D.b. Income Tax Appeal v. Per Hon’ble Jhaveri, J

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 65 / 2015 Commissioner of Income Tax, Alwar. ----Appellant Versus M/S Gillette India Ltd., 65-A, Industrial Area, Bhiwadi, Distt. Alwar. ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain with Mr. Mukesh MeenaFor Respondent(s) : Mr. Sanjay Jhanwar with Mr. Prakul Khurana & Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE DR. JUSTICE VIRENDRA KUMAR MATHURJudgment Per Hon’ble Jhaveri, J. 23/05/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the Revenue. 2.This Court while admitting the appeal on 07.10.2016 hasframed the following substantial questions of law: “(i) Whether the Tribunal was legallyjustified in deleting the disallowance ofexpenditure of Rs.16,49,45,140/- claimedon account of inventories written off in theP&L account specifically when the entirecost of the production, manufacturing andpurchases was claimed under “Cost ofgoods sold” and the separate claimtantamounts to double deduction? (ii) Whether the Tribunal was legallyjustified in deleting the disallowance ofRs.1,78,50,935/- made on account ofdepreciation specifically when it wasclaimed on the assets not actually put to use and were disposed off by theassessee?” 3.In so far as issue No.(i) is concerned, the Tribunal whileconsidering the case in para 4.1 has observed as under: “4.1 Matter was carried before FirstAppellate Authority, wherein remand reportwas called and order of ITAT, Jaipur inassessee’s own case for A.Y. 2003-04 wasperused. During course of assessmentproceeding, assessee filed details ofinventories written off and inventory reportas no saleable value as they were not soldbut destroyed completely. Tribunal hasreversed the finding of CIT(A) by detailedreasoning as under: “As regard to the disallowance ofRs.8,37,10,704/- in respect of damagedgoods retail and Rs.3,64,71,703/- inrespect of provision for obsolescence madeby the AO for want of item-wise detail andthe procedure thereof, the Ld. CIT(A) afterconsidering the item wise detail andconsidering the procedure thereof adoptedfor disposal and destruction of such stock,copy of which is placed in the paper bookhas rightly deleted the disallowance ofRs.8,37,10,704/- but at the same time hedid not allow the claim of Rs.3,64,71,703/-on the ground that it is only a provision andnot actually destroyed. We find that inrespect of both these amounts item wisedetail is filed. The procedure adopted andthe recommendation of appropriateauthorities is placed on record. Thedisallowance of rs.3,64,71,703/- confirmedby the ld. CIT(A) only for the reason thatthese items are not actually destroyed andis only a provision cannot be upheld for thereason that item wise details of the same isfiled, these are identified items and havebeen subsequently destroyed as per theregular procedure followed. The writ off forobsolescence of such identified items isallowable deduction as per the case lawsrelied by the Ld. A.R. In fact no provision iscreated in books of accounts but only thenomenclature of provision for obsolescence is used. In the balance sheet also no suchprovision is appearing either in the liabilitiesside or as reduction from asset side nor theld. D.R. could point out any such provisionin the balance sheet. Therefore thedisallowance of Rs.3,64,71,703/- confirmedby the Ld. CIT(A) is deleted.” 4.In that view of the matter, this issue is squarely covered bythe decision on issue No.(ii) of appeal No.134/2014. is used. In the balance sheet also no suchprovision is appearing either in the liabilitiesside or as reduction from asset side nor theld. D.R. could point out any such provisionin the balance sheet. Therefore thedisallowance of Rs.3,64,71,703/- confirmedby the Ld. CIT(A) is deleted.” 4.In that view of the matter, this issue is squarely covered bythe decision on issue No.(ii) of appeal No.134/2014. 5.In so far as issue No.(ii) is concerned, the counsel has reliedupon the decision of this Court in the case of DB Income TaxAppeal No.349/2011 decided today wherein it has been observedas under: “5.In so far as issue No.(iii) is concerned,the Tribunal relying upon the decision ofDelhi High Court in the case of CIT vs.Bharat Aluminum Company Ltd. 187Taxman 111, 124(Del.) and in the case ofCIT vs. Yamaha Motors India Pvt. Ltd.226 CTR 304 and the Gujarat High Court inthe case of CIT vs. Sonal Gum Industires322 ITR 542 in para 52 to 56 has held asunder: 52. We have heard the rival submission andconsidered them carefully. After consideringthe relevant material along with writtensubmission and various case laws, we findthat the assessee deserves to succeed. It isa fact on record that M/s Duracell batteriesIndia Limited amalgamated with theassessee company in A.Y. 2000-01. Onamalgamation its plant & Machinery wasincluded in the block of the plant &Machinery of the assessee company. Thisblock was used for the purpose of thebusiness in A.Y.2000-01 & 2001-02. In A.Y.2002-03 the assessee did not fulfill thecondition laid down u/s 72A and thereforethe unabsorbed losses and depreciation ofthe amalgamating company M/s Duracellbatteries India Limited which was set off inA.Y. 2000-01 and 2001-02 was withdrawnand offered in income in A.Y. 2002-03.However the fact remain is that plant & Machinery of Duracell battery India Limitedmerged in the block of assets of theassessee company on its amalgamation andon such block depreciation for A.Y. 2000-01& 2001-02 was allowed under the blockconcept of depreciation once an asset hasformed part of the block it can’t be reducedexcept by monies payable in respect of anyassets falling in that block which is sold ordiscarded or demolished or destroyed asper section 43(6) of the Income tax Act.The Money becomes payable in A.Y.2004-05when such plant & Machinery were sold forRs.29,98,65,810/- in A.Y. 2004-05 andRs.1,26,23,967/- in A.Y. 2005-06 whensuch amount was reduced from the block ofplant & machinery. The example given byLd. AR in his written note amply illustratethe mechanism of allowance of depreciationu/s 32 after the block concept of asset.Therefore, the notional disallowance ofdepreciation in respect of plant &machinery of Duracell batteries whichformed part of the block of assets of theassessee is not permitted in law. 53. The Delhi High court of CIT V/s. BharatAluminium Company Ltd. 187 Taxman 111,124 (Del.) held that though as per section32(1), in order to get entitled to claimdepreciation, asset is to be owned by theassessee and it is also be used for thepurpose of business and profession but thisexpression when applied to block of assetsand not any specific building, machinery,plant or furniture in said block of assets asindividual assets loose their identity afterbecoming inseparable part of block of assets. 54. The Gujarat High Court in case of CITV/s. Sonal Gum Industries 322 ITR 542 heldthat in relation to block of assets it is notpossible to segregate items falling with in theblock for the purpose of grantingdepreciation or restricting the claim thereof.Once it was found that the assets were usedfor the prupose of business, it was notnecessary that all the items falling withinplant and machinery have to besimultaneously used for being entitled todepreciation. 55. The Delhi High Court in case of CIT V/s.Yamaha Motors India Pvt. Ltd. 226 CTR 304 54. The Gujarat High Court in case of CITV/s. Sonal Gum Industries 322 ITR 542 heldthat in relation to block of assets it is notpossible to segregate items falling with in theblock for the purpose of grantingdepreciation or restricting the claim thereof.Once it was found that the assets were usedfor the prupose of business, it was notnecessary that all the items falling withinplant and machinery have to besimultaneously used for being entitled todepreciation. 55. The Delhi High Court in case of CIT V/s.Yamaha Motors India Pvt. Ltd. 226 CTR 304 held that Expression “Used for the purpose ofbusiness” in section 32 has to be readharmoniouslywiththeexpression“Discarded” occurring in Clause III of subsection (1) thereof. On harmonious readingof these expressions, “Used for the purposeof business” only means that assessee hasused the machinery for the purpose ofbusiness in earlier years. Therefore oncedepreciation was allowed on block of assetsin previous year actual user of machinery isnot required with respect to the discardedmachinery and the condition for eligibility ofdepreciation that machinery is used for thepurpose of business would mean thatdiscarded machine is used for the purpose ofbusiness in the earlier years for whichdepreciation is allowed. 56. Mumbai ITAT in case of M/s. Swatisynthetics Lts. V/s. ITO 2010 TIOI. 78 heldthat depreciation is allowable on the entireblock even if some of the assets of theblock have not been used. The use of theindividual asset for the purpose of businesscan be examined only in the first year whenthe asset is purchased. In subsequent yearsuse of block of assets is to be examined.Existence of individual assets in the block ofassets itself amounts to use for the purposeof business. 5.1In view of the decisions of two HighCourts and one decision of the Tribunal, theTribunal has not committed any error andwe affirm the view taken by the Tribunal andalso the view taken by the Delhi High Courtand Gujarat High Court.” 6.In that view of the matter, the issues are answered in favourof the assessee and against the department. 7.The appeal stands dismissed. (VIRENDRA KUMAR MATHUR),J. (K.S. JHAVERI),J. Asheesh Kr. Yadav/190