Income Tax Appellate Tribunal - Mumbai
Metro Exports P.Ltd , vs Assessee on 30 January, 2015
आयकर अपील य अ धकरण "बी" यायपीठ मुंबई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI ी आय. पी. बंसल, या यक सद य एवं ी संजय अरोड़ा, लेखा सद य के सम ।
BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA, AM
व वध आवेदन सं./MA No.414/Mum/2014
(Arising out of ITA No. 7315/Mum/2012)
( नधा रण वष / Assessment Years: 2008-09)
Metro Exporters Pvt. Ltd. Asst. CIT, Circle 6(3),
बनाम/
Kakad Chambers, 132, Dr. A. B. Road, Aayakar Bhavan, M. K. Road,
Worli, Mumbai-400 018 Vs. Mumbai - 400 020
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AABCM 0349 J
(Applicant) : (Respondent)
&
व वध आवेदन सं./MA No.414/Mum/2014
(Arising out of ITA No. 7315/Mum/2012)
( नधा रण वष / Assessment Years: 2008-09)
Income Tax Appellate Tribunal Metro Exporters Pvt. Ltd.
Pratishtha Bhavan, Kakad Chambers, 132, Dr. A. B.
101, M. K. Road, बनाम/ Road,
Mumbai-400 020 Vs. Worli, Mumbai-400 018
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AABCM 0349 J
(Applicant) : (Respondent)
आयकर अपील सं./I.T.A. No. 7315/Mum/2012
( नधा रण वष / Assessment Year: 2008-09)
Metro Exporters Pvt. Ltd. Asst. CIT, Circle 6(3),
Kakad Chambers, 132, Dr. A. B. Road, बनाम/ Aayakar Bhavan, M. K. Road, Worli, Mumbai-400 018 Vs. Mumbai - 400 020 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AABCM 0349 J (अपीलाथ$ /Appellant) : (%&यथ$ / Respondent) 2 MA No. 414/Mum/2014 ITA No. 7315/Mum/2012 (A.Y. 2008-09) Metro Exporters Pvt. Ltd.
Assessee by : Shri Piyush Chhajed
Revenue by : Shri Vivek Batra
सनु वाई क) तार+ख / : 16.01.2015
Date of Hearing
घोषणा क) तार+ख /
: 30.01.2015
Date of Pronouncement
आदे श / O R D E R
Per Sanjay Arora, A. M.:
This is a set of two Miscellaneous Applications (MAs) arising out the order u/s. 254(1) of the Income Tax Act, 1961 ('the Act' hereinafter) dated 30/9/2014, partly allowing the assessee's appeal contesting its assessment u/s. 143(3) of the Act for assessment year (A.Y.) 2008-09. We shall take both of them in seriatim.
MA No. 414/Mum/2014 (at the instance of the Tribunal)
2. A rectification was moved at the instance of the Tribunal itself vide order sheet entry dated 01.10.2014, the copy of which, stating the reason/s for the same, was communicated to the parties along with the notice u/s. 254(2). The background facts are that the assessee had claimed deprecation on a leased building, lease in respect of which had expired, so that the said premises stood vacated by it. The disallowance of the said claim (Rs.1.92 lacs) for the current year was confirmed by the tribunal with reference to the decision by the hon'ble jurisdictional high court in Dineshkumar Gulabchand Agarwal vs. CIT [2004] 267 ITR 768 (Bom) and by the tribunal in Asst. CIT vs. Rishiroop Polymers (P.) Ltd. [2006] 102 ITD 129 (Mum). The assessee's alternate claim for allowance of terminal deprecation on the entire amount of written down value (WDV) of the relevant asset, written off in accounts, u/s.32(1)(iii); the said asset having been discarded, was also considered inadmissible by the tribunal on the ground that the asset had not been brought to use in any earlier year. However, it subsequently came to its notice that the provision of section 32(1)(iii) is applicable only to assets subject to 3 MA No. 414/Mum/2014 ITA No. 7315/Mum/2012 (A.Y. 2008-09) Metro Exporters Pvt. Ltd.
deprecation u/s.32(1)(i), i.e., the assets of an undertaking engaged in the generation and distribution of power, on which depreciation is allowed as a percentage as prescribed on the actual cost. Sec. 32(1)(iii) was thus not applicable to the asset under question. Though it did not impact the result, inasmuch the assessee's claim for the amount written off stood rejected, the said reason as recorded by the tribunal was incorrect on facts and in law.
At the time of hearing, observing that no number had been allowed to the rectification proposed suo motu by the tribunal, the Bench directed the Registry to assign a number thereto vide order sheet entry dated 14.11.2014. The assessee also bringing to the notice of the Bench of a proposed miscellaneous petition u/s. 254(2) by it, hearing was adjourned to a fresh date. It was also made clear that the impugned order, if required to be recalled on a particular issue, the same would also be heard along with. On the next date of hearing, it was observed that the Registry had due to some misunderstanding allotted the same number to the rectification proposed by the Bench, i.e., as to that by the assessee, since filed on 17.11.2014. However, finding that the application moved by the assessee also concerned the disallowance of the claim for depreciation allowance on leased building, the hearing was proceeded with, so that the rectification proposed by the tribunal would also stand to be covered under the same number, i.e., for identification purposes.
3. We have heard the parties, and perused the material on record. 3.1 The order sheet entry dated 01.10.2014 reads as under:
'Order in the instant case was passed on 30.09.2014. Per its third ground the assessee had, besides the claim for depreciation thereon, also raised an alternate claim in respect of the entire capital expenditure on the leased premises, written off in books of account on the vacation of the said premises. The Tribunal has dealt with this aspect of the matter vide para 7 (pgs. 5-7) of its order, with the relevant findings being contained in the paragraph starting with the words 'The discarding of the asset.......' (at pg. 7 of the order). The tribunal moved on the premise that section 32(1)(iii) is applicable to the assessee, though thereby cited its reason/s for the claim being not admissible there-under in the facts of the case.4 MA No. 414/Mum/2014 ITA No. 7315/Mum/2012 (A.Y. 2008-09)
Metro Exporters Pvt. Ltd.
The said provision however is applicable only in respect of assets of an undertaking engaged in the generation and distribution of power, depreciation on which is exigible u/s.32(1)(i). The order by the tribunal thus suffers from a mistake apparent from record; the assessee being admittedly a company in the manufacturing of garments and bicycles and not engaged in the production and distribution of power. The discovery of the said mistake, noticed suo motu, would necessitate amending the order with a view to rectifying the said mistake apparent from the record. However, we only consider it proper to, before giving effect thereto, put the parties to notice of the proposed amendment, allowing an opportunity for being heard in the matter, i.e., as to the non-application of the provision of section 32(1)(iii) in the instant case. Accordingly, the date of hearing for the purpose is fixed for 14.11.2014. Inform parties. Issue notice u/s. 254(2), enclosing along with a copy of this order sheet entry.' 3.2 The reason for the proposed rectification is apparent from a reading of the order sheet as well as the facts as narrated at para 2 of this order. No objection thereto was raised by either party during hearing, even as it was clarified that the hearing had called only to allow them to state their objections, if any, thereto. We, accordingly, confirm the disallowance of the assessee's alternate claim of depreciation for the entire amount of WDV of the relevant asset, though for the reasons afore-stated, and for which reference may be made to the foregoing para (2) of this order as well as the order sheet entry dated 01/10/2014, which may be read along with the original order u/s.254(1) dated 30.09.2014. The part of the para 7 thereof, beginning with the words 'The discarding of the asset'.., and ending with the words '..... also not hold.' is to be expunged. We decide accordingly.
MA No. 414/Mum/2014 (at the instance of the Assessee)
4. The assessee has also moved a miscellaneous application, raising two issues, which we shall take up in seriatim.
5. Per the first issue, raised vide grounds 3 to 10 of its MA, the assessee contends that it had challenged the disallowance u/s.14A before the first appellate authority on the ground that no satisfaction had been recorded by the Assessing Officer (A.O.) prior to 5 MA No. 414/Mum/2014 ITA No. 7315/Mum/2012 (A.Y. 2008-09) Metro Exporters Pvt. Ltd.
effecting the disallowance u/s.14A, which is mandatory, having a bearing on the validity in law of the same. Before the tribunal also a pleading in its respect was made, adverting to the decision in the case of Maxopp Investment Ltd. vs. CIT [2012] 347 ITR 272 (Del). The tribunal had though set aside the matter back to the file of the ld. CIT(A), has not referred to the said aspect of the matter, or for that matter to the said decision, considering which the set aside itself would not have been warranted.
6. We have heard the parties, and perused the material on record. We firstly observe no specific ground raised by the assessee before the tribunal or, for that matter before the first appellate authority, in the matter. Further, no pleading in its respect was also made during the course of the hearing. The decision in the case of Maxopp Investment Ltd. (supra) was neither cited before us nor is a copy thereof on record. In any case, even as observed at the time of hearing, the matter has been set aside back to the file of the first appellate authority to adjudicate the assessee's case afresh, i.e., qua the said disallowance, allowing the assessee opportunity to present its case on both the factual and legal aspects. We are, thus, unable to see as to how any prejudice stands caused by the said decision by the tribunal. The relevant grounds are, accordingly, dismissed.
7. Vide its grounds 11 to 20, the assessee seeks to bring to the notice of the tribunal that the asset under reference is not a building, but repair and renovation expenditure in respect of a leased building, which stands capitalized under the block of assets 'Furniture, fixture and electrical fittings'. Accordingly, the basis on which the disallowance has been confirmed by the tribunal, i.e., the vacation of the premises, and, accordingly, its' non- user, would not hold. Reference in this matter stands made to the statement of depreciation at PB pg. 37, attention to which, it is claimed, was drawn by the assessee during the hearing of the assessee's appeal.
8. We have heard the parties, and perused the material on record. We find that the statement of the depreciation allowable under the Act (Annexure VIII to Form 3CD, at PB pg. 37) was made by the ld. Authorized Representative (AR) during hearing, 6 MA No. 414/Mum/2014 ITA No. 7315/Mum/2012 (A.Y. 2008-09) Metro Exporters Pvt. Ltd.
specifically adverting to the opening WDV of the block of assets 'Furniture, fixture and electrical fittings', which is stated at Rs.53,09,065/-. The tribunal has moved on the basis that the asset under reference is a building covered under Explanation 1 to section 32(1)(ii). The decision thus stands rendered on an incorrect factual premise or, in any case, one inconsistent with the contentions by the assessee in its respect, without meeting the same. The order by the tribunal, accordingly, contains a mistake apparent from record, i.e., qua this aspect, and is accordingly recalled for being considered afresh. We decide accordingly, allowing the relevant grounds of the MA.
Result
9. MA No. 414/2014 is accordingly disposed of on the afore-said terms, and is in result partly allowed.
Order u/s. 254(1) (in ITA No. 7315/Mum/2012)
10. We have heard the parties, and perused the material on record. The background facts describing the issue, leading to the recall of the order, stand noted at paras 2, 3, 7 & 8 of this order. Expenditure on repair and renovation of a leased premises was capitalized by the assessee under the head 'Furniture and Fittings', including the same in the relevant block of assets. The said premises being vacated by the assessee on the expiry/ termination of the lease agreement, the assessee wrote off the entire balance, worked out at Rs.19.20 lacs, as included in the total opening value of the relevant block of assets of Rs.53.09 lacs. We observe no finding of fact in its respect in the orders of the authorities below, who have disallowed the assessee's claim of depreciation thereon (at Rs.1,90,200/-)(though the correct sum of depreciation on the corresponding value of opening WDV of the relevant block of assets would seem to us to be Rs.1.92 lacs) solely on the basis of the relevant asset being no longer in existence, or of the assessee being no longer its' owner. We also do not observe any note in the balance-sheet or in the computation statement accompanying the assessee's return (PB pgs. 1-3). The matter would therefore require being restored back for determination of facts. We, accordingly, 7 MA No. 414/Mum/2014 ITA No. 7315/Mum/2012 (A.Y. 2008-09) Metro Exporters Pvt. Ltd.
restore the matter back to the file of the first appellate authority, as was done in the case of disallowance u/s.14A, for the purpose.
On principle, i.e., assuming the amount, as claimed, forms part of the block of assets 'Furniture and Fittings', and stands carried over from an earlier year, we find the assessee's claim as valid. Section 43(6)(c), defining WDV of a block of assets, clearly stipulates a reduction from the opening WDV for the 'moneys payable' in respect of any asset falling within a block of assets, which is sold or destroyed or demolished or discarded during the relevant previous year. Furniture and fittings, to the extent it is the part of the leasehold building, could not be removed by the assessee on its vacation. In any case, the decision to continue to use the same or discard an asset would only be within the exclusive domain of the assessee as its owner or user. Further, to the extent no sum has been realized on the discard of the asset, moneys payable u/s. 43(6)(c)(i)(B) would be nil. Further on, even where the amount under reference (or a part thereof), as presumed by the tribunal while passing its earlier order dated 30/9/2014, is a part of the block of assets 'building', or liable to be so considered, deprecation on that part of the WDV of the relevant block of assets can, in our view; the qualifying conditions of the relevant provision (section 43(6)(c)) being satisfied, be claimed. True, the deeming of ownership under Explanation 1 to section 32(1)(ii) would extend to the period for which the assessee holds lease or other right of occupancy of the premises, so that the assessee can no longer be considered as an owner of the relevant asset, i.e., either for the purposes of the relevant provision (u/s.32(1)(ii)), or even generally. So, however, how, one may ask, could one continue to be an owner of an asset which is sold or destroyed or demolished or even discarded? The condition of continuing ownership of a depreciable capital asset is not a pre-condition for the allowance of depreciation under any of the instances specified in section 43(6)(c)(i)(B). Depreciation is, it needs to be appreciated, after the introduction of the concept of 'block of assets', no longer allowed on or with reference to a particular capital asset, but on the value of all the assets which comprises a block of assets, i.e., assets falling in a particular class of assets, as specified, for which a 8 MA No. 414/Mum/2014 ITA No. 7315/Mum/2012 (A.Y. 2008-09) Metro Exporters Pvt. Ltd.
particular rate of depreciation is prescribed, for the time being. It is for this reason that though an asset forming part of the block of assets stands sold, etc., depreciation on its corresponding value, i.e., as included in the WDV of the relevant block of assets, save the adjustment thereto for the value realized on its sale, etc., defined as 'moneys payable', which may even exceed the block (carrying) value, would continue to be allowed. It is this that has led the hon'ble courts to hold that once an asset enters a block of assets, it loses its identity, so as to unable the application of the user test. The asset must, of- course, i.e., immediately prior to its sale, etc. be a business asset and, thus, a qualifying asset, on which aspect we observe no doubt or dispute in the instant case.
Coming to the decision in the case of Rishiroop Polymers (P.) Ltd. (supra), rendered following the decision by Dineshkumar Gulabchand Agarwal (supra), relied upon by the ld. CIT(A), in our view, the said reliance is misplaced. Could an asset, one may ask, be used or subject to user where the same is no longer in the assessee's ownership or existence or incapable of being used, which is what the condition/s of sale; destroyed; demolished; discard, as prescribed u/s.43(6)(c)(i)(B), contemplate. The question of the condition of user or its applicability does not arise under such circumstances. We are not for a moment, we may clarify, meaning to suggest or advocate that the condition of user is no longer a primary condition for the grant of depreciation, as clarified by the tribunal in Rishiroop Polymers (P.) Ltd. (supra) with reference to the decision in the case of CIT vs. Oriental Coal Co. Ltd. [1994] 206 ITR 682 (Cal), rendered following the decision in the case of Liquidators of Pursa Limited vs. CIT [1954] 25 ITR 265 (SC). Or, that the user does not imply an active user, but could also include a 'ready to use' state, as clarified to be not so by the hon'ble jurisdictional high court in Dineshkumar Gulabchand Agarwal (supra). So however, the assets which are subject to any of the conditions provided in section 43(6)(c)(i)(B) are no longer in the assessee's domain, while the value realized in their respect stands to be adjusted, so that the question or issue boils down to one of value adjustment. It also needs to be noted that the changed method of allowance of depreciation, i.e., after introduction of the concept of 9 MA No. 414/Mum/2014 ITA No. 7315/Mum/2012 (A.Y. 2008-09) Metro Exporters Pvt. Ltd.
'block of assets', does away with the allowance of terminal depreciation, which is since applicable only to the assets falling u/s. 32(1)(i), i.e., where depreciation is charged on individual assets (also refer section 32(1)(iii) r/w s.41(2)).
11. In view of the fore-going, the assessee stands to succeed on its ground no. 3, i.e., which is a subject matter of the recall order. We decide accordingly.
12. In the result, the assessee's appeal is partly allowed.
प0रणामतः नधा20रती क) अपील आं3शक वीकृत क) जाती है ।
Order pronounced in the open court on January 30, 2015
Sd/- Sd/-
(I. P. Bansal) (Sanjay Arora)
या यक सद य / Judicial Member लेखा सद य / Accountant Member
मंब
ु ई Mumbai; 7दनांक Dated : 30.01.2015
व. न.स./Roshani, Sr. PS
आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to :
1. अपीलाथ$ / The Applicant
2. %&यथ$ / The Respondent
3. आयकर आय8
ु त(अपील) / The CIT(A)
4. आयकर आयु8त / CIT - concerned
5. वभागीय % त न=ध, आयकर अपील+य अ=धकरण, मुंबई / DR, ITAT, Mumbai
6. गाड2 फाईल / Guard File आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai