M/S PRAKASH RETAIL PVT LTD,UDUPI vs. THE JOINT COMMISSIONER OF INCOME TAX, UDUPI RANGE, UDUPI

Per Sunil Kumar Yadav, Judicial Member

1.1 The learned Commissioner of Income tax (Appeals), Mangalore has erred in passing the order in the manner passed by him. The order being bad in law is liable to be quashed. 2.1 The learned Commissioner of Income tax (Appeals), Mangalore has erred in confirming the disallowance of depreciation claimed to the extent of Rs. 3,61,925/-. 2.2 The learned Commissioner of Income tax (Appeals), Mangalore has erred in confirming the adoption of the WDV of depreciation assets in the hands of the predecessor partnership firm for recomputing and partially disallowing the depreciation in the hands of appellant. 2.3 The learned Commissioner of Income tax (Appeals), Mangalore has erred in relying on the decision of the ITAT, Bangalore bench in appellant's own case in support of the impugned conclusion that deprecation in the hands of the appellant is allowable on WDV of assets in the hands of the erstwhile firm. 2.4 The learned Commissioner of Income tax (Appeals), Mangalore has erred in not appreciating that the ITAT, Bangalore bench in appellant's own case did not gave a finding that deprecation in the hands of the appellant is allowable on WDV of assets in the hands of the erstwhile firm. 2.5 The learned Commissioner of Income tax (Appeals), Mangalore has erred in not appreciating that depreciation is allowable on the basis of cost of the assets to the appellant. The revalued figure being the cost of the appellant, the depreciation is allowable on the revalued figure. 2.6 The learned Commissioner of Income tax (Appeals), Mangalore has erred in not appreciating that the fiction created by 6th proviso (erstwhile 5th proviso) to sub- section (1) of section 32 is not applicable to the appellant and in any case is not applicable for the year under appeal. 2.7 The learned Commissioner of Income tax (Appeals), Mangalore has erred in not appreciating that there is no provision of law mandating the adoption of the WDV of the firm for the propose of allowing depreciation in the hands of the company succeeding the firm's business. 2.8 On the facts and in circumstances of the case, the depreciation of Rs 7,93,222/- is to be allowed as claimed in the return of income as against Rs 4,31,297/- allowed by the assessing officer. 3.1 Even otherwise, in the assessment of partnership firm capital gains have been computed on the basis of the price paid for the various assets after revaluation and consequently therefore, the price paid for would be the cost of acquisition on which depreciation would be admissible to the appellant. 4.1 The learned Commissioner of Income tax (Appeals), Mangalore has erred in confirming the levy of interest under section 234B and 234C. On the facts and in circumstances of the case, the additional interest levied under section 234B and 234C is to be deleted. The appellant denies its liability to pay the additional interest under section 234B and 234C. 5.1 In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that: (i) the order passed by the learned Commissioner of Income tax (Appeals), Mangalore be quashed; or in alternative; (ii) the depreciation be allowed as claimed by the appellant; (iii) the additional interest levied under section 234B and 234C be deleted;

The learned DR did not dispute these factual aspects.

“62. We have heard both the parties. As per section 32(1), depreciation is to be allowed on the block of assets. Section 43(6)(c) gives the method, by which, WDV in the case of block of assets is to be determined. It is provided that written down value of the block of assets is to be taken at WDV at the beginning of the previous year and to be further adjusted as per clauses (A), (B) and (C) of section 43(6)(c). In the immediately preceding year, WDV of the assets in the hands of company at the close of year is based on the value of assets taken by the firm for the purpose of depreciation. Hence, for assessment year 2001-02, WDV of block of assets is to be taken as closing W.D.V. in the hands of company for assessment year 2000-01 subject to adjustments as mentioned in section 43(6)(C). Since we had already held that section 45 is not applicable for charging capital gain in the hands of the firm, therefore, the cost of assets as acquired by the company cannot be taken at the revalued figure. However, finally if it is held that capital gain is chargeable either in the hands of the firm or in the company, then the assessee-company will be entitled to depreciation on the revalued value of assets. Looking to the finding given in the case of the firm, it is held that learned CIT(A) is justified in holding the depreciation will be allowable on the value of the assets, as per the written down value in the case of the firm. In the result, the appeal in the case of the firm is allowed, while appeals in the case of the company are dismissed.”