SHRI AJAYKUMAR R. JAIN, Bhavnagar V. THE ADDL. CIT, Bhavnagar

ITA 1159/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9285 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-08-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 15-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Assessee Lawyers: B R POPAT
• Keywords: Depreciation
• Section: 43B

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, A-BENCH,AHMED ABAD. BEFORE :SHRI H.L. KARWA, JUDICIAL MEMBER , AND SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER. ITA NO.1159 /AHD/2009 (ASSESSMENT YEAR 2006-2007) AJAYKUMAR R. JAIN PROP. OF DIAMOND INDUSTRIES AND DIAMOND INDUSTRIES (SBD), 348/349, MADHAV DARSHAN, WAGHAWADI ROAD, BHAVNAGAR. VERSUS THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-2, AAYAKAR BHAVAN, JASONATH, BHAVNAGAR. (APPELLANT) (RESPONDENT) PAN: ABMPJ5656Q FOR THE APPELLANT: SHRI B.R. POPAT, AR FOR THE RESPONDENT SHRI RAJEEV AGARWAL, AR ORDER PER SHRI D.C. AGRAWAL: THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FOLLOWING GROUNDS. 1.CONFIRMING THE DISALLOWANCE OF A SUM OF RS.51,54 6/- BEING THE DEPRECIATION ATTRIBUTABLE TO THE ASSETS OF RE-ROLLI NG MILL DIVISION. 2. CONFIRMING THE DISALLOWANCE OF THE SET OFF OF TH E BUSINESS LOSS AMOUNTING TO RS. 13,94,023/-, THEREBY RESULTING IN DISALLOWANCE OF THE CLAIM OF DEDUCTION IN RESPECT OF SEVERAL LEGITI MATE EXPENSES OF REVENUE NATURE, SUBSTANTIAL PORTION OF WHICH WAS EV EN OTHERWISE ALLOWABLE IN VIEW OF SECTION 43B OF THE ACT. 3. NOT FOLLOWING THE RATIO OF THE HON'BLE ITAT, BEN CH D, AHMEDABAD IN THE APPELLANTS OWN CASE. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHIP BREAKING AND ALSO HAD A RE-ROLLING MILL. THE ASSESSING OFFICER DISAL LOWED THE CLAIM OF 2 ITA NO. 1159/AHD/2009 (ASSESSMENT YEAR 2006-2007) DEPRECIATION AMOUNTING TO RS.51,546/- IN RESPECT OF RE-ROLLING MILL DIVISION ON THE GROUND THAT FIXED ASSETS OF THE MIL L ARE NOT IN USE. THE LD. ASSESSING OFFICER FOUND THAT THERE HAS BEEN NO PROD UCTION OR MANUFACTURING DURING THE YEAR UNDER CONSIDERATION A ND WHATEVER EXPENSES ASSESSEE HAS INCURRED WERE TO MAINTAIN THE PREMISES. THE POWER AND FUEL EXPENSES INCURRED WERE THE COMMITTED PAYME NT TO THE POWER BOARD. THEREFORE, PLANT AND MACHINERY AND OTHER AS SETS OF RE-ROLLING MILL HAVING NOT USED IN THE YEAR, THE DEPRECIATION WAS HELD NOT TO BE ALLOWABLE. 3. THE LD. CIT(A) ALSO NOTED THAT NO MANUFACTURING OR PURCHASE AND SALE ACTIVITY HAS BEEN CARRIED OUT IN THE RE-ROLLIN G MILL DIVISION SINCE 2002. IT WAS POSSIBLY CONTENDED BEFORE THE LD. CIT (A) THAT BUSINESS OF RE-ROLLING MILL DIVISION WAS DISCONTINUED. THEREFOR E FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN GULABC HAND AGARAWAL VS. CIT (2004) 267 ITR 768/141 TAXMAN 62 BOMBAY, LD. CI T(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 4. BEFORE US THE LD. A.R. FOR THE ASSESSEE SUBMITTE D THAT ONCE AN ASSET ENTERS INTO BLOCK OF ASSET, THEN DEPRECIATION IS RE QUIRED TO BE ALLOWED IRRESPECTIVE OF ACTUAL USER THEREOF. ON THE OTHER HAND THE LD. D.R. RELIED ON THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN DCIT VS. YENAMMADAS APPA HOSPITAL (2007) 290 ITR 353. IN AD DITION TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN DINESHKUMA R GULABCHAND VS. CIT(SUPRA). 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND CARE FULLY CONSIDERING THE MATERIAL ON RECORD, WE UPHOLD THE DECISION OF THE AUTHORITIES BELOW IN DISALLOWING THE CLAIM OF DEPRECIATION ON THE GROUND THAT MACHINERY OF RE-ROLLING MILL DIVISION WAS NOT PUT TO ACTUAL USE DURING THE YEAR UNDER 3 ITA NO. 1159/AHD/2009 (ASSESSMENT YEAR 2006-2007) CONSIDERATION. THE ASSESSEE COULD NOT PROVIDE ANY EVIDENCE SHOWING HIS INTENTION TO RESTART THE MILL. IT SEEMS THAT PLANT AND MACHINERY WERE KEPT INTACT FOR THE PURPOSES OF CONTESTING CLAIMS BEFORE EXCISE AUTHORITIES WITH WHOM CERTAIN DISPUTES ARE GOING ON. NOTWITHST ANDING FOLLOWING THE TWO AUTHORITIES ONE FROM BOMBAY HIGH COURT AND OTHE R FROM KARNATAKA HIGH COURT, WE HOLD THE VIEW THAT DEPRECIATION ON PLANT AND MACHINERY WHICH ARE NOT PUT TO USE DURING THE YEAR IN QUESTIO N, CANNOT BE ALLOWED UNLESS IT IS SHOWN THAT THE ASSESSEE HAS AN INTENTI ON TO RETURN BACK TO RUN THE MILL. SIMILAR DECISION WAS TAKEN BY HON'BLE CA LCUTTA HIGH COURT IN CIT VS. ORIENTAL CORE LTD. 1994, (2006) ITR 682 CA LCUTTA. 6. THE LD. A.R. HAS REFERRED TO THE DECISION OF TH E TRIBUNAL FOR THE ASSESSMENT YEAR 2002-03 IN A CASE OF THE ASSESSEE W HEREIN DEPRECIATION WAS ALLOWED BY HOLDING THAT THERE WAS A TEMPORARY L ULL IN THE BUSINESS AND ASSESSEE WAS IN READINESS OF BUSINESS. HOWEVER , THIS YEAR THERE IS A FINDING BY AUTHORITIES BELOW THAT BUSINESS OF RE-RO LLING MILL WAS DISCONTINUED. SINCE THIS DISCONTINUANCE OF BUSINES S WAS NOT CONSIDERED IN EARLIER YEAR AND DEPRECIATION WAS ALLOWED BY HOL DING THAT PLANT AND MACHINERY ARE READY FOR USE THAT DECISION WILL NOT APPLICABLE THIS YEAR. FURTHER ABOVE DECISIONS OF HON'BLE BOMBAY HIGH COUR T AND KARNATAKA HIGH COURT AS REFERRED ABOVE WAS NOT CONSIDERED. A S A RESULT THIS GROUND OF APPEAL IS REJECTED. 7. THE NEXT ISSUE IS ABOUT CLAIM OF BUSINESS LOSS O F RS. 13,94,023/-. THIS CLAIM PERTAINS TO RE-ROLLING MILL WHICH WAS NO T RUNNING DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER AC CORDINGLY DISALLOWED THE CLAIM. THE LD. CIT(A) ALSO CONFIRMED THE SAME ON THE GROUND THAT BUSINESS WAS DISCONTINUED. 4 ITA NO. 1159/AHD/2009 (ASSESSMENT YEAR 2006-2007) 8. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT ASS ESSEES BUSINESS IS NOT DISCONTINUED. IT IS ALREADY RUNNING A SHIP BRE AKING BUSINESS AND REROLLING WAS ONE OF THE UNIT. IF UNIT IS PUT UNDE R SUSPENSION, THEN IT DOES NOT MEAN THAT ASSESSEE HAS CLOSED THE BUSINESS. RE -ROLLING MILL UNIT IS A INTEGRAL PART OF SHIP BREAKING BUSINESS. THE EXPEN DITURE INCURRED BY THE ASSESSEE ARE ADMINISTRATIVE EXPENSES AND FIX CHARGE S OF ELECTRICITY BOARD. 9. ON THE OTHER HAND THE LD. D.R. RELIED ON THE ORD ER OF THE AUTHORITIES BELOW. 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSI NG THE MATERIAL ON RECORD. OUT OF TOTAL EXPENDITURE OF RS. 13,94,023/- CLAIMED IN THE RE- ROLLING MILL DIVISION, A SUM OF RS. 11,64,531/- WAS ON ACCOUNT OF EXCISE DUTY EXPENDITURE WHICH WAS CLAIMED AS DEDUCTION ON ACTUAL PAYMENT BASIS. SINCE DEMAND OF THE EXCISE DUTY WAS ACTUALL Y PAID DURING THIS YEAR, THE CLAIM OF THE ASSESSEE HAS TO BE ALLOWED U NDER SECTION 43B. IN ADDITION, OTHER EXPENSES REGARDING TO PAYMENT OF EL ECTRICITY BEING FIXED CHARGES AND OTHER ADMINISTRATIVE EXPENSES ARE ALSO TO BE ALLOWED BECAUSE ASSESSEE HAS NOT GONE OUT OF BUSINESS AS A WHOLE. FIXED EXPENDITURE OF A DISCONTINUED UNIT HAS TO BE ALLOWED AS IT IS A PART OF OVER ALL BUSINESS CARRIED OUT BY THE ASSESSEE. 11. HON'BLE KARNATAKA HIGH COURT IN KARNATAKA LIGHT MET AL INDUSTRIES PRIVATE LIMITED V/S CIT(1997) 225 ITR 94 7 (KARNATAKA) HELD THAT WHERE THE SAME PERSON HAS CAR RIED OUT THE JOB WORK OF FLATTENING OF WIRES AND ALSO TRADING IN SODA LIME, M.S. WIRES ETC. AND THERE WAS UNITY OF CONTROL SO F AR AS THE BUSINESS WAS CONCERNED, IT IS NOT CORRECT TO HELD T HAT ASSESSEE WAS NOT ENTITLED TO SET OFF OF, OR CARRY FORWARD O F THE BUSINESS 5 ITA NO. 1159/AHD/2009 (ASSESSMENT YEAR 2006-2007) LOSS IN RESPECT OF CLOSED DOWN BUSINESS. IN THIS RE GARD WE REFER TO FOLLOWING HEAD NOTES FROM THAT DECISION AS UNDER : IN ORDER TO GET THE BENEFIT OF SET OFF OR CARRY FOR WARD OF BUSINESS LOSS OF EARLIER YEARS AGAINST THE INCOME OF THE RELEVANT YEAR, THE BUSINE SS MUST BE CARRIED ON AND SUCH BUSINESS MUST BE OF SUCH NATURE WHICH HAS BEEN CARR IED ON BY THE ASSESSEE. BEFORE TWO OR MORE BUSINESSES CAN BE CONSIDERED TO BE THE 'SAME BUSINESS', THEY SHOULD NOT BE EASILY SEPARABLE AND THERE MUST BE DO VETAILING OF THE ONE WITH THE OTHER. THERE SHOULD BE EXISTENCE OF INTER-CONNECTION, INTE R-LACING, INTER-DEPENDENCE OR UNITY BETWEEN TWO OR MORE BUSINESSES BEFORE THEY ARE CONS IDERED TO BE THE SAME BUSINESS. THE ASSESSEE-COMPANY WAS ENGAGED IN THE JOB WORK OF FLATTENING OF WIRES SUPPLIED BY K CO. THE ASSESSEE HAD TAKEN ON LEASE THE PREMISES BELONGING TO K CO. AND SET UP ITS OWN MACHINERY THEREIN FOR THE PURPOSE OF ITS ACTIVI TIES. ON ACCOUNT OF CERTAIN PROBLEMS, K CO. CLOSED DOWN ITS FACTORY. THEREAFTER , THE ASSESSEE COULD NOT GET ANY JOB WORK FROM K CO. THE ASSESSEE-COMPANY ALSO WENT INTO FINANCIAL DOLDRUMS AND A PROVISIONAL LIQUIDATOR WAS APPOINTED WHO TOOK CHARG E OF THE PROPERTIES AND SEALED THE FACTORY PREMISES PURSUANT TO AN ORDER OF COURT. THUS THE ASSESSEE COULD NOT REMOVE ITS MACHINERY FOR THE PURPOSE OF CARRYING ON ITS BUSINESS ACTIVITY, THOUGH THE SAME WERE RELEASED SUBSEQUENTLY. DURING THE RELEVAN T YEAR THE MACHINERY WAS NOT AVAILABLE TO THE ASSESSEE AND THEREFORE IT COULD NO T CARRY ON ITS ACTIVITY OF FLATTENING OF WIRES SUPPLIED BY K CO. THE ASSESSEE ALSO HAD EARNE D CERTAIN INCOME BY PURCHASE AND SALE OF M.S. WIRES AND SODALIME. FOR THE ASSESS MENT YEAR 1982-83, THE ASSESSEE CLAIMED THE LOSS SUFFERED IN THE EARLIER YEARS UNDE R THE HEAD 'BUSINESS' AGAINST THE INCOME DERIVED FOR THE YEAR IN QUESTION. THE ASSESS ING OFFICER DECLINED TO SET OFF THE LOSS AGAINST THE INCOME ON THE GROUND THAT THE BUSI NESS OF FLATTENING OF WIRES HAD BEEN DISCONTINUED AND THE PRESENT BUSINESS CARRIED ON BY THE ASSESSEE HAD NO CONNECTION WITH THE BUSINESS ACTIVITY CARRIED ON BY IT EARLIER . ON APPEAL, THE APPELLATE ASSISTANT COMMISSIONER AND, ON FURTHER APPEAL, THE TRIBUNAL A FFIRMED THE ORDER OF THE ASSESSING OFFICER. ON A REFERENCE: _HELD,_ THAT THE SAME PERSON HAD CARRIED ON THE JOB OF FLATTENING OF WIRES AND ALSO TRADING IN PURCHASE OF SODALIME, M.S. WIRES, ETC., AND THERE WAS UNITY OF CONTROL SO FAR AS THE BUSINESS WAS CONCERNED. THEREFORE, THE TRIBU NAL WAS NOT RIGHT IN HOLDING THAT THE BUSINESS OF THE ASSESSEE HAD BEEN DISCONTINUED AND THAT THE ASSESSEE WAS NOT ENTITLED TO SET OFF OR CARRY FORWARD THE BUSINESS L OSS OF EARLIER YEARS AGAINST THE INCOME OF THE RELEVANT YEAR . UNDISPUTED FACTS IN THE PRESENT CASE ARE THAT THE RE IS UNITY OF CONTROL, MANAGEMENT AND ALSO EXISTENCE OF INTER-CONNECTION, INTER-LACING, INTER- DEPENDENCE AND UNITY BETWEEN THE TWO BUSINESSES, IN VIEW OF THIS, WE ARE OF THE VIEW THAT ASSESSEE IS ENTITLED TO SET OF F THE EXPENDITURE RELATING TO RE-ROLLING MILL AGAINST THE INCOME FROM SHIP BREAKING BUSINESS. AS A RESULT THIS CLAIM OF THE ASSESSEE IS ALLOWED. 6 ITA NO. 1159/AHD/2009 (ASSESSMENT YEAR 2006-2007) 12. AS A RESULT THIS APPEAL OF THE ASSESSEE IS ALLO WED IN PART. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 28 TH AUGUST, 2009. SD/- SD/- (H.L. KARWA) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTA NT MEMBER AHMEDABAD; DATED: 28/08/2009 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.