DCIT, CHENNAI V. AE & E Chennai Works Limited, CHENNAI

ITA 2177/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9032 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-05-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 19-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN IRS SHRI RAVI SH
• Keywords: Depreciation; Revenue expenditure
• Section: 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , . , BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBE R AND SHRI. G. PAVAN KUMAR, JUDICIAL MEMBER ./I.T.A. NOS.2173 & 2177/MDS/2015 / ASSESSMENT YEARS :2003-04 & 2004-05 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1) CHENNAI VS. M/S. AE & E CHENNAI WORKS LIMITED, 18/2A, SENNERKUPPAM BYE PASS ROAD, POONAMALEE, CHENNAI 600 056. [PAN AABCB 5946J] ( / APPELLANT) ( /RESPONDENT) ! ' # / APPELLANT BY : SHRI. N. MADHAVAN, IRS $% ! ' # /RESPONDENT BY : SHRI. RAVI SHARMA, ADVOCATE. & ' ' ( /DATE OF HEARING : 19-05-2016 ) ' ' ( /DATE OF PRONOUNCEMENT : 28-06-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, CHENNAI DT 20.08.2015 FOR THE ABOVE ASSESSMENT YEARS PASS ED U/S.143(3) R.W.S 147 AND 250 OF THE INCOME TAX ACT, 1961 (HEREIN A FTER REFERRED TO AS ITA NOS.2173 & 2177/MDS/2015. :- 2 -: THE ACT). SINCE THE ISSUE IN THESE APPEALS ARE COMMON IN NATURE, THESE APPEALS ARE CLUBBED, HEARD TOGETHER, AND DISPOSED O F BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. FIRST, WE TAKE U P ITA NO.2173/MDS/2015 OF ASSESSMENT YEAR 2003-2004 FOR A DJUDICATION. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- 2.1 THE LEARNED CIT(A) ERRED I N ALLOWING CONSUMPTION OF RAW MATERIAL AND EMPLOYEE COST OF 79,37,994 TO THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 2.2 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT DUE TO LABOUR DISRUPTIONS, THE FACTORY WAS CLOSED BY THE ORDER OF THE POONAMALLEE COURT WITH THE MANAGEMENT BEING PROHIBITED FROM ENTERING THE PREMISES. 2.3 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT IN FORM 3CB IT WAS ADMITTED BY THE STATUTORY AUDITORS THAT DUE TO LABOUR DISRUPTIONS AND IN THE ABSENCE OF RELEVANT DOCUMENT, THE AUDIT COULD NOT VERIFY THE INVENTORIES AS ON 31-03-2003 AND TOTAL CONSUMPTION DURING THE YEAR FOR RAW- MATERIALS, STORES, SPARES AND CONSUMABLES AMOUNTING TO RS.1,69,19,065/-. HENCE, IN THE ABSENCE OF CERTIFICATION BY STATUTORY AUDITORS, IT IS NOT POSSIBLE TO ACCEPT THE GENUINENESS OF THE CLAIM OF CONSUMPTION OF RAW-MATERIALS AND EMPLOYEE COST CLAIMED BY THE ASSESSEE. ITA NOS.2173 & 2177/MDS/2015. :- 3 -: 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S IN THE BUSINESS OF MANUFACTURE OF BOILERS AND BOILER COMPO NENTS AND ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 28.02.2006 A FTER SETOFF BROUGHT FORWARD LOSSES OF ASSESSMENT YEAR 2001-2002 AND THE TAXABLE INCOME DETERMINED A NIL. THE LD. ASSESSING OFFICER SUBSEQU ENTLY FOUND THAT INCOME CHARGEABLE TO TAX ESCAPED ASSESSMENT AND IS SUED NOTICE U/S.148 OF THE ACT. IN COMPLIANCE TO NOTICE, THE ASSESSEE HAS FILED A LETTER TO TREAT ORIGINAL RETURN FILED ON 28.11.2003 IN RESPONSE TO NOTICE U/S.148 OF THE ACT. THE LD. ASSESSING OFFICER ISSUED NOTICE U/S.1 43(2) OF THE ACT AND THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE APPEARED FROM TIME TO TIME AND FILED DETAILS AS CALLED FOR. THE LD. ASSESSING OFF ICER ON PERUSAL OF THE FINANCIAL STATEMENT AS PER TAX AUDIT REPORT U/SEC. 44B ON NOTE 4 TO SCHEDULE 17, THE AUDITORS HAVE ADMITTED THAT DUE TO LABOUR DISRUPTIONS AND IN THE ABSENCE OF RELEVANT DOCUMENTS, AUDITOR C OULD NOT VERIFY THE INVENTORY FOR THE YEAR CONSISTING OF RAW MATERIALS, STORES, SPARES AND CONSUMABLES AGGREGATING TO D1,69,19,065/- AND THE C OMPANY HAS DECLARED FACTORY CLOSED W.E.F. 30.09.2002. THE LD. ASSESSING OFFICER BASED ON THE OBSERVATIONS OF THE AUDITORS HAS DOUBTED THE CLAIM AND GENUINENESS OF CONSUMPTION OF RAW MATERIALS AND EMP LOYEES COST CLAIMED BY THE ASSESSEE AND UNDER SUSPICION AND SURMISES OBSERVED THAT COST OF RAW MATERIALS AND EMPLOYEES COST WERE INFLATED IN THE ABSENCE OF CERTIFICATION OF THE STATUTORY AUDITORS DURING THE FINANCIAL YEAR 2002-2003, ITA NOS.2173 & 2177/MDS/2015. :- 4 -: WERE THE ASSESSEE CLAIMED EMPLOYEE COST AS PER SCHE DULE -14 OF ITS PROFIT AND LOSS ACCOUNT D2,43,33,432/- AND STORES AND CONS UMABLES INCLUDED UNDER SCHEDULE -13 MATERIALS AND SERVICES D74,18, 544/- TOTAL AGGREGATING TO D3,17,51,976/- AND ON THE PRESUMPTIO N OF INFLATION DISALLOWED 25% OF D3,17,51,976/-, WHICH WORKED OUT TO D79,37,994/- AND ALSO DISALLOWED CONTRIBUTION TO THE SUPERANNUATION SCHEME AND ASSESSED TOTAL INCOME AS NIL AFTER SETTING OFF OF BROUGHT F ORWARD LOSSES OF ASSESSMENT YEAR 2001-2002 D1,20,13,221/- AND ASSESS MENT YEAR 2002- 2003 D14,09,947/- AGGREGATING TO D1,34,23,168/-. A GGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSI ONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED RE PRESENTATIVE ARGUED THAT THE LD. ASSESSING OFFICER ERRED IN DIS ALLOWING 25% OF EMPLOYEES COST AND OTHER CONSUMABLES UNILATERALLY WITHOUT ASSIGNING ANY DIRECT AND SPECIFIC REASONS AND THE EMPLOYEES COST INCLUDES SALARY, WAGES, CONTRIBUTION TO PROVIDENT FUND AND STAFF WELFARE BE NEFITS ARE INCLUDED PURELY FOR THE PURPOSE OF BUSINESS AND DISALLOWED O N SUSPICION IS NOT IN ACCORDANCE WITH LAW. THE LD.CIT(A) CONSIDERING THE GROUNDS AND FACTS THAT THE ASSESSEE COMPANY FACTORY WAS CLOSED W.E.F. 30.9.2002 AND THE FINDINGS OF THE LD. ASSESSING OFFICER HAS OBSERVED THAT VIEW TAKEN BY THE LD. ASSESSING OFFICER IS WITHOUT ANY INVESTIGATION OR ENQUIRY AND THE ITA NOS.2173 & 2177/MDS/2015. :- 5 -: DISALLOWANCE ON PRESUMPTIVE BASIS CANNOT BE SUSTAIN ED AND DELETED THE ADDITION AND ALLOWED THE APPEAL OF THE ASSESSEE. AG GRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE REVENU E HAS ASSAILED AN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARG UED THE GROUNDS THAT THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN DELETING THE ADDITION MADE BY THE LD. ASSESSING OFF ICER IN RESPECT OF EMPLOYEES COST, CONSUMABLES OF RAW MATERIALS IRRESP ECTIVE OF THE FACT THAT THE FACTORY WAS CLOSED BY THE ORDER OF THE COURT A ND THE MANAGEMENT IS PROHIBITED FROM ENTERING THE PREMISES. THE AUDITOR HAS ADMITTED THAT DUE TO LABOUR PROBLEMS AND IN THE ABSENCE OF RELEVANT DOCUMENT COULD NOT VERIFY INVENTORY AS ON 31.03.2003 AND THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) HAS OVERLOOKED THE FACT THAT IN THE ABSE NCE OF CERTIFICATION BY THE AUDITORS THE GENUINENESS OF CLAIM OF EMPLOYEES COST AND RAW MATERIAL COST IS DOUBTFUL AND PRAYED FOR SETTING ASIDE THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS). 6. CONTRA, THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS), FILED WRI TTEN SUBMISSIONS TO SUBSTANTIATE THE CLAIM WITH JUDICIAL DECISIONS AND PAPER BOOK OF FINANCIAL ITA NOS.2173 & 2177/MDS/2015. :- 6 -: STATEMENTS PERTAINING TO OF SUBSEQUENT ASSESSMENT YEARS TO SHOW THE ACTIVITY OF THE BUSINESS AND PRAYED FOR DISMISSING THE APPEAL. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD. THE ONLY DISPUTED ISSUE BEING THAT THE LD. AUTHORIS ED REPRESENTATIVE CONTENTION THAT THE LD. ASSESSING OFFICER HAS PURE LY RELIED ON THE OBSERVATIONS OF STATUTORY AUDITOR REPORT IN NOTE 4 FORMING PART OF ACCOUNTS AT PARA 4 IN SCHEDULE 17 OF AUDITORS REPOR T AND THE PARA 6(B) OF FORM 3CB WERE THE AUDITORS COULD NOT VERIFY THE INV ENTORY AS ON 31.03.2003 IN RESPECT OF RAW MATERIALS STORES AND S PARES. WITH THESE OBSERVATIONS, THE AUDIT WAS COMPLETED AND STATUTORY AUDITOR REPORT WAS ISSUED. THE LD. ASSESSING OFFICER HAS NOT DONE ANY ENQUIRY OR INVESTIGATION AND RELIED THAT THE FACTORY WAS DECL ARED CLOSED ON 30.09.2002 AND ALSO IN THE ABSENCE OF CERTIFICATION OF STATUTORY AUDITOR IS UNDER THE PRESUMPTION AND SUSPICION THAT THERE ARE POSSIBILITIES OF INFLATION OF EMPLOYEES COST AND RAW MATERIALS. THE LD. ASSES SING OFFICER FURTHER WITHOUT APPLYING THE RATIONALITY AND SCIENTIFIC ME THODOLOGY DISALLOWED 25% OF THE COST. THE LD. AUTHORISED REPRESENTATIVE DEMONSTRATED BEFORE US REFERRING TO THE SCHEDULE 14 WERE THE ASSESSEE H AS CLAIMED EMPLOYEE COST. ON COMPARING THE RATIO OF EMPLOYEE COST TO T HE FABRICATION CHARGES OF EARLIER YEAR 2002, THE EMPLOYEE COST HAS DECREAS ED AND THE PERCENTAGE BEING LESS THAN EARLIER YEARS. SIMILARLY, STORES CO NSUMABLES DIFFERENCE HAS COME DOWN IN COMPARISON WITH THE BALANCE AS ON 31.0 3.2002 AND THE ITA NOS.2173 & 2177/MDS/2015. :- 7 -: ACTION OF THE LD. ASSESSING OFFICER IS PURELY BASED ON THE ASSUMPTION OF INFLATION WITHOUT BEING ANY ANALOGY FOR THE CALCULA TION. THE LD. ASSESSING OFFICER HAS RELIED ON THE OBSERVATION IN AUDITOR RE PORT AND CAPITALIZED VIEWS. THE LD. ASSESSING OFFICER IF NOT SATISFIED W ITH THE PARTICULAR TYPE OF EXPENDITURE COULD NOT DISALLOW THE SAME WITHOUT VE RIFICATION AND ON ADHOC BASIS. THE LD. ASSESSING OFFICER HAS NOT POIN TED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT BUT MADE THE ADHOC DISALLOWANC E ON GENERAL OBSERVATIONS. THE ACTION OF THE LD. ASSESSING OFFI CER IN MAKING ADHOC DISALLOWANCE IS WITHOUT ANY COGENT REASONS IS NOT A CCEPTABLE AND THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED I N HIS ORDER BASED ON THE FINDING OF THE ASSESSING AUTHORITIES THAT N O ENQUIRY WAS CONDUCTED BY THE LD. ASSESSING OFFICER. ACCORDINGLY, WE ARE I NCLINED TO UPHOLD THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) WHO H AS DEALT ON THE FACTS AND REASONABLENESS OF THE ASSESSEES WORKING CONDITIONS AND THE GROUND OF THE REVENUE IS DISMISSED. 8. NOW WE TAKE UP ITA NO.2177/MDS/2015 OF ASSESSMENT Y EAR 2004-05 FOR ADJUDICATION:- THE ASSESSEE FILED RET URN OF INCOME FOR THE ASSESSMENT YEAR 2004-05 ON 30.10.2004 DECLARING LOS S OF D2,65,65,547/- AND THE LD. ASSESSING OFFICER HAS REASONS TO BELIEV E THAT THERE IS ESCAPEMENT OF INCOME AND ISSUED NOTICE U/S.148 OF T HE ACT AND IN COMPLIANCE TO NOTICE, THE ASSESSEE FILED LETTER TO TREAT THE RETURN FILED ITA NOS.2173 & 2177/MDS/2015. :- 8 -: ORIGINALLY ON 30.10.2004 IN RESPONSE TO NOTICE U/S. 148 OF THE ACT. SUBSEQUENTLY, NOTICE U/S.143(2) OF THE ACT WAS ALS O ISSUED. THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE APPEARED AND FILED DETAILS WHICH WERE EXAMINED BY THE LD. ASSESSING OFFICER. THE LD . ASSESSING OFFICER ON PERUSAL OF THE ANNEXURE 1 OF FORM 3CD ISSUED BY TH E STATUTORY AUDITOR FOUND THE COMPANY HAS DECLARED CLOSURE OF FACTORY W .E.F. 30.09.2002 AND VERIFICATION OF BOOKS OF ACCOUNTS WAS RESTRICTED. FURTHER, THE LD. ASSESSING OFFICER ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT FOUND THAT THE ASSESSEE COMPANY HAS CLAIMED D1,27,42,203/- TOWARDS DEPRECIATION ON PLANT AND MACHINERY THOUGH THE FACTORY WAS UNDER TH E CLOSURE THROUGHOUT THE YEAR AND THEY ARE NOT PUT INTO ACTUAL USE. THE ASSESSEE COMPANY ALSO CLAIMED D15,63,488/- TOWARDS REPAIRS AND MAINTENANC E. THE LD. ASSESSING OFFICER OBSERVED THAT DUE TO COURT ORDERS THE MANAG EMENT HAS BEEN RESTRAINED FROM ENTERING INTO FACTORY PREMISES AND THERE CANNOT BE ANY REPAIRS AND MAINTENANCE DURING THE PERIOD OF CLOSU RE. IN RESPONSE TO SHOW CAUSE NOTICE OF DISALLOWANCE OF DEPRECIATION ON PLANT AND MACHINERY AND REPAIRS AND MAINTENANCE TOTAL AGGREGATING TO D1 ,43,05,691/-. THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE FILED LETTER DATED 26.12.2008 RELYING ON THE DECISION OF LVE VAIRAVAN CHETTIAR VS. CIT 72 ITR 114 . THE LD. ASSESSING OFFICER DISTINGUISHED THE JUDGMENT DUE T O CLOSURE OF FACTORY THE PLANT AND MACHINERY WERE NOT PUT TO USE AND NO QUE STION OF ALLOWING REPAIRS AND MAINTENANCE AND DISALLOWED THE CLAIM AL ONGWITH OTHER ITA NOS.2173 & 2177/MDS/2015. :- 9 -: ADDITIONS AND PASSED ORDER U/S.143(3) R.W.S.147 OF THE ACT DATED 30.12.2008. AGGRIEVED BY THE ORDER, THE ASSESSEE F ILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 9. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED RE PRESENTATIVE SUBMITTED THAT THE FACTORY IS UNDER CLOSURE AND THE LD. ASSESSING OFFICER DISALLOWED DEPRECIATION AND REPAIRS AND MAINTENANC E ONLY ON THE GROUND THAT MACHINERY WAS NOT PUT TO USE BUT THE CLOSURE W AS ONLY TEMPORARY SUSPENSION OF BUSINESS OPERATIONS AND NOT COMPLETE CLOSURE OF BUSINESS AND THE ASSESSEE COMPANY IN SUBSEQUENT ASSESSMENT YEARS COMMENCED ITS BUSINESS OPERATIONS WITH THE SAME LINE OF ACTIV ITIES. THE LD. ASSESSING OFFICER FAILED TO APPRECIATE THE DECISIONS OF JURIS DICTIONAL HIGH COURT ON CLOSURE OF BUSINESS. THE ASSESSEE COMPANY WAS FOLLO WING THE ACCOUNTING SYSTEM OF WRITING OFF OF LOOSE TOOLS OVER A PERIO D OF THREE YEARS. THE EXPENDITURE ON REPAIRS AND MAINTENANCE PERTAINING T O THE 1/3 VALUE OF THE LOOSE TOOLS WAS CLAIMED AS REVENUE EXPENDITURE OTHERWISE THE LD. AUTHORISED REPRESENTATIVE CLAIM WAS ALTERNATIVELY T O ALLOW DEPRECIATION ON DISALLOWANCE VALUE OF TOOLS. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERING THE ARGUMENTS, FINDINGS OF TH E LD. ASSESSING OFFICER AND SUBMISSIONS OF THE LD. AUTHORISED REPRESENTATIV E AND BACKGROUND OF THE COMPANY AND MATERIAL EVIDENCE CONCLUDES THAT T HE TEMPORARY CLOSING ITA NOS.2173 & 2177/MDS/2015. :- 10 -: DOWN OF BUSINESS SHALL NOT PROHIBIT THE CLAIM OF REVENUE EXPENDITURE AND OBSERVED AT 4.2 OF THE ORDER AS UNDER:- 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS IN ISSU E, THE VIEW TAKEN BY THE AO, THE ARGUMENTS ADVANCED BY THE APPELLANT AND MATERIAL ON RECORD. THIS IS A CASE WHERE THE APPELLANT WHICH IS IN THE BUSINESS OF MANUFACTURING BOILERS AND BOILER COMPONENTS HAD TO TEMPORARILY CLOSE DOWN BUSINESS RESULTING FROM A LOCK OUT ON ACCOUNT OF LABOUR UNREST. THE MACHINERIES NO DOUBT WERE NOT PUT TO USE DURING THE PERIOD OF CLOSURE. NOTWITHSTANDING THE SAME THE BUSINESS OPER ATIONS WERE RESUMED AFTER A LULL. THIS IS NOT A CASE OF TERMINA TION OF BUSINESS OR WHERE BUSINESS HAD CEASED TO EXIST. THE RATIO IN TH E CASE OF VAIRAVAN CHETTIAR V. CIT 72 ITR 114 RELIED UPON BY THE AO WOULD THEREFORE NOT APPLY TO THE FACTS OF THE CASE. THE APPELLANT WILL BE ENTITLED TO CLAIM SOME DEPRECIATION AND REPAIRS AND MAINTENANCE AS CL AIMED BY IT. THIS VIEW IS FORTIFIED BY THE DECISION OF THE HON'BLE BO MBAY HIGH COURT IN THE CASE OF HINDUSTAN CHEMICAL WORKS LTD V. CIT 124 ITR 561 (BOM). ON THE FACTS OF THAT CASE IT WAS FOUND THIS WAS REALLY A CASE WHERE THE COMPANY HAD COMPLETELY GONE OUT OF ITS PRODUCTION, IT HAD STOPPED PRODUCTION, IT HAD DECIDED TO DISCONTINUE ITS BUSINESS AND EITHER SELL AWAY THE PLANT AND MACHINERY AND BUILDINGS OR, IN T HE ABSENCE OF PROPER PURCHASERS BEING FOUND, HAD DECIDED TO DEVELOP ITS REAL PROPERTY, SO THAT IT COULD BECOME A USEFUL SOURCE OF INCOME. THERE IS A MARKED DISTINCTION BETWEEN 'LULL IN BUSINESS' AND ' GOING OUT OF BUSINESS'. A TEMPORARY DISCONTINUANCE OF BUSINESS M AY IN CERTAIN CIRCUMSTANCES GIVE RISE TO AN INFERENCE THAT A BUSINESS IS GOING THROUGH A LEAN PERIOD OF TRANSITION AND IT COULD BE REVIVED IF PROPER CIRCUMSTANCES ARISE. BUT WHERE IN A CASE LIKE THIS THE COMPANY HAD DECIDED TO DISPOSE OF ITS PROPERTY, THE PLANT AND MACHINERY HA D BEEN DISMANTLED AND TAKEN AWAY FROM THE FACTORY PREMISES , THERE WAS NOT EVEN THE SLIGHTEST CHANCE OF THE COMPANY RESTARTING PRODUCTION, THERE WAS NO FINANCE AVAILABLE, AND EVEN THE LICENCES HAD CEASED TO BE ITA NOS.2173 & 2177/MDS/2015. :- 11 -: EFFECTIVE, IT IS DIFFICULT TO HOLD THAT THERE WAS A LULL IN BUSINESS WHICH WAS OF A TEMPORARY NATURE . ) IN OUR VIEW, THE INFERENCE DRAWN BY THE TRIBUNAL THAT THE COMPANY HAD 'COMPLETELY STOPPED I TS BUSINESS AND HAD GONE OUT OF BUSINESS AND THAT THE ONLY SOURCE OF IN COME FOR THE COMPANY WAS INCOME FROM PROPERTY WAS EMINENTLY JUST IFIED BY THE FACTS WHICH HAVE APPEARED IN THIS CASE. WE MUST, THEREFOR E, CONF I RM THE FINDING THAT IN THE YEARS IN QUESTION, THE COMPANY HAD NOT CARRIED ON ANY BUSINESS SO AS TO ENABLE IT TO CLAIM EITHER DEPRECIATION OR DEDUCTIONS CLAIMED BY IT OR A RIGHT TO SET OFF UN A BSORBED DEPRECIATION CARRIED FORWARD . QUESTION NO . 1 MUST, THEREFORE, BE ANSWERED IN THE NEGATIVE IN THE CASE OF THE APPELLANT THE FACTS ARE INDICATIVE THAT IT WAS A MERE LULL BEFORE BUSINESS WAS RESUMED THEREFORE QUALIFYING IT FOR ALL CLAIMS AND DEDUCTIONS PERMIS SIBLE UNDER THE ACT. THIS GROUND IS ALLOWED. AND ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE REVENUE HAS ASSA ILED AN APPEAL BEFORE TRIBUNAL. 10. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE REI TERATED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN DELETING THE ADDITION OF DEPRECIATION ON PLANT AND MACHINERY D.1,27,42,203/- AND REPAIRS AND MAINTENANCE CHARGES D15,63,488/- WITHOU T APPRECIATING THE FACTS THAT THE FACTORY WAS UNDER CLOSURE AND COURT HAS PROHIBITED THE MANAGEMENT FROM ENTERING THE PREMISES AND THERE COU LD BE COULD BE NO OCCASION FOR REPAIRS AND MAINTENANCE OF PLANT AND M ACHINERY USED IN THE PREVIOUS YEAR AND PRAYED FOR ALLOWING THE APPEAL. ITA NOS.2173 & 2177/MDS/2015. :- 12 -: 11. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTATIV E RELIED ON THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) A ND ARGUED THAT THE FACTORY WAS IN OPERATION AND WAS TEMPORALLY SUSPEND ED AND RESUMED IN SUBSEQUENT ASSESSMENT YEARS CARRYING ON THE SAME LI NE OF BUSINESS ACTIVITIES AND FILED COPIES OF FINANCIAL STATEMENTS FOR SUBSEQUENT ASSESSMENT YEARS AND JUDICIAL DECISIONS TO SUPPORT HIS ARGUMENTS AND VEHEMENTLY TO HE GROUNDS. 12. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. DEPARTMENTAL REPRESENTATIVE CONTENTION IN THE FIRST GROUND THAT THE DEPRECIATIO N WAS CLAIMED ON PLANT AND MACHINERY IRRESPECTIVE OF THE FACT THAT THE F ACTORY WAS UNDER CLOSURE. WE ON PERUSAL OF THE PROFIT AND LOSS ACCO UNT FOR THE YEAR ENDED 31.03.2004, FOUND THAT THE ASSESSEE COMPANY HAS DIS CLOSED OTHER INCOME UNDER SCHEDULE -9 THOUGH THERE ARE NO FABRICATION C HARGES RECEIVED IN COMPARISON WITH EARLIER YEARS 2002-2003 AND THE ASS ESSEE COMPANY HAS NOT CLAIMED ANY EXPENDITURE ON MATERIAL AND SERVICE S AS PER SCHEDULE 11 OF PROFIT AND LOSS ACCOUNT BUT CLAIMED DEPRECIATION OF D1,27,42,203/- AS PER ANNEXURE-2 TO FORM 3CD WHICH THE LD. ASSESSING OFFICER DISALLOWED. PRIMA FACIE, THE ASSESSEE COMPANY IS A GOING CONCER N AND WITH ACTIVE BUSINESS OPERATIONS AS PER FINANCIAL STATEMENTS, TH E ASSESSEE COMPANY ITA NOS.2173 & 2177/MDS/2015. :- 13 -: CLAIMED DEPRECIATION ON BUILDING, FURNITURE AND FI TTINGS, COMPUTERS AND MOTOR VEHICLES APART FROM DEPRECIATION ON PLANT A ND MACHINERY. THE LD. ASSESSING OFFICER ACCEPTS DEPRECIATION CLAIMED ON THE OTHER BUSINESS ASSETS BUT NOT ON PLANT AND MACHINERY AND THE REAS ONS MENTIONED BY THE LD. ASSESSING OFFICER ARE NOT CONCEIVING. THE LD. A UTHORISED REPRESENTATIVE PRODUCED AUDITED FINANCIAL STATEMENT FOR THE YEAR E NDED 31.03.2004 AND ALSO FORM 3CD FOR VERIFICATION. WE FOUND THERE IS BUSINESS ACTIVITY THOUGH MAIN BUSINESS OPERATIONS ARE TEMPORARY SUSPENDED. ON VERIFICATION OF AUDITED STATEMENTS OF FINANCIAL YEARS 2006-07 AND 2 007-08, THE ASSESSEE COMPANY HAS STARTED ITS BUSINESS OPERATIONS. CONSID ERING THE APPARENT FACTS, MATERIAL EVIDENCE AND JUDICIAL DECISIONS, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS) AND UPHOLD THE SAME AND DISMISS THE REVENUE GROUND S. 13. SIMILARLY, ON SECOND GROUND IN RESPECT OF REPAIRS O F PLANT AND MACHINERY, THE LD. AUTHORISED REPRESENTATIVE BROUGH T TO THE KNOWLEDGE OF BENCH THAT IT IS A ACCOUNTING POLICY OF THE COMPANY TO WRITE OFF LOOSE TOOLS OVER A PERIOD OF THREE YEARS AND 1/3 VALUE OF LOOSE TOOLS AMOUNTING TO D15,63,488/- WAS CLAIMED AS DEDUCTION IN THE NATURE OF REVENUE EXPENDITURE WAS NOT DISPUTED BY THE REVENUE IN THE EARLIER YEARS. SINCE THE ACCOUNTING POLICY IS FOLLOWED BY THE COMPANY FR OM EARLIER YEARS AND THE FACT THAT LOOSE TOOLS ARE WRITTEN OFF OVER A PE RIOD OF THREE YEARS AS PER ITA NOS.2173 & 2177/MDS/2015. :- 14 -: SCHEDULE -15 NOTES TO ACCOUNTS OF AUDIT REPORT AND THE LD. ASSESSING OFFICER HAS NOT DENIED THE CLAIM IN EARLIER YEARS A ND ACTION OF THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 2004-05 IN DISALLOWING THE CLAIM OF LOOSE TOOLS WRITTEN OFF DUE TO TEMPORARY CLOSURE OF BUSINESS CANNOT BE TENABLE. THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS DEALT ELABORATELY AND CONSIDERED VIZ-A-V-Z EXPLANATION OF THE ASSESSEE AND DELETED THE ADDITION AND WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THIS GROUND AND DISMISS THE REVENUE GROUND. 14. IN THE RESULT, THE APPEALS OF THE REVENUE IN ITA NO S.2173 & 2177/MDS/2015 FOR ASSESSMENT YEARS 2003-2004 AND 2 004-05 ARE DISMISSED. ORDER PRONOUNCED ON TUESDAY, THE 28TH DAY OF JUNE, 2016 AT CHENNAI. SD/- SD/- ( . ! ) (A. MOHAN ALANKAMONY) # $% / ACCOUNTANT MEMBER ( & . ' ( ) (G. PAVAN KUMAR) ) $% / JUDICIAL MEMBER *& / CHENNAI + / DATED: 28 TH JUNE, 2016. KV , ' $'./ 0/' / COPY TO: 1 . ! / APPELLANT 2. $% ! / RESPONDENT 3. 1' () / CIT(A) 4. 1' / CIT 5. /4 5 $'6 / DR 6. 5 7 8 & / GF