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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R.S. SYAL & SHRI PARTHA SARATHI CHAUDHURY
आदेश / ORDER
PER R.S.SYAL, VP : This appeal by the assessee is directed against the order passed by the CIT(A)-3, Bengaluru on 30-09-2016 in relation to the assessment year 2009-10.
The first ground is against the confirmation of disallowance of business expenses of Rs.5,79,74,581/-. Briefly stated, the facts of the case are that the assessee company is engaged in the
2 ITA No.2177/Bang.//2016 Faurecia Automotive Seating India Pvt. Ltd.,
business of manufacturing Automotive Metal seating components.
Return of income was filed declaring total loss of Rs.6.21 crore.
During the course of assessment proceedings, the Assessing
Officer (AO) observed that the assessee did not credit any
operational income, but only an income of Rs.32.38 lakh which
was on account of scrap sales and interest received/foreign
exchange gain etc. He found that similar position prevailed in the
preceding year as well in asmuchas no manufacturing activity was
carried on in such an earlier year also. He considered the details of
expenses claimed by the assessee at Rs.5,79,74,581/- consisting of
Materials and components consumed at Rs.29,34,882/-; Operating
expenses at Rs.5,08,83,750; Finance charges at Rs.94,202/-; and
Depreciation at Rs.40,61,807/-. On being called upon to explain as
to why such expenses/allowances should not be disallowed
because the assessee was not engaged in any manufacturing
activity during the year, the assessee submitted vide its letter dated
11-12-2013 that earlier it was having its manufacturing facility at
Bengaluru. Due to certain issues, the factory at Bengaluru was
closed down w.e.f. 18-12-2006. During the financial year 2008-
09, assessee company set up its new location for conducting
operations at Manesar, Gurgaon. The assessee claimed that it was
3 ITA No.2177/Bang.//2016 Faurecia Automotive Seating India Pvt. Ltd.,
simply a temporary stoppage of manufacturing activity but the
business, in fact, continued. Not convinced with the assessee’s
submissions, AO held that no business was carried on by the
assessee and hence, the huge expenses of Rs.5.79 crore could not
be allowed. The ld. CIT(A) countenanced the assessment order on
this score.
We have heard both the sides gone through the relevant
material on record. From the nature of details of expenses and
allowance, it is seen that they are of the revenue nature. It is
evident from the assessment order itself in which the assessee’s
letter dated 11-02-2013 has been reproduced that the assessee
company came into existence from 1995 with its manufacturing
facility at Bengaluru. Due to certain reasons, the Bengaluru unit
had to be closed from December 2006. During the financial year
relevant to the assessment year under consideration, the assessee
set up its new location at Manesar, Gurgaon and also carried out
trial production at the new Manesar plant. Thus, it is manifest that
the business of the company was closed for a brief period due to
temporary lull. A copy of the assessee’s Profit and loss account for
the succeeding years has been placed on record. Financial
statements of the assessee for the financial year ending 2011, copy
4 ITA No.2177/Bang.//2016 Faurecia Automotive Seating India Pvt. Ltd.,
placed at page 53 onwards of the paper book, amply indicate that
the assessee started its business operations. On the year ending
31-03-2010, i.e. immediately succeeding assessment year, the
assessee managed to make sales at Rs.72.97 crore and in the
immediately succeeding assessment year ending 31-03-2011, the
total sales shot up at Rs.162.04 crore. When we go through the
details of expenses which have been disallowed by the AO, it
becomes apparent that the assessee, in fact, consumed materials
and components at Rs.29.34 lakh which was nothing but user of
material for trial production at the new Manesar plant. When the
manufacturing activity was earlier carried on and after sometime it
again got re-started, the assessee cannot be said to have stopped its
business activity during the interregnum. The AO has not alleged
in the assessment order that the expenses claimed to the tune of
Rs.5.79 crore were in any manner fictitious or bogus. Once the
factum of incurring expenses towards Materials and components
consumed, Operating expenses and Finance charges etc. is
established and the business re-started after sometime, there can be
no question of denial of deduction of such expenses incurred by the
assessee during the period when the business was temporarily shut
down. As the assessee closed down its Bengaluru unit for which
5 ITA No.2177/Bang.//2016 Faurecia Automotive Seating India Pvt. Ltd.,
trial production was also carried down during the year, the business
of the assessee has to be held as carried on during the year.
Consequently, the deduction is directed to be given in respect of all
the expenses/allowance claimed by the assessee which were
wrongly disallowed.
The next ground is against the enhancement made by the ld.
CIT(A) on account of further claim of depreciation.
We have noticed above that the AO disallowed depreciation
of Rs.40,61,807/-. The ld. CIT(A) noted that this amount of
depreciation was debited to the Profit and loss account. Apart
from that the assessee was also found to have claimed further
depreciation of Rs.1,21,99,712/- under the Income-tax Act, 1961.
The ld. CIT(A) observed that since the AO did not disallow the
amount of depreciation claimed under the Income-tax Act at
Rs.1.21 crore, he, therefore, directed the AO to disallow the
depreciation at Rs.121.99 lakh instead of Rs.40.61 lakh.
After hearing both the sides and going through the relevant
material on record, it is found that the ld. CIT(A) enhanced the
amount of disallowance of depreciation on the same reasoning that
the business of the assessee was not carried on. As we have
6 ITA No.2177/Bang.//2016 Faurecia Automotive Seating India Pvt. Ltd.,
overturned the above finding recorded by the authorities below, it
is but natural that the assessee is entitled to claim depreciation as
per the rates admissible under the Income-tax Act. We, therefore,
hold that the enhancement made by the ld. CIT(A) with the
direction to the AO to disallow to depreciation of Rs.121.99 lakh
instead of Rs.40.61 lakh is hereby reversed. This ground is
allowed.
Another ground against the set off and carry forward of
business losses and unabsorbed depreciation is consequential.
No other ground was pressed by the ld. AR., which are
otherwise also pre-mature or consequential.
In the result, the appeal is allowed.
Order pronounced in the Open Court on 26th March, 2019.
Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 26th March, 2019 सतीश
7 ITA No.2177/Bang.//2016 Faurecia Automotive Seating India Pvt. Ltd.,
आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-3, Bengaluru 4. The Pr. CIT-3, Bengaluru िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “बी” / DR ‘B’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 25-03-2019 Sr.PS 2. Draft placed before author 25-03-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *