Derby Textiles Limited, JODHPUR V. ACIT, JODHPUR

ITA 136/JODH/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5270 (ITAT-JODHPUR)
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 15-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 32; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO S . 136 & 137 / JODH /201 5 (ASST. YEAR S : 20 1 0 - 11 & 2011 - 12 ) DERBY TEXTILES LIMITED, MIA PAHSE - II,BASNI, JODHPUR. VS. ACIT, RANGE - 1, JODHPUR. PAN NO. AACCD 0465 D (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE . DEPARTMENT BY : S HRI S. L . MOURYA - DR DATE OF HEARING : 1 5 / 0 3 /201 6 . DATE OF PRONOUNCEMENT : 1 5 / 03 /201 6 . O R D E R PER N.S. SAINI , ACCOUNTANT MEMBER THERE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 1 , JODHPUR , DATED 2 1 /0 1 /201 5 . 2. THE SOLE ISSUE INVOLVED IN THESE APPEALS IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION OF DEPRECIATION OF RS. 2,02,83,085/ - . 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN JOB WORK OF YARN MANUFACTURING. THE ASSESSEE FILED I TS RETURN OF INCOME SHOWING NIL INCOME AFTER CLA I MING UNABSORBED DEPRECIATION OF RS.2,59,32,918/ - . THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS. 2,70,44,114/ - ON FIXED ASSETS SUCH AS 2 ITA NOS. 136 & 137/JODH/2015 PLANT & MACHINERY, BUILDING, FURNITURE AND ELECTRIC FITTING ETC. BEING THE WDV. THIS WDV HAS BEEN BROUGHT FORWARD FROM EARLIER YEARS BALANCE SHEET. THE ASSESSING OFFICER OBSERVED THAT RATIO OF DEPRECIATION CLAIMED WAS 66% OF THE TOTAL TURNOVER OF THE COMPANY , WHICH WAS QUITE HIGH AND UNREASONABLE . THE ASSESSING OFFICER FURTHER OBSERVED THAT THE COMPANY IS SICK UNIT AND REGISTERED UNDER BIFR . A SURVEY WAS CARRIED OUT ON THE PREMISES OF THE COMPANY ON 30/03/2012 WHERE IT WAS FOUND THAT ONLY 1/4 TH PART OF TOTAL ASSETS WAS BEING USED FOR JOB WORK AND THE REST OF THE MACHINERY AND BUILDING ETC. WERE DEFUNCT . ON THE CONTRARY, THE ASSESSEE CLAIMED DEPRECIATION ON TOTAL AMOUNT OF WDV OF THE FIXED ASSETS . THEREFORE, KEEPING IN VIEW THE FACT THAT ONLY 1/4 TH PART WAS PUT TO USE DURING THE PREVIOUS YEAR, THE ASSESSING OFFICER RESTRICTED THE DEPRECIATION TO THAT EXTENT ONLY AND DISALLOWED 3/4 TH OF THE CLAIMED DEPRECIATION. 4 . ON APPEAL , COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ACTION OF THE ASSESSIN G OFFICER BY OBSERVING AS UNDER: - 5.3 I HAVE CONSIDERED THE ORDER OF THE ASSESSING OFFICER AND SUBMISSION OF THE APPELLANT AND I FIND THAT THE APPELLANT HAS NOT USED THE WHOLE ASSETS IN THE YEAR UNDER CONSIDERATION, AS HAS BEEN MENTIONED BY THE ASSESSING OFFICER AFTER MAKING PHYSICAL VERIFICAT ION DURING THE COURSE OF SURVEY THAT BARRING 1 /4 TH OF THE PLANT AND MACHINERY THE REMAINING MACHINERY AND BUILDING ETC IS DEFUNCT AND HAS NOT BEEN USED DURING THE YEAR. THIS OBSERVATION ALSO GETS FORTIFIED BY THE FACTS THAT THE COMPANY HAS BEEN CATEGORIZED AS A SICK UNIT AND IS REGISTERED BEFORE BIFR. NO. I HAVE CONSIDERED THE ORDER OF THE ASSESSING OFFICER AND SUBMISSION OF THE APPELLANT AND I FIND THAT THE APPELLANT HAS NOT USED THE WHOLE ASSETS IN THE YEAR UNDER CONSIDERATION, AS HAS BEEN MENTIONED BY TH E ASSESSING OFFICER AFTER MAKING PHYSICAL VERIFICATION DURING THE COURSE OF SURVEY THAT BARRING 1 /4 TH OF THE PLANT AND MACHINERY THE REMAINING MACHINERY AND BUILDING ETC IS DEFUNCT AND HAS NOT BEEN USED DURING THE YEAR. THIS OBSERVATION ALSO GETS FORTIFIED BY THE FACTS THAT THE COMPANY HAS BEEN CATEGORIZED AS A SICK UNIT AND IS REGISTERED BEFORE BIFR. NO . PROOF OR EVIDENCE WERE FURNISHED BEFORE THE ASSESSING OFFICER OR BEFORE THE UNDERSIGNED DURING THE COURSE OF THE APPELLATE PROCEEDING WHICH COULD PROVE TH AT WHOLE ASSET WAS USED DURING THE YEAR. IT WAS CONTENDED BY THE APPELLANT THAT ASSETS WERE READY TO USE AND CLAIMED THAT ASSET WAS PUT TO USE IN THE YEAR UNDER CONSIDERATION AND THEREFORE, FULL DEPRECIATION BECOMES ELIGIBLE. AT THE OUTSET, IT 3 ITA NOS. 136 & 137/JODH/2015 WOULD BE PER TINENT TO EMPHASIS THAT SECTION 32 OF THE ACT IN RESPECT OF DEPRECIATION MANDATORY USAGES AS PRIMARY IMPERATIVE SO AS TO INITIATE THE APPLICABILITY OF MACHINERY OF THIS SECTION. THIS CONCEPT OF ACTUAL USAGE HAS ALSO BEEN DELIBERATED UPON BY VARIOUS HIGH COURTS STIPULATING THE USAGE FACTOR AND HAVE LAID EMPHASIS ON THE FACT THAT FOR CLAIMING THE DEPRECIATION, ASSET MUST BE USED DURING THE ACCOUNTING YEAR. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DINESH CHAND GULAB CHAND AGARWAL VS. CIT, REPORTED IN 267 ITR 768 HELD THAT THE WORD USED DENOTES ACTUALLY USED AND NOT MERELY READY FOR USE. THE EXPRESSION 'USED MEANS FOR THE PURPOSE OF THE BUSINESS. FURTHER, ON IDENTICAL ISSUE THE HONBLE KARNARTAKA HIGH COURT HAS HELD THAT IN THE CASE OF DCIT VS. YELLAMMA DESAPA HOSPITAL REPORTED IN 290 ITR 353 (KAR.) THAT SECTION 32 WOULD SHOW THAT DEDUCTION FOR DEPRECIATION IS PERMISSIBLE IN THE EVENT OF MACHINERY PLANT OR FURNITURE OWNED BY THE ASSESSEE ARE USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. FROM VARI OUS JUDGMENTS IT IS CLEAR THAT FOR THE PURPOSE OF DEPRECIATION, MACHINERY HAS TO BE ACTUALLY USED IN TERMS OF THE STATUTE. A KEPT READY THEORY IS NOT AVAILABLE, TO THE ASSESSEE, FOR THE PURPOSE OF CLAIMING DEPRECIATION, WHEN THE LEGISLATURE HAS CHOSEN TO USE THE WORD USED. ONE HAS TO GIVE A FULL MEANING TO IT AND AVOID READING SOMETHING NOT INTENDED BY THE LEGISLATURE. AFTER ALL, THESE BENEFITS ARE PROVIDED FOR CERTAIN PURPOSES. THAT PURPOSE IS USED IN TERMS OF THE STATUTE. IF THE MACHINERY IS NOT USE D SECTION 32 IS NOT APPLICABLE. THE HON'BLE SUPREME COURT HAS ALSO HELD IN THE CASE OF LIQUIDATORS OF PURSA LTD. REPORTED IN 25 ITR 265 (SC) THAT THE EXPRESSION USED FOR THE PURPOSES OF THE BUSINESS , MEANS USED FOR THE PURPOSES OF THE BUSINESS DURING THE ACCOUNTING YEAR. THE MACHINERY AND PLANT MUST BE SUCH AS WERE USED, IN WHATEVER SENSE THAT WORD WAS TAKEN, AT LEAST FOR A PART OF THE ACCOUNTING YEAR. IF THE MACHINERY AND PLANT HAD NOT AT ALL BEEN USED AT ANY TIME DURING THE ACCOUNTING YEAR, NO ALLOWA NCE COULD BE CLAIMED. 5.3.1. SEC. 32(1) WHICH PROVIDES THAT IN RESPECT OF A BLOCK OF ASSETS DEPRECIATION ON BUILDINGS, PLANT AND MACHINERY WHICH WERE USED FOR THE PURPOSE OF THE BUSINESS IS ALLOWABLE ON PERCENTAGE AS PRESCRIBED UNDER RULE 5(1). CONVERSELY, IT THEY ARE NOT USED FOR THE PURPOSE OF BUSINESS THE SECTION DOES NOT COME INTO FORCE. THUS, IT IS CLEAR THAT DEPRECIATION IS ALLOWABLE ON UTILIZATION OF THE ASSETS FOR THE PURPOSE OF BUSINESS. THE APPELLANT COMPANY HAS USED ONLY 1 /4 TH PART OF THE ASSETS FOR ITS BUSINESS. THE ASSESSING OFFICER WHILE DISALLOWING 3/4 TH DEPRECIATION CONSIDERED THIS FACT. IT IS A FACT THAT WHICH WAS ASCERTAINED AFTER PHYSICAL VERIFICATION. THE DISTINCTION HAS NOT BEEN ARRIVED AT ON THE BASIS OF CAPACITY UTILIZATION BUT RESTS ON THE PRINCIPLE OF BEING PUT TO USE FOR BUSINESS PURPOSE DURING THE YEAR. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSING OFFICER MERELY ON THE GROUND OF CAPACITY UTILIZATION, MADE THE DISALLOWANCE OF DEPRECIATION. 5.4 IN THE LIGHT OF THE ABOVE DISCUSSION, I HOLD THAT THE 4 ITA NOS. 136 & 137/JODH/2015 ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING DEPRECIATION OF RS. 2,02,83,085/ - (FOR AY 2010 - 11) AND RS. 1,74,40,010/ - (FOR AY 2011 - 12) BEING 3/4 TH OF THE TOTAL DEPRECIATION CLAIMED ON WDV. THE GROUND I S DISMISSED. 5. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES, WHEREAS NONE APPEARED ON BEHALF OF THE ASSESSEE IN SPITE OF NOTICE BEING SENT TO THE ASSESSEE. 6 . WE FIND THAT THE DISALLOWANCE OF DEPRECIATION IN THE YEARS UNDER CONSIDERATION WAS MADE BY THE ASSESSING OFFICER ON THE GROUND TH A T ONLY 1/4 TH OF THE ASSETS WERE UTILIZED BY THE ASSESSEE AND 3/4 TH ASSETS WERE NOT UTILISED BY THE ASSESSEE DURING THE YEARS U NDER CONSIDERATION . WE FIND THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. M/S. OSWAL AGRO MILLS LTD . IN ITA NO. 161/2006 , BY ORDER DATED 24/12/2010 HELD AS UNDER: - HAVING REGARD TO THIS LEGISLATIVE INTENT CONTAINED IN THE AFORESAID AMENDMENT, IT IS DIFFICULT TO ACCEPT THE SUBMISSION OF THE LEARNED COUNSEL FOR THE REVENUE THAT FOR ALLOWING THE DEPRECIATION, USER OF EACH AND EVERY ASSET IS ESSENTIAL EVEN WHEN A PARTICULAR ASSET FORMS PART OF BLOCK OF ASSETS. ACCEPTANCE OF THIS CONTENTION WOULD MEAN THAT THE ASSESSEE IS TO BE DIRECTED TO MAINTAIN THE DETAILS OF EACH ASSET SEPARATELY AND THAT WOULD FRUSTRATE THE VERY PURPOSE FOR WHICH THE AMENDMENT WAS BROUGHT ABOUT. IT IS ALSO 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, FORMING 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 AND FOR THIS REASON, WE SAY THAT THERE IS NO LOSS TO REVENUE EITHER . THUS, IN VIEW OF THE ABOVE ORDER OF THE HON'BLE DELHI HIGH COURT AS DEPRECIATION IS ALLOWED TO THE ASSESSEE ON BLOCK OF ASSETS AND NOT ON THE INDIVIDUAL USE OF ASSETS COMPRISED IN THE BLOCK OF ASSETS, THEREFORE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION CLAIMED BY THE ASSESSEE DURING THE YEARS UNDER CONSIDERATION . THUS, THIS GROUND OF APPEAL O F THE ASSESSEE IN BOTH THE YEARS IS ALLOWED. 5 ITA NOS. 136 & 137/JODH/2015 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON TUESDAY , THE 1 5 TH DAY OF MARCH , 201 6 AT JODHPUR . S D / - S D / - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER D ATED : 1 5 TH MARCH , 201 6 . VR/ - COPY TO: 1. THE ASSESS E E. 2. THE REVENUE. 3. THE CIT 4. THE CIT(A) 5. THE D.R . 6. GUARD FILE. BY ORDER . . .