Kay Beetex Spin Ltd., Surat V. The Dy.CIT.,Circle-1, Surat

ITA 1464/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5961 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 24-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 25-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI LAXMI
• Assessee Lawyers: C S JARIWALA
• Keywords: Depreciation
• Section: 43B

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AT SURAT CAMP BEFORE S/SHRI T. K. SHARMA, JM AND D.C.AGRAWAL, AM M/S KAY BEETEX SPIN LTD., 2 ND FLOOR, VISHWAKARMA CHAMBERS, MAJURA GATE, SURAT. V/S . DY. CIT, CIRCLE-1, SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI C. S. JARIWALA, AR RESPONDENT BY:- SMT. JYOTI LAXMI, SR.DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS :- (1) THAT THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS.1 7,50,562/-. (2) THAT ON FACTS AND IN LAW THE DEPRECIATION OUGHT TO HAVE BEEN ALLOWED ON THE ENTIRE BLOCK OF ASSETS AS PRAYED FOR . (3) THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON F ACTS IN CONFIRMING THE DISALLOWANCE OF RS.33,600/- MADE UND ER SECTION 36(1)(VA) READ WITH SECTION 2(24)(X) IN RESPECT OF EMPLOYEES PROVIDENT FUND CONTRIBUTION THOUGH THE PAYMENT IS M ADE BEFORE THE DUE DATE OF FILING OF RETURN. ITA NO.1464/AHD/2008 ASST. YEAR :2005-06 2 2. THE FACTS OF THE CASE ARE THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING OF HIGHSEAS/IMPORTED MATERIALS AND COMMISSION INCLUDING FOREIGN COMMISSION ON MATERIAL SALES DEAL INGS. THE ASSESSEE FILED RETURN OF INCOME ON 18.01.2006 SHOWING NIL IN COME. DURING THIS YEAR, THE AO NOTICED THAT THE ASSESSEE IS NOT CARRY ING OUT ANY MANUFACTURING/TEXTURIZING ACTIVITY AS IT WAS CARRIE D OUT IN THE IMMEDIATELY EARLIER YEAR. THE AO ACCORDINGLY PROPOS ED TO DISALLOW DEPRECIATION ON PLANT AND MACHINERY AND FACTORY BUI LDING USED IN THE MANUFACTURING ACTIVITY. IN RESPONSE TO SHOW CAUSE N OTICE IT WAS EXPLAINED THAT DEPRECIATION HAS BEEN ALLOWED ON BLOCK OF ASSE TS AND THEREFORE, NO INDIVIDUAL ASSET CAN BE IDENTIFIED IN THE BLOCK. FU RTHER DEPRECIATION HAS TO BE ALLOWED ON PASSIVE USE OF ASSET. SO FAR AS FACTO RY BUILDING WAS CONCERNED IT WAS CLAIMED THAT IT WAS USED AS A GODO WN IN THE TRADING ACTIVITY. THE AO WAS, HOWEVER, NOT SATISFIED. HE HE LD THAT FOR CLAIMING DEPRECIATION BUILDING, MACHINERY PLANT OR FURNITURE MUST BE USED FOR THE PURPOSES OF BUSINESS. ONCE THE ASSESSEE HAS NOT CAR RIED OUT MANUFACTURING ACTIVITY THEN PLANT AND MACHINERY CAN NOT BE SAID TO BE USED FOR THE PURPOSES OF BUSINESS. HE REJECTED ALL THE ARGUMENTS OF THE ASSESSEE THAT INDIVIDUAL ASSET CANNOT BE IDENTIFIED FROM BLOCK OF ASSETS FOR DISALLOWING DEPRECIATION EVEN IF IT IS NOT USED FOR THE PURPOSE OF BUSINESS. IN OTHER WORDS IF DEPRECIATION HAS BEEN ALLOWED IN ANY EARLIER YEAR THEN IT WILL BE ALLOWED IN SUBSEQUENT YEARS EVEN IF ONE ASS ET OUT OF THE ENTIRE BLOCK IS USED AND OTHERS ARE NOT USED. THE AO REJEC TED THIS CONTENTION AND DISALLOWED THE CLAIM OF DEPRECIATION ON PLANT A ND MACHINERY AT RS.17,50,562/-. THE LD. CIT(A) CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER :- 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. THE APPELLANT HAS ADMITTED T HAT THE MANUFACTURING ACTIVITY HAS COMPLETELY STOPPED FROM THE CURRENT YE AR. THE ASSESSEE HAS TOTALLY CHANGED ITS BUSINESS TO TRADING IN THE HIGH SEAS/IMPORTED YARN. 3 THE FACT THAT THE MANUFACTURING ACTIVITY HAS COMPLE TELY STOPPED MEANS THAT NO DEPRECIATION CAN BE ALLOWED IN RESPECT OF M ACHINERY USED FOR MANUFACTURING PURPOSES. AS PER THE DECISION OF HON. BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN CHEMICALS WORKS (P) LTD. 1 24 ITR 561 NO DEPRECIATION CAN BE ALLOWED IN RESPECT OF CLOSED BU SINESS. IN FACT AS PER THIS DECISION NO OTHER EXPENSES CAN ALSO BE ALLOWED EXCEPT THOSE WHICH ARE REQUIRED FOR KEEPING THE BUSINESS GOING. THE AP PELLANT HAS NEITHER BEFORE THE AO NOR DURING THE APPELLATE PROCEEDINGS POINTED OUT SEPARATELY THE ASSETS WHICH HAVE BEEN USED FOR THE PURPOSE OF TRADING. THE AO HAS DISALLOWED DEPRECIATION ONLY ON PLANT AN D MACHINERY AND NOT ON BUILDING WHICH HAS BEEN USED FOR GODOWN WHICH IS CORRECT. IF THE APPELLANT HAD SEPARATELY IDENTIFIED THE ASSETS WHIC H IT HAS USED FOR TRADING PURPOSE FOR THE OFFICE ETC. THE SAME COULD HAVE BEEN ALLOWED BY THE AO. SINCE THE APPELLANT HAS NOT DONE SO, THE DE PRECIATION DISALLOWED ON PLANT AND MACHINERY IS IN ACCORDANCE WITH THE DE CISION OF MUMBAI HIGH COURT IN THE CASE OF HINDUSTAN CHEMICALS (P) L TD. (SUPRA). HENCE THIS GROUND OF APPEAL IS DISMISSED. 3. BEFORE US, LD. AR FOR THE ASSESSEE TOOK UP THE S AME ARGUMENTS AS WERE TAKEN BEFORE THE AO. HE SUBMITTED THAT ONCE CO NCEPT OF BLOCK OF ASSETS IS INTRODUCED BY FINANCE ACT, 1986 THEN INDI VIDUAL ASSETS LOST THEIR IDENTITY AND DEPRECIATION WILL HAVE TO BE ALLOWED I F IT IS ALLOWED IN EARLIER YEARS TO THE BLOCK. HE REFERRED TO THE DECISION OF GUJARAT HIGH COURT IN CIT VS. SONAL GUM INDUSTRIES (2010) 322 ITR 542 (GU J) FOR THE PROPOSITION THAT INDIVIDUAL ITEMS IN BLOCK OF ASSET S CANNOT BE INVESTIGATED. 4. THE LD. DR ON THE OTHER HAND, POINTED OUT THAT E NTIRE MANUFACTURING ACTIVITY HAS BEEN STOPPED, THE ASSESSEE IS OUT OF M ANUFACTURING AND HAS CHANGED THE BUSINESS TO TRADING, THEREFORE DEPRECIA TION WOULD NOT BE AVAILABLE IN RESPECT OF PLANT AND MACHINERY EARLIER USED FOR MANUFACTURING ACTIVITY. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE AUTHORITIES B ELOW WERE JUSTIFIED IN 4 REFUSING TO ALLOW DEPRECIATION ON PLANT & MACHINERY EARLIER USED IN MANUFACTURING ACTIVITIES. ONCE ASSESSEE IS OUT OF B USINESS OF MANUFACTURING, THEN IT CANNOT BE SAID THAT PLANT & MACHINERY OR FACTORY WERE PUT TO USE FOR CLAIMING DEPRECIATION. ONCE THE RE IS NO MANUFACTURING ACTIVITY, THE QUESTION OF SAYING THAT THERE COULD B E SOME PASSIVE USE DOES NOT ARISE. RUNNING OF BUSINESS IS NECESSARY FOR ACT IVE USE OR PASSIVE USE. FURTHER THE DECISION OF HON. GUJARAT HIGH COURT IN CIT VS. SONAL GUM INDUSTRIES (SUPRA) WILL NOT BE APPLICABLE BECAUSE I N THAT CASE FACTORY BUILDING WAS PUT TO USE AND AO HAD SOUGHT TO DISALL OW DEPRECIATION ON A PART OF THE BUILDING WHICH WAS NOT PUT TO USE. ON T HIS, HON. GUJARAT HIGH COURT SAID THAT INDIVIDUAL ASSET CANNOT BE INVESTIG ATED. 6. THE CONTENTION OF LD. AR THAT FACTORY BUILDING W AS USED AS GODOWN HAS TO BE CONSIDERED SERIOUSLY AND, THEREFORE, DEPR ECIATION ON FACTORY BUILDING SHOULD BE ALLOWED. THEREFORE, IN NUTSHELL DEPRECIATION ON PLANT AND MACHINERY EARLIER USED IN MANUFACTURING ACTIVIT IES WILL NOT BE ALLOWED WHEREAS IT SHOULD BE ALLOWED IN RESPECT OF FACTORY BUILDING USED AS GODOWN. THUS THIS GROUND IS PARTLY ALLOWED. 7. GROUND NO.2 RELATES TO ALLOWING CLAIM OF PAYMENT IN RESPECT OF EMPLOYEES PF. IT IS UNDISPUTED FACT THAT PAYMENT HA S BEEN MADE BEFORE DUE DATE OF FILING OF THE RETURN. WE DERIVE SUPPORT FROM THE DECISION OF HON. SUPREME COURT IN CIT VS. ALAM EXTRUSION (2009) ITR 306 (SC) WHEREIN IT IS HELD THAT CONTRIBUTION TO PF MADE BEF ORE DUE DATE OF FILING OF RETURN ARE ALLOWABLE AS DEDUCTION AS THE DELETION O F SECOND PROVISO TO SECTION 43B AND AMENDMENT TO THE FIRST PROVISO BY T HE FINANCE ACT, 2003 WAS MADE TO OVERCOME IMPLEMENTATION PROBLEMS AND, T HEREFORE, THEY ARE CURATIVE IN NATURE AND WOULD APPLY RETROSPECTIVELY WITH EFFECT FROM 1.4.1988. THIS GROUND OF ASSESSEE IS ALLOWED. 5 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 11/6/2010 SD/- SD/- (T.K. SHARMA) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 11/6/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD