IN INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV , JM AND SHRI RAJESH KUMAR, AM I.T.A. No.2167 and 2168/Mum/2013 ( Assessment Year : 2005-06 and 2006-07) M/s Spenta Int ernat ional Ltd., Dy.Commissioner of Income Tax Oricon House, 4 t h floor, Circle 1(3), Vs. 12 K Bubash Marg, 6th floor, Aayakar Bhavan, Mumbai -400023 M K Road, Mumbai-400020 PAN : AAACS5965P Appellant by Dr.K Shivram and Shri Rahul Hakani Assessee by Shri Rajneesh K Arvind Date of Hearing : 17.8.2016 /Date of Pron ouncement : 15.09.2016 O R D E R PER RAJESH KUMAR, A. M: These are two appeals filed by assessee against two separate orders dated 15.1.2013 passed by ld.CIT(A)-2, Mumbai for assessment years 2005-06 and 2006-07 respectively. Since issues involved in both these appeals pertains to reopening of assessment u/s 147 read with section 148 of Income Tax Act, 1961, and others are common, therefore, these appeals are heard together and are being decided by this common order, for sake of convenience. 2 2167 and 2168/M/Mum/2013 2. assessee has raised two effective grounds of appeal. first ground is in respect of challenging jurisdiction of AO u/s 147 read with section 148 of Act and Ground no.2 relates to disallowance of depreciation. 3. We shall first take up Ground no.1 on merits. (AY-2005-06) 3.1 brief facts of case are that assessee filed its return of income on 18.10.2005 declaring total income at Rs.22,43,950/- which was processed under section 143(1) of Act on 24.2.2006. Thereafter, case of assessee was reopened after recording reasons and obtaining approval of Commissioner of Income Tax. reasons recorded by AO are reproduced below : assessment in this case was done u/s.143(1) on 24.02.2006 in summery manner. On perusal at records, it is noticed that assessee company credited block at plant and machinery by Rs.3, 19,20,515/- in books at account, while calculating depreciation u/s.32, it had neither reduced from block WDV of plant and machinery destroyed by fire nor credited amount receivable in insurance claim. Accordingly, excess depreciation to tune of Rs.87,27,7831- has been allowed. There is failure on part of assessee to explain full and true disclosure of particulars of income for A. Y. 2005-06. 2. I have therefore reasons to believe that income of Rs. 87,27,783/-has escaped assessment under provisions of Income- tax Act, 1961 for A. Y 2005-06 and remedial action by issuance of notice u/ s. 148 will be appropriate in case because all conditions for issue of such notice are fulfilled in this case. assessment is being reopened with prior approval of CIT-1, Mumbai given vide letter dated 21.02.2011 as per Sub-section (2) of section 151 of IT Act. Issue notice under section 148 of Income Tax Act, 1961 3 2167 and 2168/M/Mum/2013 4. notice under section 148 was issued on 17.3.2011 and served upon assessee on 21.3.2011. reasons recorded in reopening notice were supplied to assessee. ld. AR attended proceedings on behalf of assessee and made submissions vide letter dated 24.8.2011 and 8.11.2011. ld. AR submitted before AO that insurance claim receivable from Insurance Company was not certain and therefore same was not taken into account while calculating depreciation. ld.AR submitted that Rs.1 crore was received on 15.9.2005 and Rs.1,49,40,705/- was received on 13.4.2006. said claim was received against loss of stocks as well as damages/ destruction of fixed assets. details as to break-up of claim was not available with assessee during year and therefore said amount could not be deducted from block of assets in assessment year 2005-06. Final report with bifurcation from Insurance Company was received in assessment year 2007-08 and assessee accordingly reduced insurance claim received from Insurance Company from block assets in AY 2007-08 and thereby submitted that assessee has not escaped assessment in assessment year 2005-06. AO not finding reply of assessee convincing and satisfying came to conclusion that machinery destroyed in fire cannot be said to have been in existence by said period, and therefore was not put to use, and thus no claim of 4 2167 and 2168/M/Mum/2013 depreciation can be entertained thereon. Accordingly, AO disallowed and added sum of Rs.87,27,783/- on account of disallowance of depreciation which is calculated as under : WDV as Additions Deletion Dep.allowed Dep.Allowable Excess on Dep.Allowed Less than More than 180 1.4.2004 180 days days 99,13,963 1,34,87,915 51,76,776 3,19,20,515 87,27,783 - 87,27,783 Aggrieved by order of AO, assessee has filed appeal before First Appellate Authority(FAA) who also dismissed appeal of assessee by observing and holding as under : In this case, fire broke out on 10.12.2004 and appellant intimated loss to United India Insurance Company on 12.12.2004 and appellant has estimated loss at Rs. 5.25 crores. Subsequently, insurance company has settled issue and made total payment of Rs.2,49,40,705/-. Section 43(6)(c) (i) (B) reads as follows: 6. "written down value means c. in block of assets - i. in respect of any previous year relevant to assessment year commencing on 1 st day of April, 1988, aggregate of written down values of all assets falling within that block of assets at beginning of previous year and adjusted- B. by reduction of moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with amount of scrap value, if any, so, however, that amount of such reduction does not exceed written down value as so increased." 5 2167 and 2168/M/Mum/2013 From this it can be seen that moneys payable in respect of machinery discarded should be reduced from WDV in year destruction. In view of this, monies received towards assets destroyed which are forming part of block of assets should be reduced in this A.Y. from WDV and only on balance amount of WDV, depreciation should be granted for this AY. AO is directed to rework depreciation accordingly from AY 2005-06 and for later assessment years. \ 3.15 It. is seen that A.O. has reduced entire cost of assets destroyed from WDV and this action is not in accordance with Income tax Law. A.O. is directed to rework disallowance as per my directions contained in earlier para. Before concluding I also wish to point out that in view of clear provisions of section 43(6) (c) (i) (B), it is clear that excess deprecation was allowed in intimation u/s. 143(1) of IT. Act. In view of this and in view of Explanation 2(c) (iv) to section 147 of IT. Act, it is clear case of escapement of income and I hold that A.O. has properly assumed jurisdiction u/s. 147 of IT. Act. In view of this, technical contentions raised by appellant are rejected 5. ld. AR vehemently submitted before us that there cannot be double disallowance of depreciation. first when assessee suomottu reduced amount of claim received from Insurance Company in AY 2007-08 and secondly, as disallowed and added by AO in AY 2005-06 and upheld by ld. CIT(A) in appellate proceedings. ld. AR submitted that since assessee has reduced amount of claim received from fixed assets when it obtained details from Insurance Company, therefore, addition as made by AO and 6 2167 and 2168/M/Mum/2013 confirmed by ld. CIT(A) on account of depreciation was bad in law and be deleted accordingly. 6. ld. DR heavily relied on orders of authorities below. 7. We have carefully considered rival submissions and perused material placed before us including orders of authorities below. We find that in this case, fire took place in factory premises of assessee on 10.12.2004 and assessee filed claim in respect of loss of stocks and fixed assets with insurance company which was not received in assessment year 2005-06. claim was received in assessment year 2006-07 and 2007-08. We find that amount of Rs.1 crore was received by assessee on 15.9.2005 and final payment of Rs.1,49,43,705/- was received on 13.4.2006. Since assessee was not having details of claim finally settled and therefore same could not be reduced in assessment year 2005-06 and 2006-07 and when assessee received details from Insurance Company. assessee reduced same from block of assets. Now, issue before us is whether assessee has rightly accounted for claim received from Insurance Company for plant and machinery and fixed assets or same should have been accounted for in AY 2005-06 and 2006-07. Having considered facts in depth, we are of opinion that since assessee did not have break up of claim received from Insurance Company in assessment years 2005-06 and 2006-07 which was finally 7 2167 and 2168/M/Mum/2013 received in AY 2007-08 and this was correctly accounted for by assessee. disallowance of depreciation by AO by reopening assessment in assessment year 2005-06 has resulted into double disallowance one by assessee suo mottu in assessment year 2007-08 and secondly by AO in assessment year 2005-06 and 2006-07 which is not correct in terms of provision of Income Tax Act, 1961 as same disallowance cannot be made twice. depreciation has to be allowed in one year. Moreover, while framing assessment u/s 143(3) read with section 147, AO has not carried out any rectification in respect of assessment year 2007-08 or nor any such direction was given by ld.CIT(A). In view of this, it would be reasonable and proper if disallowance as made by AO in AY 2005-06 is deleted. Under these circumstances, we set aside order of ld.CIT(A) and direct AO to delete disallowance. I.T.A. No.2168/Mum/2013 AY- 2006-07 8. We have already decided identical issue in I.T.A. No.2167/Mum/2013 AY- 2005-06 and therefore, our decision in ITA No.2167/Mum/2013 AY- 2005-06 would mutatis mutandis apply to this appeal as well. AO is directed accordingly. 9. Since we have decided assessee s appeals on preliminary technical issue, so issue raised on merit become academic and same may be agitated as and when situation arises. 8 2167 and 2168/M/Mum/2013 10. In result, appeals of assessee are allowed. Order pronounced in open court on 15.9.2016. Sd sd (SHAILENDRA KUMAR YADAV) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 15. 9..2016 Sr.PS:SRL: Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, True copy (Dy./Asstt. Registrar) ITAT, Mumbai M/s Spenta International Ltd. v. Dy.Commissioner of Income Tax Circle 1(3), Mumbai