SHRI DEVKRIPA TEXTILE MILLS (P) LTD.,BHILWARA vs. ACIT, BHILWARA CIRCLE, BHILWARA

We have considered the rival contention and perused the materials available on record. It is the submission of the assessee that the business operation has not been discontinued permanently, but it was only suspended for a temporary period. The Ld A.R also submitted that the business has been revived in the succeeding year. The question that arises for consideration is whether the temporary lull in the business would disentitle the assessee to claim depreciation and other expenses for full year. In this connection, we may refer to the decision of Hon’ble Madras High Court rendered in case of CIT vs. Chennai Petroleum Corporation Ltd. (supra) wherein the Hon’ble High Court has held as under:- “ 20. As far as the decision of this court reported in CIT v. Maps Tours and Travels [2003] 260 ITR 655 (Mad) is concerned, if under law, there is a prohibition on the assessee to put the cars on roads for want of registration, considering such prohibition, the claim of the assessee Shri Devkripa Textile Mills P. Ltd. under section 32 of the Income-tax Act could not be granted. Thus, the abovesaid decision has to be seen in the light of the facts and circumstances of the case; hence, the same would not be of any assistance to the assessee. In fact, the learned standing counsel appearing for the Revenue fairly stated before this court that in the decisions reported in CIT v. Southern Petrochemical Industries Corporation Ltd. [2009] 311 ITR 202 (Mad) and CIT v. Southern Petrochemical Industries Corporation Ltd. [2008] 301 ITR 255 (Mad), this court had considered the grant of depreciation even to stand-by machinery. When that being the case, we do not find any justifiable ground to disturb the reasoning of the majority members of the Income-tax Appellate Tribunal. 21. Under the stated circumstances, on the admitted case that business was a going and the machinery could not be put to use due to raw material paucity, we reject the Revenue’s contention, thereby, confirm the majority view of the Income-tax Appellate Tribunal.”

We may also gainfully refer to decision rendered by Delhi bench of Tribunal in the case of Ishwar Builders P Ltd vs. DCIT (ITA 3387/Del/2019 dated 4.12.2019, which is a direct decision on this issue. In this case, the Tribunal followed the decision rendered by Hon’ble Delhi High Court in the case of Capital Bus Service 123 ITR 404 and held as under:-

“17. Ground No. 3 relates to the disallowance of depreciation on car amounting to Rs. 45.31 lakhs and interest on car loan amounting to Rs. 19.91 lakhs.

Before us, the ld. counsel for the assessee stated that it is incorrect to say that the assessee did not carry out any business activity during the year under consideration. The ld. counsel for the assessee pointed out that the assessee company is engaged in the business of construction, development of land etc and during the year under consideration, the assessee did invest in agricultural land at Chandan Hola, Delhi. It is the say of the ld. counsel for the assessee that there being a lull in the business, it cannot be said that the assessee had no intention to carry on business and it is not the case of the Revenue that the assessee has closed out its business activities.

The ld. DR supported the findings of the Assessing Officer. It is the say of the ld. DR that the Assessing Officer has considered all the issues raised by the counsel and, therefore, there is no error or infirmity in the findings of the Assessing Officer and the ld. CIT(A).

We have given thoughtful consideration to the orders of the authorities below. In our considered opinion, depreciation has been claimed by the assessee on the written down value of the asset which means that in earlier years, the asset was used for the purposes of business. Nowhere the Assessing Officer has brought any material evidence on record to suggest that there is a closure of business activities. On the contrary, we find that in furtherance of its business activities, the assessee has further advanced Rs. 65 lakhs towards land at Chandan Hola, Delhi which means that the assessee was, in fact, carrying out business activities during the year under consideration.

The Hon’ble High Court of Delhi in the case of Capital Bus Service 123 ITR 404 has held that the only condition for allowability of depreciation is that the business should not have been closed out once for all and that the assessee should demonstrate that hopes of the business being revived are alive and real.

In light of the decisions of the Hon’ble High Court as mentioned elsewhere, the assessee was in fact, engaged in furtherance of its business activities and, therefore, it cannot be said that the assessee has closed down its business once for all. Therefore, the assessee is eligible for claim of depreciation. In view of the decision discussed herein above, we are of the view that there is no requirement of disallowing part of director’s remuneration and depreciation when the business was stopped due to temporary lull. Accordingly, we set aside the order passed by Ld CIT(A) on the above said two issues and direct the AO to delete the disallowances. 11. In respect of disallowance of Rs.1.00 lakh sustained by the Ld CIT(A) from out of the disallowance made out of various expenses, we notice that the assessee did not controvert the finding of the AO that some of the vouchers are supported by self made vouchers. Accordingly, we do not find any reason to interfere with the decision rendered by Ld CIT(A) on this issue.