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Income Tax Appellate Tribunal, KOLKATA BENCH (SMC
Before: Shri P.M. Jagtap, AM]
order
: May 18, 2018 ORDER
PER P.M. JAGTAP, AM
This appeal is preferred by the revenue against the order of Ld. CIT(Appeals) – 1, Kolkata dated 29.11.2017 and the solitary issue involved therein relates to the deletion by the Ld. CIT(A) of the addition of Rs. 1,07,65,892/- made by the A.O. on account of disallowance of assessee’s claim for depreciation at higher rate on rolls.
At the outset, it is noted that there is a delay of 4 days on the part of the revenue in filing this appeal before the Tribunal. In this regard, the revenue has filed an application seeking condonation of the said delay and keeping in view the reasons therein, I am satisfied that there was a sufficient cause for the delay on the part of the revenue in filing this appeal before the Tribunal. I, therefore, condone
Assessment Year: 2012-13 M/s. The sun Rolling Mills Pvt. Ltd. the said delay and proceed to dispose of this appeal of the revenue on merit.
The assessee in the present is a company which is engaged in the business of running iron and steel re-rolling mill. The return of income for the year under consideration was filed by it on 22.09.2012 declaring a loss of Rs. 1,02,55,690/-. In the said return, depreciation of Rs. 1,94,50,129/- was claimed by the assessee. During the course of assessment proceedings, the claim of the assessee for the said depreciation was examined by the A.O. and on such examination, he found that depreciation at the higher rate of 80% was claimed by the assessee on rolls for the year under consideration while there were no such rolls reflected in the depreciation schedule of the assessee for the immediately preceding year. He, therefore, required the assessee to offer its explanation in the matter and show how opening W.D.V. of the rolls was determined. In reply, the following explanation was offered by the assessee: “The assessee company during the year under consideration has provided depreciation on Rolling Mill Rolls on the basis of written down value method on pro-rata basis at the rate of 13.91% as prescribed in schedule XIV to the Companies Act, 1961 and claimed depreciation on Rolling Mill Rolls as per section 32(1) of the Income Tax Act, 1961 read with rule 5 of the Income Tax Rules 1962 at the rate of 80% as provided in new appendix I (effective from assessment year 2006-07 onward). Whereas in the earlier years the depreciation on Rolling Mill Rolls was claimed at the rate of 15% under the block machinery and plant. The same was also considered in the Tax Audit Report for the year under consideration.”
The above explanation offered by the assessee was not found acceptable by the A.O. According to him, when rolls had been included in the block of “plant and machinery” in the earlier years, the same
Assessment Year: 2012-13 M/s. The sun Rolling Mills Pvt. Ltd. could not be separated subsequently as per the convenience of the assessee. He also held that the assessee’s calculation of opening W.D.V. was not supported by the necessary evidence. He accordingly restricted the claim of the assessee for depreciation on rolls purchased in the earlier years to 15% which resulted in a disallowance of Rs. 1,07,65,892/-.
The disallowance made by the A.O. on account of its claim for depreciation at higher rate on the rolls purchased in the earlier years was challenged by the assessee in the appeal filed before the Ld. CIT(A) and after considering the submissions made by the assessee, the Ld. CIT(A) deleted the said disallowance for the following reasons given in his impugned order: I have considered the material before me. The appellant had claimed deprecation on Rolls at the rate of 80% as provided in the new Appendix I w.e.f. A.Y. 2006-07 onwards and thus claimed depreciation on Rolls @ 80% as against 15% in the previous assessment years. The A.O disallowed the appellant's claim by observing that such change in accounting was not acceptable to disturb value of an asset once included in the block of assets for claim of depreciation and as it was no substantiated, The A.R has contended that opening W.D.V. (as per Income Tax) of Rolls was calculated in proportion the W.D.V. (as per Companies Act, 1956) of Rolls Rs.1,78,73,644/- to Plant & Machinery inclusive of Rolls amounting to Rs.4,49,17,127/- as duly disclosed in Note-7 (Fixed Assets) of Audited Accounts of the Company as on 31.03.2012. The A/R has submitted That- “That the Appellant Company for the year under consideration bifurcated the W.D.V. as on 31.03.2011 of Plant & Machinery – 15% of Rs, 4,03,98,509/- into Rs.2,38,35,599/- and Rs.1,65,62,910/- as W.D.V, of Plant & Machinery – 15% and Plant & Machinery (Rolls) – 80% respectively in proportion the Net Block amount as per Companies Act, 1956 as on 31.03.2011 of Rolls Rs.1,78,73,644/- bears to total amount of Plant & Machinery inclusive of Rolls amounting to Rs.4,49,17,127/- duly disclosed in Note-7 (Fixed Assets) of Audited Accounts of the Company as Assessment Year: 2012-13 M/s. The sun Rolling Mills Pvt. Ltd. on 31.03.2012 as the Depreciation on Rolls was wrongly claimed in the Income Tax Return @ 15% instead of 80% in earlier years. That this is not a change of accounting and bifurcation or division of block of Assets is not as per convenience of the assessee and the A.O wrongly stated that assessee’s calculation of opening W.D.V. of Rolls is not supported by necessary evidence, The opening W.D.V. (as per Income Tax) of Rolls was calculated in proportion the W.D.V. as on 31.03.2011 (as per Companies Act, 1956) of Rolls Rs.1,78,73,644/- to Plant & Machinery inclusive of Rolls amounting to Rs.4,49,17,127/-, as duly disclosed in Note-7 (Fixed Assets) of Audited Accounts of the Company as on 31.03.2012.” In view of the above discussion, it is found that there is substance in the appellants’ arguments that the appellant was entitled to depreciation @80% on W.D.V of Rolls amounting to Rs.4,49,17,127/- and that the opening W.D.V (as per Income Tax) of Rolls was calculated in proportion the W.D.V. as on 31.03.2011 (as per Companies Act, 1956) of Rolls Rs.1,78,73,644/- to Plant and Machinery inclusive of Rolls amounting to Rs.4,49,17,127/- as duly disclosed in Note-7 (Fixed Assets) of Audited Accounts of the Company as on 31.03.2012 and as duly disclosed in Note-7 (Fixed Assets) of Audited Accounts of the Company as on 31.03.2012. The A.O is directed to allow depreciation at the prescribed rate of 80% on the W.D.V of Rolls in accordance with Appendix ‘I’ w.e.f. A.Y 2006-07 and Rule 5 of the I.T. Rules, 1962.
Aggrieved by the order of the Ld. CIT(A), the revenue has preferred this appeal before the Tribunal.
I have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that rolls purchased by the assessee in the earlier years were included in the block of “plant & machinery” and accordingly depreciation at normal rate as applicable to the said block was claimed by the assessee. In the year under consideration, the assessee however showed the rolls separately in the depreciation schedule and claimed depreciation at higher rate of 80% on the written down value of the same. Since these rolls were not shown separately by the assessee in the depreciation
Assessment Year: 2012-13 M/s. The sun Rolling Mills Pvt. Ltd. schedule of the earlier years having included in the block of assets of “plant & machinery”, the A.O. required the assessee to explain how the opening W.D.V. of the rolls was determined. In reply, it was explained by the assessee that the same was determined on pro-rate basis taking the written down value appearing in the depreciation schedule prepared for the purpose of Companies Act. This basis adopted by the assessee was not accepted by the A.O. and the claim of the assessee for higher depreciation on rolls was disallowed by him. The Ld. CIT(A) however accepted the basis adopted by the assessee and directed the A.O. to allow depreciation at higher rate on the written down value of the rolls as determined by the assessee on proportionate basis. As rightly contended by the learned DR, the Ld. CIT(A) is not justified to accept the written down value of rolls determined by the assessee on proportionate basis, in view of the provision of sub-section (6) of section 43. As per clause (b) of section 43(6), the written down value in case of assets acquired before the previous year is defined to mean the actual cost of the asset less all depreciation actually allowed to him. The written down value of the rolls acquired by the in earlier years for the purpose of claiming depreciation @ 80% in the year under consideration thus is required to be determined as per section 43(6)(b) and the Ld. CIT(A), in my opinion, is not justified to accept the written down value as determined by the assessee on proportionate basis and that too by relying on the depreciation schedule prepared for the purpose of Companies Act. I, therefore, set aside the impugned order of the Ld. CIT(A) on this issue and restore the matter to the file of the A.O. to decide the same afresh after giving the assessee an opportunity to Assessment Year: 2012-13 M/s. The sun Rolling Mills Pvt. Ltd. determine the opening W.D.V. of rolls in accordance with section 43(6)(b).