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TMI Blog2023 (6) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... , 17.03.2016, 17.03.2016 & 15.02.2016 respectively against the orders of assessment passed u/s 143(3) (u/s 143/147 in the case of ITA NO.3354/Del/2016) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') dated 25.02.2005, 18.01.2006, 28.09.2006, 19.12.2011, 16.11.2007, nil, 06.11.2009, 09.11.2010, 28.12.2011 & 14.03.2014 by the ld. Assessing Officer, Circle-25(1), New Delhi (hereinafter referred to as 'ld. AO'). 2. The issues involved in all these appeals are identical and hence they are taken up together and disposed of by this common order for the sake of convenience. ITA No. 3725/Del/2015 - A.Y.2002-03 3. The first identical issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance of prior period expenses in the sum of Rs 13,16,49,000/- in the facts and circumstances of the case. 3.1. We have heard the rival submissions and perused the materials available on record. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounted in full in the year to which they pertain and there is no scope for wiping out these losses. Correspondingly, there would be no tax effect on the prior period expenses. It was also submitted that the rate of tax remained the same in all the years. The assessee corporation had also accounted prior period income in the same fashion as it could be seen from the above list of prior period items. 3.4. We find that the ld. AO did not heed to the aforesaid contentions of the assessee and proceeded to disallow the same as expenses not pertaining to the year under consideration. This action was reversed by the ld. CIT(A) by observing that assessee has been consistently following the practice of charging the prior period expenditure and income where the details or bills are received after the closure of the financial year and where the approval of higher authorites required is taken later. The ld. CIT(A) further observed that 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 afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 crores was debited on account of 'Extra-ordinary Items Written Off'. In the notes to accounts vide Note No. 9.4. , the details of the said expenses were given as under:- a) Expenses of revenue nature reflected under 'Expenditure during Construction Period pending allocation' - Rs 1259.42 lakhs b) Share of training and sales promotion expenses for the period 1972-73 to 1978-79 hitherto shown as 'deferred revenue expenditure' - Rs 73.44 lakhs c) Technical know how fee hitherto shown as 'Capital Work in Progress' - Rs 184.46 lakhs 4.2. We find that these expenses were incurred in earlier years at Korba Division and had been charged to profit and loss account as 'extra ordinary items written off' during the year under consideration. In other words, these items were lying as balance sheet item in earlier years, and the same had been written off during the year and debited to profit and loss account. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes 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 find that this issue in no longer res integra in view of the 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. 4.5. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that the extra ordinary expenses written off in respect of expenditure incurred on abandoned project in 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be carried out for operational efficiency and the since the same did not materialize, the amount was written off. 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. It is not in dispute that the feasibility study report obtained was for a project for improving the operational efficiency of the existing plant and in any case the said project was abandoned. Hence the aforesaid expenditure incurred upto the year 1991-92 which were retained as a Balance Sheet item by the assessee corporation, was sought to be written off as abandoned project expenditure 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our considered opinion , it is outside the ambit of provisions of section 43B of the Act. We are in agreement with the observations of the ld. CIT(A) that there is no scope to intend something more or less than what is written in the plain language of the statute. Neither anything extra can be read into it which is not there in the statute, nor anything less can be read from what is written in the statute. 6.2. In view of the aforesaid observations, we do not find any infirmity in the order of ld. CIT(A) granting relief in this regard. Accordingly, the Ground No. 4 raised by the revenue is dismissed. 7. In the result, the appeal of the revenue in ITA No. 3725/Del/2015 for A.Y. 2002-03 is dismissed. ITA No. 5467/Del/15 - 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 dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious year. The non-user was on account of the fact that there was very weak crop of potatoes available in the season and potatoes did not come from the hirers in the cold storage. Therefore, there was no business from cold storage. Accordingly claim for depreciation on cold storage machinery was disallowed. In appeal, Appellate Assistant Commissioner (in short 'the AAC') observed that the plant was kept in operational condition so that the facility can be availed of by any one as and when necessity arises. It was observed that the word "user" embraces passive as well as active user and depreciation was allowable even though machinery had not actually worked during the accounting period. 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 expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular year may not be necessary. Even passive user qualifies for deduction. Passive user is to be understood in the sense that the asset is ready for use, but could not be used for part of a year or even whole year. 20. The learned counsels appearing for the revenue, however, articulated their plea on altogether different level. Their submission was that if the property is not put to use for number of years, the assessee should be allowed the benefit of depreciation on the purported ground that it was 'passive user'. In other words, it was argued that in the instant case the entire Bhopal Unit and not a part of the said unit, was non-functional and assets of that unit 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets' is concerned, it is only a mode of calculation. On the other hand, the learned counsel for the assessee had argued that after the introduction of 'block of assets' concept in section 2(11) by amendment made with effect from 1-4-1988, the assessee was entitled to claim depreciation on the entire block of assets and it was no more open to the revenue as to whether particular asset is put to use or not. 25. We have considered these submissions of the learned counsel for the parties and are of the opinion that the arguments of the learned counsel for the assessee have to prevail. Mr. Aggarwal, learned Senior counsel for the assessee is right in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot segregate a particular asset therefrom on the ground that it was not put to use. 30. With the aforesaid amendment, the depreciation is now to be allowed on the written down value of the 'block of assets' at such percentage as may be prescribed. With this amendment, individual assets have lost their identity and concept of 'block of assets' has been introduced, which is relevant for calculating the depreciation. It would be of benefit to take note of the Circular issued by the revenue itself explaining the purpose behind the amended provision. The same is contained in CBDT Circular No. 469, dated 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. , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of assets'. Acceptance of this contention would mean that the assessee is to be directed to maintain the details of each asset separately and that would frustrate the very purpose for which the amendment was brought about. It is also essential to point out that the revenue is not put to any loss by adopting such method and allowing depreciation on a particular asset, forming part of the 'block of assets' even when that particular asset is not used in the relevant assessment year. Whenever such an asset is sold, it would result in short-term capital gain, which would be exigible to tax and for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by deciding it in favour of the Revenue. Pursuant to the aforesaid decision of the Hon'ble Supreme Court, the claim of deduction towards employee's contribution to PF & ESI made by the assessee becomes an incorrect claim warranting primafacie adjustment u/s.143(1) of the Act. Respectfully following the decision of the Hon'ble Supreme Court referred to supra, we decide the issue against the assessee. Accordingly, the Ground No. 3 raised by the revenue is allowed. 14. In the result, the appeal of the revenue for A.Y. 2006-07 is partly allowed. ITA No. 3355/Del/16 - A.Y. 2007-08 - Revenue Appeal ITA No. 3356/Del/16 - A.Y. 2008-09 - Revenue Appeal ITA No. 3357/Del/16 - A.Y. 2009-10 - Revenue Appeal ITA No. 2884/Del/16 - A.Y. 2011-12 - Revenue Appeal ITA No. 3354/Del/16 - A.Y. 2004-05 - Revenue Appeal against Section 147 proceedings 15. We find that all the grounds raised by the revenue in the aforesaid three years are covered in favour of the assessee by our decision rendered hereinabove for A.Y. 2002-03 and A.Y. 2005-06. Hence the grounds raised by the revenue for all these years are dismissed. 16. In the result, the appeal of the revenue in A.Y. 2006-07 is partly allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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