COMMISSIONER OF INCOME TAX V. M/S KRISHNA ENGG. WORKS. LTD.

ITA/323/2007

AI Insights

The case revolves around the dispute concerning the allowance of depreciation on new assets claimed by M/s Krishna Engg. Jalandhar-II for the assessment year 1998-99. The assets were reportedly acquired during a year when the company suffered losses due to a fire incident, which also led to the destruction of crucial business records. The Assessing Officer initially disallowed the depreciation claim due to lack of evidence. However, the CIT(A) and the Tribunal upheld the assessee's claim, leading to the present appeal by the Commissioner of Income-Tax. The High Court found that the CIT(A) and the Tribunal had erred in allowing the depreciation without sufficient evidence of the acquisition of new assets, thus remanding the case for a fresh assessment.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 737350 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 08-12-2010
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: AKSHAY BHAN
• Assessee Lawyers: VIVEK SETHI
• Keywords: Assessing Officer; Assessment Year 1998-99; CIT(A); Depreciation; Fire damage; Income tax appellate tribunal; Unabsorbed depreciation
• Section: 260A; 32(1)

Judgement Text

"Income-tax Appeal No. 323 of 2007 -1- **** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Income-tax Appeal No. 323 of 2007 Date of decision: 8.12.2010 The Commissioner of Income-Tax ...Appellant Versus M/s Krishna Engg. Jalandhar-II, Jalndhar. ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Vivek Sethi, Advocate for the appellant. Mr. Akshay Bhan, Advocate for the respondent. **** ADARSH KUMAR GOEL, J ( Oral) . This appeal has been preferred under Section 260A of Income Tax Act, 1961 (hereinafter referred to as 'the Act”) proposing following substantial question of law arising out of order dated 9.1.2007 of the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as “the Tribunal”) passed in ITA No.420(ASR)2003 in respect of assessment year 1998-99:- “Whether on the facts and circumstances of the case the Tribunal was right in law in upholding the finding of CIT (A) with regard to allowance of depreciation allowed on assets acquired during the year without fulfilling the conditions laid down u/s 32(1) of the Income-tax Act, Income-tax Appeal No. 323 of 2007 -2- **** 1961?” The assessee claimed set off unabsorbed depreciation on assets which were acquired by lost in fire. The Assessing Officer disallowed the claim by drawing adverse inference on failure of the assessee to furnish the details of its business activities. The CIT(A), however, upheld the plea of the assessee on the ground that on account of fire in the factory of the assessee, the assessee could not furnish the details. The Assessing Officer was directed to re-compute the loss by upholding the claim of unabsorbed depreciation. The view of CIT(A) has been affirmed by the Tribunal. We have heard learned counsel for the parties. Learned counsel for the revenue submits that depreciation has been allowed on new assets of the value of Rs.12,09,98,003/- without any evidence of new assets having been acquired by the assessee while the CIT(A) could have accepted the claim of the assessee on existing assets, with regard to claim in respect of new assets, the CIT(A) should have required some evidence to be led by the assessee for reversing the view of the assessing officer. The evidence could be in the form of verification from the suppliers of the assets or otherwise. In absence thereof, the CIT(A) was not justified in allowing claim for depreciation of huge amount particularly when the sale of the assessee, as held by the assessing officer. Learned counsel for the assessee supports the impugned judgments. had gone down and there was no expansion of capacity of the assessee. Income-tax Appeal No. 323 of 2007 -3- **** A perusal of the order of CIT(A) shows that the claim for depreciation has been allowed on new assets by observing that the Assessing Officer had not disputed the sale or purchase of new assets. The mere fact that assessee could produce copies of bills was not enough to deny the said claim. The Tribunal affirmed the said finding as under:- “It is, however, patent on record, as also argued before us by the learned counsel for the assessee, besides observations made by the learned CIT(A) in the order in challenge, that it was due to the occurrence of a fire in the business premises of the assesee, that the assesssee was unable to furnish the record including the books of account, bills, vouchers, etc. The factum of occurrence of fire, pertinently, stands admitted by the A.O. Then, the rejection ordered by the A.O. was a blanket rejection, not allowing any expenses incurred by the assessee, at all.”... “Apropos the claim of carry forward of depreciation of Rs.6.95 crores, such claim was disallowed by the A.O. for the reason of non production of the supporting bills for the new addition made by the assessee during the year. Depreciation was not allowed by the A.O. even on the opening WDV of old assets. It was not considered that the assessee had made sales of Rs.35.44 lacs during the year, which could not have been possible in the absence of the necessary infrastructure. Another view expressed Income-tax Appeal No. 323 of 2007 -4- **** by the A.O. was with regard to the addition made to the assets by the assessee, despite huge losses. In this regard, it was not considered that this issue had clearly and elaborately been detailed in the annual report of the assessee-company. The assessee had, despite losses, made addition to its assets, so as to maintain the existing facility and to explore new products. Such course of action was materially necessary for mere survival. Then, while observing that it was strange that despite fall in sales by 27% over those in the last years, production expenses had increased, the A.O. did not take into consideration that the loss of Rs.3.13 crores was not relatable to the rejection of the stocks of the year under consideration. Moreover, it is also on record that certain expenses which were not relatable to the expenses in the normal course, had crept during the year. These included increase in the lease rent, bad debts and HP charges. Undeniably, no expenses as not relatable to the assessee's business was point out. Also, the company had become sick and had filed an application before the BIFR. This application stands accepted, as per the record of the proceedings before the BIFR to declare the assessee company as a sick unit, a copy whereof has been filed on pages 16 to 20 of the APB. From this, it becomes amply evidenced that the slow down and losses Income-tax Appeal No. 323 of 2007 -5- **** in the business of the assessee were genuine and even the help of BIFR was sought to over-come the same.” The above finding absolved the assessee from the responsibility of leading evidence of acquisition of new assets in support of claim for depreciation of new assets in the form of verification from the supplier of the assets. Since the CIT(A) as well as the Tribunal have allowed the claim of the assessee for depreciation on new assets even without verification as to acquisition thereof, the finding recorded has to be held to be perverse. The question of law has to be answered in favour of the revenue. Accordingly, the appeal is allowed. The orders of the CIT (A) and the Tribunal are set aside to the extent indicated above. The matter is remanded to CIT(A) for fresh decision. It is made clear that CIT(A) may look into existing or any other material in accordance with law. The assessee may appear before the CIT(A) for further proceedings on 7.2.2011. (Adarsh Kumar Goel) Judge December 08,2010 (Ajay Kumar Mittal) Pka Judge "