HARSHDEEP TEXTILES P.LTD, MUMBAI V. ITO WD 5(1)(4), MUMBAI

ITA 2959/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79211 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 17-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Assessee Lawyers: M V SUBRAMANIAN
• Keywords: Depreciation; Business expenditure

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, SMC MUMBAI .., BEFORE SHRI I.P.BANSAL, JUDICIAL MEMBER. ITA NO.2959/MUM/2013 (A.Y. 2007-08) HARSHDEEP TEXTILES PVT. LTD., 304, PRABHU KUTIR, 15, ALTA MOUNT ROAD, MUMBAI 400 026. PAN: AABCH 4550J THE ITO , WARD 5(1)(4), ROOM NO.569, MK ROAD, AAYKAR BHAVAN, MUMBAI 400 020. ( ! / // / APPELLANT) # # # # / VS. ( $% !/ RESPONDENT) ! & ' & ' & ' & ' /APPELLANT BY : SHRI. M.V.SUBRAMANIAN $% ! & ' & ' & ' & ' /RESPONDENT BY : SHRI. B.YADAGIRI # & ()* / / / / DATE OF HEARING : 01/07/2014 +,- & ()* / DATE OF PRONOUNCEMENT : 01/07/2014 . . . . / / / / O R D E R PER I.P.BANSAL (JM) : THIS IS AN APPEAL FILED BY THE ASSESSEE AND IT IS DIRECTED AGAINST ORDER PASSED BY LD. CIT(A)-9, MUMBAI DATED 18/2/2013 FOR ASSESSM ENT YEAR 2007-08. IT MAY BE MENTIONED HERE THAT THOUGH THE PRESENT APPEAL ORIGI NALLY WAS FILED IN TIME. HOWEVER, THERE WAS SOME DEFECTS AND REVISED FORM NO .36 WAS FILED. TO BE ON THE SAFER SIDE THE ASSESSEE HAS FILED APPLICATION FOR C ONDONATION OF DELAY VIDE LETTER DATED 6/2/2014. AN AFFIDAVIT IS ALSO FILED TO SUPPORT T HE APPLICATION. THE CONTENTS OF APPLICATION ARE AS UNDER: IN THIS CASE THE APPELLATE ORDER PASSED BY THE C.I .T.(A) WAS RECEIVED ON 28/02/2013 AND THEREFORE, THE APPEAL TO THE HONBLE TRIBUNAL W AS REQUIRED TO BE FILED ON OR BEFORE 29/04/201 3. THE APPEAL WAS FILED ON 17-04-2013. THUS THE APPEAL WAS FILED WITHIN THE TIME ALLOWED BY THE PROVISIONS OF SECTION 253(3 ) OF THE ACT. HOWEVER, THE APPEAL FILED ON 17-04-2013 WAS FOUND T O BE DEFECTIVE IN SO FAR AS THE C.I.T.(A) WAS SHOWN AS RESPONDENT INSTEAD OF ITO 5( 1)(4), MUMBAI. THIS DEFECT WAS REMOVED ON AND AN AMENDED FORM 36 WAS FILED ON 24-0 7-201 3. HOWEVER, IN THE AMENDED FORM 36 THE VERIFICATION WAS DATED AS 15TH DAY OF APRIL, 2013 BEING THE DATE ITA NO.2959/MUM/2013 (A.Y. 2007-08) 2 OF VERIFICATION OF THE ORIGINAL FORM 36, ALTHOUGH T HE SAME WAS FILED ON 24/07/2013. THIS MISTAKE ALSO WAS REMOVED AND AN AMENDED FORM 3 6 WAS FILED ON 27-12-2013. IN THIS REGARD, IT IS SUBMITTED THAT SINCE THE APPE AL WAS ORIGINALLY FILED WITHIN THE TIME ALLOWED, THE AMENDED FORM 36 FILED LATER WOULD ONLY AMOUNT TO AMENDMENT OF THE APPEAL FILED ORIGINALLY AND THE DATE OF FILING APP EAL WOULD RELATE BACK TO THE ORIGINAL DATE OF FILING APPEAL. THEREFORE, THE APPEAL MAY BE TREATED AS FILED IN TIME. WITHOUT PREJUDICE TO THE ABOVE, ASSUMING THAT THE A PPEAL MAY HAVE TO BE TREATED AS ONE FILED ONLY ON 27-12-2013, THEN THERE IS A DELAY OF 242 DAYS IN FILING APPEAL. IT IS SUBMITTED THAT THE DELAY HAS OCCURRED ON ACCOUNT OF THE REASONS MENTIONED ABOVE AND SAME COULD NOT BE FORESEEN. IN VIEW OF THE ABOVE, IT IS PRAYED THAT THE DELAY I N FILING THE APPEAL MAY KINDLY BE CONDONED AND THE APPEAL BE ADMITTED, CONSIDERED AND HEARD. THE ABOVE APPLICATION MAY PLEASE BE PLACED BEFORE T HE HONBLE MEMBERS FOR FAVOR OF THEIR DIRECTION AND ORDERS. 2. IN THIS VIEW OF THE SITUATION, AFTER HEARING BO TH THE PARTIES, AS ORIGINAL APPEAL WAS FILED WITHIN TIME, I CONDONE THE DELAY AND PRO CEED TO DECIDE THE PRESENT APPEAL ON MERITS. 3. GROUNDS OF APPEAL READ AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S)-9 MUMBAI [CIT(A)] ERRED IN UPHOLDING REOPENING OF THE ASSESSMENT U/S.148 OF IN COME TAX ACT, 1961 BY ITO WITHOUT GIVING THE REASON FOR REOPENING TO THE APPE LLANT. 2. THE LEARNED CIT(A) FURTHER ERRED IN HOLDING THA T THE APPELLANT DID NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR OTHER THAN RE CEIVING RENTAL INCOME FROM PROPERTY & THEREFORE CONFIRMING DISALLOWANCE OF BUSINESS EXP ENSES INCURRED DURING THE YEAR. 3. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE APPELLANT IS ENGAGED INTO THE BUSINESS OF TRADING IN VALVET CLOTH & PROPERTY RELA TED SERVICE & ALL THE EXPENSES INCURRED DURING THE YEAR WERE IN THE COURSE OF BUS INESS AND FULLY ALLOWABLE IRRESPECTIVE OF VOLUME AND / OR RECEIPT FROM THE B USINESS DURING THE YEAR. 4. THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED BUSINES S EXPENSES OF RS.7,82,626/- BEING DEDUCTIBLE EXPENSES AND OUGHT TO HAVE BEEN S ET OFF AGAINST THE HOUSE PROPERTY INCOME. 4. GROUND NO.1, CHALLENGING THE VALIDITY OF RE-ASS ESSMENT PROCEEDINGS WAS NOT PRESSED BY LD. AR, THEREFORE, DISMISS THE SAME AS N OT PRESSED. 5. GROUND NO.2 TO 4 REPRESENT ONE ISSUE I.E. ALLOWA BILITY OR OTHERWISE OF BUSINESS EXPENDITURE AMOUNTING TO RS.7,82,636/-. THE FACTS WHICH WILL BE RELEVANT TO DECIDE THE IMPUGNED CONTROVERSY ARE AS UNDER. THE ASSESSE E HAS GROSS RECEIPTS OF ITA NO.2959/MUM/2013 (A.Y. 2007-08) 3 RS.13,69,032.66 WHICH ARE CREDITED TO P&L ACCOUNT A ND DETAIL OF THE SAME IS PROVIDED INSCHEDULE-7 OF THE ACCOUNTS,, WHICH READ AS UNDER: HARSHDEEP TEXTILES PRIVATE LIMITED PARTICULARS MARCH 31,2007 RUPEES MARCH 31, 2006 RUPEES SCHEDULE 7 : SALES AND OTHER INCOME SALES 41,841.00 DIVIDEND FROM MUTUAL FUNDS 510,000.63 30,769.18 LEASE RENT 388,938.00 3,640,128.00 BANK INTEREST 17,285.00 12,545.00 SERVICE CHARGES 286,000.00 - PROFIT ON REDEMPTION OF MUTUAL FUNDS 166,809.03 - 1,369,032.66 3,725,283.18 AS AGAINST THE RECEIPTS, EXPENDITURE OF RS.10,49,81 5.92 HAVE BEEN SHOWN TO HAVE BEEN INCURRED. THE DETAILS OF WHICH IS ASUNDER: HARSHDEEP TEXTILES PRIVATE LIMITED PARTICULARS MARCH 31,2007 RUPEES MARCH 31, 2006 RUPEES SCHEDULE 9 :OPERATION AND OTHER EXPENSES DEPRECIATION 111,316.00 83,281.00 AUDIT FEES 8,500.00 8,418.00 PRELIMINARY EXPENSES WRITTEN OFF 2,200.00 2,200.00 BANK CHARGES 429.40 216.50 PROPERTY TAX 267,180.00 267,180.00 CONVEYANCE 14,750.00 15,640.00 ELECTRICITY EXPENSES 171,126.54 5,290.00 INSURANCE 18,486.00 46,972.00 LEGAL CHARGES 30,680.00 1,000.00 REPAIRS & RESTORATION 203,879.00 409,867.00 PRINTING & STATIONERY - 3,622.00 TELEPHONE EXPENSES 15,612.80 5,710.08 BOMBAY PESTICIDES 15,711.00 - COMPUTER EXPENSES 7,292.00 - CONSULTANT FEES 75,475.00 - ELECTRICAL EXPENSES 25,000.00 - FUEL CHARGES 28,040.05 - INTEREST PAID 1,200.00 - R O C FEES 4,800.00 - TRAVELLING EXPENSES 31,138.13 - REPAIRS & MAINTENANCE 17,000.00 - TOTAL 1,049,815.92 849,396.58 ITA NO.2959/MUM/2013 (A.Y. 2007-08) 4 6. AS IT CAN BE SEEN FROM THE ABOVE SCHEDULES THE A SSESSEE HAS FOLLOWING TWO INCOMES WHICH ARISE FROM THE PROPERTY OWNED BY THE ASSESSEE. 1. LEASE RENT - RS. 3,88,938/- 2. SERVICE CHARGES - R S. 2,86,000/- 6.1 SINCE DURING THE YEAR UNDER CONSIDERATION THERE WAS NO SALES, THE AO INFERRED THAT ASSESSEE DID NOT CARRY OUT ANY BUSINESS DURING THE YEAR, HENCE, NOT ELIGIBLE FOR CLAIMING OF EXPENDITURE DEBITED IN SCHEDULE-9. TH E AO, THEREFORE, COMBINED BOTH THESE INCOMES AND ASSESSED THE SAME UNDER THE HEAD HOUSE PROPERTY AND COMPUTATION OF INCOME UNDER THE HEAD HOUSE PROPE RTY WAS DONE AS FOLLOWS: INCOME FROM HOUSE PROPERTY: LEASE RENT AND SERVICE CHARGES RECEIVED AS DISCUSSED ABOVE :RS.6,74,938/- LESS: MUNICIPAL TAXES :RS.2,67,180/- :RS.4,07,758/- LESS: 30% REPAIRS U/S. 24(B) :RS.1,22,327/- ------------------ - RS.2,85,431/- FROM THE ABOVE CALCULATION IT IS CLEAR THAT AO HAS ALLOWED ONLY A SUM OF RS.2,67,180/- ON ACCOUNT OF PAYMENT OF PROPERTY TA X AND BALANCE EXPENDITURE OF RS.7,82,635/- WAS DISALLOWED ON THE GROUND THAT AS SESSEE DID NOT CARRY ON BUSINESS ACTIVITY DURING THE YEAR. AS AGAINST THAT OBSERVATION OF THE AO IT IS THE CASE OF THE ASSESSEE THAT THE ASSESSEE WAS IN THE P ROCESS OF EXTENDING ITS BUSINESS, THEREFORE, THERE WAS NO SALE DURING THE YEAR. HOWE VER, THERE WAS SALE DURING THE EARLIER YEAR AS WELL AS SUBSEQUENT YEAR, THEREFORE, IT CANNOT BE HELD THAT IN ABSENCE OF ANY INCOME BUSINESS EXPENDITURE INCURRED BY THE ASSESSEE ARE NOT ALLOWABLE. TO SUBSTANTIATE THAT CONTENTION, LD. AR REFERRED TO SC HEDULE-7, WHICH IS REPRODUCED ABOVE IN WHICH THE EARLIER YEAR SALE HAS BEEN SHOW N TO THE EXTENT OF RS.41,841/- AND ALSO THE COPY OF ACCOUNT FOR A.Y 2008-09, WHICH IS PLACED AT PAGE 7 TO 9 OF THE PAPER BOOK IN WHICH THE COST OF GOODS SOLD HAVE BEE N SHOWN AT RS.7,42,797/-. THUS, IT WAS PLEADED BY LD. AR THAT IN PREVIOUS YE AR SALES AS WELL AS IN SUBSEQUENT YEAR THERE WERE SALES AND SIMPLY FOR THE REASON THA T DURING THE YEAR ASSESSEE DID NOT MAKE ANY SALE, EXPENDITURE CANNOT BE DISALLOWED. F OR THIS PURPOSE LD. AR REFERRED TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. WACHHARDT INTERNATION LTD. 314 ITR 11(BOM). ITA NO.2959/MUM/2013 (A.Y. 2007-08) 5 7. ON THE OTHER HAND, IT WAS THE SUBMITTED BY LD. D R THAT COMPONENT OF RS.2,86,000/- SHOWN BY THE ASSESSEE AS SERVICE CHAR GES ARE ALSO ASSESSABLE AS HOUSE PROPERTY INCOME AND FOR THIS PURPOSE LD. DR H AS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SHAMBHU INVEST MENT (P) LTD. VS. CIT, 263 ITR 143 AND BOMBAY HIGH COURT IN THE CASE BHAKHTAWAR C ONSTRUCTION (P.) LTD. 162 ITR 452. THUS, IT WAS PLEADED BY LD. DR THAT LD. CIT(A ) HAS RIGHTLY UPHELD THE ACTION OF AO AND THE APPEAL FILED BY THE ASSESSEE SHOULD BE D ISMISSED. 8. I HAVE HEARD BOTH THE PARTIES AND THEIR CONTENTI ONS HAVE CAREFULLY BEEN CONSIDERED. THE ONLY ISSUE WHICH IS PRESSED IN TH E PRESENT APPEAL IS REGARDING ALLOWABILITY OR OTHERWISE OF EXPENDITURE OF RS.7,82 ,636/- AS BUSINESS EXPENDITURE. THIS EXPENDITURE HAS BEEN DISALLOWED BY THE AO ONLY ON THE GROUND THAT ASSESSEE DID NOT CARRY OUT ANY BUSINESS DURING THE YEAR. W ITH THE SUPPORT OF ACCOUNTS OF PREVIOUS YEAR AS WELL AS SUBSEQUENT YEAR, IT HAS BE EN DEMONSTRATED THAT IN EARLIER YEAR AS WELL AS IN SUBSEQUENT YEAR THE BUSINESS WA S CARRIED ON BY THE ASSESSEE. THEREFORE, ONLY FOR THE REASON THAT DURING THE YEAR ASSESSEE DID NOT CONDUCT ANY SALE, EXPENDITURE SHOWN TO HAVE BEEN INCURRED BY TH E ASSESSEE CANNOT BE DISALLOWED IF THEY ARE GENUINELY INCURRED BY THE ASSESSEE. TH EREFORE, FOR THE PURPOSE OF VERIFICATION OF INCURRING OF THIS EXPENDITURE, I R ESTORE THIS MATTER TO THE FILE OF AO WITH A DIRECTION TO VERIFY THESE EXPENDITURE AND IF THEY ARE FOUND TO HAVE BEEN INCURRED BY THE ASSESSEE, THEN ALLOW THE SAME AS BU SINESS EXPENDITURE. IN VIEW OF ABOVE DISCUSSION GROUND NO.2 TO 4 ARE CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 9. IN THE RESULT, THE APPEAL IS CONSIDERED TO BE P ARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 1 ST JULY, 2014. . & +,- /#0 01/07/2014 , & 6 SD/- (I.P.BANSAL) / JUDICIAL MEMBER MUMBAI; /# DATED : 1 ST JULY 2014. VM. ITA NO.2959/MUM/2013 (A.Y. 2007-08) 6 . & $(7 87-( . & $(7 87-( . & $(7 87-( . & $(7 87-(/ COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. $% ! / THE RESPONDENT. 3. 9() / THE CIT, MUMBAI. 4. 9 / CIT(A)-13, MUMBAI 5. 7<6 $(# , , / DR, ITAT, MUMBAI 6. 6= > / GUARD FILE. .# .# .# .# / BY ORDER, %7( $( //TRUE COPY// ? ?? ?/ // /@ A @ A @ A @ A (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI