TMI Blog2023 (6) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... LD THAT:- Expenses incurred by the assessee corporation for Korba Project, as mandated to be closed down by the Government of India and by orders of BIFR. Once the project is abandoned either by the assessee or at the behest of the Government, all the expenditures incurred towards such project (be it capital or revenue) would fetch no value to the assessee and the same had to be written off by the assessee. It is not in dispute that the assessee had indeed written off the said abandoned project expenditure in its books during the year and had reflected the same as Extra-Ordinary Items Written Off . Since this issue does not arise on a regular basis to the assessee, we find that the assessee had rightly shown this as Extra Ordinary Items in accordance with Accounting Standard 5 issued by ICAI in its profit and loss account as a separate line item We hold that the extra ordinary expenses written off in respect of expenditure incurred on abandoned project, would be allowable as deduction. Accordingly, the Ground No.2 raised by the revenue is dismissed. Disallowance of miscellaneous expenses written off - deduction had been claimed by the assessee company towards abandoned p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced from 1.4.1988 in the statute and once the asset enters the block, its identity is lost and thereafter in subsequent years, the same would not be identifiable individually. As per the Income Tax Act, the depreciation is allowed on the block of assets and not on any individual assets. The plant and machinery for manufacture of fertilizers was kept in ready to use condition by the assessee company. As the asset loses its identity once it enters the block of assets. Hence there is no way for disallowing the depreciation on block of assets and the same would be taken care at the time of disposal of the assets in the block while computing short term capital gains u/s 50 of the Act on deeming fiction. Decided against revenue. Disallowance on account of employees contribution to PF and ESI - Delayed payment - HELD THAT:- this issue is no longer res integra in view of the decision of the Hon ble Supreme court in the case of Checkmate Services Pvt. Ltd [ 2022 (10) TMI 617 - SUPREME COURT] - It is not in dispute that the employee s contribution to PF and ESI were deposited by the assessee to the Government account beyond the due dates prescribed under the respective acts but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord. The assessee is a public sector enterprise with offices and plants at various distant locations. The assessee had to collect the information from various branches and finalise its accounts at Head office. Inspite of best efforts of the assessee, due to delays on receipt of information from various branches, some expenses get delayed in booking in the accounts. The assessee submitted that though the transactions made relate to earlier years, but the liability crystallizes only when the transaction was settled on receipt of bills and other details. Moroever, being a Public Sector Enterprise, every bill had to undergo the process of approvals at various stages. Hence there is bound to be some delay in booking the transactions in the accounts, meanwhile the financial year would have ended. Hence the expenditure does not get booked within the same financial year. As soon as the bills are settled , the expenses are incorporated under various heads of the schedule as Prior Period Adjustments in accordance with the Accounting Standard 5 issued by The Institute of Chartered Accountants of India (ICAI). The assessee also submitted that it could not make any provision for these expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the allowance of expenditure in one year or the other would not make any difference more so where the assessee has been continuously incurring huge losses. Aggrieved, the revenue is in appeal before us. 3.5. At the outset, it is not in dispute that the aforesaid list of prior period items comprising of both expenditure and income thereon , were booked as expenditure / income during the year under consideration , eventhough the same relates to earlier year. This has been explained by the assessee by stating that each and every invoice had to be approved at a higher level which consumes time and moreover, the invoices are to be collated and to be received from various branches for the purpose of finalization of accounts. Meanwhile, the accounts of the assessee corporation are closed as per the stipulated time limit agreed upon by the Directors of the company. Hence these expenditures / income , though pertain to earlier year, were booked as expenditure / income during the year as they stood crystallized during the year by way of approval and payments made during the year. Hence the same would be allowable as expenditure (net) in the hands of the assessee during the year. In an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had submitted that in the year 1960, Government of India approved establishing a fertilizer plant at Korba which was discontinued in 1965. In 1972, in-principle approval was again given for the project at a cost of Rs 118.25 crores. Part of the land was purchased by the Corporation and part was provided by the Government. The Government of India conveyed its approval for winding up of Korba Project vide reference No. 34/2/87/FDB dated 21.02.1990. The BIFR also gave its no objection in March 2000. BIFR gave approval for disposal of all items at Korba Plant in June 2001. Accordingly, the Directors of the assessee corporation approved the write off of the expenditure incurred at Korba Project as an abandoned project expenditure. It was submitted that Korba Project was neither completed nor functioned at any point of time. It was further submitted that the assessee, being a Public Sector Enterprise, is subjected to audit and scrutiny by the Comptroller Auditor General of India (C AG) , who had not pointed out any adverse comments on this issue in their report. The assessee also placed reliance on the decisions of various Hon ble High Courts to drive home the point that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the sum of Rs 15.17 crores, would be allowable as deduction. Accordingly, the Ground No.2 raised by the revenue is dismissed. 5. The next issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance made on account of miscellaneous expenses written off in the sum of Rs 1,66,00,000/- in the facts and circumstances of the case. 5.1. We have heard the rival submissions and perused the materials available on record. The ld. AO observed that in the profit and loss account of the assessee, an amount of Rs 1.66 crores was debited on account of Miscellaneous Expenses Written Off. The assessee had replied that the said expenses were incurred on rehabilitation of health study during 2001-02 conducted by three different agencies, which were earlier shown as part of the Capital Work in Progress in the Balance Sheet. These expenditures were incurred on feasibility report study which were originally intended to be capitalized to Plant and Machinery when the same was commissioned or installed. Since the feasibility report could not be implemented, the said expenditure was written off in the profit and loss account and claimed as deduction in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure during the year. This in our considered opinion, would be an allowable expenditure. This issue is no longer res integra in view of the decision of Hon ble Jurisdictional High Court in the case of decision of the Hon ble Calcutta High Court in the case of Binani Cement Ltd vs CIT reported in 60 taxmann.com 384 (Cal HC) wherein it was held that expenditure incurred for construction/acquisition of new facility which was subsequently abandoned at work-in-progress stage was allowable in year of write off as incurred wholly and exclusively for purpose of assessee's business. 5.4. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the Ground No 3 raised by the revenue is dismissed. 6. The last issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance of Rs 831,58,12,000/- made by the ld. AO on account of interest / penal interest on Government of India Loans. 6.1. We have heard the rival submissions and perused the materials available o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2003-04 Revenue Appeal ITA No. 5468/Del/15 A.Y. 2004-05 Revenue Appeal 8. The decision rendered by us hereinabove in ITA No. 3725/Del/2015 for A.Y. 2002-03 shall apply mutatis mutandis, in respect of identical issues , except with variance in figures, to appeals of the revenue in ITA No. 5467/Del/15 for A.Y. 2003-04 and ITA No. 5468 /Del/15 for A.Y. 2004-05. Accordingly, the appeals preferred by the revenue for A.Y. 2003-04 and 2004-05 are dismissed. ITA No. 2719/Del/16 A.Y. 2005-06 Revenue Appeal 9. The Ground No. 1 raised by the revenue in A.Y. 2005-06 is identical to Ground No. 4 raised by the revenue supra in A.Y. 2002-03. Hence the decision rendered by us in A.Y. 2002-03 shall apply mutatis mutandis to A.Y. 2005-06 also, except with variance in figures. 10. The last issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance of depreciation in the sum of Rs 20,50,59,630/- in the facts and circumstances of the case. 10.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee had claimed depreciation in the sum of Rs 20,50,59,63 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was noted that the case was not one where it was the first year of operation of company's business and it was a case where the business was only inactive or dormant because of circumstances prevailing in the year in question on account of fact situation indicated above. 16. In the case of Capital Bus Services (P.) Ltd. v. CIT [1980] 123 ITR 404 (Delhi), this Court remarked that the words used for the business are capable of larger and a narrower interpretation. If the expression used is to be construed strictly, it can be taken as connoting or requiring the active employment or the actual working of a machinery, plant or building in the business, etc. On the other hand, wider meaning would include passive user of the same in the business. After taking note of the various judgments, the Court opined that survey of those decisions clearly shows that the consensus of judicial opinion is in favour of adopting the liberal interpretation was provided as under : 18. Though it is true that a machinery generally depreciates with actual user, the decision indicate that it is not necessary to import this concept in interpreting the expression used is the statute. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not put to use for number of years. A fervent plea was, thus, made that in case like this, principle of 'passive user' cannot be extended. 21. We feel that counsel for the Revenue is right in their submission. In the instant case, the entire Bhopal Unit came to a standstill and there was a complete halt in its functioning from the assessment year 1997-98. In that year, the Assessing Officer still allowed the depreciation treating it to be a 'passive user'. However, when it was found that even in subsequent year, the Bhopal Unit remained nonfunctional, Assessing Officer(s) disallowed the depreciation. Present appeals relate to the assessment years from 1998-99. In the process six years passed till the last assessment year before us, but there was no sign of this unit becoming functional. The 'passive user', in these circumstances, cannot be extended to absurd limits. Other- wise, the words used for the purpose of business will lose their total sanctity. It cannot be the intention of the Legislature that the words 'used' when it is to be interpreted in a wider sense to mean, 'ready to use', the same is stretched to the limits of no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his submission that the position concerning the manner in which the depreciation is to be allowed, has gone a sea change after the amendment of section 32 by the Taxation Laws (Amendment) Act, 1986. Section 32(1) of the Act allows the depreciation on the written down value of the assets. 26. Section 2(11) of the Act defines the term 'block of assets' as under : 2(11) Block of assets means a group of assets falling within a class of assets comprising - (a) Tangible assets, being buildings, machinery, plant or furniture; (b) Intangible assets, being know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, in respect of which the same percentage of depreciation is prescribed; 27. Along with the aforesaid amendment, definition of written down value as contained in section 43(6) has also been amended and the amended provisions read as under : 43(6) Written down value means : (a) (b) ** ** ** (c) In the case of any block of assets, (i) In respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23-9-1986, wherein the rationale behind the aforesaid amendment is described as under : 6. 3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20) , the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc. , the more disaggregated has to be the record-keeping. Moreover, the practice of granting the terminal allowance as per section 32(1) (iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this reason, we say that there is no loss to revenue either. 34. The upshot of the aforesaid discussion is that though we are not entirely agreeing with the reasoning of the Tribunal contained in the impugned judgment, we are upholding the conclusion of the Tribunal based on the 'block of assets' as discussed above. The consequence would be to dismiss these appeals. However, there will be no order as to costs. (emphasis supplied by us) 10.2. Before us also, the ld. DR made the same arguments that were advanced by the revenue s counsel before the Hon ble Delhi High Court supra. It is also pertinent to note that the depreciation claim was allowed by the revenue in the earlier years and there is no reason to take a divergent stand during this year, without any change in facts and circumstances. Either way, as stated supra, the asset loses its identity once it enters the block of assets. Hence there is no way for disallowing the depreciation on block of assets and the same would be taken care at the time of disposal of the assets in the block while computing short term capital gains u/s 50 of the Act on deeming fiction. Hence in view of the aforesaid observat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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