DCIT 4(1), MUMBAI V. ASHIK WOLLEN MILLS LTD, MUMBAI

ITA 3/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1270 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 01-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Depreciation; Business expenditure; Question of law
• Section: 143(3); 37(1); 32; 37

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.03 /MUM/2014 ( / ASSESSMENT YEARS : 2010-11) THE DCIT 4(1), ROOM NO. 640, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / V. M/S ASHIK WOLLEN MILLS LTD., 5 TH FLOOR, SHREEJI KRUPA, 9, KRISHNLAL ZAVERI MARG, CP TANK, MUMBAI 400 002 ./ PAN :AAACA5048F ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : SHRI RAJESH KUMAR YADAV (D.R.) ASSESSEE BY : SHRI NIRAJ SHETH / DATE OF HEARING : 23-03-2017 / DATE OF PRONOUNCEMENT : 10-04-2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE REVENUE, BEING ITA NO. 0 3/MUM/2014 IS DIRECTED AGAINST THE APPELLATE ORDER DATED 18 TH OCTOBER, 2013 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 8, MU MBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEARS 2010-11, TH E APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSME NT ORDER DATED 31 ST OCTOBER, 2012 PASSED BY LEARNED ASSESSING OFFICER ( HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME-TAX ACT,1961 (HEREINA FTER CALLED THE ACT). ITA 03/MUM/2014 2 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI (HER EINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF FA CT AND IN LAW, THE LD. CIT(A) WAS ERRED IN ALLOWING THE BUSINE SS EXPENSES U/S 37 OF THE ACT OF RS.18.77 LAKHS. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF FAC T AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF DE PRECIATION U/S 32 OF THE ACT OF RS.44.11 LAKHS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF FACT AND IN LAW, THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW AN D CONSEQUENTLY MERITS TO BE SET ASIDE THAT OF THE ASSESSING OFFICER BE RESTORED.' 3. BRIEF FACTS OF THE CASE ARE THAT THE A.O. OBSER VED THAT THE ASSESSEE COMPANY COMMENCED ITS BUSINESS ACTIVITY IN YEAR 198 3-84 IN THE FIELD OF YARN. HOWEVER, DURING THE YEAR UNDER CONSIDERATION, THERE WAS NO BUSINESS ACTIVITY AS NO PURCHASES AND SALES RECEIPTS WERE SHOWN IN TH E P&L ACCOUNT. THE ONLY INCOME CREDITED IN THE P&L ACCOUNT WAS UNDER THE HE AD OTHER INCOME OF RS 0.85 LAKHS WHICH CONSISTED INTEREST INCOME OF RS 0. 83 LAKH AND DIVIDEND INCOME OF RS 0.02 LAKH. THE A.O. OBSERVED FROM AUDI TORS REPORT THAT THE ASSESSEE COMPANY HAD MADE REFERENCE TO BIFR FOR BEI NG DECLARED AS A SICK COMPANY. THE AO ALSO OBSERVED THAT APPELLATE AUTHOR ITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (AAIFR) IN APPEAL NO. 150/ 07 HAD SET ASIDE BIFR ORDER AND BIFR WAS DIRECTED TO RECONSIDER THE REFER ENCE OF THE ASSESSEE COMPANY. IT WAS OBSERVED BY THE AO THAT ASSESSEE HAS CLAIMED TO HAVE INCURRED OLLOWING EXPENSES:- I) MANUFACTURING EXPENSES: RS 5.86 LAKH II) SELLING & ADMINISTRATIVE EXPENSES: RS 12.33 LAKHS ITA 03/MUM/2014 3 III) FINANCIAL EXPENSES: RS 0.58 LAKHS IV) DEPRECIATION: RS 44.11LAKHS. THE ASSESSEE WAS ASKED TO FILE DETAILS OF ALL EXPEN SES AND ITS JUSTIFICATION AS TO WHY THESE EXPENSES SHOULD NOT BE DISALLOWED KEEPING IN VIEW THAT THERE WAS NO BUSINESS ACTIVITY CARRIED OUT BY THE ASSESSEE DU RING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. IN REPLY , THE ASSESSEE SUBMITTED THE FOLLOWING DETAILS:- WITH REGARDS TO EXPENSES DETAIL IS AS UNDER: 1) AMOUNT OF RS.3.84 LACS FOR POWER & FUEL CHARGES WHICH IS MINIMUM AMOUNT REQUIRE TO PAY TO ELECTRICITY BOARD AND DIESEL CHARGES FOR LIGHT AND TO KEEP MACHINES IN CONDITION . DETAIL ALREADY SUBMITTED. 2) AMOUNT OF RS. 0.11 LACS FOR MINIMUM WATER CHARGE S PAID TO INDUSTRIAL CORPORATION OF MANSA WHICH IS REQUIRE D TO PAY FOR WATER CONNECTION FOR DRINKING WATER AND WATER TO US E IN LAVATORY FOR THE WORKERS/ SECURITY AND STAFF WHO ARE STILL O N DUTY. DETAIL ALREADY SUBMITTED. 3) AMOUNT OF RS. 1.71 LACS PAID TO WORKERS IS REQUI RED TO KEEP PLANT AND MACHINERY CLEAN AND IN CONDITION. DE TAIL ENCLOSED. 4) AMOUNT OF RS.0.12 LAC PAID FOR PACKING MATERIAL TO BUY HDPE SHEET TO COVER THE MACHINE AND MATERIAL WHICH IS LYING AT UNIT. 5) AMOUNT OF RS.0.07 LACS PAID FOR HEL MAJURI TO PE OPLE TO CUT THE GRASS AND TREE NEAR TRANSFORMER AND TO COVER TH E SHED BY HDPE TARPOLINE. 6) AMOUNT OF RS. 2.41 LACS PAID TO THE STAFF AND SE CURITY IS REQUIRED AS TO KEEP PLANT AND MACHINERY SAFE AND IN CONDITION. DETAIL ENCLOSED. ITA 03/MUM/2014 4 7) AMOUNT OF RS. 0.11 LACS PAID AS STAFF WELFARE IS FOR TEA EXPENSES OF STAFF AND OTHERS. 8) AMOUNT OF RS.0.54 LACS PAID AS CONVEYANCE AND TR AVELLING. DETAIL ENCLOSED. 9) AMOUNT OF RS. 0.20 LACS PAID AS POSTAGE, COURIER , REGD POST ETC. 10) AMOUNT OF RS.0.31 LACS PAID FOR TELEPHONE BILL. DETAIL ENCLOSED. 11) AMOUNT OF RS.0.25 LACS PAID FOR PRINTING AND ST ATIONARY. DETAIL ENCLOSED. 12) AMOUNT OF RS.0.04 LACS PAID FOR LICENCE FEES. 13) AMOUNT OF RS.0.08 LACS PAID FOR REPAIRING OF EL ECTRICAL FAULT IN PLANT. 14) AMOUNT OF RS. 0.62 LACS PAID FOR GENERAL EXPENS ES. DETAIL ENCLOSED. 15) AMOUNT OF RS. 7.60 LACS PAID AS LEGAL FEES TO PROFESSIONALS. DETAIL ALREADY SUBMITTED. 16) AMOUNT OF RS. 0.11 LACS PAID AS AUDITOR FEES. 17) AMOUNT OF RS. O. 06 LACS PAID AS MEMBERSHIP FEE S TO WOOL AND WOOLEN EXPORT PROMOTION. WITH REGARDS TO DEPRECIATION AS BELOW: THE COMPANY IS CARRYING ON BUSINESS OF MANUFACTURIN G OF WORSTED WOOL AND WOOL BLENDED TOPS AND YARN WITH IT S OWN SET UP FOR MANUFACTURING ACTIVITIES AND IS IN BUSINESS FOR MANY YEARS. DUE TO BAD MARKET CONDITIONS, THERE WAS LACK OF SUFFICIENT ITA 03/MUM/2014 5 DEMAND FOR ITS PRODUCTS. AS A RESULT OF SUCH ADVERS E CONDITIONS AND OTHER FINANCIAL DIFFICULTIES FACED BY THE COMPA NY; THEY DECIDED TO TEMPORARILY STOP THE MANUFACTURING ACTIV ITY AT ITS FACTORY, ADVERSE CONDITIONS CONTINUED AND THE MANUF ACTURING ACTIVITY COULD NOT BE STARTED DURING THE YEAR. THE COMPANY HAS NOT CLOSED ITS FACTORY AND ALSO RET AINED AND MAINTAINED ITS PLANT AND MACHINERY, IN ANTICIPATION OF RESTARTING MANUFACTURING ACTIVITIES AS AND WHEN MARKET CONDITI ONS AND FINANCIAL CONDITION IMPROVE AND THERE IS A CHANGE I N THE ECONOMIC SCENARIO. AS THE COMPANY IS ALSO FACING FINANCIAL D IFFICULTIES, THE MANAGEMENT THOUGHT IT PRUDENT TO TEMPORARILY STOP T HE MANUFACTURING ACTIVITIES AND AVOID INCIDENCE OF HEA VY LOSSES. DEPRECIATION, MEANS A DECREASE IN VALUE OF ASSETS T HROUGH WEAR, DETERIORATION OR OBSOLESCENCE; THE ALLOWANCE MADE F OR THIS IN BOOKKEEPING, ACCOUNTING, ETC. . DEPRECIATION IS THE MEASURE OF THE EFFECTIVE LIFE OF AN ASSET OWING TO USE OR OBSO LESCENCE DURING GIVEN PERIOD. THE PRINCIPAL FACTORS RESPONSIBLE FOR DEPRECIATION ARE (I) ORDINARY WEAR AND TEAR, (II) UNUSUAL DAMAGE , (III) INADEQUACY, AND (IV) OBSOLESCENCE. THESE FACTORS IN CLUDE NOT ONLY THOSE RELATING TO PHYSICAL DETERIORATION BUT ALSO T HOSE REFERRING TO THE SUITABILITY OF THE ASSET AS AN ECONOMICALLY PRO DUCTIVE UNIT AFTER A PERIOD OF TIME. ASSESSEE ON SATISFACTION OF THESE TWO PRIMARY CONDI TIONS CAN CLAIM ALLOWANCE FOR DEPRECIATION. IT CAN BE STATED THAT WORD 'USED' IN S. 32(1) HAS B EEN INTERPRETED TO HAVE A WIDER MEANING SO AS TO INCLUDE NOT ONLY T HE ACTUAL USER BUT ALSO THE PASSIVE USER. FURTHER, THE ALLOWANCE F OR DEPRECIATION DOES NOT DEPEND UPON ACTUAL WORKING OF THE MACHINER Y, IT IS SUFFICIENT IF THE ASSESSEE FOR THE PURPOSE OF BUSIN ESS EMPLOYS THE MACHINERY IN QUESTION AND IT IS KEPT READY FOR ACTU AL USE AND HAD ALSO RETAINED AND MAINTAINED ITS PLANT, IN ANTICIPA TION OF RESTARTING MANUFACTURING ACTIVITIES AS AND WHEN MAR KET CONDITIONS IMPROVE. FURTHER THE SAID PLANT AND MACH INERY WERE USED FOR THE PURPOSE OF THE BUSINESS IN THE EARLIER YEARS, AND IS THEREFORE ENTITLED TO DEPRECIATION' THE ASSESSEE SUBMITTED VIDE LETTER DATED 18.10.2012 : ITA 03/MUM/2014 6 'WITH REGARDS TO PAYMENT OF LEGAL AND PROFESSIONAL FEES: DUE TO BAD MARKET CONDITIONS, THERE WAS LACK OF SUF FICIENT DEMAND FOR ITS PRODUCTS. AS A RESULT OF SUCH ADVERS E CONDITIONS AND OTHER FINANCIAL DIFFICULTIES FACED BY THE COMPA NY. COMPANY'S NET WORTH WAS ERODED AND REGISTERED WITH BIFR AND D UE TO SUCH ADVERSE CONDITION BANKERS OF COMPANY HAS ALSO TAKE LEGAL STEPS AGAINST COMPANY AND TO DEFEND THE SAME, COMPANY HAV E TO PAY THE FEES TO ADVOCATE AND COMPANY SECRETARY, TOTAL A MOUNT OF RS. 7.60 LACS (INCLUDING TDS AMOUNT OF RS.0.71 LACS) PA ID AS LEGAL AND PROFESSIONAL FEES. DETAIL OF THE SAME IS ALREAD Y SUBMITTED. WITH REGARDS TO DEPRECIATION: WE HAVE ALREADY SUBMITTED DETAIL OF THE SAME IN OUR EARLIER LETTER. FURTHER TO THAT, DEPRECIATION CHARGED AS PER SINGLE SHIFT BASIS AND DEBITED TO PROFIT AND LOSS ACCOUNT IS RS.44.11 LACS AND DEPREDATION ALLOWABLE AS PER INCOME TAX ACT IS RS.3 2.19 LACS, WHICH HAS CLAIM IN RETURN OF INCOME. WE HAVE OUR OWN SET UP FOR MANUFACTURING ACTIVITIES AND IN BUSINESS FOR MANY YEARS. DUE TO BAD MARKET CONDITIO NS, THERE WAS LACK OF SUFFICIENT DEMAND FOR ITS PRODUCTS. AS A RESULT OF SUCH ADVERSE CONDITIONS AND OTHER FINANCIAL DIFFICULTIES FACED BY THE COMPANY, WE DECIDED TO TEMPORARILY STOP THE MANUFAC TURING ACTIVITY, ADVERSE CONDITIONS CONTINUED AND THE MANU FACTURING ACTIVITY COULD NOT BE STARTED DURING THE YEAR. WE HAVE NOT CLOSED THE FACTORY AND ALSO RETAINED AN D MAINTAINED PLANT AND MACHINERY, IN ANTICIPATION OF RESTARTING MANUFACTURING ACTIVITIES AS AND WHEN MARKET CONDITIONS AND FINANC IAL CONDITION IMPROVE AND THERE IS A CHANGE IN THE ECONOMIC SCENA RIO. FURTHER THE SAID PLANT AND MACHINERY WERE USED FOR THE PURP OSE OF THE BUSINESS IN THE EARLIER YEARS AND IS THEREFORE ENTI TLED TO DEPRECIATION. MADAM, AS MENTION ABOVE AND IN OUR EARLIER LETTERS, WE HAVE PAY MINIMUM AND NECESSARY EXPENSES SUCH AS WAGES, SALAR Y, ELECTRICITY EXPENSES, PROFESSIONAL FEES ETC. TO KEE P THE PLANT AND ITA 03/MUM/2014 7 MACHINERY IN RUNNING CONDITION. ONCE AGAIN WE REQUE ST YOU THAT ALLOW THE EXPENSES AND DEPRECATION AS CLAIMED AND O BLIGE. THE A.O. REJECTED THE CONTENTIONS OF THE ASSESSEE A S THERE WERE NO BUSINESS ACTIVITY DURING THE YEAR . THE AO OBSERVED THAT THE RE WERE NO PURCHASES , NO SALES AND NO PRODUCTION DURING THE YEAR UNDER CONSI DERATION. THE AO OBSERVED THAT THERE ARE INCOME ONLY FROM INTEREST A ND DIVIDEND TO THE TUNE OF RS. 0.85 LACS. HENCE, MANUFACTURING EXPENSES RS 5. 86 LAKH, SELLING AND ADMINISTRATIVE EXPENSES OF RS 12.33 LAKHS AND FINAN CIAL EXPENSES OF RS 0.58 LAKHS WERE DISALLOWED U/S 37 OF 1961 ACT BY THE AO ON THE GROUND THAT THESE WERE NOT RELATED TO THE BUSINESS OF THE ASSESSEE, V IDE ASSESSMENT ORDER DATED 31.10.2012 PASSED BY THE AO U/S. 143(3) OF 1961 ACT . SIMILARLY, DEPRECIATION OF RS. 44.11 LAKHS WAS ALSO DISALLOWED BY THE AO U/S 32 OF THE ACT AS THERE WAS NO BUSINESS ACTIVITY DUR ING THE YEAR AS THE ASSETS ON WHICH ASSESSEE HAD CLAIMED DEPRECIATION OF RS 44 .11 LAKHS WERE NOT ACTUALLY PUT TO USE DURING THE PREVIOUS YEAR RELEVA NT TO THE IMPUGNED ASSESSMENT YEAR FOR THE PURPOSE OF BUSINESS OF THE ASSESSSEE , WHICH WAS ADDED BACK TO THE INCOME OF THE ASSESSEE BY THE AO , VIDE ASSESSMENT ORDER DATED 31.10.2012 PASSED BY THE AO U/S 143(3) OF 196 1 ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 31.10.20 12 PASSED BY THE A.O. U/S 143(3) OF 1961 ACT, THE ASSESSEE FILED FIRST AP PEAL BEFORE THE LD. CIT(A). 5. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ALLOWED THE APPEAL OF THE ASSESSEE , VIDE APPELLATE ORDER DATED 18-10-2013 BY HOLDING AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE AR GUMENTS AND CONTENTION OF THE APPELLANT. I FIND THAT THE ASSESS ING OFFICER HAS ITA 03/MUM/2014 8 NOT DISPUTED THE FACT THAT DUE TO BAD MARKET CONDIT ION THERE WAS LACK OF SUFFICIENT DEMAND FOR THE APPELLANT'S PRODU CTS AS A RESULT OF ADVERSE MARKET CONDITION AND FINANCIAL DIFFICULT IES, THE COMPANY'S NET WORTH ERODED AND IT WAS REGISTERED WI TH BIFR. THE FACT THAT THE COMPANY WAS UNDERGOING FINANCIAL CONS TRAINT IS EVIDENT FROM THE FACT THAT THE BANKERS OF THE COMPA NY HAD TAKEN LEGAL ACTION AGAINST THE COMPANY FOR RECOVERY. THE COMPANY HAD TO PAY LEGAL FEES TO THE ADVOCATES TO DEFEND THE VA RIOUS LEGAL SUITS FILED BY THE BANKERS FOR RECOVERY AS ALSO OTHER EXP ENSES NAMELY POWER, FUEL & WATER CHARGES, LABOUR CHARGES AND WAG ES. THE SAID EXPENDITURE WAS INCURRED BY THE APPELLANT TO KEEP T HE PLANT & MACHINERY IN A READY TO OPERATE CONDITION AS WELL A S TO KEEP THE FACTORY PREMISES IN A READY TO OPERATE CONDITION. T HE SAID EXPENDITURE ARE, THEREFORE, ALLOWABLE TO THE APPELL ANT AS THESE EXPENSES WERE REQUIRED TO BE INCURRED FOR KEEPING T HE FACTORY IN A READY TO OPERATE CONDITION AS SOON AS THERE IS A CH ANGE IN THE ECONOMIC SCENARIO OF THE MARKET. THE FACT CLEARLY I NDICATES THAT THERE WAS NO CESSATION OR DISCONTINUANCE OF THE APP ELLANT'S BUSINESS RATHER IT IS A CONDITION WHERE THERE IS A LULL DUE TO PREVAILING MARKET CONDITION. MOREOVER, IT IS ALSO R EFLECTED THAT THE APPELLANT TO KEEP ITS BUSINESS RUNNING HAS NOT SOLD PLANT & MACHINERY OR OTHER RELATED ITEMS OF BUSINESS ASSETS . UNDER THESE CIRCUMSTANCES, THE EXPENSES AS CLAIMED BY THE APPEL LANT ARE CLEARLY ALLOWABLE. THE ASSESSING OFFICER IS DIRECTE D TO ALLOW THESE EXPENDITURES. THIS GROUND OF APPEAL IS THUS ALLOWED . SIMILARLY, THE DEPRECIATION OF RS. 44.11 LAKHS WAS ALSO ALLOWED BY THE LD. CIT(A) , VIDE APPELLATE ORDER DATED 18-10-2013 BY H OLDING AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE AR GUMENTS AND CONTENTION OF THE APPELLANT. I FIND THAT THE ASSESS ING OFFICER HAS MADE A WRONG DISALLOWANCE IN THE SENSE THAT THE CLA IM OF DEPRECIATION OF THE APPELLANT IS RS. 32,19,161/- AN D THE ADDITIONS MADE BY THE ASSESSING OFFICER IS RS. 44.11 LAKHS WH ICH IS APPARENTLY MORE THAN WHAT THE APPELLANT HAD CLAIMED . THE ONLY GROUND ON THE BASIS OF WHICH THE AO HAD MADE DISALL OWANCE OF DEPRECIATION IS THAT NO BUSINESS ACTIVITY IS CARRIE D OUT AS THE ASSETS WERE NOT PUT TO USE. HOWEVER, THE ASSESSING OFFICER HAD COMPLETELY IGNORED THE FACT THAT THE APPELLANT HAD KEPT THE PLANT & MACHINERY IN A READY TO OPERATE CONDITION AND IT IS NOT A CASE WHERE THE APPELLANT HAS CLOSED DOWN ITS BUSINESS. T HERE IS A LULL IN THE MARKET DUE TO WHICH THE APPELLANT HAS TEMPOR ARILY CLOSED ITS BUSINESS. THE FACTS OF THE APPELLANT'S CASE ARE SIMILAR TO THE ITA 03/MUM/2014 9 CASE OF CIT VS. M/S. INTEGRATED TECHNOLOGIES LTD. ( SUPRA) DECIDED BY THE DELHI TRIBUNAL AND SUBSEQUENTLY THE QUESTION OF LAW REJECTED BY THE HON'BLE DELHI HIGH COURT WHEREIN TH E HON'BLE HIGH COURT HAS HELD THAT DEPRECIATION UNDER THE CON DITIONS AS MENTIONED IS ALLOWABLE. FOLLOWING THE DECISION OF T HE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. M/S. INTEGR ATED TECHNOLOGIES LTD., DEPRECIATION IS ALLOWABLE TO THE APPELLANT IN THE FACTS AND CIRCUMSTANCES OF ITS CASE. THE ASSESS ING OFFICER IS DIRECTED TO ALLOW DEPRECIATION AS CLAIMED BY THE AP PELLANT. THIS GROUND OF APPEAL IS ALLOWED. 6. AGGRIEVED BY THE APPELLATE ORDER DATED 18-10-201 3 PASSED BY LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. D.R. INVITED OUR ATTENTION TO PAGE NO. 2 OF THE ASSESSMENT ORDER AND SUBMITTED THAT THERE WAS NO BUSINESS ACTIVITY C ARRIED OUT BY THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED A SSESSMENT YEAR. THE LEARNED DR DREW OUR ATTENTION TO THE PARA NO. 2.2 A ND 3.3 OF THE APPELLATE ORDER OF THE LD. CIT(A) , WHEREIN THE LD. CIT(A) AL LOWED THE CLAIM OF THE ASSESSEE WITHOUT ANY SUPPORTING DOCUMENTARY EVIDENC E. HE SUBMITTED THAT THERE WAS NO PURCHASES AND NO SALES RECEIPTS DURING THE IMPUGNED ASSESSMENT YEAR WHICH WERE SHOWN IN THE P&L ACCOUNT . IT WAS SUBMITTED THAT THE ASSETS WERE NOT PUT TO USE BY THE ASSESSEE DURI NG THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. 8. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENT ION TO THE COPY OF BIFR AND AAIFR ORDER PLACED ON RECORD. IT IS SUBMITTED T HAT THE ASSESSEE HAD STARTED ITS MANUFACTURING ACTIVITY IN THE YEAR 1983 . THE FACTORY OF THE ASSESSEE IS SITUATED IN MANSA AT GUJARAT. THE FACT ORY IS LYING CLOSED SINCE 2005 AND STILL IT IS LYING CLOSED EVEN IN THE YEAR 2017. IT IS SUBMITTED THAT THE SYMBOLIC POSSESSION OF THE FACTORY AND THE ASSETS W ERE TAKEN OVER BY THE BANK AND THE LENDERS UNDER THE SECURITISATION AND RECONS TRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 20 02 ( SARFESI ACT, 2002) ITA 03/MUM/2014 10 ON 21-02-2007. THE SYMBOLIC POSSESSION OF THE ASSES SEES ASSET IS STILL WITH BANKS WAS THE AVERMENTS OF LEARNED COUNSEL FOR THE ASSESSEE IN A STATEMENT MADE BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR T HE ASSESSEE SUBMITTED THAT EXPENSES WERE INCURRED BY THE ASSESSEE WHICH IS NOT DISPUTED BY REVENUE AND ONLY CONTENTION OF THE REVENUE IS THAT THERE IS NO BUSINESS ACTIVITY DURING THE YEARS AND THE ASSETS WERE NOT PUT TO BUS INESS USE DURING THE YEAR UNDER CONSIDERATION. IT WAS SUBMITTED BY LEARNED C OUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS THE INTENTION TO RESTART ITS FACTORY AND IT WAS LYING CLOSED DUE TO REASONS BEYOND ASSESSEES CONTROL. IT WAS SUBMITTED THAT ASSESSEE IS KEEPING THE BUSINESS ALIVE AND READY FO R USE WITH THE HOPE OF RESTARTING THE FACTORY AND TO REVIVE THE BUSINESS. IT WAS SUBMITTED THAT THE EXPENSES WERE INCURRED TO KEEP THE BUSINESS ALIVE. IT WAS SUBMITTED THAT THERE IS NO REQUIREMENT OF ACTUAL USER OF PLANT AND MACHINERY TO CLAIM DEPRECIATION. THE LD. COUNSEL DRAWN OUR ATTENTION T O THE PARA NO. 2.2 AND 3.3 OF THE LD. CIT(A)S APPELLATE ORDER, WHEREBY THE LD . CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. THE LD. COUNSEL RELIED ON THE DECISI ON OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. INTEGRATED TECHNOLOGIES LTD., ITA NO. 530/2011 ORDER DATED 16 TH DECEMBER, 2011. IT IS SUBMITTED THAT THE ASSESSEE HAD AN INTENTION TO RESTART THE PRODUCTION. THERE WAS A T EMPORARY LULL IN THE BUSINESS. THE LD. COUNSEL RELIED ON THE DECISION O F THE TRIBUNAL IN THE CASE OF M/S SWATI SYNTHETICS LTD. V. ITO IN ITA NO. 1165/MU M/2006 FOR ASSESSMENT YEAR 2001-02 DATED 17 TH DECEMBER, 2009 . RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE MADHYA PRADESH HIGH COURT I N THE CASE OF CIT V. KOHINOOR TOBACCO PRODUCTS (P.) LTD. REPORTED IN [2 005] 149 TAXMAN 620 (MP) AND ALSO DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. OSWAL AGRO MILLS LIMITED IN ITA NO. 161 OF 2006 VID E JUDGMENT DATED 24-12- 2010. ON BEING ASKED BY THE BENCH, THE LEARNED COUN SEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT THE FACTORY IS STILL LYING CL OSED AS OF THE YEAR 2017 , SINCE 2005 AND LITIGATION IS STILL CONTINUING WITH BANKER S/LENDERS AT DRT/BIFR AND OTHER FORUMS. ITA 03/MUM/2014 11 9. IN REJOINDER, THE LD. D.R. SUBMITTED THAT IT IS CLEAR THAT THE FACTORY WAS LYING CLOSED FOR WHOLE OF THE PREVIOUS YEAR AND THE RE WAS NO BUSINESS ACTIVITY DURING THE ENTIRE PREVIOUS YEAR. THE SAID FACTORY I S LYING CLOSED FOR A VERY LONG TIME SINCE 2005 AND STILL THE FACTORY IS LYING CLOS ED IN THE YEAR 2017. IT WAS SUBMITTED BY LEARNED DR THAT BANKERS/LENDERS ARE HO LDING THE POSSESSION OF THE FACTORY AS AVERRED BY LEARNED COUNSEL FOR THE A SSESSEE , AFTER INVOKING SARFESI ACT. IT WAS SUBMITTED BY LEARNED DR THAT EV IDENCES OF EXPENSES BEING INCURRED WERE NOT PRODUCED BEFORE THE AUTHORI TIES BELOW. IT IS SUBMITTED BY LEARNED DR THAT USER OF PLANT AND MACHINERY AND OTHER ASSETS FOR BUSINESS OF THE ASSESSEE IS A FUNDAMENTAL REQUIREMENT FOR CL AIMING DEPRECIATION AS STIPULATED U/S 32(1) OF 1961 ACT AND THE ASSESSEE C OULD NOT EXPLAIN USER OF THE ASSETS FOR BUSINESS AS THE ASSET WAS NEVER PUT TO BUSINESS USE FOR THE ENTIRE PREVIOUS YEAR UNDER CONSIDERATION. 10. WE HAVE CAREFULLY CONSIDERED RIVAL CONTENTION A ND ALSO CAREFULLY PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING CASE LAWS CITED BEFORE US. WE HAVE OBSERVED THAT THE ASSESSEE WAS ENGAGED IN T HE BUSINESS OF MANUFACTURER OF WOOLEN YARN, WOOL TOPS, POLYSTER WO OLS , YARN UNDER HEADING 23(3) OF SCHEDULE I OF INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951 , SINCE 1983-84. THE MANUFACTURING UNIT OF THE ASSESS EE IS LOCATED IN MANSA AT GUJARAT AND IT WAS LYING CLOSED SINCE 2005. IT IS N OT DISPUTED THAT THE ASSESSEE IS HAVING ONLY ONE MANUFACTURING UNIT LOCA TED AT SINGLE LOCATION AT MANSA AT GUJARAT, THUS, IT IS A SINGLE UNIT ENTITY HAVING MANUFACTURING UNIT AT SINGLE LOCATION IN MANSA AT GUJARAT, WHICH INDUSTRI AL UNIT OF ASSESSEE IN MANSA AT GUJARAT WAS LYING CLOSED FOR LAST 12 YEARS SINCE 2005 TILL NOW I.E. YEAR 2017. THE ENTIRE NET WORTH OF THE ASSESSEE COM PANY ERODED AS AT 31-03- 2004 AND REFERENCE WAS MADE TO BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION(BIFR) UNDER THE PROVISIONS OF SICK I NDUSTRIAL COMPANIES(SPECIAL PROVISION) ACT, 1985 AND THE CASE WAS ALLOTTED NO. ITA 03/MUM/2014 12 71/2005 BY BIFR . THERE WERE CERTAIN SECURED LOANS AVAILED BY THE ASSESSEE COMPANY FROM BANKERS WHICH BECAME NON-PERFORMING AS SETS(NPA) AS THE ASSESSEE DEFAULTED IN RE-PAYMENT OF LOANS AND INTER EST TO ITS BANKERS WHO WERE SECURED LENDERS HOLDING SECURITY OVER SECURED ASSETS. THE SECURED LENDERS CONSISTING OF CONSORTIUM OF BANKS CONSISTIN G OF PNB, CANARA BANK, JANAKALYAN SEHKARI BANK , ING VYSYA BANK AND SARASW AT BANK WITH PNB ACTING AS LEAD BANK ISSUED NOTICES U/S 13(2) OF SAR FESI ACT, 2002 ON 21.12.2006 TO THE ASSESSEE AND GAVE STATUTORY NOTIC E OF 60 DAYS TO THE ASSESSEE COMPANY TO PAY THEIR DUES. THE SASF VIDE T HEIR LETTER DATED 28-08- 2006 SEPARATELY ISSUED NOTICES U/S 13(2) OF THE SAR FESI ACT , 2002 BUT SUBSEQUENTLY AUTHORIZED THEM TO TAKE ALL ACTION. TH E SAID SIXTY DATE PERIOD GOT OVER ON 21.02.2007. THE NOTICES U/S 13(2) OF SARFESI ACT, 2002 IS NOT MERELY A SHOW CAUSE NOTICE BUT IN EFFECT IT OPERATES AS AN ATTACHMENT/INJUNCTION RESTRAINING THE BORROWER FROM DISPOSING OF THE SECURED ASSETS (REF HONBLE SUPREME COURT IN THE CASE OF TRAVANCOR E V UOI (2008) 1 SCC 125(SC) AND HONBLE DELHI HIGH COURT I N THE CASE OF SURESH KUMAR GOYAL V.CCIT(2016) 289 CTR 541(DEL. HC) ) . THE NOTICE U/S 13(2) , 13(4) READ WITH SECTION 35 OF SARFESI ACT, 2002 ENT ITLE THE LENDER TO PROCEED TO SALE BY WAY OF PUBLIC AUCTION THE SECURED ASSETS . SECTION 13(2) , 13(4) R.W.S. SEC. 35 OF SARFESI ACT, 2002 ARE REPRODUCED HEREUND ER: SECTION 13 (2) , 13(4) AND SECTION 35 OF THE SARFAE SI ACT READ AS UNDER: '13(2) WHERE ANY BORROWER, WHO IS UNDER A LIABILITY TO A SECURED CREDITOR UNDER A SECURITY AGREEMENT, MAKES ANY DEFAULT IN RE PAYMENT OF SECURED DEBT OR ANY INSTALMENT THEREOF, AND HIS ACCOUNT IN RESPECT OF SUCH DEBT IS CLASSIFIED BY THE SECURED CREDITOR AS NON-PERFOR MING ASSET, THEN, THE SECURED CREDITOR MAY REQUIRE THE BORROWER BY NOTICE IN WRITING TO DISCHARGE IN FULL HIS LIABILITIES TO THE SECURED CR EDITOR WITHIN SIXTY DAYS FROM THE DATE OF NOTICE FAILING WHICH THE SECURED C REDITOR SHALL BE ENTITLED TO EXERCISE ALL OR ANY OF THE RIGHTS UNDER SUB-SECTION (4). ITA 03/MUM/2014 13 **** (4) IN CASE THE BORROWER FAILS TO DISCHARGE HIS LIA BILITY IN FULL WITHIN THE PERIOD SPECIFIED IN SUB-SECTION (2), THE SECURED CREDITOR MAY TAKE RECOURSE TO ONE OR MORE OF THE FOLLOWING MEASURES TO RECOVER HIS SECURED DE BT, NAMELY:-- (A) TAKE POSSESSION OF THE SECURED ASSETS OF THE BORROW ER INCLUDING THE RIGHT TO TRANSFER BY WAY OF LEASE, ASSIGNMENT OR SALE FOR RE ALISING THE SECURED ASSET; (B) TAKE OVER THE MANAGEMENT OF THE BUSINESS OF THE BOR ROWER INCLUDING THE RIGHT TO TRANSFER BY WAY OF LEASE, ASSIGNMENT OR SALE FOR REALISING THE SECURED ASSET: PROVIDED THAT THE RIGHT TO TRANSFER BY WAY OF LEASE , ASSIGNMENT OR SALE SHALL BE EXERCISED ONLY WHERE THE SUBSTANTIAL PART OF THE BU SINESS OF THE BORROWER IS HELD AS SECURITY FOR THE DEBT: PROVIDED FURTHER THAT WHERE THE MANAGEMENT OF WHOLE OF THE BUSINESS OR PART OF THE BUSINESS IS SEVERABLE, THE SECURED CRE DITOR SHALL TAKE OVER THE MANAGEMENT OF SUCH BUSINESS OF THE BORROWER WHICH I S RELATABLE TO THE SECURITY FOR THE DEBT. (C) APPOINT ANY PERSON (HEREAFTER REFERRED TO AS THE MA NAGER), TO MANAGE THE SECURED ASSETS THE POSSESSION OF WHICH HAS BEEN TAKEN OVER BY THE SECURED CREDITOR; (D) REQUIRE AT ANY TIME BY NOTICE IN WRITING, ANY PERSO N WHO HAS ACQUIRED ANY OF THE SECURED ASSETS FROM THE BORROWER AND FROM WHOM ANY MONEY IS DUE OR MAY BECOME DUE TO THE BORROWER, TO PAY THE SECURED CRED ITOR, SO MUCH OF THE MONEY AS IS SUFFICIENT TO PAY THE SECURED DEBT. **** 35. THE PROVISIONS OF THIS ACT TO OVERRIDE OTHER LAWS THE PROVISIONS OF THIS ACT SHALL HAVE EFFECT, NOTWI THSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW F OR THE TIME BEING IN FORCE OR ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW.' THE AFORE-STATED SECURED LENDING BANKS WERE IN POSS ESSION OF THE SECURED ASSETS OF THE ASSESSEE COMPANY SINCE 21-02-2007 BY EXERCISING THEIR RIGHTS UNDER SARFESI ACT, 2002 BY INVOKING SECTION 13(2) R .W.S.13(4) OF SARFESI ACT, 2002 , AS AVERRED BY LEARNED COUNSEL FOR THE A SSESSEE IN A STATEMENT ITA 03/MUM/2014 14 MADE BEFORE US . BIFR VIDE ITS ORDERS DATED 12-0 2-2007 REJECTED THE REFERENCE AS NOT MAINTAINABLE AS IT WAS OBSERVED BY BIFR THAT THE ASSESSEE COMPANY HAS NOT COME TO BIFR WITH CLEAN HANDS AND HAD MANIPULATED ITS ACCOUNTS. THE ASSESSEE WENT TO AAIFR WHICH BY ORDE R DATED 16-01-2008 DIRECTED BIFR TO AWAIT THE FINAL ORDER PASSED BY D RT/DRAT AND TILL THEN KEEP THE REFERENCE OF THE ASSESSEE COMPANY PENDING. IT IS CLARIFIED BY LEARNED COUNSEL FOR THE ASSESSEE DURING COURSE OF HEARING B EFORE US THAT TILL DATE I.E. IN YEAR 2017 THE UNIT IN MANSA AT GUJARAT WHICH IS A SINGLE UNIT OF THE ASSESSEE AT SINGLE LOCATION IS LYING CLOSED. THERE IS NO MANUFACTURING ACTIVITY CARRIED OUT BY THE ASSESSEE SINCE LAST 12-13 YEARS FROM THE YEAR 2005 -2017. WE ARE CONCERNED WITH PREVIOUS YEAR 2009-10 WHICH I S RELEVANT FOR THE IMPUGNED ASSESSMENT YEAR 2010-11. THE MANUFACTURING STOPPED IN THE YEAR 2005 AND POSSESSION UNDER SARFESI ACT IS WITH LENDE R BANKS SINCE 21-02- 2007, ALTHOUGH THERE IS A STAY GRANTED BY DRT ON TH E OPERATION OF ACTION TAKEN BY PNB AND SASF U/S 13(4) OF SARFESI ACT, 200 2. THE RELEVANT PREVIOUS YEAR UNDER INSTANT APPEAL IS 2009-10 , WHI CH IS ALMOST 4-5 YEARS AFTER THE CEASING OF MANUFACTURING ACTIVITY OF SING LE UNIT / SINGLE LOCATION ASSESSEE COMPANY IN THE YEAR 2005. THE POSSESSION O F THE MANUFACTURING UNIT OF THE ASSESSEE IN MANSA AT GUJARAT IS HELD BY THE BANKS SINCE 21-02- 2007 UNDER SARFESI ACT WHICH ENTITLES THEM TO TRANS FER THE SECURED ASSETS BY SALE, LEASE OR ASSIGNMENT TO REALIZE THEIR LOANS BUT INTERIM STAY IS IMPOSED ON THE SAID ACTION OF TRANSFER OF SECURED ASSETS BY SECURED LENDER TO REALIZE THEIR SECURED DEBTS, BY DRT. THUS, UNDER THESE CIR CUMSTANCES , WE ARE OF CONSIDERED VIEW THAT THE ASSESSEE COMPANY EVEN IF I T DESIRES TO START BUSINESS CANNOT RE-START AND CARRY OUT ANY MANUFACTURING ACT IVITY IN THE SAID UNIT UNLESS IT OBTAINS PERMISSION AND POSSESSION BACK FR OM THE SECURED LENDERS WHO ARE HOLDING POSSESSION OF THE SECURED ASSETS UN DER SARFESI ACT, 2002, WHICH WAS INVOKED IN VIEW OF THE ASSESSEE COMPANY H AVING DEFAULTED WITH THE SECURED LENDING BANKS , AND SUCH PERMISSION TO RE-S TART BUSINESS OPERATIONS AND HANDING BACK OF THE POSSESSION BY THE SECURED L ENDERS WILL NOT BE ITA 03/MUM/2014 15 FORTHCOMING FROM CONSORTIUM OF LENDERS ON TOUCHSTON E OF PREPONDERANCE OF PROBABILITIES , UNLESS DUES OF THESE SECURED LENDE RS ARE SETTLED AND CLEARED BY ASSESSEE COMPANY AND/ OR PERMISSION OF DRT/COURTS A RE OBTAINED WHICH MAY, IF AT ALL IT COMES MAY COME WITH SEVERAL RIDER S WHICH THE ASSESSEE COMPANY MAY NOT BE ABLE TO FULFILL AND ON TOUCHSTON E OF PREPONDERANCE OF PROBABILITIES , THUS, SUCH POSSIBILITY OF THE ASSES SEE COMPANY RESTARTING ITS MANUFACTURING UNIT IN DISTANT FUTURE IS RULED OUT KEEPING IN VIEW FACTUAL MATRIX OF THE CASE AS DISCUSSED ABOVE. BIFR HAS ALR EADY GIVEN FINDING THAT THE ASSESSEE HAS MANIPULATED ITS ACCOUNTS AND HAS NOT C OME FOR RELIEF TO BIFR WITH CLEAN HANDS AND REFERENCE WAS HELD TO BE NOT M AINTAINABLE , HOWEVER , IT IS A DIFFERENT MATTER THAT AAIFR ASKS BIFR TO AWAIT OUTCOME OF PROCEEDINGS BEFORE DRT IN VIEW OF INTERIM STAY BY DRT ON ACTION OF SECURED LENDERS U/S 13(4) OF SARFESI ACT, 2002. SINCE ALMOST 12 YEARS HAVE PASSED SINCE THE ASSESSEE UNIT AT MANSA IS LYING CLOSED AND IT COULD NOT SETTLE ITS DUES WITH THE SECURED BANKERS TILL DATE I.E. YEAR 2017 AS IT IS A VERRED BY LEARNED COUNSEL THAT THE MATTER/LITIGATIONS ARE STILL PENDING WITH DRT/BIFR ETC AND LITIGATIONS ARE GOING ON, THUS UNDER THESE PECULIAR FACTS AND C IRCUMSTANCES OF THIS CASE , IT COULD NOT BE TERMED AND CLASSIFIED AS TEMPORARY LULL IN THE BUSINESS AS IT IS NOT POSSIBLE FOR ASSESSEE COMPANY TO RECOMMENCE ITS BUSINESS EVEN IF IT SECURES ORDERS OR SO OTHERWISE DESIRES TO RESTART I TS MANUFACTURING UNIT IN MANSA AT GUJARAT, AS THE POSSESSION OF THE SECURED ASSETS ARE WITH BANKERS WHICH CAN NOT BE DESCRIBED AS A TEMPORARY LULL OR T EMPORARY SUSPENSION OF BUSINESS RATHER IT IS A SEVERE AND SERIOUS DISABILI TY WHICH IS FACED BY THE ASSESSEE HAMPERING THE RE-START OF THE BUSINESS BY THE ASSESSEE EVEN IF IT SO DESIRES TO RECOMMENCE ITS BUSINESS , ASSESSEE COMPA NY CANNOT RE-START ITS BUSINESS UNLESS PERMITTED BY SECURED LENDERS WHO AR E IN POSSESSION OF SECURED ASSETS OF ITS SOLE UNIT IN MANSA AT GUJARAT . IN ANY CASE , NO EVIDENCE HAS BEEN PLACED BY THE ASSESSEE ON RECORD TO DEMONS TRATE THAT ANY ATTEMPT OR EFFORTS HAVE BEEN MADE BY THE ASSESSEE TO DO ANY BU SINESS OR TO RE-START ITS MANUFACTURING UNIT AT MANSA IN THE LAST 12 YEARS SI NCE THE SAID INDUSTRIAL ITA 03/MUM/2014 16 UNIT IN MANSA STOOD CLOSED IN THE YEAR 2005 TILL AS OF NOW IN THE YEAR 2017. IN OUR CONSIDERED VIEW, THE EXPENSES CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED AS BUSINESS EXPENSES AS THEY WERE NOT INCUR RED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE AS THERE IS IN-FACT NO BUSINESS CARRIED ON BY THE ASSESSEE DURING PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR AND THERE WAS ALSO NO POSS IBILITY OF CARRYING ON BUSINESS BY THE ASSESSEE IN A NEAR DISTANT VISIBLE FUTURE KEEPING IN VIEW THE SEVERE AND SERIOUS DISABILITY IMPOSED BY ACTION BY SECURED LENDERS UNDER SARFESI ACT AND CONTINUED WITH THE SECURED LENDERS , AS MANDATE OF SECTION 37(1) OF 1961 ACT IS NOT FULFILLED IN THE INSTANT C ASE. THE SECURED ASSETS OF THE ASSESSEE BEING UNDER POSSESSION OF THE SECURED LEND ERS DURING THE PREVIOUS YEAR CANNOT BE CLAIMED BY THE ASSESSEE TO HAVE BEEN PUT TO BUSINESS USE BOTH ACTIVE AS WELL PASSIVE USER AS BOTH BEING RULED OUT , AS IT IS NOT TEMPORARY LULL IN BUSINESS BUT SEVERE AND SERIOUS DISABILITY DISAB LING ASSESSEE TO PUT THE SAID ASSET FOR BUSINESS USER AS MANDATED U/S 32(1) OF 1961 ACT TO ENABLE ASSESSEE TO CLAIM DEPRECIATION. THE ASSESSEE IS A SINGLE LOCATION UNIT ENTITY HAVING ONLY ONE MANUFACTURING UNIT IN MANSA AT GUJA RAT AND BLOCK OF ASSETS CONSTITUTED MAINLY ASSETS OF MANSA UNIT AND HENCE I T COULD ALSO NOT BE CLAIMED BY THE ASSESSEE THAT THE ASSETS OF MANSA UN IT FORMED PART OF BLOCK OF ASSETS WHICH BLOCK OF ASSET ALSO CONSISTS TO HAVE O THER ASSETS OF ANY OTHER UNIT WHICH IS FUNCTIONAL , AS IN THE INSTANT CASE I T IS A SINGLE UNIT / SINGLE LOCATION ENTITY HAVING ONLY INDUSTRIAL UNIT IN MANS A AT GUJARAT , AND THE ASSESSEE CANNOT CLAIM THAT OTHER ASSETS EXCEPT ASSE TS OF MANSA UNIT WERE BEING PUT TO USE FOR BUSINESS AND HENCE CONSEQUENTL Y UNDER THE CONCEPT OF BLOCK OF ASSET, THE ASSESSEE CLAIM OF DEPRECIATION OF MANSA UNIT SHOULD BE ALLOWED , AS IT IS A SINGLE UNIT / SINGLE LOCATION COMPANY AND THE ENTIRE BLOCK OF ASSET REVOLVES AROUND AND CONSISTS MAINLY OF ASS ETS OF MANSA UNIT WHICH IT- SELVES ARE NOT PUT TO USE FOR BUSINESS PURPOSES DU RING THE ENTIRE PREVIOUS YEAR DUE TO DISABILITY IMPOSED UNDER SARFESI ACT, 2002 AS DISCUSSED ABOVE. THE DEPRECIATION CLAIMED BY THE ASSESSEE IS ALSO NO T ALLOWABLE AS THE ENTIRE ITA 03/MUM/2014 17 BLOCK OF ASSET WHICH CONSISTS MAINLY OF ASSETS OF M ANSA UNIT AT GUJARAT WAS NOT PUT TO USE BY THE ASSESSEE, KEEPING IN VIEW PEC ULIAR FACTUAL MATRIX OF THE CASE AND MANDATE OF SECTION 32(1) OF 1961 ACT IS NO T FULFILLED IN THE INSTANT CASE. THUS, CLAIM OF THE ASSESSEE TO ALLOW DEPRECIA TION ON BLOCK OF ASSETS HELD BY THE ASSESSEE CANNOT BE ALLOWED TO THE ASSESSEE. THE CASE LAWS RELIED UPON BY THE ASSESSEE WERE DECI DED ON THEIR PECULIAR FACTS WHICH ARE DISTINGUISHABLE AS THE FACTS IN PRESENT A PPEAL ARE DIFFERENT BEING INVOCATION OF SARFESI ACT, 2002 BY SECURED LENDERS WHEREIN POSSESSION OF SECURED ASSETS WERE HELD BY SECURED LENDERS CAUSING SEVERE AND SERIOUS DISABILITY FOR THE ASSESSEE TO RECOMMENCE ITS MANUF ACTURING UNIT IN THE DISTANT VISIBLE FUTURE WHICH CAN NOT BE CATEGORIZED AS TEMPORARY LULL IN THE BUSINESS . IN THE CASE OF CIT V. OSWAL AGRO MILLS L IMITED(SUPRA) RELIED UPON BY THE ASSESSEE, THE TAX-PAYER HAD BHOPAL UNIT AND OTH ER UNITS, WHEREIN BHOPAL UNIT WAS TEMPORARILY CLOSED THROUGHOUT THE YEAR. T HE ASSETS OF BHOPAL UNIT WERE INCLUDED IN THE BLOCK OF ASSETS AND REMAINED P ART OF THE BLOCK OF ASSETS WHICH ALSO HAD ASSETS OF OTHER UNITS WHICH REMAINED FUNCTIONAL AND IN CONTINUOUS USE , ON THESE PECULIAR FACTS , HONBLE DELHI HIGH COURT ALLOWED THE DEPRECIATION AS THE ASSETS OF BHOPAL UNIT WHICH WAS CLOSED TEMPORARILY GOT MERGED WITH BLOCK OF ASSETS CONSISTING OF ASSET S OF OTHER UNITS WHICH WERE FUNCTIONAL DURING THE YEAR AND WERE PUT TO USE FOR THE PURPOSES OF BUSINESS OF THE TAX-PAYER DURING THE YEAR AND HONBLE HIGH COUR T HAD HELD THAT UNDER CONCEPT OF BLOCK OF ASSET, THERE IS NO NEED TO SEE USER OF EACH AND EVERY ASSET UNDER BLOCK OF ASSET BEFORE ALLOWING DEPRECIATION O N BLOCK OF ASSET, WHILE THE INSTANT CASE UNDER APPEAL WITH TRIBUNAL, THE ASSESS EE IS A SINGLE UNIT AND SINGLE LOCATION COMPANY HAVING INDUSTRIAL UNIT IN M ANSA AT GUJARAT AND THE BLOCK OF ASSET MAINLY CONSISTS OF THIS INDUSTRIAL U NIT WHICH WAS NOT FUNCTIONAL DURING THE ENTIRE PREVIOUS YEAR RELEVANT TO THE IMP UGNED ASSESSMENT YEAR AND WE HAVE HELD THAT THIS SUSPENSION OF MANUFACTURING WAS NOT ON ACCOUNT OF TEMPORARY LULL BUT IS A RESULT OF SERIOUS AND SEVER E DISABILITY DUE TO ACTION ITA 03/MUM/2014 18 UNDER SECTION 13(2) OF SARFESI ACT, 2002 BY SECURED LENDERS AGAINST THE ASSESSEE COMPANY, WHEREIN THE SECURED ASSETS ARE PO SSESSED BY SECURED LENDERS SINCE 21-02-2007 TILL DATE. SIMILAR WAS THE CASE OF SWATI SYNTHETICS LIMITED V. ITO(SUPA) WHEREIN TAX- PAYER HAD TWO UNITS ONE UNIT AT DOMBIVILI AND THE S ECOND UNIT AT SURAT. THE UNIT AT SURAT WHICH WAS YARN TEXTURISING UNIT UNDER NAME AND STYLE OF SWATI POLYSTER WAS CLOSED FOR LAST TWO/THREE YEARS WHILE OTHER UNIT AT DOMBIVILI WAS UNDERTAKING BUSINESS OF DYEING IN THE NAME OF SWATI DYEING AND WAS FUNCTIONAL DURING THE RELEVANT PERIOD . THE SAME RA TIO OF LAW AS WAS APPLICABLE FOR OSWAL AGRO MILLS LIMITED(SUPRA) WAS APPLIED BY THE TRIBUNAL AS DOMBIVILI ASSETS IN THE BLOCK OF ASSETS WERE PUT TO USE FOR BUSINESS OF THE TAX- PAYER DURING THE RELEVANT YEAR , WHILE ASSETS OF SU RAT UNIT WERE NOT USED BUT THEY FORMED PART OF BLOCK OF ASSETS CONSISTING OF D OMBIVILI UNIT AS WELL SURAT UNIT, OF WHICH ASSETS OF DOMBIVILI UNITS WERE USED FOR THE PURPOSES OF BUSINESS BY TAX-PAYER AND HENCE IT WAS HELD THAT TH ERE IS NO NEED TO SEE INDIVIDUAL USER OF EACH ASSET, WHILE IN THE INSTANT APPEAL BEFORE THE TRIBUNAL, MANSA UNIT AT GUJARAT IS THE ONLY UNIT OF THE ASSES SEE WHICH WAS LYING CLOSED SINCE 2005 AS DETAILED ABOVE. THE CASE OF CIT V. KOHINOOR TOBACCO PRODUCTS PRIVAT E LIMITED(2005) 149 TAXMAN 620(MP) IS DISTINGUISHABLE AS IN THE SAID CA SE THE TAX-PAYER ACQUIRED 58 PROPERTIES OUT OF WHICH SOME OF THE PROPERTIES C OULD NOT BE USED FOR BUSINESS AND WERE LET OUT DUE TO TEMPORARY LABOUR PROBLEM FACED BY THE TAX- PAYER , WHILE IN THE INSTANT CASE WE HAVE HELD THAT CLOSURE WAS SINCE 2005 AND POSSESSION WAS TAKEN OVER BY SECURED LENDERS OF THE SECURED ASSETS SINCE 21-02-2007 BY INVOKING SARFESI ACT, 2002 CAUSING SE VERE AND SERIOUS DISABILITY TO THE ASSESSEE IN CONTINUING WITH THE B USINESS AND THE ASSESSEE WAS A SINGLE UNIT/SINGLE LOCATION ENTITY HAVING IND USTRIAL UNIT AT MANSA, GUJARAT. ITA 03/MUM/2014 19 THE CASE OF CIT V. INTEGRATED TECHNOLOGIES LIMITED( SUPRA) IS ALSO DISTINGUISHABLE AS THE TAX-PAYER DEMONSTRATED THAT THE BUSINESS WAS STILL A GOING CONCERN AND IT APPROACHED BIFR U/S 15(1) OF S ICA, 1985 AND ITS APPLICATION WAS PROCESSED AND SOON THE BUSINESS WIL L COMMENCE AS IT WAS CLOSED ONLY DUE TO TEMPORARY LULL AND THE BUSINESS WILL REVIVE SHORTLY. IT WAS DEMONSTRATED THAT THE ORDERS OF THE TAX-PAYER WERE CANCELLED BY INTERNATIONAL CUSTOMERS DUE TO TERROR ATTACK IN USA AND THE TAX-P AYER COULD NOT ACCEPT DOMESTIC ORDERS DUE TO OBLIGATIONS IMPOSED ON TAX-P AYER ON BEING AN 100% EOU AND ALSO DUE TO INSUFFICIENT WORKING CAPITAL. T HE BUSINESS SCENARIO IMPROVED AND THE TAX-PAYER STARED GETTING THE SUBST ANTIAL ORDERS.THE TRIBUNAL ACCEPTED PASSIVE USER OF THE ASSETS KEEPING IN VIEW EFFORTS MADE BY THE TAX- PAYER TO START THE BUSINESS AND ALSO NEW PLANT AND MACHINERY WAS PURCHASED DURING THE RELEVANT PREVIOUS YEAR. THUS, ON PECULIA R FACTS OF THAT CASE TRIBUNAL ALLOWED THE CLAIM OF DEPRECIATION ON PLANT AND MACHINERY AS THE SAME WAS HELD TO BE KEPT READY FOR USE .THE ALLOWAB ILITY OF SALARY AND ALLOWANCE TO STAFF AS WELL REPAIR AND MAINTENANCE E XPENDITURE AS ALLOWED BY CIT(A) WAS NOT CHALLENGED BY REVENUE BEFORE THE TRI BUNAL, WHICH LEAD TO IMPLIED ACCEPTABILITY OF THE REVENUE OF THE FACT TH AT THE BUSINESS WAS KEPT ALIVE IN THE HOPE OF REVIVAL AND THERE WAS A TEMPOR ARY LULL IN THE BUSINESS. THE HONBLE DELHI HIGH COURT ALLOWED THE CLAIM BASE D ON PECULIAR FACTUAL MATRIX OF THE CASE UPHOLDING THE FINDINGS OF TRIBUN AL, WHILE IN THE INSTANT APPEAL , THE FACTS ARE ENTIRELY DIFFERENT AS WE HAV E DISCUSSED ABOVE IN DETAILS AS WE HAVE HELD THAT THIS SUSPENSION OF MANUFACTURI NG WAS NOT ON ACCOUNT OF TEMPORARY LULL BUT IS A RESULT OF SERIOUS AND SEVER E DISABILITY DUE TO ACTION UNDER SECTION 13(2) OF SARFESI ACT, 2002 BY SECURED LENDERS AGAINST THE ASSESSEE COMPANY, WHEREIN THE SECURED ASSETS ARE PO SSESSED BY SECURED LENDERS SINCE 21-02-2007 TILL DATE. ITA 03/MUM/2014 20 HOWEVER, THE EXPENSES LIKE AUDITOR FEES , ROC FEE AND OTHER EXPENSES ETC. WHICH ARE INCURRED BY THE ASSESSEEE COMPANY TO CAR RY OUT AND MEET LEGAL AND STATUTORY COMPLIANCES HAS TO BE ALLOWED AS THE SAID EXPENSES ARE INCURRED FOR MEETING AND COMPLYING WITH STATUTORY C OMPLIANCES AND OBLIGATIONS AS IMPOSED BY LAW, FOR WHICH WE ARE REM ITTING MATTER BACK TO THE FILE OF THE AO FOR IDENTIFICATION OF SUCH EXPENSES INCURRED FOR AUDIT, ROC FEES AND OTHER EXPENSES INCURRED TO CARRY OUT OTHER STA TUTORY COMPLIANCES , AND TO ALLOW SUCH EXPENSES AFTER VERIFICATION. THUS, TH E APPELLATE ORDER OF THE LD. CIT(A) IS SET ASIDE AND THE ASSESSMENT ORDER OF THE A.O. IS CONFIRMED SUBJECT TO ALLOWABILITY OF AUDIT FEE, ROC FEE AND OTHER EXP ENSES INCURRED FOR UNDERTAKING AND MEETING STATUTORY COMPLIANCES , IN ACCORDANCE WITH OUR ORDERS AS DETAILED ABOVE. WE ORDER ACCORDINGLY. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE IN I TA NO. 03/MUM/2014 FOR ASSESSMENT YEAR 2010-11 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH APRIL, 2017. # $% &' 10-04-2017. ( ) SD/- SD/- (D.T. GARASIA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 10-04-2017 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS ITA 03/MUM/2014 21 !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI