CUPRO RECYLING P. LTD, MUMBAI V. ITO RG 4(1)(4), MUMBAI

ITA 8668/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3970 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 13-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHARAD PATEL
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH. . .. . . .. . , ,, , / !'# !'# !'# !'# , ' ' ' ' BEFORE S/SH. B.R. MITTAL, JUDICIAL MEMBER & RA JENDRA, ACCOUNTANT MEMBER ./ ITA NO.8668/MUM/2010, $ $ $ $ % % % % / ASSESSMENT YEAR-2007-08 CUPRO RECYLING P. LTD. R. NO. 6, 1 ST FLOOR, KIKA STREET, GULALWADI, MUMBAI-400004. VS. ITO 4(1)4 AAYKAR BHAVAN MUMBAI- 400020 PAN: AABCC4627P ( &' / APPELLANT ) ( ()&' / RESPONDENT ) &' &' &' &' * * * * ' ' ' ' / APPELLANT BY : SHRI SHARAD PATEL ()&' + * ' / RESPONDENT BY : SHRI MOHIT JAIN (DR) $ $ $ $ + ++ + ,- ,- ,- ,- / DATE OF HEARING : 16-07-2013 ./% + ,- / DATE OF PRONOUNCEMENT : 24-07-2013 $ $ $ $ , 1961 + ++ + 254(1) ' '' ' ,0, ,0, ,0, ,0, '1 '1 '1 '1 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDER DT.27-10-2010 OF THE CIT(A)-1 0,MUMBAI,ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: A) DISALLOWANCE OF FACTORY STAFF SALARIES OF RS. 2 ,41,906/- 1)ON FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNE D CIT(A) SERIOUSLY ERRED IN CONFIRMING THE DISALLOWANCE OF SALARY PAYMENTS MADE TO EMPLOYEES A MOUNTING TO RS. 2,41,906/-. 2)THE LEARNED CIT(A) ERRED IN ALLEGING THAT: I. NO INCOME ON ACCOUNT OF BUSINESS ACTIVITY HAS B EEN SHOWN. II. HOW THE SERVICES OF DRIVER HAVE BEEN UTILIZED IS NOT KNOWN. III. THERE WAS NO NEED TO EMPLOY AN ACCOUNTANT ON REGULAR BASIS. IV. THE EXPENDITURE IS NOT WHOLLY AND FULLY INCURR ED FOR THE PURPOSE OF BUSINESS. B) DISALLOWANCE OF DEPRECIATION OF RS. 11,59,457/- 3)THE LEARNED CIT(A) HAS ALSO ERRED IN CONFIRMING T HE DISALLOWANCE OF DEPRECIATION CLAIM OF RS. 11,59,457/- IN RESPECT OF FACTORY BUILDING AND FACT ORY PLANT & MACHINERY EVEN THOUGH THE SAME FORMED PART OF THE BLOCK OF ASSETS OF THE COMPANY. 4)THE LEARNED CIT(A) ERRED IN ALLEGING THAT: I. THE WHOLE FACTORY WAS CLOSED DURING THE YEAR. II. NO MANUFACTURING FOR A DAY WAS UNDER TAKEN DURI NG THE YEAR, THEREFORE THE ASSETS EVEN FALLING UNDER THE BLOCK OF ASSETS WERE NOT USED DURING THE YEAR. III. THE ASSETS AS APPEARING IN BLOCK OF ASSETS WER E NOT USED DURING THE YEAR. IV. THE CASE LAWS CITED BY THE AR ARE RELEVANT WHEN PART OF THE BLOCK OF ASSET WAS NOT USED DURING THE YEAR. V. THE FACTS OF THE CASES LAWS CITED BY THE APPELLA NT ARE DIFFERENT AND DISTINGUISHABLE. 2 ITA NO.8668/MUM/2010,(AY-2007-08) CUPRO RECYLING P. LTD. 5)YOUR APPELLANT CRAVES LEAVE TO ADD TO, AMEND, ALT ER, MODIFY OR DELETE ALL OR ANY OF THE ABOVE GROUND S OF APPEAL. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING ACTIVITIES OF FERROUS AND NON- FERROUS METAL,FILED ITS RETURN ON 28.10.2007 DECLAR ING AN INCOME OF RS. NIL. ASSESSMENT WAS FINALISED BY THE ASSESSING OFFICER (AO) ON 13.11.20 09 U/S 143(3) OF THE INCOME TAX ACT,1961 (ACT). FIRST GROUND OF APPEAL IS ABOUT SALARY PAID TO THE EMPLOYEES AMOUNTING TO RS. 2.41 LACS. DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESS EE WAS NOT CARRYING OUT MANUFACTURING ACTIVITIES DURING THE YEAR UNDER CONSIDERATION, THA T ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS. 2,41,906/- UNDER THE HEAD SALARY PAID TO STAFF OF F ACTORY. AO HELD THAT NO EXPENDITURE WAS INCURRED DURING THE EARLIER ASSESSMENT YEAR,THAT IN ABSENCE OF MANUFACTURING ACTIVITIES AMOUNT OF RS. 2.41 LACS CLAIMED TO HAVE BEEN PAID TO FACTORY STAFF H AD TO BE DISALLOWED. 2.1. ASSESEE PREFERRED AN APPEAL BEFORE THE FIRST APPELL ATE AUTHORITY(FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDE R,HE HELD THAT APPELLANT HAD NOT CARRIED ANY MANUFACTURING ACTIVITIES, THAT NO INCOME ON ACCOUNT OF ANY BUSINESS ACTIVITY HAD BEEN SHOWN,THAT NO TRADING ACTIVITIES WERE UNDERTAKEN, THAT EXPENDI TURE OF MORE THAN RS. 1 LAC WAS DEBITED IN THE NAME OF ACCOUNTANT, THAT THERE WAS NO NEED TO EMPLO Y AN ACCOUNTANT ON REGULAR BASIS, , THAT THE EXPENDITURE INCLUDED SALARY PAID TO DRIVER, THAT T HE EXPENDITURE WAS NOT WHOLLY AND FULLY INCURRED FOR THE PURPOSE OF BUSINESS. FINALLY,HE UPHELD THE ORDER OF THE AO. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT MANUFACTURING WAS SUSPENDED TEMPORARILY, ASSESSEE HAD TO EMPLOY THE STAFF THAT IN THE YEAR 2009,MANUFACTURING AGAIN STARTED, THAT IT WAS A CASE OF TEMPORARY SUSPENSION OF BUSIN ESS NOT THE CLOSURE OF BUSINESS, ACCOUNTANT WAS LOOKING AFTER THE BOOKS OF ACCOUNT, A LOSS RETURN W AS FILED. (DR)SUPPORTED THE ORDER OF THE AO AND FAA. 2.3. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.IT IS THE FACT THAT IN THE YEAR UNDER CONSIDERATION THERE WAS NO MANUFACTURING ACTIVITY,BUT IT DOES NOT MEAN THAT ASSESSEE HAD NOT TO INCUR ANY EXPENDITURE.DURING THE PERIOD WHEN BUSINESS IS SUSPENDED BUSINESSMAN HAS TO RUN THE OFFICE AND MINIMUM STAFF HAS TO BE RETAI NED. FACTORY CANNOT BE CLOSED ALL OF A SUDDEN- ESPECIALLY WHEN AN ASSESSEE WANTS TO RESTART IT.IN THE CASE UNDER CONSIDERATION MANUFACTURING ACTIVITY WERE TEMPORARILY SUSPENDED BUT LATER ON AS SESSEE WAS ABLE TO START HIS BUSINESS IN THE YEAR 2009.IT IS NOT UNCOMMON THAT DUE TO UNAVOIDABLE CIR CUMSTANCES, A BUSINESSMAN HAS TO TEMPORARILY STOP HIS OPERATIONS,BUT EXPENDITURE INCURRED IN THA T PARTICULAR YEAR HAS TO BE ALLOWED, IF IT IS FOUND THAT IN SUBSEQUENT YEAR BUSINESS RE-STARTED.IT IS A LSO FOUND THAT THE ASSESSEE HAD SHOWN ADMINISTRA -TIVE EXPENSES AMOUNTING TO MORE THAN RS. 4 LACS IN ITS BOOKS OF ACCOUNT FOR THE IMMEDIATE PRECEDING YEAR.SECONDLY,IT IS JUDGMENT OF THE BUSIN ESSMAN TO DECIDE AS WHOM TO EMPLOY OR NOT. AO OR THE FAA ARE NOT THE PERSONS TO DECIDE THE ISS UE AS WHETHER A PERSON WAS TO BE EMPLOYED OR NOT.BUSINESSMAN IS THE RIGHT PERSON TO TAKE A DECIS ION IN THIS REGARD.WE FIND THAT TAX AUTHORITIES HAVE NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE .THEY ARE MORE ABOUT THE JUSTIFICATION OF THE EXPENDITURE.IN THESE CIRCUMSTANCES,REVERSING THE OR DER OF THE FAA, WE DECIDE GROUND NO.1 IN FAVOUR OF THE ASSESSEE. 3. SECOND GROUND OF APPEAL IS ABOUT DISALLOWANCE OF DE PRECIATION OF RS. 11.59 LACS IN RESPECT OF FACTORY BUILDING PLANT & MACHINERY.AS PER THE AO, A SSESSEE HAD NOT PUT INTO USE PLANT & MACHINERY DURING THE YEAR UNDER CONSIDERATION, THAT THERE WAS NO MANUFACTURING ACTIVITY. HE DISALLOWED THE CLAIM OF DEPRECIATION ON FACTORY BUI LDING AND MACHINERY AGGREGATING TO RS. 11.59 LACS. 3.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.HE HELD THAT FACTORY WAS CLOSED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THAT ASSETS AS APPEARED IN BLOCK OF ASSETS WERE NOT USED 3 ITA NO.8668/MUM/2010,(AY-2007-08) CUPRO RECYLING P. LTD. DURING THE YEAR, NO MANUFACTURING FOR A DAY WAS UND ERTAKEN, THAT THE AO WAS CORRECT IN DENYING THE DEPRECIATION OF SUCH BLOCK OF ASSETS. HE DISMIS SED THE APPEAL FILED BY THE ASSESSEE. 3.2. BEFORE US,AR AND THE DR MADE THE SIMILAR SUBMISSION S THAT WERE MADE WITH REGARD TO GROUND NO.1.AR RELIED UPON THE ORDERS OF I BENCH AND B BENCH OF ITAT MUMBAI DELIVERED IN THE CASES OF SWATI SYNTHETIC LTD. (38 SOT 208), AND BOS KALIS DREDGING INDIA(P) LTD.(23 TAXMANN 4) RESPECTIVELY.HE ALSO RELIED UPON THE ORDER OF THE S WARUP VEGETABLE PRODUCTS INDIA LTD. DELIVERED BY THE HONBLE HIGH COURT OF ALLAHABAD (277 ITR 60) . 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS.IT IS THE FACT THAT NO MANUFACTURING ACTIVITY TOOK PLACE IN THE YEAR UNDER CONSIDERATION.BUT, AS STATED EARLIER , IT IS ALSO A FACT THAT ASSESSEE STARTED HIS BUSIN ESS ACTIVITIES IN THE YEAR 2009.CONSIDERING A TEMPORARY LULL IN THE BUSINESS, WE ARE OF THE OPINION THAT ASSESSEE COMPANY WAS ENTITLED TO DEPRECIATION WHICH FOUND THE PART OF THE BLOCK OF ASSETS.CASES RELIED UPON BY THE AR ALSO SUPPORT THE VIEW TAKEN B Y US. GROUND NO.2 IS DECIDED IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALL OWED. 2 ,3 $2, 4 5 + 0 6, + !, 78 . ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JULY,2013 . '1 + ./% ' 9 :$ 24 ! , 2013 / + 0 ? SD/ SD/- ( . @ @ @ @ . . B.R.MITTAL ) ( !'# !'# !'# !'# / RAJENDRA ) / JUDICIAL MEMBER ' ' ' ' /ACCOUNTANT MEMBER / MUMBAI, :$ /DATE: 24 TH JULY,2013 SK '1 '1 '1 '1 + ++ + (,A (,A (,A (,A B'A%, B'A%, B'A%, B'A%, / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / &' 2. RESPONDENT / ()&' 3. THE CONCERNED CIT (A) / C D 4. THE CONCERNED CIT / C D 5. DR C BENCH, ITAT, MUMBAI / AE0 (,$ , . . . 6. GUARD FILE/ 0 F )A, (, //TRUE COPY// '1$ / BY ORDER, G / 7 ! DY./ASST. REGISTRAR , /ITAT, MUMBAI