DEEPAK N. PHALKE, NAVI MUMBAI V. ITO 22(3)-1, MUMBAI

ITA 6017/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71127 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 10-06-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 03-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEKHAR L GAJBHIYE
• Keywords: Sale consideration of property below Jantri Value; Depreciation; Opportunity of being heard; Cost of acquisition
• Section: 50C; 32

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 6017/M/2010 ( / ASSESSMENT YEAR : 2007 - 20 08 ) DEEPAK N PHALKE , 33 4, BLDG SPLASH, SECTOR 17, NAVI MUMBAI 400 703. / VS. ITO - 22(3) - 1, MUMBAI. ./ PAN : AGBPP 3591 N ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI PRAKASH PANDIT / RESPONDENT BY : SHRI SHEKHAR L GAJBHIYE / DATE OF HEARING : 8 .8.2013 / DATE OF PRONOUNCEMENT : 20.9 .2013 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 3.8.2010 IS AGAINST THE ORDER OF CIT (A) - 33, MUMBAI DATED 25.5.2010 FOR THE ASSESSMENT YEAR 2007 - 08. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT ( A) ERRED IN CONFIRMING THE ACTION OF AO OF REJECTING THE COMPUTATION OF DEPRECIATION ON BLOCK OF ASSETS CALCULATED BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43(6) OF THE INCOME TAX ACT, 1961. 2. REASONS GIVEN BY THE CIT (A) FOR CONFIRMI NG THE ACTION OF AO OF REJECTING COMPUTATION OF DEPRECIATION OF BLOCK OF ASSETS CALCULATED BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43(6) OF THE ACT ARE WRONG INSUFFICIENT AND CONTRARY TO THE FACTS AND EVIDENCE ON RECORD. 3. IN THE FAC TS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) AS WELL AS AO ERRED IN MISINTERPRETING THE DEFINITION OF THE TERM BLOCK OF ASSETS AS CONTEMPLATED BY SEC. 2(11) WHILE CALCULATING STCG AT RS. 17,20,256/ - U/S 50 R.W.S. 50C OF THE INCOME TAX ACT, 1961. 4. THE REASONS GIVEN BY THE LD CIT (A) AS WELL AS AO FOR MISINTERPRETING THE DEFINITION OF THE BLOCK OF ASSET AS CONTEMPLATED BY SEC 2(11) WHILE CALCULATING STCG AT RS. 17,20,256/ - U/S R.W.S. 50C OF THE ACT ARE WRONG, INSUFFICIENT AND CONTRARY TO THE FACTS AND EVIDENCE ON RECORD. 5. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO TO THE EXTENT OF RS. 33,186/ - BEING 10% OF VARIOUS EXPENSES CLAIMED BY THE APPELLANT UNDER THE HE AD TRAVELLING, TELEPHONE, VEHICLE EXPENSES, CAR DEPRECIATION AND MOBILE PHONE DEPRECIATION. 2 6. THE REASONS GIVEN BY THE LD CIT (A) FOR CONFIRMING DISALLOWANCE MADE BY THE AO TO THE EXTENT OF RS. 33,186/ - BEING 10% OF VARIOUS EXPENSES CLAIMED BY THE APPELL ANT UNDER THE HEAD TRAVELLING, TELEPHONE, VEHICLE EXPENSES, CAR DEPRECIATION AND MOBILE PHONE DEPRECIATION ARE WRONG, INSUFFICIENT AND CONTRARY TO THE FACTS AND EVIDENCE ON RECORD. 3. DURING THE PROCEEDINGS BEFORE AND A T THE OUTSET, SHRI PRAKASH PANDIT, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS A SMALL DELAY OF FOUR DAYS IN FILING THIS APPEAL . IN THIS REGARD, HE BROUGHT OUR ATTENTION TO THE AFFIDAVIT FILED BY THE ASSESSEE DATED 6 TH AUGUST, 2010 AND READ OUT THE REASON FOR DELAY IN FILING THE APPEAL WHICH IS AS UNDER: I SAY THAT AFTER THE PAYMENT OF FEES, ALL THE RELEVANT PAPERS WERE FORWARDED TO CA. HOWEVER, AT THE TIME OF FILING THE DETAILS IN MEMORANDUM OF APPEAL IN FORM NO.36, OUR C.A., PUT THE DATE OF RECEIPT OF ORDER AS 28/5/2010 AS PER HIS IMPRESSION INSTEAD OF ACTUAL DATE 08/06/2010. 3.1. C ONSIDERING THE REASON GIVEN BY THE ASSESSEE IN FILING THE APPEAL WITH A DELAY OF FOUR DAYS AND ALSO THE SMALLNESS OF THE DELAY, WE CONDONE THE DELAY OF 4 DAYS AND ADMIT THE APPEAL FOR ADJUDICATION. 4 . REFERRING TO THE GROUNDS RAISED IN THE APPEAL , SHRI PRAKASH PANDIT, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT IN TOTO , THERE ARE 7 GROUND S IN THE APPEAL AND GROUND NO.5, 6 & 7 ARE NOT PRESSED. AFTER OBTAINING THE VIEWS OF THE DR FOR REVENUE, THE SA ID GROUNDS ARE DISMISSED AS NOT PRESSED. 5 . REFERRING TO THE GROUND NO.1 TO 4 OF THE GROUNDS OF APPEAL, LD COUNSEL MENTIONED THAT THE ISSUE INVOLVED IN THESE GROUNDS RELATES TO THE INTERPRETATION OF THE PROVISIONS OF SECTION 43(6) OF THE ACT QUA THE DEF INITION OF THE EXPRESSION BLOCK OF ASSETS DEFINED IN SECTION 2(11) OF THE ACT. TO BE PRECISE, IN A CASE OF AN ASSESSEE WITH MULTIPLE PROPRIETORSHIP CONCERNS, LIKE THE ONE HERE, HOW THE BLOCK OF ASSET SHOULD BE UNDERSTOOD WHEN AN A SSET OF A PROPRIETORSH IP CONCERN IS SOLD AND THE OTHER ASSET BELONGING TO THE SAME BLOCK OF ASSET WITH SAME RATE OF DEPRECIATION IS PURCHASED BY OTHER CONCERN OUT OF THE SALE CONSIDERATION . SHOULD THE STCG BE COMPUTED U/S 50 OF THE ACT WITH REGARD TO THE TRANSFER OF ASSET SOLD AND DENY THE CLAIM OF SET OFF OF INVESTMENT IN PURCHASE OF OTHER ASSET BELONG TO THE SAME BLOCK OF ASSET? 3 6. RELEVANT FACTS IN THIS REGARD ARE THAT THE ASSESSEE DEALS IN FIREFIGHTING EQUIPMENT AND OWNS VARIOUS IS PROPRIETARY CONCERN NAMELY M/S. SAGAR I NDUSTRIES ; M/S. SAGAR ENTERPRISES AND ASAI DEVELOPERS. DURING THE ASSESSMENT PROCEEDINGS , AO NOTICED THAT TO START WITH, THE ASSESSEE MAINTAINED SEPARATE FINANCIAL STATEMENTS AND THE DEPRECIATION SCHEDULES FOR EACH OF THESE THREE PROPRIETARY CONCERNS SEPA RATELY AND EVENTUALLY , ASSESSEE CONSOLIDATED ALL THE FINANCIAL STATEMENTS OF THESE THREE CONCERNS, WHILE FILING THE RETURN OF INCOME . ASSESSEE MADE CLAIM OF DEPRECIATION AS PER THE RULES BASED ON SUCH CONSOLIDATED DEPRECIATION SCHEDULE. FURTHER, THE AO N OTICED THAT ASSESSEE SOLD A FACTORY BUILDING (OF M/S. SAGAR INDUSTRIES ) , WHOSE WDV VALUE IS RS. 7,05,544/ - , AND EARNED THE SALE CONSIDERATION AT RS. 21,95,640/ - . THE MARKET VALUE ADOPTED BY THE STAMP VALUATION AUTHORITIES IS RS. 24.6 0 LACS. AO INVOKED TH E PROVISIONS OF SECTION 50C OF THE ACT AND COMPUTED THE SHORT TERM CAPITA L GAINS U/S 50 R.W.S 50C AT RS. 17,20,456/ - . IN THE PROCESS, THE AO IGNORED THE FACT THAT ASSESSEE INVESTED THE CONSIDERATION OF RS. 21,95,640/ - AND PURCHASED ANOTHER PREMISES WHICH F ALLS IN THE SAME BLOCK OF ASSETS. FINALLY, AO REJECTED THE ASSESSEES CLAIM OF SET OFF OF INVESTMENT IN OTHER ASSET BELONGING TO SAME BLOCK OF ASSET. DURING THE ASSESSMENT PROCEEDINGS , ASSESSEE SUBMITTED THAT OUT OF THE SAID SALE CONSIDERATION, ASSESSEE HAS ACQUIRED ANOTHER OFFICE PREMISES WHICH FALLS INTO THE SAME BLOCK OF ASSETS INVESTING A SUM OF RS. 13,60,240/ - , WHICH IS SOLD IN THE NAME OF ANOTHER PROPRIETARY CONCERN NAMED M/S. SAGAR ENTERPRISES . THEREFORE, ASSESSEE SOUGHT ADJUSTMENT OF THE SAID BLOCK OF ASSETS ACCORDINGLY. AS PER ASSESSEE, FOR WORKING OUT THE WDV U/S 43(6)(C) OF THE ACT, ASSET SOLD SHOULD BE REDUCED FROM THE BLOCK OF ASSETS AND THE ASSETS PURCHASED SHOULD BE ADDED FOR THE BLOCK OF ASSETS . THE PROVISIONS OF SECTION 50 OF THE ACT , HAVE NO ROLE WHEN A BLOCK OF ASSET IS SO ADJUSTED. HOWEVER, AO REJECTED THE SAME STATING THAT SINCE THE BOOKS OF ACCOUNT MAINTAINED BY EACH OF THE PROPRIETARY CONCERNS SEPARATELY AND WHEN THE BUSINESSES ARE ALSO DIFFERENT, NO SUCH ADJUSTMENTS WERE MAD E TO THE BLOCK OF ASSETS. IN THE CASE OF MULTIPLE CONCERNS OF AN ASSESSEE, AS PER ASSESSEE, T HE BLOCK OF ASSET IS ASSESSEE - SPECIFIC , RATE OF DEPRECIATION - SPECIFIC AND NOT THE PROPRIETARY CONCERN - SPEC IFIC. AO REJECTED THE SAME AND TAXED THE STCGS OF RS . 17,20,456/ - ON APPLYING THE PROVISIONS OF SECTION 50 R W 50C OF THE ACT . MATTER TRAVELLED TO THE FIRST APPELLATE AUTHORITY. 4 7 . DURING THE PROCEEDINGS BEFO RE THE CIT (A) , ASSESSEE REITERATED THE ABOVE SUBMISSIONS MADE BEFORE THE AO AND THE SAID SUBMISS IONS ARE REPRODUCED IN PARA 2.3 OF THE IMPUGNED ORDER. RELYING ON THE PROVISIONS OF SECTION 2(11) OF THE ACT, ASSESSEE REQUESTED THE CIT (A) TO GRANT RELIEF TO THE ASSESSEE AND TO DISMISS THE REASONING GIVEN BY THE AO. HOWEVER, CIT (A) REJECTED THE ASSESS EES CONTENTION THAT THE SALE PROCEEDS OF AN ASSET OF A BLOCK OF ASSET OF ONE PROPRIETARY CONCERN I.E., M/S. SAGAR INDUSTRIES SHOULD BE SET OFF AGAINST THE INVESTMENT IN PURCHASE OF AN ASSET OF THE SAME BLOCK OF ASSETS OF ANOTHER CONCERN OF THE ASSESSEE I.E., M/S. SAGAR ENTERPRISES. THE CIT (A) REJECTED THE ASSESSEES RELIANCE ON SOME DECISIONS GIVING ONE REASON OR OTHER. CIT (A) IS OF THE OPINION THAT THE STCG COMPUTED BY THE AO IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 50 OF THE ACT. S HE ALSO D EALT WITH THE ISSUES RELATING TO CONSIDERING THE AVOS REPORT AND REJECTED THE SAME. FINALLY, SHE CONFIRMED THE ORDER OF THE AO. AGGRIEVED WITH THE SAID ORDER OF THE CIT (A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE ABOVE MENTIONED GROUND 1 TO 4. 8 . DURING THE PROCEEDING BEFORE US, SHRI PRAKASH PANDIT, LD COUNSEL FOR THE ASSESSEE ARGUED STATING THAT THE ASSESSEE PREPARED FINANCIAL STATEMENTS AND THE DEPRECIATION SCHEDULES SEPARATELY FOR EACH OF THE PROPRIETARY CONCERN S FOR THE SAKE OF CONVENIEN CE. HOWEVER, AT THE TIME OF FILING THE RETURNS UNDER THE INCOME TAX PROVISIONS, THESE ACCOUNTS ARE CONSOLIDATED AND SO ARE THE DEPRECIATION SCHEDULES CONTAINING DIFFERENT BLOCK OF ASSETS. THUS, THE CORE ISSUE FOR ADJUDICATION RELATES TO IF THE PROVISIONS OF SECTION 50 ARE RIGHTLY INVOKED BY THE AO IN RESPECT OF SALE TRANSACTION OF THE FACTORY PREMISES, WHEN THE ASSESSEE INVESTED THE SALE PROCEEDS IN PURCHASING ANOTHER PREMISES, WHICH BELONGS TO SAME BLOCK OF ASSETS OF THE ASSETS SOLD. REFERRING TO THE CO RE ISSUE UNDER LITIGATION BEFORE US, LD COUNSEL STATED THAT THE REVENUE OFFICERS HAVE NOT UNDERSTOOD THE CONCEPT OF BLOCK OF ASSETS IN RIGHT PERSPECTIVE AS DEFINED IN SECTION 2(11) OF THE INCOME TAX ACT, 1961. HE ALSO MENTIONED THAT THE BLOCK OF ASSETS IS EXHAUSTIVELY DEFINED TO MEAN A GROUP OF ASSETS FALLING WITHIN THE CLASS OF ASSETS COMPRISING (A) TANGIBLE ASSETS..(B) INTANGIBLE ASSETS., IN RESPECT OF WHICH SOME PERCENTAGE OF DEPRECIATION IS PRESCRIBED . FURTHER, REFERRING TO THE PROVISIO NS OF SECTION 43(6) OF THE ACT, WHERE IN THE WRITTEN DOWN VALUE IS DEFINED, LD COUNSEL MENTIONED THAT CLAUSE (C) OF THE SAID SECTION 43(6) DEALS WITH THE MANNER OF COMPUTATION OF WDV OF ANY BLOCK OF ASSETS. 5 OVERALL, LD COUNSELS ARGUMENT IS THAT THE BL OCK OF ASSETS IS CHARACTERIZED BY A CLASS OF ASSETS ON ONE SIDE AND SOME PERCENTAGE OF DEPRECIATION ON THE OTHER. IF THESE ASPECTS ARE CONSIDERED IN RIGHT PERSPECTIVE, THE BLOCK OF ASSET IS NOT ONLY DEPRECIATION RATE - SPECIFIC , BUT ALSO ASSESSEES S PECIFIC. I N OTHER WORDS, EVERY ASSESSEE SHOULD HAVE A BLOCK OF ASSETS, WHICH IS CHARACTERIZED BY CLASS OF ASSETS DEMANDING A RATE OF DEPRECIATION. WHEN THERE IS A NEED FOR ADJUSTMENT TO THE A BLOCK OF ASSETS OF AN ASSESSEE , THE SAME SHOULD BE DONE IN A CCORDANCE WITH THE PROVISIONS OF S ECTION 43(6)(C) OF THE ACT. LD COUNSEL FILED A COPY OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL PROPERTIES & INFRASTRUCTURE LTD VIDE IT APPEAL NO.601/2011 & 602/2011, DATED 9.4.2012 AND ME NTIONED THAT THE TERM BLOCK OF ASSETS WAS EXPLAINED BY THE HONBLE HIGH COURT. IN THIS REGARD, LD COUNSEL MENTIONED THAT PARA 1 7 TO 22 OF THE SAID JUDGMENT WERE ASSIGNED FOR DEFINING THE EXPRESSION BLOCK OF ASSET, WRITTEN DOWN VALUES IN CASE OF ANY BLO CK OF ASSETS. HE ALSO REFERRED TO THE DECISION OF THE ITAT, MUMBAI IN THE CASE OF ACIT VS. ROGER PEREIRA COMMUNICATIONS (P) LTD FOR THE FOLLOWING PROPOSITION. TO SUM UP, I N THE CASE OF BLOCK OF ASSETS, DEPRECIATION UNDER S. 32 CAN BE CLAIMED ON THE WDV AS COMPUTED UNDER S. 43(6) PROVIDED AS ON THE LAST DAY OF THE PREVIOUS YEAR THE FOLLOWING TWO REQUIREMENTS ARE TO BE FULFILLED : (1) THERE MUST BE AT LEAST ONE ASSET IN THE BLOCK; AND (2) THERE MUST BE SOME VALUE FOR THE BLOCK ON WHICH PRESCRIBED PERCENT AGE CAN BE APPLIED. WHEN ANY ONE OR BOTH THE ABOVE MENTIONED REQUIREMENTS ARE NOT SATISFIED ON TRANSFER OF ANY ASSET FROM THE BLOCK, THE PROVISIONS OF S. 32 CEASE TO APPLY AND AUTOMATICALLY THE PROVISIONS OF S. 50 BECOME APPLICABLE RESULTING IN SHORT - TERM CAPITAL GAINS/LOSS. IN VIEW OF THE ABOVE DETAILED DISCUSSION, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS. 6,84,000 ON ACCOUNT OF SHORT - TERM CAPITAL GAINS . 9 . FURTHER, LD COUNSEL ALSO RELIED ON THE CBDT CIRCULAR ISSUED IN T HE CONTEXT OF BLOCK OF ASSETS VIDE CIRCULAR NO.469, DATED 23 RD SEPTEMBER, 1986 AND MENTIONED THAT THESE JUDGMENTS / CIRCULAR OF THE CBDT DO NOT SUPPORT THE MANNER OF COMPUTATION ADOPTED BY THE AO / CIT ( A) . AS PER THE LD COUNSEL, THE SAME IS EXACTLY AGA INST THE CONCEPT OF BLOCK OF ASSETS DEFINED IN SECTION 2(11) OF THE ACT AND AGAINST THE PROVISIONS OF SECTION 43(6) FOR COMPUTATION OF ADJUSTMENTS WHEN THE ASSETS ARE SOLD OR AND PURCHASED BY THE ASSESSEE AMONG THE VARIOUS PROPRIETARY CONCERNS OF THE ASS ESSEE. 6 10 . PER CONTRA, LD DR RELIED HEAVILY ON THE ORDERS OF THE AO / CIT (A). IT IS THE ARGUMENT OF THE LD DR THAT WHEN ONE PROPRIETARY CONCERN OF THE ASSESSEE EARNS THE STCG, ASSESSEE MUST PAY ST CG U/S 50 OF THE ACT ON THE SALE PROCEEDS WITHOUT GIVING SET OFF TO THE INVESTMENT MADE PURCHASED BY THE ASSESSEE OUT OF THE SALE PROCEEDS WHEN A NEW ASSET FALLING IN THE SAME BLOCK OF ASSETS COMMANDING S A ME RATE OF DEPRECIATION. 11 . WE HAVE HEARD BOTH PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES A S WELL AS THE DOCUMENTS / CASE LAWS FILED BEFORE US. ON HEARING THE PARTIES, WE FIND THAT THE AO / CIT (A) HAVE NOT UNDERSTOOD THE CONCEPT OF BLOCK OF ASSETS PROPERLY AND ALSO THE CITED DECISION IN THE CASE OF ANSAL PROPERTIES & INFRASTRUCTURE LTD (SUPR A). IN OUR OPINION, THE CONCEPT OF BLOCK OF ASSETS AND THE PROVISIONS OF SECTION 43(6)(C) ARE ADEQUATELY DEFINED AND EXPLAINED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF THE CIT VS. ANSAL PROPERTIES & INFRASTRUCTURE LTD (SUPRA). RELEVANT PARAS 17 TO 22 FROM THE SAID JUDGMENT OF THE DELHI HIGH COURT READ AS UNDER: 17. THE PHRASE BLOCK OF ASSETS BEING A TERM OF ART, WHICH HAS BEEN SPECIFICALLY DEFINED IN SECTION 2(11) OF THE ACT, WILL REFER TO THE BLOCK OF ASSETS ON WHICH THE SAME RATE OF DEPREC IATION IS PRESCRIBED. AS LONG AS THERE IS NO SURPLUS ON SALE OF ASSETS WHICH FORM PART OF THE BLOCK OF ASSETS, I.E., ASSETS CARRYING THE SAME RATE OF DEPRECIATION, SHORT TERM CAPITAL GAIN WOULD NOT BE PAYABLE. HOWEVER, IF THERE IS SURPLUS, THEN SHORT TERM CAPITAL GAIN WOULD BE PAYABLE. THE BLOCK OF ASSETS WILL MEAN THE ASSETS CARRYING THE SAME RATE OF DEPRECIATION. 18. SECTION 50(2) APPLIES WHERE ANY BLOCK OF ASSETS CEASES TO E XIST. THE TERM BLOCK OF ASSETS THEREIN WILL MEAN THE ASSETS CARRYING SAME RAT E OF DEPRECIATION FIXED IN THE SCHEDULE. IN CASE THE BLOCK OF ASSETS, I.E., ALL ASSETS EXIGIBLE TO SAME RATE OF DEPRECIATION IN THE SCHEDULE CEASES TO EXIST BECAUSE OF TRANSFER/SALE, SUB - SECTION (2) TO SECTION 50 GETS INITIATED AND IS ACCORDINGLY APPLIED. THE REQUIREMENT AND PRE - CONDITION STIPULATED IS THAT THE BLOCK OF ASSET SHOULD CEASE TO EXIST. THE BLOCK OF ASSET SHOULD STAND COMPLETELY DEPLETED AND NO ASSET SHOULD REMAIN IN THE BLOCK. 19. IN THE PRESENT CASE, THERE IS NO FINDING OF THE ASSESSING OFFIC ER OR THE APPELLATE AUTHORITIES THAT THE BLOCK OF ASSETS CARRYING THE SAME RATE OF DEPRECIATION CEASED TO EXIST OR THAT AFTER ADDING THE THREE ELEMENTS MENTIONED IN SECTION 50, THERE WAS SURPLUS ON THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF PLANT AND MACHINERY OR THE BUILDING. IT IS NOT THE FINDING OF THE ASSESSING OFFICER THAT THE BLOCK OF ASSETS ENTITLED TO THE SAME PERCENTAGE OF DEPRECIATION CEASED TO EXIST OR THERE WAS A SURPLUS IN THE BLOCK OF ASSETS CARRYING THE SA ME RATE OF DEPRECIATION. THE ASSESSING OFFICER HAS PROCEEDED ON THE BASIS THAT THE DIVISION ITSELF CONSTITUTES A SEPARATE AND AN INDEPENDENT BLOCK OF ASSETS. APPENDIX TO THE RULES AS NOTICED ABOVE, IS NOT A UNIT/DIVISION SPECIFIC BUT IS RATE OF DEPRECIATIO N SPECIFIC, AS ALL ASSETS PRESCRIBED THE SAME RATE OF DEPRECIATION ARE CLUBBED AND ARE A PART OF THE SAME BLOCK OF ASSETS. THE VIEW WE HAVE TAKEN FINDS RESONANCE AND ACCEPTANCE IN TWO DECISIONS OF THE DELHI HIGH COURT IN 7 COMMISSIONER OF INCOME TAX VERSUS E ASTMAN INDUSTRIES LIMITED, 174 TAXMAN 344 AND COMMISSIONER OF INCOME TAX V ERSUS OSWAL AGRO MILLS LTD, 341 ITR 467 (DEL.). 20. IN THE CASE OF EASTMAN INDUSTRIES LIMITED (SUPRA), SECTION 50 OF THE ACT WAS INTERPRETED AND EXAMINED. IN THE SAID CASE, THE ASSE SSEE HAD SOLD AN ASSET FORMING PART OF BLOCK OF ASSETS AND ON THE DATE OF THE SALE THERE WAS A POSITIVE FIGURE OR SURPLUS. HOWEVER, DURING THE ASSESSMENT YEAR IN QUESTION, THE ASSESSEE HAD PURCHASED NEW ASSETS PRESCRIBED/HAVING THE SAME RATE OF DEPRECIATIO N AND FALLING WITH THE SAME BLOCK OF ASSETS. THE CONTENTION OF THE REVENUE WAS THAT AS A POSITIVE FIGURE OR SURPLUS EXISTED ON THE DATE OF THE TRANSFER, THE GAIN WAS TAXABLE AS SHORT TERM CAPITAL GAINS AND THE PURCHASE OF ASSETS CARRYING SAME RATE OF DEPR ECIATION AND BELONGING TO THE SAME BLOCK OF ASSETS, SUBSEQUENTLY, DID NOT MATTER AND EFFECT THE CHARGEABILITY OR TAXATION UNDER THE HEAD SHORT TERM CAPITAL GAINS. THE CONTENTION WAS REJECTED, INTER ALIA, HOLDING AS UNDER: - 14.6 A CLEARER INDICATOR OF THE UNTENABILITY OF, THE REVENUES SUBMISSION, IS DEMONSTRABLE FROM THE LATTER PART OF THE PROVISION OF SECTION 50(2) WHICH PROVIDES THE MANNER IN WHICH CAPITAL GAINS ARE TO BE ARRIVED AT. IN ORDER TO DO SO, FIRSTLY, THE COST OF THE ACQUISITION OF BLOCK OF AS SETS IS ASCERTAINED BY TAKING THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR AS INCREASED BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THE BLOCK OF ASSETS ACQUIRED DURING THE PREVIOUS YEAR. THEN, THE INCOME RECEIVED O R ACCRUING AS A RESULT OF SUCH TRANSFER OR TRANSFERS IS DEEMED TO BE SHORT TERM CAPITAL GAINS. A BARE READING OF THE PROVISION OF SUB - SECTION (2) OF SECTION 50 OF THE ACT WOULD SHOW THAT, THE VERY FACT THAT, THERE IS A REFERENCE TO, IN ARRIVING AT THE COST OF ACQUISITION, TO THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR AS INCREASED BY ACTUAL COST OF ASSETS FALLING WITHIN THE BLOCK OF ASSETS ACQUIRED DURING THE PREVIOUS YEAR WOULD SHOW THAT WHAT IS REQUIRED TO BE SEEN IS THAT WHETHER AT THE END OF THE PREVIOUS YEAR, THE BLOCK OF ASSETS HAVE CEASED TO EXIST OR, IN OTHER WORDS WHAT IS TO BE SEEN IS THAT WHETHER THROUGHOUT THE COURSE OF OR AFTER THE COMMENCEMENT AND BEFORE THE EXPIRATION OF THE PREVIOUS YEAR (I.E., THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE RELEVANT ASSESSMENT YEAR) THERE WAS AN ASSET WHICH FELL WITHIN THE BLOCK OF ASSETS. IN THE EVENT THE BLOCK OF ASSETS I.E., A CLASS OF ASSET(S) BEARING SAME RATE OF DEPRECIATION EXIST(S) WAS WITH THE ASSESSEE AT THE END OF THE PREVIOUS YEAR, THEN THE PROVISION OF SECTION 50 (2) WOULD NOT APPLY. 21. THE AFORESAID PARAGRAPH SHOWS AND RECORDS THAT IN SECTION 50 THERE IS REFERENCE TO WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR AS INCR EASED OR DECREASED BY THE ACTUAL COST OF ASSETS ACQUIRED/TRANSFERRED FALLING WITHIN THE BLOC K OF ASSETS DURING THE PREVIOUS YEAR. THE TERM BLOCK OF ASSETS FOR THE PURPOSE OF THE SECTION 50 WOULD MEAN ASSETS HAVING THE SAME RATE OF DEPRECIATION. 22. IN THE CASE OF OSWAL AGRO MILLS LIMITED (SUPRA) THE ASSESSEE HAD DIFFERENT UNITS AND THE BHOPAL UNIT WAS CLOSED. THE HIGH COURT OBSERVED AND HELD THAT THE ASSETS OF BHOPAL UNIT WERE NOT BEING USED EVEN PASSIVELY BY THE ASSESSEE AS THE UNIT WAS COMPLETELY NON FUN CTIONAL. A SECOND QUESTION THEREAFTER AROSE WHETHER THE ASSETS OF THE BHOPAL UNIT WERE ENTITLED TO DEPRECIATION, IF THEY FORM PART OF THE BLOCK OF ASSETS AS THE ASSESSEE HAD OTHER BUSINESSES/DIVISIONS OTHER THAN THE BHOPAL UNIT. THE STAND OF THE ASSESSEE I N THIS REGARD WAS ACCEPTED AFTER MAKING REFERENCE TO SECTION 2(11) AND SECTION 50 OF THE ACT. REFERENCE WAS ALSO MADE TO SECTION 43(6), WHICH READS AS UNDER: 43(6) WRITTEN DOWN VALUE MEANS (A) ** ** ** (B) ** ** ** (C) IN THE CASE OF ANY BLOCK OF ASSETS, - (I) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, THE AGGREGATE OF THE WRITTEN DOWN VALUES OF ALL THE ASSETS FALLING WITHIN THAT BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR A ND ADJUSTED, - (A) BY THE INCREASE BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK, ACQUIRED DURING THE PREVIOUS YEAR; AND 8 (B) BY THE REDUCTION OF THE MONEYS PAYABLE IN RESPECT OF ANY ASSET FALLING WITHIN THAT BLOCK, WHICH IS SOLD OR DISCARDED OR DEMOLISHED OR DESTROYED DURING THAT PREVIOUS YEAR TOGETHER WITH THE AMOUNT OF THE SCRAP VALUE, IF ANY, SO, HOWEVER, THAT THE AMOUNT OF SUCH REDUCTION DOES NOT EXCEED THE WRITTEN DOWN VALUE AS SO INCREASED; AND (II) IN RESPECT OF ANY PREVIOUS YEAR REL EVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1989, THE WRITTEN DOWN VALUE OF THAT BLOCK OF ASSES IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR AS REDUCED BY THE DEPRECIATION ACTUALLY ALLOWED IN RESPECT OF THAT BLOCK OF ASSETS IN R ELATION TO THE SAID PRECEDING PREVIOUS YEAR AND AS FURTHER ADJUSTED BY THE INCREASE OR THE REDUCTION REFERRED TO IN ITEM (I). 1 2 . FROM THE ABOVE, IT IS EVIDENT THAT THE DEPRECIATION IS ALLOWED ON EACH OF THE BLOCK OF ASSET AS DEFINED U/S 2(11) OF THE ACT. A CLASS OF ASSETS OF AN ASSESSEE WITH SAME RATE OF DEPRECIATION ARE GROUPED TO CONSTITUTE A BLOCK OF ASSETS. PROPRIETORSHIP CONCERN - SPECIFIC APPROACH IS NOT SUGGESTED BY THE LAW. ONCE A BLOCK OF ASSET COMMANDING SAME RATE OF DEPRECIATION IS DETERM INED, WHEN ASSESSEE SELLS AN ASSET, THE BLOCK OF ASSETS IS ACCORDINGLY ADJUSTED BY WAY OF REDUCTION . SIMILARLY, WHEN ASSESSEE IS PURCHASED, THE BLOCK OF ASSET IS ACCORDINGLY ADJUSTED BY WAY OF ADDITION. T HIS IS WHAT IS STATED VIDE THE PROVISIONS OF SEC TION 43(6)(C) OF THE ACT. ONCE AN ASSET ENTERS THE BLOCK OF ASSETS OF THE ASSESSEE , THE ASSET LOOSES ITS EXISTENCE. SUCH MANNER OF COMPUTATION OF WDV OF EACH BLOCK OF ASSET AND INAPPLICABILITY OF PROVISIONS OF SECTION 50 ARE THOROUGHLY EXPLAINED BY THE HON BLE DELHI HIGH COURT. IN SUBSTANCE, THE SAID JUDGMENT HAS APPLICATION TO THE FACTS OF THIS CASE. THEREFORE, WE DIRECT THE AO TO APPLY , IN PRINCIPLE, THE RATIO OF THE SAID JUDGMENT TO THE FACTS OF THE PRESENT CASE AND COMPUTE THE WDV ACCORDINGLY . THERE IS NO SCOPE FOR INVITING THE PROVISIONS OF SECTION 50 OF THE ACT. AO SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN SUCH COMPUTATION. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED PRO - TANTO . 1 3 . IN THE RESULT, APPEAL OF TH E ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOU NCED IN THE OPEN COURT ON 20 TH SEPTEMBER , 2013. SD/ - SD/ - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 2 0 .9 .2013 9 . . ./ OKK , SR. PS / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI