M.S. Associates, New Delhi V. DCIT, New Delhi

ITA 2078/DEL/2015

• Counselvise Citation: 207820114 RSA 2015
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 03-08-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 09-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUDHIRANJAN SENAPATI
• Keywords: Business income; Depreciation; Opportunity of being heard

Judgement Text

ITA NO S . 2105 - 2016/ DEL/ 2014 & 2077 - 2078/DEL/2015 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC - 2 , NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. NOS. 2105 - 2106/DEL/2014 A.YRS. 2008 - 09 & 2009 - 10 M/S M.S. ASSOCIATES, 267, MASJID MOTH, UDAY PARK, FRONT PORTION, 2 ND FLOOR, NEW DELHI (PAN:AABFM1714A) VS. ACIT, CENTRAL CIRCLE - 4, NEW DELHI (APPELLANT) (RESPONDENT) AND I.T.A. NO S . 2077 - 2078 /DEL/201 5 A.Y RS . 2010 - 11 & 20 11 - 1 2 M/S M.S. ASSOCIATES, 267, MASJID MOTH, UDAY PARK, FRONT PORTION, 2 ND FLOOR, NEW DELHI (PAN:AABFM1714A) VS. ACIT, CENTRAL CIRCLE - 4, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. R.S. SINGHVI, CA DEPARTMENT BY : SH. SUDHIRANJAN, SENAPATI, SR. DR DATE OF HEARING : 06 - 0 8 - 2015 DATE OF ORDER : 2 1 - 0 9 - 2015 ORDER PER H.S. SIDHU : J M TH ESE APPEAL S BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE O RDER S OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) - XII, NEW DELHI PE RTAINING TO ASSESSMENT YEAR S 2008 - 09 TO 20 11 - 1 2. SINCE THE ISSUES RAISED IN THESE APPEALS ARE COMMON AND IDENTICAL, HENCE, THESE APPEALS ARE BEING CONSOLIDATED AND DISPOSED OF BY THIS ITA NO S . 2105 - 2016/ DEL/ 2014 & 2077 - 2078/DEL/2015 2 COMMON ORDER. FOR THE SAKE OF CONVENIENCE, WE ARE DEALING WITH THE ITA NO. 2105/DEL/2014 (AY 2008 - 09). THE GROUN DS RAISED IN THE ASSESSMENT YEAR 2008 - 09 READ AS UNDER: - 1 (I) . THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE AO REGARDING CLOSURE OF THE BUSINESS WITHOUT APPRECIATING FACTS AND WRITTEN SUB MISSION OF THE APPELLANT. (II) THAT FINDING ABOUT CLOSURE OF THE BUSINESS IS ILLEGAL, ARBITRARY AND WITHOUT APPRECIATING THE FACTS AND LEGAL PRINCIPLES. 2(I) THAT THE CLAIM OF EXPENSES WERE IN RESPECT OF THE EXISTING BUSINESS AND THERE BEING NO DISPUTE A BOUT THE GENUINENESS OF THE CLAIM, ORDERS OF THE LOWER AUTHORITIES IN REJECTING THE CLAIM ARE WITHOUT ANY LEGAL AND FACTUAL BASIS. (II) THAT ALL THE CLAIM OF EXPENSES ARE RELATING TO YEAR UNDER REFERENCE AND CLAIM BEING IN ACCORDANCE WITH MERCANTILE SY STEM OF ACCOUNTING, THERE IS NO GROUND OR BASIS FOR DISALLOWANCE OF SAME. (III) THAT THE AO HAS EVEN DISALLOWED THE EXPENSES WHICH ARE OF STATUTORY AND INCIDENTAL NATURE. 3(I) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO WAS NOT JUSTIFIED IN CONSIDERING INTEREST INCOME WHICH IS INCIDENTAL TO THE BUSINESS ACTIVITIES AS INCOME FROM OTHER SOURCES AS AGAINST THE CLAIM OF ITA NO S . 2105 - 2016/ DEL/ 2014 & 2077 - 2078/DEL/2015 3 THE ASSESSEE THAT SAME IS PART OF BUSINESS AND ASSESSABLE UNDER THE HEAD BUSINESS. (II) THAT THE INTEREST BEING ON IN REL ATION TO BANK GUARANTEES AND MARGIN MONEY, THE SAME IS DIRECTLY RELATED TO INCIDENTAL TO BUSINESS AND AS SUCH THERE IS NO GROUND OR BASIS FOR CONSIDERING THE INTEREST UNDER THE HEAD INCOME FROM OTHER SOURCES. (III) THAT ORDERS OF THE LOWER AUTHORITIES AR E IN TOTAL DISREGARD TO PAST HISTORY OF THE CASE. 4. THAT ORDERS OF THE LOWER AUTHORITIES ARE NOT JUSTIFIED ON FACTS AND THE SAME ARE BAD IN LAW. 2. THE FACTS NARRATED BY THE REVENUE AUTHORITIES ARE NOT DISPUTED BY BOTH THE PARTIES, HENCE, THE SAME ARE NOT REPEATED HERE FOR THE SAKE OF CONVENIENCE. 3. DURING THE HEARING, LD. AUTHORISED REPRESENTATIVE/CA OF THE ASSESSEE , SHRI R.S. SINGHVI, HAS STATED THAT LD. CIT(A) WAS ERRED IN CONFIRMING THE ORDER OF THE AO REGARDING CLOSURE OF THE BUSINESS WITHOUT APPRECIATING THE FACTS AND WRITTEN SUBMISSION OF THE ASSESSEE. HE FURTHER STATED THAT THE FINDING ABOUT THE CLOSURE OF THE BUSINESS IS ILLEGAL, ARBITRARY AND WITHOUT AP PRECIATING THE FACTS AND LEGAL PRINCIPLES. IN ORDER TO SUPPORT HIS CONTENTION HE STATED THAT THE CLAIM OF EXPENSES WERE IN RESPECT OF THE EXISTING BUSINESS AND THERE BEING NO DISPUTE ABOUT THE GENUINENESS OF THE CLAIM, ALL THE CLAIMS OF EXPENSES ARE R ELATING TO YEAR UNDER REFERENCE AND ITA NO S . 2105 - 2016/ DEL/ 2014 & 2077 - 2078/DEL/2015 4 CLAIM BEING IN ACCORDANCE WITH MERCANTILE SYSTEM OF ACCOUNTING, HENCE, THERE IS NO BASIS FOR DISALLOWANCE OF THE SAME. THEREFORE, H E REQUESTED THAT THE ORDER OF THE LD CIT(A) MAY BE SET ASIDE . 4. ON THE OTHER HAND, LD. SR. DR, SH. SUDHIRANJAN SENAPATI, HAS RELIED UPON THE ORDER OF THE LD. CIT(A). 5. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS, ESPECIALLY THE ORDER OF THE LD. CIT(A). FOR THE SAKE OF CONVENIENCE, I AM REPRODUCING THE HEREUNDER THE FIND INGS OF THE LD. CIT(A) : - 1.1 I HAVE CONSIDERED THE GROUNDS RAISED IN APPEAL AND, THE FACTS OF THE CASE. I HAVE ALSO CONSIDERED THE SUBMISSION FILED BY THE AR OF THE APPELLANT. 1.2 THE ASSESSING OFFICER HAS DISALLOWED THE EXPENSES AND DEPRECIATION TOTALLING TO RS. 68,79,508/ - AND ADDED TO THE INCOME OF THE ASSESSEE. THE ASSESSEE HAS NOT SHOWN ANY RECEIPT FROM ITS BUSINESS OF PURCHASE AND SALE OF STATE LOTTERY TICKETS BEING SOLE D ISTRIBUTORS OF LOTTERIES OF NAGALAND AND MEGHALAYA STATE. THE ASSESSEE HAS SIMULTANEOUSLY CLAIMED EXPENSES OF RS.61,84,590/ - AND DEPRECIATION OF RS.6,94,918/0 - AGAINST THE IN RECEIPT FROM THE SAID BUSINESS OF PURCHASE AND SALE OF STATE LOTTERY TICKETS. THE ASSESSING OFFICER HAS GIVEN A DETAILED ITA NO S . 2105 - 2016/ DEL/ 2014 & 2077 - 2078/DEL/2015 5 BREAKUP OF THE ADMINISTRATIVE EXPENSES CLAIMED AMOUNTING TO RS.61,84,590 / - . FURTHER, THE ASSESSING OFFICER HAS ENQUIRED ABOUT THE STATUS OF THE LOTTERY BUSINESS FROM THE POINT OF VIEW OF ALLOWABILITY BUSINESS EXPE DIENCY OF THE CLAIM OF THE SAID EXPENSES. THE ASSESSEE HAS TRIED TO JUSTIFY THE CLAIM BY STATING THAT DISPUTE IS GOING. ON WITH THE DIRECTOR MEGHALAYA STATE LOTTERIES DUE TO THEIR DEMAND OF INCREASING THEIR PROFIT COMPONENT. THE FACT IS THAT THE DIRECTOR M EGHALAYA STATE LOTTERIES HAS STOPPED THE DISTRIBUTORSHIP OF THE ASSESSEE'S ON LINE LOTTERIES DURING NOVEMBER 2006 AND FROM THEN ON IT HAS NOT BEEN REVIVED. THE ASSESSEE HAS STATED TO HAVE INCURRED LOTS OF EXPENDITURE IN HOPE OF RESUMING THE BUSINESS. AND T HERE IS NO BUSINESS RECEIPT DURING THE FINANCIAL YEAR. THE APPELLANT PLEADED HOPE FOR REVIVAL OF THE BUSINESS AND JUSTIFIED THE CLAIM OF EXPENSES. 1.3 THE APPELLANT HAS RELIED UPON A NUMBER OF CASE LAWS IN SUPPORT OF THE CONTENTION. 1.4 I HAVE CAREFULL Y CONSIDERED THE SUBMISSION FILED BY THE APPELLANT, THE FACTS OF THE CASE AND THE LEGAL POSITION OF THE ISSUE. THE CLAIM OF ASSESSEE THAT IT HAD TO SPEND ITA NO S . 2105 - 2016/ DEL/ 2014 & 2077 - 2078/DEL/2015 6 LOTS OF EXPENSES TO - RESUME THE LOTTERY BUSINESS IS DEVOID OF MERIT FOR THE REASON THAT NOT ONLY IN THE INSTANT YEAR BUT SUBSEQUENT ALSO NO SUCH BUSINESS HAS BEEN RESUMED. THE ASSESSEE ITSELF HAS SUBMITTED .A LETTER DATED 20.11.2008, A REFERENCE OF WHICH HAS BEEN MADE IN THE ORDER OF ASSESSMENT, FROM THE LOTTERIES, BRANCH OF FINANCE DEPARTMENT OF THE GOVERN MENT OF NAGALAND MAKES IT ABUNDANTLY DEAR THAT NO SUCH BUSINESS HAS RESUMED. RATHER THE FACT REMAINS THAT THE ASSESSEE HAS NOT TRANSACTED ANY BUSINESS DURING THE YEAR AND IN SUBSEQUENT YEARS. IN VIEW OF THIS, THE CLAIM OF EXPENSES, ADMINISTRATIVE AS WELL A S DEPRECIATION IS LIABLE TO BE DISALLOWED. FURTHER, THE INTEREST RECEIVED FROM BANK IS LIABLE TO BE CONSIDERED AS INCOME FROM OTHER SOURCES INSTEAD OF THE CLAIM AS BUSINESS INCOME. THE ASSESSING OFFICER HAS CORRECTLY PLACED RELIANCE ON THE DECISION OF HON' BLE DELHI HIGH COURT REPORTED IN INTERNATIONAL MARKETING LTD. VS. INCOME TAX OFFICER [2007] 292 ITR 504 (DEL). 1.5 FURTHER, THE CLAIM OF THE LEGAL AND PROFESSIONAL CHARGES INCLUDED, IN THE ADMINISTRATIVE EXPENSES ITA NO S . 2105 - 2016/ DEL/ 2014 & 2077 - 2078/DEL/2015 7 PERTAINED TO EARLIER YEARS AS FOUND BY TH E ASSESSING OFFICER AND NOT TO THE INSTANT YEAR . 1.6 IN VIEW OF THE ABOVE AND IN VIEW OF THE FACT THAT THE ASSESSEE HAS NOT PRODUCED ANYTHING ON RECORD BY VIRTUE OF WHICH TH E A SSESSEE CAN SUBSTANTIATE THAT IT IS LITIGATING WITH THE STATE GOVERNMENT FOR RETRIEVAL OF THE LICENSE BEFORE ANY ADJUDICATING AUTHORITY, 'THE CLAIM OF THE ASSESSEE FOR ALLOWABILITY OF THE EXPENSES AND CONSIDERING OF THE BANK INTEREST AS BUSINESS INCOME, IS DEVOID OF ANY MERIT. FURTHER, TILL DATE NO OPERATIONS HAVE COMMENCED TO JUST IFY THAT DURING THE INTERIM PERIOD THE ASSESSEE WAS IN THE PROCESS OF REVIVING THE BUSINESS. THE CASE LAWS RELIED UPON BY THE APPELLANT ARE DISTINGUISHABLE ON FACTS. I N VIEW OF THIS, THE CONTENTION OF THE APPELLANT IS REJECTED AND THE GROUNDS RAISED IN APP EAL ARE DISMISSED. 6. AFTER HEARING BOTH THE PARTIES AND PERUSING THE AFORESAID FINDING OF THE LD. CIT(A), I FIND CONSIDERABLE COGENCY IN THE ASSESSEE S SUBMISSIONS MADE BEFORE THE LD. CIT(A) THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND INCOME UNDER T HE HEAD BUSINESS HAS BEEN COMPUTED AT NIL AND THERE IS NO CASE OF ANY TAX LIABILITY. THE AO HAS MADE DISALLOWANCE OF CLAIM OF EXPENSES ON THE GROUND THAT NO BUSINESS ACTIVITIES HAS BEEN CARRIED OUT DURING THE YEAR ITA NO S . 2105 - 2016/ DEL/ 2014 & 2077 - 2078/DEL/2015 8 UNDER REFERENCE. I ALSO FIND FROM THE RE CORD THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LOTTERIES AND THE BUSINESS HAS NEVER BEEN CLOSED OR DISCONTINUED, AS STATED BY THE LD. COUNSEL OF THE ASSESSEE. THE FIRM IS STILL IN EXISTENCE AND MAINTAINING REGULAR ESTABLISHMENT AND INFRASTRUCTURE. THE LOTTERY BUSINESS IS BEING CARRIED OUT ON IN TERMS OF AGREEMENT WITH NAGALAND AND MEGHALAYA AUTHORITIES. HOWEVER, THE BUSINESS WAS DISCONTINUED BY THESE AUTHORITIES ON THE TECHNICAL REASONS AND DISPUTE WHICH IS STILL PENDING IN ARBITRATION. I FIND THA T THE ASSESSEE HAS A REGULAR ESTABLISHMENT AND INCURRED VARIOUS EXPENSES AS A PART OF RUNNING BUSINESS CLEARLY ESTABLISH THAT BUSINESS HAS NEITHER BEING CLOSED OR DISCONTINUED BY THE ASSESSEE. IN MY VIEW IT IS AN ESTABLISHED LEGAL POSITION THAT MERELY ON THE GROUND THAT THERE IS NO BUSINESS RECEIPT DURING THE YEAR, THERE CANNOT BE ANY PRESUMPTION ABOUT CLOSURE OF THE BUSINESS. IN VIEW OF THE ABOVE, I NOTE THAT NEITHER THE AO NOR THE LD. CIT(A) HAS APPRECIATED THE FACTS AND EVIDENCE FILED BY THE ASSESSE E BEFORE THEM WHICH IN MY OPINION, NEEDS TO BE CONSIDERED BY THE AO. IN THE INTEREST OF JUSTICE, WE REMIT BACK THE ISSUES IN DISPUTE TO THE FILE OF THE AO WITH THE DIRECTIONS TO CONSIDER THE WRITTEN SUBMISSION FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) AND DECIDE THE CASE AFRESH, UNDER THE LAW, AFTER GIVING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ASSESSEE IS ALSO ITA NO S . 2105 - 2016/ DEL/ 2014 & 2077 - 2078/DEL/2015 9 DIRECTED TO COOPERATE WITH THE AO AND FILED ALL THE EVIDENCES / DOCUMENTS TO THE AO TO SUBSTANTIATE ITS CASE. 7 . IN THE RESULT, ALL THE FOUR APPEAL S FILED BY THE ASSESSEE STAND ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE O PEN C OURT ON 2 1 / 09 /20 15. S D / - [ H.S. SIDHU ] JUDICIAL MEMBER DATE 2 1 / 09 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES