ACIT 23(3), MUMBAI V. NAYAN L. MEPANI, MUMBAI

ITA 2108/MUM/2009

• Counselvise Citation: 210819914 RSA 2009
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 06-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Cost of acquisition; Corroborative evidences; Valuation report; Benefit of exemption

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI PRAMOD KUMAR (A.M) ITA NO.2108/MUM/09(A.Y. 2005-06) THE ACIT 23(3), 4 TH FLOOR, C-10, PRATYAKSHAKAR BHAVAN, BANDRA (E), MUMBAI 400 051. (APPELLANT) VS. MR. NAYAN L. MEPANI, 9, CHANDRA VIHAR, KASTURBA VALJI LADHA, CROSS ROAD, MULUND (W), MUMBAI 81. PAN: AABPM 5340C (RESPONDENT) C.O. NO.177/MUM/2009 (ARISING OUT OF ITA 2108/MUM/09(A.Y. 2005-06) MR. NAYAN L. MEPANI, 9, CHANDRA VIHAR, KASTURBA VALJI LADHA, CROSS ROAD, MULUND (W), MUMBAI 81. (CROSS OBJECTOR) VS. THE ACIT 23(3), 4 TH FLOOR, C-10, PRATYAKSHAKAR BHAVAN, BANDRA (E), MUMBAI 400 051. (APPELLANT IN APPEAL) APPELLANT BY : SHRI PRAVIN VERMA RESPONDENT BY : SHRI VIJAY MEHTA DATE OF HEARING : 21/12/2011 DATE OF PRONOUNCEMENT : 30/1 2/2011 ORDER PER N.V.VASUDEVAN, J.M, ITA NO.2108/M/09 IS AN APPEAL BY THE REVENUE AGAI NST THE ORDER DATED 30/1/2009 OF CIT(A) 23, MUMBAI RELATING TO AS SESSMENT YEAR 2005-06. THE GROUND OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS: ITA NO.2108/MUM/2009&CO 177/M/2009 2 (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E HONBLE CIT(A) ERRED IN HOLDING THAT THE CONDITIONS PRESCRIBED IN SECTION 47 (XIV) ARE SATISFIED. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E HONBLE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S. 47(XIV) AND NO CAPITAL GAINS ARE TO BE TAXED. 2. THE ASSESSEE IS A PROPRIETOR OF A CONCERN BY TH E NAME OF KRYSTAL COLLOIDS THROUGH WHICH THE BUSINESS OF VARIOUS KIND S OF GUMS EXPORTS IS CARRIED OUT. THE FACTS OF THE CASE ARE AS UNDER. I T IS SEEN THAT DURING THE YEAR UNDER ASSESSMENT THERE HAS BEEN REORGANIZATION OF BUSINESS. IT IS FURTHER OBSERVED THAT AS ON 31 ST MARCH 2005, THERE IS A SUCCESSION OF THE PROPRIETORSHIP BUSINESS IN TO A CORPORATE ENTITY K RYSTAL COLLOIDS PRIVATE LIMITED, WHEREBY THE ASSESSEE HAD ASSIGNED RUNNING BUSINESS OF M/S. KRYSTAL COLLOIDS SOLE PROPRIETARY CONCERN AS A GOIN G CONCERN TO KRYSTAL COLLOIDS PRIVATE LIMITED. ACCORDINGLY THE ASSETS A ND LIABILITIES OF THE SOLE PROPRIETARY CONCERN HAD BEEN TRANSFERRED TO THE PRI VATE LIMITED COMPANY. THE ASSESSEE VIDE LETTER DATED 13 TH AUG.2007 CONTENDED THAT THE SAID ASSIGNMENT WAS AT BOOK VALUES AND THUS CLAIMED EXEM PTION AS PER THE PROVISIONS OF SECTION 47(XIV) OF THE INCOME TAX ACT , 1961. IT WAS FURTHER OBSERVED THAT THE ASSESSEE HAD CARRIED OUT A REVAL UATION OF CERTAIN ASSETS DURING THE YEAR. THE DETAILS OF THE REVALUATION CA RRIED OUT WERE AS UNDER: S.NO. NATURE OF ASSET AMOUNT (RS.) 1. TECHNICAL KNOW HOW 27500000/- 2 TRADE NAME & TRADE MARKS 6750000/- 3 GOODWILL 2500000/- TOTAL 36750000/- THE ASSESSEE HAD FILED A VALUATION REPORT DATED 20. 6.2004 TO JUSTIFY THE DERIVATION OF THE VALUE OF ITS INTANGIBLE ASSETS . THE SAME IS TAKEN ON RECORD. ITA NO.2108/MUM/2009&CO 177/M/2009 3 PROVISIONS OF S.47(XIV): THE PROVISIONS OF S.47 (XIV) READ AS UNDER: WHERE A SOLE PROPRIETARY CONCERN IS SUCCEEDED BY A COMPANY IN THE BUSINESS CARRIED ON BY IT AS A RESULT OF WHICH THE SOLE PROPRIETARY CONCERN SELLS OR OTHERWISE TRANSFERS ANY CAPITAL ASSET OR I NTANGIBLE ASSET TO THE COMPANY. PROVIDED THAT ( A ) ALL THE ASSETS AND LIABILITIES OF THE SOLE PROPRI ETARY CONCERN RELATING TO THE BUSINESS IMMEDIATELY BEFORE THE SUC CESSION BECOME THE ASSETS AND LIABILITIES OF THE COMPANY; ( B ) THE SHAREHOLDING OF THE SOLE PROPRIETOR IN THE CO MPANY IS NOT LESS THAN FIFTY PER CENT OF THE TOTAL VOTING POWER IN TH E COMPANY AND HIS SHAREHOLDING CONTINUES TO REMAIN AS SUCH FOR A PERIOD OF FIVE YEARS FROM THE DATE OF THE SUCCESSION; AND ( C ) THE SOLE PROPRIETOR DOES NOT RECEIVE ANY CONSIDER ATION OR BENEFIT, DIRECTLY OR INDIRECTLY, IN ANY FORM OR MANNER, OTHE R THAN BY WAY OF ALLOTMENT OF SHARES IN THE COMPANY; ACCORDING TO THE AO THE CONDITION NO.A AS STATED IN THE PROVISO TO SECTION 47(XIV) OF THE INCOME TAX ACT, 1961 (THE ACT) WAS N OT SATISFIED. IN THIS REGARD THE AO FOUND AS PART OF THE AGREEMENT FOR ASSIGNME NT LISTING OUT THE ASSETS AND LIABILITIES WHICH WERE REQUIRED TO BE TRANSFERR ED TO THE LIMITED COMPANY, THE SOLE PROPRIETOR WAS REQUIRED TO TRANSFER THE BA NK ACCOUNTS TO THE COMPANY. ON ENQUIRY IT WAS SUBMITTED THAT THERE WE RE 6 BANK ACCOUNTS OF THE SOLE PROPRIETOR. THE DETAILS ARE AS UNDER:- NAME OF BANK ACCOUNT NUMBER STATUS CITI BANK 0301435134 ACCOUNT CLOSED CITI BANK 0301435126 ACCOUNT CLOSED ABN AMRO BANK 984556 ACCOUNT CLOSED CITI BANK 0858608112 ACCOUNT NOT CLOSED CANARA BANK 5406 ACCOUNT NOT CLOSED AHMEDABAD CO- OPERATIVE BANK 01-162075 ACCOUNT NOT CLOSED ITA NO.2108/MUM/2009&CO 177/M/2009 4 THE ASSESSEE SUBMITTED THAT SOME OF THESE BANK ACCO UNTS WERE CONTINUED TO ENSURE THAT THE VARIOUS REFUNDS, REMITTANCE, ETC. R ECEIVABLE FROM ONE OR MORE GOVERNMENT DEPARTMENTS, DEBTORS, ETC. BE DIRECTLY C REDITED TO THE RESPECTIVE ACCOUNTS WHICH WERE ALREADY DISCLOSED TO THE RESPEC TIVE AUTHORITIES, DEBTORS, ETC. THE ASSESSEE ALSO EXPLAINED SOME OF THE ENTRI ES IN THE SAID BANK ACCOUNTS TO JUSTIFY THAT THE BANK ACCOUNTS WERE MAI NTAINED ONLY WITH A VIEW TO ENSURE RECEIPT AND REALIZATION OF ALL ASSETS TRA NSFERRED TO THE COMPANY. HE ALSO EXPLAINED THAT THE SAID ACCOUNTS HAVE BEEN REFLECTED AS ASSETS IN THE BALANCE SHEET OF THE PRIVATE LIMITED COMPANY. THE A O HOWEVER WAS OF THE VIEW THAT THE BANK ACCOUNTS OF THE SOLE PROPRIETARY CONCERN STILL CONTINUED AND HAD NOT BEEN TRANSFERRED TO THE COMPANY NOR THE SAID ACCOUNTS WERE CLOSED. HE, THEREFORE, HELD THAT THE AFORESAID CON DITIONS WERE NOT SATISFIED. 3. THE AO WAS OF THE VIEW THAT CONDITION MENTIONED IN CLAUSE (C) OF THE PROVISO OF SECTION 47 (XIV) OF THE ACT WAS NOT COMP LIED WITH FOR THE FOLLOWING REASONS. 11. PERUSAL OF THE ANNEXURE TO BALANCE SHEET OF TH E ASSESSEE IMMEDIATELY BEFORE THE SUCCESSION REVEALS THAT THER E WERE CERTAIN ADDITIONS TO FIXED ASSET. NOTE TO SCHEDULE 3 FIX ED ASSET MENTIONS THAT ADDITIONS INCLUDE REVALUATION OF CERTAIN ASSE TS. IT IS FURTHER OBSERVED THAT UNDER THE HEAD INTANGIBLES CERTAIN ASSETS NAMELY TECHNICAL KNOW HOW AMOUNTING TO RS. 2,75,00,000/- H AVE BEEN CREATED AND THE SAME ARE BEING CLAIMED TO BE TRANSF ERRED AT BOOK VALUE ALONGWITH OTHER ASSETS. 12. IT IS SEEN THAT THE ASSESSEE HAS CARRIED OUT A REVALUATION OF THE INTANGIBLE ASSETS IN ITS BOOKS OF ACCOUNTS AND THES E ASSETS HAVE BEEN REFLECTED IN THE BOOKS OF ACCOUNTS AT SUCH REVALUED FIGURES. THE REVALUATION SURPLUS HAS BEEN CREDITED TO THE CAPITA L ACCOUNT OF THE SOLE PROPRIETOR. ALL THE INTANGIBLE ASSETS WHICH H AVE BEEN REVALUED IN THE BOOKS OF ACCOUNTS ARE SELF GENERATED ASSETS FOR WHICH AS SUBMITTED BY THE ASSESSEE, NO COST HAS BEEN INCURRED. UNDER THE AGREEMENT OF ASSIGNMENT, THE ASSETS AND LIABILITIES WERE TO BE T RANSFERRED AT BOOK VALUES. HOWEVER IN RESPECT OF THESE INTANGIBLE ASSETS THE SAME HAVE BEEN TRANSFERRED TO THE LIMITED COMPANY AT THE REVA LUED AMOUNTS BEING THE BOOK VALUES. CONSEQUENTLY THE LIMITED CO MPANY HAS ISSUED SHARES TO THE SOLE PROPRIETOR OF A HIGHER AMOUNT IN CLUDING THE ITA NO.2108/MUM/2009&CO 177/M/2009 5 REVALUATION SURPLUS. BY ISSUING THE SHARES AT A HI GHER COST THE ASSESSEE IN THE CASE OF A SUBSEQUENT TRANSFER OF TH E SHARES WOULD BE ENTITLED TO CLAIM HIGHER COST AND THEREBY AVOIDING CAPITAL GAINS OF THE SHARES. THE AO ALSO WAS OF THE VIEW THAT AS PER ACCOUNTING STANDARD 26 OF THE ICAI WHICH PRESCRIBES THAT INTANGIBLE ASSETS HAVE TO BE RECORDED AT THE COST OF ACQUISITION AND OTHER DIRECT COST AND SELF GENERATE D INTANGIBLE ASSETS SHOULD ALSO NOT BE RECOGNIZED ON THE BALANCE SHEET. THE A O ALSO REFERRED TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. GAUTAM SARABHAI TRUST, 173 ITR 216 (GUJ), WHICH WAS A CASE OF CLAIM OF EXEMPTION UNDER SECTION 47(VII) OF THE ACT. WE WILL DEAL WIT H THIS DECISION IN THE LATER PART OF THIS ORDER. THE AO ACCORDINGLY HELD THAT T HE ASSESSEE WAS NOT ENTITLED TO THE EXEMPTION AND ACCORDING BROUGHT TO TAX A SUM OF RS. 3,67,50,000/- AS LONG TERM CAPITAL GAIN. 4. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD AS FOL LOWS: 5. THE APPELLANTS SUBMISSION HAVE BEEN CONSIDERE D. DURING THE RELEVANT PREVIOUS YEAR, THE APPELLANT HAS TRANSFER RED HIS PROPRIETARY CONCERN TO A CLOSELY HELD PRIVATE LIMITED COMPANY WITH 99% SHARES OF HIMSELF AND 1% TO HIS WIFE. IT HAS BEEN HELD IN AS SESSMENT ORDER THAT APPELLANT HAD NOT SATISFIED CONDITIONS SPECIFIED U/ S. 47(XIV) AS SOME BANK ACCOUNTS WERE NOT TRANSFERRED AND BY REVALUATI ON OF INTANGIBLE ASSETS LIKE TECHNICAL KNOW HOW, TRADE NAME AND GOOD WILL AT A HIGHER VALUE OF RS. 3,67,50,000/- HE HAS DERIVED INDIRECT BENEFIT BY ALLOCATION OF LARGER NUMBER OF SHARES WHICH IF ON SALE IN FUTU RE THE CAPITAL GAINS LIABILITY WOULD BE REDUCED BY CLAIMING HIGHER COST. 5.1 THE APPELLANTS EXPLANATION THAT THESE BANK AC COUNTS WERE NOT TRANSFERRED CONSIDERING BUSINESS INTEREST AS A PRUD ENT BUSINESSMAN IS LOGICAL AND ACCEPTABLE. ALL RECEIPTS HAVE BEEN TRA NSFERRED TO THE ACQUIRER COMPANY AS EVIDENT FROM THE BANK STATEMENT S. MOREOVER, THE BALANCE IN THESE ACCOUNTS STAND TRANSFERRED IN THE NAME OF THE ACQUIRER COMPANY AND SHOWN IN ITS ACCOUNTS. THUS, THE COMPANY IS TO BE CONSIDERED AS BENEFICIAL OWNER OF THESE BANK ACC OUNTS. THE APPELLANT WAS OPERATING THESE ACCOUNTS FOR CONVENIE NCE. ITA NO.2108/MUM/2009&CO 177/M/2009 6 5.2 ALL THESE ASSETS HAVE BEEN TRANSFERRED AT BOOK VALUES EXCEPT TECHNICAL KNOW HOW, TRADE MARKS AND GOODWILL. CLAU SE OF SECTION (XIV) READS AS UNDER: ( C ) THE SOLE PROPRIETOR DOES NOT RECEIVE ANY CONSIDER ATION OR BENEFIT, DIRECTLY OR INDIRECTLY, IN ANY FORM OR MANNER, OTHE R THAN BY WAY OF ALLOTMENT OF SHARES IN THE COMPANY; THE SECTION ENVISAGES ISSUES OF SHARES AND IN THE A PPELLANTS CASE NO OTHER CONSIDERATION OTHER THAN SHARES HAVE BEEN REC EIVED ON TRANSFER. RECEIPTS OF HIGHER NUMBER OF SHARES BY REVALUATION CANNOT BE TREATED AS CONSIDERATION OR BENEFIT DIRECTLY OR INDIRECTLY IN ANY MANNER OTHER THAN BY WAY OF ALLOTMENT OF SHARES IN THE COMPANY. 5.5. THUS, IN THE PRESENT CASE, IT CANNOT BE HELD T HAT HE HAS RECEIVED CONSIDERATION OR BENEFIT INDIRECTLY OTHER THAN BY W AY OF ALLOTMENT OF SHARES, ONLY BECAUSE HIGHER NUMBER OF SHARES HAVE BEEN ALLOTTED DUE TO REVALUATION. TAXATION WOULD ARISE ONLY ON SUBSE QUENT SALE OF THESE SHARES. 5.6 AS THE CONDITIONS PRESCRIBED IN THE SECTION 4 7 (XIV) ARE SATISFIED, THE APPELLANT IS ELIGIBLE FOR EXEMPTION AND NO CAPI TAL GAIN ARE TO TAXED. THIS GROUND IS ALLOWED. 5. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS PREFERRED THE AFORESAID APPEAL BEFORE THE TRIBUNAL. 6. THE LD. D.R RELIED ON THE ORDER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BE FORE CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS FA R AS THE APPLICATION OF PROVISO A TO SECTION 47 (XIV) IS CONCERNED WE FIN D THAT THE AGREEMENT FOR ASSIGNING OF BUSINESS IN FAVOUR OF A PRIVATE LIMITE D COMPANY DATED 24/3/2005 CLEARLY ENVISAGES THE APPROVAL OF THE FOL LOWING: ON THE DATE OF EXECUTION OF THESE PRESENTS, THE AS SIGNER IS IN THE LEGAL CONTROL/ OWNERSHIP/POSSESSION OF FACTORY BUILDINGS, PLANT & MACHINERIES, FURNITURE, FIXTURES AND OTHER TANGIBLE AND INTANGIBLE ASSETS, RIGHTS AND ENTITLEMENTS IN RESPECT OF THE S AID BUSINESS, MORE PARTICULARLY SET OUT IN THE LIST ANNEXED HERETO AND MARKED ANNXURE-1 HERETO. ITA NO.2108/MUM/2009&CO 177/M/2009 7 ANNEXURE 1 TO THE AGREEMENT IN ITEM NO.11 REFERS TO BANK BALANCE WITH BANKS. THUS THE AGREEMENT TRANSFERS ALL THE BANK B ALANCES. AS BETWEEN THE ASSESSEE AND THE LIMITED COMPANY THE TRANSFER OF BA NK ACCOUNT IS COMPLETE AND THE FACT THAT SUM OF THE BANK ACCOUNTS CONTINUE TO BE OPERATED BY THE ASSESSEE WILL NOT RESULT IN THE APPLICATION OF PROV ISO A TO SECTION 47 (XIV) OF THE ACT. IT IS ALSO SEEN THAT IN THE INDIVIDUAL BA LANCE SHEET OF THE ASSESSEE THESE BANK ACCOUNTS ARE SHOWN ON THE ASSET SIDE OF THE BALANCE SHEET. IT IS ALSO NOTICED THAT THE ASSESSEE HAD GIVEN A DECLARAT ION IN THE FORM OF AN AFFIDAVIT WHEREBY THE ASSESSEE HAS DECLARED THAT EF FECTIVE FROM 31/3/2005 ALL THE ASSETS OF THE PROPRIETARY CONCERN HAVE BEEN TRA NSFERRED TO THE LIMITED COMPANY AS PER THE AGREEMENT DATED 24/3/2005 BY WHI CH THE BUSINESS WAS ASSIGNED BY THE ASSESSEE TO THE LIMITED COMPANY. F URTHER THE BALANCE SHEET OF THE LIMITED COMPANY AS ON 31/3/2005 REFERS TO ALL BANK ACCOUNTS WHICH WERE IN THE NAME OF THE ASSESSEE AND THE SAID BANK ACCOUNTS HAVE BEEN CONSIDERED AS THE BANK ACCOUNT OF THE LIMITED COMPANY. IN THE LIGHT OF THE ABOVE WE ARE OF THE VIEW THAT THE BANK ACCOUNT HAVE BECOME THE ASSETS OF THE LIMITED COMPANY AND PROVISO A TO SECTION 47( XIV) WERE NOT ATTRACTED. 8. AS FAR AS PROVISO (C) TO SECTION 47(XIV) IS CONC ERNED THE REVENUE HAS NOT DISPUTED THAT THE ASSESSEE HAS NOT RECEIVED ANY CON SIDERATION APART FROM ALLOTMENT OF SHARES IN THE COMPANY. THE GRIEVANCE OF THE REVENUE IS ONLY THAT PRIOR TO THE TRANSFER OF THE BUSINESS TO THE L IMITED COMPANY REVALUATION OF ASSETS HAD TAKEN PLACE AND THAT INTANGIBLE ASSET S WERE ALSO REVALUED. ACCORDING TO THE REVENUE BY DOING SO SHARES WERE IS SUE AT A HIGHER COST TO THE ASSESSEE AND IN FUTURE WHEN ASSESSEE TRANSFERS SUCH SHARES COST OF ACQUISITION OF THE SHARES WILL BE HIGHER AND CONSEQ UENTLY THERE WOULD BE A BENEFIT OF LESSER CAPITAL GAIN ON TRANSFER OF THOSE SHARES. AT THE OUTSET WE ARE NOT CONVINCED WITH THIS LINE OF REASONING ADOPT ED BY THE AO. THE SECTION ENVISAGES DENIAL OF EXEMPTION UNDER SECTION 47 (XIV ) UNDER PROVISO (C) ONLY IN A CASE WHERE CONSIDERATION BENEFIT FOR TRANSFER OF THE BUSINESS IS RECEIVED OTHER THAN BY WAY OF ALLOTMENT OF SHARES IN THE COM PANY. IT IS NOT THE CASE ITA NO.2108/MUM/2009&CO 177/M/2009 8 OF THE REVENUE THAT ANY OTHER CONSIDERATION OR BENE FIT DIRECTLY OR INDIRECTLY RECEIVED BY THE ASSESSEE OTHER THAN ALLOTMENT OF SH ARES THE SECTION DOES NOT CONTEMPLATE A FUTURE BENEFIT WHICH THE ASSESSEE IS LIKELY TO GET (EVEN SUCH BENEFIT IS ONLY CONTINGENT AND NOT CERTAIN). AS RI GHTLY CONTENDED ON BEHALF OF THE ASSESSEE RECEIPT OF HIGHER NUMBER OF SHARES BEC AUSE OF REVALUATION CANNOT BE TREATED AS CONSIDERATION OR BENEFIT RECEI VED OTHER THAN BY ALLOTMENT OF SHARES. THERE WERE OTHER CONTENTIONS RAISED BY THE ASSESSEE. WE ARE NOT DEALING WITH THOSE CONTENTIONS BECAUSE O F THE VIEW TAKEN ABOVE. 9. AS FAR AS DECISION OF THE HONBLE GUJARAT HIGH C OURT IS CONCERNED WE FIND THAT, THAT WAS A CASE WHERE EXEMPTION WAS CL AIMED UNDER SECTION 47(VII) OF THE ACT, WHERE SHARES ARE ISSUED ON AM ALGAMATION. ONE OF THE CONDITION FOR SUCH ALLOWANCE WAS THAT THE CONSIDERA TION SHOULD BE RECEIVED IN THE FORM OF SHARES IN THE AMALGAMATED COMPANY. ON FACTS OF THAT CASE THE ASSESSEE WAS GIVEN APART FROM SHARES BONDS OR D EBENTURES IN THE AMALGAMATED COMPANY. IN SUCH CIRCUMSTANCES THE HON BLE COURT DEALT HELD THAT THE CONSIDERATION WAS NOT IN THE FORM OF ONLY SHARES AND, THEREFORE, THE BENEFIT OF EXEMPTION UNDER SECTION 47(VII) OF T HE ACT WOULD NOT BE AVAILABLE. WE ARE OF THE VIEW THAT THE DECISION IN THE AFORESAID CASE HAS NO RELEVANCE TO THE CASE DEALING WITH THE CASE OF THE ASSESSEE. FOR THE REASONS GIVEN ABOVE WE UPHOLD THE ORDER OF THE CIT(A) AND D ISMISS THE APPEAL OF THE REVENUE. C.O.NO.177/M/2009: 10. GROUNDS NO.1 & 2 RAISED IN THE CROSS OBJECTION READS AS FOLLOWS: THE RESPONDENT (CROSS OBJECTOR) SUBMITS THE FOLLOW ING GROUNDS, WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER: 1. THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW AND ON FACTS. ITA NO.2108/MUM/2009&CO 177/M/2009 9 2. RE: DISALLOWANCE OF DEPRECIATION CLAIMED OF RS. 62, 338/- 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [HEREI NAFTER REFERRED TO AS THE LEARNED CIT(A)] GROSSLY ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEPRECIATION ON TH E GUN SORTER MACHINE ON THE GROUND THAT THE SAME WERE NOT CAPABL E OF BEING PUT TO USE IN THE CURRENT YEAR WITHOUT APPRECIATING THE SU BMISSIONS MADE BY THE APPELLANT IN THIS REGARD. 3. RE: DISALLOWANCE OF TELEPHONE EXPENSES RS. 24,193/- 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [HEREI NAFTER REFERRED TO AS THE LEARNED CIT(A)9 GROSSLY ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE TELEPHONE EXPE NSES INCURRED BY THE APPELLANT ON AN AD HOC BASIS TO THE EXTENT OF 1 0% OF THE EXPENSES INCURRED BY THE APPELLANT. 3.2 WITHOUT PREJUDICE TO THE ABOVE, THE DISALLOWANC E ON THE ACCOUNT OF TELEPHONE EXPENSES OUGHT TO BE SIGNIFICANTLY REDUCE D. 4. THE RESPONDENT (CROSS OBJECTOR) CRAVES LEAVE TO ADD TO, ALTER, AMEND OR DELETE ANY GROUND OF CROSS OBJECTION. 11. THE ASSESSEE HAS SHOWN AN ADDITION OF RS. 4,98 ,704/- ON ACCOUNT OF PURCHASE OF GUNSUN SORTER MACHINE. THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS. 62,338I-(LESS THAN 180 DAYS) ON THE SAID ADD ITION. A PERUSAL OF THE VARIOUS BILLS SUBMITTED BY THE ASSESSEE SHOWS THAT MOST OF THE SPARE PARTS AND ELECTRICAL ACCESSORIES REQUIRED FOR COMMISSIONI NG OF ELECTRICAL SUPPLY TO THE ABOVE MACHINE AND ITS AIR COMPRESSOR WERE PURCH ASED ONLY ON 31/03/2005 AS PER CASH MEMO NO. 874 & 875 BOTH DATE D 31/03/05 ISSUED BY AMBIKA ELECTRICALS & HARDWARE STORES. IT IS FURT HER SEEN THAT THE PAYMENT FOR THE SAME IS MADE ON 1-4-05. IT IS FURTHER OBSER VED THAT EVEN THOUGH THE TRANSPORTATION CHARGES, INSURANCE AND VARIOUS OTHER EXPENSES IN CONNECTION WITH THE ERECTION, INSTALLATION AND COMMISSIONING O F THE ABOVE MACHINE WERE INCURRED ONLY ON 31/3/2005 HOWEVER, IN THE AUDIT RE PORT, THE DATE OF PUT TO USE OF THE SAID ITEMS IS SHOWN AS 25- 03-05. THE A SSESSEE WAS ASKED TO PROVIDE A CERTIFICATE FOR THE DATE OF INSTALLATION AND THE DATE PUT TO USE WITH ITA NO.2108/MUM/2009&CO 177/M/2009 10 SUPPORTING EVIDENCES. THE ASSESSEE FAILED TO SUBSTA NTIATE ITS CLAIM AND THUS FAILED TO DISCHARGE HIS PRIMARY ONUS. THE ONUS TO P ROVE ANY CLAIM MADE BY THE ASSESSEE IS ON THE ASSESSEE ITSELF AS IS HELD B Y THE APEX COURT IN THE CASE OF CIT V/S CALCUTTA SALES AGENCY P LTD (19 ITR 191) . DEPRECIATION CAN BE ALLOWED ON ANY ASSET ONLY WHEN IT IS IN A POSITION OF BEING PUT TO USE. THE ASSET WAS NOT CAPABLE OF BEIN G PUT TO USE IN THE MONTH OF MARCH. SINCE THE ASSET HAS NOT BEEN PUT TO US E, THE DEPRECIATION CLAIMED BY THE ASSESSEE OF RS. 62,338/- ON THE SAME IS DISALLOWED. TOTAL DISALLOWANCE ON ACCOUNT OF DEPRECIATION WORKS OUT T O RS. 63,823/- (RS. 1485+RS. 62,338) AND THE SAME IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 12. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AT PAGE 63 OF THE PAPER BOOK THE ADDITION TO THE FIXED ASSETS HAS BEEN GIVEN AND THE SAME IS AS FOLLOWS: DETAILS OF ADDITION TO FIXED GUNSUN ORTER MACHINE . PARTICULARS DATE OF INVOICE DATE OF PUT TO USE COST PRICE GUNSUN SORTER MACHINE 14-MAR-2005 25-MAR-2005 291 200 AIR COMPRESSOR FOR SORTER MACHINE 22-MAR-2005 25-MA R-2005 83881 TRANSPORT, LOADING & INSURANCE 30-MAR-2005 25-MAR-2 005 50000 DRIER TO SORTER MACHINE 30-MAR-2005 25-MAR-2005 37024 OCTROI CHARGES 18-MAR-2005 25-MAR-2005 16930 ELECTRICAL INSTALLATION EXPENSES 30-MAR-2005 25-MAR -2005 5148 ELECTRICAL INSTALLATION EXPENSES 31-MAR-2005 25-MAR -2005 2442 TOTAL 4,98,704 DEPRPECIATION @1 2.5% 62338 ITA NO.2108/MUM/2009&CO 177/M/2009 11 WE WILL NOT DEAL WITH EACH OF THE ITEMS SET OUT IN THE CHART ABOVE. 1. AT PAGE 1 OF THE PAPER BOOK WE FIND THAT THE A SSESSEE HAS PURCHASED GUNSUN SORTER MACHINE. INVOICE IS DATED 14/3/2005. 2. THE AIR COMPRESSOR REQUIRED FOR THE SORTER MACHI NE WAS PURCHASED UNDER INVOICE DATED 22/3/2005. THE SAME IS AT PAGE 64 OF THE PAPER BOOK. 3. TRANSPORT LOADING AND INSURANCE: AS FAR AS TRA NSPORTATION CHARGES ARE CONCERNED AT PAGE 2 WE FIND A BILL DATED 30/3/2005 RAISED BY INFO SERVICES FOR A SUM OF RS. 12,079/-. THE BREAK UP OF THE EXP ENSES SHOWS THAT CLAIM OF REIMBURSEMENT OF TRANSIT INSURANCE CHARGES AND REIM BURSEMENT OF TRANSPORT CHARGES WERE ACTUALLY PAID UNDER BILL DATED 16/3/20 05 BY INFO SERVICES TO AURO TRANSPORT SERVICES BANGALORE. THUS THE TRANSP ORTATION AND LOADING HAD TAKEN PLACE PRIOR TO 30/3/2005. 4. AT PAGE 3 WE FIND THAT THE INSTALLATION AND AGE NCY COMMISSION HAD BEEN CLAIMED AND THE SAME INCLUDES THREE DAYS STAY. THI S INVOICE IS DATED 30/5/2005. THE FACT THAT 3 DAYS STAY EXPENSES HAD BEEN CLAIMED ONLY SHOWS THAT AT LEAST THREE DAYS PRIOR TO 30/3/2005 INSTALLATION HAD BEEN DONE. 5. AT PAGE 65 WE FIND THAT A DRIER SORTER MACHINE H AD BEEN PURCHASED UNDER INVOICE DATED 30/3/2005. THE LORRY RECEIPT I S HOWEVER DATED 28/3/05. THUS THE DRIER TO SORTER MACHINE HAD BEEN RECEIVED BY THE ASSESSEE ON 30/3/2005. EVIDENCE FOR OCTROI CHARGES ARE DATED 18/3/2005. 6. ELECTRICAL INSTALLATION EXPENSES INCURRED BY THE ASSESSEE COMPRISES OF SMALL AND PETTY ITEMS UNDER CASH MEMO DATED 30/3/05 AND 31/3/2005. BASED ON THE ABOVE EVIDENCE IT CAN BE SAID THAT TH E ASSESSEE HAS INSTALLED AND PUT THE MACHINE TO USE DURING THE PRE VIOUS YEAR. WE ARE, THEREFORE, OF THE VIEW THAT THE DISALLOWANCE OF THE DEPRECIATION ON THE GROUND THAT THE MACHINERIES WERE NOT PUT TO USE DURING THE PREVIOUS YEAR CANNOT BE ITA NO.2108/MUM/2009&CO 177/M/2009 12 SUSTAINED. WE DIRECT THAT THE DEPRECIATION AS CLAI MED BY THE ASSESSEE SHOULD BE ALLOWED. GROUND NO.2 RAISED BY THE ASSES SEE IS ACCORDINGLY ALLOWED. 14. GROUND NO.3 WAS NOT PRESSED AND THE SAME IS DI SMISSED AS NOT PRESSED. 15. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED WHILE CROSS OBJECTION BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH DAY OF DEC. 2011. SD/- SD/- (PRAMOD KUMAR ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 30 TH DEC.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RB BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.2108/MUM/2009&CO 177/M/2009 13 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 21/12/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 22/12/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER