TaxTMI 
TaxTMI 
2015 (10) TMI 1769
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....1/-. In Schedule-12 attached to the balance sheet filed along with the return, the assessee had declared other income of Rs. 34,68,126/- which consists of interest income of Rs. 66,482/- and balances written back amounting to Rs. 34,01,644/-. In Schedule-13 which was titled as "Notes to the accounts", it was stated that depreciation was not provided during the year on the assets since the Unit is dormant and there is no production during the said year. Notices were issued under Sections 143(2) and also 142(1) of the Act. During the course of assessment proceedings, the Assessing Officer noticed that the assessee-Company entered into an agreement of sale dated 25-08-1999 with M/s. Madras Cement Limited (hereinafter referred to as 'MCL' for short) for the sale of assets of the Company, both moveable and immovable assets of the Cement Factory. Further, the assessee-Company executed an irrevocable power of attorney on the very same day i.e. on 25-08-1999 in favour of the MCL to operate the Cement factory and also another power of attorney for operating mining lease for a sale consideration of Rs. 19.00 crores subject to fulfillment of terms and conditions mentioned in the agree....
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....ation to Directors, electricity charges, staff welfare, audit fees, the postage and telephone, printing and stationary and general expenditures of Rs. 5,85,832/- and Bank charges. All other expenditures are denied by the Assessing Officer, which are as under: (a) Rates and taxes Rs.1,48,45,881 (b) Travelling and Conveyance Rs. 3,02,476 (c) Legal and Professional fees Rs. 37,99,032 (d) Repairs and maintenance Rs. 25,389 (e) Royalty Rs. 71,71,643 Further, no claim has been made towards the rates and taxes to the Department of Mines and Geology for the assessment year 2002-03. The alternative claim with regard to capitalization of expenditure was also rejected by the Assessing Officer on the ground that the expenditure has been claimed as revenue expenditure. Out of the other declared income of Rs. 34,68,126/-, the Assessing Officer assessed the total income at Rs. 28,82,294/-. Being aggrieved by the assessment order dated 10-03-2005, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), (hereinafter referred to as 'the First Appellate Authority' for short) on various grounds. 5. The First Appellate Authority granted the relief i....
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....bunal, by its order dated 06-02-2009 allowed the appeal filed by the Revenue denying the deduction in respect of expenditure of Rs. 41,26,897/-and denied the deduction in respect of royalty. Further, the Tribunal has clearly held that the assessee is not entitled for set-off of brought forward unabsorbed depreciation in income of Rs. 34,01,644/- though it was held to be assessable under the head "Profit and Gain" of business. Further, the Tribunal allowed the appeal of the assessee in part. The assessee being aggrieved by the order passed by the Tribunal has filed this appeal. 9. The above appeal was admitted for considering the following substantial questions of law: "(1) Whether the Tribunal was justified in law in not granting deduction of various expenditures incurred in the computation of income of the appellant on the facts and circumstances of the case? (2) Whether the Tribunal was justified in law in not allowing the expenditure incurred by the Appellant-Company, which expenses have all been incurred wholly and exclusively for the purpose of earning income? (3) Whether the Tribunal erred in law holding that the appellant is not in the activity of business and conseque....
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....deduction which is contrary to law. The Tribunal has failed to consider that in the returns, the appellant has clearly stated that the appellant has earned a sum of Rs. 34,68,126/- towards income from other sources, out of which, Rs. 66,482/- is the rental income. Though the Tribunal held the said income as "income from business", however, refused to grant set-off of brought forward unabsorbed depreciation from the heads of Profit and Gain from business, which contrary to law. In view of deeming fiction under Section 41(1) of the Act, the Tribunal ought to have taken the deeming fiction to its logical end and allowed the expenditure against such income. Further, the order made by the Assessing Authority for the assessment year 2000-01 was set aside by the First Appellate Authority and the said order was confirmed by the Tribunal in ITA No.378/Bng/2006, wherein the Tribunal clearly held that there is no transfer of cement factory in the year under appeal. When there is no sale at all in the year under appeal, there is no need to consider the question of slump sale. The capital gain earned out of sale of cement factory has been taxed during the assessment years 2001-02, 2003-04, 2004....
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....or mining was made on 2-9-2000. In view of the transfer of cement plant, the claim of the assessee in respect of various expenses is to be disallowed. The Assessing Officer, taking into consideration all these aspects of the matter disallowed all the expenditure including royalty except the expenses with regard to maintenance of Corporate Office. The agreement of sale executed by the assessee in favour of M/s.MCL has resulted in transfer in terms of Section 247(v) and resulted in slump sale. Since the assessee has already sold the property, the question of incurring expenditure does not arise. He relied upon Section 28(1) and 41(1) of the Act in this regard. Further with regard to depreciation is concerned, the assessee declared the income of Rs. 34,68,126/-, which consists of interest income of Rs. 66,482/- and balances written back of Rs. 34,01,644/-. The assessee themselves have admitted in Schedule-13 that the unit is dormant and there is no production during the relevant assessment year. Hence, there is no question of depreciation of income from other sources. Accordingly, the Assessing Authority rightly denied the claim of depreciation, which was confirmed by the First Appell....
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....er of the cement factory took place only in the subsequent assessment year. There is no transfer of business to M/s. MCL. All that the appellant has agreed to sell was only business assets consisting of land, building, plant and machinery of cement factory along with mining lease right. The appellant has claimed expenditure to an extent of Rs. 41,26,987/- in respect of traveling and conveyance, legal and professional fees, repairs and maintenance. However, the Assessing Authority disallowed the said expenditure on the ground that the cement factory has already been transferred in the year 1999 and the appellant has not carried on any business during the assessment years in question and hence they are not entitled for any deduction towards the expenditure. However, the First Appellate Authority reversed the said finding and held that the appellant is entitled for deduction of expenditure as there was no transfer of the entire property of the assessee for the assessment year 2000-01. The capital gain earned by selling of the cement factory was assessed for the assessment years 2004-05 and 2006-07. The department has accepted the same. However, the Tribunal disallowed the said expendi....
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....er of attorney, mining lease was allowed to operate. In fact, the MCL themselves have admitted that the first payment of royalty for mining was made on 2-9-2000 itself. In the absence of any material with regard to expenditure on royalty, all the authorities concurrently held that the assessee has not incurred any expenditure in respect of royalty. Hence, the assessee is not entitled for the deduction towards royalty. We find there is no infirmity or irregularity in the said finding. Hence, issue No.3 is answered in favour of the Revenue and against the assessee. 17. Issue Nos.4 and 5 are with regard to denial of setting off of unabsorbed depreciation against the income is concerned. The assessee while filing the return declared interest income of Rs. 66,482/- and Rs. 34,01,644/- in respect of balances written back. The Assessing Officer as well as the First Appellate Authority held that the said amount is income from other sources. However, the First Appellate Authority directed the Assessing Officer to examine the issue of carry forward loss and depreciation and allow the same. But, the Tribunal denied the carry forward loss and depreciation to be set-off against the income, eve....
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....r relevant for that assessment year". In the absence of any words to that effect, it must be held that for availing of the benefit of Section 32(2), it is not necessary that the business carried on in the following year is the same business as was carried on in the previous year." 20. In the judgment referred to above, the Hon'ble Supreme Court allowed the unabsorbed depreciation relating to the assessment year 1956-57 as against the total income of assessment year 1965-66. Further, the Division Bench of this Court in Commissioner of Income Tax v. Kapila Textiles Private Limited (supra) held that the benefit under sub-Section(2) of Section 32 of the Act is not subject to the condition that the business must have been carried on by the assessee during the relevant assessment year. Therefore, the Tribunal was right in accepting the claim of the assessee and confirming the orders of Additional Commissioner of Income Tax applying the ratio of judgment of Allahabad High Court in Rampura Timber and Turnery Company case. 21. Sri. K.V.Aravind, learned counsel appearing for the Revenue contended that for claiming benefit under Section 32(2) of the Act, the assessee has to establish th....