COMMISSIONER OF INCOME TAX Vs. INTEGRATED TECHNOLOGIES LTD

JUDGEMENT

(1.) THIS is an appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 (Act, for short) against the order dated 30th April, 2010 passed by the Income Tax Appellate Tribunal (Tribunal, for short), Delhi Bench C in ITA No.1559/Del./2008 in respect of the assessment year 2004-05.

(2.) THE assessee is a company. It filed a return of income on 18.10.2004 declaring a loss of Rs.4,85,08,380/-. THE return was processed under Section 143(1) of the Act but was subsequently picked up for scrutiny and notice under Section 143(2) was issued. In the course of the assessment proceedings, the Assessing Officer noticed that though the assessee has debited expenses amounting to Rs.4,82,93,278/- to the profit and loss account, no business was done in the relevant previous year and there were no purchases or sales or manufacturing activities carried on by the assessee. He further noted that the expenses debited above included depreciation, bad debts, raw material stock written off and administrative expenses. According to the Assessing Officer the expenses were not allowable in computing the business income of the assessee because no business activities were carried on in the relevant previous year. He therefore, proposed to disallow the expenditure claimed by the assessee. In response thereto, the assessee submitted that the administrative expenses were statutory in nature and not related to any business carried on by the assessee and such expenses as were incurred for complying with the legal and statutory requirements under various laws were allowable as deduction.

(3.) THE CIT(Appeals) examined the contentions in detail and recorded the following findings : a) THE assessee was engaged in the manufacture of printed circuit boards and for the assessment years 2000-01, 2001-02, 2002-03 and 2003-04 it had turnover amounting to Rs.0.3 crores, Rs.0.55 crores, Rs.1.87 crores and Rs.0.68 crores respectively. In these years there were net losses as per the accounts and the accumulated losses as on 31.3.2003 came to Rs.13.44 crores. b) Since the accumulated loss exceeded the paid-up capital and free reserves of Rs.10.76 crores, the BIFR had registered the assessees case as case No.165/2004. In this application to the BIFR the assessee had pointed out that though the annual capacity for manufacture of printed circuit boards was 54,000 sq.mts, the assessee could manufacture only 568 sq.mts and 5409 sq.mts in the earlier years. c) THE reason for the assessee becoming sick was the cancellation of orders from international customers subsequent to the terror attacks in USA, and the assessees inability to accept orders for domestic markets because it was a hundred per cent export oriented unit and also insufficient working capital. d) Although there was no production up to 31.3.2007, in the application for admission of its case before the BIFR the assessee had stated that since the second quarter of 2002, the world business scenario has improved and the company has started receiving substantial orders. From these facts the CIT(Appeals) concluded that though the assessee had an intention to restart the manufacturing operations, no such operations were actually undertaken and in that view of the matter it cannot be said that the plant and machinery or other assets were used for the purpose of the assessees business. In support of his view the CIT(Appeals) referred to several judgments of the Calcutta, Madhya Pradesh, Rajasthan and Bombay High Courts. Thus, the disallowance of depreciation was upheld.