BIDCO STUDS P. LTD, MUMBAI V. ASST CIT CIR 4, MUMBAI

ITA 1504/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2441 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 26-10-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 21-02-2011
• Court: TRIBUNAL
• Department Lawyers: HARSHAD S VENGURLEKAR
• Assessee Lawyers: VIRAG SHAH
• Keywords: Business income
• Section: 143(3); 28

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1504/MUM/2011 ASSESSMENT YEAR: 2003-04 M/S . BIDCO STUDS PVT. LTD. 203, CAPRI BUILDING, OPP. HDIL TOWER, ANANT KANEKAR MARG, BANDRA (E), MUMBAI -400051 / VS. ACIT CIR - 4 THANE (ASSESSEE ) (REVENUE) P.A. NO. AAACB7122M / ASSESSEE BY SHRI VIRAG SHAH (AR) / REVENUE BY SHRI HARSHAD S. VENGURLEKAR (DR) / DATE OF HEARING : 26/10/2015 / DATE OF ORDER: 18/11/2015 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-I I, MUMBAI {(IN SHORT LD. CIT(A)}, DATED 28.10.2010 FOR THE AS SESSMENT YEAR 2003-04, DECIDED AGAINST THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (IN SHORT AO) U/S 143(3) OF THE ACT, ON THE FOLLOWING GROUNDS OF APPEAL: BIDCO STUDS PVT. LTD. 2 1.THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] ERRED IN CONFIRMING THE ACTION OF THE AO D ISALLOWING EXPENSES RS.43,41,050/-. 2.THE CIT(A) FURTHER ERRED IN THIS CONNECTION IN HO LDING THAT:- A) THE PERUSAL OF THE DETAILS FILED BY THE APPELLAN T CLEARLY INDICATE THAT THE APPELLANT HAS NOT CARRIED ON ANY BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATI ON; B) IF NO BUSINESS ACTIVITY IS CARRIED THERE IS NO QUESTION OF ALLOWING ANY EXPENDITURE; C) IF INCOME IS NO LONGER TAXABLE UNDER SECTION 28 BECAUSE OF DISCONTINUATION OF BUSINESS THE APPELLANT CANNOT SEEK DEDUCTION OF EXPENDITURE; AND D) SINCE LONG THE APPELLANT HAS CLOSED ITS BUSINESS OPERATIONS. 3.THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR AMEND AND/OR DELETE AND/OR MODIFY AND/OR ALTER THE AFORES AID GROUNDS OF APPEAL AS AND WHEN THE OCCASION DEMANDS. 2 . DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE BY SHRI VIRAG SHAH (LD COUNSEL) ON BEHALF OF THE ASSESSEECOMPANY AND SHRI HARSHAD VENGURLEKAR, DEPARTMENTAL REPRESENTATIVE (LD. DR) ON BEHALF OF T HE REVENUE. 3 . GROUNDS NO. 1 & 2: IN THESE GROUNDS, THE COMMON ISSUE RAISED BY THE ASSESSEE COMPANY IS WITH RESPECT TO DISALLOWANCE MADE BY THE AO OF VARIOUS EXPENSES AGG REGATING TO RS. 43,41,050/- ON THE GROUND THAT THE BUSINESS OF THE ASSESSEE WAS NOT IN CONTINUATION. BIDCO STUDS PVT. LTD. 3 4. IT HAS BEEN SUBMITTED BY THE LD. COUNSEL THAT THE EXPENSES HAVE BEEN WRONGLY DISALLOWED BY THE LOWER AUTHORITI ES. IT IS CASE OF A COMPANY WHICH IS REQUIRED TO MAINTAIN ITS CORPORATE STATUS AS PER LAW, AND THEREFORE, SOME EXPENSES HAV E TO BE NECESSARILY INCURRED FOR THIS PURPOSE, SINCE THE NA ME OF THE COMPANY WAS NOT STRUCK OFF FROM THE RECORDS OF THE ROC. IT WAS FURTHER SUBMITTED THAT EXPENSES ON ACCOUNT OF I NTEREST HAS BEEN INCURRED BECAUSE THE ASSESSEE WAS BOUND TO MAKE PAYMENT TO THE LENDERS FROM WHOM FINANCE WAS TAKEN BY THE ASSESSEE COMPANY FOR THE PURPOSE OF ITS BUSINESS, A ND IN CASE INTEREST WAS NOT PAID, THEN IT WOULD HAVE JEOPARDIZ ED CREDIBILITY OF THE COMPANY IN THE MARKET. THEREFORE , UNDER THESE CIRCUMSTANCES, TO SAVE GOODWILL AND IMAGE OF THE ASSESSEE COMPANY, IT WAS COMMITTED TO DISCHARGED LI ABILITY ON ACCOUNT OF INTEREST AS WELL AS PRINCIPAL. IN CASE T HESE LIABILITIES WERE NOT DISCHARGED BY THE ASSESSEE, THEN IT WOULD HAVE ACCELERATED THE PROCESS OF FILING OF WINDING UP PET ITION ON BEHALF OF ITS CREDITORS. IT WAS SUBMITTED THAT UNDE R THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT THESE EXPENSE S WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E COMPANY, SINCE MAINTAINING THE EXISTENCE OF THE COMPANY IN T HE EYES OF LAW IS ALSO A BUSINESS OF THE ASSESSEE. RELIANCE WA S PLACED ON THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. GANGA PROPERTIES LTD. 199 ITR 94 (CALCUTTA). IN RESPONSE TO THE QUERY OF THE BENCH TO SHOW THE THESE EXPENSES F ROM THE COPY OF RETURN, BALANCE SHEET AND PROFIT & LOSS ACC OUNT FILED AND ALONG WITH RETURN INCOME, IT WAS SUBMITTED THAT ALL THESE RECORDS GOT DESTROYED IN THE FIRE THAT TOOK PLACED IN THE OFFICE BIDCO STUDS PVT. LTD. 4 PREMISES OF THE ASSESSEE COMPANY ON 18.11.2010. IN SUPPORT OF THIS AVERMENT, LD. COUNSEL PLACED BEFORE US COPY OF REPORT FILED WITH THE POLICE DEPARTMENT. 5. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. IT WAS SUBMITTED BY HIM THAT THE OPERATIONS OF THE ASSESSEE COMPANY WERE CLOSED IN 1996, AND TH EREAFTER NO ACTIVITIES WERE CARRIED OUT BY THE ASSESSEE COMP ANY UP TO ASSESSMENT YEAR 2003-04. WITH REGARDS TO ROUTINE EX PENSES INCURRED BY THE ASSESSEE COMPANY, NO SERIOUS OBJECT ION WAS RAISED BY THE LD. DR FOR THE PROPOSITION THAT ROUTI NE EXPENSES INCURRED BY A COMPANY TO MAINTAIN ITS CORPORATE STA TUS CAN BE ALLOWED AS PER LAW. BUT WITH REGARD TO THE EXPENSES ON ACCOUNT OF INTEREST, LD. DR HAD STRONG OBJECTIONS T OWARDS THE SUBMISSIONS OF THE LD. COUNSEL. IT WAS SUBMITTED TH AT THERE WAS NO CLARITY ON THE FACTS WITH REGARD TO PURPOSE AND UTILIZATION OF THE LOAN IN EARLIER YEARS, ON WHICH LIABILITY OF INTEREST HAD BEEN INCURRED. IT WAS FURTHER SUBMITTE D BY HIM THAT NO ASSESSMENT WAS DONE U/S 143(3) PRIOR TO THE IMPUGNED ASSESSMENT AND THEREFORE, EXPENDITURE OF I NTEREST HAS NOT BEEN EXAMINED PROPERLY. HE PLACED RELIANCE ON THE JUDGMENT OF MUMBAI BENCH ITAT IN THE CASE OF ORIENT AL SERITECH LTD. V. CIT 149 ITD 350, FOR THE PROPOSITI ON THAT CONTINUATION OF BUSINESS IS ESSENTIAL FOR ALLOWBILI TY OF THE EXPENSES. 6. IN REPLY, LD. COUNSEL HAS DISTINGUISHED THE JUDGME NT OF ORIENTAL SERITECH LTD. (SUPRA). FURTHER, IN SUPPORT OF ASSESEES CLAIM FOR INTEREST, IT WAS SUBMITTED BY HIM THAT PA YMENT OF BIDCO STUDS PVT. LTD. 5 INTEREST IS ALSO MANDATORY FOR THE SURVIVAL OF THE ASSESSEE COMPANY IN THE LEGAL FRAME WORK AS WELL AS IN THE B USINESS CIRCLE, AND THEREFORE, THE AMOUNT OF INTEREST ALSO DESERVES TO BE ALLOWED ON THE SAME PRINCIPLE AS OTHER EXPENSES ARE ALLOWABLE. IT WAS FURTHER SUBMITTED BY HIM THAT COM PANY HAS NOT DISPOSED ITS FIXED ASSET EVEN TILL DATE, THUS S HOWING ITS INTENTION TO RESUME ITS BUSINESS. HE ALSO PLACED BE FORE US, COPY OF RETURN FILED BY THE ASSESSEE COMPANY FOR A. Y. 2003-04 TO SHOW THAT SOME ACTIVITIES WERE DONE AND INCOME E ARNED FROM THESE ACTIVITIES HAVE BEEN SHOWN IN THE RETURN FILED BY THE ASSESSEE COMPANY. ON THE BASIS OF THIS, IT WAS SUBMITTED BY THE LD. COUNSEL THAT IN VIEW ALL THESE FACTS, IT CANNOT BE SAID THAT THERE WAS DEATH OF THE ASSESSEE COMPANY I N ITS BUSINESS. 7. WE HAVE GONE THROUGH THE SUBMISSIONS MADE, ORDERS OF LOWER AUTHORITIES, MATERIAL PLACED BEFORE US FOR OU R CONSIDERATION AND JUDGMENTS RELIED UPON BEFORE US B Y BOTH THE SIDES. THE BRIEF FACTS ARE THAT THE ASSESSEE CO MPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF HIGH TE NSION STUDS, NUTS, BOLTS, AND ALLIED GOODS. IT HAD FILED ITS RETURN OF INCOME FOR THE A.Y. 2003.2004 ON 28.11.2003 DECLARI NG TOTAL LOSS OF RS.43,41,050/-. THE ASSESSING OFFICER DISAL LOWED THE CLAIM OF LOSS ON THE GROUND THAT THE BUSINESS OF TH E ASSESSEE COMPANY WAS DISCONTINUED. SUBSEQUENTLY AN APPEAL WA S FILED BEFORE LD. CIT (A) AND HE CONFIRMED THE ORDER OF TH E ASSESSING OFFICER. BIDCO STUDS PVT. LTD. 6 7.1. BEING AGGRIEVED AGAIN, AN APPEAL WAS PREFERRED BEF ORE TRIBUNAL. 7.2. IT IS NOTED THAT THE AO HAS DISALLOWED FOLLOWING E XPENSES. INTEREST ON O.D. RS.39,93,938/- ELECTRICITY CHARGES RS.2,64,229/- RATES & TAXES RS.64,968/- ROC FILLING FEES RS.2,500/- TOTAL RS.43,41,050/- 7.3. IT HAS BEEN SUBMITTED BY THE ASSESSEE BEFORE THE L OWER AUTHORITIES AS WELL AS BEFORE US THAT THESE EXPENSE S ARE ALLOWABLE, INTER-ALIA, FOR THE FOLLOWING REASONS: I) NONE OF THE EXPENDITURE IS EITHER OF PERSONAL NA TURE OR OF CAPITAL NATURE. II) THE ENTIRE EXPENDITURE HAS BEEN INCURRED DURING THE PREVIOUS YEAR ONLY AND NONE OF THEM IS EITHER OF EA RLIER YEAR OR OF SUBSEQUENT YEAR. III) THE ENTIRE EXPENSES HAVE BEEN INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IV) THE ENTIRE EXPENDITURE HAS BEEN INCURRED IN ORD ER TO MAINTAIN THE PLANT, MACHINERY AS WELL AS THE BUILDI NG OF THE ASSESSEE COMPANY PENDING IT FINAL DISPOSAL. EACH ON E OF THEM IS BARE MINIMUM EXPENSES TO UPKEEP THE MAINTENANCE OF THE ASSETS OF THE COMPANY TO KEEP THEM IN WORKING POSIT ION IN ORDER TO FETCH MAXIMUM MARKET PRICE. BUT FOR INCURR ING SUCH EXPENSES IT IS NOT POSSIBLE TO DO SO. BIDCO STUDS PVT. LTD. 7 7.4. IT HAS BEEN FURTHER SUBMITTED BEFORE US BY THE LD. COUNSEL THAT THE AO FAILED TO APPRECIATE THAT DISCO NTINUATION OF BUSINESS INCOME DOES NOT AMOUNT TO CLOSURE OR WI NDING UP OF THE COMPANY, AND THAT IT HAS BEEN ERRONEOUSLY EQ UATED WITH CLOSING OF ENTIRE AFFAIRS OF THE COMPANY. THE EXPEN SES INCURRED ARE OF A NATURE WHICH HAS TO BE INCURRED WHETHER TH ERE IS ANY BUSINESS ACTIVITY OR NOT. HENCE EITHER THE SAID EXP ENDITURE IS REQUIRED TO BE CAPITALIZED OR ALLOWED AS A BUSINESS LOSS. IN BOTH THE CASES, ULTIMATELY IT HAS TO BE SET OFF AGA INST THE REVENUE RECEIPTS ARISING ON ACCOUNT OF SALE OF SUCH ASSETS BY APPLYING THE PRINCIPLE OF MATCHING CONCEPT. 7.5 . IT IS NOTED BY US FROM THE FACTS BEFORE US, WHICH WERE NOT DISPUTED BY LD DR, THAT FOR THE PURPOSE OF DOING IT S BUSINESS, ASSESSEE HAD BORROWED HUGE AMOUNTS FORM NATIONALIZE D BANK LIKE ICICI AND PUNJAB NATIONAL BANK. DUE TO HEAVY L OSSES, THE ASSESSEE COMPANY WAS COMPELLED TO CLOSE DOWN IT BUS INESS OPERATIONS AS PER THE DIRECTIONS OF THE HONOURABLE BOMBAY HIGH COURT AND THE POSSESSION OF THE COMPANYS PREM ISES WAS HANDED OVER TO THE COURT RECEIVER TILL 1996. THE AS SESSEE COMPANY GOT BACK THE POSSESSION OF THE PREMISES IN 1996 ALONG WITH PLANT AND MACHINERY AND STOCK OF GOODS. ACCORDING TO THE ASSESSEE COMPANY, THE PLANT AND MACHINERY WA S HIGHLY DAMAGED AND THE STOCK OF GOODS, DUE TO HEAVY METAL CONTENT, WAS ALSO HEAVILY JUNKED. SINCE IT WAS VERY DIFFICUL T TO CONTINUE THE BUSINESS, THE ASSESSEE COMPANY STARTED SELLING THE STOCKS AS WELL AS PLANT AND MACHINERY. HOWEVER, DUE TO HEA VY LOSSES BIDCO STUDS PVT. LTD. 8 IN THE PAST, THE COMPANY HAD TO RUN ITS BUSINESS BY RESORTING TO BORROWINGS, TO FINANCE THE LOSSES INCURRED. IN O RDER TO MAINTAIN, APART FROM THE PLANT AND MACHINERY, BUILD ING AND CERTAIN OTHER ASSETS, EXPENSES WERE INCURRED TO MAI NTAIN ITS STATUS. BUT THE AO DID NOT ALLOW THESE EXPENSES ON THE GROUND THAT BUSINESS OF THE ASSESSEE WAS NO MORE IN EXISTE NCE AND SINCE THERE WAS NO BUSINESS, THERE WAS NO QUESTION OF ANY EXPENSES. 7.6. ON CAREFULLY ANALYZING THE FACTS OF THIS CASE, WE FIND THAT THE ASSESSEE HAD INCURRED THESE EXPENSES TO MAINTAI N IT EXISTENCE IN THE EYES OF LAW, AND/OR IN THE BUSINES S ENVIRONMENT IN WHICH IT WAS WORKING. IT IS COMPULSO RY FOR A COMPANY TO MAINTAIN ITS LEGAL, CORPORATE AND BUSINE SS STATUS, AND THEREFORE IN OUR CONSIDERED VIEW EXPENSES WITH REGARD TO ELECTRICITY CHARGES (RS.2,64,229/-) RATES & TAXES (RS.64,968/-) AND ROC FILLING FEES (RS.2,500/-) ARE ALLOWABLE PER SE, AND THEREFORE, THE AO IS DIRECTED TO DELETE THE DISALLOWANCE WITH RESPECT TO THESE EXPENSES. 7.7. WITH RESPECT TO DISALLOWANCE ON ACCOUNT OF INTERES T ON O.D. (RS.39,93,938/-), IT IS NOTED BY US THAT, AS R IGHTLY CONTENDED BY LD. DR ALSO, CERTAIN CRUCIAL FACTS ARE NOT ON RECORD BEFORE US. EVEN BALANCE SHEET AND PROFIT AND LOSS ACCOUNT HAS NOT BEEN FILED. THE ONLY EXPLANATION SU BMITTED ON BEHALF OF THE ASSESSEE IS THAT DUE TO FIRE, THESE R ECORDS WERE BURNT. WE BELIEVE THAT COPY OF FINAL ACCOUNTS AND S OME OTHER PRIMARY RECORDS ALSO SHOULD BE AVAILABLE IN THE FIL E OF THE DEPARTMENT. THEREFORE, WE FIND IT APPROPRIATE TO SE ND THIS BIDCO STUDS PVT. LTD. 9 MATTER BACK TO THE FILE OF AO, WHO SHALL CONSULT HI S OWN RECORD, AND SHALL ALSO GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE TO SUBMIT REQUISITE DETAILS AND DOCUME NTS AS MAY BE CONSIDERED APPROPRIATE BY THE ASSESSEE AND A S MAY BE REQUIRED BY THE AO, AS PER LAW. THE AO SHALL FIND O UT BASIC FACTS WITH REGARD TO PURPOSE OF THE LOAN AND ITS UT ILIZATION IN THE EARLIER YEAR ON WHICH INTEREST HAS BEEN CLAIMED BY THE ASSESSEE. IT IS NOTED BY US THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST HAS BEEN MADE BY THE AO IN ANY OF THE EARL IER YEARS. THUS, PRIMA FACIE, NO CASE HAS BEEN MADE OUT SO FAR BY THE REVENUE FOR DISALLOWANCE OF THE INTEREST ON THE GRO UND OF ITS GENUINENESS OR NON-BUSINESS PURPOSES. IN OUR CONSID ERED VIEW, IF IT IS FOUND BY THE AO THAT INTEREST IS GEN UINE AND THE LOAN ON WHICH INTEREST HAS BEEN CLAIMED, WAS UTILIZ ED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE, THEN INTER EST CANNOT BE DISALLOWED MERELY FOR THE REASON THAT THE ASSESSE E HAS STOPPED TO EARN ANY BUSINESS INCOME. THE ASSESSEE H AD MADE COMMITMENT TO ITS CREDITORS/LENDERS FOR REPAYMENT O F THE LOAN ALONG WITH INTEREST. THE ASSESSEE COMPANY IS LEGALL Y BOUND TO HONOUR ITS COMMITMENT. THE FINANCIAL COMMITMENT OF THE ASSESSEE COMPANY WAS NOT ONLY LEGAL BUT COMMERCIAL, MORAL AS WELL AS SOCIAL ALSO, FOR ITS SURVIVAL IN THE BUS INESS WORLD. UNDER THESE CIRCUMSTANCES, WE FIND THAT AS PER LAW, THE AMOUNT OF INTEREST CANNOT BE DISALLOWED SO LONG AS THE ASSESSEE COMPANY IS CONTINUING TO EXIST. WITH THESE DIRECTIONS AND GUIDELINES, WE SEND THIS ISSUE BACK TO THE FILE OF THE AO, WHO SHALL GATHER REQUISITE FACTS AND ADJUDICATE THI S ISSUE AFRESH, KEEPING IN VIEW THE PRINCIPLES ENUNCIATED A BOVE. BIDCO STUDS PVT. LTD. 10 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER, 2015. SD/- (SAKTIJIT DEY ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER MUMBAI; DATED : 18/11/2015 CTX? P.S/. .. # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI 5. ()*# ! + , $# # + - , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI