DCIT CORPORATE CIRCLE 4(2), CHENNAI vs. KANISHK METAL RECYCLING LIMITED, CHENNAI

Both the appeals filed by the Revenue are directed against different orders of the ld. Commissioner of Income Tax (Appeals) 8, Chennai dated 28.06.2017 and 04.10.2017 relevant to the assessment years 2013-14 and 2014-15 respectively. The only effective common ground raised in both the appeals of the Revenue is that the ld. CIT(A) has erred in deleting the disallowance of depreciation.

The assessee has claimed depreciation on windmills, which was purchased from two companies. The Assessing Officer has observed that the previous owners have utilized these assets and claimed the depreciation @ 80% for the utilized years, the WDV was very meager and the assessee had purchased the same at a very higher rate. By invoking the provisions of Explanation 3 to section 43 of the Act, the WDV of the assets to the previous owner re taken as the actual cost to the assessee and accordingly, the excess depreciation was added back to the income of the assessee for both the assessment years. On appeal, after considering the submissions of the assessee, the ld. CIT(A) allowed the claim of depreciation.

By referring to the grounds of appeal, the ld. DR has submitted that the said windmills were used by M/s. Vridhi and M/s. Sri Annamalaiyars Paper Mills Pvt. Ltd. before its acquisition by the assessee. By referring to Explanation 3 to section 43(1) of the Act, which envisages that the Assessing Officer “shall” determined the actual cost of an asset in the circumstances where the asset is used by any other person before the date of acquisition by the assessee, the ld. CIT(A) was incorrect to allow the entire depreciation claimed by the assessee and pleaded for reversal of the appellate order for both the assessment years. On the other hand, the ld. Counsel for the assessee has strongly supported the orders of the ld. CIT(A).

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including valuation report of the Approved Panel Valuer of the State Bank of India and other documents. In the appellate order, the ld. CIT(A) has given a finding that “the Assessing Officer did not raise any objections as to the market value determined by the Registered Valuer of the State Bank of India”. However, we find from the assessment order that there was no mention about the valuation report filed by the assessee. When the Bench specifically asked, the ld. Counsel for the assessee could not produce evidence for filing the valuation report before the Assessing Officer. Similarly, when the Department was asked to get the details from the assessment records, the ld. DR filed a letter dated 16.11.2018 submitted by the Assessing Officer [ACIT, CC-4(2)] and the content of the letter is reproduced as under: “On verification of the miscellaneous records for the respective assessment years, it is seen that the assessee company has not filed any valuation report during the assessment proceedings. However, the assessee has filed Paper Book in respect of A.Yr. 2013-14 with the valuation report on 21.02.2018.” The assessment for the assessment years 2013-14 and 2014-15 were completed on 31.03.2016 and 30.06.2016 respectively. It is clear from the above letter that the assessee has filed the valuation report before the Assessing Officer only after the Department filed the appeals for both the assessment years before the Tribunal. More so, if at all the valuation reports are filed before the ld. CIT(A), in the appellate order, there was no mention about obtaining remand report from the Assessing Officer and thus, the ld. CIT(A) erroneously made a mention that “the Assessing Officer did not raise any objections as to the market value determined by the Registered Valuer of the State Bank of India”. Accordingly, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the Assessing Officer to examine the valuation reports, etc. and decide the issue afresh for both the assessment years by giving an opportunity of being heard to the assessee.

In the result, both the appeals filed by the Revenue are allowed for statistical purposes. Order pronounced on the 27th November, 2018 at Chennai.