ACIT 7(2)(2), MUMBAI V. NEW ERA MERCANTILE P.LTD, MUMBAI

ITA 3033/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3639 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 27-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH MANE LD DR
• Assessee Lawyers: PURVI GANDHI LD
• Keywords: Business income; Depreciation; Business expenditure
• Section: 143(3); 37

Judgement Text

ITA NO. 3033/MUM/2017 & CO.NO.40/MUM/2019 NEW ERA MERCANTILE PVT. LTD. ASSESSMENT YEAR: 2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE HONBLE SHRI MANOJ KUMAR AGGARWAL, AM AND HONBLE SHRI RAVISH SOOD, JM ./ I.T.A. NO.3033/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) ASSISTANT COMMISSIONER OF INCOME TAX-7(2)(2) ROOM NO.623, 6 TH FLOOR AAYKAR BHAWAN M.K.ROAD, MUMBAI-400 020 / VS. NEW ERA MERCANTILE P RIVATE LTD 442, INDUSTRY MANOR A MARATHE MARG, PRABHADEVI MUMBAI-400 025 ./ ./PAN/GIR NO. AAACN-1710-H ( /APPELLANT ) : ( !' / RESPONDENT ) & CO. NO. 40/MUM/2019 [ARISING OUT OF ITA NO. 3033/MUM/2017] ( / ASSESSMENT YEAR: 2012-13) NEW ERA MERCANTILE PRIVATE LTD 442, INDUSTRY MANOR A MARATHE MARG, PRABHADEVI MUMBAI-400 025 / VS. ASSISTANT COMMISSIONER OF INCOME TAX-7(2)(2) ROOM NO.623, 6 TH FLOOR AAYKAR BHAWAN M.K.ROAD, MUMBAI-400 020 ./ ./PAN/GIR NO. AAACN-1710-H ( /APPELLANT ) : ( / RESPONDENT ) ASSESSEE BY : MS. PURVI GANDHI- LD. AR REVENUE BY : SH. PRAKASH MANE- LD.DR % &' / DATE OF HEARING : 14/02/2019 % &' / DATE OF PRONOUNCEMENT : 26/02/2019 ITA NO. 3033/MUM/2017 & CO.NO.40/MUM/2019 NEW ERA MERCANTILE PVT. LTD. ASSESSMENT YEAR: 2012-13 2 / O R D E R PER BENCH 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-13 [CIT(A)], MUMBAI, APPEAL NO. CIT(A)-13/DCIT-7(3)(1)/956/2015-16 DATED 01/02/2017 ON FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WHETHER THE LD. COMMISSIONER OF INCOME TAX(APPEALS) IS RIGHT IN HOL DING RECEIPTS OF RS.1,25,607/- OF MISCELLANEOUS INCOME AND RS.75,150 /- OF INSURANCE PREMIUM REFUND ARE ASSESSABLE UNDER THE HEAD BUSIN ESS RECEIPTS IN PLACE OF INCOME FROM OTHER SOURCES WITHOUT APPRECIATING T HAT THERE WAS NO BUSINESS ACTIVITY IN THE RELEVANT PREVIOUS YEAR AND NO SALES WERE REPORTED IN RETURNS OF INCOME FOR A.Y. 2013-14 AND 2014-15. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WHETHER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS RIGHT IN DE LETING DISALLOWANCES OF EXPENSES INCURRED ON ACCOUNT OF EMPLOYEE BENEFIT EX PENSES, DEPRECIATION AND OTHER EXPENSES TOTALING TO RS.71,62,567/- WITHO UT APPRECIATING THE FACT THAT THERE WAS NO BUSINESS ACTIVITY IN THE RELEVANT PREVIOUS YEAR AND NO SALES WERE REPORTED IN RETURNS OF INCOME FOR A.Y. 2013-14 AND 2014-15. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WHETHER THE LD. COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN NOT AP PRECIATING THE FACT THAT THE ASSESSEE FAILED TO ADDUCE ANY MATERIAL BEFORE T HE ASSESSING OFFICER TO REFLECT INTENTION OF CARRY ON THE BUSINESS. THE ASSESSEE HAS FILED CROSS OBJECTION IN SUPPORT O F THE IMPUGNED ORDER. 2.1 FACT IN BRIEF ARE THAT THE ASSESSEE BEING RESIDENT CORPORATE ENTITY STATED TO BE ENGAGED IN MANUFACTURING OF SOAPS AND DETERGENTS WAS ASSESSED IN SCRUTINY ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 24/03/2015 BY LD. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 7(3)(1), MUMBAI [AO] WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.3.11 LACS AS AGAINST LOSS OF RS.79 .28 LACS FILED BY THE ASSESSEE ON 28/09/2012. ITA NO. 3033/MUM/2017 & CO.NO.40/MUM/2019 NEW ERA MERCANTILE PVT. LTD. ASSESSMENT YEAR: 2012-13 3 2.2 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED T HAT THE ASSESSEE HAS NOT CARRIED OUT ANY MANUFACTURING ACTIVITY DURI NG THE YEAR. THE ASSESSEE REFLECTED OTHER INCOME OF RS.6.42 LACS IN THE PROFIT & LOSS WHICH CONSISTED OF PROFIT ON SALE OF ASSETS, INTERE ST ON FDRS, MISC. INCOME, INSURANCE PREMIUM REFUND AND SUNDRY BALANCE S WRITTEN-OFF. THE MISC. INCOME OF RS.1.25 LACS AND INSURANCE PREMIUM REFUND FOR RS.0.75 LACS TREATED BY THE ASSESSEE AS BUSINESS INCOME WAS TREATED AS INCOME FROM OTHER SOURCES FOR WANT OF DETAILS. 2.3 IT WAS ALSO NOTED THE ASSESSEE CLAIMED CERTAIN BUSINESS EXPENDITURE WHICH HAS BEEN DISALLOWED ON THE GROUND THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVITY DURING THE YEAR AND THEREFORE, THE SAME COULD NOT BE ALLOWED EITHER U/S 37 OR U/S 28. THE SAME RESULTED INTO DISALLOWANCE OF FOLLOWING EXPENDITURE: - 3.1 AGGRIEVED, THE ASSESSEE AGITATED THE SAME WITH SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 01/02/2017 WHEREIN THE ASSESSEE SUBMITTED THAT ADEQUATE DETAILS OF MISC. INCOME WER E DULY FILED BEFORE LD. AO VIDE LETTER DATED 15/10/2014 AND THEREFORE, THE OBSERVATIONS MADE BY LD. AO WERE INCORRECT. AFTER APPRECIATION O F DETAILS, LD. CIT(A) CAME TO CONCLUSION THAT MISC. INCOME OF RS.1.25 LAC S WAS RECEIVED BY WAY OF LIQUIDATION OF OLD STOCK AND THE INSURANCE P REMIUM REFUND WAS REFUND OF EXCESS PREMIUM PAID BY THE ASSESSEE AND T HEREFORE, THESE ITEMS CONSTITUTED BUSINESS RECEIPTS. HEAD OF EXPENDITURE AMOUNT (RS.) EMPLOYEE BENEFIT EXPENSE 33,03,025 DEPRECIATION 2,89,084 OTHER EXPENSES 45,34,684 TOTAL 71,62,567 ITA NO. 3033/MUM/2017 & CO.NO.40/MUM/2019 NEW ERA MERCANTILE PVT. LTD. ASSESSMENT YEAR: 2012-13 4 3.2 THE ASSESSEE ALSO SUBMITTED THAT NON-CARRYING O F MANUFACTURING ACTIVITY COULD NOT VITIATE CLAIM OF BUSINESS EXPEND ITURE SINCE THE ASSESSEE WAS IN EXISTENCE AND HAD EVERY INTENTION T O CARRY OUT THE BUSINESS. THE FIRST APPELLATE AUTHORITY, AFTER DUE CONSIDERATION OF FACTUAL MATRIX CONCURRED WITH ASSESSEES STAND IN THE FOLLO WING MANNER: - 5.3 DECISION: - I HAVE CAREFULLY CONSIDERED THE ASSESSING OFFICER S ORDER AS WELL AS THE ARS SUBMISSIONS. THE SHORT POINT FOR CONSIDERA TION HERE IS WHETHER EXPENDITURE FOR RUNNING A COMPANY SHOULD BE ALLOWED IN A PARTIC ULAR YEAR WHERE THERE WAS NO MANUFACTURING ACTIVITY AND CONSEQUENTLY NO OR ALMOS T NIL BUSINESS INCOME. THE APPELLANT WAS MANUFACTURING SOAPS AND DETERGENTS UP TO THE PREVIOUS YEAR PRECEDING THE RELEVANT PREVIOUS YEAR. DURING THE RE LEVANT PREVIOUS YEAR NEITHER WAS THERE ANY MANUFACTURING ACTIVITY NOR WAS THERE ANY SUBSTANTIAL TRADING ACTIVITY. THE ONLY TRADING WAS TO THE TUNE OF RS.1.25 LAKH, WHERE BY CERTAIN OLD STOCK WAS LIQUIDATED. ALTHOUGH THERE WAS VERY LITTLE BUSINESS INCOME, THE APPELLANT HAD CONTINUED TO INCUR CERTAIN EXPENDITURE REQUIRED FOR RUNNING A COMPANY. THE ASSESSING OFFICER HOWEVER DID NOT AGREE WITH THIS P ROPOSITION AND DISALLOWED ALL THE EXPENSES CITING THE LACK OF BUSINESS PER SE. THERE HAS BEEN NO WINDING UP OF THE APPELLANT-COMPANY EITHER. ITS PHYSICAL INFRASTRUCTU RE USED IN THE MANUFACTURING ACTIVITY AND ITS HUMAN RESOURCE INFRASTRUCTURE TOO IS INTACT. IN THESE CIRCUMSTANCES, THERE CANNOT BE ANY CASE FOR DISALLOWANCE OF THE BU SINESS EXPENSES AS DONE BY THE ASSESSING OFFICER. IN SIMILAR CIRCUMSTANCES, THE DE LHI BENCH OF HONBLE TRIBUNAL HAD HELD THE MATTER IN FAVOUR OF THE ASSESSEE WHILE REN DERING ITS DECISION IN THE CASE OF HARSH INTERNATIONAL PVT. LTD. V. DCIT (ITA NO. 2498 /DEL/2013, ASSESSMENT YEAR 2009-10 DATED 14 TH FEBRUARY 2014). IT HAD HELD THAT THE INTENTION TO CONDUCT THE BUSINESS ACTIVITY WAS THE PARAMOUNT FACTOR FOR EXAM INING THE ASSESSEES CLAIM WITH REGARD TO EXPENSES OF DEPRECIATION. AS THE INFRASTR UCTURE SET UP BY THE APPELLANT HAD NOT BEEN DISMANTLED, IT HAD TO BE PRESUMED THAT IT HAD EVERY INTENTION OF CARRYING ON ITS BUSINESS. EVEN IF THE ASSESSEE WAS UNABLE TO CA RRY OUT ITS BUSINESS DUE TO UNAVOIDABLE CIRCUMSTANCES BEYOND ITS CONTROL, IT WA S ENTITLED TO ALLOWANCE OF ITS FIXED AND NECESSARY EXPENSES REQUIRED TO MAINTAIN I TS BASIC INFRASTRUCTURE, REGARDLESS OF THE FACT THAT IT HAD NOT BEEN PUT TO USE DURING THE YEAR UNDER CONSIDERATION. A COPY OF THIS UNREPORTED DECISION H AS BEEN PLACED ON THE APPELLATE RECORD. IN THE CASE OF CIT V. VELLORE ELECTRICAL CO RPORATION LTD (113 TAXMAN 236) THE HONBLE HIGH COURT OF MADRAS HAD OCCASION TO DEAL W ITH THIS VERY ISSUE. IN THAT CASE, THE ASSESSEE-COMPANY HAD BEEN ACQUIRED BY THE STATE GOVERNMENT, WHICH ACT OF ACQUISITION HAD BEEN CHALLENGED BY THE ASSESSEE AND WAS PENDING BEFORE THE HONBLE SUPREME COURT IN THAT PARTICULAR PREVIOUS Y EAR. DURING THAT PERIOD THE ASSESSEE HAD MAINTAINED ITS ESTABLISHMENT AND CONTI NUED TO INCUR SALARIES AS WELL AS OTHER EXPENSES. IN THAT CASE IT HAD BEEN HELD TH AT IT WOULD BE WRONG TO HOLD THAT THE SAID EXPENSES HAD BEEN UNCONNECTED WITH ITS BUS INESS, REGARDLESS OF THE FACT THAT THERE WAS NO ACTUAL BUSINESS CONDUCTED DURING THAT PERIOD. IT WOULD HENCE BECOME CLEAR THAT THE APPELLANTS EXPENDITURE-WHICH HAD BEEN INCURRED ESSENTIALLY TO KEEP ITS INFRASTRUCTURE IN TERMS OF ASSETS AS WE LL AS MANPOWER IN RUNNING ITA NO. 3033/MUM/2017 & CO.NO.40/MUM/2019 NEW ERA MERCANTILE PVT. LTD. ASSESSMENT YEAR: 2012-13 5 CONDITION-HAS TO BE ALLOWED, NOTWITHSTANDING THE FA CT THAT THERE WAS NO MANUFACTURING OF SOAPS AND DETERGENTS DURING THE RE LEVANT PREVIOUS YEAR AND THAT THERE WAS CONSEQUENTLY VERY LITTLE TRADING OF THE S AME. IT WOULD ALSO BE IMPORTANT TO NOTE THAT THE ASSESSING OFFICERS DISALLOWANCE OF T HE IMPUGNED EXPENDITURE WAS NOT BASED ON ANY OTHER CRITERIA BUT THE THERE WAS LACK OF BUSINESS ACTIVITY AND THE CONSEQUENTIAL ASSESSABILITY OF ITS PROFIT. ACCORDIN GLY, AFTER RESPECTFULLY FOLLOWING THE AFORECITED SUPERIOR JUDICIAL AUTHORITIES, THE ENTIR E DISALLOWANCE OF EXPENDITURE OF RS.71,62,567/- AS MADE BY THE ASSESSING OFFICER IS HEREBY SET ASIDE. AGGRIEVED THE REVENUE IS IN FURTHER APPEAL BEFORE U S. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] SUBMITT ED THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVITY AN D THEREFORE, THE EXPENDITURE COULD NOT BE ALLOWED WITHIN THE MEANING OF SECTION 37(1). PER CONTRA, LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [AR], MS. PURVI GANDHI, SUBMITTED THAT ALTHOUGH THERE WAS TEMPORARY LULL I N THE BUSINESS ACTIVITIES, HOWEVER, THE SAME COULD NOT BE A GROUND TO DISALLOW GENUINE BUSINESS EXPENDITURE. 5. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD. THE UNDISPUTED POSITIO N THAT EMERGES IS THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIV ITY DURING THE IMPUGNED AY BUT CLAIMED EXPENDITURE IN THE NATURE O F EMPLOYEES EXPENSES, DEPRECIATION AND OTHER EXPENDITURE WHICH HAS BEEN DISALLOWED BY LD. AO FOR WANT OF BUSINESS ACTIVITIE S / BUSINESS RECEIPTS. IN OUR CONSIDERED OPINION, SO LONG AS THE ASSESSEE S BUSINESS IS IN EXISTENCE, ACTUAL BUSINESS RECEIPTS IN NOT A SINE QUA NON TO CLAIM THE BUSINESS EXPENDITURE. THE ASSESSEE WAS A CORPORATE ENTITY AND ITS BUSINESS COULD COME TO AN END ONLY UPON ITS BEING W OUND UP AS PER DUE PROCESS OF LAW. THE CORPORATE ENTITY HAS TO INCUR E XPENDITURE SO AS TO MAINTAIN ITS CORPORATE PERSONALITY AND DAY-TO-DAY E XISTENCE. OTHER ITA NO. 3033/MUM/2017 & CO.NO.40/MUM/2019 NEW ERA MERCANTILE PVT. LTD. ASSESSMENT YEAR: 2012-13 6 NOTABLE FEATURE IS THE FACT THAT THE ASSESSEE HAS C LAIMED DEPRECIATION WHICH DEMONSTRATE THAT ITS FIXED ASSETS WERE IN EXI STENCE AND WERE NOT SOLD-OFF DURING IMPUGNED AY. THE PERUSAL OF OTHER EXPENSES AS PLACED ON RECORD REVEAL THAT THE SAME ARE IN THE NATURE OF ELECTRICITY, WATER CHARGES, RENT, DUTIES & TAXES, TRAVELLING, TELEPHON E EXPENSES, LEGAL EXPENSES & OTHER ROUTINE EXPENDITURE. SO FAR AS THE TREATMENT OF MISC. INCOME AND INSURANCE PREMIUM REFUND IS CONCERNED, T HE COMPLETE DETAILS OF THE SAME WAS ALREADY FILED BY THE ASSESS EE BEFORE LD. AO AND THE SAME WERE FOUND TO BE ARISING OUT OF LIQUIDATIO N OF OLD STOCK AND REFUND OF EXCESS PREMIUM PAID BY THE ASSESSEE AND T HEREFORE, THE SAME WERE CLEARLY BUSINESS INCOME IN NATURE. THE REVENUE IS UNABLE TO REBUT THE FACTUAL MATRIX AS WELL AS CASE LAWS BEING RELIE D UPON BY FIRST APPELLATE AUTHORITY. THIS BEING THE CASE, NO INFIRM ITY OR PERVERSITY COULD BE FOUND IN THE IMPUGNED ORDER. ACCORDINGLY, THE RE VENUES APPEAL STANDS DISMISSED WHICH MAKES ASSESSEES CROSS-OBJECTIONS INFRUCTUOUS. 6. THE APPEAL AS WELL AS CROSS-OBJECTION STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH FEBRUARY, 2019. SD/- SD/- (RAVISH SOOD) (MAN OJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 26/02/2019 SR. PS THIRUMALESH/ SR.PS:-JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT ITA NO. 3033/MUM/2017 & CO.NO.40/MUM/2019 NEW ERA MERCANTILE PVT. LTD. ASSESSMENT YEAR: 2012-13 7 3. ' '# ( ) / THE CIT(A) 4. ' '# / CIT CONCERNED 5. $%&' , ' ' , / DR, ITAT, MUMBAI 6. %)*+ / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.