipeline and in my opinion, since this work is also included in the tender, the work of design manufacture and fabrication would be about Rs. 30 lakhs on estimate basis. Hence, I direct that manufacturing activities for Chandrapur work be taken at 70 per cent of Rs. 39.20 lakhs and the appellant be given deduction under section 80-I accordingly. 12. In respect of Sangli work, the....
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.... a search under section 132 of the Income-tax Act, 1961 at the premises of the assessee's group of cases of which the present company is a member on 18-12-1992. During the course of search, in order to cover up the various discrepancies in different concerns of the group for various assessment years, the assessee declared Rs. one crore. But the declaration under section 132(4) was specifically made in the hands of two companies of the group and two individuals of the group. The present company M/s. Sheth & Sura Engg. (P.) Ltd. was one of the companies in whose hands income of Rs. 30 lakhs was declared in the following manner for the assessment year 1993-94: W.I.P. Rs. 20,00,000 Plant and machinery Rs. 7,00,000 Furniture and Fixture Rs. 3,00,000 ------------- &....
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....aim of the assessee. Shri G.N. Joglekar, the ld. counsel for the assessee submitted that the assessee had shown the investment in plant and machinery, furniture etc., therefore, the assessee was entitled to depreciation thereon. It was also stated by the ld. counsel for the assessee that the assessee made declaration under section 132(4) of the Act and offered a sum of Rs. 7,00,000 for tax being the investment made in plant and machinery and a sum of Rs. 3,00,000 was offered for tax representing the value of investment made in furniture and fixture. He further submitted that the declaration made by the assessee was accepted by the department. At the same time, value of existing plant and machinery in the books of account was increased by Rs. 7,00,000. Similarly, value of existing furniture and fixture in the books of account was increased by Rs. 3,00,000 it was specifically submitted by the ld. counsel for the assessee that, plant and machinery as well as furniture and fixture were already in existence and immediately after declaration the assessee has increased the value of existing plant and machinery in the books of account by Rs. 7,00,000 and also increased the value at exis....
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....as under: "Section 32 of the Income-tax Act, 1961 deals with depreciation. There is no requirement that the asset should be used for the whole of the assessment year in question. The term used in section 32(1) is 'owned by the assessee'. But that does not bring in the requirement that the assessee should have remained the owner of the asset in question for the entire previous year in question. The two ingredients for depreciation allowance are that the depreciable asset is owned by the assessee and that it is used for the purpose of the assessee's business or profession." While interpreting the words 'used for the purpose of business', the Hon'ble Kerala High Court held as under: "that the words 'used for the purpose of the business' were capable of a larger and narrower interpretation. If the expression "used" as construed strictly it could be taken as connoting or requiring the active employment or the actual working of the machinery, plant or building in the business. On the other hand, the wider meaning would include not only cases where the machinery, plant were actively employed but also cases where there was what maybe described as passive user of the same in the bu....
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....on on plant and machinery, and furniture and fixtures, when the value of the same was disclosed under section 132(4) of the Income-tax Act, 1961 and which disclosure was accepted and taxed by the department?" THIRD MEMBER ORDER Per Vimal Gandhi, President As a Third Member.- On account of difference between the learned Members of Pune Bench, the following question has been referred to me under section 255(4) of the Income-tax Act:- "Whether on the facts and in the circumstances of the case, the assessee is entitled to depreciation on plant and machinery and furniture and fixtures." 2. The facts of the case briefly stated are that the assessee-company is engaged in the business of laying pipelines. A search was carried on the premises of the assessee under section 132 on 18-12-1992. During the course of search, the assessee agreed to surrender Rs. 30 lakhs for the period relevant to the assessment year 1993-94 as under:- W.I.P. Rs. 20,00,000 Plant and machinery Rs. 7,00,000 Furniture and Fixture &n....
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....ate of acquisition and its actual cost. In this case, the assessee failed to furnish these details. He further observed that amount of Rs. 7 lakhs and Rs. 3 lakhs represented "undisclosed income" and assessee did not produce any evidence to show that these amounts represented cost of plant and machinery and furniture and fixture to qualify for depreciation. He further observed that merely on account of disclosure of undisclosed income, assessee's claim for depreciation could not be allowed in the absence of evidence to show that requisite conditions of section 32 of the Act were fulfilled. He, therefore, held that the order of Commissioner of Income-tax (Appeals) could not be sustained. He allowed the appeal of the revenue on this ground in his proposed order. 7. Ld. J.M., in his separate proposed order, also noted facts relating to disclosure made by the assessee under section 132(4) and his statement in letter dated 27-12-1995 filed before the Assessing Officer. The ld. J.M. further extracted relevant portion of Commissioner of Income-tax (Appeals)'s order allowing claim of the assessee. He also noted submissions of both the parties. He observed that from facts in the case, it....
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....furniture and fixture by Rs. 3 lakhs. It was claimed that all the conditions of ssection 32 were satisfied. Ld Counsel accordingly supported the order of the Judicial Member. The ld. CIT, D.R. opposed the above submissions and reiterated that conditions of section 32 were not satisfied and the assessee was not entitled to the claim of depreciation. 10. There is no dispute that assessee made disclosure of Rs. 7 lakhs and Rs. 3 lakhs under the head 'Plant and machinery', furniture and fixture respectively. The disclosed amount has been accepted. On equitable principle, the assessee is entitled to relief. However, depreciation cannot be allowed merely based on equity or on commercial principle. It has to be allowed as per statutory provision. Mere disclosure of amount and investment in some assets whose description is withheld is not sufficient to claim deduction of depreciation. The assessee has to satisfy the conditions laid in section 32 of the Income-tax Act. Further reference to rule 5 of I.T. Rules read with appendix to rules would show that depreciation at different rates is allowed on different items of plants and machinery. The twin conditions are required to be satisfied:....
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.... worked out nor allowed. Therefore, merely saying that assessee is entitled to depreciation as disclosure of Rs. 7 lakhs and Rs. 3 lakhs has been accepted in the sense that above amount has been charged to tax, in my opinion, is not correct. Even if this ground is accepted by stretching and by imagining all facts in favour of the assessee, the assessee must prove that second condition relating to user of asset for the purposes of business is also satisfied. The assessee failed to furnish detail of the assets. Now, without details, how and on what basis, the Assessing Officer could examine that so-called assets were used for the purposes of the business. No enquiry into the claim is possible. Therefore the assessee cannot be said to have established second consideration. The assessee refused to give any detail as to what was plant and machinery and fixture and how these items were used for the purposes of business. Without detail, how question could be examined and proper finding recorded therein. Therefore, to enable the Assessing Officer to examine the question of ownership and user of asset, the statutory provisions and rules insist that assessee should furnish prescribed particu....