M/s. Parklane India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 298/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7099 (ITAT-DELHI)
• Duration Of Justice: 40 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Assessee
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Department Lawyers: BANITA DEVI NAOREM
• Assessee Lawyers: R K SINGHAL
• Keywords: Business income; Depreciation; Opportunity of being heard; Unabsorbed depreciation
• Section: 143(3); 32; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI K.G . BANSAL, ACCOUNTANT MEMBER I.T.A. NO.298/D/2010 ASSESSMENT YEAR : 2005-06 M/S PARKLANE INDIA PVT. LTD., VS. D.C.I.T., C-30, FRIENDS COLONY EAST, CIRCLE 14(1), NEW DELHI NEW DELHI PAN NO.AAACP 9777G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.K. SINGHAL, CA RESPONDENT BY :SMT. BANITA DEVI, NAOREM, SR. DR ORDER PER K.G. BANSAL: AM: THIS APPEAL OF THE ASSESSEE EMANATES FROM THE ORDER OF CIT(A)-XVIII, NEW DELHI, PASSED ON 24.12.2009 IN APP EAL NO.67/07-08, PERTAINING TO ASSESSMENT YEAR 2005-06. THE ASSESSEE HAS TAKEN UP FOUR SUBSTANTIVE GROUNDS IN T HE APPEAL, WHICH READ AS UNDER:- (1) THAT THE LEARNED CIT(A)-XVII HAS ERRED IN MATTER OF FACT AND LAW BY HOLDING THAT THE SERVICE CHARGES RECEIVED FROM THE PROPERTY LET OUT BY THE ASSESSEE DURING THE RELEVANT FINANCIAL YEAR IS RENTAL INCOME AND NOT BUSINESS INCOME OF THE ASSESSEE. (2) THAT THE LEARNED CIT(A)-XVII HAS ERRED IN MATTER OF FACT AND LAW BY DISALLOWING VARIOUS 2 EXPENSES RELATED TO THE BUSINESS OF THE ASSESSEE ON THE GROUNDS THAT THE ASSESSEE HAS NOT ENGAGED IN ANY BUSINESS ACTIVITY DURING THE RELEVANT FINANCIAL YEAR. (3) THAT THE LEARNED CIT(A)-XVII HAS ERRED IN MATTER OF FACT AND LAW BY DISALLOWING UNABSORBED DEPRECIATION OF PREVIOUS YEARS, CLAIMED BY THE ASSESSEE IN THE COMPUTATION OF INCOME FOR THE RELEVANT FINANCIAL YEAR . (4) THAT THE LEARNED CIT(A)-XVII HAS ERRED IN MATTER OF FACT AND LAW BY DISALLOWING BANK INTEREST CHARGES OF `33,47,537.51 ON THE GROUND THAT THE ASSESSEE HAS NOT ENGAGED IN ANY BUSINESS ACTIVITY DURING THE RELEVANT FINANCIAL YEAR. 2. ON PERUSAL OF THE ASSESSMENT ORDER, IT IS SEEN T HAT THE ASSESSEE FILED ITS NIL RETURN OF INCOME ON 27.10.20 05. AFTER PROCESSING THE RETURN, IT WAS TAKEN UP FOR SCRUTINY BY ISSUING NOTICE U/S 143(2) OF THE ACT ON 27.10.2006. IN THE COURSE OF ASSESSMENT, IT HAS INTER ALIA BEEN SEEN THAT THE AS SESSEE SHOWED RENTAL INCOME AND SERVICE CHARGES IN RESPECT OF ITS PREMISES, SITUATED AT 213A, OKHLA INDUSTRIAL ESTATE , PHASE-I, NEW DELHI. THE RENT AND SERVICE CHARGES WERE RECEI VED FROM TATA INTERNET SERVICES AT `72,00,900/- AND `20,25,0 00/- RESPECTIVELY. THE RENTAL INCOME WAS TREATED UNDER HEAD INCOME FROM HOUSE PROPERTY AND THE SERVICE CHARGE S UNDER THE HEAD PROFITS AND GAINS OF THE BUSINESS O R PROFESSION. THE ASSESSEE WAS REQUIRED TO NARRATE THE DETAILS OF THE BUSINESS ACTIVITY AND ALSO TO STATE WHY THE 3 WHOLE OF THE INCOME BY WAY OF RENTAL, AND SERVICE C HARGES SHOULD NOT BE BROUGHT TO TAX AS PROPERTY INCOME. I T WAS SUBMITTED THAT THE ASSESSEE HAD ESTABLISHED A BUSIN ESS OF EXPORT OF READY-MADE GARMENTS. HOWEVER, DUE TO LOS SES INCURRED IN FINANCIAL YEAR 2002-03, THE BUSINESS SL OWED DOWN TO A LARGE EXTENT. THE ASSESSEE HAD DEVELOPED SAMP LES IN THE COURSE OF BUSINESS, WHICH WERE IN DEMAND IN OVE RSEAS MARKET. THEREFORE, THE ASSESSEE WAS CARRYING ON TH E BUSINESS OF SAMPLING WORK ON JOB WORK BASIS FOR VAR IOUS EXPORTERS. THIS BUSINESS WAS CONDUCTED IN THE YEAR . FURTHER, THE ASSESSEE SOLD SOME GOODS LYING IN ITS INVENTORY BROUGHT FORWARD FROM EARLIER YEARS. THE ASSESSEE A LSO FILED A COPY OF LOAN AGREEMENT WITH UNION BANK OF INDIA. I T WAS SUBMITTED THAT LOAN HAD BEEN TAKEN BY PLEDGING THE AFORESAID PROPERTY FROM WHICH IT WAS DERIVING INCOM E. THUS, IT WAS ARGUED THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF SAMPLES, SALE OF GOODS AND RENDERING OF SERVICES IN CONNECTION WITH THE PROPERTY SITUATED AT OKHLA I NDUSTRIAL ESTATE. THE ASSESSING OFFICER EXAMINED THE DETAILS AND THE SUBMISSIONS OF THE ASSESSEE. IT HAS BEEN MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE COULD NOT PRODUC E ANY SALE BILL TO SUPPORT ITS CLAIM OF CARRYING ON ANY B USINESS. ONLY THE COPIES OF LEDGER ACCOUNT HAVE BEEN FILED. ALL THE RECEIPTS ARE IN CASH, WHICH ARE NOT VERIFIABLE. TH E DETAILS OF JOB WORK PAID, BEING THE EXPENDITURE INCURRED AGAIN ST JOB WORK RECEIPTS HAVE ALSO BEEN EXAMINED. THE ASSESSE E COULD 4 NOT FURNISH THE ADDRESSES OF THE PARTIES TO WHOM JO B WORK CHARGES WERE PAID. THE ASSESSING OFFICER ALSO EXAM INED THE SERVICE AGREEMENT WITH TATA INTERNET SERVICE LTD. HE CAME TO THE CONCLUSION THAT THE RENT AGREEMENT WAS SPLIT INTO TWO AGREEMENTS REGARDING PAYMENT OF RENT AND PAYMENT OF SERVICE CHARGES. IN THESE CIRCUMSTANCES, IT HAS BE EN HELD THAT THE ASSESSEE IS NOT CARRYING ON ANY BUSINESS. THEREFORE, THE WHOLE OF THE INCOME FROM RENT AND SE RVICE CHARGES WAS BROUGHT TO TAX AS PROPERTY INCOME. THE OTHER INCOMES KNOWN BY THE ASSESSEE HAVE NOT BEEN INCLUDE D IN THE TOTAL INCOME. 3. AGGRIEVED BY THIS ORDER, THE ASSESSEE MOVED AN A PPEAL BEFORE THE LEARNED CIT(A). HE EXAMINED MAJOR EXPEN SES INCURRED BY THE ASSESSEE, BEING BANK INTEREST CHARG ES AND COUNCIL CHARGES AMOUNTING TO `33,47,537/- AND `3,52 ,978/- RESPECTIVELY. IT WAS FOUND THAT THE ASSESSEE HAD E ARLIER TAKEN LOAN FROM FEDERAL BANK IN THE YEAR 1999 FOR T HE PURPOSE OF BUSINESS. THIS LOAN WAS SWITCHED IN FAV OUR OF UNION BANK WITH A VIEW TO REDUCE THE INCIDENCE OF T HE RATE INTEREST FROM 14% TO 10% PER ANNUM. THE SECURITY O F THE BUILDING WAS FURNISHED TO THE UNION BANK. THE COUN CIL CHARGES RELATED TO THE BUSINESS OF EXPORT OF GARMEN TS, WHICH WAS NOT BEING CARRIED NOW. THE AMOUNT REPRESENTED FORFEITURE OF EMD BY THE APPAREL EXPORT PROMOTION C OUNCIL. THE LD. CIT(A) CONSIDERED VARIOUS SUBMISSIONS MADE BEFORE HIM IN REGARD TO ITS CONTENTION THAT IT IS CARRYING ON BUSINESS 5 AND THAT SERVICE CHARGES RECEIVED FROM TATA INTERNE T SERVICES LIMITED ALSO CONSTITUTED BUSINESS INCOME. HOWEVER, HE DID NOT AGREE WITH THE CONTENTION OF TH E ASSESSEE. IT IS MENTIONED THAT THE ASSESSEE IS ENJ OYING RENTAL INCOME AS OWNER OF THE BUILDING. THE SERVIC E CHARGES ARE IN RESPECT OF SERVICES USUALLY UNDERTAKEN BY AN OWNER IN RESPECT OF RENTED PREMISES. THEREFORE, IT HAS BEEN HELD THAT THE RENT AND THE SERVICE CHARGES HAVE BEEN RIGHTLY BROUGHT TO TAX AS PROPERTY INCOME. IN REGARD TO DEDUCTION OF VARIOUS EXPENSES, IT IS MENTIONED THAT NO EVIDENCE EXISTS R EGARDING THE BUSINESS OF JOB WORK. STOCK REGISTER HAS NOT B EEN MAINTAINED AND, THEREFORE, IN ABSENCE OF ANY OTHER RELIABLE EVIDENCE, IT CANNOT BE SAID THAT INCOME FROM SALE O F GOODS OUT OF OLD INVENTORY WAS BUSINESS INCOME. IN THIS CONNECTION, A REFERENCE WAS ALSO MADE TO NOTE NO.8 APPENDED TO THE ACCOUNTS BY THE AUDITORS TO THE EFF ECT THAT AS EXPLAINED TO US AND CONFIRMED BY THE MANAGEMENT, THE LABOUR CHARGES DEBITED TO PROFIT AND LOSS ACCOUNT A RE OUTSIDE THE PURVIEW OF EPF AND ESI ACT, HENCE, NO DEDUCTION IS MADE UNDER THE ABOVE ACTS. IN VIEW OF THESE FACTS, IT H AS BEEN HELD THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSI NESS IN THIS YEAR. ACCORDINGLY, THE APPEAL OF THE ASSESSEE WAS DISMISSED. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAD PURCHASED THE BUILD ING IN THE YEAR 1997 IN THE AUCTION CONDUCTED BY THE INCOM E-TAX 6 DEPARTMENT. THIS BUILDING WAS UTILIZED FOR THE BU SINESS OF EXPORT OF READY-MADE GARMENTS BETWEEN THE YEARS 199 7 TO 2000. IN THE YEAR, 2000, TWO SEPARATE AGREEMENTS W ERE MADE WITH TATA INTERNET SERVICES. THE FIRST AGREEM ENT WAS IN RESPECT OF RENTING THE PREMISES AND THE SECOND G ARMENT WAS IN RESPECT OF RENDERING SERVICES TO IT IN THE B UILDING. OUR ATTENTION HAS BEEN DRAWN TOWARDS THE ASSESSMENT ORD ER FOR THE ASSESSMENT YEAR 2001-02 PASSED U/S 143(3) ON 19.02.2004, IN WHICH THE WHOLE OF THE INCOME INCLUD ING RENT AND SERVICE CHARGES WERE CONSIDERED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, AND THE LOSS WAS DETERMINED AT `2,17,57,920/-. IT WAS HELD THAT REN TAL INCOME OF RS.45,76,032/- CONSTITUTED THE BUSINESS INCOME, AS AGAINST PROPERTY INCOME, AS CLAIMED BY THE ASSESSEE . HIS CASE IS THAT SINCE IT IS THE STAND OF THE REVENUE T HAT THE PROPERTY INCOME CONSTITUTES BUSINESS INCOME, IT CAN NOT TURN AROUND NOW AND HOLD THAT THE INCOME BY WAY OF SERVI CE CHARGES IS NOT BUSINESS INCOME BUT PROPERTY INCOME. IT IS FURTHER SUBMITTED THAT THE DIRECTOR OF THE ASSESSEE HAD DEVELOPED EXPERTISE IN THE FIELD OF PRODUCING SAMPL ES DURING THE EARLIER PERIOD WHEN THE BUSINESS OF EXPORT OF R EADY-MADE GARMENTS WAS BEING CARRIED ON. APART FROM THAT THE ASSESSEE HAD ALSO SOLD STOCK OF ABOUT `5,00,000/- F ROM THE OVERALL STOCK OF ABOUT `48,00,000/- BROUGHT FORWARD FROM THE BUSINESS OF EXPORT OF READY-MADE GARMENTS. THEREFO RE, IT HAS BEEN ARGUED THAT THE ASSESSEE HAS BEEN CARRYING ON THE 7 BUSINESS IN THIS YEAR. ACCORDINGLY, IT HAS BEEN AR GUED THAT VARIOUS EXPENSES DEBITED TO THE P&L ACCOUNT ARE DED UCTIBLE IN COMPUTING THE BUSINESS LOSS. SINCE THE ASSESSEE CARRIED ON THE BUSINESS IN THIS YEAR, IT IS ALSO ENTITLED T O SET OFF UNABSORBED DEPRECIATION BROUGHT FORWARD FROM EARLIE R YEARS. 4.1 IN REPLY, THE LEARNED DR SUBMITTED THAT IN REAL ITY, THE RENT AGREEMENT AND SERVICE AGREEMENT WITH TATA INTE RNET SERVICES LTD. CONSTITUTE ONLY ONE AGREEMENT OF RENT ING THE PREMISES WITH OBLIGATION TO CARRY OUT THE REPAIRS O F THE BUILDING. THE SERVICE CHARGES HAVE BEEN RECEIVED O NLY FROM THE TENANT AND, THEREFORE, IT CANNOT BE SAID THAT T HE ASSESSEE IS CARRYING ON THE BUSINESS OF RENDERING S ERVICES. SINCE THE SERVICES ARE INTEGRALLY CONNECTED WITH TH E RENTING OF THE PREMISES, BOTH THE AMOUNTS RECEIVED UNDER TH E AGREEMENTS HAVE BEEN RIGHTLY TAXED AS PROPERTY INCO ME. IN REGARD TO NON-EXISTENCE OF THE BUSINESS, HE RELIED HEAVILY ON THE ORDERS OF THE LOWER AUTHORITIES, IN WHICH IT HA S BEEN HELD THAT THERE IS NO EVIDENCE REGARDING THE BUSINESS OF SAMPLING OR SALE OF GOODS. THEREFORE, IT HAS BEEN AGITATED THAT THE ORDER OF THE LEARNED CIT(A) SHOULD BE UPHELD. 4.2 IN THE REJOINDER, THE LEARNED COUNSEL RELIED ON THE ORDERS OF THE EARLIER YEARS TO ARGUE THAT VARIOUS C LAIMS OF THE ASSESSEE WERE MADE IN A CONSISTENT MANNER OVER A PE RIOD OF TIME FROM ASSESSMENT YEAR 2001-02. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. ON PERUSAL OF THE ACCO UNTS OF 8 VARIOUS YEARS FROM ASSESSMENT YEAR 2000-01, IT IS SEEN THAT THE BUSINESS OF EXPORT OF GARMENTS WAS CARRIED ON I N ASSESSMENT YEAR 2000-01. IN THAT YEAR, THE ASSESS EE HAD SHOWN SALES AT `6,26,15,566/- AND PURCHASES OF FABR IC OF `2,76,00,393/-. IN ASSESSMENT YEAR 2001-02, SALES WERE SHOWN AT ABOUT `14.43 LAC AND PURCHASES AT ABOUT `1 0.22 LAC. AT THE END OF THE YEAR, THE ASSESSEE WAS LEFT WITH CLOSING STOCK OF THE VALUE OF ABOUT `1,09 CRORE. I N ASSESSMENT YEAR 2002-03, NO SALE WAS EFFECTED AND N O FABRIC WAS PURCHASED. HOWEVER, DUE TO RETURN OF STOCK, TH E CLOSING STOCK GOT REDUCED TO THE VALUE OF ABOUT `49.39 LAC. THE ACCOUNTS ALSO SHOW JOB WORK RECEIPTS AND JOB WORK P AID AT ABOUT `2.9 LAC AND `2.33 LAC RESPECTIVELY. IN ASSE SSMENT YEAR 2003-04 AGAIN, THERE IS NO SALE OR PURCHASE. JOB WORK RECEIVED IS SHOWN AS AT ABOUT `2.68 LAC AND JOB WOR K PAID AT ABOUT `2.23 LAC. THE ACCOUNTS OF THIS YEAR AS WELL AS ACCOUNT OF ASSESSMENT YEAR 2002-03 DO NOT SHOW ANY PAYMENT BY WAY OF WAGES, WHICH CLEARLY SHOWS THAT THE BUSINESS OF EXPORT OF READY-MADE GARMENTS WAS NOT CONDUCTED IN ANY OF THESE YEARS. SIMILARLY, THE ACCOUNTS OF ASSESSMENT YEAR 2004-05 DO NOT SHOW ANY PURCHASE OR SALE. THESE AC COUNTS SHOW JOB WORK RECEIVED AND JOB WORK PAID AT ABOUT ` 2.47 LAC AND `2.07 LAC RESPECTIVELY. THE ACCOUNTS OF THIS Y EAR ALSO DO NOT SHOW ANY PURCHASE OR SALE BY WAY OF EXPORTS. T HE JOB WORK RECEIVED AND THE JOB WORK PAID ARE SHOWN AT AB OUT `2.24 LAC AND `2.00 LAC. THE STOCK OF GOODS REMAIN ED STATIC 9 AT ABOUT `49.39 LAC FROM ASSESSMENT YEAR 2002-03 T ILL ASSESSMENT YEAR 2004-05. HOWEVER, IN THIS YEAR ST OCK OF `5,00,600/- WAS SOLD AT `5,41,630/-, LEADING TO PRO FIT OF `41,030/-. THE PROFIT IN JOB WORK AMOUNTED TO `41, 265 (`2,41,535 - `2,00,270). THE ASSESSEE DEBITED FOLL OWING EXPENSES AS ADMINISTRATIVE AND OTHER EXPENSES. ADMINISTRATION & OTHER EXPENSES: ELECTRICITY & WATER CHARGES 0.00 19607.0 0 PRINTING & STATIONERY 2866.00 2647.00 POSTAGE & TELEGRAM 1026.00 648.00 AUDIT FEE 19950.00 19950.00 INSURANCE CHARGES 22136.00 18879.00 ROC FEES 4650.00 315615.00 TELEPHONE CHARGES 13012.00 6787.00 LEGAL & PROFESSIONAL CHARGE 52600.00 350258.00 REPAIRS & MAINTENANCE 296053.00 426435.00 BANK CHARGES & INTEREST 3347537.51 427996 8.45 ACCOUNTING CHARGES 96000.00 9600 0.00 PLANT & MACHINERY DISCARDED 0.00 269861.17 OFFICE EQUIPMENT DISCARDED 0.00 100060.28 COUNCIL CHARGES 352978.00 0.00 FEES & SUBSCRIPTION 1800.00 0.00 PF EXPENSE 339992.00 0.00 PROPERTY TAX PAID 974260.00 0.00 CONSULTANCY FEE 19950.00 0.00 5.1 WE MAY ALSO EXAMINE THE RENT AND THE SERVICE AGREEMENTS BETWEEN THE ASSESSEE AND TATA INTERNET SERVICES LTD. THE INDENTURE OF SUB-LESSEE WAS MADE ON 15.06.2000 ON THE FOLLOWING STIPULATION ABOUT THE R ENT. A) `4,80,060/- (RUPEES FOUR LAKH EIGHTY THOUSAND AND SIXTY ONLY) PER MONTH FOR AND DURING THE 1 ST TO 36 TH 10 MONTHS (BOTH INCLUSIVE) OF THE SUB-LEASE HEREBY GRANTED; B) `6,00,075/- ( RUPEES SIX LAKH AND SEVENTY FIVE ONLY ) PER MONTH FOR AND DURING THE 37 TH TO 72 ND MONTHS (BOTH INCLUSIVE) OF THE SUB-LEASE HEREBY GRANTED, AND C) `7,50,094/- (RUPEES SEVEN LATH FIFTY THOUSAND AND NINETY FOUR ONLY) PER MONTH FOR AND DURING THE 73 RD TO 108 TH MONTHS (BOTH INCLUSIVE) OF THE SUB-LEASE HEREBY GRANTED,PAYABLE IN ADVANCE, ON OR BEFORE THE 7 TH DAY OF EACH AND EVERY CALENDAR MONTH BY CHEQUE/BANK DRAFT MADE PAYABLE AT NEW DELHI. 5.2 THE FACILITY AGREEMENT WAS ALSO MADE ON 15.06.2 000 IN RESPECT OF MAJOR STRUCTURAL REPAIRS SUCH AS LEAKAGE S OF ROOF, CRACK IN THE WALLS OR PLASTING BURSTING OF ANY ELEC TRICAL CABLES OR BURSTING OR CORRECTING OF WATER PIPES OR SEWERAG E SYSTEM ETC. AND ANY OTHER SERVICE REQUIRED BY THE TENANT ON THE STIPULATION ABOUT PAYMENT OF SERVICE CHARGES AS UND ER:- A) RS.1,35,000/- (RUPEES ONE LAKH THIRTY FIVE THOUSAND ONLY) PER MONTH FOR THE 1 ST TO 36 TH MONTHS (BOTH INCLUSIVE) OF THE SUB-LEASE OF THE DEMISED PREMISES , SUBJECT, HOWEVER, TO DEDUCTION OF TAX AT SOURCE BY THE PARTY OF THE OTHER PART; B) RS.1,68,750/- (RUPEES ONE LAKH SIXTY EITHT THOUSAND SEVEN HUNDRED AND FIFTY ONLY) PER MONTH FOR THE 37 TH TO 72 ND MONTHS (BOTH INCLUSIVE) OF THE SUB-LEASE OF THE DEMISED PREMISES, SUBJECT, HOWEVER, TO DEDUCTION OF TAX AT SOURCE BY THE PARTY OF THE OTHER PART; C) RS.2,10,938/- (RUPEES TWO LAKH TEN THOUSAND NINE HUNDRED AND THIRTY EIGHT ONLY) PER MONTH FOR THE 73 RD TO 108 TH MONTHS (BOTH INCLUSIVE) OF THE SUB-LEASE OF THE 11 DEMISED PREMISES, SUBJECT, HOWEVER, TO DEDUCTION OF TAX AT SOURCE BY THE PARTY OF THE OTHER PART; 5.3 WE MAY AGAIN LOOK AT THE POSITION OF JOB WORK R ECEIVED IN DIFFERENT YEARS. THE SAME IS DEPICTED IN A TABU LAR FORM BELOW:- S.NO. A.Y. JOB WORK RECEIVED JOB WORK PAID PR OFIT . (RS.) (RS.) (RS.). 1. 2002-03 2,73,678/- 2,32,626/- 41,052 2. 2003-04 2,86,438/- 2,23,421/- 63,017 3. 2004-05 2,46,743/- 2,07,136/- 39,607 4. 2005-06 2,41,535/- 2,00,270/- 41,265 FROM THE AFORESAID TABLE, IT IS SEEN THAT THE ASSES SEE HAS CONSISTENTLY SHOWN RECEIPTS FROM JOB WORK AT AB OUT `2,50,000/- AND AFTER DEDUCTING THE EXPENDITURE OF JOB WORK PAID, PROFITS HAVE BEEN SHOWN IN VARIOUS YEARS AT A BOUT `50,000/-. THE RECEIPTS AND PAYMENTS ARE IN CASH A ND IT HAS BEEN HELD BY THE LOWER AUTHORITIES THAT NONE OF THE M IS AMENABLE TO CROSS VERIFICATION. 5.4 THE INCOME WAS COMPUTED AT NIL IN THE RETURN AS UNDER:- RS. RS. INCOME FROM HOUSE PROPERTY PROPERTY (LET OUT) ANNUAL RENTAL VALUE 7,200,900 LESS : MUNICIPAL TAXES 1,580,493 -------------- ANNUAL VALUE 5 ,620,407 LESS : DEDUCTIONS: STANDARD DEDUCTION 1,68 6,122 -------------- 3,934,285 -------------- 3,934,285 12 PROFITS OF BUSINESS OR PROFESSION : M/S PARLANE INDIA P. LTD. PROFITS AS PER PROFIT AND LOSS ACCOUNT 185,750 ADD: ITEMS DEBITED BUT DISALLOWED: LEGAL AND PROFESSIONAL 25,000 PROPERTY TAX 974,260 REPAIR & MAINTENANCE 296,053 DEPRECIATION (TREATED SEPARATELY) 2 ,148,573 -------------- 3,443,886 -------------- 3,629,644 LESS : INCOME NOT CHARGEABLE UNDER THIS HEAD: RENTAL INCOME 7,200,900 -------------- -3,571,256 --------------- -3,571,256 BUSINESS LOSSES OF PAST YEARS B/F: FOR THE A.Y.2003-04 610,694 FOR THE A.Y. 2002-03 4,354,791 FOR THE A.Y. 2001-02 19,343,033 FOR THE A.Y. 2000-01 18,102,062 FOR THE A.Y. 1998-99 954,819 43,365,400 UNAB DEPRECIATION OF PAST YEARS B/F 14,333,354 --------------- --------------- 363,029 LESS : CURRENT UNABSORBED DEPRECIATION 298,731 LESS: BROUGHT FORWARD UNABSORBED DEPRECIATION 64,298 ----------- 363,029 ----------- GROSS TOTAL INCOME 0 LESS : DEDUCTIONS : NIL -------------- TOTAL INCOME 0 ------------- -- 5.5 IN THE LIGHT OF FACTS MENTIONED ABOVE, THE FIRS T QUESTION IS WHETHER, THE ASSESSEE HAS CARRIED ON THE BUSIN ESS OF EXPORT OF GARMENTS IN THIS YEAR? IT IS SEEN THAT T HE ASSESSEE HAS NOT PURCHASED ANY GOODS TO BE USED AS RAW MATER IAL FOR THE PROCESS OF MANUFACTURE. NO EXPORT HAS BEEN SHO WN. NO LABOUR CHARGE HAS BEEN PAID. ELECTRICITY AND WATER CHARGES 13 HAVE BEEN SHOWN AT NIL. THERE IS NO USER OF ANY AS SET OF ERSTWHILE BUSINESS FOR THIS PURPOSE. THEREFORE, IT IS CLEAR THAT THIS BUSINESS HAS BEEN ABANDONED AND THAT TOO IN AY 2002- 03 WHEN THE PREMISES WERE RENTED OUT. ACCORDINGLY, IT IS HELD THAT THE BUSINESS OF EXPORT OF GARMENTS HAS NO T BEEN CONDUCTED IN THIS YEAR. 5.6 THE ASSESSEE HAS ALSO SOLD STOCK OF GOODS OF AB OUT `5 LAC IN THIS YEAR. WE HAVE SEEN THAT NO SUCH SALE W AS SHOWN IN EARLIER THREE YEARS. THEREFORE, MERE SALE OF GO ODS LYING IN STOCK DOES NOT LEAD TO INFERENCE THAT THE BUSINESS OF EXPORT OF GARMENTS IS BEING CONTINUED AS SOME STOCK HAS BE EN SOLD IN LOCAL MARKET. FROM THE FACTS NARRATED ABOVE, IT IS CLEAR THAT THIS IS A CASE OF REALIZATION OF STOCK REMAINI NG AFTER CLOSURE OF THE BUSINESS. ACCORDINGLY, THIS INCOME CANNOT BE SAID TO BE BUSINESS INCOME AND IS LIABLE TO BE ASSE SSED UNDER THE RESIDUARY HEAD, IF AT ALL IT IS TAXABLE. 5.7 THE SECOND QUESTION IS-WHETHER, THE ASSESSEE IS CARRYING ON THE BUSINESS OF MANUFACTURING AND SALE OF SAMPLES ON JOB WORK BASIS. THE CASE OF THE CASESSE E IS THAT IN THE COURSE OF THE BUSINESS OF EXPORT OF GARMENTS , CARRIED 14 ON BY IT IN PAST, THE DIRECTOR ACQUIRED ACUMEN IN MANUFACTURING SAMPLES. SUCH SAMPLES ARE FOUND USEF UL BY OTHER EXPORTERS. THEREFORE, THE DIRECTOR CARRIED O N THIS BUSINESS FROM HIS RESIDENCE TO EARN INCOME. SINCE SUCH INCOMES HAVE BEEN EARNED CONSISTENTLY OVER A PERIOD OF TIME, IT HAS TO BE RIGHTLY TAXED AS BUSINESS INCOME . ON THE OTHER HAND, THE CASE OF THE REVENUE IS THAT ALL REC EIPTS AND PAYMENTS ARE IN CASH AND, THEREFORE, THOSE ARE NOT AMENABLE TO CROSS-VERIFICATION. THEREFORE, THE SUR PLUS REALIZED IN VARIOUS YEARS CAN AT BEST BE TAXED UNDE R THE RESIDUARY HEAD. WE HAVE CONSIDERED THIS ISSUE ALSO . WE FIND THAT THE REVENUE HAS NOT SHOWN THAT IN THE PAST SUC H INCOME WAS NOT TAXED OR TAXED UNDER THE RESIDUARY HEAD. W HILE NON-VERIFIABILITY OF RECEIPTS AND EXPENDITURE DOES RAISE A DOUBT ABOUT GENUINENESS OF THE BUSINESS, YET THE FA CT WHICH STARES US IN THE FACE IS THAT SUCH INCOME HAS BEEN DECLARED IN THIS AND LAST THREE YEARS. THEREFORE, MERE SUSP ICION CANNOT BE THE FOUNDATION TO COME TO THE CONCLUSION THAT PROFITS HAVE BEEN SHOWN MERELY TO GET THE ADVANTAGE OF SETTING UP OFF UNABSORBED DEPRECIATION FROM THE BUS INESS OF 15 EXPORT OF GARMENTS. THUS, IT IS HELD THAT THE DIRE CTOR HAS CONDUCTED THIS BUSINESS. SINCE THE PROFITS HAVE BE EN SHOWN IN THE ACCOUNTS OF THE COMPANY, IT FOLLOWS THAT THE BUSINESS WAS CONDUCTED ON BEHALF OF THE COMPANY. THUS, IT I S HELD THAT THE ASSESSEE HAS CARRIED ON THE BUSINESS OF PR EPARATION OF SAMPLES ON JOB WORK BASIS. 5.8 THEN, THERE IS A QUESTION AS TO WHETHER UNABSOR BED DEPRECIATION OF THE EARLIER BUSINESS CAN BE SET OFF AGAINST THE PROFITS OF THIS BUSINESS? SECTION 32(2) DEALING WI TH THE SUBJECT, READS AS UNDER:- (2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVIOUS YEAR, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE, THEN, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 AND SUB-SECTION (3) OF SECTION 73, THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THE PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEAR. 16 5.9 ON BARE PERUSAL OF THE PROVISION, IT WILL BECO ME CLEAR THAT THE EXISTENCE OF THE BUSINESS TO WHICH U NABSORBED DEPRECIATION PERTAINS NEED NOT BE CARRIED ON IN THE SUBSEQUENT YEAR FOR ITS ABSORPTION. THE ONLY REQUI REMENT IS THAT A BUSINESS SHOULD BE CARRIED ON AND IN SUCH A SITUATION THE UNABSORBED DEPRECIATION BECOMES THE DEPRECIATIO N OF THE CURRENT YEAR. IN THIS CONNECTION, THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. VIRMANI INDUSTRIES PRIVATE LIMITED (1995) 129 C TR 189. IN THIS CASE, IT HAS BEEN HELD THAT FOR AVAILING TH E BENEFIT OF SECTION 32(2), IT IS NOT REQUIRED THAT THE SAME BUS INESS SHOULD BE CARRIED ON IN THE SUBSEQUENT YEAR. FURTH ER, IT IS NOT NECESSARY THAT THE ASSET ON WHICH DEPRECIATION WAS ALLOWED IN PAST SHOULD EXIST AND SHOULD BE USED IN THE BUSINESS IN THE SUBSEQUENT YEAR. THEREFORE, RELYIN G ON THIS DECISION IT IS HELD THAT THE ASSESSEE IS ENTITLED T O THE BENEFIT OF SECTION 32 (2) IN RESPECT OF PROFIT OF THIS YEAR FROM JOB WORK BUSINESS, AS PER PROVISION CONTAINED IN THIS S ECTION. 5.10 THEN, THERE IS ALSO A QUESTION WHETHER, THE S ERVICE CHARGES RECEIVED FROM TATA INTERNET SERVICES LIMITE D ARE 17 TAXABLE AS BUSINESS INCOME OR PROPERTY INCOME? WE HAVE SEEN THAT THE ASSESSEE RECEIVED RENT FROM THE AFORE SAID COMPANY. THE RENT HAS BEEN RECEIVED QUA THE OWNER. THEREFORE, IT HAS RIGHTLY OFFERED THE RENT FOR TAXA TION UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THIS IS AGA INST THE FINDING OF THE ASSESSING OFFICER THAT RENTAL INCOME IS BUSINESS INCOME. WHILE DOING SO, DEDUCTION OF `16, 86,122/- HAS BEEN CLAIMED AS STANDARD DEDUCTION. HOWEVER, I T IS THE CLAIM OF THE ASSESSEE THAT SERVICE CHARGES RECEIVED FROM THE COMPANY CONSTITUTE BUSINESS INCOME. ON THE OTHER H AND, THE CASE OF THE REVENUE IS THAT TWO AGREEMENTS, IN FACT, CONSTITUTE ONLY ONE AGREEMENT. THE LIABILITY FASTE NED ON THE ASSESSEE IN THE FACILITY AGREEMENT IS NORMALLY THE LIABILITY ASSUMED BY THE OWNER. THE ASSESSEE HAS CLAIMED STA NDARD DEDUCTION OF `16,86,122/-, WHICH COVERS THE EXPENSE S IN REGARD TO REPAIRS ALSO. THERE IS NO EVIDENCE OF AN Y SPECIFIC SERVICE RENDERED EXCEPT THE SERVICES REQUIRED TO BE RENDERED QUA THE OWNER. WE HAVE CONSIDERED THIS MA TTER ALSO. THE STRIKING FEATURE IN THIS RESPECT IS THAT THE ASSESSEE IS RENDERING THE SERVICES IN REGARD TO THE PREMISES RENTED 18 OUT TO ONLY ONE TENANT. IT IS NOT A CASE OF OWNERS HIP OF A BUILDING HAVING A NUMBER OF TENANTS WHERE MULTIFARI OUS SERVICES ARE PROVIDED UNDER AGREEMENT SEPARATE AND APART FROM THE RENT AGREEMENT. THE LEARNED CIT(A) HAS ME NTIONED THAT THE LIABILITY OF THE ASSESSEE ARE ON THREE ACC OUNTS (I) MAJOR STRUCTURAL REPAIRS SUCH AS LEAKAGE OF ROOFS, CRACKS IN THE WALL; (II) REPAIR OF BURSTING OR CORRODING OF E LECTRICAL CABLES, WATER PIPES, SEWERAGE SYSTEM ETC. AND (III) SUCH OTHER MAINTENANCE WORK AS REQUIRED BY THE COMPANY F ROM TIME TO TIME. SERVICES AT SERIAL NUMBERS (I) AND ( II) ABOVE ARE IN THE NATURE OF REPAIRS NORMALLY CARRIED OUT B Y THE OWNER. THERE IS NO EVIDENCE THAT ANY OTHER SPECIFI C SERVICE, OTHER THAN REPAIRS OF THE BUILDING OR ELECTRICAL CA BLES, WAS REQUIRED BY THE TENANT OR CARRIED OUT BY THE ASSESS EE. THEREFORE, WE ARE OF THE VIEW THAT THE ACTIVITIES O F THE ASSESSEE CANNOT BE SAID TO BE SUCH SYSTEMATIC ACTIV ITY, CARRIED ON A CONTINUOUS BASIS, WHICH CAN CONSTITUTE A BUSINESS. THESE SERVICES HAVE BEEN RENDERED QUA THE OWNER FOR WHICH THE ASSESSEE IS ENTITLED TO RENTALS , THEREFORE, SERVICES CHARGES, IN FACT, AMOUNT TO RECEIPT OF REN T. WE ARE 19 NOT GOING INTO THE ISSUE THAT THE LANDLORD AND THE TENANT COLLUDED SO AS TO REDUCE THE TAX-LIABILITY OF THE T ENANT. WHAT WE ARE CONCERNED WITH IS,- WHETHER, THE TWO AGREEME NTS ARE ONE CONSOLIDATED AGREEMENT OF LETTING OUT PREMISES? IN THE LIGHT OF DISCUSSION MADE ABOVE, WE ARE OF THE VIEW THAT IT IS SO. THEREFORE, THE CHARGES HAVE RIGHTLY BEEN TAXED AS PROPERTY INCOME. 5.11 THERE IS ALSO THE QUESTION WHETHER VARIOUS EXPENSES INCURRED BY THE ASSESSEE ARE ALLOWABLE OR NOT. WE HAVE ALREADY FURNISHED THE DETAILS OF THE EXPENSES. WE HAVE ALSO GIVEN OUR FINDING REGARDING TAXATION OF VARIOU S INCOMES UNDER BUSINESS OR PROPERTY HEAD OR RESIDUARY HEAD. IT IS CLEAR THAT THE COMPANY HAS TO INCUR SOME EXPENDITUR E FOR ITS VERY EXISTENCE. ON PERUSAL OF THE LIST OF EXPENDIT URE IT IS SEEN THAT THE DEBITS UNDER THE HEAD PRINTING AND ST ATIONERY, POSTAGE AND TELEGRAM, AUDIT FEE, ROC FEES, TELEPHON E CHARGES, LEGAL AND PROFESSIONAL CHARGES, ACCOUNTING CHARGES, FEES AND SUBSCRIPTION, AND CONSULTANCY FEES ARE SUC H EXPENSES. THESE HAVE TO BE ALLOWED, AS THOSE HAVE TO BE NECESSARILY INCURRED FOR KEEPING THE COMPANY IN EXI STENCE. 20 WE MAY NOW COME TO OTHER EXPENSES DEBITED TO P&L ACCOUNT. INSURANCE CHARGES OF `22,136/- HAVE BEEN INCURRED. THE PURPOSE OF THE EXPENDITURE HAS NOT BEEN SHOWN. LOOKING TO THE BUSINESS OF THE ASSESSEE, IT APPEARS THAT THESE EXPENSES CAN BE IN RESPECT OF THE PROPERTY ON LY. THE PURPOSE OF INCURRING BANK CHARGES AND INTEREST IS T HE SWITCHING OF THE LOAN. THE EXPENDITURE HAS BEEN IN CURRED AT `33,47,537/-. IT IS SUBMITTED THAT THE PROPERTY H AS BEEN PLEDGED WITH U.CO. BANK AS SECURITIES. THE COUNCIL CHARGES AND THE PF EXPENSES ALSO CANNOT RELATE TO THE JOB W ORK RECEIPTS OR THE SALE OF GOODS. THUS, IT IS HELD THA T THE ASSESSEE IS NOT ENTITLED TO DEDUCT COUNCIL CHARGES AND PF EXPENSES NOTWITHSTANDING THE FACT THAT THESE MAY OT HERWISE BE OF REVENUE EXPENSES. THUS, THE MATTER REGARDING DEDUCTIBILITY OF INSURANCE CHARGES AND BANK CHARGES AND INTEREST IS RESTORED TO THE FILE OF ASSESSING OFFIC ER TO ASCERTAIN WHETHER THESE PERTAIN TO THE INCOME EARNE D FROM IMMOVABLE PROPERTY HELD BY THE ASSESSEE. IF THEY P ERTAIN TO IMMOVABLE PROPERTY FROM WHICH RENT HAS BEEN RECEIVE D, THOSE SHALL BE CONSIDERED U/S 24 AS PER LAW. FOR T HIS 21 PURPOSE, THE MATTER IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AGAIN AFTER GRANTING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD . 6. IN RESULT: (I) GROUND NO.1, REGARDING DETERMINATION OF THE HEAD OF INCOME UNDER WHICH SERVICE CHARGES ARE TAXABLE, IS DISMISSED; (II) GROUND NO.2 REGARDING DISALLOWANCE OF VARIOUS EXPENSES IS TREATED AS PARTLY ALLOWED FOR STATISTIC AL PURPOSES; (III) GROUND NO.3 REGARDING TREATMENT TO BE GIVEN TO UNABSORBED DEPRECIATION IS ALLOWED AS DISCUSSED IN THE ORDER, AND (IV) GROUND NO.4 REGARDING ALLOWANCE OF BANK INTEREST AND CHARGES IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN OPEN COURT ON 24.09.20 10. SD/- SD/- ( A.D. JAIN ) ( K.G. BANSAL ) JUDICIAL MEMBER ACCOUNTANT ME MBER DT. 24/09/2010 22 NS COPY FORWARDED TO:- 1. M/S PARKLANE INDIA PVT. LTD., C-30, FRIENDS COLONY EAST, NEW DELHI. 2. D.C.I.T., CIRCLE 14 (1), NEW DELHI. 3. THE CIT 4. THE CIT (A), NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY BY ORDER (ITAT, NEW DELHI).