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

ITA 915/DEL/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0220 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 29-06-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 17-02-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GAGAN SOOD
• Keywords: Depreciation
• Section: 142(1); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: SMC NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER I.T.A .NO. - 915 /DEL/201 4 (ASSESSMENT YEAR - 20 1 0 - 11 ) DCIT, CIRCLE - 9(1), ROOM NO. - 163, C.R.BUILDING, NEW DELHI (APPELLANT) VS M/S SPARROWHAWK INTERNATIONAL CHANNELS (I) PVT.LTD., 602, ANTRIKSH BHAWAN, K.G.MARG, NEW DELHI PAN - AAACH6943E (RESPONDENT ) APPELLANT BY SH.GAGAN SOOD, SR.DR RESPONDENT BY NONE ORDER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 21.11.2013 OF CIT(A) - XII, NEW DELHI PERTAINING TO 2010 - 11 ASSESSMENT YEAR ON THE FOLLOWING GROUND: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE DEPRECIATION ON PLANT AND MACHINERY AND ON FURNITURE AMOUNTING TO RS.13,78,610/ - . 2. NO ONE WAS PRESENT ON BEHALF OF THE ASSESSEE AT THE TIME OF HEARING DESPITE ISSUANCE OF NOTICE ON 11.06.2015 . A CCORDINGLY AFTER CONSIDERING THE MATERIAL AVAILABLE ON RECORD AND HEARING THE LD. SR. DR THE APPEAL OF THE REVENUE IS BEING DECIDED EX - PARTE QUA THE ASSESSEE RESPONDENT ON MERITS. 3. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IN THE YEAR UNDER CONSIDERATION RETURNED A LOSS OF INCOME OF RS.11,16,803/ - . THE SAID RETURN WAS PROCESSED U/S 143(1) AND THEREAFTER SELECTED FOR SCRUTINY AFTER ISSUANCE OF NOTICE U/S 143(2) AND 142(1) OF THE INCOME TAX ACT, 1961. THE FACTS TAKEN INTO CONSIDE RATION BY THE AO ARE THAT THE SPECIFIC COMPANY WAS INCORPORATED FOR MARKETING AND DISTRIBUTING FOR A FOREIGN CHANNEL HALLMARK IN INDIA. DATE OF HEARING 29 .0 6 .2015 DATE OF PRONOUNCEMENT 22 .0 7 .2015 I.T.A .NO. - 915 /DEL/2014 PAGE 2 OF 5 CONSIDERING THE FACT THAT IN THE YEAR UNDER CONSIDERATION THERE WAS NO BUSINESS ACTIVITY THE AO REQUIRED THE ASSESSEE TO EXPLAIN ITS CLAIM OF EXPENSES AS THE INCOME WAS ONLY FROM INTEREST EARNED ON BANK DEPOSITS. IN ITS REPLY THE ASSESSEE CLAIMED THAT THE EXPENSES WERE FOR AUDIT FEE, TAX REPRESENTATION; PARTLY FOR RENT OF WAREHOUSE AND RS.1,000/ - BEING FOR OTHER EXPENS ES. THE AO WAS OF THE VIEW THAT THE SAID REPLY DATED 06.02.2013 LEFT NO AMB IGUITY AND INFACT ACCEPTS THAT THE ASSESSEE DID NOT CARRY OUT AN Y REVENUE GENERATING BUSINESS. ACCORDINGLY, T HE EXPENDITURE CLAIMED WAS CONSIDERED TO BE EXCEEDINGLY HIGH AND WA S DISALLOWED IN PART . ONLY 35% OF THE EXPENDITURE CLAIMED WAS ALLOWED. 3.1. APART FROM THAT THE AO MADE AN ADDITION BY WAY OF A DISALLOWANCE OF RS.13,80,651/ - IN VIEW OF THE FOLLOWING FACTS: - DEPRECIATION IN THE COMPUTATION OF INCOME ASSESSEE HAS CLAIMED DEPRECIATION OF RS.13,80,651/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AR OF THE ASSESSEE WAS ASKED TO FILED JUSTIFICATION REGARDING ALLOWABILITY OF DEPRECIATION AS CLAIMED IN THE COMPUTATION OF I NCOME. VIDE LETTER DATED, 06/02/2013,THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION; AND HAS MERELY QUOTED A CASE LAW, WHICH IS NOT IDENTICAL AND APPLICABLE TO THE CASE OF THE ASSESSEE. IN ORDER TO AVAIL DEPRECIATION, THE ASSETS MUST BE OWNED BY THE ASSESSE E AND IT MUST BE USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. HOWEVER, IN THIS CASE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION, THEREFORE, DEPRECIATION OF RS.13,80,651/ - IS NOT ALLOWED TO THE ASSESSEE U/S 32 O F THE I.T. ACT, 1961. 4. AGGRIEVED BY THIS, THE ASSESSEE CAME IN APPEAL BEFORE THE CIT(A) STATING THAT THE BLOCK OF PLANT AND MACHINERY CONSISTED OF TWO ASSETS NAMELY SATELLITE RECEIVERS AND FAX MACHINE. IT WAS CLAIMED THAT THIS COULD NOT BE USED DUE TO THE FACT THAT GOVERNMENT PERMISSION FOR USING SATELLITE RECEIVERS WAS PENDING WITH THE GOVERNMENT AND THE SATELLITE RECEIVERS WERE CLAIMED TO BE LYING READY FOR USE. THE FAX MACHINE WAS STATED TO HAVE BEEN USED IN THE YEAR UNDER CONSIDERATION . IT WAS SUBMITTED THAT A FTER THE AMENDMENT OF SECTION 32 OF THE INCOME TAX ACT, 1961 BY THE TAXATION LAW AMENDMENT ACT, 1986 THE CONCEPT OF BLOCK OF ASSETS CAME INTO EXISTENCE. DEPRECIATION WAS TO BE ALLOWED ON THE ENTIRE BLOCK OF ASSETS AND REVENUE CANNOT SEGR EGATE A PARTICULAR ASSET ON THE GROUND THAT IT WAS NOT PUT TO USE. I.T.A .NO. - 915 /DEL/2014 PAGE 3 OF 5 4 .1. RELIANCE WAS PLACED UPON THE FOLLOWING DECISIONS: - (A) SRF LIMITED 21 SOT 122 (2008); (B) OSWAL AGRO MILLS LTD. 197 TAXMAN 25 (2011) 4 .2. THE BACKGROUND OF THE ASSESSEE WAS ADDRESSED BY THE FOLLOWING NOTE: - BACKGROUND. THE COMPANY WAS INCORPORATED IN DEC 1998. IT WAS INCORPORATED TO DISTRIBUTE HALLMARK CHANNEL IN INDIA. HALLMARK CHANNEL IS AN ENGLISH FILMS CHANNEL. THE COMPANY WAS CARRYING OUT ITS ACTIVITY TILL FINANCIAL YEAR 2006 - 07. THE GOVERNMENT (MINISTRY OF INFORMATION AND BROADCASTING - MIB) CAME OUT WITH GUIDELINES FOR COMPANIES IN THE BUSINESS OF DISTRIBUTION OF TV CHANNELS IN INDIA. ALL EXISTING COMPANIES AS WELL AS ALL NEW ENTRANTS, WHICH WERE IN THE BUSINESS OF DISTRIBUTION OF T V CHANNELS, HAD TO GET THEMSELVES REGISTERED WITH MIB. IN ORDER TO GET THEMSELVES REGISTERED, THE EXISTING COMPANIES HAD TO FULFILL THE NORMS SET BY MIB IN THEIR GUIDELINES. THE ASSESSEE APPLIED FOR REGISTRATION, AND AS IT DID NOT FULFILL ONE OF THE CRIT ERIA OF NET WORTH BEING IN EXCESS OF RS 150 LACS, IT COULD NOT GET ITSELF REGISTERED. IT TOOK STEPS TO GET ITS NET WORTH IN EXCESS OF THE STIPULATED RS.150 LACS. AFTER IT PUT IN FRESH EQUITY, THE NET WORTH OF THE COMPANY AS ON 31/3/09 WAS RS 226 LACS WHICH WAS MORE THAN THE REQUIRED RS 150 LACS. AS THE COMPANY WANTED TO APPLY FOR REGISTRATION OF THREE CHANNELS, FOR WHICH THE NET WORTH REQUIREMENT WAS HIGHER, MORE FUNDS WERE BROUGHT IN AS FRESH EQUITY CAPITAL IN F Y 2010 - 11 AND SUBSEQUENTLY, IT APPLIED TO MI B FOR REGISTRATION OF THREE CHANNELS IN MARCH 2011. DURING THE YEAR UNDER CONSIDERATION, THE FIXED ASSETS OF THE ASSESSEE WERE LYING READY FOR USE. THEY COULD NOT BE USED FOR REASONS BEYOND THE CONTROL OF THE ASSESSEE. DEPRECIATION ON FIXED ASSETS LYING READY FOR USE HAS BEEN DENIED BY THE ASSESSING OFFICER. IN OUR HUMBLE SUBMISSION, DEPRECIATION HAS TO BE ALLOWED TO THE ASSESSEE ON SUCH PASSIVE USE OF THE ASSETS. THE HONORABLE DELHI HIGH COURT HAD IN THE CASE OF CIT VS LAKSHMIJI SUGAR MILLS LIMITED HELD THAT IN CASE OF PASSIVE USE OF FIXED ASSETS. DEPRECIATION SHOULD BE ALLOWED TO THE ASSESSEE. A COPY OF THE SAID JUDGEMENT IS ENCLOSED FOR READY REFERENCE. FOLLOWING THE SAID JUDGEMENT, WE REQUEST YOUR HONOR TO KINDLY ALLOW THE DEPRECIATION OF RS 13,80,6 51/ - . 4 .3. CONSIDERING THESE FACTS THE CIT(A ) CAME TO THE FOLLOWING CONCLUSION: - IN THE INSTANT CASE THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY HENCE THE DISALLOWANCE WHEREAS THE CONTENTION OF THE APPELLANT IS THAT THE DEPRECIATION WAS CLAIM ED ON PLANT & MACHINERY AND FOR FURNITURE WHICH FORMED PART OF BLOCK OF PLANT & MACHINERY, CONSISTING OF SATELLITE RECEIVERS AND FAX MACHINES. THE CONTENTION IS THAT THE SATELLITE RECEIVERS WERE NOT USED DURING THE YEAR DUE TO PENDING GOVERNMENT PERMISSION BUT WERE READY FOR USE. FURTHER THE FAX MACHINES WERE USED. THE CONCEPT OF BLOCK OF ASSETS PERMITS THE CLAIM TO BE ALLOWED WITHOUT SEGREGATING A PARTICULAR ASSET WITH I.T.A .NO. - 915 /DEL/2014 PAGE 4 OF 5 REGARD TO ITS USAGE. THE BLOCK OF PLANT & MACHINERY CANNOT BE SEGREGATED IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE PURPOSE OF DISALLOWANCE OF DEPRECIATION PENDING GOVERNMENT PERMISSION TO USE THE MACHINERY. IN MY CONSIDERED VIEW THE CLAIM OF THE APPELLANT DESERVES TO BE ALLOWED. 5 . T HE LD. SR. DR REFERRING TO THE ORDERS SUBMITTED THAT NO EVIDENCE WHATSOEVER ITS WORTH HAS BEEN REFERRED TO I N O R D E R T O HOLD THAT THE SPECIFIC ASSETS WERE READY TO USE. MERE ASSERTIONS HAVE BEEN ACCEPTED. WHAT WAS THE EVIDENCE CONSIDERED TO ACCEPT THE PLEA OF THE ASSESSEE IT WAS SU BMITTED IS NOT ADDRESSED. ACCORDINGLY IT WAS HIS PRAYER THAT THE ORDER F O R WANT OF NECESSARY DISCUSSION ON RELEVANT FACTS BECOMES PERVERSE IN THE CIRCUMSTANCES IT MAY BE SET ASIDE AND THE ASSESSMENT ORDER BE UPHELD. 6. HAVING HEARD THE SUBMISSIONS ON FACTS W HICH HAVE BEEN ELABORATED IN THE EARLIER PART OF THIS ORDER, I FIND THAT THE SUBMISSIONS ON FACTS OF THE LD. SR.DR HAVE TO BE ACCEPTED INASMUCH AS THE LD. CIT(A) IN THE IMPUGNED ORDER BLINDLY ACCEPTS THE SUBMISSIONS MADE. NO REFERENCE TO ANY FACT ON RECO RD IS MADE TO JUSTIFY THE CONCLUSION THAT THE SPECIFIC ASSETS WERE READY TO USE. W HAT IS THE DATE OF INSTALLING OF THE SATELLITE RECEIVER AND WHAT IS THE EVIDENCE TO HOLD THAT IT WAS READY TO USE IS FOUND MISSING IN THE RELEVANT FINDING. ON THE FACE OF THE RECORD FOR WANT OF NECESSARY DISCUSSION THERE APPEARS TO BE NO EVIDENCE REFERRED OR CONSIDERED. AT THE SAME TIME, IT IS SEEN THAT THE ASSESSMENT ORDER IS ALSO EXTREMELY SKETCHY. IN THE AFORE - MENTIONED PECULIAR FACTS AND CIRCUMSTANCES, IT IS CONSIDERED APPROPRIATE TO SET ASIDE THE IMPUGNED ORDER AND RESTORE THE SAME BACK TO THE FILE TO THE CIT(A) GRANTING THE ASSESSEE LIBERTY TO FILE EVIDENCES IF ANY IN SUPPOR T OF ITS CLAIM. NEEDLESS TO SAY THAT THE LD.CIT(A) WHILE PASSING THE ORDER SHALL PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW CONSIDERING THE MATERIAL FILED SHALL OBTAIN A REMAND REPORT AND DECIDE THE ISSUE AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNI TY OF BEING HEARD. 7 . IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 2 N D OF JU LY , 2015. S D / - (DIVA SINGH) JUDICIAL MEM BER DATED: 2 2 /0 7 /2015 * AMIT KUMAR * I.T.A .NO. - 915 /DEL/2014 PAGE 5 OF 5 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI