SHREERAM THREAD WORKS, MUMBAI V. ITO 14(1)(4), MUMBAI

ITA 2833/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8747 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 05-09-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 09-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: G P MEHTA
• Keywords: Depreciation
• Section: 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J MUMBAI . . , . BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER / AND , . . SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 2833/MUM/2010 / ASSESSMENT YEAR 2005-06 M/S. SHREERAM THREAD WORKS, C/O. G.P. MEHTA & CO., CAS, 807, TULSIANI CHAMBERS, 212, NARIMAN POINT, MUMBAI 400 021 PAN: AAKFS 2658 G VS. THE INCOME TAX OFFICER 14(1)(4), II FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI - 400 021. ( / APPELLANT ) ( ! / RESPONDENT ) ' / APPELLANT BY : SHRI G.P. MEHTA ! # ' / RESPONDENT BY : SHRI RAJARSHI DWIVEDY # $%& / DATE OF HEARING : 05 -09-2012 '( # $%& / DATE OF PRONOUNCEMENT : 26 -09-2012 )* / O R D E R PER RAJENDRA, A.M. THE FOLLOWING ARE THE GROUNDS OF APPEAL FILED BY TH E APPELLANT AGAINST THE ORDER DATED 19-01-2010 OF THE CIT(A)-25, MUMBAI : 01.THE ORDERS PASSED BY THE LEARNED LOWER AUTHORI TIES ARE BAD IN LAW AND BAD IN FACTS. ITA NO. 2833/MUM/2010 M/S. SHREERAM THREAD WORKS 2 02.THE ASSESSMENT ORDER PASSED U/S.143(3) R.W.S. 14 7 OF THE IT. ACT, 1961, IS AB-INITIO VOID, INASMUCH AS, THE ASSESSING OFFICER WAS PRECLUDED FROM ISSUING A NOTICE U/S.148 OF THE IT. ACT, 1961, BY VIRTUE OF SECOND PROVISO TO SEC.147 OF THE ACT, 1961 AS THE ALLOWANCE OF EXPENSES AGGREGAT ING TO RS.1,00,336/- WAS ALREADY A SUBJECT MATTER OF APPEAL. 03.THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSES SING OFFICER IS AB-INITIO VOID, INASMUCH AS, THE LEARNED ASSESSING OFFICER HA S FAILED TO DEAL WITH THE OBJECTIONS RAISED AGAINST ISSUE OF NOTICE U/S.148 O F THE I.T.ACT,1961 BY PASSING A SPEAKING ORDER PRIOR TO COMPLETION OF ASS ESSMENT. THE ACTION OF THE ASSESSING OFFICER IS CONTRARY TO THE PROPOSITIONS L AID DOWN BY THE HONBLE SUPREME COURT IN THE CASE REPORTED IN 259 ITR 19 (S C). 04.THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRED IN DISALLOWING AND LEARNED CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF ENTIRE EXPENSES CLAIMED AT RS.100,336/-. REASONS ASSIGNED FOR THE IMPUGNED DISALLOWANCE ARE WHOLLY WRONG AND CONTRARY TO THE P ROVISIONS OF LAW AND EVIDENCE ON RECORD. 05.HAVING REGARD TO THE FACTS OF THE CASE, PROVISIO NS OF LAW AND JUDICIAL PROPOSITIONS, THE WHOLE OF THE EXPENSES CLAIMED AT RS.100,336/- OUGHT TO HAVE BEEN ALLOWED. 06.THE APPELLANT MAY PLEASE BE PERMITTED TO RAISE A NY ADDITIONAL OR ALTERNATIVE GROUND ON OR BEFORE THE HEARING OF APPE AL. 2. THE ASSESSEE-FIRM FILED ITS RETURN OF INCOME ON 13 -06-2005 DECLARING TOTAL LOSS OF RS. 3,730/-. RETURN WAS PROCESSED U/S. 143(1) OF T HE INCOME TAX ACT, 1961 (ACT). THE CASE WAS REOPENED U/S. 147 OF THE ACT. NOTICE U/S. 148 (DATED 26.03.2008) WAS ISSUED AND DULY SERVED ON THE ASSESSEE. IN REPLY T O THE ABOVE NOTICE ASSESSEE, VIDE LETTER DATED 15-04-2008, SUBMITTED THAT IT HAD ALRE ADY FILED THE RETURN FOR THE ABOVE ASSESSMENT YEAR ON 13-06-2005 AND REQUESTED TO TREA T THE SAID RETURN AS THE RETURN FILED IN COMPLIANCE TO NOTICE ISSUED U/S. 148. ASS ESSEE REQUESTED FOR PROVIDING A COPY OF THE REASONS RECORDED. ACCORDINGLY, A COPY OF TH E REASONS RECORDED WAS PROVIDED TO THE ASSESSEE-FIRM BY THE AO. 3. DURING THE ASSESSMENT PROCEEDINGS AO OBSERVED THAT THE ASSESSEE WAS NOT CARRYING ON ANY BUSINESS FROM AY 2004-05, THAT THE ASSESSEE- FIRM HAD SOLD ITS ONLY FACTORY UNIT, BEING UNIT NO. 3, SITUATED AT MAHALAXMI INDL. ESTATE, DRAINAGE CHANNEL ROAD, GANDHI NAGAR, LOWER PAREL, MUMBAI 400 013, THAT THE SAID UNIT WAS SOLD TO SMT. SUSHMA R. DALAL AS PER AGREEMENT DATED 12TH JUNE, 2003, THAT THE ASSESSEE FIRM HAD ALSO SOLD OFF ITS ENTIRE MACHINERY. 3.1 DURING THE AY UNDER CONSIDERATION, ASSESSEE-FIRM HA D CLAIMED EXPENSES TO THE TUNE OF RS. 1,00,336/- AGAINST INCOME BY WAY OF PRO FIT ON SALE OF ASSET AT RS. 3,758/- AND INTEREST INCOME OF RS. 91,307/- THEREBY REFLECT ING LOSS OF RS. 5,271/- IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.03.05. AGAI NST THIS LOSS, THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS. 1,899/- AND HAS RETURNE D A LOSS OF RS. 3,372/- WHICH HAD BEEN ROUNDED OFF TO RS. 3,370/-. THE ASSESSEE HAD CONSIDERED RS. 3,758/- BEING PROFIT ON SALE OF ASSET AS SHORT TERM CAPITAL GAIN AND THE INTEREST ON NHB BOND AMOUNTING TO ITA NO. 2833/MUM/2010 M/S. SHREERAM THREAD WORKS 3 RS. 55,000/- AS INCOME FROM OTHER SOURCES. AO HELD THAT ON THE BASIS OF THE FACTS AS THROWN UP DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS FOR AY 2004-05 IT WAS CLEAR THAT THE ASSESSEE-FIRM WAS NOT CARRYING O UT ANY BUSINESS OR ADVENTURE IN THE NATURE OF TRADE AND ACCORDINGLY BECAME INELIGIBLE F OR CLAIM OF DEDUCTION OF EXPENSES TO THE TUNE OF RS. 1,00,306/-. AO COMPLETED THE ASS ESSMENT ON 23.12.2008 DETERMINING THE TOTAL INCOME AT RS. 96,960/-. WHILE DETERMINING THIS INCOME, AO MADE CERTAIN DISALLOWANCES /ADDITIONS TO THE INCOME OF THE ASSESSEE-FIRM. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE-FIRM, F AA HELD THAT RETURN OF INCOME WAS PROCESSED U/S. 143(1)(A) OF THE ACT, THAT AGAINST T HE SAID INTIMATION APPELLANT HAD FILED AN APPEAL BEFORE THE FAA, THAT FAA HAD ALLOWED THE APPEAL OF THE ASSESSEE. WE FIND THAT FAA I.E., CIT(A)-14, MUMBAI VIDE HIS ORDER DT. 07-03-2008 HAD ALLOWED THE APPEAL OF THE ASSESSEE AS MAKING FOLLOWING OBSERVAT IONS: THERE WAS NO POWER WITH THE AO TO MAKE ANY ADJUSTM ENT WHATSOEVER U/S. 143(1)(A) OF THE ACT. HE HAS ALSO OBSERVED THAT I N CASE THE AO FEELS THERE HAS BEEN SUPPRESSION OF INCOME, OF COURSE HE IS FRE E TO TAKE SUITABLE REMEDIAL ACTION BY ISSUING NOTICE U/S. 148 5. FAA FURTHER OBSERVED THAT NOTICE U/S. 148 WAS ISSUE D AFTER RECORDING THE REASONS, THAT COPY OF THE REASONS RECORDED WAS SUPPLIED TO T HE ASSESSEE-FIRM, THAT OBJECTIONS RAISED BY THE ASSESSEE WERE DEALT WITH BY THE AO IN HIS ASSESSMENT ORDER, THAT SECOND PROVISO TO SECTION 147 OF THE ACT HAD NO APPLICATIO N FOR THE A.Y. UNDER CONSIDERATION, THAT CIT(A)-14, MUMBAI HAD NOT DECIDED THE ISSUE OF ADMISSIBILITY OF EXPENSES CLAIMED IN HIS ORDER, THAT THE NOTICE ISSUED U/S. 1 48 R.W.S. 147 WAS VALID AND LEGAL. BEFORE US, AR SUBMITTED THAT AO WAS PRECLUDED FROM ISSUING NOTICES U/S. 148 BY VIRTUE OF SECOND PROVISO SECTION 147 OF THE ACT, TH AT ALLOWANCE OF EXPENSES WAS ALREADY A SUBJECT MATTER OF APPEAL, THAT AO HAD NOT PASSED SPEAKING ORDER WITH REFERENCE TO RE-OPENING OF THE ASSESSMENT. 6. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT PRO VISO TO THE SECTION 147 WAS APPLICABLE FROM 01-04-2008 ONWARDS, THAT AO HAD REC ORDED THE REASONS FOR RE- OPENING THE ASSESSMENT FOR THE YEAR UNDER CONSIDERA TION, COPY OF THE REASONS RECORDED WAS ALSO SUPPLIED TO THE ASSESSEE FIRM, THAT CIT(A) -14, MUMBAI HAD NOT DEALT WITH ALLOWABILITY OF THE EXPENSES CLAIMED BY THE ASSESSE E, THAT FAA HAS ALSO MADE A SUGGESTION FOR INVOKING PROVISIONS OF SECTION 147, THAT AO HAD APPLIED HIS MIND BEFORE ISSUING THE NOTICE FOR RE-ASSESSMENT. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT AO HAD COMPLIED WITH ALL THE NECESSARY FORMALITIES FOR RE- OPENING THE COMPLETED ASSESSMENT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. NOT O NLY HE RECORDED THE REASONS THAT FROM THE BASIS OF HIS BELIEF OF ESCAPEMENT OF INCOM E FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, BUT HE ALSO SUPPLIED THE COPY OF THE REASONS RECORDED TO THE ASSESSEE- FIRM. HE HAD DEALT WITH THE OBJECTIONS RAISED BY T HE ASSESSEE IN ASSESSMENT ORDER WITH REGARD TO RE-OPENING. AS FAR AS THE ORDER OF THE CIT(A)-14, MUMBAI IS CONCERNED, WE HAVE GONE THROUGH IT AND WE FIND THAT HE HAS ONLY DEALT THE ISSUE OF MAKING OF ADJUSTMENTS BY THE AO WHILE PROCESSING TH E RETURN U/S. 143(1)(A) OF THE ACT. HE HAS NO WHERE DISCUSSED OR DECIDED THE ISSU E OF ALLOWABILITY OR OTHERWISE OF ITA NO. 2833/MUM/2010 M/S. SHREERAM THREAD WORKS 4 THE EXPENSES CLAIMED TO HAVE BEEN INCURRED BY THE A SSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. UPHOLDING THE ORDER OF THE FA A, WE DISMISS GROUND NOS. 1 TO 3 FILED BY THE ASSESSEE FIRM. 8. GROUND NO.4 IS ABOUT DIS-ALLOWANCE OF EXPENSES TO R S. 1,00,336/-. AS DISCUSSED EARLIER, AO WAS OF THE OPINION THAT ASSESSEE HAD NO T CARRIED OUT ANY BUSINESS SO THE EXPENSES CLAIMED TO HAVE BEEN INCURRED BY THE APPEL LANT COMPANY WERE LIABLE TO BE DIS-ALLOWED. IN THE APPELLATE PROCEEDINGS, FAA HEL D THAT THE APPELLANT HAD NO WHERE DISPUTED AND CONTROVERTED THE VITAL FACT RECORDED B Y THE AO ABOUT CLOSURE OF THE BUSINESS OF THE ASSESSEE-FIRM. HE HELD THAT THE AR OF THE ASSESSEE ADMITTED DURING THE APPELLATE PROCEEDINGS THAT ASSESSEE-FIRM HAD NOT CA RRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR, THAT BUSINESS AS SUCH WAS DIS-CONT INUED AND CLOSED, THAT THE THRESHOLD CONDITION FOR DEDUCTION OF ANY EXPENDITURE UNDER TH E HEAD BUSINESS WAS THAT THE BUSINESS SHOULD BE CARRIED ON BY THE ASSESSEE DURIN G THE YEAR, THAT THE ONLY BUSINESS THAT OF SOLE SELLING AGENCY WAS TERMINATED EVEN PRI OR TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THAT THERE WAS NO SCOPE FOR DEDUCTIO N OF EXPENSES. RELYING UPON THE DECISION OF J.K. TRADERS LTD., (271 ITR 69), HE UP- HELD THE ORDER OF THE AO AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 9. BEFORE US, AR SUBMITTED THAT ASSESSEE-FIRM HAD CLOS ED THE BUSINESS BUT WAS MAINTAINING OFFICE, EXPENDITURE INCURRED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION WAS ALLOWABLE. DEPARTMENTAL REPRESEN TATIVE (DR) SUBMITTED THAT AO AS WELL AS FAA HAVE GIVEN CATEGORICAL FINDING OF FA CT ABOUT CLOSURE OF BUSINESS OF APPELLANT COMPANY, THAT EXPENDITURE CLAIMED BY THE ASSESSEE FOR WAS NOT ALLOWABLE AS PER THE PROVISIONS OF THE ACT BECAUSE BUSINESS HAS DIS-CONTINUED. AT THIS JUNCTURE, AN ENQUIRY WAS MADE BY THE BENCH ABOUT THE APPELLATE P ROCEEDINGS FOR THE ASSESSMENT YEAR 2004-05. AR FAIRLY ADMITTED THAT THE ISSUE OF ALLOWABILITY OF EXPENDITURE WAS DECIDED AGAINST THE ASSESSEE FIRM BY THE ITAT. WE FIND THAT E BENCH OF THE MUMBAI TRIBUNAL VIDE ITS ORDER DT. 26-09-2010 (ITA NO. 533/M/2009 A.Y. 2004-05) HAS HELD IN PARA NOS. 13 & 14 AS UNDER: 13.COMING TO THE ISSUE OF MERITS IN DISPUTE, THE FACT IS THAT THE ASSESSEE HAS SHUT DOWN IN ITS FACTORY, DISPOSED OFF THE SAME, RETRENC HED ITS WORKED AND HAS NOT COMMENCED THE BUSINESS TILL DATE. ON A QUERY FROM T HE BENCH THE LEARNED COUNSEL SUBMITTED THAT TILL DATE THE ASSESSEE HAS NOT RECOM MENCED BUSINESS. ON THIS FACTUAL MATRIX WE AGREE WITH THE FINDINGS OF THE REVENUE AU THORITIES THAT NO EXPENDITURE, WHATSOEVER, CAN BE ALLOWED IN THE HANDS OF THE ASSE SSEE. COMING TO THE ARGUMENTS THAT THE ASSESSEE HAS TO PRESERVE THESE ASSETS, WE FIND THAT THE ASSESSEE HAS ONLY LIQUID BALANCE IN THE FORM OF CASH AND BALANCE AT B ANK, WHICH REQUIRE NO MAINTENANCE. BEING A FIRM THERE IS NO STATUTORY REQ UIREMENT LIKE IN THE CASE OF A COMPANY AND HENCE NO EXPENDITURE IS REQUIRED TO MAI NTAIN THE STATUS OF THE FIRM. ASSESSEE HAS NOT MADE ANY CLAIM THAT HE SHOULD BE A LLOWED EXPENDITURE UNDER SECTION 57 (III). THE JUDGEMENT OF THE HONBLE SUPREME COUR T IN THE CASE OF CIT VS. VIRMANI INDUSTRIES PVT.LTD. AND OTHERS 216 ITR 607 AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN CHEMICAL WORKS LTD. VS. CIT 124 ITR 561 ARE NOT APPLICABLE; AS IN THOSE CASES, IT WAS A TEMPORA RY CLOSURE OF BUSINESS AND NOT A CASE OF PERMANENT CLOSURE AS IN THE CASE ON HAND. A CCORDINGLY WE DISMISS GROUND NO. 2 OF THE ASSES SEE. ITA NO. 2833/MUM/2010 M/S. SHREERAM THREAD WORKS 5 14. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. AS THE FACTS AND CIRCUMSTANCES OF THE CASE UNDER C ONSIDERATION REMAIN SAME, FOLLOWING THE ORDER OF THE CO-ORDINATING BENCH FOR THE PRECEDING ASSESSMENT YEAR, WE DISMISS THE GROUND NOS. 4 AND 5 FILED BY THE ASSESS EE-COMPANY. AS A RESULT, APPEAL FILED BY THE ASSESSEE-COMPANY STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2012. SD/- SD/- ( . . / B.R. MITTAL ) ( / RAJENDRA ) )+ / JUDICIAL MEMBER & )+ / ACCOUNTANT MEMBER MUMBAI, ,) DATE: 26 TH SEPTEMBER, 2012 TNMM )* )* )* )* # ## # $- $- $- $- .-$ .-$ .-$ .-$ / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR J BENCH, ITAT, MUMBAI 6. GUARD FILE !-$ $ //TRUE COPY// )* )* )* )* / BY ORDER, / // / / 0 0 0 0 DY./ASSTT. REGISTRAR , / ITAT, MUMBAI