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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: SHRI N. K. SAINI & SHRI KULDIP SINGH
ORDER PER KULDIP SINGH, JM: Since common question is involved in both the aforesaid appeals to be decided by the Tribunal, the same are being disposed of by way of consolidated order to avoid repetition of discussion.
The appellant, M/s. Escolife I. T. Services (Pvt.) Ltd. (hereinafter referred to as ‘the Assessee’), by filing the present appeals, sought to set aside the impugned orders dated 25.11.2011 and 28.02.2013 passed by the 2 I.T.A.No.713/Del/2012 I.T.A.No. 5930/Del/2013 Ld. CIT(A)s qua the Assessment Years 2008-09 and 2010-2011 respectively on the grounds inter alia that:
A. I.T.A.No. 713/Del./2012:
“1. On the facts and circumstances of the case and in law, the learned CIT (Appeals) has erred in upholding the disallowance of depreciation of Rs.44,61,784/- made by the Assessing Officer on the ground that no business has been carried on by the appellant. The CIT (A) ought to have allowed the depreciation claimed because the appellant had carried out the allied business activity of sale of insurance related books.
2. On the facts and circumstances of the case and in law, the CIT(A) has erred in upholding the action of the Assessing Officer, in treating the income from sale of insurance related books as "Income from Other Sources" instead of assessing the same as income from "Business": The sale of insurance related books being allied to the main activity of technical consultancy and insurance training, is a part of the regular business of the appellant.
3. The CIT (A) has erred in not allowing expenditure incurred by the appellant under the heads "Insurance Expenses" - Rs.5003/-, "Miscellaneous Expenses" Rs.16,840/- and "Travelling & Conveyance" - Rs.5,355/ - without specifying any reason for not allowing the same.” B. I.T.A.No. 5930/Del/2013: “On the facts and circumstances of the case and in law, the learned CIT (Appeals) has erred in upholding the disallowance of depreciation of Rs.8,88,239/ - made by the Assessing Officer on the ground that no business has been carried on by the appellant. The CI'I' (A) ought to have. allowed the depreciation' claimed because' the appellant had used the assets in the course of normal administrative activities to keep the company running and that the assets have suffered normal wear & tear during the year.
3 I.T.A.No.713/Del/2012 I.T.A.No. 5930/Del/2013
Briefly stated, the facts of this case are: during the processing of return of income filed by the assessee qua the Assessment Year 2008-09, the case was subjected to scrutiny and consequent upon the notices issued u/s 142(1) and 143(2) of the Act, Shri J.P. Chawla, CA along with Shri A.K. Mathur, AR attended the proceedings filed necessary details and discussed the case.
The assessee is engaged in the business of I. T. Services and was providing technical consultancy and training in the past. However, during the year under consideration, the company has not provided any consultancy and training and shown the income as ‘nil’ in the P & L account statement but on the other hand, the claim of depreciation has been made in full.
The assessee was called upon to explain as to why claim of depreciation and other expenses be not disallowed when there was no business activity but failed to produced the specific documents called for. It was found that the company does not own any property where these computers could have been installed and used for the purpose of business and no employee can be expected to work on salary @ Rs.12,480/- and at Rs.5,000/- p.a. on computer. The assessee has failed to furnish addresses of the employees, vouchers in respect of sale and purchase have not been submitted. So, the income declared by the assessee as trading income and other income amounting to Rs.52,503/- is assessed under the head income from other sources and the claim of business expenses of Rs.22,485/- (personal expenses), Rs.3,57,531/- (Administration, selling expenses and Rs44,61 ,784/- (depreciation as per the I. T. Rules) have been disallowed
4 I.T.A.No.713/Del/2012 I.T.A.No. 5930/Del/2013 and consequently, the total income of the assessee has been assessed at Rs.52,503/-.
The assessee carried the matter before Ld. CIT(A) who has partly allowed the appeal. Feeling aggrieved, assessee has come up before the Tribunal challenging the impugned order by way of present appeal.
7. Ld. A.R. challenging the impugned order contended inter alia that Ld. CIT(A) has upheld the disallowance of depreciation of Rs.44,61,784/- in I.T.A.No.713/Del/2012 and Rs.8,88,239/- in without having any material on record to prove the fact that the assessee company had closed its business prior to the Assessment Year 2008-09 and in fact, the assessee company has made sales during these Assessment Years but due to lack of business order, trading business could not be carried out.
8. On the other hand, Ld. D.R. relied upon the order passed by Ld. CIT(A) and contended that since no trading business has been shown by the assessee, A.O. has rightly treated the income shown by the assessee as 'income from other sources' .
Ld. CIT(A) has upheld the assessment order in disallowing the depreciation on the ground that the assessee is claiming set off depreciation on fixed assets against different activities in the past and activities of trading has been accepted as business income but in Assessment Year 2008-09 the activity itself is doubtful as appellant could not produce any vouchers of the alleged sale and purchase. The appellant has provided only computerized ledger account and original sales /
5 I.T.A.No.713/Del/2012 I.T.A.No. 5930/Del/2013 purchase voucher have not been produced even during the appellate proceedings. The authorities below noticed that most of the sales are shown to the sister concern M/s. Ritu Insurance Services Ltd. related to insurance books etc. and there is no evidence of purchasing of material for M/s. Chawla Printers. So, in the absence of vouchers, the claim of sale and purchase of assessee is declined. Ld. CIT(A) relied upon the order passed by IT AT Delhi Bench in case of Specialty Foods India Pvt. Ltd. in I.T.A. No. 1460/Del/2008.
Now, the, first question arises for determination in this case is, 'as to whether A.O. and Ld. CIT(A) have erred in disallowing the depreciation and other expenses on the ground that no business activity has been carried out by the assessee during the Assessment Year under consideration”.
Both the A.O. as well as Ld. CIT(A) have disallowed the depreciation claimed by the assessee during the Assessment Years 2008- 09 & 2010-11 on the grounds inter alia that when the assessee has not received any order for providing technical consultancy nor it has carried out any traiding activities, the question of claiming depreciation on computer and other assets does not arise; that assessee has failed to prove that the computer and other accessories continued to be installed at the old premises; that the assessee does not own any property where these computer could have been installed for the purpose of business and that no employee can be expected to work on computer at the salary of Rs.12,480/- or Rs.5,000/- annually. When both, the A.O. and Ld. CIT(A) have accepted the contention of the assessee that it was operating its 6 I.T.A.No.713/Del/2012 I.T.A.No. 5930/Del/2013 activities from the premises taken on rent by Ritu Nanda Insurance Services Pvt. Ltd., 202, Okhla Industrial Estate, Phase III, New Delhi by not returning any adverse finding that the assessee company was never allowed to operate its business activities therefrom, they were not supposed to come to the conclusion that no business activities were being carried out by the assessee company. At the same time, Ld. CIT(A) by allowing the expenditure of the assessee relating to audit fees (Rs.20,000/), communication expenses (Rs.3446), legal and professional charges (Rs.39256/-), electricity and water (Rs.3,273/-), bank interest and charges (Rs.7353), printing and stationary (Rs.482) u/s 57 of the I T Act. directed the A.O. to allow these expenses against the income determined u/s 57 of the I. T. Act, as business expenditure were allowed this fact goes to prove that the business activities were being carried out by the assessee company.
Now, the next question arises for determination is, “as to whether the assessee company is entitled for depreciation on computer and software in the face of the fact that it has admittedly not carried out any technical consultancy and provided technical training during the year under assessment.”
Identical issue has come up for determination before the Hon'ble Jurisdictional High Court in case entitled CIT Vs Yamaha Motor India (P) Ltd, 328 ITR 297. For ready reference, the operative part at para 6, 7 & 8 of the judgement in Yamaha Motor India (P) Ltd. (supra) is reproduced as under:
7 I.T.A.No.713/Del/2012 I.T.A.No. 5930/Del/2013 “6. The relevant and related provisions, in this regard, for decision of the issue are Section 32(1) which requires that the assets are used for the purposes of the business, Section 32(1 )(iii) lays down the details and requirements with respect to claim of depreciation inter alia of discarded machinery, Section 43(6)(c)(B) defines written down value with respect to block of assets, Section 50(2) under the head of profits chargeable to tax on the aspect of discarded machinery.
On the aspect of passive user, there are two decisions of two Division Benches of this Court in the cases reported as CIT vs. Refrigeration and Allied Industries Ltd., 247 ITR 12 and Capital Bus Services vs. CIT, 123 ITR 404. In this view of the matter, we need not refer the judgments of any other Court as we are bound by the earlier judgments of this Court. In fact, we also agree with the ratio of both the decisions which hold that as long as the machinery is available for use, though not actually used, it falls within the expression "used for the purposes of the business" and the assessee can claim the benefit of depreciation. Looking a the facts from this point of view, an actual user is not required as has been contended by the Revenue.
The matter can be looked at from another angle also. No doubt, the expression used in Section 32 is "used for the purposes of the business". However, this expression has to be read harmoniously with the expression "discarded" as found in Sub-sub- section (iii) of Sub-Section (1). Obviously, when a thing is discarded it is not used. Thus 'use' and 'discarding' are not in the same field and cannot stand together. However, if we adopt a harmonious reading of the expressions "used for the purposes of the business" and "discarded" then it would show that "used for the purposes of the business" only means that the assessee has used the machinery for the purposes of the business in earlier years. It is not disputed that in the facts of the present case, and as discussed above, that the machinery in question was in factusecf1fltl1e previous year and depreciation was allowed on the block of assets in the previous years. Taking therefore a realistic approach and adopting a harmonious construction, we feel that the expression "used for the purpose of the business" as found in Section 32 when
8 I.T.A.No.713/Del/2012 I.T.A.No. 5930/Del/2013 used with respect to discarded machinery would mean that the user in the business is not in the relevant financial year/previous year but in the earlier financial years. Any other interpretation would lead to an incongruous situation because on the one hand the depreciation is allowed on discarded machinery after allowing inter alia an adjustment for scrap value, yet, on the other hand user would be required of the discarded machinery which use is not possible because of various reasons viz. the age of the machinery, or that it has become obsolete as new technology has come in and so on. We thus hold that the discarded machinery may not be actually used in the relevant previous year as long as it is used for the purposes of business in the earlier years.”
Following the law laid down by the Hon'ble Jurisdictional High Court in the case cited above, we are of the considered view that the assessee company is entitled for depreciation on computer and software during the year under assessment (Assessment Year 2008-09 and 2010- 11) though not actually used for the purpose of business on the grounds inter alia that when during the previous Assessment Year i.e. Assessment Year 2007-08, the assessee disclosed receipt from technical consultancy and training fee at Rs.4,35,90,000/- , income from trading activities at Rs.9,75,607/- and other income at Rs.3,50,381/- but shown the income from technical consultancy and training fee at ‘nil’ in Assessment Years 2008-09 and 2010-11, it is entitled for depreciation u/s 32 of the Act as the same has not been discarded by the assessee company; that when the machinery in question was in fact used in the earlier year and depreciation was allowed on block of assets, the assessee company is entitled for depreciation; that though the usage of machinery in the business was not in the relevant assessment year but in the earlier financial year its entire machinery remained in “ready to use” mode because the assessee company has come up with logical explanation that due to not having
9 I.T.A.No.713/Del/2012 I.T.A.No. 5930/Del/2013 received any order for technical consultancy nor it carried out any training activity, the income from its business comes to ‘nil’; that when the A.O. has accepted the contention of the assessee that it has made sales of Rs.5,84,355/- representing trading items incidental to its main business activity and has earned profit of Rs.49,715/- from such activity, he cannot disallow the depreciation claimed by the assessee; that even Ld. CIT(A) has erred in doubting the trading activities stated to have been carried out by the assessee company during the Assessment Year 2008-09 without any investigation though in the past, such activity has been accepted by the Revenue specifically; that no doubt, the assessee has not produced the vouchers to prove the claim of sale and purchase but when the Revenue has accepted the audited profit and loss statement, they cannot be allowed to sail in two boats; that when the assessee company has not sold, discarded, demolished or destroyed the assets during the previous year, the assessee has certainly become entitled for depreciation; that the identical issue has also been decided by Hon'ble High Court of Madhya Pradesh in the judgement cited as CIT Vs Premier Industries India Ltd. 323 ITR 672; that the decision of ITAT, Delhi in the case of Specialty Foods India Pvt. Ltd. In is not a good law in the face of judgment delivered by Hon'ble Jurisdictional High Court in the case cited as Yamaha Motor India (P) Ltd. (supra), which is otherwise decided on the different set of facts that part of plant and machinery was already sold by the assessee in the said case.
So, we hereby determine grounds No.1 of Assessment Year 2008-09 and I.T.A .No. 5930/Del/2013 for Assessment Year 2010-11 in favour of the assessee.
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Grounds 2 and 3 of I.T.A.No. 713/Del/2012 (A.Y. 2008-09): When Ld. CIT(A) has himself allowed the expenditure of the assessee relating to audit fees (Rs.20,000/-), communication expenses (Rs.3446), legal and professional charges (Rs.39256), electricity and water (Rs.3,273), bank interest and charges (Rs.7353), printing and stationary (Rs.482) u/s 57 of the I T Act and directed the Assessing Officer to allow thee expenses against the income determined u/s57 of the I. T. Act, as business expenditure, the assessee is proved to be carrying out the business activities from which it has shown the business income to the tune of Rs.52,503/- during the year under assessment and consequently entitled for depreciation. Even otherwise, when the trading by the assessee company is accepted by the Revenue as incidental to its main business during the earlier years, the income of Rs.52,503/- cannot be treated as income from other sources rather it is a business income. So, grounds No.2 & 3 are also determined in favour of the assessee.
In view of what has been discussed above, both the aforesaid appeals of the assessee are hereby allowed. Order pronounced in the open court on 18th Jan., 2016. 18.