ACIT, Muzaffarnagar V. M/s. Jai Mateshwari Steel (P) Ltd., Muzaffarnagar

ITA 3417/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4086 (ITAT-DELHI)
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 12-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 12-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MONGA
• Assessee Lawyers: PREM PRAKASH; MASHKOOR AHMED
• Keywords: Business income; Opportunity of being heard; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI DELHI BENCH D : NEW DELHI DELHI BENCH D : NEW DELHI DELHI BENCH D : NEW DELHI BEFORE SHRI R.P.TOLANI, JM AND SHRI B.K.HALDAR, AM BEFORE SHRI R.P.TOLANI, JM AND SHRI B.K.HALDAR, AM BEFORE SHRI R.P.TOLANI, JM AND SHRI B.K.HALDAR, AM BEFORE SHRI R.P.TOLANI, JM AND SHRI B.K.HALDAR, AM ITA NO.3417/DEL/2010 ITA NO.3417/DEL/2010 ITA NO.3417/DEL/2010 ITA NO.3417/DEL/2010 ASSESSMENT YEAR : 2006 ASSESSMENT YEAR : 2006 ASSESSMENT YEAR : 2006 ASSESSMENT YEAR : 2006- -- -07 0707 07 ASSTT.COMMISSIONER OF ASSTT.COMMISSIONER OF ASSTT.COMMISSIONER OF ASSTT.COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -I, I,I, I, MUZAFFARNAGAR. MUZAFFARNAGAR. MUZAFFARNAGAR. MUZAFFARNAGAR. VS. VS. VS. VS. M/S JAI MATESHWARI STEE M/S JAI MATESHWARI STEE M/S JAI MATESHWARI STEE M/S JAI MATESHWARI STEEL (P) LTD., L (P) LTD., L (P) LTD., L (P) LTD., C/P SHRI MASHKOOR AHMED, C/P SHRI MASHKOOR AHMED, C/P SHRI MASHKOOR AHMED, C/P SHRI MASHKOOR AHMED, ADVOCATE, ADVOCATE, ADVOCATE, ADVOCATE, 10, DR.SURESH MARKET, 10, DR.SURESH MARKET, 10, DR.SURESH MARKET, 10, DR.SURESH MARKET, BHAGAT SINGH ROAD, BHAGAT SINGH ROAD, BHAGAT SINGH ROAD, BHAGAT SINGH ROAD, MUZAFFARNAGAR. MUZAFFARNAGAR. MUZAFFARNAGAR. MUZAFFARNAGAR. PAN NO.AABCJ4553D. PAN NO.AABCJ4553D. PAN NO.AABCJ4553D. PAN NO.AABCJ4553D. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K.MONGA, DR. RESPONDENT BY : SHRI PREM PRAKASH AND SHRI MASHKOOR AHMED, ADVOCATES. ORDER ORDER ORDER ORDER PER R.P.TOLANI, JM : PER R.P.TOLANI, JM : PER R.P.TOLANI, JM : PER R.P.TOLANI, JM : THIS IS REVENUES APPEAL. SOLE GROUND RAISED IS AS UNDER:- THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS B Y TREATING THE INCOME OF RS.96,49,970/- AS BUSINESS I NCOME INSTEAD OF INCOME FROM OTHER SOURCES TAKEN BY THE A .O. AS IN THE AUDIT REPORT SUBMITTED BY THE ASSESSEE, THE AUDITOR DOES NOT MENTIONED TRADING AS ONE OF THE BUSINESS ACTIVITIES OF THE ASSESSEE. 2. BRIEF FACTS ARE THAT THE ASSESSEE IS MAINLY ENGA GED IN THE MANUFACTURE AND SALE OF MS INGOTS AND HAD SUBSTANTI ALLY CARRIED OVER LOSSES OF EARLIER YEARS. IN THE YEAR IN QUESTION, THE ASSESSEE HAD DECLARED LOSS FROM MS STEEL BUSINESS BUT SHOWED AN INCOME OF `96,49,970/- AS PROFIT FROM TRADING IN GRAINS. THE AO WAS OF THE VIEW THAT THE ASSESSEES BUSINESS BEING OF MS INGOTS, TH E INCOME FROM TRADING CONSTITUTED INCOME FROM OTHER SOURCES AND R EFUSED TO SET OFF THIS INCOME AGAINST THE ASSESSEES BROUGHT FORWARD LOSSES BY FOLLOWING OBSERVATIONS:- ITA-3417/DEL/2010 2 IT IS SEEN THAT THE COMPANY HAS SHOWN MISCELLANEOU S INCOME AT RS.11478868/- DETAILS OF WHICH HAVE BEEN FILED. ON GOING THROUGH THE DETAILS IT IS NOTICED THAT INC OME OF RS.9649970/- HAS BEEN SHOWN FROM PROFIT ON TRADING AND HAS FILED EVIDENCE REGARDING THIS INCOME. SINCE CO MPANYS BUSINESS IS OF MANUFACTURING OF INGOTS AS CERTIFIED BY THE AUDITOR IN FORM 3CD AND THERE IS NO CHANGE IN NATUR E OF BUSINESS AS PER COLUMN 8(B) OF 3CD FORM THE INCOME EARNED FROM TRADING CAN NOT BE TREATED AS BUSINESS INCOME AND WILL BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AND NO SET OFF OF BROUGHT FORWARDED L OSSES WILL BE ALLOWED AGAINST IT. 3. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL WHERE CIT(A) HELD THAT THE INCOME EARNED FROM ALLEGED GRAIN TRANSACTION WA S BUSINESS INCOME AS IN CLAUSE 16 OF THE MEMORANDUM OF ARTICLES OF AS SOCIATION, THE ASSESSEE WAS AUTHORIZED TO CARRY ON THE ACTIVITIES IN TRADING OF FOODGRAINS BY FOLLOWING OBSERVATIONS:- I ALSO FIND FROM THE ASSESSMENT ORDER THAT THE AO HAS NOT BEEN ABLE TO PUT FORTH ANY MATERIAL ON RECORD TO PR OVE THAT THE MOTIVE BEHIND TRADING IN FOOD GRAINS WAS NOT TH AT OF BUSINESS PURPOSES. A PERUSAL OF CLAUSE 16 OF COPY OF MEMORANDUM OF ART ICLES & ASSOCIATION READS AS UNDER:- .. 16. TO ENTER INTO PARTNERSHIP OR INTO ANY ARRANGEME NT FOR SHARING PROFITS, UNION OF INTEREST JOINT VENTURE, R ECIPROCAL CONCESSION OR CO-OPERATION WITH ANY PERSON OR PERSO NS COMPANY OR COMPANIES CARRYING ON OR ENGAGED IN OR A BOUT TO CARRY ON OR ENGAGE IN ANY BUSINESS OR TRANSACTIO NS CAPABLE OR BEING CONDUCTED SO AS DIRECTLY OR INDIRE CTLY TO BENEFIT OF THIS COMPANY. THUS, THE APPELLANT HAS EARNED PROFIT FROM SUCH TRA DING BY VIRTUE OF OBJECTS CONTAINED IN THE MEMORANDUM AND A RTICLE OF ASSOCIATIONS. FURTHER, ON 3 RD APRIL, 2004, A RESOLUTION WAS PASSED IN THE MEETING OF BOARD OF DIRECTORS TO SPECIFICALLY INCORPORATE THE START OF BUSINESS OF T RADING OF FOOD GRAINS WHICH WAS ALREADY COVERED UNDER CLAUSE NO.16 ITA-3417/DEL/2010 3 OF OBJECTS OF MEMORANDUM AND ARTICLE OF ASSOCIATION OF THE COMPANY AS REPRODUCED ABOVE. AS SUCH, THE INCOME EARNED FROM TRADING OF FOOD GRA INS IS IN LINE WITH THE OBJECTS OF THE ASSESSEE COMPANY. THE AOS OBJECTION REGARDING AUDITORS COMMENTS IN THE AUDIT REPORT HAS LITTLE FORCE BECAUSE IN APPELLANTS CASE, THE A CTIVITY OF TRADING OF FOOD GRAINS IS REAL AND HAS ALSO RESULTE D INTO SUBSTANTIAL INCOME. IT IS ON RECORD THAT COPIES OF TRANSACTION DETAILS THROUGH BANKING CHANNEL HAVE BE EN FILED, WHICH SHOWS THAT TRADING OF FOOD GRAINS HAVE BEEN DONE THROUGH DIFFERENT TRADING AGENTS THROUGHOUT TH E YEAR AND IT IS NOT A CASE OF SOLITARY TRANSACTION. THE APPELLANT IS MAINTAINING PROPER BOOKS OF ACCOUNT AS REQUIRED IN THE REGULAR COURSE OF BUSINESS AND IS ALSO MAINTAINING BANK ACCOUNTS. CONFIRMED COPY OF ACCOUNTS OF THE APPELL ANT AS WELL AS THE TRADING AGENTS AS APPEARING IN THEIR BO OKS OF ACCOUNTS HAVE BEEN FILED. THIS ITSELF IMPLIES AN O RGANIZED AND SYSTEMATIC ACTIVITY CONDUCTED WITH THE PURPOSE TO EARN PROFIT. 4. AGGRIEVED, REVENUE IS IN APPEAL. 5. LEARNED DR CONTENDS THAT LEARNED CIT(A) HAS PASS ED THE ORDER ONLY RELYING ON THE OBJECT CLAUSE IN THE MEMORANDUM OF ARTICLE OF ASSOCIATION WITHOUT MAKING ANY ENQUIRY ABOUT THE AC TUAL BUSINESS CONDUCTED BY THE ASSESSEE WHICH WAS THE MAIN QUESTI ON POSED BY THE AO. SINCE THE ASSESSEE FAILED TO PROVE HIS CASE TH AT THE SO-CALLED TRANSACTION AMOUNTED TO BUSINESS TRANSACTIONS, THE AO ADDED THE SAME AS INCOME FROM OTHER SOURCES. THE CIT(A) WITH OUT ENQUIRING INTO THE NATURE OF TRANSACTIONS GAVE RELIEF. IT HAS NOT BEEN VERIFIED WHETHER THE TRANSACTIONS WERE BASED ON ANY DELIVERY OR OTHE RWISE. THERE IS NO IOTA OF EVIDENCE THAT THE TRANSACTIONS WERE CARRIED OUT ON ACTUAL DELIVERY BASIS. IN THE ABSENCE OF ENQUIRY, THE ORD ER OF CIT(A) BECOMES SKETCHY AND THE RELIEF GIVEN IS NOT WARRANTED AS PE R THE MATERIAL AVAILABLE ON RECORD. ITA-3417/DEL/2010 4 6. LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, VEHEMENTLY ARGUES THAT IN ANY CASE, THE INCOME CANNOT BE TREAT ED AS INCOME FROM OTHER SOURCES. AT THE WORST, THE TRANSACTION CAN B E TREATED AS SPECULATIVE IN NATURE WHICH ALSO IS ELIGIBLE TO SET OFF OF CARRY FORWARD LOSSES AND ALLOWANCES. THE CIT(A) LOOKING AT THE M EMORANDUM AND ARTICLE OF ASSOCIATION OF THE COMPANY HAS HELD THAT THE ASSESSEE THOUGH ENGAGED IN THE STEEL MANUFACTURING WAS AUTHO RIZED TO CARRY OUT BUSINESS ACTIVITY IN FOODGRAINS AND MERE NON-MENTIO N OF TRADING BUSINESS IN AUDITORS REPORT CANNOT MILITATE AGAINS T THE ACTUAL NATURE OF TRANSACTIONS. RELIANCE WAS PLACED ON THE DECISIONS OF ITAT IN THE CASES OF DCIT VS. ANDHRA PETROCHEMICALS LTD. 121 TTJ 13 8 (VISAKHA), JAI USHIN LTD. VS. DCIT 117 TTJ 330 (DEL) AND ITO VS. KESHWA ENTERPRISES (P) LTD. 102 TTJ 446 (CHD). 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND MERIT IN THE ARGUMENTS OF THE LEAR NED DR. SINCE THERE WAS NO MENTION OF THE TRADING BUSINESS IN THE AUDIT REPORT, THE AO HELD THE INCOME TO BE INCOME FROM OTHER SOURCES. IN OUR VIEW, WHEN THE LEARNED CIT(A) WAS POSED THIS ISSUE, NECES SARY ENQUIRIES SHOULD HAVE BEEN MADE TO ASCERTAIN THE ACTUAL NATUR E OF THE TRANSACTIONS AND ONLY ON THE BASIS OF ARTICLES OF A SSOCIATION AND SOME COPIES OF ACCOUNTS, IT HAS BEEN HELD THAT THE ASSES SEE IS ENGAGED IN THE FOODGRAIN BUSINESS. ON OUR QUESTIONS, LEARNED COUNSEL FOR THE ASSESSEE FAILED TO DEMONSTRATE THAT ANY CAPITAL OR FUNDS WERE DEPLOYED IN THE CONDUCT OF FOODGRAIN BUSINESS. HE COULD VAGUELY POINT OUT A DEPOSIT OF `15,000/-, A SECURITY DEPOSIT IN F AVOUR OF MOHAN LAL RISHABH KUMAR. THERE IS NO DESCRIPTION IN THE LEDG ER ACCOUNT SO AS TO SUBSTANTIATE THE ARGUMENT THAT IT WAS FOR SECURITY DEPOSIT. THERE IS NO CLARITY ABOUT THE ACTUAL NATURE OF TRANSACTION. IF IT WAS A BUSINESS TRANSACTION, WHETHER IT WAS A TRADING TRANSACTION P ASSED WITHOUT DELIVERY OR IT WAS MERELY SOME COMMISSION EARNED BY THE ASSESSEE. IN ITA-3417/DEL/2010 5 THAT CASE, THE ISSUE OF INCOME FROM OTHER SOURCES W ILL COME. AT THE SAME TIME, IT WILL NECESSITATE THE VERIFICATION FRO M THE CHARTERED ACCOUNTANT AS TO WHETHER HE HAS AUDITED THE ACCOUNT S PERTAINING TO THE BUSINESS OF THE ALLEGED BUSINESS OF FOODGRAINS. LEARNED COUNSEL FOR THE ASSESSEE EVEN FAILED TO PRODUCE BEFORE US T HE COPY OF THE SUBMISSIONS FILED BEFORE THE AO AND LEARNED CIT(A) WHICH, IN OUR VIEW, WILL BE CRUCIAL TO DECIDE THE ISSUE. SINCE THE EVI DENCE IS NOT FORTHCOMING FROM THE RECORD, IT WILL BE DESIRABLE T HAT THE ASSESSMENT IS SET ASIDE AND RESTORED BACK TO THE FILE OF THE ASSE SSING OFFICER TO DECIDE THE SAME AFRESH AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD IN ACCORDANCE WITH LAW. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON CONCLUSION OF HEARING ON 12 TH MAY, 2011. SD/- SD/- (B.K.HALDAR) (B.K.HALDAR) (B.K.HALDAR) (B.K.HALDAR) (R.P.TOLANI) (R.P.TOLANI) (R.P.TOLANI) (R.P.TOLANI) ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 12.05.2011. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR