ITO, New Delhi V. M/s. Hindustan General Inds. Ltd., New Delhi

ITA 3097/DEL/2011

• Counselvise Citation: 309720114 RSA 2011
• Duration Of Justice: 1 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 10-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Keywords: Business income; Depreciation; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 3097/DEL/2011 ASSESSMENT YEAR: 2006-07 ITO, WARD 12(4), ROOM, NO. 331, C.R. BLDG., NEW DELHI. VS. HINDUSTAN GENERAL INDIA LTD., KIRARI ROAD, NANGOLI, NEW DELHI. PAN NO. AAACH0127N (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SATPAL SINGH, SR. DR RESPONDENT BY: SH. SANJEEV SAPRA, ADV. O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) DATED 31/01/2011 FOR A.Y. 2006-07. 2. THE ASSESSEE COMPANY HAD FILED RETURN OF INCOME DECLARING NIL INCOME. THE ASSESSING OFFICER NOTICED THAT DURING THE YEAR, THE ASSESSEE COMPANY DID NOT CARRY OUT ANY BUSINESS ACTIVITY OF MANUFACTURING OF WAGONS AND CYLINDERS. HE FURTHER NOTICED THAT ASSESSEE HA D EARNED FOLLOWING INCOME: - ITA NO. 3097/D/ 2011 2 I) INTEREST INCOME OF RS. 5,49,490/-; II) MISCELLANEOUS INCOME OF RS. 3,00,354/-; III) COMMISSION INCOME OF RS. 16,01,972/-; IV) RENTAL INCOME OF RS. 6,80,000/-. AGAINST THE AFOREMENTIONED INCOMES, THE ASSESSEE HA D CLAIMED EXPENSES AGGREGATING TO RS. 25,07,244/-. 3. THE AO, CONSIDERING THE AFOREMENTIONED ITEMS OF INCOME AS INCOME FROM OTHER SOURCES, REQUIRED THE ASSESSEE TO EXPLAI N REASON FOR CLAIMING EXPENSES AGAINST INCOME FROM OTHER SOURCE AND ALSO REASON FOR CLAIMING DEPRECIATION INSPITE OF THE FACT THAT THE BUSINESS ACTIVITIES OF THE ASSESEE ADMITTEDLY HAD BEEN DISCONTINUED AS AN INDUSTRIAL U NIT IN COMPLIANCE WITH THE ORDER OF THE HONBLE SUPREME COURT IN THE YEAR 2000 . THE ASSESSEE REPLIED AS UNDER: - DURING THE YEAR DEPRECIATION OF RS. 10,21,695/- O N BUILDING (RS. 1059527/-) AND PLANT & MACHINERY (RS. 1739/-) WAS DEBITED IN THE PROFIT & LOSS ACCOUNT, O UT OF WHICH DEPRECIATION OF RS. 39571/- HAD BEEN DEDUCTED/ADJUSTED AGAINST REVALUATION RESERVE. THE COMPANY WAS AN INDUSTRIAL UNIT. AS MENTIONED IN NO TE 2B(III) GIVEN IN SCHEDULE 16 OF THE BALANCE SHEET, THE HONBLE SUPREME COURT OF INDIA HAD DIRECTED THE INDUSTRIAL UNITS (INCLUDING THE UNIT OF THE ASSESSE E COMPANY) TO SURRENDER A PART OF THEIR LAND TO DDA F OR DEVELOPMENT OF GREEN BELT AND OPEN SPACE. ITA NO. 3097/D/ 2011 3 CONSEQUENTLY, IT HAD TO DISCONTINUE ITS BUSINESS AC TIVITIES AS AN INDUSTRIAL UNIT. HOWEVER, IT CONTINUED EFFOR TS ON GENERATING INCOME FROM OTHER SOURCES SUCH AS RENTIN G, COMMISSION, INTEREST AND OTHER FINANCIAL ACTIVITIES . ALSO EFFORTS WERE MADE TO REDUCE THE BURDEN OF EXPENSES IN ALL SPHERES. DUE TO SUCH EFFORTS AND FACTORS, THE COMP ANY HAD BEEN ABLE IN EARNING SURPLUS DURING THE YEAR. FIXED ASSETS SUCH AS BUILDINGS AND PLANT & MACHINERY BEIN G USED FOR THE BUSINESS OF THE COMPANY SHOULD THEREFO RE DEPRECIATION ON THE SAME DESERVES TO BE ALLOWED AS A DEDUCTIBLE EXPENDITURE. 4. THE AO AFTER CONSIDERING THE AFOREMENTIONED EXPL ANATION OF ASSESSEE, CONCLUDED THAT THE EXPENSES WERE NOT ALLOWABLE FOR THE FOLLOWING REASONS: - I) THE ASSESSEE COMPANY NEITHER CARRIED OUT ANY BU SINESS ACTIVITY DURING THE YEAR NOR SHOWED ANY BUSINESS INCOME AND EARNED INCOME FROM OTHER SOURCES ONLY; II) THE ASSESSEE ITSELF HAD ADMITTED THAT THE ASSES SEE COMPANY DISCONTINUED ITS BUSINESS ACTIVITIES SINCE 2000; III) MACHINERY, LAND AND BUILDING MEANT FOR BUSINE SS WERE NOT USED FOR BUSINESS PURPOSES; IV) AGAINST INCOME FROM OTHER SOURCES ASSESSABLE U /S 56, EXPENSES U/S 57 ARE ALLOWABLE ONLY IF THESE EXPENSES ARE INCURRE D WHOLLY AND EXCLUSIVELY FOR EARNING INCOME FROM OTHER SOURCES. ITA NO. 3097/D/ 2011 4 ACCORDINGLY, HE ALLOWED ONLY 10% OF TOTAL EXPENSES OF RS. 25,07,244/- BEING RS. 2,50,724/- AND REMAINING EXPENSES AGGREGATING T O RS. 22,56,970/- WERE DISALLOWED. THE INCOME FROM HOUSE PROPERTY SHOWN A S BUSINESS INCOME WAS ALSO ASSESSED AS INCOME FROM HOUSE PROPERTY. 5. LD. CIT(A), WHILE PARTLY ALLOWING THE ASSESSEES APPEAL, INTER-ALIA, HELD THAT THE AOS DECISION TO DISALLOW 90% OF THE EXPEN SES ON THE GROUND THAT NO BUSINESS ACTIVITY WAS CARRIED OUT BY THE ASSESSE E, WAS NOT LEGALLY TENABLE, AS AO HAD HIMSELF ACCEPTED INCOME FROM VAR IOUS SOURCES INCLUDING INCOME FROM COMMISSION AS BUSINESS INCOME IN EARLIE R YEARS AS WELL AS IN SUBSEQUENT YEAR. LD. CIT(A) THEREAFTER CONSIDERED SEPARATELY ALL THE ITEMS OF EXPENSES CLAIMED BY THE ASSESSEE AND ALLOWED HIM RELIEF OF RS. 21,46,752/-. 6. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), TH E DEPARTMENT IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION OF RS. 21,46,752/- OUT OF TOTAL ADDITION OF RS. 22,56,970/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCES OF EXPENSES, IGNORING THE FACT THAT N O BUSINESS ACTIVITY HAS BEEN CARRIED OUT BY THE ASSES SEE DURING THE YEAR UNDER CONSIDERATION. ITA NO. 3097/D/ 2011 5 2. THE ORDER OF THE LD. CIT(A) IS CONTRARY TO THE LAW STATED BY VARIOUS COURTS IN THE CASES VIZ:- S.P.V. BANK LTD. VS. CIT (1980) 126 ITR 773 (KERLA), PERFECT POTTERY LTD. VS. CIT 166 ITR 190 (MP), RANI J. SARLA DEVI VS. CIT 46 ITR 837 (AP) WHEREIN IT HAS BEEN HELD THAT IN ORDER TO SUSTAIN A CLAIM OR DEDUCTION BY WAY OF BUSINESS EXPENDITURE THE EXPENDITURE MUST HAVE BEEN LAID OUT OR EXPENDED FOR THE PURPOSE OF BUSINESS WHICH WAS IN EXISTENCE IN THE YEAR OF ACCOUNT, THE PROFITS OF WHICH ARE UNDER ASSESSMENT. IF DURING THE RELEVANT PERIOD THERE WA S NO BUSINESS THE QUESTION OF ALLOWABILITY OF EXPENSE S WOULD NOT ARISE. 3. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AME ND ANY GROUND OF THE APPEAL RAISED ABOVE AT THE TIME O F HEARING. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E PERUSED THE RECORD OF THE CASE. 8. THE SHORT DISPUTE IS WHETHER FOLLOWING ITEMS OF INCOME, DECLARED BY THE ASSESSEE IN ITS SCHEDULE XII, OF OTHER INCOME, TO PROFIT & LOSS A/C WERE ASSESSABLE AS BUSINESS INCOME OR AS INCOME FROM OTHER SOURCES: - O INTEREST ON BANK DEPOSITS RS. 58,203 O OTHER INTEREST (FROM MONEY LENDING ACTIVITIES) RS. 4,91,287 O COMMISSION RS. 16,01,972 O MISC. INCOME RS. 62,914 ITA NO. 3097/D/ 2011 6 O RENT RS. 6,80,000 O CREDIT BALANCES WRITTEN BACK RS. 2,37,440 TOTAL RS. 31,31,816 9. THE ASSESSEE VIDE ITS SUBMISSIONS DATED 29/04/20 10 FILED BEFORE LD. CIT(A) COPIES OF PROFIT & LOSS ACCOUNT, STATEMENT O F ASSESSABLE INCOME AND ASSESSMENT ORDERS RECEIVED BY THE ASSESSEE IN ITS O WN CASE FOR THE PREVIOUS THREE ASSESSMENT YEARS VIZ. A.Y. 2003-04 TO 2005-06 AS WELL AS FOR THE SUBSEQUENT ASSESSMENT YEARS I.E. 2007-08 IN ORDER T O SHOW THAT SIMILAR INCOME, AS DECLARED IN THOSE YEARS, WERE ACCEPTED B Y THE DEPARTMENT UNDER THE HEAD INCOME FROM BUSINESS. FURTHER IT WAS AL SO SUBMITTED BEFORE LD. CIT(A) THAT DURING THE YEAR THEY HAD RECEIVED COMMI SSION OF RS. 16,01,972/- FROM M/S ORIENT ABRASIVES LTD. FOR SOURCING ORDERS FOR THEM AND ORDERS WERE OBTAINED FROM M/S BHEL AND M/S MUKUND LTD. FOR SUPP LY OF REFECTORY ITEMS FROM ORIENT ABRASIVES LTD. IT WAS FURTHER SUBMITTE D THAT THE COMMISSION INCOME EARNED WAS PART OF THE MAIN OBJECT OF THE CO MPANY. RELYING ON THESE SUBMISSIONS, LD. CIT(A) HAS ACCEPTED THE ARGU MENT OF ASSESSEE THAT ASSESSEE CARRIED ON BUSINESS ACTIVITY DURING THE YE AR. NOTHING HAS BEEN BROUGHT ON RECORD BY THE DEPARTMENT TO CONTROVERT T HE SUBMISSIONS OF ASSESSEE AND FINDINGS OF LD. CIT(A) IN THIS REGARD. THE ASSESSEE HAS ALSO SUBMITTED THAT IT WAS CARRYING ON MONEY LENDING BUS INESS, THE INTEREST FROM WHICH AMOUNTING TO RS. 4,91,287/- WAS EARNED BY IT, WHICH WAS ALSO PART OF BUSINESS ACTIVITY AS PER CLAUSE 57 OF MAIN OBJECTS. FURTHER LEASING OF ASSETS ITA NO. 3097/D/ 2011 7 WAS ALSO MAIN OBJECT OF ASSESSEE AS PER CLAUSE 50 O F MEMORANDUM OF ASSOCIATION. THEREFORE, IN VIEW OF ABOVE UN-CONTRO VERTED FACTUAL POSITION, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORD ER OF LD. CIT(A). 10. IN THE RESULT, THE DEPARTMENTS APPEAL IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/11/2012 SD/- SD/- (A.D. JAIN) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 23/11/12 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER ASSISTANT REGISTRAR