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TMI Blog2017 (2) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... charge) and further accretion to current liabilities – upon realization of the spontaneous current assets, that provide the funds for investment in shares for the immediately following year, i.e., f.y. 2006-07. No part of the borrowed capital can thus be said as applied for or considered as financing the investment in shares so as to attract any disallowance, either u/s. 36(1)(iii) or u/s. 14A. - I.T.A. No. 941/Mum/2014, I.T.A. No.3949/Mum/2013 - - - Dated:- 18-1-2017 - Shri Sanjay Arora, Accountant Member And Amarjit Singh, Judicial Member Assessee by : Shri Bhupendra Karkhanis Department by : Shri T. A. Khan ORDER Per Bench This is a set of two Appeals by the Assessee and the Revenue in respect of two consecutive years, being assessment years (AYs) 2007-08 and 2008-09, against separate orders by the first appellate authority, being the Commissioner of Income Tax (Appeals)-7 4, Mumbai ( CIT(A) for short) for those years. The first appellate authority having decided differently for the two years for each of the disallowances under appeal, forms the reason for the assessee being the appellant for one (AY 2008-09) and a respondent for another (AY 2007-08) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel, would submit that he could produce materials to substantiate the same, providing a flowchart (of the activities), and that the suspicion raised by the Revenue authorities in the matter is wholly misplaced, being guided merely by the fact that the job work is undertaken for a sister concern, and which by itself could hardly be a ground to disallow a claim. On another query by the Bench with regard to the absence of any labour expenses in respect of job-work there being no reference thereto in the orders by the authorities below, he would draw our attention to the statement of casual labour charges (at ₹ 4.85 lacs) at paper-book (PB) page 47, admitting though that the same was not furnished before the Revenue authorities, and which fact stands clearly mentioned in the preface to the compilation. 3. We have heard the parties, and perused the material on record. 3.1 We would, to begin with, attempt to clarify the law in the matter; the same having been subject to elucidation by the higher courts, including the Honorable jurisdictional High Court, in different fact settings. Section 32 (1) of the Act reads as under: Depreciation 32. (1) In respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to actual use being a contingency over which they had no control and, further, which could arise at any time. In fact, the identity of the machines which were idle and which worked would keep changing from time to time, and, was not relevant; the purport of the arrangement being to keep some machines (productive capacity) in surplus, as a standby, so that the production did not suffer on account of a breakdown in any of the working machines (operating capacity). How could then, one may ask, a difference be made for the machine used vis- -vis that not used , all of which formed part of a pool, made available, some of which were to necessarily remain idle at any given time, albeit liable to be used at any time. In CIT vs. G. N. Agrawal [1996] 217 ITR 250 (Bom), again, the trucks under repair during the relevant year were already part of the assessee s business (operational) assets, having been put to use earlier, as also in the subsequent year. Their being thus under repair during the relevant year was considered by the Hon ble Court as of no moment. Surely, the capital assets already deployed in, and committed to the business could not be regarded as not in use merely on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing trading operations. The same is surely as much business as is manufacturing. We are however concerned with the claim for depreciation on plant and machinery and electric installation, erstwhile used for the manufacture of electronic goods and appliances. There is in fact no claim of the same being used for trading which by definition is selling of bought out goods, but for carrying out job-work only. We are unable to agree with the Revenue that the claim becomes unacceptable merely because the job-work is for a sister concern. Nothing stops the Revenue, if it suspects a false or an untrue claim, to probe further in the matter, but the assessee s claim cannot be ousted at the threshold for that reason. The same is in fact complemented by the claim for expenditure on power, fuel and water. Though the expenditure has no doubt come down drastically from ₹ 52.18 lacs (in AY 2007-08) to ₹ 20.93 lacs in AY 2008-09, but so has the volume of the jobwork from ₹ 219.18 lacs to ₹ 59.81 lacs for the respective years. The labour expenses, at ₹ 4.85 lacs (for AY 2007-08) appears to be included in the manufacturing expenses as there is no separate claim for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets used for job-work, even if different from that used for manufacturing, would enter the same block of assets, and depreciation exigible w.r.t. it s WDV. Though the condition of user is a primary condition, which could only be qua an asset, depreciation is allowable with reference to the WDV of the relevant block of assets. Though therefore it may not be correct to say that the assets lose their identity in-as-much as they continue to be maintained, operated and used as individual assets, their values merge upon entering a block of assets, with reference to the WDV of which only depreciation is allowable. There is nothing in law to suggest that the user test is to be carried out for all the assets comprising a block of assets, carving out a fresh block by excluding the assets not used during the relevant year, carrying out this exercise each year. On the other hand, if the job-work represents a separate, new business, the claim of depreciation would be with reference to the assets used for this business only. That is, on the basis of the assets of the said business, whether acquired anew, i.e., post 1998, or even if transferred from the erstwhile manufacturing business. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rants disallowance not only u/s. 36(1)(iii) but u/s. 14A as well, which stands rightly invoked by the AO. 6. We have heard the parties, and perused the matter on record. The matter is principally factual, i.e., whether or not, and if so to what extent, the investment in shares is met by the assessee with its own funds or, in the alternative, represents, in whole or in part, a diversion of borrowed funds. The claim has been disallowed principally for want of substantiation. The deletion for AY 2007-08 in first appeal is without basis in-as-much as the avenue of borrowed monies is claimed to be the investment in shares, which do not represent either revenue or capital expenditure, but only an investment, and which is certainly not the assessee s business, besides yielding income not forming part of the total income, attracting section 14A. The assessee could furnish a fund flow statement, i.e., since the time the borrowing commenced, stated to be during the year relevant to AY 2006-07. At the same time, the assessee s claim of having sufficient own funds would also need to be examined with reference to it s audited accounts, which form a part of the record. We extract the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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