SOLID CONTIANERS LTD, MUMBAI V. ITO RG 7(2)(4), MUMBAI

ITA 5135/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0975 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 15-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VISHWAS MUNDHEDR
• Keywords: Business income; Business expenditure

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./I.T.A./5135/MUM/2013, /ASSESSMENT YEAR: 2007-08 SOLID CONTAINERS LIMITED 2006, AMDANI CHAWL, FOSSBERRY ROAD, NEAR ICI LTD., REAY ROAD MUMBAI-400 033. PAN:AABCS 4907 N VS. INCOME TAX OFFICER RANGE-7(2)(4), ROOM NO.670 AAYAKAR BHAVAN MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVEN UE BY: SHRI VISHWAS MUNDHE-DR ASSESS EE BY: SHRI NEERAJ SHETH / DATE OF HEARING: 15.03.2017 / DATE OF PRONOUNCEMENT: 03.05.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) / PER RAJENDRA, AM - CHALLENGING THE ORDER, DATED 21/06/2012 OF THE CIT (A)-13, MUMBAI, THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY, ENGA GED IN THE BUSINESS OF MANUFACTURING PULP FROM WASTE PAPER,FILED HIS RETURN OF INCOME ON 26/1 0/2007 DECLARING TOTAL INCOME OF RS. NIL. THE AO COMPLETED THE ASSESSMENT U/S.143 (3) OF THE ACT, ON 24/12/2009, DETERMINING ITS INCOME AT RS.9.10 LAKHS. 2. FIRST GROUND OF APPEAL IS ABOUT TREATING THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY,AS AGAINST THE BUSINESS INCOME AS CLAIMED BY THE ASSESSEE.DURING THE ASSESSMENT PROCEEDING THE AO FOUND THAT THE ASSESSEE HAS RECEI VED RENT OF RS. 3 LAKHS FOR LETTING OUT A PART OF THE GODOWN ON A MONTHLY RENT OF RS. 25,000/-. HE HELD ASSESSEE WAS THE DEEMED OWNER OF THE PROPERTY,THAT IT WAS TAKEN ON RENT AT THE RATE OF R S.18,600/- P.A., THAT NO RENT AGREEMENT WAS PRODUCED,THAT THE RENT AMOUNT WAS VERY NOMINAL.HE F URTHER OBSERVED THE SAID PROPERTY WAS TAKEN ON PAGDI WITH ALL VIRTUAL OWNERSHIP RIGHTS ON LONG TERM BASIS, THAT THE RENTAL INCOME AT DIRECT NEXUS TO THE PROPERTY,THAT SAME WAS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 2.1. AGGRIEVED BY THE ORDER OF AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS ARGUED, THE ASSESS EE HAD LEASED PART OF ITS PREMISES FOR USE AS A GODOWN,THAT THE RECEIPT ON ACCOUNT OF RENT WAS RI GHTLY TREATED AS BUSINESS INCOME, THAT THE AO HAD TAXED THE SAME AS HOUSE PROPERTY INCOME.AFTER C ONSIDERING THE AVAILABLE MATERIAL THE FAA ITA/5135 /MUM/2013-AY.2007-08 SOLID CONTAINERS LTD. 2 HELD THAT THE ASSESSEE WAS THE DEEMED OWNER OF THE PROPERTY, THAT THE AO HAD RIGHTLY ASSESSED THE INCOME UNDER THE HEAD HOUSE PROPERTY.HE REFERRED TO THE CASE OF SHAMBHU INVESTMENTS P. LTD., (263 ITR 143). 2.2. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) ARGUED THAT THE ASSESSEE HAD DISCONTINUED HIS BUSINESS,THAT IN EARL IER YEAR PART OF THE PROPERTY WAS GIVEN ON SUB- LEASE,THAT THE RENTAL INCOME WAS SHOWN UNDER THE HE AD INCOME FROM BUSINESS.THE DEPARTMENTAL REPRESENTATIVE(DR)CONTENDED THAT THE ASSESSEE HAD N OT CARRIED OUT ANY BUSINESS DURING THE YEAR, THAT IT HAD NOT SHOWN ANY BUSINESS INCOME DURING TH E YEAR UNDER CONSIDERATION. 2 .3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE AVAILAB LE MATERIAL.IT IS FOUND THAT ASSESSEE HAD MERELY RENTED OUT THE PROPERTY AND HAD EARNED RENTAL INCOME FORM IT.FROM THE CONDUCT OF THE ASSESSEE IT IS CLEAR THAT MAIN INTEN TION WAS TO LET OUT THE PROPERTY ,SO,THE INCOME HAS TO BE CONSIDERED RENTAL INCOME/INCOME FROM PROP ERTY.AS THE PRIMARY OBJECT OF LETTING OUT GODOWN WAS NOT TO EXPLOIT THE PROPERTY BY WAY OF CO MPLEX COMMERCIAL ACTIVITIES,SO, SAME CAN - NOT BE TERMED AS BUSINESS INCOME OF THE ASSESSEE.TH EREFORE,WE DO NOT WANT TO INTERFERE WITH THE ORDERS OF THE FAA.CONFIRMING HIS ORDER,WE DECIDE FI RST GROUND OF APPEAL AGAINST THE ASSESSEE. 3. SECOND GROUND OF APPEAL IS ABOUT TREATING THE BUSIN ESS INCOME AS INCOME FROM OTHER SOURCES, AMOUNTING TO RS.7 LAKHS.DURING THE ASSESSMENT PROCE EDINGS,THE AO FOUND THAT THE ASSESSEE HAD RECEIVED COMPENSATION OF RS.7 LAKHS TOWARDS DELAY I N RECEIPT OF ADVANCE FROM VARIOUS PARTIES ON ACCOUNT OF SALE OF PLANT AND MACHINERY.HE DIRECT ED THE ASSESSEE TO EXPLAIN AS TO WHY THE ABOVE INCOME SHOULD NOT BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES.AFTER CONSIDER - ING LETTER OF THE ASSESSEE, DATED 17/11/2009, HE HE LD THE ASSESSEE HAD RECEIVED A SUM OF RS.7 LAKHS AS AN INCIDENTAL INCOME,THAT SAME WAS NOT IN THE NATURE OF BUSINESS INCOME AS CLAIMED BY IT,THAT IT HAD RECEIVED INTEREST OF RS.48.13 LAKHS ON LOANS ADVANCED,THAT IT HAD PAID SOME INTEREST TO M/S.INTREX INDIA LTD.,THAT THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR UNDER APPEAL, THAT IT HAD SUSPENDED ITS OPERATION FROM SEPTEMBER, 1998,TH AT IN ITS P & L ACCOUNT THE ASSESSEE HAD DECLARED INCOME UNDER THE HEAD INCOME FROM OTHER SO URCES,THAT THE ASSESSEE WAS NOT ENGAGED IN ANY BUSINESS ACTIVITY,THAT THE CLAIM MADE BY IT TOW ARDS PERSONAL COST AND ADMINISTRATIVE EXPENSES HAD TO BE REJECTED. 3.1. DURING THE APPELLATE PROCEEDINGS,AFTER CONSIDERING THE AVAILABLE MATERIAL, THE FAA HELD THAT COMPENSATION RECEIVED BY THE ASSESSEE WAS NOTHING B UT INTEREST ON DELAY ON RECEIPT OF ADVANCE ITA/5135 /MUM/2013-AY.2007-08 SOLID CONTAINERS LTD. 3 PAYMENT,THAT THE AO HAD RIGHTLY TREATED THE SAME AS INCOME FROM OTHER SOURCES. 3.2. DURING THE COURSE OF HEARING BEFORE US,THE AR ARGUED THAT THE ASSESSEE HAD SOLD MACHINERY DURING THE YEAR UNDER APPEAL,THAT SAME WERE BUSINES S ASSETS,THAT INTEREST INCOME ARISING OUT OF THE SAID TRANSACTION SHOULD BE TREATED AS BUSINESS INCOME.THE DR SUPPORED THE ORDER OF THE AO AND THE FAA. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE AVAILABLE MATERIAL.WE FIND THAT THE DISPUTED AMOUNT REPRESENTED INTEREST ON DELAY ON RE CEIPT OF ADVANCE PAYMENT.IN OUR OPINION, INCOME ARISING OUT OF THE IMPUGNED ACTIVITY CANNOT BE TREATED AS CARRYING ON OF BUSINESS.SO,IN OUR OPINION,ORDER OF THE FAA DOES NOT NEED ANY INTE RFERENCE FROM OUR SIDE.WE DISMISS SECOND GROUND. 4. NEXT GROUND OF APPEAL IS ABOUT DISALLOWANCE OF BUSI NESS EXPENSES THE FAA HELD THAT THE ONLY SOURCE OF INCOME FOR THE YEAR UNDER CONSIDERATION W AS INTEREST /MISCELLANEOUS INCOME, THAT RENTAL INCOME WAS TREATED AS INCOME FROM HOUSE PROPERTY FO R WHICH STATUTORY DEDUCTION HAD BEEN ALLOWED,THAT ASSESSEE HAD NOT CARRIED OUT ANY BUSIN ESS DURING THE YEAR UNDER APPEAL,THAT VARIOUS EXPENSES DEBITED AS BUSINESS EXPENDITURE WERE NOT A LLOWABLE,THAT THERE WAS NO INDICATION OF ANY BUSINESS REVIVAL,THAT THE ASSESSEE HAD NOT BROUGHT ANYTHING ON THE RECORD TO ESTABLISH THAT IT INTENDED TO REVIEW THE BUSINESS.HE REFERRED TO THE CASES OF NARAYANDAS (149 ITR 339) AND S.P.V. BANK LTD.,(126ITR773)AND HELD THAT QUESTION OF ALLO WABILITY OF ANY EXPENDITURE WOULD NOT ARISE IN ABSENCE OF CARRYING OUT OF BUSINESS.FINALLY, HE DISMISSED THE GROUND RAISED BY THE ASSESSEE. 4.1. DURING THE COURSE OF HEARING BEFORE US THE AR STATED THAT EXP ENSES INCURRED BY THE ASSESSEE INCLUDED SALARY,LEAVE PAY AND OTHER EXPENSES OF SIM ILAR NATURE,THAT IT WAS A LISTED CORPORATE ENTITY,THAT IT HAD TO INCUR EXPENSES FOR MAINTAININ G CORPORATE EXISTENCES,THAT IT HAD FILED DETAILED SUBMISSION FOR JUSTIFYING THE EXPENDITURE,HE REFERR ED TO PG.35-36 OF THE PB AND RELIED UPON THE CASES OF NEW SAVAN SUGAR & GUR(185ITR565),TANSY INV ESTMENT PVT.LTD.(ITA/3722/MUM/09, DTD.20.11.2010.)AND MOKUL FINANCE (P.) LTD.(29SOT11 ).THE DR SUPPORTED THE ORDER OF THE FAA AND STATED THAT THE ASSESSEE HAD NOT CARRIED OUT AN Y BUSINESS ACTIVITIES, 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE AVAILABLE MATERIAL.WE FIND THAT THE ASSESSEE IS A CORPORATE ENTITY AND FOR MAINTAINING ITS IDENTITY IT HAS TO INCUR EXPENDITURE,EVEN IF IT IS NOT CARRYING ON BUSINESS ACTIVITIES.A COMPANY CA NNOT STOP WORKING LIKE A PROPRIETORSHIP.EVEN FOR WINDING UP IT HAS TO FOLLOW A CERTAIN PROCEDURE .THE EXPENDITURE INCURRED BY THE ASSESSEE WERE NECESSARY TO MAINTAIN ITS EXISTENCE.IN THE CASE OF NEW SAVAN SUGAR & GUR(SUPRA)THE HONBLE ITA/5135 /MUM/2013-AY.2007-08 SOLID CONTAINERS LTD. 4 APEX COURT HAS ALSO HELD THAT DEDUCTION OF EXPENDIT URE CANNOT BE HELD TO BE CONDITIONAL UPON MAKING OR EARNING OF THE INCOME.THEREFORE,FOLLOWING THE ABOVE JUDGMENT,WE HOLD THAT THE FAA WAS NOT JUSTIFIED IN HOLDING THAT NORMAL EXPENSES I NCURRED BY THE ASSESSEE-COMPANY WERE NOT ALLOWABLE AS IT HAD NOT CARRIED OUT ANY BUSINESS.RE VERSING HIS ORDER,WE DECIDE GROUND NO.3 IN FAVOUR OF THE ASSESSEE. 5. LAST GROUND OF APPEAL IS ABOUT NON-ALLOWING OF SET OFF OF BROUGHT FORWARD LOSSES.IN THE APPELLATE PROCEEDINGS,THE FAA CONFIRMED THE ORDER O F THE AO TO HOLD THAT THE ASSESSEE WAS NOT ENTITLED TO CARRY FORWARD EARLIER YEARS LOSSES.HE H ELD ASSESSEE HAD NOT CARRIED OUT ANY BUSINESS DURING THE YEAR,THAT AO HAD RIGHTLY DISALLOWED THE CLAIM MADE BY IT FOR CARRYING FORWARD THE LOSSES OF EARLIER YEARS. 5.1. DURING THE COURSE OF HEARING BEFORE US THE AR STATED THAT ISS UE WAS SETTING OFF OF LOSSES,THAT IF EXPENSES WERE NOT BE ALLOWED SET OFF SHOULD BE A LLOWED,THAT THE ASSESSEE HAD SUFFERED LOSS IN EARLIER YEARS.THE DR ARGUED THAT WITHOUT CARRYING O N BUSINESS THE ASSESSEE WAS NOT ENTITLED FOR SETTING OFF OF LOSSES. 5.2. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT T HE ASSESSEE HAD MADE CLAIM FOR CARRYING FORWARD OF EALIER YEARS LOSSES,THAT THE REVENUE AU THORITIES HAVE DISALLOWED THE CLAIM MADE BY IT, THAT BEFORE US,THE AR ARGUED THAT IF BUSINESS EXPEN SES WERE ALLOWED THE ISSUE RAISED IN GOA 4 WILL BE ACADEMIC.WHILE DECIDING THE EARLIER GROUND, WE HAVE HELD THAT THE CLAIM MADE BY THE ASSESSEE ABOUT EXPENSES HAS TO BE ALLOWED.ACCORDING LY,WE ARE NOT DECIDING THE ISSUE OF CARRYING FORWARD OF LOSSES,AS IT IS OF ACADEMIC NATURE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED. ORDER PRONOUNCED IN TH E OPEN COURT ON 3 RD MAY,2017. 3 ,2017 SD/- SD/- ( / RAM LAL NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 03.05.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ ITA/5135 /MUM/2013-AY.2007-08 SOLID CONTAINERS LTD. 5 //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.