TaxTMI 
TaxTMI 
2017 (4) TMI 521
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....stances of fact and in law, the Ld. CIT(A) was erred in allowing the business expenses u/s 37 of the Act of Rs. 18.77 lakhs. 2. Whether on the facts and in the circumstances of fact and in law, the Ld. CIT(A) erred in allowing the claim of depreciation u/s 32 of the Act of Rs. 44.11 lakhs. 3. On the facts and in the circumstances of fact and in law, the impugned order of the Ld. CIT(A) is contrary to law and consequently merits to be set aside that of the Assessing Officer be restored." 3. Brief facts of the case are that the A.O. observed that the assessee company commenced its business activity in year 1983-84 in the field of yarn. However, during the year under consideration, there was no business activity as no purchases and sales receipts were shown in the P&L account. The only income credited in the P&L account was under the head 'other income' of Rs. 0.85 lakhs which consisted interest income of Rs. 0.83 lakh and dividend income of Rs. 0.02 lakh. The A.O. observed from Auditors Report that the assessee company had made reference to BIFR for being declared as a sick company. The AO also observed that Appellate Authority for Industrial and financial reconstruction (AA....
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.... Amount of Rs. 0.62 Lacs paid for General Expenses. Detail enclosed. 15) Amount of Rs. 7.60 Lacs paid as Legal Fees to Professionals. Detail already submitted. 16) Amount of Rs. 0.11 Lacs paid as Auditor Fees. 17) Amount of Rs. O. 06 Lacs paid as Membership fees to Wool and Woolen Export Promotion. With regards to Depreciation as below: The Company is carrying on business of manufacturing of Worsted Wool and Wool blended Tops and Yarn with its own set up for manufacturing activities and is in business for many years. Due to bad market conditions, there was lack of sufficient demand for its products. As a result of such adverse conditions and other financial difficulties faced by the company; they decided to temporarily stop the manufacturing activity at its factory, adverse conditions continued and the manufacturing activity could not be started during the year. The Company has not closed its factory and also retained and maintained its plant and machinery, in anticipation of restarting manufacturing activities as and when market conditions and financial condition improve and there is a change in the economic scenario. As the company is also facing financial difficul....
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....unt is Rs. 44.11 Lacs and Depredation allowable as per Income Tax Act is Rs. 32.19 Lacs, which has claim in Return of Income. We have our own set up for manufacturing activities and in business for many years. Due to bad market conditions, there was lack of sufficient demand for its products. As a result of such adverse conditions and other financial difficulties faced by the company, we decided to temporarily stop the manufacturing activity, adverse conditions continued and the manufacturing activity could not be started during the year. We have not closed the factory and also retained and maintained plant and machinery, in anticipation of restarting manufacturing activities as and when market conditions and financial condition improve and there is a change in the economic scenario. Further the said plant and machinery were used for the purpose of the business in the earlier years and is therefore entitled to depreciation. Madam, as mention above and in our earlier letters, we have pay minimum and necessary expenses such as wages, salary, electricity expenses, Professional Fees etc. to keep the plant and machinery in running condition. Once again we request you that allow....
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....ready to operate condition as well as to keep the factory premises in a ready to operate condition. The said expenditure are, therefore, allowable to the appellant as these expenses were required to be incurred for keeping the factory in a ready to operate condition as soon as there is a change in the economic scenario of the market. The fact clearly indicates that there was no cessation or discontinuance of the appellant's business rather it is a condition where there is a lull due to prevailing market condition. Moreover, it is also reflected that the appellant to keep its business running has not sold plant & machinery or other related items of business assets. Under these circumstances, the expenses as claimed by the appellant are clearly allowable. The Assessing Officer is directed to allow these expenditures. This ground of appeal is thus allowed." Similarly, the depreciation of Rs. 44.11 lakhs was also allowed by the ld. CIT(A) , vide appellate order dated 18-10-2013 by holding as under:- "I have considered the facts of the case and the arguments and contention of the appellant. I find that the Assessing Officer has made a wrong disallowance in the sense that the c....
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....t Gujarat. The factory is lying closed since 2005 and still it is lying closed even in the year 2017. It is submitted that the symbolic possession of the factory and the assets were taken over by the bank and the lenders under The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 SARFESI Act, 2002) on 21-02-2007. The symbolic possession of the assessee's asset is still with banks was the averments of learned counsel for the assessee in a statement made before the tribunal. The learned counsel for the assessee submitted that expenses were incurred by the assessee which is not disputed by Revenue and only contention of the Revenue is that there is no business activity during the years and the assets were not put to business use during the year under consideration. It was submitted by learned counsel for the assessee that the assessee has the intention to restart its factory and it was lying closed due to reasons beyond assessee's control. It was submitted that assessee is keeping the business alive and ready for use with the hope of restarting the factory and to revive the business. It was submitted that the expenses were incurred to....
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....vailable on record including case laws cited before us. We have observed that the assessee was engaged in the business of manufacturer of woolen yarn, wool tops, polyster wools , yarn under heading 23(3) of Schedule I of Industries (Development and Regulation) Act, 1951 , since 1983-84. The manufacturing unit of the assessee is located in Mansa at Gujarat and it was lying closed since 2005. It is not disputed that the assessee is having only one manufacturing unit located at single location at Mansa at Gujarat, thus, it is a single unit entity having manufacturing unit at single location in Mansa at Gujarat, which industrial unit of assessee in Mansa at Gujarat was lying closed for last 12 years since 2005 till now i.e. year 2017. The entire net worth of the assessee company eroded as at 31-03- 2004 and reference was made to Board for Industrial and Financial Reconstruction(BIFR) under the provisions of Sick Industrial Companies(Special Provision) Act, 1985 and the case was allotted no. 71/2005 by BIFR . There were certain secured loans availed by the assessee company from bankers which became Non-performing assets(NPA) as the assessee defaulted in re-payment of loans and interest ....
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....ignment or sale for realising the secured asset: PROVIDED that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: PROVIDED FURTHER that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt. (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. **** 35. The Provisions of this Act to override other laws The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." ....
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....uch permission to re-start business operations and handing back of the possession by the secured lenders will not be forthcoming from consortium of lenders on touchstone of preponderance of probabilities , unless dues of these secured lenders are settled and cleared by assessee company and/ or permission of DRT/courts are obtained which may, if at all it comes may come with several riders which the assessee company may not be able to fulfill and on touchstone of preponderance of probabilities , thus, such possibility of the assessee company restarting its manufacturing unit in distant future is ruled out keeping in view factual matrix of the case as discussed above. BIFR has already given finding that the assessee has manipulated its accounts and has not come for relief to BIFR with clean hands and reference was held to be not maintainable , however , it is a different matter that AAIFR asks BIFR to await outcome of proceedings before DRT in view of interim stay by DRT on action of secured lenders u/s 13(4) of SARFESI Act, 2002. Since almost 12 years have passed since the assessee unit at Mansa is lying closed and it could not settle its dues with the secured bankers till date i.e.....
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....aving only one manufacturing unit in Mansa at Gujarat and Block of Assets constituted mainly assets of Mansa unit and hence it could also not be claimed by the assessee that the assets of Mansa unit formed part of Block of assets which block of asset also consists to have other assets of any other unit which is functional , as in the instant case it is a single unit / single location entity having only industrial unit in Mansa at Gujarat , and the assessee cannot claim that other assets except assets of Mansa unit were being put to use for business and hence consequently under the concept of Block of Asset, the assessee claim of depreciation of Mansa Unit should be allowed , as it is a single unit / single location company and the entire Block of asset revolves around and consists mainly of assets of Mansa unit which itselves are not put to use for business purposes during the entire previous year due to disability imposed under SARFESI Act, 2002 as discussed above. The depreciation claimed by the assessee is also not allowable as the entire block of asset which consists mainly of assets of Mansa unit at Gujarat was not put to use by the assessee, keeping in view peculiar factual m....
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....h was yarn texturising unit under name and style of Swati Polyster was closed for last two/three years while other unit at Dombivili was undertaking business of dyeing in the name of Swati Dyeing and was functional during the relevant period . The same ratio of law as was applicable for Oswal Agro Mills Limited(supra) was applied by the tribunal as Dombivili assets in the Block of assets were put to use for business of the taxpayer during the relevant year , while assets of Surat unit were not used but they formed part of Block of Assets consisting of Dombivili Unit as well Surat Unit, of which assets of Dombivili units were used for the purposes of business by tax-payer and hence it was held that there is no need to see individual user of each asset, while in the instant appeal before the tribunal, Mansa unit at Gujarat is the only unit of the assessee which was lying closed since 2005 as detailed above. The case of CIT v. Kohinoor tobacco Products Private Limited(2005) 149 taxman 620(MP) is distinguishable as in the said case the tax-payer acquired 58 properties out of which some of the properties could not be used for business and were let out due to temporary labour problem ....