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Income Tax Appellate Tribunal, AHMEDABAD ‘B’ BENCH, AHMEDABAD
I TA N o. 1 8 7 3/ Ah d /2 0 1 5 Ad a ni En e r gy Lt d Vs . DC I T Ass e ss me n t Y ea r : 2 0 11 - 1 2 Page 1 of 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD ‘B’ BENCH, AHMEDABAD [Coram: Pramod Kumar AM and Mahavir Prasad JM] ITA No.1873/Ahd/2015 Assessment Year: 2011-12 Adani Energy Limited ......…………......Appellant Adani House, Nr. Mithakhali Six Roads, Navrangpura, Ahmedabad-380009 [PAN: AABCG 5533 E] Vs. Dy. Commissioner of Income-tax .....................Respondent Circle-1, Ahmedabad Appearances by Vijay Ranjan & Ira Kapoor, for the Appellant Mudit Nagpal, for the respondent
Hearing concluded on: 15.06.2018 Order pronounced on : 12.09.2018
O R D E R Per Pramod Kumar, AM: This appeal is directed against the order dated 11th May, 2015 passed by the 1. CIT(A)-1, Ahmedabad, in the matter of assessment under section 143(3) of the Income- tax Act, 1961, for the assessment year 2011-12.
Grievance of the assessee is as follows:-
“On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming disallowance of depreciation of Rs.59,34,153/- made by the Assessing Officer on the ground that no business activities were carried on during this year by the appellant.”
Briefly stated, relevant material facts are like this. The assessee is said to be engaged in the business of trading of gas in India, but, beyond any dispute or controversy, there was temporary suspension of business. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed depreciation but then there was no business activity during the year under consideration. It was in this backdrop that the assessee was required to show-cause as to why depreciation of Rs.59,34,153/- not be disallowed. It was explained by the assessee that the assessee is mainly engaged in trading of gas which involves sourcing of gas from outside India, and, during the relevant previous year, there was a suspension of activity due to adverse market conditions. It was then submitted that when an assessee is maintaining his establishment and is waiting for improved market conditions, and there is nothing to show that he has abandoned or closed the business,
I TA N o. 1 8 7 3/ Ah d /2 0 1 5 Ad a ni En e r gy Lt d Vs . DC I T Ass e ss me n t Y ea r : 2 0 11 - 1 2 Page 2 of 5 the business must be said to be continuing. It was pointed out that assets were kept ready for use in business which amounted to passive use of assets. Reliance was also placed on Hon’ble Delhi High Court’s judgment in the case of Capital Bus Services Pvt Ltd Vs. CIT [4 Taxman 309 (Del)], CIT Vs. Refrigeration & Allied Industries Ltd [(2001) 247 ITR 12] and CIT Vs. Integrated Panacea Biotech Ltd [(2009) 183 Taxman 212]. None of these submissions, however, impressed the Assessing Officer. He proceeded to disallow the depreciation by observing as follows:-
“The contention of the assessee has been considered and is not acceptable because of followings:
i. Depreciation has to be allowed only on actual use of the machinery. ii. No manufacturing activity/trading activity were carried out and no depreciation is allowable during the relevant A.Y.
Reliance is placed on judgment in case of Hon'ble Bombay High Court, in Dineshkumar Gulabchand Agrawal v. CIT [2004] 267 ITR 768. It was held that depredation on asset ready for use but not actually used, cannot be allowed. The Hon'ble Bombay High Court In the above case held as under:
"The word 'used' in section 32 of the Income-tax Act, 1961, denotes that the asset has been actually used and not that it is merely ready for use. The expression 'used' means actually used for the purposes of the business."
[The Supreme Court has dismissed the special leave petition filed by the assessee against this judgment.]
Thus, as per this latest decision of Hon'ble Bombay High Court, which has been in turn accepted by Supreme Court by not admitting SLP. The assessee will not be entitled for depreciation on the passive use or on the plant and machinery ready for use. It should be an actual use of the asset for it to be eligible for depreciation. Further reliance is placed on the decision of CIT v. Oriental Coal Co. Ltd., Hon'ble Calcutta High Court held that where there was strike/lock-out in the factory for two years and the plant and machinery has not been actually used, then assessee would not be entitled for depreciation. Hon'ble Calcutta High Court held in that case as under:- . "Section 32(1) of the Income-tax Act, 1961, lays down two conditions to be satisfied by an assessee before claiming any depreciation. These two conditions are, firstly, that the plant and machinery must be owned by the assessee and, secondly, the plant and machinery must be used for the purposes of business of the assessee. Therefore, under sub-section (1) of section 32, there should be actual user of plant and machinery for the purposes of business. In certain cases of a pooling arrangement or where plant and/or machinery is kept as standby to provide against breakdown, even a passive user may entitle the assessee to claim depreciation under section 32 because in both these cases, the machinery is kept ready for use In the factory.
Where the factory of the assessee remained under lock-out throughout the two previous years relevant to the assessment years 1983-84 and 1984-
I TA N o. 1 8 7 3/ Ah d /2 0 1 5 Ad a ni En e r gy Lt d Vs . DC I T Ass e ss me n t Y ea r : 2 0 11 - 1 2 Page 3 of 5 85 and during the lock-out period, the plant and machinery had not been actually used for the purposes of the business:
Held, that depreciation under section 32 of the Act was not allowable on such plant and machinery."
In the present case, post demerger, consistently there is not business in the assessee company. The depreciation could not be allowed on such non-use in view of the clear verdict of Hon'ble Bombay High Court and Hon'ble Calcutta High Court referred above, which is directly on the point. Further, by merely including an item in the block, will not make it eligible for the depreciation if other conditions for allowability of the claim are not satisfied.
In view of the above discussion, the claim of the depreciation of Rs.59,34,153/- is hereby disallowed and added to the total income.”
Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. While dismissing the plea of the assessee, the CIT(A) has observed as follows:-
(A) Ground no. 1 is against the disallowances of depreciation of Rs. 5934153/- on the ground that no business was carried out in the impugned previous year. The appellant before the A.O. contended that "in the year under consideration there is a temporary suspension of the business due to business dynamics of import of gas viz availability of gas in domestic market, forex fluctuation, logistic cost etc. Temporary suspension of business does not necessarily mean discontinuance of or closure of the business." The appellant relied on various case laws to emphasize that appellant was maintaining its establishment and all the assets were kept ready for use, hence depreciation is available. The A.O. rejected appellant's contention relying on ratio of Hon'ble Bombay High Court in the case of Dinesh Kumar Gulabchand Agrawal (Supra) and Hon'ble Calcutta High Court in the case of Oriental Coal Co. Ltd. (Supra) and disallowed depreciation.
Before adjudication of ground, it is important to consider following facts:
(i) Appellant in audited financial accounts for impugned previous year claimed depreciation on straight line method totaling to Rs. 1699452/-, which was disallowed in computation of income and depreciation as per income tax Act on the basis of tax audit report is claimed of Rs. 5934153 as follows:
Block Depreciation Written Down Total Depreciation Written of Rate Value as on Value Amount down value Assets 01/04/2010 As on 31/03/2011 Furniture 10.00 3977499 3977499 397750 3579749 and fixtures Computer 60.00 6529248 6529248 3917549 2611699
Vehicle- 15.00 757758 757758 113664 644094 Four
I TA N o. 1 8 7 3/ Ah d /2 0 1 5 Ad a ni En e r gy Lt d Vs . DC I T Ass e ss me n t Y ea r : 2 0 11 - 1 2 Page 4 of 5
Wheeler Plant & 15.00 10034600 10034600 1505190 8529410 Machinery Total 21299105 21299105 5934153 15364952
(ii) In the audited financial accounts in schedule 10 under the head "Notes forming part of the Accounts" at subhead (B) : Notes on accounts at Cl.2 following note was appended.
"Contingent-Liabilities not provided for in respect of claims against the company not acknowledgement as debt of Rs. 1,37,60,00,000/- (P.Y. Rs. 1,37,60,00,000/-).
The company and ASEAN LNG Trading company ("ASEAN LNG") entered into a master LNG sale and purchase agreement on August 2, 2006 for sale and purchase of liquefied natural gas. It was further agreed to sign "delivery notices" before the dispatch of the cargoes. As the receiving terminal was not available to the company, the delivery notice was not signed which rendered the contract inconclusive and ineffective. Towards this, ASEAN LNG initiated Arbitration proceedings at London Court of international Arbitration, London ("LCIA") against the company claiming losses for an approximate amount of Rs. 400.00 crores (USD 100 million). LCIA gave an interim award requiring the company to pay Rs. 137.60 crores (USD 34.4 million) to ASEAN LNG with interest thereon. The company challenged the interim award by filing a civil miscellaneous application, under section 34 of the Arbitration and conciliation Act, 1996, before city Civil Court, Ahmedabad. ASEAN LNG has filed an application for dismissal of the civil miscellaneous application filed by the company. The matter is currently pending for further hearing. The appellant in statement of fact referred such facts-
(iii) Till date i.e. even after A,Y. 14-15, there are no business activities carried on by appellant.
It is therefore, the appellant's contention of temporary suspension of business and keeping all the assets ready for use does not have any force. It was on the part of appellant, who declined the business for which decree was passed against appellant. After such denial of business, the appellant has not made any effort to revive or initiate the business. The appellant has not submitted any evidence that it approached another party domestically or in abroad for the business. It is therefore, I am inclined by A.O.'s reasons and ratio of various case laws relied on by him that in such factual circumstances, depreciation is not available to appellant. The disallowances so made are upheld and confirmed. This ground is dismissed.”
The assessee is not satisfied and is in further appeal before us.
We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of the applicable legal position. 7. We have noted that the plea of the assessee before us is that what has been covered by the plant and machinery is in fact in the nature of office equipment. It is thus, contended that business activities or no business activities, the office equipments
I TA N o. 1 8 7 3/ Ah d /2 0 1 5 Ad a ni En e r gy Lt d Vs . DC I T Ass e ss me n t Y ea r : 2 0 11 - 1 2 Page 5 of 5
were to be used, even if partially, anyway. We have also perused the financial statements of the assessee which indicate a small level of operations. In these circumstances, the controversy which has been subject matter of consideration before the authorities below in fact ceases to be relevant and what really matters now is to see whether or not the assets, in respect of which depreciation was claimed, were in fact used, even if in a small measure and modest scale, in the course of business. Once it is found that the assets pertain to office use and the office has been used even for a short time, irrespective of whether trading operations or core business activities take place or not. We, therefore, accept the plea of the assessee in principle. The depreciation claimed before us is not in respect of machineries which have not been used at all. However, as this aspect of the matter was not taken before any of the authorities below, we also deem it fit and proper to remit the matter to the file of the Assessing Officer for limited verifications of factual plea embedded in the plea of the assessee. He will thus decide the matter in the light of our above observations and following the legal principle so laid down. While doing so, he will decide the matter afresh by way of a speaking order and after giving a fair reasonable opportunity to the assessee.
In the result, the appeal is allowed for statistical purposes. Pronounced in the open court today on the 12th September, 2018 Sd/- Sd/-
Mahavir Prasad Pramod Kumar (Judicial Member) (Accountant Member) Dated: 12th September, 2018 Bt*
Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) DR (6) Guard File
By order True Copy Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad
Date of taking dictation: …order prepared as per 5 pages manuscripts of Hon’ble AM……11.09.2018…… 2. Date of typing & draft order placed before the Dictating Member: …11.09.2018………….. 3. Date on which the approved draft comes to the Sr. P.S./P.S.: ........12.09.2018........................ 4. Dt. on which the fair order is placed before the Dictating Member for Pronouncement: ...... 12.09.2018...... 5. Date on which the file goes to the Bench Clerk:...... 12.09.2018................. 6. Date on which the file goes to the Head Clerk: ..…………………... 7. The dt. on which the file goes to the Astt. Registrar for signature on the order: ......................... Date of despatch of the Order: ........................ 8.