M/s.Faurecia Automotive Seating India Private Limited, Pune V. Deputy Commissioner of Income-tax, Circle - 9, Pune

ITA 2177/BANG/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0974 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 09-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: IS DIRECTED AGAINS T PASSED
• Keywords: Business income; Depreciation; Business expenditure; Carry forward of business losses; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.2177/BANG/2016 / ASSESSMENT YEARS : 2009-10 FAURECIA AUTOMOTIVE SEATING INDIA PRIVATE LIMITED, PLOT NO.T-187, PIMPRI INDUSTRIAL AREA (B.G.BLOCK), BHOSARI, PUNE 411 026 PAN : AADCS8694Q VS. DCIT, CIRCLE-9, PUNE (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-3, BENGALURU ON 30-09-2016 IN RELA TION TO THE ASSESSMENT YEAR 2009-10. 2. THE FIRST GROUND IS AGAINST THE CONFIRMATION OF DISALLOWANC E OF BUSINESS EXPENSES OF RS.5,79,74,581/-. BRIEFLY ST ATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE APPELLANT BY SHRI NARESH KUMAR RESPONDENT BY SHRI PANKAJ GARG DATE OF HEARING 25-03-2019 DATE OF PRONOUNCEMENT 26-03-2019 ITA NO.2177/BANG.//2016 FAURECIA AUTOMOTIVE SEATING INDIA PVT. LTD., 2 BUSINESS OF MANUFACTURING AUTOMOTIVE METAL SEATING COMPONENTS . RETURN OF INCOME WAS FILED DECLARING TOTAL LOSS OF RS.6.21 C RORE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESS ING OFFICER (AO) OBSERVED THAT THE ASSESSEE DID NOT CREDIT ANY OPERATIONAL INCOME, BUT ONLY AN INCOME OF RS.32.38 LAKH W HICH WAS ON ACCOUNT OF SCRAP SALES AND INTEREST RECEIVED/FOREIGN EXCHANGE GAIN ETC. HE FOUND THAT SIMILAR POSITION PREVAILED IN THE PRECEDING YEAR AS WELL IN ASMUCHAS NO MANUFACTURING ACTIVITY WAS CARRIED ON IN SUCH AN EARLIER YEAR ALSO. HE CONSIDERED TH E DETAILS OF EXPENSES CLAIMED BY THE ASSESSEE AT RS.5,79,74,581/- C ONSISTING OF MATERIALS AND COMPONENTS CONSUMED AT RS.29,34,882/-; OPE RATING EXPENSES AT RS.5,08,83,750; FINANCE CHARGES AT RS.94,20 2/-; AND DEPRECIATION AT RS.40,61,807/-. ON BEING CALLED UPON TO E XPLAIN AS TO WHY SUCH EXPENSES/ALLOWANCES SHOULD NOT BE DISALLOWED BECAUSE THE ASSESSEE WAS NOT ENGAGED IN ANY MANUFACTURIN G ACTIVITY DURING THE YEAR, THE ASSESSEE SUBMITTED VIDE ITS LETTER DA TED 11-12-2013 THAT EARLIER IT WAS HAVING ITS MANUFACTURING FACILITY AT BENGALURU. DUE TO CERTAIN ISSUES, THE FACTORY AT BENGALUR U WAS CLOSED DOWN W.E.F. 18-12-2006. DURING THE FINANCIAL YE AR 2008- 09, ASSESSEE COMPANY SET UP ITS NEW LOCATION FOR CONDUCTING OPERATIONS AT MANESAR, GURGAON. THE ASSESSEE CLAIMED TH AT IT WAS ITA NO.2177/BANG.//2016 FAURECIA AUTOMOTIVE SEATING INDIA PVT. LTD., 3 SIMPLY A TEMPORARY STOPPAGE OF MANUFACTURING ACTIVITY BUT THE BUSINESS, IN FACT, CONTINUED. NOT CONVINCED WITH THE ASSESS EES SUBMISSIONS, AO HELD THAT NO BUSINESS WAS CARRIED ON BY TH E ASSESSEE AND HENCE, THE HUGE EXPENSES OF RS.5.79 CRO RE COULD NOT BE ALLOWED. THE LD. CIT(A) COUNTENANCED THE ASSESSMENT ORDER ON THIS SCORE. 3. WE HAVE HEARD BOTH THE SIDES GONE THROUGH THE RELEVAN T MATERIAL ON RECORD. FROM THE NATURE OF DETAILS OF EXPENSES AND ALLOWANCE, IT IS SEEN THAT THEY ARE OF THE REVENUE NATURE. IT IS EVIDENT FROM THE ASSESSMENT ORDER ITSELF IN WHICH THE ASSESSE ES LETTER DATED 11-02-2013 HAS BEEN REPRODUCED THAT THE ASSE SSEE COMPANY CAME INTO EXISTENCE FROM 1995 WITH ITS MANUFACTURING FACILITY AT BENGALURU. DUE TO CERTAIN REASONS, THE BENGALURU UNIT HAD TO BE CLOSED FROM DECEMBER 2006. DURING THE FINANC IAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASS ESSEE SET UP ITS NEW LOCATION AT MANESAR, GURGAON AND ALSO CARRIED OUT TRIAL PRODUCTION AT THE NEW MANESAR PLANT. THUS, IT IS MANIFES T THAT THE BUSINESS OF THE COMPANY WAS CLOSED FOR A BRIEF PERIO D DUE TO TEMPORARY LULL. A COPY OF THE ASSESSEES PROFIT AND LOSS A CCOUNT FOR THE SUCCEEDING YEARS HAS BEEN PLACED ON RECORD. FINANC IAL STATEMENTS OF THE ASSESSEE FOR THE FINANCIAL YEAR ENDING 2 011, COPY ITA NO.2177/BANG.//2016 FAURECIA AUTOMOTIVE SEATING INDIA PVT. LTD., 4 PLACED AT PAGE 53 ONWARDS OF THE PAPER BOOK, AMPLY IND ICATE THAT THE ASSESSEE STARTED ITS BUSINESS OPERATIONS. ON THE YEAR E NDING 31-03-2010, I.E. IMMEDIATELY SUCCEEDING ASSESSMENT YEAR , THE ASSESSEE MANAGED TO MAKE SALES AT RS.72.97 CRORE AND IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR ENDING 31-03-201 1, THE TOTAL SALES SHOT UP AT RS.162.04 CRORE. WHEN WE GO THROUG H THE DETAILS OF EXPENSES WHICH HAVE BEEN DISALLOWED BY THE AO, IT BECOMES APPARENT THAT THE ASSESSEE, IN FACT, CONSUMED MA TERIALS AND COMPONENTS AT RS.29.34 LAKH WHICH WAS NOTHING BUT USER OF MATERIAL FOR TRIAL PRODUCTION AT THE NEW MANESAR PLANT. WHEN THE MANUFACTURING ACTIVITY WAS EARLIER CARRIED ON AND AFTER SOME TIME IT AGAIN GOT RE-STARTED, THE ASSESSEE CANNOT BE SAID TO HAVE S TOPPED ITS BUSINESS ACTIVITY DURING THE INTERREGNUM. THE AO HAS NOT ALLEG ED IN THE ASSESSMENT ORDER THAT THE EXPENSES CLAIMED TO THE TUN E OF RS.5.79 CRORE WERE IN ANY MANNER FICTITIOUS OR BOGUS. ON CE THE FACTUM OF INCURRING EXPENSES TOWARDS MATERIALS AND COMPONE NTS CONSUMED, OPERATING EXPENSES AND FINANCE CHARGES ETC. IS ESTABLISHED AND THE BUSINESS RE-STARTED AFTER SOMETIME, THER E CAN BE NO QUESTION OF DENIAL OF DEDUCTION OF SUCH EXPENSES INCURR ED BY THE ASSESSEE DURING THE PERIOD WHEN THE BUSINESS WAS TEMPORAR ILY SHUT DOWN. AS THE ASSESSEE CLOSED DOWN ITS BENGALURU UNIT FOR WHICH ITA NO.2177/BANG.//2016 FAURECIA AUTOMOTIVE SEATING INDIA PVT. LTD., 5 TRIAL PRODUCTION WAS ALSO CARRIED DOWN DURING THE YEAR, THE BUSINESS OF THE ASSESSEE HAS TO BE HELD AS CARRIED ON DURING THE YEAR. CONSEQUENTLY, THE DEDUCTION IS DIRECTED TO BE GIVEN IN RESPECT OF ALL THE EXPENSES/ALLOWANCE CLAIMED BY THE ASSESSEE WHICH WERE WRONGLY DISALLOWED. 4. THE NEXT GROUND IS AGAINST THE ENHANCEMENT MADE BY THE LD. CIT(A) ON ACCOUNT OF FURTHER CLAIM OF DEPRECIATION. 5. WE HAVE NOTICED ABOVE THAT THE AO DISALLOWED DEPRECIATION OF RS.40,61,807/-. THE LD. CIT(A) NOTED THAT THIS AMOU NT OF DEPRECIATION WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT. APART FROM THAT THE ASSESSEE WAS ALSO FOUND TO HAVE CLAIMED FURTH ER DEPRECIATION OF RS.1,21,99,712/- UNDER THE INCOME-TAX AC T, 1961. THE LD. CIT(A) OBSERVED THAT SINCE THE AO DID NOT DISALLOW TH E AMOUNT OF DEPRECIATION CLAIMED UNDER THE INCOME-TAX ACT AT RS.1.21 CRORE, HE, THEREFORE, DIRECTED THE AO TO DISALLOW THE DEPRECIATION AT RS.121.99 LAKH INSTEAD OF RS.40.61 LAKH. 6. AFTER HEARING BOTH THE SIDES AND GOING THROUGH THE RELEV ANT MATERIAL ON RECORD, IT IS FOUND THAT THE LD. CIT(A) ENHANCED THE AMOUNT OF DISALLOWANCE OF DEPRECIATION ON THE SAME REASONIN G THAT THE BUSINESS OF THE ASSESSEE WAS NOT CARRIED ON. AS WE HAVE ITA NO.2177/BANG.//2016 FAURECIA AUTOMOTIVE SEATING INDIA PVT. LTD., 6 OVERTURNED THE ABOVE FINDING RECORDED BY THE AUTHORITIES BELO W, IT IS BUT NATURAL THAT THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION AS PER THE RATES ADMISSIBLE UNDER THE INCOME-TAX ACT. WE, THE REFORE, HOLD THAT THE ENHANCEMENT MADE BY THE LD. CIT(A) WITH THE DIRECTION TO THE AO TO DISALLOW TO DEPRECIATION OF RS.121.99 LAKH INSTEAD OF RS.40.61 LAKH IS HEREBY REVERSED. THIS GROUN D IS ALLOWED. 7. ANOTHER GROUND AGAINST THE SET OFF AND CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION IS CONSEQUENTIA L. 8. NO OTHER GROUND WAS PRESSED BY THE LD. AR., WHICH A RE OTHERWISE ALSO PRE-MATURE OR CONSEQUENTIAL. 9. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH MARCH, 2019. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VI CE PRESIDENT PUNE; DATED : 26 TH MARCH, 2019 ITA NO.2177/BANG.//2016 FAURECIA AUTOMOTIVE SEATING INDIA PVT. LTD., 7 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-3, BENGALURU 4. 5. 6. THE PR. CIT-3, BENGALURU , , / DR B, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 25-03-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 25-03-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *