TaxTMI 
TaxTMI 
2017 (1) TMI 1442
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....orporation, Japan was engaged in the assembling and distribution of colour televisions, audio products and high-end electronic goods, including DVDs and handycams. It inter alia imported goods from its associated enterprises (AEs) and also rendered advisory services and software development services to such AEs. The assessee had filed transfer pricing reports which were subjected to examination by the Transfer Pricing Officer (TPO) after which the Assessing Officer (AO) completed the assessment. In the period covered by AY 200506 (FY 2004-05), the assessee had sold its Daru Hera unit; it completely closed down its manufacturing activity in Daru Hera plant. Its assets were sold and transferred. The assets were part of a block of assets; the assessee/appellant claimed `4,42,22,475/- as depreciation. The AO disallowed the claim, holding that the assessee was neither owner of the plant and machinery nor used it for the purpose of business. The assessee's appeal to the CIT(A) was unsuccessful. The Income Tax Appellate Tribunal (ITAT), in its decision affirmed the findings of the CIT(A) and inter alia held as follows: "11.5 Having considered the facts and the jurisprudence in the matt....
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....pose of business of the assessee of manufacturing goods. We have already mentioned that the assessee has not established that this unit was only a part of overall business of manufacturing and trading activities. Therefore; the provisions contained in section 32 regarding ownership, and user come into play. As the assessee is neither the owner of the assets nor the assets have been used in the business of the assessee, the assessee is not entitled to deduct depreciation. 11.6 Section 50 regarding "Special provision for computation of capital gain in 'case of depreciable assets" deals inter-alia with a situation where any block of assets ceases to exist for the reason that all the assets in the block have been transferred during the previous year. It is provided that income received or accruing as a result of such transfer shall be deemed to be the capital gains arising from the transfer of short-term capital asset. We are of the view that the case of the assessee falls within the ambit of this sub-section because the word "income" includes within its ambit the "loss" also. The AO is directed to hear the assessee in this matter and compute the loss as provided in section 50(2....
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....ing intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed31; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed32: XXXXXX XXXXXX XXXXXX Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia) 33[or the first proviso to clause (iia)], as the case may be, is acquired by the assessee during the previous yea....
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....ay be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them. Explanation 1.-Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. Explanation 2.-For the purposes of this sub-section "written down value of the block of assets" shall have the same meaning as in clause* (c) of sub-section† (6) of section 43. Explanation 3.-For the purposes of this sub-section, the expression "assets" shall mean- (a) tangible assets, being buildings,....
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....e actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year; (iii) in the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof : Provided that such deficiency is actually written off in the books of the assessee. XXXXXX XXXXXX &nbs....
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....ar as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item (i). XXXXXX XXXXXX XXXXXX Explanation 3.-Any allowance in respect of any depreciation carried forward under sub-section (2) of section 32 shall be deemed to be depreciation "actually allowed". Explanation 4.-For the purposes of this clause, the expressions "moneys payable" and "sold" shall have the same meanings as in the Explanation below sub-section (4) of section 41. XXXXXX ....
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....evious year, exceeds the aggregate of the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers; (ii) the written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets; (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets." 11. In Ansal Properties (supra), the facts indicated - in para 4 are that the assessee had sold the entire plant and m....
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....ills Limited, (2012) 341 ITR 467 (Del.)." 12. The Court thereafter took into consideration the Direct Taxes Circular no. 469 issued on 23.09.1986. The same reads as follows: "6.3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate bookkeeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregated has to be the record-keeping. Moreover, the practice of granting the terminal allowance as per section 32(1)(iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation lump sum amount of depreciation for the ent....