TMI Blog2018 (4) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusively” laid out or expended for the purpose of business; for reason of the incidental goodwill and popularity garnered by such charitable act. The question has to be answered against the assessee and in favour of the Revenue. Entitled to depreciation u/s 32 for the expenses incurred towards installation of plant and machinery at their Palghat Unit - Held that:- Third question too has to be answered in favour of the Revenue and against the assessee since the assessee had not commenced production in the relevant assessment year and the depreciation claim on the basis of the installation of plant and machinery and readying the unit for use for business purposes, cannot be sustained in the wake of the overwhelming precedents noticed against such a claim - I.T.A. No. 1596 of 2009 - - - Dated:- 1-2-2018 - MR. K. VINOD CHANDRAN AND MR. ASHOK MENON JJ. APPELLANT: BY ADVS. SRI. P.K.R. MENON, SR. COUNSEL, GOI (TAXES) SRI. JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT: BY SR. ADV. SRI. E.K. NANDAKUMAR R BY ADV. SRI. P. GOPINATH J U D G M E N T Ashok Menon, J. The Revenue is in appeal assailing the findings of the Income Tax Appellate Tribunal, Cochin Bench in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) on 29-03-1995 as per Annexure A, determining the total income at ₹ 63,41,520/-. As per Annexure B order of the Commissioner of Income Tax (Appeals) in I.T.A.No.23/DC/K/CITI/ 96-97 dated 14-11-1996, the total income was reduced to ₹ 46,04,340/-. We are not concerned with the original assessment, as modified in appeal. 3. Exercising suo motu revisional powers conferred under Section 263 of the Act, the Commissioner of Income Tax vide: Annexure C order dated 25-3-1997, interfered with certain allowances granted by the Assessing Officer (A.O). The assessment order, to the extent: (i) interest granted under Section 244 (1A) escaped inclusion in the income chargeable to tax, (ii) allowed depreciation of plant and machinery of Palghat Unit, and (iii) amount of ₹ 8,21,196/- expended for Poor Housing Scheme being allowed as business expenditure; were found to be prejudicial to the interest of revenue and directed re-computation. 4. Consequently, the assessment was recomputed by the A.O. vide: Annexure D order dated 18-08-1997 and the total income was determined at ₹ 65,02,910/-. 5. The impugned order of the Tribunal set aside Annexure C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee submits that: (i) Regarding payment of interest under Section 244(1A), there was no information received regarding the refund and hence it was not included as income for the relevant assessment year. (ii) In support of expenditure incurred to finance housing scheme for the poor and claim for exemption under Section 37, the learned Counsel for the assessee relies on the decision in Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT, [1997] 223 ITR 101 (SC), which held thus: ...... any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee's business or which results in benefit to the assessee's business has to be regarded as an allowable deduction under Section 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to the Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy. It is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 28-2-1992 and therefore, it was assessable for the assessment year 1992-93. On facts the Tribunal has found that at the time of original assessment, pertaining to A.Y 1988-89, on 22-03-1991, no interest was allowed. The interest, which was originally assessed at ₹ 98,244/- and later reduced to ₹ 88,007/-, was allowed for the first time by order dated 09-10-2002. On the basis of that order, it was accounted by the assessee for the assessment year 1993-94. We are therefore, in agreement with the findings of the Tribunal that there was no failure on the part of the assessee, to disclose the interest under Section 244(1A); as alleged by the Revenue, since it was received only in the financial year 1992-93 and therefore, the finding of the Tribunal as regards the exclusion of interest, is sustained. No question of law arises from the said finding of the Tribunal; the last fact finding authority, who had verified the various orders pertaining to A.Y 1988-89 and found the interest having been granted in the financial year 1992-93; the previous year of the A.Y 1993-94, in which A.Y it was included in the taxable income. (ii)(a) The next question that arises for considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd payments to such fund was made openly by all millers; which fund was being used for public benefit and could not be regarded as being opposed to public policy. Quoting CIT v. Chandulal Keshavlal Co., ([1960] 38 ITR 601), it was held that the correct test would not be the compulsory nature of the levy but the commercial expediency. If the payment made is for the purpose of business and was not by way of any penalty incurred for infraction of law, the same would be allowable as a deduction, was the finding. We are unable to find any identity in the expenditure made in the cited case and the one we are called upon to decide. The philanthropic act of building houses for the poor and needy, at the time of the company's centenary celebrations does not reveal any commercial expediency or a business requirement. (ii)(c) The learned Senior Counsel for the Revenue also relies on the decision reported in Malayala Manorama Co.Ltd. v. CIT, [2006] 284 ITR 69 (Ker.) , wherein it is held as follows: Expenditure laid out or expended wholly and exclusively for the purpose of business or profession alone shall be allowed in computing the income chargeable under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the act would have generated goodwill amongst the public or would have increased circulation. The assessee in taking up such a contention casts a cloud on the charitable intentions; which alone could have resulted in the popular acclaim won by such an act of philanthropy. The expenditure hence cannot be allowed under Section 37, being not one wholly or exclusively laid out or expended for the business of the assessee. The findings of the Tribunal in this regard are erroneous and has to be set aside and the Commissioner's order passed under Section 263 of the Act restored on that count. (iii)(a) The next point for consideration is regarding the claim of depreciation on the amount spent for installation of plant and machinery in the Palakkad Unit, which started commercial production only in April, 1992. The Tribunal has relied on the decision reported in Khimji Visram and Sons (Gujarat) Private Limited (supra) to arrive at the conclusion that the actual commencement of the business may not be necessary for granting the relief under Section 32 of the Act. Therein the assessee carrying on business in cotton, purchased a new premises for its business in another State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment Syndicate Pvt.Ltd. [2004] 269 ITR 263 , it is held thus:- However, depreciation is permissible only in cases where the machinery has been actually used for production. When the machinery in question was not put to use in the year under consideration even for a day and the business remained closed, there is no justification to allow the depreciation on such machinery which has not been used even for a day in the whole year. The Tribunal has committed an error in allowing the depreciation on machinery which has not been used even for a day in the previous relevant year in question. (iii)(d) The Bombay High Court (Nagpur bench) has held thus in Dineshkumar Gulabchand Agrawal v. CIT, [2004] 267 ITR 768, The word used denotes actually used and not merely ready for use. The expression used means actually used for the purposes of the business. The view is taken by the Tribunal. In this view of the matter, no substantial question of law is involved. (iii)(e) On going through the catena of precedents on the point, we are of the opinion that the depreciation under Section 32 of the Act for the plant and machinery installed by the assessee is permissible only in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as depreciation. The interest under Section 244(1A) had been rightly conceded in the next assessment year and to that extent the Commissioner's order under Section 263 is liable to be set aside and we affirm the Tribunal's order to that extent. 12. On perusal of the records, we cannot but observe that the order of the Commissioner, under Section 263, rightly exercised the suo motu powers of revision on the two counts mentioned above, for reason of prejudice occasioned to the Revenue. It cannot be said that there was no application of mind. The ground of mere change of opinion as found by the Tribunal would not apply to orders passed under Section 263. To sustain the order of the Commissioner under Section 263, we garner further support from the decision reported in Appolo Tyres Ltd. v. Deputy Commissioner of Income Tax, [2014] 360 ITR 36 (Ker.) . The appeal is allowed in part. No costs. 13. Before we leave the matter, we have to bestow our attention to the consequence of restoration of the order under Section 263. Especially since the consequential order of the A.O. has been set aside by the Tribunal, on the order under Section 263 having been set aside. As we not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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