A.C.I.T.-9(1), MUMBAI V. DAMAN GANGA PAPER PVT. LTD., MUMBAI

ITA 5815/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79524 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 21-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Period of limitation
• Section: 32

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH , MUMBAI BEFORE SHRI B.R. BASKARAN, AM AND SHRI SANJAY GARG, JM ./ I.T.A. NO.5815/MUM/2012 ( / ASSESSMENT YEAR 2009-10) A.C.I.T.-9(1), R.NO.223, AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400020 / VS. M/S. DAMAN GANGA PAPERS LTD. 101/102, C-WING, RIZVI NAGAR, SANTACRUZ (W), MUMBAI -400 054 ./ PAN :AAACD2024J (APPELLANT ) .. RESPONDENT) APPELLANT BY : SHRI SANJEEV JAIN (DR) RESPONDENT BY : SHRI HIRO RAI (AR) ! / DATE OF HEARING : 12.06.2014 ! /DATE OF PRONOUNCEMENT : 23.07.2014 / O R D E R PER SANJAY GARG, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 20TH JUNE, 2011 OF CIT(A) FOR ASSESSMENT YEAR 2008-2009 . 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD.CIT(A) IS RIGHT IN DELETING THE ADDITIO N MADE U/S 41 (1 )OF RS.8,55,02,036/- WITHOUT APPRECIATING THE FACT THAT ASSESSEE WAS NOT ABLE TO PRODUCE CONFIRMATIONS FOR THE SAID AMOUNT. ITA 5815/MUM/2012 2 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) IS RIGHT IN ALLOWING THE DEPRECIATION OF RS.1,18,98,364/- OVERLOOKING THE FACT THAT NO MANUFACTURING ACTIVITI ES WERE CARRIED OUT BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. 3. THE ASSESSEE PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 4. THE ASSESSEE CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. VIDE GROUND NO.1 THE REVENUE HAS AGITATED THE A CTION OF THE CIT(A) IN DELETING THE ADDITION OF RS.8,55,02,036/- WHICH WAS MADE BY THE ASSESSING OFFICER U/S.41(1) ON ACCOUNT OF CESSATION OF LIABIL ITY. 4. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSIN G OFFICER FOUND FROM THE DETAILS SUBMITTED BY THE ASSESSEE THAT SUNDRY CREDI TS PERTAINING TO THE AMOUNT OF RS.8,55,02,036/- WERE MORE THAN THREE YEARS OLD. TH E ASSESSEE WAS ASKED TO FILE THE CONFIRMATION, ADDRESSES OF THE SUNDRY CREDITORS TO EXAMINE THE GENUINENESS OF THE SAME. HOWEVER, ASSESSEE FAILED TO EITHER TO PRODUCE THEM BEFORE THE AO OR TO FILE CONFIRMATIONS FROM THEM IN THIS RESPECT. THE AO OBSERVED THAT THOSE CREDITORS WERE MORE THAN THREE YEARS OLD AND AS SUC H THE RECOVERY WAS BARRED BY LIMITATION. THE A.O. ALSO NOTED THAT THE ASSESSEE WAS IN THE PROCESS OF SELLING THE UNIT AS IT WAS EVIDENT THAT ASSESSEE HAD PAID T HE FEES TO M/S. VIVRO FINANCE FOR PROPOSAL FOR SUITABLE PARTY TO BUY-OUT THE UNIT . THE AO FURTHER OBSERVED THAT THE ASSESSEE DID NOT HAVE ANY TRANSACTION SINCE LON G TIME WITH THE SAID CREDITORS. THE AO THEREFORE HELD THAT THE LIABILITY OF THE ASS ESSEE ON ACCOUNT OF SUNDRY CREDITORS HAD CEASED TO EXIST. HE THEREFORE DISALLO WED THE AMOUNT OF RS.8,55,02,03,6/- SHOWN AS SUNDRY CREDITORS AND ADD ED THE SAME IN THE INCOME OF THE ASSESSEE U/S.41(1) OF THE I. T. ACT. 5. IN APPEAL BEFORE THE CIT(A) , IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT ENTIRE DETAILS IN RESPECT OF SUNDRY CREDITORS WERE FURNISHED BEFORE ITA 5815/MUM/2012 3 THE AO VIDE LETTER DTD.24.08.2011 AND 30.08.2011, B UT THE AO IGNORED THE SAME. THE AO HAD ALSO IGNORED THE INFORMATION IN THE REPO RT OF THE DIRECTORS AS WELL AS THE AUDIT REPORT ABOUT THE ACTIVITIES CARRIED OUT A ND PROPOSED ABOUT THE FACT THAT THE ASSESSEE WAS MAKING EFFORTS TO RESTRUCTURE AND RESUME ITS NORMAL OPERATION. IT WAS ALSO SUBMITTED THAT A MERE INQUIRY FOR THE P OSSIBLE ALTERNATIVE TO SELL OFF THE UNIT WAS NOT SUFFICIENT TO HOLD THAT THE ASSESS EE HAD CLOSED ITS UNIT. EVEN THE ASSESSEE HAD NEVER EXPRESSED THAT IT DID NOT INTEND TO MAKE THE PAYMENT OF THE LIABILITY TO THE CREDITORS. 6. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIO NS OF THE AR OF THE ASSESSEE AND PERUSAL OF THE FACTS OF THE CASE, OBS ERVED THAT THE AO HAD NOT BROUGHT OUT ANY EVIDENCE ON RECORD TO PROVE THAT TH ERE WAS A REMISSION OR CESSATION OF LIABILITY. HE FURTHER OBSERVED FROM TH E RECORD THAT THE ASSESSEE VIDE HIS LETTER DTD.24.08.2011 HAD FURNISHED THE DETAILS OF THE CREDITORS WHICH HAD BEEN PAID SUBSEQUENT TO 31.03.2009. FURTHER THAT T HE ASSESSEE HAD NOT CREDITED THE ABOVE SAID CREDITORS TO ITS P & L A/C. HE FURTH ER HELD THAT THE MERE EXPIRY OF THE PERIOD OF LIMITATION WITHIN WHICH THE CREDITOR COULD SUE THE ASSESSEE TO RECOVER HIS AMOUNT WOULD NOT CONSTITUTE A CESSATION OF THE LIABILITY OF THE ASSESSEE, AS IT COULD NOT BE SAID THAT THE EXPIRY O F THE PERIOD OF LIMITATION EXTINGUISHES THE DEBTORS LIABILITY TO PAY. HE THE REFORE HELD THAT THERE WAS NEITHER ANY REMISSION NOR ANY CESSATION OF LIABILIT Y, HENCE DELETED THE IMPUGNED ADDITION. THE REVENUE IS THUS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND HAVE ALSO GONE THROUGH THE RECORDS. THE LD. AR OF THE ASSESSEE HAS BROUGHT OUR ATTENTION TO THE PAPER BOOK PAGES NO.63 TO 74 TO SUBMIT THAT NOT ONL Y THE NAME AND ADDRESSES OF THE SUNDRY CREDITORS WERE PROVIDED TO THE AO BUT AL SO SUFFICIENT AMOUNT WAS ITA 5815/MUM/2012 4 PAID BACK SUBSEQUENTLY DURING THE A.Y. 2010-11, BUT , THE LD. AO OVERLOOKED THIS MATERIAL EVIDENCE ON THE FILE WHILE FRAMING TH E ASSESSMENT ORDER. HE HAS FURTHER INVITED OUR ATTENTION TO THE P & L ACCOUNT AND BALANCE SHEET OF THE SUBSEQUENT A.Y. 2010-11 TO SUBMIT THAT THE ASSESSEE HAD NOT CLOSED HIS BUSINESS RATHER THE SAME WAS CARRIED OUT DURING THE NEXT YEA R ALSO. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE HAD NOT WRITTEN OFF THE ACCOUNTS OF THE SUNDRY CREDITORS INTO PROFIT AND LOSS ACCOUNT. THE LIABILI TY HAD REGULARLY BEEN SHOWN IN THE BALANCE SHEET. THE ASSESSEES LIABILITY TO THE CREDITORS THUS SUBSISTED AND HAD NOT CEASED EVEN. HE HAS RELIED UPON THE CATENA OF JUDGMENTS TO STRESS THE POINT THAT THE LIMITATION ACT BARS THE REMEDY TO RECOVER THROUGH LEGAL COURSE OF ACTION BUT DOES NOT EXTINGUISH THE DEBT. HE HAS THUS PRESS ED THAT THE AMOUNT IS NOT THUS ASSESSABLE U/S. 41(1) OF THE INCOME TAX ACT. 8. ON THE OTHER HAND THE LD. DR HAS RELIED UPON CER TAIN OTHER JUDGMENTS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL TO SUBMIT THAT WHERE THE ASSESSEE HAD FAILED TO PROVIDE CORRECT ADDRESS, CONFIRMATIONS ET C. THUS THE ADDITIONS MADE U/S 41 HAVE BEEN HELD TO BE JUSTIFIED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. IT IS NOT A CASE WHERE THE ASSESSEE HA D NOT FURNISHED THE DETAILS OF THE SUNDRY CREDITORS. THE ASSESSEE IN THIS CASE HAD NOT ONLY FURNISHED THE DETAILS AND ADDRESSES OF THE SUNDRY CREDITORS BUT ALSO HE H AD CONTINUED TO PAY BACK THE DEBTS IN THE SUBSEQUENT YEAR. EVEN THE ASSESSEE HA D NOT CLOSED ITS BUSINESS RATHER IT HAS CONTINUED THE SAME IN THE SUBSEQUENT YEAR. IT IS NOT THE CASE THAT THE ASSESSEE HAD NO INTENTION TO PAY BACK THE DEBTS. AC CORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING TH E IMPUGNED ADDITIONS. THIS GROUND OF APPEAL IS THUS DECIDED AGAINST THE REVENU E. ITA 5815/MUM/2012 5 10. THE SECOND GROUND IS RAISED AGAINST THE ACTION OF THE CIT(A) IN ALLOWING THE CLAIM OF DEPRECIATION ON ASSETS AMOUNTING TO RS.1,18,98,364/-. 11. THE A.O. OBSERVED THAT ASSESSEE HAD CLAIMED DE PRECIATION OF RS.1,18,98,364/- U/S.32 OF THE I.T. ACT AND THE SAM E WAS REDUCED FROM ITS TOTAL INCOME. HE NOTED THAT THE ASSESSEE HAD NOT CARRIED OUT ANY MANUFACTURING ACTIVITY. HE THEREFORE HELD THAT SINCE THE ASSESSEE HAD NOT DONE ANY MANUFACTURING ACTIVITY FOR THE YEAR UNDER CONSIDERA TION, THUS THE ASSET WAS NOT USED DURING THE YEAR; HENCE THE CLAIM OF DEPRECIATI ON WAS NOT ALLOWABLE. 12. IN APPEAL, THE LD. CIT(A) OBSERVED THAT THE D EPRECIATION ALLOWANCE UNDER SECTION 32 WAS A STATUTORY ALLOWANCE AND THE MAIN I NGREDIENTS OF SUCH ALLOWANCES WERE THAT (I) THE DEPRECIABLE ASSET WAS OWNED WHOLLY OR PARTLY BY THE ASSESSEE; (II) IT WAS USED FOR THE PURPOSE OF A SSESSEES BUSINESS OR PROFESSION; AND (III) DEPRECIATION WOULD BE ALLOWED IN THE CASE OF ANY BLOCK OF ASSET AT SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MIGHT BE PRESCRIBED. HE OBSERVED THAT IN THE CASE IN HAND TH E ASSET WHICH HAD BEEN PURCHASED BY THE ASSESSEE AND HAD BEEN USED FOR THE PURPOSE OF BUSINESS HAD ALSO BEEN INCLUDED IN THE BLOCK OF ASSET, THUS AS PER THE STATUTORY PROVISIONS , DEPRECIATION WAS ALLOWABLE AS PER THE W.D.V.. HE FU RTHER OBSERVED THAT IN THE INSTANT CASE, THE AO HAD DISALLOWED DEPRECIATION ON THE GROUND THAT NO PRODUCTION HAD TAKEN PLACE DURING THE YEAR. THE AO NOWHERE HAD BROUGHT OUT THAT THE ASSETS DID NOT FORM PART OF BLOCK OF ASSET S NOR HE HAD STATED THAT ALL THE ACTIVITY OF THE ASSESSEE WAS SUSPENDED DURING THE Y EAR. THERE WAS NO EVIDENCE ON RECORD TO SHOW THAT THE ASSETS HAD NOT BEEN USED IN THE PAST. HE THEREFORE ALLOWED THE ASSESSEES CLAIM OF DEPRECIATION. THE R EVENUE IS THUS IN APPEAL BEFORE US ON THIS ISSUE. ITA 5815/MUM/2012 6 13. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE P ARTIES. THE LD. AR HAS INVITED OUR ATTENTION TO THE P & L ACCOUNT AND BALA NCE SHEET OF THE ASSESSEE FOR SUBSEQUENT A.Y. 2010-11 TO SUBMIT THAT THE ASSESSEE HAD NOT CLOSED HIS BUSINESS RATHER THE SAME WAS CARRIED OUT DURING THE NEXT YEA R ALSO AND THAT THE ASSET/MACHINERY WERE ALSO USED. HE HAS FURTHER SUBM ITTED THAT EVEN THE CLAIM OF DEPRECIATION ON ASSETS FOR SUBSEQUENT YEAR HAS BEEN ALLOWED BY THE AO. ON THE OTHER HAND THE LD. DR HAS RELIED UPON THE CASE LAWS TO SUBMIT THAT FOR THE ALLOWABILITY OF CLAIM OF DEPRECIATION, THE MACHINER Y/ASSET MUST BE USED FOR THE PURPOSE OF BUSINESS. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. IN THIS CASE THE ASSETS WERE ENTERED INTO THE BLOCK OF ASSETS. THE BUSINESS/ MANUFACTURING ACTIVITY WERE CARRIED BY TH E ASSESSEE DURING THE SUBSEQUENT YEAR ALSO. THOUGH THERE IS NO EVIDENCE T HAT THE ASSETS WERE NOT USED DURING THE YEAR, YET IF WE PRESUME SO, IT HAS BEEN HELD TIME AND AGAIN BY THE HIGHER AUTHORITIES THAT EVEN TEMPORARY SUSPENSION O F OPERATION/BUSINESS DOES NOT DISENTITLE THE ASSESSEE FOR THE CLAIM OF DEPREC IATION, IF THE ASSESSEE IS ABLE TO SHOW THAT SUBSEQUENTLY THE BUSINESS/OPERATION WAS C ARRIED OUT AND THAT THERE WAS NO CLOSURE OF THE BUSINESS. IN VIEW OF THE ABOV E WE DO NOT DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN ALLOWING TH E CLAIM OF DEPRECIATION. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS HER EBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.07.2014 . & 23.07.2014 SD/- SD/- (B.R.BASKARAN) ( SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; & DATED . 23 -07-14 . ./ A.K.PATEL . PS ITA 5815/MUM/2012 7 )* +* / COPY OF THE ORDER FORWARDED TO : 1. , / THE APPELLANT 2. )-, / THE RESPONDENT. 3. . ( ) / THE CIT(A)- CONCERNED, MUMBAI CONCERNED 4. . / CIT CONCERNED, MUMBAI CONCERNED 5. * ) , , / DR, ITAT, MUMBAI D BENCH 6. / GUARD FILE. / BY ORDER, -* ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI