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Income Tax Appellate Tribunal, ‘’B’’ BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI & SHRI DUVVURU R.L. REDDY
आदेश /O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
These are appeals filed by the assessee directed against orders of ld. Commissioner of Income Tax (Appeals)-3, Chennai dated 31.05.2016 and 30.05.2016 respectively for the assessment years 2004-05 and 2005- 2006 passed u/s. 16(3) r.w.s. 17 of Wealth Tax Act and 143(3) r.w.s.
147 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).
First, we take up assessment year 2005-2006 for adjudication. The facts of the case are that assessee claimed depreciation at �11,99,098/- on machinery. Ld. Assessing Officer disallowed the same on the reason that assessee had not carried out any business activity in the assessment year under consideration. There was no consumption of raw materials or operating expenses claimed in the profit and loss account. Only depreciation was claimed which was set off against the income from other sources. Aggrieved, assessee filed an appeal before ld. Commissioner of Income Tax (Appeals).
Ld. Commissioner of Income Tax (Appeals) observed that depreciation u/s. 32 of the Act cannot be allowed to the assessee on the reason that assessee not carrying on any business activity in the assessment year under consideration and assessee did not put to use the 3 WTA 37/Mds/2016 & machinery. Assessee had taken a plea before the ld. Commissioner of Income Tax (Appeals) is that due to lull in business, no activity was carried out in the assessment year under consideration. However in the next assessment year business activities was carried on by the assessee.
It was only a temporary closure of business and business was not completely closed. Ld. Commissioner of Income Tax (Appeals) did not agree with the contention of the assessee and disallowed the depreciation claimed by the assessee. Aggrieved, assessee preferred an appeal before the Tribunal.
Before us, ld. Authorised Representative submitted that in the assessment year 2004-05, depreciation has been granted to the assessee and similarly for the assessment year 2006-2007 also depreciation was granted. According to the ld. Authorised Representative assessee has not carried on the business due to lull in business. It cannot be said that the assessee has permanently closed the business.
On the other hand, ld. Departmental Representative relied on the orders of the lower authorities.
4 WTA 37/Mds/2016 & ITA No. 2701/Mds/2016
We have heard both the parties and perused the material on record. In our opinion, assessee had not closed the business permanently. Assessee had started its business in the next assessment year 2006-07 for which assessee had filed copy of profit and loss account, balance sheet. Depreciation was fully granted to the assessee in the assessment year 2006-07. Due to adverse market condition, the assessee temporarily suspended its business activity in the assessment year under consideration. The assessee is maintaining plant and machinery, so as to resume business as soon as market conditions improves. Being so, it cannot be said that assessee had closed its business. Accordingly, by placing reliance on the judgment of Hon’ble Jurisdictional High Court in the case of L.VE. Vairavan Chettiar vs. CIT, 72 ITR 0114, we are inclined to allow depreciation claimed by the assessee since the business was temporary closed in the assessment year 2005-06 due to lull in business and it was restarted in the next assessment year. The ground raised by the assessee in its appeal is allowed. The appeal of the assessee is allowed.
Coming to WTA No.37/2016, assessment year 2004-05, the assessee has raised the following grounds of appeal:-
‘’(a) The Commissioner of Income Tax (Appeals) erred in passing order dated 31.5.2016 rejecting the appeal filed by the Appellant on an erroneous consideration of law and facts. The appeal is liable to be allowed in full. (b) The Commissioner of Income Tax (Appeals) erred 5 WTA 37/Mds/2016 & ITA No. 2701/Mds/2016 in holding that the Appellant is liable to the levy of Wealth Tax and ought to have noticed that the land and building of the Appellant Company was an active business asset not liable to the levy of wealth tax. (c) The Commissioner of Income Tax (Appeals) erred in holding erroneously that there was no production or business activity since Assessment Year 2004-05. He ought to have noted that the Appellant had only a brief lull in business activity and in fact has been in business both prior to 2002-03 and from February, 2006. The aforesaid facts were duly established before the lower authorities and ought to have been taken into consideration. (d) The Commissioner of Income Tax (Appeals) erred in relying on judgments that have no relevance in the facts of the present case and that are wholly distinguishable. On the other hand, the judgments cited by the Appellant support its case and ought to have been accepted. (e) The Commissioner of Income Tax (Appeals) erred in holding that contradictory stands have been taken by the Appellant in Income Tax and Wealth Tax proceedings. This is factually erroneous and the submissions made both in the Income Tax and Wealth Tax proceedings support the Appellants' stand. (f) Any other ground that may be raised at time of personal hearing’’.
We have heard both the parties and perused the material on record. We are of the opinion that impugned asset which is subject to Wealth Tax is business asset which cannot be considered as asset u/s.2(ea) of the Wealth Tax Act 1957. The factory land and building which belongs to the business assets of the assessee due to lull in business, assessee had not carried on the manufacturing activity.
However, in immediate next assessment year assessee has resumed the business activity which is evident from the profit and loss account and 6 WTA 37/Mds/2016 & balance sheet filed by the assessee before us. Being so, it cannot be considered as assets liable for Wealth Tax. Similar issue was considered by this Tribunal in the case of ACWT vs. M/s. Raslee Granties Pvt. Ltd in WTA No.03/Mds/2013 dated 30.4.2015 for the assessment year 2008- 2009 wherein it was held as under:-
‘’6.We have heard both sides, perused the materials on record and gone through the orders of authorities below. The only issue involved in this appeal is whether the piece of land used by the assessee is for the purpose of business or not. The assessee is in the business of manufacture and export of granite monuments. The land owned by the assessee company was used for purpose of stocking granite monuments. The assessee has continued its business activities upto 31.03.2008 and thereafter, there was a temporary lull in the business. The assessee started selling the property, which was used for the purpose of its business, in the assessment years 2008-09, 2009-10 and 2010-11. Therefore, the Assessing Officer came to a conclusion that the land which was used by the assessee is not for the business purpose because the assessee has stopped its business in the assessment year 2008-09 itself. It is a fact that the assessee was in the business of manufacturing and export of granite monuments and used the land for the purpose of business. Simply because there was a temporary lull, it cannot be said that the assessee is not carrying business and the land which is used for keeping the granite monuments. Under similar circumstances, in the case of DCIT(OSD) v. HSIL Ltd. (2014) 61 SOT 1 (Kolkata), the Tribunal has observed that “the mere fact that a part of land, which was held as factory, sold by the assessee as a piece of land would not change the character of asset in the hands of the assessee. A vacant piece of land, even if it can be sold as ‘land’ as such, continues to be a business asset as long as vacant land an integral part of factory etc.” In the present case, the vacant land was used by the assessee for the purpose of its business and simply because there was a temporary lull in the business, it cannot be said that the piece of land is not used for the business purpose. In view of the above and respectfully following the decision of the Coordinate Bench of the Tribunal in the case of DCIT(OSD) v. HSIL Ltd. (supra), we find no infirmity in the order passed by the ld. CIT(A) and the ground raised by the Revenue is dismissed’’.
7 WTA 37/Mds/2016 & Accordingly, the issue raised by the assessee is decided in its favour and against the Revenue. The appeal of the assessee is allowed. 9. In the result, both appeals of the assessee are allowed.
Order pronounced on Monday, the 19th day of June, 2017, at Chennai.