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Income Tax Appellate Tribunal, DELHI BENCH: “G”, NEW DELHI
Before: SHRI BHAVNESH SAINI & SHRI O.P. KANT
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: “G”, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No.1685/Del/2012 Assessment Year: 2007-08 M/s. SVIL Mines Ltd., Vs. DCIT, (Amalgamated company of Central Circle-25, New Delhi amalgamating company M/s. Texefx Marble Industries Ltd.), E-3, 1st Floor, Mangolpuri Industrial Area, Phase-II, New Delhi PAN : AAICS5805Q (Appellant) (Respondent) Appellant by Shri Ajit Kumar Jha, Advocate Respondent by Shri S.S. Rana, CIT(DR)
Date of hearing 30.01.2019 Date of pronouncement 01.02.2019
ORDER PER O.P. KANT, A.M.:
This appeal by the assessee is directed against order dated 05/01/2012 passed by the Ld. Commissioner of Income-tax (Appeals), New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2007-08 in case of the entity M/s. Texefx Marble Industries Limited, which has been amalgamated with the assessee
2 ITA No.1685/Del/2012 company. The grounds raised in the appeal are reproduced as under: 1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming the disallowance of deduction of Rs.29,411/- claimed u/s 35D of the Income Tax Act, 1961. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming the disallowance of claim of depreciation of Rs.5,57,172/-. 3. The appellant craves leave for addition, modification, alternation, amendment of any of the grounds of appeal.
At the outset, we may like to mention that on the date of hearing, an application was filed by Sh. Ajit Kumar Jha, claiming to be counsel for the assessee. In the said application, he has submitted that no instruction has been given by the assessee and the person responsible for the assessee was not in touch with him even after so many calls made to him. In the said application addresses of the two persons have been provided for further communication, if any. On perusal of the record, it is also observed that similar application was filed by Sh. Ajit Kumar Jha on 31/10/2018 expressing inability in arguing the appeal in absence of any instructions from the assessee company and sought adjournment. We note that this appeal was first fixed on 14/06/2012 and, thereafter, it has been adjourned on the request of the Ld. counsel from time to time. Thus, till the date of hearing approximately 7 years have elapsed. In view of the above facts, the Ld. Counsel appearing for the assessee was asked to argue the case, but he declined to argue the case and thus case was heard on the basis of the arguments of the Ld. DR. 3. Briefly stated facts of the case are that the assessee e-filed original return of income on 28/10/2007 declaring Nil income
3 ITA No.1685/Del/2012 and which was processed on 26/08/2008 under section 143(1) of the Income-tax Act, 1961 (in short ‘the Act’) at income of Rs.70,536/- as per the provisions of section 115JB of the Act. The Assessing Officer noticed that a search and seizure action under section 132 of the Act was carried out on 21/03/2007 in the cases of Surya Vinayak Industries Limited Group. The assessee company also has been claimed by the Assessing Officer to be one of the associated company of the group. The case was selected for scrutiny and statutory notices were issued and complied with. The assessment was completed on 24/12/2009 under section 143(3) of the Act after making certain additions/disallowances. Aggrieved, the assessee filed appeal before the Ld. CIT(A) who partly allowed the appeal. Aggrieved with the addition sustained by the Ld. CIT(A), the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 4. The Ld. DR relied on the order of the Ld. CIT(A) and also supported the grounds by way of the decisions relied upon by the Ld. CIT(A). 5. The ground No. 1 of the appeal is related to disallowance of Rs.29,411/- under section 35D of the Act. According to the Assessing Officer, the assessee was engaged in the sale and purchase of the securities and no industrial unit was set-up and, therefore, it was not eligible for deduction under section 35D of the Act. Before the Ld. CIT(A), the assessee stated that said amount has been paid to the Registrar of Companies (ROC) to increase the authorised share capital and thus the assessee has claimed 1/5th of expenses under section 35D of the Act. The Ld. CIT(A) sustained the disallowance observing as under:
4 ITA No.1685/Del/2012 “5.3 I have gone through the submission filed by the appellant and it is observed that the assessee has not countered the main objection of the Assessing Officer that it is not an industrial undertaking. Sub Clause 1 (ii) of section 35D states that after the commencement of business if any expenditure is incurred which is of the nature which is specified in section 35D, the same shall be allowable to an industrial undertaking in connection with the extension of its business. The word “industrial” has been omitted by the Finance Act, 2008 w.e.f 01.04.2009, therefore, the assessee’s company not being an industrial undertaking is not entitled to the benefits of deduction u/s 35D in connection with the extension of its business. Reliance is placed on the following decision: a) The Hon’ble Madras High Court in the case of Indbank Merchant banking Services Ltd Vs. ACIT [2011] 334 ITR 0271 has held that “the assessee was not entitled to amortization of preliminary expenses u/s 35D of the Act towards share issue expenses since the increase in share capital was subsequent to the establishment of the business and the assessee had not established any new industrial unit nor expanded the existing industrial undertaking. ” b) The Hon’ble Delhi High Court in the case of CIT Vs. Hindustan Insecticides Ltd [2001] 250 ITR 0338 has held that “items 1 and 2 of the Tenth Schedule to the Companies Act, 1956, which prescribe the fees payable to the Registrar of Companies for registration of new companies, operate in a conceptually and contextually different field from iteni3 which deals with fees for increase of share capital. Section 35D(2)(c)(iii) deals with expenditure incurred by way of fees for registration of a company under the Act. Fees paid under item 3 of the Tenth Schedule cannot be stated to be fees paid for registering a company. Therefore, section 35D was not applicable. ” c) The Hon’ble Delhi High Court in the case of Ansal Housing and Construction Ltd Vs. CIT [2010] 320 ITR 0420 has held that “dismissing the appeal, that the assessee was not an “industrial undertaking’ and, therefore, not entitled to the benefit u/s 35D. ”
5.1 We find that the assessee has failed to controvert the finding of the Assessing Officer before the Ld. CIT(A). The Ld. CIT(A) has supported his finding relying on the decision cited in the impugned order. In the said decisions it is clearly held that the assessee has to substantiate that new industry undertaking has been established or the existing industrial undertaking is expended. In view of the failure of the assessee in substantiating
5 ITA No.1685/Del/2012 the above requirement alongwith evidences, the Ld. CIT(A) is justified in sustaining the disallowance. We do not find any error in the order of the Ld. CIT(A) on the issue in dispute, accordingly we uphold the same. The ground No. 1 of the appeal is accordingly dismissed. 6. The ground No. 2 of the appeal relate to disallowance of claim of depreciation amounting to Rs.5,57,172/-. The Assessing Officer has observed that the assessee company acquired M/s AM Enterprises on 31/01/2007 and claimed depreciation at the rate of 50% of the entitled amount of the depreciation, however according to the Assessing Officer, the assessee was eligible for depreciation on pro-rata basis only for 60 days. Before the Ld. CIT(A), the assessee claimed that assets were used by the assessee for less than 180 days and therefore it was entitled for depreciation at the rate of 50% of the total depreciation on the assets. The Ld. CIT(A) after referring the relevant proviso of the section 32 of the Act, sustained the disallowance observing as under: 6.3 I have considered the submission given by the appellant and am of the opinion that the assessee has ignored the proviso as mentioned in section 32 in the case of succession or take-over of a business. The said proviso reads as “provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licenses, franchises or any other business - or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in [clause (x Hi), clause (xiiib) and clause (xiv)] of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and
6 ITA No.1685/Del/2012 the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them.”
We find that the assessee has failed to justify its claim of 50% of the depreciation. As per the proviso to section 32 of the Act, the depreciation has to be apportioned between the predecessor and the successor or amalgamating company and amalgamated company as the case may be, in the ratio of number of days for which the assets are used by them. In our opinion, The Ld. CIT(A) has correctly sustained the disallowance of depreciation and restricted it to 60 days. Accordingly, we uphold the same. The ground No. 2 of the appeal is accordingly dismissed. 8. In the result, the appeal of the assessee is dismissed.
Order is pronounced in the open court on 1st February, 2019.
Sd/- Sd/- [BHAVNESH SAINI] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 1st February, 2019. RK/-[d.t.d.s] Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR
Asst. Registrar, ITAT, New Delhi