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TMI Blog2015 (10) TMI 1769X X X X Extracts X X X X X X X X Extracts X X X X ..... themselves have admitted that the first payment of royalty for mining was made on 2-9-2000 itself. In the absence of any material with regard to expenditure on royalty, all the authorities concurrently held that the assessee has not incurred any expenditure in respect of royalty. Hence, the assessee is not entitled for the deduction towards royalty. - Decided in favour of the Revenue. Denial of setting off of unabsorbed depreciation against the income - Held that:- The Hon'ble Supreme Court in a judgment reported in (CIT v. Jaipuria Chaina Clay Mines (P) Limited [1965 (11) TMI 32 - SUPREME Court] held that unabsorbed depreciation can be carried forward and would be set-off even against the profit under the head other than the "business income". Hence, we are of the opinion that the assessee is entitled to carry forward the unabsorbed depreciation and set-off. - Decided in favour of the assessee. Expenditure on maintenance of corporate office - whether is not deductible from the income of written back - Held that:- The Revenue has not challenged the deduction allowed by the Assessing Officer as well as the First Appellate Authority. However, the Tribunal disallowed the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 25-08-1999 with M/s. Madras Cement Limited (hereinafter referred to as 'MCL' for short) for the sale of assets of the Company, both moveable and immovable assets of the Cement Factory. Further, the assessee-Company executed an irrevocable power of attorney on the very same day i.e. on 25-08-1999 in favour of the MCL to operate the Cement factory and also another power of attorney for operating mining lease for a sale consideration of ₹ 19.00 crores subject to fulfillment of terms and conditions mentioned in the agreement of sale. In pursuance of the said agreement of sale and power of attorney, the MCL took possession of the Cement Plant and started commercial production on 03-09-2000. The first payment of royalty for mining was made on 02-09-2000. As per the Annual General Meeting of the assessee-company held on 23-09-1999, the assets of the Company were transferred to M/s.MCL and this fact was mentioned in the Annual Report. Further the capital gains have been taxed for the assessment year 2000-01. When there is no business activity itself, the question of incurring expenditure such as royalty paid, rates and taxes, legal profession fees, travel and conveyance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, no claim has been made towards the rates and taxes to the Department of Mines and Geology for the assessment year 2002-03. The alternative claim with regard to capitalization of expenditure was also rejected by the Assessing Officer on the ground that the expenditure has been claimed as revenue expenditure. Out of the other declared income of ₹ 34,68,126/-, the Assessing Officer assessed the total income at ₹ 28,82,294/-. Being aggrieved by the assessment order dated 10-03-2005, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), (hereinafter referred to as 'the First Appellate Authority' for short) on various grounds. 5. The First Appellate Authority granted the relief insofar as traveling and conveyance, legal and professional fees, repairs and maintenance amounting to ₹ 41,26,897/- and remanded the matter in respect of rates and taxes amounting to ₹ 1,48,45,881/- paid to the Government and directed the Assessing Officer to verify the challans and if the proof of payment is produced, the same has to be allowed. Further, directed the Assessing Officer to examine the issue with regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and Gain of business. Further, the Tribunal allowed the appeal of the assessee in part. The assessee being aggrieved by the order passed by the Tribunal has filed this appeal. 9. The above appeal was admitted for considering the following substantial questions of law: (1) Whether the Tribunal was justified in law in not granting deduction of various expenditures incurred in the computation of income of the appellant on the facts and circumstances of the case? (2) Whether the Tribunal was justified in law in not allowing the expenditure incurred by the Appellant-Company, which expenses have all been incurred wholly and exclusively for the purpose of earning income? (3) Whether the Tribunal erred in law holding that the appellant is not in the activity of business and consequently not entitled to (2) the allowance of expenses as an allowable deduction? (4) Whether the Tribunal was justified in law in not setting off unabsorbed depreciation against the income of the current assessment year on the facts and in the circumstances of the case? (5) Whether the Tribunal was justified in law in holding that the CIT (A) erred in directing the assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-off of brought forward unabsorbed depreciation from the heads of Profit and Gain from business, which contrary to law. In view of deeming fiction under Section 41(1) of the Act, the Tribunal ought to have taken the deeming fiction to its logical end and allowed the expenditure against such income. Further, the order made by the Assessing Authority for the assessment year 2000-01 was set aside by the First Appellate Authority and the said order was confirmed by the Tribunal in ITA No.378/Bng/2006, wherein the Tribunal clearly held that there is no transfer of cement factory in the year under appeal. When there is no sale at all in the year under appeal, there is no need to consider the question of slump sale. The capital gain earned out of sale of cement factory has been taxed during the assessment years 2001-02, 2003-04, 2004-05. The payment has been made in a phased manner and as and when the payment was made, it was brought to tax under the capital gain. In order to keep the cement factory in workable condition, the assessee had to incur expenditure and these expenditure are allowable. The order passed by the Tribunal runs contrary to the law laid down by the Hon'ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of sale executed by the assessee in favour of M/s.MCL has resulted in transfer in terms of Section 247(v) and resulted in slump sale. Since the assessee has already sold the property, the question of incurring expenditure does not arise. He relied upon Section 28(1) and 41(1) of the Act in this regard. Further with regard to depreciation is concerned, the assessee declared the income of ₹ 34,68,126/-, which consists of interest income of ₹ 66,482/- and balances written back of ₹ 34,01,644/-. The assessee themselves have admitted in Schedule-13 that the unit is dormant and there is no production during the relevant assessment year. Hence, there is no question of depreciation of income from other sources. Accordingly, the Assessing Authority rightly denied the claim of depreciation, which was confirmed by the First Appellate Authority as well as the Tribunal. He further submitted that certain deductions can be made only on actual payment under Section 43-B of the Act. No document has been produced to show that the assessee had incurred business expenditure and no receipt has been produced to prove the said expenditure. The First Appellate Authority remanded th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 41,26,987/- in respect of traveling and conveyance, legal and professional fees, repairs and maintenance. However, the Assessing Authority disallowed the said expenditure on the ground that the cement factory has already been transferred in the year 1999 and the appellant has not carried on any business during the assessment years in question and hence they are not entitled for any deduction towards the expenditure. However, the First Appellate Authority reversed the said finding and held that the appellant is entitled for deduction of expenditure as there was no transfer of the entire property of the assessee for the assessment year 2000-01. The capital gain earned by selling of the cement factory was assessed for the assessment years 2004-05 and 2006-07. The department has accepted the same. However, the Tribunal disallowed the said expenditure holding that the assessee had closed the business in the year 1995 itself and no document has been shown that they had incurred any expenditure during the relevant period, though the plant and machinery has been transferred in the year 1999 itself, by giving irrevocable power of attorney to operate the cement factory and minin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in respect of royalty. Hence, the assessee is not entitled for the deduction towards royalty. We find there is no infirmity or irregularity in the said finding. Hence, issue No.3 is answered in favour of the Revenue and against the assessee. 17. Issue Nos.4 and 5 are with regard to denial of setting off of unabsorbed depreciation against the income is concerned. The assessee while filing the return declared interest income of ₹ 66,482/- and ₹ 34,01,644/- in respect of balances written back. The Assessing Officer as well as the First Appellate Authority held that the said amount is income from other sources. However, the First Appellate Authority directed the Assessing Officer to examine the issue of carry forward loss and depreciation and allow the same. But, the Tribunal denied the carry forward loss and depreciation to be set-off against the income, even though it was held that the income of ₹ 34,01,644/- is a business income. The Tribunal failed to appreciate the fact that when once the income on written back is assessed as business income by virtue of Section 41(1) of the Act, the expenditure incurred has to be allowed as deduction in arriving at busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to above, the Hon'ble Supreme Court allowed the unabsorbed depreciation relating to the assessment year 1956-57 as against the total income of assessment year 1965-66. Further, the Division Bench of this Court in Commissioner of Income Tax v. Kapila Textiles Private Limited (supra) held that the benefit under sub-Section(2) of Section 32 of the Act is not subject to the condition that the business must have been carried on by the assessee during the relevant assessment year. Therefore, the Tribunal was right in accepting the claim of the assessee and confirming the orders of Additional Commissioner of Income Tax applying the ratio of judgment of Allahabad High Court in Rampura Timber and Turnery Company case. 21. Sri. K.V.Aravind, learned counsel appearing for the Revenue contended that for claiming benefit under Section 32(2) of the Act, the assessee has to establish that they must be carrying on the same business as was carried in the previous year and that if the business is not in existence in the following year, unabsorbed depreciation of previous year cannot be adjusted. The continuation of business is a condition precedent for carry forward loss and set-off of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t challenged the deduction allowed by the Assessing Officer as well as the First Appellate Authority. However, the Tribunal disallowed the said allowance made by the authorities below which is contrary to law. The Hon'ble Supreme Court in a judgment reported in Mcorp Global Pvt. Limited, relying upon Hukumchand Mills v. CIT, held that the Tribunal is not authorized to take back the benefit granted to the assessee by the Assessing Officer. The Tribunal has no power to enhance the assessment. In view of the judgment of the Supreme Court, the Tribunal has no power to enhance the assessment, though the said deduction is challenged before the Tribunal. Hence, the assessee is entitled deduction towards the maintenance of the corporate office. 24. Accordingly, we pass the following:- ORDER The appeal is allowed in part. The assessee is entitled to deduction in respect of expenditure incurred in relation to transfer of plant and machinery, traveling and conveyance, repairs and maintenance and also entitled to carry forward the unabsorbed depreciation and set-off. However, the assessee is not entitled to deduction towards royalty. Hence, Issue Nos.1, 2, 4 and 5 are answered in ..... 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