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Income Tax Appellate Tribunal, JODHPUR BENCH, JODHPUR
Before: SHRI B. R. BASKARAN & SHRI SANDEEP GOSAIN
IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA Nos. 257 & 258/Jodh/2019 (ASSESSMENT YEARS- 2013-14 & 2014-15) M/s Sambhav Energy Vs ACIT, Limited Central Circle-01, 5, 1st Floor, Damodaran Jodhpur Street, Kellys, Chennai (Appellant) (Respondent) PAN NO. AAJCS 8821 R
Assessee By Sh. Amit Kothari (CA) Revenue By Smt. Alka Rajvanshi Jain, CIT-DR Date of hearing 01/11/2022 Date of 02/11/2022 Pronouncement O R D E R PER: B.R. BASKARAN, AM Both the appeals filed by the assessee are directed against the orders dated 12/02/2019 passed by ld. CIT(Appeals-02), Udaipur and they relate to the Assessment Years 2013-14 & 2014-15. Since one of the issues urged in these appeals is identical in nature, both the appeals were heard together and are being disposed of by this common order, for the sake of convenience.
2 ITA Nos. 257 & 258/Jodh/2019 Sambhav Energy Ltd., Chennai vs. ACIT, Central Circle-01, Jodhpur 2. Common issue urged in these appeals relate to disallowance of interest expenditure claimed by the assessee.
The assessee is engaged in the business of generation and sale of electricity. During the year relevant to A.Y 2013-14, the assessee claimed interest expenses of Rs. 11.35 crores, which included interest payment of Rs. 3.00 crores made to M/s Adarsh Credit Co-operative Society Ltd. The assessee claimed that it has taken loan of Rs. 27.46 crores from M/s Adarsh Credit Co-operative Society Ltd and the above said interest was paid on the loans so taken. However, the AO took the view that the society has not given any loan to the assessee. He also took the view that M/s Adarsh Credit Co-operative Society Ltd has transferred share application money to the assessee. Accordingly, he disallowed the interest claim of Rs. 3.00 crores made in A.Y 2013-14. The assessee had claimed interest expenditure of Rs.11.94 crores against the loan taken from M/s Adarsh Credit Co-operative Society Ltd in AY 2014-15. The AO disallowed interest expenditure of Rs. 11.94 crores on the very same reasoning that the assessee has not taken any loan from M/s Adarsh Credit Co-operative Society Ltd.
The ld. CIT(A) confirmed the addition made in both the years.
3 ITA Nos. 257 & 258/Jodh/2019 Sambhav Energy Ltd., Chennai vs. ACIT, Central Circle-01, Jodhpur 5. The ld. AR submitted that the assessee has availed loan from M/s Adarsh Credit Co-operative Society Ltd and it is included the balance-sheet under the head “Loan from banks”. The ld. AR also invited our attention to the loan account copy placed in the paper book. He submitted that M/s Adarsh Credit Co-operative Society Ltd has actually given loan to the assessee. He submitted that the tax authorities have wrongly interpreted that M/s Adarsh Credit Co-operative Society Ltd has given share application money to the assessee, which is against the facts available on record. Accordingly he prayed that the interest expenditure should be allowed in both the years.
The ld. DR, on the contrary, submitted that the assessee has not proved from the books of accounts that it has availed loan from M/s Adarsh Credit Co-operative Society Ltd. In the balance-sheet also, the assessee has not shown the loan taken from above said society, but only claimed also do not show that loan has been availed from the said society. Though the assessee has claimed that the above said loan is included under the head “Loan from banks”, the break-up details of the same was not given at any stage.
4 ITA Nos. 257 & 258/Jodh/2019 Sambhav Energy Ltd., Chennai vs. ACIT, Central Circle-01, Jodhpur 7. In the rejoinder, the ld. AR submitted that the the break up details of “Loan from banks” is not readily available with him. He submitted that the assessee would be in a position to furnish the break up details of “loan taken from banks”, if an opportunity is given. The assessee shall prove from the books of account that it has availed loan from M/s Adarsh Credit Co-operative Society Ltd.
We heard the rival contentions and perused the record. It is the submission of the assessee but it has availed loan from M/s Adarsh Credit Co-operative Society Ltd. We notice that the tax authorities have taken a different view and we notice that they have not examined the books of accounts. The AO could have examined the books in order to find out as to whether the loan has been accounted in the books of accounts or not. In the normal course, there will not arise question of booking interest expenditure alone without recording loan taken by an assessee in his books of account. Hence, we are of the view that this issue could be resolved by examining the books of accounts. It is also the submission of the AR that the loan taken from above society has been duly recorded in the books of accounts and the same has been grouped under the head loan from banks while preparing balance-sheet. Further, the assessee seeks an opportunity to prove its claim. Accordingly, we are of the view that this issue may be
5 ITA Nos. 257 & 258/Jodh/2019 Sambhav Energy Ltd., Chennai vs. ACIT, Central Circle-01, Jodhpur restored to the file of the Assessing Officer in both the years for an examining the books of accounts of the assessee in order to satisfy himself that the assessee has actually availed loan from said aforesaid society. Accordingly, we set aside the order passed by the ld. CIT(A) on this issue in both the years under consideration and restore the same to the file of the Assessing Officer in both the years for examining it afresh in the light of discussions made (supra). We also direct the assessee to produce the books of accounts and also furnish any other information and explanations that may be called for by the Assessing Officer in this regard. Since the interest expenditure has been disallowed in both the years only on the reasoning that the assessee has not availed loan from the above said society and if the AO is satisfied that the assessee has taken loan, then the question of disallowing interest expenditure will not arise.
In A.Y 2014-15, the assessee has raised one more issue relating disallowance of depreciation claim of Rs. 52.48 lakhs. AO noticed that the assessee has not carried out any business activity during the year relevant A.Y 2014-15. When questioned, the assessee submitted that it has stopped business activity since the production of electricity has become unviable, i.e., the selling price of electricity that could be realized was less than the manufacturing cost. On the basis of this explanation, the AO took the view
6 ITA Nos. 257 & 258/Jodh/2019 Sambhav Energy Ltd., Chennai vs. ACIT, Central Circle-01, Jodhpur that the assessee does not have intention to carry on its business activity. Further, the AO held that the assessee has not used its fixed assets for any part of the accounting year. Accordingly, he held that the depreciation claimed by the assessee is not allowable as deduction. He accordingly disallowed the depreciation of Rs. 52.48 lakhs claimed by the assessee. The Ld. CIT(A) also confirmed the said amount.
The ld. AR submitted that assets were put to use in the earlier years and the depreciation was also allowed in those years. The assessee has stopped the business activity of generation of power, since the Revenue generated was less than the cost of production of electricity. He submitted that the assessee has stopped the production of electricity on genuine commercial considerations in order to avoid losses. He submitted that the assets were ready to put to use and the assessee was only waiting for proper business opportunity. Hence the AO was not justified in disallowing depreciation claim. In support of his contentions, the ld. AR placed reliance on the following case laws. CIT vs. GEO TECH CONSTRUCTION CORPORATION (2000) 244 ITR 452 (Ker) : (2000) 162 CTR (Ker) 528 NATIONAL THERMAL POWER CORPN. LTD vs. CIT Source (2013) 357 ITR 253 (Del): (2012) 211 Taxman 505 (Del)
7 ITA Nos. 257 & 258/Jodh/2019 Sambhav Energy Ltd., Chennai vs. ACIT, Central Circle-01, Jodhpur CIT vs. SWARUP VEGETABLE PRODUCTS INDIA LTD. (2005) 277 ITR 60 (All): (2005) 198 CTR (All) 595 CIT vs. REFERIGERATION & ALLIED INDUSTRIES LTD (2001) 247 ITR 12 (Del) : (2000) 163 CTR (Del) 498 CIT vs. OSWAL WOOLLEN MILLS LTD (2006) 206 CTR (P & h) 141
On the contrary, the ld. DR submitted that the assessee is not having intention to revive the business. The Ld CIT(A) has noticed that the assessee has not started production of electricity in the subsequent years also. Accordingly, the Ld CIT(A) has held that it was not a case of temporary lull in the business of the assessee. The ld. DR further submitted that ld. CIT(A) has placed his reliance on the decision rendered by Mumbai Benche of ITAT in the case of Ashik Woollen Mills, ITAT, Mumbai, 80 taxmann.com 357, wherein it was held that the depreciation was not allowable when the entire block of asset was not put to use for business purposes. Accordingly, the ld. DR submitted that the order passed by the ld. CIT(A) on this issue does not call for any interference.
In the rejoinder, the ld. AR submitted that the assessee has only stopped generation of electricity, but did not stop other business activities. Hence it cannot be said that the assessee has completely shut its business. He submitted that the assessee is having investments and also generating
8 ITA Nos. 257 & 258/Jodh/2019 Sambhav Energy Ltd., Chennai vs. ACIT, Central Circle-01, Jodhpur income like interest, dividend and other miscellaneous income. He submitted that the assessee is also taking steps to repay the loan taken from bank. Accordingly, ld. AR submitted that the case laws relied by the ld. CIT(A) is distinguishable.
We heard rival contentions and perused the record. Four significant contentions have been raised before us by Ld A.R. First, it was submitted that the assessee has not completely stopped the business as presumed by the tax authorities. If that is the case, there was no necessity for the assessee to maintain establishment and incur expenses including interest expenses. Secondly, it was submitted that the assessee has been generating other types of income. Thirdly, it was submitted that the assessee may revive its business when the market position turns favourable and there was certainty that it would make profit. Fourthly, it was submitted that the plant and machinery are kept ready for being used anytime for production of electricity and the same constitutes passive use of assets. The case of the Ld A.R is that though it cannot be said that there was temporary lull in the business, yet the production of electricity has been stopped on commercial considerations in order to avoid losses. Accordingly, it was submitted that there was no reason to disallow
9 ITA Nos. 257 & 258/Jodh/2019 Sambhav Energy Ltd., Chennai vs. ACIT, Central Circle-01, Jodhpur depreciation claimed by the assessee. The assessee has also placed its reliance on various case laws.
The Hon’ble Allahabad High Court has held as under in the case of CIT vs. Swarup Vegetable Products India Ltd (277 ITR 60):-
“3. Heard learned counsel for the Department and Shri Vikram Gulati for the assessee-respondent. It was submitted by learned standing counsel that the Tribunal was not justified in allowing the normal depreciation at Rs. 1,91,917 on the plant and machinery which was not actually used during the year. Elaborating the argument it was submitted that for claiming depreciation the asset must be used during the whole or at least some part of the accounting year. The machinery and plant was not used at all in the previous year relevant to the assessment year in question and as such no depreciation under Section 32 of the Act could be allowed. We find no merit in the aforesaid submissions. The findings recorded by the Tribunal are that the vanaspati unit though was not actually in use but it was kept ready for use. There was no intention on the part of the assessee in the relevant assessment year to close the business of the vegetable ghee unit. The directors were making efforts to restart the vegetable ghee factory as soon as possible. There was no intention to close the said unit but on account of adverse circumstances, the said unit remained suspended and could not be operated in the year in question. The unit resumed production in the subsequent assessment year i.e., in July, 1978. 4. The apex court while interpreting Section 32 of the Act, has held in Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775, that Section 32 confers a benefit on the assessee. The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee to secure the benefit intended to be given by the Legislature to the assessee. It is also settled that where there are two possible interpretations of a taxing provision, the one which is favourable to the assessee should be preferred. Two requirements to claim depreciation under Section 32 of the Act are : (i)
10 ITA Nos. 257 & 258/Jodh/2019 Sambhav Energy Ltd., Chennai vs. ACIT, Central Circle-01, Jodhpur the asset should be owned by the assessee, and (ii) it should be used for the purposes of business or profession. The Supreme Court has preferred to give a wide meaning to the term "owned" following its earlier judgment given in the case of CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625, in which it has been held that anyone in possession of the property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufructs in his own right would be the "owner" of the building though the formal deed of title may not have been executed or registered as contemplated by the Transfer of Property Act and the Registration Act, etc. 5. In Machinery Manufacturers Corporation Ltd. v. CIT [1957] 31 ITR 203 the Bombay High Court has observed that the expression "used" in Section 10(2)(vi) of the Indian Income-tax Act, 1922, corresponding to Section 32 of the Act, has to be given wider meaning. The expression includes passive as well as active user. It has been judicially held in a number of cases that depreciation might be allowed in certain cases even though the machinery was not in use or was kept idle. The words "used for the purposes of business" are capable of larger and narrower interpretation. If the expression used is construed strictly, it can be taken as connoting or requiring the active requirement or actual working of the machinery, plant or building in the business. On the other hand, the wider meaning will include not only cases where the machinery and plant, etc., are actively implied but also the cases where there is what may be described as passive user of the same in the business and the same can be said to be in use when it is kept ready for use. The Delhi High Court in CIT v. Refrigeration and Allied Industries Ltd. [2001] 247 ITR 12, has held that the assessee was entitled to depreciation allowance on the cold storage plant though the machinery had not actually worked during the accounting period. 6. The Punjab and Haryana High Court in CIT v. Pepsu Road Transport Corporation [2002] 253 ITR 303 has held that the assessee who was the transporter had to keep spare engines in the store, was entitled for depreciation on spare engines in the store, as the engines were meant to be used in the case of need. There is a normal depreciation of value even when machines or equipment is merely kept in the store. Looking to the nature of business of that assessee, who
11 ITA Nos. 257 & 258/Jodh/2019 Sambhav Energy Ltd., Chennai vs. ACIT, Central Circle-01, Jodhpur was a transporter it was held that keeping spare engines in store to meet emergent situations, was the requirement of business. 7. In Income-tax Application No. 58 of 2001 Anil Bulk Carrier (P.) Ltd. v. CIT decided on October 26, 2004, we have held that the asset ready for use, but not actually used is also entitled for depreciation, under Section 32 of the Act. 8. In view of the foregoing discussions, we find that the view taken by the Tribunal is legally justified.” Identical view has been expressed by Hon’ble Delhi High Court in the case of National Thermal Power Corporation Ltd vs. CIT (2013)(357 ITR 253)(Delhi).
In the instant case, though the tax authorities have stated that the assessee has not started business activities in the subsequent years also, it was not shown that the assessee has completely abandoned the business of generation of electricity. The case of the assessee that the assets are kept ready for use and it was expecting only favourable market situation. It is also submitted that the assessee has maintained its business establishment and was generating other types of income, besides servicing loan taken for business purposes. Under these set of facts, we are of the view that there is no reason to disallow the depreciation claimed by the assessee. Accordingly, we set aside the order passed by Ld CIT(A) on this
12 ITA Nos. 257 & 258/Jodh/2019 Sambhav Energy Ltd., Chennai vs. ACIT, Central Circle-01, Jodhpur issue in AY 2014-15 and direct the AO to delete the disallowance of depreciation.
In the result, both the appeals filed by the assessee are treated as allowed for statistical purposes.
Order pronounced in the open Court on 2nd November, 2022.
Sd/- Sd/- (SANDEEP GOSAIN) (B. R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 02/11/2022 *Ganesh Kr Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR 6. Guard File
Assistant Registrar Jodhpur Bench