SUJATA TRADING P.LTD, MUMBAI V. ITO 8(3)(2), MUMBAI

ITA 4515/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1082 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 30-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: HARSHAL AGRAWAL
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice; Unabsorbed depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4515/MUM/2014 ASSESSMENT YEAR: 2011-12 M/S SUJATA TRADING PRIVATE LTD. VS. INCOM E TAX OFFICER 8(3)(2), PUSHP-KUNJ, KHAN ABDUL 2 ND FLOOR, AAYAKAR BHAVAN, M.K. GAFFER KHAN ROAD, WORLI SEA FACE, ROAD, MUMBAI-40 0020 WORLI, MUMBAI-400025 PAN: AACCS2276H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HARSHAL AGRAWAL, AR REVENUE BY: SHRI B.S. BIST, DR DATE OF HEARING : 14/0 2/2017 DATE OF PRONOUNCEMENT: 28/04/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2011-12. THE APPEAL IS DIRECTED AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS) 18, MUMBAI AND ARISES OUT OF ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE REA D AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) 18 ERRED IN DISMISSING THE FIRST GRO UND REGARDING THE VIOLATION OF PRINCIPALS OF NATURAL JUSTICE BY S TATING THAT THE GROUND IS GENERAL IN NATURE.. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) 18 ERRED IN CONFIRMING THE DISALLOWANCE OF R S.3,00,000/- OUT OF ITA NO 4515/ MUM/2014 2 RS.4,00,000/- DISALLOWANCE BY INCOME TAX OFFICER, O UT OF TOTAL RENT PAID RS.5,00,000/- BY YOUR APPELLANT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) 18 ERRED IN CONFIRMING THE DISALLOWANCE OF R S.3,00,000/- IN PLACE OF RS.4,10,000/- DISALLOWANCE BY THE INCOME T AX OFFICER OUT OF TOTAL CAR EXPENSES OF RS.4,27,151/-. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) 18 ERRED IN CONFIRMING THE DISALLOWANCE OF R S.1,10,000/- DONE BY INCOME TAX OFFICER OUT OF RS.1,50,000/-, BEING 5 0% OF THE ELECTRICITY EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) 18 ERRED IN CONFIRMING THE DISALLOWANCE OF R S.41,050/- DONE BY THE INCOME TAX OFFICER OUT OF BUSINESS PROMOTION EXPENSES OF RS.82,107/-. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) 18 ERRED IN CONFIRMING THE DISALLOWANCE OF R S.2,50,000/- OUT OF RS.5,00,000/- TOWARDS SERVICE CHARGES PAID TO THE D IRECTOR. 7. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) 18 ERRED IN CONFIRMING THE ACTION OF THE INC OME TAX OFFICER IN SETTING OFF THE BROUGHT FORWARD UNABSORBED DEPRECIA TION FIRST INSTEAD OF THE BROUGHT FORWARD BUSINESS LOSS, AS CONTEMPLAT ED UNDER THE PROVISIONS OF THE INCOME TAX ACT, 1961. 3. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE A.Y. 2011-12 ON 27.09.2011 DECLARING TOTAL INCOME OF RS. NIL. THE A SSESSEE DERIVES INCOME FROM TRADING IN SHARES. WE BEGIN WITH THE 1 ST GROUND OF APPEAL. IT RELATES TO THE ISSUE OF VIOLATION OF PRINCIPAL OF NATURAL JUSTICE BY THE AS SESSING OFFICER (A.O.). WE FIND THAT SUFFICIENT OPPORTUNITY WAS GIVEN BY THE A .O. TO THE ASSESSEE TO REPRESENT ITS CASE. THIS IS EVIDENT FROM THE ASSESS MENT RECORD. IN VIEW OF THE ABOVE THE 1 ST GROUND OF APPEAL IS DISMISSED. ITA NO 4515/ MUM/2014 3 4. WE NOW COME TO 2 ND GROUND OF APPEAL. THE ASSESSEE HAS CLAIMED RS.5,00,000/- AS RENT FOR THE A.Y. 2011-12 AS COMPA RED TO RS.1,00,000/- IN THE PREVIOUS ASSESSMENT YEAR 2010-11. THE RENT OF R S. 5,00,000/- WAS PAID TO M/S. STEEL INVESTMENT (P) LTD. WHICH IS A SISTER CONCERN OF THE ASSESSEE FOR USING THE OFFICE PREMISES LOCATED AT 3/4, PUSHP KUNJ, KHAN ABDUL GAFFAR KHAN ROAD, WORLI SEA FACE, WORLI, MUMBAI 400025. THE A.O. HAVING CONDUCTED ENQUIRIES, FOUND THAT THE SAID PREMISES I S A DUPLEX BUNGLOW OWNED BY M/S. STEEL INVESTMENT (P) LTD. WHERE THE E NTIRE 1 ST FLOOR WAS OCCUPIED BY THE DIRECTOR SHRI ANIRUDH JAJODIA, HIS WIFE AND DIRECTOR MS. ASTHA AND FAMILY MEMBERS. TWO ROOMS ON THE GROUND F LOOR ARE USED FOR THE PURPOSE OF BUSINESS, ONE OF THESE ROOMS IS OCCUPIED BY THE DIRECTOR AND THE OTHER ROOM IS USED TO KEEP RECORDS AND USED BY THE STAFF. IN VIEW OF THE ABOVE, THE A.O. DISALLOWED RS. 4,00,000/- AS EXCESS IVE RENT. IN APPEAL, THE LEARNED CIT(A) RESTRICTED THE DISALLOWANCE TO RS. 3 ,00,000/-. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATE RIAL ON RECORD, WE DEEM IT FIT TO RESTRICT THE DISALLOWANCE TO RS. 2,0 0,000/- IN PLACE OF RS. 3,00,000/- SUSTAINED BY THE LEARNED CIT(A). HENCE T HE 2 ND GROUND OF APPEAL IS PARTLY ALLOWED. 5. NOW WE COME TO 3 RD GROUND OF APPEAL. THE A.O. OBSERVED THAT THE ASSESSEE HAD DEBITED RS. 4,27,151/- UNDER THE HEAD ADMINISTRATIVE EXPENSES ON ACCOUNT OF CAR EXPENSES. THE CAR EXPENS ES INCLUDED A SUM OF RS. 4,10,000/- PAID TO SMT. RAJNI DEVI JAJODIA, MOT HER OF THE DIRECTOR OF ASSESSEE-COMPANY. THE A.O. ASKED THE ASSESSEE TO PR ODUCE THE LOG BOOK FOR RUNNING OF THE VEHICLE. HOWEVER THE ASSESSEE COULD NOT PRODUCE BEFORE THE A.O. THE LOG BOOK. SINCE THE EXPENSES TOWARDS DEPRE CIATION AND RUNNING OF VEHICLE WAS ALREADY ALLOWED, THE A.O. DISALLOWED TH E CLAIM FOR CAR HIRE CHARGES OF RS. 4,10,000/-. THE LEARNED CIT(A) RESTR ICTED THE DISALLOWANCE TO ITA NO 4515/ MUM/2014 4 RS.3,00,000/-. HAVING HEARD THE RIVAL SUBMISSIONS A ND PERUSED THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE FAILE D TO FILE BEFORE THE A.O. THE LOG BOOK FOR RUNNING OF THE VEHICLE. THE DISALL OWANCE OF RS. 3,00,000/- SUSTAINED BY THE LEARNED CIT(A) IS UPHELD. HENCE TH E 3 RD GROUND OF APPEAL IS DISMISSED. 6. NOW WE TURN TO THE 4 TH GROUND OF APPEAL. THE ASSESSEE HAS CLAIMED A SUM OF RS. 1,50,000/- TOWARDS ELECTRICITY CHARGES F OR THE IMPUGNED ASSESSMENT YEAR AS COMPARED TO RS. NIL FOR THE PREV IOUS ASSESSMENT YEAR 2010-11. THE ASSESSEE SUBMITTED BEFORE THE A.O. THA T IT HAD PAID 50% OF THE TOTAL ELECTRICITY CHARGES TO M/S. STEEL INVESTMENTS PVT. LTD. FOR THE PREMISES LOCATED AT PUSHP KUNJ, KHAN ABDUL GAFFAR KHAN ROA D, WORLI SEA FACE, WORLI, MUMBAI-400025. THE A.O. NOTED THAT IT IS HIG HLY INAPPROPRIATE TO CHARGE 50% OF THE TOTAL ELECTRICITY EXPENSES TO THE ASSESSEE-COMPANY WHEN IN FACT MORE THAN HALF OF THE PREMISES ARE BEING US ED BY THE DIRECTOR AND HIS FAMILY FOR RESIDENTIAL PURPOSE. THEREFORE, HE D ISALLOWED RS. 1,10,000/- AS EXCESSIVE AND UNREASONABLE. THE LEARNED CIT(A) C ONCURRED WITH THE ABOVE FINDING OF THE A.O. HAVING HEARD THE RIVAL SU BMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE O RDER OF THE LEARNED CIT(A) IS BASED ON PROPER APPRECIATION OF FACTS BY THE A.O. HENCE GROUND THE 4 TH GROUND OF APPEAL IS DISMISSED 7. DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WOULD NOT LIKE TO PRESS 5 TH AND 6 TH GROUND OF APPEAL. THUS, THE 5 TH AND 6 TH GROUND OF APPEAL ARE DISMISSED AS NOT PRESSED. 8. WE NOW COME TO THE 7 TH GROUND OF APPEAL. THE A.O. OBSERVED THAT THE INCOME OF THE ASSESSEE BEFORE SET OFF OF BROUGHT FO RWARD LOSSES WAS ITA NO 4515/ MUM/2014 5 RS.17,03,246/-. THE ASSESSEE HAD BROUGHT FORWARD BU SINESS LOSSES AND BROUGHT FORWARD UNABSORBED DEPRECIATION. HOWEVER, T HE ASSESSEE DID NOT ADJUST THE BROUGHT FORWARD UNABSORBED DEPRECIATION BUT INSTEAD SET OFF THE BROUGHT FORWARD BUSINESS LOSSES ONLY. THE A.O. THUS , HELD THAT THE BROUGHT FORWARD UNABSORBED DEPRECIATION MERGES WITH THE CUR RENT YEARS DEPRECIATION, HENCE, THE BROUGHT FORWARD UNABSORBED DEPRECIATION IS FIRST ADJUSTED AND THEN THE BROUGHT FORWARD UNABSORBED BU SINESS LOSSES. 8.1 IN APPEAL, THE LD. CIT(A) AGREED WITH THE ORDER OF THE A.O. ON THE SAME REASONS AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 8.2 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBM ITS THAT THE A.O. ERRED IN FIRST SETTING OFF THE UNABSORBED DEPRECIATION AS CONTEMPLATED U/S 32(2) OF THE ACT AS COMPARED TO THE BROUGHT FORWARD BUSIN ESS LOSSES U/S 72 OF THE ACT. IT IS SUBMITTED BY HIM THAT AS PER SECTION 72 OF THE ACT, THE BROUGHT FORWARD BUSINESS LOSSES ARE TO BE SET OFF FIRST AFT ER PROVIDING THE CURRENT YEARS DEPRECIATION. THE CARRY FORWARD OF THE UNABS ORBED DEPRECIATION IS GOVERNED BY SECTION 32(2) OF THE ACT. ONLY AFTER FU LLY SET OFF OF THE BROUGHT FORWARD BUSINESS LOSSES, THE UNABSORBED DEPRECIATIO N IS USED. 8.3 ON THE OTHER HAND, THE LD. D.R. RELIES ON THE O RDER OF THE LD. CIT(A). 8.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO TIME LIMIT FOR THE PURPOSE OF CARRYING FORWARD OF UNABSORBED DEPRECIATION; IT CAN BE CARRI ED FORWARD FOR INDEFINITE PERIOD, IF NECESSARY. IN SUBSEQUENT YEAR (S), UNABSORBED DEPRECIATION CAN BE SET OFF AGAINST ANY INCOME WHET HER CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS FOR PROFESS ION OR UNDER ANY OTHER HEAD (EXCEPT INCOME UNDER THE HEAD SALARIES). IN THE MATTER OF SET OFF, THE FOLLOWING ORDER OF PRIORITY IS FOLLOWED IN THE SUBS EQUENT YEAR (S): ITA NO 4515/ MUM/2014 6 A. CURRENT DEPRECIATION. B. BROUGHT FORWARD BUSINESS LOSS. C. UNABSORBED DEPRECIATION. IT MAY BE SAID THAT IF IN THE SUBSEQUENT YEAR(S), THERE IS NO BROUGHT FORWARD BUSINESS LOSS, UNABSORBED DEPRECIATION CAN BE ADDED TO CURRENT DEPRECIATION FOR THE PURPOSE OF CLAIMING DEDUCTION. IN VIEW OF THE ABOVE, THE ORDER OF THE LD. CIT(A) ON THE ABOVE GROUND OF APPEAL IS SET ASIDE AND THE A.O. IS DIRECTED TO ALLOW CURRENT DEPRECIATION, BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPREC IATION AS PER THE ORDER OF PRIORITY AS DELINEATED HERE-IN-ABOVE, AFTE R GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/04/2017 SD/- SD/- (JOGINDER SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI: DATED: 28/04/2017 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI