ITO 8(1)(2), MUMBAI V. CHUNILAL & CO (TM) P.LTD, MUMBAI

ITA 1226/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88091 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 17-11-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 12-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SACHCHIDANAND DUBEY
• Keywords: Capital asset; Business income; Depreciation
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM ./ I.T.A. NO.1226/MUM/2013 ( / ASSESSMENT YEAR: 2001-02) ITO-8(1)(2), ROOM NO. 205, 2 ND FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 / VS. CHUNILAL & CO. (TM) PVT. LTD. A-8, ANUPAMA HSG. SOC. LTD., B. P. CROSS ROAD NO. 4, OPP. BANK OF INDIA GALLI, MULUND (W), MUMBAI-400 080 ! ./' ./PAN/GIR NO. AAAFC 1046 Q ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !# & ' / APPELLANT BY : SHRI SACHCHIDANAND DUBEY $%!# & ' / RESPONDENT BY : NONE () * & + / DATE OF HEARING : 17.11.2014 ,-. & + / DATE OF PRONOUNCEMENT : 30.01.2015 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-16, MUMBAI (CIT(A) FOR SH ORT) DATED 16.11.2012, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3)(I) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2001-02 VIDE ORDER DATED 27.02.2004. 2 ITA NO. 1226/MUM/2013 (A.Y. 2001-02) ITO VS. CHUNILAL & CO. (TM) PVT. LTD. 2. NONE APPEARED FOR AND ON BEHALF OF THE ASSESSEE- RESPONDENT WHEN THE APPEAL WAS CALLED OUT FOR HEARING, DESPITE SERVICE OF NOTICE O F HEARING. NO ADJOURNMENT MOTION STANDS ALSO MOVED BY THE ASSESSEE. IN FACT, WE OBSERVE NON -REPRESENTATION BY AND ON BEHALF OF THE ASSESSEE THROUGHOUT THE COURSE OF ITS APPEAL BE FORE THE TRIBUNAL. UNDER THE CIRCUMSTANCES, IT WAS ONLY CONSIDERED FIT AND PROPE R TO PROCEED WITH THE HEARING, AND DECIDE THE APPEAL AFTER HEARING THE PARTY BEFORE US AND CONSIDERING THE MATERIAL ON RECORD. 3. IT WOULD BE RELEVANT TO RECOUNT THE BACKGROUND F ACTS OF THE CASE. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR ON 31.10.2001, CL AIMING EXPENSES AGAINST PROFITS ON SALE OF ASSETS (RS.62.51 LACS). IN EXPLANATION, THE ASSE SSEE SUBMITTED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THAT THE PROFIT ON THE SALE OF ASSETS WAS ASSESSABLE AS BUSINESS INCOME U/S.41(2), REPRESENTING ONLY THE WRITE BACK OF DEPRECIATION CLAIMED ON THE BUILDING SOLD DURING THE YEAR, COMMONLY TERMED AS BALANCING CHARGE. THE CONTENTION WAS NEGATIVED BY THE ASSESSING OFFICER (A.O.) ON TW O GROUNDS. FIRSTLY, THE PROFIT, I.E., THE EXCESS OF TRANSFER CONSIDERATION OVER THE WRITTEN D OWN VALUE (WDV) OF THE RELEVANT ASSETS, IS ASSESSABLE AS SHORT TERM CAPITAL GAIN (STCG) U/S. 50 OF THE ACT. THERE IS AS SUCH NO QUESTION OF SET OFF OF THE IMPUGNED EXPENSE S AGAINST THE INCOME ASSESSABLE UNDER THE HEAD CAPITAL GAINS. TWO, EVEN ASSUMING THAT T HE SAID INCOME IS TO BE CONSIDERED AS BUSINESS INCOME, THE IMPUGNED EXPENSES WOULD STILL BE NOT DEDUCTIBLE THERE-AGAINST IN-AS- MUCH AS THE REQUIREMENT OF SECTION 37(1) WAS NOT ME T. THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR, SO THAT THE QUESTION OF INCURRING EXPENDITURE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES JUST DID NOT ARISE. RELIANCE WAS PLACED BY THE A.O. ON THE DECISIONS IN THE CASE OF J. R. MEHTA VS. CIT [1980] 126 ITR 476 (BOM) AND CIT VS. KAR VALVES LTD. [1987] 168 ITR 416 (KER). THE ENTIRE PROFIT ON THE SALE OF ASSETS, I.E., RS.62,51,127/- WAS ASSESSED AS STCG, AND PENALTY PROCEEDINGS INITIATED VIDE ORDER U/S.143(3) DATED 27.02.2004. IN APPEAL, IN THE SECOND ROUND; THE TRI BUNAL RESTORING THE MATTER BACK IN THE FIRST ROUND, THE FIRST APPELLATE AUTHORITY ACCEPTED THE ASSESSEES CLAIM THAT THERE WAS NO CESSATION OF BUSINESS. THE CLAIM FOR EXPENDITURE WA S THUS ADMISSIBLE. FURTHER, THE ASSESSEE HAD ALSO SET OFF BROUGHT FORWARD BUSINESS LOSSES (RS.25,18,705/-) AGAINST STCG, 3 ITA NO. 1226/MUM/2013 (A.Y. 2001-02) ITO VS. CHUNILAL & CO. (TM) PVT. LTD. WHICH WAS, SUBSEQUENT TO ASSESSMENT, ENHANCED TO RS .71,53,092/- VIDE ORDER U/S.154 DATED 24.03.2009. THE ASSESSEES APPEAL IN QUANTUM PROCEEDINGS BEING DISMISSED BY THE TRIBUNAL VIDE ORDER DATED 11.08.2009, THE PENALTY P ROCEEDINGS, SET IN MOTION BY ISSUE OF NOTICE U/S.274 ON 26.12.2006, I.E., IN THE SET ASID E PROCEEDINGS UPON THE FRAMING OF ASSESSMENT U/S.143(3) R/W S. 254 ON 26.12.2006, WER E PROCEEDED WITH BY THE ISSUE OF SHOW CAUSE NOTICE ON 17.03.2010. THE SAME CAME BACK UNSERVED WITH THE POSTAL REMARK LEFT. THE A.O. PROCEEDED IN THE MATTER, CONSIDERI NG THE ASSESSEES EXPLANATION IN THE QUANTUM PROCEEDINGS. THE ASSESSEES CLAIM WAS CLEAR LY UNTENABLE AND WITHOUT ANY LEGAL BASIS IN-AS-MUCH AS THE SET OFF OF BROUGHT FORWARD BUSINESS LOSS WAS COVERED BY SECTION 72 OF THE ACT. THE TRIBUNAL HAD, IN VIEW THEREOF, D ISALLOWED THE ASSESSEES CLAIM. PENALTY WAS ACCORDINGLY LEVIED QUA THE INCOME ASSESSED (RS.71.53 LACS), BEING PRIMARIL Y INCOME BY WAY OF STCG, I.E., AT RS.28,29,048/-, AT 100% OF THE TAX SOUGHT TO BE EVADED. 4. WE HAVE HEARD THE PARTY BEFORE US, AND PERUSED T HE MATERIAL ON RECORD. 4.1 FACTS THE UNDISPUTED, ADMITTED FACTS ARE AS UNDER: A) THE ASSESSEE RETURNED ITS INCOME FOR THE YEAR AT RS .97,505/-, WHICH WAS INITIALLY (ON 27.02.2004) ASSESSED AT RS.62,52,770/- AND THEN AGA IN AT THE SAME SUM VIDE ORDER U/S.143(3) R/W S. 254 DATED 26.12.2006, WHICH STOOD ENHANCED TO RS.71,53,274 VIDE ORDER U/S.154 DATED 24.03.2009; B) THE TOTAL CREDIT TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR IS AT RS.62,52,768/-, INCLUDING PROFIT ON SALE OF ASSETS AT RS.62,51,127/ -; THE BALANCE RS.1,641/- BEING INCOMES, MISCELLANEOUS IN NATURE; C) THE PRINCIPAL DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE RELATES TO THE CLAIM OF EXPENSES AND ADJUSTMENT OF BROUGHT FORWARD BUSINESS LOSS/ES AGAINST THE PROFIT ON SALE OF ASSETS. THE SAME BEING QUA DEPRECIABLE ASSET/S, ON WHICH DEPRECATION STOOD ALLOWED, WITH THE ENTIRE BLOCK OF ASSETS BEING SOLD , THE ENTIRE EXCESS (OVER WDV) IS LIABLE TO BE ASSESSED AS STCG U/S.50 OF THE ACT; D) THE TRIBUNAL VIDE ITS ORDER DATED 11.08.2009 CONFIR MED THE ALLOWANCE OF EXPENSES ON THE STRENGTH OF THE FINDING THAT THERE WAS NO CE SSATION OF BUSINESS; 4 ITA NO. 1226/MUM/2013 (A.Y. 2001-02) ITO VS. CHUNILAL & CO. (TM) PVT. LTD. E) THE CLAIM OF SET OFF OF BUSINESS LOSS/ES (I.E., AT RS.25,18,705/-) WAS, HOWEVER, DISALLOWED BY THE TRIBUNAL; AND F) THE A.O. LEVIED PENALTY ON THE ENTIRE ASSESSED INCO ME OF RS.71,53,092/-. FINDINGS 4.2 A) IN-AS-MUCH AS THE ASSESSED INCOME IS AT RS.71,53,09 2/-, THE PENALTY FOR THE CONCEALMENT OR FURNISHING INACCURATE PARTICULARS OF INCOME COULD NOT BE INITIATED, MUCH LESS LEVIED, FOR AN AMOUNT IN EXCESS OF THE AM OUNT OF DIFFERENCE BETWEEN THE SAID AMOUNT AND THAT RETURNED (RS.97,505/-), OR RS. 70,55,587/-; B) THE CLAIM FOR EXPENSES, AS IT APPEARS TO US, HAS BE EN ALLOWED; THE TRIBUNAL CONFIRMING THE FINDINGS BY THE FIRST APPELLATE AUTH ORITY OF THERE BEING NO CESSATION OF ANY BUSINESS. EVEN THOUGH THE SAME WOULD NOT BY ITSELF LEAD TO THE ALLOWANCE OF THE CLAIM IN-AS-MUCH AS THE A.O. HAD ALSO STATED OF NON SATISFACTION OF THE REQUIREMENTS OF SECTION 37(1), THE MATTER HAVING NO T BEEN AGITATED BY THE REVENUE IN FURTHER APPEAL, COULD ONLY BE REGARDED AS HAVING ATTAINED FINALITY. NO PENALTY ON THIS CLAIM WOULD, THEREFORE, ARISE. THIS SHALL INUR E EVEN IF THE FINDING WITH REGARD TO NO CESSATION OF BUSINESS IS SUBSEQUENTLY REVERSE D; IT BEING ITSELF INDICATIVE OF THE FACT THAT THE MATTER OF CESSATION OR OTHERWISE OF BUSINESS, ON THE BASIS OF WHICH THE ASSESSEES CLAIM WAS ALLOWED BY THE TRIBUNAL, I S DEBATABLE. THE SAME, IN FACT, IS A MATTER OF FACT, QUA WHICH THE FINDING BY THE TRIBUNAL IS ORDINARILY REG ARDED AS FINAL; C) NO PENALTY COULD ALSO BE LEVIED IN RESPECT OF THE C LAIM FOR THE SET OFF OF BROUGHT FORWARD LOSS/ES OF RS.25,18,705/- AGAINST THE PROFI T ON SALE OF ASSETS. THE CLAIM IS INADMISSIBLE IN VIEW OF THE CLEAR STATUTORY INJUNCT ION OF THE SAID PROFIT (RS.75.13 LACS) BEING ASSESSABLE AS STCG UNDER THE ACT. HOWEV ER, TO THE EXTENT THE SAID GAIN DOES NOT EXCEED THE DEPRECIATION ALLOWED UNDER THE ACT ON THE RELEVANT BLOCK OF ASSETS (BUILDING) IN THE PRECEDING YEARS, THE SAME REPRESENTS A RECOUPMENT OF DEPRECATION FOR THE PRECEDING YEARS. THERE IS THUS SUBSTANCE IN THE ASSESSEES CLAIM THAT THE SAID INCOME, THOUGH ASSESSABLE AS CAPITAL GAINS U/S.45 R/W S. 50, BEARS THE CHARACTER OF BUSINESS INCOME, PLACING RELIANCE ON D ECISION AS IN THE CASE OF CIT VS. CONCANADA RADHASWAMI BANK LTD. [1965] 57 ITR 306 (SC). THE EXPLANATION THOUGH NOT VALID IN LAW IN-AS-MUCH AS THE INCOME HA S TO BE NECESSARILY COMPUTED UNDER THE ACT BY CLASSIFYING THE INCOME UNDER DIFFE RENT HEADS OF INCOME, WHICH ARE MUTUALLY EXCLUSIVE, AND BY FOLLOWING THE COMPUT ATIONAL PROVISIONS OF THE RELEVANT HEAD OF INCOME, AND THUS NOT SUSTAINABLE I N LAW, YET GIVES RISE TO A PLAUSIBLE EXPLANATION, SAVING PENALTY; D) THE FOREGOING, I.E., THE ARGUMENT STATED AT PARA 4. 1 (C) AND AT PARA 4.2 (C)) ABOVE, WHICH STANDS ACCEPTED BY US, CONSTITUTES THE ASSESS EES PRINCIPAL ARGUMENT, 5 ITA NO. 1226/MUM/2013 (A.Y. 2001-02) ITO VS. CHUNILAL & CO. (TM) PVT. LTD. SUMMING ITS CASE. HOWEVER, THOUGH ITS ARGUMENT IMPL IES SO, THERE IS NO FINDING BY ANY OF THE AUTHORITIES BELOW THAT THE ENTIRE PROFIT ASSESSED U/S.50 COMPRISES THE REALIZATION OF THE DEPRECIATION CHARGED ON THE RELE VANT BLOCK OF ASSETS, TERMED AS BALANCING CHARGE BY THE ASSESSEE, AND WHICH AS PE R THE EXTANT LAW OBTAINS ONLY IN RESPECT OF THE ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION AND DISTRIBUTION OF POWER, AS STATED BY THE A.O. THEREFORE, TO THE EXTE NT, THE PROFIT ON SALE OF ASSETS REPRESENTS THE EXCESS OF THE SALE VALUE (OR MONEYS PAYABLE) OVER THE ORIGINAL COST OF THE ASSETS COMPRISING THE RELEVANT BLOCK OF ASSE TS, THE SAME IS ONLY A RECEIPT ARISING ON THE TRANSFER OF CAPITAL ASSETS. THAT IS, PURELY A CAPITAL GAIN, EVEN INDEPENDENT OF S. 50, WHICH CANNOT BE SAID TO BEAR THE CHARACTER OF BUSINESS INCOME, I.E., EVEN THEORETICALLY. THE CLAIM OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS, REGULATED U/S.72, AGAINST SUCH INCOME, IF ANY , IS THUS SANS ANY BASIS IN LAW OR ON FACTS; E) THE ASSESSEES INCOME STANDS ENHANCED FROM RS.62.53 LACS TO RS.71.53 LACS, UNDER, AS PER THE RECORD, RECTIFICATION PROCEEDINGS U/S.15 4. TO THE EXTENT THE SAID DIFFERENCE IS COMPRISED IN THE TOTAL ADDITIONAL INC OME OF RS.70.56 LACS (SUPRA), THE ASSESSEE WOULD BE REQUIRED TO EXPLAIN THE DEFAULT O F NON RETURNING THE SAME AS WELL; THE PROCEEDINGS U/S.154 ITSELF DENOTING OF TH E SAID ENHANCEMENT BEING NON DEBATABLE. DECISION 4.3 THE MATTER OF THE VALIDITY IN LAW OF THE LEVY O F PENALTY ON THE SUMS COVERED UNDER CLAUSES (D) AND (E) OF PARA 4.2 OF THIS ORDER WOULD , THEREFORE, REQUIRE BEING RESTORED BACK TO THE FILE OF THE LD. CIT(A). THERE BEING NO EXPLA NATION QUA THE SAME BY THE ASSESSEE, THE FIRST APPELLATE AUTHORITY SHALL DECIDE THE SAME AFT ER ALLOWING BOTH THE PARTIES BEFORE HIM A REASONABLE OPPORTUNITY TO STATE THEIR CASE. IT MAY APPEAR THAT WE HAVE, IN SO DIRECTING, TRANSGRESSED THE SCOPE OF THE APPEAL BEFORE US. THI S IS, HOWEVER, NOT TRUE, AND FOR WHICH WE MAY REFER TO THE GROUNDS OF APPEAL ASSUMED BY TH E ASSESSEE BEFORE THE LD. CIT(A), CHALLENGING THE LEVY OF PENALTY ON THE ENTIRE INCOM E OF RS.71,53,092/-. THE IMPUGNED ORDER HOWEVER CONCERNS ITSELF ONLY WITH THE LEVY OF PENALTY ON THE SUMS CLAIMED BY WAY OF EXPENSES AND SET OFF OF BROUGHT FORWARD BUSINESS LOSS, EVEN AS IT DELETES THE ENTIRE PENALTY, SO THAT IT IS DEFICIENT TO THAT EXTENT. RE FERENCE IN THIS REGARD MAY ALSO BE MADE TO THE DECISIONS IN THE CASE OF, INTER ALIA, KAPURCHAND SHRIMAL VS. CIT [1981] 131 ITR 451 (SC) AND AHMEDABAD ELECTRICITY CO. LTD. VS. CIT [1993] 199 ITR 351 (BOM)(FB). WE DECIDE ACCORDINGLY. 6 ITA NO. 1226/MUM/2013 (A.Y. 2001-02) ITO VS. CHUNILAL & CO. (TM) PVT. LTD. 5. IN THE RESULT, THE REVENUES APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. /. 0 ) & 1& 23 4 5 ) 6 & 78 ORDER PRONOUNCED IN THE OPEN COURT ON JANUARY 30, 2 015 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 9* MUMBAI; :( DATED : 30.01.2015 ).(../ ROSHANI , SR. PS !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. =)> ? $(@A , + @A. , 9* / DR, ITAT, MUMBAI 6. ? CD E * / GUARD FILE !' / BY ORDER, )/* + (DY./ASSTT. REGISTRAR) , 9* / ITAT, MUMBAI