Mehta Cold Forge, Nashik V. ACIT Cir 1, Nashik

ITA 325/PUN/2012

• Counselvise Citation: 32524514 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-07-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 16-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Rule of consistency; Unabsorbed depreciation
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G. S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO S . 323, 324, 325 & 326 / P N/ 20 12 ASSESSMENT YEAR S : 2000 - 01, 2001 - 02, 2002 - 03 & 2003 - 04 MEHTA COLD FORGE, S.NO. 22/3, NASHIK DINDORI ROAD, MHASRUL, NAHIK VS. ASST. C.I.T., CIRCLE - I, NASHIK (APPELLANT) (RESPONDENT) PAN NO. AAFFM5999K APPELLANT BY: SHRI NIKHIL PATHAK RESPONDENT BY: SHRI SANTOSH KUMAR DATE OF HEARING : 17 - 0 7 - 2013 DATE OF PRONOUNCEMENT : 23 - 08 - 2013 ORDER PER BENCH : - THIS BATCH OF FOUR APPEALS ARE FILED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDERS OF THE LD. CIT(A) - I, NASHIK DATED 22 - 11 - 2011 FOR THE A.YS. 2000 - 01, 2001 - 02, 2002 - 03 & 2003 - 04. THE I SSUES AS WELL AS FACTS ARE IDENTICAL , HENCE THESE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER . 2. THE FIRST ISSUE IS WHETHER THE INCOME RECEIVED BY THE ASSESSEE ON LEASING OUT OF THE BUSINESS ASSETS TO M/S. META FORGE VIDE AGREEMENT DATED 28 - 05 - 1996 IS T O BE ASSESSED UNDER THE HEAD BUSINESS INCOME OR INCOME FROM THE OTHER SOURCES. 3 . THE BRIEFLY STATED FACTS ARE AS UNDER. THE ASSESSEE IS A PARTNERSHIP FIRM WHICH W AS CONSISTING OF FOUR PARTNERS. IN THE F.Y. 1996 , ONE OF THE PARTNERS HAD SAD DEMISE ON 0 1 - 06 - 1996 . DUE TO THE DISPUTE S IN THE FAMILY AND IN REMAINING PARTNERS , THE NEW DEED OF PARTNERSHIP WAS NOT EXECUTED. IT IS STATED THAT THE DISPUTE S IN THE FAMILY REACHED TO SUCH AN EXTENT THAT THE PARTNERS STOP THE OPERATION OF THE BANK A/C OF THE FIRM. FINALLY IT WAS DECIDED THAT THE BUSINESS ASSETS I.E. 2 ITA NOS. 323, 324, 325 & 326/PN/2012, MEHTA COLD FORGE, NASHIK LAND, BUILDING, PLANT AND MACHINERY WITH EXISTING ORDERS SHOULD BE LEAS ED OUT TO M/S. META FORGE (IN SHORT THE L ESSEE) FOR THE PERIOD OF 29 YEARS. ACCORDINGLY THE AGREEMENT WAS EXECUTED WITH M/S. META FORGE ON 28 - 05 - 1996 AND THE ENTIRE FACTORY BUILDING, PLANT AND MACHINERY AND OTHER ASSETS WERE GIVEN ON LEASE FOR THE PERIOD OF 29 YEARS IN THE A.Y. 1997 - 98. THE ASSESSEE DECLARED THE LEASE RENT AS INCOME UNDER THE HEAD INCOME FROM BUSINESS . W HILE COM PLETING THE ASSESSMENT FOR THE A.Y. 1997 - 98 T HE CLAIM OF THE ASSESSEE WAS ACCEPTED BY THE ASSESSING OFFICER IN ORDER PASSED U/S. 143(3) OF THE ACT THAT THE LEASE RENT FROM M/S. META FORGE IS AN INCOME FROM BUSINESS. IT APPEARS THAT THERE WAS NO SCRUTINY A SSESSMENT THEREAFTER BUT AGAIN IN THE A.Y. 2004 - 05 THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND THE LEASE RENT FROM THE M/S. META FORGE WAS TREATED AS INCOME FROM OTHER SOURCES . 4 . IN CONSEQUENCE, THE ASSESSING OFFICER DENIED SET OFF OF BROUGHT FOR WARD BUSINESS LOSS WHICH WAS CLAIMED U/S. 72 OF THE INCOME - TAX ACT. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE LD. CIT(A) - II, NASHIK WHO ACCEPTED THE CLAIMED OF THE ASSESSEE IN RESPECT OF THE HEAD OF THE INCOME I.E. LEASE RENTA L RECEIVED BY THE ASSESSEE FROM THE M/S. META FORGE HAS TO BE ASSESSED AS A BUSINESS INCOME. HOWEVER, THE LD. CIT(A) - II, NASHIK DID NOT ALLOW THE BENEFIT OF CARRY FORWARD AND SET OFF LOSS FROM THE BUSINESS ON ACCOUNT OF CHA NGE OF STATUS OF THE ASSESSEE , A S THE LOSSES WERE PERTAINING TO THE FIRM AND IN THE A.Y. 2004 - 05 T HE STATUS OF THE ASSESSEE WAS A.O.P. THE MATTER WAS CARRIED TO THE ITAT, PUNE IN THE A.Y. 2004 - 05 BY THE ASSESSEE ON THE ISSUE OF DENIAL TO ALLOW THE SET OFF OF THE BROUGHT FORWARD LOSS. S O FAR AS THE DECISION OF THE CIT - II, NASHIK ON THE ISSUE OF A SSESSA BILITY OF THE LEASE RENTAL MORE PARTICULARLY UNDER THE HEAD INCOME FROM THE BUSINESS WAS NOT CHALLENGED BY THE DEPARTMENT. IT APPEARS THAT SUBSEQUENTLY ON THE BASIS OF THE ASSESSMENT FOR THE A.Y. 2004 - 05 , NOTICE U/S. 148 WERE 3 ITA NOS. 323, 324, 325 & 326/PN/2012, MEHTA COLD FORGE, NASHIK ISSUED FOR IMMEDIATELY PRECEDING THREE YEARS I.E. 2000 - 01, 2001 - 02, 2002 - 03 & 2003 - 04 AND TREATED THE LEASE RENTAL AS AN INCOME FROM OTHER SOURCES. 5 . THE ASSESSEE RESISTED THE ACTION OF T HE ASSESSING OFFICER BY T AKING THE STAND THAT THE ASSESSEES CLAIMED FOR ASSESSING THE LEASE RENTAL HAS BEEN ACCEPTED AS INCOME FROM BUSINESS FROM THE A.Y. 1997 - 98 W HEN IN FACT, IN THE SAID YEAR THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT . T HE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND HE BROUGHT TO TAX THE LEASE RENTAL UNDER THE HEAD INCOME FROM THE OTHER SOURCES. THE MATTER WAS CARRIED BEFORE THE LD. CIT(A) . T HE LD. CIT(A) OBSERVED THAT THE LEASE DEED DATED 28 - 05 - 1996 WAS FOR THE PERIOD OF 29 YEAR S , E VEN IF THE SAID L EASE AGREEMENT WAS TERMINATED IN THE YEAR 2006 I.E. AFTER THE PERIOD OF 10 YEARS FROM THE YEAR OF THE LEASING AND HENCE IT CANNOT BE SAID THAT THERE WAS A TEMPORARY LEASING OF ASSET AS CLAIMED BY THE ASSESSEE. THE LD. CIT(A) ALSO DEAL T WITH THE FOLLOWING DECISIONS RELIED ON BY THE ASSESSEE (I) CEPT VS. SHRI LAXMI SILK MILLS LTD. (1951) 20 ITR 451 (SC), (II) CIT VS. MAHESHWARI DEVI JUTE MILLS LTD. (1965) 57 ITR 36 (SC), (III) UNIVERSAL PLAST LTD. VS. CIT 237 ITR 454 (SC) & (IV) CIT VS . VIKRAM COTTON MILLS LTD. (1988) 169 ITR 597 (SC) . 6 . THE LD. CIT(A) ALSO CONSIDERED THE DECISION OF HIS PREDECESSOR FOR A.Y. 2004 - 05 AND FINALLY CONCLUDED THAT ON THE FACTS OF THE CASE , MORE PARTICULARLY , WHEN THE DURATION OF THE AGREEMENT OF L EASE WAS FOR THE PERIOD OF 29 YEARS WITH THE LESSEE , I T CANNOT BE SAID BY NO STRETCH OF AN IMAGINATION THAT THE SAID AGREEMENT CAN BE CALLED AS A TEMPORARY ARRANGEMENT. THE LD. CIT(A) DEVIATED HIS DECISION FROM THAT OF HIS PREDECESSOR IN THE A.Y. 2004 - 05. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4 ITA NOS. 323, 324, 325 & 326/PN/2012, MEHTA COLD FORGE, NASHIK 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. THE LEARNED COUNSEL ARGUES THAT THERE WAS NO INTENTION TO CLOSE THE BUSINESS . H E TOOK US THROUGH THE COPY OF THE LEASE AGREEMENT WITH M/S . META FORGE WHICH IS PLACED AT PAGE NOS. 19 TO 36 OF THE COMPILATION. HE ARGUES THAT THERE IS A CLAUSE IN THE AGREEMENT THAT THE ASSESSEE WAS HAVING RIGHT TO TERMINATE THE AGREEMENT. HE ARGUES THAT , EVEN IF , PRESUMING IT WAS NOT CONSIDERED AS A TEMPORAR Y ARRANGEMENT BUT THE FACT REMAINED THAT IN THE A.Y. 1997 - 98 THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM OF THE ASSESSEE TREATING THE INCOME FROM THE LEASING OF THE BUSINESS ASSETS AS INCOME FROM THE BUSINESS AND ACCORDINGLY ASSESSED THE SAME . HE SUBMITS THAT IN THE A.Y. 2004 - 05 FOR THE FIRST TIME , DIFFERENT APPROACH WAS ADOPTED BY THE ASSESSING OFFICER BY GIVING THE DIFFERENT TREATMENT TO THE INCOME FROM THE LEASING OF THE BUSINESS ASSETS . B UT THE CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE THAT INCOME FR OM LEASING OF THE BUSINESS ASSET IS TO ASSESSED AS A BUSINESS INCOME AND THAT PART OF THE DECISION REMAINED UNCH ALLENGED AS NO APPEAL WAS FILED BY THE REVENUE. H E, THEREFORE, PLEADED THAT ON THE RULE OF CONSISTENCY THE CLAIM OF THE ASSESSEE HAS TO BE ALLO WED TREATING LEASE RENT AS BUSINESS INCOME . HE RELIED ON THE FOLLOWING PRECEDENTS (I) UNION OF INDIA AND ORS. VS. KAUMUDIN NARAYAN DALAL AND ANOTHER 249 ITR 219 (SC) & (II) BERGER PAINTS INDIA LTD. VS. CIT 266 ITR PAGE NO. 99 (SC) . 8 . PER CONTRA, THE L D. DR SUPPORTED THE CASE OF THE AUTHORITIES BELOW AND SUBMITS THAT THE PERIOD OF 29 YEARS OF THE LEASE CANNOT BE TREATED AS A TEMPORARY ARRANGEMENT. HE SUBMITS THAT WE HAVE TO CONSIDER THE INTENTION OF THE ASSESSEE AT THE TIME OF EXECUTION OF THE AGREEMEN T , WHEN ADMITTEDLY THE AGREEMENT ITSELF WAS FOR THE PERIOD OF 29 YEARS WITH M/S. META FORGE. 5 ITA NOS. 323, 324, 325 & 326/PN/2012, MEHTA COLD FORGE, NASHIK 9. IN THIS CASE , AS PER THE FACTS ON RECORD , NOWHERE IT IS IN DISPUTE THAT WHEN THE BUSINESS ASSETS WERE LEAS ED OUT , THE TOTAL PERIOD OF LEASING WAS 29 YEARS. WE FIND THAT IN THE A.Y. 1997 - 98 , THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE INCOME FROM LEASING OUT BUSINESS ASSETS VIDE AGREEMENT DATED 28 - 05 - 1996 WITH M/S. META FORGE IS TO BE ASSESSED AS BUSINESS INCOME IN ASSESSMENT COMPLETE D U/S. 143(3) OF THE ACT . IN THE A.Y. 2004 - 05 ASSESSING OFFICER TREATED THE LEASE RENT AS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES BUT THE CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE INCOME RECEIVED FROM M/S. META FORGE IS TO BE ASSESSED AS BUSINESS INCOME. 10 . WE FIND THAT EVEN IF THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) FOR THE A.Y. 2004 - 05 ON THE ISSUE OF THE DENIAL OF SET OFF FOR LOSSES BROUGHT FORWARD FROM THE EARLIER YEARS BUT DEPARTMENT DID NOT PREFERRED ANY APPEA L CHALLENGING THE DECISION OF THE CIT(A) THAT THE LEASE RENT IS TO BE ASSESSED AS A BUSINESS INCOME. HENCE, SO FAR AS A.Y. 2004 - 05 IS CONCERNED , THE ISSUE OF ASSESSABILITY OF THE LEASE RENT REACHED THE FINALITY . W E ACCORDINGLY ACCEPT THE ARGUMENT OF THE LEARNED COUNSEL THAT THERE SHOULD BE CONSISTENCY IN THE APPROACH OF THE DEPARTMENT AND SAID PROPOSITION IS WELL SUPPORTED BY TWO DECISIONS RELIED ON BY THE ASSESSEE. WE, THEREFORE, ACCEPT THE CLAIM OF THE ASSESSEE THAT LEASE RENT IS TO BE ASSESSED AS BUSI NESS INCOME BY FOLLOWING THE RULE OF CONSISTENCY WITHOUT GOING INTO THE MERIT OF THE ISSUE AND DIRECT THE ASSESSING OFFICER TO TREAT THE INCOME FROM LEASE RENT AS BUSINESS INCOME . 11 . THE NEXT ISSUE IS SET OFF OF THE UNABSORBED DEPRECIATION. WE FIND T HAT THIS VERY ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE F OR THE A.Y. 2004 - 05 IN ITA NO. 86/PN/2009 ORDER DATED 13 - 05 - 2011 AND THE ISSUE HAS BEEN SET ASIDE TO THE ASSESSING OFFICER TO CONSIDER THE CLAIM OF THE ASSESSEE ON MERIT. WE, THEREFORE, IN ALL THE FOUR 6 ITA NOS. 323, 324, 325 & 326/PN/2012, MEHTA COLD FORGE, NASHIK YEARS FOLLOWING THE DIRECTIONS AND FINDINGS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2004 - 05 ON THIS ISSUE , RESTORE SAID ISSUE TO THE FILE OF THE ASSESSING OFFICER AND ACCORDINGLY , THE RELEVANT GROUNDS TAKEN BY THE ASS ESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, ALL THE FOUR APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR THE STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 23 - 08 - 20 1 3 SD/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 23 RD AUGUST, 20 1 3 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - I, NASHIK 4 THE CIT - I, NASHIK 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COP Y// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE