Apollo Vikas Steels Pvt.Ltd., Bhavnagar V. The Addl.CIT.,Bhavnagar Range-1, Bhavnagar

ITA 2927/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76862 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 10-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 25-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Keywords: Depreciation; Condonation of delay
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO.2927/AHD/2010 A.YS. 2006-07 APPOLO VIKAS STEELS PVT. LTD., JIVAN MENSION, LATI BAZAR, BHAVNAGAR. PAN: AAFCA 9760M VS ADDITIONAL COMMISSIONER OF INCOME TAX, BHAVNAGAR RANGE- 1, BHAVNAGAR. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K.C. MATHEWS, SR.D.R., ASSESSEE(S) BY : SHRI PARIKH SHAH WITH SMT. URVASHI SHODHAN, A.R. / DATE OF HEARING : 10/06/2014 / DATE OF PRONOUNCEMENT: 20/06/2014 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER REGISTRY HAS INFORMED THAT THIS APPEAL HAS BEEN FI LED BY THE APPELLANT BELATEDLY BY 217 DAYS. IN THIS CONNECTION , AN APPLICATION FOR CONDONATION OF DELAY HAS BEEN FILED ALONG WITH AN A FFIDAVIT THROUGH WHICH IT WAS AFFIRMED ON OATH THAT DUE TO UNINTENTI ONAL INADVERTENCE THE PAPERS COULD NOT BE HANDED OVER TO THE FIRM OF THE CHARTERED ACCOUNTANT TO FILE THE APPEAL WITHIN THE PRESCRIBED TIME. CONS IDERING THE CONTENTS OF THE AFFIDAVIT AND THE CIRCUMSTANCES OF THE CASE AS WELL AS FOLLOWING VOLTAS LTD, 241 ITR 471 AND THE DECISION OF HONBLE SUPREME COURT PRONOUNCED IN THE CASE OF COLLECTOR LAND ACQUISITIO N VS. MST KATIJI, 167 ITR 471 (SC), WE HEREBY CONDONE THE DELAY AND A DMIT THIS APPEAL FOR ADJUDICATION. ITA NO.2927/AHD/2010 APOLLO VIKAS STEELS PVT. LTD. VS. ACIT RANGE-6, BHA VNAGAR. A.Y.2006-07 - 2 - 2. THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FROM THE ORDER OF LEARNED CIT(A)-XX, DATED 04.01.2010. GROUNDS RAISED ARE HEREBY DECIDED AS FOLLOWS: 2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) -XX, AHMEDABAD [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED ON FA CTS AS ALSO IN LAW IN CONFIRMING THE DISALLOWANCE OF EXPENSES OF RS.8,88, 914/- MADE U/S. 14A OF THE ACT. THE DISALLOWANCE MAY KINDLY BE DELETED. 3. THE ASSESSEE COMPANY IS IN THE BUSINESS OF SHIP BREAKING. A QUERY WAS RAISED BY THE AO THAT WHY CERTAIN EXPENSES SHOU LD NOT BE DISALLOWED WHICH WERE ALLEGED TO HAVE BEEN INCURRED FOR EARNIN G EXEMPTED INCOME. THE ASSESSEES REPLY WAS THAT NO INTEREST WAS PAID ON BORROWED FUNDS WHICH WERE UTILIZED TOWARDS INVESTMENT ON WHICH EXE MPTED DIVIDEND INCOME WAS EARNED. IT WAS ALSO EXPLAINED THAT THE D IVIDEND WAS RECEIVED ON LONG TERM INVESTMENT. THE ASSESSEE HAS ALSO EXPL AINED THAT NO EXPENDITURE WAS INCURRED TO EARN SUCH INCOME. BEFOR E AO, IT WAS ALSO SUBMITTED THAT RULE 8D OF SECTION 14A WAS INSERTED W.E.F. A.Y. 2007-08 AND THE ASSESSMENT YEAR UNDER CONSIDERATION WAS A.Y . 2006-07; HENCE, IN A SITUATION WHEN NO DIRECT EXPENDITURE WAS INCURRED THEN THERE WAS NO QUESTION OF DISALLOWANCE OF EXPENDITURE BY INVOKING THE PROVISIONS OF SECTION 14A OF IT ACT. 4. HOWEVER, THE AO WAS NOT CONVINCED AND BY REFERRI NG A DECISION OF THE ITAT SPECIAL BENCH, MUMBAI IN THE CASE OF DAGA PATEL (ITA NO.8057/MUM/2003, A.Y. 2001-02 DATED 20 TH OF OCTOBER, 2008) INVOKED RULE 8D AND ADDED AN AMOUNT OF RS.8,88,914/-. FOR R EADY REFERENCE, CALCULATION OF RULE 8D IS REPRODUCED BELOW: AGGREGATE OF THREE I.E. (I) DIRECT EXPS. (SHARE EX PENSES) AS CLAIMED IN P & L ACCOUNT 1,33,332 1,33,3 32 + (II) AXB/C A= AMT. OF EXPENDITURE BY WAY OF INT EREST IF ANY 39,25,995 ITA NO.2927/AHD/2010 APOLLO VIKAS STEELS PVT. LTD. VS. ACIT RANGE-6, BHA VNAGAR. A.Y.2006-07 - 3 - B= AVG. VALUE OF INVESTMENT (22967645 + 12734309) /2 17,85,0977 C= AVG. VALUE OF ASSES (97237474 + 113118106/2) 10,51,77,792 A X B/C 6,66,327 6,66,327 +(III) ONE-HALF OF THE AVG. VALUE OF INVESTMENT I. E. 0.5 OF RS. 89,255 89,255 8,88,914 5. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY, HE HAS FOLLOWED THE DECISION OF THE SPECIAL BENCH A S CITED SUPRA AND THEREUPON HELD THAT THE PROVISIONS OF SECTION 14A H AS AN OVERRIDING EFFECT BECAUSE EVEN IF INTEREST EXPENDITURE IS ALLO WABLE U/S.36(I)(III), THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D W.E.F. 01.04.2007 WOULD APPLY IN RESPECT OF PENDING MATTER S, THEREFORE, THE AO WAS JUSTIFIED IN MAKING THE SAID ADDITION. 6. HEARD BOTH THE SIDES. PERUSED THE MATERIAL ON RE CORD. WE HAVE NOTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.2,29,171/-. WE HAVE ALSO NOTE D THAT AN EXPENDITURE BY WAY OF INTEREST CLAIMED WAS RS.39,25 ,995/- AS MENTIONED BY THE AO WHILE APPLYING RULE 8D ON THE ASSESSEE. W ITH THIS FACTUAL BACKGROUND, WE HAVE ALSO BEEN INFORMED THAT IN A.Y. 2007-08 ON IDENTICAL FACTS IN ASSESSEES OWN CASE ITAT B BEN CH IN ITA NO.3479/AHD/2007 VIDE ORDER DATED 4 TH JANUARY, 2014 HAS HELD THAT IF THE ASSESSEE HAS SUFFICIENT INTEREST FUNDS AND THE AO H AD NOT BROUGHT ANY MATERIAL ON RECORD, THAT INTEREST BEARING FUNDS WER E UTILIZED IN MAKING INVESTMENTS IN ASSETS RESULTING IN TAX FREE INCOME THEN NO DISALLOWANCE COULD BE MADE. BUT IT WAS ALSO HELD THAT THE ASSESS EE HIMSELF HAD ESTIMATED THE ADMINISTRATIVE COST ATTRIBUTABLE TO I NCOME AT RS.89,550/-. THAT AMOUNT WAS UPHELD BY THE RESPECTED BENCH. WE A RE NOT INCLINED TO INTERFERE WITH THOSE FINDINGS OF THE TRIBUNAL BEING MADE IN ASSESSEES ITA NO.2927/AHD/2010 APOLLO VIKAS STEELS PVT. LTD. VS. ACIT RANGE-6, BHA VNAGAR. A.Y.2006-07 - 4 - OWN CASE; HENCE, WE DO NOT APPROVE THE APPLICABILIT Y OF THE PROVISIONS OF RULE 8D FOR A.Y. 2006-07. HOWEVER, WE HEREBY DIRECT TO DISALLOW THE PROPORTIONATE EXPENDITURE ON THE ADMINISTRATIVE COS T ATTRIBUTABLE TO EARN THE DIVIDEND INCOME. FROM THE ORDER OF THE ASSESSEE FOR A.Y. 2007-08 PASSED BY THE TRIBUNAL, IT IS NOTED THAT ON THE DIV IDEND INCOME OF RS.4,90,699/- A SUM OF RS.89,550/- WAS DISALLOWED; HENCE, THE PROPORTIONATE DISALLOWANCE ON THE DIVIDEND INCOME O F RS. 2,29,171/- EARNED FOR A.Y.2006-07, YEAR UNDER APPEAL; THE DISA LLOWANCE TO BE COMPUTED IS AT RS.41,820/-. WE, THEREFORE HOLD, TO RESOLVE THE CONTROVERSY; IT IS APPROPRIATE TO DIRECT THE AO TO DISALLOW ONLY A SUM OF RS.41,820/- FOR THE YEAR UNDER CONSIDERATION BY FOL LOWING THE PAST HISTORY OF THE CASE. RESULTANTLY, THIS GROUND OF THE ASSESS EE MAY BE TREATED AS PARTLY ALLOWED. 7. GROUND NO.3 IS REPRODUCED BELOW: THE LEARNED CIT(A) ERRED ON FACTS AS ALSO IN LAW I N CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS.6,46,731/-. THE DISALLOWANCE MAY KINDLY BE DELETED. 8. THE OBSERVATION OF THE AO WAS THAT ALTHOUGH THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHIP BREAKING ACTIVITY B UT FOR THE YEAR UNDER CONSIDERATION NO SUCH INCOME WAS EARNED AND THE ONL Y INCOME DISCLOSED WAS INCOME FROM SALE OF SHARES. HENCE, THE AO HAS H ELD THAT THE PLANT AND MACHINERY WAS NOT USED FOR THE PURPOSE OF THE B USINESS DURING THE YEAR. AS THE ASSESSEE HAD CLAIMED DEPRECIATION ON P LANT AND MACHINERY AT RS.6,69,599/-, THEREFORE, THE SAME WAS DISALLOWED I N THE LIGHT OF A DECISION OF DINESH KUMAR GULAB CHANDRA AGARWAL, 267 ITR 768 (BOM.). ITA NO.2927/AHD/2010 APOLLO VIKAS STEELS PVT. LTD. VS. ACIT RANGE-6, BHA VNAGAR. A.Y.2006-07 - 5 - 9. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY, HE HAS HELD THAT WHEN THE ADMITTED FACT WAS THAT TH E MACHINERY WAS NOT USED DURING THE YEAR UNDER CONSIDERATION, THEREFORE , THE DEPRECIATION WAS RIGHTLY DENIED BY THE AO. 10. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE HAVE NOTED THAT THE ASSESSEE HAS PLACED BEFORE LEARNED CIT(A) CERTA IN FACTS THAT THE ASSESSEE HAD PURCHASED A SHIP IN JUNE, 2006 AND THE BREAKING OF THE SHIP HAD ALSO BEEN STATED. IT WAS ALSO INFORMED THAT IN THE LIGHT OF THE ACCOUNTING STANDARD 6 THE ASSESSEE IS ENTITLED FO R THE CLAIM OF DEPRECIATION ON THE BLOCK OF ASSETS. THIS ISSUE WAS CONSIDERED BY ITAT A BENCH AHMEDABAD IN THE CASE OF SRI CHINTAN HARS HADRAY KALATHIA (ITA NO.2240/AHD/2009, ORDER DATED 15.02.2013), WHE REIN IT WAS HELD THAT THE MACHINERY WAS KEPT READY TO USE AND THAT T HE HONBLE DELHI HIGH COURT IN THE CASE OF OSWAL AGRO MILLS LTD., 341 ITR 467 (DEL.) HAS HELD IS AS UNDER: AFTER THE AMENDMENT OF SECTION 32 OF THE INCOME TA X ACT, 1961, BY THE TAXATION LAWS (AMENDMENT & MISCELLANEOUS PROVISIONS ) ACT, 1986, SECTION 32(1) OF THE ACT ALLOWS DEPRECIATION ON THE WRITTEN DOWN VALUE OF A BLOCK OF ASSETS. SECTION 2(11) OF THE ACT DEFINES THE TERM ' BLOCK OF ASSETS'. ALONG WITH THE AMENDMENT, THE DEFINITION OF 'WRITTEN DOWN VALU E' AS CONTAINED IN SECTION 43(6) WAS ALSO AMENDED. THUS, FOR THE ASSESSMENT YE AR 1998-99, THE WRITTEN DOWN VALUE OF ANY BLOCK OF ASSETS SHALL BE THE AGGR EGATE OF THE WRITTEN DOWN VALUE OF ALL THE ASSETS FALLING WITHIN THAT BLOCK O F ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR. FROM THIS, ADJUSTMENT HAS TO BE MADE FOR THE INCREASE OR REDUCTION IN THE BLOCK OF ASSETS DURING THE YEAR UN DER CONSIDERATION. THE DEDUCTION FROM THE BLOCK OF ASSETS HAS TO BE MADE I N RESPECT OF ANY ASSET, SOLD DISCARDED OR DEMOLISHED OR DESTROYED DURING THE PRE VIOUS YEAR. THUS, THE DEPRECIATION IS ALLOWED ON THE BLOCK OF ASSETS, AND THE REVENUE CANNOT SEGREGATE A PARTICULAR ASSET THEREFROM ON THE GROUN D THAT IT WAS NOT PUT TO USE. INDIVIDUAL ASSETS HAVE LOST THEIR IDENTITY AND THE CONCEPT OF 'BLOCK OF ASSETS' HAS BEEN INTRODUCED FOR CALCULATING DEPRECI ATION. ASSESSEES ARE NOT REQUIRED TO MAINTAIN PARTICULARS OF EACH ASSET SEPA RATELY. THE REVENUE CANNOT CLAIM THAT FOR ALLOWING THE DEPRECIATION, USER OF E ACH AND EVERY ASSET IS ESSENTIAL EVEN WHEN A PARTICULAR ASSET FORMS PART O F A 'BLOCK OF ASSETS'. MOREOVER, THE REVENUE IS NOT PUT TO ANY LOSS BY ALL OWING DEPRECIATION ON A ITA NO.2927/AHD/2010 APOLLO VIKAS STEELS PVT. LTD. VS. ACIT RANGE-6, BHA VNAGAR. A.Y.2006-07 - 6 - PARTICULAR ASSET, FORMING PART OF THE 'BLOCK OF ASS ETS' EVEN WHEN THAT PARTICULAR ASSET IS NOT USED IN THE RELEVANT ASSESS MENT YEAR, AS WHENEVER SUCH AN ASSET IS SOLD, IT WOULD RESULT IN SHORT-TERM CAP ITAL GAINS, WHICH WOULD BE EXIGIBLE TO TAX.' 10.1 WE HEREBY RESPECTFULLY FOLLOWING THE ABOVE CITED PR ECEDENT HOLD THAT IN A SITUATION WHEN THE ASSESSEE HAS NOT STOPP ED THE BUSINESS ACTIVITY ALTOGETHER AND THE SHIP BREAKING ACTIVITY HAD RESUM ED IN JUNE, 2006, THEREFORE, THE DEPRECIATION ON PLANT AND MACHINERY WAS ALLOWABLE AS PER IT RULE FOR THE YEAR UNDER CONSIDERATION. RESULTANT LY, THIS GROUND OF THE ASSESSEE IS, THEREFORE, ALLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/- SD/- (N.S. SAINI) ( MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 20/06/2014 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD