2010 (3) TMI 1268

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....as under. 2. Ground No. 1 is as under: - "The learned CIT(A) has erred in holding that for the purpose of deduction admissible under section 80HHC of the Income-tax Act, 1961 ('the Act'), the figure of business income should not include 90 percent of the amount of transit claim and cash discount which is relatable to the business of the Appellant." 3. While completing the assessment and considering the deduction under section 80HHC, the A.O., vide para 4 of the order, considered the details of sundry incomes and noticed that the income of Rs. 32.50 lakhs consist of transit clam of Rs. 2.72 lakhs and cash discount of Rs. 1.51 lakhs and that of scrap sales and exchange gain. The above receipt was also considered as not directly relatable to business. Therefore, 90% of the sundry income is reduced from the business income for the purpose of computation under section 80HHC. The CIT(A), while examining the nature of sundry income, has considered that scrap sales and exchange gain are to be considered as part of business profit whereas transit claim and cash discount are only incidental to the business activity and therefore the Assessing Officer's action cannot be upheld.....

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....law. With reference to the alternate contention that in case the A.O. has to proceed that Modvat is available for addition, he should also take into account the relatable value of the opening stock and therefore should have made the adjustment in that respect in the valuation of closing stock as well. The CIT(A), however, relying on the provisions of section 145A did not consider the submissions and directed the A.O. to make the adjustments to the extent permitted by the section 145A with reference to stock, purchases, sales and excise duty payment. It was the contention that this issue requires re-examination by the A.O. in view of the decision of the Hon'ble Delhi High Court in the case of CIT vs. Mahavir Alluminium Ltd. 297 ITR 77 and the decision of the Hon'ble Bombay High Court in the case of CIT vs. Mahalaxmi Glass works P ltd 318 ITR 116 . Accordingly the A.O. is directed to reconsider the issue keeping in view the above principles and making necessary adjustments. Ground is considered allowed for statistical purpose. 9. Ground No. 4 is as under: "The learned CIT(A) erred in confirming the disallowance of claim for depreciation on assets located in the Ankleshwar....

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...., submitted that the unit is closed and the assessee is not entitled for depreciation and supported the order of the CIT(A) by relying the decision of the Hon'ble Supreme Court in the case of CIT vs. McDowell Co. Ltd. 225 CTR 22 (SC). 14. We have considered the issue. As seen from the orders of the A.O. and the CIT(A) for A.Y. 2000-01 the CIT(A) has allowed depreciation by giving a finding that "in the instant case since the appellant has not acquired these assets but these formed part of the written down value of the assets of the business of the appellant company in the earlier accounting year, no restriction of the allowability of the depreciation amount can be imposed in terms of said proviso. The action of the Assessing Officer in this respect is therefore not correct and hence cannot be sustained." Accordingly the CIT(A) has allowed the depreciation on the Ankleshwar unit. The issue in that year was that the Unit was closed prior to 30.09.1999 and the A.O. has restricted depreciation to 50% of the eligible amount as the same was not put to use for more than 180 days during the year. In that context the CIT(A) has observed that the first proviso does not apply to the facts ....

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.... 1) an asset is sold or discarded or demolished or destroyed during that previous year as provided in sections 43(6)(c)(i)(B) and 32(1)(iii) of the Act . 2) An Asset not exclusively used for the purposes of the business or profession but used other then business purposes as provided in section 38(2) of the Act. 3) where any block of assets does not cease to exist but the full value of the consideration received or accruing as a result of the transfer of the depreciable assets by the assessee during the previous year exceeds the aggregate of the amounts stated in section 50 of the Act and where any block of assets ceases to exist for the reason that all the assets in that block are transferred during the previous year." 15. After considering the above, the ITAT held in para 7.16 as under: - "7.16 In the case under consideration the admitted facts are that the division of Surat had been closed but the block of assets of the closed unit, (the division of Surat) along with other assets of the block were used for the purpose of business in earlier years. The year under consideration is not the f irst year of the assets acquired. The assets of closed uni....

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.... purpose of business. The asset has already entered the block of assets. In the case before the Hon'ble Bombay High Court, the asset in question was not at all put to use. We therefore, find the decision relied upon the ld. DR is of no assistance to the plea of the DR. Respectfully following the decisions of the Tribunal referred to above, we hold that the assessee was entitled to claim depreciation and the Assessing Officer directed to allow the same." 17. This order was upheld by the Hon'ble Bombay High Court in ITA No. 598 of 2009 dated 28th July 2009 by following the judgement in the case of Whittle Anderson Ltd. vs. CIT 79 ITR 613 and in the case of CIT vs. G.N. Agarwal (Individual) 217 ITR 250. In view of this, since the assets have become part of the block of assets the assessee is entitled to depreciation. The learned D.R.'s reliance on the decision of CIT vs. McDowell Company Ltd. 224 CTR 22 is not directly applicable here. In the above said case the stand of the Revenue was that machinery in respect of R&D Section was related to the fast food unit, which was closed and therefore was not entitled to any depreciation because there is no actual usage of the machinery. The....