ACIT, New Delhi V. M/s Great Eastern Energy Corpn. Ltd., Gurgaon

ITA 2121/DEL/2011

• Counselvise Citation: 212120114 RSA 2011
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 29-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: ANUJ TIWARI CA HEARING ON
• Keywords: Capital asset; Depreciation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI A. N. PAHUJA, ACCOUNTANT MEMBER I.T.A. NO. 2121/DEL/2011 ASSESSMENT YEAR: 2007-08 ACIT M/S GREAT EASTERN ENERGY CIRCLE-12 (1) CORPN. LTD. SIGNATURE TOWER NEW DELHI VS. A, 14 TH FLOOR, SOUTH CITY, GURGAON (HARYANA) PAN: AAACG3345F (REVENUE) (ASSESSEE) REVENUE BY : SH. SATPAL SINGH, SR. DR ASSESSEE BY : SH. ANUJ TIWARI, CA HEARING ON : 30/07/2012 ORDER PRONOUNCED ON THE DATE: 29/10/2012 ORDER PER I.C.SUDHIR, JM: THE REVENUE HAS QUESTIONED THE FIRST APPELLATE ORDE R ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.21,63,393/- BEING THE AMOUNT RECEIVABLE FROM M/ S ADKINS SERVICES MADE BY AO. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF ITA NO. 2121/DEL/2011 2 RS.2,76,01,499/- PAYABLE TO M/S B.J. SERVICES MADE BY AO. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.17,81,329/- ON ACCOUNT OF DEPRECIATION ON BUILD ING MADE BY AO. GROUND NO. 1 2. THE RELEVANT FACTS ARE THAT DURING THE YEAR THE ASS ESSEE DERIVED INCOME FROM EXPLORING / EXPLOITING AND DEVELOPMENT OF COAL -BED METHANE GAS TRAPPED IN COAL CEMENTS IN RANI GANJ FIELDS IN WEST BENGAL. VIDE NOTE NO. 9 OF SCHEDULE 10 OF THE BALANCE SHEET THE ASSESSEE EXPLAINED THE NATURE OF THE OUTSTANDING BALANCE. A LOAN ADVANCES INCLUDED R S.21,63,393/- RECOVERABLE FROM M/S ADKINS SERVICES INC (ADKINS), A DRILLING CONTRACTOR. THE CONTRACT WITH ADKINS WAS TERMINATED BY THE COMP ANY ON THE GROUND OF NON-PERFORMANCE AND CONTINUED BREACH OF CONTRACT. I N ADDITION TO THE ABOVE AMOUNT, THE COMPANY MADE A CLAIM OF RS.1980.54 LACS FOR DAMAGES ON ACCOUNT OF DELAY IN PROVIDING THE SERVICES BY THE S AID CONTRACTOR. THE CONTRACTOR ALSO FILED A COUNTER CLAIM OF RS.2781 LA CS AGAINST THE COMPANY FOR LOSS OF PROFIT DAMAGES ETC. WHICH THE COMPANY DISPU TED. THE COMPANY FILED AN APPLICATION BEFORE THE HONBLE HIGH COURT OF CAL CUTTA FOR THE APPOINTMENT OF PRESIDING ARBITRATOR FOR THE INITIA TION OF ARBITRATION PROCEEDINGS. THE HONBLE HIGH COURT OF CALCUTTA VID E ITS ORDER DATED 18.3.2004 WAS PLEASED TO APPOINT THE PRESIDING ARBI TRATOR. IT WAS FURTHER ITA NO. 2121/DEL/2011 3 EXPLAINED IN THE NOTE THAT NECESSARY ADJUSTMENT, IF ANY, WILL BE MADE IN THE FINANCIAL STATEMENTS ONCE THE ARBITRATION PROCEEDIN GS ARE COMPLETE. THE AO WAS NOT SATISFIED WITH THE CLAIM AND HELD THAT THER E IS NO AMOUNT OUTSTANDING ON THE BASIS THAT THE ASSESSEE COULD NOT FURNISH TH E CONFIRMATION FROM THE DEBTOR. THE LD. CIT (A) HAS HOWEVER DELETED THE ADD ITION, BEING CONVINCED WITH THE SUBMISSION OF THE ASSESSEE. THIS ACTION OF THE LD. CIT (A) HAS BEEN QUESTIONED BY THE REVENUE. 3. IN SUPPORT OF THE GROUND THE LD. DR HAS PLACED RELI ANCE ON THE ASSESSMENT ORDER, WHEREAS THE FIRST APPELLATE ORDER HAS BEEN RELIED UPON BY THE LD. AR. 4. CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT BEFO RE THE AUTHORITIES BELOW, THE ASSESSEE HAD ALSO FURNISHED PARTY WISE D ETAILS OF ADVANCE TO VENDORS AS ON 31.3.2007 IN WHICH OUT OF THE TOTAL A DVANCES OF RS.2,37,74,603/-, THE NAME OF M/S ADKINS SERVICES LTD. WAS REFLECTED AT SERIAL NO. 1 SHOWING ADVANCE RECOVERABLE AT RS.21,6 3,352/-. THE ASSESSEE ALSO FILED THE STATEMENT OF ACCOUNT OF M/S ADKINS S ERVICES INC FOR THE PERIOD 1.3.99 TO 1.3.2000, 1.3.2000 TO 13.2.2001 AND 1.3.2 001-02 TO 31.3.2002 SHOWING REGULAR DEBITS AND CREDITS. FROM 1.3.2001-0 2 TO 31.3.2002, THE TOTAL DEBITS (INCLUDING OPENING BALANCE OF RS.6,85,235/-) WERE RS.1,01,57,989/- AND THE TOTAL CREDITS OF RS.79,94,596/- RESULTING A DEBIT BALANCE OF ITA NO. 2121/DEL/2011 4 RS.21,63,393/-. IT WAS EXPLAINED THAT AS THE AMOUNT WAS RECOVERABLE, AS IT WAS GIVEN AS AN ADVANCE FOR DRILLING TO THE VENDOR, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE AMOUNT AS INCOME. THE LD. CIT (A) HAS DELETED THE ADDITION WITH THIS FINDING THAT THE AMO UNT IS IN THE NATURE OF ADVANCE GIVEN BY THE ASSESSEE COMPANY FOR CO-ORDINA TED DRILLING WORK AT ITS LOCAL FIELDS AND ORDINARILY, THE AMOUNT WOULD HAVE BEEN ACCOUNTED FOR UNDER SERVICES PROVIDED BY M/S ADKINS SERVICES BUT DUE TO DISPUTE THE WORK HAS NOT BEEN FULLY EXECUTED AND MATTER FOR PAYMENT IS I N ARBITRATION. UNDISPUTEDLY, IT IS NEITHER AN UNDISCLOSED PAYMENT NOR IN THE NATURE OF AN UNACCOUNTED RECEIPT HENCE, WE DO NOT FIND REASON TO INTERFERE WITH THE FIRST APPELLATE ORDER, SINCE THE AO WAS HAVING NO BASIS O R JUSTIFICATION FOR MAKING THE ADDITION ON ACCOUNT OF THE OUTSTANDING RECOVERA BLE DULY DISCLOSED IN THE BOOKS OF ACCOUNTS. THE FIRST APPELLATE ORDER IN THI S REGARD IS THUS UPHELD. THE GROUND NO. 1 IS ACCORDINGLY REJECTED. GROUND NO. 2 5. THE RELEVANT FACTS ARE THAT THE ASSESSEE HAD ENTERE D INTO A CONTRACT WITH B.J. SERVICES CO. MIDDLE EAST LTD., POST BOX N O. 34721, DUBAI (UAE) FOR PROVIDING CEMENTING AND FRACTURING SERVICES FOR RANI GANJ COAL FIELDS IN WEST BENGAL. A SUM OF RS.2,76,01,499/- WAS DUE TO T HIS PARTY OUT OF WHICH RS.2,45,98,186/- WAS REMITTED TO THIS PARTY ON 12.3 .2008 (NEXT YEAR) ITA NO. 2121/DEL/2011 5 DELETING THE TDS. THE AO DID NOT AGREE WITH THIS EX PLANATION OF THE ASSESSEE AND ADDED THE AMOUNT OF RS.2,76,01,499/- ON ACCOUNT OF OUTSTANDING LIABILITY REFLECTED IN THE BOOKS OF ACCOUNTS AS ON 31.3.2007 AGAINST M/S B.J. SERVICES. THE LD. CIT (A) HAS DELETED THE ADDITION. 6. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIES B ELOW WE FIND THAT AGAINST THE ADDITION, THE CONTENTION OF THE ASSESSE E REMAINED THAT IN CASE THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLAN ATION OF THE ASSESSEE, HE SHOULD HAVE EXAMINED AS TO WHETHER THIS LIABILITY R EPRESENTS ANY EXPENSE CLAIMED BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUN T, AS HE HAD TO COMPUTE THE INCOME OF THE ASSESSEE FOR THE PREVIOUS YEAR. IT WA S SUBMITTED THAT OUTSTANDING LIABILITY WAS IN RESPECT OF CEMENTING A ND FRACTURING SERVICES, WHICH HAD BEEN CAPITALIZED BY THE ASSESSEE IN ITS A CCOUNTS UNDER THE HEAD CAPITAL WORK IN PROGRESS, SCHEDULE 4. IT WAS CONT ENDED THAT SINCE THE EXPENDITURE IN RESPECT OF THE OUTSTANDING LIABILITY WAS NOT CLAIMED AS EXPENSE, IT SHOULD NOT HAVE BEEN DISALLOWED FOR ANY REASON AND THE ASSESSING OFFICER HAD MADE THE ADDITION WITHOUT ANY INVESTIGATION. THE LD. CIT (A) HAS DELETED THE ADDITION WITH THIS OBSERVAT ION THAT THE PAYMENT OF THE SUM HAS BEEN MADE IN THE SUCCEEDING YEAR ON WHI CH TDS WAS ALSO DEDUCTED. WE FIND THAT THE AO HAD MADE AN ADDITION ON THE BASIS THAT THE ASSESSEE DID NOT FURNISH THE CONFIRMATION. HE FAILE D TO APPRECIATE THAT IT WAS ITA NO. 2121/DEL/2011 6 NOT A CASH CREDIT NOR EXPENDITURE CLAIMED IN THE PR OFIT & LOSS ACCOUNT. THE ASSESSING OFFICER HAD NOT EXAMINED THE NATURE OF TH E LIABILITY AND THE RELATED FACTS AVAILABLE ON RECORD. HE ALSO FAILS TO APPRECI ATE THAT THE EXPENDITURE HAS BEEN CAPITALIZED. IT WAS ALSO NOT THE CASE OF THE A SSESSING OFFICER THAT THE EXPENDITURE WAS NOT INCURRED. THE ASSESSEE ON THE O THER HAND HAD ESTABLISHED THAT THE OUTSTANDING PAYMENTS WERE MADE IN SUCCEEDING YEARS IN REGULAR COURSE OF BUSINESS. UNDER THESE FACTS WE AR E OF THE VIEW THAT THE LD. CIT (A) WAS JUSTIFIED IN HOLDING THAT THE LIABILITY OF RS.2,76,01,499/- AS ON 31.3.2007 WAS GENUINE AND THAT THE ADDITION OF RS.2 ,76,01,499/- WAS MADE BY THE AO WITHOUT APPRECIATION OF THE FACTS IN TOTA LITY. WE THUS UPHOLD THE ACTION OF THE LD. CIT (A) IN DELETING THE ADDITION. GROUND NO. 2 IS ACCORDINGLY REJECTED. GROUND NO. 3 7. THE RELEVANT FACTS ARE THAT THE AO DISALLOWED THE C LAIMED DEPRECIATION ON THE BUILDING ON THE BASIS THAT THE BUILDING WAS NOT YET REGISTERED IN THE NAME OF THE ASSESSEE COMPANY. THE CONTENTION OF THE ASSESSEE REMAINED THAT THE BUILDING IN QUESTION WAS ACQUIRED IN 2005 AND W AS BEING UTILIZED FOR THE BUSINESS PURPOSES. BEING CONVINCED WITH THE SUBMISS ION OF THE ASSESSEE, THE LD. CIT (A) HAS ALLOWED THE DEPRECIATION ON THE BAS IS OF DECISIONS RELIED UPON BY THE ASSESSEE BEFORE HIM. ITA NO. 2121/DEL/2011 7 8. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIES B ELOW WE FIND THAT THE CLAIM OF THE ASSESSEE THAT THE BUILDING IN QUES TION WAS PURCHASED BY IT AND WAS IN USE FOR THE PURPOSE OF ITS BUSINESS WAS NOT DENIED BY THE AO. THE AO HAS DISALLOWED THE CLAIMED DEPRECIATION ONLY ON THE BASIS THAT THE BUILDING WAS YET TO BE REGISTERED IN THE NAME OF TH E ASSESSEE COMPANY. THE ASSESSEE CLAIMED THAT THE BUILDING WAS PURCHASED TH ROUGH DEED OF ASSIGNMENT AND AGREEMENT FOR SALE IN THE YEAR 2005 AND POSSESSION THEREOF WAS HANDED OVER TO THE ASSESSEE ON THE PAYMENT OF A GREED SALE CONSIDERATION TO THE SELLER. THE PROPERTIES WERE HOWEVER, COULD N OT REGISTER IN THE NAME OF THE ASSESSEE COMPANY DURING THE PERIOD OF ACQUISITI ON AND THE YEAR OF USE. THE LD. CIT (A) HAS ALLOWED THE CLAIMED DEPRECIATIO N RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F MYSORE MINERALS LTD. VS. CIT 239 ITR 775 (SC) AND OF HONBLE DELHI HIGH COURT IN THE CASE OF GOWERSONS PUBLISHERS P. LTD VS. CIT 240 ITR 191 (DE L) (FB). THE HONBLE SUPREME COURT IN THE CASE OF MYSORE MINERALS LTD. V S. CIT (SUPRA) HAS BEEN PLEASED TO HOLD THAT ANYONE IN POSSESSION OF P ROPERTY IN HIS OWN TITLE EXERCISING SUCH DOMINION OVER THE PROPERTY AS WOULD ENABLE OTHERS BEING EXCLUDED THERE FROM AND HAVING THE RIGHT TO USE AND OCCUPY THE PROPERTY AND /OR TO ENJOY ITS USUFRUCT IN HIS OWN RIGHT, WOULD B E THE OWNER OF THE BUILDING THOUGH A FORMAL DEED OF TITLE MAY NOT HAVE BEEN EXE CUTED AND REGISTERED AS ITA NO. 2121/DEL/2011 8 CONTEMPLATED BY THE TRANSFER OF PROPERTY ACT THE RE GISTRATION ACT ETC. THE HONBLE COURT HELD FURTHER THAT BUILDING OWNED BY THE ASSESSEE THE EXPRESSION AS OCCURRING IN SECTION 32 (1) OF THE IT ACT, MEANS THE PERSON WHO HAVING ACQUIRED POSSESSION OVER THE BUILDING IN HIS OWN RIGHT USES THE SAME FOR THE PURPOSE OF THE BUSINESS OR PROFESSION THOUGH A LEGAL TITLE HAS NOT BEEN CONVEYED TO HIM CONSISTENTLY WITH THE REQU IREMENTS OF LAWS SUCH AS THE TRANSFER OF PROPERTY ACT AND THE REGISTRATION A CT, ETC. GENERALLY SPEAKING DEPRECIATION IS ALLOWABLE FOR THE DIMINUTION IN THE VALUE DUE TO WEAR AND TEAR OF A CAPITAL ASSET EMPLOYED BY AN ASSESSEE IN HIS B USINESS. SIMILAR VIEW HAS BEEN EXPRESSED BY THE FULL BENCH OF THE HONBLE DEL HI HIGH COURT IN THE CASE OF GOWERSONS PUBLISHERS P. LTD. VS. CIT (SUPRA ), WHEREIN IT HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT THAT THE CONTE XT IN WHICH THE WORDS OWNER OR OWNED BY WHICH USED, RELATES, DERIVING B ENEFIT BY WAY OF INCOME OR BY PERSONAL USE OF PROPERTY. THE REAL TEST IS TH E RIGHT TO ENJOY THE PROPERTY AS OWNER. THE RATIO LAID DOWN IN THESE DECISIONS IS FULLY APPLICABLE ON THE ISSUE RAISED BEFORE US IN THE GROUND. RESPECTFULLY FOLLOWING THE SAME THE LD. CIT (A) IN OUR VIEW, HAS RIGHTLY HELD THAT THE ASSE SSEE WAS ENTITLED TO THE CLAIMED DEPRECIATION OF RS.17,81,329/- WITH DIRECTI ON TO THE AO TO ALLOW THE SAME. THE SAME IS UPHELD. GROUND NO. 3 IS ACCORDING LY REJECTED. 9. CONSEQUENTLY APPEAL IS DISMISSED. ITA NO. 2121/DEL/2011 9 10. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON TH E DAY 29/10/2012. SD/- SD/- ( A. N. PAHUJA ) (I.C. SUDHIR) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29/10/2012 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR