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TMI Blog2017 (7) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-13 onwards, we are of the view the assessee has to challenge the order of the Assessing Officer when remedial measures are taken by AO for the respective AY 2010-11 and AY s 2012-13 onwards. The Tribunal has to confine itself to examination of the issue concerning the current year, namely AY 2011-12. - Decided against assessee. - I.T.A. No. 25/Coch/2017 - - - Dated:- 14-7-2017 - SHRI GEORGE GEORGE K., JUDICIAL MEMBER Assessee by Shri Kuryan Thomas, Adv. Revenue by Shri A. Dhanaraj, Sr. DR ORDER Per GEORGE GEORGE K.,JUDICIAL MEMBER: This appeal at the instance of the assessee is directed against the order of the CIT(A)-I, Kochi dated 24/11/2016. The relevant assessment year is 2011-12. 2. The grounds raised read as follows: 1. The learned Commissioner of Income Tax(Appeals)-I, erred in holding that the Appellant is not entitled to set off, the carried forward depreciation, relating to assessment year 1998-99 and onwards, against its income for Assessment year 2011-12 and onwards. 2. The learned Commissioner of Income Tax(Appeals)-I has wrongly held that since the assets have not been put to use during the financial years 1997-98 to 2008-09, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequence of Supreme Court judgment banning aqua farm culture. It was stated by the assessee that the assets had been kept ready for use and therefore, the claim of set off of unabsorbed depreciation is correct. The Assessing Officer, however, held that since the assessee has not performed any business during the financial year 1997-98, till the financial year 2006-07, the unabsorbed depreciation relating to assessment year 1996-97 onwards could not be allowed to be set off against the income of the current assessment year. The Assessing Officer therefore concluded the assessment by denying the claim of set off of unabsorbed depreciation. The assessment was completed u/s. 143(3) of the Act vide order dated 25-02-2014 at a total aggregate income of ₹ 35,85,037/-. 4. Aggrieved by the order of the assessment in denying the claim of set off of unabsorbed depreciation, the assessee preferred an appeal to the first appellate authority. The CIT(A) partly allowed the appeal of the assessee. The CIT(A) held that: (a) The unabsorbed depreciation brought forward from Assessment years 1996-97 and 1997-98 could be allowed to be set off against the income for assessment year 2010- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al pronouncements on the same. After examining the legislative history and the judicial pronouncements, it was held by the CIT(A) that the claim of depreciation is allowable for both active and passive use of the asset including an asset that is in ready-for-use condition. The CIT(A) was of the view that passive use and ready-to-use does not imply a situation where the asset is simply lying idle for a long period of time and there is no re-starting of business. The CIT(A) examined the facts in depth and concluded that in the instant case the assets were not kept for ready for use condition. The detailed factual finding of the CIT(A) as regards non-usage of the assets for the relevant periods are reproduced below for ready reference. x) From all the above, the majority of the judicial decisions hold that a claim of depreciation allowable for both active and passive use of the asset including an asset that is in ready-for-use condition. However the phrases passive use' and ready-to-use do not imply a situation where the assets in question are simply lying idle for a long period of time of several financial years in the instant case of the Appellant. (i) The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is a statement of restarting of business after a prolonged period (of several years) of quiescence and dormancy (to take a charitable interpretation), there cannot be a simultaneous acceptance of the contradicting statement that the attendant assets were in a ready-for-use condition. To reach such ready-for-use or even passive status, considerable groundwork would be required which includes re-registration of the proposed activities, re-certification of the lands, ponds and other associated assets as to their fitness to carry out the proposed activities, re-installation and re-commissioning of plant and machinery needed in the proposed activities, etc. Sans these, it cannot be stated that the assets in question are in a ready-for-use or even passive condition. To borrow from the parlance of geology, there is a difference between active , passive (or dormant ) and extinct . In the instant case, the assets in question were extinct in the sense that they were simply there or extant in their states of unregistered in the consciousness of the Appellant presence . The Appellant has not shown that it was actively conscious of their presence/existence and has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... farm business. How long such preparations will continue and when the business will so restart (and did so restart) is anyone's guess from the view point of the date on which the statements were made. (c) The assets used in the aqua farm business are principally stated by the Appellant as being of the nature of land and ponds, on which no visible, evidenced and/or well-documented maintenance or other activities have taken place. They were just lying there in a near-orphaned and undesired deadinvestment status. All the present excitement of claiming the large amounts of unabsorbed depreciation has happened because of wisdom acquired in hindsight following the onset of favourable conditions. The situation is not unlike that of the prodigal delinquent offspring who is thrown out of the home as a do-no-good and/or valueless derelict, but returns to excitement and adulation, and resultant unscrupulous exploitation, following his prodigious success in far-off lands. What was held and ignored and mentally discarded or written-off as without value or earning-capacity or life has suddenly begun to pulse with life and action. The potential for claiming unabsorbed depreciation that h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct, equip operate and maintain infrastructure projects and facilities. There is no mention of any aqua farm activity. It is only in the Annual Statement for the F.Y. 2015-16 that there is mention of such activity. From the statements in the Notes on Account referred to above, there is also no proof that the Appellant has carried out any aqua farm business even until the impugned F.Y. 2010-11, when it is still stated to be getting its act ready. Even as on date,the description of the company from its website http://www.kingsinfra.comcompany.htm, reads as follows: Kings Infra Ventures Ltd. the flagship of the Group was founded in the year 1987. After transformation in 2007, Kings Infra Ventures Ltd. has emerged as a leading player in the field of land banking and creating infrastructure for projects in the key sectors of integrated life spaces, logistics, warehousing, hospitality, healthcare, education and clean energy. There is no mention of aqua farms or even the whisper of an umbilicus to such activity in its Annual Report for the impugned F.Y. 2010-11. There is no mention of aqua farming as an intended activity. As already stated by the Assessing Officer, it simply states t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lse. These self-serving and unsubstantiated statements cannot be accepted. During the entire period of such non-use, the Appellant has claimed depreciation on the extinct assets now sought to be revived after having being sprinkled with life-giving waters by the subsequent orders passed by the competent authority . (in Appellant-speak). (e) The Appellant is entitled to carry out whatever business is explicitly desired and targeted by it and stated in its Memorandum and Articles of Association, and to reap the benefits of the carrying out of the same. For the reason being the ban imposed by the Hon ble Supreme Court, the Appellant was not able to conduct its aqua farm business and dropped its business, and has consequently diversified into other (the building and construction) business for reasons of business opportunity. Now, it states that it plans to revive its earlier aqua farm business, and use whatever assets continue to be retained by it from the FY 1997-98 onwards, This is because of business opportunity seen in reviving the said earlier business in both decisions, that of engaging in the building and construction business and of re-starting the aqua farm business, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on claims will be allowed when the assets are used passively, actively or in a ready-to-use condition, but not otherwise when they are in a state of suspended extinction and disuse. (f) The responsibility to prove entries, deductions, and statements made on tax returns is entirely upon the tax payer. The burden of proof as well as the initial onus to prove the validity of a claim of depreciation being made lies on the claimant. It is for the Appellant to show cause why the benefits of the claims of the set-offs of unabsorbed depreciation losses brought forward from the multiple assessment years of visible and stated business inactivity and consequent inferred, apparent and uncontradicted disuse of the assets in question needed to be allowed in its favour. Once there is a statutory provision that sets out certain conditions (that the asset was actually put to use for the purpose of business, in the instant case) to be fulfilled while making a claim, it is the mandatory duty of the claimant to showcase the valid, reliable and verifiable evidences supporting such claim. The burden of proof in such matters is exclusively on the claimant and the fact remains that the Appellant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l use of the assets in making a claim of depreciation including that of the Hon'ble Kerala High Court in the case of Forest industries Travancore Ltd. Vs. CIT (supra) and CIT vs. Geo-Tech Construction Corporation (supra) are inapplicable and distinguished on facts from those in the instant case because the assets in question, that have been lying in a state of disuse over several financial years, are held to be neither ready-to-use nor passive in their nature and condition. The ratio of Hon ble Madras High Court in the case of CIT vs. Maps Tours Travels (supra) is held to apply (the process of registration of the car in that case is akin to the process to re-enable the assets in the instant case) while that of the Hon ble Bombay High Court in the case of Dineshkumar Gulabchand Agarwal vs. CIT (supra) is held to lend supportive value. z) The above decisions enable us to arrive at the following positions in respect of the claims or unabsorbed depreciation losses sought to be brought forward and set off from the A.Y. 1996-97 to the A.Y.2009-10: (i) The impugned aqua farm business of the Appellant was being carried out for the AYrs 1996-97 and 1997 -98. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equivalent value in the impugned A.Y. 2011-12 and succeeding assessment years, as applicable. aa) The fact that the AOs have allowed the claims of unabsorbed depreciation losses brought forward from the A.Yrs. 1998-99 to 2009-10 in the assessments made u/s 143(3) of the Act for the A.Yrs 2012-13 and 2013-14, as proved through the submitted copies of the said assessment orders are not binding on this office. If anything, necessary rectifications or other corrective actions including their reopening will need to be carried out in respect of these assessments to disallow the claims erroneously allowed. The AO is directed to take the necessary actions in this regard. bb) Any errors/omission deemed to have been committed by the AO, including non-application of the principle of the need for the assets in question to be put to use to allow a claim of depreciation and thus for the purpose of assessment are now held as having been corrected and cured by me through the analyses above. This has been done in exercise of concurrent and co-extensive powers of assessment conferred on me by the statute, as also sanctified by the ratio of the Hon ble Supreme Court of India in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o reopen the assessment proceedings for the assessment years impacted. Besides and needless to say, if the assessment or reassessment for the preceding AY 2010-11 serves to disallow any concurrent claim of the unabsorbed depreciation losses of ₹ 26,89,338/- relating to the AY 1997-98 as above, the necessary adjustment will need to be made to disallow any such equivalent value in the impugned AY 2011-12 and succeeding assessment years, as applicable. Also, needless to say, the Assessing Officer may examine whether for each of the A.Yrs. 1996-97 to 2009-10 as well as 2010-11 onwards, the Appellant has filed its Return of Income within the timeframes stipulated u/s. 139(1) of the Act, and take necessary actions in respect of the disallowances of losses carried/brought forward and set off, if and as needed. 6.3 The above factual finding of the CIT(A) that the asset in question was not kept ready for use condition and there was no passive use of the same for the assessment years 1999-2000 to 2009-10, has not been dispelled by the assessee by placing any contrary evidence before the Tribunal. Therefore, I confirm the order of the CIT(A). 6.4 As regards the assessee s conten ..... X X X X Extracts X X X X X X X X Extracts X X X X
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