M/s H.B. Enterprises Pvt. Ltd., Ludhiana V. ITO, Ludhiana

ITA 1332/CHANDI/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8327 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 09-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Business income; Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 1332/CHD/2016 ASSESSMENT YEAR: 2013-14 M/S H.B. ENTERPRISES PVT. LTD., VS THE ITO, 41, FEROZ GANDHI MARKET, WARD 6(2), LUDHIANA. LUDHIANA . PAN: AAACH4189G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SACHIN JAIN RESPONDENT BY : SHRI S.K.MITTAL, DR DATE OF HEARING : 19.01.2017 DATE OF PRONOUNCEMENT : 31 .01.2017 O R D E R THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS)-4 LUDHIANA DATED 03.10.2016 FOR ASSESSMENT YEAR 2013-14, CHALLENGING THE DISALLOWANCE OF RS. 12,19,124/- ON ACCOUNT OF VARIO US EXPENSES. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY WHICH IS STATED TO BE DERIVING ITS INCOME B Y WAY OF COMMISSION AND FIXED REMUNERATION FROM ETHOS (WHICH DEALS IN HIGH END WATCHES) AS WELL AS INTERE ST ON CAPITAL BEING A PARTNER IN A PARTNERSHIP CONCERN NA MELY 2 M/S HAVELI RAM BANSI LAL HAS FILED ITS RETURN OF IN COME FOR THE YEAR UNDER CONSIDERATION ON 10.09.2013 DECL ARING THEREIN AN INCOME OF RS. 31,91,030/- WHICH WAS STAT ED TO BE PROCESSED UNDER SECTION 143(1) OF THE ACT AT THE RETURNED INCOME. HOWEVER, THE ASSESSMENT IN THIS CA SE WAS COMPLETED BY THE ASSESSING OFFICER VIDE ORDER U NDER SECTION 143(3) OF THE ACT DATED 18.11.2015 AT AN ASSESSED INCOME OF RS.48,27,000/-AS AGAINST RETURNE D INCOME OF RS.31,91,030/-. WHILE COMPLETING THE ASSESSMENT IN THIS CASE, THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS,16,35,956/- ON ACCOUNT OF DISALLO WANCE OF EXPENSES STATED TO BE CLAIMED BY THE ASSESSEE COMPANY AGAINST INTEREST INCOME RECEIVED BY THE ASS ESSEE COMPANY FROM THE PARTNERSHIP FIRM IN WHICH THE ASSE SSEE COMPANY IS A PARTNER. THE ABOVE ADDITION WAS CHALL ENGED BEFORE LD. CIT(APPEALS). 3. THE MAIN REASON FOR MAKING IMPUGNED ADDITION WAS THAT THE ASSESSEE COMPANY HAS ALLEGEDLY CLAIMED EXPENSES TO THE EXTENT OF RS. 16,35,956/- AGAINST T HE INTEREST WHICH THE ASSESSEE COMPANY HAS RECEIVED ON ITS CAPITAL WITH THE PARTNERSHIP FIRM WHICH ACCORDING T O THE ASSESSING OFFICER ARE NOT ALLOWABLE. 4. THE ASSESSEE FILED WRITTEN SUBMISSION BEFORE LD. CIT(APPEALS) WHICH IS REPRODUCED IN THE IMPUGNED OR DER IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT ASSESS EE IS ENGAGED AS MANAGEMENT AGENT FOR ETHOS WATCHES FOR T HEIR 3 PURCHASE AND SALE INCLUDING SPARE PARTS. THE ASSES SEE IS EARNING COMMISSION ON SALES AND FIXED REMUNERATION AS BUSINESS INCOME FROM ETHOS CONDUCTED ITS BUSINESS S INCE FINANCIAL YEAR 2004-05. THE ASSESSEE COMPANY IS AL SO PARTNER IN M/S HAVELI RAM BANSI LAL, FEROZE GANDHI MARKET AND IS EARNING INTEREST ON CAPITAL FROM ITS INVESTMENT AS BUSINESS INCOME. AS REGARDS TO THE BUSINESS INCOME AND EXPENDITURE, THE ASSESSEE HAS ALREADY SUBMITTED DETAILS DURING THE COURSE OF ASSESSMENT PROCEEDINGS TO SHOW THAT ASSESSEE COMPAN Y HAD MAJOR SOURCE OF INCOME FROM ETHOS IN THE FORM O F COMMISSION AND FIXED REMUNERATION IN EARLIER YEARS AS WELL AS YEAR IN QUESTION AND ETHOS WERE IN PROCESS OF CLOSING THE BUSINESS DURING ASSESSMENT YEAR 2012-13 AND YEAR IN QUESTION. THE TOTAL INFRASTRUCTURE I.E. DIS PLAY RACKS, DISPLAY COUNTERS, LIGHT FIXTURES, AIR CONDIT IONERS, STAFF MEMBERS REMAINED IN THE SERVICE TO ETHOS THOU GH THEY WERE IN THE PROCESS OF CLOSING BUSINESS, SHOW- ROOM WITH STAFF MEMBERS REMAINED FUNCTIONAL AND ALL TYPE OF ADMINISTRATIVE AND OTHER EXPENSES REMAINED SAME AND PAID BY THE ASSESSEE COMPANY. THE TOTAL INFRASTRUCT URE WHICH IS SUBJECT TO DEPRECIATION, REMAINED FUNCTION AL. ALL THIS JUSTIFIES THE EXPENSES INCURRED AND DEPREC IATION CLAIMED. THOUGH DURING THE YEAR IN QUESTION, MAJOR INCOME WAS FROM INTEREST ON CAPITAL AND PROFIT FROM FIRM AND INCOME FROM ETHOS CAME DOWN WITHIN THREE YEARS FROM RS. 32 LACS TO RS. 1.36 LACS BUT INFRASTRUCTUR E AND 4 STAFF REMAINED IN SERVICE. EXPENSES AND DEPRECIATI ON CLAIM RELATED TO THE BUSINESS ACTIVITY OF THE ASSES SEE WHICH WAS REQUIRED TO BE INCURRED AND HAD A DIRECT NEXUS TO THE ACTIVITIES OF THE ASSESSEE COMPANY. 4(I) IT WAS SUBMITTED THAT ASSESSEE CLAIMED EXPENSE S ON ACCOUNT OF EMPLOYEES BENEFIT EXPENSES RS. 8,00,804 /- DEPRECIATION RS. 3,40,769/- AND OTHER EXPENSES IN A SUM OF RS. 4,94,383/-. AS A MANAGEMENT AGENT FOR SALE OF ETHOS WATCHES/BRANDS, ASSESSEE INCURRED THESE EXPEN SES. THE ASSESSEE IS A MANAGEMENT AGENT TO ETHOS WHICH I S MARKETING HIGH END WATCHES. THE ASSESSEE HAS PROVI DED FULLY FURNISHED SPACE AVAILABLE FOR BUSINESS TO ETH OS. THE STOCK OF THE WATCHES REMAINED ETHOS PROPERTY. THE ASSESSEE IS GIVEN INCENTIVES IN THE SHAPE OF FIXED REMUNERATION AND COMMISSION ON SALES CONDUCTED IN T HE SHOW-ROOM PROVIDED BY THE ASSESSEE. ALL THE OFFICE AND ADMINISTRATIVE EXPENSES INCLUDING ESTABLISHMENT, RE PAIR, MAINTENANCE AND DISTRIBUTION EXPENSES ETC. ARE BORN E BY THE ASSESSEE. LATER ON, ETHOS FOUND THE AREA TO BE MOST CONGESTED AND DIFFICULT TO APPROACH, THEREFORE, THE Y HAVE OPENED NEW SHOW-ROOM IN MBD MALL DURING THE YEAR AN D THE SHOW-ROOM AT THE PREMISES OF THE ASSESSEE ALSO REMAINED OPERATIONAL DURING THE YEAR WITH THE EXIST ING INFRASTRUCTURE ON WHICH DEPRECIATION WAS CLAIMED ALONGWITH EXPENSES FOR ITS MAINTENANCE INCURRED BY THE ASSESSEE. THE ASSESSEE IS, THEREFORE, ENTITLED FOR EXPENSES AS WELL AS DEPRECIATION BECAUSE THE ASSESS EE 5 KEPT ITS BUSINESS ASSETS READY FOR USE FOR ITS BUSI NESS PURPOSES AND USED IT FOR BUSINESS PURPOSES. 5. THE LD. CIT(APPEALS) CONSIDERING EXPLANATION OF THE ASSESSEE HAS RESTRICTED THE ADDITION TO RS. 12,19,1 24/- AND ALLOWED PART RELIEF TO THE ASSESSEE. HIS FINDI NGS IN PARA 6.2 AND 6.3 ARE REPRODUCED AS UNDER : I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSESSIN G OFFICER AS MADE BY HER IN THE ASSESSMENT ORDER WHILE MAKING IMPUGNE D ADDITION. I HAVE ALSO CONSIDERED WRITTEN SUBMISSIONS FILED BY T HE ASSESSEE COMPANY THROUGH ITS LD. AR VIDE LETTER DATED 03.10. 2016 ON THE ISSUE UNDER REFERENCE. I HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE ASSESSEE COMPANY AS WELL AS OTHER MATERIAL PLACED BY THE ASSESSEE COMPANY ON RECORD. ON CAREFUL CONSIDERATION OF THE RIVAL CONTENTIONS, I AM OF THE OPINION THAT ETHOS FROM WHICH THE ASSESSEE COMPANY HAS RECEIVED .COMMISSION AND FIXED REMUNERATION FOR PROVIDING SPACE AND OTHE R INFRASTRUCTURE FACILITIES DURING THE YEAR UNDER CONSIDERATION HAS OPERATED ITS BUSINESS FROM THE PREMISES EQUIPPED WITH INFRASTRUC TURE PROVIDED BY THE ASSESSEE COMPANY FOR A PERIOD OF ABOUT 93 DAYS APPROXIMATELY WHICH IS CLEAR FROM THE FACT THAT THE ASSESSEE COMP ANY HAS RECEIVED FIXED REMUNERATION DURING THE YEAR UNDER CONSIDERAT ION TO THE EXTENT OF RS.98,319/- AS AGAINST FIXED REMUNERATION FOR FU LL YEAR RECEIVED IN EARLIER ASSESSMENT YEARS AT RS.3,86,052/-. IT MEANS , THE ENTIRE EMPLOYEES BENEFIT, DEPRECIATION AND OTHER EXPENSES CANNOT BE DISALLOWED AS DONE BY THE ASSESSING OFFICER. I AM A LSO OF THE OPINION THAT THE ASSESSEE COMPANY IS ALSO NOT ENTITLED TO C LAIM EXPENSES FOR ENTIRE YEAR AS ETHOS OPERATED FROM ITS PREMISES ONL Y FOR 93 DAYS. I AM FURTHER OF THE OPINION THAT THE PROPORTIONATE EX PENSES OUT OF THE EXPENSES WHICH HAVE BEEN DISALLOWED BY THE ASSESSIN G OFFICER IN THIS CASE SHOULD BE ALLOWED TO THE ASSESSEE AS THE ASSES SEE HAS SHOWN INCOME FOR 93 DAYS ALTHOUGH VERY SMALL. THE PROPORT IONATE EXPENSES WHICH CAN AT THE BEST BE ALLOWED TO THE ASSESSEE CO MPANY OUT OF EXPENSES WHICH HAVE BEEN DISALLOWED BY THE ASSESSIN G OFFICER WILL 6 COME TO RS.4,16,832/- [(RS. 1635956/365) X 93] IN V IEW OF .THE FACTS MENTIONED ABOVE. AS THE ETHOS HAS NOT DONE ANY BUSI NESS ACTIVITY FROM THE PREMISES OF THE ASSESSEE COMPANY FOR REMAI NING PERIOD OF THE YEAR UNDER CONSIDERATION, THE EXPENSES RELATING TO THAT PERIOD CANNOT BE ALLOWED UNDER ANY CIRCUMSTANCES. IN OTHER WORDS, REMAINING EXPENSES TO THE EXTENT OF RS. 12,19,124/- [RS. 16,35,956/- (-) RS.4,16,832/-] ARE REQUIRED TO BE CONFIRMED. MO REOVER, THE ASSESSEE COMPANY COULD NOT JUSTIFY ITS CLAIM WITH R EGARD TO EXPENSES FOR WHOLE OF THE YEAR. THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE ASSESSEE COMPANY WILL NOT HELP IT DUE TO DISTINGUIS HABLE FACTS. 6.3 IN VIEW OF THE ABOVE STATED FACTS AND IN TH E CIRCUMSTANCES OF THE CASE, THE ADDITION ON ACCOUNT DISALLOWANCE OUT OF E XPENSES MADE BY THE ASSESSING OFFICER IS RESTRICTED TO RS. 12,19,12 4/- AND THE BALANCE ADDITION OF RS.4,16,832/- IS DIRECTED TO BE DELETED . THE ASSESSEE WILL THUS GET A RELIEF OF RS.4,16,832/- OUT OF TOTAL ADD ITION OF RS. 16,35,956/-. IN RS. 12,19,124/- AND THE BALANCE ADD ITION OF RS.4, 16,832/- IS DIRECTED TO BE DELETED. THE ASSESSEE WI LL THUS GET A RELIEF OF RS.4, 1 6,832/- OUT OF TOTAL ADDITION OF RS. 16,35, 956/-. IN THE RESULT, GROUNDS NO. 2 AND 3 OF APPEAL TAKEN BY THE ASSESSEE COMPANY ARE PARTLY ALLOWED. 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF LD. CIT(APPEALS) . 7. I HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT ASSE SSEE IS ENGAGED AS MANAGEMENT AGENT FOR ETHOS WATCHES FOR T HEIR PURCHASE AND SALES INCLUDING SPARE PARTS. IT IS AL SO NOT IN DISPUTE THAT ASSESSEE IS EARNING COMMISSION ON S ALES AND FIXED REMUNERATION AS BUSINESS INCOME FROM ETHO S WHICH CONDUCTED THEIR BUSINESS SINCE MANY EARLIER Y EARS. 7 THE ASSESSEE COMPANY HAS MAJOR SOURCE OF INCOME FRO M ETHOS IN THE FORM OF COMMISSION AND FIXED REMUNERAT ION. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIN CE ETHOS COMPANY WAS IN THE PROCESS OF CLOSING THE BUSINESS IN THE PREMISES OF THE ASSESSEE AS THEY HA D OPENED THEIR SHOW-ROOM SOMEWHERE ELSE BUT THE FACT REMAINED THAT THE SHOW-ROOM AT THE PREMISES OF THE ASSESSEE WAS ALSO OPERATIONAL DURING THE WHOLE YEAR WITH THE EXISTING INFRASTRUCTURE ON WHICH EXPENSES AND DEPRECIATION HAVE BEEN CLAIMED BY ASSESSEE AS BUSIN ESS EXPENDITURE. THE EXPLANATION OF THE ASSESSEE HAVE NOT BEEN DISPUTED BY THE AUTHORITIES BELOW. THE LD. CIT(APPEALS) ALSO HELD IN HIS FINDINGS THAT THE ETH OS FROM WHICH THE ASSESSEE COMPANY HAS RECEIVED COMMISSION AND FIXED REMUNERATION FOR PROVIDING SPACE AND OTHE R INFRASTRUCTURE FACILITIES DURING THE YEAR UNDER CONSIDERATION HAS OPERATED ITS BUSINESS FROM PREMIS ES EQUIPPED WITH INFRASTRUCTURE PROVIDED BY THE ASSESS EE COMPANY. THE ASSESSEE ALSO SPECIFICALLY PLEADED BE FORE THE AUTHORITIES BELOW THAT TOTAL INFRASTRUCTURE I.E . DISPLAY RACK, DISPLAY COUNTER, LIGHT, FIXTURES, AIR CONDITI ONER AND STAFF MEMBERS REMAINED IN THE SERVICE TO ETHOS THOU GH THEY WERE IN THE PROCESS OF CLOSING BUSINESS. IT I S, THEREFORE, ADMITTED FACT THAT ASSESSEE PROVIDED TOT AL INFRASTRUCTURE FACILITY TO ETHOS FOR RECEIVING COMM ISSION AND FIXED REMUNERATION. THE ASSESSEE, THEREFORE, INCURRED ALL THESE EXPENDITURES FOR EARNING THE BUS INESS 8 INCOME. THE EXPENDITURE AND DEPRECIATION CLAIMED B Y ASSESSEE ARE RELATED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE WHICH WERE REQUIRED TO BE INCURRED FOR EAR NING BUSINESS INCOME. THEREFORE, ALL THE EXPENDITURES H AD DIRECT NEXUS WITH THE BUSINESS ACTIVITIES OF THE AS SESSEE COMPANY. THE LD. CIT(APPEALS) MERELY CONSIDERING T HAT THE INCOME OF THE ASSESSEE HAS REDUCED, THEREFORE, ASSESSEE WOULD BE ENTITLED FOR DEDUCTION OF THE EXPENDITURE FOR ABOUT 93 DAYS APPROXIMATELY WHICH W AS COMPARED WITH THE INCOME RECEIVED IN THE EARLIER YE AR, HOWEVER, THERE IS NO BASIS FOR THE LD. CIT(APPEALS) TO RESTRICT THE EXPENDITURE FOR 93 DAYS BECAUSE THERE IS NO MATERIAL AVAILABLE ON RECORD TO SUGGEST THAT M/S ET HOS HAS CONDUCTED THEIR ACTIVITIES IN THE PREMISES OF T HE ASSESSEE FOR 93 DAYS ONLY. 7(I) THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO P B-6 WHICH IS REPLY FILED BEFORE LD. CIT(APPEALS) IN WHI CH ASSESSEE SPECIFICALLY PLEADED THAT THE SHOW-ROOM AT THE PREMISES OF THE ASSESSEE WAS ALSO OPERATIONAL DURIN G THE YEAR WITH THE EXISTING INFRASTRUCTURE ON WHICH DEPRECIATION WAS ALSO CLAIMED. SINCE THERE IS NO CHALLENGE TO THE FINDING OF THE LD. CIT(APPEALS) TH AT ASSESSEE INCURRED THE EXPENDITURE FOR THE PURPOSE O F BUSINESS ONLY THEREFORE, THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE EXPENDITURE CAN NOT BE DENIED. FU RTHER, THERE IS NO EVIDENCE ON RECORD TO PROVE THAT M/S ET HOS OPERATED FROM THE PREMISES OF THE ASSESSEE ONLY FOR 93 9 DAYS. THEREFORE, PROPORTIONATE EXPENSES RESTRICTED BY LD. CIT(APPEALS) HAS NO BASIS AT ALL. IN THIS VIEW OF THE MATTER, I AM OF THE VIEW THAT ASSESSEE IS ENTITLED FOR DEDUCTION OF THE ENTIRE EXPENDITURE WHICH HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS. I, ACCORDING LY, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE TH E ENTIRE ADDITION. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED : 31 ST JANUARY,2016. POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH