ARJUN PULP AND PAPER INDIA PVT LTD.,CHENNAI vs. ACIT (OSD) CORPORATE RANGE 1, CHENNAI

At the outset, it was brought to the notice that there is delay of 126 days in filing the appeal. The assessee has filed condonation application and an affidavit in support of facts stated therein. Taking note of contents of the affidavit as well as application for condonation of delay, we find that causes/events stated therein have caused delay, which in factual context cannot be cannot be termed to be intentional or purposeful and therefore, we find it to be sufficient to cause the delay and so the delay is condoned and proceed to hear the appeal on merits.

The only issue that has been raised by the assessee is against action of the Ld. Commissioner of Income Tax (Appeals) (hereinafter ‘Ld.CIT(A)’) in denying depreciation claimed by the assessee. The assessee company was initially engaged in trading business and discontinued the same and is into manufacture of tissue papers. The assessee filed its income-tax return for the relevant year under consideration declaring total loss of Rs.49,22,003/-, after deduction of business expenses to the extent of Rs.1,65,85,409/-, out of which the assessee claimed depreciation to the tune of Rs.75,71,116/-, which was attributed to building, machinery, office equipments etc.. Later, the case of the assessee was selected for scrutiny under CASS; and the Assessing Officer (hereinafter ‘AO') disallowed entire business expenses claimed by the assessee to the tune of Rs.1,65,85,409/-, which resulted in loss claimed by the assessee of Rs.49,22,003/- to positive total income of Rs.68,60,047/-. For disallowing business expenses, including depreciation claimed by the assessee, the AO noted that the assessee had carried out no business at all and has not earned any revenue from operation. The AO noted that the assessee is in the process of setting up of manufacturing business without commencing any operation.

The Assessing Officer also disallowed ‘other expenses’ claimed to the tune of Rs.90,14,242/-. Since these expenses according to him are to be considered as pre-operative expenses, and the business has not yet been commenced or set up its business, so he was pleased to disallow expenses claimed and for that cited decisions of the Hon’ble High Courts and Tribunals. Thus, he disallowed total expenses to the tune of Rs.1,65,85,409/-. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A), who was pleased to dismiss the appeal of the assessee. Aggrieved, the assessee is in appeal before us.

We have heard both the parties and perused records. We note that the assessee company was earlier into trading business which has been discontinued; and in the year under consideration, the assessee returned ‘other income’ to the tune of Rs.48,03,359/- (interest receipts) and claimed depreciation allowance to the tune of Rs.75,71,166/- and ‘other expenses’ to the tune of Rs.90,14,243/- (Total Rs.1,65,85,409/-). The AO disallowed depreciation allowance taking note that the assessee could not produce any proof of setting up of the business. The AO noted that in the relevant assessment year only few machinery has been installed as part of setting up of the business and has not proved anything to show that its business has been set up and ready for commencement of business / production of goods; and since the AO found that the assessee failed to prove that the plant and machinery for production of tissue papers were not ready to use / production of goods, he disallowed the depreciation of assets which were not put to use. Even before us, the assessee could not produce any document to substantiate that plant and machinery was ready to use which could have been inferred, provided the assessee could bring any evidence to show that there was test running of the plant and machinery for producing the goods. However, unfortunately, assessee did not furnish any document or material before the AO nor the Ld.CIT(A) or before this Tribunal. Therefore, no fault can be attributed on the part of the AO / Ld.CIT(A) not to allow depreciation allowance claimed by the assessee. Therefore, depreciation allowance claimed to the tune of Rs.75,71,166/- has been rightly disallowed and we confirm it.

Coming next to the disallowance of ‘other expenses’ to the tune of Rs.90,14,242/-, we note that the assessee has disclosed ‘other income to the tune of Rs.48,03,359/- and even though, the AO asked for break-up of the same, it was not provided to him [ the AO inferred that it may be on account of interest receipt from cash flow statement]. The AO noted that in the relevant assessment year the assessee was in the process of setting up of business (production / manufacture of tissue papers) which has not been completed and was not ready to commence business. Since, the assessee failed to bring on record any material to show that it has set up its business and its plant and machinery was ready to be used for production the ‘other expenses’ claimed are prior period expenditure, and so, disallowed by the AO / Ld.CIT(A). Before us, also the assessee could not bring any material / evidence to show the nature of expenses claimed by the assessee and taking note that no business activity has been carried out by the assessee, the expenditure claimed has been rightly disallowed and therefore, no interference is warranted in this case. Therefore, appeal of the assessee stands dismissed.