Sakthi Sugars Limited, CHENNAI V. ACIT, Coimbatore

ITA 430/CHNY/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8176 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 22-12-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 02-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R VIJAYARAGHAVAN
• Assessee Lawyers: DURAI PANDIAN SR
• Keywords: Business income; Depreciation; Rule of consistency; Additional evidence; Difference of opinion; Corroborative evidences; Change of opinion

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . . . , ! ' .. # $!% , ' () BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ! ./ ITA NO.478/MDS/2015 * +* /ASSESSMENT YEAR: 2009-10 THE DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1, 63-A, RACE COURSE ROAD, COIMBATORE. VS. M/S.SAKTHI SUGARS LTD., 180, COURSE ROAD, COIMBATORE 641 018. [PAN: AADCS 0651 B ] ( ,- /APPELLANT) ( ./,- /RESPONDENT) ! ./ ITA NO.430/MDS/2015 * +* /ASSESSMENT YEAR: 2009-10 M/S.SAKTHI SUGARS LTD., 180, COURSE ROAD, COIMBATORE 641 018. VS. THE ASST. COMMISSIONER OF INCOME TAX, CORPORATE RANGE-1, INCOME TAX OFFICE, COIMBATORE. [PAN: AADCS 0651 B ] ( ,- /APPELLANT) ( ./,- /RESPONDENT) ,- 0 1 / APPELLANT BY : MR.DURAI PANDIAN, SR.AR ./,- 0 1 /RESPONDENT BY : MR.R. VIJAYARAGHAVAN, ADV. # 0 2' /DATE OF HEARING : 22.12.2016 34+ 0 2' /DATE OF PRONOUNCEMENT : 13.01.2017 ITA NOS.478 & 430/MDS/2015 :- 2 -: / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : 1.0 THESE CROSS APPEALS ARE FILED BY THE REVENUE AN D THE ASSESSEE FOR THE AY 2009-10 AGAINST THE ORDER OF THE COMMISSIONE R OF INCOME TAX(APPEALS) IN APPEAL NO.366/11-12 OF CIR(A) DATED 30/12/2014. 2.0 THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS IN APPEAL: 3.0 THE DEPARTMENTAL APPEAL IS RELATED TO THE ASSES SMENT OF RENTAL INCOME RECEIVED BY THE ASSESSE COMPANY OF RS.54,96, 033/- UNDER THE HEAD INCOME FROM PROPERTY. FACTS OF THE CASE EXTRAC TED FROM THE ORDER OF THE CIT(A) AS UNDER: THE GROSS RECEIPTS INCLUDE THE FOLLOWING ITEMS: RENT FOR AMOUNT (RS.) EMPLOYEES QUARTERS 33,70,946-00 BANK BUILDING, POST OFFICE BLDG. CO- OP STORES BLDG. TELEPHONE EXCHANGE AND RENT FROM PREMISES SITUATED IN THE SUGAR MILL COMPOUND 7,75,087-00 FLAT PARK REVENUE 90,000-00 INDUSTRIAL SHED 3,00,000-00 CORPORATE OFFICE BUILDING 9,60,000-00 TOTAL 54,96,033-00 THE ASSESSEE HAS CONSTRUCTED THE QUARTERS ON ADJACE NT PROPERTIES AND LET OUT THE SAME TO THE STAFF MEMBERS OF THE COMPANY AN D SUBSTANTIAL PART OF RENT AROUND 33.71 LAKHS HAS BEEN RECEIVED FROM EMPLOYEES RESIDENTIAL QUARTERS APART FROM THE EMPLOYEES RESIDENTIAL QUARTERS, THE OTHER PROPERTIES WERE ORIGINALLY INTENDED FOR HOUSING OF OFFICES/FACTORIES OF SAKTHI SUGARS LIMITED (SUCH AS DIVISION OFFICE, CORPORATE OFFICE, GUEST HOUSE ETC.) TO TAKE CARE OF ITS VAST BUSINESS REQUIREMENTS OF OFFICE SPACE/GUEST HOUSE SPACE AND FACTORY BUILDING. WITH THIS INTENT, THE ABOVE PROPERTIES WERE HELD BY THE COMPANY FOR ITS OWN USE. NEVERTHELESS, THE COMPANY COULD NOT USE THE ABOVE ASSETS ON ITS OWN FOR THE TIME BEING ON VARIOUS BUSINESS COMPETITIONS. SO IN ORDER TO EX PLOIT THE BUSINESS ASSET (PROPERTY), IN THE MEANWHILE, THE COMPANY HAS LET THESE PROPERTIES ON RENT TO OTHERS. ITA NOS.478 & 430/MDS/2015 :- 3 -: THE APPELLANT COMPANY LET OUT PART OF ITS CORPORATE OFFICE BUILDING ALONG WITH SERVICES OF SECURITY, LIFT FACILITIES, WATER AND ELECTRICITY, T ELECOMMUNICATIONS FACILITIES, COMMON MAINTENANCE FACILITY TO M/S. ABT LIMITED FOR AN COM POSITE RENT OF RS.9,60,000/-. IN THE CASE OF M/S. KARNANI PROPERTIES LTD VS CIT 82 ITR 547 (SC), THE HONBLE SUPREME COURT HAS HELD THAT SERVICES RENDERED BY THE ASSESS EE WITH A SAID PURPOSE AND WITH A VIEW TO EARN PROFITS ARE BUSINESS ACTIVITIES AND TAXABLE U/S.28. THE ASSESSING OFFICER IN AN ARBITRARY MANNER HELD T HAT THE RENTAL INCOME RECEIVED BY THE COMPANY IS ASSESSABLE UNDER THE HEAD INCOME FROM H OUSE PROPERTY AND NOT AS INCOME FROM BUSINESS AS OFFERED IN THE RETURN OF INCOME. THE COMPANY HAD BEEN OFFERING THE RENTAL INCOME FR OM THE ABOVE SAID PROPERTIES UNDER THE HEAD INCOME FROM BUSINESS AND SUCH POSITION H AD SUBSISTED FOR THE PREVIOUS YEARS. IN ALL THE PREVIOUS YEARS SCRUTINY ASSESSMENTS, UP TO AY 2007-08 WHICH HAVE BEEN COMPLETED U/S 143(3), THE ASSESSING OFFICER HAD ACCE PTED THE COMPANYS STAND THAT INCOME ORIGINATING FROM THESE PROPERTIES WOULD BE A SSESSABLE UNDER THE HEAD INCOME FROM BUSINESS ONLY. IT IS FURTHER STATED HERE THAT THE APPELLANT COMPA NY HAD GROUPED ALL THE AFORESAID PROPERTIES, UNDER THE BLOCK OF BUILDINGS FOR THE PURPOSE OF INCOME TAX DEPRECIATION AND COMPANIES ACT AND DEPRECIATION AS PER INCOME TAX AC T, 1961 HAS BEEN CLAIMED IN ALL THE YEARS AT APPLICABLE RATES AND ACCEPTED BY THE ASSES SING OFFICER. THE COMPANY FURTHER SUBMITS THAT, ALL OF A SUDDEN C OMING TO A DIFFERENT CONCLUSION ON SAME SET OF FACTS, THE ASSESSING OFFICER HAS NOT FOLLOWED THE RULE OF CONSISTENCY. 3.1 THE ASSESSEE ADMITTED THE RENT RECEIPTS AS A BU SINESS INCOME AND THE AO ASSESSED THE SAME AS INCOME FROM PROPERTY. THE ASSESSE WENT ON APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT(A) ALLOW ED THE APPEAL OF THE ASSESSE AND THEREFORE, THE DEPARTMENT IS IN APPEA L BEFORE THIS TRIBUNAL. 3.2 APPEARING FOR THE REVENUE LD.DR ARGUED THAT T HE ASSESSE IS OWNER OF THE PROPERTY AND HAS RECEIVED THE RENTS FROM THE PROPERTY LET OUT TO VARIOUS TENANTS AND THE RENTS RECEIVED REQUIRED TO BE ASSESSED AS INCOME FROM PROPERTY AS PER SEC.22 OF INCOME TAX ACT. ON T HE OTHER HAND, THE LD.AR SUBMITTED THAT THE RENT RECEIVED WAS DIRECTLY LINKED TO THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY AND THE ASSESSEE C OMPANY IS CONSISTENTLY OFFERED THE RENT RECEIPTS UNDER THE HE AD INCOME FROM BUSINESS FOR THE PAST SEVERAL YEARS. THE STAND TAKE N BY THE ASSESSEE WAS ALSO ACCEPTED BY THE DEPARTMENT IN ALL THE EARLIER YEAR SCRUTINY ITA NOS.478 & 430/MDS/2015 :- 4 -: ASSESSMENTS AFTER VERIFYING THE FACTS. HOWEVER, WHI LE COMPLETING THE ASSESSMENT FOR THE AY 2008-09 AND AY 2009-10, ON TH E SAME SET OF FACTS THE ASSESSING OFFICER HAS COME TO DIFFERENT CONCLUS ION. THIS IS NOT PERMISSIBLE UNDER THE LAW AS HELD BY HONBLE RAJAS THAN HIGH COURT IN THE CASE OF NATIONAL BEARINGS LTD.208 ITR 872 THAT JUDI CIAL PROPRIETY REQUIRES CONSISTENCY. THE ASSESSEE RELIED ON ITAT B BENCH DECIS ION IN THE ASSESSEES OWN CASE FOR THE AY 2008-09 IN ITA NO.614/MDS/2012 & IT A NO.867/MDS/2012 DATED 30.01.2015. 4.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE HAS LET OUT THE PROPERTY AND RECEIVIN G THE RENTS AND OFFERED THE INCOME UNDER THE HEAD BUSINESS AND THE SAME WAS ACCEPTED BY THE DEPARTMENT AND ASSESSED AS BUSINESS INCOME F OR THE EARLIER YEARS. THE ASSESSE STATED THAT THE PROPERTIES ARE LET OUT ALONG WITH SERVICES OF SECURITY, LIFT, ETC. THE INCOME WAS ACCEPTED AS BU SINESS INCOME IN THE EARLIER YEARS AND THE DEPARTMENT HAS ACCEPTED THE I NCOME FROM PROPERTY IS ASSESSABLE AS BUSINESS INCOME. THERE IS NO CHANG E IN THE CHARACTER OF THE ASSET AND THE TRIBUNAL IN THE ASSESSES OWN CAS E FOR THE AY 2008-09 CITED SUPRA HELD IT AS BUSINESS INCOME AS UNDER: 10. THE SECOND ISSUE IN APPEAL OF THE REVENUE IS RE NTAL RECEIPTS BEING TREATED AS BUSINESS INCOME. THE ASSESSEE DURING THE RELEVANT PERIOD RECEIVED RENTAL INCOME OF ` 55,20,726/- AND OFFERED THE SAME AS BUSINESS INCOME . RENTAL INCOME INCLUDES, INCOME ITA NOS.478 & 430/MDS/2015 :- 5 -: FROM LETTING OUT OF STAFF QUARTERS TO ITS EMPLOYEES AND DIRECTORS, INCOME FROM LETTING OUT OF CORPORATION OFFICE BUILDING, INDUSTRIAL SHED ETC. THE ASSESSEE FOR THE PAST SEVERAL YEARS HAS BEEN CONSISTENTLY SHOWING RENTAL INCOME UNDER THE HEAD INCOME FROM BUSINESS. FOR THE FIRST TIME IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSING OFFICER OBJECTED TO TREATING OF RENTAL INCOME AS BU SINESS INCOME. A PERUSAL OF THE RECORDS SHOW THAT THE ASSESSEE HAS BEEN RECEIVING R ENTAL INCOME FROM LETTING OUT OF 14 ITA 614 & 867/12 COMMERCIAL/BUSINESS ASSETS. SUBSTA NTIAL PART OF RENTAL INCOME ` 33,11,438/- IS RECEIVED FROM LETTING OUT OF STAFF Q UARTERS AND THE REMAINING RENTAL INCOME IS FROM COMMERCIAL BUILDINGS LIKE INDUSTRIAL SHED, CORPORATE OFFICE ETC. IT IS A TRITE LAW, THAT ANY INCOME FROM EXPLOITING COMMERCI AL/BUSINESS ASSET IS A BUSINESS INCOME. THIS VIEW IS FORTIFIED BY THE JUDGMENTS REN DERED IN THE CASE OF CIT VS. VST MOTORS P. LTD. (SUPRA), SCIENTIFIC INSTRUMENTS CO. LTD. VS. CIT (SUPRA), CIT VS. ELNET TECHNOLOGIES LTD. (SUPRA) AND THE DECISION OF THE C O-ORDINATE BENCH IN THE CASE OF M/S. SAKTHI FINANCE LTD. (SUPRA). THE LD. COUNSEL F OR THE ASSESSEE HAS ALSO PLACED RELIANCE ON BOARD CIRCULAR NO.10/14/66-IT(AI) DATED 12/12/1966 IN SUPPORT OF HIS SUBMISSIONS THAT QUARTERS BUILT BY EMPLOYERS FOR TH E ACCOMMODATION OF THEIR EMPLOYEES MUST BE REGARDED AS BUSINESS ASSETS. THE SAME IS REPRODUCED HEREIN BELOW: ATTENTION IS INVITED TO THE BOARDS LETTER NO.F.10 /97/63-IT(AI) DATED THE 29TH FEBRUARY, 1964, ADDRESSED TO THE COMMISSIONER OF IN COME-TAX IN WHICH INSTRUCTIONS WERE ISSUED, INTER ALIA, THAT DEVELOPMENT REBATE SH OULD NOT BE ALLOWED ON AIR- 15 ITA 614 & 867/12 CONDITIONERS AND FANS GIVEN BY AN EMPL OYER FOR THE PERSONAL USE OF THE EMPLOYEES OR DIRECTORS AT THEIR RESIDENCE, ON THE G ROUND THAT THE SAID PLANT AND MACHINERY WERE NOT WHOLLY USED FOR THE PURPOSE OF T HE ASSESSEES BUSINESS. 2. THE QUESTION HAS BEEN RE-EXAMINED BY THE BOARD RECENTLY IN THE LIGHT OF BOARDS LETTER F. NO.9/26/IT/60, DATED THE 21ST MARCH, 1960, IN WHICH IT WAS CLARIFIED THAT QUARTERS BUILT BY THE EMPLOYERS FOR THE ACCOMMODATION OF THE IR EMPLOYEES MUST BE REGARDED AS BUILDINGS USED FOR THE PURPOSE OF THE BUSINESS AND DEPRECIATION ALLOWED THEREON, WHERE THE OCCUPATION BY THE EMPLOYEE OF THE PROPERT Y OWNED BY THE EMPLOYER IS SUBSERVIENT TO AND NECESSARY FOR THE PURPOSE OF THE IR DUTIES. IT IS CONSIDERED THAT WHAT APPLIES TO BUILDINGS APPLIES ALSO TO THE FANS, AIR- CONDITIONERS AND REFRIGERATORS FITTED TO THOSE BUILDINGS, AS THOSE ARE AMENITIES WHICH VI RTUALLY FORM PART OF SUCH BUILDINGS. 3. ON RECONSIDERATION, THEREFORE, BOARD HAVE DECIDE D, IN SUPERSESSION OF THE INSTRUCTIONS ISSUED IN THEIR LETTER DATED THE 29TH FEBRUARY, 1964, THAT FANS, AIRCONDITIONERS, REFRIGERATORS, ETC., PROVIDED BY T HE EMPLOYER AT THE RESIDENCE OF THE EMPLOYEES SHOULD BE CONSIDERED TO HAVE BEEN USED WH OLLY FOR THE PURPOSE OF THE EMPLOYERS BUSINESS AND FULL DEPRECIATION AS MAY BE ADMISSIBLE IN ACCORDANCE WITH THE RULES, 16 ITA 614 & 867/12 SHOULD BE ALLOWED IN THE ASSESSMENT OF THE EMPLOYER. WHERE SUCH ASSETS HAVE BEEN INSTALLED ON OR BEFORE THE 31ST MARCH, 1965, DEVELOPMENT REBATE MAY ALSO BE ALLOWED IN RESPECT O F THESE ASSETS, IF THE REBATE IS OTHERWISE ADMISSIBLE. THE BOARD CIRCULAR MAKES COP IOUSLY CLEAR THAT THE STAFF QUARTERS ARE BUSINESS ASSETS. THIS TAKES USE TO IRR EFUTABLE CONCLUSION THAT INCOME ARISING FROM LETTING OUT OF STAFF QUARTERS IS A BU SINESS INCOME. MOREOVER, THE REVENUE HAS NOT DISPUTED THAT IN THE PAST, ASSESSEE HAS BEEN OFFERING RENTAL INCOME AS BUSINESS INCOME. JUDICIAL PROPRIETY DEMANDS CONSIST ENCY IN THE VIEW; UNLESS IT IS PERVERSE. THE REVENUE HAS BEEN ACCEPTING THE TREATM ENT GIVEN BY ASSESSEE TO RENTAL INCOME IN THE EARLIER ASSESSMENT YEARS. WE DO NOT S EE ANY CHANGE IN FACTS AND CIRCUMSTANCES IN THE IMPUGNED ASSESSMENT YEAR WHICH COULD TRIGGER CHANGE OF OPINION. ITA NOS.478 & 430/MDS/2015 :- 6 -: SINCE THERE IS NO CHANGE IN THE FACTS OF THE CASE , FOLLOWING RULE OF CONSTITUENCY WE HOLD THAT RENTAL INCOME IS TO BE AS SESSED AS INCOME FROM BUSINESS AND CONFIRM THE ORDER OF THE LD.CIT(A). T HIS GROUND OF REVENUES APPEAL IS DISMISSED . 5.0 ITA NO.430/MDS/2015: ASSESSEES APPEAL : 6.0 IN THE ASSESSEES APPEAL, GROUND NOS.1 & 10 A RE GENERAL IN NATURE WHICH DO NOT REQUIRE SPECIFIC ADJUDICATION. 7.0 GROUND NO.2 IS RELATED TO THE CLAIM OF DEPRECIA TION AMOUNTING TO RS.1,16,14,703/-. THE ASSESSEE HAS CLAIMED THE DEP RECIATION OF RS.1,16,14,703/- IN RESPECT OF SHIVA GANGA BEVERAGE UNIT. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER FOUND THAT THERE WAS NO PRODUCTION OR COMMERCIAL ACTIVITY IN THE UNIT, HENC E THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION SINCE THE ASSET WAS NOT PUT TO USE. THE AO RELIED ON THE DECISION OF DY.CIT VS.YELLAMMA DASAPP A HOSPITAL [(2007) 159 TAXMANN 58/290 ITR 353 (KAR) (HC)]. THE LD.CI T(A) CONFIRMED THE ADDITION MADE BY THE AO AS PER FOLLOWING DISCUSSION . IT IS ALSO TO BE CONSIDERED THAT THE BEVERAGES DIVI SION ALTHOUGH A SEPARATE UNIT OF M/S. SAKTHI SUGARS LTD., THE LINE OF BUSINESS IS COMPLET ELY DIFFERENT. IT IS ALSO A FACT THAT FOR EACH UNIT OF THE BUSINESS, SEPARATE BLOCK OF ASSETS AND PROFIT & LOSS A/C ARE PREPARED BY THE APPELLANT. IT IS ONLY WHEN PREPARING CONSOLIDATED A CCOUNTS OF THE PHYSICAL ACCOUNTS ARE MERGED TO ARRIVE AT THE COMPUTATION OF THE TOTAL IN COME. IN THE CASE OF THE APPELLANT, THE BEVERAGE UNIT HAS NOT STARTED COMMERCIAL PRODUCTION IN SPITE OF INSTALLATION OF SEVERAL PLANT AND MACHINERY. IT IS NOT A CASE OF THE APPELLANT TH AT THE FACTORY WAS FUNCTIONING AND THE MACHINERY COULD NOT BE PUT TO USE. THE BEVERAGE UNI T HAS NOT STARTED ITS COMMERCIAL PRODUCTION FOR THE LAST FIVE YEARS AND THERE WAS NO BUSINESS ACTIVITY GOING ON. TAKING THESE FACTS INTO CONSIDERATION, I AGREE WITH THE ASSESSIN G OFFICER IN DISALLOWING THE DEPRECIATION CLAIMED AMOUNTING TO RS.1,16,14,703/-. THESE GROUND S OF APPEAL ARE DISMISSED. 7.1 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE AS SESSE IS IN APPEAL BEFORE US. ITA NOS.478 & 430/MDS/2015 :- 7 -: 7.2 APPEARING FOR THE ASSESSEE, THE LD. SENIOR COUN SEL ARGUED THAT THE TRIAL RUN WAS COMPLETED IN THIS CASE AND THE ASSETS ARE READY FOR USE. THE LD.AR FURTHER ARGUED THAT AFTER THE CONCEPT OF INTR ODUCTION OF BLOCK OF ASSETS IN THE STATUE, IT IS ENOUGH TO THE ASSESSEE TO SHOW THAT THE ASSESSEE IS CARRYING ON THE PRODUCTION/BUSINESS ACT IVITY DURING THE YEAR. THE ASSESSE ALSO RELIED ON THE ITATS ORDER IN THE ASSESSEES OWN CASE FOR THE AY 2008-09 IN ITA NO.614/MDS/2012 DATED 30/01/2 015. THE CO- ORDINATE BENCH OF THIS TRIBUNAL ALLOWED THE DEPRECI ATION AS PER THE FOLLOWING DISCUSSION: 4.7 FROM THE ORDERS OF THE LOWER AUTHORITIES, WE F IND THAT THE TRIAL RUN IS NOT DISPUTED BY THE LOWER AUTHORITIES, HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) RECORDED IN THE IMPUGNED ORDER THAT THE TRIAL RUN WAS NOT DONE DURI NG THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION BUT DURING THE EARLIER YEARS AND THEREAFTER NO COMMERCIAL PRODUCTION WAS STARTED. ON THE RECORD, IT IS ESTABLISHED THAT THE ASSESSEE UNDERTOOK THE TRIAL RUN OF THE BEVERAGES DIVISION, RAW MATERIAL WAS CONSUMED AND PRODUCTION DURING THE TRIAL RUN WAS SENT FOR ANALYS IS AND FOUND SUITABLE FOR MARKETING PURPOSES. THUS, IT IS CLEAR BEYOND ANY DOUBT THAT T HE BEVERAGES DIVISION WAS READY FOR COMMENCEMENT OF COMMERCIAL PRODUCTION BUT DUE TO UN AVOIDABLE CIRCUMSTANCES WHICH WERE BEYOND THE CONTROL OF THE ASSESSEE, THE COMMER CIAL PRODUCTION DID NOT COMMENCE. WHEN THE ASSESSEE COMPLETED ALL THE REQUIRED FORMAL ITIES FOR START OF COMMERCIAL PRODUCTION, THEN, MERELY BECAUSE THE COMMERCIAL PRO DUCTION COULD NOT COMMENCE DUE TO THE CIRCUMSTANCES FOR WHICH THE ASSESSEE IS NOT RES PONSIBLE, THE CLAIM OF DEPRECIATION CANNOT BE DENIED SOLELY ON THE BASIS. IN THE CASE O F ACIT VS. CHENNAI PETROLEUM CORPORATION LTD (SUPRA), THIS TRIBUNAL VIDE ITS MAJ ORITY DECISION HAS HELD THAT, EVEN THOUGH THE ASSETS IN QUESTION WERE NOT ACTUALLY PUT TO USE IN THE RELEVANT PREVIOUS YEAR BUT KEPT READY FOR FULL USE FOR THE PURPOSE OF BUSINESS, THE ASSESSEE IS ENTITLED TO GET DEPRECIATION. SO IN ORDER TO GET DEPRECIATION U/S.32, IT IS NOT N ECESSARY THAT THE MACHINERY IN QUESTION SHOULD HAVE BEEN ACTUALLY USED IN THE RELEVANT PREV IOUS YEAR FOR THE PURPOSE OF BUSINESS AND IT IS SUFFICIENT IF THE SAME IS KEPT READY FOR USE DURING THE RELEVANT PREVIOUS YEAR, THOUGH NOT ACTUALLY USED DUE TO CIRCUMSTANCES BEYON D THE ASSESSEES CONTROL. 4.8 IN CASE OF M/S. SWATI SYNTHETICS LTD VS. ITO SUP RA, THE MUMBAI BENCHES OF THIS TRIBUNAL HAS HELD THAT DEPRECIATION IS ALLOWABLE ON ENTIRE B LOCK OF ASSETS EVEN IF SOME OF THE ASSETS OF THE BLOCK HAVE NOT BEEN USED. EXISTENCE OF INDIV IDUAL ASSET IN THE BLOCK OF ASSETS ITSELF AMOUNTS TO USE FOR THE PURPOSE OF THE BUSINESS. THE REFORE, AFTER THE AMENDED PROVISIONS OF THE ACT, THE SCHEME OF DEPRECIATION ON BLOCK ASSETS FULLY SUPPORTS THE CLAIM OF DEPRECIATION ON THE ENTIRE BLOCK IRRESPECTIVE OF THE FACT THAT A N INDIVIDUAL ASSET IS USED OR NOT FOR BUSINESS PURPOSE DURING THE PREVIOUS YEAR. 4.9 IN THE CASE IN HAND, THERE IS NO AMBIGUITY AND DOUBT ABOUT THE TRIAL RUN OF THE BEVERAGES DIVISION AND, THEREFORE, THE SAME WAS REA DY FOR COMMERCIAL PRODUCTION. THE ASSESSEE HAS NOT STARTED OR COMMENCED NEW BUSINESS BUT HAS ONLY ESTABLISHED A NEW DIVISION IN HIS OLD ON-GOING BUSINESS. THEREFORE, U NDISPUTEDLY, THE BEVERAGES DIVISION BECOMES A PART OF BLOCK ASSETS AND WAS ALSO TREATED SO BY THE ASSESSEE IN THE BOOK OF ACCOUNTS. HENCE, THE DECISIONS REFERRED SUPRA ARE A PPLICABLE ON THE FACTS OF THE PRESENT CASE. ACCORDINGLY, BY FOLLOWING THE DECISION OF CO- ORDINATE BENCH OF THIS TRIBUNAL (SUPRA), WE DECIDE THIS ISSUE FAVOUR OF THE ASSESSEE AND AGA INST THE REVENUE. THE ASSESSEE IS, THEREFORE, ENTITLED FOR DEPRECIATION ON BEVERAGES D IVISION. ITA NOS.478 & 430/MDS/2015 :- 8 -: IN VIEW OF THE FACTS OF THE CASE AND THE DECISION O F CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS, WE ALLOW THE GRO UND RAISED BY ASSESSEE IN ITS APPEAL. 7.3 IN VIEW OF THE FACTS OF THE CASE AND THE DECISI ON OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEAR, WE ALLOW THE GROUND RAISED BY THE ASSESSEE IN ITS APPEAL. 8.0 GROUND NO.6 IS DISALLOWANCE U/S.14(A) OF INCOME TAX ACT AND THIS GROUND IS NOT PRESSED BY THE LD.AR AND HENCE THIS G ROUND IS DISMISSED. 9.0 GROUND NOS.7 & 8 ARE RELATED TO THE DISALLOWANC E OF RS.50,18,93,388/-. THE AO DURING THE ASSESSMENT PR OCEEDINGS FOUND THAT THE ASSESSE HAS WRITTEN OFF ALL THE LOANS/ADVANCES GIVEN TO THE CANE GROWERS TO THE EXTENT OF RS.155,55,46,433/-. NO DE TAILS SUCH AS NAME AND ADDRESS OF THE PERSONS TO WHOM THE LOANS/ADVANC ES GIVEN AND THE RELEVANT EVIDENCE WERE NOT FURNISHED BEFORE THE AO. THEREFORE, THE AO MADE THE ADDITION OF RS.155,55,46,433/- TO THE RETU RNED INCOME. THE ASSESSE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD .CIT(A) CALLED FOR REMAND REPORT FROM THE AO. THE AO HAS VERIFIED THE GENUINENESS OF THE PAYMENT WITH THE PROCEDURES, SUGAR CONTROL ACT, THE METHOD AND MODE OF PAYMENT, ETC. AND SUBMITTED THE REMAND REPORT. ON THE BASIS OF THE AOS REMAND REPORT, THE LD.CIT(A) ALLOWED THE RELIE F TO THE EXTENT OF RS.105.51 CR. THE REMAINING AMOUNT OF RS.50.18 CR. WAS CONFIRMED BY THE LD.CIT(A) AS PER THE OBSERVATION MADE IN PARA N O.23 OF THE LD.CIT(A) ORDERS WHICH IS REPRODUCED FOR THE SAKE OF CONVENIE NCE AS UNDER: ITA NOS.478 & 430/MDS/2015 :- 9 -: IN THE CASE OF THE APPELLANT, IN ITS OWN CASE IN IT A NO.1280/2009 FOR THE ASST. YEAR 2006- 07, THE HONBLE ITAT HAD ALLOWED THE CLAIM AFTER GO ING THROUGH THE CLAIM OF THE APPELLANT. SINCE THE PAYMENTS MADE TO THE FARMERS ARE GENUINE AND ARE FOR BUSINESS PURPOSE, THE EXPENDITURE IS ALLOWABLE. THE ASSESSING OFFICER IS D IRECTED TO ALLOW THE CLAIM OF THE APPELLANT. REGARDING THE BALANCE AMOUNT OF RS.50,18 ,93,388/-, THE APPELLANT COULD NOT FURNISH THE EXACT DETAILS OF ADVANCES GIVEN TO FARM ERS. THE AUTHORIZED REPRESENTATIVE SUBMITTED THAT ADVANCES WERE GIVEN TO DHENKANAL WAT ER USERS SOCIETY FOR IMPROVING THE IRRIGATION FACILITIES TO GET ADEQUATE SUPPLY OF SUG ARCANE. THE COMPANY WAS MAKING PAYMENTS TO THESE SOCIETIES FOR THE PURPOSE OF OPER ATION OF THOSE IRRIGATION FACILITIES IN THE HOPE OF RECOVERING SUCH PAYMENTS FROM THE BILLS OF THE AGRICULTURISTS WHO SUPPLY CANE TO THE COMPANY. THE SCHEME DID NOT TURN OUT TO BE FRUI TFUL FROM THE COMPANYS ANGLE AND MANY OF THE RYOTS/CANE GROWERS DEFAULTED IN SUPPLYI NG THE PROMISED QUANTITY OF SUGARCANE TO THE COMPANY. THE COMPANY HAS WRITTEN-OFF IN THE BOOKS OF ACCOUNT AS IRRECOVERABLE ADVANCES. SIMILARLY, SDF LOAN DISBURSEMENT (SUGAR DEVELOPMENT FUND) INVOLVES THE LOAN TAKEN FROM THE SUGAR DEVELOPMENT FUND FOR UNDERTAKI NG OF SCHEME FOR DEVELOPMENT OF SUGARCANE AREAS. THE COMPANY SUBMITTED THAT IT HAS DISBURSED THE LOANS TO THE SUGARCANE GROWERS OUT OF THE LOAN AVAILED FROM SUGAR DEVELOPM ENT FUND SET UP BY CENTRAL GOVERNMENT. THESE LOANS AND ADVANCES OUTSTANDING IN SAKTHINAGAR SUGAR UNIT AND SIVAGANGA SUGAR UNIT HAVE BEEN WRITTEN OFF IN THE B OOKS DUE TO THE FACT THAT THE RECOVERABLE AMOUNTS FROM EACH INDIVIDUAL FARMERS AR E VERY SMALL. ON EXAMINATION OF THE UNIT-WISE, YEAR-WISE DETAILS, IT IS FOUND THAT THE APPELLANT SUBMITTED THAT THE LOANS WERE GIVEN FROM THE YEAR 1993-94 TO 2007-08. THE APPELLA NT ALSO FURNISHED THE AMOUNTS GIVEN TO CUTTACK WATER USERS SOCIETY AND BHAVANI CANE GRO WERS ASSOCIATION. REGARDING THE ADVANCES / LOANS GIVEN TO DHENKANAL WATER USERS SOC IETY, CUTTACK WATER USERS SOCIETY AND BHAVANI CANE GROWERS ASSOCIATION, THE APPELLANT COM PANY COULD NOT FURNISH THE FULL DETAILS REGARDING THE YEAR OF GIVING ADVANCES AND ALSO ANY CONFIRMATION FROM THESE SOCIETIES REGARDING THE LOANS RECEIVED BY THEM. FURTHER, THE LOANS & ADVANCES FROM SUGARCANE DEVELOPMENT FUND ALSO COULD NOT BE PROVED WITH ANY EVIDENCE. THE APPELLANT COULD NOT FURNISH THE DETAILS OF FARMERS, MODE OF PAYMENT AND THE BUSINESS EXIGENCY FOR THE LOANS/ADVANCES TO THE WATER USERS SOCIETY. IN VIEW OF THIS THE DISALLOWANCE OF RS.50.18 CRORES IS CONFIRMED. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 9.1 THE LD.AR APPEARING FOR THE ASSESSE, FILED ADDI TIONAL EVIDENCE IN THE FORM OF MEMORANDUM FOR REGISTRATION OF SOCIETY, RUL ES REGULATIONS OF SHAKTHI SUGAR CANE GOWERS RURAL DEVELOPMENT AND WAT ER USERS SOCIETY, DHENKANAL AND NOTE ON DHENKKANAL WATER USERS SOCI ETY AND REQUESTED FOR ADMISSION OF ADDITIONAL EVIDENCE AND SUBMITTED THAT AT THE TIME OF THE ASSESSMENT AND FIRST APPEAL, THE ASSESSE COULD NOT FURNISH THE EVIDENCE TO SUPPORT HIS CLAIM SINCE THE SAME WAS NOT MADE AVAIL ABLE. SINCE THE ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE PROVES THE EXISTENCE OF THE SOCIETY AND ITS MEMBERS THE A.R. REQUESTED FOR REM ITTING THE MATTER BACK TO THE FILE AO/LD.CIT(A) FOR VERIFICATION OF THE AS SESSEES CLAIM. ITA NOS.478 & 430/MDS/2015 :- 10 -: 9.2 ON THE OTHER HAND, THE LD.DR ARGUED THAT THE AD DITIONAL EVIDENCE PRODUCED BY THE ASSESSEE IS NO WAY HELPFUL SINCE, I T DOES NOT CONTAIN ANY EVIDENCE OR PROOF REGARDING THE AMOUNTS GIVEN TO TH E FARMERS AND THE CLAIM MADE BY THE ASSESSEE. THE LD.DR FURTHER ARGU ED THAT OUT OF THE TOTAL CLAIM MADE BY THE ASSESSED REGARDING THE WRIT E OFF OF RS.155.00 CR. THE DEPARTMENT HAS ALLOWED THE MAXIMUM RELIEF TO T HE EXTENT OF RS.105.51 CR AND FOR THE BALANCE THE ASSESSEE HAS N OT FURNISHED ANY EVIDENCE BEFORE THE LD.CIT(A) AND THE ITAT ALSO TH EREFORE, HE CONTENDED THAT NO FRUITFUL PURPOSE WILL BE SERVED EVEN IF TH E CASE IS REMITTED BACK TO AO WITHOUT THE SUPPORTING EVIDENCE IN THE FORM OF C ONFIRMATIONS, PRO- NOTES AGREEMENTS ENTERED WITH THE RELEVANT SOCIETIE S AND BORROWERS OF THE COMPANY. 9.3 WE HEARD THE RIVAL SUBMISSIONS AND ADMIT THE AD DITIONAL EVIDENCE. WE HAVE GONE THROUGH THE ADDITIONAL EVIDENCE PRODUC ED BY THE ASSESSEE AND HEARD THE BOTH THE PARTIES. THE ASSESSEE HAS P RODUCED THE COPIES OF MEMORANDUM FOR REGISTRATION OF SOCIETY, RULES REGUL ATIONS OF SHAKTHI SUGAR CANE GOWERS RURAL DEVELOPMENT AND WATER USERS SOCIETY, DHENKANAL AND NOTE ON DHENKKANAL WATER USERS SOCIE TY WHICH EVIDENCES THE EXISTENCE OF SOCIETY BUT IT DOES NOT PROVE THE GENUINENESS OF THE CLAIM MADE BY THE ASSESSEE. NO OTHER EVIDENCE WAS PRODUC ED BY THE ASSESSE IN THE FORM OF DETAILS OF PAYMENT MADE, PARTY WISE CON FIRMATIONS, COPIES OF AGREEMENTS DETAILS OF SECURITY AND SECURITY DOCUMEN TS, THE DETAILS OF BORROWERS NAME-WISE, AMOUNT OF ADVANCE AND MODE OF PAYMENT, ETC. IN ITA NOS.478 & 430/MDS/2015 :- 11 -: THE ABSENCE OF ANY EVIDENCE REGARDING THE GENUINENE SS AND PURPOSE OF ADVANCE/LOANS AND CONFIRMATIONS FROM THE BORROWERS OR RECIPIENTS OF THE AMOUNTS, WE DO NOT FIND ANY REASON TO REMIT THE MAT TER BACK TO THE CIT(A) AND CONFIRM THE ORDER OF THE LD.CIT(A). THE APPEAL OF THE ASSESSEE ON THIS GROUND IS DISMISSED . 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 11. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JANUARY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ' . . # $!% ) (D.S.SUNDER SINGH) ' /ACCOUNTANT MEMBER /CHENNAI, 5! /DATED: 13 TH JANUARY, 2017. TLN 0 .2$6 76+2 /COPY TO: 1. ,- /APPELLANT 4. # 82 /CIT 2. ./,- /RESPONDENT 5. 6 9 .2 /DR 3. # 82 ( ) /CIT(A) 6. * < /GF