C I T vs. M/S RHODOEN SILK MILLS P LTD

ITA No. 566 of 2007 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 566 of 2007(O&M) Date of Decision. February 19,2008 Commissioner of Income Tax, Ludhiana ......Appellant Versus M/s. Rhodoen Silk Mills Pvt. Ltd. Ludhiana Respondent Coram Hon'ble Mr. Justice Satish Kumar Mittal Hon'ble Mr. Justice Rakesh Kumar Garg * * * * Present Mr. Sanjeev Bansal, Advocate for the appellant. Rakesh Kumar Garg, J Delay of 465 days in re-filing the appeal is condoned for the reasons stated in the application. 1. The revenue has filed this appeal under Section 260 A of the Income Tax Act, 1961( for short “the Act” ) against the order of the Income Tax Appellate Tribunal, Chandigarh Bench 'A' , Chandigarh, passed in ITA No. 282/Chandi/2002 dated 5.8.2005 for the assessment year 1998- 99 raising the following substantial question of law: “ Whether on the facts and law, the Hon'ble Income Tax Appellate Tribunal was legally justified to ignore clause(b) of section 41(2) of I. T. Act, when the entire machinery of an independent unit no.1 as owned and used by the respondent for business and depreciation allowed to it u/s 32 of I. T. Act, was sold in the previous year.?” 2. The respondent assess is a company which filed its return of income tax for the assessment year 1998-99 on 30.11.1998 declaring total income of Rs.16,83,090/-. The assessment was completed on 29.3.2001 under Section 143(3) of the Act on a total income of Rs.39,37,200/-. While completing the assessment, the Assessing Officer made an addition of RS. ITA No. 566 of 2007 2 2576119/- by treating the difference between the sale price of Rs.29,80,000/- of entire machinery installed at unit no.1 of the factory premises of the respondent company and the written down value of the said machinery as on 1.4.1997 at Rs.411811/-by invoking the provisions of Section 41(2) of the Income Tax Act, 1961 read-with amended provisions of Section 50 and 50 A of the Act. 3. The assessee filed an appeal before the Commissioner of Income Tax against the order of the Assessing Officer dated 29.3.2001. The Commissioner of Income Tax ( Appeals ), Ludhiana vide his order dated 25.1.2002 allowed the appeal of the assessee and deleted the addition of Rs.25,76,119/- by holding that :- 1.Section 41(2) was not applicable to the facts of this case as it was applicable only to Plant and Machinery engaged in generation and distribution of power. 2. Effect of the insertion of Section 50-A of I. T. Act, was to make special provisions for computation of the cost of acquisition in the case of depreciable assets referred to in Section 32(1)(i) of the Act. 3. Section 50 of the Act was not applicable to the facts of the case as the block of the assets existed at the opening as well as at the closing of the financial year. 4. Feeling aggrieved by the aforesaid order, the revenue filed an appeal before the Income Tax ( Appeals ) Tribunal Chandigarh . The said appeal has been dismissed by the Tribunal as it did not find any infirmity in the order of the Ld. CIT(A) vide its order dated 5.8.2005. 5. Sh. Sanjeev Bansal, learned counsel appearing for the appellant-revenue has argued that the entire machinery, owned by the respondent and used for independent business of unit no.1 in respect of which depreciation was claimed was sold in the previous year. Accordingly, the excess amount of sale consideration of the machinery over the written down value was considered as profit chargeable to tax under the ITA No. 566 of 2007 3 head “ Business Income” within the meaning of clause (b) of Section 41(2) of I. T. Act, on sale of machinery on which depreciation was claimed at the rate of 12.50% under clause (i) of Sub section (1) of Section 32 of I. T. Act. It was also argued by him that the entire machinery of unit no.1 as owned by the respondent was sold during the year and therefore, as per the provisions of Section 50(2) of the Act, the block of assets ceased to exist. 6. We have heard learned counsel for the revenue and