M/s. Vinodhini Garments, CHENNAI V. ITO, CHENNAI

ITA 1445/CHNY/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4603 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-08-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 16-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: G BASKAR
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI. BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 1 445/MDS/2011 ASSESSMENT YEAR: 2005-06 M/S. VINODHINI GARMENTS, NO.8, RATTAN CHAYYA, SRI THIAGARAJA ROAD, T. NAGAR, CHENNAI 17. [PAN:AADFV0414F] VS. THE INCOME TAX OFFICER, BUSINESS WARD II (2), CHENNAI 34. (APPELLANT) (RESPONDENT) A PPELLANT BY : SHRI G. BASKAR, ADVOCATE RESPONDENT BY : SHRI SHAJI P. JACOB, ADDL. CIT DATE OF HEARING : 12.08.2013 DATE OF PRONOUNCEMENT : 30.08.2013 O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) VI, CHENNAI DA TED 31.05.2011 RELEVANT TO THE ASSESSMENT YEAR 2005-06. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT O F GARMENTS. THE ASSESSEE FILED ITS RETURN DECLARING NIL INCOME AF TER SET OFF OF BROUGHT I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1445 445445 445/M /M/M /MDS/1 DS/1 DS/1 DS/11 11 1 2 FORWARD LOSSES. THE RETURN FILED BY THE ASSESSEE W AS PROCESSED INITIALLY UNDER SECTION 143(1) OF THE ACT AND THEREAFTER THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. THE ASSESSMENT WAS PASSED UNDE R SECTION 143(3) OF THE ACT TREATING THE INCOME OF ` .6.00 LAKHS AS INCOME FROM OTHER SOURCES AS AGAINST INCOME FROM BUSINESS AS RETURNED BY THE ASS ESSEE. CONSEQUENTLY SET OFF OF EARLIER YEAR LOSS WAS NOT ALLOWED. 3. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER HAS FOUND THAT THE ASSESSEE HAS RECEIVED ` .6.00 LAKHS IN THE FORM OF COMMISSION FROM M/S. KAWARLAL AND CO., CHENNAI DURI NG THE RELEVANT FINANCIAL YEAR. VIDE LETTER DATED 12.10.2011, THE A SSESSEE WAS ASKED TO FILE THE DETAILS OF TRANSACTION. IN RESPONSE TO THE ABOV E LETTER, THE ASSESSEE HAS STATED THAT THE GARMENT FACTORY RUN BY THE FIRM WAS CLOSED ON 04.03.2002 AND THE MACHINERIES WERE SOLD AND THE RENTED PREMIS ES VACATED. IT WAS ALSO STATED BEFORE THE ASSESSING OFFICER THAT THE ASSESS EE FIRM IS NOW CARRYING ON THE BUSINESS OF INVESTMENTS AND ARRANGING LOANS. 4. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT AFTER CLOSURE OF THE FIRM IN 2002-03, THE FIRM FOR THE FIRST TIME OFFERED THE INCOME UNDER THE NOMENCLATURE OF COMMISSION FOR ARR ANGING CREDITS DURING THE RELEVANT FINANCIAL YEAR. AS NO OTHER ACTIVITIES BEING CARRIED OUT BY THE FIRM, AS WOULD BE OBSERVED FROM THE ANALYSIS OF PRO FIT AND LOSS ACCOUNT, THE ASSESSING OFFICER HAS DEPUTED THE INSPECTOR OF THE INCOME TAX TO ENQUIRE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1445 445445 445/M /M/M /MDS/1 DS/1 DS/1 DS/11 11 1 3 WITH THE CREDITORS FROM WHOM THE ASSESSEE FIRM STAT ED TO HAVE ARRANGED FUNDS FROM M/S. KAWARLAL AND CO. THE ASSESSING OFFI CER FURTHER OBSERVED THAT ALL CREDITORS INVOLVED BELONG TO A SINGLE FAMI LY AND ON BEHALF OF ALL THE CREDITORS, SHRI JETHALA K. SAYANI GAVE HIS STATEMEN T VIDE HIS LETTER DATED 14.12.2007 WHEREIN HE HAS STATED THAT ABOUT 8 YEARS BACK SHRI NITIN H SHAH AND HIS BROTHERS, WHO ARE BELONGING TO THEIR STATE INTRODUCED M/S. KAWARLAL AND CO. AS A GOOD PARTY FOR ADVANCING LOANS. AFTER THAT THEY HAVE GOT NO BUSINESS CONNECTION WHATSOEVER WITH SHRI NITIN H SH AH AND HIS BROTHERS. AFTER THAT THEY ARE ADVANCING LOANS TO M/S. KAWARLA L AND CO., SOWCARPET DIRECTLY. SUBSEQUENT TO THE STATEMENT GIVEN BY THE CREDITOR SHRI JETHALA K. SAYANI, THE ASSESSING OFFICER ISSUED VIDE LETTER DA TED 14.12.2007 TO M/S. KAWARLAL AND CO. REQUESTING TO FURNISH DETAILS IN R ESPECT OF THE NATURE OF THE TRANSACTION AND PAYMENT OF COMMISSION AND AGREEMENT , IF ANY. IN RESPONSE TO THE ABOVE LETTER M/S. KAWARLAL AND CO. REPLIED T HAT THE COMMISSION AMOUNT PAID WAS 2% IN THE FINANCIAL YEAR 2004-05 TO WARDS ARRANGING LOAN OF ` .2,91,60,000/- AND THERE IS ONLY AN ORAL AGREEMENT. THE ASSESSING OFFICER HAS BROUGHT THE ABOVE FACTS TO THE NOTICE OF THE AS SESSEE AND IN RESPONSE TO THAT THE ASSESSEE HAS SUBMITTED THAT THEY HAVE ARRA NGED A LOAN FROM M/S SAYANI GROUP AMOUNT TO ` . 3 CRORES TO M/S. KAWARLAL AND CO. AND THE COMMISSION IS ON ACCOUNT OF THE SERVICE RENDERED. IT WAS ALSO SUBMITTED BY THE ASSESSING OFFICER THAT ONE OF THE PARTNER OF TH E FIRM NAMELY SHRI NITHIN H. SHAH KNOWS ONE OF THE SONS OF M/S. SAYANI GROUP AND THE FUNDS WERE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1445 445445 445/M /M/M /MDS/1 DS/1 DS/1 DS/11 11 1 4 ARRANGED FOR M/S. KAWARLAL AND CO. BY THE OTHER PAR TNER MR. UDHAY SHAH. HENCE, IT IS A BUSINESS TRANSACTION AND THE INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSIONS OF THE ASSESSEE ON THE GRO UND THAT SHRI J.K. SAYANI, WHO IS THE CREDITOR HAS ALREADY STATED THAT 8 YEARS BACK SHRI NITIN H. SHAH AND HIS BROTHERS INTRODUCED M/S. KAWARLAL AND CO. M/S. KAWARLAL AND CO. PAID THE COMMISSION TO THE ASSESSEE HAVING INTR ODUCED THE CREDITORS LONG BACK. IF THE BENEFIT ARISEN OUT OF INTRODUCTIO N MADE LONG BEFORE AND THE RECEIPT OF SUCH INCOME AFTER CLOSURE OF THE VENTURE , WHICH IN THE PRESENT CASE THE CLOSURE OF THE FIRM WAS 2002, AMOUNT RECEI VED IS IN 2005-06 HAS TO BE OFFERED UNDER THE HEAD INCOME FROM OTHER SOURCE S. APART FROM THAT, THE ASSESSEE HAS NOT CARRIED ANY BUSINESS ACTIVITY EXCE PT RECEIPT OF COMMISSION INCOME AND THEREFORE, THE ASSESSING OFFICER HAS ASS ESSED THIS AMOUNT AS INCOME FROM OTHER SOURCES. 5. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LD. CIT(APPEALS). 6. THE LD. CIT(APPEALS) HAS OBSERVED THAT THE INCO ME EARNED OUT OF BUSINESS OF ARRANGING LOAN HAS NOT BEEN CORROBORATE D WITH THE PARTY WHO HAS GIVEN LOAN AND FURTHER THE PARTY HAS STATED THAT T HE ASSESSEE HAS INTRODUCED THE BORROWER EIGHT YEARS BACK AND THEY HAVE DIRECT DEALINGS WITH M/S. KAWARLAL AND CO. SINCE THE PURPOSE FOR WHICH THE CO MMISSION IS RECEIVED I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1445 445445 445/M /M/M /MDS/1 DS/1 DS/1 DS/11 11 1 5 COULD NOT BE ESTABLISHED BY THE ASSESSEE, THE LD. C IT(APPEALS) HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 7. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE FIRM IS CARRYING ON THE BUSINESS OF ARRANGING FUNDS AFTE R CLOSURE OF THE GARMENT BUSINESS AND THEREFORE, THE INCOME EARNED BY THE AS SESSEE IS A BUSINESS INCOME. HE ALSO SUBMITTED THAT AFTER THE ASSESSEE F IRM DID NOT DO ANY OTHER BUSINESS ACTIVITY DURING THESE YEARS, THE ASSESSMEN T CANNOT BE MADE ON THE ASSESSEE FIRM AT ALL. 9. ON THE OTHER HAND, THE LD. DR HAS STRONGLY SUPP ORTED THE ORDERS PASSED BY THE AUTHORITIES BELOW AND SUBMITTED THAT AS LONG AS THE FIRM IS EXISTED, ASSESSMENT HAS TO BE MADE. 10. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S ON RECORD AND HAVE ALSO GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WHETHER THE COMMISSION OF ` .6.00 LAKHS RECEIVED BY THE ASSESSEE FROM M/S. KAWARLAL AND CO. IS A BUSINESS I NCOME OR INCOME FROM OTHER SOURCES. THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE IS IN THE GARMENT EXPORT BUSINESS AND THE BUSINESS WAS CLOSED IN THE ASSESSMENT YEAR 2002-03 ON 04.03.2002 AND THEREAFTER THE ASSES SEE FIRM IS CARRYING ON THE INVESTMENTS AND ARRANGING LOANS. IT WAS SUBMITT ED BEFORE THE ASSESSING I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1445 445445 445/M /M/M /MDS/1 DS/1 DS/1 DS/11 11 1 6 OFFICER THAT THE ASSESSEE HAS ARRANGED LOANS TO M/S . KAWARLAL AND CO. AND FOR THAT HE HAS RECEIVED THE COMMISSION OF ` .6.00 LAKHS. WHEN THE ASSESSING OFFICER HAS MADE AN ENQUIRY THROUGH THE I NCOME TAX INSPECTOR ABOUT THE CREDITOR, THE CREDITOR ONE MR. JETHALA K. SAYANI HAS STATED VIDE HIS LETTER DATED 14.12.2007 THAT EIGHT YEARS BACK MR. N ITIN H. SHAH AND HIS BROTHER WHO BELONGS TO THEIR STATE INTRODUCED THE C REDITOR M/S. KAWARLAL AND CO. AND AFTER THAT THEY HAVE NO BUSINESS CONNECTION WITH MR. NITIN H. SHAH. THEREAFTER, THEY HAVE ADVANCED LOANS TO M/S. KAWARL AL AND CO. DIRECTLY. FROM THE ABOVE STATEMENT, IT IS VERY CLEAR THAT THE PARTNER OF THE ASSESSEE FIRM HAS ARRANGE FUNDS EIGHT YEARS BACK AND THEREAF TER, HE HAS NO CONNECTION WHATSOEVER WITH THE CREDITOR SHRI JETHAL A K SAYANI. SUBSEQUENTLY, THE ASSESSING OFFICER, ON ENQUIRY WIT H M/S. KAWARLAL AND CO., THE COMPANY HAS SUBMITTED THAT THE COMMISSION PAID AROUND 2% IN THE FINANCIAL YEAR 2004-05 FOR ARRANGING LOAN OF ` .2,91,60,000/- AND THERE WAS ONLY AN ORAL AGREEMENT BETWEEN THE ASSESSEE AND THE COMPANY. M/S. KAWARLAL AND CO. HAVE NOT SPECIFIED THE DATE ON WHI CH THE TRANSACTION TOOK PLACE AND ACCORDING TO THE CREDITORS STATEMENT DAT ED 14.12.2007, THE ASSESSEE FIRM ARRANGED THE LOAN TO M/S. KAWARLAL AN D CO. EIGHT YEARS BACK AND WHY M/S. KAWARLAL AND CO. PAID THE COMMISSION I N THE ASSESSMENT YEAR 2005-06. WHEN THE ABOVE INFORMATION WAS BROUGHT TO THE NOTICE OF THE ASSESSEE, THE ASSESSEE HAS SUBMITTED BEFORE THE ASS ESSING OFFICER THAT THE AMOUNT RECEIVED BY THE ASSESSEE IS A COMMISSION PAY MENT AND IT IS A I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1445 445445 445/M /M/M /MDS/1 DS/1 DS/1 DS/11 11 1 7 BUSINESS INCOME OF THE ASSESSEE. WHEN THE CREDITORS SUBSEQUENTLY SAYS THAT THE TRANSACTION HAS BEEN TAKEN PLACE EIGHT YEA RS PRIOR TO THE DATE OF 14.12.2007 AND M/S. KAWARLAL AND CO., COULD NOT BRO UGHT ON RECORD WHEN THE FUNDS WERE ARRANGED. UNDER THESE CIRCUMSTANCES , THE BURDEN LIES ON THE ASSESSEE TO PROVE THAT THE COMMISSION RECEIVED BY T HEM IS A BUSINESS INCOME WITH ALL MATERIAL EVIDENCE. IN THIS CASE, TH E ASSESSEE HAS FAILED TO PROVE THAT THE AMOUNT RECEIVED BY THE ASSESSEE IS A BUSINESS INCOME. THERE IS NO BUSINESS ACTIVITY CARRIED BY THE ASSESS EE EXCEPT RECEIPT OF THE COMMISSION FROM M/S. KAWARLAL AND CO. FOR THE SERVI CES RENDERED LONG AGO. THEREFORE, TAKING INTO CONSIDERATION THE ENTIRE FAC TS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT THE ASSESSING OFFI CER HAS RIGHTLY HELD THAT THE INCOME RECEIVED BY THE ASSESSEE IS FROM OTHER S OURCES AND CORRECTLY SUSTAINED BY THE LD. CIT(APPEALS). IN SO FAR AS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE IS CONCERNED THAT IF THE A SSESSEE DID NOT DO ANY BUSINESS ACTIVITY DURING THIS YEAR, ASSESSMENT CANN OT BE MADE ON THE ASSESSEE FIRM IS NOT CORRECT. AS LONG AS THE ASSESS EE FIRM EXISTS, THE ASSESSING OFFICER HAS EVERY POWER TO ASSESS THE INC OME OF THE FIRM AS PER LAW. . THEREFORE, THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE IS REJECTED AND WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(APPEALS) AND HE GROUNDS RAISED BY THE ASSESSEE IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAN DS DISMISSED. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1445 445445 445/M /M/M /MDS/1 DS/1 DS/1 DS/11 11 1 8 ORDER PRONOUNCED ON FRIDAY, THE 30 TH OF AUGUST, 2013 AT CHENNAI. SD/ - SD/ - (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 30.08.2013 VM/- TO: THE ASSESSEE/A.O./CIT(A)/CIT/D.R.