KALPAK DEVELOPMENT CORPORATION, MUMBAI V. ACIT 19(3), MUMBAI

ITA 1920/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0653 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 21-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KARDA M
• Keywords: Business income; Depreciation; Rule of consistency
• Section: 143(3); 37(1); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A , MUMBAI BEFORE S HRI G.S. PANNU (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 1920 /MUM/20 1 2 ASSESSMENT YEAR: 2008 - 09 M/S KALPAK DEVELOPMENT CORPORATION, KALPAK HOUSE, 128, TURNER ROAD, BANDRA (W), MUMBAI - 400050 PAN: AAAFK4725A VS. THE ASST. COMMISSIONER OF INCOME TAX 19(3), 3 RD FLOOR, PIRAMAL CHAMBERS, MUMBA - 400012 (APPELLANT) (RESPONDENT) & ITA NO. 58/MUM/2013 ASSESSMENT YEAR: 2009 - 10 M/S KALPAK DEVELOPMENT CORPORATION, KALPAK HOUSE, 1 28, TURNER ROAD, BANDRA (W), MUMBAI - 400050 PAN: AAAFK4725A VS. THE INCOME TAX OFFICER - 19(3)(2), 3 RD FLOOR, PIRAMAL CHAMBERS, MUMBA - 400012 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AARTI SATHE (A R) RESPONDENT BY : SHRI A.K. KARDAM (DR) DATE OF HEARING: 1 7 /03 /201 7 DATE OF PRONOUNCEMENT: 17 / 0 5 /201 7 O R D E R PER RAM LAL NEGI, JM THESE APPEAL S HAVE BEE N PREFERRED BY THE ASSESSEE AGAINST ORDER DATED 25/01/2012 & 12/10/2012 PASSED BY THE LD. CIT (APPEALS) - 30 , MUMBAI , FOR 2 ITA NO S . 1920 /MUM/2012 & 58/MUM/2013 ASSESSMENT YEAR: 2008 - 09 & 2009 - 10 THE ASSESSMENT YEAR S 2008 - 09 & 2009 - 10 RESPECTIVELY . SINCE BOTH THE APPEALS PERTAIN TO THE SAME ASSESSEE AND THE ISSUES INVOLVED ARE COMMON IN BOTH THE APPEALS, THE SAME WERE CLUBBED, HEARD TOGETHER AND ARE BEING D ISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 1920/MUM/2012 (ASSESSMENT YEAR: 2008 - 09 ) 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CONSTRUCTION AND FINANCIAL SERVICES, FILED ITS R ETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 14,40,050/ - . THE RETURN WAS PROCESSED U/S 143(3) OF THE INCOME TAX ACT , 1961 (FOR SHORT THE ACT ). THE CASE WAS SELECTED FOR SCRUTINY AND IN RESPONSE TO THE NOTICE U/S 143 (2) AND 142 (1) OF THE ACT THE AS SESSEE SUBMITTED WRITTEN REPLY AND ALSO ENCLOSED THE DOCUMENTS CALLED FOR THEREWITH . THE AO TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE ASSESSEE DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 37,21,111/ - AFTER MAKING ADDITION OF R S . 40,07,700 INTE REST RECEIVED FROM M/S AHUJA PROPERTIES, RS. 50,362/ - INTEREST RECEIVED FROM STATE BANK OF INDIA. 3. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT(A) IN THE FIRST APPEAL. THE LD. CIT(A) AFTER HEARING THE ASSESSEE PARTLY ALLOWED THE APPE AL FILED BY THE ASSESSEE. 4. STILL AGGRIEVED , THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUNDS : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), 30 HAS ERRED IN DISALLOWING THE EXPENSES OF RS. 14,62,813/ - IN REAL EST ATE DIVISION BY WRONGLY CONCLUDING THAT THERE IS NO JUSTIFICATION FOR THE CLAIM OF BUSINESS LOSS FROM REAL ESTATE DIVISION IN WHICH NO BUSINESS ACTIVITY HAS BEEN CARRIED OUT DURING THE YEAR UNDER CONSIDERATION. 3 ITA NO S . 1920 /MUM/2012 & 58/MUM/2013 ASSESSMENT YEAR: 2008 - 09 & 2009 - 10 2. THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS), 30 HAS ERRED IN CONFIRMING THE INCOME FROM FINANCE ACTIVITY AS INCOME FROM OTHER SOURCE INSTEAD OF INCOME FROM BUSINESS OR PROFESSION AND HAS FURTHER ERRED IN DISALLOWING THE BROKERAGE EXPENSES OF RS. 6,75,750/ - . 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), 30 HAS FAILED TO APPRECIATE THAT THE APPELLANT HAS CONSISTENTLY SHOWN IN ITS RETURN THE ACTIVITY FROM FINANCE AS INCOME FROM BUSINESS OR PROFESSION AND SAME IS ACCEPTED BY THE I.T. DEPARTMENT IN THE EARLIER ASSESSMENT YEARS. 5. BEF ORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT (A) HAS ERRED IN DISALLOWING THE EXPENSES OF RS. 14,62,183/ - IN REAL ESTATE DIVISION BY WRONGLY CONCLUD ING THAT THERE IS NO JUSTIFICATION IN CLAIMING BUSINESS LOSS FROM REAL ESTATE DIVISIO N IN WHICH NO BUSINESS ACTIVITY HA D BEEN CARRIED OUT DURING THE YEAR UNDER CONSIDERATION. THE LD. COUNSEL FURTHER SUBMITTED THAT THIS GROUND IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT DATED 22/04/2015 PASSED IN THE CASE OF M/S KALPAK BUILDER S (GROUP CONCERN OF THE ASSESSEE ) , ITA NO . 1919/MUM/2012 AND 57/MUM/2013 FOR THE A.Y. 2008 - 09 AND 2009 - 10 RESPECTIVELY . THE SAID ORDER WAS FOLLOWED BY THE TRIBUNAL IN THE SUBSEQUENT YEARS. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELIED ON THE CONCURRENT FINDINGS OF THE AUTHORITIES BELOW. 6. W E HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND ALSO GONE THROUGH THE MATERIAL PLACED BEFORE US. WE NOTICE THAT IN THE CASE OF M/S. KALPAK BUILDERS (SUPRA), THE CO - ORDINATE BENCH OF THE ITAT H AS DECIDED THE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE . THE TRIBUNAL HAS FOLLOWED THE SAID DECISION IN THE ASSESSEES CASE FOR THE SUBSEQUENT YEARS. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL READS AS UNDER: 4 ITA NO S . 1920 /MUM/2012 & 58/MUM/2013 ASSESSMENT YEAR: 2008 - 09 & 2009 - 10 WE HAVE HEARD THE RIVAL SUBMISSIONS. W E HAVE HELD THAT THE INCOME EARNED BY THE ASSESSEE FROM LETTING OUT OF FLATS HAS TO BE ASSESSED AS BUSINESS INCOME. IT IS NOT THE CASE OF THE FAA THAT EXPENDITURE WAS NOT INCURRED. THOUGH HE HELD THAT EXPENSES INCURRED UNDER THE HEADS AUDIT FEES, BANK CHAR GES, GRATUITY, SALARIES AND BONUS, PRINTING AND STATIONERY, REPAIRS AND MAINTENANCE WERE NOT INCURRED FOR BUSINESS AND MAINTENANCE WERE NOT INCURRED FOR BUSINESS PURPOSES, BUT HE HAS NOT GIVEN ANY REASON FOR ARRIVING AT SAID CONCLUSION. FROM THE HEADINGS O F EXPENSES IT IS CLEAR THAT PRIMA FACIE THOSE ITEMS ARE DIRECTLY RELATED WITH THE BUSINESS OF ASSESSEE. THE FAA HAS ALLOWED TWO ITEMS OUT OF ELEVEN ITEMS, BUT JUSTIFICATION FOR DISALLOWANCES IS MISSING IN HIS ORDER. IT IS NOT ENOUGH TO HOLD THAT PARTICULAR ITEM IS NOT ALLOWABLE JUSTIFICATION FOR HOLDING SUCH VIEW HAS TO GIVEN. AS THE FAA HAS NOT GIVEN ANY REASON FOR MAKING DISALLOWANCE, SO WE ARE OF THE OPINION THAT HIS DECISION CANNOT BE ENDORSED. VARIOUS EXPENDITURE CLAIMED BY THE ASSESSEE, ARE DIRECTLY RELATED WITH THE BUSINESS CARRIED OUT BY IT AND HENCE ARE ALLOWABLE. REVERSING THE ORDER OF THE FAA, WE DECIDE GROUND NO. 1 IN FAVOUR OF THE ASSESSEE. 7. IN THE PRESENT CASE ALSO, THE ASSESSEE HAS CLAIMED LOSS OF RS. 14,62,183/ - ON ACCOUNT OF EXPENSES LIKE AUDIT FEES, BANK CHARGES, DEPRECIATION ON MOTOR CAR, MISCELLANEOUS EXPENSES, POSTAGE CHARGES, PRINTING AND STATIONERY, SALARY, BONUS AND GRATUITY ETC. WHICH ARE ADMINISTRATIVE IN NATURE. THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO WIT HOUT ASSIGNING ANY COGENT REASONS. HENCE, T HE FACTS OF THE PRESENT CASE AND THE ISSUE INVOLVED IN THIS CASE ARE SIMILAR TO THE FACTS OF THE CASE OF THE GROUP CONCERN OF THE ASSESSEE, M/S. KALPAK BUILDERS (SUPRA) AND SINCE THE COORDINATE BENCH OF THE TRIBUN AL HAS DECIDED THE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE, WE RESPECTFULLY FOLLOW ING THE DECISION OF THE COORDINATE BENCH DECIDE THIS GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 8. GROUND NO. 2 AND 3 PERTAIN TO CONFIRMATION OF INCOME FROM FINANCE ACTIVIT Y AS INCOME FROM OTHER SOURCES INSTEAD OF TREATING THE SAME AS INCOME 5 ITA NO S . 1920 /MUM/2012 & 58/MUM/2013 ASSESSMENT YEAR: 2008 - 09 & 2009 - 10 FROM BUSINESS OR PROFESSION AND FURTHER DISALLOWANCE OF BROKERAGE EXPENSES TO THE TUNE OF RS. 6,75,750/ - . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SECOND AND THIRD GROUND OF T HE APPEAL IS ALSO COVERED BY THE DECISION OF THE TRIBUNAL RENDERED IN THE CASE OF M/S KALPAK BUILDERS (SUPRA) IN FAVOUR OF THE ASSESSEE. 9. THE LD. DR ON THE OTHER HAND DID NOT CONTROVERT THE SAID FACT, HOWEVER, SUBMITTED THAT SINCE EACH AND EVERY CASE HA S A SEPARATE SET OF FACTS, THE LD. CIT(A) HAS RIGHTLY AFFIRMED THE FINDINGS OF THE AO TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE ASSESSEE. 10. WE NOTICE THAT IN THE CASE OF M/S. KALPAK BUILDERS (SUPRA), THE CO - ORDINATE BENCH OF THE ITAT HAS DECIDED THE SIMILAR ISSUE S IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL HAS FURTHER FOLLOWED THE SAID DECISION IN THE ASSESSEES CASE FOR THE SUBSEQUENT ASSESSMENT YEARS. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL READS AS UNDER: WE HAVE HEARD THE RIVAL SUBMI SSIONS AND PERUSED THE MATERIAL BEFORE US. UNDISPUTED FACTS OF THE CASE ARE THAT ASSESSEE WAS DERIVING INCOME FROM FINANCIAL ACTIVITIES SINCE A.Y. 2004 - 05, THAT IT WAS SHOWING INCOME ARISING OF SUCH TRANSACTIONS UNDER THE HEAD BUSINESS INCOME, THAT IN EARL IER ASSESSMENT YEARS THE AO HAD ACCEPTED THE CLAIM OF THE ASSESSEE WHILE PASSING ORDER U/S. 143(3) OF THE ACT, THAT DURING THE YEAR UNDER APPEAL THE AO HELD THAT INCOME FROM FINANCIAL ACTIVITIES SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES, THAT FAA UPHELD THE ORDER OF THE AO. FOLLOWING THE REASONS GIVEN AT PARAGRAPH NO. 5 & 5.1 OF OUR ORDER, WE HOLD THAT THE AO AND THE FAA SHOULD HAVE FOLLOWED THE RULE OF CONSISTENCY. AS THE FACTS AND CIRCUMSTANCES FOR THE YEAR ARE SAME AS THAT OF EARLIER YE ARS WITH REGARD TO THE FINANCIAL ACTIVITIES OF THE ASSESSEE, SO WE ARE OF THE OPINION THAT INCOME ARISING OUT OF SUCH ACTIVITIES HAD TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSIONS. AS FAR AS BROKERAGE EXPENDITURE IS CONCERNED WE 6 ITA NO S . 1920 /MUM/2012 & 58/MUM/2013 ASSESSMENT YEAR: 2008 - 09 & 2009 - 10 ARE OF THE OPINION THAT THE ASSESSEE IS THE RIGHT PERSON TO DECIDE THE NECESSITY OF THE EXPENDITURE. AO OR FAA CAN DISALLOW EXPENDITURE IF IT VIOLATES THE PROVISIONS OF SECTION 37(1) EXPL. O R IT IS NOT EXPENDED WHOLLY OR EXCLUSIVELY FOR THE BUSINESS PURPOSES. REQ UIREMENTS OF THE BUSINESS CAN BE DECIDED BY THE BUSINESSMAN AND NOT BY AN AO/FAA. WE FIND THAT THE REASONS GIVEN BY FAA NOT AT ALL CONVINCING. HE HAS NOT DOUBTED INCURRING OF EXPENDITURE. IN PURSUANCE OF A BUSINESS DECISION IF THE ASSESSEE HAD PAID BROKERA GE , THE NECESSITY OF MAKING THE PAYMENT HAS TO BE SEEN FROM THE ANGLE OF THE ASSESSEE AND NOT FROM THE VIEW POINT OF THE FAA. THEREFORE, REVERSING THE ORDER OF THE FAA, WE DECIDE THE GROUNDS NO. 2 - 3 IN FAVOUR OF THE ASSESSEE. 11. THE FACTS OF THE PRESENT CASE AND THE ISSUE S INVOLVED IN THIS CASE ARE SIMILAR TO THE FACTS OF THE CASE OF M/S. KALPAK BUILDERS (SUPRA) I.E., TH E GROUP CONCERN OF THE ASSESSEE. SINCE , THE COORDINATE BENCH OF THE TRIBUNAL HAS DECIDED THE SIMILAR ISSUE S IN FAVOUR OF THE ASSESSEE IN THE AFORESAID CASE , WE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH DECIDE GROUND 2 & 3 OF APPEAL IN FAVOUR OF THE ASSESSEE. ITA NO. 58/MUM/ 2013 ( ASSESSMENT YEAR: 2009 - 10 ) F ACTS OF THIS CASE ARE IDENTICAL TO THE FACTS OF THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008 - 09 DISCUSSED ABOVE , EXCEPT THE AMOUNT OF DISALLOWANCES CONFIRMED BY THE LD. CIT(A) . 2 . T HE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) RAISING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL : - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), 30 HAS ERRED IN DISALLOWING THE EXPENSES OF RS. 13,69,620/ - IN REAL ESTATE DIVISION BY WRONGLY CONCLUDING THAT THE REAL ESTATE BUSINESS OF THE APPELLANT HAS COME TO A STANDSTILL AND THERE IS NO JUSTIFI CATION FOR THE CLAIM OF BUSINESS LOSS FROM REAL ESTATE DIVISION IN WHICH NO 7 ITA NO S . 1920 /MUM/2012 & 58/MUM/2013 ASSESSMENT YEAR: 2008 - 09 & 2009 - 10 BUSINESS ACTIVITY HAS BEEN CARRIED OUT DURING THE YEAR UNDER CONSIDERATION. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), 30 HAS ERRED IN CONFIRMING THE INCOME FROM FINANC E ACTIVITY AS INCOME FROM OTHER SOURCE INSTEAD OF INCOME FROM BUSINESS OR PROFESSION AND HAS FURTHER ERRED IN DISALLOWING THE BROKERAGE EXPENSES OF RS. 6,74,100/ - . 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), 30 HAS FAILED TO APPRECIATE THAT THE APPELLANT HAS CONSISTENTLY SHOWN IN ITS RETURN THE ACTIVITY FROM FINANCE AS INCOME FROM BUSINESS OR PROFESSION AND SAME IS ACCEPTED BY THE I.T. DEPARTMENT IN THE EARLIER ASSESSMENT YE A RS. 3. GROUND NO. 1 PERTAINS TO DISALLOWANCE OF RS. 13,69,620/ - IN REA L ESTATE DIVISION BY CONCLUDING THAT THERE IS NO JUSTIFICATION FOR CLAIMING BUSINESS LOSS FROM REAL ESTATE DIVISION IN WHICH NO BUSINESS ACTIVITIES HAS BEEN CARRIED OUT DURING THE YEAR UNDER CONSIDERATION. SINCE , WE HAVE ALLOWED THE IDENTICAL ISSUE IN THE ASSESSEES CASE FOR THE ASSESSMENT YEAR 2008 - 09 BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL RENDERED IN GROUP CONCERN OF THE ASSESSEE M/S KALPAK BUILDERS (SUPRA), FOR THE SAME REASONS WE DECIDE THIS GROUND OF APPEAL IN FAVOUR OF THE A SSESSEE . 4. SECOND NO. 2 & 3 PERTAIN TO CONFIRMATION OF INCOME FROM FINANCE ACTIVITY AS INCOME FROM OTHER SOURCES INSTEAD OF TREATING THE SAME AS INCOME FROM BUSINESS OR PROFESSION AND FURTHER DISALLOWANCE OF BROKERAGE EXPENSES TO THE TUNE OF RS. 6,74,100 / - . SINCE WE HAVE DECIDED THE IDENTICAL ISSUES IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAS 2008 - 09 BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL RENDERED IN GROUP CONCERN OF THE ASSESSEE M/S KALPAK BUILDERS (SUPRA), WE DECIDE GROUND NO 2 & 3 OF THE APPEAL IN FAVOUR OF THE ASSESSEE FOR THE SAME REASONS . 8 ITA NO S . 1920 /MUM/2012 & 58/MUM/2013 ASSESSMENT YEAR: 2008 - 09 & 2009 - 10 IN THE RESULT, APPEAL S FILED BY THE ASSESSEE FOR A SSESSMENT YEAR S 2008 - 09 & 2009 - 10 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH M AY , 2017 . SD/ - SD/ - ( G.S.PANNU ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 17 / 0 5 / 2017 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI