FGP LTD, MUMBAI V. DCIT 1(1), MUMBAI

CO 93/MUM/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7701 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 20-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 28-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Earning of tax free income; Bad and doubtful debts; Revised return
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI I.P.BANSAL,JUDICIAL MEMBER & SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.5583/MUM/2010(A.Y. 2006-07) ITA NO.7124/MUM/2010(A.Y. 2007-08) FGP LIMITED, COMMERCIAL UNION HOUSE, 9, WALLACE STREET, FORT, MUMBAI 400 001. PAN: AAACF 1671 (APPELLANT) VS. THE DCIT 1(1), AAYKAR BHAVAN, MK MARG, MUMBAI 400 020. (RESPONDENT) ITA NO.5284/MUM/2010(A.Y.2006-07) ITA NO.6730/MUM/2010(A.Y. 2007-08) THE DCIT 1(1), AAYKAR BHAVAN, MK MARG, MUMBAI 400 020. (APPELLANT) VS. FGP LIMITED, COMMERCIAL UNION HOUSE, 9, WALLACE STREET, FORT, MUMBAI 400 001. PAN: AAACF 1671 (RESPONDENT) C.O.NO.93/MUM/2011 (ARISING OUT OF ITA NO.5284/MUM/2010,A.Y. 2006-07) FGP LIMITED, COMMERCIAL UNION HOUSE, 9, WALLACE STREET, FORT, MUMBAI 400 001. PAN: AAACF 1671 (CROSS OBJECTOR) VS. THE DCIT 1(1), AAYKAR BHAVAN, MK MARG, MUMBAI 400 020. (APPELLANT IN APPEAL) ASSESSEE BY : SHRI GIRISH DAVE REVENUE BY : SHRI RAJARSHI DWIVEDY M/S. FGP LIMITED, 2 DATE OF HEARING : 20/09/2012 DATE OF PRONOUNCEMENT : 28 /09/2012 ORDER PER I.P.BANSAL, J.M CROSS APPEALS AND CROSS OBJECTION BY THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 ARE DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-I, MUMBAI DATED 9/2/2010. CROSS APPEALS FOR ASSESSMENT YEAR 2007-08 ARE DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-I, MUMBAI D ATED 20/01/2010. 2. AT THE OUTSET IT WAS SUBMITTED BY THE LD. A.R T HAT MANY OF THE ISSUES RAISED IN THESE APPEALS ARE COMMON AND COVERED BY T HE EARLIER DECISIONS OF THE TRIBUNAL. HE HAS SUBMITTED BEFORE US A CHART SHOWING THE ASSESSMENT YEAR, ISSUES INVOLVED AND RELEVANT PARAS OF THE OR DER OF AO AND LD. CIT(A) AND ALSO THE PARAS NUMBERS AND PAGE NUMBERS OF THE ORDERS OF THE TRIBUNAL VIDE WHICH THOSE ISSUES HAVE BEEN STATED TO BE COV ERED. A COPY OF THE SAID CHART WAS ALSO GIVEN TO LD. D.R. ON THE BASIS OF THE SAID CHART ALL THESE APPEALS AND CROSS OBJECTION WERE ARGUED. 3. GROUNDS RAISED IN ALL THE APPEALS AS WELL AS CRO SS OBJECTION ARE AS UNDER: GROUNDS OF ITA NO.5583/MUM/2010(A.Y. 2006-07): 1.THE COMMISSIONER OF INCOME-TAX (APPEALS) I, MUMB AI [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED IN CONFIRMING THE ACTION OF THE AO IN TREATING BUSINESS CENTRE INCOME OF RS.904,909 AS I NCOME FROM OTHER SOURCES AS AGAINST THE APPELLANTS CLAIM THAT IT IS PROFITS & GAINS FROM BUSINESS OR PROFESSION. 2. THE CIT(A) FAILED TO APPRECIATE AND/OR OVERLOOKE D THAT THE BUSINESS OF THE ASSESSEE WAS NOT CLOSED NOR WAS IT DISCONTIN UED. 3. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING A SUM OF RS.153,5L7BEING VRS EXPENSES. M/S. FGP LIMITED, 3 4. THE CIT(A) OUGHT TO HAVE ALLOWED PROFESSIONAL FE ES OF RS.4,993,077 AS BUSINESS EXPENDITURE. 5. THE CIT(A) OUGHT TO HAVE ALLOWED EMPLOYEE COSTS OF RS.1,016,873 AS BUSINESS EXPENDITURE. 6. THE CIT(A) OUGHT TO HAVE ALLOWED DEPRECIATION ON PLANT AND MACHINERY OF RS.9 1,265 AS BUSINESS EXPENDITURE. 7. (A) THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO OF APPLYING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D IN COMPUTING THE AMOUNT OF EXPENDITURE OF RS.447,975 (ERRONEOUSLY S TATED IN THE CIT(A) ORDER AS RS.813,713, BEING THE EXEMPT DIVIDEND INC OME) INCURRED IN RELATION TO EARNING OF DIVIDEND INCOME. THE APPELLANTS SUBMIT THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT DIVIDEND INCOME. (B) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE P ROVISIONS OF RULE 8D WHICH WERE INTRODUCED W.E.F. 24TH MARCH, 2008 WERE NOT APPLICABLE TO THE ABOVE YEAR. (C) WITHOUT PREJUDICE TO THE ABOVE AND IN ANY EVENT , THE APPELLANTS SUBMIT THAT THE CIT(A) OUGHT TO HAVE DIRECTED THE A O TO RECOMPUTE THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D BY APPORTIONING 0.5% OF AVERAGE INVESTMENTS, THE INCOME FROM WHICH IS NOT TAXABLE AS ADMINISTRATIVE EXPENSES (I.E CLAUSE (III) OF RULE 8 D) AS AGAINST THE TOTAL INVESTMENTS (I.E. THE BOTH THE INVESTMENTS EARNING TAXABLE INCOME AND THE INVESTMENTS EARNING TAX-FREE INCOME) (I.E. DISA LLOWANCE PER AO - 0.5% OF RS.89,595,000= RS.447,975) THE APPELLANTS SUBMIT THAT IN ACCORDANCE WITH THE P ROVISIONS OF RULE 8D, THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO REC OMPUTE THE DISALLOWANCE BY CONSIDERING ONLY THE 0.5% OF THE AV ERAGE VALUE OF INVESTMENTS, THE INCOME FROM WHICH IS TAX-FREE I.E. 0.5% OF RS.53,595,000 RS.267,975. ACCORDINGLY, THE DISALLOW ANCE UNDER SECTION 14A READ WITH RULE 8D WILL WORK OUT TO RS.2 67,975 (PER COMPUTATION ENCLOSED). THIS HAS RESULTED IN EXCESS DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF RS. 180,000 (I.E R S. 447,975 - RS.267,975). (D) WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANTS SUBMIT THAT, THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO RECOMPUTE T HE DISALLOWANCE BY CONSIDERING ONLY THE 0.5% OF THE AVERAGE VALUE OF I NVESTMENTS, THE TAX- FREE INCOME FROM WHICH HAS BEEN RECEIVED DURING THE YEAR I.E. 0.5% OF RS.4 1,549,000 = RS.207,745. ACCORDINGLY, THE DISAL LOWANCE UNDER M/S. FGP LIMITED, 4 SECTION 14A READ WITH RULE 8D WILL WORK OUT TO RS. 207,745 (PER COMPUTATION ENCLOSED). THIS HAS RESULTED IN EXCESS DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF RS. 240,230 (I.E R S. 447,975 -RS. 207,745). 8. THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO EXCL UDE AN AMOUNT OF RS.7,229,180 BEING CREDIT BALANCES WRITTEN BACK DUR ING THE YEAR UNDER CONSIDERATION, IN COMPUTING THE TAXABLE INCOME. THE APPELLANTS SUBMIT THAT THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE AFORESAID AMOUNT OF RS.7,229,180 FORM S A PART OF RS.8,094,091, WHICH HAS BEEN BROUGHT TO TAX IN THE ASSESSMENT YEAR 2003-04 UNDER SECTION 41(1) OF THE ACT. 9. THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO EXCL UDE AN AMOUNT OF RS. 197,621 BEING PROVISION FOR WEALTH TAX WHICH HA S BEEN WRITTEN BACK DURING THE YEAR UNDER CONSIDERATION COMPUTING THE TAXABLE INCOME. THE APEL1ANTS SUBMIT THAT SINCE THE PROVISION FOR W EALTH TAX HAS BEEN ADDED WHILE COMPUTING THE TAXABLE INCOME FOR THE EA RLIER YEARS, THE WRITE BACK OF SUCH AMOUNT SHOULD BE EXCLUDED WHILE COMPUTING TAXABLE INCOME IN THE ASSESSMENT YEAR 2006-07. GROUNDS OF ITA NO.7124/MUM/2010(A.Y. 2007-08): 1. THE COMMISSIONER OF INCOME-TAX (APPEALS) I, MUMB AI [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED IN CONFIRMING THE ACTION OF THE AO IN TREATING BUSINESS CENTRE INCOME OF RS. 1,799,800 AS INCOME FROM OTHER SOURCES AS AGAINST THE APPELLANTS CLAIM THAT IT IS PROFITS & GAINS FROM BUSINESS OR PROFESSION. 2. THE CIT(A) FAILED TO APPRECIATE AND/OR OVERLOOKE D THAT THE BUSINESS OF THE ASSESSEE WAS NOT CLOSED NOR WAS IT DISCONTIN UED. 3. (A) THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING EMPLOYEE COSTS OF RS.997,000. THE APPELLANTS SUBMIT THAT THESE EXPENSES ARE INCUR RED IN THE NORMAL COURSE OF BUSINESS AND ARE ALLOWABLE AS BUSINESS EX PENDITURE / AGAINST INCOME FROM OTHER SOURCES. M/S. FGP LIMITED, 5 (B) THE CIT(A) HAVING CONCLUDED IN THE IMPUGNED ORD ER THAT THE EMPLOYEE COST IS ALLOWABLE AS A DEDUCTION, ERRED IN STATING THEREIN THAT THE ISSUE OF DISALLOWANCE OF EMPLOYEE COSTS DID NOT EMANATE FROM THE ASSESSMENT ORDER. 4. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING BAD DEBTS WRITTEN OFF DURING THE YEAR OF RS.7,914,8 17. THE APPELLANTS SUBMIT THAT THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE AMOUNT OF BAD DEBTS WAS WRITTEN OFF D URING THE YEAR AND HENCE OUGHT TO HAVE ALLOWED THE SAME AS A DEDUCTION . 5. THE CIT(A) OUGHT TO HAVE ALLOWED ADMINISTRATIVE EXPENSES OF RS.5,970,000 AS BUSINESS EXPENDITURE. 6. THE CIT(A) OUGHT TO HAVE ALLOWED DEPRECIATION ON PLANT AND MACHINERY OF RS.77,575 AS BUSINESS EXPENDITURE. (A) THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO OF APPLYING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D IN COMP UTING THE AMOUNT OF EXPENDITURE OF RS.263,120 INCURRED IN RELATION TO EARNING OF DIVIDEND INCOME. THE APPELLANTS SUBMIT THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT DIVIDEND INCOME. (B) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE P ROVISIONS OF RULE 8D WHICH WERE INTRODUCED W.E.F. 24TH MARCH, 2008 WERE NOT APPLICABLE TO THE ABOVE YEAR. (C) WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANTS SUBMIT THAT, THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO RECOMPUTE T HE DISALLOWANCE BY CONSIDERING ONLY THE 0.5% OF THE AVERAGE VALUE OF INVESTMENTS FROM WHICH TAX FREE INCOME IS RECEIVABLE I.E. 0.5% OF RS .16,624,000 = RS.83,120. ACCORDINGLY, THE DISALLOWANCE UNDER SECT ION 14A READ WITH RULE 8D WILL WORK OUT TO RS.83,120 (PER COMPUTATION ENCLOSED). THIS HAS RESULTED IN EXCESS DISALLOWANCE UNDER SECTION 1 4A READ WITH RULE 8D OF 180,000 (I.E RS. 263,120 - RS.83,120). GROUNDS OF ITA NO.5284/MUM/2010(A.Y. 2006-07): 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE PROFESSIONAL M/S. FGP LIMITED, 6 EXPENSES OF REVENUE NATURE U/S. 57(III) OF THE ACT AGAINST THE INCOME FROM OTHER SOURCES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE EMPLOYEE COST OF RS.10,16,873/- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER T O ALLOW THE DEPRECIATION OF RS.91,265/- ON PLANT AND MACHINERY . 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) ERRED IN ALLOWING THE ASSESSEES GROUND OF APPEAL ON THE ISSUE OF THE ALLOWANCE OF EXPENSES OF RS.90,490/- MADE BY THE ASSESSING OFFICER ON ADHOC BASIS AT 10% OF BUSINESS CENTRE UNDER THE HEAD INCOME FROM OTHER SOURCES. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) ERRED IN DELETING THE DISALLOWANCE OF ADMIN ISTRATIVE EXPENSES OF RS. 22,98,146/- WHILE COMPUTING THE BUSINESS INCOME . GROUNDS OF ITA NO.6730/MUM/2010(A.Y. 2007-08): 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, AND IN LAW THE CIT (A) ERRED IN DIRECTING TO ALLOW DEPRECI ATION OF RS.77,575/- ON PLANT AND MACHINERY. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AIM CIT (A) ERRED IN DIRECTING TO ALLOW EXPENSES OF RS. 1,79,980/-. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW THE CIT (A) ERRED IN DIRECTING TO ALLOW ADMINIS TRATIVE EXPENSES OF RS. 59,70,000/-. GROUNDS OF CROSS OBJECTION: THE RESPONDENTS SUBMIT THAT THE CIT(A) OUGHT TO HA VE ALLOWED THE OTHER ADMINISTRATIVE EXPENSES OF RS.22,98,146 AS BU SINESS EXPENDITURE. THE RESPONDENTS CRAVE LEAVE TO ADD, TO AMEND ALTER, VARY, OMIT OR SUBSTITUTE THE ABOVE GROUND OF CROSS OBJECTION OR A DD A NEW GROUND OR GROUNDS AT ANY TIME BEFORE OR AT THE TIME OF HEARIN G, AS THEY MAY BE ADVISED. M/S. FGP LIMITED, 7 4. THE MAIN LEAD ORDER OF THE TRIBUNAL GOVERNING CO VERED ISSUES IS AN ORDER DATED 15/10/2010 PASSED IN THE CROSS APPEALS NOS. 2653/MUM/2007, APPEAL FILED BY THE ASSESSEE AND IN ITA NO.2457/MUM/2007, AN APPEAL FILED BY THE DEPARTMENT . 5. FACTS IN BRIEF WHICH ARE RELEVANT AND COMMON FOR DECIDING ALL THESE APPEALS AND CROSS OBJECTION ARE AS UNDER: 5.1 THE NATURE OF INCOME RECEIVED BY THE ASSESSEE IN THE IMPUGNED ORDERS IS INCOME FROM BUSINESS CENTER. THE ASSESSE E IN EARLIER YEARS WERE CARRYING ON SOME OTHER BUSINESS, WHICH WAS CLOSED. AFTER CLOSURE OF THE SAID BUSINESS THE ASSESSEE COMPANY HAD PASSED A RESOLU TION FOR MAKING PRODUCTIVE USE OF ITS PREMISES FOR RUNNING THE SAME AS BUSINESS CENTER UNDER THE PROVISIONS OF CLAUSE 34 OF THE OBJECT CLA USE OF THE MEMORANDUM OF ASSOCIATION, WHICH AUTHORIZED THE ASSESSEE TO CARRY ON ANY OTHER BUSINESS DIRECTLY OR INDIRECTLY TO ENHANCE THE VALUE OR REN DER PROFITABLE ANY OF THE COMPANYS PROPERTIES. THE SAID RESOLUTION WAS APPRO VED IN THE 38 TH ANNUAL GENERAL MEETING OF THE COMPANY. IN PURSUANCE OF SU CH RESOLUTION THE COMPANY HAD DEVELOPED THE BUSINESS CENTER IN TWO PH ASES AS IT WAS CLEAR FROM 39 TH ANNUAL REPORT OF THE COMPANY. THE ASSESSEE COMPAN Y HAD SPENT SUBSTANTIAL AMOUNT ON DEVELOPMENT OF THE PREMISES U SED AS BUSINESS CENTRE. ALL THESE FACTS ARE MENTIONED IN PARA 2.2. 5 OF THE AFOREMENTIONED ORDER OF THE TRIBUNAL FOR A.Y 2003-04. ON THESE FA CTS IT WAS THE OPINION OF THE DEPARTMENT THAT SINCE ASSESSEE HAD CLOSED ITS EARLIER BUSINESS AND HAS STARTED RUNNING THE BUSINESS CENTRE THE INCOME WAS NO MORE ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. IT WAS ASSE SSABLE UNDER THE HEAD OTHER SOURCES. THEREFORE, DEPARTMENT TREATED THE INCOME EARNED BY THE ASESSEE FROM BUSINESS CENTER AS INCOME FROM OTHER SOURCES AND DISALLOWED VARIOUS EXPENDITURE IN THE NATURE OF (I) VRS PAYME NT; (II) PROFESSIONAL FEES; (III) DEPRECIATION; (IV) EMPLOYEES COST ; (V) OTHER ADMINISTRATIVE EXPENSES M/S. FGP LIMITED, 8 DEBITED TO P&L ACCOUNT; (VI) DISALLOWANCE UNDER SEC TION 14A AND SHORTFALL IN TDS ETC. 5.2 THEREFORE, THE SUM AND SUBSTANCE OF THE STAND T AKEN BY THE DEPARTMENT IN THE PRESENT CASE IS THAT THE INCOME E ARNED BY THE ASSESSEE FROM BUSINESS CENTER CANNOT BE TREATED AS INCOME FR OM BUSINESS. SINCE THE INCOME EARNED BY THE ASSESSEE FROM BUSINESS CENTER WAS IN THE NATURE OF INCOME FROM OTHER SOURCES, ASSESSEE WAS NOT ENTITLE D TO GET EXPENDITURE CLAIMED TO HAVE BEEN INCURRED. AFTER NEGATING THE CLAIM OF THE ASSESSEE REGARDING CHARTER OF INCOME AND TREATING THE SAME A S INCOME FROM OTHER SOURCES AO HAS DISALLOWED 10% OF THE INCOME EARNED FROM BUSINESS CENTER AND ALSO DEPRECIATION FOR WHICH ASSESSEE WAS ELIGI BLE AND IN THIS MANNER NIL INCOME SHOWN BY THE ASSESSEE WAS ASSESSED AT AN INC OME OF RS.64,61,080/- AS PER FOLLOWING COMPUTATION: BUSINESS INCOME AS PER COMPUTATION RS. 30,71,724 /- LESS: BUSINESS CENTRE CHARGES TREATED AS INCOME FROM OTHER SOURCES RS. 9,0 4,909/- RS. 21,66,815/- ADD: DISALLOWANCE AS PER ORDER VRS PAYMENT RS. 1,53,517/- PROFESSIONAL FEES RS. 49,93,077/- DEPRECIATION RS. 6,87,035/- EMPLOYEES COST RS. 10,16,873/- OTHER ADMINISTRATIVE EXPENSE DEBITED TO P&L ACCOUNT RS. 22,98,146/- DISALLOWANCE U/S. 14A OF THE ACT RS. 4,47,975/- SHORTFALL IN TDS RS. 10,14,009/- RS. 1,06,10 ,632/- BUSINESS INCOME RS.1,27,77,447/- LESS: BROUGHT FORWARD LOSSES TO THE EXTENT ABOVE RS.1,27,77,447/- NET BU SINESS INCOME RS. NIL INCOME FROM OTHER SOURCES : INTEREST AND DIVIDEND INCOME RS.70,56,147/- BUSINESS CENTRE INCOME RS. 9,04,909/ - LESS: 10% OF THE ABOVE RS. 90,49 0/- DEPRECIATION RS. 5,95, 770/- RS. 2,18,649/- RS. 72,74,796/- LESS: DIVIDEND INCOME EXEMPT RS. 8,13 ,713/- RS. 64,61,083/- TO TAL TAXABLE INCOME RS.64,61,080/- M/S. FGP LIMITED, 9 5.3 SIMILARLY FOR A.Y 2007-08 THE INCOME OF THE ASS ESSEE HAS BEEN COMPUTED AS UNDER: BUSINESS AS PER RETURN RS. (79,14,817) ADD: BAD DEBTS DISALLOWED RS. 79,14,817/- BUSINESS INCOME NIL INCOME FROM OTHER SOURCES RS. 90,30,555 LESS EXPENDITURE ALLOWABLE RS. 1,79,980 DEPRECIATION RS. 526,309 RS. 83,24,246 LESS: EXEMPT DIVIDEND & INTEREST RS. 1,35,021 ADD: DISALLOWANCE U/S.14A RS. 2,63,120 TOTAL INCOME RS. 84,52,345 ROUNDED OFF RS. 84,52,350 THE MATTER WAS CARRIED IN AN APPEAL FIELD BEFORE L D. CIT(A) AGITATING THE ACTION OF THE AO AND ASSAILING ALL THE ADDITIONS MA DE BY THE AO IN RESPECT OF BOTH THE YEARS. LD. CIT(A) HAS NEGATED THE CLAIM O F THE ASSESSEE REGARDING THE NATURE AND CHARACTER OF THE INCOME AND HE HAS U PHELD THE ACTION OF THE AO FOR THE REASON THAT SIMILAR CLAIM WAS REJECTED B Y HIS PREDECESSOR IN RESPECT OF ASSESSMENT YEARS 2004-05 AND 2005-06. T HE LD. CIT(A) HAS ALSO NEGATED THE CLAIM REGARDING VRS PAYMENT, PROFESSION AL FESS EXPENSES AND EMPLOYEES COST BY FOLLOWING AFOREMENTIONED ORDER PASSED BY HIS PREDECESSOR IN RESPECT OF ASSESSMENT YEAR 2004-05 A ND 2005-06. HOWEVER, IN RESPECT OF DEPRECIATION LD. CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE FOLLOWING THE ORDER LD. CIT(A) FOR ASSESSMENT 2005- 06. HE ALSO ALLOWED CLAIM OF THE ASSESSEE REGARDING DISALLOWANCE ON ADH OC EXPENSES OF 10%. 5.4 SO FAR AS IT RELATES TO ALLOWABILITY OF OTHER A DMINISTRATIVE EXPENSES OF RS. 22,98,146/- ALSO LD. CIT(A) HAS DECIDED THE ISS UE IN FAVOUR OF THE ASSESSEE FOLLOWING THE PREDECESSORS ORDER IN RESPEC T OF ASSESSMENT YEARS 2004-05 AND 2005-06. ON THE ISSUE OF DISALLOWANCE MADE UNDER SECTION 14A, LD. CIT(A) FOLLOWING THE SPECIAL BENCH DECISIO N IN THE CASE OF DAGA M/S. FGP LIMITED, 10 CAPITAL MANAGEMENT LTD.(ITA NO.8057/MUM/2003 ORDER DATED 20/10/2008) AND HAS CONFIRMED THE DISALLOWANCE. S O FAR AS IT RELATES TO ADDITION MADE ON ACCOUNT OF SHORT DEDUCTION OF TAX, LD. CIT(A) HAS RESTORED THE MATTER BACK TO THE FILE OF AO AND IN THIS MANNE R APPEAL HAS BEEN DECIDED BY LD. CIT(A) PARTLY IN FAVOUR OF THE ASSES SEE AND PARTLY IN FAVOUR OF THE REVENUE. SIMILAR VIEW HAS BEEN TAKEN BY LD. CI T(A) IN RESPECT OF A.Y 2007-08. 5.5 ON THE ISSUES WHICH HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE THE DEPARTMENT HAS FILED AFOREMENTIONED GROUNDS OF APPE AL AND ON THE ISSUES WHICH HAVE BEEN DECIDED AGAINST THE ASSESSEE THE A SSESSEE HAS FILED AFOREMENTIONED APPEALS AND CROSS OBJECTION. 5.6 ALL THESE APPEALS WERE ARGUED TOGETHER BY BOTH THE PARTIES AND FOR THE SAKE OF CONVENIENCE ALL THESE APPEALS AND CROSS OBJ ECTION ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 6. GROUND NO.1&2 OF ASSESSEES BOTH APPEALS FOR 20 06-07 AND 2007-08 RAISE COMMON ISSUE VIDE WHICH IT HAS BEEN CONTENDED THAT LD. CIT(A) HAS ERRED IN TREATING THE INCOME OF BUSINESS CENTER AS INCOME FROM OTHER SOURCES AND LD. CIT(A) HAS OVERLOOKED THAT BUSINES S OF THE ASSESSEE WAS NOT CLOSED NOR IT WAS DISCONTINUED. THESE GROUNDS ARE STATED TO BE COVERED BY THE ORDER OF TRIBUNAL DATED 15/12/2010 PASSED IN ITA NOS. 2653/M/2007 & 2457/M/2007 IN THE CASE OF ASSESSEE. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE AS FOLLOWS: 2.2.7 ON CAREFUL CONSIDERATION OF THE VARIOUS ASPE CTS OF THE MATTER AS WELL AS THE VARIOUS JUDGMENTS PLACED ON RECORD WE ARE OF THE VIEW THAT RENTAL INCOME ON THE FACTS OF THE CASE HAS TO BE ASSESSED AS BUSINESS INCOME. IT IS NOT A CASE OF SIMPLE LETTING OUT OF THE PROPERTY TO ENJOY THE RENTAL INCOME. THE ASSESSEE HAS DEVELOPED THE PROPERTY AND ALSO MA DE PROVISIONS FOR VARIOUS SERVICES AS MENTIONED EARLIER WITH A VIEW T O COMMERCIALLY EXPLOIT THE PROPERTY. THE PROPERTY HAS BEEN LET OUT WITH VARIOU S FACILITIES AND AMENITIES FOR CORPORATE CLIENTS SUCH AS BOARD ROOM FACILITIES , LETTERS RECEIPT/DISPATCH M/S. FGP LIMITED, 11 FACILITIES, COMPUTER WITH INTERNET FACILITIES, SECU RITY ARRANGEMENTS IN ADDITION TO TELEPHONE AND ELECTRICITY AND WATER FACILITIES E TC. THE INCOME HAS THEREFORE TO BE ASSESSED AS BUSINESS INCOME. THIS VIEW IS SU PPORTED BY THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF S.G.MERCANTILE CORPORATION PVT. LTD. VS CIT (83 ITR 700). IN THE SAID CASE ONE OF THE OBJEC T OF THE ASSESSEE IN ITS MEMORANDUM OF ASSOCIATION WAS TO TAKE ON LEASE OR O THERWISE ACQUIRE AND TO HOLD, IMPROVE, LEASE OR OTHERWISE DISPOSE OF LAND, HOUSES AND OTHER REAL ESTATE AND PERSONAL PROPERTIES AND TO DEAL WITH THE SAME COMMERCIALLY. THE ASSESSEE HAD TAKEN ONE PROPERTY WHICH WAS REMODELED AND REPAIRED SO AS TO MAKE IT FIT FOR SUBLETTING AS SHOP, STALLS AND GROU ND SPACE TO SHOPKEEPERS ETC. THE ISSUE WAS WHETHER RENTAL INCOME SHOULD BE ASSESSED AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES. HONBLE SUPREM E COURT OBSERVED THAT TAKING THE PROPERTY ON LEASE AND SUBLETTING PORTION THEREOF WAS PART OF BUSINESS OF THE ASSESSEE AND THEREFORE THE INCOME H AD TO BE ASSESSED AS BUSINESS INCOME SINCE THE ASSESSEE WAS NOT OWNER OF THE PROPERTY. THE CASE OF THE ASSESSEE IS SIMILAR. THE DECISION OF THE TRI BUNAL IN CASE OF HARVINDERPAL MEHTA (HUF) VS DCIT (122 TTJ 163) ALSO SUPPORTS THE CASE OF THE ASSESSEE. IN THAT CASE ALSO THE ASSESSEE WAS RUNNING A BUSINE SS CENTRE IN THE PREMISES WITH VARIOUS FACILITIES SUCH AS RECEPTIONIST, TELEP HONE OPERATOR, COMMON WAITING/ GUEST ROOM, CENTRALIZED AIR CONDITIONING W ITH OTHER SERVICES LIKE SWEEPER, TELEPHONE, FURNITURE, FAX MACHINES ETC. TH E TRIBUNAL OBSERVED THAT THE OBJECT OF THE ASSESSEE WAS TO RUN THE BUSINESS CENTRE BY EXPLOITING THE PROPERTY AND NOT MERE LETTING OUT THE SAME ON RENT. IT WAS ACCORDINGLY HELD THAT THE INCOME HAD TO BE ASSESSED AS INCOME FROM B USINESS. THE LEARNED DR HAS PLACED RELIANCE ON THE JUDGMENT OF HONBLE H IGH COURT OF GUJARAT IN CASE OF HARIKRISHNA FAMILY TRUST VS CIT (306 ITR 30 3) IN SUPPORT OF THE CASE OF THE DEPARTMENT. THE SAID CASE IN OUR VIEW IS DIS TINGUISHABLE. THE ASSESSEE IN THAT CASE HAD TAKEN THE PROPERTY ON LEASE WHICH WAS INCOMPLETE AND AFTER COMPLETING THE CONSTRUCTION THE ASSESSEE LET OUT TH E PREMISES TO POSTS & TELEGRAPH DEPARTMENT. THE PROPERTY HAD NOT BEEN DEV ELOPED TO PROVIDE FOR ANY OTHER SERVICES. IT WAS A CASE OF SIMPLE LETTING OUT OF THE PROPERTY TO ENJOY THE RENTAL INCOME FROM A SINGLE TENANT. IT WAS UNDE R THESE CIRCUMSTANCES THAT THE HIGH COURT HELD THAT THE INCOME HAD TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THE CASE OF THE ASSESSEE IS DIFFEREN T AS POINTED OUT EARLIER AS IN THIS CASE THE PREMISES HAD BEEN DEVELOPED AS A B USINESS CENTRE AND SUBLET TO CORPORATE ENTITIES ALONG WITH VARIOUS SER VICES AND FACILITIES. WE THEREFORE HOLD THAT THE RENTAL INCOME IN THIS CASE HAS TO BE ASSESSED AS BUSINESS INCOME. THE ORDER OF CIT(A) IS SET ASIDE A ND THE CLAIM OF THE ASSESSEE IS ALLOWED. THE AFOREMENTIONED DECISION WAS LATER ON FOLLOWED B Y TRIBUNAL IN ASSESSMENT YEAR 2004-05 AND 2005-06 VIDE ORDERS DAT ED 21/10/2011 AND 11/7/2012 RESPECTIVELY. COPIES OF ALL THESE ORDE RS ARE PLACED ON OUR RECORD. RESPECTFULLY FOLLOWING THE ABOVE MENTIONED DECISIONS OF TRIBUNAL IN ASSESSEES OWN CASE, AFTER HEARING BOTH THE PARTIES , WE DECIDE THESE GROUNDS M/S. FGP LIMITED, 12 IN FAVOUR OF THE ASSESSEE FOLLOWING THE AFOREMENTIO NED OBSERVATIONS. THESE GROUNDS ARE ALLOWED. 7. GROUND NO.3 FOR ASSESSMENT 2006-07 OF ASSESSEE S APPEAL IS REGARDING DISALLOWANCE OF VRS EXPENSES. THIS GROUN D IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE CA SE OF ASSESSEE FOR A.Y 2003-04 VIDE PARA 2.4.2. THE SAME IS REPRODUCED AS UNDER: 2.4.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. WE HAVE ALREADY HELD VIDE PARA 2.4.2 OF THIS ORDER TH AT INCOME FROM BUSINESS CENTRE HAS TO ASSESSED AS BUSINESS INCOME AND THERE FORE PROVISIONS OF SECTION 35DDA WILL BE APPLICABLE IN CASE OF THE ASS ESSEE AS PER WHICH ANY EXPENDITURE IN CONNECTION WITH ANY VRS SCHEME HAS T O BE ALLOWED IN FIVE EQUAL INSTALLMENTS STARTING WITH THE YEAR IN WHICH THE EXPENDITURE WAS INCURRED. THE AO IS THEREFORE DIRECTED TO ALLOW THE EXPENDITURE UNDER THE PROVISIONS OF SECTION 35DDA. RESPECTFULLY FOLLOWING THE SAME THIS GROUND IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. 8. GROUND NO.4 OF ASSESSEES APPEAL AND GROUND NO.1 OF REVENUESS APPEAL FOR A.Y 2006-07 IS WITH REGARD TO DISALLOWAN CE OF PROFESSIONAL FEES OF RS. 49,93,077/0, WHICH WAS CLAIMED BY THE ASSESSEE AS BUSINESS EXPENDITURE AND ALLOWED BY THE LD. CIT(A) AGAINST I NCOME FROM OTHER SOURCES. THESE GROUNDS ARE COVERED BY THE FOLLOWI NG OBSERVATIONS OF THE TRIBUNAL FOR A.Y 2003-04 VIDE PARA 2.7..3 2.7.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITURE OF RS.32,56,724/-. THE DETAILS OF EXPENDITURE HAVE BEE N GIVEN IN PARA 2.7 EARLIER. THE AO HAS HELD THAT THE EXPENDITURE EITHE R PERTAINED TO THE DISCONTINUED BUSINESS OR TO THE CAPITAL ASSET OF TH E COMPANY AND THEREFORE HE DISALLOWED THE CLAIM. CIT(A) HAS DIRECTED THE AO TO EXAMINE THE NATURE OF EXPENSES AND CAPITALIZE SUCH EXPENSES WHICH RELATED TO THE CAPITAL ASSET OF THE COMPANY AND TO ALLOW THE PROFESSIONAL EXPENSES OF REVENUE IN NATURE UNDER INCOME FROM OTHER SOURCES. WE FIND NO INFIR MITY IN THE ORDER OF CIT(A) DIRECTING THE AO TO EXAMINE THE NATURE OF EXPENSES AND CAPITALIZE ALL M/S. FGP LIMITED, 13 EXPENDITURE RELATED TO CAPITAL ASSET OF THE COMPANY . AS REGARDS THE DIRECTION OF CIT(A) TO ALLOW PROFESSIONAL EXPENSES OF REVENUE IN NATURE AGAINST INCOME FROM OTHER SOURCES, WE MODIFY THE DIRECTION AND HO LD THAT THESE EXPENSES WILL BE ALLOWED AGAINST THE BUSINESS INCOME SINCE W E HAVE ALREADY HELD THAT INCOME FROM BUSINESS CENTRE HAS TO BE ASSESSED AS B USINESS INCOME. WE DISPOSE OFF THE GROUND ACCORDINGLY. THE AFOREMENTIONED ORDER WAS FOLLOWING IN A.Y 2004- 05 AND 2005-06. ACCORDINGLY THIS GROUND OF THE ASSESSEES APPEAL IS ALLOWED AND REVENUES APPEAL IS DISMISSED. 9. GROUND NO.5 FOR ASSESSMENT YEAR 2006-07 AND GROU ND NO.3 FOR A.Y 2007-08 OF ASSESSEES APPEAL AND GROUND NO.2 OF REV ENUES APPEAL FOR A.Y 2006-07 IS WITH REGARD TO DISALLOWANCE ON ACCOUNT O F EMPLOYEES COST. THESE GROUNDS ARE COVERED BY THE AFOREMENTIONED ORDER OF THE TRIBUNAL FOR A.Y 2003-04 VIDE PARA 2.9.3. 2.9.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITURE OF RS.11,70,000/- ON ITEMS SUCH AS INSURANCE, TELEPHONE, SECURITY, TRAVELING, MOTOR VEHICLE ETC AND THE EXPENDITURE ON REMUNERATION TO THE MANAGER. CIT(A) HAS ALLOWED THE EXPENDITURE AGAINST INCOME FROM OTHER SOURCES. THE CASE OF THE ASSESSEE IS THAT EXPENDITURE SHOULD BE ALLOWED AGAINST BUSINESS INCOME. WE HAVE ALREADY HELD THAT THE INCOME FROM THE BUSINESS CENT RE HAS TO BE ASSESSED AS BUSINESS INCOME AND THEREFORE WE HOLD THAT THE EXPE NDITURE WILL BE ALLOWED WHILE COMPUTING THE INCOME FROM THE BUSINESS CENTRE . 9.1 ACCORDING TO THE AFOREMENTIONED OBSERVATIONS TH E GROUND TAKEN BY THE ASSESSEE WAS ALLOWED AND ACCORDING TO THE FOLLOWING OBSERVATION THE ISSUE RAISED BY THE REVENUE WAS DISMISSED. 3.2.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE R ECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLO WABILITY OF PROFESSIONAL EXPENSES. CIT(A) HAS ALLOWED THE CLAIM AGAINST INC OME FROM OTHER SOURCES WITH WHICH THE REVENUE IS AGGRIEVED. WE HAVE ALREAD Y CONSIDERED THE ISSUE WHILE DEALING WITH THE APPEAL OF THE ASSESSEE AND H ELD THAT THE CLAIM HAS TO BE ALLOWED AGAINST THE BUSINESS INCOME VIDE PARA 2. 7.3 OF THIS ORDER AS WE HAVE HELD THAT INCOME FROM BUSINESS CENTRE HAS TO B E ASSESSED AS BUSINESS M/S. FGP LIMITED, 14 INCOME. THE EXPENDITURE WILL THEREFORE BE ALLOWED A GAINST THE BUSINESS INCOME AND THE GROUND RAISED BY THE REVENUE IS DISM ISSED. ACCORDINGLY ASSESSEE GROUNDS FOR BOTH THE YEARS ARE ALLOWED AND DEPARTMENTS GROUND IS DISMISSED. 10. GROUND NO.6 OF ASSESSEES APPEAL FOR A.Y 2006- 07 AND 2007-08 AND GROUND NO.3 OF DEPARTMENTAL APPEAL FOR 2006-07 AND GROUND NO.1 OF DEPARTMENTAL APPEAL FOR 2007-08 ARE WITH REGARD TO ALLOWABILITY OF DEPRECIATION ON PLANT AND MACHINERY AS BUSINESS EXP ENDITURE. THIS ISSUE IS COVERED BY THE FOLLOWING OBSERVATION OF THE ITAT IN ITS ORDER FOR A.Y 2003-04 VIDE PARA 2.8.1. 2.8.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE R ECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLO WABILITY OF DEPRECIATION OF RS.3,49,915/- ON PLANT AND MACHINERY. WE HAVE ALREA DY HELD THAT INCOME FROM BUSINESS CENTRE HAS TO BE ASSESSED AS BUSINESS INCOME. THEREFORE DEPRECIATION ON ALL THE PLANTS AND MACHINERY INSTAL LED IN THE BUSINESS CENTRE HAS TO BE ALLOWED. WE HOLD ACCORDINGLY. ACCORDINGLY THESE GROUNDS OF THE ASSESSEES APPEAL FOR BOTH THE YEARS ARE ALLOWED AND REVENUES APPEALS ARE DISMISSED. 11. ASSESSEES GROUND NO.7 FOR BOTH THE ASSESSMENT YEARS RAISE ONE ISSUE WITH REGARD TO DISALLOWANCE WITH REFERENCE TO SECTI ON 14A. 11.1 WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE . THE ISSUE RAISED BY THE ASSESSEE IS RELATING TO THE PERIOD WHEN RULE 8D WAS NOT APPLICABLE. THIS ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y 2005-06 AND THE MATTER WAS RESTORED BACK TO THE FILE OF AO WITH THE FOLLOWING OBSERVATIONS. 11. GROUND NO.12, RELATES TO DISALLOWANCE OF .2,65 ,7L2I- MADE UNDER SECTION 14A READ WITH RULE 8D. THE CIT(A) HAS CONFIRMED THE DISALLOWANCE AFTER FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. (ITA NO. 8057/MUM/2003 , DATED 20-10-2008). M/S. FGP LIMITED, 15 LEARNED COUNSEL SUBMITTED THAT THIS ISSUE HAS NOW S TANDS COVERED BY THE DECISION IN THE CASE OF GODREJ BOYCE MFG. LTD., REP ORTED IN 320 ITR 81. 11.1 AFTER CAREFULLY CONSIDERING THE MATER, WE FIND THAT THE APPLICABILITY OF THE RULE 8D PRIOR TO ASSESSMENT YEAR 2008-2009, HAS BEEN DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE AFORESAID CASE THAT RULE 8D CANNOT BE APPLIED RETROSPECTIVELY FOR THE EARLIER YEARS AN D, THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE ASSESSING OFFICER TO ADOPT SAME REASONABLE BASIS FOR MAKING THE DISALLOWANCE AFTER TAKING INTO CONSIDERATION THE NATURE OF EXEMPT INCOME AND THE EXPENDITURE ATTRIBUTABLE T O SUCH EARNING OF INCOME. THEREFORE, THIS ISSUE IS SET ASIDE TO THE F ILE OF THE ASSESSING OFFICER TO DECIDE IN ACCORDANCE WITH LAW LAID DOWN BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. LTD. (SUPRA) . ACCORDINGLY AFTER HEARING BOTH THE PARTIES FOR BOTH THE YEARS WE RESTORE THIS ISSUE TO THE FILE OF AO WITH SIMILAR OBSERVATION. THESE GROUNDS ARE CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES I N THE MANNER AFORESAID. 12. GROUND NO.4 OF DEPARTMENTAL APPEAL FOR A.Y 2006 -07 AND GROUND NO.2 OF DEPARTMENTAL APPEAL FOR A.Y 2007-08 RAISE ONE IS SUE WITH REGARD TO DELETION OF DISALLOWANCE OF 10% ON ADHOC BASIS. TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL FOR A.Y 2003-04 VIDE PARA 3.4 & 3.4.1. 3.4 THE FOURTH DISPUTE IS REGARDING THE DECISION O F CIT(A) DIRECTING THE AO TO ALLOW THE ADMINISTRATIVE EXPENSES TO THE TUNE OF RS.11,70,000/- AGAINST INCOME FROM OTHER SOURCES UNDER SECTION 57(III) OF THE I.T.ACT. THE AO HAD DISALLOWED THESE EXPENSES BUT IN APPEAL CIT(A) ALLO WED AGAINST INCOME FROM OTHER SOURCES AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL. 3.4.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE R ECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLO WABILITY OF ADMINISTRATIVE EXPENSES TO THE TUNE OF RS.11,70,000/-. THE EXPENSE S RELATED TO TRAVELLING, MOTOR VEHICLE, INSURANCE, TELEPHONE, PRINTING AND S TATIONERY ETC. WE HAVE ALREADY HELD THAT INCOME FROM THE BUSINESS CENTRE H AS TO BE ASSESSED AS BUSINESS INCOME. WE THEREFORE HOLD THAT THE CLAIM W ILL BE ALLOWABLE WHILE COMPUTING THE BUSINESS INCOME FROM THE SERVICE CENT RE. WE THEREFORE DISMISS THE GROUND RAISED BY THE REVENUE. 12.1 THE ABOVE DECISION WAS LATER ON FOLLOWED IN A. Y 2004-05 WITH THE FOLLOWING OBSERVATION M/S. FGP LIMITED, 16 56. GROUND NO. 5 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN ALLOWING EXPENSES OF RS. 3,43,893/- MADE ON AN ADHOC BASIS A T 10% OF BUSINESS CENTRE INCOME UNDER THE HEAD INCOME FROM OTHER SOU RCES. 57. THIS ISSUE IS COVERED AGAINST THE REVENUE BY TH E DECISION OF ITAT, MUMBAI IN ASSESSEES OWN CASE FOR AY 2003-04 (APPEA L FILED BY THE REVENUE) (SUPRA) WHEREIN AT PAGE 20 VIDE PARA 3.4.1, THE TRI BUNAL HELD AS UNDER: 3.4.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLO WABILITY OF ADMINISTRATIVE EXPENSES TO THE TUNE OF RS. 11,70,000/-. THE EXPENS ES RELATED TO TRAVELLING, MOTOR VEHICLE, INSURANCE, TELEPHONE, PRINTING AND S TATIONERY ETC. WE HAVE ALREADY HELD THAT INCOME FROM THE BUSINESS CENTRE H AS TO BE ASSESSED AS BUSINESS INCOME. WE THEREFORE HOLD THAT THE CLAIM W ILL BE ALLOWABLE WHILE COMPUTING THE BUSINESS INCOME FROM THE SERVICE CENT RE. WE THEREFORE DISMISS THE GROUND RAISED BY THE REVENUE. 58. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TR IBUNAL IN AY 2003- 04, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISS ED. RESPECTFULLY FOLLOWING THE AFOREMENTIONED ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE THESE GROUNDS OF THE DEPARTMENT FOR BOTH THE YEARS ARE DISMISSED. 13. GROUND NO.5 OF DEPARTMENTAL APPEAL FOR A.Y 2006 -07 AND GROUND NO. 1 OF ASSESSEES CROSS OBJECTION FOR 2006-07, GROUND NO.5 OF ASSESSEES APPEAL FOR A.Y 2007-08 AND GROUND NO.3 OF DEPARTMENTAL APP EAL FOR A.Y 2007-08 IS REGARDING ADMINISTRATIVE EXPENSES. THESE GROUNDS A RE COVERED BY PARA 2.9 TO PARA 2.9.3 OF TRIBUNALS ORDER FOR A.Y.2003-04, WHICH READ AS UNDER: 2.9 IN THE GROUNDS NO.10 & 11 THE DISPUTES RAISED RELATE TO DISALLOWANCE OF EMPLOYEE COST OF RS.10,18,000/- AND ADMINISTRATI VE EXPENSES OF RS.22,56,000/-. THE AO DISALLOWED THESE EXPENSES ON THE GROUND THAT THE ASSESSEE WAS HAVING INCOME ONLY FROM OTHER SOURCES. HOWEVER, OUT OF ADMINISTRATIVE EXPENSES THE EXPENSES RELATING TO RE PAIR AND MAINTENANCE (553000) ELECTRICITY (430000) AND OFFICE RENT (1030 00) WERE ALLOWED BY THE AO AGAINST THE INCOME FROM THE BUSINESS CENTRE. DETAIL S OF THE ADMINISTRATIVE EXPENSES WERE AS UNDER : RS PARTICULARS 5,53,000 REPAIRS & MAINTENANCE 4,30,000 ELECTRICITY 1,03,000 OFFICE RENT 11,000 INSURANCE 1,64,000 TELEPHONE, CABLES & POSTAGE 1,36,000 SHARES/DEBENTURES HANDLING CHARGES 1,76,000 SECURITY EXPENSES M/S. FGP LIMITED, 17 1,42,000 TRAVELLING EXPENSES 82,000 MOTOR VEHICLE EXPENSES 23,000 WAREHOUSE EXPENSES 30,000 PRINTING AND STATIONERY 1,01,000 BANK CHARGES 3,05,000 MISCELLANEOUS EXPENDITURE 22,56,000 2.9.1 IN APPEAL CIT(A) OBSERVED THAT THE AO HAD AL READY ALLOWED THE EXPENSES RELATING TO REPAIRS AND MAINTENANCE, ELECT RICITY AND RENT AND THEREFORE THERE WAS NO JUSTIFICATION FOR DISALLOWAN CE OF THE BALANCE EXPENDITURE OF RS.11,70,000. HE THEREFORE DIRECTED THE AO TO ALLOW THE EXPENDITURE AGAINST THE INCOME UNDER THE HEAD OTHE R SOURCES. REGARDING EMPLOYEE COST CIT(A) OBSERVED THAT THE EXPENDITURE CONSISTED OF SALARY, PF CONTRIBUTION ETC OF THE MANAGER WHO WAS IN WHOLE TI ME EMPLOYMENT TO LOOK AFTER THE AFFAIRS OF THE COMPANY. THE QUANTUM OF EX PENDITURE WAS NOT FOUND BY AO UNREASONABLE. CIT(A) THEREFORE HELD THAT THE EXPENDITURE HAD TO BE ALLOWED UNDER THE HEAD OTHER SOURCES AGGRIEVED B Y THE DECISION OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L. 2.9.2 BEFORE US THE LEARNED AR FOR THE ASSESSEE S UBMITTED THAT THE EXPENDITURE SHOULD BE ALLOWED AGAINST THE BUSINESS INCOME AS THE INCOME FROM SERVICE CENTRE WAS BUSINESS IN NATURE AND NOT UNDER THE HEAD OTHER SOURCES. THE LEARNED DR PLACED RELIANCE ON THE ORD ERS OF AUTHORITIES BELOW. 2.9.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED TH E MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITURE OF RS.11,70,000/- ON ITEMS SUCH AS INSURANCE, TELEPHONE, SECURITY, TRAVELING, MOTOR VEHICLE ETC AND THE EXPENDITURE ON REMUNERATION TO THE MANAGER. CIT(A) HAS ALLOWED THE EXPENDITURE AGAINST INCOME FROM OTHER SOURCES. THE CASE OF THE ASSESSEE IS THAT EXPENDITURE SHOULD BE ALLOWED AGAINST BUSINESS INCOME. WE HAVE ALREADY HELD THAT THE INCOME FROM THE BUSINESS CENT RE HAS TO BE ASSESSED AS BUSINESS INCOME AND THEREFORE WE HOLD THAT THE EXPE NDITURE WILL BE ALLOWED WHILE COMPUTING THE INCOME FROM THE BUSINESS CENTRE . 13.1 THE AFOREMENTIONED DECISION WAS LATER ON FOLLO WED BY THE TRIBUNAL IN RESPECT OF A.YS 2004-05 AND 2005-06. IN THE LATEST DECISION I.E. FOR A.Y 2005-06 SIMILAR ISSUE WAS RAISED BY THE ASSESSEE BY WAY OF AN ADDITIONAL GROUND AND IT WAS DECIDED AS UNDER: 12. IN THE ADDITIONAL GROUND, THE ASSESSEE HAS TAK EN A PLEA THAT ADMINISTRATIVE EXPENSES OF .34,1 1,9911- SHOULD BE ALLOWED AS BUSINESS EXPENDITURE. LEARNED SENIOR COUNSEL SUBMITTED THAT WHEN THE GROUND NO.3 IS ALLOWED THEN THIS GROUND WILL BE ACADEMIC. SINCE GROUND NO3 STANDS ALLOWED IN FAVOUR OF THE ASSESSEE, THIS ADDITIONAL GROUND IS TREATED AS ACADEMIC AND HENCE, THE SAID GROUND HAS BECOME INFR UCTUOUS. M/S. FGP LIMITED, 18 AS THE INCOME OF THE BUSINESS CENTER HAS BEEN HELD TO BE BUSINESS INCOME, THEREFORE, THE GROUNDS(INCLUDING CROSS OBJECTION) R AISED BY THE ASSESSEE AS WELL AS BY THE REVENUE HAVE BECOME INFRUCTUOUS AND DISMISSED. 14. APROPOS GROUND NO.8 OF ASSESSEES APPEAL FOR A .Y 2006-07, THIS ISSUE IS NOT DISCUSSED IN THE ASSESSMENT ORDER AND FOR TH E FIRST TIME IT WAS TAKEN AS ADDITIONAL GROUND BEFORE LD. CIT(A). IT WAS THE CONTENTION OF THE ASSESSEE THAT IN A.Y 2003-04 AN AMOUNT OF RS.80,94,091/- WA S BROUGHT TO TAX BY THE AO, THEREFORE, THE SAME SHOULD BE EXCLUDED FROM THE ASSESSABLE INCOME IN THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) HAS D ISMISSED THIS CLAIM OF THE ASSESSEE ON THE GROUND THAT FOR MAKING SUCH CLAIM T HE ASSESSEE WAS REQUIRED TO FILE REVISED RETURN AS PER DECISION OF HONBLE SUPREME COURT IN THE CASE GOITERS INDIA LTD., 284 ITR 323. 14.1 LD. A.R MADE REFERENCE TO THE FOLLOWING OBSER VATIONS OF THE TRIBUNAL IN ASSESSMENT YEAR 2003-04 VIDE WHICH THIS ISSUE WA S CONSIDERED BY THE TRIBUNAL. 2.5 THE SIXTH DISPUTE IS REGARDING ADDITION ON ACC OUNT OF SUNDRY CREDITORS OUTSTANDING OF RS.80,94,091/- WHICH WAS TREATED BY THE AO AS INCOME UNDER SECTION 41(1). THE TOTAL SUNDRY CREDITORS AT THE EN D OF THE YEAR WAS SHOWN BY THE ASSESSEE AT RS.1,15,52,915/-. THE AO AFTER EXAM INATION OF DETAILS NOTED THAT SUNDRY CREDITORS TO THE TUNE OF RS.80,94,091/- HAD CEASED TO EXIST AND THEREFORE THE SAME WERE TREATED AS INCOME UNDER SEC TION 41(1) OF THE I.T.ACT. THE DETAILS OF THESE CREDITORS AND THE REASONS GIVE N BY THE AO AGAINST EACH OF THEM FOR TREATING THEM NON EXISTENT WERE AS UNDER : PARTICULARS RS REASONS GIVEN BY AO OTHER EXPENSES 3566018 ASSESSEE FAILED TO GIVE BREA K UP SUNDRY CREDITORS 1479824 -DO- SELLING COMMISSION PAYABLE 1143230 LIABILITY CEASED AS BUSINESS CLOSED ACCRUED INTEREST PAYABLE 478712 NO LIABILITY DUE TO LOANS AS PER BALANCE SHEET RPG ENTERPRISES 421831 NO CONFIRMATIONS FILED BY TH E ASSESSEE EMPLOYEES CO.OP.SOC.HYD. 194631 ASSESSEES BUSINESS CLOSED M/S. FGP LIMITED, 19 LIABILITY FOR GOODS. HYD. 130466 ASSESSEES BUSINES S CLOSED. NO CONFIRMATION FILED BY THE ASSESSEE. SUNDRY DEBTORS CREDIT BALANCE HYD 75669 -DO- OTHERS 603710 NO BREAK-UP/CONFIRMATION FILED BY THE ASSESSEE TOTAL 8094091 2.5.1 IN APPEAL THE ASSESSEE SUBMITTED THAT THE AO HAD TREATED THE SUNDRY CREDITORS AS INCOME UNDER SECTION 41(1) ONLY ON THE GROUND THAT THE AMOUNT REMAINED UNPAID AS ON 31.3.2003. IT WAS ARGUED THAT THE PROVISIONS OF SECTION 41(1) WERE ATTRACTED ONLY WHEN THERE WAS RE MISSION OR CESSATION OF LIABILITY DURING THE YEAR. THE ASSESSEE POINTED OUT THAT IN SEVERAL CASES THE AMOUNTS WERE PAID SUBSEQUENTLY. THE DETAILS OF SUCH CASES ARE IN PARA 11.2 OF CIT(A) ORDER. THE ASSESSEE REFERRED TO JUDGMENT OF HONBLE SUPREME COURT IN CASE OF CIT VS KESARIA TEA CO. LTD. (254 ITR 434 ) TO POINT OUT THAT EVEN WHEN THERE WAS UNILATERAL WRITE BACK OF LIABILITY I T COULD NOT BE SAID THAT THE LIABILITY HAD CEASED TO EXIST. IN THIS CASE THE ASS ESSEE HAD NOT EVEN WRITTEN OFF THE LIABILITY. CIT(A) HOWEVER OBSERVED THAT THE ASS ESSEE HAS NOT DENIED THE CLOSURE OF BUSINESS AND DID NOT FILE ANY EVIDENCE O F PAYMENT AFTER 31.3.2003. THEREFORE HE AGREED WITH THE AO THAT THE PROVISIONS OF SECTION 41(1) WERE ATTRACTED AND ACCORDINGLY UPHELD THE ADDITION AGGRI EVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.5.2 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUB MITTED THAT THERE WAS NO MATERIAL TO SHOW THAT THE LIABILITY HAD CEASED T O EXIST IN THE RELEVANT YEAR AND THEREFORE PROVISIONS OF SECTION 41(1) WERE NOT APPLICABLE. IT WAS ALSO SUBMITTED THAT IN MANY CASES THE PAYMENTS HAD BEEN MADE IN SUBSEQUENT YEARS AND IN SOME CASES THE ASSESSEE HAD ITSELF HAV E WRITTEN OFF THE LIABILITIES IN SUBSEQUENT YEARS. IT WAS ACCORDINGLY URGED THAT THE ADDITION MADE BY THE AO SHOULD BE DELETED. THE LEARNED DR ON THE OTHER H AND SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 2.5.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED TH E MATTER CAREFULLY. THE DISPUTE IS REGARDING ADDITIONS ON ACCOUNT OF SUNDRY CREDITORS UNDER SECTION 41(1) OF THE INCOME-TAX ACT. UNDER THE PROVISIONS O F SECTION 41(1) TRADING LIABILITY WHICH CEASES TO EXIST DURING THE YEAR HAS TO BE TREATED AS INCOME OF THE ASSESSEE. IT APPEARS IN THIS CASE THE AO WITH A VIEW TO EXAMINING WHETHER LIABILITIES WERE EXISTING OR NOT HAD CALLED FOR NEC ESSARY DETAILS AND CONFIRMATIONS BUT THE ASSESSEE HAD NOT GIVEN DETAIL S AND BREAK-UP IN RESPECT OF SUBSTANTIAL LIABILITIES AMOUNTING TO RS.35,66,01 8/-, RS.14,79,824/- AND RS.6,03,710/- AND IN MANY OTHER CASES THE ASSESSEE DID NOT FILED CONFIRMATIONS AS DESIRED BY THE AO WHICH IS CLEAR F ROM THE DETAILS OF LIABILITIES GIVEN IN THIS PARA EARLIER. IN OUR VIEW AO IS ENTITLED TO EXAMINE THE CREDITORS AND THE ASSESSEE EXPECTED TO GIVE THE NEC ESSARY DETAILS AS ONLY AFTER EXAMINATION IT CAN BE FOUND WHETHER THE LIABILITIES HAVE CEASED OR NOT. THE ASSESSEE HAS ALSO SUBMITTED THAT IN SOME CASES IT H AD MADE PAYMENT SUBSEQUENTLY WHILE IN SOME OTHER CASES THE ASSESSEE HAD ITSELF WRITTEN OFF THE M/S. FGP LIMITED, 20 LIABILITIES IN SUBSEQUENT YEARS. THEREFORE FOR THE VARIOUS REASONS MENTIONED ABOVE WE ARE OF THE VIEW THAT THE MATTER REQUIRES F RESH EXAMINATION. WE THEREFORE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATI ON AND AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE. 14.2 REFERRING TO AFOREMENTIONED OBSERVATIONS IT WA S SUBMITTED BY LD. A.R THAT HE IS MAKING A STATEMENT AT BAR THAT AO YET HA S NOT DECIDED THE ISSUE RELATING TO A.Y 2003-04. THEREFORE, HE REQUESTED T HAT DIRECTION MAY BE GIVEN TO THE AO THAT IF ADDITION IS MADE IN ONE YEAR THEN THE SAME SHOULD NOT BE MADE IN ANOTHER YEAR. HE HAS SUBMITTED THAT THESE DIRECTIONS MAY BE GIVEN TO THE AO. 14.3 AFTER HEARING BOTH THE PARTIES, SINCE THE ISSU E RELATING TO THIS ADDITION HAS NOT BEEN DECIDED BY THE AO IN A.Y 2003-04, WE C ONSIDER IT JUST AND PROPER TO GIVE THE DIRECTION TO THE AO THAT IF TH E ADDITION IS UPHELD IN 2003- 04 THEN THE ADDED AMOUNT SHOULD BE REDUCED FROM THE INCOME OF THE CURRENT YEAR AS DOUBLE ADDITION OF THE SAME AMOUNT IS NOT PERMISSIBLE UNDER THE ACT, PARTICULARLY WHEN BOTH YEARS ARE BEFORE THE AO. WHILE DECIDING THIS ISSUE THE AO MAY EXAMINE ALL ASPECTS OF THE MATTER AND AFTER CONSIDERING ALL THESE ASPECTS THE AO WILL BE FREE TO TAKE DECISION AS PER LAW. WITH THESE OBSERVATIONS GROUND RAISED BY THE ASSESSEE IS CONS IDERED TO BE ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO.9 ASSESSEES APPEAL FOR ASSESSMENT Y EAR 2006-07. THIS GROUND WAS TAKEN BY THE ASSESSEE AS ADDITIONAL GROU ND BEFORE LD. CIT(A). LD. CIT(A) HAS DISMISSED THIS GROUND ON THE BASIS T HAT THE ASSESEE SHOULD HAVE MADE THIS CLAIM IN THE RESPECTIVE ASSESSMENT Y EAR. 15.1 WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE, SINCE THIS CLAIM WAS NOT MADE BEFORE THE AO, WE CONSIDER IT JUST AND PROPER TO RESTORE THIS TO THE FILE OF AO FOR DENOVO CONSIDERATION AS PER PROVISIONS OF LAW AFTER GIVING THE M/S. FGP LIMITED, 21 ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. THI S GROUND OF THE ASSESSEE IS ALLOWED IN THE MANNER AFORESAID. 16. GROUND NO.4 OF ASSESSEES APPEAL FOR A.Y. 2007- 08. THE CLAIM OF THE ASSESSEE WAS DENIED BY THE AO ON THE GROUND THAT N O BUSINESS IS BEING CARRIED OUT BY THE ASSESSEE. THE BUSINESS TO WHICH THESE DEBTS RELATE WAS CLOSED DOWN IN 1998-99, IT IS THE CASE OF ASSESSEE THAT DUE TO THE APPLICATION OF NON-COMPETE AGREEMENT IT COULD NOT CARRY ON ANY SUCH BUSINESS ACTIVITY. LD. CIT(A) HAS UPHELD THIS ACT ION OF THE AO ON THE GROUND THAT ASSESSEE ALSO DOES NOT HAVE BUSINESS INCOME A SSESSABLE UNDER SECTION 28 OF THE ACT AS LD. CIT(A) HAS HELD THAT INCOME FR OM BUSINESS CENTRE ITSELF IS NOT BUSINESS INCOME. NOW IT HAS BEEN HELD THAT INCOME EARNED BY THE ASSESSEE FROM BUSINESS CENTRE IS BUSINESS INCOME, T HEREFORE, WE ARE OF THE OPINION THAT IT WILL MEET THE END OF JUSTICE IF THE MATTER IS RESTORED BACK TO THE FILE OF AO WITH A DIRECTION TO RE-ADJUDICATE TH E SAME AS PER PROVISIONS OF LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTU NITY OF HEARING. IT WILL NOT BE OUT OF PLACE TO MENTION HERE THAT AO SHOULD ALSO EXAMINE AS TO WHETHER THE ASSESSEE FULFILS ALL THESE CONDITIONS WHICH AR E REQUIRED TO BE FULFILLED TO MAKE SUCH CLAIM. WITH THESE OBSERVATIONS WE RESTOR E THIS ISSUE TO THE FILE OF AO. FOR STATISTICAL PURPOSE THIS GROUND IS TREATED AS ALLOWED. IN THE RESULT , FOR STATISTICAL PURPOSES APPEALS F ILED BY THE REVENUE ARE DISMISSED, APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED AND CROSS OBJECTION BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 28TH DAY OF SEPT. 2012 SD/- SD/- (B.RAMAKOTAIAH ) (I.P.BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 28TH SEPT. 2012 M/S. FGP LIMITED, 22 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.R F BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.