ALCHEMIE PHARMA CHEM LTD, MUMBAI V. ACIT RG 10(3), MUMBAI

ITA 284/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6291 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-08-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 13-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 72(1); 32; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER. I.T.A. NO. 284/MUM/2009. ASSESSMENT YEAR : 2004-05. ALCHEMIE PHARMA CHEM LTD., ASS TT. COMMISSIONER OF INCOME-TAX, 7/8, YOGESH, 1 ST FLOOR, VS. RANGE-10(3), NAGPUR. GANESH GAWDE ROAD, MULUND (W), MUMBAI 400080. PAN AAACA3257G APPELLANT. RESPONDENT. APPELLANT BY : SHRI VIJAY MEHTA. RESPONDENT BY : SHRI JITENDRA YADAV. O R D E R PER J. SUDHAKAR REDDY, A.M. : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED A GAINST THE ORDER OF THE CIT(APPEALS)-X, MUMBAI DATED 25-11-2008 . 2. THE LEARNED COUNSEL FOR THE ASSESSEE, MR. VIJAY MEHTA, DID NOT PRESS THE FOLLOWING GROUNDS : GROUND NO. 1 : DISALLOWANCE OF PLANT MAINTENANCE E XPENDITURE,. 2 GROUND NO. 2 : CLAIM FOR SET OFF OF UNABSORBED DE PRECIATION AGAINST BUSINESS INCOME IN PRECEDENCE OVER UNABSORBED BUSIN ESS LOSSES OF LATER YEARS. GROUND NO. 4 : CLAIM OF SET OFF OF UNABSORBED BUSIN ESS LOSS AGAINST SHORT TERM CAPITAL GAIN. THUS, GROUND NO. 1 2 AND 4 ARE DISMISSED AS NOT PRE SSED. THIS LEAVES US WITH GROUND NO. 3 WHICH READS AS FOL LOWS : ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESS ING OFFICER AND NOT ALLOWING SET OFF OF UNABSORBED DEPRECIATION AGA INST SHORT TERM CAPITAL GAINS OF THE APPELLANT IN VIEW OF THE EXPRE SS PROVISIONS OF S. 32(2) IRRESPECTIVE OF WHETHER THERE IS ANY ALLOWANC E FOR DEPRECIATION CLAIMED IN THE CURRENT YEAR OR NOT. 3. THE ASSESSEE IN THIS CASE HAS CHOSEN NOT TO DISP UTE THE DISALLOWANCES MADE BY THE REVENUE ON THE GROUND THAT THE ASSESSEE HAS PERMANENTLY CLOSED DOWN ITS BUSINESS OF MANUFACTURE OF CHEMICALS FOR THE REASON THAT THE AMOUNTS INVOLVED IS SMALL AND THE ASSESSEE WANTS TO AVOID MULTIPLICITY OF PROCEEDINGS. THE ONLY CLAIM THAT THE ASSESSEE CHOOSES TO MAKE IS OF CARRY FORWA RD AND SET OFF OF UNABSORBED DEPRECIATION U/S 32 FOR AN AMOUNT OF RS.2,25,995/- OF THE ASSESSMENT YEAR 1996- 97. THE ASSESSEE DOES NOT MAKE CLAIM FOR CARRY FORW ARD AND SET OFF OF THE DEPRECIATION OF THE OTHER ASSESSMENT YEARS I.E. ASS ESSMENT YEARS 1997-98, 1999- 2000AND 2000-01. HENCE WE ARE CONCERNED WITH THE CL AIM OF CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION OF RS.2,25,995/- PER TAINING TO THE ASSESSMENT YEAR 1996-97 U/S 32(2). 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THA T THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VIRMANI INDUSTRIES PVT . LTD. AND ANOTHER 216 ITR 607 AT PAGE 618 HAS HELD THAT THE CARRY FORWARD DEPRE CIATION ALLOWANCE SHALL BE THE ALLOWANCE FOR THE YEAR AND IT MEANS THAT IN THE FOL LOWING YEAR THE ASSESSEE NEED NOT CARRY ON ANY BUSINESS OR PROFESSION. HE CONTENDS TH AT THIS IS A DEEMING PROVISION 3 AND IN SUCH A SITUATION THE REQUIREMENT OF USE OF A SSET OF CARRYING ON A BUSINESS IN THE SUBSEQUENT ASSESSMENT YEAR DOES NOT ARISE. HE S PECIFICALLY REFERRED TO PAGE 619 PLASITUM C & D OF THE DECISION IN THE CASE OF VIRM ANI INDUSTRIES PVT. LTD. AND RELIED UPON THE SAME. 5. HE FURTHER RELIED ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. DEEPAK TEXTILE 168 ITR 773 AND POINTED OUT THAT IN THAT CASE THE ASSESSEE COMPANY WAS IN LIQUIDATION AND THE HONBLE GUJARAT HIGH COURT HAS HELD THAT THE UNABSORBED DEPRECIATION ALLOWANCE OF EARLIER YEAR C AN BE CARRIED FORWARD AND ALLOWED TO BE SET OFF AGAINST INCOME FROM OTHER SOU RCES. HE FURTHER RELIED ON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CA SE OF MALABAR AGRICULTURAL CO. LTD. VS. CIT 229 ITR 548 (KER.) AND POINTED OUT THA T THE ASSESSEE THEREIN DID NOT CARRY ON THE BUSINESS OF GROWING AND MANUFACTURING TEA. THE HONBLE COURT AT PARA 13 HAD REFERRED TO THE JUDGMENT OF HONBLE SUP REME COURT IN THE CASE OF VIRMANI INDUSTRIES AND HELD THAT THE ASSESSEE NEED NOT CARRY ON THE SAME BUSINESS. 6. THE LEARNED DR, MR. JITENDRA YADAV, ON THE OTHER HAND, STRONGLY OPPOSED THE CONTENTIONS OF THE ASSESSEES COUNSEL AND SUBMI TTED THAT THIS IS NOT A CASE OF TEMPORARY CLOSURE NOR A CASE OF LULL IN BUSINESS. H E SUBMITTED THAT THE BUSINESS HAS BEEN SHUT DOWN AND THERE IS NO INTENTION FOR REVIVI NG THE BUSINESS. HE SUBMITTED THAT THE FINDINGS OF THE AO AS CONFIRMED BY THE FIR ST APPELLATE AUTHORITY IN THIS REGARD HAVE NOT BEEN CHALLENGED BY THE ASSESSEE AND HENCE THE SAME HAVE BECOME FINAL. HE SUBMITTED THAT NO ASSESSMENT IS POSSIBLE UNDER CHAPTER IV WHICH RELATES TO COMPUTATION OF BUSINESS INCOME AND IN THE ABSENC E OF THE COMPUTATION ITSELF, THE QUESTION OF CARRY FORWARD AND SET OFF OF DEPRECIATI ON U/S 32(2) DOES NOT ARISE. HE REFERRED TO SECTION 72(1) AND SUBMITTED THAT UNDER THAT SECTION THE PRE-CONDITION IS THAT THE ASSESSEE SHOULD CONTINUE TO CARRY ON THE B USINESS. HE DISTINGUISHED THE JUDGMENTS RELIED UPON BY THE LEARNED COUNSEL FOR TH E ASSESSEE AND SUBMITTED THAT IN 4 THE CASE OF VIRMANI INDUSTRIES (SUPRA) THE BUSINESS WAS REVIVED AFTER THE PERIOD OF 8 YEARS AND IT WAS NOT A CASE OF PERMANENT CLOSURE OF BUSINESS. AS PER THE LEARNED DR, THE COURT HELD THAT THE ASSESSEE NEED NOT CARRY ON THE SAME BUSINESS IN THE PRECEDING PREVIOUS YEAR FOR CLAIMING DEDUCTION U/S 32(2). HE POINTED OUT THAT IN THAT CASE AFTER 10 YEARS THE ASSESSEE STARTED THE B USINESS OF MANUFACTURING OF SOAP AND OIL. SIMILARLY HE DISTINGUISHED THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DEEPAK TEXTILE INDUSTRIES LTD. (SUPRA) WHILE SUBMITTING THAT THERE ALSO THE ASSESSEE COMPUTED INCOME UNDER THE HEAD BUSIN ESS AND IT WAS A CASE WHERE THE ASSESSEE HAD STARTED A DIFFERENT BUSINESS. WITH REFERENCE TO THE JUDGMENT OF HONBLE KERALA HIGH COURT IN THE CASE OF MALABAR AG RICULTURAL CO. LTD. (SUPRA), HE POINTED OUT THAT IT WAS NOT A CASE OF PERMANENT CLO SURE OF BUSINESS AS IN THE CASE OF THE ASSESSEE. 7. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD AND THE ORDERS OF THE AUTHORITIES AS WELL AS THE CASE LAWS CITED, WE HOLD AS FOLLOWS. 8. IT IS TRUE THAT IN THE CASE OF VIRMANI INDUSTRIE S (SUPRA), DEEPAK TEXTILE INDUSTRIES LTD. (SUPRA) AND IN THE CASE OF MALABAR AGRICULTURAL CO. LTD. (SUPRA), THE ASSESSES HAD RESTARTED THE BUSINESS, THOUGH IT WAS NOT THE SAME BUSINESS AFTER TEMPORARY CLOSURE. IN THE CASE ON HAND, THE FINDING OF THE REVENUE THAT THIS IS A CASE OF PERMANENT CLOSURE IS NOT DISPUTED BY THE AS SESSEE BEFORE US, FOR WHATEVER REASONS. 9. IN ANY EVENT, THE HONBLE GUJARAT HIGH COURT IN THE CASE OF BARODA SPINNING & WEAVING MILLS CO. LTD. VS. CIT 238 ITR 221 IN THE CASE OF A COMPANY IN LIQUIDATION, WHERE DURING THE COURSE OF WINDING UP OF PROCEEDINGS, HAD EARNED INTEREST INCOME WHICH WAS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES 5 APPLIED THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF VIRMANI INDUSTRIES P. LTD. AND CONCLUDED THAT THE TRIBUNAL WAS NOT RIGHT IN HOLDING THAT THE SET OFF OF AN UNABSORBED DEPRECIATION CARRIED FORWARD FROM THE EA RLIER YEARS COULD NOT BE ALLOWED AGAINST INCOME FROM OTHER SOURCES UNLESS TH E ASSESSEE HAD INCOME FALLING U/S 28 OF THE ACT. 10. THIS JUDGMENT CLEARLY COVERS THE ISSUE ON HAND AND RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO TO GRANT CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION TO THE EXTENT OF RS.2,25,995/- PERTAIN ING TO THE ASSESSMENT YEAR 1996- 97. ALL OTHER CLAIMS ARE HEREBY DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH NOV. , 2010. SD/- SD/- (V. DURGA RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCO UNTANT MEMBER MUMBAI, DATED: 24 TH NOV., 2010. WAKODE 6 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, A-BENCH (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI B ENCHES, M UMBAI.