M/S. PRATHIBHA ENGINEERING INDUSTRIES PVT. LTD., CHENNAI V. ITO, CORPORATE WARD - 5 (2), CHENNAI

ITA 3338/CHNY/2019

• Counselvise Citation: [2020] 109 COUNSELVISE.COM (IT) 9700 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 09-12-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Onus to prove; Revenue expenditure
• Section: 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI , . , % BEFORE SHRI MAHAVIR SINGH, VICE-PRESIDENT AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.3338/CHNY/2019 ( / ASSESSMENT YEAR: 2016-17) M/S. PRATHIBHA ENGINEERING INDUSTRIES PVT.LTD. 86, VOC STREET, ATHIPET, AMBATTUR, CHENNAI-600 058. VS THE INCOME TAX OFFICER, CORPORATE WARD-5(2), CHENNAI. PAN:AAACP1950B ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. SAROJ KUMAR PARIDA, ADVOCATE /RESPONDENT BY : MR. SURESH PERIASAMY, JCIT /DATE OF HEARING : 29.12.2020 /DATE OF PRONOUNCEMENT : 29.12.2020 / O R D E R PER G.MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF THE LEARNED CIT(A)-3, CHENNAI DATED 30.09. 2019 AND PERTAIN TO ASSESSMENT YEAR 2016-17. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL: 1. THE ORDER OF COMMISSIONER OF INCOME TAX (APPE ALS) IS CONTRARY TO LAW, FACTS, AND CIRCUMSTANCES OF THE CA SE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THAT THE APPELLANT HAS NOT CARRIED ON MANUFACTURING ACTIVITY IN THIS YEAR WITHOUT APPRECIATING THE FACT THAT THERE WAS O NLY A LULL IN THE BUSINESS OPERATIONS. 2 ITA NO.3338/CHNY/2019 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES CLAIMED BY THE ASSESSE E UNDER SALARY, REPAIRS AND MAINTENANCE, MISCELLANEOUS EXPE NSES, INTEREST ON VEHICLE LOAN AND DEPRECIATION TO THE EX TENT OF RS 9,79,8351-. 2.2 THE COMMISSIONER OF INCOME TAX (APPEALS) SHOULD HAVE FOUND THAT THE FACTORY OF THE APPELLANT COMPANY IS SITUAT ED IN AMBATTUR INDUSTRIAL ESTATE, AND THAT THE WORKERS HAD GONE ON STRIKE AND THE MANAGEMENT IS DISCUSSING WITH THE WORKERS TO REVIVE THE OPERATIONS. 2.3 THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONCLUDING THAT THE ASSESSEE HAS NOT MADE ANY EFFOR TS TO REVIVE ITS MANUFACTURING ACTIVITY, WITHOUT APPRECIATING THAT N EGOTIATION ARE GOING ON WITH THE WORKERS FOR REVIVING THE OPERATIO NS. 2.4 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE EXPENDITURE WAS INCURRED TO MA INTAIN THE MACHINERY AND CONTINUE THE COMPANY AND HENCE IS AN ALLOWABLE EXPENDITURE. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT T O HAVE APPRECIATED THAT THE APPELLANT COMPANY IN ANY EVENT WAS CARRYING ON MONEY LENDING BUSINESS WHICH CONSTITUTES A BUSIN ESS ACTIVITY AND THE EXPENDITURE INCURRED ARE ALLOWABLE. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS I N THE BUSINESS OF MANUFACTURE AND SALE OF WELDED MESH FOR INDUSTRIA L AND DOMESTIC USE. THE ASSESSEE HAS FILED ITS RETURN OF INCOME F OR ASSESSMENT YEAR 2016-17 ON 31.03.2017 DECLARING TOTAL INCOME OF ` 7,82,177/- DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE DI D NOT CARRY ON MAIN BUSINESS OF MANUFACTURE AND SALE OF WELDED MES H FOR THE INDUSTRIAL AND DOMESTIC USE. THE ASSESSEES MAIN IN COME CONSISTS OF INCOME FROM HOUSE PROPERTY BEING RENTAL INCOME DERIVED FROM 3 ITA NO.3338/CHNY/2019 LEASED FACTORY PREMISES, INTEREST INCOME FROM DEPO SITS AND DIVIDEND INCOME. THE ASSESSEE HAS CLAIMED VARIOUS EXPENSES AGAINST INCOME FROM OTHER SOURCES LIKE SALARY, RE PAIRS & MAINTENANCE, INTEREST ON VEHICLE LOAN, DEPRECIATI ON AND MISCELLANEOUS EXPENSES. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, WHEN THE ASSESSING OFFICER HAS CALLED UPON THE ASSESSEE TO EXPLAIN NEXUS BETWEEN THE EXPENDITURE DEBITED INTO PROFIT & LOSS ACCOUNT AND BUSINESS OPERATIONS, AS SESSEE SUBMITTED THAT ALTHOUGH, IT HAS NOT CARRIED OUT ANY BUSINES S ACTIVITY FOR THE IMPUGNED ASSESSMENT YEAR DUE TO STRIKE BY WORKERS , BUT IT HAS CONTINUED TO INCUR CERTAIN EXPENDITURE TO KEEP PLAN T & MACHINERY IN ACTIVE CONDITION AND ALSO CORPORATE IDENTITY OF TH E ASSESSEE AND HENCE IT CANNOT BE SAID THAT EXPENDITURE INCURRED IS NOT HAVING NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATION FURN ISHED BY THE ASSESSEE AND ACCORDING TO HIM, EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT UNDER VARIOUS HEADS INCLUDING MISCELLANEOU S EXPENSES, DEPRECIATION ON AIR-CONDITIONER AND MOTOR CAR, REPA IRS AND MAINTENANCE, OTHERS, INTEREST ON VEHICLE LOAN AND S ALARY IS NOT RELATED TO BUSINESS ACTIVITY OF THE ASSESSEE AND IN THE ABSENCE OF 4 ITA NO.3338/CHNY/2019 ANY INCOME FROM BUSINESS OPERATION, EXPENDITURE DEB ITED INTO PROFIT AND LOSS ACCOUNT CANNOT BE ALLOWED AS DEDUCTION AN D ACCORDINGLY, DISALLOWED ALL EXPENSES AND ADDED BACK TO TOTAL I NCOME. HOWEVER, IN RESPECT OF SALARY HE HAS ALLOWED 75% OF SALARY PAID ON THE GROUND THAT EVEN IF NO BUSINESS INCOME, ASSESSEE N EED TO PAY SALARY EXPENDITURE FOR STAFF TO MAINTAIN RECORDS. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSE E PREFERRED AN APPEAL BEFORE LEARNED CIT(A). BEFORE LEARNED CIT (A), ASSESSEE HAS FILED DETAILED WRITTEN SUBMISSIONS ON THE ISS UE ALONG WITH CERTAIN JUDICIAL PRECEDENTS WHICH HAS BEEN REPRODUC ED AT PAGE NO.2 TO 16 OF LEARNED CIT(A) ORDER. THE SUM AND S UBSTANCE OF ARGUMENT OF ASSESSEE BEFORE LEARNED CIT(A) ARE THA T EXPENDITURE INCURRED UNDER VARIOUS HEADS INCLUDING SALARY, DEPR ECIATION, INTEREST ON LOAN, MISCELLANEOUS EXPENDITURE AND REPAIRS & MAINTENANCE - OTHERS ARE NORMAL REVENUE EXPENDITURE WHICH ARE R EQUIRED TO BE INCURRED FOR MAINTAINING CORPORATE STATUS OF THE ASSESSEE AND ALSO TO KEEP PLANT & MACHINERY IN GOOD CONDITION, EVEN THOUGH THERE IS NO BUSINESS OPERATIONS FOR THE IMPUGNED ASSESSMENT YEAR, THEREFORE, MERELY FOR THE REASON THAT THERE IS NO INCOME FROM MAIN 5 ITA NO.3338/CHNY/2019 BUSINESS OPERATIONS NECESSARY EXPENDITURE INCURRE D FOR THE PURPOSE OF BUSINESS CANNOT BE DISALLOWED. 5. THE LEARNED CIT(A) AFTER CONSIDERING THE RELEVA NT SUBMISSIONS OF THE ASSESSEE AND ALSO BY TAKING NOTE OF VARIOUS FACTS BROUGHT OUT BY ASSESSING OFFICER HELD THAT INSOFAR AS DEPRECIA TION IS CONCERNED ONUS IS ON THE ASSESSEE TO PROVE THAT MOTOR CAR AND AIR-CONDITIONER HAS BEEN ACTUALLY USED FOR THE PURPOSE OF EARNING INCOME. SINCE THE ASSESSEE HAS NOT DISCHARGED ITS ONUS TO PROVE T HAT THERE IS NEXUS BETWEEN THE DEPRECIATION AND INCOME EARNED FOR THE YEAR, THE SAME CANNOT BE ALLOWED AS DEDUCTION . SIMILARL Y, AS REGARDS MISCELLANEOUS EXPENSES LEARNED CIT(A) OBSERVED TH AT ASSESSEE HAS FAILED TO PROVE NEXUS BETWEEN EXPENDITURE AND INCOME EARNED IN TERMS OF THE PROVISIONS CONTAINED UNDER SECTIO N 37(1) OF THE ACT AND HENCE, DISALLOWANCES MADE ON THIS COUNT IS IN ORDER. AS REGARDS DEPRECIATION ON MOTOR CAR AND AIR-CONDITION ER AND INTEREST ON VEHICLE LOAN, ASSESSEE HAS FAILED TO ESTABLISH NEXUS BETWEEN EXPENDITURE AND INCOME EARNED FOR THE YEAR. THEREF ORE, THERE IS NO ERROR IN THE FINDINGS RECORDED BY ASSESSING OFFI CER TO DISALLOW EXPENDITURE DEBITED INTO PROFIT AND LOSS ACCOUNT . LIKEWISE, AS REGARDS DISALLOWANCE OF SALARY, LEARNED CIT(A) OBSE RVED THAT 6 ITA NO.3338/CHNY/2019 DISALLOWANCE MADE BY THE ASSESSING OFFICER @ 75% OF SALARY PAID FOR THE YEAR APPEARS TO BE ON HIGHER SIDE AND ACCORDINGLY BY CONSIDERING THE FACTS HAS DIRECTED ASSESSING OF FICER TO DISALLOW 50% OF SALARY DEBITED INTO PROFIT AND LOSS ACCOUN T. AGGRIEVED BY THE LEARNED CIT(A) S ORDER, ASSESSEE IS IN APPEAL BEFORE US. 6. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT LEARNED CIT(A) HAS ERRED IN CONFIRMING VARIOUS EXPENDITURE DEBIT ED INTO PROFIT AND LOSS ACCOUNT INCLUDING DEPRECIATION ON ASSET, INTE REST ON VEHICLE LOAN, MISCELLANEOUS EXPENSES, REPAIRS & MAINTENANC E- OTHERS WITHOUT APPRECIATING THE FACT THAT ALL EXPENDITURE HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT LEARNED CIT(A) HAS ERRED IN DISALLOWING 50% OF SALARY EXPENSES WITHOUT APPRECI ATING THE FACT THAT ASSESSEE NEED TO PAY SALARY TO EMPLOYEES TO MA INTAIN AND LOOK AFTER AFFAIRS OF THE COMPANY, EVEN THOUGH THER E IS NO MAIN BUSINESS OPERATIONS FOR THE YEAR. THE AR FURTHER S UBMITTED THAT THERE IS NO DOUBT, FOR THE IMPUGNED ASSESSMENT YEAR , ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY BECAUSE OF STRIKE FROM EMPLOYEES. HOWEVER, ASSESSEE HAS ACTUALLY ENGAGED I N THE BUSINESS OF MANUFACTURING FOR PAST SEVERAL YEARS . ALTHOUGH, 7 ITA NO.3338/CHNY/2019 ASSESSEE HAS LEASED OUT PART OF ITS FACTORY PREMISE S TO OUTSIDERS, BUT IT HAS TO MAINTAIN PLANT AND MACHINERY AND FOR THIS PURPOSE IT HAS INCURRED REPAIRS & MAINTENANCE EXPENSES. LIKEWISE, ASSESSEE HAS TO INCUR CERTAIN EXPENDITURE TO MAINTAIN CORPORATE STATUS OF THE ASSESSEE, EVEN THOUGH THERE IS NO MAIN BUSINESS ACT IVITY IN THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER AS WELL AS LEARNED CIT(A) WITHOUT APPRECIATING THE ABOVE FACTS HAS SIMPLY DISALLOWED EXPENDITURE DEBITED INTO PROFIT AND LOSS ACCOUNT O N THE GROUND THAT THERE IS NO NEXUS BETWEEN EXPENDITURE DEBITED INTO PROFIT AND LOSS ACCOUNT AND INCOME EARNED FOR THE YEAR. 7. THE LEARNED DR, ON THE OTHER HAND, STRONGLY SUPP ORTING THE ORDER OF LEARNED CIT(A), SUBMITTED THAT IN ORDER T O CLAIM DEDUCTION FOR ANY EXPENDITURE THERE SHOULD BE NEXUS BETWEEN E XPENDITURE DEBITED INTO PROFIT AND LOSS ACCOUNT AND INCOME EA RNED FOR THE YEAR. UNLESS ASSESSEE PROVES THE NEXUS, THEN EXPENDITURE DEBITED INTO PROFIT AND LOSS ACCOUNT CANNOT BE ALLOWED AS DEDUCT ION MORE PARTICULARLY, WHEN THE ASSESSEE HAS EARNED ONLY IN COME FROM OTHER SOURCES BEING RENTAL INCOME, INTEREST INCOME AND D IVIDEND INCOME. 8 ITA NO.3338/CHNY/2019 8. WE HAVE HEARD BOTH PARTIES, PERUSED MATERIALS A VAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORIT IES BELOW ALONG WITH PLETHORA OF CASE LAWS CITED BY LEARNED COUNSE L FOR ASSESSEE. THERE IS NO DOUBT WITH REGARD TO THE FACT THAT IN A CASE WHERE THERE IS TEMPORARY LULL IN THE BUSINESS BECAUSE OF SOME REASONS EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS O F THE ASSESSEE CAN BE ALLOWED AS DEDUCTION, EVEN THOUGH THERE IS N O INCOME FROM BUSINESS OPERATIONS. BUT, IN ORDER TO ALLOW DEDUCT ION FOR EXPENDITURE THE ONUS IS ON THE ASSESSEE TO PROVE THAT EXPENDITURE DEBITED INTO PROFIT AND LOSS ACCOUNT IS HAVING N EXUS WITH INCOME EARNED FOR THE YEAR. IN THIS CASE, ON PERUSAL OF D ISALLOWANCES MADE BY ASSESSING OFFICER FOR VARIOUS EXPENDITURE INCL UDING SALARY, DEPRECIATION ON CAR AND AIR-CONDITIONER , REPAIRS AND MAINTENANCE- OTHERS AND MISCELLANEOUS EXPENSES, WE FIND THAT NONE OF THE EXPENDITURE IS HAVING DIRECT NEXUS WITH INCOME E ARNED FOR THE YEAR UNDER CONSIDERATION BEING INTEREST INCOME , RENTAL INCOME AND DIVIDEND INCOME. UNLESS, ASSESSEE PROVES NEXUS BET WEEN EXPENDITURE DEBITED INTO PROFIT AND LOSS ACCOUNT AND INCOME EARNED FOR THE YEAR, THE QUESTION OF ALLOWANCE OF EXPENDIT URE DOES NOT ARISE. MOREOVER, ASSESSEE FAILS TO FILE ANY EVIDENCE TO P ROVE THAT IT WAS IN 9 ITA NO.3338/CHNY/2019 THE BUSINESS ACTIVITY BUT DUE TO TEMPORARY LULL IN THE BUSINESS, BUSINESS OPERATIONS WAS NOT CARRIED ON FOR IMPUG NED ASSESSMENT YEAR . THE ASSESSING OFFICER AS WELL AS LEARNED C IT(A) HAVE BROUGHT OUT CLEAR FACTS THAT ASSESSEE HAS LEASE D OUT FACTORY PREMISES TO OUTSIDE PARTY AND DERIVED RENTAL INC OME AS THERE IS NO MANUFACTURING ACTIVITY IN THE ASSESSMENT YEAR U NDER CONSIDERATION. FURTHER, ASSESSEE HAS FAILED TO FIL E ANY EVIDENCE TO PROVE THAT DEPRECIATION CLAIMED ON AIR-CONDITIONER AND MOTOR CAR IS HAVING NEXUS WITH INCOME EARNED FOR THE YEAR . LIK EWISE, ASSESSEE HAS FAILED TO FILE ANY EVIDENCE TO PROVE THAT THE RE IS NEXUS BETWEEN MISCELLANEOUS EXPENDITURE, INTEREST ON VEHICLE LO AN AND REPAIRS & MAINTENANCE-OTHERS TO INCOME BEING RENTAL INCOME, INTEREST INCOME AND DIVIDEND INCOME EARNED FOR THE YEAR. AS RE GARDS SALARY, LEARNED CIT(A) CONSIDERING THE FACT THAT ASSESSEE N EED TO PAY SALARY EXPENDITURE TO EMPLOYEES, EVEN THOUGH THERE IS NO BUSINESS OPERATIONS FOR THE YEAR HAS ALLOWED 50% SALARY DEBITED INTO PROFIT AND LOSS ACCOUNT . THE ASSESSEE HAS FAILED TO FILE ANY EVIDENCES TO COUNTER FINDING OF FACT RECORDED BY T HE LEARNED CIT(A) . WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT THER E IS NO ERROR IN THE FINDINGS RECORDED BY LEARNED CIT(A) TO CONFIR M ADDITIONS MADE 10 ITA NO.3338/CHNY/2019 BY THE ASSESSING OFFICER TOWARDS VARIOUS EXPENDIT URE DEBITED INTO PROFIT AND LOSS ACCOUNT. HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF LEARNED CIT(A) AND DISMISS THE APPEAL FILED BY ASSESSEE. 9. IN THE RESULT, APPEAL FILED BY ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2020 SD/- SD/- ( ) ( . ) (MAHAVIR SINGH) (G. MANJUNATHA ) / VICE-PRESIDENT $ / ACCOUNTANT MEMBER & /CHENNAI, ' /DATED 29 TH DECEMBER, 2020 DS )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 1 /DR 6. /GF .