CASTOR OILS & DERIVATIVES P. LTD, INDORE V. CIT 10, MUMBAI

ITA 2412/MUM/2012

• Counselvise Citation: 241219914 RSA 2012
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 11-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURINDER JIT SINGH
• Keywords: Business income
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.2412/M/2012 ASSESSMENT YEAR: 2007-08 M/S. CASTOR OILS & DERIVATIVES PVT. LTD., 2, FAIR DEALS MOTORS, A.B. ROAD, INDORE 452 001. PAN: AAACC4478R VS. COMMISSIONER OF INCOME TAX-10, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DHARMESH SHAH, A.R. REVENUE BY : SHRI SURINDERJIT SINGH, D.R. DATE OF HEARING : 15.12.2014 DATE OF PRONOUNCEMENT : 04.03.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 22.03.2012 OF THE COMMISSIONER OF INCOM E TAX [(HEREINAFTER REFERRED TO AS CIT] RELEVANT TO ASSESSMENT YEAR 200 7-08. 2. THE ASSESSEE HAS AGITATED THE REOPENING OF THE A SSESSMENT BY THE LD. CIT UNDER SECTION 263 OF THE INCOME TAX ACT (HE REINAFTER REFERRED TO AS THE ACT). THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT IN THE CASE ITA NO.2412/M/2012 M/S. CASTOR OILS & DERIVATIVES PVT. LTD. 2 OF THE ASSESSEE WAS COMPLETED BY THE ASSESSING OFFI CER UNDER SECTION 143(3) OF THE ACT COMPUTING THE TOTAL LOSS AT RS.3, 16,174/-. 3. THE LD. CIT, HOWEVER, OBSERVED FROM THE ASSESSME NT ORDER THAT THE ASSESSEE COMPANY HAD DEBITED VARIOUS EXPENSES UNDER THE HEAD OUT OF OFFICE AND ADMINISTRATIVE EXPENSES TO THE TUNE OF RS.3,09,981/-. HE FURTHER OBSERVED THAT DURING THE YEAR UNDER CONSIDE RATION, THE ASSESSEE DID NOT CARRY ANY BUSINESS. THE ONLY INCOME RETURNED I N THE RETURN OF INCOME WAS INTEREST INCOME. HE OBSERVED THAT THE EXPENDIT URE LIKE VEHICLE RUNNING AND MAINTENANCE, LEGAL AND PROFESSIONAL FEE S, DIRECTORS REMUNERATION ETC. SHOULD HAVE BEEN DISALLOWED AS TH OSE HAD NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING OF INTE REST INCOME. HE THEREFORE HELD THAT THE ORDER UNDER SECTION 143(3) OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE AND REOPENED THE ASSESSMENT UNDER SECTION 263 OF THE ACT. IT WAS CO NTENDED BY THE LD. A.R. OF THE ASSESSEE BEFORE THE LD. CIT THAT THOUGH NO BUSINESS ACTIVITY WAS CARRIED OUT BY THE ASSESSEE DURING THE YEAR DUE TO THE BAD MARKET CONDITIONS IN THE REAL ESTATE BUSINESS, HOWEVER, TH E BUSINESS OF THE ASSESSEE WAS NOT CLOSED. IT WAS A TEMPORARY LULL I N THE BUSINESS AND THE EXPENDITURE INCURRED WAS IN RELATION TO KEEP THE BU SINESS ACTIVITY ALIVE. THE SURPLUS FUNDS WERE INVESTED FOR THE SHORT TIME TO GET INTEREST INCOME AND REDUCE THE ADMINISTRATION COST OF THE COMPANY. THE ASSESSEE, LATER ON, HAD COMMENCED THE BUSINESS AND HAD PURCHASED NEW L AND AT JABALPUR FOR THE DEVELOPMENT PROJECT. THE LD. CIT, HOWEVER, W AS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE THEREFOR E HELD THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE SET ASIDE THE ITA NO.2412/M/2012 M/S. CASTOR OILS & DERIVATIVES PVT. LTD. 3 FILE TO THE AO FOR THE DENOVO ASSESSMENT. AGGRIEVE D BY THE ORDER OF THE LD. CIT, THE ASSESSEE HAS COME IN APPEAL BEFORE US. 4. THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED BEFOR E US THAT THE ASSESSEE HAD RETURNED THE INTEREST INCOME AS BUSINE SS INCOME AND HAD CLAIMED EXPENDITURE OF RS.5.73 LAKHS. THE AO, HOWE VER, ISSUED NOTICE TO THE ASSESSEE AS TO WHY THE INTEREST INCOME BE NOT T REATED AS OTHER INCOME AND THE EXPENDITURE CLAIMED BE NOT DISALLOW ED. THE ASSESSEE IN RESPONSE TO THE SHOW CAUSE NOTICE, SUBMITTED ITS RE PLY DATED 15.12.09 WHICH WAS DULY CONSIDERED BY THE AO. AFTER CONSIDE RING THE REPLY OF THE ASSESSEE, THE AO REJECTED THE CONTENTION OF THE ASS ESSEE THAT THE INTEREST INCOME BE TREATED AS BUSINESS INCOME AND HELD THAT THE INTEREST INCOME WAS TO BE TREATED UNDER THE HEAD INCOME FROM OTHER SOURCES. HE ALSO CONSIDERED THE MATTER REGARDING THE ALLOWABILITY OF THE EXPENDITURE. AFTER EXAMINING THE DETAILS OF THE EXPENDITURE, HE, OUT O F THE TOTAL EXPENDITURE OF RS.5.73 LAKHS, DISALLOWED THE EXPENDITURE OF RS. 1.82 LAKHS. THE LD. A.R. HAS FURTHER INVITED OUR ATTENTION TO THE P & L ACCOUNT AND THE SCHEDULE-XII TO THE P&L ACCOUNT SHOWING THE DETAILS OF EXPENDITURE CLAIMED OF RS.5.73 LAKHS. THE AO, CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HELD THAT THE INTEREST INCOME CLAIMED BY THE ASSESSEE WAS INCOME FROM OTHER SOURCES. SO THE FINDING OF THE L D. CIT IN HIS ORDER PASSED UNDER SECTION 263 THAT THE AO HAD ALLOWED TH E IMPUGNED EXPENDITURE AS RELATING TO THE EARNING OF INTEREST INCOME IS NOT CORRECT. THE AO HAS NOT ALLOWED ANY EXPENDITURE FOR EARNING OF INTEREST INCOME RATHER THE AO, AFTER DUE APPLICATION OF MIND, GOT H IMSELF SATISFIED TO THE CONTENTION OF THE ASSESSEE THAT THERE WAS TEMPORARY LULL IN THE BUSINESS. HE, AFTER APPLICATION OF HIS MIND, CONSIDERED THE E XPENDITURE OF RS.1.82 LAKHS AS NOT ALLOWABLE. SO THE FACTS ARE THAT THE AO HAS TAKEN THE VIEW ITA NO.2412/M/2012 M/S. CASTOR OILS & DERIVATIVES PVT. LTD. 4 AFTER DUE APPLICATION OF MIND AND AFTER MAKING PROP ER ENQUIRIES, HAD DISALLOWED SOME OF THE EXPENDITURE OUT OF THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE. MERELY BECAUSE THERE WAS A TEMPOR ARY LULL IN THE BUSINESS, IT DOES NOT MEAN THAT THE ASSESSEE HAD CL OSED ITS BUSINESS ACTIVITY. THE LD. A.R., BEFORE US, HAS PRODUCED A CHART SHOWING BUSINESS ACTIVITY IN SUBSEQUENT YEARS. HE HAS FURTHER SUBMI TTED THAT THE ASSESSEE IN THE ASSESSMENT YEAR 2011-12 HAD RETURNED THE INCOME OF RS.6,80,911/- AS BUSINESS INCOME AND DURING THE ASSESSMENT YEAR 2012 -13 A SUM OF RS.22,89,466/- HAS BEEN OFFERED AS BUSINESS INCOME. EVEN THE ASSESSEE, SUBSEQUENT TO THE YEAR UNDER CONSIDERATION, HAD PUR CHASED PROPERTY WHICH WAS REFLECTED AS INVENTORIES. THOSE INVENTORIES WE RE FURTHER SOLD AND THE INCOME EARNED WAS RETURNED. THE ASSESSEE HAD ALSO INCURRED CONSTRUCTION EXPENSES IN THE SUBSEQUENT YEARS AND THE RETURNS FI LED BY THE ASSESSEE HAVE BEEN ACCEPTED DURING THE SUBSEQUENT YEARS. 5. WE HAVE GONE THROUGH THE COPY OF THE BALANCE SHE ET SUBMITTED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2011-12 AND 2 012-13. IN THE YEAR 2011-12, THERE IS SHOWN A CLOSING STOCK OF 2,28,01, 261/- AND IN THE YEAR 2012-13, THERE IS A CLOSING STOCK OF RS.2,07,85,291 /-. THE ABOVE FACTS SHOW THAT THE BUSINESS ACTIVITY OF THE ASSESSEE HAD COMMENCED IN THE SUBSEQUENT YEARS. MOREOVER, THE AO HAD APPLIED HIS MIND TO THE ISSUE UNDER CONSIDERATION AND THE VIEW TAKEN BY THE AO WA S ONE OF THE POSSIBLE VIEWS. UNDER SUCH CIRCUMSTANCES, WE DO NO T FIND ANY JUSTIFICATION ON THE PART OF THE LD. CIT IN SETTING ASIDE THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT WHILE INVOKING HIS JURISDICTION UNDER SECTION 263. THE ORDER OF THE L D. CIT, THUS, IS SET ASIDE AND THAT OF THE AO IS RESTORED. ITA NO.2412/M/2012 M/S. CASTOR OILS & DERIVATIVES PVT. LTD. 5 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HER EBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.03.2015. SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 04.03.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.