Babul Products Pvt.Ltd., Ahmedabad V. The Dy.CIT.,(OSD),Circle-1, Ahmedabad

ITA 1313/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9341 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 06-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 07-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALBINUS TIRKEY
• Keywords: Business income; Depreciation; Business expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENC H (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S. S. GODARA, JUDICIAL MEMBER) ITA. NO: 1313/AHD/2013 (ASSESSMENT YEAR: 2007-08) BABUL PRODUCTS PVT. LTD. URMIN HOUSE, NR. HOF, OPP: SINDHU BHAVAN, B/H. RAJPATH CLUB, AHMEDABAD V/S THE DY. COMM. OF INCOME TAX, (OSD), CIRCLE-1, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABCB 1866F APPELLANT BY : SHRI ASEEM THAKKAR, AR RESPONDENT BY : SHRI ALBINUS TIRKEY, SR. D.R . ( )/ ORDER DATE OF HEARING : 06-02-2017 DATE OF PRONOUNCEMENT : 07-02-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)- 6, AHMEDABAD DATED 16.05.2011 PERTAINING TO A.Y. 20 07-08. ITA NO. 1313 /AHD/2013 . A.Y. 2007-08 2 2. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE ASSES SEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF BUSI NESS EXPENSES MADE BY THE A.O. UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION. IN ALTERNATIVE, THE CLAIM OF THE ASSESSEE IS THAT IF T HE EXPENDITURES ARE NOT CONSIDERED U/S. 37 OF THE ACT THEN THE SAME SHOULD BE CONSIDERED U/S. 57 OF THE ACT. 3. HAVING HEARD THE RIVAL CONTENTIONS AT LENGTH, WE HA VE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. 4. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF CHEWING TOBACCO. HOWEVER, DURING THE COURSE OF THE SCRUTINY ASSESSME NT PROCEEDINGS, THE A.O. NOTICED THAT NO BUSINESS OPERATION WAS UNDERTA KEN BY THE COMPANY DURING THE YEAR UNDER CONSIDERATION. THE A.O. NOTIC ED THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME, INTEREST ON BANK FIXED DEPOS ITS AND INCOME FROM SUNDRY BALANCES WRITTEN OFF. THE A.O. WAS OF THE O PINION THAT SUCH INCOME CAN ONLY BE CHARGED UNDER THE HEAD INCOME FROM OTH ER SOURCES. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THIS INCOME SHOUL D NOT BE TREATED AS INCOME FROM OTHER SOURCES. ASSESSEE FILED A DETAILE D REPLY IN SUPPORT OF ITS CONTENTION. 5. THE REPLY OF THE ASSESSEE DID NOT FIND ANY FAVOUR W ITH THE A.O. THE A.O. WAS OF THE FIRM BELIEF THAT THE FACTS OF THE YEAR UNDER CONSIDERATION ARE ENTIRELY DIFFERENT FROM EARLIER YEARS INASMUCH AS DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS NOT DONE ANY BUSINE SS. THEREFORE, NO ITA NO. 1313 /AHD/2013 . A.Y. 2007-08 3 EXPENDITURE OF THE ASSESSEE CAN BE ALLOWED SINCE TH E ASSESSEE COMPANY IS NOT DOING ANY BUSINESS ACTIVITIES AND HAS NOT EARNE D ANY BUSINESS INCOME. THE A.O. ACCORDINGLY DISALLOWED ALL THE EXPENSES CL AIMED BY THE ASSESSEE COMPANY AMOUNTING TO RS. 3,26,75,383/-. 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT DUE TO SOME LITIGATION AMONGST THE MEMBERS ARISING OUT OF THE DISPUTE RELATING TO THE BRAND NAME/TRADE MARK, THE ASSESSEES BUSINESS WAS TEMPORARILY SUSPENDED. THOUGH, THE STATUTORY EXPENSES HAVE TO B E INCURRED BY THE ASSESSEE. IT IS THE SAY OF THE LD. COUNSEL THAT NE ITHER THE BUSINESS WAS DISCONTINUED NOR HAD THE SAME BEEN PUT TO STOP ON I TS OWN. THEREFORE, THE EXPENSES CLAIMED BY THE ASSESSEE WERE ALLOWABLE. 8. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE LOWER AUTHORITIES. 9. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. THE PROFIT AND LOSS ACCOUNT OF THE APPELLANT COMPANY IS AS UNDER:- PARTICULARS SCH. NO. 2006 - 07 2005 - 06 AMOUNT (IN RS.) AMOUNT (IN RS.) INCOME SALES OTHER INCOME 9 10 0 29264219 10389599 27149229 ITA NO. 1313 /AHD/2013 . A.Y. 2007-08 4 INCREASE (+) / DECREASE (-) IN STOCK EXPENDITURE RAW MATERIAL CONSUMPTION / COST OF GOODS SOLD PACKING MATERIAL CONSUMPTION FACTORY OVERHEADS PAYMENT TO AND PROVISION FOR EMPLOYEES ADMINISTRATIVE EXPENSES SELLING AND DISTRIBUTION / GENERAL EXPENSES FINANCIAL EXPENSES DEPRECIATION PROFIT (+) / LOSS (-) BEFORE INCOME TAX PROVISION FOR TAXES CURRENT TAX DEFERRED TAX FRINGE BENEFIT TAX PROFIT (+) / LOSS (-) AFTER TAXATION SHORT PROVISION OF FRINGE BENEFIT TAX OF PREVIOUS YEAR BALANCE FOR THE CURRENT YEAR ADD : BALANCE AS PER LAST YEAR BALANCE AVAILABLE FOR APPROPRIATION APPROPRIATIONS BALANCE CARRIED TO BALANCE SHEET TOTAL APPROPRIATIONS EARNING PER EQUITY SHARE (RUPEES) (FACE VALUE OF RS. 10/- PER EQUITY SHARE) BASIC AND DILUTED 29264219 37538828 11 0 0 29264219 37538828 12 13 14 15 16 17 18 0 0 356953 3238973 1903107 1 136588 2 9911796 12904304 0 3814809 7373242 54225816 3845843 2000 11962721 32675383 9412B735 ,-3411164 0 1148681 100000 -2362483 105198 -2467681 619075717 -56589907 0 19519968 300000 -37369939 0 -37369939 656445556 616608036 619075717 616608036 619075717 616608036 619075717 -4.94 -74.74 ITA NO. 1313 /AHD/2013 . A.Y. 2007-08 5 10. A PERUSAL OF THE ABOVE SHOW THAT THOUGH THERE WAS N O BUSINESS ACTIVITY DONE DURING THE YEAR UNDER CONSIDERATION, THE EXPEN SES INCURRED BY THE ASSESSEE PERTAIN TO THE STATUTORY OBLIGATIONS AND T HE EMPLOYMENT. IT IS TRUE THAT DUE TO SOME LITIGATION OVER THE BRAND NAME/ TR ADE MARK, THE ASSESSEE COULD NOT DO ANY BUSINESS BUT IT IS EQUALLY TRUE TH AT THE BUSINESS WAS NOT DISCONTINUED ON ACCOUNT OF VOLUNTARY ACT. THE ASSES SEE HAD TO INCUR MANDATORY EXPENDITURES TO KEEP ITS CORPORATE STATUS ALIVE. THE ASSESSEE ALSO HAD TO KEEP ITS EMPLOYEES FOR WHICH IT HAD TO INCUR THE LEGITIMATE BUSINESS EXPENDITURE. SIMILARLY, THE DEPRECIATION O N THE BLOC OF ASSETS WDV BROUGHT FORWARD FROM EARLIER YEAR HAS TO BE ALLOWED . 11. IN OUR UNDERSTANDING OF THE FACTS, IRRESPECTIVE OF THE CHARGEABILITY OF THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINES S OR PROFESSION OR INCOME FROM OTHER SOURCES, THE IMPUGNED EXPENDITU RE HAVE TO BE ALLOWED, BE IT U/S. 37 OF THE ACT OR U/S. 57 OF THE ACT. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO ALLOW THE IMPUGNED EXPENDITURE AS CLAIMED BY THE ASSESSEE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 07- 02- 20 17 SD/- SD/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 07/02/2017 RAJESH