Case Law Details

Case Name : Allergan India (P.) Ltd. Vs Deputy Commissioner of Income-tax (ITAT Bangalore)
Appeal Number : IT Appeal No. 1490 (BANG.) OF 2010
Date of Judgement/Order : 16/03/2012
Related Assessment Year : 2006-07
Courts : All ITAT (5167) ITAT Bangalore (250)

IN THE ITAT BANGALORE BENCH ‘A’

Allergan India (P.) Ltd.

versus

Deputy Commissioner of Income-tax

IT APPEAL NO. 1490 (BANG.) OF 2010

[ASSESSMENT YEAR 2006-07]

MARCH 16, 2012

ORDER

Smt. P. Madhavi Devi, Judicial Member

This is assessee’s appeal for the assessment year 2006-07. The assessee has filed the following concise grounds of appeal;

 “1.  The CIT(A) erred in not holding that the order of the DCIT or AO is bad in law and on facts.

  2.  Disallowance of validation charges paid to Nicholas Piramal India Ltd.,(Nicholas Piramal) of Rs. 2,854,061/-

2.1  The CIT(A) erred in relying upon his order pertaining to AY: 2005-06 vide ITA No. 12/DC-11(1)/CIT(A)-1/05=-6 dt. 19th April, 2010 and holding that validation charges paid to Nicholas Piramal was disallowable u/s 40(a)(ia) of the IT Act.

2.2  The CIT(A) has erred in understanding the transaction to be in the nature of provision of services.

2.3.  The CIT(A) erred in not appreciating that the testing activity carried out by Nicholas Piramal is prior to sale of products to the appellant and is essentially and directly linked to such sale of products.

2.4  The CIT(A) erred in not appreciating the fact that the sale of the products by Nicholas Piramal top the appellant is on a principal to principal basis.

2.5  The CIT(A) erred in not appreciating the fact that the transaction with Nicholas Piramal is not in the nature of a works contract for it to be made liable for tax deduction at source u/s 194C of the Act.

2.6  The CIT(A) has failed to take cognizance of the circulars issued by the CBDT which were brought to his knowledge by the appellant wherein the CBDT has held that provisions of sec.194C of the Act will not apply to contract for sale of goods.

  3.  Disallowance of testing charges u/s 40(a)(ia) of the Act of Rs. 4,048,553/-.

3.1  The CIT(A) erred in relying on his order pertaining to AY: 2005-06 vide ITA NO. 12/DC-11(1)CIT(A)-1/05-06 dated 19th April 2010 and holding that testing charges paid to European Testing Centre(ETC) Ireland was disallowance u/s 40(a)(ia) of the IT Act.

3.2  The CIT(A) erred in relying on the order of the CIT(A)-IV and holding that the testing charges paid by the appellant to ETC were in the nature of fees for technical services (FTS) u/s 9(1)(vii) of the Act.

3.3  The CIT(A) erred in holding that product testing charges paid by the appellant being re-bursement of expenses falls within the scope of tax deduction u/s 195 of the Act.

3.4  The CIT(A) erred in relying on the decision in the case of Samsung Electronics Co. Ltd., (2009) 185 Taxman 31 (Kar.) and holding that a certificate for non-deduction of tax was mandatory.

3.5  The CIT(A) erred in not:

Admitting the alternative ground raised b y the appellant that appropriate deduction should be granted in the year of remittance of TDS; and

Taking cognizance of the documentary evidence of payment of TDS submitted by the Allergan India.

3.6  The CIT(A) failed to appreciate that the powers of the CIT(A) are co-terminus with that of the AO i.e. he can do what the AO can do and also direct him (i.e. the AO) to do what he has failed to do.

  4.  Denial of depreciation of Rs. 715,807 on plant and machinery acquired during the financial year 1997-98.

4.1  The CIT(A) erred in relying on his order pertaining to AY: 2005-06 vide ITA No.12/DC-11(1)CIT(A)-1/05-06 dated 19th April, 2010

4.2  The CIT(A) erred in not allowing depreciation on machinery owned by the appellant merely because it had written off the value of assets in its books of account.

4.3  The CIT(A) erred in holding that the action of the appellant of writing of the assets in the books of account amounted to discarding the machinery.

4.4  The CIT(A)a erred in relying on the following decisions;

DCIT v. Yellamma Dasappa Hospital [2007] 159 Taxman 58 (Kar.)

ACIT v. Jagdish Sheth [2006] 285 ITR (AT) 179 (Mum.); and

ACIT v. Rishiroop Polymers Pvt. Ltd., [2006] 286 IT(AT) 54 (Mum.)

4.5  The CIT(A) erred in not appreciating the reliance placed by the appellant on the decision of the Hon’ble Delhi High Court in the case of CIT v. Bharat Aluminium Co., Ltd. [2009] 187 Taxman 111 (Del.)

4.6  The CIT(A) failed to appreciate that as per the block of assets concept under the Act, the appellant is eligible to claim income-tax depreciation on plant and machinery since the appellant has not sold, destroyed, demolished or discarded such machines.

  5.  Erroneous levy of interest u/s 234B of the Act The CIT(A) failed to appreciate that the advance tax remitted by the appellant was more than 90% of its income-tax liability and hence the appellant is not liable to pay interest u/s 234B of the IT Act.

  6.  Erroneous levy of interest u/s 234C of the Act. The CIT(A) erred in holding that interest u/s 234C of the Act is to be levied on assessed income and not appreciating the appellant’s submissions that there was an error in computation of interest u/s 234C of the Act.

  7.  Initiation of penalty proceedings: The CIT(A) erred in upholding the initiation of penalty proceedings by the AO”.

  8.  The appellant prays that directions be given to grant all such relief arising from the preceding grounds as also all relief consequential in nature.”

2. Ground nos.1 & 8 being general in nature, needs no adjudication.

2.1 Ground no.7 is also rejected as being immature.

2.2 Coming to ground no.3 learned counsel for the assessee submitted that this issue has arisen in the assessee’s own case during the assessment years : 1997-98 to 2005-06 and the ‘B’ Bench of this Tribunal vide order dated 30-06-2011 has decided this issue in favour of assessee.

2.3 The learned counsel for the assessee placed a copy of the order before us.

2.4 The learned DR however, supported the orders of the authorities below.

3. Having heard both the parties and having considered their rival contentions, we find that this issue has arisen in the assessee’s own case for the AYs: 1997-98 to 2005-06 and the ‘B’ Bench of this Tribunal in ITA Nos. 896 to 903(B)/2010 dated 30-06-2011 (to which one of us i.e. JM is a signatory) has decided the issue in favour of the assessee. The relevant paragraphs are re-produced hereunder for the sake of convenience.

“2. The issue no. 1 which arises in all the assessment years is against the disallowance of testing charges paid by the assessee u/s 40(a)(i) of the IT Act.

3. The brief facts of the case are that the assessee company was formed by joint venture with M/s Allergan Inc. USA and M/s Nicholas Piramal, India. The assessee is engaged in the business of manufacture and trading of pharmaceutical products and its machines. The assessee filed its return of income for the assessment years 1997-98 to 2001-02 and the assessments were completed. Thereafter, the AO received information from the ITO, International Taxation, that the assessee during the previous years relevant to the above assessment years had neither deducted tax at source nor paid the tax deducted under chapter-XVIIB in respect of technical services fees paid to M/s European Testing Centre, (M/s ETC in short) Ireland and the ITO, International Taxation had passed an order u/s 201(1) and 201(1A) of the IT Act holding that the assessee was liable to deduct tax in respect of payments for product testing expenses to M/s ETC, Ireland. On verification of the return of income filed by the assessee for all these years, the AO noticed that the assessee had claimed deduction u/s 40(a)(i) in respect of the payments and since the assessee was liable to deduct tax at source on this amount, but the assessee had neither deducted nor paid the tax under chapter-XVIIB of the IT Act, the AO held that the assessee company was not entitled to deduction u/s 40(a)(i) of the IT Act. Thus, the AO held that there was reason to believe that income escaped assessment on account of wrong claim of deduction u/s 40(a)(i) by the assessee resulting in over assessment of loss and consequently carry forward of the same. Accordingly, the assessments were re-opened u/s 147 of the IT Act and the disallowance was sought to be made u/s 40(a)(i) of the IT Act. In response to the show cause notice issued by the AO, the assessee submitted that the payments made to M/s ETC were reimbursement of the costs and does not constitute fees for technical services and therefore, the assessee is not liable to deduct tax at source u/s 195 of the IT Act. The AO however, was not convinced with this argument as it was already held by the ITO, International Taxation, that the assessee is ‘an assessee in default’ u/s 201(1) & 201(1A) of the IT Act. Therefore, the deduction claimed u/s 40(a)(i) has to be disallowed. He accordingly, made disallowance for all the relevant assessment years.

3.1 Aggrieved, assessee preferred appeals before the CIT(A) both on merits as well as on reopening of the assessment orders. The CIT(A) upheld the validity of the reopening and also held that the assessee is liable to deduct tax at source u/s 195 of the IT Act. Before the CIT(A), the assessee had also raised an alternative ground that the assessee had made payments of taxes in the previous years relevant to assessment years i.e. 2003-04 and 2005-06 and therefore, in accordance with proviso to clause-(i) of sec.40(a) of the Act, it has to be allowed in the year of payment, since these years were also open before the CIT(A). The CIT(A) however, held that the assessee has not raised such an issue before the AO even u/s 154 of the Act after completion of the assessments and since no view or order or observation of AO is available on this, he is not empowered to give any verdict on this issue and thus, dismissed the alternative prayer also.

3.2. Aggrieved, the assessee is in second appeal before us.

4. The learned counsel for the assessee Shri Krishnan Narayanan, reiterated the submissions made before the authorities below and submitted that the testing charges are being paid by the assessee to M/s ETC, Ireland to ensure quality of the products and also adherence to the assessee’s world wide specifications and M/s Allergan India is required to reimburse the cost incurred by the M/s ETC for performing the quality testing of the ophthalmic solutions manufactured by M/s Nicholas Piramal. He submitted that M/s Allergan India, has thus made the reimbursement without deduction of tax at source and the AO and the CIT(A) have made the disallowance u/s 40(a)(i) of the Act. For the preposition that the reimbursement of costs being devoid of any element of income, there is no requirement to deduct tax at source, the learned counsel for the assessee placed reliance upon the following decisions;

  1.  Transmission Corpn. of A.P Ltd. v. CIT [1999] 239 ITR 587 (SC)

  2.  ACIT v. Modicon Network (P.) Ltd. [2007] 14 SOT 204 (ITAT, Del.)

  3.  CIT v. Industrial Engg. Projects Pvt. Ltd. [1993] 202 ITR 1014 (HC, Del.)

  4.  CIT, West Bengal v. Dunlop Rubber Co., Ltd. [1983] 142 ITR 493 (HC, Cal.)

  5.  Rolls Royce India Ltd. v. ITO [1987] 25 ITD 136 (ITAT, Del.)

4.1 The learned counsel for the assessee further submitted that the CIT(A) has relied on the decision of the Hon’ble Karnataka High Court in the case of M/s Samsung holding that the tax is liable to be deducted at source irrespective of whether the payments are taxable in India or not, but that this decision has been reversed by the Hon’ble Supreme Court in the case of M/s GE India Technology Centre Pvt. Ltd. v. CIT reported in 327 ITR 456 (SC). Without prejudice to the above argument, learned counsel for the assessee submitted that the alternate plea of the assessee that the tax has to be allowed in the year of remittance of TDS should be considered by the Tribunal. He drew our attention to TDS challans for the Assessment years 1997-98 to 2001-02, given at pages 34 to 40 of the paper book and also the challans for the assessment years 2003-04, 2004-05 and 2005-06, at pages 93,95,97-99 of the paper book. With regard to certain payments, he submitted that the challans are not readily available, however, there are no arrears outstanding u/s 201 of the Act. In support of his contention, he stated that the powers of the CIT(A) are co-terminus with that of the AO. The learned counsel for the assessee also placed reliance upon the following decisions;

  1.  CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC)

  2.  Jute Corpn. of India Ltd. v. CIT & another [1991] 187 ITR 688 (SC).

4.2. The learned DR on the other hand, supported the orders of the authorities below and submitted that the assessee has not filed any appeal against the order of the TDS authorities and therefore, the finding that the assessee is liable to deduct tax at source u/s 195 of the IT Act has become final. That being the case, he submitted that the assessee is liable to deduct tax at source and since the assessee has failed to do so, the deduction u/s 40(a)(i) of the IT Act has been rightly disallowed. As regards the assessee’s submission that the said taxes have been paid subsequently in the assessment years 2003-04 & 2005-06 and that the assessee should be given deduction in these years, the learned DR also submitted that the challans submitted by the assessee needs verification by the AO.

5. Having heard both the parties and having considered the material on record, we find that the assessee’s contention that the payments are reimbursement of costs and taxes are not deductible at source, has been negatived by the department and the assessee also has accepted the decision of the department and has made the payments in the subsequent assessment years. Therefore, disallowance of the testing charges u/s 40(a)(i) of the IT Act for the relevant assessment years are justified. However, since appeals were open before the CIT(A), for the assessment years during which the assessee has made payments of TDS, the assessee is entitled to claim deduction under proviso to sec. 40(a)(i) of the IT Act. The powers of the CIT(A) are co-terminus with that of the AO and therefore, the CIT(A) was not right in rejecting the assessee’s alternative claim. On the other hand, the assessee has not filed any application before the AO and there is no order of the AO on the said issue. The CIT(A) could have verified the details filed by the assessee and given relief, if it is warranted. However, since the assessee had filed all the details before the Tribunal, we deem it fit and proper to remit the issue to the file of the assessing authority to verify the challans filed by the assessee and also in the case where there are no challans available, to verify if there is any further tax liability by the assessee for the relevant assessment years and if it is found that the assessee has paid the taxes and also there is also no tax liability with regard to testing charges paid to M/s Nicholas Piramal, the AO shall allow the deduction u/s 40(a)(i) of the IT Act in the years of payment.

5.1 In the result, the alternative claim of the assessee for all the assessment years are allowed, subject to verification by the AO.”

Following the above decision for the relevant assessment year also, we remit the issue to the file of the AO for verification of the tax liability of the assessee in the light of the challan filed by the assessee and if it is found that the assessee has paid the tax and there is no tax liability with regard to testing charges paid to M/s Nicholas Piramal, the AO shall allow the deduction claimed u/s 40(a)(ia) of the IT Act in the years of payment.

This ground is accordingly allowed for statistical purposes.

4. As regards ground no. 2 also the learned counsel for the assessee submitted that this issue is also covered by the decision of the Tribunal in the assessee’s own case for the assessment year cited supra.

4.1 The learned DR however, supported the orders of the authorities below.

4.2 Having heard both the parties and having considered the rival contentions, we find that vide Tribunal order dated 30-06-2011 cited supra, the Tribunal has decided this issue at para 14.1 to 16.1, wherein the issue has been set aside to the file of the assessing authority for re-consideration in the light of the observations therein. For the sake of convenience, the said paragraphs are re-produced hereunder;

“14.1 The brief facts of the case are that the assessee has entered into a contract of manufacturing agreement with M/s Nicholas Piramal to manufacture certain products. M/s Nicholas Piramal was required to perform quality control testing of products with ETC prior to sale and for such quality control validation charges were incurred. The assessee reimbursed the validation charges to M/s Nicholas Piramal without deducting tax at source. The AO treated these charges as payments for contract for services attracting tax deduction u/s 194C of the IT Act. Due to the failure of the assessee company to deduct tax at source, the same was disallowed and the CIT(A) confirmed the disallowance.

14.2 Aggrieved, the assessee is in second appeal before us.

15. The learned counsel for the assessee submitted that M/s Nicholas Piramal was under an obligation to carry out the testing activity before the sale of such products and the testing is done at the behest of the assessee. The charges incurred by M/s Nicholas Piramal has been reimbursed by the assessee. He submitted that it is not a contract of service and the payment is not thus liable to TDS. For this purpose, he relied on the following CBDT Circulars;

  1.  Circular No. 681 dated 08-03-1994 to the effect that provision of sec. 194C is not to cover contracts for sale of goods and;

  2.  Circular No. 13/2006 dated 13-12-2006 to the effect that provision of sec. 194C is to apply in respect of a contract of work and not a contract for sale.

15.1 The learned DR however, placed reliance upon the orders of the authorities below and submitted that M/s Nicholas Piramal is carrying out the quality control testing of products prior to the sales and therefore, the expenditure has to be borne by M/s Nicholas Piramal and there was no liability of the assessee. On a query from the Bench, learned counsel for the assessee has not been able to point out any clause of the agreement of manufacturing contract with M/s Nicholas Piramal which requires M/s Nicholas Piramal to get the said products tested prior to the sale and also that it is the liability of the assessee to reimburse such expenditure. However, he made an alternative prayer that the appropriate deduction should be allowed in the assessment years during which the TDS provision in respect of payments made to ETC were complied with by the assessee.

16. Having heard both the parties and having considered the rival contentions, we find that the assessee has entered into a contract of manufacturing of agreement with M/s Nicholas Piramal for manufacturing certain products as per the specification of the assessee and these medicines also carry the brand name of the assessee. Therefore, it is important that the said medicines are manufactured and are satisfying the quality control tests. As it is not clear as to the party which has to bear the expenses relating to the said quality control tests and as observed by the CIT(A) and the AO this quality control tests are performed prior to their sale to the assessee, it is reasonable to presume that it is the liability of M/s Nicholas Piramal and not the liability of the assessee company. However, in view of the statements of the assessee that there are certain documents to establish liability of the assessee to reimburse the expenditure to M/s Nicholas Piramal and in the interest of justice, we deem it fit and proper to remit the issue back to the AO with a direction to the assessee to produce the relevant material before the AO and on such production of the material, the AO shall reconsider the issue as to liability of assessee to reimburse the expenditure and decide the issue in accordance with the law.

16.1 This ground of appeal is allowed for statistical purposes.”

Respectfully following the said decision, this ground of appeal is also allowed for statistical purposes.

5. As regards ground no.4 also it is submitted that this issue is also covered by the decision of the Tribunal in the assessee’s own case for the assessment year cited supra, while the learned DR relied on the orders of the authorities below.

5.1 The learned counsel for the assessee however, tried to convince this Tribunal that the directions given in the Tribunal in the Tribunal’s order dated 30-06-2011 is erroneous in the light of the sub-clause-B to clause (i) of clause-C to Sub-Sec. 6 of Sec. 43 of IT Act. He submitted since the machines have not been sold and the monies payable to the assessee is not arising and the direction of the Tribunal is erroneous. However, we are not convinced with the arguments of the assessee and respectfully following the decisions of the co-ordinate bench in the assessee’s own case on similar set of facts, we reject the grounds of appeal of the assessee and the order of the CIT(A) is confirmed. For the sake of convenience, the relevant paragraphs i.e. 7.1 to 10.1 are re-produced hereunder;

“7.1 The brief facts of the case are that the assessee had entered into a contract with M/s Nicholas Piramal and the products manufactured are ophthalmic which require particular type of moulds. M/s Nicholas Piramal had the particular type of machinery to manufacture the moulds and as per the manufacturing agreement with M/s Nicholas Piramal, the assessee also could purchase the second machinery which would be installed in the premises of M/s Nicholas Piramal and used for the manufacture of the said moulds. Accordingly, M/s Nicholas Piramal had one machine and the assessee purchased another machine and installed the same in the premises of M/s Nicholas Piramal and the same was used for manufacturing the moulds. During the FYs: 1997-98 & 1998-99, the assessee claimed depreciation on the second machine purchased by it. The AO disallowed the depreciation claimed by the assessee on the ground that the assessee company had purchased the second hand machine and that it had not undertaken any manufacturing activity. The CIT(A) confirmed the disallowance and the assessee is in second appeal before us.

8. The learned counsel for the assessee while reiterating the submissions made before the authorities below drew our attention to sub-clause 2.10(b) of the agreement to demonstrate that the purchase of machinery was second hand ALP machine. He submitted that M/s Nicholas Piramal owns one ALP machine and the assessee purchased second machine from M/s Nicholas Piramal and installed it in the premises of M/s Nicholas Piramal for manufacture of moulds and medicines on behalf of the assessee. He submitted that for the purpose of granting depreciation two conditions are required to be satisfied i.e. ownership and the machinery being put to use for the purpose of assessee’s business. He submitted that authorities below have misinterpreted the provision of being put to use to mean that it has to be put to use by the assessee itself. He drew our attention to the contract of manufacture to demonstrate that M/s Nicholas Piramal was manufacturing moulds and medicines as per the specifications of the assessee on its behalf and the medicines were also sold by the assessee under its brand name. Thus, according to learned counsel for the assessee that machinery have been put to use by M/s Nicholas Piramal for the business of the assessee and therefore, the assessee satisfies the conditions of ‘ownership’ of machinery as well as being put to use for the business of the assessee.

8.1 The learned DR on the other hand, supported the orders of the authorities below and submitted that the assessee has failed to prove that it has put to use the machinery as the machinery was installed in the premises of M/s Nicholas Piramal and M/s Nicholas Piramal was using the machinery. In the rejoinder, learned counsel for the assessee filed a letter dated 02-05-2011 issued by M/s Piramal Health Care (the erstwhile M/s Nicholas Piramal India Ltd.,) to the effect that the CLCP moulds were purchased during the financial year 1995-96 for Rs. 2.75 Crores and these machines were used for manufacturing of certain products during the FYs: 1997-98 & 1998-99 and they continue to hold the machines on behalf of M/s Allergan India Pvt. Ltd., in their Pithampur factory and they have also not claimed depreciation under the IT Act on the above mentioned machines at any time in the past.

8.2 Having heard both the parties and having considered the material on record, we find that for allowing the claim of depreciation on any machinery, sec. 32 of the IT Act provides that the machinery should be owned wholly or partly by the assessee and used for the purpose of business or profession of the assessee. There is no dispute that the assessee owns the machinery, but the only dispute is whether it is used for the purpose of assessee’s business or profession. The assessee has entered into contract for manufacture of certain ophthalmic solutions and for the said purpose the machinery was purchased and installed in the premises of M/s Nicholas Piramal during the relevant financial years. There is also no doubt that the machinery has been used by M/s Nicholas Piramal for manufacture of the said solutions and moulds. Now the only question is whether it can be considered to have been used for the purpose of assessee’s business. There have been many instances where the assessees do not do manufacture parts on their own, but often outsource the work to other entities. The manufacturing is done as per specification of the assessee and the goods are also recognized as manufactured by the assessee, since they are sold in the brand name of the assessee. In such a situation, it can be said that the goods are manufactured by the assessee itself. When the machine is being used for the manufacture of goods for the assessee, it cannot be said that they are not used for the purpose of business or profession of the assessee. Therefore, we are of the opinion, that the assessee satisfies the condition of using the machinery for the purpose of its business. Hence, the assessee is entitled to depreciation on this machinery. This issue is accordingly allowed.

9. The issue no.4 relates to denial of depreciation on plant & machinery for the assessment years 2003-04, 2004-05 & 2005-06. This issue is related to the plant & machinery acquired during the FYs: 1997-98 on which the depreciation was denied.

9.1 The brief facts relating to this issue are that the said machinery though, was purchased in the year 1995-96, but was put to use in FYs: 1997-98 & 1998-99. Thereafter, the machines were written off in the books of assessee as obsolete in the FY: 1998-99, but was added in the computation of income filed along with its tax return for the assessment years 1999-2000 and claimed depreciation thereon. In the assessment orders for the assessment years : 2003-04 to 2005-06, the AO disallowed the depreciation claimed by the assessee by holding that the machinery on which depreciation was claimed no longer existed with the company and the same had been written off in the earlier years. The CIT(A) confirmed the disallowance and the assessee is in second appeal before us.

9.2 The learned counsel for the assessee submitted that once the asset is introduced in a particular block of assets, the asset looses its individual character and use of the individual asset is not relevant for the purpose of claiming depreciation. He submitted that as per the provisions of the Act, the assessee will not be entitled to claim depreciation, only if the asset was sold, discarded, destroyed or demolished, but as the machines continued to physically exist as the assets of M/s Nicholas Piramal, the assessee is entitled to claim depreciation thereon. For this purpose, he placed reliance upon the following decisions;

1. CIT v. Bharat Aluminium Co. Ltd. [2010] reported in 187 Taxman 111 (Del.)

10. The learned DR on the other hand, supported the orders of the authorities below and submitted that the machinery having become obsolete has been written off in the books of assessee. He submitted that having become obsolete, it has to be considered as being discarded and therefore, the assessee is not entitled to claim depreciation on the said machinery. He submitted that the assessee ought to have reduced the value of asset by the written down value of the machinery and claimed depreciation for the balance of the block of assets. Thus, according to him, the disallowance of depreciation on the machinery is justified.

10.1 Having heard both the parties and having considered the material on record, we find that the question before us is that where the assessee has written off the value of assets in the books of assessee as obsolete, can it still be include the value of said machinery in the block of assets and claim depreciation thereon. In the decision of the Hon’ble Delhi High Court in the case of M/s Bharat Aluminium Co., Ltd., the Court held that in order to be entitled to claim depreciation asset has to be owned by the assessee and it has to be used for the purpose of business or profession, but the expression used for the purpose of business, would apply for block of assets and not any specific building, machinery, plant or furniture in the said block of assets, as the individual assets loose identity after becoming inseparable part of block of assets. The Hon’ble High Court has also held in that case, since it was not in dispute that for the year under question, the block of assets were used by the assessee the benefit of depreciation was rightly in the year under consideration. Applying the above ratio to the facts of the case before us, we observe that the assessee has purchased the machinery and installed the same in the premises of M/s Nicholas Piramal, but has discontinued the use of the machinery during the relevant financial year. In a case, where a particular asset is discarded, sold, destroyed or demolished, the procedure followed is to reduce the value of written down value of the machinery and also its scrap value from the block of assets and thereafter, on the balance value of the block of assets only the depreciation has to be granted. The fact that the assessee has considered the machinery as obsolete and has written off the value in the books of accounts clearly shows that it had discarded the machinery. In such a case, the assessee ought to have reduced the written down value of the said machinery from the block of assets and ought to have claimed depreciation on the balance of the block of assets. Accordingly, this ground of appeal is rejected and the order of the CIT(A) is confirmed.”

6. Coming to ground nos. 5 & 6 relating to levy of interest u/s 234B & 234C of the IT Act are concerned, the learned counsel for the assessee submitted that the interest u/s 234C of the IT Act is to be levied on the returned income and not on the assessed income, as levied by the AO. However, as the levy of interest u/s 234B & 234C are consequential in nature, we deem it fit and proper to remand the issue also to the file of the assessing authority and the assessing authority shall consider the contentions of the assessee before making the levy of interest u/s 234C of the IT Act.

7. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

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