TMI Blog2017 (4) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... with the secured lenders , as mandate of Section 37(1) of 1961 Act is not fulfilled in the instant case. The secured assets of the assessee being under possession of the secured lenders during the previous year cannot be claimed by the assessee to have been put to business use both active as well passive user as both being ruled out , as it is not temporary lull in business but severe and serious disability disabling assessee to put the said asset for business user as mandated u/s 32(1) of 1961 Act to enable assessee to claim depreciation. The assessee is a single location unit entity having 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 Blo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) read as under:- 1. Whether on the facts and in the circumstances of fact and in law, the Ld. CIT(A) was erred in allowing the business expenses u/s 37 of the Act of ₹ 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 ₹ 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 ₹ 0.85 lakhs which consisted interest income of ₹ 0.83 lakh and dividend income of ₹ 0.02 lakh. The A.O. observed from Auditors Report that the assessee company had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 0.54 Lacs paid as Conveyance and Travelling. Detail Enclosed. 9) Amount of ₹ 0.20 Lacs paid as Postage, Courier, Regd Post etc. 10) Amount of ₹ 0.31 Lacs paid for Telephone bill. Detail enclosed. 11) Amount of ₹ 0.25 Lacs paid for Printing and Stationary. Detail Enclosed. 12) Amount of ₹ 0.04 Lacs paid for Licence Fees. 13) Amount of ₹ 0.08 Lacs paid for repairing of Electrical fault in plant. 14) Amount of ₹ 0.62 Lacs paid for General Expenses. Detail enclosed. 15) Amount of ₹ 7.60 Lacs paid as Legal Fees to Professionals. Detail already submitted. 16) Amount of ₹ 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 tempora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al steps against company and to defend the same, Company have to pay the fees to Advocate and Company Secretary, total amount of ₹ 7.60 Lacs (Including TDS Amount of ₹ 0.71 Lacs) paid as Legal and Professional Fees. Detail of the same is already submitted. With Regards to Depreciation: We have already submitted detail of the same in our earlier letter. Further to that, Depreciation charged as per single shift basis and debited to Profit and Loss Account is ₹ 44.11 Lacs and Depredation allowable as per Income Tax Act is ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oded and it was registered with BIFR. The fact that the company was undergoing financial constraint is evident from the fact that the Bankers of the company had taken legal action against the company for recovery. The company had to pay legal fees to the Advocates to defend the various legal suits filed by the Bankers for recovery as also other expenses namely power, fuel water charges, labour charges and wages. The said expenditure was incurred by the appellant to keep the plant machinery in a 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 circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that there was no purchases and no sales receipts during the impugned assessment year which were shown in the P L account. It was submitted that the assets were not put to use by the assessee during the previous year relevant to the impugned assessment year. 8. The ld. counsel for the assessee drew our attention to the copy of BIFR and AAIFR order placed on record. It is submitted that the assessee had started its manufacturing activity in the year 1983 . The factory of the assessee is situated in Mansa at 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 Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing incurred were not produced before the authorities below. It is submitted by learned DR that user of plant and machinery and other assets for business of the assessee is a fundamental requirement for claiming depreciation as stipulated u/s 32(1) of 1961 Act and the assessee could not explain user of the assets for business as the asset was never put to business use for the entire previous year under consideration. 10. We have carefully considered rival contention and also carefully perused the material available 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 clos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment 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 wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets by secured lender to realize their secured debts, by DRT. Thus, under these circumstances , we are of considered view that the assessee company even if it desires to start business cannot re-start and carry out any manufacturing activity in the said unit unless it obtains permission and possession back from the secured lenders who are holding possession of the secured assets under SARFESI Act, 2002, which was invoked in view of the assessee company having defaulted with the secured lending banks , and such 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filled in the instant case. The secured assets of the assessee being under possession of the secured lenders during the previous year cannot be claimed by the assessee to have been put to business use both active as well passive user as both being ruled out , as it is not temporary lull in business but severe and serious disability disabling assessee to put the said asset for business user as mandated u/s 32(1) of 1961 Act to enable assessee to claim depreciation. The assessee is a single location unit entity having 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 , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year and we have held that this suspension of manufacturing was not on account of temporary lull but is a result of serious and severe disability due to action under section 13(2) of SARFESI Act, 2002 by secured lenders against the assessee company, wherein the secured assets are possessed by secured lenders since 21-02-2007 till date. Similar was the case of Swati Synthetics Limited v. ITO(supa) wherein taxpayer had two units one unit at Dombivili and the second unit at Surat. The unit at Surat which 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case upholding the findings of tribunal, while in the instant appeal , the facts are entirely different as we have discussed above in details as we have held that this suspension of manufacturing was not on account of temporary lull but is a result of serious and severe disability due to action under section 13(2) of SARFESI Act, 2002 by secured lenders against the assessee company, wherein the secured assets are possessed by secured lenders since 21-02-2007 till date. However, the expenses like auditor fees , ROC fee and other expenses etc. which are incurred by the assesseee company to carry out and meet legal and statutory compliances has to be allowed as the said expenses are incurred for meeting and complying with statutory compliances and obligations as imposed by law, for which we are remitting matter back to the file of the AO for identification of such expenses incurred for audit, ROC fees and other expenses incurred to carry out other statutory compliances , and to allow such expenses after verification. Thus, the appellate order of the ld. CIT(A) is set aside and the assessment order of the A.O. is confirmed subject to allowability of audit fee, ROC fee and other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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