DIMEXON EXPORTS P. LTD, MUMBAI V. ACIT CEN CIR 5, MUMBAI

ITA 3772/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0988 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 13-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 11-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJIT K SINHA
• Assessee Lawyers: DAYANAND DIMRI
• Keywords: Business income; Depreciation; Opportunity of being heard; Rule of consistency; Onus to prove
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI R.K. PANDA. ACCOUNTANT MEMBER I.T.A. NO. 3772/MUM/2009 : ASSESSMENT YEAR : 2005-0 6 I.T.A. NO. 3773/MUM/2009 : ASSESSMENT YEAR : 2004-0 5 I.T.A. NO. 3774/MUM/2009 : ASSESSMENT YEAR : 2002-0 3* I.T.A. NO. 3775/MUM/2009 : ASSESSMENT YEAR : 2001-0 2 M/S. DIMEXON EXPORTS PVT. LTD. 1202, PRASAD CHAMBERS, TATA ROAD NO. 2, OPERA HOUSE, MUMBAI-400 004 PAN: AAACD1882E VS. ACIT, CENTRAL CIRCLE 5 CGO BUILDING, 9 TH FLOOR, M.K. ROAD, MUMBAI-400 020 *DCIT, CENTRAL CIRCLE 5 C/O. ACIT, CENTRAL CIRCLE 5 APPELLANT RESPONDENT I.T.A. NO. 4038/MUM/2009 : ASSESSMENT YEAR : 2001-0 2 I.T.A. NO. 4039/MUM/2009 : ASSESSMENT YEAR : 2002-0 3 I.T.A. NO. 4040/MUM/2009 : ASSESSMENT YEAR : 2004-0 5 I.T.A. NO. 4041/MUM/2009 : ASSESSMENT YEAR : 2005-0 6 DCIT, CENTRAL CIRCLE 5 OLD CGO BUILDING ANNEXE, 9 TH FLOOR, M.K. ROAD, MUMBAI-400 020 VS. M/S. DIMEXON EXPORTS PVT. LTD. 1202, PRASAD CHAMBERS, TATA ROAD NO. 2, OPERA HOUSE, MUMBAI-400 004 PAN: AAACD1882E APPELLANT RESPONDENT ASSESSEE BY : SHRI DAYANAND DIMRI RESPONDENT BY : SHRI AJIT K. SINHA ORDER DATE OF HEARING: 20.07.2010 DATE OF ORDER: 22.07.2010 PER BENCH THE ABOVE APPEALS ARE CROSS APPEALS AND ARE DIRECT ED AGAINST THE COMMON ORDER DATED 21 ST APRIL, 2009 OF THE CIT(A), CENTRAL-II, MUMBAI RELATING TO ASSESSMENT YEAR 2001-02, 2002-03 , 2004-05 AND 2005-06, SINCE IDENTICAL GROUNDS HAVE BEEN TAKEN I N ALL THE APPEALS M/S. DIMEXON EXPORTS PVT. LTD. ======================= 2 BY THE ASSESSEE AS WELL AS THE REVENUE, THEREFORE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. I.T.A. NO. 3775/MUM/09 (A.Y. 2001-02) (BY THE ASSESSEE): I.T.A. NO. 4038/MUM/09 (A.Y. 2001-02) (BY THE REVENUE): 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF IMPORTERS AND EXPORTERS AND MANUFACTURERS OF POLISHED DIAMONDS AND DIAMOND PROC ESSORS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER OBSERVED THAT THE ASSESSEE OWNED THE FACTORY AT COI MBATORE WHICH WAS GIVEN TO A COMPANY NAMELY, M/S COIMBATORE POLIS HING WORKS P. LTD. (CPWPL) BY WAY OF AN AGREEMENT CHRISTENED AS C ONDUCTING AGREEMENT DATED 1.5.2000. AS PER THE CLAUSES OF TH E AGREEMENT, THE ASSESSEE WOULD GET THE FIRST PREFERENCE IN GETTING THE WORK DONE IN POLISHING WORK AND OTHER CONNECTED WORK OF DIAMONDS IN RESPECT OF SUCH JOB WORK OFFERED BY THE ASSESSEE. THE ASSESSE E USED TO UNDERTAKE THE JOB WORK OF CUTTING AND POLISHING THE ROUGH UNCUT DIAMONDS IN VARIOUS YEARS, FROM THE FOLLOWING CONCE RNS: 1. M/S. KIRTILAL KALIDAS DIAMOND EXPORTS. 2. M/S. MEHTA RATANSE EXPORT. 3. DIMEXON DIAMONDS LTD. 4. KIRTI ORNAMENTS. 3. THIS JOB WORK WAS TRANSFERRED BY THE ASSESSEE TO CP WPL FOR EXECUTION AT COIMBATORE. THIS YEAR THE ASSESSEE HA S RECEIVED JOB WORK CHARGES OF RS.11,30,80,998/-. AS PER THE AGRE EMENT, CPWPL WAS TO CARRY ON THE MANUFACTURING IN DIAMONDS IN FA CTORY NO. 1 ADMEASURING 20528 SQ. FT. CPWPL WOULD MAINTAIN THE FACTORY BUILDING ALONG WITH THE PLANT AND MACHINERY, FURNIT URE AND FIXTURE AND THEY WERE AT LIBERTY TO BRING IN AND INSTALL TH EIR OWN TOOLS AND PLANT AND MACHINERY TO EXPAND THEIR ACTIVITIES. N O OTHER MONETARY CONSIDERATION WAS PROVIDED IN THE AGREEMENT. THE L ABOUR AND EMPLOYEES ARE BELONGING TO CPWPL AND NOT TO THE ASS ESSEE. THE ASSESSEE SUBMITTED THE COPIES OF THE BILLS WITH REG ARD TO THE RATES M/S. DIMEXON EXPORTS PVT. LTD. ======================= 3 CHARGED BY THE ASSESSEE TO ITS CUSTOMERS AND IT WAS SUBMITTED THAT THE ASSESSEE DID NOT GET ANY CONCESSION IN THE RATE S CHARGED BY CPWPL AND THAT THEY GET ONLY PRIORITY OVER OTHERS I N GETTING THEIR JOB DONE. ACCORDING TO THE ASSESSING OFFICER DESPITE T HE REQUEST MADE BY HIM, THE ASSESSEE DID NOT FURNISH THE COPIES OF TH E BILLS CHARGED BY CPWPL TO ITS CUSTOMERS OTHER THAN THE ASSESSEE I.E. , DIMEXON EXPORTS PVT. LTD. (DEPL). 4. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASS ESSEE AND FOLLOWING HIS ORDER FOR A.Y. 2003-04 AND CONSIDERIN G THAT THE CIT(A) FOR A.Y. 2003-04 VIDE ORDER DATED 27 TH APRIL, 2006 HAS UPHELD THE VIEW OF THE ASSESSING OFFICER IN TAXING THE NOTIONAL HOU SE PROPERTY INCOME, THE ASSESSING OFFICER COMPUTED THE HOUSE PROPERTY I NCOME IN THE HANDS OF THE ASSESSEE U/S. 22 OF THE INCOME-TAX ACT , 1961. SINCE THE GROSS BLOCK OF FIXED ASSETS WHICH IS GIVEN TO CPWL IS RS.4,11,21,461 AS PER THE BOOKS OF ACCOUNT, HE CONSIDERED THE INCO ME FROM HOUSE PROPERTY AT RS.61,69,119 BEING 15% OF THE GROSS BLO CK OF FIXED ASSETS. SINCE THE RATES, TAXES, ETC., HAVE BEEN PAID BY CPW L AND SINCE THE ASSESSEE IS DEBITING THE REPAIRS, MAINTENANCE, ETC. , FOR THE BUILDING, PLANT AND MACHINERY TO THE PROFIT AND LOSS A/C. HE DID NOT ALLOW ANY FURTHER DEDUCTION FROM THIS AMOUNT AND ACCORDINGLY CONSIDERED THE INCOME FROM HOUSE PROPERTY AT RS.61,69,119. HE ALS O DID NOT ALLOW THE DEPRECIATION. 5. SIMILARLY INVOKING THE PROVISIONS OF SECTION 40A(2) (B) HE DISALLOWED AN AMOUNT OF RS.31,13,360 BEING 10% OF T HE LABOUR CHARGES OF RS.3,11,33,608 PAID TO THE SISTER CONCER N, CPWL. 6. IN APPEAL, THE CIT(A) FOLLOWING THE ORDER OF HIS PR EDECESSOR FOR THE A.Y. 2003-04 HELD THAT ANNUAL LETTING VALUE IN THE CASE OF THE ASSESSEE HAS TO BE COMPUTED @ 8.5% ON THE TOTAL INV ESTMENT IN THE CASE OF LAND AND BUILDING AT COIMBATORE FACTORY OF THE ASSESSEE. FOR THIS PURPOSE, HE DETERMINED VALUE OF LAND AT RS.3,6 0,951 AND VALUE OF BUILDING AT RS.2,39,25,457 BOTH TOTALLING TO RS.2,4 2,86,408. HE M/S. DIMEXON EXPORTS PVT. LTD. ======================= 4 ACCORDINGLY DETERMINED THE ALV OF THE PROPERTY AT R S.20,64,345 BEING 8.5% OF THE TOTAL LAND AND BUILDING FOR THE A.Y. 20 01-02. FURTHER THE CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR FOR T HE A.Y. 2003-04 IN THE CASE OF THE ASSESSEE REJECTED THE CLAIM OF DEPR ECIATION. SIMILARLY OUT OF THE DISALLOWANCE OF EXCESSIVE LABOUR CHARGES OF RS.31,13,360 BEING 10% OF THE TOTAL PAYMENT PAID TO THE SISTER C ONCERN, THE CIT(A) RESTRICTED THE DISALLOWANCE U/S. 40A(2)(B) TO 5% OF THE TOTAL LABOUR CHARGES PAID TO THE SISTER CONCERN. 7. AGGRIEVED WITH SUCH PART RELIEF BY THE CIT(A), BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US. 8. AT THE TIME OF HEARING BOTH THE PARTIES FAIRLY CONC EDED THAT THE ISSUES RAISED BY BOTH THE SIDES HAVE BEEN DECIDED B Y THE TRIBUNAL AND, THEREFORE, THIS IS A COVERED MATTER. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. AS FAR AS THE ISSUE REGARDING THE DETERMINATION OF INCOME FROM HOUSE PR OPERTY AS AGAINST BUSINESS INCOME DECLARED BY THE ASSESSEE, WE FIND T HE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFF ICER WITH CERTAIN DIRECTIONS. THE OPERATIVE PORTION OF THE ORDER AT PARAS 10 AND 11 READ AS UNDER: 10. WE HAVE CONSIDERED THE RIVAL SUBMISSION MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF O F THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT T HAT THE ASSESSEE HAS CONSTRUCTED THE FACTORY BUILDING AND INSTALLED PLANT AND MACHINERY IN THE SAID FACTORY B UILDING FOR CARRYING OUT THE MANUFACTURING OF DIAMONDS WHIC H INVOLVES PROCESSING OF ROUGH DIAMONDS AND CUTTING A ND POLISHING OF THE SAME. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAD HANDED OVER THE FACTORY BUILDING A LONG WITH PLANT AND MACHINERY INSTALLED THEREIN TO M/S. CPWPL BY WAY OF A CONDUCTING AGREEMENT. WE FIND FR OM CLAUSE 5 OF THE CONDUCTING AGREEMENT, A COPY OF WHI CH IS PLACED AT PAPER BOOK PAGES 43 TO 48, THAT IN M/S. DIMEXON EXPORTS PVT. LTD. ======================= 5 CONSIDERATION OF THE PRODUCTION AND COMMERCIAL FACI LITIES PROVIDED BY THE ASSESSEE TO THE CONDUCTOR, THE COND UCTOR AGREES TO GIVE FIRST PREFERENCE TO TURN OUT THE GOO DS SUPPLIED BY THE OWNER AS MUTUALLY AGREED UPON BETWE EN THE PARTIES FROM TIME TO TIME DEPENDING ON THE WORK PROVIDED AND THE CONDUCTOR SHALL GIVE PREFERENCE UP TO 80% OF THE TOTAL WORK ORDERS RECEIVED BY HIM. THERE IS ALSO NO DISPUTE TO THE FACT THAT CPWPL WAS DOING TH E JOB WORK FOR THE ASSESSEE AS WELL AS FOR OTHERS FROM TH E SAID PREMISES. THERE IS ALSO NO DISPUTE TO THE FACT THA T THIS TYPE OF ARRANGEMENT WAS ACCEPTED BY THE DEPARTMENT IN ASSESSEES OWN CASE IN ORDERS PASSED U/S. 143(3) OF THE ACT. IT IS THE CASE OF THE REVENUE THAT SINCE THE ASSESSEE HAS NOT RECEIVED ANY OTHER MONETARY CONSIDERATION F ROM THE COMPANY CPWPL IN RESPECT OF THE FACTORY AT COIMBATORE WHICH WAS HANDED OVER AND KEPT AT THE DISPOSAL OF THE CPWPL BY THE ASSESSEE AND SINCE IT WAS STATED DURING THE ASSESSMENT PROCEEDINGS THAT IT HA D NOT RECEIVED ANY CONCESSION OR DISCOUNT IN THE RATES OR CHARGES FOR THE POLISHING WORK UNDERTAKEN BY CPWPL SUCH HANDING OVER THE FACTORY BY WAY OF CONDUCTING AGREEMENT IS NOTHING BUT THE LEASE OF THE FACTORY T O THE COMPANY CPWPL. 10.1 IN OUR CONSIDERED OPINION, MERE NON RECEIPT OF RENT SHOULD NOT BE A CONCLUSIVE FACTOR TO HOLD THAT THE ACT OF PROVIDING THE BUILDING ALONG WITH PLANT AND MACHINE RY TO CPWPL WOULD AMOUNT TO A LEASE TRANSACTION AND INCOM E THEREFROM IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN ORDER TO APPRECIATE AS TO WHET HER A BENEFIT ARISING OUT OF HANDING OVER OF THE BUILDING AND PLANT AND MACHINERY IS ASSESSABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION HAS TO BE DETE RMINED ON A CONSPICUOUS OF THE FACT OF THE CASE. IT IS RE LEVANT HERE TO NOTE THE PRINCIPLES EVOLVED BY VARIOUS COUR TS ON THE ISSUE AS TO WHETHER EXPLOITATION OF A COMMERCIA L ASSET WOULD RESULT IN EARNING OF BUSINESS INCOME OR INCO ME FROM HOUSE PROPERTY. 10.2 IN THE CASE OF HINDUSTAN MACHINE TOOLS (SUPRA) , THE HONBLE KARNATAKA HIGH COURT OBSERVED THAT IN THE C ASE OF AN ASSESSEE UTILISING THE HOUSE PROPERTY WITH T HE MAIN INTENTION OF GAINING COMMERCIAL BENEFIT OUT OF IT, THE INCOME, IF ANY, THEREFROM HAS TO BE ASSESSED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. RELEVANT SHORT-NOTES FROM THE REPORTED DECISION IS EXTRACTED BELOW: (SHORT NOTES) M/S. DIMEXON EXPORTS PVT. LTD. ======================= 6 THE QUESTION AS TO UNDER WHICH THE HEADS ENUMERATED IN S. 14 OF THE I.T. ACT, 1961, A PARTICULAR INCOME FALLS HAS TO BE DECIDED HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. SECTION 22 OF THE I.T. ACT, 1961, INDICATES THAT MERELY BECAUSE A PERSON IS THE OWNER OF A PROPERTY IT DOES NOT FOLLOW THAT THE INCOME THEREFROM SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT EXCEPTS SUCH PORTION OF THE PROPERTY AS MAY BE OCCUPIED FOR THE PURPOSES OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM, THE PROFITS OF WHICH ARE CHARGEABLE TO INCOME-TAX. THE GUIDANCE TO BE SOUGHT IS TO FIND OUT THE USER OF THE PROPERTY AND THE CHARACTER IN WHICH THAT PROPERTY IS USED. . . . . HELD, THAT INSTEAD OF THE ASSESSEE HIMSELF ENGAGING IN THE MANUFACTURE OF THE COMPONENTS THROUGH ITS OWN LABOURERS, THE ANCILLARY UNITS WERE REQUIRED TO MANUFACTURE THEM FOR ITS PURPOSES. THE BENEFIT WHICH THE ASSESSEE DERIVED WAS ALMOST DIRECT, NAMELY, CONTINUOUS SUPPLY OF COMPONENTS TO KEEP UP ITS OWN PRODUCTION AND MANUFACTURING OF COMPONENTS UNDER ITS OWN GUIDANCE AND SCRUTINY. THEREFORE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE INCOME DERIVED BY THE ASSESSEE FROM THE SHEDS CONSTRUCTED AND LEASED OUT TO THE SEVERAL PERSONS ON A RENTAL BASIS WAS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. 10.3 SIMILARLY IN THE CASE OF MODI INDUSTRIES (SUPR A), THE HONBLE DELHI HIGH COURT OBSERVATIONS, AS SUMMARISE D IN THE SHORT-NOTE ARE AS UNDER: (SHORT NOTES) A BUNGALOW OWNED BY THE ASSESSEE-COMPANY WAS IN THE OCCUPATION OF G AND K SINCE 1932 AS EMPLOYEES AND DIRECTORS FREE OF CHARGE. IN JULY, 1960, AFTER MANAGING AGENTS WERE APPOINTED FOR THE COMPANY, G AND K WERE PERMITTED TO CONTINUE THE USER OF THE BUNGALOW M/S. DIMEXON EXPORTS PVT. LTD. ======================= 7 BUT AS NOMINEE DIRECTORS OF THE MANAGING AGENTS ON PAYMENT OF NOMINAL RENT. THE ASSESSEE-COMPANY EFFECTED REPAIRS TO THE BUNGALOW AND ALSO PROVIDED MODERN AMENITIES INCLUDING AIR-CONDITIONERS. THE QUESTIONS WERE WHETHER THE INCOME FROM THE BUNGALOW WAS TO BE COMPUTED AS INCOME FROM BUSINESS AND WHETHER THE ASSESSEE WAS ENTITLED TO CLAIM ALLOWANCE FOR ACTUAL REPAIRS AND DEPRECIATION. THE APPELLATE TRIBUNAL FOUND THAT THE ASSESSEE COMPANY FOUND IT EXPEDIENT TO ALLOW THE BENEFIT OF OCCUPATION OF THE PROPERTY BY NOMINEES OF THE MANAGING AGENTS IN ORDER TO FACILITATE PROPER SUPERVISION BY THEM IN THE INTERESTS OF SMOOTH RUNNING OF THE BUSINESS OF THE ASSESSEE AND HELD THAT THE INCOME FROM THE BUNGALOW HAD TO BE COMPUTED UNDER THE HEAD INCOME FROM BUSINESS AND NOT UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND ALSO THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION OF THE ACTUAL REPAIRS AND DEPRECIATION. ON A REFERENCE: HELD (I) THAT IN VIEW OF THE FINDING OF FACT BY THE TRIBUNAL, OCCUPATION OF THE PROPERTY BY G AND K FOR THE PURPOSE OF EFFECTIVE DISCHARGE OF THEIR DUTIES VIS--VIS THE BUSINESS OF THE ASSESSEE COMPANY AMOUNTED TO OCCUPATION BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND THE INCOME THEREFORE HAD TO BE ASSESSED AS INCOME FROM BUSINESS. (II) THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION OF ACTUAL REPAIRS AND DEPRECIATION. THE TERM OCCUPY APPEARING IN SECTION 22 OF THE INCOME-TAX ACT, 1961, REFERS TO OCCUPATION DIRECTLY BY THE ASSESSEE OR THROUGH AN EMPLOYEE OR AN AGENT BUT SUCH OCCUPATION BY THE EMPLOYEE, ETC., MUST BE SUBSERVIENT TO AND NECESSARY FOR THE PERFORMANCE OF THE DUTIES IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. TO FALL WITHIN THE AMBIT OF THE EXEMPTION IN SECTION 22 IT IS NOT NECESSARY THAT THE PROPERTY MUST BE AS SUCH IN THE OCCUPATION OF THE ASSESSEE HIMSELF OR NECESSARILY USED FOR CARRYING ON HIS BUSINESS ACTIVITY AND NOT USED FOR RESIDENTIAL PURPOSES. M/S. DIMEXON EXPORTS PVT. LTD. ======================= 8 WHEN A HOUSE PROPERTY IS OCCUPIED AS RESIDENCE BY EMPLOYEES OR DIRECTORS, ETC., OF THE ASSESSEE COMPANY, IF CONCERNED WITH THE PROMOTION OF THE BUSINESS OF THE ASSESSEE- COMPANY, WHETHER ON PAYMENT OF RENT OR OTHERWISE, TO ENABLE THEM TO DISCHARGE THEIR FUNCTIONS EFFICIENTLY AND THE LETTING OUT OF THE PROPERTY IS SUBSERVIENT AND INCIDENTAL TO THE MAIN BUSINESS OF THE ASSESSEE, SUCH AN OCCUPATION AMOUNTS TO OCCUPATION AND USER OF THE PROPERTY BY THE ASSESSEE ITSELF FOR THE PURPOSE OF ITS BUSINESS, EVEN THOUGH NO BUSINESS IS ACTUALLY RUN IN SUCH PREMISES. 10.4 WE MAY ALSO REFER TO THE RELEVANT OBSERVATIONS OF THE APEX COURT IN THE CASE OF RADHASAOMI SATSANG (S UPRA) WHEREIN THE COURT OBSERVED THAT THOUGH THE PRINCIPL E OF RES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDIN GS, THEORY OF CONSISTENCY HAS TO BE FOLLOWED INASMUCH A S PARTIES ARE NOT PERMITTED TO TAKE FRESH LITIGATION BECAUSE OF NEW VIEWS/NEW VERSIONS WHICH THEY MAY PRESENT. RELEVANT SHORT NOTES FROM THE REPORTED DECISION AT PAGE 329 IS EXTRACTED BELOW: WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. 11. IN THE BACKDROP OF THE ABOVE VIEWS, WE SHALL NO W EXAMINE THE FACTS OF THE CASE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAD THE BENEFIT OF PRIORITY IN THE MATTER OF GETTING THE JOB WORK DONE BY CPWPL ON PROVIDING THE FACTORY BUILDING ALONG WITH PLANT AND MACHINERY. THERE IS ALSO NO DISPUTE TO THE FACT TH AT THE SAID FACTORY BUILDING IS A COMMERCIAL PROPERTY AND CANNOT BE PUT TO ANY OTHER USE OTHER THAN FOR THE SPECIFIC WORK IT WAS ALLOWED TO BE UTILISED BY CPWPL. NO DOUBT, ON A PROPERTY WORTH RS.6.07 CRORES, AS A PRUDENT BUSINES SMAN THE ASSESSEE COMPANY HAD TO DERIVE A REASONABLE M/S. DIMEXON EXPORTS PVT. LTD. ======================= 9 MONETARY BENEFIT FOR ALLOWING CPWPL TO UTILISE THE PREMISES. THOUGH THE ASSESSEE INITIALLY CLAIMED TH AT BY VIRTUE OF THE AGREEMENT THE GOODS SUPPLIED BY THE ASSESSEE WERE RETURNED TO IT ON A PREFERENTIAL BASI S BY ATTENDING THE JOB WORK OF THE ASSESSEE BY GIVING FI RST PREFERENCE AND ALSO AT CONCESSIONAL RATE. HOWEVER, DURING THE COURSE OF ARGUMENTS, IT COULD NOT BE PROVED THA T THE ASSESSEE OBTAINED ANY CONCESSION IN GETTING THE JOB WORK DONE. IT IS NOTICED THAT THE TOTAL JOB RECEIPTS WO RKED OUT TO RS.7.79 CRORES WHEREAS THE ASSESSEE PAID JOB CHA RGES OF RS.7.09 CRORES AND THUS EARNED A PROFIT OF ABOUT 10 % ON THE JOB RECEIPTS. HOWEVER, IT HAS NOT BEEN SHOWN A S TO WHAT IS THE REASONABLE PROFIT IN THIS LINE OF BUSIN ESS ON SUCH TURNOVER. FOR EXAMPLE, IF THE ASSESSEE SHOWED A TURNOVER OF RS.7.79 CRORES, THE NORMAL PROFIT SHOUL D BE EARNED IS RS. 20 LAKHS, BUT THE ASSESSEE EARNED PRO FIT OF RS.79 LAKHS WHICH IS ATTRIBUTABLE TO GIVING THE PRO PERTY UNDER THE CONDUCTING AGREEMENT WITHOUT CHARGING ANY EXTRA AMOUNT. IT CAN REASONABLE BE PRESUMED, IN SU CH AN EVENT, THAT THE ADDITIONAL PROFIT IS ATTRIBUTABLE T O THE BENEFITS DERIVED BY THE ASSESSEE BY VIRTUE OF PERMI TTING CPWPL TO CARRY ON ITS BUSINESS BY UTILISING THE FAC TORY BUILDING AS WELL AS THE PLANT AND MACHINERY. HOWEV ER, IN THE INSTANT CASE THE FACTS WERE NOT PROPERLY BROUGH T OUT. THE INITIAL BURDEN IS UPON THE ASSESSEE TO PROVE TH AT BY VIRTUE OF PERMITTING THE CPWPL TO CONDUCT ITS BUSIN ESS FROM THE SAID PREMISES, THE ASSESSEE DERIVED SOME ADDITIONAL BENEFIT IN ITS MAIN BUSINESS. IT IS NOT DISPUTED THAT THE ASSESSEE HAD AVAILED SPECIAL TREATMENT WHI LE GETTING THE JOB WORK DONE THROUGH CPWPL, THE INCOME , IF ANY, ATTRIBUTABLE TO GIVING THE PROFIT TO CPWPL IS ASSESSABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. HOWEVER, IN ORDER TO ASCE RTAIN THE REASONABLE RECEIPTS ATTRIBUTABLE TO SUCH PROPER TY, THE ASSESSING OFFICER HAS TO TAKE INTO CONSIDERATION TH E NORMAL PROFITS THAT CAN BE EARNED IN THIS LINE OF B USINESS AND THE ADDITIONAL PROFIT, IF ANY, EARNED BY THE AS SESSEE BY VIRTUE OF CONDUCTING AGREEMENT AND THE DIFFERENCE AMOUNT IS FOUND TO BE LESS THAN THAT OF A REASONABL E RETURNS WHICH IS EXPECTED OF BY A BUSINESSMAN WHILE PERMITTING THE COMMERCIAL PROPERTY TO BE UTILISED B Y THE PERSON DOING THE JOB WORK, ONLY SUCH DIFFERENCE SHO ULD BE BROUGHT TO TAX UNDER CHAPTER IV OF THE INCOME-TAX A CT. UNDER THE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE DECISIONS OF THE ASSESSING OFFICER AS WELL AS THE C IT(A) IN TREATING THE BENEFIT OF ADDITIONAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY IS NOT IN ACCORDANCE W ITH LAW. SINCE IN OUR OPINION, THE INCOME IS ASSESSABL E TO TAX UNDER CHAPTER IV THE MATTER REQUIRES TO BE RE-EXAMI NED M/S. DIMEXON EXPORTS PVT. LTD. ======================= 10 BY THE ASSESSING OFFICER. THE ASSESSEE SHALL BE GI VEN REASONABLE OPPORTUNITY OF BEING HEARD WHILE ADJUDIC ATING THE ISSUE AS TO WHAT SHOULD BE THE INCOME ATTRIBUTA BLE TO THE FACTORY AND PLANT AND MACHINERY, IN THE LIGHT O F OUR OBSERVATIONS ABOVE. THE ASSESSING OFFICER IS DIREC TED ACCORDINGLY. THE GROUNDS OF APPEAL ON THIS ISSUE BY THE ASSESSEE AS WELL AS THE REVENUE ARE ACCORDINGLY ALL OWED FOR STATISTICAL PURPOSES. 10. FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y. 2003-04 WE RESTORE THIS ISSUE TO THE FILE OF T HE ASSESSING OFFICER FOR ADJUDICATION OF THE ISSUE IN THE LIGHT OF THE D IRECTIONS GIVEN THEREIN. GROUNDS OF APPEAL NOS. (I) AND (II) BY THE REVENUE AND GROUNDS OF APPEAL NOS. 1 TO 5 AND 11(A) BY THE ASSESSEE ARE AL LOWED FOR STATISTICAL PURPOSES. 11. AS FAR AS THE ISSUE REGARDING THE ALLOWABILITY OF D EPRECIATION IS CONCERNED, WE FIND THE TRIBUNAL HAS DECIDED THE ISS UE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER: 16. WE HAVE HEARD BOTH THE SIDES. WE HAVE ALREADY ACCEPTED THE HANDING OVER OF THE FACTORY BUILDING A S FOR BUSINESS PURPOSES AND, THEREFORE, IN OUR OPINION, T HE FACTORY BUILDING IN THE INSTANT CASE DOES NOT COME UNDER THE PURVIEW OF SECTION 22 OF THE ACT AND ACCORDINGL Y NO NOTIONAL ALV CAN BE DETERMINED ON ACCOUNT OF SAID F ACTORY BUILDING. FURTHER THE ASSESSING OFFICER IN THE BOD Y OF THE ASSESSMENT ORDER HAS ACCEPTED THE BUSINESS INCOME A S DECLARED BY THE ASSESSEE. THEREFORE, IN OUR OPINIO N, THE ASSESSEE IS ENTITLED TO DEPRECIATION. FURTHER DEPR ECIATION WAS ALL ALONG ALLOWED IN THE PAST TO THE ASSESSEE. THEREFORE, FOLLOWING THE RULE OF CONSISTENCY ALSO DEPRECIATION HAS TO BE ALLOWED. ACCORDINGLY THE GR OUNDS OF APPEAL NO. 2 BY THE ASSESSEE IS ALLOWED. 12. IN VIEW OF THE ABOVE, GROUNDS OF APPEAL NOS. 6, 7 A ND 11(B) BY THE ASSESSEE ARE ALLOWED. 13. SS FAR AS THE DISALLOWANCE U/S. 40A(2)(B) IS CONCER NED, WE FIND THE TRIBUNAL HAS ALSO RESTORED THE ISSUE TO THE FIL E OF THE ASSESSING OFFICER BY HOLDING AS UNDER: M/S. DIMEXON EXPORTS PVT. LTD. ======================= 11 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF O F THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT CPW PL IS RELATED PARTY OF THE ASSESSEE AS PER THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. THERE IS ALSO NO DIS PUTE TO THE FACT THAT THERE WAS NO MENTION ABOUT THIS FACT IN T HE AUDIT REPORT FURNISHED ALONG WITH THE RETURN OF INCOME IN THE TAX AUDIT REPORT U/S. 44AB OF THE ACT. WE FIND THE ASS ESSING OFFICER DISALLOWED 10% OF THE TOTAL LABOUR CHARGES BEING EXCESSIVE PAYMENTS U/S. 40A(2)(B) ON THE GROUND THA T THE ASSESSEE DID NOT SHOW ANY BILLS AND VOUCHERS OF CPW PL AND COMPARABLE INSTANCES. ACCORDING TO THE ASSESSI NG OFFICER THE ONUS TO PROVE THAT PAYMENT TO A GROUP C ONCERN ARE NOT MADE IN EXCESS IS ON THE ASSESSEE. SINCE T HE ASSESSEE FAILED TO PROVE THE REASONABLENESS OF PAYM ENT OF LABOUR CHARGES TO CPWPL THE ASSESSING OFFICER DISAL LOWED 10% OF THE LABOUR CHARGES AS EXCESSIVE. WE FIND AL THOUGH THE CIT(A) VERIFIED FROM SOME OF THE BILLS AND VOUC HERS PRODUCED BEFORE HIM AND OBSERVED THAT THERE ARE SOM E BILLS WHEREBY THE ASSESSEE HAS PAID LESSER AMOUNT TO CPWP L THAN THE OTHER PARTIES AND ALTHOUGH HE OBSERVED THA T IT IS NOT POSSIBLE TO FIX A STANDARDISED RATE FOR EACH OF THE DIAMOND WHICH DEPENDS ON THE SIZE AND QUALITY OF TH E DIAMOND, HE SUSTAINED AN AMOUNT OF RS.35,45,000 OUT OF THE TOTAL DISALLOWANCE OF RS.70,90,000 MADE BY THE ASSESSING OFFICER. IN OUR OPINION, TO ARRIVE AT THE REASONABLENESS OF THE PAYMENT, BILLS FOR EACH MONTH AND COMPARABLE JOB WORK CHARGES FOR OTHER PARTIES ON MO NTH TO MONTH BASIS HAS TO BE EXAMINED. THIS EXERCISE HAS NOT BEEN DONE BY THE ASSESSING OFFICER OR THE CIT(A). HOWEVER, IN THE INSTANT CASE WE HAVE ALREADY RESTORED THE GR OUNDS OF APPEAL NO. 1 BY THE ASSESSEE AND THE REVENUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION WHERE THE ASSESSING OFFICER HAS BEEN DIRECTED TO DETERMINE TH E REASONABLE PROFIT IN THIS LINE OF BUSINESS CARRIED ON BY THE ASSESSEE. THEREFORE, WE DEEM IT PROPER TO RESTORE THIS ISSUE ALSO TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. IN OUR OPINION, EVEN IF JOB WORK CHA RGES PAID BY THE ASSESSEE ARE FOUND TO BE EXCESSIVE, RESULTAN T DISALLOWANCE, IF ANY, WILL SWELL THE GROSS PROFIT R ATIO. THE ASSESSING OFFICER SHALL KEEP IN MIND THIS ASPECT WH ILE CONSIDERING THE ISSUE IN GROUND NO. 1. WITH THESE OBSERVATIONS, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. THE GROU NDS BY THE ASSESSEE AS WELL AS THE REVENUE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. M/S. DIMEXON EXPORTS PVT. LTD. ======================= 12 14. ACCORDINGLY THE GROUNDS RAISED BY THE ASSESSEE IN 8 , 9 AND 11(C) AS WELL AS THE GROUNDS OF APPEAL NO. (III) BY THE R EVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 3774/MUM/09 (A.Y. 2002-03) (BY THE ASSESSEE): I.T.A. NO. 4039/MUM/09 (A.Y. 2002-03) (BY THE REVENUE): 15. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AND TH E REVENUE ARE IDENTICAL TO THE GROUNDS OF APPEAL RAISED IN I. T.A. NO. 3775/MUM/09 AND I.T.A. NO. 4038/MUM/09 FOR A.Y. 200 1-02, RESPECTIVELY. WE HAVE ALREADY THE DECIDED THE ISSU ES AND THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AND THE REVENUE AR E PARTLY ALLOWED FOR STATISTICAL PURPOSES. FOLLOWING THE SAME RATIO THE GROUNDS RAISED BY BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE PAR TLY ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 3773/MUM/09 (A.Y. 2004-05) (BY THE ASSESSEE): I.T.A. NO. 4040/MUM/09 (A.Y. 2004-05) (BY THE REVENUE): 16. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AND TH E REVENUE ARE IDENTICAL TO THE GROUNDS OF APPEAL RAISED IN I. T.A. NO. 3775/MUM/09 AND I.T.A. NO. 4038/MUM/09 FOR A.Y. 200 1-02, RESPECTIVELY. WE HAVE ALREADY THE DECIDED THE ISSU ES AND THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AND THE REVENUE AR E PARTLY ALLOWED FOR STATISTICAL PURPOSES. FOLLOWING THE SAME RATIO THE GROUNDS RAISED BY BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE PAR TLY ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 3772/MUM/09 (A.Y. 2005-06) (BY THE ASSESSEE): I.T.A. NO. 4041/MUM/09 (A.Y. 2005-06) (BY THE REVENUE): 17. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AND TH E REVENUE ARE IDENTICAL TO THE GROUNDS OF APPEAL RAISED IN I. T.A. NO. 3775/MUM/09 AND I.T.A. NO. 4038/MUM/09 FOR A.Y. 200 1-02, RESPECTIVELY. WE HAVE ALREADY THE DECIDED THE ISSU ES AND THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AND THE REVENUE AR E PARTLY ALLOWED FOR STATISTICAL PURPOSES. FOLLOWING THE SAME RATIO THE GROUNDS RAISED M/S. DIMEXON EXPORTS PVT. LTD. ======================= 13 BY BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE PAR TLY ALLOWED FOR STATISTICAL PURPOSES. 18. IN THE RESULT, ALL THE FOUR APPEALS FILED BY THE RE VENUE AS WELL AS THE FOUR APPEALS FILED BY THE ASSESSEE ARE PARTLY A LLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THE DATE OF HEARING ITSELF, I.E., 20 TH JULY, 2010 SD/- (D. MANMOHAN) VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATE 22 ND JULY, 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), CENTRAL-II, MUMBAI 4. THE CIT, CENTRAL-I, MUMBAI 5. THE DR D BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES, MUMBAI TPRAO