The Commissioner Of Income-Tax v. M/S Krishna Engg. Jalandhar-Ii, Jalndhar

Income-tax Appeal No. 323 of 2007 -1- **** IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Income-tax Appeal No. 323of 2007 Date of decision: 8.12.2010 The Commissioner of Income-Tax ...Appellant Versus M/s Krishna Engg. Jalandhar-II, Jalndhar. ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Vivek Sethi, Advocate for the appellant. Mr. Akshay Bhan, Advocate for the respondent. **** ADARSH KUMAR GOEL, J ( Oral). This appeal has been preferred under Section 260A ofIncome Tax Act, 1961 (hereinafter referred to as 'the Act”) proposingfollowing substantial question of law arising out of order dated9.1.2007 of the Income Tax Appellate Tribunal, Amritsar Bench,Amritsar (hereinafter referred to as “the Tribunal”) passed in ITANo.420(ASR)2003 in respect of assessment year 1998-99:- “Whether on the facts and circumstances of the case theTribunal was right in law in upholding the finding of CIT(A) with regard to allowance of depreciation allowed onassets acquired during the year without fulfilling theconditions laid down u/s 32(1) of the Income-tax Act, **** 1961?” The assessee claimed set off unabsorbed depreciation onassets which were acquired by lost in fire. The Assessing Officerdisallowed the claim by drawing adverse inference on failure of theassessee to furnish the details of its business activities. The CIT(A),however, upheld the plea of the assessee on the ground that onaccount of fire in the factory of the assessee, the assessee could notfurnish the details. The Assessing Officer was directed to re-computethe loss by upholding the claim of unabsorbed depreciation. Theview of CIT(A) has been affirmed by the Tribunal. We have heard learned counsel for the parties. Learned counsel for the revenue submits thatdepreciation has been allowed on new assets of the value ofRs.12,09,98,003/- without any evidence of new assets having beenacquired by the assessee while the CIT(A) could have accepted theclaim of the assessee on existing assets, with regard to claim inrespect of new assets, the CIT(A) should have required someevidence to be led by the assessee for reversing the view of theassessing officer. The evidence could be in the form of verificationfrom the suppliers of the assets or otherwise. In absence thereof, theCIT(A) was not justified in allowing claim for depreciation of hugeamount particularly when the sale of the assessee, as held by theassessing officer. Learned counsel for the assessee supports theimpugned judgments. had gone down and there was no expansionof capacity of the assessee. A perusal of the order of CIT(A) shows that the claim fordepreciation has been allowed on new assets by observing that theAssessing Officer had not disputed the sale or purchase of newassets. The mere fact that assessee could produce copies of billswas not enough to deny the said claim. The Tribunal affirmed thesaid finding as under:- A perusal of the order of CIT(A) shows that the claim fordepreciation has been allowed on new assets by observing that theAssessing Officer had not disputed the sale or purchase of newassets. The mere fact that assessee could produce copies of billswas not enough to deny the said claim. The Tribunal affirmed thesaid finding as under:- “It is, however, patent on record, as also argued before usby the learned counsel for the assessee, besidesobservations made by the learned CIT(A) in the order inchallenge, that it was due to the occurrence of a fire in thebusiness premises of the assesee, that the assessseewas unable to furnish the record including the books ofaccount, bills, vouchers, etc. The factum of occurrenceof fire, pertinently, stands admitted by the A.O. Then, therejection ordered by the A.O. was a blanket rejection, notallowing any expenses incurred by the assessee, at all.”...“Apropos the claim of carry forward of depreciation ofRs.6.95 crores, such claim was disallowed by the A.O. forthe reason of non production of the supporting bills for thenew addition made by the assessee during the year.Depreciation was not allowed by the A.O. even on theopening WDV of old assets. It was not considered thatthe assessee had made sales of Rs.35.44 lacs during theyear, which could not have been possible in the absenceof the necessary infrastructure. Another view expressed by the A.O. was with regard to the addition made to theassets by the assessee, despite huge losses. In thisregard, it was not considered that this issue had clearlyand elaborately been detailed in the annual report of theassessee-company. The assessee had, despite losses,made addition to its assets, so as to maintain the existingfacility and to explore new products. Such course ofaction was materially necessary for mere survival. Then,while observing that it was strange that despite fall insales by 27% over those in the last years, productionexpenses had increased, the A.O. did not take intoconsideration that the loss of Rs.3.13 crores was notrelatable to the rejection of the stocks of the year underconsideration. Moreover, it is also on record that certainexpenses which were not relatable to the expenses in thenormal course, had crept during the year. These includedincrease in the lease rent, bad debts and HP charges.Undeniably, no expenses as not relatable to theassessee's business was point out. Also, the companyhad become sick and had filed an application before theBIFR. This application stands accepted, as per therecord of the proceedings before the BIFR to declare theassessee company as a sick unit, a copy whereof hasbeen filed on pages 16 to 20 of the APB. From this, itbecomes amply evidenced that the slow down and losses in the business of the assessee were genuine and eventhe help of BIFR was sought to over-come the same.” The above finding absolved the assessee from theresponsibility of leading evidence of acquisition of new assets insupport of claim for depreciation of new assets in the form ofverification from the supplier of the assets. Since the CIT(A) as well as the Tribunal have allowedthe claim of the assessee for depreciation on new assets evenwithout verification as to acquisition thereof, the finding recorded hasto be held to be perverse. The question of law has to be answered infavour of the revenue. Accordingly, the appeal is allowed. The orders of the CIT(A) and the Tribunal are set aside to the extent indicated above. Thematter is remanded to CIT(A) for fresh decision. It is made clear thatCIT(A) may look into existing or any other material in accordancewith law. The assessee may appear before the CIT(A) for furtherproceedings on 7.2.2011. (Adarsh Kumar Goel) Judge December 08,2010Pka (Ajay Kumar Mittal) Judge