ITO Vs Ventura Textiles Ltd. (ITAT Mumbai)
Conclusion: Depreciation could not be disallowed due to assets were not in use as assessee had not close down the business but it was not going on because of illegal strike by the workers and therefore manufacturing had been stopped temporarily.
Held: AO noticed during the course of assessment proceedings that assessee had claimed depreciation under section 32 in its computation of income. AO noted that since there was no activity carried out during the year on account of lock out by workers, the assets of the assessee company were not actually put to use and hence he disallowed the claim of assessee. It was held that the assessee had not close down the business but it was not going on because of illegal strike by the workers and therefore manufacturing had been stopped temporarily. It was not the case that the assets were not in use or the intention of the assessee was not to use the same. Another factor was that once, assets was forming part of block of assets and in earlier years depreciation was allowed and due to certain risks in this year, assessee was unable to carry out the manufacturing activities, depreciation could not be disallowed.
FULL TEXT OF THE ITAT JUDGEMENT
These three appeals by the Revenue are arising out of the different orders of Commissioner of Income Tax (Appeals)-18, Mumbai in Appeal No. CIT(A)-18/IT-54/ITO-11(3)(3)/16-17, CIT(A)-18/IT-7/Addl.cit-8(3)/15-16, CIT(A)-18/IT-118/ACIT-11(3)(2)/15-16 dated 29.05.2017, 04.01.2017, 16.12.2016. The Assessments were framed by the Income Tax Officer, Ward 11(3)(3), Addl. CIT-8(3), Mumbai (in short ACIT/ITO/ AO) for AYs 2013-14, 2011-12, 2012-13 vide dated 28.03.2016, 27.02.2014, 27.02.2015 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
2. The first issue in this appeal of Revenue in ITA No.6171/Mum/2017 for AY 2013-14 is against the order of CIT(A) deleting the addition made by the AO on account of loss of sales of stock as the assessee did not submit any stock statement and the bank considered the stock of the company as Nil. For this Revenue has raised the following two grounds: –
“1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.40,35,22,309/- on account of loss of sales without appreciating the fact that the assessee company did not submit any stock statement since December 2008 and therefore the bank considered the stock of the company at nil in absence of any detail filed by the assessee company. As the company did not submit any stock statement, bank did not inspect the stock. Further, the bank stated that there is no record as to the inspection of mortgaged properties i.e. plant and machinery.
2. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the addition of Rs.40,35,22,309/- on account of loss of sales appreciating that the stock of Rs.40,68,10,503/-was sold as scrap at Rs.32.88 lakhs benefit of reducing the income of RS.47,91,16,254/- on account of settlement with the banks in respect of the loans borrowed by them. The operandi is nothing but a colourable device to escape payment of taxes as held Supreme Court in MDowell & Co Ltd., vs. CTO.”
3. Brief facts are that the assessee company is engaged in the manufacturing of cotton grey fabric and made-up items for export and domestic market. The assessee before the AO during the course of assessment proceedings claimed that there was no business activity from December, 2008. The AO noticed from the details of closing stock as on 31.03.2012, taken as outstanding as opening stock as on 01.04.2012 at ₹ 40,68,10,503/– and as against the same scrap sales disclosed by the assessee during the year was ₹ 32,46,632/-. The AO from the profit and loss account extracted the details of opening stock and scrap sales as under: –
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