B.R. Baskaran, Accountant Member
1. The appeal filed by the Revenue and the cross-objection filed by the assessee are directed against the order dated July 22, 2014, passed by the learned Commissioner of Income-tax (Appeals)-I, Coimbatore and they relate to the assessment year 2010-11. The Revenue is aggrieved by the decision of the learned Commissioner of Income-tax (Appeals) in holding that the provisions of Explanation 3 to section 43(1) is not applicable to the secondhand windmill purchased by the assessee. The assessee is aggrieved by the decision of the learned Commissioner of Income-tax (Appeals) in determining the value of second hand machinery at Rs. 1.50 crores in the place of cost of purchase of Rs. 2.36 crores.
2. The facts relating to the abovesaid issue are that the assessee has purchased a second hand windmill on March 23, 2009, from M/s. Soundararaja Mills Ltd. for a value of Rs. 2.36 crores. The assessee claimed depreciation of Rs. 1.12 crores on the abovesaid value. The Assessing Officer noticed that the seller had already claimed almost full depreciation on the abovesaid windmill. Hence the Assessing Officer, by invoking the provisions of Explanation 3 to section 43(1) determined the cost of the windmill at Rs. 43,28,388. The Assessing Officer computed the depreciation admissible on the abovesaid amount at Rs. 17,31,355 for the immediately preceding year, i.e., for the assessment year 2009-10 and thus arrived at the opening written down value for the year under consideration at Rs. 25,97,033. Accordingly he computed the depreciation admissible for the year under consideration at Rs. 20,77,626 and accordingly disallowed as sum of Rs. 91,34,670 as excess claim of depreciation.
3. In the appellate proceedings, the learned Commissioner of Income-tax (Appeals) held that the provisions of Explanation 3 to section 43(1) cannot be applied, since it cannot be said that the motive of the assessee was to reduce the tax liability by claiming depreciation on enhanced cost. However, the learned Commissioner of Income-tax (Appeals) determined the cost of windmill at Rs. 1.50 crores and accordingly directed the Assessing officer to adopt the cost of windmill at Rs. 1.50 crores.
4. Since the dispute before us revolves around the applicability or otherwise of Explanation 3 to section 43(1) of the Act, we extract the said provisions, for the sake of convenience :
"Explanation 3. - Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business or profession and the Assessing Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income tax (by claiming depreciation with reference to the enhanced cost), the actual cost to the assessee shall be such an amount as the Assessing Officer may, with the previous approval of the Joint Commissioner, determine having regard to all the circumstances of the case."
5. A careful perusal of the abovesaid provisions would show that the same relates to the determination of "actual cost" to the assessee, meaning thereby, the requirement of determination of actual cost shall arise only in the year of purchase or in the year in which the depreciation was claimed for the first time.
6. In the instant case, we have noticed that the assessee had purchased the windmill on March 23, 2009 and she has also claimed depreciation thereon during the assessment year 2009-10. Accordingly, it was pointed out to both parties that the question of determination of "actual cost" shall arise only in the assessment year 2009-10 and not during the year under consideration. On verification of details, both parties submitted that the assessment relating to the assessment year 2009-10 had been reopened by the Assessing Officer and the depreciation claim of the assessee has been restricted. It was further submitted that the assessee has preferred an appeal against the same and it is pending before the learned Commissioner of Income-tax (Appeals). Under these set of facts, the learned Departmental representative fairly agreed that the question of determination of "actual cost" during the year under consideration does not arise and in this year, the depreciation has to be allowed on the written down value of the windmill as determined in the assessment year 2009-10.
7. Under these set of facts, we are of the view that the issue contested before us is consequential, i.e., it would depend upon the outcome of the identical disallowance made in the assessment year 2009-10. For the abovesaid reason, the decision rendered by the learned Commissioner of Income-tax (Appeals) is liable to be set aside.
8. Accordingly, we set aside the order of the learned Commissione
Please Login To View The Full Judgment!
r of Income-tax (Appeals) and restore all the issues to the file of the Assessing Officer with the direction to re-work the amount of depreciation on the written down value determined in the assessment year 2009-10 after the receipt of appellate order of the learned Commissioner of Income-tax (Appeals). If the assessee is aggrieved by the same, he may pursue the same in accordance with the law. 9. In the result, the appeal of the Revenue and the cross-objection of the assessee are treated as allowed for statistical purposes.