Ahila Exports Private Limited, CHENNAI V. ITO, CHENNAI

ITA 1065/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73612 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 20-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Transfer pricing
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO.1065/MDS/2013 (ASSESSMENT YEAR: 2009-10) M/S. AHILA EXPORTS PVT. LTD., 184-187, 3 RD FLOOR, TEMPLE STEPS, ANNA SALAI, LITTLE MOUNT, SAIDAPET, CHENNAI-600 015. PAN: AACCN3625P VS. THE INCOME TAX OFFICER, COMPANY WARD I(1), AAYAKAR BHAVAN, CHENNAI-600 034 (APPELLANT) & (RESPONDENT) ITA NO.1296/MDS/2013 (ASSESSMENT YEAR: 2009-10) THE INCOME TAX OFFICER, COMPANY WARD I(1), AAYAKAR BHAVAN, CHENNAI-600 034 VS. M/S. AHILA EXPORTS PVT. LTD., 184-187, 3 RD FLOOR, TEMPLE STEPS, ANNA SALAI, LITTLE MOUNT, SAIDAPET, CHENNAI-600 015. PAN: AACCN3625P (APPELLANT) (RESPONDENT) ASSESSEE BY : MR. R.VIJAYARAGHAVAN, ADVOCATE REVENUE BY : MR. S.DAS GUPTA, JCIT DATE OF HEARING : 18 TH DECEMBER, 2013 DATE OF PRONOUNCEMENT : 9 TH JANUARY, 2014 O R D E R PER CHALLA NAGENDRA PRASAD, JM : BOTH ASSESSEE AND REVENUE FILED THE ABOVE APPEALS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VI, CHENNAI DATED 18.01.2013 FOR THE ASS ESSMENT YEAR 2009-10. ITA NOS.1065 & 1296/MDS/2013 2 2. THE GRIEVANCE OF THE ASSESSEE IN ITS APPEAL IS T HAT THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE PROVISIONS OF SECTION 57 OF T HE ACT CLEARLY COVER DEPRECIATION, RATES & TAXES AND OTHER EXPENSES AND THEREFORE, OUGHT TO HAVE ALLOWED THE SAME UNDER THE RELEVANT SECTION. THE COMMISSIONER OF INCOME TAX ( APPEALS) OUGHT NOT TO HAVE RESTRICTED THE DEDUCTION TO 50% O F THE TOTAL EXPENDITURE. 3. BRIEF FACTS ARE THAT ASSESSEE, A PRIVATE LIMITED COMPANY FILED ITS RETURN OF INCOME ON 25.9.2009 ADMITTING T AXABLE INCOME OF ` 2,03,084/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 29.11.2011 DETER MINING THE TAXABLE INCOME OF ASSESSEE AT ` 63,02,130/-. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT C OMPUTED INCOME FROM BUSINESS AND PROFESSION OF THE ASSESSEE AT ` NIL AND INCOME FROM OTHER SOURCES AT ` 40,75,413/- STATING THAT THE ASSESSEE HAS NOT CARRIED ON ANY BUSINESS DURING THE ASSESSMENT YEAR AND SUB-LEASING ACTIVITY WAS CARRIE D OUT AND ITA NOS.1065 & 1296/MDS/2013 3 THIS WAS ALSO CEASED AND REMAINED DORMANT THEREAFT ER. THEREFORE, THE ASSESSING OFFICER DENIED DEPRECIATIO N CLAIMED BY THE ASSESSEE AS THERE WAS NO BUSINESS ACTIVITY. THE ASSESSING OFFICER ALSO DID NOT ALLOW CLAIM FOR DEDU CTION TOWARDS RATES & TAXES AND OTHER EXPENSES FROM THE INCOME ASSESSED UNDER THE HEAD OTHER SOURCES. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE DISALLOWANCE OF DEPRECIATION STATING THAT THERE IS NO BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE DURING THIS YEA R AND RECEIVING ONLY RENTALS. HOWEVER, THE COMMISSIONER O F INCOME TAX (APPEALS) ALLOWED 50% OF OTHER EXPENDITURE I.E. RENT, REPAIRS, INSURANCE, RATES & TAXES ETC. INCURRED BY THE ASSESSEE AS THE SAID EXPENDITURE IS REQUIRED FOR MA INTAINING THE OFFICE OF THE COMPANY. AGAINST THE DECISION OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ALLOWING 50 % OF THE OTHER EXPENSES, REVENUE CAME UP IN APPEAL BEFOR E US. 4. COUNSEL FOR THE ASSESSEE MR. VIJAYARAGHAVAN SUBM ITS THAT ASSESSEE HAS TEMPORARILY STOPPED ITS BUSINESS AND LEASED OUT ALL FACILITIES OF BUSINESS TO ITS ASSOCI ATED COMPANY ITA NOS.1065 & 1296/MDS/2013 4 M/S. SOT GARMENTS INDIA PVT.LTD.. THE ASSESSEE IS R ECEIVING RENTAL INCOME FOR THE FACILITIES OF BUSINESS LEASED OUT BY THE ASSESSEE. ASSESSEE HAS TO MAINTAIN ITS OFFICE AND H AD TO INCUR EXPENSES TOWARDS DEPRECIATION, SALARIES, RENT , RATES & TAXES ETC. THE COUNSEL SUBMITS THAT THE ASSESSEE H AS INCURRED ALL THESE EXPENSES FOR EARNING SUCH RENTAL INCOME, THEREFORE ALL THESE EXPENSES HAVE TO BE ALLOWED UND ER SECTION 57 OF THE ACT. THE COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF EAST WEST HOTELS LTD. VS. ACIT (9 SOT 48) AND THE D ECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF NAKODAR BUS SERVICE P.LTD. VS. CIT (179 ITR 506) IN SUPPORT OF HIS SUBMISSIONS. 5. THE DEPARTMENTAL REPRESENTATIVE SUPPORTING THE O RDER OF THE ASSESSING OFFICER SUBMITS THAT SINCE THE ASS ESSEE HAS NOT CARRIED OUT ANY BUSINESS DURING THE YEAR AND IN FACT SUSPENDED ITS BUSINESS, NO EXPENDITURE IS ALLOWABLE , THEREFORE ASSESSING OFFICER IS JUSTIFIED IN DENYING CLAIM OF EXPENSES MADE BY THE ASSESSEE. ITA NOS.1065 & 1296/MDS/2013 5 6. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE CASE LAW RELIED ON. IT IS A FAC T THAT ASSESSEE DURING THE ASSESSMENT YEAR DID NOT CARRY O N ANY BUSINESS ON ITS OWN AND THE BUSINESS HAD CEASED AND REMAINED DORMANT THEREAFTER AND IN SUCH CIRCUMSTANC ES, EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE ALLO WABLE UNDER SECTION 37 OF THE ACT. HOWEVER, THE ASSESSEE HAS SUB- LEASED ITS ENTIRE BUSINESS FACILITIES TO ITS ASSOCI ATED CONCERN ON A LEASE BASIS AND FOR EARNING SUCH LEASE INCOME, ASSESSEE HAD INCURRED CERTAIN EXPENSES TOWARDS DEPRECIATION, RENT, INSURANCE, RATES & TAXES ETC. I N SUCH CIRCUMSTANCES, EXPENSES HAVE TO BE ALLOWED UNDER SE CTION 57 OF THE ACT FOR EARNING INCOME FROM LEASE WHICH I S ASSESSED UNDER THE HEAD OTHER SOURCES. THE BANGALORE BENC H OF THIS TRIBUNAL IN THE CASE OF EAST WEST HOTELS LTD. VS. A CIT (SUPRA) CONSIDERED A SIMILAR SITUATION WHERE THE ASSESSEE L EASED OUT ITS BUSINESS AND ENTIRE ASSETS TO ANOTHER PARTY WHE RE THE ASSESSEE RECEIVED ONLY RENTAL INCOME FROM LEASING O UT OF SUCH BUSINESS ASSETS. IN SUCH CIRCUMSTANCES, THE TR IBUNAL ITA NOS.1065 & 1296/MDS/2013 6 HELD THAT LEASE INCOME WAS RIGHTLY ASSESSED AS INCO ME FROM OTHER SOURCES AND THE EXPENSES INCURRED FOR EARNING SUCH INCOME HAS TO BE ALLOWED AS DEDUCTION UNDER SECTION 57(III) OF THE ACT. IN THE CASE OF NAKODAR BUS SERVICE P.LTD. VS. CIT (SUPRA), THE HONBLE PUNJAB & HARYANA HIGH COURT H ELD THAT RENT, INTEREST AND SALARY PAID TO EMPLOYEE ARE EXPE NDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING INCOME, THEREFORE EXPENSES HAVE TO BE ALLOWED UNDER SECTION 57(III) O F THE ACT. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED VIEW THAT COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFI ED IN DENYING THE DEPRECIATION AND RESTRICTING OTHER EXPE NSES TO 50%. IN SUCH CIRCUMSTANCES, WE HOLD THAT THE ASSESS EE IS ENTITLED FOR DEDUCTION OF EXPENSES ALLOWABLE UNDER SECTION 57(III) OF THE ACT IN COMPUTING INCOME FROM OTHER S OURCES, AS THE ASSESSEE INCURRED SUCH EXPENSES FOR EARNING LEA SE INCOME BY LETTING OUT ITS BUSINESS FACILITIES TO IT S ASSOCIATED ENTERPRISE. ACCORDINGLY, WE ALLOW THE GROUNDS RAISE D BY THE ASSESSEE AND REJECT THE GROUNDS RAISED BY THE REVEN UE. ITA NOS.1065 & 1296/MDS/2013 7 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY , TH E 9 TH DAY OF JANUARY, 2014 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY ) (CHALLA NAGENDRA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI. DATED THE 9 TH JANUARY, 2014. SOMU COPY TO: (1) ASSESSEE (2) ASSESSING OFFICER (3) CIT (4) CIT(A) (5) D.R. (6) G.F.