U.S. INSTRUMENTS P.LTD, MUMBAI V. ITO 1(3)(4), MUMBAI

ITA 1584/MUM/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2383 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 21-03-2016
• Court: TRIBUNAL
• Department Lawyers: N V NADKARNI
• Assessee Lawyers: H N MOTIWALLA
• Keywords: Depreciation; Business expenditure; Unabsorbed depreciation
• Section: 143(3)

Judgement Text

, , SMC, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1584/MUM/2016 ASSESSMENT YEAR: 2011-12 U.S. INSTRUMENTS P. LTD., C/O H.N. MOTIWALLA & CO. 508 SHARDA CHAMBER, 33 NEW MARINE LINES, MUMBAI -400020 / VS. ITO 1(3)(4) AAYAKAR BHAVAN MUMBAI (ASSESSEE ) (REVE NUE) P.A. NO. AAACU0667J APPELLANT BY SHRI H. N. MOTIWALLA ( A R) REVENUE BY SHRI N. V. NADKARNI ( D R) ! ' # / DATE OF HEARING : 16/06/2016 ' # / DATE OF ORDER: 29/07/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-3 , MUMBAI, (IN SHORT CIT(A), DATED 19.01.2016 FOR ASSESSMENT YEAR 2011- U.S. INSTRUMENTS PVT. LTD. 2 12 WHICH ARISES OUT OF ASSESSMENT ORDER DATED 16.01 .2014 OF ASSESSING OFFICER (AO) PASSED U/S 143(3) OF THE ACT . 2 . DURING THE COURSE OF HEARING, ADDITIONAL GROUNDS OF APPEAL WERE FILED BY THE LD. AR AND AFTER INVITING OBJECTI ON OF DR, THE SAME WERE TAKEN ON RECORD. THE EFFECTIVE GROUNDS RA ISED BY THE LD. AR ARE ADDITIONAL GROUND NOS. 3 & 4 WHICH READ AS UNDER: 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE SAID LEARNED COMMISSIONER OF INCOME TAX HAS ALSO ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN RESPECT OF NOT SETTING OFF UNABSORBED DEPRECIATION OF RS.6,67,929/- AND CURREN T YEAR DEPRECIATION OF RS.2,24,298/- AGAINST THE ASSESSED INCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCES', ON THE GROUND THAT THERE IS NO PROVISION UNDER THE ACT, TO SET OFF UNABSORBED DEPRECIATION AGAINST INCOME FALLING UNDER THE HEAD 'INCOME FROM OTHER SOURCES', WITHOUT APPRECIATING THE PROVISIONS OF SECTION 32(2) R. W. SECTIONS 71(1)/70(1) OF THE ACT . 4.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE SAID LEARNED COMMISSIONER OF INCOME TAX HAS ALSO ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN RESPECT OF NOT SETTING OFF UNABSORBED DEPRECIATION OF RS.6,67,929/- AND CURREN T YEAR DEPRECIATION OF RS.2,24,298/- AGAINST THE ASSESSED INCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCES' WITHOUT APPRECIATING THE JUDGEMENTS OF THE SUPREME COURT IN CIT VS. VIRMANI INDUSTRIES PVT. LTD. [216 ITR 607] AND CIT VS. MOTHER INDIA REFRIGERATION INDUSTRIES (P) LTD. [155 ITR 711 (SC) ] WHICH WERE SPECIFICALLY HANDED OVER TO HIM AT THE T IME OF HEARING. 2.1. THE FACTS IN BRIEF, ARE THAT THE ASSESSEE IS A COMPANY. IT FILED IT RETURN OF INCOME FOR A.Y. 2011-12 ON 29.09 .2011 DECLARING TOTAL INCOME OF RS.1,49,383/-. THE CASE W AS SELECTED FOR SCRUTINY U/S 143(3) AND THE ASSESSMENT THEREOF WAS U.S. INSTRUMENTS PVT. LTD. 3 COMPLETED BY AO VIDE ORDER DATED 16.01.2014, AFTER MAKING SOME ADJUSTMENTS AND DISALLOWANCES. THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF ELECTRONICS INCLUDING CO MPUTER HARDWARE, WHICH WAS NO MORE IN EXISTENCE DURING THE ASSESSMENT YEAR IN QUESTION. THE AO NOTED THAT THE ASSESSEE HAD EARNED INTEREST INCOME OF RS.10,13,466/- WHICH HAS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT AND BUSINES S EXPENSES INCLUDING DEPRECIATION TO THE TUNE OF RS. 8,64,083/ - HAS BEEN CLAIMED BY THE ASSESSEE. THE AO CONCLUDED THAT AS T HE BUSINESS WAS NOT IN EXISTENCE DURING THE YEAR AND I T WAS CLOSED DOWN, THE BUSINESS EXPENSES INCLUDING DEPREC IATION IS NOT ALLOWABLE TO THE ASSESSEE. FURTHER, HE TREATED THE INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES A GAINST WHICH EXPENSES AS MENTIONED IN SECTION 57(III) ONLY WERE ALLOWABLE. HE FOUND EXPENSES TO THE EXTENT OF RS.42 ,303/- ONLY TO BE ESSENTIAL AND MANDATORY FOR THE EXISTENCE OF THE ASSESSEE COMPANY AND DISALLOWED REST OF THE EXPENSES RELYING UPON VARIOUS JUDICIAL PRONOUNCEMENTS. FURTHER, THE CLAIM OF THE ASSESSEE WITH RESPECT TO SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AND DEPRECIATION OF ASSESSMENT YEARS 2003-04 , 2004-05 & 2005-06 WAS ALSO NOT ALLOWED BY THE AO ON THE REA SONING THAT THERE IS NO INCOME UNDER THE HEAD PROFIT & GA IN OF BUSINESS OR PROFESSION. THE TOTAL INCOME DECLARED BY THE ASSESSEE WAS RS.1,49,383/- WHICH WAS ULTIMATELY ASS ESSED AT RS.11,06,420/- BY THE AO AFTER MAKING ABOVE ADJUSTM ENTS. THE ASSESSEE PREFERRED FIRST APPEAL BEFORE THE LD. CIT(A) AND RAISED VARIOUS CONTENTIONS IN HIS FAVOUR. THE APPEA L WAS PARTLY ALLOWED BY LD. CIT(A) VIDE ITS ORDER DATED 19.01.20 16. THE LD. U.S. INSTRUMENTS PVT. LTD. 4 CIT(A) NOTED THAT INTEREST INCOME MOSTLY COMPPRISE OF INTEREST ON UNSECURED ADVANCES AND THE ASSESSEE WAS NOT IN T HE BUSINESS OF FINANCE AND ACCORDINGLY, VALIDATED THE ACTION OF THE AO AND HELD THE INCOME TO BE RIGHTLY CHARGEABLE UND ER THE HEAD INCOME FROM OTHER SOURCES. 2.2. SIMILARLY, SETTING OFF OF CARRIED FORWARD UNAB SORBED DEPRECIATION OF RS.5,67,936/- WAS ALSO NOT ALLOWED BY HIM ON THE REASONING THAT UNABSORBED DEPRECIATION CANNOT B E CARRIED FORWARD AND SET OFF IN SUBSEQUENT YEARS UNDER ANY O THER HEAD INCLUDING THE HEAD INCOME FROM OTHER SOURCES. 2.3. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL BE FORE US. 2.4. BEFORE US, VARIOUS CONTENTIONS HAVE BEEN RAISE D BY THE LD. AR IN SUPPORT OF HIS CLAIM AND RELIED UPON VARIOUS JUDICIAL PRONOUNCEMENTS. THE MAIN CONTENTION OF THE LD. AR R EVOLVES ON THE GROUND THAT ASSESSEE IS ELIGIBLE TO CLAIM BO TH CURRENT DEPRECIATION AND CARRIED FORWARD UNABSORBED DEPRECI ATION, AGAINST INCOME UNDER THE HEAD INCOME FROM OTHER SOU RCES, AS PER THE PROVISIONS OF SECTION 32(2) R.W. SECTION 71 (1) &72(1) OF THE INCOME TAX ACT. THE LD. AR SUBMITTED STATEMENTS OF CARRY FORWARD UNABSORBED DEPRECIATION AND BUSINESS LOSSES AS ON 31.03.2011. THE LD. DR ON THE OTHER HAND, CONTENDED THAT AS THE BUSINESS HAS BEEN CLOSED DOWN AND FIXED ASSETS HAVE NOT BEEN USED AT ALL FOR THE PURPOSE OF BUSINESS DURING RELEVANT ASSESSMENT YEAR, ALL EXPENSES INCLUDING DEPRECIATIO N ARE NOT ALLOWABLE TO THE ASSESSEE. HE ALSO CONTENDED THAT C ARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION IS A LSO NOT U.S. INSTRUMENTS PVT. LTD. 5 PERMISSIBLE AGAINST INCOME ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. 2.5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS EARNED INCOME OF INTERE ST DURING THE YEAR AND FINANCING IS NOT MAIN BUSINESS OF THE ASSESSEE AND THEREFORE THE INCOME HAS RIGHTLY BEEN FOUND ASS ESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ISSUE WHICH REMAIN TO BE DECIDED IS WHETHER DEPRECIATION IS ALL OWABLE IN THE CURRENT ASSESSMENT YEAR AND IF YES, WHETHER INT ER-SOURCE ADJUSTMENT IS ALLOWABLE AND SECONDLY WHETHER BROUGH T FORWARD UNABSORBED DEPRECIATION CAN BE SET OFF UNDER THE HE AD INCOME FROM OTHER SOURCES? WE FIND IT APPROPRIATE TO FIRS T REFER TO RELEVANT PROVISIONS OF ACT HEREUNDER: 32(1) IN RESPECT OF DEPRECIATION OF (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEIN G TANGIBLE ASSETS; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LI CENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH TS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998,OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCTIONS SHALL BE ALLOW ED (I) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGE D IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTAGE ON THE ACTUAL COST THEREOF TO THE ASSESS EE AS MAY BE PRESCRIBED 10 ; (II) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERC ENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED 11 : (EMPHASIS SUPPLIED BY US) 2.6. THUS, THE PRIMARY CONDITION TO CLAIM DEPRECIAT ION IS THAT THE ASSET MUST BE USED FOR THE PURPOSES OF BUSINESS OR U.S. INSTRUMENTS PVT. LTD. 6 PROFESSION. THE ASSESSEE WAS NOWHERE CONTENDED THAT THE FIXED ASSET HAVE BEEN USED BY HIM FOR THE PURPOSE O F BUSINESS DURING RELEVANT ASSESSMENT YEAR. IN FACT, THE BUSIN ESS OF THE ASSESSEE IS NO MORE IN EXISTENCE AND THE ASSESSEE H AS ACCEPTED HIS INCOME TO BE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE MAIN BUSINESS OF THE ASSES SEE IS NOT FINANCING AND MAJOR EARNINGS CONSISTS OF INTEREST O N UNSECURED ADVANCES. THESE FACTS ARE NOT IN DISPUTE. THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR DEPRECIATION FOR T HE ASSESSMENT YEAR IN QUESTION. WE MAY REFER TO THE JUDGMENT OF H ONBLE BOMBAY HIGH COURT IN DINESHKUMAR GULABCHAND AGRAWAL VS V. CIT 141 TAXMANN 62 WHEREIN IT WAS HELD THAT THE WORD USED DENOTES ACTUALLY USED AND NOT MERELY READY FO R USE. THE EXPRESSION USED MEANS ACTUALLY USED FOR THE PUR POSES OF THE BUSINESS. THE USE MUST BE DURING RELEVANT ACCOUNTIN G YEAR. IF THE MACHINERY HAD NOT AT ALL BEEN USED AT ANY TIME DURING THE ACCOUNTING YEAR, NO ALLOWANCE COULD BE CLAIMED. THE ASSESSEE HAS RELIED ON THE JUDGMENT OF G.R. SHIPPING LTD. V. DCIT (ITA NO.822/MUM/05. WE FIND THE SAME DISTINGUISHABLE ON THE GROUND THAT IN THAT CASE, ONLY A PART OF THE FIXED ASSET GOT DESTROYED AND COULD NOT BE USED FOR THE BUSINESS. T HIS IS NOT THE CASE HERE. THE ASSESSE HAS NOT CARRIED ON ANY B USINESS AT ALL. THUS, IN VIEW OF THE ABOVE FACTUAL MATRIX OF T HE CASE, DEPRECIATION FOR THE CURRENT YEAR IS NOT ALLOWABLE TO THE ASSESSEE. 2.7. THE SECOND ISSUE INVOLVED HERE IS WHETHER BROU GHT BORWARD UNABSORBED DEPRECIATION CAN BE SET OFF UNDE R THE U.S. INSTRUMENTS PVT. LTD. 7 HEAD INCOME FROM OTHER SOURCES. FOR THIS, THE REL EVANT EXTRACT OF SECTION 32(2) IS REPRODUCED BELOW: 32(2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FULL EFFE CT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVIOUS YEAR, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE, THE N, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 AND SUB-SECTION (3) OF SECTION 73 , THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIO US YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THER E IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS. ALSO, A RELEVANT PORTION OF SECTION 71(1) IS REPRO DUCED BELOW: 71(1) WHERE IN RESPECT OF ANY ASSESSMENT YEAR THE NET RESULT OF THE COMPUTATION UNDER ANY HEAD OF INCOME, OTHER THAN CAPITAL GAINS, IS A LOSS AND THE ASSESSEE HA S NO INCOME UNDER THE HEAD CAPITAL GAINS, HE SHALL, SU BJECT TO THE PROVISIONS OF THIS CHAPTER, BE ENTITLED TO 13 HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST HIS INCOME, IF ANY, ASSESSABLE FOR THAT ASSESSMENT YEAR UNDER ANY OTHER HEAD. 2.8. A COMBINED READING OF THE ABOVE SECTION SHOWS THAT UNABSORBED DEPRECIATION OF EARLIER YEAR IS ADDED TO CURRENT YEARS DEPRECIATION AND TAKES THE COLOUR OF CURRENT YEARS DEPRECIATION. FURTHER, AS PER SECTION 71(1) INTER S OURCE ADJUSTMENT IS POSSIBLE FOR BUSINESS LOSSES AGAINST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 2.9. ACCORDINGLY, THE UNABSORBED DEPRECIATION OF EA RLIER YEAR OF THE ASSESSEE BECOMES CURRENT DEPRECIATION ALLOWANCE AND U.S. INSTRUMENTS PVT. LTD. 8 ACCORDINGLY, SET OFF OF THE SAME IS POSSIBLE AGAINS T INCOME FROM OTHER SOURCES. WE HOLD SO. 2.10. HENCE, THE AO IS DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE WITH RESPECT TO BROUGHT FORWARD UNABSORBED DEPRECIATION AND ALLOW THE SET OFF OF THE SAME INC OME FROM OTHER SOURCES. THE CURRENT YEAR DEPRECIATION IS NO T ALLOWABLE TO THE ASSESSEE IN VIEW OF OUR FINDINGS IN EARLIER PARAGRAPHS. 3. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2016. SD/- (JOGINDER SINGH) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER ! MUMBAI; % DATED /07 /2016 CTX? P.S/. . . #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. '() / THE APPELLANT 2. *+() / THE RESPONDENT. 3. , , - ( ' ) / THE CIT, MUMBAI. 4. , , - / CIT(A)- , MUMBAI 5. 01 *2 , , '# 23 , ! / DR, ITAT, MUMBAI 6. 45 6! / GUARD FILE. / BY ORDER, +0' * //TRUE COPY// / (DY./ASSTT. REGISTRAR) , ! / ITAT, MUMBAI