M/s. Sparrowhawk International Channels (I) Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 6797/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91309 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 15-07-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 16-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KR CHOPRA
• Assessee Lawyers: SUNIL BAKSHI
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH SMC-2, NEW DELHI) BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER I.T.A. NO.6797 /DEL/2014 ASSESSMENT YEAR : 2011-12 SPARROWHAWK INTERNATIONAL VS. ITO, WARD 9(1), CHANNELS (I) PVT. LTD., NEW DELHI 602, ANTRIKSH BHAWAN, K. G. MARG, NEW DELHI. GIR / PAN:AAACH6943E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUNIL BAKSHI, CA RESPONDENT BY : SHRI MANOJ KR. CHOPRA, SR. DR DATE OF HEARING : 15.07.2015 DATE OF PRONOUNCEMENT : 17.07.2015 ORDER THIS IS AN APPEAL FILED BY ASSESSEE DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) XII, NEW DELHI, DATED 13.11.2014 FOR THE ASS ESSMENT YEAR 2011-12 ON THE FOLLOWING SOLITARY GROUND: THAT THE LD. CIT(A) ERRED IN LAW AS WELL AS IN FAC TS BY SUSTAINING THE DISALLOWANCE OF RS.11,71,818/- ON ACCOUNT OF DEPREC IATION ON FIXED ASSETS MADE BY THE A.O. 2. AFTER HEARING RIVAL CONTENTIONS, I FIND THAT LD. CIT(A) FOR THE EARLIER ASSESSMENT YEAR, ON THE VERY SAME ISSUE, HAS ALLOWE D THE CLAIM OF THE ASSESSEE. THE FACTS REMAIN THAT THERE IS NO PURCHA SE OF MACHINERY DURING THE YEAR. THE DEPRECIATION WAS CLAIMED ON THE OPENIN G WRITTEN DOWN VALUE OF THE ASSETS. IT IS NOT THE CASE OF A.O. THAT THE A SSESSEE HAS PREMATURELY CLOSED DOWN ITS BUSINESS. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS OSWAL AGRO MILLS 197 TAXMAN 25 (DEL.) HELD AS FOLLO WS: WHETHER THE ASSETS OF CLOSED UNIT CAN BE TREATED A S 'USED' BY CATENA OF JUDGMENTS, IT STANDS SETTLED THAT THE ASSESSEE S HOULD HAVE USED THE ITA NO.6797/DEL/2014 2 ASSET FOR THE WHOLE OF ASSESSMENT YEAR IN QUESTION TO CLAIM FULL DEPRECIATION. PASSIVE USER OF THE ASSET IS ALSO REC OGNIZED AS 'USER FOR PURPOSE OF BUSINESS '. THIS PASSIVE USER IS INTERPR ETED TO MEAN THAT THE ASSET IS KEPT READY FOR USE. IF THIS CONDITION IS S ATISFIED, EVEN WHEN IT IS NOT USED FOR CERTAIN REASON IN THE CONCERNED ASSESS MENT YEAR, THE ASSESSEE WOULD NOT BE DENIED THE DEPRECIATION. [PAR A 12] IT FLOWS FROM VARIOUS DECISIONS THAT ACTUAL USER OF THE ASSET IN A PARTICULAR YEAR MAY NOT BE NECESSARY EVEN PASSIVE USER QUALIFIES JAR DEDUCTION. PASSIVE USER IS TO BE UNDERSTOOD IN THE SENSE THAT THE ASSET IS READY FOR USE, BUT CANNOT BE USED FOR PART OF A YEAR OR EVEN WHOLE YEAR. [PARA 19] IN THE INSTANT CASE, THE ENTIRE BHOPAL UNIT CAME TO A STANDSTILL AND THERE WAS COMPLETE HALT IN ITS FUNCTIONING FROM THE ASSESSMENT YEAR 1997-98. IN THAT YEAR, THE ASSESSING OFFICER STILL ALLOWED THE DEPRECIATION TREATING IT 10 BE A 'PASSIVE USER ' HO WEVER, WHEN IT WAS FOUND THAT EVEN IN SUBSEQUENT YEAR, THE BHOPAL UNIT REMAINED NON- FUNCTIONAL, THE ASSESSING OFFICER(S) DISALLOWED THE DEPRECIATION. INSTANT APPEALS RELATED TO THE ASSESSMENT YEAR 1998 -99. /11 THE PROCESS, SIX YEARS PASSED, BUT THERE WAS NO SIGN OF THAT UNIT BECOMING FUNCTIONAL. THE 'PASSIVE USER', IN THOSE CIRCUMSTAN CES, COULD NOT BE EXTENDED TO ABSURD LIMITS. OTHERWISE, THE WORDS 'US ED FOR THE PURPOSE OF BUSINESS' WILL LOSE THEIR TOTAL SANCTITY. IT CAN NOT BE THE INTENTION OF THE LEGISLATURE THAT THE WORD 'USED' WHEN IT IS TO BE INTERPRETED IN A WIDER SENSE TO MEAN 'READY TO USE', THE SAME IS STR ETCHED TO THE LIMITS OF NON-USER FOR NUMBER OF YEAR. [PARA 21] THUS, ONE SHOULD PROCEED ON THE BASIS THAT PARTICUL AR ASSETS, VIZ., ASSETS OF BHOPAL UNIT WERE NOT 'USED FOR THE PURPOS E OF BUSINESS 'IN THE CONCERNED ASSESSMENT YEAR. [PARA 24] HAVING REGARD TO THIS LEGISLATIVE INTENT CONTAINED IN THE AFORESAID AMENDMENT, IT WAS DIFFICULT TO ACCEPT THE SUBMISSIO N OF THE REVENUE THAT FOR ALLOWING THE DEPRECIATION, USER OF EACH AN D EVERY ASSET WAS ESSENTIAL EVEN WHEN A PARTICULAR ASSET FORMED PART OF 'BLOCK OF ASSETS '. ACCEPTANCE OF THIS CONTENTION WOULD MEAN THAT TH E ASSESSEE WAS TO BE DIRECTED TO MAINTAIN THE DETAILS OF EACH ASSET S EPARATELY AND THAT WOULD FRUSTRATE THE VERY PURPOSE FOR WHICH THE AMEN DMENT WAS ITA NO.6797/DEL/2014 3 BROUGHT ABOUT. THE REVENUE IS NOT PUT TO ANY LOSS B Y ADOPTING SUCH METHOD AND ALLOWING DEPRECIATION ON A PARTICULAR AS SET, FORMING PART OF THE 'BLOCK OF ASSETS' EVEN WHEN THAT PARTICULAR ASSET IS NOT USED IN THE RELEVANT ASSESSMENT YEAR. WHENEVER SUCH AN ASSE T IS SOLD; IT WOULD RESULT IN SHORT-TERM CAPITAL GAIN, WHICH WOULD TO TAX AND FOR THAT REASON, THERE IS NO LOSS TO REVENUE EITHER. 3. RESPECTFULLY FOLLOWING THE JUDGEMENT OF HONBLE JURISDICTIONAL HIGH COURT, WE ALLOW THE APPEAL OF ASSESSEE. 4. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JULY, 2015. SD./- (J. S. REDDY) ACCOUNTANT MEMBER DATE: 17 TH JULY, 2015 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 15/7 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 16/7 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 17/7/15 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 17/7 SR. PS/PS 7 FILE SENT TO BENCH CLERK 17/7 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK ITA NO.6797/DEL/2014 4 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER