ITO, New Delhi V. M/s M.G. Builders & Co. P Ltd., New Delhi

ITA 1865/DEL/2011

• Counselvise Citation: 186520114 RSA 2011
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-02-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Assessee Lawyers: M K GIRI
• Keywords: Business income; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 1865(DEL)/2011 ASSESSMENT YEAR: 2007-08 INCOME-TAX OFFICER, M/S M .G. BUILDERS & CO. P. LTD., WARD 6(1), NEW DELHI. VS. 105, FIRST FLOOR, LOHA MANDI, NARAINA, NEW DELHI-110028. PAN: AAACM 0053E (APPLICANT) (RESPONDENT) APPLICANT BY : SHRI R.S. NEGI, SR. DR RESPONDEN T BY : SHRI ANOOP SHARMA & SHRI M.K. GIRI, ADVOCATES DATE OF H EARING: 13.02.2012 DATE OF P RONOUNCEMENT: 17.02.2012 ORDER PER K.G. BANSAL : AM THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS DEA LING IN REAL ESTATE, IRON AND STEEL AND SHARES. THE RETURN WAS FILED O N 29.10.2007 DECLARING TOTAL INCOME OF RS. 8,60,640/-. THE ASSESSMENT WAS COMP LETED ON 22.12.2009 AT TOTAL INCOME OF RS. 32,10,340/-. THE ASSESSMEN T WAS SUBJECT MATTER OF APPEAL BEFORE THE CIT(APPEALS)-IX, NEW DELHI, WH O PARTLY ALLOWED THE APPEAL. VARIOUS GROUNDS TAKEN BY THE REVENUE A RE DISCUSSED AD SERIATUM HEREUNDER. ITA NO. 1865(DEL)/2011 2 2. GROUND NO. 1 IS GENERAL IN NATURE. NO ARGUMENT WAS MADE BY EITHER SIDE IN RESPECT OF THIS GROUND. THEREFORE, THIS GROUND IS DISMISSED. 3. GROUND NO. 2 IS THAT THE LD. CIT(APPEALS) ERRED IN RESTRICTING THE DISALLOWANCE MADE BY THE AO BY INVOKING THE PRO VISION CONTAINED IN SECTION 37(1) OF THE INCOME-TAX ACT, 1961, TO RS. 7,00,456/- AGAINST RS. 8,33,882/-. IT IS ALSO MENTIONED THAT HE IGNORED THE FINDING OF THE AO THAT THE ASSESSEE DID NOT INTENTIONALLY FILE DETAILS OF ROOM NO. 108 OF ITS BUSINESS PREMISES. 3.1 THE FACTS MENTIONED IN THE ASSESSMENT ORDER ARE THAT A NUMBER OF CONNECTED CONCERNS ARE OPERATING FROM THE BUSIN ESS PREMISES OF THE ASSESSEE SITUATED AT X-21, LOHA MANDI, NARAINA, NEW DELHI. THE PREMISES ARE OWNED BY THE DIRECTOR OF THE ASSESS EE-COMPANY. THE OTHER CONCERNS OPERATING FROM THESE PREMISES ARE M/S SHORI LAL KAKSHMIRI LAL, M/S INTERTRADE SERVICES AND M/S STEEL AGENCIES. TH E ASSESSEE WAS REQUESTED TO CLARIFY THE ISSUE IN THE CONTEXT OF EXPENDITURE INCURRED UNDER MISCELLANEOUS HEAD, I.E., WHETHER THE EXPENSES P ERTAINED TO THE BUSINESS OF THE ASSESSEE OR THEY WERE COMMON EXPENSES. THE DETAILS OF THE EXPENSES ITA NO. 1865(DEL)/2011 3 HAVE BEEN FURNISHED ON PAGE NO. 3 OF THE ASSESSME NT ORDER AND THEY TOTALED TO RS. 11,11,842/-. THE FINDING OF THE AO IS THAT THESE ARE COMMON EXPENSES OF THE PARTIES MENTIONED ABOVE AN D THE ASSESSEE. THEREFORE, A SUM OF RS. 2,77,960/- HAS BEEN ALLOWE D AND THE BALANCE SUM OF RS. 8,33,882/- HAS NOT BEEN ALLOWED. 3.2 THE MATTER WAS EXAMINED BY THE LD. CIT(APPEA LS) IN THE COURSE OF HEARING OF THE APPEAL. IT WAS SUBMITTED THAT THE INFORMATION IN THIS REGARD WAS SUBMITTED IN LETTER DATED 23.09.2009 AND SUCH INFORMATION HAS BEEN TABULATED BY HIM ON PAGE 2 OF THE ASSESSM ENT ORDER. THE ASSESSEE WAS CONDUCTING ITS BUSINESS FROM 105, X-21, LOHA M ANDI, NARAINA, NEW DELHI. THIS IS THE ADDRESS FURNISHED TO THE IN COME-TAX DEPARTMENT AND MENTIONED IN THE ASSESSMENT ORDER. NO OTHER COMP ANY OR CONCERN IS CONDUCTING BUSINESS FROM THIS PREMISE. THE EXPEN SES CLAIMED BY THE ASSESSEE PERTAIN TO ITS BUSINESS ONLY. THE OTHER COMPANIES HAVE INCURRED SIMILAR EXPENSES FOR THEIR BUSINESSES, THE DET AILS OF WHICH HAVE BEEN FILED. THE LD. CIT(APPEALS) CONSIDERED THE ASSE SSMENT ORDER AND THE SUBMISSIONS OF THE ASSESSEE. IT HAS BEEN HELD TH AT THE AO WAS NOT JUSTIFIED IN DISALLOWING ANY EXPENSES ON THE FOO TING THAT THESE WERE COMMON EXPENSES. HOWEVER, HE ALSO FOUND THAT A SUM OF RS. 1,33,426/- ITA NO. 1865(DEL)/2011 4 WAS INCURRED TOWARDS RENOVATION OF THE PREMISES. HE HELD THE EXPENDITURE TO BE CAPITAL IN NATURE AND ALSO ALLOWED DEPRECIAT ION THEREON. THE BALANCE EXPENDITURE WAS ALLOWED. THUS, THE ASSESSEE GOT THE RELIEF OF RS. 7,00,456/- 3.3 BEFORE US, THE LD. SENIOR DR SUBMITS THAT THER E IS AN ERROR IN DRAFTING THE GROUNDS. THE AO HAD DISALLOWED A SUM OF RS. 8,33,882/-. THE LD. CIT(APPEALS) GRANTED RELIEF OF RS. 7,00,456/-. T HUS, HE SUSTAINED THE DISALLOWANCE OF RS. 1,33,426/- ONLY. OUR ATTENTIO N HAS BEEN DRAWN TO PAGE NO. 19 OF THE PAPER BOOK, WHICH HAS A CHART RE GARDING EXPENSES INCURRED BY THE ASSESSEE, M/S SHORI LAL KASHMIRI LAL, M/S STEEL AGENCIES AND M/S INTERTRADE SERVICES IN RESPECT OF 16 HEADS, BEIN G SALARIES, CAR EXPENSES, POSTAGE AND TELEGRAM, WATER AND ELECTRICITY CHAR GES ETC. IT SHOWS THAT M/S SHORI LAL KASHMIRI LAL INCURRED EXPENDITURE OF RS . 8,65,940/- UNDER THIS HEAD. M/S STEEL AGENCIES INCURRED EXPENSES OF R S.9,44,003/-, AND M/S INTERTRADE SERVICES INCURRED EXPENSES OF RS. 12 ,06,169/-. HIS CASE IS THAT THE ASSESSEE HAS NOT BEEN ABLE TO FURNISH CONCLU SIVE EVIDENCE THAT ALL EXPENSES INCURRED BY THE ASSESSEE WERE IN THE CO URSE OF ITS BUSINESS ONLY AS THE DETAILS IN RESPECT OF ROOM NO. 108 WERE NOT FURNISHED. IN THIS CONNECTION, HE ALSO RELIES ON THE ORDER OF THE AO. ITA NO. 1865(DEL)/2011 5 3.4 IN REPLY, THE LD. COUNSEL SUBMITS THAT THE L D. CIT(APPEALS) HAS CONSIDERED ALL ASPECTS AND HE HAS RIGHTLY COME TO THE CONCLUSION THAT THE EXPENSES WERE INCURRED IN THE COURSE OF BUSINESS O F THE ASSESSEE. APART FROM REFERRING TO THE TABLE ON PAGE NO. 19, WHICH HAS ALREADY BEEN DISCUSSED, OUR ATTENTION HAS BEEN DRAWN TOWARDS ACCOUNTS OF THE CONNECTED CONCERNS PLACED IN PAPER BOOK FROM PAG E NOS. 20 TO 26, WHICH SHOW THE EXPENSES TABULATED AT PAGE 19. PAGE 27 SHOWS THE DETAILS OF TURNOVER FOR VARIOUS YEARS FROM ASSESSMENT YEA R 1996-97 TO ASSESSMENT YEAR 2007-08 IN TERMS OF IRON AND STEEL, REAL ESTATE, SHARES AND TYRES AND TUBES ETC. PAGE NO. 28 SHOWS SIMILAR EXPENSES IN CURRED BY THE ASSESSEE FROM ASSESSMENT YEAR 2001-02 TO ASSESSMENT YEAR 2007-08. IT IS CONTENDED THAT THE EXPENSES HAVE BEEN ALLOWED IN PAST. ASSESSMENT ORDERS OF EARLIER YEARS HAVE ALSO BEEN PLACED IN THE PAPER BOOK FROM PAGE NOS. 29 TO 41 TO SHOW THAT THE EXPENSES HAVE BEEN ALLOWE D. IN VIEW OF THE AFORESAID, IT IS ARGUED THAT THE LD. CIT(APPEA LS) WAS RIGHT IN ALLOWING REVENUE EXPENSES TO THE EXTENT HE ALLOWED. IT I S ALSO SUBMITTED THAT THE ASSESSEE HAS NOT CHALLENGED THE ORDER OF THE LD. CIT(APPEALS) IN RESPECT OF HIS FINDING ABOUT CAPITAL EXPENDITURE OF RS. 1,33 ,426/-. ITA NO. 1865(DEL)/2011 6 3.5 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. ON PERUSAL OF THE DETAILS PLACED IN TH E PAPER BOOK, AND MENTIONED ABOVE, IT IS CLEAR THAT THE ASSESSEE A ND OTHER CONNECTED CONCERNS ARE MAINTAINING SEPARATE BOOKS OF ACCOU NT, DOING SEPARATE BUSINESSES AND ASSESSED SEPARATELY. THE KIND O F EXPENSES CLAIMED IN THIS YEAR HAD BEEN CLAIMED IN EARLIER YEARS AND ALLOWED IN ASSESSMENTS. THERE IS NO CONTRARY EVIDENCE ON RECORD THAT THE EXPENSE S ARE COMMON EXPENSES. IN VIEW THEREOF, WE ARE OF THE VIEW THAT THE L D. CIT(APPEALS) RIGHTLY ALLOWED THE EXPENDITURE TO THE EXTENT OF RS. 7 ,00,456/-. THUS, THIS GROUND IS DISMISSED. 4. GROUND NO. 3 IS THAT THE LD. CIT(APPEALS) ER RED IN DELETING THE ADDITION OF RS. 13,32,749/-, MADE BY THE AO ON ACC OUNT OF SALE OF PROPERTY. IT IS ALSO MENTIONED THAT HE IGNORED THE FINDING OF THE AO THAT THE ASSESSEE DID NOT FILE ANY DOCUMENT OR DETAIL TO S UBSTANTIATE ITS CLAIM DURING ASSESSMENT PROCEEDINGS. 4.1 IN THE ASSESSMENT ORDER, IT IS MENTIONED THA T THE ASSESSEE SOLD APARTMENT NOS. 516 AND 517 ADMEASURING 243 SQ. FT. AND 94 SQ. FT. ITA NO. 1865(DEL)/2011 7 RESPECTIVELY SITUATED AT WAZIRPUR, DELHI. THE CO ST OF THESE APARTMENTS WAS RS. 1,04,585/- AND THE CONSIDERATION RECEIVED WAS RS. 3,37,000/-. THUS, PROFIT OF RS. 2,32,415/- WAS DECLARED IN RESPECT OF THESE SALES AS BUSINESS PROFIT. THE ASSESSEE HAD RECEIVED ADVANCES OF R S. 3,48,151/- AND RS. 9,84,598/- IN RESPECT OF THESE PREMISES ON ACCO UNT OF ELECTRIC CONNECTIONS AND FIRE FIGHTING EQUIPMENTS. THESE AMOUNTS WER E SHOWN AS CURRENT LIABILITIES AND PROVISIONS. THE AO HELD THESE ADVANCES TO BE IN THE NATURE OF SALE PROCEEDS AND, THEREFORE, THE SALE PRICE WA S ENHANCED TO RS. 13,32,749/-, LEADING TO AN EQUIVALENT ADDITION T O THE TOTAL INCOME. 4.2 AFTER CONSIDERING THE ASSESSMENT ORDER AND TH E SUBMISSIONS OF THE ASSESSEE, THE FINDING OF THE LD. CIT(APPEALS) IS THAT THE ADVANCES WERE RECEIVED FOR PROVIDING PERMANENT ELECTRIC CONNE CTION AND FIRE FIGHTING EQUIPMENTS. THE AMOUNTS WERE RECEIVED OVER A PE RIOD OF TIME UNDER AN AGREEMENT DATED 30.01.1999. THE ASSESSEE INCURRE D EXPENSES OF RS. 4,66,609/- IN RESPECT FIRE FIGHTING EQUIPMENTS AN D INSTALLATION THEREOF AND RS. 13,12,596/- IN RESPECT OF ELECTRIC CONNECTION S. THUS, AGAINST THE AGGREGATE ADVANCE OF RS. 13,32,749/-, THE EXPEND ITURE OF RS. 17,79,205/- HAD BEEN INCURRED. THE DETAILS IN THIS RESPECT WERE FILED IN THE COURSE OF ASSESSMENT PROCEEDINGS. BOTH THESE ITEMS WERE NOT TAKEN INTO ACCOUNT IN ITA NO. 1865(DEL)/2011 8 THE PROFIT AND LOSS ACCOUNT. SINCE THE EXPENDI TURE EXCEEDED THE ADVANCES, NO ADDITION CAN BE MADE ON THIS GROUN D. 4.3 BEFORE US, THE RIVAL PARTIES DREW OUR ATTEN TION TOWARDS THE FINDINGS OF LOWER AUTHORITIES. THE LD. SENIOR DR RELIE D ON THE ORDER OF THE AO WHILE THE LD. COUNSEL RELIED ON THE ORDER OF THE L D. CIT(APPEALS). 4.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE FIND THAT CERTAIN ADVANCES WERE RECEIVED BY THE ASSESSEE FROM THE INTENDING BUYERS IN TERMS OF AGREEMENT DATED 30.01.1999 FOR PROVIDING ELECTRICAL CONNECTION AND FIRE FIGHTING EQUIPMENTS. THESE ADVANCES WERE NOT CONSIDERED TO BE RECEIPTS IN TH E NATURE OF INCOME AS SPECIFIC EXPENDITURE HAD TO BE INCURRED FOR PROVI DING AFORESAID FACILITIES TO THE BUYERS. IN THE YEAR OF SALE, IT HAS BEEN ASCERTAINED THAT THE EXPENDITURE EXCEEDED THE ADVANCES RECEIVED BY TH E ASSESSEE. IN THESE CIRCUMSTANCES, THE QUESTION OF ADDING ADVANCES T O THE INCOME OF THE ASSESSEE DOES NOT ARISE. THEREFORE, IT IS HELD THAT THE LD. CIT(APPEALS) RIGHTLY DELETED THIS ADDITION ALSO. IN THE RESU LT, GROUND NO. 3 IS DISMISSED. ITA NO. 1865(DEL)/2011 9 5. GROUND NO. 4 IS THAT THE LD. CIT(APPEALS) ERR ED IN DELETING THE ADDITION OF RS. 1,76,200/- MADE BY THE AO IN RES PECT OF TAXING HOUSE PROPERTY INCOME FROM VACANT PREMISES. IT IS AL SO MENTIONED THAT THE ASSESSEE HAS BEEN OWNING THE PROPERTY FOR A LONG PERIOD OF TIME AND A PART OF IT HAS ALSO BEEN GIVEN ON RENT. 5.1 IN THE COURSE OF ASSESSMENT, THE AO FOUND THA T THE BASEMENT AND SECOND FLOOR OF BUILDING NO. 2 AND SECOND FLOOR OF BUILDING NO. 5 AT AZADPUR, HELD AS STOCK, WERE NEITHER SOLD NOR GIVEN ON RENT. THEREFORE, HE PROCEEDED TO DETERMINE THE PROPERTY INCOME U/S 22 BY ESTIMATING THE FAIR RENTAL VALUE. FINALLY, HE COMPUTED THE AN NUAL VALUE AT RS. 1,75,200/-, WHICH WAS ADDED TO THE RENT RECEIVED BY THE ASSESSEE IN RESPECT OF OTHER PROPERTIES. 5.2 AFTER CONSIDERING THE ASSESSMENT ORDER AND TH E SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(APPEALS) MENTIONS THAT THE BUILDING IS A TRADING ASSET, THE PROFITS FROM SALE OF WHICH HAVE BEEN O FFERED FOR TAXATION U/S 28 OF THE ACT AND NOT U/S 22 OF THE ACT. UNDER SE CTION 28, THE CONCEPT OF NOTIONAL RENT IS ABSENT. HE ALSO REFERRED TO A FACTUAL ERROR THAT BASEMENT IN ITA NO. 1865(DEL)/2011 10 BUILDING NO. 2 HAD BEEN SOLD LONG BACK ON 28.10 .1994. IN VIEW OF THE AFORESAID, HE DELETED THE ADDITION OF RS. 1,75,2 00/-. 5.3 THE LD. SENIOR DR DREW OUR ATTENTION TO PAG E NOS. 29 TO 35 OF THE PAPER BOOK, WHICH CONSTITUTE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2001-02. PAGE NOS. 34 AND 35 ARE THE COMPUTA TION OF INCOME. IN THIS COMPUTATION NOTIONAL RENT OF RS. 2,00,700/- HAS BE EN ADDED IN RESPECT OF 5 TH FLOOR OF WAZIRPUR BUILDING. BY ANALOGY, IT IS ARGUED THAT THE NOTIONAL RENT FROM THE INSTANT BUILDING IS ALSO CHARGEABLE TO TAX. 5.4 IN REPLY, THE LD. COUNSEL REFERRED TO PAGE NO. 14 OF THE PAPER BOOK, WHICH IS A PART OF SUBMISSIONS MADE BEFORE THE LD. CIT(APPEALS). IT WAS SUBMITTED THAT THE ASSESSEE HAS BEEN HOLDING STOCK OF FLATS AT WAZIRPUR AND AZADPUR. IN THIS YEAR, STOCK AT WAZIRPUR HAD BEE N COMPLETELY SOLD. THE STOCK OF AZADPUR IS SLOW MOVING ITEM DUE TO DEF ECTS IN LOCATION ETC. THE ASSESSEE HAS BEEN ABLE TO SELL THE VACANT PREMIS ES ON 01.12.2008 AND 13.05.2009. THESE ASSETS ARE TRADING ASSETS, W HOSE INCOME CANNOT BE COMPUTED U/S 22. IN VIEW OF THESE FACTS, IT HA S BEEN CONTENDED THAT THE FINDINGS OF THE LD. CIT(APPEALS) ARE JUSTIFIED O N THE FACTS OF THE CASE. ITA NO. 1865(DEL)/2011 11 5.5 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE FIND THAT THE UNDISPUTED FACT I S THAT THE PREMISES ARE TRADING ASSETS AND HAVE BEEN SHOWN AS STOCK-IN- TRADE. NO RENT HAS BEEN RECEIVED IN RESPECT OF THESE UNSOLD ASSETS. THE INCOME FROM THE PROPERTIES HAVE BEEN SHOWN AND ACCEPTED TO BE TAXABLE U/S 28. UNLESS SPECIFICALLY PROVIDED A NOTIONAL INCOME CANNOT BE BROUGHT TO TAX. IN OTHER WORDS, THE CONCEPT OF REAL INCOME IS APPLICABLE TO COM PUTATION OF BUSINESS INCOME UNLESS SPECIFICALLY PROVIDED OTHERWISE. THE ASSESSEE HAS NOT EARNED ANY INCOME FROM THE STOCK-IN-TRADE. THEREF ORE, WE ARE OF THE VIEW THAT THE LD. CIT(APPEALS) RIGHTLY ALLOWED THE R ELIEF TO THE ASSESSEE. IN THE RESULT, THIS GROUND IS ALSO DISMISSED. 6. GROUND NO. 5 IS AGAINST DELETING THE ADDITI ON OF RS. 15,457/-, MADE BY THE AO IN RESPECT OF HOUSE-TAX. IN THIS CON NECTION, IT IS MENTIONED THAT SINCE NOTIONAL INCOME FROM VACANT PREMISES HAS BE EN BROUGHT TO TAX U/S 22, THE MUNICIPAL TAX PAID AGAINST THESE PREMIS ES IS NOT DEDUCTIBLE U/S 37. THE FINDING OF THE AO HAS BEEN REVERSED BY TH E LD. CIT(APPEALS). WE HAVE UPHELD THE FINDING OF THE LD. CIT(APPEALS). THEREFORE, THIS GROUND ITA NO. 1865(DEL)/2011 12 DOES NOT SURVIVE FOR ADJUDICATION. ACCORDINGLY, THIS GROUND IS ALSO DISMISSED. 7. IN THE RESULT, THE APPEAL IS DISMISSED. SD/- SD/- (RAJPAL YADAV) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER 17/02/2012. SP SATIA COPY OF THE ORDER FORWARDED TO:- M. G.BUILDERS & CO. P. LTD., NEW DELHI. ITO, WARD 6(1), NEW DELHI. CIT(A) CIT, THE D.R., ITAT, NEW DELHI. ASSISTANT REGISTRAR.