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Income Tax Appellate Tribunal - Ahmedabad

Core Health Care Ltd., (Liquidated ... vs The Acit, Circle-5,, Ahmedabad on 29 March, 2019

आयकरअपील यअ धकरण, अहमदाबाद यायपीठ 'D'- अहमदाबाद।

IN THE INCOME TAX APPELLATE TRIB UNAL AHMEDABAD - BENCH 'D' BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER &SMT. MADHUMITA ROY, JUDI CIAL MEMBER आयकरअपीलसं.ITA Nos.1410&1388/Ahd/2015 नधा रणवष /Asstt. Years: 2005-06& 2007-08 DCIT, Vs. M/s. Core Healthcare Ltd.

      Cir-5,                                    Jivabhai Chambers, B/h Swastik
      Ahmedabad                                 Super Market, Ahram Road,
                                                Ahmedabad- 380009
                                                PAN:AAA CC6 252 H
      (Appellant/Respondent)                    (Respondent/Appellant)



      Assessee by              :                ShriVinodTanwani, Sr. DR
      Revenue by               :                ShriS.N. Soparkar&Himanshu
                                                Shah, ARs

      सन
       ु वाईक तार ख/Date of Hearing         :    04/02/2019
      घोषणाक तार ख/Date of Pronouncement:        29/03/2019
                                      आदे श/O R D E R


PER MADHUMITA ROY- JM:

The appeals have been preferred by the assessee against the order dated 18.03.2015 passed by the CIT(A)-9, Ahmedabad u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for Assessment Year 2005-06 and by the Revenue against the order dated 27.02.2015 passed by the CIT(A)-9 u/s. 143(3) of the Act for Assessment Year 2007-08 respectively.

Since both the appeals relate to the same assessee, these are heard analogously and are being disposed of by a common order.

3. The assessee in the instant appeal basically challenged the reopening of assessment u/s. 148 of the Act. The reassessment was finalized by making a ITA Nos. 1410 & 1388/Ahd/2015 A.Ys. 2005-06 & 2007-08 2 disallowance of Rs. 40,97,845/- u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, which was affirmed by the appellate authority.

The assessee initially filed its return of income on 31.10.2005 declaring total loss at Rs. 12,35,64,127/- assessment whereof was completed on 17.12.2007 determining total income at Rs. NIL. Subsequently the same was reopened u/s. 147 of the Act by issuance of notice dated. 13.05.2011 u/s. 148 of Act and served upon the official liquidator of the company followed by a fresh notice u/s. 148 due to change of incumbent. The reason of reopening was also furnished on 13.03.2013.

It was observed from the statement of computation of total income that the assessee had added an amount of Rs. 7,53,350/- to the total income on account of delay non-payment of employees' contribution towards Provident Fund. In terms of the provision of Sec. 36(1)(va) of the Act r.w.s. 2(24)(x) of the Act Rs. 44,50,840/- was required to be added to the total income as against Rs. 3,53,995/; the difference worked out at Rs. 40,97,845/- and on such under assessment the tax effect was worked out at Rs. 18,74,380/- including interest u/s. 234(B). Hence, such reopening.

4. Heard the respective parties perused the relevant materials available on record. We find in view of the Sec. 36(1)(va) r.w.s. 2(24)(x) of the Act the Ld. AO disallowed Rs. 40,97,845/- and added back the same to the total income of the assessee. In appeal the same was confirmed. Admittedly the Provident Fund contribution received from the employees' were deposited by the assessee in the concerned Provident Fund amount beyond the due dates as prescribed in the said Act. We have considered the judgment passed by the Hon'ble Jurisdictional High Court in the matter of CIT vs. Gujarat State Road Transport Corporation reported in 265 CTR 64 (Guj.) wherein it was held that if such contribution is deposited within the due date specified in explanation to Sec. 36(1)(va) of the Act then only ITA Nos. 1410 & 1388/Ahd/2015 A.Ys. 2005-06 & 2007-08 3 the deduction will be allowed.Since the appellant has not credited the contribution received from its employees' to employees' account in relevant fund on or before the due date as prescribed in explanation to Sec. 36(1)(va),though he deposited the said sum before due date prescribed u/s. 43(B) i.e. prior to filing of return u/s. 139(1), of the Act the authorities below rightly disallowed such amount of contribution to the tune of Rs. 40,97,845/-and made addition thereof. We, therefore, find no infirmity in the order passed by the authorities below warranting interference. Respectfully, following the judgment passed by the jurisdictional High Court as cited above,we are of the considered view to affirm the same. Hence, assessee's appeal is dismissed.

5. The assessee filed its original return of income through electronic media on 31.10.2007 followed by a revised return filed on the same date declaring total loss at Rs. 56,39,710/- which was processed u/s. 143(1) of the Act. Under scrutiny assessment notice u/s. 143(2) dated 22.08.2008 was served upon the assessee followed by a fresh notice u/s. 143(2) dated 31.08.2009 due to change of incumbent alongwith a notice u/s. 142(1) of the Act in the form of detailed questionnaire. It was found that the assessee claimed business loss of Rs. 56,39,710/- comprising unabsorbed depreciation of Rs. 6,71,798/- and Rs. 49,67,912/- being business loss. After the demerger ofSachana Unit, admittedly the assessee discontinued manufacturing operations but the business activities was continued for collection of debtors, payment of liabilities etc. and hence the assessee claimed such loss. According to the Ld. AO the collection of debtors and payment of liabilities does not constitute carrying on business activity since there were no sales during the year. Thus, the claim of business loss of Rs. 56,39,710/- has been disallowed. In appeal the same was deleted by the ld. CIT(A). Hence the instant appeal filed by the Revenue before us.

ITA Nos. 1410 & 1388/Ahd/2015 A.Ys. 2005-06 & 2007-08 4 The assessee was a manufacturer of Pharmaceuticals. Due to the demerger scheme sanctioned by the jurisdictional High Court Sachana Unit was demerged with the appellant company. It was the case of the assessee that it had other income of Rs. 5,86,000/- and also incurred certain expenses towards employees' cost and other expenses which are allowable. The expenses towards the collection from debtors and payment of liability were also incurred by the assessee for maintaining the plants in order to maintain the establishment and to keep the condition of the plant intact so that the unit can be merged, keeping in mind that in the event of demerger scheme is failed the company can commence the activity. Thus, there was no cessation of business but a temporary lull and hence the expenditure incurred during lull period are allowable as settled by the umpteen number of judgments by different court as the case made out by the appellant.

6. At the time of hearing the Ld. Advocate appearing for the assessee relied upon the judgment passed by the Hon'ble Delhi High Court passed in the matter of CIT vs. Integrated Technologies Ltd. in support of his claim of depreciation.According tohis claim of depreciation is allowable on the plant and machinery on the footing they were kept ready for the use in the business if got revived and that amounted to passive use of assets which would meet the requirement of Sec. 32 of the Act. It was further submitted that the addition made by the Ld. AO on the same issue in assessee's own case for assessment year 2005- 06 was ultimately deleted by the Ld. CIT(A).

7. On the other hand the Ld. DR relied upon the order passed by the Ld. AO.

8. Heard the respective parties, perused the relevant materials available on record. We have also carefully considered the judgment passed by the Delhi High Court which was further taken into account by the Ld. CIT(A).We find that the Ld. CIT(A) taking into consideration the entire aspect of the matter allowed the claim ITA Nos. 1410 & 1388/Ahd/2015 A.Ys. 2005-06 & 2007-08 5 of business loss of Rs. 56,39,710/- including unabsorbed depreciation with the following observation:-

3.2 I have carefully considered the submission and case laws relied upon by the appellant. Appellant submitted it was manufacturing pharmaceutical products. Due to the scheme of demerger sanctioned by Hon. Gujarat High Court vide order dated 1st March, 2007 the Sachana unit was demerged with Nirma Limited. It was the obligation of the company to keep the condition of the plant intact and if for any reason demerger scheme fails, the company had to commence the activity. In that situation, it will be period of lull. Appellant submitted that expenditure during lull period is allowable expenditure for which it relied on the above decisions. In the case of CIT v/s. Integrated Technologies Ltd. (Del.) Tax Appeal No.530/2011 dtd. 16th December, 2011 Hon'ble Delhi high court has held:-

"The Tribunal has referred to the judgments in Capital Bus Service (supra), CIT Vs. Refrigeration and Allied Industries Ltd. (supra) & CIT Vs. Panacea Biotech Ltd. (supra) and has applied the ratio laid down therein to the facts of the present case. The ratio in brief is that it is not necessary that the plant and machinery owned by the assessee should be actually put to use in the relevant accounting year to justify the claim of depreciation and that even if the plant and machinery or other asset is kept ready for use in the assessee's business, the assessee would be entitled to depreciation. The only condition is that the business should not have been closed down once for all and that the assessee should demonstrate that the hopes of the business being revived are alive and real. It is however not a matter that can turn entirely on the assessee1 s hopes alone. There should be evidence or material to show that the assessee took efforts to keep the business alive in the hope of reviving the same. Maintaining the office and establishment, complying with the statutory formalities, not disposing of the plant and machinery, incurring expenses on the repair of plant and machinery etc. are some of the indications of nurturing the hopes of reviving the business. The above are only illustrative instances and are by no means exhaustive and the question as to whether the assets were kept ready for use in the business is largely to be decided on the facts and circumstances of each case. In our opinion, the Tribunal has not committed any error in applying the ratio laid down in the judgments of this Court to the facts of the present case in order to uphold the assessee's claim for depreciation."

After considering the submission and case laws relied upon by it, I am of the view that the appellant is entitled for claim of business loss of Rs,56,39,710/- including unabsorbed depreciation. The AO is directed to allow the claim of business loss and unabsorbed depreciation to the appellant, after verification of records, as per the provisions of I.T. Act. Subject to verification, these grounds are allowed for statistical purpose.

ITA Nos. 1410 & 1388/Ahd/2015 A.Ys. 2005-06 & 2007-08 6

9. Considering the decision relied upon by the Ld. AR as cited above we find the depreciation claimed by the assessee is allowable keeping in view the temporary lull in the business of the assessee and also the expenditure made thereon for the reasons mentioned in the foregoing paragraph and we find no reason tointerfere with the order passed by the Ld. CIT(A), which in our considered view is just and proper having regard to the judgment passed by the different High Courts as discussed above. In that view of the matter we find no merit in the appeal preferred by the Revenue and the same is thus dismissed.

10. Hence, the Revenue's appeal is dismissed.

                   [Order pronounced in the Court on               29-03-2019.]


        Sd/-                                                        Sd/-
  (WASEEM AHMED)                                              (MADHUMITA ROY)
ACCOUNTANT MEMBER                                              JUDICIAL MEMBER


Ahmedabad; Dated                  29/03/2019
Tanmay                                         True Copy

आदे शक $%त&ल'पअ(े'षत/Copy of the Order forwarded to :

1. अपीलाथ*/ The Appellant

2. $+यथ*/ The Respondent.

3. संबं धतआयकरआयु-त/ Concerned CIT

4. आयकरआय-

ु त(अपील) / The CIT(A)

5. 'वभागीय$%त%न ध, आयकरअपील यअ धकरण/ DR, ITAT,

6. गाड4फाईल / Guard file.

आदे शानस ु ार/ BY ORDER, उप/सहायकपंजीकार (Dy./Asstt.Registrar) आयकरअपील यअ धकरण, अहमदाबाद / ITAT, Ahmedabad