TIPCO INDUSTRIES LTD,MUMBAI vs. DCIT 9(3), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य लेखा सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार PER RAJENDRA, AM- लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order of the CIT(A)-20,Mumbai,the Assessee has filed the appeals for the above-mentioned three Assessment Years(AY.s.). As the issues involved in all these appeals are common,so for the sake of convenience we are passing a single order.The assessee-firm is engaged in the business of manufacturing of thermo plastic compound, phonetic material and compounds. Details of dates of filing of returns, returned incomes,etc.can be summarised as under: A.Y. ROI filed on Returned Assessment dt. Assessed Income(Rs.) Dt. of CIT(A) order Income(Rs.) 2008-09 30.09.2008 (-)4.86 crores 30.11.2010 (-)33.84 lakhs 15.11.2011 2009-10 29.09.2009 (-)3.04 crores 30.09.2011 (-)3.02 crores 06.03.2012 2010-11 30.09.2012 (-)1.88 crores 25.09.2012 (-)1.86 crores 30.04.2013

3.Aggreived by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA).Before him, it was argued that due to heavy flood in Silvassa on 3.8.2004 flood water entered factory at Silvassa resulting into severe damage to Plant and Machinery(P&M), that insurance claim was filed and the assessee had debited the amount receivable under the head insurance claim receivable in its books, that in the books of account a separate ‘insurance claim receivable account’ was created for the damage/loss of fixed assets,that it reduced block of assets of P&M for a sum of Rs.1.14 crores being WDV under the Act, that it did not claim depreciation for AY.s 2005-06 to 2008-09,that during the year under consideration the insurance claim was rejected, that WDV was reinstated to the block of assets of the company and accordingly depreciation was claimed, that the P&M was not sold/discarded/ demolished/destroyed, that it continued to be in existence, that as per the law passive user of P&M was entitled to claim depreciation,that after introduction of concept of block of assets it was not permissible for the AO to see as to whether a particular/specific asset was put to use or not, that collective use of block of assets was to be examined, that depreciation was to be allowed for entire block, that inspite of heavy flood the machinery was in working condition. 2

685, 3768/M/12;4514/13-TIPCO After considering the submission of the assessee and the AO it was held by the FAA that the assessee did not claim any depreciation on the damaged machinery for the reason that insurance claim was lodged, that only after rejection of claim by the insurance company the assessee reinstated the WDV to the block of assets, that there was no user of the asset for the AY.s 2005-06 to 2008-09, that assets were damaged. Referring to the provisions of sec. 34(1)(ii) of the Act he held that the assessee was not entitled to depreciation on assets which did not exist. He referred to the case of EID Parry (226ITR836) and held that facts of the said case were applicable to the facts of the case under consi - deration.Finally,he upheld the order of the AO.

4.During the course of hearing before us,the Authorised Representative (AR) stated that the FAA wrongly held that Plant and Machinery (P&M) did not exist, that P&M was damaged because of flood water,that assessee was manufacturing goods at Silvassa, that insurance had rejected the claim made by the assessee during the year under appeal, that only after receiving the rejection letter from the insurance company it had reinstated its claim. She referred to page No.9, 10 of the PB and relied upon the cases of G.N. Agrawal (217 ITR 250); Rishiroop Polymers(P)Ltd. (102 ITD 128). The DR supported the order of the FAA and referred to the cases of Oriental Coal Co. Ltd. (120CTR202) and Jiwaji Rao Sugar Co.Ltd. (71ITR3219). In the rejoinder the AR stated that both the cases relied upon by the DR, do not deal with the concept of block of assets. On a query by the bench,the assessee furnished copy of the goods manufactur - ed at the Silvassa factory during the year under consideration and in the earlier and subsequent years.

5.We have heard the rival submissions and perused the material before us. The undisputed facts of the case are that the flood waters damaged the P&M of the Silvassa factory of the assessee,that it filed a claim before the insurance 3

685, 3768/M/12;4514/13-TIPCO company, that the insurance authority rejected the claim during the year under consideration,that it filed a revised statement of income before AO claiming depreciation on assets, that as per the books of account the WDV of P&M as on 1.4.04 was Rs.1.14 crores, that it had claimed depreciation @15% on the block of assets,that the FAA rejected the claim made by AO by invoking the provisions of section 34(1) of the Act. As stated earlier, the assessee had filed before us the details of manufactur -ing activities carried out at the Silvassa Unit.A separate manufacturing Account of the Silvassa Unit clearly establishes that it was carrying out its manufacturing activities at Silvassa after the floods. There is a distinction between non existence of P&M and damaged P&M.There is nothing on record to disprove the fact that manufacturing activities were carried out at Silvassa.Therefore, FAA was not justified in holding that P&M did not exist. The fact is that P&M existed and it was being used by the assessee for manufacturing activities.Secondly,after the introduction of concept of block assets individual assets are not to be considered for allowing/disallowing depreciation.The assessee had not claimed depreciation as its claim was pending before the insurance authorities. We find that the cases relied upon by the DR are of no help because the facts of both the cases are distinguishable, besides they do not deal with concept of block of assets. Therefore, reversing the order of the FAA,we hold that the assessee was entitled for depreciation for the machinery @ 15% (17.17 lakhs).Effective Ground of appeal of the assessee is decided in favour of the assessee. ITA.s/3768-4514/Mum/2012 & 2013,AY.s:2009-10 and 2010-11 6.The facts and circumstances of both years are identical to facts of earlier year except the amount involved under the head depreciation.So,following our order for the AY.2008-09, we allow the effective Ground raised by the assessee for both the years.

685, 3768/M/12;4514/13-TIPCO