AXIS MPEX, MUMBAI V. JCIT RG 14(2), MUMBAI

ITA 4447/MUM/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84602 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 24-07-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Keywords: Business income; Depreciation

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BE NCH, MUMBAI . , !' #$ %&'( , #) *+ # ' BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO. 4447/MUM/2009 ( - - - - / ASSESSMENT YEAR : 2005-06 M/S. AXIS IMPEX, SHOP NO. 4, 83-85, DADY SHETH AGIARY LANE, MUMBAI-400 002 / VS. THE JCIT, RANGE 14(2), EARNEST HOUSE, 3 RD FLOOR, NARIMAN POINT, MUMBAI-400 020 +. #) ./ /0 ./ PAN/GIR NO. : AAGFA 2650N ( .1 / APPELLANT ) .. ( 23.1 / RESPONDENT ) .1 4 # / APPELLANT BY: SHRI HIRO RAI 23.1 5 4 # / RESPONDENT BY: SHRI ASGHAR ZAIN 5 6) / DATE OF HEARING :22.12.2014 7- 5 6) / DATE OF PRONOUNCEMENT :31.12.2014 *#8 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)-XIV, MUMBAI DT.04.05.2009 PERTAINING TO A.Y. 2005-06. 2. THE FIRST GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE TAXATION OF LICENCE COMPENSATION REC EIVED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND FURTHER ERRED IN CONFIRMING THE ITA NO. 4447/M/09 2 TAXATION UNDER THE HEAD INCOME FROM HOUSE PROPERTY . THE SECOND GRIEVANCE OF THE ASSESSEE IS INTER LINKED WITH THE FIRST GRIEVANCE INASMUCH AS THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWA NCE OUT OF DEPRECIATION CLAIMED BY THE ASSESSEE. 3. THE ASSESSEE IS IN THE BUSINESS OF EXPORT/IMPORT /MANUFACTURER. RETURN FOR THE YEAR WAS FILED ON 31.10.2005 DECLARI NG TOTAL INCOME AT RS. 32,50,486/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE ISSUED AND SERVE D UPON THE ASSESSEE. 3.1. DURING THE COURSE OF THE SCRUTINY ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHO WN LICENCE COMPENSATION RECEIVED OF RS. 72,000/- AS INCOME A ND LEAVE & LICENCE DEPOSITS OF RS. 12 LAKHS IN THE BALANCE SH EET. THE ASSESSEE WAS ASKED TO EXPLAIN THESE TWO ITEMS. THE ASSESSEE FIL ED A DETAILED REPLY EXPLAINING THAT THE ASSESSEE HAD LET OUT PART OF I TS BUSINESS PREMISES AT RIDDHI SIDDHI INDUSTRIAL ESTATE TO FOUR PERSONS ON RENT. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO POINTED OUT TO TH E AUTHORIZED REPRESENTATIVE OF THE ASSESSEE THAT WHY THE INCOME FROM LETTING OUT THE GALAS SHOULD NOT BE TREATED AS INCOME FROM HOUSE PR OPERTY AND WHY PROPORTIONATE DEPRECIATION ON THE SAID BUILDING SHO ULD NOT BE DISALLOWED. 3.2. THE ASSESSEE FILED A DETAILED REPLY DT. 14.11. 2007. IT WAS EXPLAINED THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE AND EXPORT OF HOUSEHOLD PLASTIC AND STAINLESS STEEL ARTICLES AND ALSO DOING VARIOUS LABOUR JOBS IN MANUFACTURE OF STAINLESS STEEL HOUSE HOLD ARTICLES. IT WAS FURTHER EXPLAINED THAT THERE ARE TOTAL 19 GALAS OUT OF WHICH GALA NOS 1 TO 6 ARE BEING USED BY M/S. ANMOL INTERNATIONAL WHO IS T HE PRINCIPAL LABOUR CONTRACTOR OF THE FIRM CATERING THE BUSINESS REQUIR EMENTS OF THE ASSESSEE. ITA NO. 4447/M/09 3 IT WAS STRONGLY SUBMITTED THAT SINCE THE LETTING O UT OF GALAS WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS THE REFORE RECEIPT FROM THE GALAS ARE TREATED AS BUSINESS RECEIPTS. 3.3. THE AFOREMENTIONED EXPLANATION DID NOT FIND AN Y FAVOUR FROM THE AO. THE AO WAS OF THE FIRM BELIEF THAT THE ASSESSE E HAS SIMPLY LET OUT THE PART OF THE BUILDING VIDE FOUR DIFFERENT AGREE MENTS TO FOUR LADIES WHO IN TURN HAVE FURTHER LET OUT THE PROPERTIES TO M/S. ANMOL INTERNATIONAL. DRAWING SUPPORT FROM THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF M/S. SHAMBHU INVESTMENT (P) LTD 263 ITR 143 , THE AO WAS CONVINCED THAT THE INCOME OUGHT TO BE TAXED UNDER T HE HEAD INCOME FROM HOUSE PROPERTY. THE AO WAS OF THE STRONG BELIEF T HAT THE RENT RECEIVED BY FOUR LADIES WHO HAVE LET OUT THE PROPERTY TO M/S . ANMOL INTERNATIONAL FOR RS. 30,000/- PER MONTH SHOULD BE THE FAIR MARKE T RATE OF THE RENT AND ACCORDINGLY COMPUTED THE INCOME FROM HOUSE PROPERTY BY TAKING RS. 3,60,000/- AS THE ANNUAL LET OUT VALUE AND AFTER AL LOWING STATUTORY DEDUCTION ADDITION OF RS. 2,52,000/- WAS MADE. THE AO REDUCED RS. 72,000/- FROM THE BUSINESS INCOME OF THE ASSESSEE A ND FURTHER DISALLOWED THE CLAIM OF DEPRECIATION. 4. THE ASSESSEE STRONGLY AGITATED THIS MATTER BEFOR E THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL DREW OUR ATTENTION TO THE VARIOUS AGREEMENTS BETWEEN THE ASS ESSEE AND THE FOUR LADIES. THE LD. COUNSEL ALSO DREW OUR ATTENTION TO THE DEED OF PARTNERSHIP IN THE CASE OF M/S. ANMOL INTERNATIONAL . IT IS THE SAY OF THE LD. COUNSEL THAT M/S. ANMOL INTERNATIONAL WAS THE P RINCIPLE LABOUR ITA NO. 4447/M/09 4 CONTRACTOR DOING EXCLUSIVELY LABOUR JOB WORK FOR TH E ASSESSEE. THE LD. COUNSEL FURTHER POINTED OUT THAT BY THIS ARRANGEMEN T, THE ASSESSEE HAS CONSTANT WATCH OVER THE MANUFACTURING ACTIVITY VIS- -VIS LABOUR WORK WITHIN ITS PREMISES ITSELF THEREFORE THE ENTIRE ARR ANGEMENT WAS OUT OF COMMERCIAL NEED/NECESSITY, THE INCOME RECEIVED BY T HE ASSESSEE NEED TO BE TAXED UNDER THE HEAD BUSINESS INCOME AND SIMUL TANEOUSLY THE DEPRECIATION SHOULD BE ALLOWED. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCE BROUGHT ON RECORD AND REFERRED TO DURING THE COURSE OF THE HEARING. IT IS AN UNDISPUT ED FACT THAT THE FOUR GALAS WERE LET OUT BY THE ASSESSEE TO FOUR LADIES A ND NOT TO M/S. ANMOL INTERNATIONAL. SUBSEQUENTLY, THE FOUR LADIES LET O UT THE GALAS TO M/S. ANMOL INTERNATIONAL. WE FAIL TO UNDERSTAND WHY SUC H A CIRCUITOUS ROUTE HAS BEEN UNDERTAKEN BY THE ASSESSEE. AT EVERY STAG E THE ASSESSEE HAS CLAIMED TO HAVE BEEN BENEFITED FROM THIS BUSINESS A RRANGEMENT. HOWEVER, AT THE SAME TIME THE ASSESSEE HAS GROSSLY FAILED TO DEMONSTRATE HOW IT HAS BEEN COMMERCIALLY BENEFITED. THERE IS N OTHING ON RECORD TO SHOW HOW MUCH LABOUR PAYMENT ASSESSEE HAS MADE TO M /S. ANMOL INTERNATIONAL AND HOW MUCH OUT OF LABOUR PAYMENT TH E ASSESSEE HAS BEEN BENEFITED BY WAY OF DIRECT CONTROL OVER THE LABOUT COST. IT IS ALSO AN UNDISPUTED FACT THAT M/S. ANMOL INTERNATIONAL IS AL SO A SIMILAR LINE OF BUSINESS. IT APPEARS THAT M/S. ANMOL INTERNATIONAL MAY HAVE DERIVED BENEFITS FROM THE ASSESSEE BY MERELY PAYING A MEAGE R SUM AS PAYMENT AND USING THE ENTIRE INFRASTRUCTURE FOR THE PURPOSE OF ITS OWN BUSINESS. NO FIRST DEGREE NEXUS HAS BEEN ESTABLISHED BETWEEN THE LETTING OUT OF GALAS ITA NO. 4447/M/09 5 AND THE BUSINESS/COMMERCIAL BENEFITS DERIVED BY THE ASSESSEE. WE THEREFORE, DO NOT WANT TO INTERFERE WITH THE FINDIN GS OF THE LD. CIT(A). GROUND NO. 1 & 2 ARE ACCORDINGLY DISMISSED. 8. GROUND NO. 3 & 4 RELATE TO THE DISALLOWANCE OUT OF CONVEYANCE EXPENSES AND LOCAL TEMPO CHARGES AMOUNTING TO RS. 56,305/- AND DISALLOWANCE OF RS. 30,000/- OUT OF TELEPHONE EXPE NSES. 9. WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED RS. 6,53,045/- AS CONVEYANCE/L OCAL TEMPO CHARGES. THE AO FURTHER NOTICED THAT ALMOST ALL THE EXPENDIT URES HAVE BEEN INCURRED IN CASH EXCEPT THAT RS. 90,000/- WAS PAID BY CHEQUE. DOUBTING THE GENUINENESS OF ALL THE EXPENSES, THE AO DISALLO WED 1/10 TH AND MADE AN ADDITION OF RS. 56,305/-. SIMILARLY, OUT OF TOT AL TELEPHONE EXPENSES OF RS. 2,99,215/-, THE AO DISALLOWED 1/10 TH FOR THE PERSONAL USE. 10. BEFORE THE LD. CIT(A), IT WAS CONTENDED THAT TH E ASSESSEE HAS SALES OF OVER RS. 9 CRORES THEREFORE EXPENDITURE UNDER TH E HEAD CONVEYANCE AND TEMPO CHARGES AMOUNTING TO RS 6.5 LAKHS IS VERY REA SONABLE. ALTERNATIVELY, IT WAS CLAIMED THAT THE DISALLOWANCE IS EXCESSIVE. THE LD. CIT(A) WAS NOT CONVINCED ON FINDING THAT EXCEPT FOR RS. 90,000/-, THE ENTIRE EXPENDITURE HAVE BEEN INCURRED IN CASH, CONF IRMED THE DISALLOWANCE MADE BY THE AO. THE SAME REASONING WA S GIVEN FOR CONFIRMING THE DISALLOWANCE OUT OF TELEPHONE EXPENS ES. 11. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE ONC E AGAIN STATED THAT DISALLOWANCE IS EXCESSIVE. ITA NO. 4447/M/09 6 12. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW. ON BOTH COUNTS, THE AO HAS MADE AN ADHOC DISALLOWAN CE OF 1/10 TH ON A TURNOVER OF AROUND 9 CRORES. THIS DISALLOWANCE CAN NOT BE CONSIDERED AS EXCESSIVE. WE, THEREFORE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 3 & 4 ARE D ISMISSED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DECEMBER, 2014 SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) !' /VICE PRESIDENT #) *+ / ACCOUNTANT MEMBER MUMBAI; 9* DATED : 31 ST DECEMBER, 2014 . . ./ RJ , SR. PS *#8 *#8 *#8 *#8 5 55 5 26% 26% 26% 26% :#%-6 :#%-6 :#%-6 :#%-6 / COPY OF THE ORDER FORWARDED TO : 1. .1 / THE APPELLANT 2. 23.1 / THE RESPONDENT. 3. ; ( ) / THE CIT(A)- 4. ; / CIT 5. %<= 26 , , / DR, ITAT, MUMBAI 6. = > / GUARD FILE. *#8 *#8 *#8 *#8 / BY ORDER, 3%6 26 //TRUE COPY// / / / / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI