[2024] 169 taxmann.com 72 (Mumbai - Trib.

)[21-11-2024]

INCOME TAX : Where assessee sold a factory building which was appearing as part
of block of assets in its books of account and claimed depreciation on said block of
building, Assessing Officer could not have substituted sale consideration received
by stamp duty valuation of property while computing WDV for claiming depreciation
on block of assets
INCOME TAX : Where Assessing Officer disallowed certain expenses claimed by
assessee on ad-hoc basis for reason that assessee did not provide party-wise
details of expenses along with supporting documents and vouchers, since assessee
was willing to produce all necessary evidence in support of expenses claimed,
matter was to be restored back to Assessing Officer to decide issue afresh in
accordance with law

■■■

[2024] 169 taxmann.com 72 (Mumbai - Trib.)

IN THE ITAT MUMBAI BENCH 'A'
3A Composites India (P.) Ltd.
v.
ACIT*
OM PRAKASH KANT, ACCOUNTANT MEMBER
AND RAHUL CHAUDHARY, JUDICIAL MEMBER
IT APPEAL NO. 4096 (MUM) OF 2024
[ASSESSMENT YEAR 2017-18]
NOVEMBER 21, 2024

I. Section 32, read with section 43(6), of the Income-tax Act, 1961 - Depreciation -
Allowance/rate of (Written down value) - Assessment year 2017-18 - During year, assessee
sold a factory building which was appearing as part of block of assets in its books of
account and claimed depreciation on said block of building - Assessing Officer substituted
sale consideration received by stamp duty valuation of property while computing written
down value (WDV) for claiming depreciation on block of assets in accordance with
provisions of section 50C and disallowed excess depreciation claimed by assessee -
Whether legal fiction of section 50C cannot be extended while working out WDV for purpose
of claiming depreciation on block of assets - Held, yes - Whether, therefore, Assessing
Officer could not have substituted sale consideration received by stamp duty valuation of
property while computing WDV for claiming depreciation on block of assets - Held, yes -
Whether, therefore, impugned disallowance of depreciation was to be deleted - Held, yes
[Para 12.1] [In favour of assessee]
II. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability Of
(Supporting documents) - Assessment year 2017-18 - During course of assessment
proceeding, Assessing Officer asked assessee to provide party-wise details of expenses
along with supporting documents and vouchers - However, in absence of any details or
supporting documents, Assessing Officer disallowed certain expenses claimed by assessee
on ad-hoc basis - Whether since assessee was willing to produce all necessary evidence in
support of expenses claimed, matter was to be restored back to Assessing Officer with
direction to assessee to produce all necessary documentary evidence/voucher in support of
voucher claimed for verification by Assessing Officer and, thereafter, Assessing Officer shall
decide issue in accordance with law - Held, yes [Para 15] [Matter remanded]
FACTS I

■ During the year under consideration, the assessee had sold a factory building for a sale consideration of
Rs. 2.45 crores. The said property was appearing as part of block of assets in books of account and
depreciation on said block of building was claimed by the assessee for income tax purposes.
■ The stamp duty valuation of the said building was adopted at Rs. 9.76 crores as against the actual sale
consideration of Rs. 2.45 crores. The assessee claimed depreciation on the remaining value of the written
down value of the block of building after reducing the actual sale consideration of Rs. 2.45 crores and
claimed depreciation of Rs. 1.81 crores.
■ The Assessing Officer held that based on the provision of section 50C, the depreciation should be worked
out on the remaining value of the block of the building after reducing the stamp duty value of the building
of Rs. 9.76 crores and, accordingly, he worked out the depreciation at Rs. 1.09 crores. Accordingly, the
Assessing Officer disallowed excess depreciation of Rs. 71.94 lakhs.
■ On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer.

■ On appeal to the Tribunal:

HELD I

■ The sole issue in dispute in the ground raised by the assessee is in respect of the computation of the
‘written down value’ (WDV) as per the provision of section 43(6)(c)(i)(B). According to the assessee for
computing ‘written down value’ of the block of the assets, consisting building, the actual sale
consideration in respect of an asset sold from the block of the asset should be reduced from opening
WDV, whereas according to the revenue, the notional sale consideration of the asset sold as prescribed
under section 50C should be reduced from opening WDV. [Para 10]

■ According to the section 32(1)(ii), depreciation on any block of asset is allowed at the rate of percentage
prescribed under the rule on the ‘written down value’ of block of asset. The dispute is not in respect of the
‘rate of depreciation’ but dispute is in respect of the term ‘written down value’. In Explanation 2 to section
32(1), it is mentioned that for the purpose of sub-section (1), the ‘written down value’ of the block of the
asset shall have the same meaning as in sub-section (c) of clause 6 of section 43. [Para 10.1]

■ The Explanation 4 to section 32 has prescribed that the expression ‘moneys payable’ and ‘sold’ shall have
the same meanings as in the Explanation below sub-section (4) of section 41. [Para 11]
■ On perusal of the provisions of section 41(4), it is clear that for the purpose of computing ‘written down
value’, the value of the ‘moneys payable’ in respect of the property sold has to be reduced from opening
written down value of block of asset. The inclusive definition provided for insurance, compensation, etc.
received in respect of the said property and the price for which the property is sold. The revenue is of the
view that the above definition of the money’s payable is inclusive and, therefore, the fair market value
determined by the Stamp Duty Valuation Authority for the purpose of section 50C would become the
price for which the property is sold. In the instant case, the issue in dispute is limited to the computation
of the depreciation under the head ‘profits and gains of the business’. In the instant case, the sale
consideration of the building sold is not more than the opening written down value (WDV) of the block
including new building acquired, therefore, the section 50 does not result to any short-term capital, hence,
is not applicable over present facts of the case until all the buildings under the block are sold and in that
case section 50 would get attracted and the Assessing Officer could have substituted the sale consideration
received by stamp duty valuation of the property. Therefore, the said deeming fiction of section 50C
cannot be extended while working out the written down value for the purpose of claiming deprecation on
the block of the asset. The legislature has created the legal fiction under section 50C for the purpose of
computing the capital gain on sale of capital assets. Similarly, while computing the profits and gains of the
business, the legislature has introduced a legal fiction under section 43CA for substantiating the sale
consideration by the Stamp Duty Value while transfer of an assets other than the capital asset, i.e., stock-
 in-trade, but no specific fiction has been created while computing deprecation on the block of the assets
for substantiating the sale consideration by the Stamp Duty Valuation Authority. The present definition of
the ‘moneys payable’ therefore, cannot be construed as including as the Stamp Duty Valuation of the
property and, therefore, the legal fiction for substantiating the sale consideration by the Stamp Duty Value
created under either section 50 or section 43CA cannot be extended to section 32 for claiming
depreciation on the block of the asset. In the instant case, the Assessing Officer could have examined the
applicability of section 41(2) for taxing the quantum of depreciation claimed on building in earlier years,
[Para 12]

■ In view of above discussion, the fiction of section 50C can not be extended to the facts of the case,
accordingly, the finding of the Commissioner (Appeals) on the issue in dispute is set aside and the
disallowance made by the lower authorities is deleted. [Para 12.1]
FACTS II

■ During the course of assessment proceeding, the Assessing Officer asked the assessee to provide party-
wise details of the expenses along with the supporting documents and vouchers. However, the assessee
requested the Assessing Officer to specify the expenses for which details were required and in absence of
any details or supporting documents, the Assessing Officer made disallowance on ad-hoc basis.

■ On appeal, the Commissioner (Appeals) upheld the disallowance.

■ On appeal to the Tribunal:
HELD II

■ The assessee fairly agreed and submitted that details were not filed before the lower authorities, therefore,
the matter should be restored back to the file of the Assessing Officer. It is found that the assessee is
willing to produce all the necessary evidence in support of the expenses claimed and the revenue did not
object to the proposal of the assessee. Accordingly, in view of the above, it is appropriate to restore this
matter back to the file of the Assessing Officer with the direction to the assessee to produce all the
necessary documentary evidence/voucher in support of the voucher claimed for verification by the
Assessing Officer and, thereafter the Assessing Officer shall decide the issue in accordance with the law.
[Para 15]
CASE REVIEW I

ITO v. United Marine Academy [2011] 130 ITD 113 (Mum) [Para 12] – distinguished.
CASES REFERRED TO

DCIT v. Futurz Next Services ITA No. 1383/Del/2017/ITA No. 2396/Del/2017) (para 7) and ITO v. United
Marine Academy [2011] 10 taxmann.com 320/130 ITD 113 (Mumbai) (para 7).
Mihir Naniwadekar and Ms. Rucha Vaidya, Advs. for the Appellant. Ram Krishn Kedia for the
Respondent.
ORDER

Om Prakash Kant, Accountant Member. - This appeal has been preferred by the assessee against the order
dated 26.06.2024, passed by the learned Commissioner of Income Tax (Appeals) ('ld.CIT(A) for short),
National Faceless Appeal Centre, Delhi ('NFAC' for short) for Assessment Year ('A.Y.' for short) 2017-18,
raising following grounds:
1. The ld. CIT(A) erred in upholding disallowance of deprecation of Rs.71,94,901/- made by the ld. A.O.
by relying on the provisions of section 50C of the Income Tax Act, 1961, without appreciating that
section 50C applies only for computation of capital gains and not for determining value of block of assets
under section 43(6).
 2. The ld. CIT(A) erred in upholding disallowance of deprecation of expenses of Rs.89,03,154 made by
the ld. A.O. on adhoc basis, without appreciating that all the expenses claimed were wholly and
exclusively for business purposes and further adhoc disallowance could not be made without any cogent
material only on the basis of surmises.
2. Briefly stated the facts of the case are that the assessee company filed its return of income for the year
under consideration on 30.11.2017, declaring total income at Rs.36,17,54,200/- under the normal provisions
of the Income Tax Act, 1961 ('the Act' for short) and book profit at Rs.37,41,48,330/- u/s. 115JB of the Act.
The return of income filed by the assessee was selected for scrutiny and statutory notices issued under the Act
were issued and complied by the assessee. The assessment u/s. 143(3) of the Act was completed on
19.12.2019 wherein disallowance of the excess depreciation claimed on building amounting to Rs.71,94,901/-
and disallowance out of other expenses amounting to Rs.89,003,154/- was made by the ld. learned Assessing
Officer ('ld. A.O.' for short).
3. On further appeal, the ld. CIT(A) sustained both the disallowance/additions made by the ld. A.O.
4. Aggrieved, the assessee is in appeal before us, by way of raising the grounds as reproduced above. The ld.
Counsel for the assessee has filed a paper book containing pg. nos. 1 to 77.
5. Ground no.1 of the appeal of the assessee relates to disallowance of depreciation of Rs.71,99,901/-
sustained by the ld. CIT(A). The facts in brief qua in dispute are that during the year under consideration, the
assessee had sold a factory building for a sale consideration of Rs.2,45,00,000/-. The said property was
appearing as part of block of assets in books of account and depreciation on said block of building was
claimed by the assessee for income tax purposes. The stamp duty valuation of the said building was adopted at
Rs.9,76,75,509/- as against the actual sale consideration of Rs.2,45,00,000/-. The assessee claimed
depreciation on the remaining value of the written down value of the block of building after reducing the
actual sale consideration of Rs.2,45,00,000/- and claimed depreciation of Rs.1,81,36,734/-. The working of
the said deprecation is as under:
Opening WDV of block of building Rate (%) Additions Deductions Deprecation Closing WDV
19,92,74,531 10 78,19,306 2,45,00,000 1,81,36,734 16,44,57,103

6. The ld. A.O. did not agree with the contention of the assessee and held that based on the provision of
section 50C of the Act, the depreciation should be worked out on the remaining value of the block of the
building after reducing the stamp duty value of the building of Rs.9,76,75,509/- and, accordingly, he worked
out the deprecation at Rs.1,09,41,833/-. The working of the deprecation by the ld. A.O. is extracted as under:
Opening WDV of block of building Rate (%) Additions Deductions Deprecation Closing WDV
19,92,74,531 10 78,19,306 9,76,75,509 1,09,41,833 9,84,76,495

7. Accordingly, the ld. A.O. disallowed excess depreciation of Rs.71,94,901/-(Rs.181,36,734 -

Rs.109,41,833). Before the Id. CIT(A), the assessee relied on the decision of the co-ordinate bench of the
Tribunal in the case of DCIT v. Futurz Next Services (Private) Limited (in ITA No. 1383/Del/2017 & ITA No.
2396/Del/2017) and submitted that the legal fiction of substituting the sale consideration by the Stamp Duty
value under section 50C of the Act is created only for the purpose of computing capital gain on the sale of
capital assets and not for computing the written down value for claiming deprecation under the head 'profits
and gains of the business'. However, the ld. CIT(A) did not accept the contention of the assessee. The ld.
CIT(A) referred to the definition of the written down value provided in section 43(6) of the Act, wherein the
definition of the 'moneys payable' is defined. According to the ld. CIT(A), the amount payable should be read
as per the provision of section 50C of the Act, which is the amount deemed to be received on the sale of the
immovable property in case the transfer value is less than the fair market value. The ld. CIT(A) also relied on
the decision in the case of ITO v. United Marine Academy [2011] 10 taxmann.com 320/130 ITD 113/9 ITR(T)
639 (Mumbai), wherein for computing the capital gain on transfer of depreciable asset, the sale consideration
is directed to be substituted by the Stamp Duty Valuation of the said depreciable asset. The relevant finding of
the ld. CIT(A) is reproduced as under:
6.5 In view of the above, the moot point of adjudication here is that the amount to be reduced on account
of sale of building shall be actual amount received or notional amount as per section 50C while
computing allowable depreciation. In this regard, the provision 1 of section 50C are re-produced
hereunder:
 Section 50C(1): Where the consideration received or accruing as a result of the transfer by an
assessee of a capital asset, being land or building or both, is less than the value adopted or assessed
or assessable by any authority of a State Government (hereafter in this section referred to as the
"stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the
value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the
full value of the consideration received or accruing as a result of such transfer...
6.6 On perusal of the above provision, it is to be noted that the section 50C shall be invoked if the
underlined asset is capital asset. But in the underlined case, the building sold was pertaining to business
assets and was part of block of assets. Further, provision of section 43(6), defines "Written Down Value"
as under:

(a) ...
(b) ...

(c) in the case of any block of assets,-

(i) in respect of any previous year relevant to the assessment year commencing on the 1st day
of April, 1988, the aggregate of the written down values of all the assets falling within that
block of assets at the beginning of the previous year and adjusted,-
(A) by the increase by the actual cost of any asset falling within that block, acquired during the
previous year;
(B) by the reduction of the 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 the amount of
the scrap value, if any, so, however, that the amount of such reduction does not exceed the written
down value as so increased; and
6.7 The above provision clearly mandates that WDV shall be reduced by amount payable and as per
provisions of Section 50C the amount deemed to be received on sale of immovable property (in case
transfer value is less than fair market value) shall be the stamp duty valuation. Harmonious reading of
both the provisions together, it is clear that section 50C is applicable while selling of depreciable asset as
well.
6.8 Further, the Mumbai ITAT special bench has also delt with the same situation in case of ITO v. United
Marine Academy [2011] 10 taxmann.com 320/130 ITD 113/9 ITR(T) 639 (Mumbai). The extracts of said
judgment are re-produced hereunder:
In our opinion, the Assessing Officer thus was right in applying the provision of section 50C to the
transfer of depreciable capital assets covered by section 50 and in computing the capital gain arising
from the said transfer by adopting the stamp duty valuation. We, therefore, answer the question
referred to this special bench in the affirmative i.e. in favour of the Revenue and against the assessee.
6.9 In view of the above and having regard to special bench judgment, I am of the considerate view that
the stand adopted by Ld. AO is appropriate and the addition carried out is justified. Therefore, the
disallowance made by the Ld. AO are being upheld.
8. Before us, the ld. Counsel for the assessee relied on the decision of the Hon'ble Supreme Court in the case
of Mancheri Puthusseri Ahmed v. Kuthiravattam Estate Receiver [1996] 6 Supreme Court Cases 185, wherein
the Hon'ble Supreme Court held that legal fiction cannot be extended beyond the purpose for which it is
created. Accordingly , he submitted that the legal fiction of section 50C of the Act cannot be extended while
working out the written down value for claiming depreciation on the block of asset. The ld. Counsel for the
assessee relied on the decision of the co-ordinate bench of the Tribunal in the case of Futurz Next Services
(Private) Limited (supra).
9. On the contrary, the learned Departmental Representative ('ld. DR' for short) submitted that while
computing the written down value of block of asset, the 'moneys payable' in respect of the property transferred
has to be considered. He referred to Explanation below to section 41(4) of the Act, wherein the term 'money
payable' has been defined. He submitted that the definition of the 'money payable' is inclusive definition and,
therefore, the word 'payable' should include the fair market value of the property determined by the Stamp
Duty Valuation Authority. He further referred that the word 'money payable' included for the price which
building is sold and the price has been determined by the Stamp Duty Valuation Authority and, therefore, the
same should be substituted by the sale consideration while computing the written down value for the purpose
of claiming depreciation.
10. We have heard the rival submissions of the parties and perused the relevant materials available on record,
including the paper book filed by the assessee. The sole issue in dispute in the ground raised by the assessee is
in respect of the computation of the 'written down value' (WDV) as per the provision of section 43(6)(c)(i)(B)
of the Act. According to the assessee for computing 'written down value' of the block of the assets, consisting
building, the actual sale consideration in respect of an asset sold from the block of the asset should be reduced
from opening WDV, whereas according to the Revenue, the notional sale consideration of the asset sold as
prescribed u/s. 50C should be reduced from opening WDV. In view of the above difference of opinion
between the parties on the issue of interpretation of the terms 'written down value', we feel it appropriate to
refer to the relevant provisions of the Act.
10.1 According to the Section 32(1)(ii) of the Act, depreciation on any block of asset is allowed at the rate of
percentage prescribed under the Rule on the 'written down value' of block of asset. Before us, the dispute is
not in respect of the 'rate of depreciation' but dispute is in respect of the term 'written down value'. In
explanation 2 to section 32(1), it is mentioned that for the purpose of sub section, the 'written down value' of
the block of the asset shall have the same meaning as in sub section (c) of clause 6 of section 43 of the Act.
The relevant section is reproduced as under:
43. Definitions of certain terms relevant to income from profits and gains of business or profession.
In sections 28 to 41 and in this section, unless the context otherwise re quires -
(1) .........
(2). .....
(6) "written down value" means-
(a) in the case of assets acquired in the previous year, the actual cost to the assessee;
(b) in the case of assets acquired before the previous year, the actual cost to the assessee less all
depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of
1922), or any Act repealed by that Act, or under any executive orders issued when the Indian
Income-tax Act, 1886 (2 of 1886), was in force:
[Provided that in determining the written down value in respect of buildings, machinery or plant for
the purposes of clause (ii) of sub-section (1) of section 32, "depreciation actually allowed" shall not
include depreciation allowed under sub-clauses (a), (b) and (c) of clause (vi) of sub-section (2) of
section 10 of the Indian Income-tax Act, 1922 (11 of 1922), where such depreciation was not
deductible in determining the written down value for the purposes of the said clause (vi);] [Inserted
by Act 15 of 1965, Section 6 (w.r.e.f. 1.4.1962).]
(c) [in the case of any block of assets,- [Inserted by Act 46 of 1986, Section 8 (w.e.f. 1.4.1988).]
(i) in respect of any previous year relevant to the assessment year commencing on the 1st day of
April, 1988, the aggregate of the written down values of all the assets falling within that block of
assets at the beginning of the previous year and adjusted,-
(A) by the increase by the actual cost of any asset falling within that block, acquired during the
previous year;
(B) by the reduction of the 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
the amount of the scrap value, if any, so, however, that the amount of such reduction does not
exceed the written down value as so increased; and]
(C) [in the case of a slump sale, decrease by the actual cost of the asset falling within that block
as reduced- [Inserted by Act 27 of 1999, Section 26 (w.e.f. 1.4.2000).]

(a) by the amount of depreciation actually allowed to him under this Act or under the corresponding
 provisions of the Indian Income-tax Act, 1922 (11 of 1922) in respect of any previous year relevant
to the assessment year commencing before the 1st day of April, 1988; and

(b) by the amount of depreciation that would have been allowable to the assessee for any assessment
year commencing on or after the 1st day of April, 1988 as if the asset was the only asset in the
relevant block of assets, so, however, that the amount of such decrease does not exceed the written
down value;]

(ii)[in respect of any previous year relevant to the assessment year commencing on or after the 1st day of
April, 1989, the written down value of that block of assets in the immediately preceding previous
year as reduced by the depreciation actually allowed in respect of that block of assets in relation to
the said preceding previous year and as further adjusted by the increase or the reduction referred to
in item (i).] [Inserted by Act 46 of 1986, Section 8 (w.e.f. 1.4.1988).]
Explanation 1. -....................
[Explanation 2-A.-.....................
Explanation 2-B.-.........................
Explanation 3. -.........................
[Explanation 4. -For the purposes of this clause, the expressions "moneys payable" and "sold" shall have
the same meanings as in the Explanation below sub-section (4) of section 41.] [Inserted by Act 46 of
1986, Section 8 (w.e.f. 1.4.1988).]
[Explanation 5. -..............................
[Explanation 6. -........................
[Explanation 7. -.............................
11. The Explanation 4 above has prescribed that the expression "moneys payable" and "sold" shall have the
same meanings as in the Explanation below sub-section (4) of section 41. Therefore, it is relevant to
reproduce the said explanation below sub-section (4) of section 41, for ready reference, as under:
41. Profits chargeable to tax.
(1) ........
(2) ..........
(3) ......
(4) Where a deduction has been allowed in respect of a bad debt or part of debt under the provisions of
clause (vii) of sub-section (1) of section 36, then, if the amount subsequently recovered on any such debt
or part is greater than the difference between the debt or part of debt and the amount so allowed, the
excess shall be deemed to be profits and gains of business or profession, and accordingly, chargeable to
income-tax as the income of the previous year in which it is recovered, whether the business or
profession in respect of which the deduction has been allowed is in existence in that year or not.
[Explanation. - For the purposes of sub-section (3),-
(1) "moneys payable" in respect of any building, machinery, plant or furniture includes-
(a)any insurance, salvage or compensation moneys payable in respect thereof;
(b)where the building, machinery, plant or furniture is sold, the price for which it is sold, so,
however, that where the actual cost of a motor car is, in accordance with the proviso to clause (1) of
section 43, taken to be twenty-five thousand rupees, the moneys payable in respect of such motor car
shall be taken to be a sum which bears to the amount for which the motor car is sold or, as the case
may be, the amount of any insurance, salvage or compensation moneys payable in respect thereof
(including the amount of scrap value, if any) the same proportion as the amount of twenty-five
thousand rupees bears to the actual cost of the motor car to the assessee as it would have been
computed before applying the said proviso;
 (2) "sold" includes a transfer by way of exchange or a compulsory acquisition under any law for the time
being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the
amalgamating company to the amalgamated company where the amalgamated company is an Indian
company.]
12. On perusal of the above provisions, it is clear that for the purpose of computing 'written down value', the
value of the 'moneys payable' in respect of the property sold has to be reduced from opening written down
value of block of asset. The inclusive definition provided for insurance, compensation, etc. received in respect
of the said property and the price for which the property is sold. The ld. DR is of the view that the above
definition of the money's payable is inclusive and, therefore, the fair market value determined by the Stamp
Duty Valuation Authority for the purpose of section 50C of the Act would become the price for which the
property is sold. The ld. DR relied on the decision of the co-ordinate bench of the Tribunal in the case of
United Marine Academy (supra), but in the said case, the issue was in respect of the determination of the
capital gain arising from the transfer of the depreciable assets, but in the instant case before us, the issue in
dispute is limited to the computation of the depreciation under the head 'profits and gains of the business'. In
the instant case , the sale consideration of the building sold is not more than the opening written down value
(WDV) of the block including new building acquired, therefore, the section 50 of the Act does not result to
nay short term capital, hence, said is not applicable over present facts of the case until all the buildings under
the block are sold and in that case section 50 would get attracted and applying the ration in the case of United
Marine Academy (supra), the Assessing officer could have substituted the sale consideration received by
stamp duty valuation of the property. Therefore, in our opinion, the said deeming fiction of section 50C
cannot be extended while working out the written down value for the purpose of claiming deprecation on the
block of the asset. The Hon'ble Supreme Court in the case of Mancheri Puthusseri Ahmed v. Kuthiravattam
Estate Receiver (supra) has held that while interpreting the provision involving a legal fiction, the court is to
ascertain as for what purpose the fiction is created, and after ascertaining this, the court is to assume all those
facts and consequences which are incidental or inevitable corollaries for giving effect to the fiction. We find
that legislature has created the legal fiction u/s. 50C of the Act for the purpose of computing the capital gain
on sale of capital assets. Similarly, while computing the profits and gains of the business, the legislature has
introduced a legal fiction under section 43CA of the Act for substantiating the sale consideration by the Stamp
Duty Value while transfer of an assets other than the capital asset, i.e., stockin-trade, but no specific fiction
has been created while computing deprecation on the block of the assets for substantiating the sale
consideration by the Stamp Duty Valuation Authority. The present definition of the 'moneys payable'
therefore, cannot be construed as including as the Stamp Duty Valuation of the property and, therefore, the
legal fiction for substantiating the sale consideration by the Stamp Duty Value created under either section 50
or section 43CA of the Act cannot be extended to section 32 of the Act for claiming depreciation on the block
of the asset. In the instant case, the AO could have examined the applicability of section 41(2) for taxing the
quantum of depreciation claimed on building in earlier years, which we don't know whether he had examined
or not. For ready reference, the said section is reproduced as under:
41. Profits chargeable to tax.
(2) Where any building, machinery, plant or furniture,-
(a)which is owned by the assessee;
(b)in respect of which depreciation is claimed under clause (i) of sub-section (1) of section 32; and
(c)which was or has been used for the purposes of business, is sold, discarded, demolished or destroyed
and the moneys payable in respect of such building machinery, plant or furniture, as the case may be,
together with the amount of scrap value, if any, exceeds the written down value, so much of the excess as
does not exceed the difference between the actual cost and the written down value shall be chargeable to
income-tax as income of the business of the previous year in which the moneys payable for the building,
machinery, plant or furniture became due.
Explanation. - Where the moneys payable in respect of the building, machinery, plant or furniture
referred to in this sub-section become due in a previous year in which the business for the purpose of
which the building, machinery, plant or furniture was being used is no longer in existence, the provision
of this sub-section shall apply as if the business is in existence in that previous year.]
12.1 In view of above discussion, the fiction of section 50C can't be extended to the facts of the case,
accordingly, we set aside the finding of the ld. CIT(A) on the issue in dispute and we delete the disallowance
made by the lower authorities. Ground no. 1 raised by the assessee in appeal is accordingly allowed.
13. Ground no. 2 raised by the assessee in appeal is in relation of the disallowance of expenses of
Rs.89,03,154/- made by the ld. A.O. The facts in brief qua in dispute are that during the course of assessment
proceeding, the ld. A.O. asked the assessee to provide party-wise details of the expenses along with the
supporting documents and vouchers. However, the assessee requested the ld. A.O. to specify the expenses for
which details were required. The assessee submitted that it had already disallowed certain expenses appearing
in the profit and loss account in computation of total income. But in absence of any details or supporting
documents, the ld. A.O. disallowed an amount of Rs.89,03,154/, i.e., 5% of Rs.17,80,63,088/- on ad-hoc basis.
14. On further appeal, the ld. CIT(A) upheld the disallowance by observing as under:
6.12 During the appellate proceedings, the appellant filed break up of other expenses and filed copy of
ledger extracts of said expenses. The appellant once again filed fo file supporting documents such as
copy of invoices, bank statements reflecting payment made, etc.
In absence of aforesaid documents, the genuineness of the expenses and correctness of expenses can not
be verified.
Thus, the disallowance carried out by the Ld.. AO is found to be correct and being upheld.
15. We have heard the rival submissions of the parties and perused the materials available on record. Before
us, the ld. Counsel for the assessee fairly agreed and submitted that details were not filed before the lower
authorities, therefore, the matter should be restored back to the file of the ld. AO. We find that the assessee is
willing to produce all the necessary evidence in support of the expenses claimed and the ld. DR did not object
to the proposal of the ld. Counsel for the assessee. Accordingly, in view of the above, we feel it appropriate to
restore this matter back to the file of the ld. A.O. with the direction to the assessee to produce all the necessary
documentary evidence/voucher in support of the voucher claimed for verification by the ld. A.O. and,
thereafter the ld. A.O. shall decide the issue in accordance with the law. Ground no. 2 raised by the assessee in
appeal is accordingly allowed for statistical purpose.
16. In the result, the appeal filed by the assessee is allowed for statistical purpose.
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*Matter remanded.