Harshini Textiles Ltd., Coimbatore V. ACIT, Coimbatore

ITA 1128/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57851 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 24-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 16-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: K RAGHU
• Keywords: Depreciation
• Section: 32

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI D BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 1128/MDS/2011 ASSESSMENT YEAR: 2007-08 HARSHINI TEXTILES LTD., 34-A, KAMARAJ ROAD, COIMBATORE 641 018. [PAN: AABCM4711E] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), COIMBATORE. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. RAGHU, C.A. REVENUE BY : SHRI K.E.B. RENGARAJAN, JR. STANDING COUNSEL DATE OF HEARING : 24.01.2012 DATE OF PRONOUNCEMENT : 27.01.2012 ORDER PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LD. CIT(A) I, COIMBATORE DATED 08.03.2011 IN ITA NO. 28 4/09-10 PASSED IN ASSESSMENT YEAR 2007-08. SHRI K. RAGHU, C. A. REPRE SENTED ON BEHALF OF THE ASSESSEE AND SHRI K.E.B. RENGARAJAN, JR. STANDING C OUNSEL REPRESENTED ON BEHALF OF THE REVENUE. 2. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APP EAL: (1) THE LEARNED CLT (A), HAS ERRED IN HOLDING THA T THE BUILDING ACQUIRED FROM M/S . SUN SPINTEX LTD. DURING THE PREVIOUS YEAR FORMING P ART OF BLOCK OF ASSETS, WAS NOT ELIGIBLE FOR DEPRECIATION, AS NOT U SED BY THE APPELLANT, IN THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 112 1212 128 88 8/M/11 /M/11 /M/11 /M/11 2 COURSE OF ITS BUSINESS, AFTER ACQUISITION, IN THE F ACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. (2) THE LEARNED CIT (A), OUGHT TO HAVE HELD THAT TH E BLOCK OF ASSETS ELIGIBLE FOR DEPRECIATION U/S 32(1 )(II), BEING IN EXISTENCE, THE DISALLOWANCE OF DEPRECIATION IN RESPECT OF BUILDING ACQUIRED DURING THE YEAR, FORMING PART OF THE BLOCK OF ASSETS IS UNSUSTAINABLE, IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW. (3) THE LEARNED CIT (A), HAS ERRED IN APPRECIATING THE RATIONAL BEHIND THE INTRODUCTION OF CONCEPT OF BLOCK OF ASSETS, AS CONT AINED IN CBDT CIRCULAR NO.469 DATED 23.09.1986 REFERRED TO BY THE DELHI HI GH COURT IN CIT VS OSWAL AGRO MILLS LTD., DELHI, REPORTED IN 197 TAXMA NN 25, WOULD BE APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLAN T. (4) THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION DUE, U/S 32 (1 )(II) TO THE EXTENT OF ` .13,63,219/-, IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW. (5) FOR THESE AND OTHER ADDITIONAL GROUNDS OF THE APPEAL THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE CI T(A), IS OPPOSED TO LAW AND UNSUSTAINABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE SOLE ISSUE INVOLVED IN THE ABOVE GROUNDS OF APPEAL IS THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT BUILDING IN QUESTI ON FORM PART OF THE BLOCK OF ASSETS AND ACCORDINGLY DEPRECIATION IS ALLOWABLE I N COMPUTING THE INCOME FROM BUSINESS OF THE PREVIOUS YEAR. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN T HE INSTANT CASE, THE ASSESSEE PURCHASED BUILDING FROM M/S. SUN SPINTEX I NDIA LIMITED, A SISTER CONCERN OF THE ASSESSEE. THE SAID M/S. SUN SPINTEX INDIA LIMITED CONTINUED TO USE THE BUILDING WHEREIN ITS MACHINERY WERE INST ALLED AND WAS DOING CONVERSION JOB FOR THE ASSESSEE, THE POWER CHARGES WERE PAID BY M/S. SUN SPINTEX INDIA LIMITED AS PER THE EVIDENCE PRODUCED BY THE ASSESSEE. THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 112 1212 128 88 8/M/11 /M/11 /M/11 /M/11 3 ASSESSING OFFICER DISALLOWED THE CLAIM FOR DEPRECIA TION ON BUILDING TO THE ASSESSEE COMPANY ON THE GROUND THAT THE BUILDING WA S NOT USED FOR THE BUSINESS OF THE ASSESSEE NOR HAD THE ASSESSEE CHARG ED ANY RENT FOR THE BUILDING AFTER IT WAS PURCHASED BY THE ASSESSEE. 5. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ORDER O F THE ASSESSING OFFICER ON THE GROUND THAT THE BUILDING WAS NOT PUT TO USE FOR ANY OF THE ASSESSEES BUSINESS PURPOSES. 6. THE LD. AR FOR THE ASSESSEE ARGUED THAT THE BLO CK OF ASSETS ARE ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) A ND THE BLOCK OF ASSETS ARE BEING IN EXISTENCE, DEPRECIATION IN RESPECT OF THE BUILDING ACQUIRED DURING THE YEAR AND FORMING PART OF THE BLOCK OF THE ASSETS SH OULD NOT HAVE BEEN DISALLOWED. HE RELIED ON THE DECISION OF THE HONBL E DELHI HIGH COURT IN THE CASE OF CIT VS. OSWAL AGRO MILLS LTD. [2011] 197 TA XMANN 25, WHEREIN IT WAS HELD AS UNDER: AS PER AMENDED S. 32, DEDUCTION IS TO BE ALLOWED ' IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCENTAGE ON THE WDV THEREOF AS MAY BE PRESCRIBED'. THUS, THE DEPRECIATION IS ALLOWED ON B LOCK OF ASSETS, AND THE REVENUE CANNOT SEGREGATE A PARTICULAR ASSET THEREFR OM ON THE GROUND THAT IT WAS NOT PUT TO USE. WITH THE AFORESAID AMEN DMENT, THE DEPRECIATION IS NOW TO BE ALLOWED ON THE WDV OF THE BLOCK OF ASSETS AT SUCH PERCENTAGE AS MAY BE PRESCRIBED. WITH THIS AME NDMENT, INDIVIDUAL ASSETS HAVE LOST THEIR IDENTITY AND CONCEPT OF BLO CK OF ASSETS HAS BEEN INTRODUCED, WHICH IS RELEVANT FOR CALCULATING THE D EPRECIATION. IT BECOMES MANIFEST FROM THE READING OF CIRCULAR NO. 4 69, DT. 23RD SEPT., 1986 THAT THE LEGISLATURE FELT THAT KEEPING THE DET AILS WITH REGARD TO EACH AND EVERY DEPRECIABLE ASSET WAS TIME CONSUMING BOTH FOR THE ASSESSEE AND THE AO. THEREFORE, THEY AMENDED THE LAW TO PROV IDE FOR ALLOWING OF THE DEPRECIATION ON THE ENTIRE BLOCK OF ASSETS INST EAD OF EACH INDIVIDUAL ASSET. THE BLOCK OF ASSETS HAS ALSO BEEN DEFINED TO INCLUDE THE GROUP OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 112 1212 128 88 8/M/11 /M/11 /M/11 /M/11 4 ASSET FALLING WITHIN THE SAME CLASS OF ASSETS. ANOT HER SIGNIFICANT AND CONTEMPORANEOUS DEVELOPMENT, WHICH NEEDS TO BE NOTI CED IS THAT THE LEGISLATURE HAS ALSO DELETED THE PROVISION FOR ALLO WING TERMINAL DEPRECIATION IN RESPECT OF EACH ASSET, WHICH WAS PR EVIOUSLY ALLOWABLE UNDER S. 32(1)(III) AND ALSO TAXING OF BALANCING CH ARGE UNDER S. 41(2) IN THE YEAR OF SALE. INSTEAD OF THESE TWO PROVISIONS, NOW WHATEVER IS THE SALE PROCEED OF SALE OF ANY DEPRECIABLE ASSET, IT HAS TO BE REDUCED FROM THE BLOCK OF ASSETS. THIS AMENDMENT WAS MADE BECAUSE NO W THE ASSESSEES ARE NOT REQUIRED TO MAINTAIN PARTICULARS OF EACH AS SET SEPARATELY AND IN THE ABSENCE OF SUCH PARTICULARS, IT CANNOT BE ASCER TAINED WHETHER ON SALE OF ANY ASSET, THERE WAS ANY PROFIT LIABLE TO BE TAX ED UNDER S. 41(2) OR TERMINAL LOSS ALLOWABLE UNDER S. 32(1)(III). THIS A MENDMENT ALSO STRENGTHENS THE CLAIM THAT NOW ONLY DETAIL FOR 'BLO CK OF ASSETS' HAS TO BE MAINTAINED AND NOT SEPARATELY FOR EACH ASSET. HAVIN G REGARD TO THIS LEGISLATIVE INTENT CONTAINED IN THE AFORESAID AMEND MENT, IT IS DIFFICULT TO ACCEPT THE SUBMISSION OF THE COUNSEL FOR THE REVENU E THAT FOR ALLOWING THE DEPRECIATION, USER OF EACH AND EVERY ASSET IS E SSENTIAL EVEN WHEN A PARTICULAR ASSET FORMS PART OF BLOCK OF ASSETS. A CCEPTANCE OF THIS CONTENTION WOULD MEAN THAT THE ASSESSEE IS TO BE DI RECTED TO MAINTAIN THE DETAILS OF EACH ASSET SEPARATELY AND THAT WOULD FRU STRATE THE VERY PURPOSE FOR WHICH THE AMENDMENT WAS BROUGHT ABOUT. IT IS AL SO ESSENTIAL TO POINT OUT THAT THE REVENUE IS NOT PUT TO ANY LOSS BY ADOP TING SUCH METHOD AND ALLOWING DEPRECIATION ON A PARTICULAR ASSET, FORMIN G PART OF THE BLOCK OF ASSETS EVEN WHEN THAT PARTICULAR ASSET IS NOT USED IN THE RELEVANT ASSESSMENT YEAR. WHENEVER SUCH AN ASSET IS SOLD, IT WOULD RESULT IN SHORT- TERM CAPITAL GAIN, WHICH WOULD BE EXIGIBLE TO TAX A ND FOR THIS REASON, THERE IS NO LOSS TO REVENUE EITHER. THE UPSHOT OF T HE AFORESAID DISCUSSION IS THAT THOUGH THE REASONING OF THE TRIBUNAL CONTAI NED IN THE IMPUGNED JUDGMENT IS NOT ENTIRELY SUSTAINABLE, THE CONCLUSIO N OF THE TRIBUNAL BASED ON THE BLOCK OF ASSETS AS DISCUSSED ABOVE I S UPHELD. THE LD. AR OF THE ASSESSEE FURTHER CONTENDED THAT T HE IMPUGNED BUILDING, AFTER PURCHASE FROM M/S. SUN SPINTEX INDIA LIMITED, WAS USED FOR CONVERSION OF ASSESSEES COTTON INTO YARN ONLY DURING THE YEAR UNDER CONSIDERATION, WHICH HAS NOT BEEN DISPUTED BY THE REVENUE AND THER EFORE, THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEPRECIATION ON THE BUILDING. 7. THE LD. DR VEHEMENTLY ARGUED AND SUPPORTED THE ORDERS OF LOWER I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 112 1212 128 88 8/M/11 /M/11 /M/11 /M/11 5 AUTHORITIES. 8. WE FIND THAT IT IS NOT IN DISPUTE THAT IN THIS BUILDING THE JOB WORK FOR THE ASSESSEE WAS CARRIED ON BY M/S. SUN SPINTEX INDIA L IMITED WITH ITS PLANT AND MACHINERY. IT IS ALSO NOT IN DISPUTE THAT THE SAID JOB WORK WAS GOT DONE BY THE ASSESSEE DURING THE COURSE OF ITS BUSINESS. THE JOB WORK EXPENSES PAID BY THE ASSESSEE TO THE SAID SISTER CONCERN WAS ALLO WED AS BUSINESS DEDUCTION TO THE ASSESSEE BY THE REVENUE. THUS, FRO M THE ABOVE FACTS, IT IS EVIDENT THAT THE BUILDING WAS USED FOR GETTING THE JOB WORK DONE DURING THE COURSE OF THE BUSINESS OF THE ASSESSEE. IN THE ABOV E CIRCUMSTANCES, IN OUR CONSIDERED VIEW, IT CANNOT BE HELD THAT THE BUILDIN G WAS NOT USED FOR BUSINESS PURPOSES OF THE ASSESSEE DURING THE YEAR U NDER CONSIDERATION. FURTHER THE ASSESSEE CONTENDED THAT IN THE AFORESAI D BUILDING, CONVERSION OF THE ASSESSEES COTTON INTO YARN WAS ONLY DONE DURIN G THE YEAR UNDER CONSIDERATION, WHICH WAS NOT DISPUTED BY THE REVENU E. WE, THEREFORE, ALLOW THE GROUND OF APPEAL OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON THE IMPUGNED BUILDING. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 27.01.2012. SD/- SD/- (GEORGE MATHAN) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER CHENNAI, DATED, THE 27.01.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.