Commissioner Of Income Tax, Ludhiana v. M/S. Rhodoen Silk Mills Pvt. Ltd. Ludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No. 566 of 2007(O&M)Date of Decision. February 19,2008 Commissioner of Income Tax, Ludhiana Versus M/s. Rhodoen Silk Mills Pvt. Ltd. Ludhiana ......Appellant Respondent CoramHon'ble Mr. Justice Satish Kumar MittalHon'ble Mr. Justice Rakesh Kumar Garg * * * * Present Mr. Sanjeev Bansal, Advocatefor the appellant. Rakesh Kumar Garg, J Delay of 465 days in re-filing the appeal is condoned forthe reasons stated in the application. 1.The revenue has filed this appeal under Section 260 A ofthe Income Tax Act, 1961( for short “the Act” ) against the order of theIncome Tax Appellate Tribunal, Chandigarh Bench 'A' , Chandigarh, passedin ITA No. 282/Chandi/2002 dated 5.8.2005 for the assessment year 1998-99 raising the following substantial question of law: “ Whether on the facts and law, the Hon'ble Income TaxAppellate Tribunal was legally justified to ignore clause(b) ofsection 41(2) of I. T. Act, when the entire machinery of anindependent unit no.1 as owned and used by the respondent forbusiness and depreciation allowed to it u/s 32 of I. T. Act, wassold in the previous year.?” 2.The respondent assess is a company which filed its returnof income tax for the assessment year 1998-99 on 30.11.1998 declaring totalincome of Rs.16,83,090/-. The assessment was completed on 29.3.2001under Section 143(3) of the Act on a total income of Rs.39,37,200/-. Whilecompleting the assessment, the Assessing Officer made an addition of RS. ITA No. 566 of 2007 2576119/- by treating the difference between the sale price ofRs.29,80,000/- of entire machinery installed at unit no.1 of the factorypremises of the respondent company and the written down value of the saidmachinery as on 1.4.1997 at Rs.411811/-by invoking the provisions ofSection 41(2) of the Income Tax Act, 1961 read-with amended provisions ofSection 50 and 50 A of the Act. 3.The assessee filed an appeal before the Commissioner ofIncome Tax against the order of the Assessing Officer dated 29.3.2001. TheCommissioner of Income Tax ( Appeals ), Ludhiana vide his order dated25.1.2002 allowed the appeal of the assessee and deleted the addition ofRs.25,76,119/- by holding that :- 1.Section 41(2) was not applicable to the factsof this case as it was applicable only to Plantand Machinery engaged in generationand distribution of power.of this case as it was applicable only to Plantand Machinery engaged in generationand distribution of power. 2. Effect of the insertion of Section 50-A of I. T. Act, was to make special provisions forcomputation of the cost of acquisition in thecase of depreciable assets referred to inSection 32(1)(i) of the Act.computation of the cost of acquisition in thecase of depreciable assets referred to inSection 32(1)(i) of the Act. 3. Section 50 of the Act was not applicableto the facts of the case as the block of theassets existed at the opening as well as atthe closing of the financial year.to the facts of the case as the block of theassets existed at the opening as well as atthe closing of the financial year. 4.Feeling aggrieved by the aforesaid order, the revenuefiled an appeal before the Income Tax ( Appeals ) Tribunal Chandigarh .The said appeal has been dismissed by the Tribunal as it did not find anyinfirmity in the order of the Ld. CIT(A) vide its order dated 5.8.2005. 5.Sh. Sanjeev Bansal, learned counsel appearing for theappellant-revenue has argued that the entire machinery, owned by therespondent and used for independent business of unit no.1 in respect ofwhich depreciation was claimed was sold in the previous year.Accordingly, the excess amount of sale consideration of the machinery overthe written down value was considered as profit chargeable to tax under the ITA No. 566 of 2007 4.Feeling aggrieved by the aforesaid order, the revenuefiled an appeal before the Income Tax ( Appeals ) Tribunal Chandigarh .The said appeal has been dismissed by the Tribunal as it did not find anyinfirmity in the order of the Ld. CIT(A) vide its order dated 5.8.2005. 5.Sh. Sanjeev Bansal, learned counsel appearing for theappellant-revenue has argued that the entire machinery, owned by therespondent and used for independent business of unit no.1 in respect ofwhich depreciation was claimed was sold in the previous year.Accordingly, the excess amount of sale consideration of the machinery overthe written down value was considered as profit chargeable to tax under the ITA No. 566 of 2007 head “ Business Income” within the meaning of clause (b) of Section 41(2)of I. T. Act, on sale of machinery on which depreciation was claimed at therate of 12.50% under clause (i) of Sub section (1) of Section 32 of I. T. Act.It was also argued by him that the entire machinery of unit no.1 as ownedby the respondent was sold during the year and therefore, as per theprovisions of Section 50(2) of the Act, the block of assets ceased to exist.6.We have heard learned counsel for the revenue andperused the impugned order. 7.In the present case, after noticing the provisions ofSection 2(11) of the Act for the period, the Tribunal has given a finding offact 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 naturehad been shown under this head and as per depreciation chart filed by theassessee opening balance in Plant and Machinery as on 1.4.1997 wasRs.4,11,881.11 Ps. 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 on31.3.98 was Rs.49,57,549.11 Ps. And after providing depreciation at therate of 12% amounting to Rs.6,19,693.11ps, written down value as on31.3.1998 remained at Rs. 43,37,856 /-. Thus, it was found by the Tribunalthat the Plant and Machinery had not been sold totally. There was additionas well as sale but the Plant and Machinery as a whole remained inexistence and therefore, it cannot be said that the block of assets under thehead “ Plant and Machinery” was sold and the difference was chargeable totax. 8.On the basis of this finding, the Tribunal found thatdepreciation was claimed under the provisions of Section 32(1) of the Actas prescribed. Thus, the Tribunal found no infirmity in the order of theCommissioner, Income Tax ( Appeals ) and dismissed the appeal filed bythe revenue. 9.There is no material on the record of the case to arrive ata different finding of fact than the one given by the Tribunal regarding theexistence of block of assets in the present case. There is also no evidenceon the record that the entire Plant and Machinery of unit no.1 has been soldand the purchase of Rs.75,33,668/- of new machinery have been made for ITA No. 566 of 2007 the unit no.2. From the facts it is clear that there was addition as well assale but the Plant and Machinery as a whole remained in existence. Thus,the provisions of Section 32(1) of the Act were rightly made applicable inthe present case and the depreciation had been correctly claimed on thewritten down value merged after making the adjustment of addition and salein the block of assets. 10.Thus , we find no infirmity in the orders of the Tribunaland no substantial question of law arises in this appeal for the determinationof this Court. Hence, this appeal is dismissed. ( Rakesh Kumar Garg) Judge February 19, 2008mamta ( Satish Kumar Mittal) Judge