D.C.I.T.-9(3), MUMBAI V. REACH DATA SERVICES INDIA PVT. LTD., MUMBAI

ITA 5798/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88095 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 21-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Assessee Lawyers: GIRISH DAVE DR
• Keywords: Depreciation
• Section: 115JB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D B ENCH, MUMBAI , , , BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ./ I.T.A. NO.5798/MUM/2011 ( / ASSESSMENT YEAR : 2008-09) DCIT CENTRAL CIRCLE - 9(3), 2 ND FLOOR,ROOM NO.229, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. / VS. M/S. REACH DATA SERVICES INDIA PVT. LTD. UNIT NOS. 14 & 15, 1 ST FLOOR, B-WING, PLOT NO.12, OFF GOREGAON MALAD LINK ROAD, MINDSPACE, MALAD (W) MUMBAI-400 064. ./ ./PAN/GIR NO. : AABCT 3343 D ( /APPELLANT ) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI JEETENDRA KUMAR - DR / RESPONDENT BY : SHRI GIRISH DAVE - DR !' # $ / DATE OF HEARING : 2 1/01/2015 %&' $ / DATE OF PRONOUNCEMENT : 30 /01/2015 ( / O R D E R PER VIJAY PAL RAO, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) DATED 14/6/2011 FOR THE ASSESSMENT YEAR 2008-09. THE REVE NUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION MADE T O BOOK PROFIT U/S. 1 15JB OF THE INCOME TAX ACT, 1961 WITHOUT VERIFYING THE FACT THAT THE FINANCIAL STATEMENT PREPARED BY THE ASSESSEE ARE NO T IN CONSONANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT IN VIEW OF TH E JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT (255 ITR 273). 2 ITA NO.5798/M/11 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS. 6,56,39,269 MADE TO BOOK PROFIT U/S.115JB OF THE INCOME TAX ACT , 1961 ON RE- CHARACTERISATION OF THE DEPRECIATION CLAIMED IN ITS FINANCIAL STATEMENT AS AN 'IMPAIRMENT OF ASSETS' AND ALSO NOT TREATING THE SAID IMPAIRMENT OF ASSETS AS A PROVISION FOR DIMINUTION IN VALUE OF ASSETS. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARIN G TOTAL INCOME OF RS.86,42,010/- ON 29/09/2008. THE ASSESSEE HAS ALSO WORKED OUT BOO K PROFIT AS PER SECTION 115JB AT RS.36,51,461/-. IN THE COURSE OF ASSESSMENT PROCEED INGS THE AO NOTED THAT THE ASSESSEE RECORDED DEPRECIATION AT RS.2,48,37,448/- FOR THE ASSESSMENT YEAR 2007-08. WHEREAS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAS CLAIMED DEPRECIATION AT RS.6,56,39,269/- AND THERE IS NO AD DITION IN THE FIXED ASSETS DURING THE YEAR. THE AO ACCORDINGLY PROPOSED TO RECAST THE PRO FIT AND LOSS ACCOUNT FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115JB. THE A O NOTED THAT IN THE CURRENT YEAR THE ASSESSEE HAS DEPRECIATED ITS ASSET WITHIN THE P ERIOD OF 5-6 MONTHS AND BOOKED THE DEPRECIATION IN P&L ACCOUNT AT RS.6,56,39,269/- . T HE ASSESSEE FURNISHED THE DETAILS FOR SALE OF ASSET TO THE SCRAP DEALER ON ACCOUNT OF SHI FTING OFFICE. THE AO FURTHER NOTED THAT NO PROFIT OR LOSS HAS BEEN CALCULATED BY THE ASSESS EE AND THEREFORE, NO FIGURE HAS BEEN REFLECTED IN THE PROFIT AND LOSS ACCOUNT. THUS, THE AO OBSERVED THAT MERE RE-LOCATION OF A UNIT CANNOT BE ATTRIBUTED AS REASON FOR INCREASE IN DEPRECIATION. THE AO HAS TAKEN INTO CONSIDERATION THE ACCOUNTING STANDARD-26 (AS-2 6) REGARDING IMPAIRMENT OF ASSET AND HELD THAT WHAT ASSESSEE SHOULD HAVE PROVIDED IN PROFIT AND LOSS IS PROVISION FOR IMPAIRMENT OF ASSET RATHER THAN DEPRECIATING THE AS SET IN TOTO. ACCORDINGLY, THE AO MADE AN ADDITION OF RS.6,56,39,269/- ON ACCOUNT OF PROVISION OF DIMINUTION IN THE VALUE OF ASSET, WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB. ON APPEAL, CIT(A) HAS DELETED THE ADDITION ON THE GROUND THAT IMPAIRMENT OF ASSET IS NOT A PROVISION BUT A DIRECT EXPENSE, DEBITED TO P&L ACCOUNT WHICH IS SI MILAR TO DEPRECIATION. THEREFORE, 3 ITA NO.5798/M/11 THERE IS NO QUESTION OF SAME BEING ADDED BACK TO BO OK PROFIT WHILE COMPUTING MAT AS PER CLAUSE(I) OF THE EXPLANATION TO SECTION 115JB OF THE ACT. 3. BEFORE US, THE LD. DR HAS SUBMITTED THAT CIT(A) HAS COMMITTED AN ERROR WHILE HOLDING THAT IMPAIRMENT OF THE ASSET IS NOT A PROVI SION BUT A DIRECT EXPENSE, DEBITED TO P&L ACCOUNT. HE HAS CONTENDED THAT THIS CLAIM OF TH E ASSESSEE IS NOTHING BUT A PROVISION FOR IMPAIRMENT OF ASSET AS PER AS-28. HE HAS RELIED UPON THE ORDER OF AO AND SUBMITTED THAT IF THE VALUE DERIVED BY THE ASSESSEE FROM THE COMMERCIAL EXPLOITATION OF THE ASSET IS LOWER THAN THE BOOK VALUE THEN THE DIF FERENCE IS PROVIDED IN THE P&L ACCOUNT AS PROVISION FOR IMPAIRMENT FOR LOSS WHICH IS NOTHING BUT PROVISION FOR DIMINUTION IN VALUE OF ASSET. THEREFORE, AO HAS RIG HTLY MADE AN ADDITION ON THIS ACCOUNT. 3.1 ON THE OTHER HAND THE LD. AR SHRI GIRISH DAVE H AS SUBMITTED THAT THIS IS NOT AN IMPAIRMENT BUT THE ASSESSEE HAS SOLD DEPRECIABLE AS SET DURING THE YEAR AS PER TWO AGREEMENTS FURNISHED BEFORE THE AO. IN THE NORMAL C OMPUTATION OF INCOME THE ASSESSEE HAS NOT CLAIMED DEPRECIATION BUT CLAIMED C APITAL LOSS UNDER SECTION 50. HE HAS REFERRED TO COMPUTATION OF INCOME AT PAGE-1 OF THE PAPER BOOK AND SUBMITTED THAT IT IS NOT AT ALL A PROVISION BUT THE ASSET WAS DISCARDED AND SOLD DURING THE YEAR AND BLOCK OF ASSET CEASED TO EXIST. THE LD. AR HAS CONTENDED THA T THE PROVISION IS MADE ONLY WHEN THE ASSET SHOWN IN THE BALANCE SHEET IS OVER-VALUED THAN ITS REAL REALIZABLE VALUE BUT IN THE CASE OF THE ASSESSEE, THE ASSESSEE HAS SHIFTED THE OFFICE FROM THE LEASED PREMISES TO ANOTHER PREMISES AND THE ASSET IN QUESTION IS NO THING BUT FURNITURE, FIXTURE AND FITTINGS WHICH BECOMES OBSOLETE WHEN ASSESSEE CHANG ES OFFICE PREMISES. THE NATURE OF ASSESSEES BUSINESS IS PROVIDING TELECOM SERVICES, FOR WHICH THE FURNITURE, FITTINGS AND FIXTURES IN THE OLD OFFICE CANNOT BE SHIFTED TO THE NEW OFFICE AND THEREFORE, THE ENTIRE BLOCK OF ASSET WAS DISCARDED AND SOLD AS SCRAP. THE LD. COUNSEL HAS SUBMITTED THAT IN CASE OF RETIREMENT OF ASSET THE RELEVANT ACCOUNTING STANDARD IS AS-10 AND AS PER PARA- 14 OF AS-10 THE GAIN OR LOSS ARISING ON DISPOSAL AR E GENERALLY RECOGNIZED IN P&L STATEMENT. THUS, THE LD. COUNSEL HAS SUBMITTED THAT THIS IS NOT A PROVISION FOR 4 ITA NO.5798/M/11 DIMINUTION IN THE VALUE OF ASSET AND THEREFORE, IT DOES NOT FALL UNDER EXPLANATION TO SECTION 115JB. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT DURING THE YEAR UNDER CONSIDERATION, T HE ASSESSEE HAS SHIFTED ITS OFFICE FROM THE EXISTING LEASED PREMISES AND CONSEQUENTLY THE FURNITURE, FIXTURE AND FITTINGS IN THE OLD OFFICE WERE DISCARDED AND DISPOSED OFF THRO UGH SCRAP SALE. THE DIFFERENCE OF OPENING WRITTEN DOWN VALUE OF THESE ASSETS AND SALE REALIZATION HAS BEEN DEBITED TO P&L ACCOUNT UNDER THE HEAD DEPRECIATION OF RS.6,56, 39,269/-. THE AO MADE THE ADDITION OF THIS AMOUNT BY TREATING THE SAME AS PRO VISION FOR DIMINUTION IN THE VALUE OF ASSET WHILE COMPUTING BOOK PROFIT UNDER SECTION 115 JB. IT IS PERTINENT TO NOTE THAT THE PROVISION IS CREATED ON ACCOUNT OF DIMINUTION IN TH E VALUE OF EXISTING ASSET WHICH IS SHOWN IN THE BOOKS OF ACCOUNT AND PARTICULARLY IN B ALANCE SHEET. HOWEVER, IN THE CASE OF THE ASSESSEE THE ASSETS IN QUESTION WERE CEASED TO BE IN EXISTENCE AS THE SAME WERE DISPOSED OFF AS SCRAP. ONCE THE ASSET IN QUESTION C EASED TO EXIST AND THE LOSS ARISING ON DISPOSAL OF THE DEPRECIATED ASSET IS DEBITED TO P&L ACCOUNT THEN IT CAN NOT BE REGARDED AS A PROVISION, MUCH LESS, THE PROVISION ON ACCOUNT OF DIMINUTION IN THE VALUE OF ASSET. WE FIND FROM THE RECORD THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS NOT SHOWN ANY ASSET AS ON 31/03/2008. THEREFORE, WHEN T HE ASSET IS NOT IN EXISTENCE AND DISPOSED OFF THEN ACCOUNTING STANDARD-10 WILL BE AP PLIED TO DEAL WITH THIS CASE. THE RELEVANT PROVISION, I.E..PARA-14 OF THE ACCOUNTING STANDARD-10 READS AS UNDER :- AS-10 14. RETIREMENT AND DISPOSALS 14.1 AN ITEM OF FIXED ASSET IS ELIMINATED FROM THE FINANCIAL STATEMENTS ON DISPOSAL. 14.2 ITEMS OF FIXED ASSETS THAT HAVE BEEN RETIRED F ROM ACTIVE USE AND ARE HELD FOR DISPOSAL ARE STATED AT THE LOWER OF THEIR NET BOOK VALUE AND NET REALISABLE VALUE AND ARE SHOWN SEPARATELY IN THE FI NANCIAL STATEMENTS. ANY EXPECTED LOSS IS RECOGNISED IMMEDIATELY IN THE PROF IT AND LOSS STATEMENT. 14.3 IN HISTORICAL COST FINANCIAL STATEMENTS, GAIN S OR LOSSES ARISING ON DISPOSAL ARE GENERALLY RECOGNISED IN THE PROFIT AND LOSS STATEMENT. 5 ITA NO.5798/M/11 14.4 ON DISPOSAL OF A PREVIOUSLY REVALUED ITEM OF F IXED ASSET, THE DIFFERENCE BETWEEN NET DISPOSAL PROCEEDS AND THE NET BOOK VALU E IS NORMALLY CHARGED OR CREDITED TO THE PROFIT AND LOSS STATEMENT EXCEPT TH AT, TO THE EXTENT SUCH A LOSS IS RELATED TO AN INCREASE WHICH WAS PREVIOUSLY RECO RDED AS A CREDIT TO REVALUATION RESERVE AND WHICH HAS NOT BEEN SUBSEQUENTLY REVERSE D OR UTILIZED, IT IS CHARGED DIRECTLY TO THAT ACCOUNT. THE AMOUNT STANDING IN RE VALUATION RESERVE FOLLOWING THE RETIREMENT OR DISPOSAL OF AN ASSET WHICH RELATE S TO THAT ASSET MAY BE TRANSFERRED TO GENERAL RESERVE. 4.1 AS PER PARA-14.3 THE TREATMENT OF GAIN OR LOSS ARISING ON DISPOSAL OF FIXED ASSET IS RECOGNIZED IN THE P&L STATEMENT. THE ASSESSEE HAS BOOKED THIS AMOUNT IN THE P&L ACCOUNT UNDER THE HEAD DEPRECIATION BEING DIFFERENC E BETWEEN THE OPENING WRITTEN DOWN VALUE AND THE REALIZED VALUE ON SALE AS SCRAP. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CIT(A) WHEN THE AMOUNT BOOKED IN THE P&L ACCOUNT IS NOT A PROVISION BUT THE ACTUAL DIFFERENCE BETWEEN THE WRITTEN DOWN VALUE AND THE A MOUNT REALIZED ON SCRAP SALE. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 30/01/ /2015 ( %&' ! ) *' + 30/01/2015 ,# SD/- SD/- ( SANJAY ARORA ) ( VIJAY PAL RAO ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER !-# MUMBAI; *' DATED 30/01/2015 . . ' . ./ JV, SR. PS 6 ITA NO.5798/M/11 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. , , !' / DR, ITAT, MUMBAI 6. #$ %' / GUARD FILE. & && & / BY ORDER, & //TRUE COPY// ' ' ' ' / &( &( &( &( ) ) ) ) (DY./ASSTT. 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