ITO, New Delhi V. M/s Bhandari Engineers & Builders (P) Ltd., New Delhi

ITA 4892/DEL/2010

• Counselvise Citation: 489220114 RSA 2010
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM BILASH MEENA
• Keywords: Business income; Depreciation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A : NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.4892/DEL/2010 ASSESSMENT YEAR : 2007-08 ITO, WARD 2 (4), ROOM NO.301, 3 RD FLOOR, CR BUILDING, IP ESTATE, NEW DELHI. VS. BHANDARI ENGINEERS & BUILDERS (P) LTD., 91, BHANDARI HOUSE, NEHRU PLACE, NEW DELHI. PAN : AAACB1043K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NIREN GUPTA, CA REVENUE BY : SHRI RAM BILASH MEENA, SR.DR ORDER PER A.D. JAIN, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE DEPARTMENT FOR ASSESSMENT YEAR 2007-08 AGAINST THE ORDER DATED 30.08.2010 PASSED BY T HE CIT (A)-V, NEW DELHI, TAKING THE FOLLOWING SOLE EFFECTIVE GROUN D:- THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN D ELETING ADDITION OF RS.8,95,351/- MADE ON ACCOUNT OF DEPRECIA TION IGNORING THAT: A) THE MACHINERY WAS NOT PUT TO USE DURING THE WHOLE YEA R UNDER CONSIDERATION. B) RELIANCE IS PLACED ON THE DECISIONS IN UNITECH PRO DUCTS LTD. VS. ITO [2008] 22 SOT 430 (MUM); AND CIT VS. BH ARAT ALUMINIUM CO. LTD. [2010] 187 TAXMAN 111, WHEREIN I T IS HELD THAT DEPRECIATION IS ALLOWED ONLY IF THE ASSET IS USED F OR THE PURPOSE OF BUSINESS OR PROFESSION AT LEAST FOR SOME TIME DURING (NOT NECESSARILY THROUGHOUT) THE PREVIOUS YEAR. ITA NO.4892/DEL/2010 2 2. THE ASSESSEE CLAIMED DEPRECIATION OF ` 8,95,351/-, ON MACHINERY, AS UNDER:- AMOUNT (RS.) BLOCK I PLANT & MACHINERY, OFFICE EQUIPMENT, AIR CONDITIONER, ETC. 884749 BLOCK II COMPUTERS 8606 BLOCK III FURNITURE & FIXTURE 1996 895351 3. IT WAS CONTENDED THAT DURING THE YEAR, THE ASSESSEE H AD NO CONTRACT RECEIPTS; THAT THE ASSESSEE WAS INVOLVED IN ARBI TRATION/LEGAL PROCEEDINGS TO RECOVER ITS DUES/CLAIMS FROM NBC, DS CON STRUCTION, YOU ONE MARIA IN RESPECT OF CONTRACTS EXECUTED IN EARLIER YEARS; THAT THE DETAILED DUES AS PER THE ASSESSEES BALANCE SHEET WERE AS FO LLOWS:- AMOUNT (RS.) RAW MATERIAL COST TO BE RECOVERED 2175621 WORK IN PROGRESS (WORKS EXECUTED BUT NOT CERTIFIED 2000000 SUNDRY DEBTORS 9440709 RETENTION MONEY 565746 SALES TAX REFUNDABLE BY CLIENT 1062067 SECURITY DEPOSIT WITH CLIENTS 503076 4. THE ASSESSEE FURTHER CONTENDED BEFORE THE ASSESSING OFFI CER THAT IT WAS ALSO TO SECURE CONTRACT IN SAUDI ARABIA FOR APP ROXIMATELY ` 300 CRORES AND HAD ALSO GIVEN A BANK GUARANTEE OF ` 15 CRORES IN ITA NO.4892/DEL/2010 3 FURTHERANCE THEREOF, SHOWING THAT THE ASSESSEE WAS CARRYI NG ON BUSINESS ACTIVITIES DURING THE YEAR. 5. THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE, PLACING RELIANCE ON THE PROVISIONS OF SECTION 32 (1) OF THE IT ACT, CONTENDING THAT AS PER THE SAID PROVISION, DEPRECIATION COULD BE ALLOWED ON MACHINER Y USED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND THAT THE CLAIM OF DEPRECIATION COULD NOT BE ALLOWED IN THE ABSENCE OF ANY MANUFACTU RING ACTIVITY CARRIED ON BY THE ASSESSEE. 6. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT (A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER, BRINGING THE DE PARTMENT BEFORE US. 7. THE LD. DR HAS CONTENDED, CHALLENGING THE IMPUGNE D ORDER, THAT THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION M ADE ON ACCOUNT OF DEPRECIATION; THAT WHILE DOING SO, THE LD. CIT (A) H AS FAILED TO APPRECIATE THAT THE ASSESSEE DID NOT PUT ITS MACHINERY T O USE DURING THE WHOLE YEAR, THEREBY DISENTITLING ITSELF TO THE C LAIM OF DEPRECIATION, AS PER THE PROVISIONS OF SECTION 32 (1) OF THE IT ACT, WHICH REQUIRES DEPRECIATION TO BE ALLOWED ONLY ON MACHINERY PUT TO USE DURING THE YEAR. THE LD. DR HAS PLACED RELIANCE ON UNITEX PRO DUCTS LTD. VS. ITO 22 SOT 429 (MUM) AND CIT VS. BHARAT ALUMINIUM CO. 187 TAXMAN 111 (DEL). 8. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER, SUBMITTED THAT DURING THE YEAR, THOUGH ADMITTEDLY, NO MANUFACTURING ACTIVITY WAS CAR RIED OUT BY THE ASSESSEE, THE ASSESSEE WAS INVOLVED IN ARBITRATION/LEGAL PRO CEEDINGS TO RECOVER ITS DUES/CLAIMS, AS ABOVE AND, AS SUCH, THE ASSETS LIKE OFFICE ITA NO.4892/DEL/2010 4 EQUIPMENT, AIR CONDITIONERS, FURNITURE AND FIXTURES A ND COMPUTERS WERE PUT TO USE FOR THE BUSINESS PURPOSES OF THE ASSESSEE; THAT U SER IS NECESSARY IN THE YEAR OF PURCHASE OR INSTALLATION, WHEN THE DEPRECIATION IS FIRST CLAIMED AND, THEREAFTER, THE ASSE T GETS MERGED IN THE BLOCK OF ASSETS; THAT DEPRECIATION EVEN ON NON-EXI STENT ASSETS LIKE ASSETS DESTROYED/STOLEN, DISCARDED/DEMOLISHED, WHERE THERE IS NO SALE VALUE OF THE ASSET, OR THE SALE VALUE OF THE ASSET IS LESS THAN ITS WDV, IS ALLOWABLE UNDER THE ACT; THAT IN THE SUBSEQUENT YEARS, IT IS THE USE OF THE BLOCK OF ASSETS , RATHER THAN THE NEW ASSET, WHICH BECOMES THE YARDSTICK FOR GRANT OF DEPRECIATION, AS HELD IN BHAR AT ALUMINIUM CO. (SUPRA); THAT IN THE PRESENT CASE, THE ASSESSEE HAD USED SOM E OF THE ASSETS IN BLOCK I OF ASSETS CONSISTING OF PLANT AND MACHINE RY, OFFICE EQUIPMENT, AIR CONDITIONERS, ETC., ENTITLING IT TO D EPRECIATION ON THE ENTIRE BLOCK; THAT BLOCKS II AND III, CONSISTING OF CO MPUTERS AND FURNITURE AND FIXTURES WERE USED FOR DAY-TO-DAY ACTIVITIES; THAT THE LD. CIT (A) HAS CORRECTLY DELETED THE ADDITION WRONGLY MADE AND IN DOING SO, HE HAS DULY TAKEN INTO CONSIDERATION ALL THESE FACTS; AND THA T AS SUCH, THERE IS NO MERIT IN THE APPEAL FILED BY THE DEPARTMENT AND THE SAME BE DISMISSED. 9. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MAT ERIAL AVAILABLE ON RECORD. ADMITTEDLY, NO MANUFACTURING ACTIVITY WAS CARRIED OUT BY THE ASSESSEE DURING THE YEAR. THE ASSESSEE WAS INVOL VED IN ARBITRATION/LEGAL PROCEEDINGS, AS ABOVE, FOR RECOVERY OF ARREARS DUE FROM ITS CLIENTS/CONTRACTORS. UNDISPUTEDLY, THE ASSETS O N WHICH THE DEPRECIATION HAS BEEN CLAIMED STAND MERGED IN THE BLO CK OF ASSETS. THE ASSETS LIKE OFFICE EQUIPMENT, AIR CONDITIONERS, FUR NITURE AND FIXTURES AND COMPUTERS WERE PUT TO USE FOR THE BUSINESS PURPOSES OF THE ASSESSEE. AS SUCH, THE ASSESSEE HAS RIGHTLY BEEN HELD ENTITLE D TO DEPRECIATION ON THE ENTIRE BLOCKS. IN BHARAT ALUMI NIUM CO. (SUPRA), IT HAS BEEN HELD, INTER ALIA, THAT ONCE THE VARIOUS ASSETS ARE KEPT ITA NO.4892/DEL/2010 5 TOGETHER AND BECOME A BLOCK OF ASSETS, FOR THE PURPOSE OF DEPRECIATION, IT IS ONE ASSET; THAT THE NEW ASSETS LOSE T HEIR IDENTITY ONCE THEY BECOME AN INSEPARABLE PART OF THE BLOCK OF ASSETS AND IT CANNOT BE SAID THAT UNLESS A PARTICULAR ASSET IS USED FOR THE PURPOSE OF BUSINESS, DEPRECIATION IS NOT TO BE ALLOWED; THAT THE E XPRESSION USED FOR THE PURPOSE OF BUSINESS IN SECTION 32 (1) OF THE A CT, WHEN APPLIED TO A BLOCK OF ASSETS, WOULD MEAN THE USE OF THE BLOCK OF ASSETS AND NOT ANY SPECIFIC BUILDING, MACHINERY, PLANT OR FURNI TURE IN THE SAID BLOCK OF ASSETS. BHARAT ALUMINIUM CO. (SUPRA), THEREFORE, I S IN FAVOUR OF THE ASSESSEE, RATHER THAN IN FAVOUR OF THE DEPARTMENT, THOU GH THE DEPARTMENT SEEKS TO PLACE RELIANCE THEREON. THEREIN, IT HAS BEEN HELD, NO DOUBT, THAT DEPRECIATION IS ALLOWABLE ONLY IF THE ASSET IS USED FOR THE PURPOSE OF BUSINESS AT LEAST FOR SOME TIME DURING THE YEA R. HERE, HOWEVER, IT IS SEEN THAT THE ASSETS WERE USED DURING THE YEAR FOR THE BUSINESS PURPOSES OF THE ASSESSEE. UNITEX PRODUCTS LTD. (SU PRA) IS ALSO TO THE SAME EFFECT. THEREIN, IT WAS HELD THAT ON CE AN ASSET WAS PART OF A BLOCK OF ASSETS, AND DEPRECIATION WAS GRANTE D ON THAT BLOCK, IT CANNOT BE DENIED IN THE SUBSEQUENT YEAR ON THE GROUND THAT ONE OF THE ASSETS WAS NOT USED BY THE ASSESSEE IN SOME OF THE YEARS; AND THAT USER OF ASSETS HAS TO APPLY UPON THE BLOCK AS A WHOLE, IN STEAD OF UPON A NEW ASSET. AS TO HOW THIS POSITION RUNS COUNTER TO THE CLAIM OF THE ASSESSEE HAS NOT BEEN MADE OUT ON BEHALF OF THE DEPARTME NT. IT RATHER GOES IN FAVOUR OF THE ASSESSEE AND NOT IN FAVOUR OF THE DEPARTMENT. 10. THE LD. CIT (A) WHILE DELETING THE ADDITION, IT IS SEEN, HAS OBSERVED AS FOLLOWS:- 11. I HAVE PERUSED THE A.O.S ORDER, WRITTEN SUBMISS IONS OF THE ARS AND THEIR ARGUMENTS CAREFULLY. THOUGH THERE I S NO BUSINESS RECEIPT OF THE ASSESSEE DURING THIS A.Y., THER E IS BUSINESS ACTIVITIES CARRIED ON BY HIM FOR RECOVERY OF ARREARS DUE FROM OTHER CLIENTS/CONTRACTORS. DEPRECIATION IS SUCH A THING; IT ITA NO.4892/DEL/2010 6 HAS TO BE ALLOWED TO ASSESSEE FOR PURCHASE OR REPLACE MENT OF A NEW ASSET OF SIMILAR NATURE AFTER CERTAIN LIFE SPAN OF THE EQUIPMENT, AS DECIDED BY I.T. RULES. ONCE THE ASSET MERGES IN BLOCK OF ASSETS, THE ASSESSEE IS ENTITLED TO GET DEPREC IATION TILL THE BLOCK OF ASSET EQUALS TO ZERO OR COMPANY IS CLOSED , WHICH IS EARLIER. IF COMPANY IS CLOSED, THEN SHORT TERM CAPITAL GAIN CAN ONLY BE CHARGED TO REMAINING PART OF DEPRECIATION LEF T. THE HONBLE JURISDICTIONAL H.C IS VERY CLEAR ON TREATMENT OF DEPRECIATION IN THE CASE OF BALCO AS CITED ABOVE. TH E ARS EXAMPLE ON SALE OF CAR IS ALSO VERY CLEAR ON TREATME NT OF DEPRECIATION. IF THE ASSESSEE MAINTAINS BOOKS OF ACC OUNTS ON MERCANTILE BASIS, AND THERE IS NO SALES RECEIPT, STIL L THE ASSESSEE IS ENTITLED TO DEPRECIATION. THE ADDITION MADE BY A.O . OF RS.8,95,351/- IS HEREBY DELETED. 11. THE LD. CIT (A) HAS PLACED RELIANCE ON BHARAT A LUMINIUM CO. (SUPRA) WHILE DELETING THE ADDITION. 12. IN VIEW OF THE PRECEDING DISCUSSION, WE DO NOT FIN D ANY ERROR WHATSOEVER IN THE ORDER OF THE LD. CIT (A) AND THE SA ME IS HEREBY CONFIRMED. 13. ACCORDINGLY, FINDING NO MERIT IN THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT BY WAY OF GROUND OF APPEAL TAKEN, THE SAME IS HEREBY REJECTED. 14. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 26.10.20 12. SD/- SD/- [T.S. KAPOOR] [A.D. JAIN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 26.10.2012. DK ITA NO.4892/DEL/2010 7 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES