Ankur Protein Industries Limited, Ahmedabad V. The Dy.CIT, Circle-4, Ahmedabad

ITA 1550/AHD/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6733 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 02-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 18-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G D BALVA
• Assessee Lawyers: U S BHATI
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH (BEFORE S/SHRI T.K. SHARMA, JUDICIAL MEMBER AND A.N. PAHUJA, ACCOUNTANT MEMBER) ITA NO.1550 AND 1551/AHD/2007 [ASSTT. YEAR : 2003-2004 AND 2004-2005] ANKUR PROTEIN INDUSTRIES LTD. C/O. M/S.RAVI & DEV CHARTERED ACCOUNTANTS 201, ARTH, B/D. A.K. PATEL HOUSE MITHAKALI SIX ROAD AHMEDABAD 380 009. VS. DCIT, CIR.4 AHMEDABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI U.S. BHATI REVENUE BY : SHRI G.D.BALVA O R D E R PER T.K. SHARMA, JUDICIAL MEMBER : THESE TWO APPEALS ARE BY THE ASSESSEE AGAINST TWO SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDABAD DATED 02.02. 2007 CONFIRMING THE ADDITION OF RS.45,12,100/- AND RS.33,78,055/- M ADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION FOR THE RES PECTIVE ASSESSMENT YEARS. 2. BRIEF FACTS RELATING TO THE ASSESSMENT YEAR 2003 -2004 ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE MANUFACTURING OF SEED CRUSHING, EDIBLE/NON-EDIBLE OIL REFINERY. FOR THE ASSESSMENT YEAR 2003-2004, IT FILED RETURN OF INCOME DECLARING TOTAL LOSS OF RS.4 5,12,100/-. THE AO FRAMED ASSESSMENT UNDER SECTION 143(3) ON 28-9-2005 WHEREIN HE DISALLOWED DEPRECIATION CLAIM AMOUNTING TO RS.42,62 ,258/- ON THE GROUND THAT IN THE ABSENCE OF ANY BUSINESS ACTIVITY BEING CARRIED OUT BY THE ASSESSEE, IT IS NOT ALLOWABLE. FOR THE IDENTICAL R EASON IN THE ASSTT.YEAR 2004-2005 ALSO, THE LEARNED CIT(A) DISALLOWED DEPRE CIATION AMOUNTING ITA NO.1550 AND 1551/AHD/2007 -2- TO RS.33,78,055/-. ON APPEAL, IN THE IMPUGNED ORD ER FOR A.Y.2003-2004, THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE AO R ECORDING NON- ALLOWANCE OF DEPRECIATION AS PER THE DETAILED REASO NING GIVEN IN PARA-3.2 WHICH READS AS UNDER: 3.2 I HAVE GONE THROUGH THE RELEVANT PORTION OF THE ASSESSMENT ORDER AND ALSO PERUSED THE RELEVANT CITATIONS. THE AO HAS GIVEN CLEAR HIDING THAT THE BUSINESS WAS STOPPED WITHOUT ANY INTENTION TO REVIVE IN THE NEAR FUTURE. ACCORDINGLY, HE HELD THA T THE MACHINERY CANNOT BE SAID TO BE KEPT READY FOR IMMEDIATE USE. THE DECISION CITED IN THEIR FAVOUR BY THE APPELLANT WAS RENDERED IN A CASE WHERE THE REVIVAL OF BUSINESS AFTER A TEMPORARY LULL DUE TO LABOUR PROBLEM WAS BROUGHT ON RECORD IN THE CASE ON HAND, THERE IS NOTHING EVEN TO SUGGEST THAT THE BUSINESS WAS REVIVED BY PUTTI NG THE RELEVANT MACHINERIES TO OPERATION AN ISOLATED SALE ON 1006 2 004 BY ITSELF DOES NOT ESTABLISH THAT THERE WAS ONLY TEMPORARY LU LL AND THE BUSINESS WAS REVIVED IN FULL. THE SALE COULD BE EVE N OUT OF EXISTING CARRY FORWARD STOCK IN THE ABSENCE OF ANY EVIDENCE TO THE CONTRARY, THE DECISION RELIED ON BY THE AO TO THE EFFECT THAT WHEN THE BUSINESS WAS STOPPED WITHOUT ANY INDICATION BY RESTARTING PR ODUCTION, THERE WAS COMPLETE STOPPAGE OF BUSINESS THEREBY NO DEPREC IATION IS ALLOWABLE SQUARELY COVERS THE ISSUE ON HAND. A PASS IVE USE OF DEPRECIABLE ASSETS CANNOT BE SIMPLY PRESUMED IN THE ABSENCE OF VERIFIABLE EVIDENCE ON RECORD IT IS ALSO THAT THE A PPELLANT IS NOT PUT TO ANY PREJUDICE IF THE CLAIM ON DEPRECATION ON THE THEORY OF PASSIVE USE IS DISALLOWED IN THE ABSENCE OR USE OF RELEVANT MACHINES/ASSETS. IN THAT VIEW OF THE MATTER. I AGRE E WITH THE FINDINGS GIVEN BY THE AO IN THIS REGARD AND HOLD TH AT ON THE FACTS AND CIRCUMSTANCES BROUGHT ON RECORD, THE APPELLANT IS NOT ENTITLED TO DEPRECIATION ON THE THEORY OF PASSIVE USE. THIS GROUND TAILS IN THE ASSTT.YEAR 2004-2005 ALSO THE LEARNED CIT(A) IN THE IMPUGNED ORDER DATED 28-2-2007 FOLLOWING HIS DECISION FOR A. Y.2003-2004 (SUPRA) CONFIRMED THE DISALLOWANCE OF DEPRECIATION. AGGR IEVED WITH THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL FOR BOTH T HE YEARS BEFORE US. ITA NO.1550 AND 1551/AHD/2007 -3- 4. AT THE TIME HEARING, ON BEHALF OF THE ASSESSEE, THE LEARNED COUNSEL FILED PAPER BOOK CONTAINING 72 PAGES. HE DREW OUR ATTENTION TO PAGE NO.28 OF THE PB WHICH CONTAINED ACCOUNTING POLICIES AND NOTES ON ACCOUNT FOR THE FINANCIAL YEAR 2001-2002. AGAINST ITEM NO.6, IT IS MENTIONED THAT THE FINANCIAL STATEMENT HAVE BEEN PR EPARED ON GOING CONCERN BASIS DESPITE OF THE NEGATIVE NET WORTH OF THE COMPANY. ATTENTION WAS ALSO DRAWN TO PAGE NO.15 OF THE PB BE ING DIRECTORS REPORT, WHEREIN UNDER THE HEAD OPERATIONS IT IS MENTIONED THAT THE COMPANY IS FACING LIQUIDITY CRISIS TO START THE PRODUCTION PRO CESS. THE COMPANY CONTINUES TO REMAIN A SICK INDUSTRIAL COMPANY UNDER THE PROVISIONS OF SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 AS THE NET WORTH OF THE COMPANY HAS BEEN ERODED DUE TO LOSS IN CURRED DURING THE PREVIOUS YEARS. THE LEARNED COUNSEL OF THE ASSESS EE EXPLAINED THAT NOT A SINGLE ASSET HAS BEEN SOLD AND THE COMPANY WAS MAKI NG EFFORT TO COME OUT OF THE FINANCIAL CRISIS. FOR THIS PURPOSE, IT WAS IN THE PROCESS OF ONE TIME SETTLEMENT WITH THE FINANCIAL INSTITUTIONS. A TTENTION WAS ALSO DRAWN TO PAGE NO.35 OF THE PB BEING THE DIRECTORS REPORT FOR ASSESSMENT YEAR 2005-2006. IN THIS REPORT UNDER THE HEAD OPERATIO N IT IS MENTIONED THAT THE COMPANY WAS NOT ABLE TO RESUME ANY KINDS OF OPE RATION DUE TO THE ATTACHMENT OBTAINED BY THE BANK OF BARODA. THE COU NSEL OF THE ASSESSEE POINTED OUT THAT FINANCIAL SETTLEMENT WAS DONE BY W ITH IDBI/BOB ETC. AND PRODUCTION WAS RESUMED. IN THESE TWO ASSESSMENT YE ARS, THE COMPANY WAS TO GO FOR PRODUCTION, BUT DUE TO NON-AVAILABILI TY OF ORDERS, IT COULD NOT DO SO. IN THESE CIRCUMSTANCES, AS PER THIRD ME MBER DECISION OF THE ITAT, AHMEDABAD IN THE CASE OF ITO VS. GUJARAT MINI STEEL LTD., 23 ITD 74 (AHD) (TM), THE ASSESSEE IS ENTITLED TO DEPR ECIATION ON BUILDING, PLANT & MACHINERY AND ELECTRIC INSTALLATIONS AS PER THE IT RULES EVEN THOUGH IT WAS NOT PUT TO USE. RELIANCE WAS ALSO PL ACED ON THE DECISION OF ITA NO.1550 AND 1551/AHD/2007 -4- THE PUNJAB & HARYANA HIGH COURT DECISION IN THE CAS E OF CIT VS. NAHAR EXPORTS LTD., 296 ITR 419 (P&H) WHEREIN ON IDENTICA L FACTS, IT WAS HELD THAT DEPRECIATION CANNOT BE DENIED AS EVEN WHERE TH E MACHINERY IS KEPT READY FOR USE AND COULD NOT BE PUT TO USE, THE ASSE SSEE WOULD BE ENTITLED TO DEPRECIATION AS EVERYTHING AGES WITH THE PASSAGE OF TIME AND EVEN IF THE MACHINERY IS KEPT READY FOR USE, THERE IS A NOR MAL DEPRECIATION OF VALUE. RELIANCE WERE ALSO PLACED ON VARIOUS OTHER DECISIONS, BUT FOR THE BREVITY, WE DO NOT CONSIDER IT NECESSARY TO CITE AL L THOSE CASES. 5. ON THE OTHER HAND, LEARNED DR VEHEMENTLY SUPPORT ED THE ORDER OF THE CIT(A). THE LEARNED DR POINTED OUT THAT WHEN T HE BUSINESS WAS STOPPED WITHOUT ANY INDICATION BY RESTARTING THE PR ODUCTION, THERE WAS COMPLETE STOPPAGE OF BUSINESS AND IN THESE CIRCUMST ANCES, DEPRECIATION IS NOT ALLOWABLE. 6. AFTER HEARING HEARD BOTH THE SIDES, WE HAVE CARE FULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND THE MATERIAL PL ACED BEFORE US. THE ASSESSEE COMPANY SET UP A COMPOSITE MILL CONSISTING OF SEED CRUSHING PLANT, EDIBLE/NON-EDIBLE OIL REFINERY AND SOLVENT E XTRACTION PLANT AND STARTED PRODUCTION ACTIVITIES DURING THE FINANCIAL YEAR 1993-94. IT HAS BEEN CARRYING OUT CRUSHING, REFINING ETC. OF OIL SE EDS OF ITS OWN AS WELL AS ON JOB WORK BASIS FOR OTHERS. IT HAS CERTAIN BLOCK ASSETS AND THE DEPRECIATION HAS BEEN ALLOWED BY THE REVENUE EVEN A FTER SCRUTINY ASSESSMENT FOR ASSESSMENT YEARS, 1996-97, 1997-98 A ND 2001-2002. PRIMA FACIE IT APPEARS THAT IN THESE TWO ASSESSMENT YEARS, FINANCIAL CONDITION OF THE COMPANY STARTED DETERIORATING BECA USE OF NUMBER OF FACTORS AND ULTIMATELY IT BECAME A SICK COMPANY UND ER THE PROVISIONS OF SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985. DURING THE FINANCIAL YEAR 2002-2003 DUE TO SHORTAGE OF WORKING CAPITAL, IT COULD NOT ITA NO.1550 AND 1551/AHD/2007 -5- RUN ITS PLANT. THIS IS EVIDENT FROM THE FACT THAT THE COMPANY HAS ALSO CONTEMPLATED TO MOVE TO FINANCIAL AND BANKING INSTI TUTIONS FOR MORE RESCHEDULING OF THE LOAN & INTEREST AND ONE TIME SE TTLEMENT ETC. THE COMPANY IS GOING CONCERN, AND THEREFORE, THE RATIO OF THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF NAHAR EXPORTS LTD. (SUPRA) WOULD BE SQUARELY APPLICABLE. THEREFORE, T HE ACTION OF THE LOWER AUTHORITIES IN NOT ALLOWING THE DEPRECIATION TO THE ASSESSEE-COMPANY IS NOT JUSTIFIED. ACCORDINGLY, WE DIRECT THE AO TO AL LOW DEPRECIATION FOR BOTH THE ASSESSMENT YEARS UNDER APPEAL. 7. IN RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 6 TH MAY, 2011 SD/- SD/- (A.N. PAHUJA) ACCOUNTANT MEMBER (T.K. SHARMA) JUDICIAL MEMBER PLACE : AHMEDABAD DATE : 06-05-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD 1. DATE OF DICTATION : 03-05-2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER. : 05-05-2011 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P.S./P.S : 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT. : 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER MEMBER : 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P.S./P.S. : 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK. : 06-05-2011 ITA NO.1550 AND 1551/AHD/2007 -6- 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. : 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER. : 10. DATE OF DESPATCH OF THE ORDER :