ACIT 6(3), MUMBAI V. MODERN INDIA LTD, MUMBAI

ITA 6174/MUM/2012

• Counselvise Citation: 617419914 RSA 2012
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 03-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 09-10-2012
• Court: TRIBUNAL
• Department Lawyers: YOGESH KAMAT SR
• Assessee Lawyers: B L KABRA
• Keywords: Depreciation; Rule of consistency
• Section: 143(3); 32; 148

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ./I.T.A. NO. 6174/M/2012 ( AY: 2005 - 200 6 ) ACIT 6(3), R.NO.522, 5TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / VS. M/S. MODERN INDIA LTD., MODERN CENTRE, SANE GURUJI MARG, MAHALAXMI, MUMBAI 400 011. ./ PAN : AAACT4121E ( / APPELLANT) .. ( / RESPONDENT ) C.O.NO. 262 /M/2013 (ARISING OUT OF I.T.A. NO. 6174/M/2012 ( AY: 2005 - 2006 ) M/S. MODERN INDIA LTD., MODERN CENTRE, SANE GURUJI MARG, MAHALAXMI, MUMBAI 400 011. / VS. ACIT 6(3), R.NO.522, 5TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAACT4121E ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI B.L. KABRA / REVENUE BY : SHRI YOGESH KAMAT, SR. AR / DATE OF HEARING : 03.06 .2015 / DATE OF PRONOUNCEMENT : 30 .06 .2015 / O R D E R PER BENCH : THE CAPTIONED APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST TH E ORDER PASSED BY THE CIT (A) - 12 , MUMBAI DATED 05.07.2012 FOR THE ASSESSMENT YEAR 2005 - 2006 IN THE MATTER OF ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT), DATED 31.12.2010 . 2. FIRST, WE SHALL TAKE UP THE APPEAL OF THE REVENUE WHEREIN , THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL: - 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING ADDITION OF RS. 37,80,849/ - ON ACCOUNT OF DEPRECIATION OF PLANT & MACHINERY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE AO TO ALLOW THE DEPRECIATION AS CLAIMED BY THE APPELLANT IN RESPECT OF BLOCK OF ASSET CONSISTING OF PLANT & MACHINERY @ 25% PERTAINING TO YARN MANUFACTURING ACTIVITY WITHOUT APPRECIATING THE FACT THAT THE YARN MANUFACTURING A CTIVITY HAD BEEN DISCONTINUED AND ASSETS WERE NOT PUT TO USE. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. BRIEFLY STATED, RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE , WHO IS ENGAGED I N THE BUSINESS OF MANUFACTURING, TRADING AND REAL ESTATE, FILED THE RETURN OF INCOME DECLARING THE TOTAL LOSS OF RS. 1,09,88,210/ - ON 27.10.2005, WHICH IS SUBJECT TO SCRUTINY. DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFI CER OBSERVED THAT THE YARN MANUFACTURING ACTIVITY OF THE TEXTILES DIVISION OF THE ASSESSEE COMPANY HAD BEEN DISCONTINUED IN MARCH, 2004. THE TEXTILE DIVISION CONSISTED OF TRADING ACTIVITIES ONLY DURING THE FINANCIAL YEAR 2004 - 2005 RELEVANT TO ASSESSMENT Y EAR 2005 - 2006. IT WAS FURTHER OBSERVED BY THE ASSESSING OFFICER THAT THERE NO PRODUCTION WAS CARRIED OUT DURING THE YEAR AND SALES SHOWN WAS THE OPENING STOCK OF FINISHED GOODS. ASSESSING OFFICER, HOWEVER, NOTICED THAT AN AMOUNT OF RS. 1,51,23,396/ - STIL L FORMED PART OF THE BLOCK OF ASSETS OF PLANT & MACHINERY OF THE DISCONTINUED YARN MANUFACTURING OPERATION. IN THE BACKGROUND OF THE ABOVE, ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE DEPRECIATION AMOUNTING TO RS. 37,80,849/ - HAD WRONGLY CLAIMED ON THE AFORESAID ASSETS DESPITE THE FACT THAT THE SAID PLANT & MACHINERY WAS NOT PUT TO USE DURING THE YEAR, AND THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. ACCORDINGLY, ASSESSING OFFICER RE - OPENED THE ASSESSMENT U/S 147 OF THE ACT AND ASSESSING OF FICER COMPLETED THE ASSESSMENT U/S 143(3) R.W.S. 147 OF THE ACT, AND THE TOTAL LOSS WAS DETERMINED AT RS. 63,82,370/ - , BY MAKING A DISALLOWANCE OF RS. 37,80,849/ - ON ACCOUNT OF DEPRECIATION CLAIMED BY THE ASSESSEE IN RESPECT OF BLOCK OF ASSETS OF PLANT & M ACHINERY. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. DURING THE PROCEEDINGS BEFORE THE CIT (A), ASSESSEE CONTENDED THE ISSUES I.E., RE - OPENING OF THE ASSESSMENT U/S 147 OF THE ACT; ISSUE OF NOTICE U/S 148 OF THE ACT AND THE AFORESAID DISALLOWANCE OF DEPRECIATION IN RESPECT OF BLOCK OF ASSETS OF PLANT & MACHINERY. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD, 3 CIT (A) DISCUSSED THE ISSUES AT LENGTH AND UPHELD THE ACTION OF THE ASSESSING OFFI CER TO THE EXTENT OF ISSUING NOTICE U/S 148 R.W.S 147 OF THE ACT AND DELETED THE DISALLOWANCE OF DEPRECIATION MADE BY THE ASSESSING OFFICER IN RESPECT OF THE BLOCK O F ASSETS CONSISTING OF PLANT & MACHINERY. AGGRIEVED WITH THE AFORESAID DECISION OF THE CIT (A), REVENUE IS IN APPEAL BEFORE US BY RAISING THE ABOVEMENTIONED GROUNDS OF APPEAL. 5. BEFORE US, LD REPRESENTATIVE FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND STRONGLY RELIED ON THE ORDER OF CIT (A). IN SUPPORT OF HIS CONTENTION THAT THE DECISION TAKEN BY THE CIT (A) IS FAIR AND REASONABLE, LD REPRESENTATIVE FOR THE ASSESSE RELIED ON VARIOUS PRECEDENTS , WHICH ARE PLACED I N PAPER BOOK PLACED BEFORE US FROM PAGES 9 TO 37. FURTHER, BRINGING OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT VS. JAGDISH C. SHETH [2006] 101 ITD 360 (MUM.) , LD COUNSEL FOR THE ASSESSEE READ OUT THE HELD PORTION OF THE TRIBUNALS ORDER AND PRAYED THE BENCH THAT CONSIDERING THE VIEW TAKEN BY IT AT , MUMBAI ON SIMILAR ISSUE , THE CIT (A) HAS CORRECTLY DECIDED ISSUE BEFORE HIM, AND THEREFORE, THE SAME MAY BE CONFIRMED. 6. ON OTHER HAND, LD DR APPEARING FOR THE REVENUE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 7. WE HAVE HEARD BOTH THE PARTIES AN D PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE AND ALSO THE CITED DECISION OF THE TRIBUNAL IN THE CASE OF JAGDISH C. SHETH (SUPRA). ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL (SURPA), WE FIND THE SAME IS R ELEVANT FOR THE PROPOSITION THAT WHERE AN ASSET IS ADDED TO THE BLOCK OF ASSETS, IT BECOMES PART OF THAT BLOCK OF ASSETS AND EVEN IF THAT INDIVIDUAL ASSET IS SOLD OUT, DISCARDED OR OTHERWISE DISPENSES WITH, STILL THE PROPORTIONATE WRITTEN DOWN VALUE OF TH AT PARTICULAR ASSET ALWAYS REMAINED WITH THE BLOCK OF ASSETS AS A RESULT OF WHICH THE WRITTEN - DOWN VALUE OF SUCH DISCARDED ASSET WOULD STILL BE ENTITLED TO DEPRECIATION. THIS IS NATURAL CONSEQUENCE OF THE CONCEPT OF BLOCK OF ASSETS. THE BLOCK OF ASSETS E VEN THOUGH A LEGAL CONCEPT, ITS FACTUAL COMPUTATION IS A MATTER OF ACCOUNTING AND LOGIC. 8. THE FACTUAL FINDINGS OF THE CIT (A) ARE AS UNDER: 4 4.1............. WHILE MAKING THE SAID DISALLOWANCE, THE AO HAS NOT TAKEN COGNIZANCE OF THE FACT THAT THE SAID PLANT & MACHINERY WHERE A PART OF A BLOCK OF ASSETS CONSISTING OF PLANT & MACHINERY OF THE APPELLANTS BUSINESS. THE AO HAS ALSO DISREGARDED THE FACT THAT THIS BLOCK WAS INCLUSIVE OF THE PLANT AND MACHINERY OF THE YARN DIVISION AND NOT EXCLUSIVE OF THE SA ME AND THAT THE PLANT & MACHINERY OF THIS BLOCK WERE IN USE DURING THE YEAR. IT IS ALSO SEEN THAT THE AO HAS NOWHERE ESTABLISHED THAT THE BUSINESS OF THE APPELLANT IS NOT A COMPOSITE BUSINESS BUT IS TO BE TREATED AS SEPARATE BUSINESSES FOR WHICH ACCOUNTS ARE MAINTAINED SEPARATELY GIVING RISE TO SEPARATE COMPUTATIONS OF INCOME BEING MADE. THE AO HAS DISREGARDED THE STATEMENT SHOWING DEPRECIATION ALLOWABLE U/S 32 OF THE IT ACT FILED BY THE APPELLANT ALONG WITH THE RETURN OF INCOME. IN THE SAID STATEMENT, T HE NOTE SUPPLIED CLEARLY SHOWS THAT THE BLOCK OF ASSET CONSISTING OF PLANT & MACHINERY ELIGIBLE FOR DEPRECIATION @ 25% INCLUDE PLANT & MACHINERY OF DISCONTINUED YARN MANUFACTURING OPERATION WHICH IS TO SAY THAT THE BLOCK OF ASSET REGARDING PLANT & MACHINER Y ELIGIBLE FOR DEPRECIATION @ 25% WAS INCLUSIVE OF THE PLANT AND MACHINERY REGARDING THE YARN MANUFACTURING OPERATIONS OF THE APPELLANT WHICH HAD BEEN CLOSED. AS PER THE DEPRECIATION CHART, IT IS CLEAR THAT THERE HAS BEEN AN ADDITION IN THE SAID BLOCK OF ASSET DURING THE YEAR AS WELL AS A DEDUCTION AND DEPRECIATION HAS BEEN CLAIMED ON THE NET VALUE. A READING OF THE ORDER OF THE AO SHOWS THAT THE AO HAS CONSIDERED THE TOTAL WDV OF PLANT & MACHINERY AS ON 1/4/2014 AS PERTAINING TO THE YARN MANUFACTURING OP ERATIONS OF THE APPELLANT. FROM THE ABOVE AMOUNT, HE HAS DEDUCTED THE AMOUNT THAT REPRESENT THE SALE PROCEEDS OF THE ASSET SOLD AND HAS DISALLOWED DEPRECIATION ON THE REMAINING AMOUNT WITHOUT TAKING INTO CONSIDERATION THE ADDITION IN THE BLOCK DURING THE YEAR. THE ACTION OF THE AO, I FIND IS NOT IN CONSONANCE WITH THE PROVISIONS OF THE INCOME TAX ACT. AS STATED BY THE APPELLANT THE SCHEME OF BLOCK OF ASSET INTRODUCED HAS RESULTED IN THE INDIVIDUAL ASSETS COMPRISING OF THE BLOCK LOSING A IDENTITY AS INDIV IDUALS AND ALSO THE FACT THAT FOR ALLOWING DEPRECIATION USE OF EACH AND EVERY ASSET IS NOT THE CRITERIA FOR CONSIDERING DEPRECIATION ALLOWABLE TO THE SAID BLOCK. I FIND THAT THE JUDICIAL PRONOUNCEMENTS ON WHICH THE APPELLANT HAS RELIED UPON CLEARLY COVERE D ITS CASE. UNLESS IT IS ESTABLISHED THAT THE WHOLE BLOCK OF PLANT & MACHINERY ON WHICH THE ABOVE MENTIONED DEPRECIATION HAS BEEN CLAIMED WAS NOT PUT TO USE IN THE YEAR UNDER CONCERN, DEPRECIATION CLAIMED BY THE APPELLANT IS TO BE ALLOWED........ 9. ON HEARING BOTH THE PARTIES AND ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL DATED 23.1.2006 (SUPRA), WE FIND MERIT IN THE ARGUMENT OF THE LD REPRESENTATIVE OF THE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE PRECEDENTS AS WELL AS IN THE AFORESAID ORDER OF THE TRIBUNAL IN THE CASE OF JAGDISH C. SHETH (SUPRA) AND ALSO FOLLOWING THE PRINCIPLE OF CONSISTENCY, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT (A) AND DECISION TAKEN BY HIM IS FAIR AND REASONABLE , AND THEREFORE, IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, ON THE AFOREMENTIONED GROUNDS, REVENUE FAILS. 10. NOW, WE MAY TAKE UP THE CROSS OBJECTION OF THE ASSESSEE. AT THE TIME OF HEARING, AT THE OUTSET, LD REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE CROSS OBJE CTION RA ISED BY THE ASSESSEE IS NOT PRESSED. AFTER HEARING THE LD DR FOR THE REVENUE IN THIS REGARD, WE DISMISS THE CROSS OBJECTION AS NOT PRESSED. 5 11 . IN THE RESULT, THE APPEAL OF THE REVENUE AS WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. ORD ER PRONOUNCED IN T HE OPEN COURT ON 30 TH JUNE, 2015. SD/ - SD/ - ( SANJAY GARG ) ( G.S. PANNU ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 30 . 6 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI