2014 (6) TMI 1034 - AT - Income Tax

Tribunal allows some appeals, directs AO to reconsider expenses but upholds decision on unabsorbed depreciation.

M/s. Petrofils Cooperative Ltd. Versus Asst. CIT, Circle-2 (2), Baroda

The Tribunal partially allowed the appeals, directing the AO to reconsider the disallowance of administration and interest expenses. However, the Tribunal ... Disallowance of deduction of administration and interest expenses etc. - appellant is not carrying on any business and income of the appellant is assessable under the head “income from other sources - HELD THAT:- As decided in own case [2012 (11) TMI 658 - ITAT AHMEDABAD] there was no change in the amounts outstanding as on 31/03/2003 and 31/03/2004 . We have also noted that the amount of interest accrued was also identical in figures, found to be outstanding as on 31/03/2003 and 31/03/2004. Meaning thereby that there was no accrual of interest liability, though admittedly the ld.AR has stated before us that “mercantile system” of accounting was adopted by the assessee. In that case, the assessee has to prove the basis on which the interest expenditure was claimed. A.O. is hereby directed to proceed accordingly as per law. In respect of the interest portion, since the facts are identical in this year also, we restore this issue back to the file of AO in the light of the decision passed by the Tribunal. Since the facts are identical in this year also, therefore the issue is restored back to the file of AO for fresh decision. Thus, this ground of assessee’s appeal is allowed for statistical purposes. Disallowance of setting off of brought forward unabsorbed depreciation u/s.32(2) against “income from other sources” - HELD THAT:- In the case in hand, the assessee-company is under liquidation and, therefore, no activity is being carried out by the assessee. However, the ratio laid down by the Hon’ble Apex Court in the case of CIT vs. Virmani Industries Pvt.Ltd. [1995 (10) TMI 1 - SUPREME COURT] would be applicable to the extent for availing the benefit u/s.32(2) of the Act. The assessee need not carry on any business or profession. It is not coming out of the records that from which year the depreciation was being carried forward by the assessee and why the assessee has accepted the decision of the ld.CIT(A) in the Asst.Year 2004-05 since no ground against the rejection of claim was raised by the assessee before the Tribunal in [2012 (11) TMI 658 - ITAT AHMEDABAD] . In the present year, the CIT(A) has followed the decision rendered in the AY 2004-05. Under these facts, we are unable to accept the claim of the assessee and, therefore, this ground is rejected. Issues Involved:1. Disallowance of deduction of administration and interest expenses.2. Non-allowance of set-off of brought forward unabsorbed depreciation under Section 32(2) of the Income Tax Act against 'income from other sources.'Issue-wise Detailed Analysis:1. Disallowance of Deduction of Administration and Interest Expenses:The primary issue raised by the assessee was the disallowance of deduction of administration and interest expenses on the grounds that the appellant was not carrying on any business and the income was assessable under the head 'Income from other sources.' The appellant argued that the expenses claimed were allowable as deductions while computing income under this head.The Tribunal noted that the CIT(A) had followed the order passed in the appellant's own case for AY 2004-05, where the Tribunal had restored the issue back to the AO for a fresh decision. The Tribunal observed that similar facts were present in the current year and decided to restore the issue back to the file of the AO for fresh decision, in line with the earlier Tribunal's order. The Tribunal directed the AO to verify the exact nature of the income and the corresponding expenses and allow deductions accordingly.2. Non-allowance of Set-off of Brought Forward Unabsorbed Depreciation under Section 32(2):The second issue was the non-allowance of set-off of brought forward unabsorbed depreciation under Section 32(2) of the Act against 'income from other sources.' The appellant contended that as per Section 32(2), they were entitled to set off the brought forward unabsorbed depreciation of past years against the income assessed under the head 'Income from other sources.'The Tribunal noted that the CIT(A) had followed the decision rendered in AY 2004-05, where it was held that since the appellant had no business activity since AY 1997-98, the depreciation for earlier years could not be set off against 'income from other sources.' The CIT(A) reasoned that in the absence of any business, no income was taxable under the business head, and hence the depreciation of earlier years could not be allowed under this head.The Tribunal referred to the judgment of the Hon'ble Supreme Court in the case of CIT vs. Virmani Industries Pvt. Ltd., which held that unabsorbed depreciation could be set off against profits or gains chargeable under any other head, and it was not necessary for the assessee to carry on any business or profession to avail of the benefit of Section 32(2). However, the Tribunal noted that the facts in the present case were different as the assessee-company was under liquidation and no activity was being carried out. The Tribunal concluded that the claim of the assessee could not be accepted and upheld the CIT(A)'s decision on this ground.Condonation of Delay:The Tribunal also addressed the issue of delay in filing appeals for AYs 2007-08 and 2008-09. The Tribunal condoned the delay, citing the judgment of the Hon'ble Supreme Court in the case of N. Balakrishnan vs. M. Krishnamurthy, which emphasized that if the explanation for the delay did not indicate mala fides or a dilatory strategy, the court should show utmost consideration to the suitor.Conclusion:The Tribunal allowed the appeals partly for statistical purposes, restoring the issue of disallowance of deduction of administration and interest expenses back to the AO for fresh decision, while rejecting the ground related to the set-off of brought forward unabsorbed depreciation under Section 32(2). The Tribunal's decision was consistent across all the assessment years involved in the appeals.