The iTO,Cor.Wd-1, Kochi V. Bhagheeratha Engineering Limited, Cochin

ITA 500/COCH/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8117 (ITAT-COCHIN)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 24-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Assessee Lawyers: V C JAMES
• Keywords: Depreciation; Additional evidence; Bad and doubtful debts
• Section: 37; 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFOR E S/ SHRI CHANDRA POOJARI , AM & GEORGE GEORGE K., J M I .T . A. NO S . 500 & 501/COCH/2 018 ASSESSMENT YEAR S : 2006 - 07 & 2007 - 08 THE INCOME TAX OFFICER, CORPORATE WARD - 1(1), KOCHI. VS. M/S. BHAGEERATHA ENGINEERING LTD., BHAGEERATHA RESIDENCY, BANERJI ROAD, KOCHI - 18. [PAN:AABCB 1386N] (REVENUE - APPELLANT) (ASSESSEE - RESP ONDENT) REVENUE BY SMT. A.S. BINDHU, SR. DR ASSESSEE BY SHRI V.C. JAMES, FCA D ATE OF HEARING 20 / 0 3 / 201 9 DATE OF PRONOUNCEMENT 03 / 0 4 /201 9 O R D E R PER CHANDRA POOJARI, AM: TH E SE APPEAL S FILED BY THE REVENUE ARE DIRECTED AGAINST THE DIFFERENT ORDER S PASSED BY THE CIT (A) - I , KOCHI DATED 16/08/2018 AND PERTAIN TO THE A SSESSMENT YEAR S 2006 - 07 AND 2007 - 08. SINCE THE ISSUES INVOLVED IN THESE APPEALS WERE COMMON, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. THE REVENUE HAS RAISED THE FOLLOWING COMMON GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) IS NOT JUSTIFIED TO DELETE THE DISALLOWANCE OF DE PRECIATION CLAIM OF THE ASSESSEE AS PER SECTION 32(1). I.T.A. NO S . 500&501/COCH/2018 2 2. THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) IS NOT JUSTIFIED TO DELETE THE DISALLOWANCE OF CLAIM OF BAD DEBTS. THE CIT(A) HAS ACCEPTED ADDITIONAL EVIDENCE DURING THE APPELLATE PROCEEDINGS WITH OUT GIVING REASONABLE OPPORTUNITY TO THE ASSESSING OFFICER FOR EXAMINING THE ADDITIONAL EVIDENCE WHICH IS AGAINST RULE 46A OF THE IT RULES, 1962. THE CIT(A) OUGHT TO HAVE CONSIDERED THE JUDGMENT OF HIGH COURT OF DELHI IN THE CASE OF CIT VS. MANISH BUILDWE LL P. LTD. (ITA NO.928/2011). HENCE IT IS SUBMITTED THAT THE HONBLE TRIBUNAL MAY RESTORE THE MATTER BACK TO CIT(A) WITH A DIRECTION TO COMPLY WITH RULE 46A. 3. THE FIRST COMMON GROUND IS WITH REGARD TO DELETION OF DISALLOWANCE OF DEPRECIATION ON MACHI NERY AND VEHICLES. 3.1 SINCE THE FACTS ARE SIMILAR IN BOTH THE APPEALS, WE SHALL CONSIDER THE FACTS AS NARRATED IN ITA NO. 500/COCH/2018. THE ASSESSING OFFICER NOTICED THAT IN THE RELEVANT PREVIOUS YEAR, SOME MACHINERY AND VEHICLES WERE UNDER CUSTODY OF CLIENTS AND FINANCIERS BECAUSE OF THE TERMINATION OF SOME PROJECTS AND DEFAULT ON THE PART OF THE ASSESSEE TO PAY ITS DUES TOWARDS FINANCIERS. THE ASSESSEE CLAIMED DEPRECIATION ON THESE EQUIPMENTS. AS PER SECTION 32(1) OF THE I.T. ACT, FOR CLAIMING DEPRE CIATION, THE ASSET SHOULD BE OWNED BY THE ASSESSEE WHOLLY OR PARTLY AND SHOULD BE USED FOR THE PURPOSES OF THE BUSINESS. THE ASSESSING OFFICER FOUND THAT IN THE PREVIOUS YEAR, THESE ASSETS WERE UNDER THE CUSTODY OF BANKERS/FINANCIERS/CLIENTS, THEREFORE, T HESE ASSETS WERE NOT OWNED BY THE ASSESSEE. HENCE, THE ASSESSING OFFICER DISALLOWED EXCESS DEPRECIATION OF RS.56,65,759/ - ON THESE ASSETS. 4. ON APPEAL, THE CIT(A) DELETED THE DISALLOWANCE BY OBSERVING THAT MACHINERIES IN QUESTION ARE UNDISPUTEDLY OW NED BY THE ASSESSEE AND TEMPORARY SUSPENSION OF I.T.A. NO S . 500&501/COCH/2018 3 WORK SHALL NOT DISENTITLE THE ASSESSEE TO CLAIM DEPRECIATION. ACCORDING TO THE CIT(A), DEPRECIATION IS GRANTED ON THE CONCEPT OF BLOCK OF ASSETS. HENCE, THE CIT(A) HELD THAT THE ASSESSEE IS ENTITLED FOR DEPR ECIATION . 5. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. THE CONTENTION OF THE LD. DR IS THAT MACHINERY AND VEHICLES WERE UNDER CUSTODY OF BANKERS/FINANCIERS BECAUSE OF THE TERMINATION OF SOME PROJECTS AND DEFAULT ON THE PART OF THE ASSESSEE TO PA Y ITS DUES TOWARDS FINANCIERS. HOWEVER, THE ASSESSEE CLAIMED DEPRECIATION ON THE ASSETS ON THE GROUND THAT IT WAS HAVING CONTROL ON THEM AS PER SECTION 32(1) OF THE ACT WHICH IS NOT CORRECT. 6. THE LD. AR SUBMITTED THAT THE MACHINERY AND VEHICLES COU LD NOT BE USED TEMPORARILY BECAUSE OF THE NON PAYMENT OF DUES TO THE FINANCIERS. IT WAS SUBMITTED THAT THE ASSESSEE HAD NO CONTROL OVER THESE ASSETS. THE CONTENTION OF THE LD. AR WAS THAT THESE ASSETS WERE READY TO USE BUT THESE COULD NOT BE USED DUE TO TEMPORARY SUSPENSION OF WORK. ACCORDING TO THE LD. AR, A CTIVE OR PASSIVE USE OF ASSETS FOR THE PURPOSE OF BUSINESS WILL BE TREATED AS PUT TO USE AND WILL QUALIFY FOR THE DEPRECIATION ALLOWANCE. THE LD. AR SUBMITTED THAT IN CASE OF BLOCK OF ASSETS, IN O RDER TO ALLOW ASSESSEES CLAIM U/S. 32(1), USE OF INDIVIDUAL ASSET FOR PURPOSE OF ITS BUSINESS CAN BE EXAMINED ONLY IN FIRST YEAR WHEN ASSESSEE IS PURCHASED AND SUBSEQUENT YEAR USE OF BLOCK OF ASSETS IS TO BE EXAMINED. IT WAS SUBMITTED THAT EXISTENCE OF A N INDIVIDUAL ASSET IN BLOCK OF ASSETS ITSELF AMOUNTS TO USE FOR PURPOSE OF BUSINESS AND THEREFORE, DEPRECIATION IS ALLOWABLE ON IT, EVEN THOUGH THE SAID I.T.A. NO S . 500&501/COCH/2018 4 ASSET WAS NOT ACTUALLY USED IN COURSE OF BUSINESS DURING RELEVANT ASSESSMENT YEAR. THE LD. AR RELIED ON THE FOLLOWING CASE LAWS: 1) WHITTLE ENDERSON LTD. VS. CIT (79 ITR 613) 2) CIT VS. KHANNA & SONS (148 ITR 558) 3) CIT VS. SUHRID GEGY LTD. (133 ITR 884) 4) SWATI SYNTHETICS LTD. VS. ITO (38 SOT 208) (MUM.) 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE RECORD. IN OUR OPINION, THE ASSESSEE HAS TO PROVE T HE OWNERSHIP AS WELL AS HAVING PHYSICAL POSSESS ION OF THE SAID MACHINERY AND VEHICLES. THE ARGUMENT OF THE LD. AR DOES NOT SUPPORT THAT THE ASSESSEE PHYSICALLY OWNED AND WAS HAVING CONTROL OF THE SAID MACHINERY AND VEHICLES. IN OUR OPINION, IT IS APPROPRIATE TO REMIT THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE OWNING AND HAVING PHYSICAL CONTROL OF THE MACHINERY AND VEHICLES. THE ASSESSING OFFICER SHALL GRANT DEPRECIATION ON THE A SSETS ONLY I F THE ASSESSEE IS HAVING PHYSICAL CONTROL OF THE ASSETS . IF THE ASSESSEE IS NOT IN PHYSICAL CONTROL OF THE ASSETS, TH E ASSESSEE IS NOT ENTITLED FOR DEPRECIATION AS THE ASSESSEE CANNOT USE THE ASSETS WITHOUT HAVING PHYSICAL CONTROL AND POSSESS ION OF IT. THUS, THIS ISSUE IS REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR FR ESH CONSIDERATION FOR BOTH THE ASSESSMENT YEARS. HENCE, THIS GROUND OF APPEALS OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 8. THE NEXT COMMON GROUND IS WITH REGA RD TO DELETION OF DISALLOWANCE OF BAD DEBTS. I.T.A. NO S . 500&501/COCH/2018 5 9. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER NOTICED THAT NON RECOVERABLE ADVANCES PAID TO SUB - CONTRACTORS AMOUNTING TO RS.1,23,10,396/ - WERE WRITTEN OFF AND CLAIMED AS BAD DEBTS AS PROVIDED U/S. 36(1)(VII) OF THE ACT. HOWEVER, ACCORDING TO THE ASSESSING OFFICER, NO SUCH WRITE - OFF IS ADMISSIBLE U/S. 3 6 (2)(I) OF THE I.T. ACT. BEFORE THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT THE SUB CONTRACTORS WHO OWED LARGE SUMS OF MONEY TO THE COMPANY C OULD NOT BE TRACED AND IN SUCH CASES, THE COMPANY HAD NO OTHER WAY BUT TO WRITE OFF SUCH IRRECOVERABLE ADVANCES PAID FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT IF THE BAD DEBTS ARE NOT ALLOWED U/S. 36 OF THE ACT, IT SHOULD BE ALLOWED U/S. 37 OF THE ACT. THE ASSESSING OFFICER HELD THAT BAD DEBTS CANNOT BE ALLOWED U/S. 36(I)(VII) BECAUSE OF THE APPLICABILITY OF 36(2)(I) OF THE ACT. MOREOVER, BAD DEBTS CANNOT ALSO BE ALLOWED U/S. 37 OF THE ACT BECAUSE U/S. 37 ONLY EXPENDITURE CA N BE CONSIDERED FOR ALLOWABILITY. IN THE PRESENT CASE, IT WAS MERELY AN ADVANCE AND NOT EXPENDITURE. THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSESSEE HAS NOT SHOWN WHAT STEPS HAD BEEN TAKEN TO RECOVER ALL THESE ADVANCES AND W ITHOUT ESTABLISHING THE GENUINENESS AND IDENTITY OF THE SUB - CONTRACTORS , THE BAD DEBTS CANNOT BE ALLOWED U/S. 37 ALSO. 10. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT SUCH AN AMOUNT WAS NOT AT ALL CONNECTED WITH THE ASSESSMENT YEAR 2006 - 07 AND THE AMOUNT RELATED TO THE AS SESSMENT YEAR 2007 - 08. CONSIDERING THE ABOVE SUBMISSION, T HE CIT(A) HELD THAT I.T.A. NO S . 500&501/COCH/2018 6 SINCE NO WRITE OFF WAS DONE, THE SAME CANNOT BE DISALLOWED AND DELETED THE DISALLOWANCE OF BAD DEBTS. 11. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 12. WE HAVE HEA RD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE CONTENTION OF THE LD. AR IS THAT T H E ASSESSEE HAS NOT AT ALL CLAIMED BAD DEBT S OF RS,1,23,10,396/ - FO R THE ASSESSMENT YEAR 2006 - 07 . HENCE, THE CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. IN THE SUBSEQUENT YEAR, THE SAME AMOUNT OF BAD DEBTS WAS CLAIMED BY THE ASSESSEE AS BAD DEBTS WHICH WAS ALLOWED BY THE AUTHORITIES. IN OUR OPINION, IF THE BAD DEBTS WAS ACTUALLY WRITTEN OFF, THE SAME IS TO BE ALLOWED IN ONE OF THE ASSESSMENT YEAR CONCERNED AND T HE SAME AMOUNT CANNOT BE ALLOWED FOR BOTH THE ASSESSMENT YEARS. ON GOING THROUGH THE COMPUTATION STA TEMENT OF INCOME FOR THE ASSESSMENT YEAR 2006 - 07, WE FIND THAT THERE WAS A CLAIM OF PROVISION FOR DOUBTFUL RECEIVABLES WHICH WAS REDUCED FROM LOSS OF THAT ASSESSMENT YEAR . HOWEVER, THE LD. AR WAS NOT ABLE TO EXPLAIN WHETHER THE SAID AMOUNT OF RS.1,23,10,396/ - WAS INCLUDED IN TH IS PROVISION OF BAD AND DOUBTFUL DEBTS. HENCE, WE ARE NOT IN A POSITION TO EXPRESS ANY OPINION ON IT. ACCORDINGLY, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION FOR BOTH THE ASSESSMENT YEARS. THUS, THIS GROUND OF APPEALS OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO S . 500&501/COCH/2018 7 13. IN THE RESULT, THE APPEAL S FILED BY THE REVENUE ARE PARTLY ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 RD APRIL , 2019 S D/ - SD/ - (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 3 RD APRIL , 2019 GJ COPY TO: 1 . M/S. BHAGEERATHA ENGINEERING LTD., BHAGEERATHA RESIDENCY, BANERJI ROAD, KOCHI - 18. 2. THE INCOME TAX OFFICER, CORPORATE WARD - 1(1), KOCHI. 3 . THE COMM ISSIONER OF INCOME - TAX (AP P EALS) - I, KOCHI. 4. THE PR. COMMISSIONER OF INCOME - TAX, KO CHI. 5 . D. R., I.T.A.T., COCHIN BENCH, COCHIN. 6 . GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COCHIN