INDUSTRIAL ENGG. WORKS, MUMBAI V. D.C.I.T. RG.20(3), MUMBAI

ITA 2455/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83582 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 20-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 12-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROOPAK KUMAR
• Keywords: Business income; Depreciation; Principle of natural justice; Question of law

Judgement Text

, INCOME TAX APPELLATE TRIBUNALMUMBAI BENCH ES I MUMBAI , , ! BEFORE S.SH.VIJAY PAL RAO,JUDICIAL MEMBER AND RAJEN DRA,ACCOUNTANT MEMBER ./ ITA NO.2455/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 ( $% / APPELLANT) ( &'$% / RESPONDENT) '() '() '() '() * * * * / ASSESSEE BY : SHRI SATISH MODI + * / REVENUE BY : SHRI ROOPAK KUMAR ' ' ' ' + ++ + ), ), ), ), / DATE OF HEARING : 20/08/2014 -.# + ), / DATE OF PRONOUNCEMENT : 20/08/2014 PER RAJENDRA,AM ' ' ' ' : CHALLENGING THE ORDER DT.30.03.2012 OF THE CIT(A)-3 1,MUMBAI, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN HOLDI NG THAT THE ASSESSEE DID NOT CARRY ON ANY BUSINESS DURING THE PREVIOUS YEAR 2006-07. 3. THE LEARNED ASSESSING OFFICER HAS ERRED IN HOLDI NG THAT INCOME EARNED BY YOUR PETITIONER THE BUSINESS INCOME AS UNDER THE HEADING 'INCOME FROM O THER SOURCES' 4.WITHOUT PREJUDICE TO THE ABOVE IT IS SUBMITTED TH AT EXPENSES CLAIMED BY PETITIONER WERE RS.508847/- OUT OF WHICH EXPENSES ALLOTTED ARE RS.2 0025/- GIVING THE ADDITION OF RS.488822/- 5. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSES SMENT ORDER PASSED BY THE ASSESSING OFFICER. THE LEARNED CIT FURTHER ERRED IN CONFIRMING THE DIS ALLOWANCE OF RS.488822/- MADE BY THE LEARNED ASSESSING OFFICER. 6. THE ORDER APPEALED AGAINST IS BAD IN LAW AND IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. 7. THE ORDER APPEALED AGAINST IS BASED ON SURMISES AND CONJECTURES. 8. YOUR PETITIONER RESERVES THE RIGHT TO ADD, TO DE LETE AND/OR AMEND ANY OF THE FOREGOING GROUNDS. THE ASSESSEE,VIDE ITS LETTER DATED 22.07.2013,ALSO RAISED ONE ADDITIONAL GROUND OF APPEAL WHICH IS LISTED AT S.NO.1 OF THE GROUNDS OF APPEAL: IT WAS STATED THAT THE ABOVE QUESTION WAS A PURE QU ESTION OF LAW,THAT NO NEW FACTS HAD BEEN BROUGHT ON RECORD,THAT THE GROUND WAS NOT RAISED IN ADVERTENTLY AT THE TIME OF FILING OF THE APPEAL. WE FIND THAT THE ADDITIONAL GROUND TAKEN BY THE ASS ESSEE A QUESTION OF LAW AND DOES NOT REQUIRE NEW FACTS TO BE INVESTIGATED.THEREFORE,SAME IS ADMI TTED. 2. ASSESSEE-FIRM,ENGAGED IN THE BUSINESS OF CONSTRUCTI ON,FILED ITS RETURN OF INCOME ON 31.07. 2007,DECLARING TOTAL INCOME OF RS.12.73 LAKHS.ASSES SING OFFICER(AO)FINALISED THE ASSESSMENT ON 23.12.2009,DETERMINING THE INCOME OF THE ASSESSEE A T RS.19.27 LAKHS. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD SHOWN INTEREST INCOME OF RS.17.65 LAKHS UNDER THE HEAD 'INCOME FROM BUSINESS , THAT IT HAD DEBITED VARIOUS EXPENSES TO THE PROFIT & LOSS ACCOUNT.HE CALLED FOR THE DETAILS FRO M THE ASSESSEE ABOUT THE INTEREST RECEIPT. BEFORE HIM,IT WAS STATED THAT ASSESSEE HAD GIVEN LO ANS TO VARIOUS PARTIES, THAT IT WAS RECEIVING INTEREST FROM THE SAID LOANS. THE AO DIRECTED THE A SSESSEE TO EXPLAIN AS TO WHY THE INTEREST INCOME SHOULD NOT BE TREATED AS 'INCOME FROM OTHER SOURCES ' AND EXPENSES DEBITED TO P&L A/C. SHOULD M/S INDUSTRIAL ENGINEERING WORKS, 701, AMOR BUILDING, JUNCTION OF 2ND AND 4TH ROAD, KHAR (W), MUMBAI-400052 PAN: AAAFI2470A VS DCIT RANGE-20(3), PIRAMAL CHAMBER, LALBAUG, MUMBAI-400012 ITA NO. 2455/MUM/2012 M/S INDUSTRIAL ENGINEERING WORKS 2 NOT BE DISALLOWED,SINCE PRIMA-FACIE THE EXPENSES WE RE NOT ATTRIBUTABLE TO THE INTEREST INCOME.THE ASSESSEE,VIDE ITS LETTER DATED 17.11.2009,ARGUED TH AT IT HAD NOT DISCONTINUED ITS BUSINESS, THAT THERE HAD BEEN TEMPORARY LULL IN THE BUSINESS ON ACCOUNT OF LEGAL DIFFICULTIES FACE BY IT, THAT IT HAD SUCCESSFULLY COMPLETED THE PROJECT IN THE LAST YEAR , THAT THE MEANING OF THE WORD BUSINESS WAS WIDE ENOUGH TO INCLUDE THE DELIBERATE CARRYING ON O F AN ACTIVITY. AFTER PERUSING THE EXPLANATION GIVEN BY THE ASSESSEE,THE AO HELD THAT THE PROJECT UNDERTAKEN BY THE ASSESSEE GOT DELAYED DUE TO LEGAL HURDLES,THAT THE FUNDS AVAILABLE EARLIER WERE INVESTED BY THE ASSESSEE FOR EARNING INTEREST, THAT INCOME OF THE ASSESSEE WAS TO BE ASSESSED UNDE R THE HEAD 'INCOME FROM OTHER SOURCES' THAT IT HAD NOT GIVEN ANY EXPLANATION REGARDING EXPENSES DE BITED TO THE P&L A/C, THAT THE EXPENSES CLAIMED BY THE ASSESSEE WERE TO BE DISALLOWED.HOWEV ER, THE AO ALLOWED THE BANK CHARGES OF (RS. 300/-)PROFESSIONAL FEES(RS.17,500/-)AND SALES TAX(R S.2,225/-)FOR THE YEAR UNDER APPEAL AND DISALLO -WED THE BALANCE EXPENDITURE AMOUNTING TO RS.4.88 L AKHS. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FAA.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, HE HELD THAT THE BUSINESS OF REAL ESTATE DEVELOPMENT CARRIED OUT BY THE ASSESSEE HAD COMPLETELY CLOSED DOWN DURING THE AY. ENDED AS ON 31.03.2006,THAT THE ASSESSEE HAD ADMITT ED OF CLOSURE OF BUSINESS AND STARTING OF A NEW BUSINESS OF TRADING IN CHEMICALS DURING THE PERIOD ENDING AS ON 31.03.2010,THAT IT COULD NOT BE HELD THAT BUSINESS CARRIED OUT BY THE ASSESSEE IN I TS PRECEDING ACCOUNT YEARS WAS CONTAINING DURING THE RELEVANT ACCOUNTING YEAR,THAT THE OLD BUSINESS WAS DISCONTINUED PERMANENTLY, THAT THE ASSESSEE HAD STARTED THE NEW BUSINESS THAT TOO AFTER ALMOST OF FOUR YEARS OF THE DISCONTINUATION OF OLD BUSINESS,THAT THE AO FULLY JUSTIFIED IN DISALLOWING THE EXPENDITURE CLAIMED BY THE ASSESSEE IN THE P &LA/C.,THAT NO DEDUCTION WAS TO BE ALLOWED U/S 57(I II) OF THE ACT,THAT IN ORDER TO AVAIL DEDUCTION OF EXPENDITURE IT WAS NECESSARY THAT THE BUSINESS I N RESPECT OF WHICH EXPENSES WERE INCURRED SHOULD BE CARRIED ON BY THE ASSESSEE DURING THE REL EVANT ACCOUNTING YEAR, THAT ON CLOSURE OF THE BUSINESS/DISCONTINUATION OF BUSINESS BEFORE THE BEG INNING OF THE ACCOUNTING YEAR, NO DEDUCTION IN RESPECT OF SUCH DISCONTINUED BUSINESS WAS ADMISSIBL E.FINALLY, HE UPHELD THE ORDER OF THE AO. 4. BEFORE US,AUTHORISED REPRESENTATIVE(AR)STATED THAT SIMILAR EXPENDITURES WERE ALLOWED BY THE AO IN THE EARLIER YEARS,THAT ASSESSEE HAD NOT DISCO NTINUED IT BUSINESS,THAT IT WAS IN THE BUSINESS OF TDR DEVELOPMENT,THAT FROM THE YEAR UNDER CONSIDERAT ION BECAUSE OF THE LEGAL HURDLES ASSESSEE COULD NOT COMPLETE THE PROJECT,THAT IT WAS MAINTAIN ING OFFICE, THAT AFTER TWO YEARS IT STARTED A NEW BUSINESS, BECAUSE OF THE LULL OF THE BUSINESS FOR S OME TIME, IT COULD NOT BE HELD THAT BUSINESS OF THE ASSESSEE WAS CLOSED FOR EVER.HE REFERRED TO PAGE NO . 3 & 9 OF THE PAPER BOOK.DEPARTMENTAL REPRESENTATIVE(DR) ARGUED THAT ASSESSEE HAD NOT CAR RIED OUT ANY BUSINESS FOR THE YEAR UNDER CONSIDERATION,THAT INCOME FROM INTEREST HAD TO ASSE SSED UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. 5 .WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL BEFORE US.WE FIND THAT TILL 31.03. 2007 THE ASSESSEE WAS IN THE BUSINESS OF CONSTRUCTI ON AND TDR DEVELOPMENT, THAT FROM AY 2009- 10 IT STARTED THE BUSINESS OF CHEMICALS,THAT FOR TH E PERIOD OF TWO YEARS IT WAS NOT CARRYING OUT THE OLD BUSINESS,THAT IT HAD INCURRED CERTAIN EXPENDITU RE UNDER THE HEADS GENERAL CHARGES,POST & TELEGRAPH AND PRINTING AND STATIONARY, MOTOR CAR EX PENSES, SALARY AND BONUS, DEPRECIATION, RENT ETC. WE FIND THAT SIMILAR EXPENSES IN THE SUBSEQUENT YEA RS ALLOWED BY THE AO.IT IS SAID THAT THERE IS A MARKED DISTINCTION BETWEEN LULL IN BUSINESS AND GOI NG OUT OF BUSINESS.A TEMPORARY DISCONTINUANCE OF BUSINESS MAY,IN CERTAIN CIRCUMSTANCES, GIVE RISE TO AN INFERENCE THAT A BUSINESS IS GOING THROUGH A LEAN PERIOD OF TRANSITION AND IT COULD BE REVIVED IF PROPER CIRCUMSTANCES ARISE.BUT,WHERE AN ASSESSEE DECIDES TO DISPOSE OF ITS PROPERTY,THE PLA NT AND MACHINERY ARE DISMANTLED AND TAKEN AWAY FROM THE FACTORY PREMISES,THERE IS NOT EVEN THE SLI GHTEST CHANCE OF THE ASSESSEE RE-STARTING ITA NO. 2455/MUM/2012 M/S INDUSTRIAL ENGINEERING WORKS 3 PRODUCTION,AND THERE IS NO FINANCE AVAILABLE,THEN I T HAS TO BE HELD THAT SUCH A CASE DOES NOT FALL IN THE CATEGORY OF LULL IN BUSINESS.WE FIND THAT THE C ASE OF THE ASSESSEE FALLS IN FIRST CATEGORY AND NOT IN THE SECOND CATEGORY.THERE WAS NOT ONLY REVIVAL O F BUSINESS ACTIVITIES,BUT THE ASSESSEE WAS MAINTAINING OFFICE FOR CONTINUATION OF BUSINESS ACT IVITY-IT HAS NOT DISPOSED OF PROPERTY OR SACKED THE STAFF.IT IS TRUE THAT THE ASSESSEE HAD TO SWITC H FROM ONE BUSINESS TO ANOTHER BUSINESS, BUT IT CANNOT BE HELD THAT BUSINESS ACTIVITIES WERE NOT BE ING CARRIED OUT.FOR CARRYING OUT BUSINESS RELATED ACTIVITIES,IT HAD TO MAINTAIN AN OFFICE AND INCUR S OME EXPENDITURE.PREPARING FOR A NEW BUSINESS AND TO SWITCH OVER FOR SOME OTHER LINE OF BUSINESS PROVE THAT THE BUSINESS ACTIVITIES HAD NOT STOPPED COMPLETELY.WE HAVE PERUSED THE VARIOUS HEAD S OF EXPENDITURE,CLAIMED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AND WE ARE OF THE OPIN ION THAT SAME WERE INCURRED FOR BUSINESS PURPOSES.A PART OF THE EXPENDITURE HAS BEEN ALLOWED BY THE AO HIMSELF.CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE MATTER UNDER CONSIDE RATION,WE ARE OF THE OPINION THAT ALL THESE EXPENDITURES WERE NECESSARY TO CARRY OUT THE BUSINE SS ACTIVITIES OF THE ASSESSEE-FIRM. THEREFORE, REVERSING THE ORDER OF THE FAA,WE DECIDE GROUND NO. 3 TO 5 IN FAVOUR OF THE ASSESSEE. AS WE HAVE DECIDED THE EFFECTIVE GROUNDS IN FAVOUR OF THE ASSESSEE, SO WE ARE NOT ADJUDICATING THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. AS A RESULT,APPEAL F ILED BY THE ASSESSEE STANDS ALLOWED. /)0 '() 1 2 + 3 4) + ) 56 . ORDER PRONOUNCED IN THE O PEN COURT ON 20TH AUGUST, 2014 . 7 + -.# 8 9' 20.08. 201 4 . + 3 : SD/- SD/- ( / VIJAY PAL RAO ) ( / RAJENDRA ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9' / DATE: 20.08.2014 S.K. 7 7 7 7 + ++ + &) &) &) &) ;#) ;#) ;#) ;#) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ < = , 4. THE CONCERNED CIT / < = 5. DR I BENCH, ITAT, MUMBAI / >3 &)' , . . . 6. GUARD FILE/ 3 / ') ') ') ') &) &)&) &) //TRUE COPY// 7' / BY ORDER, ? / 5 DY./ASST. REGISTRAR , /ITAT, MUMBAI