ITO, New Delhi V. M/s. Neelam Viscos Thread (P) Ltd., New Delhi

ITA 4406/DEL/2010

• Counselvise Citation: 440620114 RSA 2010
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 22-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 01-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Assessee Lawyers: P K MISHRA
• Keywords: Business income; Business expenditure
• Section: 37(1)

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 DELHI BENCH DELHI BENCH DELHI BENCH E EE E : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI R.P.TOLANI, JM AND SHRI BEFORE SHRI R.P.TOLANI, JM AND SHRI BEFORE SHRI R.P.TOLANI, JM AND SHRI BEFORE SHRI R.P.TOLANI, JM AND SHRI SHAMIM YAHYA SHAMIM YAHYA SHAMIM YAHYA SHAMIM YAHYA, AM , AM , AM , AM ITA NO ITA NO ITA NO ITA NOS SS S. .. .4406/DEL/2010 & 4407/DEL/2010 4406/DEL/2010 & 4407/DEL/2010 4406/DEL/2010 & 4407/DEL/2010 4406/DEL/2010 & 4407/DEL/2010 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEARS SS S : : : : 2006 2006 2006 2006- -- -07 & 2007 07 & 2007 07 & 2007 07 & 2007- -- -08 0808 08 INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -13(2), 13(2), 13(2), 13(2), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M/S NEELA M/S NEELA M/S NEELA M/S NEELAM VISCOS M VISCOS M VISCOS M VISCOS THREAD (P) LTD., THREAD (P) LTD., THREAD (P) LTD., THREAD (P) LTD., 229, PATPARGANJ INDUSTRIAL 229, PATPARGANJ INDUSTRIAL 229, PATPARGANJ INDUSTRIAL 229, PATPARGANJ INDUSTRIAL ESTATE, ESTATE, ESTATE, ESTATE, DELHI. DELHI. DELHI. DELHI. PAN : PAN : PAN : PAN : AACCN0242L. AACCN0242L. AACCN0242L. AACCN0242L. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.S.NEGI, SR.DR. RESPONDENT BY : SHRI P.K.MISHRA, CA. ORDER ORDER ORDER ORDER PER PER PER PER R.P.TOLANI, JM R.P.TOLANI, JM R.P.TOLANI, JM R.P.TOLANI, JM : : : : THESE ARE TWO APPEALS FILED BY THE REVENUE. COMMON GROUNDS RAISED ARE AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN DELETING THE ADDI TION MADE ON ACCOUNT OF DISALLOWANCE OF BUSINESS EXPENSES WHEN THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN IGNORING THE FACT THAT IN ORDER TO BE DEDUCTIBLE, THE EXPENDITURE MUST BE INCURRED FOR THE PURPOSE OF BUSINESS ACTIVITY WHICH HAS TO BE IN EXISTENCE IN THE ACCOUNTING YEAR. THERE SHOULD BE NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS AND THE EXPENDITURE SHOULD HAVE BEEN WHOLLY AND EXCLUSIVELY LAID OUT FOR THAT PURPOSE AS HELD BY THE HONBLE HIGH COURT (MADRAS) IN ITA-4406 & 4407/DEL/2010 2 THE CASE OF RAMAN & RAMAN LTD. VS. CIT 71 ITR 341. THE EXPENSES OF RS.20,20,384/- HAVE BEEN CLAIMED AGAINST THE NIL BUSINESS INCOME WHICH IS PATENTLY EXCESSIVE. (THE AMOUNT IN AY 2007-08 IS RS.15,99,361/-). 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN ALLOWING THE BUSI NESS EXPENSES ON THE PLEA OF THE ASSESSEE THAT IT CONTIN UES TO CARRY ON THE BUSINESS OF COMMISSION. THE LD.CIT (A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE DID NOT HAVE ANY RECEIPTS BY WAY OF COMMISSION DURING THE YEAR AND ALSO IN THE PREVIOUS YEAR. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN RELY ON THE DECIS IONS IN THE CASE OF WHIRLPOOL INDIA (2008) 19 SOT 593 (DELHI) AND 318 ITR 347 (DELHI HIGH COURT) AS THE CLAIM OF THE EXPENSES IN THAT CASE TURNED ON THE DECISION AS TO WHEN THE BUSINESS CAN BE SAID TO HAV E BEEN SET UP. 2. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY WAS IN CORPORATED ON 30.9.2004 FOR THE PURPOSE OF CARRYING ON BUSINES S OF TRADING, MANUFACTURING, PROCESSING, DYEING, SELLING, RESELLI NG, IMPORTING, EXPORTING, STORING, FABRICATING, DEVELOPING, MARKET ING OR SUPPLYING, AND TO ACT AS BROKERS, TRADERS, AGENT, C &F AGENT ETC. IN THE FIRST ASSESSMENT YEAR I.E. 2005-06, THE COMPA NY STARTED COMMISSION AGENT WORK AS THE PLANT WAS NOT SET UP. IN THE YEARS IN QUESTION, THE ASSESSEE EARNED RENTAL INCOME AND THERE WAS NO COMMISSION INCOME. HOWEVER, ASSESSEE IN BOTH THE Y EARS CLAIMED BUSINESS EXPENSES WHICH ARE MENTIONED IN TH E GROUNDS OF APPEAL. THE AO AFTER CONSIDERING THAT EVIDENCE AND ASSESSEES EXPLANATION HELD THAT THERE WAS NO BUSINESS ACTIVIT Y CARRIED ON BY THE ASSESSEE IN THESE TWO YEARS. THEREFORE, THE BU SINESS EXPENSES CANNOT BE ALLOWED TO THE ASSESSEE. IT IS PERTINENT TO ITA-4406 & 4407/DEL/2010 3 MENTION HERE THAT THE RENTAL INCOME WAS ALSO TREATE D AS BUSINESS INCOME WHICH WAS TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 3. IN THE FIRST APPEAL, CIT(A) HELD THAT THE RENTAL INCOME WAS TO BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY , WHICH ISSUE IS NOT BEFORE US. HOWEVER, ON THE ISSUE OF B USINESS EXPENDITURE, CIT(A) ALLOWED THE SAME BY FOLLOWING O BSERVATIONS:- 4.3 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT COMPANY. THERE IS NO DOUBT THAT THE APPELLANT COMPANY STARTE D ITS BUSINESS IN THE FY 2004-05 WHEN IT EARNED INCOME THROUGH COMMISSION. MEMORANDUM OF ASSOCIATION HAS ALSO BEEN LOOKED INTO AND CLAUSE 1 OF THE MAIN OBJECTS TO BE PURSUED BY THE APPELLANT ON ITS INCORPORATION MENTIONED BROKER, TRADER, AGENT AND C&F AGENT AS THE BUSINESS ACTIVITIES WHICH CAN BE CARRIED ON BY THE APPELLANT COMPANY. IF THE APPELL ANT HAS NOT INSTALLED ANY MACHINERY BUT DID COMMISSION BUSINESS IN THE PREVIOUS YEAR AND IN THE LATER YEAR S THEN IT CAN SAFELY BE SAID THAT THE APPELLANT HAD S ET UP ITS BUSINESS AND HAS NOT DISCONTINUED ITS BUSINESS ACTIVITIES. IT IS AN ESTABLISHED LAW NOW THAT EVEN EXPENSES AFTER THE SETTING UP OF BUSINESS BUT BEFOR E THE COMMENCEMENT OF THE BUSINESS ARE FULLY ALLOWABL E AS WAS HELD BY ITAT DELHI IN THE CASE OF WHIRLPOOL OF INDIA LTD. VS. JCIT (2008) 19 SOT 593 (DEL). THIS DECISION HAS BEEN AFFIRMED BY DELHI HIGH COURT AND REPORTED AT 318 ITR 347. BUT HERE IN THE INSTANT C ASE, THE APPELLANT HAD CARRIED OUT ONE OF THE AUTHORIZED BUSINESS OF EARNING COMMISSION INCOME AS PER THE MOA AND IF NO BUSINESS IS GENERATED IN THE YEAR UND ER CONSIDERATION THEN IT SHALL NOT LEAD TO A CONCLUSIO N THAT THE EXPENSES ARE NOT TO BE ALLOWED. EARNING OF INCOME IN LATER YEARS ALSO SUGGEST THAT THE APPELLA NT HAS BEEN INTO THE BUSINESS AS PER ITS MOA AND HENCE , THERE IS NO CAUSE FOR DISALLOWING THE EXPENDITURE WHICH WERE OTHERWISE ALLOWABLE AS PER SECTION 37(1) OF ITA-4406 & 4407/DEL/2010 4 THE ACT. ACCORDINGLY, THE ASSESSING OFFICER IS DIR ECTED TO DELETE THE ADDITION MADE IN THE IMPUGNED ORDER. THIS GROUND OF APPEAL IS TAKEN AS ALLOWED TO THE APPELLANT. 4. AGAINST THIS ORDER IN BOTH THE YEARS, THE REVENU E IS BEFORE US. 5. LEARNED DR CONTENDS THAT THE ASSESSEE HAS NOT CA RRIED OUT ANY ACTIVITY WHICH MAY BE CONSIDERED TO BE BUSINESS ACTIVITY OF THE ASSESSEE. RATHER, THE LEASE PREMISES ALSO WERE LET OUT ON RENT DURING THIS PERIOD. THE ASSESSEE HAD CLAIMED THAT IN AY 2005-06, THE ASSESSEE ENTERED INTO THE BUSINESS OF C OMMISSION OF YARN AS IT WAS SETTING UP OF THE PLANT AND MACHI NERY. HOWEVER, NO EVIDENCE HAS BEEN ADDUCED THAT ANY EFFORT WAS MA DE IN THIS DIRECTION. CIT(A) HAS GIVEN A FINDING THAT IT CAN SAFELY BE SAID THAT ASSESSEE HAS SET UP HIS BUSINESS AND NOT DISCO NTINUED HIS BUSINESS ACTIVITY. LEARNED DR CONTENDS THAT SUCH P RESUMPTION HAS TO BE BASED ON OBJECTIVE MATERIAL. BEFORE THE CIT(A), THE ASSESSEE HAS NOT FILED EVEN A SHRED OF EVIDENCE ABO UT CONTINUATION OF BUSINESS ACTIVITIES. THE COMMISSIO N INCOME IS TRANSACTION SPECIFIC. THERE IS NEITHER ANY ROLE OF RESOLUTION OF BOARD OF DIRECTORS THAT THE BUSINESS HAD BEEN TEMPO RARILY SUSPENDED NOR ANY EVIDENCE HAS BEEN FILED THAT ASSE SSEE WAS IN THE PROCESS OF PROCURING ANY ORDERS OR ANY ENQUIRIE S WERE MADE. THE ASSESSEES CLAIM THAT IT WAS CARRYING ON BUSINE SS WHICH WAS SUSPENDED IS TO BE SUPPORTED BY COGENT MATERIAL. I T CANNOT BE ACCEPTED MERELY ON ORAL ASSERTION OR A PRESUMPTION WHICH HAS BEEN DONE BY THE CIT(A). EVEN BEFORE THE TRIBUNAL, IN THE PAPER BOOK FILED, NOTHING HAS BEEN ADDUCED TO DEMONSTRATE THAT EVEN ITA-4406 & 4407/DEL/2010 5 THE PAST ACTIVITY WAS CARRIED OUT FOR NAMESAKE. ME RELY RELYING ON OBJECT CLAUSE OF THE COMPANY CANNOT LEAD TO THIS PR ESUMPTION. THE ASSESSEES OWN STAND THAT COMMISSION ACTIVITY W AS CARRIED OUT FOR PRECEDING YEAR BECAUSE IT WAS SETTING UP OF PLANT STANDS CONTRADICTED AS THE ASSESSEE NOT ONLY CARRIED OUT A NY BUSINESS ACTIVITY BESIDES SO CALLED LEASED PREMISES FOR SETT ING UP OF PLANT WAS LET OUT. THIS CLEARLY SHOWS THAT ASSESSEE HAS STOPPED HIS BUSINESS. HE, THEREFORE, CONTENDED THAT THE EXPEND ITURE HAS BEEN RIGHTLY DISALLOWED. 6. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, RELIED ON THE ORDER OF THE ASSESSING OFFICER. 7. WE HAVE HEARD THE RIVAL CONTENTION AND HAVE PERU SED THE RELEVANT MATERIAL ON RECORD. AS THE FACTS EMERGE, IT IS EVIDENT THAT IT WAS THE ASSESSEES OWN CONTENTION THAT THE COMMISSION ACTIVITY IN AY 2004-05 WAS UNDERTAKEN BY THE ASSESSE E AS IT WAS IN THE PROCESS OF SETTING UP OF THE PLANT. THERE I S NO EVIDENCE ON RECORD THAT ASSESSEE TOOK ANY STEPS IN THIS DIRECTI ON. IN THE YEARS IN QUESTION, EVEN THE COMMISSION ACTIVITY HAS BEEN STOPPED. BESIDES, THE ALLEGED LEASE PREMISES HAVE ALSO BEEN LEASED OUT ON RENT. IN THE PAPER BOOK FILED BY THE ASSESSEE ALSO , THERE IS NO EVIDENCE ABOUT SETTING UP OF CONTINUATION OF BUSINE SS AS CLAIMED BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSES SEE WAS SPECIFICALLY ASKED AS TO WHETHER HE HAS ANY EVIDENC E ABOUT THE SETTING UP OR CONTINUATION OF BUSINESS. THE LEARNE D COUNSEL REPLIED IN THE NEGATIVE. IN THESE CIRCUMSTANCES, W E ARE OF THE VIEW THAT THE LEARNED CIT(A)S FINDING THAT THERE W AS STRONG POSSIBILITY ABOUT ASSESSEES CARRYING ON BUSINESS A CTIVITY IS TOTALLY ITA-4406 & 4407/DEL/2010 6 UNFOUNDED. THERE BEING NO EVIDENCE ON RECORD IN TH IS BEHALF, THIS FINDING CANNOT BE UPHELD. SINCE THE ASSESSEE HAS F AILED TO DEMONSTRATE THAT IT HAD CONTINUED THE BUSINESS, THE AO RIGHTLY HELD THAT THERE WAS NO BUSINESS AND THE EXPENDITURE WAS RIGHTLY DISALLOWED. WE, THEREFORE, REVERSE THE ORDER OF TH E CIT(A). 8. IN THE RESULT, THE APPEALS OF THE REVENUE ARE AL LOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2011. SD/- SD/- ( (( (SHAMIM YAHYA SHAMIM YAHYA SHAMIM YAHYA SHAMIM YAHYA) )) ) (R.P.TOLANI (R.P.TOLANI (R.P.TOLANI (R.P.TOLANI) )) ) ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 30.09.2011 VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR