ITO 1(2)-3, MUMBAI V. MANSINGKA INDUSTRIES LTD, MUMBAI

ITA 388/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8688 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-10-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 16-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SATENDRA PANDEY
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 142(1); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI B.R.JAIN (ACCOUNTANT MEMBER) ITA NO.388/MUM/2009 ASSESSMENT YEAR: 2003-04 ITO 1(2)-3, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. M/S. MANSINGKA INDUSTRIES LTD., 3, DEEPAK APARTMENTS, WORLI HILL ROAD, BEHIND HP PETROL PUMP, WORLI, MUMBAI. PA NO.AAACM 8588 Q (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI MOHIT JAIN RESPONDENT BY: SHRI K.GOPAL & SATENDRA PANDEY DATE OF HEARING: 8.10.2012 DATE OF PRONOUNCEMENT: 12 .10.2012 ORDER PER B.R.MITTAL, JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2003-04 AGAINST ORDER DATED 30.10.2008 OF LD CIT(A) -1, MUMBAI ON FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, LD CIT(A) ERRED IN HOLDING THAT THE INCOME DERIVED BY THE ASSESSEE WAS IN NATURE OF BUSINESS INCOME AND ACCORDINGLY IN DIRECT ING TO ALLOW SET-OFF FOR BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION, WHEN IN FACT NO BUSINESS WAS CARRIED OUT BY THE ASSESSEE DURING THE YEAR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, LD CIT(A0 ERRED IN DIRECTING TO ALLOW LOSSES FROM OPERATION A MOUNTING TO RS.7,04,368/- EVEN THOUGH NO BUSINESS WAS CARRIED O UT BY THE ASSESSEE DURING THE YEAR. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, LD CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE OUT OF SALA RIES, WAGES, BANK CHANGES, OTHER EXPENSES AND INTEREST ETC, IGNORING THE FACT THAT NO BUSINESS WAS CARRIED OUT BY THE ASSESSEE DURING THE YEAR . 2. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTAT IVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. ITA NO.388/MUM/2009 ASSESSMENT YEAR: 2003-04 2 3. WE OBSERVE THAT THE ASSESSING OFFICER MADE THE A SSESSMENT ORDER UNDER SECTION 144 OF THE ACT AS THERE WERE NO COMPLIANCES ON THE PART OF THE ASSESSEE TO THE NOTICES ISSUED U/S.143(2) AND 142(1) R.W.S 129 OF THE ACT. 4. THE ASSESSING OFFICER HAS STATED THAT DURING THE YEAR UNDER ASSESSMENT, ASSESSEE DECLARED INCOME FROM PROPERTY, INTEREST AN D DIVIDEND, ETC. THE ASSESSEE, DURING THE YEAR, SOLD OFF THE ENTIRE BLOCK OF PLANT AND MACHINERY AND BOOKED A SHORT TERM CAPITAL GAIN OF RS.57,49,852, WHEREAS ON SALE OF THE OPENING STOCK IN TRADE, ASSESSEE HAS BOOKED A GROSS LOSS OF RS.7,04,368 BEI NG SALES FOR LESS THAN THE BOOK VALUE OF THE STOCK. HE HAS STATED THAT THERE HAS B EEN NO BUSINESS OPERATION BY THE ASSESSEE AND MACHINERIES ALSO HAVE BEEN SOLD OFF. HOWEVER, ASSESSEE DEBITED EXPENDITURE OF THE ORDER OF RS.15,29,481 FOR SALARY , RS.58,42,438 TO BANK INTEREST AND OTHER EXPENSES OF RS.7,78,805. AO HAS STATED THAT THE ONLY INCOME SHOWN BY THE ASSESSEE IS FROM THE HOUSE PROPERTY, INTEREST ON FD R, POST OFFICE NSC AND GAIN ON SALE OF ASSETS. THERE HAS BEEN NO PURCHASE, MANUFACTURE OR SALE DURING THE YEAR EXCEPT CLEARING OF THE OPENING STOCK-IN-TRADE. THIS LIMITE D ACTIVITY CANNOT JUSTIFY THE HUGE EXPENDITURE DEBITED BY THE ASSESSEE LIKE, ADVERTISE MENT, ELECTRICITY, HOUSE RENT PAID LEGAL AND PROFESSIONAL, REPAIRS AND MAINTENANCE, ET C, TOTALING TO RS. 7,78,805/-, BESIDES PAYMENT OF SALARY RS. 15,29,481/- AND BANK INTEREST OF RS.58,42,438/-. 5. IN VIEW OF ABOVE, AO DISALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE AND ASSESSED THE TOTAL INCOME AT RS.59,56,800 AS AGAINS T RETURNED INCOME DECLARING LOSS OF RS.12,13,625. BEING AGGRIEVED, ASSESSEE FILED APPE AL BEFORE LD CIT(A). 6. LD CIT(A) CONFIRMED THE ACTION OF THE AO TO MAKE ASSESSMENT ORDER U/S.144 OF THE ACT. HOWEVER, LD CIT(A) IN RESPECT OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION AND BUSINESS LOSS, HAS STATED THAT AO PASSED THE ORDER U/S.144 IN A HURRY WITHOUT VERIFYING THE PREVIOUS RECORDS. HE HAS STA TED THAT AO HAS NOT GIVEN ANY REMARK ON THE ISSUE IN THE REMAND REPORT. ACCORDINGLY, LD CIT(A) HAS DIRECTED THE AO TO VERIFY THE RECORDS AND QUANTIFY THE UNABSORBED DEPRECIATIO N AND BUSINESS LOSSES AVAILABLE FOR SET OFF AGAINST INCOME FOR THE YEAR UNDER CONSIDERA TION AND WILL ALLOW THE SET OFF AGAINST THIS YEARS INCOME AS PER LAW. FURTHER, LD CIT (A ) IN REGARD TO DISALLOWANCE OF ITA NO.388/MUM/2009 ASSESSMENT YEAR: 2003-04 3 EXPENDITURE CLAIMED HAS STATED THAT ASSESSEE INCURR ED LOSS OF RS.7,04,368 ON SALE OF OPENING STOCK IN TRADE AND THE AO HAS NOT GIVEN ANY REMARK ON THIS ISSUE IN HIS REMAND REPORT. THEREFORE, LD CIT(A) HAS DIRECTED THE AO T O ALLOW LOSS AS CLAIMED BY THE ASSESSEE. FURTHER, LD CIT(A) HAS STATED THAT ASSES SEE IS A SICK COMPANY. ASSESSEE COMPANY IS IN THE PROCESS OF LIQUIDATION. THE DEBT RECOVERY TRIBUNAL HAS NOT FINALIZED THE SETTLEMENT AND, THEREFORE, ASSESSEE HAS PROVIDE D FOR ONLY ONE TIME PAYMENT AND INTEREST THEREON. LD CIT(A) HAS STATED THAT AO IS NOT JUSTIFIED TO DISALLOW EXPENDITURE PARTICULARLY SALARIES PAID TO THE EMPLOYEES AND DIR ECTORS, COMPANY SECRETARY AND OTHER WORKERS. HE HAS STATED THAT ASSESSEE HAS TAKEN LOA NS FROM BANK WHICH IS AVAILABLE IN ITS BALANCE SHEET AND INTEREST PAID ON THIS LOAN. THER EFORE, AO HAS NO REASON TO DOUBT THE GENUINENESS OF THE EXPENDITURE WHICH HE DISALLOWED ONLY ON THE GROUND THAT ASSESSEE DID NOT HAVE BUSINESS ACTIVITY. LD CIT(A) HAS DELE TED THE SAID DISALLOWANCE MADE BY THE AO. 7. DURING THE COURSE OF HEARING, LD D.R. REITERATED THE FACTS AS STATED BY THE AO AND TO JUSTIFY THE DISALLOWANCE MADE BY HIM, HE SUBMITT ED THAT ASSESSEE DID NOT CARRY ON ANY BUSINESS. HENCE, AO WAS JUSTIFIED TO DISALLOW T HE CLAIM OF SET OFF OF BROUGHT FORWARD BUSINESS LOSSES, UNABSORBED DEPRECIATION AND THE S AME COULD NOT BE SET OFF AGAINST OTHER INCOME. HOWEVER, LD A.R. FILED A COPY OF ASS ESSMENT ORDER FOR ASSESSMENT YEAR 2009-2010 DT.29.9.2011 AND SUBMITTED THAT ASSESSEE IS REGULARLY ASSESSED TO TAX AND IS STILL CARRYING ON ITS BUSINESS. HE SUBMITTED THAT ASSESSEE ONLY DISPOSED OF PLANT AND MACHINERY IN RESPECT OF ONE OF ITS UNIT AND IN RESP ECT OF OTHER UNIT, ASSESSEE HAS NOT DISPOSED OF ITS PLANTS AND MACHINERY. HE SUBMITTED THAT THE HONBLE HIGH COURT PASSED AN ORDER DATED 25.20.2001 IN COMPANY APPLICATION NO .483 OF 2001 IN COMPANY PETITION NO.404 OF 1994 TO SET ASIDE THE WINDING UP ORDER. HE SUBMITTED THAT BIFR IS STILL CEASED WITH THE MATTER AND REFERRED PAGES 175 TO 188 OF PB WHICH CONTAIN PROCEEDINGS OF THE HEARING HELD ON 1.12.2009 BEFORE BIFR. LD A.R. SU BMITTED THAT ASSESSEE HAS NOT STOPPED ITS BUSINESS AND IS CARRYING ON THE SAME. FURTHER, HE SUBMITTED THAT ASSESSEE COMPANY IS IN EXISTENCE. THEREFORE, THE BROUGHT FO RWARD LOSSES AND UNABSORBED DEPRECIATION HAVE RIGHTLY BEEN DIRECTED TO BE ALLOW ED BY LD CIT(A) AS PER LAW AFTER VERIFICATION. HE FURTHER SUBMITTED THAT THE EXPEND ITURES AS CLAIMED BY THE ASSESSEE ARE ACCORDINGLY ALLOWABLE. ITA NO.388/MUM/2009 ASSESSMENT YEAR: 2003-04 4 8. HAVING CONSIDERED THE SUBMISSIONS OF LD REPRESEN TATIVES, AND ON PERUSAL OF PAPER BOOK, PLACED ON RECORD, WE FIND SUBSTANCE IN THE SU BMISSIONS OF LD A.R. THAT THE FINDINGS OF AO THAT ASSESSEE HAS STOPPED ITS BUSINESS BY SEL LING ENTIRE PLANT AND MACHINERIES IN THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. A.Y. 2 003-04 IS NOT SUBSTANTIATED BY THE FACTS ON RECORD. LD A.R. AT THE TIME OF HEARING SU BMITTED THAT ASSESSEE IS REGULARLY ASSESSED TO TAX AND ALSO FILED A COPY OF THE ASSESS MENT ORDER FOR ASSESSMENT YEAR 2009- 2010 DT.29.9.2011. ON PERUSAL OF THE SAID ASSESSME NT ORDER, IT IS OBSERVED THAT ASSESSEE FILED THE RETURN DECLARING TOTAL INCOME AT RS.16,84,610 AND WHEREAS INCOME WAS ASSESSED AT RS.22,79,690. IT IS ALSO OBSERVED THAT BIFR IS CEASED WITH THE CASE OF THE ASSESSEE AS PER THE MINUTES OF THE PROCEEDINGS HELD ON 1.12.2009 COPY PLACED AT PAGES 175 TO 188 OF PB. IT IS ALSO OBSERVED THAT O N PERUSAL OF PB THAT THE PROCEEDINGS BEFORE THE BIFR ALSO TOOK PLACE ON23.2.2010 AS PER THE MINUTES PLACED AT PAGES 166 TO 172 OF PB. IT IS A FACT THAT ASSESSEE HAS NOT DISP OSED OF ITS ENTIRE PLANT AND MACHINERY. CONSIDERING THE ABOVE FACTS, WE ARE OF THE CONSIDER ED VIEW THAT THE ORDER OF LD CIT(A) IN RESPECT OF GROUND NO.1 TAKEN BY DEPARTMENT IN RESTO RING THE MATTER TO THE FILE OF AO WITH A DIRECTION TO VERIFY RECORDS TO QUANTIFY THE UNABSORBED DEPRECIATION AND BUSINESS LOSS AVAILABLE FOR SET OFF AGAINST INCOME FOR THE A SSESSMENT YEAR BE ALLOWED AS PER LAW IS IN ORDER AND DOES NOT CALL FOR OUR INTERFERENCE. 9. HOWEVER, IN REGARD TO GROUND NOS.2 & 3 OF APPEAL , WE ARE OF THE CONSIDERED VIEW THAT THE AUTHORITIES BELOW HAVE NOT EXAMINED T HE GENUINENESS OF THE EXPENDITURE AS CLAIMED BY THE ASSESSEE AS THE AO DISALLOWED THE CLAIM ON THE GROUND THAT ASSESSEE HAS STOPPED ITS BUSINESS AND, THEREFORE, THE EXPEND ITURE CLAIMED CANNOT BE ALLOWED. ON THE OTHER HAND, LD CIT(A) HAS ALLOWED THE EXPENDITU RE AS CLAIMED BY THE ASSESSEE, ON THE GROUND THAT ASSESSEE IS CARRYING ON ITS BUSINES S. WE ARE OF THE CONSIDERED VIEW THAT GROUND NOS.2 & 3 OF APPEAL BE RESTORED TO THE FILE OF AO TO DECIDE THE CLAIM OF THE EXPENSES IN ACCORDANCE WITH LAW AFTER GIVING DUE OP PORTUNITY OF HEARING TO THE ASSESSEE AND KEEPING IN VIEW THE FACT THAT THE BUSINESS OF T HE ASSESSEE IS NOT CLOSED IN THE ASSESSMENT YEAR UNDER CONSIDERATION MERELY ASSESSEE HAS SOLD ITS PLANT AND MACHINERY IN RESPECT OF ITS ONE UNIT. HE WILL DECIDE THIS IS SUE AFTER CONSIDERING SUCH EVIDENCES AS MAY BE PLACED BEFORE HIM. ITA NO.388/MUM/2009 ASSESSMENT YEAR: 2003-04 5 10. HENCE, GROUND NOS.2 & 3 OF APPEAL TAKEN BY ASSE SSEE ARE ALLOWED FOR STATISTICAL PURPOSES WHEREAS GROUND NO.1 OF APPEAL IS REJECTED. 11. IN THE RESULT, APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 12 TH OCTOBER, 2012 SD/- (B.R.JAIN) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 12 TH OCTOBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),1, MUMBAI 4. COMMISSIONER OF INCOME TAX,1 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH B MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI