M/s. Escolife IT Services Pvt. Ltd., Faridabad V. ITO, New Delhi

ITA 5565/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4887 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 24-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN KUMAR YADAV SENIOR
• Assessee Lawyers: R M MEHTA
• Keywords: Depreciation; Business expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.5565/DEL./2015 (ASSESSMENT YEAR : 2012-13) M/S. ESCOLIFE IT SERVICES PVT.LTD., VS. INCOME-TAX OFFICER, C/O ESCORTS LIMITED, WARD 8 (3), 15/5, MATHURA ROAD, NEW DELHI. FARIDABAD 121 003. (PAN : AABCR6698H) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.M. MEHTA, ADVOCATE REVENUE BY : SHRI ARUN KUMAR YADAV, SENIOR DR DATE OF HEARING : 28.08.2017 DATE OF ORDER : 30.08.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. ESCOLIFE IT SERVICES PVT. LTD. (HER EINAFTER REFERRED TO AS THE ASSESSEE COMPANY), BY FILING T HE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 29.07. 2015 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-XIII, NEW DELHI, FOR THE ASSESSMENT YEAR 2012-13 ON THE GROUNDS INTER AL IA THAT :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (APPEALS) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF DEPRECIATION OF RS.2,79,125/ - MADE BY THE ASSESSING OFFICER ON THE ITA NO.5565/DEL./2015 2 GROUND THAT NO BUSINESS HAS BEEN CARRIED ON BY THE APPELLANT. THE CIT (A) OUGHT TO HAVE ALLOWED THE DEPRECIATION CLAIMED BECAUSE THE ASSETS HAD BEEN USED IN THE COURSE OF NORMAL ADMINISTRATIVE ACTIVIT IES TO KEEP THE COMPANY RUNNING AND SUCH ASSETS SUFFERED NORMAL WEAR & TEAR DURING THE YEAR. 2. THAT THE APPELLANT RESERVES TO ITSELF, THE RIGHT TO ADD, ALTER, AMEND, SUBSTITUTE, WITHDRAW AND/ OR ANY GROUND(S) OF APPEAL ON OR BEFORE THE DATE OF HEARING. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE COMPANY WAS ENGA GED IN THE BUSINESS OF IT SERVICES AND PROVIDING TECHNICAL CON SULTANCY AND TRAINING. BUT, DURING THE YEAR UNDER ASSESSMENT, A SSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAS NOT IMPARTED ANY TECHNICAL CONSULTANCY AND TRAINING AND HAS SHOWN ITS INCOME A T NIL BUT CLAIMED EXPENSES OF RS.2,41,671/- UNDER THE HEAD D EPARTMENT AND OTHER EXPENSES. AO, BY KEEPING IN VIEW THE ASSESS EES ASSESSMENT ORDER FOR AY 2010-11 AND DECISION OF LD. CIT (A) TH EREON, RESTRICTED THE LOSS CLAIMED BY THE ASSESSEE TO RS.2 1,957/- AND DISALLOWED THE DEPRECIATION CLAIMED TO THE TUNE OF RS.2,79,125/-. 3. ASSESSEE COMPANY CARRIED THE MATTER BEFORE THE L D. CIT (A) BY WAY OF AN APPEAL WHO HAS DISMISSED THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE COMPANY HAS COME UP BEFORE THE TRIBUNAL BY WAY OF CHALLENGING THE IMPUGNED ORDER PASSED BY LD. CIT (A). ITA NO.5565/DEL./2015 3 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. NOW, THE FIRST QUESTION ARISES FOR DETERMINATION IN THIS CASE IS:- AS TO WHETHER A.O. AND LD. CIT(A) HAVE ERRED IN DISALLOWING THE DEPRECIATION AND OTHER EXPENSES ON THE GROUND THAT NO BUSINESS ACTIVITY HAS BEEN CARRI ED OUT BY THE ASSESSEE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. 6. THIS ISSUE HAS ALREADY BEEN DECIDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN AY 2008-09 AND 2010-11 IN ITA NO.713/DEL/2012 & ITA NO.5930/DEL/20 13 RESPECTIVELY ORDER DATED 18.01.2016 BY RETURNING THE FOLLOWING FINDINGS :- 11. BOTH THE A.O. AS WELL AS LD. CIT(A) HAVE DISALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE DURING THE ASSESSMENT YEARS 2008-09 & 2010-11 ON THE GROUNDS INTER ALIA THAT WHEN THE ASSESSEE HAS N OT RECEIVED ANY ORDER FOR PROVIDING TECHNICAL CONSULTANCY NOR IT HAS CARRIED OUT ANY TRADING ACTIVITIES, THE QUESTION OF CLAIMING DEPRECIATION O N COMPUTER AND OTHER ASSETS DOES NOT ARISE; THAT ASSESSEE HAS FAILED TO PROVE THAT THE COMPUTER AND OTHER ACCESSORIES CONTINUED TO BE INSTALLED AT THE OLD PREMISES; THAT THE ASSESSEE DOES NOT OWN ANY PROPERTY WHERE THESE COMPUTER COULD HAVE BEEN INSTALLED FOR THE PURPOSE OF BUSINESS AND THAT NO EMPLOYEE CAN BE EXPECTED TO WORK ON COMPUTER AT THE SALARY OF RS.12,480/- OR RS.5,000/- ANNUALLY. ITA NO.5565/DEL./2015 4 WHEN BOTH, THE A.O. AND LD. CIT(A) HAVE ACCEPTED THE CONTENTION OF THE ASSESSEE THAT IT WAS OPERATIN G ITS ACTIVITIES FROM THE PREMISES TAKEN ON RENT BY R ITU NANDA INSURANCE SERVICES PVT. LTD., 202, OKHLA INDUSTRIAL ESTATE, PHASE III, NEW DELHI BY NOT RETURNING ANY ADVERSE FINDING THAT THE ASSESSEE COMPANY WAS NEVER ALLOWED TO OPERATE ITS BUSINESS ACTIVITIES THEREFROM, THEY WERE NOT SUPPOSED TO COM E TO THE CONCLUSION THAT NO BUSINESS ACTIVITIES WERE BEING CARRIED OUT BY THE ASSESSEE COMPANY. AT THE SAME TIME, LD. CIT(A) BY ALLOWING THE EXPENDITURE OF THE ASSESSEE RELATING TO AUDIT FEES (RS.20,000/) , COMMUNICATION EXPENSES (RS.3446), LEGAL AND PROFESSIONAL CHARGES (RS.39256/-), ELECTRICITY AND WATER (RS.3,273/-), BANK INTEREST AND CHARGES (RS.7353), PRINTING AND STATIONARY (RS.482) U/S 57 OF THE I T ACT. DIRECTED THE A.O. TO ALLOW THESE EXPENSES AGAINST THE INCOME DETERMINED U/S 57 OF THE I. T. ACT, AS BUSINESS EXPENDITURE WERE ALLOWED THIS FACT GOES TO PROVE THAT THE BUSINESS ACTIVITIE S WERE BEING CARRIED OUT BY THE ASSESSEE COMPANY. 7. MOREOVER, THE AO HAS ASSESSED THE INCOME AT (-) RS.21,957/- AND ALLOWED THE CARRY FORWARD CURRENT YEARS LOSSES TO THE TUNE OF RS.21,957/- AND IN THESE CIRCUMSTANCES, THE BUSINES S OF THE ASSESSEE COMPANY CANNOT BE TREATED AS CLOSED ONE. SO, IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT T HE LD. CIT (A) HAS ERRED IN HOLDING THAT NO BUSINESS HAS BEEN CARR IED OUT BY THE ASSESSEE COMPANY. 8. UNDISPUTEDLY, THE AO AS WELL AS LD. CIT (A) PASS ED THE IMPUGNED ORDER BY FOLLOWING DECISIONS RENDERED BY T HEIR PREDECESSORS IN AYS 2010-11 AND 2008-09 RESPECTIVEL Y THAT NO ITA NO.5565/DEL./2015 5 BUSINESS ACTIVITY HAS BEEN CARRIED OUT DURING THE Y EAR UNDER ASSESSMENT, DISALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE ON COMPUTER AND SOFTWARE. 9. HOWEVER, LD. AR FOR THE ASSESSEE BY RELYING UPON THE DECISION RENDERED BY COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008-09 AND 2010-11 IN I TA NO.713/DEL/2012 & ITA NO.5930/DEL/2013 RESPECTIVELY ORDER DATED 18.01.2016 CONTENDED THAT THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE, THE OPERATIVE PA RT THEREOF IS REPRODUCED FOR READY PERUSAL :- 12. NOW, THE NEXT QUESTION ARISES FOR DETERMINATION IS, AS TO WHETHER THE ASSESSEE COMPANY IS ENTITLED FOR DEPRECIATION ON COMPUTER AND SOFTWARE IN THE FACE OF THE FACT THAT IT HAS ADMITTEDLY NOT CARRIED OUT ANY TECHNICAL CONSULTANC Y AND PROVIDED TECHNICAL TRAINING DURING THE YEAR UNDER ASSESSMENT. 13. IDENTICAL ISSUE HAS COME UP FOR DETERMINATION BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT IN CAS E ENTITLED CIT VS YAMAHA MOTOR INDIA (P) LTD, 328 ITR 297. FOR READY REFERENCE, THE OPERATIVE PART A T PARA 6, 7 & 8 OF THE JUDGEMENT IN YAMAHA MOTOR INDIA (P) LTD. (SUPRA) IS REPRODUCED AS UNDER: 6. THE RELEVANT AND RELATED PROVISIONS, IN THIS REGARD, FOR DECISION OF THE ISSUE ARE SECTION 32(1) WHICH REQUIRES THAT THE ASSETS ARE USED FOR THE PURPOSES OF THE BUSINESS, SECTION 32(1 )(III) LAYS DOWN THE DETAILS AND REQUIREMENTS WITH RESPECT TO CLAIM OF DEPRECIATION INTER ALIA OF DISCARDED MACHINERY, SECTION 43(6)(C)(B) DEFINES WRITTEN DOWN VALUE WITH RESPECT TO ITA NO.5565/DEL./2015 6 BLOCK OF ASSETS, SECTION 50(2) UNDER THE HEAD OF PROFITS CHARGEABLE TO TAX ON THE ASPECT OF DISCARDED MACHINERY. 7. ON THE ASPECT OF PASSIVE USER, THERE ARE TWO DECISIONS OF TWO DIVISION BENCHES OF THIS COURT IN THE CASES REPORTED AS CIT VS. REFRIGERATION AND ALLIED INDUSTRIES LTD., 247 ITR 12 AND CAPITAL BUS SERVICES VS. CIT, 123 ITR 404. IN THIS VIEW OF THE MATTER, WE NEED NOT REFER THE JUDGMENTS OF ANY OTHER COURT AS WE ARE BOUND BY THE EARLIER JUDGMENTS OF THIS COURT. IN FACT, WE ALSO AGREE WITH THE RATIO OF BOTH THE DECISIONS WHICH HOLD THAT AS LONG AS THE MACHINERY IS AVAILABLE FOR USE, THOUGH NOT ACTUALLY USED, IT FALLS WITHIN THE EXPRESSION 'USED FOR THE PURPOSES OF THE BUSINESS' AND THE ASSESSEE CAN CLAIM THE BENEFIT OF DEPRECIATION. LOOKING AT THE FACTS FROM THIS POINT OF VIEW, AN ACTUAL USER IS NOT REQUIRED AS HAS BEEN CONTENDED BY THE REVENUE. 8. THE MATTER CAN BE LOOKED AT FROM ANOTHER ANGLE ALSO. NO DOUBT, THE EXPRESSION USED IN SECTION 32 IS 'USED FOR THE PURPOSES OF THE BUSINESS'. HOWEVER, THIS EXPRESSION HAS TO BE READ HARMONIOUSLY WITH THE EXPRESSION 'DISCARDED' AS FOUND IN SUB-SUB-SECTION (III) OF SUB-SECTION (1). OBVIOUSLY, WHEN A THING IS DISCARDED IT IS NOT USED. THUS 'USE' AND 'DISCARDING' ARE NOT IN THE SAME FIELD AND CANNOT STAND TOGETHER. HOWEVER, IF WE ADOPT A HARMONIOUS READING OF THE EXPRESSIONS 'USED FOR THE PURPOSES OF THE BUSINESS' AND 'DISCARDED' THEN IT WOULD SHOW THAT 'USED FOR THE PURPOSES OF THE BUSINESS' ONLY MEANS THAT THE ASSESSEE HAS USED THE MACHINERY FOR THE PURPOSES OF THE BUSINESS IN EARLIER YEARS. IT IS NOT DISPUTED THAT IN THE FACTS OF THE PRESENT CASE, AND AS DISCUSSED ABOVE, THAT THE MACHINERY IN QUESTION WAS IN FACTUSECF1FLTL1E PREVIOUS YEAR AND DEPRECIATION WAS ALLOWED ON THE BLOCK OF ASSETS IN THE PREVIOUS YEARS. ITA NO.5565/DEL./2015 7 TAKING THEREFORE A REALISTIC APPROACH AND ADOPTING A HARMONIOUS CONSTRUCTION, WE FEEL THAT THE EXPRESSION 'USED FOR THE PURPOSE OF THE BUSINESS' AS FOUND IN SECTION 32 WHEN USED WITH RESPECT TO DISCARDED MACHINERY WOULD MEAN THAT THE USER IN THE BUSINESS IS NOT IN THE RELEVANT FINANCIAL YEAR/PREVIOUS YEAR BUT IN THE EARLIER FINANCIAL YEARS. ANY OTHER INTERPRETATION WOULD LEAD TO AN INCONGRUOUS SITUATION BECAUSE ON THE ONE HAND THE DEPRECIATION IS ALLOWED ON DISCARDED MACHINERY AFTER ALLOWING INTER ALIA AN ADJUSTMENT FOR SCRAP VALUE, YET, ON THE OTHER HAND USER WOULD BE REQUIRED OF THE DISCARDED MACHINERY WHICH USE IS NOT POSSIBLE BECAUSE OF VARIOUS REASONS VIZ. THE AGE OF THE MACHINERY, OR THAT IT HAS BECOME OBSOLETE AS NEW TECHNOLOGY HAS COME IN AND SO ON. WE THUS HOLD THAT THE DISCARDED MACHINERY MAY NOT BE ACTUALLY USED IN THE RELEVANT PREVIOUS YEAR AS LONG AS IT IS USED FOR THE PURPOSES OF BUSINESS IN THE EARLIER YEARS. 14. FOLLOWING THE LAW LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE CITED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE COMPAN Y IS ENTITLED FOR DEPRECIATION ON COMPUTER AND SOFTWA RE DURING THE YEAR UNDER ASSESSMENT (ASSESSMENT YEAR 2008-09 AND 2010-11) THOUGH NOT ACTUALLY USED FOR THE PURPOSE OF BUSINESS ON THE GROUNDS INTER ALIA THAT WHEN DURING THE PREVIOUS ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2007-08, THE ASSESSEE DISCLOSED RECEIPT FROM TECHNICAL CONSULTANCY AND TRAINING FEE AT RS.4,35,90,000/- , INCOME FROM TRADING ACTIVITIE S AT RS.9,75,607/- AND OTHER INCOME AT RS.3,50,381/- BUT SHOWN THE INCOME FROM TECHNICAL CONSULTANCY AND TRAINING FEE AT NIL IN ASSESSMENT YEARS 2008-09 AND 2010-11, IT IS ENTITLED FOR DEPRECIATION U/S 32 OF THE ACT AS THE SAME HAS NOT BEEN DISCARDED BY THE ASSESSEE COMPANY; THAT WHEN THE MACHINERY IN QUESTION WAS IN FACT USED IN THE EARLIER YEAR AND DEPRECIATION WAS ALLOWED ON BLOCK OF ASSETS, THE ASSESSEE COMPANY IS ENTITLED FOR DEPRECIATION; THAT ITA NO.5565/DEL./2015 8 THOUGH THE USAGE OF MACHINERY IN THE BUSINESS WAS NOT IN THE RELEVANT ASSESSMENT YEAR BUT IN THE EARL IER FINANCIAL YEAR ITS ENTIRE MACHINERY REMAINED IN READY TO USE MODE BECAUSE THE ASSESSEE COMPANY HAS COME UP WITH LOGICAL EXPLANATION THAT DUE TO NO T HAVING RECEIVED ANY ORDER FOR TECHNICAL CONSULTANCY NOR IT CARRIED OUT ANY TRAINING ACTIVITY, THE INCOM E FROM ITS BUSINESS COMES TO NIL; THAT WHEN THE A.O . HAS ACCEPTED THE CONTENTION OF THE ASSESSEE THAT IT HAS MADE SALES OF RS.5,84,355/- REPRESENTING TRADIN G ITEMS INCIDENTAL TO ITS MAIN BUSINESS ACTIVITY AND HAS EARNED PROFIT OF RS.49,715/- FROM SUCH ACTIVITY, HE CANNOT DISALLOW THE DEPRECIATION CLAIMED BY THE ASSESSEE; THAT EVEN LD. CIT(A) HAS ERRED IN DOUBTIN G THE TRADING ACTIVITIES STATED TO HAVE BEEN CARRIED OUT BY THE ASSESSEE COMPANY DURING THE ASSESSMENT YEAR 2008-09 WITHOUT ANY INVESTIGATION THOUGH IN THE PAST, SUCH ACTIVITY HAS BEEN ACCEPTED BY THE REVENU E SPECIFICALLY; THAT NO DOUBT, THE ASSESSEE HAS NOT PRODUCED THE VOUCHERS TO PROVE THE CLAIM OF SALE AN D PURCHASE BUT WHEN THE REVENUE HAS ACCEPTED THE AUDITED PROFIT AND LOSS STATEMENT, THEY CANNOT BE ALLOWED TO SAIL IN TWO BOATS; THAT WHEN THE ASSESSE E COMPANY HAS NOT SOLD, DISCARDED, DEMOLISHED OR DESTROYED THE ASSETS DURING THE PREVIOUS YEAR, THE ASSESSEE HAS CERTAINLY BECOME ENTITLED FOR DEPRECIATION; THAT THE IDENTICAL ISSUE HAS ALSO BEE N DECIDED BY HON'BLE HIGH COURT OF MADHYA PRADESH IN THE JUDGEMENT CITED AS CIT VS PREMIER INDUSTRIES INDIA LTD. 323 ITR 672; THAT THE DECISION OF ITAT, DELHI IN THE CASE OF SPECIALTY FOODS INDIA PVT. LTD . IN I.T.A. NO. 1460/DEL/2008 IS NOT A GOOD LAW IN TH E FACE OF JUDGMENT DELIVERED BY HON'BLE JURISDICTIONA L HIGH COURT IN THE CASE CITED AS YAMAHA MOTOR INDIA (P) LTD. (SUPRA), WHICH IS OTHERWISE DECIDED ON THE DIFFERENT SET OF FACTS THAT PART OF PLANT AND MACHINERY WAS ALREADY SOLD BY THE ASSESSEE IN THE SAID CASE. 15. SO, WE HEREBY DETERMINE GROUNDS NO.1 OF I.T.A. NO. 713/DEL/2012 FOR ASSESSMENT YEAR 2008- 09 AND I.T.A .NO. 5930/DEL/2013 FOR ASSESSMENT YEAR 2010-11 IN FAVOUR OF THE ASSESSEE. ITA NO.5565/DEL./2015 9 10. FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008-09 AND 2010-11 (SUPRA) WHEREIN IT HAS CATEGORICALLY BEEN DETERMINE D THAT WHEN THE ASSESSEE COMPANY HAS KEPT ITS MACHINERY IN READY T O USE MODE THOUGH IT HAS NOT RECEIVED ANY ORDER FOR CONSULTANC Y AND FOR PROVIDING ANY TRAINING, THE DEPRECIATION CANNOT BE DISALLOWED. MOREOVER, WHEN THE ASSESSEE COMPANY IS PROVED TO HA VE NOT SOLD, DISCARDED AND DEMOLISHED THE ASSETS DURING THE PREV IOUS YEAR, THE ASSESSEE COMPANY HAS CERTAINLY BECOME ENTITLED FOR DEPRECIATION. 11. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, PRESE NT APPEAL FILED BY THE ASSESSEE IS HEREBY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 30 TH DAY OF AUGUST, 2017. SD/- SD/- (B.P. JAIN) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 30 TH DAY OF AUGUST, 2017 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.