IILM Education P. Ltd., Gurgaon V. ITO, Gurgaon

ITA 6335/DEL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5226 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 15-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 13-12-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Assessee Lawyers: ANIL KANODIA; SANDEEP MITTAL
• Keywords: Depreciation; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES SMC: NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA.NO.6335/DEL./2016 ASSESSMENT YEAR 2012-2013 IILM EDUCATION P. LTD., PLOT NO.70, SECTOR-53, VILLAGE WAZIRABAD, GURGAON. PAN AADCP6724C VS. THE INCOME TAX OFFICER, WARD-2(1), GURGAON. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI SANDEEP MITTAL, ADVOCATE & SHRI ANIL KANODIA, C.A. FOR REVENUE : SHRI T. VASANTHAN, SR. D.R. DATE OF HEARING : 09.08.2017 DATE OF PRONOUNCEMENT : 16.08.2017 ORDER THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF LD. CIT(A)-1, GURGAON, DATED 28 TH SEPTEMBER, 2016 FOR THE A.Y. 2012-2013. 2. I HAVE HEARD LEARNED REPRESENTATIVES OF BOTH THE P ARTIES AND PERUSED THE MATERIAL ON RECORD. THE LEARNED COUN SEL FOR THE ASSESSEE, DID NOT PRESS GROUND NOS. 2, 3 AND 4 OF THE APPEAL. THE SAME ARE DISMISSED AS NOT PRESSED. 3. ON GROUND NO.1, ASSESSEE CHALLENGED THE ORDER OF THE LD. CIT(A) IN ALLOWING ONLY 50% OF THE DEPRECIATION AMOU NT OF RS.1,98,022 OUT OF THE TOTAL AMOUNT OF RS.3,96,022. 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT ASSESSEE FI LED RETURN OF INCOME DECLARING INCOME OF RS.1,25,786. DURING T HE YEAR ASSESSEE- COMPANY HAD NOT CARRIED OUT ANY BUSINESS AND HAD DON E SOME INVESTMENT ACTIVITIES. THE MAIN OBJECT OF THE ASSESSEE I S RUNNING OF 2 ITA.NO.6335/DEL./2016 IILM EDUCATION P. LTD., VILLAGE WAZIRABAD, GURGAON EDUCATIONAL INSTITUTES TO PROMOTE THE EDUCATION. IN VIE W OF THE FACT THAT SINCE THE ASSESSEE HAD NOT CARRIED OUT ANY BUSINESS DURING THE YEAR, THE A.O. DISALLOWED THE EXPENSES CLAIMED BY TH E ASSESSEE. THE A.O. FURTHER NOTED THAT ASSESSEE HAD CLAIMED LIABILITY OF RS.3,60,000 AND RS.555 ON ACCOUNT OF SECURITY FEES. THE A.O. ASK ED THE ASSESSEE TO GIVE COMPLETE NAMES AND POSTAL ADDRESSES OF THE PER SONS PERTAINING TO THIS SECURITY FEES WHEREVER THE FEES WAS MORE THAN T WO YEARS OLD. THE A.O. ASKED THE ASSESSEE AS TO WHY THE SAME MAY NOT BE DISALLOWED. THE ASSESSEE IN REPLY SUBMITTED THE NAMES OF THE STUDENTS FROM WHOM SECURITY WAS CLAIMED TO HAVE BEEN RECEIVED BUT NO POSTAL ADDRESS WAS GIVEN. THE ASSESSEE SUBMITTED THAT SECURIT Y FEES WAS MORE THAN THREE YEARS OLD AND HAD BEEN TAKEN AS LIABIL ITY BY WAY OF ABUNDANT PRECAUTION. THE ASSESSEE FURTHER SUBMITTED THA T THIS AMOUNT HAS BEEN TAKEN AS INCOME DURING THE NEXT FINAN CIAL YEAR. THE A.O. WAS NOT SATISFIED WITH THE ASSESSEES SUBMISSIONS AND ADDED THIS AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE. 5. IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT ASSESSEE HAD CARRIED ON BUSINESS TILL 2009-2010 AND ONLY THEREAFTE R, THE ACTIVITIES SUFFERED A SET BACK. THE ASSESSEE SUBMITTED THAT ACTIVITI ES WERE ONLY DISCONTINUED AND FINALLY STOPPED IN THE MONTH OF SEPTEM BER, 2011 WHEN ON 20 TH SEPTEMBER, 2011, THE ASSESSEE ENTERED INTO A LIMITED LIABILITY PARTNERSHIP AGREEMENT (LLP) WITH ANOTHER C ONCERN TO CARRY ON BUSINESS AND BECOME PARTNER IN THAT BUSINESS. THE ASSE SSEE SUBMITTED THAT THE EXPENSES INCURRED TILL THE BUSINESS WAS NOT CLOSED, WERE ALLOWABLE. FURTHER, REGARDING SECURITY FEES AMO UNTING TO RS.3,60,000, THE ASSESSEE REITERATED THE SUBMISSIONS MADE DURING THE ASSESSMENT PROCEEDINGS. 6. THE LD. CIT(A) CONSIDERING THE FACTS AND MATERIAL ON RECORD, NOTED THAT ASSESSEE WAS CARRYING ON BUSINESS ACTIVITIES TILL THE 3 ITA.NO.6335/DEL./2016 IILM EDUCATION P. LTD., VILLAGE WAZIRABAD, GURGAON YEAR 2009-2010 AND IT WAS ONLY THEREAFTER, THE ACTIVITIE S WERE TEMPORARILY SUSPENDED. THESE ACTIVITIES WERE FINALLY STOPPED IN SEPTEMBER, 2011 WHEN ASSESSEE BECAME PARTNER IN SOME OTHER CONCERN FOR THE SAME ACTIVITIES. IN THESE CIRCUMSTANCES, THE EXPENSES INCURRED BY THE ASSESSEE TILL THE CLOSURE OF THE BUSINE SS I.E., SEPTEMBER, 2011 IS AN ALLOWABLE EXPENDITURE. THE LD. CIT(A) ACCORDINGLY ALLOWED BUSINESS EXPENDITURE OF RS.1,38, 585. FURTHER, THE ASSESSEE HAD CLAIMED DEPRECIATION ON FIXED ASSETS AMO UNTING TO RS.3,96,044. LD. CIT(A) NOTED THAT SINCE THE BUSINESS O F THE ASSESSEE WAS FINALLY STOPPED IN SEPTEMBER, 2011, SO DEPRECIA TION IS ALLOWABLE ONLY FOR HALF OF THE YEAR. ACCORDINGLY, 50% OF THE DE PRECIATION IS ALSO ALLOWED. THE LD. CIT(A) ALSO CONFIRMED ADDITION OF R S.3,60,000. 7. AFTER CONSIDERING THE RIVAL CONTENTIONS, I DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF LD. CIT(A). LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT LD. CIT(A) ALLOWED DED UCTION/ EXPENDITURE OF RS.1,38,585 WHICH HAVE BEEN CLAIMED I N THE P & L A/C (PAPER BOOK-4) THEREFORE, ON THE SAME ANALOGY, THE DE PRECIATION FOR FULL YEAR SHOULD HAVE BEEN ALLOWED. HE HAS SUBMITTED THAT LD . CIT(A) NOTED THAT ASSESSEE HAS TEMPORARILY SUSPENDED ITS ACTIVI TIES IN THE YEAR 2009-2010. HE REFERRED TO PAPER BOOK NO.21 WHIC H IS LIMITED LIABILITY PARTNERSHIP AGREEMENT (LLP AGREEMENT) EXECUTE D ON 20 TH SEPTEMBER, 2011 WHEREBY ASSESSEE HAS BECOME THE PARTN ER IN SOME OTHER CONCERN NAMELY IILM ENTERPRISE LLP, THEREFORE , ASSESSEE CONTINUED THE BUSINESS IN WHOLE OF THE YEAR. HE HAS SU BMITTED THAT ASSESSEE HAS INTENTION TO CARRY ON THE BUSINESS ACTIVITI ES. THEREFORE, FOR TEMPORARY SUSPENSION OF BUSINESS, DEPRECIATION SH OULD NOT BE DISALLOWED. HE HAS RELIED UPON CERTAIN DECISIONS, CO PY OF WHICH WERE FILED IN THE PAPER BOOK, IN SUPPORT OF THIS CONTENTION. HE HAS ALSO 4 ITA.NO.6335/DEL./2016 IILM EDUCATION P. LTD., VILLAGE WAZIRABAD, GURGAON SUBMITTED THAT ASSESSEE HAD NO INTENTION TO EVADE THE TAX. ON PASSIVE USER ASSESSEE ENTITLED TO FULL DEPRECIATION. 8. ON THE OTHER HAND LD. D.R. SUBMITTED THAT ASSESSEE- COMPANY CEASED TO DO ANY BUSINESS AFTER SEPTEMBER, 2011 AND ON EXECUTING LIMITED LIABILITY PARTNERSHIP AGREEMENT ON 20 TH SEPTEMBER, 2011 ASSESSEE-COMPANY HAS BECOME PARTNER IN ANOTHER PARTNERSHIP FIRM. THEREFORE, FOR HALF OF THE PERIOD, DEPRECIATION WAS RIGHTLY ALLOWED FOR 50%. THE SUBMISSIONS OF THE PARTIES IN THE LIGHT OF FINDING OF FACT RECORDED BY THE LD. CIT(A) CLEARLY PROVE THAT ASSESSEE IS NOT ENTITLED FOR 100% DEPRECIATION. IT IS AN ADMITTED FACT THAT ASSESSE E IS A COMPANY AND STOPPED ITS BUSINESS ACTIVITIES ON 20 TH SEPTEMBER, 2011 WHEN THE ASSESSEE ENTERED INTO THE LIMITED LIABILITY P ARTNERSHIP AGREEMENT (LLP) WITH MANY PARTIES AND AGREED TO FORM TH E LLP IN THE NAME AND STYLE OF IILM ENTERPRISE, LLP, BUSINESS W OULD BE CARRIED OUT IN THE NAME OF THE NEW LLP. IT WAS, THEREFORE, PROV ED THAT ASSESSEE COMPANY DISCONTINUED ITS BUSINESS PERMANENTLY AND THROU GH THE EXECUTION OF LLP AGREEMENT DATED 20 TH SEPTEMBER, 2011, THE ASSESSEE COMPANY HAS BECOME PARTNER IN THE NEW LLP. THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ACTIVITIES OF THE ASSESS EE WERE FINALLY STOPPED IN SEPTEMBER, 2011 WHEN THE ASSESSEE BECOME P ARTNER IN SOME OTHER CONCERN THOUGH FOR THE SAME ACTIVITIES. THER EFORE, THE EXPENDITURE WERE RIGHTLY ALLOWED IN THE CASE OF THE ASS ESSEE COMPANY TILL THE CLOSURE OF THE BUSINESS I.E., SEPTEMBER, 201 1. THE DEPRECIATION WAS ALSO THEREFORE, CORRECTLY ALLOWED FOR HALF OF TH E YEAR I.E., UP-TO SEPTEMBER, 2011 WHEN BUSINESS OF THE ASSESSEE COMPAN Y WAS COMPLETELY STOPPED. MERELY NEW LLP HAS STARTED DOING THE SAME ACTIVITY WOULD NOT GIVE ANY RIGHT TO THE ASSESSEE TO CLA IM DEPRECIATION FOR WHOLE OF THE YEAR BECAUSE ASSESSEE COMPLETELY STO PPED ITS BUSINESS ACTIVITIES AS A COMPANY IN SEPTEMBER, 2011. DECISIONS RELIED UPON BY 5 ITA.NO.6335/DEL./2016 IILM EDUCATION P. LTD., VILLAGE WAZIRABAD, GURGAON THE LEARNED COUNSEL FOR THE ASSESSEE THEREFORE, WOULD NOT SUPPORT THE CASE OF THE ASSESSEE. IN THE RESULT, THE GROUND OF APPE AL OF ASSESSEE IS DISMISSED. 9. IN THE RESULT, APPEAL OF ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DELHI, DATED 16 TH AUGUST, 2017 VBP/- COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT SMC BENCH 6. GUARD FILE // BY ORDER // ASST. REGISTRAR ITAT : DELHI BENCHES : DELHI.