TaxTMI 
TaxTMI 
2009 (6) TMI 644
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....laim by the assessee by treating the difference between actual cost and WDV as (sic) income for the year under consideration. For this, the assessee has raised the following ground No. 3: "3.(a) The learned CIT(A) has erred in confirming the addition made by the AO of Rs. 1,72,11,136 invoking provisions of s. 41(2) of the IT Act treating the difference between actual cost and the WDV as since (sic) for the year under consideration. Your appellant submits that addition made by the AO invoking provisions of s. 41(2) is not justified. It be held so now and same be deleted. (b) The insurance claim of Rs. 75,00,000 received during the year only be taxed and balance amount of Rs. 82,69,136 being receivable from insurance company, be taxed in asst. yr. 2000-01 on receipt basis. (c) The learned CIT(A) has erred in confirming the action of the AO of taxing the salvage value at Rs. 14,42,000. It is submitted that appellant has received net insurance amount of Rs. 1,57,69,136 and salvage amount of Rs. 75,000 only instead of Rs. 14,42,000 taken by the AO. Therefore, there is no justification to tax salvage value at Rs. 14,42,000. It be held so now and same be taken at Rs. 75,000 as ac....
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....94-95 and availed off depreciation under cl. (i) sub-s. (1) of s. 32. The assessee used those assets for the purposes of the business. The depreciation was claimed as against the actual cost of Rs. 2,40,91,843 which was allowed depreciation at Rs. 2,40,91,843. Thus, the WDV of the assets viz., wind turbo generator of asst. yrs. 1993-94 and 1994-95 as stated above, which were destroyed in the cyclone was nil. The assessee had received salvage value of Rs. 14,42,000 besides net value at Rs. 1,57,69,136 from General Insurance Company. Thus, the assessee had received in aggregate an amount of Rs. 1,72,11,136 as against the WDV of Rs. nil. Thus, the difference between actual cost and the WDV i.e., Rs. 1,72,11,136 attracts the provisions of s. 41(2) of the Act. Therefore, the said income of Rs. 1,72,11,136 is considered as profit under s. 41 (2) of the Act which is added to the total income of the assessee. The assessee has furnished inaccurate particulars of income and thereby concealed its income within the meaning of Expln. (1) of s. 271(1)(c) of the IT Act. Penalty proceedings are initiated under s. 271(1)(c) r/w s. 274 of the IT Act, 1961." 5. Aggrieved, the assessee preferred ap....
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.... 1 set L.S. 3,25,000 control and control panels and 11KV line etc. ----------------------------------------------------------- 5. Control room and L.S. L.S. 40,000 other miscellaneous items ----------------------------------------------------------- Total 6,12,000 ----------------------------------------------------------- ----------------------------------------------------------- Computation of salvage value for damaged wind turbine generator NEPC 300KW ----------------------------------------------------------- Sl. Depreciation ....
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....tes it as an "advance of order". Hence, it is not clear whether the said amount of Rs. 74,984 has been received as total scrap value or as advance for the total scrap value. On the fact of it, the salvage value declared by the appellant appears to be grossly understated vis-a-vis mutually agreed price of Rs. 14,42,000 mentioned in the joint final survey/assessment report dt. 23rd Dec., 1998. In the said joint final survey report, the quantity of steel/iron scrap has been shown at 55,000 kgs. which has been valued at a very reasonable and down to earth price of only Rs. 6 per kg. If this amount only is accepted, then also, the value of scrap of iron/steel alone amounts to Rs. 3,30,000. Further, the quantity of copper scrap is shown at 1,800 kgs. which has been valued at a reasonable rate of Rs. 90 per kg. The value of copper scrap amounts to Rs. 1,62,000. Other high end items like transformers and control panals have been valued at Rs. 17,75,000. Remaining items pertain to cables, scrap and control room and other miscellaneous items. Hence, as against the above items valued at Rs. 14,42 lacs, the declaration of salvage value at Rs. 75,000 only is unbelievably understated. Therefore,....
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....asst. yr. 1999-2000. He argued that the AO has summarily held that the assessee received salvage value of Rs. 14,42,000 and Rs. 1,57,69,136 from General Insurance Company. When the windmill on which depreciation at 100 per cent was claimed was damaged due to cyclone the assessee totally received Rs. 1,72,11, 136 and the AO held that WDV being nil the difference between actual cost and WDV of Rs. 1,72,11,136 attracts the provisions of s. 41 (2) and treated the same as income of the asst. yr. 1999-2000. He stated that the CIT(A) also while disposing this ground from p. 7 to p. 13 of his order held that the windmill was completely damaged, which could not be recommissioned and therefore, upheld the contention of the AO that the entire amount of Rs. 1,72,11,136 is a revenue receipt chargeable under s. 41(2). In view of these facts, he argued that it can be seen that both the AO as well as CIT(A) have grossly erred in giving the incorrect finding on p. 5, para 5 of the assessment order and on p. 7 of the CIT(A)'s order that the assessee had availed depreciation under s. 32(1)(i). This is totally incorrect. Sec. 32(1)(i) was inserted w.e.f. 1st April, 1998, i.e. asst. yr. 1998-99, wherea....
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....ecision of Rajhans Metals (P) Ltd. vs. ITO (2008) 115 TTJ (Mumbai) 779 : (2008) 6 DTR (Mumbai)(Trib) 393. According to him, in this case also the assessee had claimed depreciation of windmill at 100 per cent in asst. yr. 1996-97 under cl. (ii) of s. 32(1) and not under cl. (i) thereof which was omitted w.e.f. 1st April, 1988 and re-introduced from 1st April, 1998. In this case also windmill was destroyed due to cyclone in asst. yrs. 1999-2000 and the assessee received Rs. 2,25,37,301. In this case also the AO assessed the income of insurance received by applying s. 41(2) and CIT(A) confirmed. The Tribunal held that provisions of s. 41 (2) being charging provision could not be applied to those cases where depreciation had been claimed prior to the amendment effective from 1st April, 1998 and therefore, the amount received from insurance company could not be assessed under s. 41 (2). Though the AO reopened assessment under s. 41(1) the income is finally taxed under s. 41(2). It was not taxed under s. 50 and as mentioned by the AO capital gain could not be levied at that time due to Supreme Court judgment in case of Vania Silk Mills (P) Ltd. vs. CIT (1991) 98 CTR (SC) 153 : (1991) 191....
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..... It was explained by the learned Authorised Representative that during the period 1988-89 to 1998-99 when provisions of s. 32(1)(i) was not in the statute, provision of blocks of assets was in force and amount received on sale or from insurance company on damages etc. were to be reduced from the WDV and the assessee was entitled to depreciation on such reduced balance. It was only in asst. yr. 2000-2001 that the Act was amended to levy tax on such receipt of assets so discarded or demolished and that too under s. 45(1A). It was argued that this being asst. yr. 1999-2000 provisions of s. 45(1A) was not in the statute, the assessee could not be taxed under the said section and simultaneously as the assessee had not claimed and was not allowed depreciation under s. 32(1)(i), the same cannot be also taxed under s. 42(1). While concluding the argument it was submitted that this is the very point on which Bombay Tribunal in case of Rajhans Metals (P) Ltd. vs. ITO held the claim in assessee's favour. 8, We have heard the rival contentions and gone through the facts and circumstances of the case. We have also perused the case records including the assessment order as well as the order ....
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....32(1)(i) of the Act by virtue of this the provisions of s. 41(2) just are not attracted. We find that the exactly similar issue has been considered by the Mumbai Tribunal in the case of Rajhans Metals (P) Ltd., wherein the Tribunal in paras 5 and 6 held as under: "5. Rival submissions of the parties have been considered carefully. In our opinion, the contention raised by the learned counsel for the assessee is not without force. The provisions of s. 41 (2) are charging sections and therefore, the same must be construed strictly. If the facts of any case do not fall within the ambit of charging sections, then the assessee cannot be charged to tax by construing the provisions liberally. Sec. 41(2) as brought on the statute book w.e.f. 1st April, 1998 is being reproduced as under: '41(2) Where any building, machinery, plant or furniture, (a) which is owned by the assessee; (b) in respect of which depreciation is claimed under cl. (i) of sub-s. (1) of s. 32; and (c) which was or has been used for the purposes of business, is sold discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be togeth....
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.... It was under such provisions that the assessee claimed deduction @ 100 per cent as per the prescribed rate in respect of windmills installed by the assessee. Clause (i) of s. 32(1) of the Act, as enacted originally, had been omitted w.e.f. 1st April, 1988 and, therefore, it was not on the statute book in asst. yr. 1996-97. Thus, it is clear that the assessee had claimed the depreciation under cl. (ii) of s. 32(1) of the Act and not under cl. (i) of s. 32(1). The legislature was well aware that cl. (i) of s. 32(1) had been omitted w.e.f. 1st April, 1988 and cl. (i) was being brought again on the statute book w.e.f. 1st April, 1998. Therefore, while enacting s. 41(2) w.e.f. 1st April, 1998, in our opinion, the legislature referred to the amended provisions of s. 32(1)(i) effective from 1st April, 1998. Therefore, in our humble opinion, the provisions of s. 41(2) being the charging provisions could not be applied to those cases where the depreciation has been claimed prior to the amendment effective from 1st April, 1998. Had the legislature intended to apply the provisions of s. 41 (2) to all the cases, then it could have used the words and figures "under sub-s. (1) of s. 32" instead....
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.... charged fee on that capital expenditure @ 12.5 per cent. The assessee was requested to furnish the details of the expenditure and the purpose of the expenditure during the course of assessment proceedings. The assessee vide its reply dt. 28th Feb., 2005 stated that the aforesaid expenses were incurred for interior work in the existing office premises. It was further stated that the premises was rented to Power Build Elecon Gears Ltd. along with the furniture. It was added that expenditure of Rs. 9,66,047 was incurred for repairs of the office premises and therefore claimed it as revenue expenditure. The aforesaid contention is considered however here it is pertinent to note that the assessee has not used the aforesaid premises for the office use during the year. The said premises was prepared for giving it on hire. Therefore the claim of the assessee for revenue expenditure for business purposes is untenable. The assessee had given premises for hire therefore the expenses incurred for its repairs are separately allowed under the provisions meant for income from house property. In view of the foregoing the claim of the assessee for aforesaid expenditure of Rs. 9,66,047 fails ....