TaxTMI 
TaxTMI 
2012 (8) TMI 770
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....years. In the assessment the claim of depreciation made by the assessee was also allowed in full. 4. Subsequently, the learned CIT called for the records and observed that the assessee has claimed a sum of Rs. 3,47,65,651/- towards "loss of fixed assets sold, written off, discarded, etc. (Net) under the head "Manufacturing and other expenses". Though the said amount was added back while computing the total income, depreciation amounting to Rs. 86,86,413/- being 25% of Rs. 3,47,45,651/- was wrongly allowed on the said assets even though they were not put to use. He therefore issued notice u/s.263 calling for objections, if any, from the assessee since according to him the order passed by the AO was erroneous and prejudicial to the interest of the revenue. 5. In response to the notice issued u/s. 263 the assessee company filed detailed written submissions, a part of which has been reproduced by the Ld. CIT in his order and which reads as under : "During the financial year 2002-03 the company has written off some of its assets aggregating to Rs. 3,47,45,651/- which it had used for the purpose of its business which was disclosed as "Loss on fixed assets sold, written of....
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.... company claimed a sum of Rs. 3,47,45,651/- as 'Loss on Fixed Assets sold, written off, discarded etc., (net) under the head "Manufacturing and Other Expenses". In the Annexure to the Auditor's Report, the statutory Auditors also qualified the report on the company's fixed assets as follows : "The company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets. There is a phased programme for verification of fixed assets designed to cover all assets over a period of three years, which in our opinion is reasonable having regard to the size of the company and the nature of its assets. The verification of assets as per this programme has been carried out during the financial year. Discrepancies noticed on such verification as compared with book records have been properly dealt with in the financial statements". 8. Similarly be observed that the schedule of Fixed assets forming part of the audited balance-sheet also reflected a total deduction of Rs. 6,16,41,151/- from the Gross Block of Assets towards Plant and Machinery (Rs. 5,76,68,302/-) Furniture, Fixtures and Office Equipment (Rs. 35,37,988/-) and vehicles (Rs.4,3....
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....ff during the year 2002-03 which is not sold till date and is lying at the office". 12. He observed that the assessee company took a different stand before him stating that the assets were not physically identifiable due to various changes, replacements and consumption. He, therefore, was of the opinion that the claim of the assessee is full of contradictions and suffers from obfuscation of material facts. According to him, when the list contains the assets with large net book values, it is inconceivable that the assessee is unable to account for existence of these assets in terms of both their location and usage. On the contrary the company has further compounded the mystery by claiming that these assets are lying in its office. The cost audit report also did not comment on these missing assets inspite of their examining the Fixed Asset Register. These contradictions have been accepted at face value by the Assessing Office without putting the claims to any inquiry or verification. The AO further accepted the contention of the assessee that the individual assets get subsumed in the block of assets for the purpose of computation of depreciation and that the same is allowable i....
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....,45,651/-. Therefore, the assessee has not claimed an amount of Rs. 3,47,45,651/- as deduction. Referring to tax depreciation u/s. 32 as per computation statement (Paper Book Page 33) he submitted that the same has been shown at Rs. 4,33,24,064/-. Referring to Page No. 34 of the Paper Book he drew the attention of the Bench to the calculation of depreciation under I.T. Rules as on 31-03-2003 and submitted that the assessee has received an amount of Rs. 4,79,861/- towards sale proceeds. Referring to page No. 43 of the Paper Book he submitted that the tax auditors at Clause 14 of the Audit report in Form No 3CD has given the description of assets/block of assets as per Annexure-IV. Referring to Page No. 57 of the Paper Book he drew the attention of the Bench to the said Annexure-IV which has been certified by the Auditors and wherein sale proceeds have been shown at Rs. 4,79861/-. 14. Referring to Page No. 73 of the Paper Book he drew the attention of the Bench to the notice issued by AO during the course of assessment proceedings, according to which the AO as per Clause VII of the said notice has asked for the details of loss of Rs. 3.47 Crores on sale of fixed assets. R....
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....AO, a copy of which is placed at Paper Book Page 92 the learned counsel for the assessee drew the attention of the Bench to the explanation for disallowance of loss on fixed assets sold, written off, discarded amounting to Rs. 3,47,45,615/- and submitted that it was brought to the notice of the AO (Paper Book Page 93) that the assessee had already considered this disallowance while computing the total income for the relevant assessment year. Referring to another letter dated 16-12- 2005 addressed to the AO he submitted that the assessee had stated before the AO that as per provisions of section 43(6)(c)(i)(B) the assessee had not reduced Rs. 3,47,45,651/- from block of Plant and Machinery while working depreciation under the Income Tax Act. Referring to the copy of the assessment order he submitted that the AO has accepted the various submissions given by the assessee from time to time and passes the order. 16. The learned counsel for the assessee drew the attention of the bench to provisions of section 43(6)(c)(i)(B) and submitted that the above provision defines the written down value in respect of any block of assets by reduction of money payable. He submitted that the assess....
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....15/- which is as per the notice issued by the AO and a copy of which is placed at Page 90 of the Paper Book. Therefore, the learned CIT is wrong in stating that no enquiry is made. The finding of the learned CIT that why amount of Rs. 3,47,45,615/- has not been added to the total income of the assessee is also contrary to records since the assessee has already made the addition in the computation of total income. So far as the allegation of learned CIT that why depreciation on the same shall not be disallowed he submitted that the assessee has already replied to the above. 20. Again referring to the decision of the Hon'ble Kolkata High Court in the case of Bagsu Devi Bafna Vs. CIT (supra) he drew the attention of the Bench to Clause (g) of the order at Page 522 submitted that if the CIT discloses one or more grounds in the notice but revises the order on an entirely different ground, not disclosed to the assessee, that order cannot be sustained. 21. Referring to the decision of Jabalpur Bench of the Tribunal in the case of Packwell Printers Vs. ACIT reported in 59 ITD 340 he submitted that no disallowance of depreciation can be made when the assets have entered into the block....
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....the learned CIT he submitted that those decisions are distinguishable and not applicable to the facts of the present case. In the case of ACIT Vs. Jadgeesh C. Sethi reported in 101 ITD 360 and relied on by the CIT, he submitted that in that case the assessee had purchased foreign cars but not given them on hire. Since no depreciation is allowable unless it is given on hire to tourists depreciation could not have been allowed. However the facts in the instant case are quite different from that of the case relied on by the learned CIT. Therefore, the same is distinguishable and not applicable to the facts of the present case. Referring to the said decision, he drew the attention of the Bench to Para 7 of the order and submitted that it recognises the concept of block of assets and infact helps the case of the assessee. 26. As regards the decision of the Chandigarh Bench of the Tribunal in the case of Singla Agencies Vs. ACIT reported in 60 ITD 410 and relied on by the learned CIT he submitted that the said decision refers to section 38(2) where in disallowance of part of depreciation of car used for personal purposes was held to be justified. Therefore, the same cannot be applicab....
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....ot be taken. You are, therefore, requested to attend the office on 13-03- 2008 at 12.15 pm, failing which the matter will be decided on merits." 29. We find the learned CIT rejecting the various arguments advanced by the assessee held that the AO allowed depreciation on the assets which were not utilised for business purposes during the year. The AO had not properly verified all material facts relating to the assets of the company and the claim of depreciation have been allowed without ascertaining their acceptance or use in the business. 29.1 We find the AO during the course of assessment proceedings has asked more than once regarding the debit of assets of Rs. 3,47,45,615/- (written off) to profit and loss account under the head "Manufacturing and other expenses". Similarly we find the assessee has also replied more than once the explanation regarding such loss on fixed assets, sold, discarded, written off amounting to Rs. 3,47,45,615/-. We find the Show cause notice issued by the learned CIT does not contain any allegation that no proper enquiry has been made by the AO and the only allegation is that depreciation has been wrongly allowed whereas the order u/s.263 states....