Karnataka H.C : The assessee would be entitled to claim depreciation as well as expenditure under s. 32 and s. 37 of the Act, respectively, even when admittedly no business activity is carried on by the assessee during the current assessment year.

High Court Of Karnataka

CIT & Anr. vs. Blend Well Bottles (P)Ltd.

Section 32, 37

Asst. Year 1994-95

K.L. Manjunath & Mrs. B.V. Nagarathna, JJ.

Tax Appeal No. 94 of 2005

17th February, 2010

Counsel Appeared :

M.V. Seshachala, for the Appellants : K.R. Prasad, for the Respondent

JUDGMENT

K.L. Manjunath, J. :

The Revenue has come up in this appeal challenging the concurrent findings of the order passed by the CIT(A), which has been confirmed by the Tribunal in ITA No. l24/Bang/2003, dt. 13th May, 2004.

2. The facts of this case are as hereunder : The respondent-assessee is engaged in the manufacture and sale of Indian made foreign liquor. For the asst. yr. 1994-95 the assessee filed a return of income declaring a loss of Rs. 4,65,540. The matter was taken up for scrutiny assessment. During the course of scrutiny, the AO noticed that for the year ending 31st March, 1994, the assessee had not carried on the manufacturing activities and that the business was closed on account of the local problems. The assessee had claimed the depreciation on the assets amounting to Rs. 2,09,536 on plant and machinery. The AO had not granted the depreciation on the ground that the assessee had not carried on the business activity. Accordingly, the order passed by the AO on 31st Jan., 1997. On an appeal, the CIT(A), came to the conclusion that the assessee has forcibly closed his business activities on account of local problems. Consequently, he allowed the appeal by his order dt. 16th Oct., 2002. Being aggrieved by the same, the Revenue filed an appeal before the Tribunal, which appeal came to be rejected by the Tribunal confirming the order passed by the CIT(A). Challenging the legality and correctness of the same, the present appeal is filed raising the following questions of law :

(1) Whether, the appellate authorities were correct in holding that the assessee would be entitled to claim depreciation as well as expenditure under s. 32 and s. 37 of the Act, respectively, even when admittedly no business activity is carried on by the assessee during the current assessment year.

(2) Whether the appellate authorities were correct in holding that if there is a lull in the business activity or the same is likely to be continued in future, the business can be deemed to have been continued and all expenditures, depreciation can be allowed and the accumulated loss should be permitted to be carried forward.

3. We have heard the counsel for the parties.

4. The main contention of the appellants counsel before us is since the business activities of the assessee had been closed for the relevant assessment year, the assessee was not entitled to claim depreciation as well as expenditure under ss. 32 and 37 of the IT Act. To support his arguments, he has relied upon the judgment of the Supreme Court in CIT vs. Lahore Electric Supply Co. Ltd. (1966) 60 ITR 1 (SC). Relying upon this judgment, he requests the Court to set aside the order passed by the CIT(A), as well as the Tribunal.

5. Per contra, the learned counsel appearing for the respondent-assessee contends that the facts involved in the present case are different from the case involved in Lahore Electric Supply Co. Ltd. (supra). According to him, the aforesaid judgment has no application to the facts and circumstances of the present case. In order to substantiate the same, he contends that the assessee had no intention to close its business. Business was closed on account of the local problems and not on account of any dispute between the employer and employees. Considering the problems in the locality not only the business of the assessee but also the business of others were closed and later on the same has been revived and it is functioning. He further contends that if the business had been closed not on account of the negligence or attributable to the assessee, the Revenue cannot contend that the assessee had closed its business, and it cannot claim depreciation. In the circumstances, he requests the Court to dismiss the appeal.

6. Having heard the counsel for the parties, we are view of the that the questions of law raised in this appeal are to be answered against the Revenue for the following reasons : It is not in dispute that the assessee was carrying on the business in manufacturing the Indian made foreign liquor and the activities of the assessee are continued even today. The business premises of the assessee is situated in Punjab. On account of the riots and other activities in the place, where the factory of the assessee is situated, the assessee was forced to close down the activity till the peace was restored in the locality. This fact is not disputed by the Revenue. If for the reasons which were beyond the control of the assessee, its business activities were closed, such closure cannot be treated as a closure with an intention to close the business once for all and such closure has to be treated as an act of God or vismajeour. The AO has failed to take note of the fact that the assessee did not close its business activities on its own. But, it was on account of unforeseen circumstance. Such closure will not disentitle the assessee to claim the depreciation. The facts involved in Lahore Electric Supply Co. Ltd. (supra) are entirely different. There the business was closed with an intention to close the business once for all and it had no intention to revive its business and the company itself was sold and the company was not a viable company. Therefore, we are of the view that the decision relied upon by the Revenue has no application to the facts of this case. In the circumstances, we are of the view that the Tribunal as well as the CIT were justified in granting relief to the assessee. Accordingly, we hold that no substantial question of law arises in this appeal against the Revenue and in favour of the assessee.

7. Accordingly, the appeal is dismissed.

[Citation : 323 ITR 18]

Malcare WordPress Security