ZEBA HOME P.LTD, MUMBAI V. DCIT CIR 7(3), MUMBAI

ITA 3646/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1403 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 23-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 12-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE S/SHRI G S PANNU, AM, & SAKTIJIT DEY, JM I T A NO. 3646/MUM/2015 ASSESSMENT YEAR 2011 - 12 ZEBA HOME P LTD MATHURADAS MILL COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL MUMBAI 400 013 PAN : AAACZP0811F VS. DCIT CIRCLE 7(3) MUMBAI (APPELLANT) (RESPONDENT) I T A NO. 2518/MUM/2015 ASSESSMENT YEAR 2011 - 12 DCIT RANGE 8(3)(2) MUMBAI VS. ZEBA HOME P LTD MUMBAI 400 013 PAN : AAACZP0811F (APPELLANT) (RESPONDENT) FOR THE ASSESSEE : SHRI SATISH MODY FOR THE DEPARTMENT: SHRI SAURABH KUMAR RAI (DR) DATE OF HEARING : 2 3 .0 3 .201 7 DATE OF PRONOUNCEMENT : 05.04. 2017 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THE AFORESAID CROSS APPEALS BY THE ASSESSEE AND TH E DEPARTMENT ARE AGAINST COMMON ORDER DATED 19.02.2015 OF LEARNE D CIT(A)-14, MUMBAI FOR THE ASSESSMENT YEAR 2011-12 ITA NO.2518/MUM/2015 & 3646/MUM/2015 M/S. ZEBA HOME PVT. LTD. 2 2. ITA 3646/MUM/2015 THE ONLY ISSUE ARISING IN ASSESSEES APPEAL IS IN R ELATION TO ADDITION OF RENTAL INCOME OF RS.33,62,157/- 3. BRIEFLY, FACTS ARE ASSESSEE A COMPANY, WAS IN THE BUSINESS OF MANUFACTURING AND EXPORTING OF CARPET AND DHURRIES. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RE TURN OF INCOME ON 30.09.2011, DECLARING LOSS OF RS.25,99,955/-. DURI NG THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT, THOUGH, IN THE RE TURN OF INCOME, ASSESSEE HAS SHOWN RENTAL INCOME OF RS.89,08,860/-, HOWEVER, AS PER THE AIR DATA, THE ACTUAL RENTAL INCOME RECEIVED BY THE ASSESSEE W AS RS.1,22,71,070/- HE, THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE DIFFERENTIAL AMOUNT SHOULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. IN REPLY, THOUGH, IT WAS SUBMITTED BY THE ASSESSEE THAT THE RENTAL INCOME DE CLARED IN THE RETURN OF INCOME IS THE ACTUAL AMOUNT RECEIVED BY THE ASSESSE E, HOWEVER, THE AO REJECTING THE EXPLANATION OF THE ASSESSEE HELD THAT THE DIFFERENTIAL AMOUNT OF RS.33,62,157/- BETWEEN THE INCOME DECLARED BY THE A SSESSEE AND THE AMOUNT RECEIVED AS PER AIR DATA IS TO BE TREATED AS INCOME OF THE ASSESSEE. BEING AGGRIEVED, THE ASSESSEE CHALLENGED THE ADDITI ON BEFORE THE CIT(A). 4. BEFORE THE CIT(A) IT WAS SUBMITTED BY THE ASSESS EE THAT THE DIFFERENCE AROSE DUE TO THE FACT THAT SERVICE TAX ON AMENITIES AMOUNT BECAME PAYABLE ITA NO.2518/MUM/2015 & 3646/MUM/2015 M/S. ZEBA HOME PVT. LTD. 3 SUBSEQUENTLY DUE TO COURT DECISION. THEREFORE, SER VICE TAX AMOUNT PERTAINING TO FY 2006-07 TO FY 2009-10 WERE PAID IN THE IMPUGN ED FINANCIAL YEAR. IT WAS SUBMITTED, SINCE THE LICENSEE HAD NOT DEDUCTED TAX AT SOURCE ON THE AMENITIES AND SERVICE TAX AMOUNTS FOR THE EARLIER A SSESSMENT YEARS, THEY DEDUCTED IT IN THE IMPUGNED ASSESSMENT YEAR. AS A RESULT, HIGHER AMOUNT OF RENTAL INCOME WAS SHOWN IN FORM 26AS. THUS, IT WAS SUBMITTED THAT THE INCOME CORRESPONDING TO THE TDS AMOUNT SINCE ALREAD Y HAS BEEN SHOWN BY THE ASSESSEE IN THE PRECEDING ASSESSMENT YEARS, NO ADDITION CAN BE MADE. THE CIT(A) HOWEVER, DID NOT FIND MERIT IN THE SUBMI SSIONS OF THE ASSESSEE ON THE REASONING THAT NO RECONCILIATION STATEMENT HAS BEEN FILED BY THE ASSESSEE EXPLAINING THE DIFFERENCE. 5. THE LEARNED AR REITERATING THE STAND TAKEN BEFOR E THE CIT(A) SUBMITTED THAT THE LICENSEE DID NOT DEDUCT TAX AT SOURCE ON T HE AMENITIES AMOUNT PAID IN THE EARLIER ASSESSMENT YEAR, HENCE, DEDUCTED IN THE IMPUGNED ASSESSMENT YEAR. THEREFORE, THE TDS SHOWN IN THE FORM 26AS WA S HIGHER COMPARED TO THE INCOME ACTUALLY RECEIVED BY THE ASSESSEE FOR TH E YEAR UNDER CONSIDERATION. HE ALSO SUBMITTED THAT THE LICENSEE DID NOT DEDUCT TAX AT SOURCE ON THE SERVICE TAX AMOUNT, WHICH WAS ONLY DE DUCTED IN THE IMPUGNED ASSESSMENT YEAR, AS A RESULT OF WHICH THE DIFFERENC E AROSE. TO SUBSTANTIATE SUCH FACT, THE LEARNED AR DREW OUR ATTENTION TO THE RECONCILIATION STATEMENT SUBMITTED AT PAGE 38 OF THE PAPER-BOOK AS WELL AS C OPY OF FORM 26AS AT ITA NO.2518/MUM/2015 & 3646/MUM/2015 M/S. ZEBA HOME PVT. LTD. 4 PAGE 36 OF THE PAPER BOOK. THE LEARNED AR, THEREFO RE, SUBMITTED THE QUANTUM OF INCOME CORRESPONDING TO THE TDS HAVING A LREADY BEEN DECLARED BY THE ASSESSEE IN THE EARLIER ASSESSMENT YEAR, NO FURTHER ADDITION CAN BE MADE IN THE IMPUGNED ASSESSMENT YEAR ON ACCOUNT OF DIFFERENCE IN RENTAL INCOME. 6. THE LEARNED DR RELIED UPON THE OBSERVATIONS OF T HE CIT(A). 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. AS COULD BE SEEN, THE ADDITIO N ON ACCOUNT OF RENTAL INCOME WAS BECAUSE OF THE TDS AMOUNT AND CORRESPOND ING INCOME SHOWN IN FORM 26AS. ON PERUSAL OF FORM 26AS, A COPY OF WHIC H IS ALSO SUBMITTED IN THE PAPER BOOK, WE HAVE NOTICED THAT THE DIFFERENCE OF RS.33,62,157/- AROSE ON ACCOUNT OF FOLLOWING FOUR PAYMENTS AS REFLECTED IN SR. NO.1,2,15 AND 16 OF FORM 26AS: SR. NO. AMOUNT PAID/CREDITED TDS 1 69327 6933 2 72058 7206 15 2743892 621766 16 476880 47688 FROM THE COPY OF THE RECONCILIATION STATEMENT FILED IN THE PAPER-BOOK, IT IS NOTICED THAT THE AFORESAID INCOME CORRESPONDING TO THE TDS WERE BOOKED AS ITA NO.2518/MUM/2015 & 3646/MUM/2015 M/S. ZEBA HOME PVT. LTD. 5 INCOME BY THE ASSESSEE IN THE AY 2007-08 TO 2010-11 . IN SUPPORT OF SUCH CLAIM, THE ASSESSEE HAS ALSO PRODUCED COPIES OF LED GER ACCOUNT OF THE CONCERNED PARTIES. HOWEVER, AS IT APPEARS NONE OF THE DEPARTMENTAL AUTHORITIES HAVE TAKEN CARE TO PROPERLY VERIFY THE RECONCILIATION STATEMENT SUBMITTED BY THE ASSESSEE WITH REFERENCE TO FORM 26 AS AS WELL AS THE LEDGER ACCOUNT COPIES AND THE RETURN OF INCOME FILED FOR T HE PREVIOUS ASSESSMENT YEARS, WHEREIN THE ASSESSEE CLAIMED TO HAVE DECLARE D THE INCOME CORRESPONDING TO EXCESS TDS AMOUNT. ON THE BASIS O F DOCUMENTS SUBMITTED BEFORE US, IT HAS BEEN DEMONSTRATED BY THE ASSESSEE THAT THE EXCESS TDS IN THE IMPUGNED ASSESSMENT YEAR IS ON ACCOUNT OF NON-D EDUCTION OF TDS ON SERVICE TAX AS WELL AS AMENITIES AMOUNT PAID TO THE ASSESSEE IN THE EARLIER ASSESSMENT YEARS. THUS, FROM THE AFORESAID MATERI AL PLACED ON RECORD, WE ARE SATISFIED THAT IN REALITY THERE IS NO DIFFERENC E IN RENTAL INCOME CLAIMED TO HAVE BEEN RECEIVED BY THE ASSESSEE AS PER THE RETUR N OF INCOME AND AS ATTEMPTED TO BE MADE OUT BY THE DEPARTMENT ON THE B ASIS OF THE TDS AMOUNT SHOWN IN FORM 26AS. ACCORDINGLY, WE DELETE THE ADD ITION OF RS.33,62,157/-. GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 8. ITA 2518/MUM/2015 THE SOLITARY ISSUE RAISED BY THE DEPARTMENT RELATES TO ALLOWANCE OF ASSESSEES CLAIM OF EXPENSES OF RS.88,40,658/-. BRIEFLY, THE FACTS ARE DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO TH AT THE ASSESSEE HAS ITA NO.2518/MUM/2015 & 3646/MUM/2015 M/S. ZEBA HOME PVT. LTD. 6 SHOWN SALES OF RS.14,81,291/- OUT OF OPENING STOCK AND RS.84,52,506/- ON ACCOUNT OF RENTAL AND OTHER MISCELLANEOUS INCOME NO T IN THE CHARACTER OF BUSINESS INCOME, WHEREAS, THE ASSESSEE HAS CLAIMED VARIOUS EXPENDITURE AGGREGATING TO RS.88,40,658/- AGAINST SUCH INCOME. HE THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN, WHEN THE ASSESSEE HAD NOT CARRIED OUT ANY MANUFACTURING AND BUSINESS ACTIVITY AND IS ONLY EFF ECTING SALES FOR STOCK CLEARANCE, WHY THE EXPENDITURE SHOULD NOT BE DISALL OWED. IN REPLY, THOUGH, ASSESSEE OBJECTED TO THE PROPOSED DISALLOWANCE, HOW EVER, THE AO REJECTING THE EXPLANATION OF THE ASSESSEE HELD THAT ASSESSEE HAS FAILED TO FURNISH SUPPORTING EVIDENCE TO SHOW THAT IT HAS ACTUALLY CA RRIED OUT ANY BUSINESS ACTIVITY EXCEPT CLEARANCE OF OLD STOCK. HE FURTHER OBSERVED, THE ASSESSEE HAS FAILED TO DEMONSTRATE THE CLAIM OF BAD DEBT BY FURN ISHING EVIDENCE THAT THEY ARE CREATED DURING THE ORDINARY COURSE OF BUSINESS AND DESPITE ITS EFFORT ASSESSEE HAD FAILED TO RECOVER THE DEBT. HE ALSO D ISALLOWED INTEREST EXPENDITURE BY STATING THAT SINCE THE ASSESSEE HAS STOPPED ITS MANUFACTURING ACTIVITY LONG BACK, THERE IS NO NECESSITY FOR THE A SSESSEE TO INCUR INTEREST EXPENDITURE BY AVAILING LOAN. ACCORDINGLY, HE DISA LLOWED THE EXPENDITURE CLAIMED AMOUNTING TO RS.88,40,658/- AGGRIEVED, THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE CIT(A). THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE BEING CONVINCED THAT TH E ASSESSEE HAD CARRIED OUT ITS BUSINESS ACTIVITIES ALLOWED ASSESSEES CLAI M OF EXPENDITURE. ITA NO.2518/MUM/2015 & 3646/MUM/2015 M/S. ZEBA HOME PVT. LTD. 7 9. THE LEARNED DR RELYING ON THE OBSERVATIONS OF TH E AO SUBMITTED, AS PER ASSESSEES OWN ADMISSION, IT HAS STOPPED ITS MANUFA CTURING ACTIVITY AND IS SELLING THE STOCK AVAILABLE WITH IT. THEREFORE, A S SUCH, THE ASSESSEE IS NOT CARRYING ON ITS REGULAR BUSINESS ACTIVITY. THAT BE ING THE CASE, THERE IS NO NEED FOR THE ASSESSEE TO INCUR ANY EXPENDITURE FOR ITS BUSINESS ACTIVITIES. 10. THE LEARNED AR, ON THE OTHER HAND, SUBMITTED TH AT THOUGH THE ASSESSEE MIGHT HAVE STOPPED ITS MANUFACTURING OPERA TION DUE TO COMPELLING CIRCUMSTANCES LIKE LABOUR PROBLEM, UNPAID DEBTORS A ND LACK OF WORKING CAPITAL HOWEVER, IT IS CARRYING ON ITS TRADING ACTIVITIES W ITH THE HOPE THAT MANUFACTURING ACTIVITY WOULD GET REVIVED SOME TIME OR THE OTHER. HE SUBMITTED, EVEN FOR CARRYING OUT ITS TRADING ACTIVI TY THE ASSESSEE HAS TO MAINTAIN NECESSARY INFRASTRUCTURE/ESTABLISHMENT WHI CH REQUIRE INCURRING OF EXPENDITURE. THAT BEING THE CASE, EXPENDITURE INCU RRED BEING FOR THE PURPOSE OF BUSINESS IS TO BE ALLOWED. HE SUBMITTED THE AO HAS NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE CLAIMED. THEREFORE, THERE IS NO REASON TO DISALLOW THE EXPENDITURE. 11. WE HAVE CONSIDERED THE SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. IT IS EVIDENT FROM THE ASSESSMENT ORDER TH AT THE PRIMARY REASON FOR WHICH THE AO DISALLOWED ASSESSEES CLAIM OF EXPENDI TURE IS, ASSESSEE HAD STOPPED ITS MANUFACTURING ACTIVITY. HOWEVER, THE A O HAS NOT DENIED THE FACT THAT THE ASSESSEE IS CARRYING ON ITS TRADING ACTIVI TY BY DISPOSING OF THE STOCK ITA NO.2518/MUM/2015 & 3646/MUM/2015 M/S. ZEBA HOME PVT. LTD. 8 AVAILABLE WITH IT. IF THAT IS THE CASE, CERTAINLY THE ASSESSEE REQUIRES INFRASTRUCTURE/ESTABLISHMENT TO CARRY ON ITS BUSINE SS ACTIVITY EVEN IF IT RELATES TO DISPOSING OF THE STOCK AVAILABLE WITH IT. FOR C ARRYING ON SUCH ACTIVITY ALSO ASSESSEE HAS TO EMPLOY PERSON BY INCURRING SALARY C OST, RENT PAYMENT AND MANY OTHER ANCILLARY AND INCIDENTAL EXPENDITURES LI KE ELECTRICITY, CONVEYANCE ETC. SIMILARLY, THERE CAN BE NO DISPUTE THAT BAD D EBTS ARE IN COURSE OF ITS REGULAR BUSINESS ACTIVITY. ONCE IT IS HELD SO, THE RE IS NO NEED FOR THE ASSESSEE TO DEMONSTRATE THAT IT HAS FAILED IN ITS ATTEMPT TO RECOVER THE DEBT FROM THE PARTIES. THE ONLY REQUIREMENT BEING, THE ASSESSEE HAS TO WRITE OFF THE DEBT IN ITS BOOKS OF ACCOUNT. AS FAR AS INTEREST EXPENDIT URE IS CONCERNED, WHEN THERE IS NO DISPUTE THAT THE ASSESSEE IS MAINTAININ G ITS ESTABLISHMENT TO CARRY ON ITS TRADING ACTIVITY IT REQUIRES CAPITAL TO RUN SUCH ACTIVITY AS IT HAS TO INCUR DAY TO DAY EXPENDITURE AS WELL AS OTHER REGULAR BUS INESS EXPENDITURE. IT IS EVIDENT THE AO HAS NOT RAISED ANY DOUBT WITH REGARD TO THE GENUINENESS OF THE EXPENDITURE APART FROM MAKING GENERAL OBSERVATI ONS. THUS, CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, WE AGREE WITH THE CIT(A) THAT EXPENDITURE CLAIMED BY THE ASSESSEE IS ALLOWAB LE. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. IN T HE RESULT, THE GROUNDS RAISED BY THE DEPARTMENT ARE DISMISSED. ITA NO.2518/MUM/2015 & 3646/MUM/2015 M/S. ZEBA HOME PVT. LTD. 9 12. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED AND THAT OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.04.2017 SD/- SD/- (G S PANNU) (SAKTIJIT D EY) ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI; DATED : 05 TH APRIL, 2017. SA COPY OF THE ORDER FORWARDED TO : 1. THE APP ELL ANT. 2. THE RESPONDENT. 3. T HE CIT(A), MUMBAI. 4. THE CIT 5. DR, C BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI