1. This is an appeal against the order of the CIT(A)-XIII, Bombay pertaining to assessment year 1991-92.
2. The first ground of appeal relates to disallowance of depreciation of Rs. 16,05,238 on buildings and Rs. 1,19,73,538 on plant and machineries installed in Marine Container Division No. II. Assessee is engaged in the business of manufacturing marine containers for the last several years. In order to expand its business, assessee decided to establish its second unit, hereinafter called "MCD-II. During the year under appeal the construction of the building was almost complete.
Assessee had also purchased machineries for its MCD-II unit which were also installed in the aforesaid building. It claimed depreciation of Rs. 16,05,238 on the building and Rs. 1,19,73,538 on the plant and machineries belonging to this unit. The Assessing Officer rejected the claim of the assessee on the ground that the building as well as the plant and machineries had not been used inasmuch as the actual production of marine containers started on 10-11 -1991 when the unit was inaugurated by the assessee. The submission of the assessee that each machinery was subjected to test and trial run and, therefore, depreciation should be allowed on that basis was also rejected by the Assessing Officer. He observed in his order that the assessee had incurred a substantial amount of Rs. 4.13 crores on modifications and additions in the subsequent year in respect of plant and machineries installed in the second division which, according to him, indicated that plant and machineries as on 31-3-1991 were incapable of being used for production. On appeal, the CIT(A) specifically asked the assessee to produce the evidence to show in what manner the building as well as the plant and machineries were used for the purpose of the business. In spite of this request, assessee did not produce any evidence in this regard. Hence, after taking into consideration the factual aspects, he upheld the order of the Assessing Officer on this issue. Aggrieved by this order, assessee has preferred this appeal before the Tribunal.
3. The learned Counsel for the assessee Mr. Khare has raised various contentions, viz., (i) that the CIT(A) was not justified in holding that the building as well as the plant and machineries had not been used during the year under appeal by the assessee. (ii) That even assuming that such assets were not used by the assessee, it was entitled to depreciation inasmuch as, there was a passive use of the plant and machineries. (iii) As far as the building is concerned, the installation of plant and machineries itself shows that the building was used for the purpose of business, (iv) That after the amendment w.e.f. 1-4-1988 by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, in Section 32 by introducing the concept of block of assets, the condition of user is not necessary for claiming the depreciation. In respect to the first contention it was submitted by him that, in fact, the plant and machineries were used for the purpose of manufacturing of various components required for the final product, i.e., marine containers. He admitted before us that final product was produced in the second division only in November 1991, but the assessee had been manufacturing the components in the second unit.
Though, he could not produce direct material or evidence for the user of the machineries, yet, he drew our attention to various audited statement of accounts, in order to show that production during the year had been increased from 4796 numbers to 8438 numbers. He also pointed out that there was increase in the expenditures on account of salaries and wages as well as power and fuel and other expenses. According to him, these facts show that the assessee had used the plant and machineries otherwise it would not have been able to increase such production. Regarding the second contention it was urged by him that the fact that plant and machineries were tested on trial basis is not in dispute as is apparent from the order of the CIT(A) at page-2. It was submitted by him that plant and machineries were ready for its use and, therefore, assessee is entitled to depreciation. He relied on the decision of the Calcutta High Court reported as CIT v. Kanoria General Dealers (P.)Ltd.[1986] 159 ITR 524 and the decision of the Bombay High Court reported as Whittle Anderson Ltd. v. CIT[1971] 79 ITR 613.
Regarding the third contention it was submitted by him that building is used for the purpose of the business which includes installation of plant and machineries. Once the plant and machineries are installed, the building is said to be used for the purpose of the business and, therefore, assessee is entitled to the depreciation. In support of his contention, he relied upon the decision of the Gujarat High Court reported as Khimji Visram & Sons (Gujarat) (P.) Ltd v. CIT [1995] 79 Taxman 112. Regarding the last contention his submission is that after the amendment w.e.f. 1 -4-1988, a new concept has been introduced.
According to him, the depreciation is to be allowed on plant and machineries forming part of block of assets on its written down value and, therefore, the actual user of the machinery is not necessary. He referred to the definition clause-11 of Section 2 and the provisions of Section 43(6)(c). His submission is that once the plant and machineries form part of the block of assets, the Assessing Officer is bound to allow the depreciation allowance. In support of his contention he relied upon the circular of the Board dated 23-9-1986 No. 469.
4. On the other hand, the learned Department Representative Mr. Karn Singh, strongly objected to the contentions of the assessee. In respect of the first contention, he submitted that there was no material before the Assessing Officer, on the basis of which it could be said that the plant and machineries installed by the assessee were used by it for the purpose of the business. According to him, the burden was on the assessee to prove the user of the building as well as the plant and machineries. He further submitted that the counsel for the assessee is wrong in submitting that there was no dispute regarding the test and trial of the plant and machineries. He drew our attention to para 3.3 of the CIT(A)'s order at page-5 to show that the CIT(A) has also specifically requested the assessee to produce the evidence regarding user of the asset. In spite of this specific request, the assessee had not produced any material or evidence before the CIT(A) regarding the user of the plant and machineries and building. He submitted that the actual production started in the subsequent year, i.e., in the month of November 1991, when the inauguration of the unit took place. Regarding the second contention his submission was that even assessee has not been able to prove the passive user of the plant and machineries.
According to him, passive use can be said when the plant and machineries are ready for use but are not used on account of want of orders, etc. On the other hand, he drew our attention to the fact that the assessee had spent a substantial amount on modifications of the plant and machineries in the subsequent year, which clearly showed that the plant and machineries installed during the year under appeal were not ready for production. Therefore, according to him, even there was no passive use of the plant and machineries. Regarding the third contention, he submitted that some additions had been made in the subsequent year and, therefore, it cannot be said that the building was completed during the year. Hence, according to him, depreciation was not allowable. Regarding the last contention of the assessee, it was submitted by him that even after the amendment w.e.f. 1-4-1988, the Legislature has not taken away the conditions in respect to user the plant and machineries and, therefore, even after the amendment assessee has to prove the user of the machineries. The concept of block of assets is only for computing the depreciation allowance. It support of his contentions, the learned Departmental Representative relied upon the recent decisions of the Bombay High Court in the case of B. Malani & Co. v. CIT[1995] 214 ITR 192 and the Gujarat High Court in the case of CIT v. Suhrid Geigy Ltd. [1982] 133 ITR 884.
5. Both the parties have been heard at length. The material placed before us has been considered carefully. The perusal of Section 32(1) clearly shows that assessee must satisfy two conditions, viz., (i) that it is the owner of the assets and (ii) such assets are used for the purpose of the business or profession. These two conditions are sine qua non for claiming depreciation under Section 32. If any authority is required, reference can be made to the judgment of the Supreme Court in the case of Liquidators of Pursa Ltd. v. CIT[1954] 25 ITR 265. That clearly shows that user of the plant and machineries must be there in order to claim the depreciation. Same view has been taken by the Gujarat High Court in the case of Suhrid Geigy Ltd. (supra). So, the question before us whether on the basis of the material or evidence on record, can it be said that the plant and machineries installed by the assessee during the year under appeal were used by it for the purpose of its business. After considering the material, to which our attention was drawn, we are unable to hold that plant and machineries installed in MCD-II unit were used by the assessee during the year under appeal as there is no direct material or evidence available to this effect. In the course of hearing, the Bench specifically asked to furnish any evidence from which it can readily be inferred that plant and machineries were used. But, assessee was not able to furnish any direct material or evidence in this regard. The Bench queried whether assessee would be able to furnish electricity bills in respect of the second unit, in response to which the learned Counsel for the assessee expressed his inability. It is an admitted position by the parties that a separate electrical connection was sanctioned for this second unit.
If the assessee had used the plant and machineries then it must have been able to produce the electricity bills showing the consumption of electricity units. He could not also produce any production register for this unit. Even it was not known which of the employees were employed for the purpose of manufacturing in this second unit. It is also pertinent to note that assessee had made written submissions before the Assessing Officer which appeared at pages 2, 3, and 4 of the assessment order. Perusal of these submissions indicate that electrical installations in the second unit were not used and, therefore, assessee had not claimed the depreciation in respect of such electrical installations. For this reference may be made to page-3 of the assessment order. This clearly shows that machineries in the second unit were not used at all. In the absence of any electric connection, it was not possible to use the plant and machineries. During the course of hearing our attention was invited to some circumstantial evidence, like increase in the electrical consumption and production of the finished product, i.e., the marine containers. The circumstantial evidence can be looked into only when direct evidence cannot be furnished at all. The electric bills showing the electric consumption are the direct evidence by which the user of machineries could very well be proved by the assessee. But non-furnishing of the same, in spite of our specific request, lead to an only inference that plant and machineries in the second unit were not utilised. The increase in the electric consumption as well as the production might have been possible in the first unit itself by using the machineries on extra shift basis or by putting more time on such machineries. The circumstantial evidence in this case is not sufficient to prove the user. Hence, we confirm the finding of the CIT(A) regarding the plant and machineries.
The first contention of the assessee, therefore, fails.
6. As far as the user of building is concerned, it is an admitted fact that plant and machineries were installed during the year in the building premises of the second unit. Installation of the machinery is the purpose of the business and, therefore, it can be said that the building was utilised for the purpose of the business once the plant and machineries are installed therein. No further evidence is required for this purpose. The lower authorities had not given any specific reasons for disallowing the claim of the assessee regarding depreciation on building. We, therefore, accept this contention of the assessee and modify the order of the CIT(A). The Assessing Officer is directed to grant the depreciation on the cost of the building.
7. The other contention of the assessee relating to passive use of plant and machineries cannot also be accepted on the basis of material or evidence on record. The counsel for the assessee argued before us on the assumption that the lower authorities had not disputed the test and trial run of the plant and machineries. This assumption of the learned Counsel for the assessee, in our opinion, is not correct. Mr. Khare had invited our attention to page-2 of the CIT(A)'s order in support of such assumption - specifically to the following sentence : The Assessing Officer therefore came to the conclusion that only test and trial of the plant and machinery has taken place and the plant has not gone into actual production.
These observations have been made by the CIT(A) with reference to the observations of the Assessing Officer at pages 2 and 3 of the order. On the basis of pages 2, 3 and 4 of the order of assessment, it shows that the Assessing Officer has reproduced the submissions of the assessee made before him.
Therefore, whatever is stated in these pages cannot be understood as observations of the Assessing Officer. In fact, this was the submission of the assessee made before the Assessing Officer. Page-4 of the assessment order refers to the submissions of the assessee to the effect that as and when assembling and installation activity of each item or group of items of plant and machineries was completed it was tested and subjected to trial work. Since, these were the submissions of the assessee and not the observations of the Assessing Officer, the learned Counsel for the assessee had wrongly proceeded on this assumption. In fact, the only finding of the Assessing Officer is that no actual production has taken place in the second unit during this year and it has been further found by him that actual production actually commenced in the month of November 1991. Regarding the test and trial, the Assessing Officer on the other hand, has doubted the submission of the assessee by observing at page-6 to the effect that the plant and machineries might have been tested and sub-jected to trial run. But there is no clear finding on this aspect. On the other hand, we have given a finding in the earlier paragraphs that electric installations had not been used by the assessee as admitted by the assessee in his submissions before the Assessing Officer and, therefore, it cannot be said that even plant and machineries were tested or were subjected to trial. On these facts, it cannot be said that plant and machineries were ready for production. The decision of the Calcutta High Court in the case of Kanoria General Dealers (P.) Ltd. (supra) relied upon by the assessee does not help the case of the assessee. In that case, the question was whether a business unit has been set up by the assessee for the purpose of claiming the depreciation. Their Lordships had held that where a unit has been set up, which is ready to commence production, then the assessee will be entitled to claim deduction of an expenditure and the same cannot be disallowed on the ground that it had been incurred prior to commencement of actual business of commercial production. In the present case, the issue before us is not whether the assessee has set up a unit or not. Even otherwise, on the facts of the case, the machineries installed by the assessee cannot be said to be ready for production keeping in view the substantial modification in the plant and machineries in the subsequent year amounting in crores. The time lag between the installation and the actual production also indicates that the machineries were not ready for use during the year under appeal. The other decision relied upon by the learned Counsel for the assessee in the case of Whittle Anderson Ltd, (supra) also does not advance the case of the assessee. Therein their Lordships had held that the word "used" in Section 10(2)(vii) of the 1922 Act should be understood in wider sense so as to embrace passive as well as active use and the machinery can be said to be passively used when it is kept ready for use at any moment. Since we have already held that plant and machineries were not ready for production by the end of the year, it cannot be said that there was even passive user of the plant and machineries. Therefore, this contention of the assessee also fails.
8. The last contention of the assessee that actual user is not required after an amendment in Section 32 w.e.f. 1-4-1988, cannot also be accepted for the reasons that the Legislature has not taken away the requirement of the user of the plant and machinery from the provisions of Sub-section (1) of Section 32. The concept of block of assets was introduced by the Legislature only for simplifying the computation of depreciation. Instead of calculating depreciation on each machinery, the Legislature thought it fit to introduce the concept of block of assets so that depreciation on all the machineries under one block could be computed easily. The requirement of the ownership of the machinery and user of the same for the purpose of business continues to remain on the Statute in Sub-section (1) of Section 32. If the contention of the assessee is accepted, then the provisions of Section 32(1) requiring the assessee to use the assets for the purpose of business, would become redundant. It may be pertinent to note that the proviso to Clause (ii) to Section 32(1) also contains the words "put to use", which shows that even after the introduction of the concept of block of assets, the requirement of user still continues. The provisions of the second proviso provide that any motor car manufactured outside India will not be entitled to depreciation unless it is used in a business of running it on hire for tourists or outside India in a business or profession in an another country. These provisions also show that actual user must be there. The learned Counsel for the assessee has also relied upon the Board's Circular No.469 dated 23-9-1986 in support of his contention. Perusal of the said circular, in our opinion, does not advance the case of the assessee. It says that the present system of calculating depreciation, is a time consuming process on account of difference in rates of depreciation and different type of machineries. It says that in order to simplify the process, the concept of block of assets was introduced. He has emphasised the words "intensity of use" mentioned in the circular. In our opinion, this does not mean that actual user is not required.
Earlier the extra shift allowance, etc., were allowed on certain machineries and it is in this reference the words "intensity of use" have been mentioned in the circular. Even otherwise, the circular cannot take away the requirement of the provisions in the Act which are unambiguous. In our opinion, the circular does not say that actual user is not required. Had the Legislature intended to take away such requirement, it would have amended the main provisions of Section 32(1). In the absence of the same, it cannot be said that the amendment has brought out any change taking away the requirement of actual user.
Therefore, the last contention of the assessee is also rejected.
9. The next issue relates to the deduction of lease rent amounting to Rs. 6,96,926 in respect of plant and machineries taken or lease for its second unit MCD-II. The claim of the assessee has been disallowed by the CIT(A) on the ground that lease rent is allowable under Section 30 of the Act, 1961, which requires that assets should be used for the purpose of the business. Since, according to the CIT(A), it was found that plants and machineries were not used for the purpose of the business, the claim of the assessee was not allowed. Aggrieved by the order of the CIT(A), the present appeal was preferred by the assessee.
10. The contention of the learned Counsel for the assessee is that the CIT(A) has wrongly invoked the provisions of Section 30, inasmuch as, that section is application with reference to the deductions on account of rent, rates and taxes in respect of a building. According to Mr.
Khare, this section is not application in respect of lease rent for plant and machineries. His further submission is that the claim is allowable under Section 37 of the Act which requires that expenditure must be incurred for the purpose of business. The requirement of user is not there for claiming deduction under Section 37. On the other hand, the learned Departmental Representative relied on the order of the CIT(A).
11. After hearing both the parties, we are of the view that assessee must succeed on this issue. In our opinion, Section 30 is not applicable to the facts of the case, since deduction on account of lease rent for plant and machineries is not covered by this section.
Assessee is entitled to deduction under Section 37. It is not disputed that plant and machineries had been hired by the assessee for the purpose of business. Therefore, we accept the claim of the assessee and decide this issue in its favour. The order of the CIT(A) is set aside on this issue.
12. The next ground of appeal is that the CIT(A) erred in holding that an expenditure of Rs. 2,18,738 incurred by the assessee on presentation articles, was in the nature of entertainment expenditure. The claim of the assessee has been rejected by the Assessing Officer on the ground that the expenditure on presentation articles amounted to advertisement. This expenditure was treated for the purpose of business by the Assessing Officer. However, a disallowance of Rs. 1 lakh was made on this account on an estimate basis as the assessee had not made available the details to compute the disallowance under Rule 6B. The assessee furnished the details before the CIT(A) and it was found by him that expenditure on presentation articles was on account of calculators, jewellery, etc., and the assessee had not provided the names of the customers to whom such articles were distributed. In the absence of the same, the claim was rejected by the CIT(A). He further held that since the expenditure was not for the purpose of business, the entire expenditure of Rs. 2,18,738 was to be disallowed.
13. The learned Counsel for the assessee argued before us that it is an undisputed fact that presentation articles did not carry any logo, as is evident from the order of assessment and, therefore, it could not be said that presentation of articles carried any advertisement value. He relied on the decision of the Bombay High Court in the case of CIT v.Allana Sons (P.) Ltd. [1993] 70 Taxman 288. He also drew our attention to the details of such expenditure which appear at pages 47 to 49. On the other hand, the learned Departmental Representative relied on the order of the CIT(A).
14. After hearing both the parties and considering the list of items stated to have been presented by the assessee as gifts, we find that these items include costly items like, jewellery, calculators, watches, silver items, silver, camera, sarees, etc. Perusal of this list also shows that assessee has not provided names of the customers to whom these gifts were given. We also find that this list was not before the Assessing Officer, though furnished before the CIT(A). In the interest of justice, we set aside the order of the CIT(A) and restore the matter to the file of the Assessing Officer who shall examine this issue afresh after giving reasonable opportunity of being heard to the assessee. The assessee shall be at liberty to produce the evidence in this regard before the Assessing Officer.
15. The next ground of appeal is that the CIT(A) erred in not accepting the contention of the assessee that 25% of the total expenditure incurred on entertainment merited exclusion for the purpose of computation of disallowance under Section 37(2A). The CIT(A) has rejected the claim of the assessee on the ground that assessee itself has claimed 20% of such expenditure relating to employees of the assessee-company.
After hearing both the parties, we do not find any reason to interfere with the order of the CIT(A), inasmuch as, assessee itself has claimed 20% of such expenses attributable to the employees of the company. The percentage attributable to the employees of the company is a question of fact, and there is no material before us to take a contrary view particularly keeping in view the admission of the assessee itself. The order of the CIT(A) is, therefore, upheld on this issue.
Another aspect of this ground is that the CIT(A) erred in taking the view that the expenditure by way of membership fees of clubs was not allowable as business expenditure. The learned Counsel for the assessee has relied upon the Bombay High Court judgment in the case of CIT v.Otis Elevator Co. (India) Ltd. [1977] 107 ITR 241. On the other hand, the learned Departmental Representative has relied on the order of the CIT(A). After hearing both the parties, we decide this issue in favour of the assessee after respectfully following the judgment of the Bombay High Court in the case of Otis Elevator Co. (India) Ltd. (supra) wherein it has been held that subscriptions to the clubs are allowable expenditures. The order of the CIT(A) is modified accordingly.
16. Ground No. 5 relating to share issue expenses has not been pressed by the learned Counsel for the assessee. Hence the same is dismissed as being not pressed.
17. The last ground relates to deduction under Section 80HHC. The brief facts are that the assessee had claimed a deduction of Rs. 2,58,11,685 under Section 80HHC and for this purpose, total turnover taken into consideration by the assessee is Rs. 41,36,46,065. The Assessing Officer found that assessee had not included indenting commission and sale of packing material amounting to Rs. 31,96,981 and Rs. 17,67,554.
Hence, the Assessing Officer included both these figures in the total turnover of the assessee. The CIT(A) has found that the assessee has received this commission on goods supplied by other parties. The CIT(A) was of the view that if the profits arising from the commission are included in the total income, then there is no reason to exclude the gross receipts on account of commission in the total turnover of the appellant. He, therefore, upheld the order of the Assessing Officer.
For the same reason, he justif ied the inclusion of the sale of packing material in the total turnover. Aggrieved by this order, assessee is in appeal before the Tribunal.
18. Both the parties have been heard at length. It was admitted by the learned Counsel for the assessee that the commission in dispute before us does not have any nexus with the export made by the assessee-company. In our opinion, the commission, thus, earned by the assessee cannot be treated as profits from exports. Therefore, it is neither includible in the profits of the assessee from export nor in the total turnover of the assessee for the purpose of computing deduction under Section 80HHC. It is only the profits from exports which are to be computed for the purpose of deduction under Section 80HHC and not any business income. This view has been taken by the Tribunal in the case of Tanna Exports in ITA No. vide order dated to which one of us was a party. This fact had been informed by the Bench to the learned Counsel for the assessee and no comments had been made by him in this regard. Therefore, we set aside the order of the CIT(A) and direct the Assessing Officer to recompute the deduction after excluding the indenting commission from the profits as well as from the turnover of the assessee-company. However, we uphold the order of the CIT(A) as far as sale of packing material is concerned. The Special Bench of the Tribunal in the case of International Research Park Laboratories Ltd v. Asstt. CIT[1994] 50 ITD 37 (Delhi), has taken the view that all the turnover relating to all goods and merchandise, has to be taken into consideration for computing the profits under Sub-section (3) of Section 80HHC. Following the same, it is held that inclusion of the sale of packing material by the Assessing Officer, was justified. To this extent, the order of the CIT(A) is upheld.20. The last contention of the assessee is that under the new scheme, i.e., the block system, the assessee is entitled to the depreciation claim. The new scheme of block of assets which came into force from 1-4-1988 simplified the position regarding depreciation allowance. It divides assets into three classes - buildings, machinery, plant & furniture. In each class, there are few blocks of assets and the same percentage of depreciation is prescribed for each block of assets. The percentage of depreciation for each block of assets is dealt with by Rule 5 read with Appendix 1. The CBDT, in Circular No. 469 of 23-9-1986, explained the new scheme in the following terms:-- Para 6.3 : "As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the dates of purchase, the type of asset, the intensity of use, etc., the more disaggregated has to be the record-keeping. Moreover, the practice of granting the terminal allowance as per Section 32(1)(iii) or taxing the balancing charge as per Section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system 'of allowing depreciation on block of assets. This will mean the calculation of lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely buildings, machinery, plant and furniture: (a) the written down value is to be computed with reference to the totality of each block of assets (section 32(1)(ii)); (b) the cost of acquisition of any new asset falling within that block should be added to such written down value (section 43(6)(c)(i)(A) and (c)(ii)); (c) the "moneys payable" (Explanation below Section 41(4) in respect of any asset (falling within that block) which is sold, discarded, demolished or destroyed together with its scrap value (if any), should be deducted from such written down value, but only to the extent of such written down value (section 43(6)(c)(i)(B) and (c)(ii)); (d) if the consideration for the transfer of all or any of the assets in the block exceeds the written down value of the block, the excess is taxable as short-term capital gains (section 50).
21. The scheme ensures that the total depreciation in respect of any block of assets does not exceed its actual cost; therefore, Section 34(2)(i) was deleted as otiose. Further, it has in-built provisions for balancing allowance and balancing charge and, therefore, Section 32(1)(iii) which granted balancing allowance, and Sections 41 (2) and 59(2) which imposed balancing charge, were simultaneously deleted, and Sections 43(1) (Explanations 2 and 4), 43(6) and 50 were appropriately amended.
22. The effect of all these amendments is that in the case of a running concern which has expanded or installed new plant & machineries, there is no need of separate computation of depreciation allowance as also separate computation in case of sale or demolition of such assets. The individual working of the machinery also is not necessitated as the new asset falling within the block gets added to the written down value.
The effect of all these is that under the new system, even when all the assets of the block are sold, if the block has a positive balance (the moneys payable being less than the written down value), depreciation continues to be allowable even if the asset is no more in existence.
Similarly, if only some assets forming part of a block are sold and if the sale proceeds of these assets wipe out the entire value of the block, no depreciation would be available even though some assets of the block continue to be used for business purposes. Therefore, the new scheme as introduced does not require use of individual assets for the grant of depreciation.
23. The Legislature also has fully taken into account the possibility of some assets enjoying depreciation without really being put into use.
In such a case, when such asset is sold, then the moneys payable in respect of the assets sold exceeding the actual cost would not be taxable as short-term gains and not as long-term gains as under the old law. Therefore, there is no likelihood of the assessee using the new scheme as means to avoidance of tax. The new scheme is self-contained and there can be no loss to the revenue in the ultimate analysis.
24. The assessee in this case is having fixed assets to the tune of Rs. 4,32,10,326 at the beginning of the year. It made an addition to the extent of Rs. 8,89,78,660 to the block of assets. The addition to the fixed assets is in the nature of expansion of the existing business.
Normally, the claim of the assessee would be allowed. However, as per Notes on the Balance-sheet and Profit & Loss account, it is seen that expenses incurred in respect of MCD (New Project) like interest and loan expenses including salaries & wages have been capitalised. When the revenue expenses incurred for the new project are still capitalised, it cannot be said that the plant & machineries are set-up and are put into use. In other words, the process of the acquisition of the new assets is still in progress and it cannot also be said that the assessee has already acquired the new assets so as to be entitled to depreciation. On the peculiar facts of the case and the treatment of the expenditure in the account, the claim of depreciation has been rightly rejected. I concur with the conclusion arrived by my learned Brother.