2013 (8) TMI 631 - AT - Income Tax

Allowance of depreciation when no business was carried out There was withdrawal of permission by RBI to carry on the business activity, therefore, the business of the assessee was not at all in existence the assessee has filed a copy of letter dated 23-02-2006 issued by RBI reviving the permission to carry on the business activity - Assessee has urged that this additional evidence may be admitted as it was written to carry on the business activity as it was again granted by the RBI on 23-2-2006 i.e. in the year under consideration itself -Assessee therefore was entitled to depreciation as the relevant assets were ready to use for its business which was in existence in the year under consideration - Held that - ld. D.R. has not raised any objection for admission of the said additional evidence - Additional evidence requires verification and the matter may be sent back to the A.O. for such verification - Assessee also has no objection in this regard Matter restored to the file of the A.O. with a direction to verify the stand of the assessee of having received the required permission from RBI to revive its business activity in the light of additional evidence filed by the assessee and decide the issue relating to the assessee s claim for depreciation in accordance with law. Disallowance of Rs. 29,65,122/- on account of prior period expenses - Said expenditure was mainly comprising of Customs and Excise Duty pertaining to the earlier period which was paid during the year under consideration and claimed as deduction on payment basis Held that - The assessee has filed a copy of letter filed before the ld. CIT(A) along with the documents annexed thereto - The assessee was registered as 100% export oriented unit under STPI and accordingly it was allowed to import and buy indigenous machinery without payment of customs and excise duty respectively. The assessee was required to be used the said machinery for export turnover only and it had to fulfill certain export obligation. As further submitted in the said letter, the assessee, however, could not fulfill the export obligation and hence intended to de-bond the same for utilization of the same for local turnover purpose. For this purpose, the assessee was required to pay customs and excise duty for the machinery and although the assessee initiated the process of de-bonding in the earlier year, the first demand for custom and excise duty was raised by the excise authorities only on 19-4-2006. As per the said demand, the custom and excise duty aggregating to Rs. 29,65,122/- was paid by the assessee under two challans dtd. 28-4-2006. A perusal of the impugned order of the ld. CIT(A), shows that this important submission made by the assessee as well as the relevant documentary evidence produced in support thereof has not been considered by the ld. CIT(A) as there is no discussion specifically on this point of prior period expenditure in his impugned order - Stand taken by the assessee relying on the relevant documentary evidence requires verification Ordered to restore this issue to the file of the A.O. with a direction to decide the same after verifying the stand of the assessee from the relevant documentary evidence.

Summary

Issues Involved:
1. Disallowance of depreciation for A.Y. 2006-07.
2. Disallowance of prior period expenses for A.Y. 2007-08.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation for A.Y. 2006-07:

The assessee, engaged in software development and consultancy, filed a return declaring a loss after claiming depreciation of Rs. 48,71,812/-. The A.O. disallowed this claim, arguing that the business was not operational during the year due to the withdrawal of permission by RBI, thus making the depreciation claim invalid. The assessee cited case laws to support its claim, but the A.O. found them inapplicable as the business stoppage was due to RBI's withdrawal of permission.

On appeal, the CIT(A) upheld the A.O.'s decision, stating that the assessee could not prove the continuity of business or provide evidence that the machinery on which depreciation was claimed was carried forward from previous years. The Tribunal, upon hearing both sides, noted that the assessee provided a letter from RBI dated 23-02-2006, granting permission to resume business. The Tribunal admitted this additional evidence and remanded the issue back to the A.O. for verification of the assessee's claim regarding the RBI's permission and to decide the depreciation claim in accordance with the law. Thus, the appeal for A.Y. 2006-07 was allowed for statistical purposes.

2. Disallowance of Prior Period Expenses for A.Y. 2007-08:

The assessee claimed a deduction of Rs. 29,65,122/- for prior period expenses, mainly comprising Customs and Excise Duty paid during the year. The A.O. disallowed this claim, stating that no provision for this payment was made in earlier years and thus could not be claimed under section 43B on a payment basis.

On appeal, the CIT(A) upheld the A.O.'s decision, noting that the liability for Customs and Excise Duty related to earlier years and the expenditure did not pertain to the assessment year in question. The Tribunal, after considering the submissions and evidence, noted that the demand for Customs and Excise Duty was raised during the year under consideration as a result of the debonding process initiated earlier. The Tribunal found that this important submission and the relevant documentary evidence were not adequately considered by the CIT(A). Therefore, the Tribunal remanded the issue back to the A.O. for verification of the assessee's claim that the liability arose and was paid in the year under consideration. Consequently, the appeal for A.Y. 2007-08 was also allowed for statistical purposes.

Conclusion:

Both appeals of the assessee were treated as allowed for statistical purposes, with directions for further verification by the A.O. on the respective issues of depreciation and prior period expenses.

Order pronounced in the open court on 14th August, 2013.