ACIT, CIR.-7(1)(1), MUMBAI V. GAMMON OVERSEAS ENGINEERS PVT. LTD., MUMBAI

ITA 2944/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8080 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: IN CIRCUMSTANCES OF CA SE
• Keywords: Business income; Depreciation
• Section: 142(1); 115JB; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI M BALAGANESH , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 2944 / MUM/ 201 6 ( / ASSESSMENT YEAR: 20 10 - 11 ) ACIT, CIR, - 7(1) - 1 ROOM NO. 573, 5 TH FLOOR, AAYA KAR BHAVAN, M.K. ROAD, MUMBAI - 400020 . / VS. M/S. GAMMON OVERSEAS ENGINEERS P. LTD. GAMMON HOUSE, GROUND FLOOR, VEER SAVARKAR MARG, PRABHADEVI MUMBAI - 400025. ./ ./ PAN/GIR NO. : AABCG 3309 G ( / APPELLANT ) . . ( / RESPONDENT ) / DATE OF HEARING : 13 . 1 2 .201 8 / DATE OF PRONOUNCEMENT : 19. 12. 201 8 / O R D E R PER AMARJIT SINGH, J M: THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 04 . 0 2 .2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 13 , 1 MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 2010 - 11 . 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - ' 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF EXPENSES AND DEPRECIATION WITHOUT APPRECI ATING THE FACT THAT THE ASSESSEE REVENUE BY : SHRI CHAUDHARY ARUN KUMAR SINGH ASSESSEE BY: SHRI FARROKH IRANI ITA NO. 2944 /M/201 6 A.Y.20 10 - 11 2 HAS NOT UNDERTAKEN ANY BUSINESS ACTIVITIES DURING THE YEAR OR DURING THE PREVIOUS YEAR THEREBY NOT PUT TO USE THE ASSETS FOR BUSINESS. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) WAS CORRECT IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF EXPENSES AND DEPRECIATION WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS UNDERTAKEN ONLY SALE OF PROPERTY WHICH DOES NOT QUALIFY FOR ALLOWANCE OF EXPENSES OR DEPRECIATION. 3. T HE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE TO THE FILE OF THE AO OR CONFIRM THE ORDER OF THE AO. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 15 . 10 .201 0 DECLARING TOTAL L OSS TO THE TUNE OF RS.72,67,275 / - . THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT, 1961. THE ASSESSEE HAS RETURNED THE BOOK PROFIT OF RS.40,28,031/ - U/S 115JB OF THE ACT AND PAID TAXES ON THE SAME. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY AND NO TICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUILDING, CIVIL CONTRACTS, PROJECT ENGINEERING, MECHANICAL DESIGN, ERECTION AND COMMISSIONING, FOUNDERS, FABRICATORS AND MACHINISTS AN D OTHER RELATED ACTIVITIES AND MANUFACTURING OF MOULDS AND DYES ETC. THE ASSESSEE HAS CLAIMED THE DEPRECIATION AND EXPENSES RELATING TO NAGPUR UNIT : - (I) SALARY EXPENSES RS.88,161/ - (II) TRAVELING EXPENSES RS.15,761/ - (III) WATCH & WARD EXPENSES RS.7,12,459/ - (IV) PROFESSIONAL FEES RS.3,53,619/ - (V) SERVICE CHARGES RS.2,00,000/ - (VI) DEPRECIATION RS.1,17,54, 684/ - ----------------------------- 1,24,83,470/ - ITA NO. 2944 /M/201 6 A.Y.20 10 - 11 3 4. ON APPRAISAL OF THE ACCOUNT, IT WAS NOTICED THAT THE ASSESSEE WAS NOT HAVING THE BUSINESS ACTIVI TY DURING THE YEAR EXCEPT SALE OF LAND RIGHTS IN A LAND AT MIDC, BARAMATI. EVEN , IN THE LAST FINANCIAL YEAR, THE ASSESSEE WAS NOT HAVING IN THE BUSINESS ACTIVITY AT ALL. THE AUDITOR IN THE AUDIT REPORT SPEAKS THAT THE OPERATION OF THE COMPANY HAVING SUS PEN DED AND THE ACCOUNT HAVE BEEN PREPARED ON ASSUMPTION THAT THE COMPANY IS A GOING CONCERN. THEREFORE, THE NOTICE WAS GIVEN AND AFTER THE REPLY OF THE NOTICE , T HE EXPENSES AND DEPRECIATION WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. FEELING AGGRI EVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO ALLOWED THE CLAIM OF THE ASSESSEE, THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 5 . WE HAVE HEARD THE ARGUMENT AND ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE R ECORD. THE LD. REPRESENTATIVE OF T HE REVENUE HAS ARGUED THAT THE ASSESSEE WAS NOT DOING ANY BUSINESS IN THE RELEVANT YEAR OF ASSESSMENT, THEREFORE, THE EXPENSES AND DEPRECIATION WAS RIGHTLY DISALLOWED BY AO BUT THE CIT(A) HAS WRONGLY ALLOWED THE CLAIM OF T HE ASSESSEE, THEREFORE, THE FINDING OF THE CIT(A) IS WRONG AGAINST LAW AND FACTS AND IS LIABLE TO BE SET ASIDE. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS PLACED RELIANCE UPON THE ORDER PASSED BY CIT(A) AND ALSO ARGUED THAT THER E WAS A TEMPORARILY LULL IN THE BUSINESS AND THE BUSINESS WAS NOT CLOSED, T HEREFORE, TAKING INTO ACCOUNT, ALL THE FACTS AN D CIRCUMSTANCES, THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE AND IN SUPPORT OF THIS CONTENTION, THE LD. REPRESENTATIVE OF THE ASS ESSEE HAS ALSO PLACED RELIANCE UPON THE DECISION OF THE HONBLE ITAT MUMBAI BENCH IN ITA. NO.6251/M/2010 FOR THE A.Y. 2005 - 06 DATED 11.05.2012 AND IN ITA. NO.822/M/2005 FOR THE A.Y. 2001 - 02 G.R. ITA NO. 2944 /M/201 6 A.Y.20 10 - 11 4 SHIPPING LTD. VS. DCIT DATED 17.07.2008. BEFORE GOING FURTHER , WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - 5 DECISION - I HAVE CAREFULLY CONSIDERED THE AO'S ORDER AND THE AR'S SUBMISSIONS. THE BRIEF UNDISPUTED FACTS IN THIS CASE ARE AS FOLLOWS THE APPELLANT - A COMPANY ENGAGED IN THE BU SINESS OF EXECUTING CONSTRUCTION CONTRACTS AND FORMING PART OF THE GAMMON GROUP HAD VIRTUALLY NO BUSINESS ACTIVITY DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. ITS ENTIRE MACHINERY WAS ADMITTEDLY IDLE IN FACT, THE ONLY ACTI VITY CARRIED OUT BY IT DURING THIS PERIOD WAS THE SALE OF A PARCEL OF LAND AT BARAMATI. AGAINST THIS BACKDROP, THE AO HAS SOUGHT TO DISALLOW EXPENSES OF RS.0,07 CRORE AND DEPRECIATION OF RS. 1,17 CRORE, HOLDING THAT LACK OF BUSINESS HAS TO BE FOLLOWED BY A SUCH A DISALLOWANCE, THERE BEING NO BUSINESS AGAINST WHICH SUCH EXPENDITURE OR DEPRECIATION WOULD POSSIBLY BE PERMISSIBLE. I FIND THAT BOTH THESE ADDITIONS REPRESENT ISSUES WHICH HAVE BEEN REPEATEDLY ADJUDICATED BY SUPERIOR JUDICIAL AUTHORITIES. IN THE CAS E OF TANSY INVESTMENTS PYT LTD. V, ACIT (3722/MUM/99 DATED 24 TH NOVEMBER 2010) [COPY PLACED ON THE APPELLATE RECORD], THE HON'BLE MUMBAI TRIBUNAL HAS DISCUSSED IN DETAIL THE ISSUE OF DISALLOWANCE OF EXPENDITURE DURING PERIODS WHEN THERE WAS NO BUSINESS ACT IVITY. CITING EXTENSIVELY FROM THE DECISION OF ITO V, MOKUL FINANCE (P) LTD. (SUPRA), THE HON'BLE TRIBUNAL HAD HELD THAT CORPORATE ENTITIES BEING ARTIFICIAL PERSONS HAVE TO OPERATE THROUGH NATURAL PERSONS AND HAVE TO INCUR CERTAIN EXPENDITURE SIMPLY TO KEE P THEMSELVES AFLOAT, HENCE, EXPENDITURE INCURRED FOR RUNNING OF A COMPANY HAS TO BE ALLOWED, EVEN WHEN THERE WAS NO ACTIVE BUSINESS CONDUCTED. IN THE CASE OF ARKAAYE BUILDERS AND DEVELOPERS PVT LTD. V. ITO (ITA NO. 3552/DEL/2011, DATED 27 LFL JULY 2012) [CO PY PLACED ON THE APPELLATE RECORD], THE HON'BLE DELHI TRIBUNAL HAD HELD THAT SO LONG AS A COMPANY IS NOT FORMALLY STRUCK OFF THE REGISTER OF COMPANIES, IT CONTINUES TO HAVE CERTAIN STATUTORY OBLIGATIONS AND NEEDS TO FILE STATEMENTS AND RETURNS. FOR THIS PU RPOSE, AS ALSO FOR THE PURPOSE OF RETAINING ITS STATUS AS 3 COMPANY, CERTAIN EXPENDITURE HAS TO BE INCURRED. IT WAS ACCORDINGLY HELD THAT THE EXISTENCE OF BUSINESS INCOME CANNOT SOLELY DETERMINE THE EXISTENCE OF A BUSINESS; EXPENDITURE HAS TO BE ACCORDINGL Y ALLOWED EVEN IN THE ABSENCE OF BUSINESS ACTIVITY. IN THE CASE OF HARSH INTERNATIONAL PVT. LTD. V. OCIT (ITA NO. 2498/DEL/2013, DATED 14 TH FEBRUARY 2014) [COPY PLACED ON THE ITA NO. 2944 /M/201 6 A.Y.20 10 - 11 5 APPELLATE RECORD), THE HON'BLE DELHI TRIBUNAL HAD DEALT WITH THE ISSUE OF ALIENAB ILITY OF CLAIMS OF EXPENDITURE AND DEPRECIATION IN THE CASE OF A COMPANY WHICH HAD NOT CONDUCTED ANY ACTIVE BUSINESS DURING THE PERIOD UNDER CONSIDERATION. APART FROM ALLOWING THE CLAIM OF EXPENDITURE, THE HON'BLE TRIBUNAL HAD ALSO ALLOWED THE ASSESSEE ITS CLAIM OF DEPRECIATION, HOLDING THAT SINCE THE PLANT AND MACHINERY WAS READY FOR MANUFACTURE AND HAD TO BE KEPT IN A STATE OF READINESS, DEPRECIATION WAS ALLOWABLE AS PER THE PROVISIONS OF THE ACT. RESPECTFULLY FOLLOWING THE AFFORESTED DECISIONS OF THE SUP ERIOR JUDICIAL AUTHORITIES, THE APPELLANT'S CLAIMS OF EXPENDITURE AND DEPRECIATION TOTALING RS.1,24.83,470/ - ARE ALLOWED. COMING TO THE ACTION OF THE AO IN ADDING BACK DEPRECIATION OF RS.0.04 CRORE TO BOOK PROFITS UNDER SECTION 115JB OF INCOME TAX ACT, 196 1, IT IS CLEAR THAT THE SAID PROVISION HAS CLEAR STIPULATIONS FOR ADDING BACK ITEMS DEBITED TO THE P & L A/C, DEPRECIATION BEING NOT ONE OF THEM. THERE IS HENCE NO STATUTORY BASIS FOR THE AO'S ACTION OF ADDING BACK RS.4,59,379/ - TO BOOK PROFITS IN THIS FAS HION. THIS ACTION OF THE AO IS ACCORDINGLY REVERSED. IN VIEW OF THE RELIEFS AFFORDED EARLIER IN THIS PARAGRAPH, BOTH THE GROUNDS VIZ. NOS. 1 AD 2 ARE ALLOWED. 5 . ON APPRAISAL OF THE ABOVE SAID FINDING, WE NOTICED THAT THE COMPANY WAS ENGAGED IN THE BUSIN ESS OF EXECUTION CONSTRUCTION CONTRACTS AND FORMING PART OF THE GAMMON GROUP. UNDOUBTEDLY IN THE YEAR IN QUESTION, THE ASSESSEE DID NOT DO ANY BUSINESS AT ALL. HOWEVER, THE ASSESSEE SHOWED THE ALIENATION OF THE PARCEL OF THE LAND AT BARAMATI. THERE IS N OTH ING ON RECORD THAT THE ASSES SEE HAS WOUND UP THE BUSINESS. T HERE IS A TEMPORARY LULL IN THE BUSINESS . THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY ON THE BASIS OF NUMBERS OF DECISIONS WHICH HAVE BEEN MENTIONED IN THE ORDER AND IS NOT REQUIRED TO BE REP EATED. B UT THE EXPENSES AND THE DEPRECIATION ARE NOT IN DISPUTE. FURTHER, WE ALSO FIND THAT THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE IS QUITE SIMILAR TO THE FACTS IN ITA. NO. 6251/M/2010 FOR THE A.Y. 2005 - 06 DATED 11.05.2012 IN WHICH THE CLAIM OF TH E ASSESSEE WAS ALLOWED BY THE HONBLE ITAT . ACCORDINGLY, WE ARE OF THE VIEW THAT CIT(A) ITA NO. 2944 /M/201 6 A.Y.20 10 - 11 6 HAS DECIDED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORREC TLY WHICH IS NOT LIABLE TO BE INTERFERE D WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THESE ISSUE S ARE BEING D ECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 6 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HEREBY ORDERED TO BE D ISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 19. 12 . 2018 . SD/ - SD/ - ( M. BALAGANESH ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 19. 12 . 2018 . V IJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI