ACIT Vs M/s Krystal Colloids Pvt. Ltd. (ITAT Mumbai)
Conclusion: Once an asset was part of the block of assets and depreciation was granted on that block, it could not be denied in its subsequent year on the ground that one of the assets was not used by assessee in some of years.
Held: Assessee-company was claiming depreciation on intangible assets acquired on conversion from proprietary concern to corporate entity on 31.03.2005. AO held that assessee was not entitled to depreciation claim on intangible asset in view of provisions of Explanation-3 to section 43(1), which had been created as a safeguard to protect the interest of revenue against corporatization schemes, which were devoid of economic or ocommercial justification and could be regarded as pure tax planning scheme. It was held once an asset was part of the block of assets and depreciation was granted on that block, it could not be denied in its subsequent year on the ground that one of the assets was not used by assessee in some of years. The concept “user” of assets had to apply upon block as a whole instead of an individual asset. The above issue could be raised in the AY 2005-06 when the assets entered into the block not to be agitated in the AYs 2006-07 and 2007-08.
FULL TEXT OF THE ITAT JUDGMENT
The captioned appeals filed by the Revenue are directed against the order of the Commissioner of Income Tax (Appeals)-12, Mumbai [in short ‘CIT(A)’] and arise out of the assessment completed u/s 143(3) r.w.s.147 of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience. Facts being identical, we begin with the assessment year (AY) 2006-07.
2. The ground of appeal reads as under:
On the facts and circumstances of the case in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation on intangible assets and other assets amounting to Rs.36,75,000/- acquired by the assessee from proprietary concern pursuant to conversion u/s 47 (xiv) of the Act even when the proprietary concern was not possession of any intangible assets which could fit into basic definition of intangible assets as per the Income Tax Act, 1961.
3. In a nutshell, the facts are that the assessee had claimed depreciation of Rs.36,75,000/- [@ 10% on Written Down Value (WDV) of intangible assets of Rs.3,67,50,000/-] as per Schedule-4 of fixed assets to Form 3CD. In response to a query raised by the AO during the course of assessment proceedings, the assessee submitted that the business of the proprietor Mr. Nayan Mepani was acquired by way of a transfer by the assessee and the conversion was carried out under the provisions of section 47(xiv) of the Act. It was also stated before the AO that the conversion was carried out by bringing all the assets and liabilities of the proprietary firm at their respective fair value including intangible assets and the valuation of the assets was carried out by a government approved valuer. The intangible assets comprised of the following :
