Deputy Commissioner of Income Tax, New Delhi V. M/s Brawan Pharmaceuticals Ltd., New Delhi

ITA 4867/DEL/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77689 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 08-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: M K AGARWAL
• Keywords: Depreciation
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI: JUDICIAL MEMBER AND SHRI SHAMIM YAHYA : ACCOUNTANT MEMBER ITA NO. 4867/DEL/2010 ASSTT. YR: 2005-06 DCIT CIR. 3(1), VS. M/S BRAWN PHARMACEUTICALS L TD., NEW DELHI. DELHI STOCK EXCHANGE BUILDING 4/4B ASAF ALI ROAD, NEW DELHI. PAN: AAACB 2655 D (APPELLANT ) ( RESPONDENT ) APPELLANT BY : MS. Y. KAKKAR SR. DR RESPONDENT BY : SHRI M.K. AGARWAL CA DATE OF HEARING: 12-03-2014. DATE OF ORDER : 25-04-2014. O R D E R PER R.P. TOLANI, J.M: : THIS IS REVENUES APPEAL AGAINST ORDER DATED 18-8-2 010 PASSED BY THE CIT(A)-V, NEW DELHI IN APPEAL NO. 197/09-10 PERTAIN ING TO A.Y. 2005-06. SOLD GROUND RAISED IS AS UNDER: THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DE LETING ADDITION OF RS. 71,12,659/- MADE ON ACCOUNT OF DISA LLOWANCE OF ASSETS WRITTEN OFF IGNORING THE FACT THAT THE ASSES SEE DID NOT GIVE ANY EVIDENCE IN SUPPORT OF ITS CLAIM DURING THE ASS ESSMENT PROCEEDINGS AND THE AUDITORS OF THE ASSESSEE CATEGO RIZED THIS AMOUNT UNDER THE HEAD ASSETS WRITTEN OFF WHICH ME ANS THAT IT IS OF CAPITAL NATURE. ITA 4867/DEL/2011 M/S BRAWN PHARMACEUTICALS LTD. 2 2. BRIEF FACTS ARE: THE ASSESSEE IS A PUBLIC LIMITE D COMPANY, LISTED ON THE BOMBAY STOCK EXCHANGE. FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE FILED ITS RETURN DECLARING LOSS OF RS. 38,55,463/- WHICH WAS PROCESSED U/S 143(1). THEREAFTER THE ASSESSMENT WAS REOPENED ON A REASON THAT 143(1) ASSESSMENT HAD RESULTED IN OVER ASSESSMENT OF LOSS OF RS. 71,12,659/-. 2.1. THE ASSESSEE IN ITS ASSETS HAD A BLOCK OF ASSE TS, WDV WHEREOF AMOUNTED TO RS. 1,92,67,778/-. DUE TO EXPIRY OF THE LEASE, ASSESSEE HAD TO VACATE THE PREMISES AND CLOSE ITS BUSINESS, THEREFO RE, THE ASSETS WERE PUT ON SALE AND ON CERTAIN ITEMS AN AMOUNT OF RS. 60,15,80 0/- WAS REALIZED AND BALANCE OF RS. 61,39,318/- WAS DEBITED TO P&L A/C A S LOSS ON SALE OF ASSETS. 2.2. BEFORE ASSESSING OFFICER IT WAS CONTENDED IN THIS BEHALF THAT THE BALANCE AMOUNT WAS WRITTEN OFF IN P&L A/C AS THE RE MAINING ASSETS WERE NOT BEING CAPABLE OF SALE AND CARRIED NO REALIZABL E VALUE, WHICH WAS WRITTEN OFF IN THE BOOKS OF A/CS AND DEBITED TO P&L A/C. TH US, A TOTAL CLAIM OF RS. 71,12,660/- WAS MADE. ASSESSING OFFICER, HOWEVER, D ISALLOWED THIS DEBITED AMOUNT BY FOLLOWING OBSERVATIONS: THE ASSESSEE HAS NOT SUBMITTED ANY DOCUMENTARY EVI DENCE IN SUPPORT OF HIS CONTENTION NOR FILED REPLY TO POINT NO. (I) & (II) DESIRED AS PAR NOTE SHEET ENTRY DATED 12/11/2008. F URTHER THE PERUSAL OF AUDITED P&L ACCOUNT REVEALS THAT THE AUD ITOR OF THE ASSESSEE COMPANY CATEGORIZED THE AMOUNT OF RS. 71,1 2,659/- UNDER THE HEAD ASSETS WRITTEN OFF IT MEANS THE AM OUNT IS CAPITAL IN NATURE. HENCE THE CONTENTION OF THE ASSE SSEE IS NOT ACCEPTABLE AND THE AMOUNT OF RS. 71,12,659/- PERTAI NING TO ITA 4867/DEL/2011 M/S BRAWN PHARMACEUTICALS LTD. 3 ASSETS WRITTEN OFF IS ADDED BACK TO THE RETURN INCO ME OF THE ASSESSEE BEING CAPITAL IN NATURE. 2.3. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL, WH ERE IT WAS PLEADED THAT ASSESSING OFFICER HAS NOT RAISED ANY DOUBTS ON THE GENUINENESS OF THE LOSS. IT HAS BEEN WRONGLY DISALLOWED BY HOLDING IT TO BE A C APITAL LOSS. THE DEPRECIATION CHART CONTAINED TWO BLOCKS I.E. BUILDI NGS @ 5%; AND BLOCK & AIR HANDLING SYSTEM @ 25% SITUATED IN A RENTED PRE MISES. THE ASSESSEE HAD TO CLOSE ITS BUSINESS AS LEASE HAS EXPIRED AND HAD TO VACATE THE IMPUGNED PREMISES. THE REALIZED VALUE OF ASSETS SOLD WAS ALR EADY CREDITED AND SINCE THE BALANCED ITEMS WERE TO BE DISCARDED, THEY HAD N O REALIZABLE VALUE FROM THE POINT OF VIEW OF A BUSINESSMAN. THEREFORE, THE LOSS WAS CLAIMED IN P&L A/C. ASSESSING OFFICER FAILED TO APPRECIATE THAT AS PER THE SCHEME OF BLOCK OF ASSETS, THE ASSESSEE HAVING BEEN DISPOSSESSED OF T HE ASSETS ITS REALIZABLE VALUE WAS NIL AND THE DIFFERENCE WAS ELIGIBLE TO BE CLAIMED U/S 32(1)(III). CIT(A) FOUND FAVOUR WITH THE EXPLANATION OF THE ASS ESSEE AND DELETED THE DISALLOWANCE BY FOLLOWING OBSERVATIONS: 5.2. I FIND FORCE IN THE SUBMISSIONS MADE BY THE A SSESSEE COMPANY IN SO FAR AS THE ADDITIONS ON ACCOUNT OF AS SETS WRITTEN OFF ARE CONCERNED. THE SECTION 37 OF THE ACT IS GEN ERAL AND RESIDUARY IN NATURE FOR ALLOWING ALL BUSINESS EXPEN DITURE PROVIDED NOT BEING OF CAPITAL NATURE OR EXPENDITURE OF PERSONAL IN NATURE AND WHICH DOES NOT FIT INTO ANY OTHER EXP ENDITURES PROVIDED IN OTHER SECTIONS OF THE ACT. ITA 4867/DEL/2011 M/S BRAWN PHARMACEUTICALS LTD. 4 5.3. I FIND FROM THE SCHEDULE OF FIXED ASSETS ANNEX ED WITH THE B/SHEET THAT THE ASSETS WHICH HAS BEEN WRITTEN OFF ARE DEPRECIABLE ASSETS AND DEPRECIATION HAS BEEN CLAIME D ON THOSE ASSETS IN THE PAST AND ALLOWED AND THE AMOUNT OF DE FICIENCY/ DIFFERENCE IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE COMPANY DURING THE YEAR UNDER QUESTION WHICH IS CL EARLY ALLOWABLE U/S 32(II)/[III] OF THE ACT. 5.4. THE SECTION 37 RELIED UPON BY THE AO IS NOT A PPLICABLE IN CASE OF DEPRECIABLE ASSETS BEING BUSINESS ASSETS ON WHICH DEPRECIATION HAS BEEN REGULARLY ALLOWED. MY ATTENTI ON IS ALSO DRAWN TO THE JUDGMENTS CITED BY THE ASSESSEE COMPAN Y IN THE CASE OF CIT VS. ARUNA SIZING MILLS (127 ITR 186) AN D GUIDY MACHINERY TOOLS (P) LTD. VS. GT. (254 ITR 780), AND ALSO SUPREME COURT JUDGMENT IN THE CASE OF WESTERN STATE S TRADING COMPANY (P) LTD. VS. CIT 80 ITR 21. I AM INCLINED T O ACCEPT THE CONTENTION OF THE ASSESSEE IN VIEW OF THE CLEAR PROVISIONS OF SEC. 32(1)(II)/(III) OF THE ACT. 5.5. I THEREFORE DELETE THE ADDITIONS OF RS. 71,12, 659/- MADE TO THE RETURNED INCOME OF THE ASSESSEE COMPANY. THI S GROUND OF APPEAL ON MERIT IS ALLOWED. 2.4. AGGRIEVED, REVENUE IS BEFORE US. 3. LD. DR CONTENDS THAT THE ORDER OF LD.. CIT(A) IS NOT CORRECT ON FOLLOWING POINTS: (I) IT IS NOT CLEAR THAT THE BALANCE OF THE ASSETS WERE ABANDONED BY THE ASSESSEE OR KEPT SOME WHERE ELSE AND THEY HAD REALI ZABLE VALUE OR NOT. ASSESSING OFFICER HAS HELD THAT NO EVIDENCE HA S BEEN FILED. (II) RELIANCE IS PLACED ON THE HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF ALLIED ELECTRONICS AND MAGNETIC LTD. V S. DCIT 304 ITR 160; AND THAT OF HONBLE KERALA HIGH COURT IN T HE CASE OF CIT VS. COOPERATIVE WHOLESALE SOCIETY 195 ITR 361. ITA 4867/DEL/2011 M/S BRAWN PHARMACEUTICALS LTD. 5 4. LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND C ONTENDS THAT THE LD. ASSESSING OFFICER HAS NOT DOUBTED THE FACT THAT ASS ESSEE HAD TO VACATE THE PREMISES DUE TO EXPIRY OF LEASE AND CLOSURE OF BUSI NESS. ASSESSING OFFICER HAS ACCEPTED THE LOSS ALBEIT A CAPITAL LOSS IGNORIN G THE SPECIFIC PROVISION OF SEC. 32(1)(III). SINCE PREMISES WERE TO BE VACATED , THE QUESTION OF ANY PORTION OF BLOCK OF ASSETS REMAINING WITH THE ASSES SEE DOES NOT ARISE. THE STATEMENT THAT ASSESSEE HAD NO ASSET IN POSSESSION, HAS NOT BEEN DISPUTED BY LOWER AUTHORITIES. NO WHERE IN THE ASSESSMENT ORDE R ASSESSING OFFICER HAS DRAWN ANY ADVERSE INFERENCE ON THIS ISSUE. THE DISA LLOWANCE HAS BEEN MADE AFTER ACCEPTING THE LOSS BUT ON THE GROUND THAT TH E CLAIM OF THE ASSESSEE IS CAPITAL IN NATURE, THEREFORE WHAT IS TO BE DECIDED IS WHETHER THE CIT(A) WAS CORRECT IN HOLDING THAT THE AMOUNT WAS ALLOWABLE TO THE ASSESSEE IN VIEW OF THE CLEAR PROVISIONS OF SEC. 32(1)(II)/(III). AS R ELIED BY LD. CIT(A) THE PROVISIONS OF SEC. 32(1)(III) READ AS UNDER: IN THE CASE OF ANY BUILDING, MACHINERY, PLANT OR F URNITURE IN RESPECT OF WHICH DEPRECIATION IS CLAIMED AND ALLOWE D UNDER CLAUSE (I) AND WHICH IS SOLD, DISCARDED, DEMOLISHED OR DESTROYED IN THE PREVIOUS YEAR (OTHER THAN THE PREV IOUS YEAR IN WHICH IT IS FIRST BROUGHT INTO USE), THE AMOUNT BY WHICH THE MONEYS PAYABLE IN RESPECT OF SUCH BUILDING, MACHINE RY, PLANT OR FURNITURE, TOGETHER WITH THE AMOUNT OF SCRAP VALUE, IF ANY, FALL SHORT OF THE WRITTEN DOWN VALUE THEREOF. ITA 4867/DEL/2011 M/S BRAWN PHARMACEUTICALS LTD. 6 4.1. IT HAS NOT BEEN DISPUTED BY ASSESSING OFFICER THAT THE ASSETS WERE PART OF WDV OF BLOCK OF ASSESSMENT AND THE LOSS WAS INCU RRED, IT HAS BEEN DISALLOWED ONLY BY HOLDING IT TO BE CAPITAL IN NATU RE. THE BALANCE OF ASSETS WERE NEITHER CAPABLE OF BEING SOLD NOR HAD ANY REAL IZABLE VALUE AS PER THE CLEAR PROVISIONS OF SEC. 32(1)(III) ABOVE. THE CLAI M IS TO BE ALLOWED. RELIANCE IS PLACED ON FOLLOWING CASE LAWS: - ACE CAMERA EQUIPMENT (P) LTD. VS. CIT 150 ITR 227 - GUIDY MACHINE TOOLS (P) LTD. VS. CIT 254 ITR 780 - CIT VS. ARUNA SIZING MILLS 127 ITR 186 4.2. IT IS PLEADED THAT LD. CIT(A) HAS RIGHTLY ALLO WED THE CLAIM OF THE ASSESSEE IN TERMS OF CLEAR PROVISIONS OF LAW. THE O RDER OF CIT(A) IS RELIED UPON. 5. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A ) IN AS MUCH AS: (I) THE CLAIM OF THE ASSESSEE CLEARLY FALLS WITHIN THE SCOPE OF SEC. 32(1)(III). THE PART OF THE AMOUNT REALIZED BY THE ASSESSEE HAS BEEN OFFERED TO TAX. THE BALANCE OF THE AMOUNT PERTAININ G TO THE BLOCK HAD NO REALIZABLE VALUE, HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER. THE DIFFERENCE IS ALLOWABLE U/S 32(1)(III). (II) LD. ASSESSING OFFICER HAS NOT DOUBTED THE GENU INENESS OF THE CLAIM AND DISALLOWED IT ONLY HOLDING THE LOSS TO BE CAPITAL IN NATURE. THEREFORE, THE DOUBT RAISED BY THE LD. DR DOES NOT EMERGE FROM THE ORDER OF ASSESSING OFFICER. ITA 4867/DEL/2011 M/S BRAWN PHARMACEUTICALS LTD. 7 (III) RELIANCE PLACED ON HONBLE KERALA HIGH COURT JUDGMENT IN THE CASE OF CIT VS. COOPERATIVE WHOLESALE SOCIETY (SUPR A) IS NOT APPLICABLE TO THE FACTS OF THE CASE AS THE ASSESSME NT ORDER IN QUESTION IS A.Y. 1972-73 WHICH IS PRIOR TO THE AMENDED SCHEM E OF BLOCK OF ASSETS. (IV) RELIANCE PLACED ON HONBLE DELHI HIGH COURT J UDGMENT IN THE CASE OF ALLIED ELECTRONICS AND MAGNETIC LTD. (SUPRA ) IS ALSO NOT APPLICABLE AS IN THIS CASE THE ASSETS WERE NOT USED BY THAT ASSESSEE. WHEREAS IN THIS CASE THERE IS NO SUCH ALLEGATION BY THE ASSESSING OFFICER. BESIDES, PART OF THE SALE PROCEEDS HAVE BE EN ACCEPTED AND THERE IS NO ALLEGATION THAT THE ASSESSEES BUSINESS WAS NOT CONDUCTED IN THIS YEAR. 5.1. IN VIEW OF ABOVE, WE UPHOLD THE ORDER OF CIT(A ). 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED.. ORDER PRONOUNCED IN OPEN COURT ON 25-04-2014. SD/- SD/- ( SHAMIM YAHYA) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 25-04-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR