M/S. BUSINESS INDIA TELEVISION INTERNATIONAL LTD.,MUMBAI vs. ITO, NEW DELHI

We will first take up the assessee’s appeal for Assessment Year 2002-03, wherein the following grounds have been raised.

The facts in brief qua the addition made u/s.68 as culled out from the impugned order are that the Assessing Officer had noted that there was an increase in unsecured loans in the balance sheet for sum of Rs.2,40,11,399/- and was asked to provide the confirmation from the parties from whom the unsecured loan was taken along with their PAN and copy of their latest income tax return. However, no such details or compliance was made by the assessee and in absence of the requisite details the entire amount was added u/s.68 by the AO. This matter had travelled upto the stage of the ITAT, wherein the Tribunal has set aside this issue back to the file of the Assessing Officer to redo the assessment. Again, in the set-aside assessment proceedings no such details have been provided by the assessee and as a consequence additions have been reiterated by him. Before the ld. CIT (A), the assessee had submitted that it had taken loans/ICDs in the earlier year from some lenders which was wrongly classified under the head “unsecured loans” but at the time of finalization of account and after verifying the account it was found that these loans were unsecured loans taken from various parties and the majority of which had come from 5 Public Limited Companies. However, before the ld. CIT (A) also the primary onus for proving the genuineness of the loan could not be established and accordingly, ld. CIT (A) too has confirmed the said addition.

Before us the ld. counsel for the assessee, Mr. S.R. Wadhwa submitted that almost the entire unsecured loans of Rs. 2.40 crore had been received through well reputed Public Limited Companies and assessee itself being a public limited company had duly disclosed such unsecured loan in the audited financial accounts. After the matter was set aside by the Tribunal, since huge time had lapsed, therefore, confirmation from all the parties could not be obtained, barring the confirmation obtained from one company, M/s. Ganesh Banzoplast Ltd. and copies of ledger account of other five parties has also been filed just to show that the loans were received through account payee cheques from the Public Limited Companies and therefore, the genuineness cannot be doubted. Since the business of the assessee had already been stopped long ago, therefore, it was difficult to get these letters from these parties. In any case these being limited companies their accounts are in public domain and hence the loans obtained from these parties must have been duly reflected in their respective balance sheets and not only that, the loans from these parties in the earlier years have duly been accepted without doubting the genuineness. Thus, he submitted that Income Tax Authorities may be directed to call for the information directly from these parties to examine the genuineness of the loan and accordingly, addition made also directed to be deleted after receiving such information.

On the other hand, ld. Senior D.R. strongly relied upon the orders of the authorities below and submitted that the onus which lied upon the assessee under the law to prove the genuineness of the loan has not been proved despite ample opportunities given to the assessee at various stages right from the original assessment proceedings to set aside proceedings. Thus, the contention of the learned counsel that Income Tax Authorities should be directed to obtain the information from the said concerned parties cannot be accepted, especially after the expiry of fifteen years since the transaction. Thus, the order of the ld. CIT (A) should be confirmed.

After hearing both the parties and on perusal of the material referred to before us, we find that assessee had taken loan for a sum aggregating to Rs.2,40,11,399/- from the following parties:-

The primary requirement as envisaged in Section 68 is that, assessee has to explain the ‘nature’ and ‘source’ of the sum found credited in the books and if such an explanation is not offered or is not found to be satisfactory, then such an amount is deemed to be income of the assessee chargeable to income tax. Though the ‘nature’ of transaction appearing in the books have been stated to be unsecured loan, however, the ‘source’ from where such loan have been received could not be proved satisfactorily. For proving the source of credit, the assessee is required to satisfy prima facie the identity, creditworthiness of the creditors/lenders and the genuineness of the transaction. From the facts as can be culled out are that, the assessee is public limited company which seems to have received ‘unsecured loans’ mostly from the Public Limited Companies not only in the earlier years, but also in this year as there was an increase in such loan. When the Assessing Officer required the assessee to explain the source of the loan received during the year the assessee miserably failed to discharge its onus. Though these amounts may have come through account payee cheques from Public Limited Companies, but at least some kind of confirmation of account or confirmation letter from these creditor companies should have been obtained and given to the Assessing Officer that these loans have been given from the sources disclosed in their respective books of account and or duly reflected in their balance sheets. It is only when assessee discharges its primary onus that the burden shifts on the Assessing Officer, that such an evidence or explanation is rebuttable or not tenable on the basis of material and information gathered by him. Here in this case, the first step itself has not been followed by the assessee and therefore, we are of the opinion that addition has rightly been made by the AO and confirmed by the ld. CIT (A). So far as in the case of one party, the confirmation of loan which has been filed for the first time before us and copy of ledger account of other five parties in the books of the assessee have been given, only goes to show that the amounts have been received through account payee cheques. Though this only goes to show one sided entry in assessee’s books of account and even though amounts may have come through account payee cheques, but something more is required u/s.68, like creditworthiness and identity of the creditor as per the principles laid down in catena of judgments. Though preponderance of probability may be slightly in favour of the assessee that the assessee is a public limited company and loans have been received from Public Limited Companies not only in the earlier years (where it is not in dispute) but also in this year, therefore, the genuineness of the loan is most likely to be acceptable, but in the quantum proceedings, the assessee has to substantiate or explain the source of such loan which can only be proved by the confirmation of the parties or from their audited accounts or income tax returns that money has come from their own sources and they have the creditworthiness for granting such loan. The copy of confirmation from one party at this stage cannot be the sole basis for accepting the genuineness of the loan taken from the said party, because it has not been verified or subject to scrutiny by the Assessing Officer as assessee should have filed these documents before the lower authorities when several opportunities were given to it. The assessee, if may so desire, can file all these documents and plead its case in the course of penalty proceedings if at all is initiated, where the considerations are separate and distinct from the quantum proceedings. But in the present proceedings such an explanation lacks credible evidence and is not sufficient to discharge the onus/burden which lied upon the assessee. Accordingly, ground no.1, 2 and 3 are dismissed.

So far as the issue raised vide ground no.4 with regard to increase on account of current liabilities of Rs.48,41,204/- and interest paid of unsecured loans. The brief facts are that the Assessing Officer had noted that there has been increase in the current liabilities by sum of Rs.48,41,204/- and despite Assessing Officer’s request to provide the list of sundry creditors along with PAN and income tax return, no such detail could be furnished by the assessee either in the course of original assessment proceedings or in the course of set aside proceedings in pursuance of the ITAT order. The current liabilities have increased from Rs.36,96,80,548/- to Rs.37,45,21,752/- as on 31.03.2002. The contention of the assessee before the Assessing Officer and ld. CIT (A) has been that these current liabilities were incurred in the course of business which cannot be doubted and they represent expenses and not any kind of cash credit. However both Assessing Officer and ld. CIT (A) did not agree with such an explanation and confirmed the said addition on the ground that the assessee could not furnish the requisite information and details as asked. So far as the interest addition of Rs.1,06,022/- is concerned, the same has been confirmed on the ground that assessee could not explain the credit entries of the loan and therefore, interest cannot be allowed.

Before us the learned counsel, Mr. Wadhwa submitted that the addition has been made on presumption and guess work without looking into the past record and that the current liabilities were incurred in the course of business which cannot be doubted. However, due to lapse of time and assessee’s business being closed, it was difficult to obtain confirmation or details as required by the Assessing Officer from the respective parties, but the liabilities incurred in the course of the business cannot be disallowed. Similarly with regard to the interest he pointed out that no basis has been given in the assessment order and as per Schedule-3 of the balance sheet it can be seen that assessee has taken huge loan from the bank and overdraft facility by pledging the movable asset by the company and personal guarantee of two of its directors. The interest accrued on such loans cannot be disallowed, because of these amount has been used for the purpose of business.

On the other hand, learned Sr. DR strongly relied upon the order of the ld. CIT (A).

After considering rival submissions and on perusal of the impugned order, we find that the Assessing Officer and ld. CIT (A) had made the addition on the ground that assessee could not file any requisite information or details as required, because there was increase in the liability in this year for which the onus was upon the assessee to show that such a liability had arisen in the course of business and it is a genuine liability. Simply because the accounts are audited and liability is appearing in the books of account it cannot be held or presumed that these liabilities have been incurred purely during the course of the business. The onus is upon the assessee to prove that such a liability did exist and has been duly recognized by the other party and if required from the Revenue officials, assessee has to substantiate the same. Thus, on this score also, we do not find any reason to deviate from the findings recorded by the ld. CIT (A) that such an increase in the liability for sum of Rs.48,41,204/- has not been explained by the assessee and accordingly, same has rightly been added.

In respect of interest amount also, we are unable to gauge as to whether this interest is an account of the unsecured loans or any other secured loans taken from the bank which has been used for the purpose of the assessee’s business. If these interest pertains to loans for the business purpose then the same has to be allowed, but here the assessee is unable to show that the interest amounting to Rs.1,06,022/- is for the payment on account of loan which is allowable u/s.36(1)(iii). Accordingly, the order of the Assessing Officer and ld. CIT (A) are confirmed and resultantly, ground no.4 is also dismissed.

Before us the learned counsel, Mr. S.R. Wadhwa had pleaded that assessee had huge brought forward losses and unabsorbed depreciation, the set-off which has not been given by the Assessing Officer. Before the ld. CIT (A) the assessee has taken a specific ground which ld. CIT(A) was pleased to give direction to the Assessing Officer to allow the same after verifying from the records. The relevant ground and the observation of the ld. CIT (A) on this issue reads as under: “5. Ground No. 6 of the appeal is as under: That on facts and in the circumstances of the case, the Ld. AO has grossly erred in not setting off of brought forwarded losses and unabsorbed depreciation against current year’s income as required under sub-section (2) of section 32 and sub-section (1) of section 72 of the Income-tax Act, 1961 in spite of furnishing copies of assessment orders/proof of filing income tax returns for A.Y. 1995-96 to 2001-02. 5.1 During the proceedings before me, it was submitted that the Assessing Officer has not given set off of brought forward losses from assessment years 1995-96 to 2001- 02 as required u/s 32(1) and 72(1) of the Act. It was further added that as per the appellant’s records, brought forward losses are of Rs. 156,85,76,114/-. 5.2 I have carefully considered the written submissions of Ld. AR. There is no discussion in the assessment order regarding the issue of brought forward losses However, in view of the submissions of Ld. AR, the Assessing Officer is directed to records and make necessary computation as per the provisions of the Act.”

Mr. Wadhwa submitted that till date Assessing Officer has not carried out the directions of the ld. CIT (A). Ld. D.R., submitted that the direction can be given to the Assessing Officer to examine this issue in the light of the order of the ld. CIT (A) and decided expeditiously.

Accordingly, we direct the Assessing Officer that brought forward losses and unabsorbed depreciation, the details of which has been given by the learned counsel before us in the written submission may be examined and set-off should be given against the income assessed for this year in accordance with law. Thus, this plea of the learned counsel is accepted and allowed for statistical purposes.

In the result, the appeal of the assessee is dismissed.

In Revenue’s Appeal, following grounds have been raised:-

Ld. CIT (A) after referring to the judgments of Hon'ble Delhi High Court in the cases, viz., CIT vs. Bharat Aluminium Co.

Before us ld. D.R., submitted that if the assessee has not used the asset for the purpose of business in this year, then depreciation cannot be allowed and in support he referred to one judgment of Calcutta High Court in the case of, CIT vs. Punjab Coal Co. Ltd., reported in (1994) 76 Taxman 240. He had also referred a judgment of Hon'ble Delhi High Court in the case of CIT vs. (2012) Agro Mills Ltd., reported in 341 ITR 647. Thus, he submitted that Assessing Officer has rightly disallowed the depreciation.

Ld. Counsel on the other hand strongly relied upon the order of CIT (A) and also relied upon the judgments of various courts on this point.

After considering the submissions made by the parties and on perusal of the material referred to before us, we find that it is not in dispute that plant and machinery on which depreciation has been disallowed by the Assessing Officer formed part of the assets utilized for the purpose of business by the assessee in the earlier years and the depreciation on such block of assets have been allowed. After the concept of ‘block of assets’ brought in the statute by clause (c) of sub section (6) of Section 43 w.e.f. 01.04.1998, the concept of individual assets has lost its relevance and no longer stands. Though as per section 32(1) in order to claim depreciation not only the asset should be owned by the assessee but it should also be used for the purpose of business or profession. However, here the concept ‘used for the purpose of business’ when applied to ‘block of assets’, then what is required to be seen is, whether such ‘block of assets’ had been used for the business in the earlier years or not. If answer is affirmative, then the same has to be allowed, because the individual asset loses its identity. This proposition has now been well settled by the Hon'ble Jurisdictional High Court in the case of CIT vs. Bharat Aluminium Co. (P) Ltd. (supra). Apart from that the judgment as relied upon by the ld. D.R. in the case of CIT vs. Oswal Agro Mills Ltd.,(supra), the Hon'ble High Court has in fact allowed the depreciation on the block of assets even when there was a passive user. The relevant portion of the said judgment can be summarized as under:- After the amendment of section 32 of the Income-tax Act, 1961, by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, section 32(1) of the Act allows depreciation on the written down value of a block of assets. Section 2(11) of the Act defines the term "block of assets". Along with the amendment, the definition of "written down value" as contained in section 43(6) was also amended. Thus, for the assessment year 1998-99, the written down value of any block of assets shall be the aggregate of the written down value of all the assets falling within that block of assets at the beginning of the previous year. From this, adjustment has to be made for the increase or reduction in the block of assets during the year under consideration. The deduction from the block of assets has to be made in respect of any asset, sold discarded or demolished or destroyed during the previous year. Thus, the depreciation is allowed on the block of assets, and the Revenue cannot segregate a particular asset therefrom on the ground that it was not put to use. Individual assets have lost their identity and the concept of "block of assets" has been introduced for calculating deprecation. Assessees are not required to maintain particulars of each asset separately. The Revenue cannot claim that for allowing the depreciation, user of each and every asset is essential even when a particular asset forms part of a "block of assets". Moreover, the Revenue is not put to any loss by allowing depreciation on a particular asset, forming part of the "block of assets" even when that particular asset is not used in the relevant assessment year, as whenever such an asset is sold, it would result in short-term capital gains, which would be exigible to tax. The court cannot give an expression a meaning which would make the provision superfluous. For six assessment years beginning from 1998-99, the Assessing Officer denied the assessee depreciation in respect of its Bhopal unit on assets forming part of a block of assets, on the ground that the unit was closed throughout the years. This was confirmed by the Commissioner (Appeals) but the Tribunal allowed depreciation on two grounds, that there was a passive user of the assets at the Bhopal unit, which could be treated as "used for the purpose of business" and that the assets of the Bhopal unit could not be segregated for the purpose of allowing depreciation and depreciation had to be allowed on the entire block of assets. On appeal: Held, accordingly, that while the Tribunal was not right in holding that there had been passive user of the asset, because, in the six years till the last assessment year in question there was no sign of this unit becoming functional and "passive user", in these circumstances, could not be extended to absurd limits, otherwise, the words "used for the purpose of business" would lose their total sanctity, the Tribunal was right in allowing depreciation based on the "block of assets".

Thus, respectfully following the aforesaid judgment, we uphold that ld. CIT (A) has rightly allowed the depreciation on such ‘block of assets’ and in any case the depreciation claimed on WDV has to be allowed. The grounds raised by the Revenue are thus dismissed.

Now we will come to the appeal for Assessment Year 2009- 10 wherein the following grounds have been raised by the assessee.

So far as the ground no.2 is concerned, both the parties have admitted that this issue is same which has been raised in the Revenue’s appeal, i.e., disallowance of depreciation on certain plant and machinery which were part of ‘block of assets’ allowed in the earlier years. The same has been disallowed by the Assessing Officer and confirmed by the ld. CIT (A) mainly on the ground that the business activities of the assessee has been discontinued. Since this issue is similar to the ground raised in the Assessment Year 2002-03, therefore, on the same reasoning, we allow the depreciation on the plant and machinery forming part of the block asset allowed in the earlier years. Thus, ground no.2 is allowed.

So far as the issue of disallowance of administrative expenses of Rs.3,52,978/- is concerned, we find that the details as given in the schedule to Profit & Loss account, the major expenses are legal expenses of Rs.85,000/-; audit fee of Rs.97550/-; and office maintenance of Rs.45,875/-, besides some miscellaneous other expenses. These have been disallowed by the Assessing Officer and confirmed by the ld. CIT (A) on the ground that business activities have not been carried out by the assessee and therefore, such expenses cannot be allowed.

Before us the learned counsel submitted that the corporate structure of the assessee is still continuing and assessee was required to carry out statutory audit of its books of account and other activities for which it had paid audit fees and has also incurred legal expenses for the purpose of the business and also these expenses were necessitated for protection of the property of the company and day to day running of the company. Thus, same cannot be disallowed.

On the other hand, ld. D.R. strongly relied upon the order of the Assessing Officer and ld. CIT (A).

From the perusal of the impugned order as well as finding given by the learned Assessing Officer and ld. CIT(A), we find that the corporate office of the assessee is still being maintained in this year along with other infrastructures and activities even though main business activity has been discontinued. In so far as expenses like legal expenses, audit fees, office maintenance and other minor administrative expenses are concerned, it cannot be held that the same is to be disallowed, because the expression for the purpose of business is much wider in scope than for the purpose of earning profit and to maintain the corporate structure and preservation of the business, such expenses are required which needs to be allowed. Before us, the learned counsel has relied upon the judgment of Hon'ble Bombay High Court in the case of Sahakari Shakkar Karkhana vs. CIT-II, 229 ITR 577, wherein it was held in the following manner:

Thus, if we apply the said principle in the aforesaid case, we do not find any reason to sustain the disallowance of administrative expenses amounting to Rs.3,52,978/- and same is directed to be deleted.

Before us, the learned counsel had submitted that Assessing Officer may be directed to set-off the carry forward brought forward losses in the form of business loss and unabsorbed depreciation pertaining to the earlier assessment years, as claimed in the return of income. We accordingly, direct the Assessing Officer to verify from the records the claim of the assessee and if any brought forward loss and unabsorbed depreciation has been claimed in the return of income coming from the earlier years and such claim and quantification is correct, then the same should be allowed in accordance with law. Accordingly, the appeal of the assessee is allowed.

In the result, the appeal of the Revenue as well as the appeal of the assessee for the Assessment Year 2002-03 is dismissed; whereas the appeal of the assessee for the Assessment Year 2009-10 is allowed.