Vallabh Yarns, Ludhiana V. ITO, Ludhiana

ITA 1082/CHANDI/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57635 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 08-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Assessee Lawyers: S R CHHABRA
• Keywords: Business income
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 1082/CHD/2011 ASSESSMENT YEAR: 2007-08 VALLABH YARNS, V ITO, WARD-II(3), B-XXVII-353/2, LUDHIANA. SUNDER NAGAR, LUDHIANA. PAN: AABFV-0664N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.R.CHHABRA RESPONDENT BY : SMT. JAISHREE SHARMA DATE OF HEARING : 23.01.2012 DATE OF PRONOUNCEMENT : 8.2.2012 ORDER PER MEHAR SINGH, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF CIT(A) LUDHIANA PASSED U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'THE ACT') DATED 30.09.2011 RELATING TO ASSESSMENT YEAR 2007-08. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A)-II LUDHIANA HAS ERRED IN LAW AND ON FACTS OF THE CASE :- A) BY UPHOLDING THE ACTION OF THE LD. AO OF TREATING THE RENTAL INCOME FROM FACTORY BUILDING RS.13,59,500/- AS INCOME FROM HOUSE PROPERTY U/S 22 OF INCOME-TAX ACT,1961 INSTEAD OF BUSINESS INCOME SHOWN BY THE FIRM IN THIS AS WELL AS IN THE EARLIER YEARS. B) BY UPHOLDING THE ACTION OF THE LD. AO OF TREATING THE LEASING INCOME FROM PLANT & 2 MACHINERY RS.28,32,000/- AS INCOME FROM OTHER SOURCES U/S 56(III) OF INCOME-TAX ACT,1961 INSTEAD OF BUSINESS INCOME SHOWN BY THE FIRM IN THIS AS WELL AS IN THE EARLIER YEARS. C) BY UPHOLDING THE DISALLOWANCE OF INTEREST RS.25,01,252/-, PAID ON UNSECURED LOANS AND CLAIMED U/S 36(1)(III) OF THE INCOME-TAX ACT,1961, AGAINST INCOME FROM BUSINESS OF LETTING BUILDING AND PLANT & MACHINERY ON RENT. D) ALTERNATIVELY BY NOT ALLOWING THE INTEREST PAID ON UNSECURED LOANS OF RS.25,01,252/- AS DEDUCTION U/S 24(B) AGAINST THE INCOME SO ASSESSED FROM HOUSE PROPERTY AND U/S 57(III) AGAINST THE INCOME SO ASSESSED FROM OTHER SOURCES AS THE CASE MAY BE. E) BY UPHOLDING THE DISALLOWANCE OF EXPENSES RS.37047/- CLAIMED AS A DEDUCTION AGAINST INCOME UNDER THE HEAD INCOME FROM BUSINESS. F) BY UPHOLDING THE ASSESSMENT OF INTEREST RECEIPTS RS.2,21,449/- AT ITS GROSS AMOUNT WITHOUT ADJUSTING IT AGAINST THE INTEREST PAID RS.25,01,252/- ON UNSECURED LOANS. 2. THE ABOVESAID ORDER IS BAD IN LAW AND CONTRARY TO THE FACTS OF THE CASE. 3. IT IS THEREFORE PRAYED THAT APPEAL MAY PLEASE BE ACCEPTED AND SUCH RELIEF MAY KINDLY BE ALLOWED WHICH MAY BE DEEMED FIT AND PROPER UNDER THE CIRCUMSTANCES OF THE CASE. 4. THE ASSESSEE CRAVES PERMISSION TO FILE/RAISE/AMEND ANY OTHER GROUND OF APPEAL BEFORE AT THE TIME OF HEARING. 3. IN GROUND NO. 1(A), THE ASSESSEE CONTENDED THAT THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO, BY TREATING THE RENTAL INCOME FROM FACTORY BUILDING OF RS.13,59,500/- AS INCOME FROM HOUSE PROPERTY U/S 22 OF THE ACT. 4. IN GROUND NO. 1 (B), THE ASSESSEE CONTENDED THAT CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO, TRE ATING 3 THE LEASING INCOME FROM PLANT & MACHINERY, AMOUNTIN G TO RS.28,32,000/- AS INCOME FROM OTHER SOURCES U/S 56(III) OF THE ACT. 5. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS, FACTS OF THE CASE AND RELEVANT RECORD AND PAPER BOO K FILED BY THE ASSESSEE, INCLUDING THE SUBMISSIONS FI LED BEFORE THE CIT(A). THE ASSESSEE, IN THIS CASE, DER IVES INCOME FROM RENT FROM BUILDING AND MACHINERY AND INCOME FROM INTEREST ON DEPOSITS. THE ASSESSEE HAD LET OUT ITS BUILDING AND MACHINERY TO M/S VALLABH YARN PVT.LTD. THE ASSESSEE IS NOT CARRYING ON ANY BUSIN ESS ACTIVITY. THE ASSESSEE APPELLANT TREATED THE RENTA L INCOME FROM BUILDING AS BUSINESS INCOME AND CONSEQUENTLY, CLAIMED CERTAIN EXPENSES IN THE PROFI T & LOSS ACCOUNT, BY WAY OF INTEREST ON UNSECURED LOANS AND CERTAIN OTHER EXPENSES. THE ASSESSEE WAS CONFRONTED WITH THE FACTUM OF NON-CARRYING ON ANY BUSINESS ACTIVITIES AND HENCE, NOT ELIGIBLE FOR SUC H EXPENSES, CLAIMED BY HIM, BY TREATING THE RENTAL IN COME AS BUSINESS INCOME. THE ASSESSEE IS THE OWNER OF T HE PROPERTY AND MACHINERY AND HAD LET OUT THE SAME TO ONLY ONE PERSON. IT IS ADMITTED FACT THAT ASSESSEE IS NON CARRYING ON ANY BUSINESS ACTIVITIES. THE INCOME RECEIVED BY THE ASSESSEE IN LIEU OF USE OF SPACE, F ALLS UNDER THE PROVISION OF SECTION 22 OF THE ACT AND IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. NEEDLESS TO SAY THAT HEADS OF INCOME AS CONTEMPLATED U/S 14 OF THE ACT, ARE MANDATORY IN CHARACTER, MUTUALLY EXCLUSIVE AND 4 DISTINCT. THE ASSESSEE OR THE REVENUE, CANNOT CHOO SE ANY HEAD OF INCOME AT WILL, WHICH SUITS TO THEM. T HE INCOME UNDER EACH HEAD IS TO BE COMPUTED BASED ON T HE FACTUAL MATRIX OF THE CASE. THE AO TREATED THE SAID INCOME AS INCOME FROM HOUSE PROPERTY, AFTER PLACING RELIANCE ON THE PROVISIONS OF SECTION 22 OF THE ACT AND ALSO REFERRING TO THE DEFINITION OF BUSINESS AS PROVIDED U/S 2(13) OF THE ACT. THE AO HAD DISTINGUISHED THE DECISIONS RELIED UPON BY THE ASSESSEE. 6. SIMILARLY, MACHINERY LET OUT BY THE ASSESSEE IS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S. IT IS A CASE WHERE THE ASSESSEE HAS LET OUT MACHINE RY TO ONE FIRM AND IS NO LONGER RUNNING ANY BUSINESS, IN WHICH SAID MACHINERY COULD HAVE BEEN USED. LD. CIT(A), HAS CATEGORICALLY MENTIONED THAT THE PRINCI PLE OF RES-JUDICATA IS NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS. WE ARE IN COMPLETE AGREEMENT WITH THE OBSERVATION OF THE LD. CIT(A), AS REGARDS TO APPLIC ABILITY OF PRINCIPLE OF RES-JUDICATA, AS EACH ASSESSMENT YE AR IS SEPARATE AND DISTINCT ONE AND ANY MISTAKE COMMITTED IN THE PAST CANNOT BE ALLOWED TO PERPETUATE, BEING AGA INST ALL CANON OF CIVILIZED JURISPRUDENCE. 7. WE HAVE CAREFULLY PERUSED THE PROVISIONS OF SECTION 22 AND 56 OF THE ACT AND FOUND THAT THE ISS UE OF CHARGING THE RENTAL INCOME IN RESPECT OF BUILDING, SQUARELY FALLS U/S 22 OF THE ACT AND INCOME RECEIVE D ON LEASE OF PLANT & MACHINERY, IS COVERED BY THE SPECI FIC 5 PROVISIONS OF SECTION 56 OF THE ACT. THE HON'BLE SUPREME COURT, IN THE CASE OF SHAMBHU INVESTMENT PVT.LTD. V CIT (2003) 263 ITR 143 (S.C) HELD, THAT WHERE THE PRIME OBJECT IS TO LET OUT PROPERTY, ALONGWITH ADDITIONAL RIGHT OF USING FURNITURE AND FIXTURES, T HE INCOME IS CHARGEABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THERE ARE PLETHORA OF DECISIONS, INDICATING TOWARDS THE SETTLED PROPOSITION OF LAW T HAT WHERE THE INCOME IS EARNED FROM USE OF SPACE, IT INVARIABLY FALLS UNDER THE PROVISIONS OF SECTION 22 OF THE ACT. CONSEQUENTLY, THE RENTAL INCOME EARNED BY THE ASSESSEE ON LETTING OUT THE BUILDING IS COVERED BY THE PLAIN READING OF SECTION 22 AND THE DECISION OF HON 'BLE SUPREME COURT. A BARE PERUSAL OF THE PROVISIONS OF SECTION 56(1) SUB-CLAUSE (2) REVEALS, THAT INCOME F ROM MACHINERY, PLANT OR FURNITURE, BELONGING TO THE ASS ESSEE AND LET ON HIRE, IF THE INCOME IS NOT CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFIT & GAINS OF BUSINE SS OR PROFESSION FALLS UNDER THE HEAD 'INCOME FROM OT HER SOURCES', WITHIN THE MEANING OF SECTION 56 OF THE A CT. A BARE PERUSAL OF THE FACT SITUATION OF THE PRESENT CASE CLEARLY REVEALS THAT THE ASSESSEE HAD NOT BEEN CARR YING ON ANY BUSINESS ACTIVITIES AND MERELY GAVE ON LEASE THE PLANT & MACHINERY. THEREFORE, THE LEASE MONEY FALL S UNDER THE HEAD AS PROVIDED U/S 56 OF THE ACT. THEREFORE, THE FINDINGS OF THE CIT(A), IN THE MATTE R, ARE UPHELD AND GROUNDS OF APPEAL OF THE ASSESSEE, AS RA ISED IN 1(A) AND 1(B) ARE DISMISSED. 6 8. IN GROUND NO. 1(C), THE ASSESSEE CONTENDED THAT THE CIT(A) ERRED IN UPHOLDING DISALLOWANCE OF INTER EST OF RS.25,01,252/- PAID ON UNSECURED LOAN AND CLAIMED U /S 36(1)(III) OF THE ACT. 9. DURING THE COURSE OF PRESENT APPELLATE PROCEEDIN GS BEFORE THE BENCH, ASSESSEE HAS FAILED TO ESTABLISH NEXUS BETWEEN THE UNSECURED LOANS AND INCOME EARNED, DURI NG THE YEAR UNDER REFERENCE. MOREOVER, THIS GROUND OF APPEAL IS CONSEQUENTIAL IN NATURE AND IS NOT SUSTAINABLE IN VIEW OF THE FINDINGS GIVEN IN RESPEC T OF GROUND NO. 1(A) AND 1(B) ABOVE. LD. CIT(A) REJECTE D THIS GROUND OF APPEAL BEFORE HIM ON THE GROUND THAT SUCH DEDUCTION IS NOT ELIGIBLE U/S 36(1)(III), U/S 24(B) AND SECTION 57(III) OF THE ACT. WE ARE IN COMPLETE AGREEMENT WITH THE FINDINGS OF THE LD. C AND HENCE, THIS GROUND OF APPEAL, BEING CONSEQUENTIAL IN NATURE, IS DISMISSED. 10. THE ASSESSEE HAD RAISED ALTERNATIVE GROUND OF APPEAL VIDE GROUND NO. 1(D) BY CONTENDING THAT THE INTEREST PAID ON UNSECURED LOAN AMOUNTING TO RS.25,01,252/-, IF NOT ALLOWED U/S 24(B) OF THE ACT , THE SAME MAY BE ALLOWED U/S 57(III) OF THE ACT. 11. LD. 'AR', IN THE COURSE OF ASSESSMENT PROCEEDIN GS BEFORE THE BENCH, FAILED TO ESTABLISH THE NEXUS OF THE INCOME EARNED DURING THE RELEVANT ASSESSMENT YEAR T O THE EXPENSES INCURRED THERETO. IN VIEW OF THIS, ALTERNATIVE GROUND RAISED BY THE ASSESSEE CLAIMING 7 EXPENSES U/S 57(III) IS NOT LEGALLY AND FACTUALLY T ENABLE. THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. 12. IN GROUND NO. 1(F), THE ASSESSEE CONTENDED THAT THE CIT(A) ERRED BY UPHOLDING THE ASSESSMENT OF INTEREST RECEIPTS OF RS.2,21,449/- AT ITS GROSS AMO UNT, WITHOUT SUSTAINING IT AGAINST THE INTEREST PAID OF RS.25,01,252/- ON UNSECURED LOAN. THE FINDINGS OF THE LD. CIT(A), IN RESPECT OF THIS GROUND, ARE REPRODUC ED HEREUNDER : 8. AS PER GROUND OF APPEAL NO. 1(F) REGARDING NON ALLOWANCE OF INTEREST PAID AGAINST THE INTEREST RECEIVED FOR RS.2,21,449/-, IT IS BEING HELD THAT ASSESSEE HAS NOT BEEN ABLE TO PROVE ANY NEXUS BETWEEN THE FUNDS FROM WHICH INTEREST IS BEING RECEIVED AND THE FUNDS RECEIVED ON UNSECURED LOANS. IT HAS BEEN HELD EARLIER THAT UNSECURED LOANS WERE TAKEN FOR BUSINESS PURPOSES AND BUSINESS IS NOT BEING RUN SINCE LAST MANY YEARS AND HENCE THIS GROUND OF APPEAL IS ALSO DISMISSED. 13. HAVING REGARD TO THE RIVAL SUBMISSIONS AND THE RELEVANT RECORDS, WE ARE OF THE CONSIDERED OPINION THAT SET OFF OF SUCH INTEREST, AS CLAIMED BY THE ASSESSE E, IS NOT ADMISSIBLE UNDER THE EXPRESS PROVISIONS OF SECT ION 24(B), 36(1)(III) AND 57(III) OF THE ACT, AS DISCUS SED EARLIER. THE RECEIPT OF INTEREST CANNOT BE ATTRIBU TED TO THE PAYMENT OF INTEREST ON UNSECURED LOAN, BEING NO N- EXISTENCE OF ANY NEXUS. THE ASSESSEE HAS FAILED TO ESTABLISH SUCH NEXUS AND HENCE, THIS GROUND OF THE ASSESSEE IS DISMISSED. 8 14. GROUND NO.S 2, 3 AND 4 ARE GENERAL IN NATURE THEREFORE, NEED NO SEPARATE ADJUDICATION AND THE SA ME ARE DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH FEB.,2012. SD/- SD/- (H.L.KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 8 TH FEB.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), CIT,DR ASSISTANT REGISTRAR ITAT, CHANDIGARH