ORDER
Joginder Pall, A.M.
1. By this order we shall dispose of this appeal of the Revenue filed against the order of the CIT(A) for the asst. yr. 1996-97.
2. The only effective issue raised in this appeal is that the learned CIT(A) was not justified in deleting the addition of Rs. 1,00,819 made by the AO by applying the provisions of Section 50(2) of the Act. The facts of the case are that the WDV of the machinery as on the first day of the accounting year was Rs. 3,99,181. The assessee sold the entire machinery for a sum of Rs. 5 lakhs on 7th July, 1995. Thereafter, the assessee purchased machinery for Rs. 10,06,934 in November, 1995. Thus, the total cost of the machinery and WDV aggregated to Rs. 14,06,115 (Rs. 3,99,181 + Rs. 10,06,934). After adjusting the sale proceeds of Rs. 5 lakhs, the assessee had claimed depreciation on machinery worth Rs. 9,06,115. However, the AO observed that the assessee had sold the entire machinery in July, 1995 for a sum of Rs. 5 lakhs and the WDV of the said machinery was Rs. 3,99,181. According to the AO, the assessee was liable to an addition of Rs. 1,00,819 (i.e. Rs. 5 lakhs – Rs. 3,99,181), being excess of sale proceeds over the WDV as per provisions of Section 50(2) of the Act. Accordingly, the AO made an addition of Rs. 1,00,819.
3. Aggrieved, the assessee carried the matter in appeal before the CIT(A). It was contended that the total cost of the machinery alongwith WDV aggregated to Rs. 14,06,115 as against the sale proceeds of the old machinery for Rs. 5 lakhs. It was contended that the provisions of Sub-section (2) of Section 50 were not applicable and no addition was liable to be made. Accepting the contentions of the assessee, the learned CIT(A) deleted the impugned addition by recording the following findings in para 4.3 of the impugned order:
“4.3 The submissions made by the learned counsel for the appellant as well as the objections raised by the AO have been carefully considered. After perusing the facts of the case and the provisions of Section 50, I am of the view that no capital gain is chargeable to tax in this case. The AO has taken into consideration the position as on a particular date falling in the previous year. This is not correct. In this regard it would be relevant to reproduce the provisions of Sub-section (2) of Section 50:
‘Where any block of assets ceases to exist as such for the reason that all the assets in block are transferred during the previous year, the cost of acquisition of the block of assets shall be written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets.’
A bare reading of Sub-section (2) (reproduced above) would show that these provisions are applicable in a case where any block of assets ceases to exist for the reason that all the assets in that block are transferred during the previous year. It has further been provided that the cost of acquisition of the block of assets would be determined by taking into account the written down value of the assets at the beginning of the previous year as increased by the cost of any asset acquired by the assessee during the previous year. The income received or accruing as a result of such transfer shall be deemed to be the short-term capital gain. It is quite clear that while considering the application of this sub-section it is to be ensured that the assets falling in a particular block cease to exist at the end of the previous year. The emphasis is on the assets available at the beginning of the previous year and the assets acquired during that year. If the sale proceeds exceed the WDV of the assets at the beginning of the year only then the resultant difference would be assessable as short-term capital gain. In this case the WDV and the cost of the assets acquired during the year amounted to Rs. 14,06,115. The sale proceeds amounted to Rs. 5 lakhs only. Since the WDV and the cost of the new machinery acquired during the year is more than the sale proceeds, no income is liable to capital gains. In nutshell the position is to be seen in the previous year as a whole and not at any point of time in the previous year. Accordingly, I hold that there was no justification for making the addition of Rs. 1,00,819. The addition so made is deleted.”
The Revenue is aggrieved by the order of the CIT(A). Hence, this appeal before us.
4. The learned Departmental Representative simply relied on the order of the AO. He submitted that on the date of sale of machinery, WDV was only of Rs. 3,99,181. The assessee had sold the machinery for Rs. 5 lakhs and, therefore, surplus was liable to be added under Section 50(2) of the Act, The learned counsel for the assessee, on the other hand, heavily relied on the order of the CIT(A) and reiterated the submissions which were made before him.
5. We have heard both the parties and carefully considered the rival submissions with reference to the facts, evidence and material on record. The case of the Revenue is that sale proceeds of Rs. 5 lakhs should have been considered against the WDV of Rs. 3,99,181 for the reason that the assessee had acquired the machinery at a later date i.e., in the month of November, 1995. But this position is contrary to the provisions of Sub-section (2) of Section 50 of the Act. Sub-section (2) of Section 50 has been reproduced by the CIT(A) in the impugned order and the same has been extracted above. A bare reading of the section shows that cost of acquisition of the block of assets shall be written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets acquired by the assessee during the previous year. Nowhere the section says that cost of acquisition of the block of assets shall be taken on the date of transfer of the old machinery. Only requirement is that addition to the machinery must have been made during the previous year itself. In this case, the assessee had made such addition in the accounting year under reference itself. Therefore, cost of the new machinery was required to be added to the WDV of the machinery on the first day of the accounting year under appeal which in this case aggregated to Rs. 14,06,115. As against the same, the assessee sold the old machinery for Rs. 5 lakhs. Therefore, no addition was called for. In the light of these facts and circumstances of the case, we are of the considered opinion that the CIT(A) has rightly deleted the addition. We confirm his order and dismiss the ground of appeal of the Revenue.
6. In the result, the appeal of the Revenue is dismissed.