DEFIANCE CLOTHING COMPANY, MUMBAI V. JTCIT RG 18(2), MUMBAI

ITA 6217/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4270 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 04-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 08-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS R M MADHAVI
• Assessee Lawyers: AIJAZ SHAIKH
• Keywords: Depreciation; Rule of consistency
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, M UMBAI . . , , ! ! ! ! '# '# '# '# , $ $ $ $ BEFORE SHRI R.S.SYAL, AM, AND SHRI AMIT SHUKLA, JM /. I.T.A. NO.6217/MUM/2011 ( % & % & % & % & '& '& '& '& / ASSESSMENT YEAR: 2008-09) M/S. DEFIANCE CLOTHING COMPANY C/O MILAN PATEL (PARTNER) 111, SANGEETA, 27,28, ARTHUR BUNDER ROAD, COLABA, MUMBAI- 400 005 % % % % / VS. THE JT. COMMISSIONER OF INCOME TAX, RG. 18(2), MUMBAI. ( /. )* /. PAN/GIR NO. : AACFD2886K ( (+ / APPELLANT ) : ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY : MR. AIJAZ SHAIKH ,-(+ . / RESPONDENT BY : MRS. R.M MADHAVI % ! / DATE OF HEARING : 04.07. 2013 01' ! /DATE OF PRONOUNCEMENT : 10. 07.2013 ' / O R D E R PER :AMIT SHUKLA , JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE IMPUGNED ORDER DATED 23.06.2011 PASSED BY LD. CIT(APPEALS)-29, MUMBAI FO R QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR- 2008-09, ON THE FOLLOWING GROUNDS OF APPEAL: THE LD. CIT(A) ERRED IN LAW AND FACT IN UPHOLDING D ISALLOWANCE OF DEPRECIATION OF RS. 39,82,503/- ON THE PLANT & MACHINERY ALLEGIN G THAT IT IS NOT USED BY THE ASSESSEE FOR ITS OWN BUSINESS. THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS OF THE CASE AND AGAINST THE P ROVISIONS OF LAW. 2 ITA 6217 MUM 2011(AY-2008-09) M/S. DEFIANCE CLOTHING COMPANY VS. JT. CIT 2. AT THE OUT SET, LD. COUNSEL FOR THE ASSESSEE FAI RLY ADMITTED THAT SIMILAR ISSUE OF DISALLOWANCE OF DEPRECIATION ON PLANTS AND MACHINER Y HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN THE ASSESSMENT YEAR 200 7-08, ITA NO 6742/MUM/2010. LD. DR ALSO ADMITTED THIS THE FACT THAT ISSUE INVOLVED HEREIN THIS APPEAL HAS BEEN DECIDED IN THE FAVOUR OF THE REVENUE. 3. AFTER GOING THROUGH THE RELEVANT FINDINGS OF THE CIT(APPEALS) AS WELL AS THE ASSESSMENT ORDER, WE FIND THAT SIMILAR ISSUE HAS BE EN DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE. BRIEF FACTS APROPOS THIS GROUND ARE THAT ASSESSEE HAS CLAIMED DEPRECIATION OF RS. 39,82,503/- IN RESPECT OF MACHINERIES PURCHASED BY IT IN THE FINANCIAL YEAR 2006- 07(AY-2007-08), WHICH WAS INSTALLED IN THE FACTORY PREMISES ONE OF THE SISTER CONCERN VIZ. DEFIANCE KNITTING INDS.(P)LTD. THE ASSESSING O FFICER DISALLOWED THE DEPRECIATION ON THE BASIS OF FOLLOWING REASONS:- (I) THE MACHINERY ALTHOUGH PURCHASED BY THE APPELL ANT IS INSTALLED AT THE FACTORY PREMISES OF M/S. DEFIANCE KNITTING INDS. PV T. LTD. (II) THE MACHINERY IS USED BY M/S. DEFIANCE KNITTI NG INDS. PVT. LTD. AND NOT BY THE APPELLANT. A BASIC CONDITION FOR ALLOWING DEPRE CIATION U/S. 32(1) IS THAT THE ASSET HAS TO BE USED FOR THE PURPOSES OF BUSINE SS OR PROFESSION OF THE APPELLANT. (III) ASSESSEE HIMSELF HAS NOT CHARGED DEPRECIATIO N ON CERTAIN ASSETS LYING AT KANDLA FACTORY WHICH REMAINED UNUSED. HE CANNOT GIV E A DIFFERENT TREATMENT TO THE MACHINERY IN QUESTION. (IV) DEFINACE KNITTING INDS. PVT. LTD. IS USING THE MACHINERY OF THE APPELLANT AND IS EARNING RENT OR OTHER BENEFITS FOR THE USE OF TH E MACHINERY. (V) THE APPELLANT HAS NOT CHARGED M/S. DEFIANCE KN ITTING INDS. PVT. LTD. ANY RENT FOR THE USE OF THE MACHINERY. (VI) THE ASSESSING OFFICER ALSO FOLLOWED THE STAN D TAKEN BY THE ASSESSING OFFICER IN AY. 2007-08. 3 ITA 6217 MUM 2011(AY-2008-09) M/S. DEFIANCE CLOTHING COMPANY VS. JT. CIT THE LEARNED CIT (APPEALS) ALSO BY AND LARGE ON THE SAME REASONING CONFIRMED THE SAID DISALLOWANCE AND ALSO FOLLOWED THE DECISION OF THE CIT(APPEALS) IN THE CASE OF THE ASSESSEE FOR THE EARLIER ASSESSMENT YEAR-2007. 4. THE TRIBUNAL VIDE ORDER DATED 26.06.2013, AFTER DISCUSSING THE FACTS IN DETAIL HAS CONFIRMED THE DISALLOWANCE AFTER OBSERVING AND HOLD ING AS UNDER:- WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE FACT THAT THE AS SESSEE PURCHASED THIS MACHINERY IN THE PRECEDING YEAR AND RECORDED IT IN ITS BOOKS OF ACCOUNT. EQUALLY, THERE IS NO DISAGREEMENT ON THE FACT THAT SUCH MACHINERY WAS IN STALLED AB INITIO AT THE BUSINESS PREMISES OF DKIPL, FOR THE BUSINESS PURPOSES OF THE SISTER-CONCERN. IT IS NOT A CASE THAT THE MACHINERY WAS SIMPLY INSTALLED AT SOME OTHER LO CATION BUT WAS UTILIZED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE. UNDER SUCH CIRCU MSTANCES, THE QUESTION ARISES AS TO WHETHER THE ASSESSEE IS LAWFULLY ENTITLED TO DEPREC IATION ALLOWANCE. IN SUPPORT OF THE ENTITLEMENT TO THE DEPRECIATION , THE LEARNED AR RELIED ON CERTAIN DECISIONS TO ACCENTUATE THAT ONCE THE MACHINERY HAS ENTERED INTO BLOCK OF ASSETS, THEN THERE CAN BE NO DENIAL OF DEPRECIATION UNDER ANY CI RCUMSTANCES. HIS MAIN EMPHASIS WAS ON THE ORDER DATED MARCH 2013 PASSED BY THE MUM BAI BENCH OF THE TRIBUNAL IN E- CITY ENTERTAINMENT (INDIA) PVT. LTD. V. ADDL. CIT ( ITA NO. 1382/MUM/2012) ENTITLING THE ASSESSEE TO DEPRECIATION ON AN ASSET FORMING PA RT OF BLOCK OF ASSET NOTWITHSTANDING THE FACT THAT IT WAS NOT PUT TO USE DURING THE RELE VANT FINANCIAL YEAR. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE J UDGMENT DATED 10.07.2008 OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN PUNJAB BONE MILLS VS. CIT(ITA NO. 596 OF 2007), A COPY OF WHICH HAS ALSO BEEN PLACED ON REC ORD. IN THIS JUDGMENT, THE HONBLE HIGH COURT NOTICED THE FACT THAT THE BOILER IN RESP ECT OF WHICH BENEFIT WAS CLAIMED, WAS ALSO USED BY THE SISTER-CONCERN. THEIR LORDSHIPS UP HELD THE TRIBUNAL ORDER HOLDING THAT DEDUCTION U/S 32 BE RESTRICTED TO A FAIR PROPORTION ATE PART THEREOF HAVING REGARD TO THE USER OF THE ASSET BY THE ASSESSEE FOR ITS BUSINESS PURPOSE. IT IS TRITE LAW THAT ONCE AN ASSET FALLING IN A P ARTICULAR BLOCK IS PURCHASED BY THE ASSESSEE AND PUT TO USE FOR ITS BUSINESS PURPOSE, T HEN DEPRECIATION HAS TO BE ALLOWED. IN THE SCHEME OF BLOCK OF ASSETS, DEPRECIATION IS ALLO WED IRRESPECTIVE OF THE FACT WHETHER OR NOT A PARTICULAR ASSET FORMING PART OF A BLOCK I S DISTINCTLY USED. THE RATIONALE OF ALLOWING DEPRECIATION IN A CASE OF NON-USER OF A PA RTICULAR ASSET IS THAT THE OTHERWISE USER OF SUCH ASSET FORMING PART OF THE BLOCK, IS NO T JEOPARDIZED IN ANY MANNER TO THE ASSESSEE. WHERE AN ASSET IS ACTUALLY USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE, IT GIVES ENTITLEMENT DEPRECIATION, BUT IF AN ASSET IS NOT ACTUALLY USED BUT IS AVAILABLE FOR USE, IT AMOUNTS TO DEEMED USER IN THE SCHEME OF B LOCK OF ASSETS. AN ASSET CAN BE SAID TO BE DEEMED TO HAVE BEEN USED IN CONTRAST TO AC TUALLY USED WHEN IT IS ACQUIRED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE BUT IS NOT AC TUALLY USED FOR LACK OF REQUIREMENT OR OTHERWISE, COUPLED WITH THE FACT THAT SUCH ASSET RE MAINS AT ITS DISPOSAL FOR ACTUAL USER AS AND WHEN REQUIRED. IT, THEREFORE, FOLLOWS THAT A N ASSESSEE IS ENTITLED TO DEPRECIATION, IN THE SCHEME OF BLOCK OF ASSETS, ON ACTUAL OR D EEMED USER. THIS POSITION SHOULD BE SEEN IN CONTRADISTINCTION TO A POSITION IN WHICH AN ASSET IS NOT ONLY NOT UTILIZED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE BUT IS ACQUIRED F OR ONE THIRD PARTY AND IS ALSO SO USED. 4 ITA 6217 MUM 2011(AY-2008-09) M/S. DEFIANCE CLOTHING COMPANY VS. JT. CIT A LINE OF DISTINCTION NEEDS TO BE DRAWN BETWEEN A C ASE IN WHICH AN ASSET IS ACQUIRED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE AND A CASE IN WHICH SUCH ASSET IS ACQUIRED BY THE ASSESSEE FOR A DIFFERENT ENTITY FOR THE BUSINESS PU RPOSE OF SUCH ENTITY. WHEREAS IN THE FIRST SITUATION, DEPRECIATION IS TO BE ALLOWED WHET HER OR NOT THE ASSET IS ACTUALLY USED, BUT THERE CAN BE NO QUESTION OF ALLOWING ANY DEPREC IATION IN THE SECOND SITUATION. SECTION 32 ENTITLES AN ASSESSEE TO DEPRECIATION ON THE SATISFACTION OF TWIN CONDITIONS. THE FIRST IS THAT THE ASSET SHOULD BE OWNED BY THE ASSESSEE AND THE SECOND IS THAT IT SHOULD BE USED FOR THE BUSINESS PURPOSE. IT IS BEYO ND OUR COMPREHENSION AS TO HOW AN ASSESSEE CAN CLAIM DEPRECIATION BY REASON OF MERE A CQUISITION OF AN ASSET. THE SECOND CONDITION OF SECTION 32, BEING THE USER OF ASSET- WHETHER ACTUAL ON ONE HAND OR DEEMED ON THE OTHER, IN SUCH A CASE WOULD BE WANT ING. THAT BEING THE POSITION, THERE CAN BE NO QUESTION OF GRANTING ANY DEPRECIATION IN SUCH A CASE. ADVERTING TO THE FACTS OF THE INSTANT CASE, IT IS SEEN THAT THE ASSESSEE PURCHASED THE ASSET BUT INSTALLED IT AT THE PREMISES OF ITS SISTE R-CONCERN, WHICH WAS UTILIZED BY THE SISTER CONCERN FOR THEIR OWN BUSINESS PURPOSE. THER E IS NO BENEFIT WHICH THE ASSESSEE DERIVED FROM ITS SISTER-CONCERN AS A QUID PRO QUO FOR ALLOWING THE USER OF SUCH ASSET. THE MERE FACTS THAT THE ASSESSEE UTILIZED ITS FUNDS OR OBTAINED A LOAN IN ITS OWN NAME FOR ACQUIRING THE ASSET AND ALSO SHOWED IT IN ITS B OOK OF ACCOUNT, WOULD NOT CHANGE THE CONSEQUENCE OF THE NON-GRANTING OF DEPRECIATION IN ANY MANNER WHEN THE ESSENTIAL FACT PREVAILS THAT THE ASSET WAS, IN FACT, UTILIZED BY T HE SISTER CONCERN FOR ITS OWN BUSINESS PURPOSE. AS IT IS NOT A CASE OF THE ASSESSEE HAVING ACTUALLY USED OR DEEMED TO HAVE USE SUCH ASSET FOR ITS BUSINESS PURPOSE, THERE CAN BE NO SCOPE FOR ALLOWING DEPRECIATION TO THE ASSESSEE ON SUCH ASSET. THIS CASE HAS ANOTHER INTERESTING DIMENSION. THE SISTER CONCERN, DKIPL, WHICH ACTUALLY USED THE ASSET WAS RUNNING INTO CONSISTENT LOSSES. IN THE PRECEDING YEAR I.E. A.Y. 2006-2007, WHEN THE ASSESSEE PURCHASED AND REC ORDED SUCH ASSET IN ITS BOOKS OF ACCOUNT, DKIPL SUFFERED LOSS OF RS. 1.23 CRORE MAKI NG TOTAL OF CARRY FORWARD LOSS TO THE TUNE OF RS. 25.19 CRORE. IT SHOWS THAT THE AFFA IRS OF THE GROUP CONCERNS WERE COOKED UP IN SUCH A WAY SO AS TO REDUCE THE INCIDENCE OF T AX SHIFTING THE CLAIM OF DEPRECIATION IN TAX PAYING COMPANY RATHER THAN GENUINELY RETAINI NG IT IN A NON-TAX PAYING ENTITY. THIS TYPE OF ARRANGEMENT BETWEEN THE SISTER-CONCERN S NEEDS TO BE DISCOURAGED. THE FURTHER ARGUMENT OF THE LD AR THAT THE CLAIM OF DEP RECIATION WAS ALLOWED TO THE ASSESSEE IN THE PRECEDING YEAR AND HENCE THE PRINCI PLE OF CONSISTENCY SHOULD BE FOLLOWED, IS AGAIN DEVOID OF MERITS. ON A POINTED Q UERY, IT WAS CANDIDLY ADMITTED THAT THE RETURN FOR THE LAST YEAR WAS PROCESSED U/S 143( 1) IN A SUMMARY MANNER AND THE CASE WAS NOT TAKEN UP FOR SCRUTINY ASSESSMENT. SINC E IN VIEW OF THE DETAILED DISCUSSION SUPRA, IT IS MANIFEST THAT THE ASSESSEE IS NOT ENTI TLED TO DEPRECIATION AS PER LAW, WE ARE DISINCLINED TO ACCEPT THE ARGUMENT OF THE LD. AR TO FOLLOW THE PRINCIPLE OF CONSISTENCY IN THE GIVEN CIRCUMSTANCES AS OBVIOUSLY THERE CAN BE N O ESTOPPELS AGAINST THE PROVISIONS OF THE ACT. THE IMPUGNED ORDER IS UPHELD ON THIS IS SUE. THIS GROUND IS NOT ALLOWED. 5. ADMITTEDLY, SIMILAR ISSUE HAS BEEN DECIDED BY T HE TRIBUNALS, IN A VERY ELABORATE MANNER, THEREFORE, RESPECTIVELY FOLLOWING THE SAME, THE DISALLOWANCE OF DEPRECIATION FOR SUM OF RS. 39,82,503/-, ON PLANT MACHINERY CLAIMED BY THE ASSESSEE STANDS CONFIRMED AND THE GROUND RAISED IS HEREBY DISMISSED. 5 ITA 6217 MUM 2011(AY-2008-09) M/S. DEFIANCE CLOTHING COMPANY VS. JT. CIT 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS D ISMISSED. !3 % &! ) )! 45 ORDER PRONOUNCED ON 10 TH DAY JULY, 2013 . ' 01' %3 10.07.2013 1 7 SD/- SD/- ( R. S. SYAL ) ( AMIT SHUKLA ) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI: % DATED : 10 .07.2013 % . /. PRAMOD KUMAR, PS ' ' ' ' ,! ,! ,! ,! 9'! 9'! 9'! 9'! / COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT 3. : ) ( THE CIT(A) 4. : / CIT - CONCERNED 5. ;7 ,!% , , / DR, ITAT, MUMBAI 6. 7 & < / GUARD FILE '% '% '% '% / BY ORDER, = == = / 4 4 4 4 ) ) ) ) (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI