Petrofiles Co.Operative Ltd., Surat V. The Income tax Officer,Ward-2(3), Surat

ITA 170/AHD/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57031 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-01-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 10-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: J P SHAH
• Keywords: Depreciation; Capital expenditure

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD , . .!'#$, % & BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ./ I.T.A. NO.170/AHD/2008 ( ( ) ( ) ( ) ( ) / / / / ASSESSMENT YEAR : 2004-05) PETROFILS CO-OPERATIVE LTD. D-5, PETROFILS NAGAR P.O. PETROFILS TOWNSHIP DIST.BARODA ( ( ( ( / VS. INCOME TAX OFFICER WARD-2(3) BARODA * % ./+, ./ PAN/GIR NO. : AAAAP 0443 P ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY : SHRI J.P.SHAH ./*- 1 0 / RESPONDENT BY : SHRI C.K. MISHRA, SR. D.R. (2 1 3% / / / / DATE OF HEARING : 2/01/2012 4') 1 3% / DATE OF PRONOUNCEMENT : 13.1.12 5 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-II, BARODA DATED 03/10/2007 PASSED FOR A.Y. 2004-05. GROUND RAISED BY THE ASSESSEE ARE AS FOLLOWS:- 1. THE C.I.T. (APPEALS) ERRED IN UPHOLDING THE DEC ISION OF THE ASSESSING OFFICER IN ALLOWING ONLY THE AMOUNT OF RS.36,000/- BY WAY OF EXPENDITURE AGAINST INCOME FROM OTHER SOURCES AND NOT ALLOWING THE TOTAL EXPENDITURE AGAINST INCOME UNDER THAT HEAD. ITA NO.170/AHD/ 2008 PETROFILS CO-OPERATIVE LTD. VS. ITO ASST.YEAR 2004-05 - 2 - 2. THE C.I.T. (APPEALS) OUGHT TO HAVE HELD THAT TH E INTEREST RECEIVED IS NOT THE INCOME OF THE ASSESSEE BUT IS THE INCOME OF THE GOVERNMENT BECAUSE THE SAME WAS EARNED BY THE USER OF ITS MONE Y WITH THE ASSESSEE AND IF THE SAME WAS TAXABLE IN THE HANDS OF THE ASS ESSEE THEN THE ASSESSEE WAS ENTITLED TO DEDUCT THE INTEREST WHICH IT WAS LIABLE TO PAY TO THE GOVERNMENT FOR ITS MONEYS (GOVERNMENT MONEYS) W ITH IT (THE ASSESSEE). 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 20/1 1/2006 WERE THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY AND THE CENTRAL REGISTRAR OF CO- OPERATIVE SOCIETIES HAS APPOINTED A LIQUIDATOR TO WIND UP THE SOCIETY VIDE AN ORDER DATED 11/4/2001. IT WAS NOTED BY THE ASSESSING OFFICER THAT A RETURN OF LOSS OF RS.(-)1,45,42,000/- WAS SUBMIT TED AND ON PERUSAL, IT WAS NOTICED THAT ASSESSEE HAD EARNED INTEREST OF RS .37,32,077/- AND CLAIMED AN EXPENDITURE OF RS.1,79,48,000/-. ON P ERUSAL OF ACCOUNTS, THE ASSESSING OFFICER HAD MADE AN OBSERVATION THAT FOR THE YEAR UNDER CONSIDERATION THE ASSESSEES SOCIETY HAD NOT CARRIE D OUT ANY ACTIVITY AND THE ASSESSEE WAS NOT RUNNIG THE BUSINESS. IN ADDIT ION TO THE INTEREST EARNED OF RS.37,32,077/-, IT WAS ALSO FOUND BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD EARNED RS.8,50,135/- AS RENT. INT EREST WAS STATED TO BE EARNED FROM THE FUNDS DEPOSITED IN THE BANKS. THOS E FUNDS WERE FOUND TO BE PROVIDED BY THE GOVERNMENT OF INDIA FOR THE PURP OSE OF LIQUIDATION. AS FAR AS THE RENT IS CONCERNED IN PARAGRAPH NO.7, IT WAS NOTED BY THE ASSESSING OFFICER THAT THE RENT WAS RECEIVED FROM A SCHOOL GIVEN ON RENT. THE EXPENDITURE WAS INCURRED BY THE LIQUIDATOR AND AS PER ASSESSING OFFICER, IT WAS IN THE NATURE OF ADMINISTRATIVE EXP ENSES. DUE TO THIS REASON, ASSESSING OFFICER HAS OPINED THAT THE WINDI NG UP OF THE BUSINESS ITA NO.170/AHD/ 2008 PETROFILS CO-OPERATIVE LTD. VS. ITO ASST.YEAR 2004-05 - 3 - COULD NOT BE SAID TO BE BUSINESS ACTIVITY OF THE AS SESSEE. THE WINDING UP OF THE BUSINESS WAS IN RESPECT OF LIQUIDATION OF AS SETS AND LIABILITIES, HENCE, THE EXPENDITURE WAS HELD CAPITAL IN NATURE AND TREATED AS NOT ALLOWABLE AGAINST THE TAXABLE INCOME UNDER THE HEAD OTHER SOURCES AS PER ASSESSING OFFICER. AFTER REPRODUCING THE PROVI SIONS OF SECTION 57(III), THE ASSESSING OFFICER HAS NOTED THAT ONLY THOSE EXPENDITURE WHICH WERE NOT IN THE NATURE OF CAPITAL EXPENDITURE AND T HOSE EXPENDITURE WHICH WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS ARE ALLOWABLE. FURTHER, ACCORDING TO ASSESSING OFFICE R, THERE WAS NO DIRECT OR INDIRECT NEXUS BETWEEN THE INCOME EARNED FROM O THER SOURCES WITH ALLEGED EXPENDITURE INCURRED. THE SOCIETY HAD CEA SED TO DO ANY BUSINESS SINCE THE GOVERNMENT HAD DECIDED TO WIND UP THE ASS ESSEES SOCIETY. ONLY A REASONABLE EXPENDITURE ACCORDING TO ASSESSIN G OFFICER WAS ALLOWABLE AND, THEREFORE, A MONTHLY EXPENDITURE OF RS.3,000/- WAS ESTIMATED AND DEDUCTION ONLY OF RS.3,600/- WAS ALLO WED. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. BEFORE LEARNED CIT(APPEALS) FACTS WERE STREAM-LI NED WERE AS UNDER:- 2.1. THE ISSUE IS DISCUSSED IN DETAIL FROM PARAS -3 TO 23 IN THE ASSESSMENT ORDER. THE APPELLANT, A JOINT VENTURE O F GOVT. OF INDIA AND CO-OP. SOCIETIES ENGAGED IN MANUFACTURING OF POLYST ER FILAMENT YARN AND DUE TO HEAVY LOSSES THE CENTRAL REGISTRAR CO-OP . SOCIETIES HAS APPOINTED THE LIQUIDATOR TO WIND THE SOCIETY. IT W AS FOUND BY THE ASSESSING OFFICER THAT THE APPELLANT HAS EARNED INT EREST OF RS.37,32,077/- AND CLAIMED EXPENDITURE OF RS.1,79,4 8,000/- WHICH INCLUDED DEFICIT IN LIQUIDATORS ACCOUNT AND PREMIU M PAID FOR INSURANCE OF ASSETS. ALSO THE DEFICIT IN LIQUIDATORS ACCOUNT IS NET OFF INCOME OF RS.8,50,135/- EARNED INTEREST AND RENT AND THUS THE TOTAL INCOME EARNED WAS OF RS.45,82,212/- (RS.37,32,077 + RS.8,50,135). THE ASSESSING ITA NO.170/AHD/ 2008 PETROFILS CO-OPERATIVE LTD. VS. ITO ASST.YEAR 2004-05 - 4 - OFFICER NOTICED THAT THERE WERE NO ACTIVITIES DURIN G THE YEAR UNDER CONSIDERATION. IT WAS FOUND BY THE ASSESSING OFFIC ER THAT THE APPELLANT HAD INCURRED EXPENDITURE ON INSURANCE, SALARY, SECU RITY CHARGES, LEGAL AND PROFESSIONAL FEE, CONVEYANCE AND TELEPHONE EXPE NSES AND INTEREST PAID TO GOVT.OF INDIA AND THESE EXPENDITURE WERE IN CURRED FOR THE PURPOSE OF WINDING UP BUSINESS. THUS, IT WAS HELD THAT THESE EXPENSES WERE INCURRED TO WIND UP THE APPELLANT SOCIETY AND NOT TO EARN INTEREST INCOME. ALSO THERE IS NO NEXUS BETWEEN THE INCOME EARNED FROM OTHER SOURCES AND EXPENDITURE INCURRED TO WIND UP THE APP ELLANT SOCIETY. 2.2. IT IS CONTENDED THAT THE APPELLANT HAS INCURRE D HUGE LOSSES FROM THE YEAR 1994-95 TILL 1997-98 AND GOVT.HAS DECIDED TO CLOSE DOWN THE BUSINESS ACTIVITIES, AND APPOINTED OFFICIAL LIQUIDA TOR IN THE YEAR 2001 TO CARRY OUT THE BUSINESS BY SALE OF PROPERTIES AND PA Y OFF ALL LIABILITIES SO GENERATED FROM THE ASSETS. GOVT. OF INDIA HAD GIVE N UNSECURED LOAN OF RS.132.84 CRORES TO PAY OFF THE STATUTORY DUES OF M ORE THAN 2200 EMPLOYEES AT THE TIME OF CLOSER OF BUSINESS ACTIVIT IES IN 2000-01. AFTER PAYMENT TO MOST OF THE EMPLOYEES LIABILITIES, THE BALANCE AMOUNT OF RS.4.31 CRORES HAD TO BE KEPT AS FIXED DEPOSITS FOR DISPUTED LIABILITIES. AGAINST THE TOTAL EARNING OF RS.45.82 LACS ASSESSEE HAD TO PAY INTEREST TO THE GOVT.OF INDIA ON THE LOANS PROVIDED RS.34.80 LA CS AS LOAN TOWARDS THE MAINTENANCE OF ASSETS IN GOOD CONDITION FOR SAL E ON FUTURE DATE. SINCE THE ASSESSEE WAS UNDER LIQUIDATION ASSESSING OFFICER TREATED THE ENTIRE INCOME AS INCOME FROM OTHER SOURCES AND DISA LLOWED EXPENSES EXCEPT RS.36,000/- TOWARDS EXPENSES FOR GENERATING THE INCOME. THE SET OFF OF BROUGHT FORWARD DEPRECIATION WAS ALSO NOT AL LOWED. ASSESSEE SUBMITTED FOLLOWING JUDICIAL PRONOUNCEMENTS: 1. CIT VS. BENARAS ELECTRIC LIGHT & POWER CO.LTD. 204 ITR 804 (CALCUTTA) 2. CIT VS. RAMPUR TIMBER & TURNEY CO.LTD., 129 ITR 58 (ALL) 3. NAKODAR BUS SERVICES PVT.LTD. VS. CIT 179 ITR 506 ( P&H) 4. THE LEARNED CIT(APPEALS) WAS NOT CONVINCED AND H ELD THAT SINCE THE ASSESSEE HAD NO BUSINESS ACTIVITY AND INCURRING OF EXPENSES WAS NOT TO EARN THE INCOME AND THAT THE EXPENDITURE WAS IN THE NATURE OF CAPITAL EXPENDITURE, THEREFORE DID NOT QUALIFY FOR DEDUCTIO N U/S.57(III) OF THE ITA NO.170/AHD/ 2008 PETROFILS CO-OPERATIVE LTD. VS. ITO ASST.YEAR 2004-05 - 5 - I.T.ACT. THE ACTION OF THE ASSESSING OFFICER WAS C ONFIRMED. NOW THE ASSESSEE IS FURTHER IN APPEAL. 5. FROM THE SIDE OF THE APPELLANT, LD.AR MR.J.P.SHA H APPEARED AND FURNISHED DETAILS OF RECEIPTS AND EXPENDITURE AS FO LLOWS:- RECEIPT EXPENDITURE I) INTEREST ON FDR DEPOSITED FROM FUNDS PROVIDED BY GOVT. 3732077 LEGAL & PROF.CHARGES 519000 II) RENT & OTHER INCOME 850135 BANK CHARGES 1000 CAR/TAXI RUNNING EXP. 836000 COMPUTER HIRING CHARGES 118000 TRAVELLING & CONVEYANCE 99000 DATA PROCESSING CHARGES 466000 ELECTRICITY & WATER CHARGES 319000 ENTERTAINMENT EXPENSES 9000 SALARY & BENEFITS 3269000 INSURANCE 7000 INT.ON GOVT.OF INDIA LOAN 3480000 REPAIR & MAINTENANCE 82000 POSTAGE, TELEGRAM & FAX EXP. 14000 SECURITY CHARGES 3685000 PRINTING & STATIONERY 36000 TELEPHONE EXPENSES 172000 ITA NO.170/AHD/ 2008 PETROFILS CO-OPERATIVE LTD. VS. ITO ASST.YEAR 2004-05 - 6 - 5.1. HE HAS THEREFORE ARGUED THAT AGAINST THE INTER EST OF RS.37,32,077/- THE ASSESSEE HAD TO PAY INTEREST TO GOVERNMENT OF INDIA OF RS.34,80,000/-. THE SAID PAYMENT OF INTEREST THERE FORE SHOULD BE ADJUSTED AGAINST THE INTEREST EARNED. HIS ANOTHER PLANK OF ARGUMENT WAS THAT THE ENTIRE EXPENDITURE WAS TO MAINTAIN AND TO PROCURE THE ASSETS OF THE ASSESSEE, THEREFORE ALLOWABLE EXPENDITURE. DEC ISIONS CITED BY HIM ARE AS FOLLOWS:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN ITA.. 1. ITO VS. BACHOOBAI WORONZOW, BOMBAY (1984) TAXATION 76(6)-39 ITA NOS.3595 TO 3597/BOM/1981 AYS 1976-77 TO 1977-78 [ITAT BOMBAY BENCH B] ORDER DTD.26-3- 1984 2. CIT VS. GANNON DUNKERLEY AND CO.(P.) LTD. [2000] 243 ITR 0646 (MAD.) 3. PALANI SRI MURUGAN TEXTILES LTD. VS. ASST.CIT [2002] 254 ITR 0333 (MAD.) 6. FROM THE SIDE OF THE REVENUE, LD.SR.DR MR. C.K.M ISHRA HAS SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND S TATED THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE NEXUS BETWEEN THE EARNI NG AND THE EXPENDITURE AND SINCE THE EXPENDITURE WAS CAPITAL EXPENDITURE, THEREFORE RIGHTLY DISALLOWED BY THE ASSESSING OFFICER. ITA NO.170/AHD/ 2008 PETROFILS CO-OPERATIVE LTD. VS. ITO ASST.YEAR 2004-05 - 7 - 7. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, IN OUR CONSIDERED OPINION, BOTH THE ISSUES, I.E. THE CLAIM OF EXPENDI TURE OF INTEREST ON GOVERNMENT OF INDIA LOAN OF RS.34,80,000/- AND THE OTHER EXPENDITURE, SUCH AS, LEGAL EXPENSES, CAR RUNNING EXPENSES, TRAV ELING, REPAIR AND MAINTENANCE, ETC. ARE REQUIRED TO BE RE-EXAMINED BY THE ASSESSING OFFICER BECAUSE OF THE REQUIREMENT OF THE PROVISION S OF SECTION 57(III) OF THE I.T.ACT HAVE NOT BEEN THOROUGHLY EXAMINED AND S CRUTINIZED AT THE TIME OF ASSESSMENT. SECTION 57(III) STATES THAT TH E INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES SHALL BE COMPUTED AFTER MAKING THE DEDUCTION OF THE EXPENDITURE, NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE, LAID OUT WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. MEANING THEREBY I F THE ASSESSEE HAD INCURRED EXPENDITURE ON PAYMENT OF INTEREST, THEN H E IS FIRSTLY REQUIRED TO ESTABLISH THAT THOSE VERY LOANS WHICH WERE RAISED F ROM GOVERNMENT OF INDIA HAVE EVENTUALLY BEING INVESTED IN FDRS ON WHI CH INTEREST WAS EARNED. THE ASSESSEE HAS TO PLACE ON RECORD THAT W HEN ALL THOSE GOVERNMENT LOANS WERE RELEASED AND HOW THOSE LOANS WERE DEPOSITED IN THE SHAPE OF FDRS. IF THE ASSESSEE IS ABLE TO FURN ISH THAT THE EARNIN G OF INTEREST WAS DIRECTLY LINKED WITH THE LIABILITY OF INTEREST, THEN NATURALLY THE ASSESSEE IS IN A POSITION TO SAY THAT THE EXPENDITU RE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING OF INTEREST. WE HAVE T AKEN THIS VIEW AFTER CAREFULLY PERUSING THE ORDER OF THE HON'BLE MADRAS HIGH COURT PRONOUNCED IN THE CASE OF CIT VS. GANNON DUNKERLEY AND CO.(P.) LTD. 243 ITR 646 (TAX CASE NO.1263 OF 1985) AS CITED BY THE LD.AR. IN THIS DECISION, THE HON'BLE COURT HAS HELD THAT THE EXPEN DITURE WAS INCURRED IN PERFORMANCE OF THE DUTIES BY AN OFFICIAL LIQUIDATOR . THE EXPENDITURE WAS ITA NO.170/AHD/ 2008 PETROFILS CO-OPERATIVE LTD. VS. ITO ASST.YEAR 2004-05 - 8 - INCURRED TO PROTECT AND PRESERVE THE ASSETS. IN T HE SAID DECISION, IT WAS NOTED THAT THERE WAS A FINDING OF THE APPELLATE TRI BUNAL THAT THE EXPENDITURE WAS INCURRED TO MAINTAIN THE INFRASTRUC TURE FOR EARNING OR MAKING INTEREST INCOME AND THAT WITHOUT INCURRING T HE SAID EXPENDITURE IT WOULD NOT HAVE BEEN POSSIBLE TO EARN INCOME BY WAY OF INTEREST. IT WAS NOTED THAT THE FINDING OF THE TRIBUNAL HAD CLEARLY SHOWED THAT THERE WAS A NEXUS BETWEEN THE EXPENDITURE AND THE INTEREST EARN ED. ON ACCOUNT OF THOSE FACTUAL FINDING THE HON'BLE COURT HAS FINALLY DECIDED THAT THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE EXPENDITUR E WAS DEDUCTIBLE UNDER THE PROVISIONS OF SECTION 57(III) OF THE I.T. ACT. THE RELEVANT PORTION IS REPRODUCED HEREINBELOW:- BUT, ON THE FACTS OF THE CASE, IT IS FOUND THAT TH E EXPENSES WERE INCURRED TO PRESERVE THE ASSETS AND TO MAINTAIN THE SOURCE WHICH YIELDED THE INCOME. THE FACTS FOUND BY THE TRIBUNAL CLEARLY SHOW THAT THE OFFICIAL LIQUIDATOR HAS INCURRED EXPENDITU RE FOR THE PURPOSE OF PROTECTING THE SOURCE OF INCOME. IN ADDI TION THERETO, THE EARNING OF INTEREST INCOME BY THE OFFICIAL LIQUIDAT OR CANNOT BE CONSTRUED IN ISOLATION OR APART FROM OTHER ACTIVITI ES OF THE OFFICIAL LIQUIDATOR. THE OFFICIAL LIQUIDATOR PERFORMED HIS S TATUTORY DUTIES AND DURING THE COURSE OF HIS PERFORMANCE OF DUTIES, HE INCURRED CERTAIN EXPENDITURE AND EARNED THE INTEREST INCOME. THEREFORE, WE ARE OF THE VIEW THAT THERE IS A CONNECTION OR NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INTEREST INCOME EARNED BY THE OFFICIAL LIQUIDATOR. WE ARE OF THE VIEW THAT THE DECISION OF THIS COURT IN CIT VS. DWARKA CHIT FUNDS (P) LTD. (SUPRA) WOULD APPLY TO THE FACTS OF THE CASE AND THIS COURT AFTER NOTICING THE DECISION OF THE KERALA HIGH COURT IN WANDOOR JUPITER CHITS (P) LTD. (IN LI QUIDATION), IN RE (1992) 195 ITR 244 (KER) : TC 41R.697, THE DECIS ION OF THE CALCUTTA HIGH COURT IN UNITED PROVINCES ELECTRIC SU PPLY CO. LTD. VS. CIT (1992) 92 CTR (CAL) 155 : (1993) 204 ITR 79 4 (CAL), AND THE DECISION OF THE SUPREME COURT IN VIJAYA LAXMI S UGAR MILLS LTD. VS. CIT [1991] 191 ITR 641 HELD AS UNDER: ITA NO.170/AHD/ 2008 PETROFILS CO-OPERATIVE LTD. VS. ITO ASST.YEAR 2004-05 - 9 - . . 10. FOLLOWING THE SAID DECISION, WE HOLD THAT THE D ECISION IN EACH CASE WOULD DEPEND UPON THE FACTS OF ITS OWN CASE AN D ACCORDING TO THE FACTS OF THE PRESENT CASE, THE TRIBUNAL RECORDE D A CLEAR FINDING THAT THE EXPENSES WERE INCURRED BY THE OFFICIAL LIQ UIDATOR TO MAINTAIN THE INFRASTRUCTURE FOR THE EARNING OF THE INTEREST INCOME AND WITHOUT INCURRING THE EXPENDITURE, IT WOULD NOT HAVE BEEN POSSIBLE FOR THE OFFICIAL LIQUIDATOR TO EARN THE IN TEREST INCOME. WE ARE OF THE VIEW THAT THE FINDING OF THE TRIBUNAL CL EARLY SHOWS THAT THERE IS A NEXUS BETWEEN THE EXPENDITURE AND THE IN TEREST INCOME EARNED AND THAT FINDING REGARDING THE NEXUS, IN OUR OPINION, IS A FINDING OF FACT. IN VIEW OF THE FINDING OF THE TRIB UNAL, WE HOLD THAT THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE IS DEDUCTIBLE UNDER THE PR OVISIONS OF S. 57(III) OF THE ACT. 7.1. LIKEWISE, IN CITED DECISION OF PALANI SRI MURU GAN TEXTILES LTD. VS, ASST.CIT 254 ITR 333 (MAD.) THE VIEW EXPRESSED WAS THAT THE RECEIPT OF THE INCOME BY WAY OF INTEREST AND DIVIDENDS WAS MAD E POSSIBLE BY REASON OF THE PENDENCY OF THE WINDING UP PROCEEDING S. THE DEPOSITS AND INVESTMENTS BEING THE AMOUNTS WHICH WERE PART OF TH E AMOUNTS TO BE DISTRIBUTED AMONG CREDITORS AND TO THE EXTENT OF AN Y SURPLUS AMONG THE CONTRIBUTORS FOR WHICH EXPENSES HAD TO BE INCURRED WAS CONTINUING WITH THE WINDING UP PROCEEDINGS. IT WAS HELD THAT THE E XPENSES SO INCURRED, THEREFORE, WERE REQUIRED TO BE GIVEN DEDUCTION FOR THE PURPOSE OF DETERMINING THE NET TAXABLE INCOME OF THE COMPANY I N LIQUIDATION. 8. IN THE LIGHT OF THESE TWO DECISIONS, WE HAVE ALS O EXAMINED THE ACCOUNTS MADE AVAILABLE BEFORE US AND NOTICED THAT IN SCHEDULE-19 UNDER THE HEAD LIQUIDATORS ACCOUNT AN EXPENDITURE OF R S.34.80 LACS WAS ITA NO.170/AHD/ 2008 PETROFILS CO-OPERATIVE LTD. VS. ITO ASST.YEAR 2004-05 - 10 - TOWARDS INTEREST ON GOVERNMENT OF INDIA LOAN. HOWE VER, AS PER SCHEDUEL-6 UNDER THE HEAD UNSECURED LOANS, WE HA VE NOTICED THAT THERE WAS NO CHANGE IN THE AMOUNTS OUTSTANDING AS O N 31/03/2003 AND 31/03/2004 OF RS.13,283.78 LACS. WE HAVE ALSO NOTE D THAT THE AMOUNT OF INTEREST ACCRUED WAS ALSO IDENTICAL IN FIGURES, FO UND TO BE OUTSTANDING AS ON 31/03/2003 AND 31/03/2004 OF RS.1,906.54 LACS. MEANING THEREBY THAT THERE WAS NO ACCRUAL OF INTEREST LIABILITY, TH OUGH ADMITTEDLY THE LD.AR HAS STATED BEFORE US THAT MERCANTILE SYSTEM OF AC COUNTING WAS ADOPTED BY THE ASSESSEE. IN THAT CASE, THE ASSESSEE HAS TO PROVE THE BASIS ON WHICH THE INTEREST EXPENDITURE OF RS.34.80 LACS WAS CLAIM ED. A.O. IS HEREBY DIRECTED TO PROCEED ACCORDINGLY AS PER LAW. 8.1. ANOTHER HEAD OF INCOME, IN ADDITION TO THE IN TEREST INCOME AS DISCUSSED ABOVE, IS UNDER THE HEAD RENT INCOME. THE QUESTION IS THAT WHETHER LEGAL EXPENSES, CAR RUNNING EXPENSES, TRAVE LING EXPENSES, DATA PROCESSING CHARGES, ELECTRICITY AND WATER CHARGES A ND ENTERTAINMENT EXPENSES, SALARY EXPENSES, PRINTING & STATIONERY EX PENSES, TELEPHONE EXPENSES, ETC. COULD BE ALLOWED AS DEDUCTION AGAINS T THE INCOME WHICH ACCORDING TO US IS UNDER THE HEAD PROPERTY INCOME . TO ASSESS PROPERTY INCOME, THE PROVISIONS APPLICABLE ARE ENUMERATED I N SECTIONS 23 AND 24 OF IT ACT. THERE WAS NO SUCH DISCUSSION IN THE ASS ESSMENT ORDER. FIRST OF ALL, ASSESSING OFFICER HAS TO VERIFY THE EXACT N ATURE OF THE EARNING OF AN INCOME AND THEN IT IS SUGGESTED TO VERIFY THE NA TURE OF EXPENDITURE HAVING ANY NEXUS WITH THE EARNING OF RENTAL INCOME. ONLY THAT PORTION OF THE EXPENDITURE WHICH HAS CONNECTION WITH THE EARNI NG OF RENTAL INCOME IS THEREFORE AN ADMISSIBLE DEDUCTION SUBJECT TO TH E CEILING OR LIMITATION ITA NO.170/AHD/ 2008 PETROFILS CO-OPERATIVE LTD. VS. ITO ASST.YEAR 2004-05 - 11 - PRESCRIBED U/S. 23 & 24 OF THE I.T.ACT. WE HOLD AC CORDINGLY. WITH THE RESULT, IN THE LIGHT OF ABOVE DISCUSSION, WE HEREBY RESTORE THIS ISSUE BACK TO THE STAGE OF THE ASSESSMENT TO BE DECIDED DE NOVO AFRESH AS PER THE DIRECTIONS. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSES. SD/- SD/- ( . .!'#$ ) ( ) % ( A.K. GARODIA ) ( M UKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 13/ 01 /2012 63..(, .(../ T.C. NAIR, SR. PS 5 1 .7 8 7) 5 1 .7 8 7) 5 1 .7 8 7) 5 1 .7 8 7)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 9 / CONCERNED CIT 4. 9() / THE CIT(A)-II, BARODA 5. 7 >> >/ // / + + + + ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION..02/01/2012 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 03/01/2012 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 13.1.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 13.1.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER