DCIT Vs Echjay Industries Pvt. Ltd. (ITAT Mumbai)
ITAT Mumbai held that amount of compensation for defective product being capital in nature cannot be adjusted from WDV of the assets.
Facts- Assessee Company is engaged into the business of manufacturing engineering products & exports. Case of the assessee originally assessed u/s. 143(3) of the Act, determining total income at Rs. 14,77,02,280/- against the returned income of Rs. 12,74,92,260/-.
Against this order assessee preferred an appeal before the Ld. CIT (A) and in its first-round; matter has already travelled up to ITAT. Coordinate Bench Restored the matter back to the AO on the appeal of department pertaining to the issue of Depreciation. In compliance to the order of coordinate bench, AO again assessed the case u/s. 143(3) r.w.s. 254 of the Act by restricting the claim of depreciation to Rs. 1,23,86,490/- against the claim of Rs. 2,92,09,742/-.
Assessee being aggrieved with this order of AO passed u/s. 143(3) r.w.s. 254 in second round of assessment proceedings preferred an appeal before the Ld. CIT (A), who in turn reversed the order of AO and allowed the appeal of the assessee in his order u/s. 250 of the Act. Now, revenue being aggrieved with this order preferred this appeal before us.
Conclusion- Held that stand of the assessee is correct and action of AO is liable to be reversed. As assessee has incurred full cost of acquisition out of its own pocket and no part of cost has been borne by anybody else. In the given circumstances, amount of compensation received cannot be equated with “Cost bear by third party”. Hence WDV of the assets cannot be adjusted by this amount of compensation received by the assessee. In the result ground raised by the revenue is dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by revenue is directed against the order of Ld. CIT (A)-50, Mumbai dated 17.01.2023 u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2002-03. The revenue has raised the following grounds of appeal:-
“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing to allow the depreciation on plant and machinery without reducing the amount of compensation received by the assessee in AY 1999-2000 of Rs. 16,05,29,977/- (being initial year), whereas the compensation received by the assessee was in the nature of capital receipts and liable to be deducted from the WDV of plant & machinery for charging depreciation as per Income Tax Act/ Rule and the issue for AY 1999- 2000 yet to be decided by the ITAT.”
2. The brief Facts of the case are that Assessee Company is engaged into the business of manufacturing of engineering products & exports. Case of the assessee originally assessed u/s. 143(3) of the Act, determining total income at Rs. 14,77,02,280/- against the returned income of Rs. 12,74,92,260/-. Against this order assessee preferred an appeal before the Ld. CIT (A) and in its first-round; matter has already travelled up to ITAT. Coordinate Bench Restored the matter back to the AO on the appeal of department pertaining to the issue of Depreciation. In compliance to the order of coordinate bench, AO again assessed the case u/s. 143(3) r.w.s. 254 of the Act by restricting the claim of depreciation to Rs. 1,23,86,490/- against the claim of Rs. 2,92,09,742/-.
3. Assessee being aggrieved with this order of AO passed u/s. 143(3) r.w.s. 254 in second round of assessment proceedings preferred an appeal before the Ld. CIT (A), who in turn reversed the order of AO and allowed the appeal of the assessee in his order u/s. 250 of the Act. Now, revenue being aggrieved with this order preferred this appeal before us. We have gone through the order of AO, Order of Ld. CIT (A) and arguments of the assessee. It is observed that assessee is involved in the business of manufacturing steel forged products using MS steel and its alloys. Production is tailor made meaning thereby that it manufactures products to the specification and drawings given by the customers. On the issue of facts elaborately noted by the Ld. CIT (A) (both assessee and AO) as under:-
