M/s. Hindustan Fertiliser Corporation Ltd., Noida V. DCIT, New Delhi

ITA 409/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77688 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 22-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: AJAY CHAWLA
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI S. V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI C. M. GARG, JUDICIAL MEMBER I.T.A .NO.-409/DEL/2013 (ASSESSMENT YEAR-2009-10) HINDUSTAN FERTILIZER CORPORATION LTD. VS. DCIT PDIL BHAWAN, A-14, SECTOR-1, CIRCLE-10(1), NOIDA, UTTAR PRADESH NEW DELHI. PAN: AAACH0907N (APPELLANT) (RESPONDENT) ASSESSEE BY:- SH. AJAY CHAWLA, CA. REVENUE BY:- SH. SATPAL SINGH, SR. DR. ORDER PER S. V. MEHROTRA, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A)-XIII, NEW DELHI, IN RELATION TO THE ASSESSM ENT YEAR 2009-10, ON THE FOLLOWING GROUNDS: 1. THE LD CIT(A) HAS ERRED ON LAW IN MAKING DISALL OWANCE OF DEPRECIATION ON ASSETS OTHER THAN PLANT AND MACHINE RY RS.40,43,612/- ONLY ON THE GROUND THAT THERE IS NO PRODUCTION OR MANUFACTURING OF FERTILIZERS. 2. THE LD CIT(A) HAS ERRED IN FACTS IN COMING TO VI EW THAT BUILDING AND OTHER ASSETS WERE NOT USED FOR BUSINES S PURPOSES. THE BUILDINGS AND OTHER ASSETS WERE USED BY THE EMP LOYEES I.T.A .NO.-409/DEL/2013 2 ENGAGED IN THE CLOSURE OPERATIONS OF THE COMPANY AN D WILL NOW BE USED FOR THE REVIVAL OF THE COMPANY AS APPROVED BY THE CABINET COMMITTEE ON ECONOMIC AFFAIRS (CCEA) OF GOVERNMENT OF INDIA. 3. THE RELIANCE PLACED ON JUDGMENT OF MUMBAI BENCH OF ITAT IN THE CASE OF M/S RISHI ROOP POLYMERS (P) LTD. BY THE LD. DCIT, CIRCLE-12(1), NEW, IN THE ASSESSMENT ORDER IS ERRON EOUS. 4. THE APPELLANT CRAVES THE CONSENT TO ADD, MODIFY, AMEND OR DELETE ANY OF THE GROUND OF APPEAL AT THE TIME OF H EARING. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WAS EARLIER ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKET ING OF FERTILIZERS. HOWEVER, SINCE THE YEAR 2002, THE COMPANY WAS NOT M ANUFACTURING ANY FERTILIZERS AND GOVERNMENT OF INDIA HAD ORDERED FOR CLOSURE OF THE COMPANY AND WINDING UP THE SAME. THE RETURN WAS FILED, DECL ARING TOTAL LOSS OF RS.380,78,34,033/-. THE AO NOTICED THAT ASSESSEE HA D CLAIMED HUGE AMOUNT OF DEPRECIATION AMOUNTING TO RS.2,51,51,000/-. HE O BSERVED THAT IN RESPECT OF THOSE ASSETS WHICH COMPRISED IN THE BLOCK OF ASS ET, WHICH HAD FINISHED DURING THE YEAR, THE SURPLUS ARISING ON SALE OF ASS ETS IS TO BE TREATED AS SHORT TERM CAPITAL GAIN TO THE ASSESSEE AND TO BE ASSESSE D AS SUCH. 3. HE FURTHER POINTED OUT THAT SINCE THE ASSESSEE H AD NOT UNDERTAKEN ANY MANUFACTURING ACTIVITIES IN ANY OF ITS UNIT, THEREF ORE, IT WAS NOT ELIGIBLE FOR DEPRECIATION. HE, ACCORDINGLY, MADE AN ADDITION OF RS.2,51,51,000/-. BEFORE LD. CIT (A), THE ASSESSEE SUBMITTED AS UNDER: I.T.A .NO.-409/DEL/2013 3 6.2 SUBMISSION OF THE APPELLANT DISALLOWANCE OF DEPRECIATION ON PLANT AND MACHINERY RS.2,51,51,000/-. 4(I) THE LD AO HAS ERRED IN FACTS IN DISALLOWING TH E DEPRECIATION TO THE EXTENT OF RS.2,51,51,000/- DURING THE ASSESSMENT UN DER REVIEW. THE ASSESSEE COMPANY HAS CLAIMED THE DEPRECIATION ON FIXED ASSET S AS UNDER:- (A) PLANT AND MACHINERY @ 60% (COMPUTERS) RS. 19,7 00/- (B) BUILDING @ 5% RS. 25,95,549/- (C) BUILDING @ 10% RS. 14,17,117/- (D) FURNITURE AND FITTINGS (NEWLY ACQUIRED AT 5% R S. 6,366/- (E) INTANGIBLE ASSETS @ 25% RS. 4,880/- RS. 40,43,612/- THUS THE APPELLANT COMPANY HAS NOT CLAIMED THE DEPR ECIATION ON PLANT AND MACHINERY REQUIRED FOR MANUFACTURING FERTILIZERS AN D THE TOTAL DEPRECIATION CLAIMED BY THE ASSESSEE IS LESS THAN THAT ADDED BAC K BY THE LD DCIT. (II) SIR, LD. DCIT HAS MENTIONED IN THE ASSESSMENT ORDER THAT SINCE THE ASSESSEE HAS NOT UNDERTAKEN ANY MANUFACTURING ACTIV ITIES IN ANY OF ITS UNITS, THEREFORE IT IS NOT ELIGIBLE FOR DEPRECIATION CLAIM ED BY IT. THIS IS MOST ARBITRARY AND AGAINST THE LAW. AS PER SECTION 32(1) OF THE INCOME TAX ACT, 1961 TH E DEPRECIATION IN RESPECT OF DEPRECIATION OF (I) BUILDING, MACHINERY, PLANT OR FURNITURE, BEING TANG IBLE ASSETS; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCE S, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMIL AR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL, 1998, OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED F OR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCT IONS SHALL BE I.T.A .NO.-409/DEL/2013 4 ALLOWED. FROM THIS DEFINITION, IT IS CLEAR THAT TH E DEPRECIATION IS ALLOWABLE UNDER THE INCOME TAX ACT, 1961 SUBJECT TO CERTAIN CONDITIONS FIRSTLY, THAT THE ASSETS AS MENTIONED IN CLAUSE (I) AND (II) ARE OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND SECO NDLY USED FOR BUSINESS PURPOSE. SIR, THERE IS NO DISPUTE THAT ASSETS ON WHICH DEPRE CIATION HAS BEEN CLAIMED BY THE ASSESSEE ARE OWNED BY THE ASSESSEE COMPANY, THE FIRST CONDITION AND SECONDLY USED FOR BUSINESS PURPOSE. IN THIS REGARD OUR HUMBLE SUBMISSIONS ARE AS UNDER: I. MANUFACTURING FERTILIZERS WAS ONE OF THE ACTIVIT IES OF THE COMPANY AND RELATING ALL ASSETS TO IT, IN OUR CONSI DERED VIEW, IS NOT CORRECT. II. THE ASSETS OF THE COMPANY ARE NOT BEING USED FO R ANY PURPOSE OTHER THAN THAT OF THE COMPANY. III. AS IS EVIDENT FROM THE ANNUAL REPORT SUBMITTED TO THE AO COMPANY IS OPERATING FROM CORPORATE OFFICE, NOIDA A ND FOLLOWING UNITS & DIVISIONS DURGAPUR UNIT BARAUNI UNIT HALDIA DIVISION MARKETING, FP & ARD & CPLO DIVISION ALL THE ABOVE ARE HAVING FULL TIME IN-CHARGE. IV. BUILDING, ELECTRIFICATION BUILDING, ROAD & CULVERTS , WATER SYSTEM & DRAINAGE SEWERAGES, OFFICE APPLIANCES AND BOOKS CONTINUE TO BE USED. WITHOUT THESE THE WORK OF SECU RITY GUARDS, (180 PERSONS), MAINTENANCE STAFF OF 2 TO 4 PERSONS IN EACH OF THE UNITS), ADHOC STAFF, TEMPORARY LABOUR AND THE O FFICE SPACE FOR UNIT HEADS AND ACCOUNTS WORKS IN EACH OF THE AB OVE UNITS I.T.A .NO.-409/DEL/2013 5 WOULD NOT HAVE BEEN POSSIBLE. SURVIVAL AND SECURITY OF ALL THE ASSETS OF THE COMPANY DEPENDS UPON THE USE OF THESE . V. IT IS NOT THE CASE OF THE REVENUE THAT THE EXPENSES CLAIMED BY THE ASSESSEE ARE BOGUS OR HAVE NOT BEEN INCURRED ON THE MAINTENANCE AND REPAIR. VI. IN THE CASE LAW CITED BY THE LD AO RISHIROOP POLYME RS (P) LTD 286 ITR (AT) 54 ORDER DATED 8 SEPTEMBER 2005 PLANT WAS CLOSED DUE TO LOCKOUT AND STRIKE FOR FIVE YEARS AND MUMBAI TRIBUNAL ALLOWED THE DEPRECIATION ON OTHER ASSETS W HILE DISALLOWING THE DEPRECIATION ON PLANT AND MACHINERY . THUS, THE LD DCIT HAS ERRED IN LAW IN INTERPRETATION OF THE S AID CITATION AS DEPRECIATION ON OTHER ASSETS IS ALLOWABLE INSTEA D OF DISALLOWED AS DECIDED IN THIS CASE AND SIMILAR TO O UR CASE. VII. IN A RECENT DECISION THE HONBLE HIGH COURT OF HP I N THE CASE OF CIT V. KIRTI RESORTS (P) LTD (2011) 60 DTR 138/2 43 CTR 341, HAS HELD THAT ASSESSEE COMPANY DID NOT DO ANY HOTEL BUSINESS AFTER ITS HOTEL BUILDING WAS WASHED AWAY I N FLOODS IN SEPTEMBER, 1995. HOWEVER, ASSESSEE COMPANY BEING A JURISTIC ENTITY INCORPORATED UNDER THE COMPANIES ACT, DID NO T CEASE TO EXIST. SINCE IT HAS TO FULFILL ITS OBLIGATIONS IMPO SED BY COMPANIES ACT TILL IT IS WOULD UP SOME, STAFF HAS T O BE MAINTAINED. THEREFORE, ONCE THE ASSESSEE COMPANY IS IN EXISTENCE, IT IS ENTITLED TO DEPRECIATION THOUGH IT HAS DISCONTINUED ITS BUSINESS (A.YS. 1998-99 TO 2002-03 ). VIII. DEPRECIATION CHART IN ANNEXURE TO FORM 3 CD IS ATTA CHED HEREWITH. I.T.A .NO.-409/DEL/2013 6 IN THE LIGHT OF BARE FACTS AND AS PER THE INCOME TA X ACT 1961, KINDLY ALLOWED THE APPEAL. 4. THE LD. CIT (A) CONFIRMED THE AOS ACTION INTER ALIA OBSERVING THAT IN THE CASE OF ASSESSEE, THE BUSINESS HAD BEEN ORDERED TO BE CLOSED FOREVER AND THE BUILDING WERE NOT PUT TO USE DURING THE YEAR. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E PERUSED THE RECORD OF THE CASE. THERE IS NO DISPUTE THAT ASSESSEE HAD ONLY BEEN ORDERED TO BE CLOSED DOWN BY THE GOVERNMENT OF INDIA BUT HAD NOT GONE INTO LIQUIDATION. IT IS PERTINENT TO NOTE THAT CLAIM IN RESPECT OF VOLUN TARY SEPARATION SCHEME EXPENSES OF RS.12,87,200/- HAD BEEN ALLOWED BY LD. CIT (A). THEREFORE, IT CANNOT BE DENIED THAT FOR IMPLEMENTING THE SCHEME N ECESSARY INFRASTRUCTURE MUST HAVE BEEN MAINTAINED BY ASSESSEE. HENCE, MEREL Y ON THE GROUND THAT THE COMPANY WAS DIRECTED TO BE CLOSED DOWN, IT COUL D NOT BE INFERRED THAT TILL THE TIME OF FINAL CLOSURE, NO ACTIVITIES WERE BEING CARRIED OUT BY THE ASSESSEE. 6. FROM THE SUBMISSIONS OF THE ASSESSEE, AS NOTED E ARLIER, IT IS EVIDENT THAT MINIMAL STAFF HAD TO BE KEPT FOR PROPER SURVIV AL AND SECURITY OF ALL THE ASSETS OF THE COMPANY. THE ASSESSEE COMPANY BEING A JURISTIC ENTITY INCORPORATED UNDER THE COMPANIES ACT, DID NOT CEASE TO EXIST, MERELY ON PASSING OF THE ORDER BY GOVERNMENT OF INDIA FOR CLO SURE OF THE COMPANY. IT HAD TO FULFILL ALL THE OBLIGATIONS IMPOSED BY THE C OMPANIES ACT TILL IT WAS FINALLY DISSOLVED. NECESSARY STAFF HAD TO BE MAINTA INED . UNDER SUCH I.T.A .NO.-409/DEL/2013 7 CIRCUMSTANCES, DEPRECIATION HAD TO BE ALLOWED THOUG H ASSESSEE HAD DISCONTINUED ITS BUSINESS. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF HONBLE, H.P. HIGH COURT IN THE CASE OF CIT VS. KIRTI RESORTS (P.) LTD. (2011) 60 DTR 138/243 CTR 341WHEREIN IT HAS BEEN HE LD THAT AS LONG AS THE COMPANY IS IN EXISTENCE, IT IS ENTITLED TO DEPRECIA TION THOUGH IT HAS DISCONTINUED ITS BUSINESS. 7. IN VIEW OF ABOVE DISCUSSION, WE DIRECT THE AO TO ALLOW ASSESSEES CLAIM OF DEPRECIATION. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/04/2014. SD/- SD/- (C. M. GARG) ( S. V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 25/04/2014 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR