TaxTMI 
TaxTMI 
2010 (9) TMI 751
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....ny and a notice under section 143(2) was served on the assessee on 22-6-2006. Later on questionnaires were issued and collected the information from time to time. The assessing officer made the following disallowances. 1. Sundry creditors for capital goods Rs. 2 crores 2. Concealment of proceedings received on Keyman Insurancae Policy Rs. 28,12,500 3. Disallowance under section 40(a)(ia) Rs. 3,19,250 4. Disallowance of prior period expenditure Rs. 1,23,090 5. Deduction under section 43B - Rs. 82,136 6. Belated payments under section 36(va) Rs. 19,346 7. Excess depreciation of Rs. 677 The assessing officer finally determined the assessed income of the assessee-company at Rs. 1,51,15,497. Aggrieved against the order of the assessing officer, the assessee went in appeal before the CIT (A). The CIT (A) after discussing the above disallowances separately partly allowed the appeal of the assessee. Further aggrieved, the assessee is in appeal before us. 3. ....
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....e order of the assessing officer, the assessee went in appeal before the CIT (A). The CIT(A) held that as per section 28(iv) of the Act, any sum received under key man insurance policy shall be chargeable to tax under the head 'profit and gains of business or profession' and therefore the CIT[A] confirmed the addition of Rs. 2 crores made by the assessing officer.... 5. The learned counsel for the assessee submitted that the remission of liability of Rs. 2 crores written off by M/s Tata SSL Ltd., on the supplies of Tata machinery is not taxable under section 41[1] of the Act since cessation of liability is a capital cost of asset and hence it is a capital receipt. It is submitted that an amount of Rs. 2 cores being balance amount payable to the supplier was kept under sundry creditors. Since the machinery supplied was found to be defective, the matter was taken up with the supplier for replacement and after protracted correspondence and legal battle, the supplier agreed for out of court settlement. The judgment of Bombay High Court followed by the lower authorities in support of their stand in the case of Nectar Beverages Private L....
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....; This fact is clearly evident from the agreement between the assessee and M/s Tata Steel. Since the assessee knew the effect of the agreement entered in future will reduce the cost of the asset acquired in the past, the benefit received of Rs.2.00 crores could have offered to the taxation. The assessee had claimed the depreciation on Rs.6.00 crores from the year of acquisition of asset. From the date of inception of the asset, depreciation is allowed by the department on the block of assets and when assessee received any amount as benefit by the way of reduction of cost of acquisition, the amount of benefit has to be offered for the taxation as per the provisions of S. 41[1] of the Income-tax Act. The judgment of Supreme Court in the case of Nectar Beverages (supra) is confined to depreciable assets which are costing less than Rs. 5,000 and which did not enter into the block of assets. Hence, the judgment of the Bombay High Court in the case of Nectar Beverages Private Limited (supra) is still a valid law. Accordingly, the lower authorities are right in bringing the sum of Rs. 2 crores as taxable income of the assessee under the provisions of section ....
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....ce, any recoupment received by the assessee on this count, therefore, can not be taxed under section 41 [1] of the Act. Again, the balancing charge taxable under Section 41(2) of the Act arises only when any depreciable asset like building, machinery, plant or furniture has been sold, demolished, destroyed or discarded. In the case under consideration, there is no such sale or discard of plant and machinery is involved. It is only a remission of liability incurred on the capital goods. Hence, in our considered view, the revenue's contention that the assessee had obtained the benefit of depreciation in the earlier years as allowance in respect of expenditure incurred by it when it bought the plant and machinery and Rs. 2 crores liability written off by the TATA SSL on the supplies of plant and machinery in the year under consideration is liable to be taxed as deemed income within the purview of Section 41(1) of the Act, is not tenable. 8. However, assessee company had obtained the benefit of depreciation in the earlier years even on this amount of Rs. 2 crores. Hence, when it was written off later, the assessee obviously was not entitled for the depreciation ben....
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....owable. In this view of the matter, the ground raised by the assessee on this issue is partly allowed. 10. The second effective ground of appeal of the assessee is with regard to addition of Rs. 28,12,500 being the amount received by the assessee on maturity of key-man Insurance Policy. Since the assessee has not furnished any written explanation in respect of such receipt, the assessing officer held that the amount was received by the assessee company, is taxable and added the same to the income of the assessee. Aggrieved by the order of the assessing officer, the assessee went in appeal before the CIT (A). The CIT (A) held that as per section 28(iv) of the Act, any sum received under keyman insurance policy including the sum allocated by way of bonus on such policy shall be chargeable to tax under the head profits and gains of business and profession. Aggrieved further, the assessee is in appeal before us. 11. The learned counsel for the assessee submitted that at the time of taking policy, the amount received by the policy holder from the insurer was not liable to be asses....