PERFECT SCALE COMPANY P.LTD, MUMBAI V. DCIT CEN CIR 45, MUMBAI

ITA 3230/MUM/2013

• Counselvise Citation: 323019914 RSA 2013
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 26-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: CHAMPA PUROHIT
• Assessee Lawyers: PREETAM SINGH
• Keywords: Business income; Depreciation; Bonafide belief; Wholly owned subsidiary; Reasonable cause; Condonation of delay

Judgement Text

. , IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI , BEFORE SHRI R. K. GUPTA , JM ITA NO. 3228 TO 3234 / MUM/ 20 1 3 ( AS SESSMENT YEAR : 200 3 - 04 TO 2009 - 10 ) M/S PERFECT SCALE COMPANY PVT. LTD., 1, DORF KETAL TOWER, ORLEM, MALAD (W) , MUMBAI - 64 VS. DCIT, CEN CIR 45 - MUMBAI PAN/GIR NO. : A AACP 9044 J ( APPELLANT ) .. ( RESPONDEN T ) /REVENUE BY : MR. CHAMPA PUROHIT /ASSESSEE BY : MR. PREETAM SINGH DATE OF HEARING : 30 T H AUGUST , 201 3 DATE OF PRONOUNCEMENT : 06/09/2013 O R D E R THIS COMMON ORDER SHALL GOVERN THE DISPOSAL OF SEVEN APPEALS, WHICH HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LEARNED CIT(A), MUMBAI FOR ASSESSMENT YEAR S 200 3 - 04 TO 2009 - 10, RESPECTIVELY . 2 . SINCE COMMON ISSUES ARE INVOLVED IN BOTH THE CASES, THEREFORE, FOR THE SAKE OF CONVENIENCE, BOTH THE CASES HAVE BEEN HEARD AND DISPOSED OF BY THIS CONSOLIDATED ORDER. HEARD ON THE QUESTION OF CONDONATION OF DELAY . 3 . ALL THESE APPEALS FILED BY THE ASSESSEE ARE LATE BY 513 DAYS . AFFIDA VIT OF THE DIRECTOR OF THE COMPANY IS PLACED ON RECORD EXPLAINING ITA NO S . 3228 TO 3234 / 20 1 3 2 THE REASON IN THE FILING THE APPEALS LATE. DURING THE APPELLATE PROCEEDING, LEARNED COUNSEL OF THE ASSESSEE FILED A DECISION OF THE MUMBAI BENCH TRIBUNAL IN THE CASE OF THE PHOENIX MILLS LTD ., DECIDED IN ITA NO. 6240/M/2007 VIDE ORDER DATED 23 - 3 - 2010 . IT WAS EXPLAINED THAT THE CHARTERED ACCOUNTANT, WHO WAS LOOKING AFTER THE INCOME TAX MATTER OF THE ASSESSEE, ADVISED THE ASSESSEE THAT NO APPEAL IS TO BE FILED AGAINST THE ORDER OF CIT(A) , THEREF ORE, THE ASSESSEE DID NOT FILE APPEAL. HOWEVER, WHEN THE ASSESSEE CHANGED HIS COUNSEL, WHO ADVISED THAT APPEALS SHOULD HAVE BEEN FILED AND ACCORDINGLY, THE APPEALS WERE FILED IMMEDIATELY. IT WAS EXPLAINED THAT ASSESSEE WAS NO T AWARE OF THE LEGAL PROVISION PROPERLY AND HE WAS UNDER BONAFIDE BELIEF THAT NO USEFUL PURPOSE WILL BE SERVED IF THE APPEALS ARE FILED AS ADVISED BY THE THEN CHARTERED ACCOUNTANT. IT WAS EXPLAINED THAT SIMILAR FACTS WERE INVOLVED IN THE CASE OF THE PHOENIX MILLS LTD (SUPRA) , AND THE T RIBUNAL HAS CONDONED THE DELAY IN FILING THE APPEAL BEFORE THE TRIBUNAL. 4 . ON THE OTHER HAND, LEARNED DR STATED THAT THERE WAS NO REASONABLE CAUSE IN FILING THE APPEALS LATE BEFORE THE TRIBUNAL, THEREFORE, THE DELAY IN FILING THE AFORESAID APPEALS SHOULD NOT BE CONDONED. 5 . AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, I FOUND THAT THE ASSESSEE WAS BONAFIDE IN NOT FILING THE APPEALS IN TIME. COPY OF THE AFFIDAVIT OF THE DIRECTOR OF THE COMPANY IS PLACED ON RECORD. IT HAS BEEN EXPL AINED THAT THE COMPANY RECEIVED THE ORDER ITA NO S . 3228 TO 3234 / 20 1 3 3 OF CIT(A) DATED 1 - 10 - 2011 AND THE APPEAL SHOULD HAVE BEEN FILED BEFORE THE TRIBUNAL WITHIN 60 DAYS. IT IS FURTHER EXPLAINED THAT THE APPEAL MATTERS OF THE ASSESSEE WERE LOOKING AFTER BY MR. P.K. TANDON, CHARTERED AC COUNTANT AND ON HIS ADVICE THE APPEALS WERE NOT FILED. HOWEVER, WHEN THE ASSESSEE TRANSFERRED THE CASE TO MR. S.S.GAJJA, CHARTERED ACCOUNT, WHO ADVISED THAT APPEALS ARE TO BE FILED BEFORE THE TRIBUNAL AS THE ORDER OF THE CIT(A) IS NOT AS PER THE PROVISIONS OF LAW. I NOTED THAT DUE TO WRONG ADVICE OF THE CHARTERED ACCOUNTANT, APPEALS COULD NOT BE FILED IN TIME, THEREFORE, I AM OF THE VIEW THAT THERE IS A REASONABLE CAUSE IN NOT FILING THE APPEALS IN THE TIME. THE DECISION IN THE CASE OF THE PHOENIX MILLS LTD (SUPRA) , ON WHICH RELIANCE HAS BEEN PLACED, IS IN FAVOUR OF THE ASSESSEE. IN THIS CASE THE RATIO OF THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF CONCORD OF INDIA INSURANCE CO. LTD. VS. SMT. NIRMALA DEVI AND OTHERS, REPORTED IN (1979) 118 ITR 507( SC) , HAS BEEN CONSIDERED, WHEREIN IT HAS BEEN HELD THAT THE MISTAKE OF THE COUNSEL MAY IN CERTAIN CIRCUMSTANCES BE TAKEN INTO ACCOUNT IN CONDONING THE DELAY ALTHOUGH THERE IS NO GENERAL PROPOSITION THAT MISTAKE OF COUNSEL BY ITSELF IS ALWAYS A SUFFICIENT G ROUND. ACCORDINGLY, THE HON BLE APEX COURT HAS HELD THAT THERE IS A MISTAKE OF THE COUNSEL AND, THEREFORE, THE DELAY IN FILING THE APPEAL HAS BEEN CONDONED. I FURTHER NOTED THAT SIMILAR FINDI NG HAS BEEN EXPRESSED BY THE HON BLE SUPREME COURT IN THE CASE OF N. BALAKRISHNAN VS. M. KRISHNAMURTHY, REPORTED IN AIR 1998 SC 3222 . THE TRIBUNAL HAS ALSO CONSIDERED THE DECISION IN THE CASE OF MELA RAM AND SONS VS. ITA NO S . 3228 TO 3234 / 20 1 3 4 CIT, REPORTED IN 29 ITR 607 (SC) AND ACCORDINGLY, THE DELAY IN FILING APPEAL WAS CONDONED. THE FACTS IN THE PRESENT CASE ARE ALSO SIMILAR AS IN THIS CASE ALSO DUE TO MISTAKE OF CHARTERED ACCOUNTANT THE ASSESSEE COULD NOT FILE THE APPEALS IN TIME. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE VARIOUS DECISIONS MENTIONED ABOVE, WH ICH WAS CONSIDERED BY THE TRIBUNAL IN THE CASE OF THE PHOENIX MILLS LTD (SUPRA) , I CONDONE THE DELAY IN FILING THE PRESENT APPEALS BEFORE THE TRIBUNAL FOR ALL THE YEARS. ALSO HEARD ON MERIT OF THE CASE 6 . I WILL TAKE THE APPEALS FOR ASSESSMENT YEARS 200 3 - 04 TO 2006 - 07 (I.E.ITA NOS.3228 TO 3231/M/2013 ) . IN THESE APPEALS, THE ASSESSEE IS OBJECTING IN CONFIRMING THE FINDING OF THE AO THAT THE ASSESSEE HAS EARNED RENTAL INCOME AND NOT BUSINESS INCOME. 7. BRIEF FACTS OF THE CASE NOTED BY THE CIT(A) IN PARA 4 OF HIS ORDER ARE THAT THE ASSESSEE IS A SUBSIDIARY COMPANY OF M/S DORF KETAL CHEMICALS (I) PVT. LTD.. ON 30 - 5 - 2008, A SEARCH & SEIZURE ACTION U/S.132(1) OF THE ACT CONDUCTED ON THE BUSINESS PREMISES OF M/S DORF KETAL CHEMICALS (I) PVT. LTD. AND ALSO ON T HE BUSINESS PREMISES OF THE ASSESSEE. THE DORF KETAL GROUP IS MAINLY ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF SPECIALITY CHEMICALS. THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY COMPANY OF M/S DORF KETAL CHEMICALS (I) PVT. LTD. SINCE 199 8 - 99. . THE ASSESSEE COMPANY HAS LEASED OUT ITS ENTIRE BUSINESS PREMISES FOR THE USE OF THE HOLDING ITA NO S . 3228 TO 3234 / 20 1 3 5 COMPANY NAMELY M/S DORF KETAL CHEMICALS (I) PVT. LTD. FOR AN ANNUAL LEASE RENT OF RS. 6,00,000/ - . DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE V ALUE OF FACTORY SHED, ELECTRICITY FITTING, PLANT AND MACHINERY AND AIR CONDITIONS HAVE BEEN SHOWN AS RS. 44,20,544/ - , 41,769/ - , 6,84,311/ - AND RS. 10,859/ - , RESPECTIVELY TOTALING TO RS. 51,57,484/ - AND THE ASSESSEE HAS CLAIMED DEPRECIATION ON ALL THE ABOVE AS SETS . THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE LEASE RENT SHOWN BY THE ASSESSEE SHOULD NOT BE ASSESSED UNDER THE HEAD HOUSE PROPERTY AGAINST THE CLAIM OF BUSINESS INCOME SHOWN BY THE ASSESSEE. THE ASSESSEE FILED EXPLANATION, HOWEVER, THE AO WAS N OT SATIS FIED, ACCORDINGLY, HE TREATED THE LEASE RENT OF RS. 6,00,000/ - AS INCOME FROM HOUSE PROPERTY FOR ALL THE AFORESAID ASSESSMENT YEARS I.E. ASSESSMENT YEAR 2003 - 04 TO 2006 - 07 . 8 . BEFORE THE CIT(A) , WRITTEN SUBMISSIONS WERE FILED AND IT WAS SUBMITTED THAT THE AO DID NOT PROPERLY APPRECIATE THE FACTS OF THE CASE OF THE ASSESSEE THAT THE ASSETS GIVEN ON RENT ARE ON LUMPSUM BASIS INVOLVING FACTORY SHED AND PLANT & MACHINERY, WHICH WERE INSEPARABLE FROM EACH OTHER. IT WAS ALSO EXPLAINED THAT THE DECISION I N THE CASE OF M/S SHAMBHU INVESTMENT PVT. LTD. VS. CIT, REPORTED IN 263 ITR 143 IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. RELIANCE WAS ALSO PLACED ON VARIOUS OTHER CASE LAWS MENTIONED IN THE ORDER OF CIT(A) AT PAGE 4. 9 . AFTER CONSIDERING THE S UBMISSI ONS AND TAKING INTO CONSIDERATION VARIOUS DECISIONS ALONG WITH DECISION OF THE HONBLE SUPREME COURT IN ITA NO S . 3228 TO 3234 / 20 1 3 6 THE CASE OF M/S SHAMBHU INVESTMENT PVT. LTD. (SUPRA) , CIT(A) FOUND THAT THE AO WAS RIGHT IN ASSESSING THE INCOME UNDER THE HEAD INCOME FROM HOUS E PROPERTY AGAINST BUSINESS INCOME SHOWN BY THE ASSESSEE. NOW THE ASSESSEE IS IN APPEALS HERE BEFORE THE TRIBUNA L. 10 . THE CONTENTIONS RAISED BEFORE THE CIT(A) WERE REITERATED BY THE LEARNED COUNSEL OF THE ASSESSEE. RELIANCE WAS PLACED ON VARIOUS CASE LAW S, COPY OF WHICH ARE PLACED IN THE COMPILATION. 11 . ON THE OTHER HAND, L EARNED DR PLACED STRONG RELIANCE ON THE ORDER OF CIT(A) . 12 . AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, I FIND THAT THERE IS NO MERIT IN THE GROUNDS RAISE D BY THE ASSESSEE FOR THE AFORESAID ASSESSMENT YEARS. THOUGH VARIOUS DECISIONS RELIED UPON BY THE ASSESSEE ARE ON THE SIMILAR ISSUE, HOWEVER, FACTS OF EACH CASE HAS TO BE TAKEN INTO CONSIDERATION WHILE DECIDING THE CASE IN HAND. IN THE PRESENT CASE, I NOTE D THAT THE ASSESSEE ITSELF HAS NEVER USED THE BUSINESS ASSET FOR ITS BUSINESS PURPOSE. IT WAS ADMITTED DURING THE APPELLATE PROCEEDING THAT IN IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2002 - 03 , THE SHED WAS CONSTRUCTED WITH THE FUNDS BORROWED FROM TH E HOLDING COMPANY. NO INTEREST HAS BEEN PAID TO THE HOLDING COMPANY ON THAT AMOUNT. IT IS FURTHER SEEN THAT SMALL AMOUNT WAS SPENT ON PLANT AND MACHINERY I.E. RS. 6 LAKHS OR ODD. RS. 4 1 , 769 / - AND RS.10, 859 / - OR ODD WAS SPENT FOR ELECTRICITY FITTING AND AIR C ONDITIONER, RESPECTIVELY. AS STATED ABOVE, THE ITA NO S . 3228 TO 3234 / 20 1 3 7 ASSESSEE NEVER USED THIS SHED FOR ITS OWN BUSINESS PURPOSE. WHEN THE SHED WAS CONSTRUCTED, IMMEDIATELY THEREAFTER THE SHED WAS RENTED OUT TO THE HOLDING COMPANY ON AN ANNUAL RENT OF RS. 6 LAKHS. THEREFORE, IT C ANNOT BE SAID THAT THE ASSESSEE HAS EXPLOITED ITS BUSINESS ASSET FOR COMMERCIAL PURPOSE , T HOUGH HON BLE SUPREME COURT IN THE CASE OF M/S SHAMBHU INVESTMENT PVT. LTD. (SUPRA), ITSELF HAS CONCLUDED IN THE FOLLOWING MANNER : - TAKING A SUM TOTAL OF AFORESAID DISCUSSIONS, IT CLEARLY APPEARS THAT MERELY BECAUSE INCOME IS ATTACHED TO ANY IMMOVABLE PROPERTY CANNOT BE THE SOLE FACTOR FOR ASSESSMENT OF SUCH INCOME AS INCOME FROM PROPERTY; WHAT HAS TO BE SEEN IS WHAT WAS THE PRIMARY OBJECT OF THE ASSESSEE WHILE EXPLO ITING THE PROPERTY. IF IT IS FOUND, APPLYING SUCH TEST, THAT MAIN INTENTION IS FOR LETTING OUT THE PROPERTY, OR ANY PART THEREOF, THE SAME MUST BE CONSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY. IN CASE, IT IS FO UND THA T T H E MAIN INTENTION IS TO EXPLO IT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES, IN THAT EVENT, IT MUST BE HELD AS BUSINESS INCOME. IN THIS CASE THE HON BLE SUPREME COURT HAS HELD THAT IF IT IS FOUND THAT THE MAIN INTENTION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES, IT MUST BE HELD AS BUSINESS INCOME. AS STATED ABOVE, THE ASSESSEE HAS NEVER USED THE SHED FOR ITS BUSINESS PURPOSE AND IMMEDIATELY AFTER CONSTRUCTION, THE SHED WAS GIVEN TO ITS HOLDING COMPANY. ACCORDINGLY, FOR CLAIMING D EPRECIATION, THE ASSESSEE HAS SHOWN THE RENTAL INCOME AS BUSINESS INCOME AS THERE IS NO OTHER EXPENSES CLAIMED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT. THEREFORE, I AM OF THE VIEW THAT THOUGH THE ASSET IS A BUSINESS ASSET BUT THE RENTAL INCOME EARN ED BY THE ASSESSEE HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY , AS THE ASSESSEE HAS NEVER USED THIS ITA NO S . 3228 TO 3234 / 20 1 3 8 BUSINESS ASSET FOR ITS COMMERCIAL PURPOSES. IT IS ALSO SEEN THAT THE FACTORY SHED WAS CONSTRUCTED BY THE FUNDS OF THE HOLDING COMPANY AND WAS USED BY THE HOLDING COMPANY, WHICH SHOWS THAT THE BUSINESS ASSET CREATED BY THE ASSESSEE WAS ONLY FOR THE PURPOSE OF HOLDING COMPANY AND NOT USE OF ASSESSEE. HENCE, IT IS INFERRED FROM THE FACT THAT THE HOLDING COMPANY WAS THE OWNER OF THE SHED AS THE ASSESSEE IS A HUNDRED PERCENT SUBSIDIARY OF THE HOLDING COMPANY. THEREFORE, IT CANNOT BE SAID THAT THE BUSINESS ASSET WAS GIVEN ON RENT FOR EXPLOITATION OF THE IMMOVABLE PROPERTY BY WAY OF COMMERCIAL ACTIVITIES. ACCORDINGLY, I HOLD THAT THE AO AND LEARNED CIT(A) WERE JUSTIFIED IN TREATING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY. ACCORDINGLY APPEALS FOR ASSESSMENT YEARS 2003 - 04 TO 2006 - 07 ARE DISMISSED. 13 . NOW, I WILL TAKE THE APPEALS FOR ASSESSMENT YEARS 200 7 - 08 TO 2009 - 10 (I.E.ITA NOS.32 32 TO 32 34 /M/2013). I N THESE APPEALS, THE ASSESSEE IS OBJECTING IN CONFIRMING THE FINDING OF THE AO THAT THE ASSESSEE HAS EARNED RENTAL INCOME AND EVEN WHEN THE ASSESSEE HAS NOT RECEIVED ANY INCOME AT ALL . 14 . FOR ALL THE THREE ASSESSMENT YEARS, NO RENTAL INCOME WAS RECEIVED AS THE SHED WAS NOT USED BY HOLDING COMPANY. HOWEVER, THE AO WAS OF THE VIEW THAT IF THE RENTAL INCOME IS NOT RECEIVED BUT THE SAME HAS ACCRUED THE ASSESSEE. ACCORDINGLY, HE ASSESSED THE RENTAL INCOME OF RS. 6 LAKHS EACH FOR ALL THE THREE YEARS. ITA NO S . 3228 TO 3234 / 20 1 3 9 15 . THE C IT(A) ALLOWED PARTLY RELIEF TO THE ASSESSEE AS IN HIS VIEW THE ALP HAS TO BE DETERMINED ON THE BASIS OF EARLIER RENTAL INCOME AS REQUIRED UNDER SECTION 23(1) OF THE ACT. ACCORDINGLY, THE AO WAS DIRECTED TO RECOMPUTE THE RENTAL INCOME. 16 . AFTER CONSIDERIN G THE ORDER OF THE AO AND CIT(A) AND THE SUBMISSION OF THE ASSESSEE, I FIND THAT THE ASSESSEE DESERVES TO SUCCEED ON THE ISSUE INVOLVED IN ALL THE THREE APPEALS. I HAVE ALREADY HELD THAT THE SHED OWNED BY THE ASSESSEE WAS A BUSINESS ASSET AND IN CASE OF BU SINESS ASSET, IN MY VIEW, PROVISIONS OF SECTION 23(1) ARE NOT APPLICABLE . THEREFORE, NO NOTIONAL INCOME CAN BE COMPUTED IN VIEW OF THE PROVISION OF SECTION 23(1) . ACCORDINGLY, THE APPEALS OF ALL THE THREE YEARS ARE ALLOWED BY HOLDING AS ABOVE. 1 7 . IN THE RESULT, APPEAL S OF THE ASSESSEE FOR ASSESSMENT YEARS 2003 - 04 TO 2006 - 07 (I.E.ITA NOS.3228 TO 3231/M/2013) ARE DISMISSED AND APPEALS FOR ASSESSMENT YEARS 2007 - 08 TO 2009 - 10 (I.E.ITA NOS.3232 TO 3234/M/2013) ARE ALLOWED . (I.E.ITA NOS.3228 TO 3231/M/2013) (I.E.ITA NOS.3232 TO 3234/M/2013) ORDER PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF SEPT .2013 SD/ - ( ) ( R.K.GUPTA ) / JUDICIAL MEMBER MUMBAI ; DATED : 06/09 / 2013 /PKM , PS ITA NO S . 3228 TO 3234 / 20 1 3 10 COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI