ADDL.C.I.T. 18(1), MUMBAI V. GO GO INTERNATIONAL, MUMBAI

ITA 3/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83652 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 25-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 02-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 03/MUM/2012 ASSESSMENT YEAR: 2008-09 ADDL. CIT 18(1) 1 ST FLOOR, PIRAMAL CHAMBERS, LALBAUG MUMBAI VS. M/S. GO GO INTERNATIONAL 318, SHAH & NAHAR INDUSTRIAL ESTATE, A-1, DHANRAJ MILLS COMPOUND, LOWER PAREL, MUMBAI- 400 013 PAN: AADFG 0471 C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HARIDAS BHAT REVENUE BY : SHRI S.P. WALIMBE DATE OF HEARING : 25.08.2014 DATE OF PRONOUNCEMENT : 28.08.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A) -29, MUMBAI DATED 21.10.2011 FOR THE ASSE SSMENT YEAR 2008-09. 2. IN THIS APPEAL, THE REVENUE HAS AGITATED DECISIO N OF THE LD.CIT(A) DELETING THE ADDITION OF RS.68,70,793/- BEING SHORT TERM CAPITAL GAIN AND THE DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) OF RS.40,15,425/-. 3. AS REGARDS THE DELETION OF THE IMPUGNED ADDITION OF RS.68,70,793/-, THE RELEVANT FACTS ARE THAT THE ASSESSEE, A REGISTERED FIRM ENGAGED IN THE BUSINESS MANUFACTURING, TRADING AND EXPORTING OF READYMADE, DURING THE YEAR UNDER CONSIDERATION, HAD SOLD SIX HOUSE PROPERTIES AND TH E DETAILS ARE EXTRACTED AS HEREUNDER:- SR. NO. NAME OF THE PROPERTY LOCATION/ADDRESS DT. OF SALE SALE VALUE WDV PROFIT/LOSS 1 HERITAGE FLAT BLOCK NO. 11, 25.03.08 20,40,000 9, 37,423 11,02,577 ITA NO. 03/MUM/2012 M/S. GO GO INTERNATIONAL ASSESSMENT YEAR: 2008-09 2 UNITECH, YELAHENKA, BANG 2 PAVANI ESTATE FLAT PAVANTI RESIDENCY, YELAHENKA BANGALORE 31.03.08 28,15,500 14,25,941 12,38,959 3 SHIRKE FLAT 76/5, MIG/B, 5A BLOCK YELAHENKA, BANGALORE 25.03.08 7,47,000 3,14,325 4,32,675 4 LONAVALA FLAT 17/18, NAGPAL DREAM VALLEY, LONAVALA, PUNE 11.05.07 29,37,538 14,76,474 14,61,064 5 GURGON 24.10.07 45,00,000 22,89,346 22,10,654 THE ASSESSEE HAD CLAIMED DEPRECIATION @ 10% ON THES E PROPERTIES AND HAD REDUCED THE SALE CONSIDERATION OF THE ABOVE PROPERTIES FROM TOTAL BLOCK OF BUILDING. IN THE ASSESSMENT FRAMED, THE AO ISSUED A SHOW CAUSE NOTIC E STATING THAT THE RATE OF DEPRECIATION IN CASE OF RESIDENTIAL PROPERTIES IS O NLY 5% AND THE DEPRECIATION FOR COMMERCIAL PROPERTIES IS 10%. THE AO WAS OF THE OPI NION THAT THE BLOCK OF RESIDENTIAL PROPERTIES IN WHICH THE RATE OF DEPRECI ATION SHOULD BE 5% HAS CEASED TO EXIST BECAUSE OF THE SALE OF PROPERTIES BY THE ASSE SSEE AND THEREFORE THE PROVISIONS U/S 50 ARE ATTRACTED. FURTHER THE AO WAS OF THE OPI NION THAT SINCE THE RESIDENTIAL BLOCK DOES NOT EXIST, THE GAIN HAD TO BE TREATED AS SHORT TERM CAPITAL GAIN. ACCORDING TO THE ASSESSEE THE PROPERTY ON THE QUESTION WHERE COMMERCIAL PROPERTIES. ALTHOUGH LOCATED IN RESIDENTIAL AREA SINCE THE PROPERTIES WE RE USED FOR COMMERCIAL PURPOSES FROM YEAR TO YEAR AND DEPRECIATION @ 10% WAS CONSIS TENTLY CHARGED ON THEM. HOWEVER, THE AO DID NOT AGREE THE CONTENTION OF THE ASSESSEE FOR FOLLOWING REASONS:- (I) THE EXPLANATION OF THE ASSESSEE FOR PROPERTIES AT TIRUPUR AND KOLKATA IS ACCEPTABLE. HOWEVER THE REPLY IN RESPECT OF THREE P ROPERTIES IN BANGALORE AND ONE PROPERTY AT LONAVALA IS NOT ACCEPTABLE. ASSESSE E IS A MANUFACTURER OF GARMENTS AND HAS NOT USED THESE PLACES FOR MANUFACT URING OR FOR WAREHOUSING OR FOR OFFICE. (II) PURCHASE OR SALE OF THESE PROPERTIES ARE UNDER RESIDENTIAL CATEGORY AND THEY HAVE BEEN CATEGORIZED AS SUCH FOR STAMP VALUAT ION. (III) THE EXPLANATION OF THE ASSESSEE THAT THE PROP ERTIES HAVE BEEN USED FOR HOLDING TRAININGS ETC. ALSO CANNOT BE ACCEPTED. THE CERTIFICATES PRODUCED BY ITA NO. 03/MUM/2012 M/S. GO GO INTERNATIONAL ASSESSMENT YEAR: 2008-09 3 THE ASSESSEE ARE DATED JULY 2005 AND STRAY USE OF T HOSE PROPERTIES FOR BUSINESS PURPOSES WOULD NOT CHANGE THE CHARACTER OF THE PROPERTY. (IV) THE LONAVALA PROPERTY ALSO DOES NOT HAVE ANY T HIRD PARTY EVIDENCE THAT ANY TRAINING ACTIVITY ETC. WERE CONDUCTED AT THAT P REMISES. IT IS QUITE POSSIBLE THAT PARTNERS USED THESE PROPERTIES AS THEIR HOUSE OR GUEST HOUSE. NO DETAILS FOR THE GURGAON PROPERTY HAS BEEN FURNISHED INSPITE OF SPECIFIC QUERY MADE AS PER ORDER SHEET NOTING DATED 14.10.2010. (V) THE MUNICIPAL AUTHORITIES ALSO DO NOT ALLOW RES IDENTIAL PROPERTY FOR COMMERCIAL PURPOSES. IT IS ALSO SURPRISING THAT THE PROPERTIES ARE SOLD TO PARTNERS ONLY OR OTHER FAMILY MEMBERS. ACCORDINGLY, THE AO REJECTED THE CLAIM OF THE ASSES SEE TO REDUCE THE SALE CONSIDERATION FROM THE BLOCK OF ASSETS. ON APPEAL, THE LD.CIT(A) HAS EXAMINED THE CLAIM OF THE ASSESSEE WITH RESPECT TO EACH INDIVIDU AL PROPERTY AND HELD THAT THE ASSESSEE PROVED THAT THE FLATS UNDER CONSIDERATION WERE USED BY THE ASSESSEE FOR BUSINESS PURPOSES ALL ALONG. AGGRIEVED BY THE IMPUG NED DECISION, THE REVENUE HAS RAISED GROUND NO 2 IN THE APPEAL. 3.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS RELEVANT TO STATE THAT AS REGARDS FLAT NO. 7 (HERITAGE) BLOC K NO. 1, UNITECH, YELAHANKA, BANGALORE, FLAT NO. 2, PAVANI RESIDENCY, YELAHANKA BANGALORE, FLAT NO. 76/8, MIG/B, 5A, YELAHANKA, BANGALORE, THE LD.CIT(A) CONSIDERED THE FOLLOWING ASPECT FOR COMING TO A CONCLUSION THAT THE PROPERTIES HAVE BEEN USED BY THE ASSESSEE FOR BUSINESS PURPOSE. THE RELEVANT EXTRACT OF THE CONSIDERATION OF THE LD.CIT(A) IN THIS CONNECTION IS HEREUNDER: (A) THE ASSESSEE HAS SUBMITTED THE REGISTRATION CE RTIFICATES OF THE ESTABLISHMENT ISSUED BY GOVERNMENT OF KARNATAKA, DE PARTMENT OF LABOUR TO THE FIRM, M/S. GO GO INTERNATIONAL CERTIFYING THAT THE DISPUTED FLATS ARE TO BE USED AS TRAINING CENTERS BY THE APPELLANT. THESE CE RTIFICATES HAVE BEEN ISSUED UNDER KARNATAKA SHOPS AND ESTABLISHMENTS ACT, 1961. THE REGISTRATION NUMBERS ARE 492, 491 AND 490, RESPECTIVELY. THEY HA VE BEEN ISSUE IN JULY 2005 WITH A VALIDITY PERIOD TILL 31.12.2009. (B) THE APPELLANT HAS FILED DETAILS OF TRAINING GIV EN TO MIDDLE LEVEL MANAGERS ON SYSTEMS AND ERP MODULE AT FLAT NO. 7, HERIGATE B UIDING, UNITECH BANGALORE. FURTHER EVIDENCE HAS BEEN GIVE FOR TRAIN ING OF COMPUTER DATA ENTRY OPERATORS AT FLAT NO. 2, PAVANI RESIDENCY, BA NGALORE. EVIDENCE REGARDING USE OF FLAT AT SHIRKE, YELHANKA FOR TRAIN ING OF WORKERS AND HAND EMBROIDERY WORK HAS ALSO BEEN FILED. (C) IT HAS BEEN ARGUED THAT APPELLANT FIRM IS UNDER TAKING ITS BUSINESS ACTIVITIES FROM ITS OFFICE AT SITE NO. 6 KHB INDUSTRIAL AREA, YELHANKA, BANGALORE. DUE TO ITA NO. 03/MUM/2012 M/S. GO GO INTERNATIONAL ASSESSMENT YEAR: 2008-09 4 SHORTAGE OF OFFICE SPACE THESE FLATS HAVE BEEN USED WHICH WERE IN THE SAID YELHANKA LOCALITY FOR COMMERCIAL PURPOSES AS STATED ABOVE. (D) THE PHOTOGRAPH OF EMPLOYEES ATTENDING COURSE, I NVOICE OF PARTIES RAISING BILLS FOR CONSULTANCY PROVIDED IN RESPECT OF ACTIVI TIES IN THESE LOCATIONS HAVE BEEN PROVIDED. THE DETAILS OF PERSONS ATTENDING TRA INING CENTERS AND THEIR ATTENDANCE SHEET HAVE BEEN SUBMITTED. (E) THIS FACT HAS ALSO BEEN ACCEPTED BY EARLIER SCR UTINY ASSESSMENTS AND DEPRECIATION @ 10% HAS BEEN INVARIABLY GRANTED BY T HE SEVERAL ASSESSING OFFICERS WITHOUT DRAWING ANY ADVERSE INFERENCE. AS REGARDS THE RESIDENTIAL PROPERTY AT 7/80 NAGPAL DREAM VALLEY LONAVALA PUNE, THE LD. CIT(A) HAS CONSIDERED THE INTERNAL LETTERS STAT ING THE BUYERS MEET, MEETING OF SALES EXECUTIVES, TRAINING PROGRAMMES FOR VARIOUS E XECUTIVES AND ERP COURSES CONDUCTED WITH PARTICIPANT EXECUTIVES AND VARIOUS S PEAKERS. THE LD. CIT(A) HAS ALSO CONSIDERED THAT THE ASSESSEE HAS CONDUCTED SEMINARS ON AND PROFESSIONAL CHARGES HAVE BEEN PAID TO CONSULTANTS AFTER DEDUCTING TAX F OR CONDUCTING EVENTS AT THIS PLACE. HENCE, THE LD.CIT(A) HAS HELD THAT THE TREAT MENT GIVEN BY THE AO CANNOT BE SUSTAINED IN RESPECT OF THIS FLAT AND ACCORDINGLY D ELETED AN AMOUNT OF RS.14,61,064/. IN RESPECT OF FLAT AT GURGON, NEW DELHI IT IS NOTED THAT DURING THE ASSESSMENT PROCEEDINGS, THE AO NEVER ASKED ANYTHING IN RESPECT OF THE DETAILS ABOUT THE USE OF THIS PARTICULAR FLAT. ON APPEAL, THE LD. CIT(A) CON SIDERED VARIOUS EVIDENCES SUCH AS BILLS BY NATIONAL INSURANCE COMPANY LTD., EASTERN A IR COURIER PVT. LTD., BILL OF PIONEX COURIER AND CARGO SERVICES, MOTOR REPAIRING BILLS, INTERIOR BILLS, MOBILE BILLS TO COME TO A CONCLUSION THAT THE GURGAON PROPERTY HAS BEEN USED REGULARLY AS BUSINESS ADDRESS AND BUSINESS PREMISES OF THE ASSESSEE. THER EFORE, THE LD.CIT(A) WAS OF THE VIEW THAT THE ADDITION MADE BY THE AO CANNOT BE SUS TAINED IN RESPECT OF THIS FLAT. HAVING CONSIDERED THE ENTIRETY OF FACTS, WE ARE OF THE CONSIDERED OPINION THAT THE LD.CIT(A) HAS CORRECTLY RELIED ON THE EVIDENCES FOR HOLDING THAT THE PROPERTIES INVOLVED HAVING BEEN USED FOR BUSINESS PURPOSE OF T HE ASSESSEE, THE DECISION OF THE LD.CIT(A) ON THIS COUNT DESERVES TO BE UPHELD. RESU LTANTLY, GROUND NO 2 IS DISMISSED. 4. REGARDING THE DELETION OF THE DISALLOWANCE OF EX PENSES OF RS.40,15,425/- MADE BY THE AO U/S 40(A)(IA), IT IS PERTINENT TO ME NTION THAT THE AO HAS STATED THAT THE ASSESSEE INCURRED A SUM OF RS.50,29,293/- TOWAR DS TEST REPORT CHARGES AND DEDUCTED TDS @ 2.22% U/S 194C. THE AO WAS OF THE VI EW THAT THESE WERE ITA NO. 03/MUM/2012 M/S. GO GO INTERNATIONAL ASSESSMENT YEAR: 2008-09 5 PROFESSIONAL AND TECHNICAL SERVICES WHICH SHOULD FA LL U/S 194J. ACCORDING TO THE ASSESSEE, THE TEST REPORT CHARGES WERE GIVEN TO WOR KS CONTRACT UNDERTAKEN BY THE AGENCIES TO TAKE OUT RECOURSE ON FABRICS BY PARTICU LAR MACHINE AFTER APPLYING CHEMICALS AND OTHER MATERIALS AND THERE IS NO PROFE SSIONAL SKILL OR TECHNICAL SERVICE RENDERED BY THE AGENCIES. WHEREAS THE WORK WAS DONE ON CONTRACT BASIS ON THE BASIS OF FABRICS AND OTHER ITEMS SUPPLIED BY THE AS SESSEE. THEREFORE, ACCORDING TO THE ASSESSEE, IT CANNOT BE SAID THAT SECTION 194J I S APPLICABLE IN THE CASE OF THE ASSESSEE. HOWEVER, THE SAID CONTENTION WAS NOT ACCE PTED BY THE AO AND THEREBY DISALLOWED THE IMPUGNED EXPENDITURE. ON APPEAL, THE LD. CIT(A) FOUND THAT THERE IS NO RENDERING OF TECHNICAL SERVICE BY THE RESPECTIVE AGENCIES FOR SUBMITTING TEST REPORTS WHICH CONTAINED THE QUALITY OF THE FABRICS USED WHICH IS SUITABLE FOR GARMENTS TO BE EXPORTED. THE EXAMINATION OF TECHNICAL DETAIL S AND EXERCISE OF SUITABILITY HAS BEEN DONE AT THE ASSESSEES END AND NOT BY THE AGEN CIES THEMSELVES. THEREFORE, THE LD. CIT(A) HAS HELD THAT THERE HAS BEEN NEITHER REN DERING OF PROFESSIONAL NOR OF TECHNICAL SERVICE AND SINCE THE PROCESS INVOLVES WO RKS CONTRACTS, THE GOVERNING SECTION WILL BE SECTION 194C. ACCORDINGLY, THE LD.C IT(A) HAS DELETED THE DISALLOWANCE MADE BY THE AO. AFTER CONSIDERING THE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE LD.CIT(A) HAS CORRECTLY HELD THAT THE PROCESS INVOL VES WORKS CONTRACT AND THE GOVERNING SECTION WILL BE 194C. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LD. CIT(A) IN DELETING THE DISALLOW ANCE MADE BY THE AO. RESULTANTLY, GROUND NO 3 IS DISMISSED. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF AUGUST, 2014. SD/- SD/- (N.K. BILLAIYA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 28.08.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR G BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.