Bara Machines Pvt. Ltd., Ahmedabad V. The Income Tax Officer, Ward-1(2), Ahmedabad

ITA 1509/AHD/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7757 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 28-08-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 16-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIJAMES KURIENSR
• Assessee Lawyers: SHRIS N DIVATIA
• Keywords: Business income; Depreciation; Business expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, A - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI PRAMOD KUMAR, HONBLEVICE PRESIDENT &SMT. MADHUMITA ROY, JUDICIAL MEMBER .ITA NO. 1509/AHD/2014 /ASSTT. YEAR: 2010-11 BARA MACHINES PVT. LTD. C/O. RITABEN B. PATEL (DIRECTOR) 1/5-6, MANICHANDRA SOCIETY, NR. SURDHARA CIRCLE, THALTEJ, AHMEDABAD- 380054 PAN:AAB CB8 696 F VS. ITO WARD-1(2) PRATYAKSH VERA BHAVAN, AMBAWADI, AHMEDABAD- 380015 / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRIS. N. DIVATIA, AR REVENUE BY : SHRIJAMES KURIEN,SR. DR ! /DATE OF HEARING : 25/03/2019 '#$ ! /DATE OF PRONOUNCEMENT: 24/04/2019 %& / O R D E R PER MADHUMITA ROY- JM : THE INSTANT APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER DATED 28.02.2014 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-I I, AHMEDABAD ARISING OUT OF THE ORDER DATED 30.11.2012 PASSED BY THE ITO WARD -1(2), AHMEDABAD U/S. 143(3) OF THE ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2010-11. 2. IN THIS PARTICULAR CASE THE ASSESSEE HAS CHALLEN GED THE DISALLOWANCE OF RS. 8,75,403/- AS CLAIMED BY THE ASSESSEE AS BUSINESS L OSS ON THE GROUND, THAT THE APPELLANT COMPANY HAS NOT UNDERTAKEN ANY BUSINESS A CTIVITY. THE FACT OF THE CASE IS THIS THAT IN THE FINANCIAL YEAR 2006-07 THE APPE LLANT COMPANY AS ACQUIRED THE ITA NO. 1509/AHD/2014 A.Y. 2010-11 2 BUSINESS BUILDING OF AN AMOUNT OF RS. 2,02,85,902/- AND OTHER VEHICLES OF RS. 13,75,694/- PURSUANT TO A SCHEME OF ARRANGEMENT FOR DEMERGER BETWEEN NET VISION WEB TECHNOLOGY LTD. AND THE APPELLANT BY AND UNDER AN ORDER DATED 14.06.2006 PASSED BY HONBLE HIGH COURT FINALLY APPROVED ON 04 .05.2007. THE APPELLANT STOPPED HIS MACHINERY SUPPLYING BUSINESS ACTIVITY I N THE FINANCIAL YEAR 2006-07 UPON STARTING RENTING OUT THE BUSINESS PROPERTY ON LEASE TO DIFFERENT COMPANIES AND EARNED RENTAL INCOME WHICH WAS OFFERED TO TAX. THE APPELLANT FURTHER INCURRED EXPENSES TOWARDS REM UNERATION OF DIRECTOR, DEPRECIATION ON VEHICLES U/S. 22 OF THE ACT, MAINTE NANCE EXPENSES OF SUCH VEHICLES, ADMINISTRATIVE EXPENSES ETC. IN ADDITION TO THE CL AIM AS PER U/S. 24(A) OF THE ACT AMOUNTING TO RS. 15,43,697/- FROM THE TOTAL RENTAL INCOME OF RS. 51,92,000/- THE ASSESSEE HAS FURTHER CLAIMED EXPENSES TOTALLING TO RS. 6,83,735/-. FURTHER DEDUCTION OF DEPRECIATION ON LAW 1,91,668/- U/S. 32 OF THE ACT TOTALLING TO RS. 8,75,403/- AS ADDITIONAL EXPENSES HAS BEEN CLAIMED BY THE ASSESSEE. A SHOW-CAUSE DATED 19.11.2012 WAS SERVED UPON THE ASSESSEE PURSU ANT TO WHICH THE ASSESSEE SUBMITTED BEFORE THE LD. AO THAT IT HAS NOT CLAIMED ANY EXPENDITURE AGAINST RENT INCOME NEITHER DEPRECIATION ON THE SAID BUSINESS PR OPERTY. IT WAS FURTHER NARRATED BY THE APPELLANT THAT IT HAS INCURRED CERTAIN FIXED EXPENDITURE TO MAINTAIN ITS EXISTENCE AND RUN BUSINESS OPERATIONS AND THEREFORE HAS SET OFF THUS MINIMUM BARE EXPENSES AS BUSINESS EXPENSES. IT WAS FURTHER POIN TED OUT THAT THE RENTAL INCOME FROM THE BUILDING HAS BEEN SEPARATELY ASSESSED AS A N INCOME FROM HOUSE PROPERTY AND NOT A BUSINESS INCOME. THE CONTENTION OF THE A SSESSEE WAS NOT FOUND ACCEPTABLE BASICALLY ON THIS GROUND THAT THE APPELL ANT COMPANY HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDE RATION. THE GENUINE BUSINESS EXPENDITURE INCURRED BY THE ASSESSEE AS CLAIMED TO HAVE BEEN SET OFF AGAINST INCOME FROM HOUSE PROPERTY AS CONTENDED BY THE ASSE SSEE WAS NOT PERMISSIBLE U/S. 24 OF THE ACT AS ALSO OPINED BY THE LD. AO. THUS, THE DEDUCTION OF BUSINESS EXPENSES TO THE TUNE OF RS. 8,75,403/- AS CLAIMED U /S. 24 OF THE ACT BY THE ASSESSEE ITA NO. 1509/AHD/2014 A.Y. 2010-11 3 WAS DISALLOWED WHICH WAS CONFIRMED IN APPEAL. HENC E THE INSTANT APPEAL BEFORE US. 3. AT THE TIME OF HEARING OF THE INSTANT APPEAL THE LD. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE AUTHORITI ES BELOW FAILED TO APPRECIATE THAT THE ASSESSEE HAS INCURRED EXPENSES FOR MAINTAINING THE ESTABLISHMENT. IT IS TRUE THAT THE ASSESSEE HAS CHANGED ITS NATURE OF BUSINESS BUT THERE WAS NO CESSESSION OF BUSINESS OF THE ASSESSEE AS OBSERVED BY THE AUTHORI TIES BELOW. FURTHERMORE THE ASSET HAS BEEN USED FOR THE PURPOSE OF BUSINESS AND THE EXPENDITURE INCURRED WAS OF NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE APPELLANT AND EXCLUSIVE FOR THE PURPOSE OF BUSINESS. IN THAT VIEW OF THE M ATTER THE LD. AR ARGUED THAT THE EXPENDITURE AND/OR LOSS CLAIMED UNDER THE HEAD BUSI NESS AND PROFESSION ARE ELIGIBLE TO BE SET OFF AGAINST THE INCOME FROM HOUSE PROPERT Y AS CLAIMED BY THE ASSESSEE. HE ALSO RELIED UPON THE JUDGMENT PASSED BY THE HON BLE TRIBUNAL, DELHI IN THE MATTER OF INCOME TAX APPEAL VS. MUKUL FINANCE PVT. LT D. REPORTED IN [2009] 29 SOT 11 (DELHI), THE JUDGMENT PASSED BY THE HONBLE C ALCUTTA HIGH COURT IN THE MATTER OF MUKTI PROPERTIES PVT. LTD. VS. CIT (2011) 5 0 DTR 273 & 238 CTR 174 (CAL) (HIGH COURT), CIT VS. NEW INDIA INDUSTRIES LTD. (1993) 201 ITR 208 (GUJARAT HC) IN SUPPORT OF HIS CLAIM. ON THE CONTRARY THE LD. DR RELIED UPON THE ORDER P ASSED BY THE AUTHORITIES BELOW. 4. HEARD THE RIVAL CONTENTIONS MADE BY THE RESPECTI VE PARTIES AND PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE HAVE CA REFULLY CONSIDERED THE ORDER PASSED BY THE LD. DELHI BENCH PASSED IN THE MATTER OF MOKUL FINANCE (P.) LTD. VS. ITO. THE RELEVANT PORTION WHEREOF IS:- 5. HAVING GIVEN OUR CAREFUL CONSIDERATION TO THE R IVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE ARE INCLINED TO UPHOLD THE C ONCLUSIONS ARRIVED AT BY THE CIT(A). AS DR. GUPTA RIGHTLY CONTENDS, THE ASSESSEE BEING AN ARTIFICIAL JURIDICAL PERSON, IT NEEDS TO INCUR CERTAIN EXPENDI TURE TO KEEP ITSELF AFLOAT AND ITA NO. 1509/AHD/2014 A.Y. 2010-11 4 HAVE ITS CONTINUED EXISTENCE. UNLIKELY A NATURAL PE RSON, A COMPANY CAN ONLY OPERATE THROUGH OTHER NATURAL PERSONSWHETHER EMPLO YEES OR OTHERS. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE EXPENDIT URE OF THE ASSESSEE COMPANY ARE EXCESSIVE OR UNREASONABLE VIS-A-VISITS LEGITIMA TE BUSINESS REQUIREMENTS. THE HON'BLE HIGH COURTS HAVE CONSISTENTLY HELD THAT IN THE CASE OF THE CORPORATE ASSESSEES SUCH EXPENSES HAVE TO BE ALLOWE D AS DEDUCTION IRRESPECTIVE OF WHETHER OR NOT THE ASSESSEE IS ENGA GED IN ACTIVE BUSINESS AND EVEN IF ASSESSEE HAS ONLY PASSIVE INCOMES. THE CIT( A) WAS, THEREFORE, JUSTIFIED IN HIS CONCLUSIONS. THAT IS, HOWEVER, NOT THE ONLY REASON WHY THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS UNSUSTAINABLE IN LAW. WE AGREE WITH DR. GUPTA'S SECOND LINE OF ARGUMENT AS WELL. WE FIND TH AT THE WHOLE CAUSE OF ACTION OF DISALLOWANCE OF EXPENSES IS IN THE BACKGR OUND OF ASSESSING OFFICER'S OBSERVATION THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS TRANSACTIONS WHICH AT BEST WAS ASSESSING OFFICER'S FINDING ABOUT AN ACTIVITY OF BUSINESS NOT BEING FUNCTIONAL IN THE RELEVANT PREVIOUS YEAR. IN OUR OPINION, NOT CARRYING ON BUSINESS ACTIVITY IN A PARTICULAR PERIOD CANNOT BE EQUATE WITH CLOSURE OF BUSINESS AS IT TAKES AN UNSUSTAINABLY NARROW VIEW O F THE SCOPE OF CESSATION OF A BUSINESS. IN THE CASE OF LVE.VAIRAVANCHETTIAR. VS . CIT [1969] 72 WR 114, THEIR LORDSHIPS OF HON'BLE MADRAS HIGH COURT WERE I N SEISIN OF A SITUATION WHERE THE ASSESSEE HAD OBTAINED AN IMPORT LICENCE F OR DOING ARECANUT BUSINESS BUT DUE TO ADVERSE CONDITIONS IN MARKET, H E TEMPORARILY SUSPENDED THE ARECANUT BUSINESS FOR THE ASSESSMENT YEAR IN QU ESTION. NEVERTHELESS, HE WAS MAINTAINING THE ESTABLISHMENT AND WAS WAITING F OR IMPROVED MARKET CONDITIONS IN ARECANUT. IT WAS THUS AN ADMITTED POS ITION THAT NO ACTIVITIES WERE CARRIED OUT SO FAR AS THIS PART OF THE BUSINESS WAS CONCERNED. ON THESE FACTS, THEIR LORDSHIPS TOOK NOTE OF THE POSITION THAT 'THE RE IS NOTHING ON RECORD TO SHOW THAT HE COMPLETELY ABANDONED OR CLOSED THE BUS INESS FOREVER. ON THE OTHER HAND, HIS BOOKS OF ACCOUNT REVEALED THAT HE W AS MEETING THE ESTABLISHMENT CHARGES AND INTEREST PAYMENTS AS DETA ILED IN THE ACCOUNTS IN THE YEAR OF ACCOUNTS'. IT WAS THEN OBSERVED THAT THE QU ESTION WHETHER THE BUSINESS IS BEING CARRIED ON MUST DEPEND IN EACH CASE ON ITS OWN FACTS AND NOT ON ANY GENERAL THEORY OF LAW. THEIR LORDSHIPS THEN REFERRE D TO, WITH APPROVAL, LORD SUMMER'S OBSERVATION IN IRC V. SOUTH BEHAR RAILWAY CO. LTD. [1925] 12 TAX CASES 657 THAT BUSINESS IS NOT CONFINED TO BEING BU SY; IN MANY BUSINESSES LONG INTERVALS OF INACTIVITY OCCUR. 'THE CONCERN IS STIL L A GOING CONCERN THOUGH A VERY QUIET ONE.' AFTER ELABORATE SURVEY OF JUDICIAL PRECEDENTS ON THE ISSUE, THEIR LORDSHIPS CONCLUDED, IN THE LIGHT OF, AS NOTE D ABOVE, THE FACTUAL POSITION THAT 'THERE IS NOTHING ON RECORD TO SHOWTHAT HE COM PLETELY ABANDONED OR CLOSED THE BUSINESS FOREVER. ON THE OTHER HAND, HIS BOOKS OF, REVEALED THAT HE WAS MEETING THE ESTABLISHMENT CHARGES AND INTEREST PAYMENTS AS DETAILED IN THE IN THE YEAR OF ACCOUNT,' THAT THE LOSS IN ARECA NUT BUSINESS, IN WHICH ADMITTEDLY NO ACTIVITY WAS OUT DURING THE RELEVANT PREVIOUS YEAR, WAS TO BE SET OFF AGAINST ASSESSEE'S BUSINESS INCOME IN THE T THE RATIO OF THE AFORESAID JUDGMENT IS SUMMED UP IN THE ITR HEAD NOTES AT P. 1 15 OF THE REPORT, AS THE ASSESSEE WAS MAINTAINING THE ESTABLISHMENT AND WAIT ING FOR THE IMPROVED MARKET CONDITIONS IN ARECANUTS AND THERE WAS NOTHIN G TO SHOW THAT HE COMPLETELY ABANDONED OR CLOSED THE BUSINESS FOREVER , THE BUSINESS MUST BE DEEMED TO BE CONTINUING'. IN THE LIGHT OF THIS LEGA L POSITION, IT WOULD FOLLOW THAT UNLESS THERE ISSOME MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAS COMPLETELY ABANDONED THE SHARE DEALING BUSINESS, ME RELY BECAUSE THERE ARE ITA NO. 1509/AHD/2014 A.Y. 2010-11 5 NO BUSINESS TRANSACTIONS IN THE RELEVANT PREVIOUS Y EAR CANNOT BEREASON ENOUGHTO COME TO THE CONCLUSION THE BUSINESS HAS CO ME TO AN END. IT COULD NOT THUS BE SAID; AS WAS THE CASE BEFORE THE HON'BLEMAD RAS HIGH COURT, THAT THE ASSESSEE HAD 'COMPLETELY ABANDONED OR CLOSED THE BU SINESS FOREVER'. UNLESS THE BUSINESS IS ABANDONED OR CLOSED AND EVEN IF BUS INESS IS AT A DORMANT STAGE WAITING FOR PROPER MARKET CONDITIONS TO DEVELOP, TH E EXPENDITURE INCURRED IN THE COURSE OF SUCH A BUSINESS IS TO BE ALLOWED AS D EDUCTION. FOR THIS REASON ALSO, DISALLOWANCE MADE BY THE ASSESSING OFFICER WA S NOT JUSTIFIED, AND THE CIT(A) RIGHTLY DELETED THE SAME. 5. IN THE MATTER OF MUKTI PROPERTIES IT WAS HELD TH AT THE ASSESSEE DERIVED INCOME FROM REAL ESTATE BUSINESS ARE ALSO INCOME FR OM HOUSE PROPERTY. THE ASSESSEES CLAIM FOR DEDUCTION OF BROKERAGE AND COM MISSION CANNOT BE DISALLOWED AGAINST THE BUSINESS INCOME ON THE GROUND THAT THE ASSESSEE IS NOT ENTITLED TO ANY FURTHER DEDUCTION OTHER THAN THOSE PROVIDED U/S. 24 OF THE ACT. IN THE CASE OF CIT VS. NEW INDIA INDUSTRIES LTD. IT WAS FURTHER HELD THAT IF AN ASSESSEE DERIVED INCOME FROM A COMMERCIAL ASSET WHI CH IS CAPABLE OF BEING USED AS A COMMERCIAL ASSET, THEN IT IS INCOME FROM HIS B USINESS WHETHER HE USES THAT COMMERCIAL ASSET HIMSELF OR LET IT OUT TO SOMEBODY ELSE TO BE USED. THE ASSET WOULD NOT CEASE TO BE COMMERCIAL ASSET SIMPLY BECAU SE TEMPORARILY IT WAS PUT OUT OF USE OR IT WAS LET OUT TO OTHER PERSON FOR HIS US E. SO LONG AS THE COMMERCIAL ASSET IS CAPABLE OF BEIN G EXPLOITED A SUCH, ITS INCOME IS BUSINESS INCOME IRRESPECTIVE OF THE MANNE R IN WHICH THE ASSET IS EXPLOITED BY THE OWNER OF THE BUSINESS, HE IS ENTIT LED TO EXPLOIT IT TO HIS BEST ADVANTAGE AND HE MAY DO SO EITHER BY USING IT HIMSE LF PERSONALLY OR BY LETTING IT OUT TO SOMEBODY ELSE. SIMILARLY IN CASE OF YOUR APPELLANT, ASSETS LET OU T ARE COMMERCIAL AND ARE CAPABLE OF BEING USED AS COMMERCIAL ASSET. THEREFOR E, RENT RECEIVED FROM THE SAID COMMERCIAL PROPERTY MAY BE TREATED AS BUSINESS INCO ME AND DEPRECIATION MAY BE ALLOWED TO YOUR APPELLANT. ITA NO. 1509/AHD/2014 A.Y. 2010-11 6 6. HAVING HEARD THE LD. COUNSEL APPEARING FOR THE PARTIES HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND PARTICU LARLY THE JUDGMENT CITED ABOVE WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO C OMPLETE CESSESSION OF BUSINESS OF THE ASSESSEE AND IN ORDER TO MAINTAIN THE ESTABLISH MENT THE ASSESSEE HAS INCURRED EXPENDITURE WHICH HAS BEEN CLAIMED TO BE SET OFF.WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS INCURRED GENUINE BUSINESS EXP ENDITURE, DURING THE YEAR UNDER CONSIDERATION DEDUCTION WHEREOF OUGHT TO HAVE BEEN ALLOWED U/S. 24 OF THE ACT. IN THAT VIEW OF THE MATTER THE EXPENDITURE CLAIMED BY THE ASSESSEE COMPANY OF RS. 8,75,403/- AS BUSINESS LOSS IS HEREBY ALLOWED. THE ADDITION ON THIS GROUND AS MADE BY THE AUTHORITIES BELOW IS THUS DELETED. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. [ORDER PRONOUNCED IN THE COURT ON 24-04-2019.] SD/- SD/- ( PRAMOD KUMAR ) ( MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER TRUE COPY AHMEDABAD; DATED 24/04/2019 TANMAY %& '()*%)$ /COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. + / THE RESPONDENT. 3. ,, - / CONCERNED CIT 4. - ( ) / THE CIT(A) 5. )./'' , / DR, ITAT, 6. /012 / GUARD FILE. %& / BY ORDER, 3 / ,4 (DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD