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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JM & SHRI RAJESH KUMAR, AM
O R D E R PER RAJESH KUMAR, A. M: These are two appeals filed by the assessee against the two separate orders dated 15.1.2013 passed by the ld.CIT(A)-2, Mumbai for the assessment years 2005-06 and 2006-07 respectively. Since issues involved in both these appeals pertains to reopening of assessment u/s 147 read with section 148 of the Income Tax Act, 1961, and others are common, therefore, these appeals are heard together and are being decided by this common order, for the sake of convenience.
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The assessee has raised two effective grounds of appeal
. The first ground is in respect of challenging the jurisdiction of the AO u/s 147 read with section 148 of the Act and Ground no.2 relates to disallowance of depreciation.
3. We shall first take up the Ground no.1 on merits. (AY-2005-06) 3.1 The brief facts of the case are that the assessee filed its return of income on 18.10.2005 declaring total income at Rs.22,43,950/- which was processed under section 143(1) of the Act on 24.2.2006. Thereafter, the case of the assessee was reopened after recording the reasons and obtaining the approval of Commissioner of Income Tax. The reasons recorded by the AO are reproduced below : “The assessment in this case was done u/s.143(1) on 24.02.2006 in summery manner. On perusal at records, it is noticed that the assessee company credited the block at plant and machinery by Rs.3, 19,20,515/- in the books at account, while calculating depreciation u/s.32, it had neither reduced from the block the WDV of plant and machinery destroyed by fire nor credited the amount receivable in insurance claim. Accordingly, excess depreciation to the tune of Rs.87,27,7831- has been allowed. There is a failure on the part of the assessee to explain full and true disclosure of particulars of income for A. Y. 2005-06.
2. I have therefore reasons to believe that the income of Rs. 87,27,783/-has escaped assessment under the provisions of Income- tax Act, 1961 for the A. Y 2005-06 and remedial action by issuance of notice u/ s. 148 will be appropriate in the case because all the conditions for issue of such notice are fulfilled in this case. The assessment is being reopened with prior approval of CIT-1, Mumbai given vide letter dated 21.02.2011 as per Sub-section (2) of section 151 of the IT Act. Issue notice under section 148 of the Income Tax Act, 1961”
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The notice under section 148 was issued on 17.3.2011 and served upon the assessee on 21.3.2011. The reasons recorded in the reopening notice were supplied to the assessee. The ld. AR attended the proceedings on behalf of the assessee and made submissions vide letter dated 24.8.2011 and 8.11.2011. The ld. AR submitted before the AO that the insurance claim receivable from the Insurance Company was not certain and therefore the same was not taken into account while calculating the depreciation. The ld.AR submitted that Rs.1 crore was received on 15.9.2005 and Rs.1,49,40,705/- was received on 13.4.2006. The said claim was received against the loss of stocks as well as damages/ destruction of the fixed assets. The details as to break-up of claim was not available with the assessee during the year and therefore the said amount could not be deducted from the block of assets in the assessment year 2005-06. Final report with bifurcation from the Insurance Company was received in the assessment year 2007-08 and assessee accordingly reduced the insurance claim received from the Insurance Company from the block assets in AY 2007-08 and thereby submitted that the assessee has not escaped the assessment in assessment year 2005-06. The AO not finding the reply of the assessee convincing and satisfying came to the conclusion that the machinery destroyed in the fire cannot be said to have been in existence by the said period, and therefore was not put to use, and thus no claim of 4 2167 and 2168/M/Mum/2013 depreciation can be entertained thereon. Accordingly, the AO disallowed and added a sum of Rs.87,27,783/- on account of disallowance of depreciation which is calculated as under :
WDV as Additions Deletion Dep.allowed Dep.Allowable Excess Dep.Allowed on Less than More than 180 1.4.2004 180 days days 99,13,963 1,34,87,915 51,76,776 3,19,20,515 87,27,783 - 87,27,783 Aggrieved by the order of the AO, the assessee has filed appeal before the First Appellate Authority(FAA) who also dismissed the appeal of the assessee by observing and holding as under : “In this case, the fire broke out on 10.12.2004 and the appellant intimated the loss to United India Insurance Company on 12.12.2004 and the appellant has estimated the loss at Rs. 5.25 crores. Subsequently, the insurance company has settled the issue and made a total payment of Rs.2,49,40,705/-. Section 43(6)(c) (i) (B) reads as follows: 6. "written down value means c. in the block of assets - i. in respect of any previous year relevant to the assessment year commencing on the 1 st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted- B. by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased."
5 2167 and 2168/M/Mum/2013 From this it can be seen that the moneys payable in respect of machinery discarded should be reduced from the WDV in the year destruction. In view of this, the monies received towards the assets destroyed which are forming part of the block of assets should be reduced in this A.Y. from the WDV and only on the balance amount of WDV, depreciation should be granted for this AY. The AO is directed to rework the depreciation accordingly from AY 2005-06 and for later assessment years. \ 3.15 It. is seen that the A.O. has reduced the entire cost of the assets destroyed from the WDV and this action is not in accordance with the Income tax Law. The A.O. is directed to rework the disallowance as per my directions contained in the earlier para. Before concluding I also wish to point out that in view of the clear provisions of section 43(6) (c) (i) (B), it is clear that excess deprecation was allowed in the intimation u/s. 143(1) of the IT. Act. In view of this and in view of Explanation 2(c) (iv) to section 147 of the IT. Act, it is a clear case of escapement of income and I hold that the A.O. has properly assumed jurisdiction u/s. 147 of the IT. Act. In view of this, the technical contentions raised by the appellant are rejected”
The ld. AR vehemently submitted before us that there cannot be double disallowance of the depreciation. The first when the assessee suomottu reduced the amount of claim received from the Insurance Company in AY 2007-08 and secondly, as disallowed and added by the AO in AY 2005-06 and upheld by the ld. CIT(A) in the appellate proceedings. The ld. AR submitted that since the assessee has reduced the amount of claim received from the fixed assets when it obtained the details from the Insurance Company, therefore, the addition as made by the AO and 6 2167 and 2168/M/Mum/2013 confirmed by the ld. CIT(A) on account of depreciation was bad in law and be deleted accordingly.
The ld. DR heavily relied on the orders of authorities below.
We have carefully considered the rival submissions and perused the material placed before us including the orders of authorities below. We find that in this case, the fire took place in the factory premises of the assessee on 10.12.2004 and the assessee filed claim in respect of loss of stocks and fixed assets with the insurance company which was not received in the assessment year 2005-06. The claim was received in the assessment year 2006-07 and 2007-08. We find that the amount of Rs.1 crore was received by the assessee on 15.9.2005 and final payment of Rs.1,49,43,705/- was received on 13.4.2006. Since the assessee was not having the details of the claim finally settled and therefore the same could not be reduced in the assessment year 2005-06 and 2006-07 and when the assessee received the details from the Insurance Company. The assessee reduced the same from the block of assets. Now, the issue before us is whether the assessee has rightly accounted for claim received from the Insurance Company for plant and machinery and fixed assets or the same should have been accounted for in AY 2005-06 and 2006-07. Having considered the facts in depth, we are of the opinion that since the assessee did not have break up of the claim received from the Insurance Company in the assessment years 2005-06 and 2006-07 which was finally 7 2167 and 2168/M/Mum/2013 received in AY 2007-08 and this was correctly accounted for by the assessee. The disallowance of depreciation by the AO by reopening the assessment in assessment year 2005-06 has resulted into double disallowance one by the assessee suo mottu in assessment year 2007-08 and secondly by the AO in assessment year 2005-06 and 2006-07 which is not correct in terms of provision of the Income Tax Act, 1961 as the same disallowance cannot be made twice. The depreciation has to be allowed in one year. Moreover, while framing the assessment u/s 143(3) read with section 147, the AO has not carried out any rectification in respect of assessment year 2007-08 or nor any such direction was given by ld.CIT(A). In view of this, it would be reasonable and proper if the disallowance as made by the AO in AY 2005-06 is deleted. Under these circumstances, we set aside the order of ld.CIT(A) and direct the AO to delete the disallowance. AY- 2006-07 8. We have already decided an identical issue in AY- 2005-06 and therefore, our decision in ITA No.2167/Mum/2013 AY- 2005-06 would mutatis mutandis apply to this appeal as well. The AO is directed accordingly.
Since we have decided assessee’s appeals on preliminary technical issue, so the issue raised on merit become academic and the same may be agitated as and when situation arises.
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