M/s Niranjan Lal Bhargava, Allahabad V. ITO, Allahabad

ITA 249/ALLD/2008

• Counselvise Citation: 24920714 RSA 2008
• Duration Of Justice: 4 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 29-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 18-08-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y P SRIVASTA VA
• Assessee Lawyers: ANAND GODBOLE
• Keywords: Business income; Depreciation
• Section: 143(3); 37(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH, ALLAHABAD BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.249/A/2008 ASSESSMENT YEAR: 2004-05 M/S. NIRANJAN LAL BHARGAVA TRUST, VS. INCOME TAX O FFICER, 1, JHONSTONGANJ, RANGE-II(1), ALLAHABAD. ALLAHABAD. (PAN: AAATN 4970 A) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANAND GODBOLE, ADVOCA TE & SHRI PRAVEEN GODBOLE, C.A. RESPONDENT BY : SHRI Y.P. SRIVASTAVA, D.R . DATE OF HEARING : 29.10.2012 DATE OF PRONOUNCEMENT OF ORDER : 31.10.2012 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 29.07.2008 PASSED BY THE LD. CIT(A), ALLAHABAD FOR THE ASSESSM ENT YEAR 2004-05. 2. THE ASSESSEE HAS RAISED AS MANY AS 14 GROUNDS OF APPEAL WHICH ARE ARGUMENTATIVE. HOWEVER, THE FIRST EFFECTIVE GROUND IS IN RESPECT OF ADDITION OF R.13,67,590/- ON ACCOUNT OF DISALLOWANCE OF FOLLOWI NG EXPENSES:- (A) ON ACCOUNT OF BONUS 34,618.00 (B) ON ACCOUNT OF CINEMA MAINTENANCE 62,000.00 (C) DEPRECIATION 33,352.00 ITA NO.249/A/2008 A.Y. 2004-05 2 (D) OUT OF GRATUITY ACCOUNT 6,15,334.00 (E) ON ACCOUNT OF ELECTRIC EXPENSES 10,898.00 (F) ON ACCOUNT OF ESTABLISHMENT EXPENSES 73,599. 00 (G) ON ACCOUNT OF GENERATOR RUNNING AND REPAIRING EXPENSES 15,000.00 (H) ON ACCOUNT OF LEGAL EXPENSES AND CHARGES 8 ,000.00 (I) ON ACCOUNT OF MISC. EXPENSES 2,400.00 (J) ON ACCOUNT OF NAGAR NIGAM HOUSE-TAX 53,377 .00 (K) ON ACCOUNT OF P.F. CONTRIBUTION ACCOUNT 34 ,244.00 (L) ON ACCOUNT OF RETRENCHMENT (STAFF) 4,25,250 .00 ---------------- 13,72,543.00 ---------------- 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSES SEE IS A TRUST. THE RECEIPT OF THE TRUST WAS FROM LEASING OF PROPERTIES AND OTHER ASSETS. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE CLA IMED EXPENDITURES ON ACCOUNT OF CINEMA BUSINESS WHICH WAS NOT CARRIED DURING THE FI NANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2004-05, THE YEAR UNDER CONSIDERATI ON. THE CIT(A) CONFIRMED THE ORDER OF THE A.O. OBSERVING THAT THE ASSESSEE D ID NOT CARRY OUT ANY BUSINESS DURING THE YEAR UNDER CONSIDERATION. THE SUBMISSIO N BEFORE THE CIT(A) HAS BEEN REITERATED BEFORE US ALSO THAT THE GRATUITY AND RET RENCHMENT BENEFITS AND SALARY WERE PAID TO STAFF THROUGH ACCOUNT PAYEE CHEQUES. IN TH IS WAY SUCH PAYMENTS WERE DEBITED IN THE ACCOUNT OF THE TRUST. THE EXPENDITU RE WAS INCURRED WITH A HOPE TO REVIVE THE CINEMA BUSINESS. THE ASSESSEE WAS HOLDI NG THE LICENSE OF EXHIBITION OF CINEMA BUSINESS. IT WAS FURTHER SUBMITTED THAT IN EARLIER YEAR THE CLAIM OF EXPENDITURE WAS ACCEPTED WHILE MAKING ASSESSMENT UN DER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER). IN A SSESSMENT YEARS 1993-94, ITA NO.249/A/2008 A.Y. 2004-05 3 1994-95 & 1997-98 HEAVY DISALLOWANCES WERE MADE WHI CH WERE DELETED BY THE FIRST AND OR SECOND APPELLATE AUTHORITY. IT WAS AD MITTED THAT CINEMA BUSINESS WAS DISCONTINUED W.E.F. 31.03.2003 BUT LICENSE HAS NOT BEEN SURRENDERED AS THE TRUSTEE SHALL TAKE FINAL DECISION IN THIS REGARD IN DUE COU RSE OF TIME. THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS :- A) UNIVERSAL TYRES LIMITED VS. ACIT, 2008(12) MTC 7 62 (ALLAHABAD BENCH) B) CIT VS. DCM LIMITED, 179 TAXMANN 295 (DELHI) D) CIT VS. BLACK PEARL HOTEL PVT. LTD, 203 TAXMANN 173 (KARNATAKA HIGH COURT) E) CIT VS. BLEND WELL BOTTLE PVT. LTD., 323 ITR 18 (KARNATAKA HIGH COURT) 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE ORDER OF CIT(A). 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND RECORDS PERUSED. THE ADMITTED FACTS OF THE CASE ARE THAT T HE CINEMA BUSINESS AGAINST WHICH THE EXPENDITURE WAS CLAIMED HAS BEEN CLOSED W.E.F. 31.03.2003. IN OTHER WORDS, THE CINEMA BUSINESS WAS NOT CONTINUED FOR THE YEAR UNDER CONSIDERATION. IN ORDER TO CLAIM EXPENDITURE UNDER SECTION 37(1) OF THE ACT , THE FOLLOWING CONDITIONS SHOULD BE SATISFIED :- 1) THE EXPENDITURE IN QUESTION SHOULD NOT BE OF THE NATURE DESCRIBED UNDER THE SPECIFIC PROVISION OF SECTIONS 30 TO 36 O F THE ACT. 2) THE EXPENDITURE SHOULD NOT BE IN THE NATURE OF C APITAL EXPENDITURE. 3) IT SHOULD NOT BE PERSONAL EXPENDITURE. ITA NO.249/A/2008 A.Y. 2004-05 4 4) THE EXPENDITURE SHOULD HAVE BEEN LAID OUT OR EXP ENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSI ON. 6. THE SECTION 37(1) OF THE ACT ALLOWS DEDUCTION OF ANY EXPENDITURE SUBJECT TO CONDITIONS NOTICED ABOVE. THE ONUS IS ON THE ASSES SEE TO PROVE THAT A PARTICULAR EXPENDITURE HAS BEEN LAID OUT OR EXPENDED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ONE OF THE IMPORTANT CONDITIONS NOTED ABOVE IS THAT THE EXPENDITURE MUST HAVE LAID OUT OR EXPENDED FOR THE PURPOSE OF B USINESS WHICH WAS IN EXISTENCE IN THE YEAR OF COUNTING, THE PROFIT OF WHICH ARE UN DER ASSESSMENT. IF DURING THE RELEVANT PERIOD THERE WAS NO BUSINESS, THE QUESTION OF ALLOWABILITY OF EXPENSES DO NOT ARISE (S.P.V. BANK LIMITED VS. CIT, 126 ITR 773 (KERALA), J.R. MEHTA VS. CIT, 126 ITR 476 (BOMBAY)). FURTHER FOR ALLOWABILITY OF THE EXPENDITURE, THE EXPENDITURE MUST BE FOR THE PURPOSE OF CARRYING ON THE BUSINESS. THE EXPENDITURE IS SPRINGING FROM TRANSFER OF BUSINESS OR TERMINATI NG OR CLOSING OF BUSINESS IS NOT ELIGIBLE FOR DEDUCTION. TO SUPPORT THIS VIEW WE RE FER THE JUDGEMENT OF APEX COURT IN THE CASE OF CIT VS. GEMINI CASHEWS SALES CORPORA TION, 65 ITR 643 (SUPREME COURT), VENKATESA COLOUR WORKS VS. CIT, 108 ITR 309 (MADRAS), GRAIN CHAMBER LIMITED VS. CIT, 46 ITR 217 (ALL.) AND INTESCO RAW SILK CO. VS. CIT, 117 ITR315 (ALL.). THE JUDGEMENTS RELIED UPON BY THE ASSESSEE DO NOT HELP TO THE ASSESSEE AS THE FACTS OF THOSE JUDGMENTS ARE DIFFERENT THAN THE FACTS OF THE CASE UNDER CONSIDERATION. IN THE CASE OF UNIVERSAL TYRES VS. ACIT (2008) (12) MTC 762 (ALLAHABAD BENCH), WHEREIN, THE COMPANY WAS MAKING EFFORTS TO REVIVE THE ITA NO.249/A/2008 A.Y. 2004-05 5 BUSINESS. IT IS PERTINENT TO NOTE THAT IN THE CASE UNDER CONSIDERATION, THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE THAT THE ASSESSEE WA S MAKING EFFORTS TO REVIVE THE BUSINESS AS TILL DATE THE CINEMA BUSINESS ACTIVITIE S DID NOT RESTART. IN THE CASE OF CIT VS. DCM LIMITED (SUPRA), THE FACTS OF THAT CASE IS THAT, OUT OF VARIOUS UNITS, ONE UNIT WAS CLOSED. IN THE CASE OF CIT VS. BLACK PEARL HOTEL PVT. LTD. (SUPRA) HON'BLE CALCUTTA HIGH COURT HAS ALLOWED THE EXPENDI TURE IN CASE THE ASSESSEE HAVING CLOSED ITS HOTEL BUSINESS AND STARTED NEW BU SINESS WITH COMMON MANAGEMENT, COMMON ORGANIZATION AND COMMON PLACE OF BUSINESS HAVING UNITY OF CONTROL MANDATORY COMPOSITION PAID TO RETRENCHED EM PLOYEES OF HOTEL BUSINESS. IN THE CASE UNDER CONSTITUTION, THE ASSESSEE HAS FAILE D TO FURNISH ANY EVIDENCE IN THIS REGARD THAT THE ASSESSEE HAS SATED NEW BUSINESS WIT H COMMON MANAGEMENT, COMMON ORGANIZATION AND COMMON PLACE OF BUSINESS ET C. IN THE CASE OF CIT VS. BLEND WELL BOTTLE PVT. LTD., THE EXPENDITURE WAS AL LOWED AS THE CLOSURE OF THE BUSINESS OF THE ASSESSEE WAS BEYOND HIS CONTROL, WH EREAS, THERE WAS NO SUCH CIRCUMSTANCES IN THE CASE UNDER CONSIDERATION. IN THE LIGHT OF ABOVE DISCUSSION, ORDER OF THE CIT(A) IS CONFIRMED ON THE ISSUE. 7. THE SECOND EFFECTIVE GROUND IS IN RESPECT OF ADD ITION OF RS.7,50,000/-. THE BRIEF FACTS OF THIS ISSUE ARE THAT DURING THE ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CREDITED RS.7 ,50,000/- AS RECEIPT FROM SALE OF LAND. IT WAS CLARIFIED BY THE ASSESSEE THAT IT WAS AN ADJUSTMENT ENTRY AND NO MONEY ITA NO.249/A/2008 A.Y. 2004-05 6 WAS RECEIVED BY THE TRUST. THE ASSESSING OFFICER A SKED THE ASSESSEE TO PRODUCE SHRI ROSHAN LAL FOR CONFIRMATION OF TRANSACTION OF LAND, BUT THE ASSESSEE COULD NOT PRODUCE SHRI ROSHAN LAL FOR CLARIFICATION OR CONFIR MATION OF TRANSACTION. THE CIT(A) CONFIRMED THE ORDER OF THE A.O. OBSERVING TH AT THE ASSESSEE COULD NOT EXPLAIN THE NATURE OF ADJUSTMENT ENTRY. BEFORE THE CIT(A), IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSING OFFICER DID NOT APPRECI ATE THE FACTS OF THE ISSUE. THE ASSESSING OFFICER ONLY CONSIDERED ONE SIDE OF THE E NTRY IN THE FUND ACCOUNT APPEARING IN SCHEDULE-I OF THE AUDIT REPORT. THE A .O. IGNORED THE ACCOUNT OF SHRI ROSHAN LAL IN THIS ACCOUNT. THE AMOUNT IS APPEARIN G IN THE BALANCE SHEET YEAR AFTER YEAR. IT WAS FURTHER SUBMITTED THAT ON THE A SSET SIDE THERE IS A CREDIT OF RS.10,38,000/- IN THE ACCOUNT OF ROSHAL LAL WHICH W AS THE OPENING BALANCE AS ON 01.04.2003. DURING THE YEAR, AS ON 31.03.2004, THE AMOUNT OF RS.7,50,000/- WAS DEBITED IN HIS ACCOUNT AND CREDITED THE SAME IN THE FUND ACCOUNT OF THE TRUST. IN THIS WAY, IT IS ONLY ADJUSTMENT ENTRY PASSED FROM O NE ACCOUNT TO ANOTHER. THEREFORE, THE QUESTION OF ANY ADJUSTMENT DOES NOT ARISE. 8. WE HAVE HEARD THE LEARNED. REPRESENTATIVES OF TH E PARTIES AND RECORDS PERUSED. THE SUBMISSION OF THE ASSESSEE THAT IN TH E BALANCE SHEET AS ON 31.03.2003 THERE IS A CREDIT BALANCE OF RS.10,38,00 0/- IN THE ACCOUNT OF SHRI ROSHAN LAL ON ASSET SIDE. DURING THE YEAR UNDER CO NSIDERATION, RS.7,50,000/- WAS DEBITED TO SHRI ROSHAN LALS ACCOUNT AND CREDITED T O FUND ACCOUNT BY ADJUSTMENT ITA NO.249/A/2008 A.Y. 2004-05 7 ENTRY. THE BALANCE IN THE ACCOUNT OF SHRI ROSHAN L AL AS ON 31.03.2004 WAS RS.2,88,000/-. THE CONTENTION OF THE ASSESSEE THAT IT IS SIMPLY AN ADJUSTMENT ENTRY IS NOT ACCEPTABLE ON A SIMPLE REASON THAT WHY RS.7, 50,000/- HAS BEEN CREDITED TO TRUSTS FUND ACCOUNT I.E. CAPITAL ACCOUNT. THE CAP ITAL ACCOUNT CAN BE CREDITED EITHER BY THE AMOUNT OF INCOME OR AMOUNT OF ADDITION IN CA PITAL ACCOUNT. THE ASSESSEE HAS COMPLETELY FAILED TO FURNISH ANY EXPLANATION OR EVIDENCE FOR CREDITING THE FUND ACCOUNT. FURTHER, HOW ON ASSET SIDE OF BALANCE SHE ET AS AT 31.03.2003, THERE IS CREDIT BALANCE. SUCH CONTENTION OF THE ASSESSEE IS AGAINST THE FUNDAMENTAL PRINCIPLE OF ACCOUNTING. IN ABSENCE OF EXPLANATION , THE ADDITION IS WARRANTED. IN THE LIGHT OF THE FACT, ORDER OF THE CIT(A) IS CONFI RMED ON THIS ISSUE ALSO. 9. THE THIRD EFFECTIVE GROUND IS IN RESPECT OF ADDI TION OF RS.1,52,801/-. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER N OTICED THAT THE ASSESSEE HAS SHOWN INTEREST ON FDR OF RS.1,52,801/- AS BUSINESS RECEIPT. WHEREAS, THE FDR INTEREST IS ASSESSABLE UNDER THE HEAD INCOME FROM O THER SOURCES. THE VIEW OF THE A.O. HAS BEEN CONFIRMED BY THE CIT(A). 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND RECORDS PERUSED. THE ASSESSEE HAS FAILED TO FURNISH ANY EX PLANATION OR EVIDENCE IN SUPPORT OF ITS CLAIM THAT THE INTEREST ON FDR IS ASSESSABL E AS BUSINESS INCOME. THE FDR INTEREST INCOME IS ALWAYS ASSESSABLE AS INCOME FROM OTHER SOURCES UNLESS THE ITA NO.249/A/2008 A.Y. 2004-05 8 ASSESSEE HAS ESTABLISHED ANY CONNECTION OR CORRELAT ION THAT SUCH INTEREST WAS EARNED OUT OF THE BUSINESS ACTIVITY OF THE ASSESSEE. IN A BSENCE OF ANY MATERIAL AND EXPLANATION, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF CIT(A). ORDER OF THE CIT(A) IS CONFIRMED ON THE ISSUE. 11. THE LAST EFFECTIVE GROUND IS IN RESPECT OF RS.1 ,30,305/-. THE A.O. NOTICED THAT THE ASSESSEE HAS WRONGLY CLAIMED INCOME FROM H OUSE PROPERTY UNDER THE HEAD INCOME FROM BUSINESS. THE A.O. ASSESSED THE RENT AL INCOME AT RS.1,30,305/- AS INCOME FROM HOUSE PROPERTY. THE CIT(A) CONFIRMED T HE ORDER OF A.O. OBSERVING THAT THE PRINCIPLE OF RESJUDICATA DOES NOT APPLY TO THE INCOME TAX PROCEEDINGS AND CORRECT LEGAL POSITION HAS TO BE APPLIED WHILE ASSE SSING THE INCOME UNDER THE CORRECT HEAD OF RENTAL INCOME RECEIVED FROM SHOPS H AS TO BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE CONTENTION OF TH E ASSESSEE WAS THAT SINCE LAST 50 YEARS THE RENTAL INCOME FROM SHOPS HAD BEEN TAXE D AS BUSINESS INCOME. 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND RECORDS PERUSED. THE ISSUE UNDER CONSIDERATION, WHETHER UN DER THE FACTS AND CIRCUMSTANCES RENTAL INCOME FROM SHOPS IS ASSESSABLE AS INCOME FR OM HOUSE PROPERTY OR ASSESSABLE AS INCOME FROM BUSINESS OR PROFESSION. IN THIS REGARD, IT IS SETTLED LAW THAT INCOME FROM LETTING OUT OF BUILDING IS ASSESSA BLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE APEX COURT IN THE CASE SULTAN BROTHERS PVT. LTD VS. CIT, 51 ITR 353 (SUPREME COURT), HELD THAT THE ASSESSEE NEV ER CARRIED OUT ANY BUSINESS OF HOTEL IN THE PREMISES LET OUT OR OTHERWISE AT ALL A ND THERE WAS NOTHING TO SHOW THAT ITA NO.249/A/2008 A.Y. 2004-05 9 IT INTENDED TO CARRY ON HOTEL BUSINESS ITSELF IN TH E SAME BUILDING. THE LETTING OUT OF BUILDING DO NOT AMOUNT TO CARRYING ON A BUSINESS, S O THE INCOME UNDER THE HEAD LEASE COULD NOT BE ASSESSED AS INCOME FROM BUSINESS . THE FACTS OF THAT CASE WAS THAT THE ASSESSEE CONSIDERED A BUILDING FITTED IT W ITH FURNITURE AND FIXTURES AND LET IT OUT ON LEASE FULLY EQUIPPED AND FURNISHED FOR THE P URPOSE OF RUNNING HOTEL. IN THE CASE UNDER CONSIDERATION, THE ASSESSEE HAS FAILED T O FURNISH ANY EVIDENCE THAT LETTING OUT PROPERTY WAS THE BUSINESS OF THE ASSESS EE. AS REGARDS THE CONTENTION OF THE ASSESSEE THAT SINCE THE LAST 50 YEARS THE RENTA L INCOME HAD BEEN ASSESSED AS BUSINESS INCOME, IN THIS REGARD, WE WOULD LIKE TO R EFER TO A JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LIMITED, 188 ITR 44 (SC) WHEREIN IT HAS BEEN HELD THAT THE ASSESSING OF FICER COULD REJECT THE CONSISTENT PRACTICE OF THE ASSESSEE IN VALUING STOCK IN EXERCI SE OF OFFICE POWER UNDER SECTION 145 OF THE ACT. IT IS THE DUTY OF THE A.O. TO CONS IDER THE CORRECT INCOME. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT SINC E LAST MANY YEARS THE ASSESSEE WAS FOLLOWING THE SAME SYSTEM CAN NOT BE ACCEPTED B ECAUSE A WRONG PRACTICE CANNOT BE ALLOWED TO BE CONTINUED. IN THE LIGHT OF ABOVE DISCUSSION, ORDER OF CIT(A) IS CONFIRMED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA NO.249/A/2008 A.Y. 2004-05 10 PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, ALLAHABAD BENCH, ALLAHABAD 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, ALLAHABAD TRUE COPY