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Income Tax Appellate Tribunal, DELHI BENCH “SMC”, NEW DELHI
Before: SHRI S.V. MEHROTRA
O R D E R PER S.V. MEHROTRA, A.M :
This is an appeal filed by the assessee against the order dated 16.08.2016 passed by the Commissioner of Income Tax (Appeals)-3, Delhi, u/s 143(3) of the Income Tax Act, 1961 (in short “the Act”) relating to assessment year 2012-13.
Brief facts of the case are that the assessee filed its return of income declaring loss of Rs.9,36,393/-. The Assessing Officer noticed that assessee company was stated to be engaged in the business of dealing in gold and diamond business but no receipts and purchase in regard to this business were returned by the assessee. However, the assessee had declared income from house property bearing No.3 and 4, Udyog Vihar, Phase-IV, Gurgaon, Haryana given on rent the first floor to M/s Peregrine Technical Services Pvt. Ltd.. The Assessing Officer noted that assessee company had claimed depreciation amounting to Rs.9,17,796/- which was disallowed by observing that no business activities were established on which the depreciation was claimed. Ld. CIT(A) while partly allowing the assessee’s appeal sustained the disallowance of depreciation. Being aggrieved, the assessee is in appeal before the Tribunal and has taken following grounds of appeal :-
“1. That the assessment made is bad in law and in facts. 2. That the L.D. CIT erred while making an addition of Rs.9,17,796/- which was allowable u/s 32. 3. That the assessee reserves the right to add, delete, alter and modify to the above grounds of appeal.”
3. Ld. counsel for the assessee referred to page 16 of Paper Book, wherein, the order of the Appellate Authority For Industrial & Financial Reconstruction, New Delhi is contained directing the BIFR to reconsider the settlement afresh. The said order is reproduced hereunder :-
“After hearing the submissions of learned counsel for the appellant and the authorized representative of the OA and most importantly considering the fact that the appellant has reached an out of court settlement with the State Bank of India, a secured creditor, the terms of which are contained in a deed of Settlement, by consent of the representative of the Operating Agency, the order under challenge is set aside and the Board is directed to reconsider the settlement afresh and proceed accordingly. The application filed by the appellant recording the above settlement is kept on record and the appeal is disposed of on consideration of the submissions made in the application. The application is not opposed by the operating agency.”
Ld. counsel further referred to the decision of Hon’ble Delhi High Court in the case of CIT vs. Integrated Technologies Ltd. in dated 16th December, 2011, wherein, in para 4, the Hon’ble Delhi High Court noticed the contentions of the assessee, which are reproduced hereunder :-
“It was contended by the assessee that even though there was no sale or purchase or any manufacturing activity carried on in the relevant previous year, the business was still a going concern and in order to keep it alive and fulfill several legal and statutory formalities, some expenditure has to be incurred. It was also submitted by the assessee that it had approached the BIFR under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, that the application was being processed and soon the manufacturing and sale activities will start and therefore in these circumstances it cannot be said that the business of the assessee had ceased to exist. It was pointed out that there was only a temporary lull and the business would revive shortly. With particular reference to the claim of depreciation of Rs.2,16,41,897/-, it was contended that the plant and machinery were kept ready for use once the business revived and such passive use also amounted to use of the asset within the meaning of Section 32 of the Act. It was therefore contended that the claim of depreciation ought to be allowed. In support of the claim for allowance of depreciation, several authorities were relied upon by the assessee, including the judgment of this Court in Capital Bus Service Pvt. Ltd. Vs. CIT (1980) 123 ITR 404.”
He further referred to para 9 of the aforementioned decision of the Hon’ble Delhi High Court, which is reproduced hereunder :-
“9. The Tribunal has referred to the judgments in Capital Bus Service (supra), CIT Vs. Refrigeration and Allied Industries Ltd. (supra) & CIT Vs. Panacea Biotech Ltd. (supra) and has applied the ratio laid down therein to the facts of the present case. The ratio in brief is that it is not necessary that the plant and machinery owned by the assessee should be actually put to use in the relevant accounting year to justify the claim of depreciation and that even if the plant and machinery or other asset is kept ready for use in the assessee’s business, the assessee would be entitled to depreciation. The only condition is that the business should not have been closed down once for all and that the assessee should demonstrate that the hopes of the business being revived are alive and real. It is however not a matter that can turn entirely on the assessee’s hopes alone. There should be evidence or material to show that the assessee took efforts to keep the business alive in the hope of reviving the same. Maintaining the office and establishment, complying with the statutory formalities, not disposing of the plant and machinery, incurring expenses on the repair of plant and machinery etc. are some of the indications of nurturing the hopes of reviving the business. The above are only illustrative instances and are by no means exhaustive and the question as to whether the assets were kept ready for use in the business is largely to be decided on the facts and circumstances of each case. In our opinion, the Tribunal has not committed any error in applying the ratio laid down in the judgments of this Court to the facts of the present case in order to uphold the assessee’s claim for depreciation.”
Ld. counsel submitted that in view of the aforementioned decision (supra), if it is established that assessee was striving for reviving its business by fulfilling all statutory formalities; not disposing of the plant and machinery; incurring expenses on the repair of plant and machinery etc. then it cannot be concluded that business had closed. Ld. counsel referred to para 5.1 of ld. CIT(A)’s order, wherein, ld. CIT(A) has observed that nothing had been brought on record to establish that the effort is being made to reviving the business. He submitted that this finding is not correct in view of the efforts made by the assessee for reviving its business and re- scheduling loan facilities.
I have considered the submissions of both the parties and perused the record of the case. Admittedly, the assessee company was under BIFR and after certain directions of BIFR, the matter was taken before the Appellate Authority which gave directions in regard to settlement with the State Bank of India. The letter dated 02.12.2013 of State Bank of India contained at pages 17 to 19 of Paper Book also shows that the assessee was putting in all types of efforts for reviving its business. Therefore, the claim of passive use of assets was clearly supported by the efforts made by assessee to restart its business and, therefore, in view of the decision of Hon’ble Delhi High Court (supra), the assessee’s claim is to be allowed. I direct accordingly.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on this 17th day of February, 2017.