TaxTMI 
TaxTMI 
TaxTMI 
2026 (3) TMI 224
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....ssed on the basis of such notice is baseless and non est. 3. The learned assessing officer erred in issuing the notice u/s. 143(2) dated 09.08.2018 without complying with the CBDT Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017and so the notice issued u/s. 143(2) is not valid as per Provision of Act and consequently the entire assessment proceedings are invalid. 4. The learned CIT (Appeals) erred in confirming the disallowance of Rs. 31,41,044/- towards the depreciation claimed by the assessee on the second hand machinery when the assessing officer did not record any satisfaction note that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income-tax (by claiming depreciation with reference to an enhanced cost) as required under Explanation 3 to section 43(1). 5. The learned CIT (Appeals) erred in confirming the action of the assessing officer in determining the actual cost of the second hand machinery at Nil without taking the approval of the Addl/Joint CIT as required under Explanation 3 to section 43(1). 6. The learned CIT(A) ought to have known that the purchase....
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....ciation claim of old machinery can be allowed only on the residual value of the depreciation claimed by the previous company in which it was installed". As the appellant had failed to substantiate its claim of depreciation the A.O. had rejected the same and made addition of Rs. 31,41,044/-. During the appellate proceedings for further verification of this issue Remand Report called for from the A.O. which was received on 09/12/2024 and had been considered. The comparative study of submission of the appellant and comments on that issue by the A.O. are summarised as under. Submission of the appellant Comments of the A.O. As per explanation 5 to section 32 of the Act the condition to be satisfied are that the assets should be owned by the assessee and used for purpose of his business, these are mandatory in nature The Assessing Officer had not disputed the ownership and usage of such machinery by the assessee during the relevant previous year. The assessee has satisfactorily proved the cost of second hand machinery purchased by firm and such additions are accepted by Assessing Officer on the basis of vouchers produced. The Assessing Officer....
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....why Explanation 3 to sub-section 1 of section 43 of the Act does not apply to his case. Further, the Assessing Officer had given a finding that the copy of the tax invoices produced in support of their depreciation claim was not in order as they did not contain any particulars regarding the manufacturing company of the machinery, year of the make and other specifications. Further, the Assessing Officer had given a finding that the depreciation claim of old machinery can be allowed only on the residual value of the depreciation claimed by the previous company in which it was installed Ongoing through the Remand report submitted by the A.O. which had made it clear that the appellant had failed to fulfil the pre-conditions for claiming depreciation as per explanation 5 to section 32 of the Act. Hence, in view of the above facts of the case and considering the remand report received from the A.O. I hereby confirm the addition made by the A.O. Thus, Ground No 1 to 6 are hereby dismissed. Ground No. 7 is general in nature and hence not adjudicated and hence dismissed. 6. In the result, the present appeal of the appellant is 'dismissed'. Now assessee....
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....iation with reference to an enhanced cost. He submitted that no such satisfaction was recorded by the AO before substituting the actual cost to the assessee with the residual value of the assets. Secondly, the Explanation lays down the condition that the previous approval of the Joint Commissioner has to be obtained by the Assessing Officer before embarking on the exercise of determining the actual cost. He submitted that no such approval was obtained by the AO for this purpose. Hence, the reliance on Explanation 3 to section 43 is wrong and cannot come to the aid of the department. He further submitted that the assessee had correctly claimed depreciation on the cost of second hand machinery paid by the assessee and is duly evidenced by the purchase bills along with the details of machinery furnished. Therefore, he prayed for allowing the depreciation claimed of Rs. 31,41,044/-. 6. We have carefully considered the rival submissions, perused the material placed on record and the orders of the lower authorities. The core issue for adjudication is whether depreciation claimed by the assessee on second-hand machinery amounting to Rs. 31,41,044/- was rightly disallowed by invoking Ex....
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....declared by the assessee. The CIT(A), while confirming the addition, has also not recorded any independent finding regarding satisfaction or prior approval as mandated under Explanation 3. The remand report also does not indicate compliance with these mandatory requirements. Once ownership and use are admitted, and cost is supported by purchase invoices, depreciation cannot be denied merely because the machinery is second-hand. In view of the above, invocation of Explanation 3 to Section 43(1) is legally unsustainable. Determination of actual cost at residual value (or NIL) without recording satisfaction and without prior approval of Joint Commissioner is invalid. The assessee is entitled to depreciation on actual cost incurred. Accordingly, the disallowance of Rs. 31,41,044/- is deleted. Ground Nos. 4 to 6 are allowed. 10. The assessee has also challenged the validity of notice issued u/s 143(2) dated 09.08.2018 on the ground that: * The notice did not specify the type of scrutiny, and * The same was allegedly not in conformity with CBDT Instruction F. No. 225/157/2017/ITA-II dated 23.06.2017. It is an undisputed fact that notice u/s 143(2) was issued....