M/s Hyderabad Plywood Industries Privated Limited, Secunderabad V. ITO, Hyderabad

ITA 510/HYD/2005

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59364 (ITAT-HYDERABAD)
• Duration Of Justice: 6 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-08-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 10-05-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Assessee Lawyers: M V ANIL KUMAR
• Keywords: Business income; Depreciation; Opportunity of being heard; Unabsorbed depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.510/HYD/2005 ASSTT. YEAR: 2001-02 HYDERABAD PLYWOOD INDUSTRIES PVT. LTD., HYDERABAD. (PAN:AAACH5009F) VS ITO, WARD - 1(2), HYDERABAD. APPELLANT RESPONDENT APPELLANT BY : SRI M.V. ANIL KUMAR RESPONDENT BY : SRI B.V. PRASAD REDDY DATE OF HEARING : 5-03-2012. DATE OF PRONOUNCEMENT : -03-2012. ORDER PER SAKTIJIT DEY, J.M. IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE ORDER DATED 14-2-2005 PASSED BY THE CIT (A)-II, HYDERABAD IN ITA NO.0046/CIT(A)-II/04-05 PERTAINING TO THE ASSESSMENT YEAR 2001-02. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS BEFORE US:- 1. YOUR APPELLANT SUBMITS THAT THE CIT (A) ERRED IN LAW AND THE FACT OF THE CASE IN TREATING THE INCOME FROM BUSINESS AS INCOME FROM OTHER SOURCES. ITA NO.510/H/2005 M/S. HYDERABAD PLYWOOD INDUSTRIES, HYD. =============================== 2 2. YOUR APPELLANT SUBMITS THAT THE CIT (A) OUGHT TO HAVE TREATED THE RENT RECEIVED FROM LEASE OF FACTORY BUILDING AND MACHINERY USED IN HE SAME MANUFACTURING LINE AND ALLOWED IN THE PREVIOUS YEARS AS BUSINESS INCOME ONLY. 3. YOUR APPELLANT SUBMITS THAT THE CIT (A) ERRED IN FACTS IN NOT ALLOWING THE EXPENDITURE DEBITED TO THE PROFIT J& LOSS A/C OF THE COMPANY LIKE ADMINISTRATIVE EXPENSES DEPRECIATION AND FINANCE CHARGES. 4. YOUR APPELLANT SUBMITS THAT THE CIT (A) ERRED IN LAW AND FACTS OF THE CASE IN NOT SETTING OFF THE UNABSORBED DEPRECIATION, CARRY FORWARD FROM EARLIER YEARS. 3. GROUND NOS. 1 AND 2 ARE COMMON AND THEREFORE BOTH THESE GROUNDS ARE TREATED AS ONE ISSUE. BRIEFL Y, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF PLYWOOD. IT C ARRIED ON ITS BUSINESS TILL IT EXECUTED A LEASE DEED ON 6- 7-1996 WITH ONE MASAN TREXIM PVT. LIMITED, CALCUTTA. AS P ER THE TERMS OF LEASE DEED, THE ASSESSEE LEASED OUT ITS EN TIRE BUSINESS ASSETS AND FACTORY INCLUDING LAND AND BUIL DING PLANT AND MACHINERY AND OTHER ASSETS FOR A MONTHLY LEASE RENTAL OF RS.75,000/-. THE LEASE WAS INITIALLY EXE CUTED FOR A PERIOD OF 7 YEARS AND IT WAS AGAIN RENEWED FOR AN OTHER SEVEN YEARS. THEREAFTER, THOUGH THERE WAS NO RENEW AL, THE SAME AGREEMENT CONTINUED. IN THE COURSE OF ASSESSMENT PROCEEDINGS, UNDER SECTION 143(3) OF THE ACT FOR THE ASSESSMENT YEAR IN DISPUTE, THE ASSESSING O FFICER WHILE EXAMINING THE PROFIT AND LOSS ACCOUNT FOUND T HAT THE ITA NO.510/H/2005 M/S. HYDERABAD PLYWOOD INDUSTRIES, HYD. =============================== 3 ASSESSEE HAS SHOWN THE LEASE RENTAL OF THE FACTORY PREMISES AS BUSINESS INCOME. THE INCOME-TAX OFFICE R ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE RENTAL INCOME RECEIVED FROM LEASING OUT THE FACTORY SHALL NOT BE TREATED AS INCOME FROM OTHER SOURCES. THE ASSESSEE FILED ITS EXPLANATION. THE INCOME-TAX OFFICER NOT BEING SATI SFIED WITH THE EXPLANATION SUBMITTED BY THE ASSESSEE TREA TED THE LEASE RENTAL INCOME AS INCOME FROM OTHER SOURC ES. WHILE DOING SO, THE ITO APPLIED TESTS LAID DOWN B Y THE HONBLE SUPREME COURT IN THE CASE OF M/S UNIVERSAL PLASTIC LIMITED VS. CIT REPORTED IN 237 ITR 454. A S A RESULT OF DETERMINATION OF LEASE RENTAL INCOME AS I NCOME FROM OTHER SOURCES, THE ASSESSING OFFICER DID NOT A LLOW THE EXPENSES DEBITED TO THE P & L A/C. THE ITO ALSO DISALLOWED THE CLAIM OF THE ASSESSEE TO SET OFF BR OUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION OF EARLIER YEARS. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BY WAY OF APPEAL BEFORE THE CIT (A). THE CIT (A) RELYING UP ON THE DECISION OF THE SUPREME COURT IN THE CASE OF M/S UNIVERSAL PLASTIC LIMITED VS. CIT REPORTED IN 237 I TR 454, UPHELD THE DECISION OF THE ITO IN TREATING THE LEAS E RENTAL AS INCOME FROM OTHER SOURCES. WHILE CONSIDERING THE CLAIM OF ADMINISTRATIVE EXPENSES, THE CIT (A) ALLOW ED A SUM OF RS.40,000/-. SO FAR AS THE ASSESSEES CLAIM OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION OF EARLIER YEARS IS CONCERNED, SUCH CL AIM WAS REJECTED BY THE CIT(A) ON THE GROUND THAT THE ASSES SEE FAILED TO PRODUCE ANY PROOF THAT BROUGHT FORWARD LO SSES AND UNABSORBED DEPRECIATION HAS BEEN ALLOWED TO BE CARRIED FORWARD FROM EARLIER YEARS. ITA NO.510/H/2005 M/S. HYDERABAD PLYWOOD INDUSTRIES, HYD. =============================== 4 4. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE WHILE REFERRING TO CLAUSES OF AGREEMENT APPEARING AT PAGES 1 TO 6 OF THE PAPER BOOK SUBMITT ED THAT THE ASSESSEE NEVER HAD AN INTENTION TO COMPLET ELY CLOSE DOWN ITS BUSINESS. ON THE CONTRARY, THE ASSE SSEE KEPT ITS OPTION OPEN OF COMING BACK TO ITS BUSINESS . IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE REFERRING TO CLAUSE 4(A) OF THE LEASE DEED CONTENDED THAT THE ASSESSEE HAS NOT TRANSFERRED THE INDUSTRIAL LICENCE GRANTED TO IT. HE THEREFORE CON TENDED THAT THE INCOME SHOULD BE TREATED AS BUSINESS INCOM E OF THE ASSESSEE. THE LEARNED AR OF THE ASSESSEE FURTH ER CONTENDED THAT THE ASSESSEES CLAIM OF RENTAL INCOM E AS BUSINESS INCOME HAS BEEN ACCEPTED BY THE DEPARTMENT TILL THE ASSESSMENT YEAR 2000-01. IN THE ALTERNATIVE, T HE LEARNED AR OF THE ASSESSEE SUBMITTED THAT IN CASE T HE INCOME FROM LEASING OUT THE FACTORY IS HELD AS INCO ME FROM OTHER SOURCES THEN BROUGHT FORWARD BUSINESS LO SS AND UNABSORBED DEPRECIATION OF EARLIER YEARS SHOULD BE SET OFF AGAINST THE RENTAL INCOME. IN SUPPORT OF I TS CONTENTION THE LEARNED AR SUBMITTED BEFORE US THE ASSESSMENT ORDERS PASSED UNDER SECTION 143(3) OF TH E ACT FOR THE ASSESSMENT YEARS 1994-95 AND 1996-97 WHEREI N THE ITO HAS DETERMINED THE UNABSORBED DEPRECIATION AND BUSINESS LOSS. THE LEARNED AR ALSO PLACED RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF ORIEN T HOSPITAL LIMITED VS. DCIT (2009) 185 TAXMAN 83 WHEREIN THE MADRAS HIGH COURT HAS HELD THAT CARRIED FORWARD BUSINESS LOSS CAN BE SET OFF AGAINST THE IN COME FROM OTHER SOURCES. SO FAR AS THE ADMINISTRATIVE EXPENSES ARE CONCERNED, THE LEARNED AR OF THE ASS ESSEE ITA NO.510/H/2005 M/S. HYDERABAD PLYWOOD INDUSTRIES, HYD. =============================== 5 SUBMITTED THAT THE ASSESSEE HAS ACTUALLY INCURRED EXPENSES LIKE PAYMENT OF GRATUITY, ARREAR SALES -T AX ETC., THE CIT (A) SHOULD NOT HAVE RESTRICTED IT TO RS.40, 000/- ONLY. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE COUNTERI NG THE SUBMISSIONS OF THE LEARNED AR OF THE ASSESSEE CONTENDS THAT THE ASSESSEE HAD LEASED OUT ENTIRE AS SETS OF ITS BUSINESS AND HAS NO INTENTION TO COMING BACK TO ITS BUSINESS AND TO RE-START THE SAME. HENCE, THE RATI O LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF M/ S UNIVERSAL PLASTIC LIMITED (SUPRA) SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. THEREFORE, THE ITO WAS JUSTIFIED IN TREATING THE SAME AS INCOME FROM OTHER SOURCES . REGARDING THE ASSESSEES CLAIM OF SET OFF OF BUSINE SS LOSS AND UNABSORBED DEPRECIATION, THE LEARNED DR SUBMITT ED THAT THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE REGARDING ITS CLAIM AND THEREFORE THE CIT (A) HAS N O OTHER OPTION BUT TO REJECT THE ASSESSEES CLAIM. SO FAR AS THE EXPENSES CLAIMED UNDER THE HEAD ADMINISTRATIVE EXPENSES ARE CONCERNED, THE LEARNED DR SUPPORTED T HE ORDER OF THE CIT (A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD . ON GOING THROUGH THE LEASE DEED, IT IS CLEAR THAT THE ASSESSEE HAS LEASED OUT ITS ENTIRE BUSINESS ASSETS TO THE LE SSEE FOR A MONTHLY RENT OF RS.75,000/-. INITIALLY, THE LEAS E PERIOD WAS FOR A PERIOD OF SEVEN YEARS AND IT WAS FURTHER RENEWED FOR ANOTHER SEVEN YEARS. THEREAFTER, THE LE SSEE CONTINUES TO RUN ITS BUSINESS THOUGH THE LEASE AGRE EMENT ITA NO.510/H/2005 M/S. HYDERABAD PLYWOOD INDUSTRIES, HYD. =============================== 6 HAS NOT BEEN RENEWED. THIS LEADS US TO AN INESCAPA BLE CONCLUSION THAT THE ASSESSEE HAS STOPPED ITS BUSINE SS ACTIVITIES AND HAS NO INTENTION TO COME BACK AND RE -START THE SAME. THE CONTENTION OF THE LD. AR TO THE EFF ECT THAT THE DEPARTMENT HAS ACCEPTED THE RENTAL INCOME AS BUSINESS INCOME WILL BE OF LITTLE HELP SINCE WE FI ND THAT THE ASSESSMENTS FOR ALL THESE YEARS WERE SUMMARY ASSESSMENTS. THUS, APPLYING THE PRINCIPLE ENUNCIAT ED IN THE JUDGMENT OF APEX COURT IN THE CASE OF M/S. UNIV ERSAL PLASTIC LIMITED (SUPRA), WE HOLD THAT THE INCOME EA RNED FROM LEASING OF ITS FACTORY IS INCOME FROM OTHER S OURCES AND NOT BUSINESS INCOME. IN VIEW OF THE ABOVE, WE DISMISS GROUND NOS. 1 AND 2. 7. SO FAR AS GROUND NO.3 IS CONCERNED, WE FIND TH AT THE CIT (A) HAS ALLOWED AN EXPENDITURE OF RS.40,000 /- ON AD HOC BASIS. AFTER GOING THROUGH THE DETAILS UNDE R THE HEAD ADMINISTRATIVE EXPENSES, WE FIND CERTAIN EXPEN SES LIKE REMUNERATION TO MANAGING DIRECTOR ARE EXAGGERA TED. HOWEVER, CONSIDERING THE FACT THAT THE ASSESSEE HAS PAID GRATUITY TO ITS EMPLOYEES AND ALSO PAID ARREARS OF SALES TAX, WE THINK IT PROPER TO ALLOW EXPENSES OF RS.55, 000/- UNDER THE HEAD ADMINISTRATIVE EXPENSES. NOW, COM ING TO GROUND NO.4, THE AUTHORISED REPRESENTATIVE OF TH E ASSESSEE HAS SUBMITTED THE ASSESSMENT ORDERS FOR ASSESSMENT YEARS 1994-95 AND 1996-97 PASSED UNDER SECTION 143(3) OF THE ACT. WE FIND FROM THESE ASSES SMENT ORDERS THAT THE ASSESSING OFFICER HAS DETERMINED BU SINESS LOSS AND UNABSORBED DEPRECIATION FOR THE ABOVE TWO ASSESSMENT YEARS. SINCE THESE TWO ASSESSMENT ORDER S WERE NOT PRODUCED BEFORE THE CIT (A) DURING THE APP EAL ITA NO.510/H/2005 M/S. HYDERABAD PLYWOOD INDUSTRIES, HYD. =============================== 7 HEARING, WE THINK IT PROPER TO SET ASIDE THIS ISSUE TO THE FILE OF THE CIT (A) WHO WILL CONSIDER THE ASSESSEE S CLAIM OF SET OFF OF BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION IN ACCORDANCE WITH THE PROVISIONS OF I NCOME- TAX ACT AFTER TAKING INTO ACCOUNT THE ASSESSMENT OR DERS PASSED FOR THE ASSESSMENT YEARS 1994-95 AND 1996-97 WHICH WERE PRODUCED BEFORE US. THE CIT (A) SHALL AFFORD AN ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSES SEE TO ESTABLISH ITS CLAIM. 8. TO SUM UP, GROUND NOS. 1 AND 2 ARE DISMISSED. GROUND NO.3 IS PARTLY ALLOWED AND GROUND NO.4 IS SE T ASIDE TO THE FILE OF THE CIT (A). 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 -03-201 2. SD/- SD/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER SD/- (SAKTIJIT DEY) JUDICIAL MEMBER DATED THE 14 TH MARCH, 2012. COPY FORWARDED TO: 1. C/O M. ANANDAM & CO., CAS, 7A, SURYA TOWERS, S P ROAD, SECUNDERABAD. 2. ITO, WARD-1(2), HYDERABAD. 3. CIT (A)-II, HYDERABAD. 4. THE CIT CONCERNED, HYDERABAD 5. THE DR, ITAT, HYDERABAD JMR* ITA NO.510/H/2005 M/S. HYDERABAD PLYWOOD INDUSTRIES, HYD. =============================== 8 ITA NO.510/H/2005 M/S. HYDERABAD PLYWOOD INDUSTRIES, HYD. =============================== 9