Cera Sanitaryware Ltd., Ahmedabad V. The Addl.CIT.,Range-1, Ahmedabad

ITA 1784/AHD/2009

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0562 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-12-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 28-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y P VERMA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Depreciation; Opportunity of being heard; Bad and doubtful debts; Difference of opinion; Revenue expenditure; Capital expenditure
• Section: 234B; 32; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, AHMEDABAD BEFORE SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER AND SHRI T. R. MEENA, ACCOUNTANT MEMBER I.T.A. NO. 1784/ AHD/2009 (ASSESSMENT YEAR 2005-06) CERA SANITARYWARE LTD., VS. ADDL. CIT, RANGE I, MADHUSUDAN HOUSE, AHMEDABAD OPP. NAVRANGPURA TEL. EXCHANGE, NAVRANGPURA, AHMEDABAD. PAN/GIR NO. : AABCM9244N (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI S N SOPARKAR, SR. ADV. RESPONDENT BY: SHRI Y P VERMA, SR. DR DATE OF HEARING: 11.12.2012 DATE OF PRONOUNCEMENT: 22.02.2013 O R D E R PER SHRI T. R. MEENA, AM:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 30.01.2009 OF LD. CIT(A) VI, AHMEDABAD FOR THE ASSE SSMENT YEAR 2005- 06. 2. GROUND NO.1 IS GENERAL AND NEED NO ADJUDICATION AT THIS STAGE. 3. THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS: 3 THE LD. A.O. AND THE CIT(A) HAS WRONGLY CONSTRUE D THAT THERE WAS HUGE DIFFERENCE BETWEEN THE BOOK STOCKS AS PER AUDITED ACCOUNTS AND BANK STOCK AND WITHOUT GIVING REASONAB LE OPPORTUNITY AND CONSIDERING THE EXPLANATIONS AND DETAILS FURNIS HED ON ADJUSTING MANUFACTURING AND PRODUCTION LOSS THE FINAL STOCKS WERE DETERMINED AND NO ADVERSE EVIDENCE OR ANY ARGUMENT OF SUBSTANCE IS GIVEN FOR ADDITION OF RS.8,85,6207- TO THE. STOC KS OF THE COMPANY. I.T.A.NO.1784 /AHD/2009 2 4. THE DEPRECIATION ON THE BANGALORE DISPLAY UNIT OWNED BY THE COMPANY AND WAS PUT TO USE DURING THE YEAR AND HENCE THE APPELLANT COMPANY WAS ENTITLED TO DEPRECIATION CLAI MED AS PER THE PROVISIONS OF SECTION 32 OF THE I.T. ACT, 1961, BAN GALORE DISPLAY UNIT WAS READY TO USE AND HENCE CLAIM FOR DEPRECIAT ION IS ENTITLED TO THE APPELLANT. 5. THE AMOUNT WRITTEN OFF ON FAILURE OF THE JOINT V ENTURE BUSINESS IS AN ADMISSIBLE DEDUCTION U/S. 28 R.W.S. 37 OF THE I.T. ACT, 1961. THE APPELLANT INCURRED LOSS IN THE JOINT VENTURE BUSINESS WHICH WAS REPRESENTED BY THE ASSETS / AMOUNTS GIVEN TO JOINT VENTURE AND THEREFORE THE LOSS INCURRED IN THE JOIN T VENTURE BUSINESS WAS RIGHTLY WRITTEN OFF DURING THE YEAR AS BUSINESS LOSS. 6. THAT THE BAD DEBTS OF RS.9,17,000/- IS ADMISSIBL E DEDUCTION SINCE IT IS WRITTEN OFF TO THE PROFIT & LOSS ACCOUN T AND ON THE FACTS AND CIRCUMSTANCES OF EACH PARTY, THE APPELLANT HAD CLAIMED BAD DEBTS OF RS.7,59,509 WHEREAS DISALLOWANCE MADE BY T HE LEARNED A.O. IS RS.9,17,000 OF THE SAME PARTY. 7. THE LD. ADDL. CIT HAS ERRED IN CONFIRMING THE CHARGING INTEREST U/S. 234B OF THE ACT OF RS.8,56,282/- AND INTEREST U/S. 234C OF THE ACT OF RS.2,26,290/-. 8. THAT THE LEARNED A.O. HAS ERRED IN CONFIR MING THE INITIATION OF PENALTY PROCEEDING U/S. 271(L)(C)OF THE ACT. 4. GROUND NO.3 IS AGAINST DIFFERENCE BETWEEN THE BO OK STOCK AS PER THE AUDITED ACCOUNTS AND BANK STOCK AT RS.8,85,620/-. THE FACTUAL MATRIX IS THAT THE ASSESSEE COMPANY MANUFACTURE/ TRADES SANIT ARY WARE BOTH ACCESSORIES AND TILES AND GENERATION OF ELECTRICITY . THE A.O. OBSERVED THAT THE STOCK IN PROCESS AS PER THE BALANCE SHEET HAD BEEN SHOWN AT 818.47 MT VALUED AT RS.37,79,781/- WHEREAS THE STOC K IN PROCESS SUBMITTED TO THE BANK WAS SHOWN AT 1199.09 MT VALUE D AT RS.46,65,401/- . THE A.O. HAS GIVEN REASONABLE OPPORTUNITY OF BEI NG HEARD AT THE TIME OF ASSESSMENT. THE APPELLANT MERELY STATED THAT THE S TOCK IN PROCESS IS WITHOUT ADJUSTMENT OF GREEN-WARE LOSSES AND REMOVAL OF MOULDS WHICH WERE AGAIN TAKEN FOR REPROCESSING AND THE DISCREPAN CY FOUND IN THE TWO STATEMENTS COULD NOT BE EXPLAINED BY THE APPELLANT BEFORE THE A.O., I.T.A.NO.1784 /AHD/2009 3 THEREFORE, HE MADE ADDITION OF RS.8,85,620/- ON ACC OUNT OF QUANTITY DIFFERENCE BETWEEN BOTH STOCKS. BEING AGGRIEVED, T HE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO HAS CONSIDERED THE APP ELLANTS SUBMISSIONS ON VARIOUS COUNTS I.E. NO UNACCOUNTED SALE WAS FOUN D, THE COMPANY WAS MANAGED BY THE PROFESSIONALS, BANK PERSONNEL ARE CH ECKING FIXED STOCK, PROVISIONAL STOCK WAS SUBMITTED BY THE APPELLANT WI THOUT ANY DEDUCTION OR REDUCTION OF PRODUCTION LOSS. NO MISTAKE IS FOU ND BY THE A.O. IN THE RECORDS, JR. OFFICER HAD GIVEN STOCK STATEMENT TO T HE BANK WITHOUT EFFECTING AND REDUCING THE STOCK IN PROCESS, FOR LO SS DURING THE PRODUCTION WHICH IS HANDLING LOSS AND MARGINAL LOSS ON ACCOUNT OF WASTAGE AND REMOVAL OF MOULDS AND PUTTING THEM BACK TO THE FIRS T STAGE OF MANUFACTURING PROCESS. HE FURTHER ARGUED BEFORE LD . CIT(A) THAT THE OTHER PIECES WHICH CANNOT BE SALVAGED AND BROKEN AT VARIOUS LOCATIONS IN CONSULTATION WITH THE POLLUTION BOARD TO THROW AWAY THESE BROKEN PIECES UNDER SUPERVISION OF EXCISE AUTHORITIES. THE ASSES SEES ARGUMENT WAS NOT FOUND TO BE CONVINCING AND IT WAS HELD BY LD. CIT(A ) THAT THE STATEMENT OF STOCK SUBMITTED BY THE APPELLANT TO THE BANK, WH ICH IS EXCESS BY RS.8,85,620/- WHEN CONSIDERED VIS--VIS BOOKS OF AC COUNTS OF THE ASSESSEE, WHICH IS CLEAR AND DEFINITE AND NOT AMBIG UOUS, VAGUE OR CONFUSING. THUS, IT HAS VALUE AND SHIFTS THE ONUS OF PROVING TO THE CONTRARY ON THE APPELLANT AND IT CASTS AN IMPERATIV E DUTY ON THE APPELLANT TO EXPLAIN THE ADMISSION. WITH THE RESULT, STOCK S TATEMENT SUBMITTED TO THE BANK WAS PRESUMED TO BE TRUE. IN THE GIVEN FAC TS AND CIRCUMSTANCES, THE ACTION OF THE A.O. I.E. ADDITION OF RS.8,85,620 /- AS UNDISCLOSED INVESTMENT IN STOCK IS THEREBY CONFIRMED. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. I.T.A.NO.1784 /AHD/2009 4 5. LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE TOTAL SALES MADE BY THE APPELLANT DURING THE YEAR WAS RS.60.72 CRORES A ND STOCK HAD BEEN SHOWN AT 13.39 CRORES. THE DIFFERENCE BETWEEN CLOS ING STOCK SHOWN IN THE P & L ACCOUNT AND STOCK POSITION FURNISHED BEFO RE THE BANK AUTHORITIES IS RS.8.85 LACS WHICH IS LESS THAN 0.2% OF THE TOTAL TURNOVER. HE DRAWN OUR ATTENTION TO PAGE 26 OF THE PAPER BOOK WHEREIN IN ITEM 8 AND THE DETAILED REASONS WERE GIVEN BEFORE THE A.O. THAT THE STOCK STATEMENT GIVEN TO THE BANK EVERY MOTH ON AD-HOC BA SIS IN WHICH FINISHED STOCK AND W.I.P. IS REDUCED AT FIXED RATES ACCEPTED BY THE BANK AND THE QUANTITIES ARE MENTIONED A PER RECORD BASED UPON PR ODUCTION RECORD WITHOUT GIVING EFFECT TO THE PRODUCTION LOSSES. TH E CLOSING STOCK OF FINISHED GOODS IS GIVEN ACCORDING TO THE EXCISE REC ORD AND THESE GOODS ARE ONLY OF THE ALLOWABLE FINISHED STOCK. THE STOCK I N PROGRESS IS TAKEN AS PER THE PIECES MOULDED DURING THE MANUFACTURING AND THE OPENING STOCK IS TAKEN AS PER THE RECORD AT THE END OF THE MONTH AND AT THE END OF THE YEAR. THE GREENHOUSE WASTE WHICH IS NOT PUT IN KILNS FOR FIRING AND IS REJECTED WHILE TAKEN THE STOCK OF W.I.P. FOR THE PURPOSE OF BALANCE SHEET, THIS PRODUCTION LOSS IS NOT REDUCED IN THE W.I.P. FOR BA LANCE SHEET EVALUATION, ONLY THE PIECES WHICH HAVE BEEN USED TO MAKE FINISH ED PRODUCTS ARE BEING CONSIDERED A W.I.P. STOCK. WITH REGARD TO STOCK OF STORES AND RAW MATERIAL, THE VALUE IS GIVEN AS PER PAGE 98 TO THE BALANCE SHEET. THESE VALUES ARE SUBJECTED TO STOCK AND ISSUE IN ERP SYST EM AND ITEMS ISSUED FOR THE CONSUMPTION AND CAPITALIZATION TO BE ACCOUN TED FOR. HE FURTHER DRAWN OUR ATTENTION TO PAGE 33 OF THE PAPER BOOK WH ERE CLOSING STOCK AND STOCK IN PROCESS IN QUANTITY HAS BEEN SHOWN AT 818. 47 MT IN THE BALANCE SHEET. THE STATEMENT FURNISHED TO THE BANK IS PROV ISIONAL AND GIVEN FOR THE PURPOSE OF LOAN. HE FURTHER RELIED UPON THE CA SE OF CIT VS VEERDIP I.T.A.NO.1784 /AHD/2009 5 ROLLARS (P) LTD., 323 ITR 341 WHEREIN ADDITION ON A CCOUNT OF DIFFERENCE IN THE CLOSING STOCK FURNISHED TO THE BANK AUTHORIT IES FOR AVAILING THE CREDIT FACILITIES AS AGAINST THE AMOUNT DISCLOSED I N THE BOOKS OF ACCOUNT FURNISHED BEFORE THE INCOME TAX AUTHORITIES HELD NO T JUSTIFIED. STOCK SUBMITTED BEFORE THE BANK IS INFLATED STOCK. HE FU RTHER RELIED ON THE CASE OF CIT VS SIDHU RICE & GENERAL MILLS, 281 ITR 28 (P &H) WHEREIN THE CREDIT FACILITY WAS TAKEN BY THE APPELLANT AGAINST THE HYPOTHECATION OF STOCK AND NOT AGAINST THE PLEDGE. THE APPELLANT FI LED PHOTOCOPY OF THE STATEMENT BEFORE THE BANK BUT THE A.O. HAD NOT BROU GHT ON RECORD ANY MATERIAL TO SHOW THAT THE IN FACT PROCESS STOCK AS REFLECTED IN THE SAID STATEMENT AGAINST THE STOCK DEBITED IN THE BALANCE SHEET. THUS HONBLE PUNJAB & HARYANA HIGH COURT ALLOWED THE APPEAL IN F AVOUR OF THE APPELLANT. THEREFORE, HE REQUESTED TO DELETE THE A DDITION. 6. AS AGAINST THIS, LD. D.R. VEHEMENTLY ARGUED THAT THE APPELLANT HAD SHOWN CLOSING STOCK AND STOCK IN PROCESS AT 818.47 MT VALUED AT RS.37,39,781/- WHEREAS IN THE STOCK IN PROCESS SUBM ITTED TO THE BANK WAS MENTIONED AT 1199.09 MT VALUE AT RS.46,65,401/- AND THE DISCREPANCY BETWEEN THESE TWO STATEMENTS COULD NOT BE EXPLAINED BY THE APPELLANT BEFORE THE AUTHORITIES BELOW. VALUATION DIFFERENCE BETWEEN THE BALANCE SHEET STOCK AND THE STOCK SUBMITTED TO THE BANK COU LD HAVE BEEN ACCEPTED. HOWEVER, THERE WAS HUGE QUANTITY DIFFERENCE WHICH H AD NOT BEEN SUBSTANTIALLY EXPLAINED. HE ALSO ARGUED THAT THERE IS NOT INFLATED STOCK BUT IT WAS SUBMITTED ON THE BASIS OF QUANTITY DETAILS. THEREFORE, WHATEVER CASE LAW REFERRED TO BY THE LD. COUNSEL FOR THE ASS ESSEE IS SQUARELY DISTINGUISHABLE. HE FURTHER RELIED ON THE CASE OF COIMBATORE SHIPPING & WELDING CO. LTD. (1974) 95 ITR 375 (MAD.) WHEREIN I T HAS BEEN HELD THAT WHEN THERE IS A DIFFERENCE BETWEEN STOCK DISCLOSED IN THE BALANCE SHEET I.T.A.NO.1784 /AHD/2009 6 AND SUBMITTED BEFORE THE BANK, THE HEAVY BURDEN LIE S ON THE ASSESSEE TO PROVE THAT THE BOOKS THAT THE BANK LOAN GIVES CORRE CT PICTURE AND THE SWORN STATEMENT GIVEN TO THE BANK IS CORRECT. HE F URTHER RELIED ON THE CASE OF RECON MACHINE TOOLS P. LTD. VS CIT 2006) 28 6 ITR 637 (KAR) WHEREIN IDENTICAL DIFFERENCE WAS THERE AND THE HON BLE COURT HELD THAT THE RAW MATERIAL AND THE CONCERNED AMOUNT ARE REQUI RED TO BE SUPPORTED BY VARIOUS STATUTORY REGISTERS PRESCRIBED BY THE AU THORITIES. IN ABSENCE OF ACCEPTABLE MATERIAL, IT IS NOT POSSIBLE FOR THE COU RT TO DISLODGE THE FINDING OF THE ACT PARTICULARLY IN THE LIGHT OF BANK STATEM ENT. IN THE CASE LAW RELIED BY THE LD. COUNSEL FOR THE ASSESSEE CIT VS V EERDIP ROLLERS (P) LTD (SUPRA) THERE WAS NO DIFFERENCE IN THE QUANTITIES. THUS, HE REQUESTED TO CONFIRM THE ADDITION. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IT IS FOUND THAT BEFORE THE BANK AUTHORITI ES, THE CLOSING STOCK AND THE STOCK IN PROCESS IS SHOWN 1199.09 MT WHEREAS TH E SAME HAS BEEN SHOWN IN THE BALANCE SHEET AS 818.47 MT. DURING TH E ASSESSMENT PROCEEDINGS, THE APPELLANT HAD NOT FURNISHED ANY RE CONCILIATION TO EXPLAIN THE EXCESS STOCK DECLARED TO THE BANK. THE DISCREP ANCY IN STOCK WAS NEVER EXPLAINED WITH THE HELP OF BOOKS/BILLS/VOUCHE RS ETC. IN THE INSTANT CASE, THE APPELLANT HAD ADMITTED THAT BANK AUTHORIT IES HAD VERIFIED THE STOCK PHYSICALLY. THE BURDEN LIES ON THE APPELLANT TO PROVE THE DISCREPANCY IN THE STOCK. THE APPELLANTS CONTENTI ON THAT THERE WAS CONSUMPTION LOSS AND CERTAIN OBSOLETE ITEMS ARE BEI NG THROWN AWAY AS GARBAGE BUT NO EVIDENCE IN THIS REGARD HAS BEEN GIV EN BEFORE ANY OF THE AUTHORITIES BELOW TO JUSTIFY HIS CLAIM. IN CERAMIC MANUFACTURING ALL THE DISCARDED PRODUCTION IS AGAIN REUSED AND THE STOCK IS TAKEN BACK IN THE QUANTITY AGAINST THEM AND THERE SHOULD NOT BE ANY D IFFERENCE BETWEEN THE I.T.A.NO.1784 /AHD/2009 7 STOCK AS PER THE ACCOUNTS BOOKS AND STOCK DISCLOSED BEFORE THE BANK AUTHORITIES. THUS, WE ARE OF THE CONSIDERED VIEW T HAT HE APPELLANT HAD EXCESS STOCK WHICH HAS BEEN SHOWN TO THE BANK AUTHO RITIES FOR TAKING LOAN EVEN IN THE CASE OF HYPOTHECATION OF STOCK. THERE IS NO INFLATION IN THE STOCK BY THE APPELLANT. WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A). 8. GROUND NO.4 IS AGAINST NOT ALLOWING THE DEPRECIA TION ON BANGALORE UNIT AT RS.53,348/-. THE A.O. OBSERVED THAT THE AP PELLANT HAS HIRED PREMISES IN BANGALORE FOR SETTING UP DISPLAY CENTRE WHERE ITS VARIOUS PRODUCTS ARE DISPLAYED FOR SALE. ON PERUSAL OF DEP RECIATION CHART SHOWN BY THE APPELLANT, IT WAS FOUND THAT THE BANGALORE D ISPLAY UNIT HAS ALLEGEDLY BEEN PUT TO USE FOR ONE DAY IN THAT YEAR I.E. ON 31.03.2005. AN AMOUNT OF RS.6545 LACS HAD BEEN SPENT ON FURNITURE AND RS.1,10,749/- ON ELECTRICITY FITTING. DEPRECIATION HAD BEEN CLAIMED @ 7.5% BEING USED FOR LESS THAN 180 DAYS. THE A.O. HAS GIVEN REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE TO SHOW THAT THE ASSETS WERE PUT TO USE ON 31.03.2005. THE APPELLANT SUBMITTED COPY OF AGREEM ENT BUT NO OTHER PROOF WAS GIVEN ESTABLISHING USE OF THE ASSETS ON 3 1.03.2005. IT WAS HELD BY THE A.O. THAT DEPRECIATION WAS CLAIMED ON THE GR OUND THAT ASSETS WERE READY FOR USE AND COMPLETED WITH FURNITURE AND ELEC TRICITY ON WHICH EXPENDITURE HAD BEEN MADE ON OR BEFORE 31.03.2005. IT WAS FURTHER OBSERVED THAT OPENING CEREMONY TO THIS EFFECT WAS H ELD IN THE MONTH OF MAY 2005 AND THE SAID PREMISES WERE READY ON 28.03. 2005. THE SAID OFFICE PREMISES WERE READY ON 28.03.2005 HOWEVER, I T WAS CLAIMED IN THE DEPRECIATION CHART THAT THE ASSETS WERE USED FOR TH E BUSINESS PURPOSES ONLY FOR ONE DAY. ON THIS BASIS, APPELLANT HAD CLAIMED THE DEPRECIATION BUT THE ASSESSEES REPLY WAS NOT FOUND TO BE CONVINCING AND THEREFORE, HE I.T.A.NO.1784 /AHD/2009 8 DISALLOWED DEPRECIATION OF RS.53,345/-. BEING AGGR IEVED, THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO HAS CONFIR M THE ADDITION BY OBSERVING AS UNDER: WHEN THE AFORESAID IS CONSIDERED WITH THE FACTS AN D CIRCUMSTANCES OF THE GROUNDS OF APPEAL UNDER CONSIDERATION, THE F ACT EMERGES THAT THE APPELLANT HAS HIRED THE PREMISE' IN BANGALORE F OR SETTING UP DISPLAY CENTER WHERE AN AMOUNT OF RS. 6,00,545/- HA S BEEN SPENT ON FURNITURE AND AMOUNT OF RS. 1,10,749/- ON ELECTR IC FITTINGS. THE APPELLANT HAS CLAIMED DEPRECIATION @ 7.5% CONSIDERI NG THE SAME BEING USED FOR LESS THAN 180 DAYS BUT IT IS A FACT THAT THE APPELLANT HAS FAILED TO FURNISH ANY CORROBORATIVE EVIDENCE TO SUBSTANTIATE ITS CLAIM FOR THE SAME EXCEPT THE AGREEMENT SHOWING REN TAL OF THE PROPERTY WHERE THE DISPLAY CENTRE IS SITUATED IN TH E GIVEN FACTS AND CIRCUMSTANCES, IT IS ABUNDANTLY CLEAR THAT THE ASSE T IN QUESTION HAS NOT BEEN_ PUT TO USE IN THE YEAR UNDER APPEAL, THER EBY, THE DEPRECIATION CLAIM CANNOT BE ALLOWED AT ALL. WITH T HE RESULT, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE AMOUNT OF RS. 53,345/- OUT OF DEPRECIATION ON FURNITURE AND FITTI NGS AND ELECTRIC INSTALLATIONS AND ADDED BACK TO THE TOTAL INCOME OF THE APPELLANT. HENCE THE ACTION OF THE ASSESSING OFFICER IS CONFIR MED ON THESE GROUNDS (I.E. GROUNDS NO. 3(II) AND 6). 9. NOW, THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE BANGALORE OFFICE WAS READY TO US E AND DEPRECIATION WAS CLAIMED AS PER LAW BY THE APPELLANT EVEN THEN C EREMONY WAS HELD IN MAY 2005. HE FURTHER ARGUED THAT THE ASSETS WERE R EADY FOR USE. HE RELIED IN THE CASE OF CIT(A) VS NAHAR EXPORTS LTD. 296 ITR 419 (P&H) WHEREIN MACHINES WERE KEPT READY FOR USE BUT COULD NOT BE USED DURING THE YEAR IN QUESTION ON ACCOUNT OF NON RECEIPT OF T HE ORDERS. HE ASSESSEE WAS ALLOWED DEPRECIATION. THE FURTHER RELIED IN TH E CASE OF CAPITAL BUS SERVICES VS CIT 123 ITR 404 (DE.) WHEREIN DEPRECIAT ION CLAIMED ON BUSSES WHICH WERE USED ONLY FOR 30 DAYS AND FOR THE REMAINING DAYS, IT COULD NOT BE USED AND THE ASSESSEE CLAIMED DEPRECAT ION FOR THE FULL YEAR. I.T.A.NO.1784 /AHD/2009 9 HONBLE DELHI HIGH COURT HELD THAT BUS CAN BE SAID TO HAVE BEEN USED THROUGH OUT THE YEAR FOR THE PURPOSE OF ALLOWING DE PRECIATION. 10. AT THE OUTSET, THE LD. D.R. CONTENDED THAT THE ASSETS WERE NOT READY FOR USE ON 31.03.2005 AND THE CASE LAW REFERRED TO BY THE APPELLANT IN THE CASE OF NAHAR EXPORTS LTD. (SUPRA) IS NOT APPLICABL E BECAUSE THERE WAS NO ORDER BEFORE THE APPELLANT AND DUE TO THIS REASON, THE UNIT WAS CLOSED FOR SOMETIME. SIMILARLY, THE CASE LAW REFERRED TO BY T HE APPELLANT I.E. CAPITAL BUS SERVICES PVT. LTD. IS ALSO NOT APPLICABLE BECAU SE BUSSES WERE READY FOR USE FOR THE FULL YEAR. HE FURTHER RELIED IN TH E CASE OF LIQUIDATORS OF PURSA LTD. VS CIT 25 ITR 265 (S.C.) WHEREIN THE COM PANY WAS UNDERGOING PROCESS OF PLANT AND MACHINERY WERE NOT USED WHEREIN THE DEPRECIATION WAS NOT ALLOWED BY THE HONBLE SUPREME COURT ON THE GROUND THAT THE COMPANY WAS IN WINDING UP PROCESS A ND THERE WAS NO ANY CONNECTION WITH THE CARRYING OUT OF BUSINESS. HE F URTHER RELIED IN THE CASE OF DCIT VS YELLAMMA DASAPPA HOSPITAL 290 ITR 353 (K AR) WHEREIN IT WAS HELD THAT MACHINES WERE KEPT READY FOR USE ARE NOT ELIGIBLE FOR DEDUCTION. THE HONBLE COURT DEFINED THE WORD USE IN TERMS OF ACTUALLY USED. THEREFORE, IT WAS HELD THAT FULL MEANING OF THE WORD IS TO BE GIVEN. THUS HE ARGUED FOR CONFIRMATION OF THE ORDER OF LD. CIT(A). 11. WE HAVE HEAD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE A.O. UNDISPUTEDLY FOUND THE ADDITION OF ASSET I N THE BANGALORE OFFICE GENUINE AND THERE WAS NO FINDING THAT THE ASSETS PU RCHASED AFTER 31.03.2005. THERE WAS A CERTIFICATE OF ENGINEER WH ICH SHOWS THATS THE ASSETS WERE READY FOR USE AS VARIOUS COURTS HAVE HE LD THAT ACTIVE USE IS NOT NECESSARY TO ALLOW DEPRECIATION BUT THE DEPRECIATIO N IS ALLOWABLE ON PASSIVE USE WHERE ASSETS WERE READY FOR USE. THUS, WE HAVE CONSIDERED I.T.A.NO.1784 /AHD/2009 10 VIEW THAT DEPRECIATION ON BANGALORE DISPLAY CENTRE IS TO BE ALLOWED AS PER LAW. ACCORDINGLY THIS GROUND OF THE ASSESSEE IS AL LOWED. 12. GROUND NO.5 IS REGARDING NOT ALLOWING BUSINESS LOSSES ON ACCOUNT OF JOINT VENTURE. THE A.O. OBSERVED THAT THE ASSES SEE HAD WRITTEN OFF ADVANCES OF RS.32,23,000/- OUT OF MISCELLANEOUS EXP ENSE. THE A.O. HAS GIVEN REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 12.12.200 7. IT WAS SUBMITTED BY THE APPELLANT BEFORE THE A.O. THAT THE COMPANY HAD ENTERED INTO JOINT VENTURE BUSINESS FOR BPO AND CALL CENTRE AND FURTHE R HAD ENTERED INTO JOINT VENTURE WITH RBS BUSINESS ARCHITECT PVT. LTD. (COPY OF WHICH IS AVAILABLE IN THE PAPER BOOK) BUT THE VENTURE WAS NO T FOUND TO BE VIABLE AND THE COMPANY WAS OF THE OPINION THAT IF COMPANY CONTINUES TO BE A PART OF THIS JOINT VENTURE IN SUCH AN EVENT, THERE WOULD BE FURTHER INCREASE IN LIABILITIES AND, THEREFORE, THE COMPANY SETTLED THE AMOUNT OF ADVANCES IN VIEW OF LOSSES OF THE SAID COMPANY. THIS AMOUNT WAS WRITTEN OFF AS IRRECOVERABLE ADVANCES. THIS WAS A BUSINESS LOSS I NCURRED BY THE COMPANY ENTITLED TO DEDUCTION U/S 28 READ WITH SECT ION 37 OF THE INCOME TAX ACT, 1961. AS PER THE A.O.S OPINION, THIS EXP ENDITURE WAS CAPITAL IN NATURE AND NOT REVENUE, THEREFORE, THE LOSS CANNOT BE WRITTEN OFF AS REVENUE LOSS. THE A.O. ADJOURNED THE CASE AND ASKE D TO SUBMIT THE REASONS FOR CLAIM OF LOSS BUT ON 27.12.2004, NO ONE ATTENDED THE CASE AND NO REPLY WAS FILED BEFORE THE A.O. FINALLY, THE A .O. HELD THAT THIS LOSS IS NOT ALLOWABLE AS BEING CAPITAL IN NATURE. 13. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATE BEFORE LD. CIT(A) WHO HAS CONFIRMED THE ADDITION OBSERVING AS UNDER: WHEN THE AFORESAID IS CONSIDERED WITH THE FACTS AN D CIRCUMSTANCES OF THE GROUNDS OF APPEAL UNDER CONSIDERATION, THE F ACT EMERGES THAT THE APPELLANT HAS DEBITED THE AMOUNT OF RS.32,23,00 0/- UNDER I.T.A.NO.1784 /AHD/2009 11 MISCELLANEOUS EXPENSES ON ACCOUNT OF ADVANCES WRITT EN OFF. AS THE EXPENDITURE IN SETTING UP OF A NEW BUSINESS, THEREB Y, IT IS CRYSTAL CLEAR THAT HE NATURE OF EXPENDITURE IS CAPITA L IN NATURE. CONSEQUENTLY, THE LOSSES INCURRED ON THAT ACCOUNT CANNOT BE WRITTEN OFF AS REVENUE LOSS. THE FACTS AND CIRCUM STANCES OF THE GROUNDS OF APPEAL CLEARLY REVEAL THAT THE EXPENDITU RE IN QUESTION HAS BEEN INCURRED FOR ENTERING INTO A JOINT VENTURE FOR DEVELOPING AND CARRYING ON THE BUSINESS OF BPO SERVICES AND CA LL CENTRE. KEEPING IN VIEW THE LOSSES THE APPELLANT HAS SETTLE D AN AMOUNT OF ADVANCE GIVEN AND HAS WRITTEN OFF THE SAME. WITH T HE RESULT, THE ADVANCES WHICH HAVE BEEN WRITTEN OFF ARE EVIDENTLY IN THE NATURE OF CAPITAL ADVANCES GIVEN FOR STARTING THE BUSINESS, T HEREBY, THE SAME CANNOT BE CONSIDERED AS BUSINESS LOSS. WITH THE RESULT, THE SAME IS .NOT BUSINESS LOSS INCURRED BY THE APPELLANT TO BE ENTITLED FOR DEDUCTION U/S. 28 R.W.S. 37 OF THE INCOME-TAX ACT, 1961. IN THE GIVEN FACTS AND CIRCUMSTANCES, THE ASSESSING OFFICE R HAS RIGHTLY DISALLOWED THE AMOUNT OF RS. 32,23,000/- AND ADDED BACK TO THE TOTAL INCOME OF THE APPELLANT. WITH THE RESULT, TH E ACTION OF THE ASSESSING OFFICER IS CONFIRMED ON THESE GROUNDS. 14. NOW, THE ASSESSEE IS APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE LOSS IS ALLOWABLE AS TH E REVENUE. HE DRAWN OUR ATTENTION TO PAGES 42-47 OF THE PAPER BOOK WHER EIN THERE IS A COPY OF THE RESOLUTION DATED 04.06.2005 ADDRESSED TO SHRI V IKRAM SOMANI, 12/1, JUDGES COURT ROAD, KOLKATTA -700027 WHEREIN RVS BUS INESS ARCHITECTS INDIA PVT. LTD. (COMPANY) AND MIR. VIJAYENDER SHARM A EX DIRECTOR & EX. CEO ARE THE SHAREHOLDERS (SHARMA GROUP), WHEREA S ON BEHALF OF THE COMPANY WHICH IS CONTRARY HELD BY SHARMA GROUP AND YOU, ;YOUR ASSOCIATES (SOMANI GROUP) PURSUANT TO MOU DATED 15. 11.2003, TAKE OVER THIS CALL CENTRE DOES NOT SEEM TO BE GROWING SUCCES SFULLY AS A RESULT OF VARIOUS DIFFERENCE OF OPINION AND MISUNDERSTANDING CROPPED UP OVER A PERIOD OF TIME IN RELATION TO MANAGEMENT AND ADMINI STRATION OF THE COMPANY. FURTHER, THE COMPANY HAS BEEN INCURRING L OSS AS A RESULT OF WHICH THE COMPANYS NET WORTH HAS BEEN FULLY ERODED AND THE LIABILITIES I.T.A.NO.1784 /AHD/2009 12 HAVE BEEN ACCEDED TO THE ASSETS. IN SUCH CIRCUMST ANCES, IT HAS BEEN DECIDED TO TERMINATE THE MOU THAT HAD BEEN EXECUTED ON 15.1.2003, HEREBY RELIEVED EACH OTHER FROM ALL THE RESPONSIBIL ITIES, DUTIES, OBLIGATIONS AND LIABILITIES UNDER THE HEAD MOU. ACCORDING TO T HE RESOLUTION, A DEMAND DRAFT IN FAVOUR OF THE COMPANY FOR RS.24 LAC S AS SOMANI GROUP SHARE IN THE LIABILITIES OF THE COMPANY HAD BEEN DE CIDED. IN CASE OF LOSSES OF THE COMPANY WERE NOT MET OUT FROM THE AMOUNT OF R.24 LACS PROVIDED IN CLAUSE (I), THE OUTSTANDING LIABILITIES OF SOMAN I GROUP NAMELY (A) VIKRAM SOMANI RS.77,63,225/- AND (B) CERA SANITARY WARE LIMITED RS.32,33,500/- BOTH WILL BE FORFEITED AND THE COMPA NY SHALL STAND DISCHARGED OF ITS REPAYMENT AND ALL OTHER OBLIGATIO NS RELATING TO THE SAID LOAN DUES. VARIOUS OTHER CONDITIONS HAD BEEN PRESC RIBED IN THE RESOLUTION I.E. ALL THE DUES OF CREATIVE INFOCITY LIMITED LIAB ILITIES, PF, INCOME TAX DEDUCED AT SOURCE, PROFESSIONAL AND SERVICE TAX ETC . ON PAGE 46, THERE WAS A LETTER DATED 21.05.2005 ADDRESSED TO SHRI VIKRAM SOMANI, WHICH IS A COPY OF REPLICA OF ABOVE RESOLUTION DATED 04.06.200 5. HE FURTHER CONTENDED THAT BUSINESS LOSS INCURRED BY THE COMPAN Y IS ENTITLED FOR DEDUCTION U/S 28 READ WITH SECTION 37 OF THE INCOME TAX ACT, 1961. HE RELIED IN THE CASE OF LORD DAIRY FARM LTD. VS CIT 2 7 ITR 700 (BOM.) WHEREIN BUSINESS LOSS WAS NOT A CAPITAL EXPENDITURE BUT IS A REVENUE EXPENDITURE. LD. A.R. FURTHER RELIED IN THE CASE O F IMPEX LASER LTD. IN I.T.A.NO. 1984/1991/2299/2292 AND 2300/A/. FOR ASS ESSMENT YEARS 2003-04 TO 2005-06 ORDER DATED 09.09.2011 AND CLAIM ED THAT IDENTICAL ISSUE WAS CONSIDERED BY THE HONBLE BENCH AND EXPEN DITURE ON PROJECT GURGAON ABANDONED HAD BEEN ALLOWED. HE FURTHER REL IED UPON THE CASE OF CIT VS VARDHMAN SPINNING AND GENERAL MILLS 176 ITR 157 (P&H) I.T.A.NO.1784 /AHD/2009 13 WHEREIN THE EXPENDITURE FOR PREPARATION POSSIBILITY OF SETTING UP A PROCESS PROJECT HAS BEEN ALLOWED BY THE HONBLE HIGH COURT. 15. AT THE OUTSET, LD. D.R. VEHEMENTLY ARGUED THAT THIS IS A CAPITAL EXPENDITURE. ADVANCE GIVEN TO RVS BUSINESS ARCHITE CTS (I) P. LTD. IS HAVING NATURE OF CAPITAL AND CANNOT BE ALLOWED A RE VENUE LOSS. THIS ADVANCE WAS GIVEN FOR SETTING UP OF NEW BUSINESS NO T IN LINE OF THE ASSESSEES BUSINESS. AS PER THE AGREEMENT OF JOINT VENTURE BUSINESS WAS BPO SERVICE AND CALL CENTRE WHEREAS, THE ASSESSEE I S A MANUFACTURER, TRADER IN CERAMIC TILES, SANITARY WARE AND BATH ACC ESSORIES. THUS, HE REQUESTED TO CONFIRM THE ORDER OF LD. CIT(A). 16. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE MATERIAL ON RECORD. THE ASSESSEE IS MANUFACTURER OF SANITAR Y WARE AND TRADING IN BATH ACCESSORIES TILES AND GENERATION OF ELECTRICIT Y. THE JOINT VENTURE MADE BY THE APPELLANT WITH M/S. RVS BUSINESS ARCHIT ECTS (P) LTD., WHICH DOES NOT SHOW THE PURPOSE OF FORMATION OF THIS JOIN T VENTURE EXCEPT TERM FOR CLOSING THE JOINT VENTURE SHOWS THAT THE APPELL ANT HAD PAID THROUGH CHEQUE TO RVS BUSINESS ARCHITECTS (I) P. LTD. BANK GUARANTEE COMMISSION FOR BANK TO RVS ARCHITECTS (I) P. LTD. TOWARDS THE RETURN OF COMMISSION ON BANK GUARANTEE, CLAIM OF INFOCITY LTD. AND CERTA IN CLAIM MADE TO REGISTRAR OF COMPANIES MUMBAI SUCH AS FOR ALLOTMENT OF ADDITIONAL SHARES. THE NATURE OF PAYMENT IS CAPITAL AND CASE LAWS RELIED UPON BY THE LD. A.R. ARE NOT SQUARELY APPLICABLE. THE RESOLUTI ON ALSO PASSED AFTER THE END OF THE FINANCIAL YEAR BY THE APPELLANT AND NO C OPY OF MOU DATED 15.11.2003 HAS BEEN FURNISHED BEFORE ANY OF THE AUT HORITIES BELOW. THEREFORE, WE DO NOT FIND ANY REASON TO INTERVENE I N THE ORDER OF LD. CIT(A). 17. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASS ESSEE IS DISMISSED. I.T.A.NO.1784 /AHD/2009 14 18. GROUND NO.6 IS AGAINST CONFIRMATION OF ADDITION ON ACCOUNT OF BAD DEBTS AT R.9.17 LACS WAS CLAIMED IN P& L ACCOUNT AT RS.7,59,509/-. THE A.O. OBSERVED THAT THE ASSESSEE HAD CLAIMED BAD DEB T IN CASE OF FOLLOWING POINTS:- (I) PARTHSARTHI CERAMICS CALCUTTA RS.96,925/- (II) NRITTO DUTT KOLKATA RS.1,94,573/- (III) M/S. TRADERS INTERNATIONAL RS.2,33,711/- (IV) VALAJI SANITATION PVT. LTD. RS.1,76,163/- (V) M M CERAMICS RS.2,15,628/- 19. THE A.O. FURTHER OBSERVED THAT NONE OF THE DEBT IS OLDER THAN THREE YEAS AND HAD SALES WITH THESE PARTIES. HE RELIED U PON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENT ERPRISES. HE FINALLY DISALLOWED RS.9.17 LACS AND ADDED THE SAME IN THE I NCOME OF THE ASSESSEE. 20. BEING AGGRIEVED BY THE ORDER OF THE A.O. HE ASS ESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO HAD CONFIRMED THE ADDI TION BY OBSERVING THAT DEBT HAD NOT BECOME BAD. HE RELIED ON THE CAS E OF CIT VS ABDULLABHAI ABDULKADAR 41 ITR 545 (S.C.) AND CIT VS INDIA THERMIC CORPORATION 56 ITD 307 (DEL.), 25 SITC 440 (MAD.) A ND 48 IT 67 (DEL) IN CASE OF THOMAS & COX LTD. HE FURTHER RELIED UPO N THE CASE OF DHALL ENTERPRISES AND ENGINEERS PVT. LTD. (SUPRA). 21. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE ASSESSEE HAD WRITTEN OFF T HE DEBTS IN THE BOOKS OF ACCOUNTS AS RECOVERABLE. NOW, LAW HAS BEEN SETTLED BY HONBLE APEX COURT IN CASE OF TRF LTD. (2010) 323 ITR 397 (S.C.) . THUS IT SHOULD BE ALLOWED. AT THE OUTSET, THE LD. D.R. RELIED UPON T HE ORDERS OF LD. CIT(A) AND THE A.O. 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAD WRITTEN OFF ALL THE DEBTS IN THE BOOKS OF I.T.A.NO.1784 /AHD/2009 15 ACCOUNTS AS UNRECOVERABLE, WHICH IS PRIMARY CONDITI ON TO ALLOW THE BAD DEBTS. THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF TRF LTD. (SUPRA) IS SQUARELY APPLICABLE IN THE PRESENT CASE. THUS, THIS GROUND OF THE APPEAL OF THE ASSESSEE STANDS ALLOWED. 23. GROUND NO.7 IS CONSEQUENTIAL TO ABOVE FINDING. THEREFORE, THE A.O. IS DIRECTED TO TAKE DECISION AS PER LAW. 24. THE GROUND NO.8 IS PREMATURE. THIS GROUND DOES NOT NEED ANY ADJUDICATION. 25. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS PA RTLY ALLOWED. 26. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD./- SD./- (MUKUL KUMAR SHRAWAT) (T. R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 12/02/2013 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 16/02/2013.OTHER MEMBER 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 D ICTATING MEMBER FOR PRONOUNCEMENT 22.02.2013 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.22/2 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 22/0 2/2013 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .