Short Overview : Since assessee was not benefitting in any way by not filing appeal in time before Tribunal and it explained reasons as misplacement of papers by one of office staff and further considering that assessee had an arguable case on merits, delay of 368 days in filing appeal before Tribunal was condoned.
Assessee sought condonation of delay of 368 days in filing appeal before Tribunal pleading that delay occurred due to misplacement of papers by one of office staff and therefore, same was beyond reasonable control of assessee and that there was no willful omission or negligence on its part.
It is held that : Assessee was not benefitting in any way by not filing appeal in time before Tribunal. It explained reasons as misplacement of papers by one of office staff. That was one of possible reasons for not being able to file appeal within the time. Further, after hearing assessee on merits also, it was found that it had an arguable case on merits. Delay of 368 days was condoned.
Decision: In assessee’s favour.
Followed:Collector, Land Acquisition v. Mst. Katiji & Ors. (1987) 167 ITR 471 (SC) : 1987 TaxPub(DT) 1279 (SC) and CIT v. KSP Shanmugavel Nadar & Ors. (1987) 30 Taxman 133 (Mad) : 1985 TaxPub(DT) 0430 (Mad-HC).
IN THE ITAT, HYDERABAD BENCH
P. MADHAVI DEVI, J.M. & A. MOHAN ALANKAMONY, A.M.
Shakti Hormann (P) Ltd. v. DCIT
I.T.A. No. 891/HYD/2017
11 March, 2020
Assessee by: P. Murali Mohana Rao, AR
Revenue by: Kiran Katta, DR
P. Madhavi Devi, J.M.
This is assessee’s appeal for the assessment year 2004-05, directed against the order of the Commissioner (Appeals)-10, Hyderabad, dated 5-1-2016.
2. At the outset, it is noticed that there is a delay of 368 (Three Six Eight) days in filing of the appeal before the Tribunal. The assessee has filed an application for condonation of delay and has relied upon various case law to submit that – where the assessee has a case on merits, delay should be condoned. In the application for condonation of delay, the assessee has explained that delay has occurred due to misplacement of papers by one of the office staff and hence the same was beyond the reasonable control of the assessee and there was no willful omission or negligence on the part of the assessee-company.
2.1. Learned DR, however, opposed the condonation of delay and submitted that the assessee has not explained as to who is the office staff who has misplaced the papers and what is the action taken by the assessee against such person and how and when the papers were traced by the assessee.
2.2. Having regard to the rival contentions and material on record and also the decisions of the Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji & Ors. (1987) 167 ITR 471 (SC) : 1987 TaxPub(DT) 1279 (SC) and the decision of the Hon’ble High Court of Madras in the case of CIT v. K.S.P. Shanmugavel Nadar (1987) 30 Taxman 133 (Mad) : 1985 TaxPub(DT) 0430 (Mad-HC), we find that the assessee is not benefitting in any way by not filing the appeal in time before the Tribunal. The assessee has explained the reasons as misplacement of papers by one of the office staff. This is one of the possible reasons for not being able to file the appeal within the time. Further, after hearing the assessee on merits also, we find that the assessee has an arguable case on merits. Hence, we are inclined to condone the delay of 368 (Three Six Eight) days and proceed to dispose-of the appeal on merits.
3. Brief facts of the case on merits are that the assessee-company derives income from manufacture and sale of steel doors. It filed its return of income on 29-10-2004 declaring total income of Rs. 1,81,38,971.
3.1. During the course of assessment proceedings under section 143(3) of the Income Tax Act [Act], the assessing officer (AO) noticed that the assessee-company has sold a part of Plant & Machinery for Rs. 26,782. Assessee was therefore asked to file details of Plant & Machinery sold and evidence to substantiate that the same was sold for Rs. 26,072 only. Assessee-company produced copy of the invoice and according to assessing officer, the copy of the invoice did not contain the details of Plant & Machinery sold. He observed that the invoice bills suggest that they are packing strips and paint tins only and they are not relevant to any particular asset that the assessee-company is supposed to have deleted. He therefore treated that the same as not a genuine transaction but since the assessing company has admitted that the assets have been sold during the Financial Year 2003-04, he reduced the opening WDV (Written Down Value) of Rs. 10,43,660 from the block of assets and brought the difference of the sum of Rs. 10,16,878 (10,43,660 – 26,782) to tax.
4. Aggrieved, the assessee filed an appeal before the Commissioner (Appeals), who confirmed the order of assessing officer and the assessee is in second appeal before us, raising the following Grounds :–
“1. The learned Commissioner (Appeals)-10, Hyderabad erred both in law and on facts in passing the order upholding the assessment order under section 143(3), dt. 29-7-2016, passed by the Deputy Commissioner of Income Tax, Circle-3(1), Hyderabad, who is the assessing officer.
2. The learned Commissioner (Appeals) erred in confirming action of the assessing officer in deleting Rs. 10,16,878 from the block of assets, namely “Plant and Machinery” and “Computers” for the purpose of calculation of depreciation, basing on opening WDV of the Plant and Machinery Sold.
3. The learned Commissioner (Appeals) erred holding that the assets are no longer in existence and therefore the WDV on these assets to be removed from the value of assets for the purpose of calculation of depreciation.
4. The learned Commissioner (Appeals) ought to have appreciated the fact that the total value of the assets, namely ‘Plant and Machinery’ sold during the year was only Rs. 26,072 and the Appellant itself deleted this value from block of assets, for the purpose of calculation of depreciation.
5. The learned Commissioner (Appeals) ought to have appreciated the fact that the assessing officer erred in treating opening WDV of Rs. 10,42,660, as the assets sold instead of Rs. 26,072 which is the actual value of assets sold.
6. The learned Commissioner (Appeals) ought to have appreciated the fact that the Commissioner (Appeals)-IV, Hyderabad, held in favour of the Appellant on same issue for assessment year 2005-06 in Appellant’s own case.
7. The Appellant may add, alter or modify or substitute any other points to the grounds of appeal at any time before or at the time of hearing of the appeal.”
5. Learned Counsel for the assessee submitted that section 43(6)(c) of the Act defines that the WDV of an asset shall be increased by actual cost of any asset falling within that block acquired during the previous year and reduced by the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during the 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. Thus, he submitted that what is to be reduced from the WDV of block of assets is only the value received by the assessee on sale of the asset and not the entire WDV of the said asset. In support of his contentions, learned Counsel for the assessee placed reliance upon the following decisions :–
(i) CIT v. Parle Soft Drinks (Bangalore) (P) Ltd. (2017) 88 taxmann.com 24 (Bombay) : (2018) 400 ITR 108 (Bombay) : 2017 TaxPub(DT) 5054 (Bom-HC);
(ii) Birla Corporation Ltd. v. Dy. CIT (2015) 55 taxmann.com 33 (Kolkata-Trib) : 2015 TaxPub(DT) 2933 (Kol-Trib);
6. Learned DR, however, supported the orders of authorities below.
7. Having regard to the rival contentions and material on record, we find that the Hon’ble High Court of Bombay in the case of CIT v. Parle Soft Drinks (Bangalore) (P) Ltd. (supra) has held that the sale proceeds of soft drink bottles being capital assets, could not be held to be a revenue receipt and after sale of old bottles, block of assets had to be reduced by amount of whole proceeds and accordingly, whatever was there in block of assets, depreciation had to be allowed in accordance with the provisions of law.
7.1. Further, in the case of Birla Corporation Ltd. v. Dy. CIT (supra), the Co-ordinate Bench of the Tribunal has considered the provisions of section 43(6) and at paras 35 to 37 of its order, held as under :–
“35. The next issue of revenue’s appeal is against the order of Commissioner (Appeals) deleting the addition made by the assessing officer on account of profit on sale of fixed assets. For this, revenue has raised following ground no. 3 :–
“3. That learned Commissioner (Appeals)-VI, Kolkata has erred in law as well as on facts by deleting the addition made by the assessing officer on account of profit on sale of fixed assets for Rs. 45,34,000.”
36. We have heard rival submissions and gone through facts and circumstances of the case. We find that this issue has been decided by the tribunal in assessee’s own case in ITA No. 1936/K/2010 for assessment year 2006-07, dated 29-7-2001 against the revenue and in favour of assessee. The Tribunal vide para 23 of its order has held as under :–
“23. We have heard the parties and perused the material placed on record. Section 43(6)(c)(i)(B) specifically requires the reduction of the written down value of the block of assets by the moneys payable in respect of any asset falling within that block which is sold during the previous year. We find that the learned Commissioner (Appeals) discussed the facts and legal position in this regard by observing as under :–
“I have gone through the submissions of the appellant and also the order of the assessing officer. The accounting treatment cannot effect the operation of the statutory provisions contained in section 43(6) of the Act. The learned AR argued that for accounting purpose as per accounting standard 10 some assets were transferred from heading of fixed assets to a separate heading “other current assets” with a description “fixed assets held for disposal”. However for income tax purposes the block of assets concept was followed as per statutory provisions. As per provisions of section 43(6)(c)(i)(B), the assessing officer is directed to reduce the sale proceeds from the written down value and allow depreciation on reduced written down value. The ground of appeal is allowed.”
From the above, it is evident that the learned Commissioner (Appeals) has pointed out that the accounting treatment cannot effect the operation of the statutory provisions contained in section 43(6) of Income Tax Act and for income-tax purposes, the block of assets concept was followed as per statutory provisions. Considering the totality of the above facts and legal position, we do not find any justification to interfere with the findings of the learned Commissioner (Appeals) in this regard. The same is sustained and the Ground No. 3 of the Revenue’s appeal is rejected.”
37. Since this issue is covered in favour of assessee by the aforesaid decision cited supra, we find no infirmity in the order of Commissioner (Appeals) and confirmed the same. This issue of revenue’s appeal is dismissed.”
7.2. Thus, it is clear that under section 43(6) of the Act, the WDV of the block of assets is to be reduced by the sale proceeds received on sale of one or more of the assets from the block and not the entire WDV of the said asset. Therefore, we direct the assessing officer to reduce only the sale proceeds of Rs. 26,782 only from the WDV of the block of the assets and allow the depreciation on the balance of the WDV.
8. In the result, the appeal of assessee is allowed.