Punjab & Haryana H.C : Whether Sec. 41(2) applicable only to plant and machinery engaged in generation and distribution of power.

High Court Of Punjab & Haryana

CIT  Vs. Rhodoen Silk Mills (P.) Ltd.

Assessment Year 1998-99

Section : 41(2)

Satish Kumar Mittal And Rakesh Kumar Garg, JJ.

IT Appeal No. 566 Of 2007

February 19, 2008

JUDGMENT

Rakesh Kumar Garg, J. : Delay of 465 days in re-filing the appeal is condoned for the reasons stated in the application.

The Revenue has filed this appeal under s. 260A of the Income-tax Act, 1961 (for short ‘the Act’) against the order of the Tribunal, Chandigarh Bench ‘A’, Chandigarh, passed in ITA No. 282/Chd/2002, dt. 5th Aug., 2005 for the asst. yr. 1998-99 raising the following substantial question of law :

“Whether on the facts and law, the Hon’ble Tribunal was legally justified to ignore cl. (b) of s. 41(2) of IT Act, when the entire machinery of an independent unit No. 1 as owned and used by the respondent for business and depreciation allowed to it under s. 32 of IT Act, was sold in the previous year ?”

2. The respondent assessee is a company which filed its return of income-tax for the asst. yr. 1998-99 on 30th Nov., 1998 declaring total income of Rs. 16,83,090. The assessment was completed on 29th March, 2001 under s. 143(3) of the Act on a total income of Rs. 39,37,200. While completing the assessment, the AO made an addition of Rs. 25,76,119 by treating the difference between the sale price of Rs. 29,80,000 of entire machinery installed at unit No. 1 of the factory premises of the respondent company and the WDV of the said machinery as on 1st April, 1997 at Rs. 4,11,811 by invoking the provisions of s. 41(2) of the IT Act, 1961 read with amended provisions of ss. 50 and 50A of the Act.

3. The assessee filed an appeal before the CIT(A) against the order of the AO dt. 29th March, 2001. The CIT(A), Ludhiana vide his order dt. 25th Jan., 2002 allowed the appeal of the assessee and deleted the addition of Rs. 25,76,119 by holding that :

1. Sec. 41(2) was not applicable to the facts of this case as it was applicable only to plant and machinery engaged in generation and distribution of power.

2. Effect of the insertion of s. 50A of IT Act, was to make special provisions for computation of the cost of acquisition in the case of depreciable assets referred to in s. 32(1)(i) of the Act.

3. Sec. 50 of the Act was not applicable to the facts of the case as the block of the assets existed at the opening as well as at the closing of the financial year.

4. Feeling aggrieved by the aforesaid order, the Revenue filed an appeal before the Tribunal, Chandigarh. The said appeal has been dismissed by the Tribunal as it did not find any infirmity in the order of the learned CIT(A) vide its order dt. 5th Aug., 2005.

5. Shri Sanjeev Bansal, learned counsel appearing for the appellant Revenue has argued that the entire machinery, owned by the respondent and used for independent business of unit No. 1 in respect of which depreciation was claimed was sold in the previous year. Accordingly, the excess amount of sale consideration of the machinery over the WDV was considered as profit chargeable to tax under the head “Business income” within the meaning of cl. (b) of s. 41(2) of IT Act, on sale of machinery on which depreciation was claimed @ of 12.50 per cent under cl. (i) of sub-s. (1) of s. 32 of IT Act. It was also argued by him that the entire machinery of unit No. 1 as owned by the respondent was sold during the year and therefore, as per the provisions of s. 50(2) of the Act, the block of assets ceased to exist.

6. We have heard learned counsel for the Revenue and perused the impugned order.

7. In the present case, after noticing the provisions of s. 2(11) of the Act for the period, the Tribunal has given a finding of fact that block of assets was intact and the same did not cease to exist. From the facts of the case, the Tribunal has found that in the present case, plant and machinery was block of assets and all the assets of similar nature had been shown under this head and as per depreciation chart filed by the assessee opening balance in plant and machinery as on 1st April, 1997 was Rs. 4,11,881.11. In this block of assets there was an addition of Rs. 75,33,668 and the sale was at Rs. 29,80,000. Thus, the total cost as on 31st March, 1998 was Rs. 49,57,549.11. And after providing depreciation @ of 12 per cent amounting to Rs. 6,19,693.11, WDV as on 31st March, 1998 remained at Rs. 43,37,856. Thus, it was found by the Tribunal that the plant and machinery had not been sold totally. There was addition as well as sale but the plant and machinery as a whole remained in existence and therefore, it cannot be said that the block of assets under the head “Plant and machinery” was sold and the difference was chargeable to tax.

8. On the basis of this finding, the Tribunal found that depreciation was claimed under the provisions of s. 32(1) of the Act as prescribed. Thus, the Tribunal found no infirmity in the order of the CIT(A) and dismissed the appeal filed by the Revenue.

9. There is no material on the record of the case to arrive at a different finding of fact than the one given by the Tribunal regarding the existence of block of assets in the present case. There is also no evidence on the record that the entire plant and machinery of unit No. 1 has been sold and the purchases of Rs. 75,33,668 of new machinery have been made for the unit No. 2. From the facts it is clear that there was addition as well as sale but the plant and machinery as a whole remained in existence. Thus, the provisions of s. 32(1) of the Act were rightly made applicable in the present case and the depreciation had been correctly claimed on the WDV merged after making the adjustment of addition and sale in the block of assets.

10. Thus, we find no infirmity in the orders of the Tribunal and no substantial question of law arises in this appeal for the determination of this Court. Hence, this appeal is dismissed.

[Citation : 332 ITR 330]

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