ITO, WD-11(3), KOLKATA, Kolkata V. M/s Kesoram Textile Mills Ltd., Kolkata

ITA 126/KOL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0999 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 29-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACH ARJEEADDL
• Keywords: Depreciation

Judgement Text

ITA NO.126/KOL/2016 M/S. KESORAM TEXTILE MILLS LTD A.Y.2005-06 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH D KOL KATA [BEFORE HONBLE SHRI J.SUDHAKAR REDDY, AM & SHRI A.T.VARKEY, JM ] ITA NO.126/KOL/2016 ASSESSMENT YEAR : 2005-06 I.T.O., WARD-11(3) -VERSUS- M/S. KESORAM TEX TILE MILLS LTD. KOLKATA KOLKATA (PAN: AABCK 2416 N) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI ARINDAM BHATTACHARJEE, A DDL. CIT FOR THE RESPONDENT: SHRI AKKAL DUDHWEWALA DATE OF HEARING : 25.09.2017. DATE OF PRONOUNCEMENT : 15.11.2017. ORDER PER J.SUDHAKAR REDDY, AM: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX-(A)-10, KOLKATA RELATIN G TO A.Y. 2005-06 ON THE FOLLOWING GROUNDS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION OF RS. 38,46,405/- ON PLANT AND MACHINERY AND ON FACTORY BUILDING. 2. THE APPELLANT CRAVES LEAVE TO ADD/DELETE/MODIFY THE GROUNDS OF APPEAL. 2. AFTER HEARING THE RIVAL CONTENTIONS WE FIND THAT THE FIRST APPELLATE AUTHORITY HAS RECORDED THAT THE ASSETS IN QUESTION IS PART OF THE BLOCK OF ASSETS. HE HELD THAT ONCE THE ASSET MERGES WITH THE EXISTING BLOCK OF ASSETS, WHICH CARRY THE SAME RATE OF DEPRECIATION AND ONE ASSET OF THE BLOCK IS PUT TO U SE THEN THE ENTIRE BLOCK WOULD BE ELIGIBLE TO DEPRECIATION. 3. THE B BENCH OF THIS TRIBUNAL IN ITA NO.200 8/KOL/2014 FOR A.Y.2005-06 HELD AS FOLLOWS :- ITA NO.126/KOL/2016 M/S. KESORAM TEXTILE MILLS LTD A.Y.2005-06 2 4.1.1. EVEN OTHERWISE, UNDER THE BLOCK OF ASSETS C ONCEPT, THE REQUIREMENT OF. USING OF THE PLANT AND MACHINERY, BY THE ASSESSEE, DURING THE FINANCIAL YEAR, DOES NOT ARISE. FOR THIS PROPOSITION WE RELY ON THE DECISION OF THE HYDERABAD BENCH OF THE ITAT IN THE CASE OF NATCO EXPORTS VS D Y. COMMISSIONER OF INCOME TAX, ORDER DT. 11TH JUNE 2002,200386 ITD 445 HYD, W HEREIN IT WAS HELD AS FOLLOWS:- '[B] THE CIT(A) OUGHT TO HAVE SEEN THAT WHEN ONCE T HE VALUE OF ASSET FORMS PART OF BLOCK OF ASSETS, DEPREDATION IS TO BE ALLOWED . 'ON THE ENTIRE BLOCK IRRESPECTIVE OF USER OF ANY ITEM FALLING WITHIN THE BLOCK DURING THE ASSESSMENT YEAR AND HENCE DEPRECIATION CANNOT BE DISALLOWED ON PONDS STATING THAT THEY WERE NOT USED BY THE APPELLANT DURING THE ASSESSMENT YEARS 1997-98 & 1998- 99 ... FROM THE ABOVE, IT IS CLEAR THAT AS LONG AS AN ASSE T FORMS PART OF THE BLOCK OF ASSETS AND THE BLOCK CONTINUES TO EXIST, PROVISIONS OF SECTION 50 DO NOT COME INTO PLAY AND DEPRECIATION HAS TO BE ALLOWED ON THAT POR TION OF THE W.D. V. OF THE ASSETS WHICH HAVE BEEN SCRAPPED, AFTER REDUCING THE SCRAP VALUE FROM THE BLOCK OF ASSETS. THIS VIEW 'IS FORTIFIED BY THE JUDGMENTS OF JABALPUR BENCH OF THE ITAT IN THE CASE OF PACKWELL PRINTERS, THE JUDGMENT OF T HE AHMEDABAD BENCH OF THE ITAT IN THE CASE OF INDUCTOTHERM (INDIA) LTD. (SUPR A) AND THE JUDGMENT OF THE PATNA BENCH OF THE ITAT IN THE CASE OF PARIKH ENGG. & BODY BLDG. CO. LTD. (SUPRA). THEREFORE; IN VIEW OF THE DECISIONS AND IN TERPRETATION OF THE CONCEPT OF 'BLOCK OF ASSETS' DEPRECIATION ON PONDS WHICH IS FO RMING PART OF THE BLOCK OF ASSETS HAS TO. BE ALLOWED AS DEDUCTION EVEN THOUGH THESE PONDS WERE DISCARDED AND NOT USED. AND NOT OWNED BY IT DURING THE ASSES SMENT YEARS IN QUESTION, AS THE ASSESSEE WAS NOT ENTITLED TO ANY SCRAP VALUE . WHATSOEVER; CONSEQUENT TO DISCARDING. COMING TO THE CASE LAW RELIED UPON BY T HE ID. DEPARTMENTAL REPRESENTATIVE AND BY THE ID. CIT(A), ALL OF THEM A RE DISTINGUISHABLE AS ALL THESE CASES DEALT WITH GRANT OF DEPRECIATION FOR -ASSESSM ENT YEARS BEFORE THE IN TRODUCTION OF THE CONCEPT OF DEPRECIATION ON 'BLOCK ASSETS.' . THUS, WE UPHOLD THE CLAIM OF THE ASSESSEE FOR DEPRECIATION FOR BOTH THE ASSESSMENT YEARS AND $ET ASIDE THE ORDER OF THE ID. CIT(A). 5. RESPECTFULLY FOLLOWING THE PROPOSITIONS OF LAW L AID DOWN IN THE ABOVE JUDICIAL PRECEDENT, WE ALLOW THIS CLAIM OF THE ASSESSEE. 4. IN OUR VIEW THE PROPOSITION OF LAW LAID DOWN IN THIS ORDER APPLY TO THE FACTS OF THIS CASE. THE JUDGMENT OF THE HONBLE SUPREME COUR T IN THE CASE OF LIQUIDATORS OF PURSA LTD VS CIT (1954) 25 ITR 265 AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MACHINERY MANUFACTURERS CORPOR ATION LTD VS CIT 31 ITR 203(BOM) ARE NOT APPLICABLE TO THE FACTS OF THE CAS E FOR THE REASON THESE JUDGMENTS WERE DELIVERED PRIOR TO THE BLOCK ASSET BROUGHT UND ER THE INCOME TAX. ITA NO.126/KOL/2016 M/S. KESORAM TEXTILE MILLS LTD A.Y.2005-06 3 5. EVEN OTHERWISE, THE MILL IN QUESTION REMAINE D CLOSED FROM 05.01.1999. THE YARN PRODUCTION WAS 8087 KGS. HENCE IT IS NOT A CASE WHE RE THE FACTORY HAS BEEN TOTALLY CLOSED DOWN. ONLY ONE UNIT HAS BEEN SHUT DOWN. THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. BUDGE BUDGE COMPANY LTD. VS CIT HAS HE LD AS FOLLOWS :- THE LEARNED TRIBUNAL FOUND THE DECISION OF THIS CO URT IN THE CASE OF CIT VS. ORIENTAL COAL CO. LTD. REPORTED IN (1994) 206 ITR 6 82 WAS SQUARELY APPLICABLE TO THIS CASE IN REJECTING THE CONTENTION OF THE APP ELLANT THAT THERE WAS PASSIVE USE OF THE PLANT AND MACHINERY OF THE MILLS FOR DEPRECI ATION TO BE ALLOWED IN THE LOCK- OUT PERIOD. IN OUR VIEW THE DECISIONS RELIED UPON B Y MR .SEN SUPPORT HIS CONTENTION. IN HINDUSTHAN GAS & INDUSTRIES LTD. THI S COURT IN ALLOWING THE CLAIM OF DEPRECIATION OF DIESEL GENERATING SETS LEASED OU T FOR THE PERIOD WHEN THE LESSEE'S FACTORY PREMISES WAS UNDER LOCK-OUT HAD TA KEN THE FOLLOWING VIEW:- 'THE BUSINESS OF THE ASSESSEE-COMPANY WAS TO LEASE OUT GENERATING SETS. THE LEASE IN THE INSTANT CASE EXPIRED ON 30-11-1974 BUT THE ASSESSEE-COMPANY DID NOT GET BACK THE DIESEL GENERATING SET BECAUSE OF THE L OCK-OUT DECLARED IN THE LESSEE'S FACTORY. LOCK OUTS AND STRIKES ARE THE USUAL BUSINE SS HAZARDS THAT A COMPANY HAS TO FACE IN COURSE OF RUNNING OF THE BUSINESS. THE F ACT THAT THE LOCK- OUT WAS NOT IN THEASSESSEE'S OWN BUSINESS DOES NOT MAKE ANY DIFFER ENCE TO THE POSITION. THE ASSESSEE HAD LEASED OUT A GENERATING SET IN COURSE OF ITS BUSINESS. IT COULD NOT GET BACK THE SET EVEN AFTER THE LEASE PERIOD BECAUSE OF THE LOCKOUT IN THE LESSEE'S FACTORY. THIS IS A HAPPENING WHICH WAS INCIDENTAL T O THE ASSESSEE'S BUSINESS OF LEASING OUT GENERATING SETS. THE ASSESSEE ITSELF WA S NOT ACTUALLY RUNNING THE GENERATING SETS. THE ASSESSEE'S BUSINESS WAS LEASIN G OUT THE GENERATORS. THE GENERATING SET WAS BEING USED BY THE ASSESSEE AND I S STILL BEING USED BY THE ASSESSEE IN ITS BUSINESS OF LEASING OUT GENERATING SETS. THEREFORE, THE CLAIM OF THE ASSESSEE HAS TO BE ALLOWED. ACCORDINGLY, QUESTION N O.4 IS TO BE ANSWERED IN THE NEGATIVE AND IN FAVOUR OF THE ASSESSEE.' IN M/S. NORPLEX OAK INDIA THE CLAIM .FOR D EPRECIATION OF PLANT AND MACHINERY AROSE BECAUSE WORK WAS SUSPENDED DUE TO S ERIOUS DETERIORATION OF THE LAW AND ORDER SITUATION IN THE KASHMIR VALLEY, THIS COURT HAD SAID:- 'IN THE CASE BEFORE US, THE ASSESSEE WAS READY FOR DOING HIS BUSINESS. BUT FOR THE ADVERSE LAW AND ORDER SITUATION, HE COULD NOT ACTUA LLY RUN THE FACTORY ALTHOUGH ALL THE MACHINERIES WERE READY FOR USE AND THE VALU ATION OF SUCH MACHINERY ALSO DEPRECIATED NOTWITHSTANDING ITS NON-USER. NOTWITHST ANDING SUCH . ADVERSE LAW AND ORDER SITUATION, THE ASSESSEE DID NOT ABANDON I TS BUSINESS BUT SUFFERED LOSS FOR SUCH A STATE OF AFFAIRS PREVAILING IN THAT STAT E OVER WHICH HE HAD NO CONTROL WITH AN EXPECTATION OF RESUMING THE BUSINESS. THIS IS NOT A CASE WHERE THE ASSESSEE HIMSELF IS EMBROILED IN A DISPUTE WITH HIS LABOURERS AND IN THE PROCESS, HAS DECIDED TO DECLARE A LOCKOUT EXPRESSING ITS INT ENTION NOT TO RUN THE BUSINESS. THUS, TAKING INTO CONSIDERATION THE CIRCUMSTANCES O F THE PRESENT CASE, WE ARE OF ITA NO.126/KOL/2016 M/S. KESORAM TEXTILE MILLS LTD A.Y.2005-06 4 THE VIEW THAT THE TRIBUNAL BELOW RIGHTLY GRANTED DE PRECIATION IN FAVOUR OF THE ASSESSEE. ' OUR ATTENTION WAS NOT DRAWN TO ANY FINDING TO INDIC ATE THAT THE SUSPENSION OF WORK WAS ACTUATED BY ANY MALICE. THE PLANT WAS LYIN G READY FOR USE. APPLYING THE AFORESAID DECISIONS TO THE FACTS IN TH IS CASE THE FIRST QUESTION HAS TO BE AND IS ANSWERED IN THE AFFIRMATIVE AND AGAINST T HE REVENUE. 6. RESPECTFULLY FOLLOWING THE PROPOSITIONS OF L AW LAID DOWN IN THE ABOVE JUDICIAL PRECEDENT TO THE FACTS OF THIS CASE, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT THE APPEAL BY THE REVENUE IS D ISMISSED. O RDER PRONOUNCED IN THE COURT ON 15.11.2017. SD/- SD/- [A.T.VARKEY] [ J.SUDHAKAR REDDY ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 15.11.2017. [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1.M/S. KESORAM TEXTILE MILLS LTD., 42, GARDEN REACH ROAD, KOLKATA-700024. 2. I.T.O., WARD-11(3), KOLKATA. 3. C.I.T.(A)- 10, KOLKATA 4. C.I.T-4, KOLKATA 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, SENIOR PRIVATE SECRETARY HEAD OF OFFICE/D.D.O, ITAT KOLKATA BENCHES ITA NO.126/KOL/2016 M/S. KESORAM TEXTILE MILLS LTD A.Y.2005-06 5