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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
These cross appeals have been filed by the assessee and the Revenue against the order dated 26.06.2013 of the ld. CIT(A)-X, New Delhi for the assessment year 2005-06 on the following grounds :
Grounds raised by assessee : “1. The Learned CIT(Appeals) has erred on law in making disallowance of depreciation on assets Rs.2,04,06,543 only on the ground that there is no production or manufacturing of fertilizers.
2. The Learned CIT(Appeals) has erred in reading the assessment order of AY 2004-05 where depreciation on the assets other than plant and machinery was allowed. Depreciation on assets other than plant and machinery claimed by the company assessee amounts to Rs.58,37,265.
3. The reliance placed on judgment of ACIT v Rishi Roop Polymers Private limited in the assessment order is erroneous.”
Grounds raised by the Revenue: “1. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in directing the AO to verify the correctness of claim and then allow interest accordingly.
2. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in allowing the interest expenditure to the assessee despite the fact that as assessee is following mercantile system of accounting and as per section 43B unpaid interest cannot be allowed as deduction.”
The brief facts of the case are that the assessee is a Government of India Undertaking company engaged in the business of manufacturing and sale of fertilizers. The assessee company filed its return of income declaring loss of Rs.8,71,14,22,055/- on 25.10.2005. The same was processed u/s. 143(1) on 11.03.2006. Later on the case was selected for scrutiny under compulsory criterion and notice u/s. 143(2) was sent on 21.07.2006. Again notice u/s. 143(2) along with questionnaire u/s. 142(1) was sent on 19.06.2007. Mr. S.C. Panwar, Accounts Officer / Authorized Representative appeared from time to time and submitted the requisite details. In the scrutiny assessment, the Assessing Officer made disallowances of Rs.2,04,06,543/- towards depreciation and of Rs.890,58,45,000/- on account of interest. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). The learned CIT(A) after following the earlier order of his predecessor dated 10.07.2007 for A.Y. 2004-05, directed the Assessing Officer to allow the interest subject to verification as done in A.Y. 2004-05. The learned CIT(A), however, considering the same order of his predecessor dated 10.07.2007 for preceding assessment year (A.Y. 2004-05), sustained the disallowance made on account of depreciation. The assessee is aggrieved by the sustenance of disallowance on account of depreciation and the Revenue is aggrieved by the deletion of addition made on account of interest, hence, both the parties have come up in their respective appeals before us.
The learned AR of the assessee submitted that in view of the shortage of fertilizers in the country, the Govt. of India in all concerned ministries are seriously considering the revival of units. Various parties are conducting inspection, physical verification, due diligence for viability and giving their quotations. All of this will not be possible but for the use of these assets. Although there is no manufacturing activity coming to a conclusion that the business has closed and none of the assets has been used is a farfetched conclusion as the assessee company still exists and plant and machinery on which depreciation has not been claimed will be used in future but the assets on which depreciation has been claimed continue to be used. It is submitted that the building, electrification, road and culverts, water system & drainage sewerage, Railway Sidings, office appliances and books continue to be used. The building comprises of structures used for plant, other equipments and records. Books of account and other records of the respective plants are kept and maintained at the plant office under the control of the plant incharge and adhoc staff, temporary labour, security guards(180 persons), maintenance staff (2 to 4 persons in each of the units, appointed by the company at the plant were using these assets. These assets are required for providing access and security survival and security of all the assets of the company depends upon the use of these above assets. The assessee has provided details of depreciation claimed of Rs.2,04,06,543/-. He argued that the nature of depreciation is different from other business expenses because the depreciation on all the fixed assets mentioned in section 32(1)(i)(iii) is in the mandatory nature and conditional nature to be allowed by the Income Tax Act, 1961 only on completion of two conditions as mentioned in this section whether claimed by the assessee or not claimed by the assessee, as mentioned in Explanation (5) of this section which is as under : (Explanation 5 – For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income.)
He relied on the following decisions : (i). CIT vs. Kirti Resorts (P) Ltd. 243 CTR 341 (HP). (ii). CIT vs. Refrigeration & Allied Industries Ltd. 163 CTR (Del) 498 (iii). Capital Bus Service (P) Ltd. vs. CIT (1980) 17 CTR (Del) 155
The learned Departmental Representative has relied on the order of the authorities below, stating that the assessee has not undertaken any manufacturing activities in any of its units, therefore, it is not eligible for depreciation claimed by it as per section 32(1) of the IT Act, 1961. Similar finding was given in the assessment order for A.Y. 2004-05 also. It is a settled position of law this has reasonably been affirmed by Mumbai Bench of ITAT in the case of ACIT vs. Rishiroop Polymers (P) Ltd, 286 ITR (AT) 54.
Having considered the rival submissions of both the parties and perused the material available on record, we feel it convenient to reproduce the relevant provisions of section 32(1) dealing with the claim of depreciation, which reads as under : 32. (1) In respect of depreciation of— (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed—
(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed1 In view of the above provisions of law, we find that following conditions must be satisfied for claiming depreciation : (i). This allowance is granted only in respect of certain specific assets. (ii). Assets should be owned by the assessee who claims depreciation (iii). Asset should be owned partially or wholly by the assessee. (iv). Asset should be used for the purpose of business or profession carried on by the assessee. (v). In case of any block of asset, the depreciation is computed as per WDV of the block as defined in section 43(6). (vi). Asset should be used during the relevant previous year.
The assessee is a Government Company which has been closed by the Govt. of India as per their Circular No. HFC/CO/Pers/P-68/2218 dated 19.09.2002 and another circular No. HFC/CO/Pers/P-68/2224 dated 25.09.2002. Therefore, it cannot be said that the assessee has used his plant and machinery for the business purpose during the previous year relevant to assessment year under consideration, as the assessee company has not undertaken any manufacturing activities. Considering all these facts, in A.Y. 2004-05, the ld. First appellate authority on the same facts and circumstances, have allowed depreciation on the assets other than plant and machinery. Therefore, considering the principle of consistency, the depreciation is liable to be allowed on the assets other than plant and machinery, as claimed by the appellant company to Rs. 58,37,265/-. Rest of the claim of depreciation has to be disallowed. As a result, the appeal of the assessee deserves to be partly allowed.
Coming to the departmental appeal, the learned DR submitted that the ld. CIT(A) has wrongly allowed interest expenditure subject to verification ignoring the fact that the assessee is following mercantile system of accounting and as per section 43B, unpaid interest cannot be allowed as deduction. The learned AR, on the other hand, relied on the order of the CIT(A) on this issue.
We have considered the rival submissions on this issue and have gone through the material available on record. A perusal of the assessment order reveals that the Assessing Officer had disallowed an amount of Rs.8,90,58,45,000/- on account of interest on borrowings by observing that this amount was being disallowed keeping in view the treatment given to this interest in preceding assessment year 2004-05. He therefore, held that the interest claimed was the accrued interest and had not been paid by the assessee. He, therefore, disallowed the same. We find that the ld. CIT(A) has rightly considered the contention of assessee that in A.Y. 2004-05, the ld. CIT(A) had already given relief to the assessee vide order dated 10.07.2007 wherein the issue has been adjudicated by the CIT(A) in favour of the assessee. The ld. CIT(A) has also given reference of such allowance made in A.Y. 2002-03 and 2003-04. The ld. DR could not be able to rebut the findings reached by the ld. CIT(A) in the impugned order. Therefore, considering the rule of consistency under the identical facts and circumstances, in our considered opinion, the order of the ld. CIT(A) does not call for any interference on this issue. Accordingly, the appeal of the Revenue, being devoid of merits, is liable to be dismissed.
In the result, the appeal of the assessee is partly allowed and that of the Revenue is dismissed. Order pronounced in the open court on 22.09.2015.