Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Per CHANDRA POOJARI, AM:
These appeals filed by the Revenue are directed against the different orders
passed by the CIT(A)-I, Kochi dated 16/08/2018 and pertain to the assessment
years 2006-07 and 2007-08. Since the issues involved in these appeals were
common, they were heard together and are being disposed of by this common
order.
The Revenue has raised the following common grounds of appeal:
The learned Commissioner of Income-tax(Appeals) is not justified to delete the disallowance of depreciation claim of the assessee as per section 32(1).
I.T.A. Nos.500&501/Coch/2018 2. The learned Commissioner of Income-tax(Appeals) is not justified to delete the disallowance of claim of bad debts. The CIT(A) has accepted additional evidence during the appellate proceedings without giving reasonable opportunity to the Assessing Officer for examining the additional evidence which is against Rule 46A of the IT rules, 1962. The CIT(A) ought to have considered the judgment of High Court of Delhi in the case of CIT vs. Manish Buildwell P. Ltd. (ITA No.928/2011). Hence it is submitted that the Hon’ble Tribunal may restore the matter back to CIT(A) with a direction to comply with Rule 46A.
The first common ground is with regard to deletion of disallowance of
depreciation on machinery and vehicles.
3.1 Since the facts are similar in both the appeals, we shall consider the facts as
narrated in ITA No. 500/Coch/2018. The Assessing Officer noticed that in the
relevant previous year, some machinery and vehicles were under custody of clients
and financiers because of the termination of some projects and default on the part
of the assessee to pay its dues towards financiers. The assessee claimed
depreciation on these equipments. As per section 32(1) of the I.T. Act, for claiming
depreciation, the asset should be owned by the assessee wholly or partly and
should be used for the purposes of the business. The Assessing Officer found that
in the previous year, these assets were under the custody of
bankers/financiers/clients, therefore, these assets were not owned by the assessee.
Hence, the Assessing Officer disallowed excess depreciation of Rs.56,65,759/- on
these assets.
On appeal, the CIT(A) deleted the disallowance by observing that machineries
in question are undisputedly owned by the assessee and temporary suspension of 2
I.T.A. Nos.500&501/Coch/2018 work shall not disentitle the assessee to claim depreciation. According to the
CIT(A), depreciation is granted on the concept of block of assets. Hence, the CIT(A)
held that the assessee is entitled for depreciation.
Against this, the Revenue is in appeal before us. The contention of the Ld. DR is
that machinery and vehicles were under custody of bankers/financiers because of
the termination of some projects and default on the part of the assessee to pay its
dues towards financiers. However, the assessee claimed depreciation on the assets
on the ground that it was having control on them as per section 32(1) of the Act
which is not correct.
The Ld. AR submitted that the machinery and vehicles could not be used
temporarily because of the non payment of dues to the financiers. It was submitted
that the assessee had no control over these assets. The contention of the Ld. AR
was that these assets were ready to use but these could not be used due to
temporary suspension of work. According to the Ld. AR, active or passive use of
assets for the purpose of business will be treated as ‘put to use’ and will qualify for
the depreciation allowance. The Ld. AR submitted that in case of block of assets, in
order to allow assessee’s claim u/s. 32(1), use of individual asset for purpose of its
business can be examined only in first year when assessee is purchased and
subsequent year use of block of assets is to be examined. It was submitted that
existence of an individual asset in block of assets itself amounts to use for purpose
of business and therefore, depreciation is allowable on it, even though the said
I.T.A. Nos.500&501/Coch/2018 asset was not actually used in course of business during relevant assessment year.
The Ld. AR relied on the following case laws:
1) Whittle Enderson Ltd. vs. CIT (79 ITR 613)
2) CIT vs. Khanna & Sons (148 ITR 558)
3) CIT vs. Suhrid Gegy Ltd. (133 ITR 884)
4) Swati Synthetics Ltd. vs. ITO (38 SOT 208) (Mum.)
We have heard the rival submissions and perused the record. In our opinion, the
assessee has to prove the ownership as well as having physical possession of the
said machinery and vehicles. The argument of the Ld. AR does not support that the
assessee physically owned and was having control of the said machinery and
vehicles. In our opinion, it is appropriate to remit the issue to the file of the
Assessing Officer to examine owning and having physical control of the machinery
and vehicles. The Assessing Officer shall grant depreciation on the assets only if
the assessee is having physical control of the assets. If the assessee is not in
physical control of the assets, the assessee is not entitled for depreciation as the
assessee cannot use the assets without having physical control and possession of it.
Thus, this issue is remitted to the file of the Assessing Officer for fresh consideration
for both the assessment years. Hence, this ground of appeals of the Revenue is
allowed for statistical purposes.
The next common ground is with regard to deletion of disallowance of bad
debts.
I.T.A. Nos.500&501/Coch/2018
The facts of the case are that the Assessing Officer noticed that non recoverable
advances paid to sub-contractors amounting to Rs.1,23,10,396/- were written off
and claimed as bad debts as provided u/s. 36(1)(vii) of the Act. However,
according to the Assessing Officer, no such write-off is admissible u/s. 36(2)(i) of
the I.T. Act. Before the Assessing Officer, the assessee submitted that the sub
contractors who owed large sums of money to the company could not be traced and
in such cases, the company had no other way but to write off such irrecoverable
advances paid for the purpose of business of the assessee. The assessee submitted
that if the bad debts are not allowed u/s. 36 of the Act, it should be allowed u/s. 37
of the Act. The Assessing Officer held that bad debts cannot be allowed u/s.
36(i)(vii) because of the applicability of 36(2)(i) of the Act. Moreover, bad debts
cannot also be allowed u/s. 37 of the Act because u/s. 37 only expenditure can be
considered for allowability. In the present case, it was merely an advance and not
expenditure. The Assessing Officer also noticed that the assessee has not shown
what steps had been taken to recover all these advances and without establishing
the genuineness and identity of the sub-contractors, the bad debts cannot be
allowed u/s. 37 also.
Before the CIT(A), the assessee submitted that such an amount was not at all
connected with the assessment year 2006-07 and the amount related to the
assessment year 2007-08. Considering the above submission, the CIT(A) held that
I.T.A. Nos.500&501/Coch/2018 since no write off was done, the same cannot be disallowed and deleted the
disallowance of bad debts.
Against this, the Revenue is in appeal before us.
We have heard the rival submissions and perused the record. The contention
of the Ld. AR is that the assessee has not at all claimed bad debts of
Rs,1,23,10,396/- for the assessment year 2006-07. Hence, the CIT(A) decided the
issue in favour of the assessee. In the subsequent year, the same amount of bad
debts was claimed by the assessee as bad debts which was allowed by the
authorities. In our opinion, if the bad debts was actually written off, the same is to
be allowed in one of the assessment year concerned and the same amount cannot
be allowed for both the assessment years. On going through the computation
statement of income for the assessment year 2006-07, we find that there was a
claim of provision for doubtful receivables which was reduced from loss of that
assessment year . However, the Ld. AR was not able to explain whether the said
amount of Rs.1,23,10,396/- was included in this provision of bad and doubtful
debts. Hence, we are not in a position to express any opinion on it. Accordingly,
we remit this issue to the file of the Assessing Officer for fresh consideration for
both the assessment years. Thus, this ground of appeals of the Revenue is allowed
for statistical purposes.
I.T.A. Nos.500&501/Coch/2018 13. In the result, the appeals filed by the Revenue are partly allowed for statistical
purposes. Order pronounced in the open Court on this 3rd April, 2019
sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER
Place: Kochi Dated: 3rd April, 2019 GJ Copy to: 1. M/s. Bhageeratha Engineering Ltd., Bhageeratha Residency, Banerji Road, Kochi-18. 2. The Income Tax Officer, Corporate Ward-1(1), Kochi. 3. The Commissioner of Income-tax(Appeals)-I, Kochi. 4. The Pr. Commissioner of Income-tax, Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin