SHREERAM THREAD WORKS, MUMBAI V. ITO 14(1)(4), MUMBAI

ITA 533/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6380 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 08-11-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 27-01-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D SONGATE
• Assessee Lawyers: G P MEHTA
• Keywords: Business income
• Section: 27; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 533/MUM/2009 (ASSESSMENT YEAR: 2004-05) M/S SHREERAM THREAD WORKS INCOME TAX OFFICER - - 14 (1)(4) C/O G.P. MEHTA & CO. 11 FLOOR, EARNEST HOUSE 807, TULSIAN CHAMBERS VS. NARIMAN POINT, MUMBAI 400021 212, NARIMAN POINT, MUMBAI 021 PAN - AAKFS 2658 G APPELLANT RESPONDENT APPELLANT BY: SHRI G.P. MEHTA RESPONDENT BY: SHRI D. SONGATE O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE CIT(A) XIV, MUMBAI DATED 21.11.2008. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND HAS FILED ITS RETURN OF INCOME ON 22.07.2004 DECLAR ING TOTAL INCOME AT ` 2,77,312/-. THE FIRM CONSISTED FOR FOUR PARTNERS AN D THERE WERE ENGAGED IN THE BUSINESS OF MANUFACTURE OF ART SILK YARN AND CO TTON YARN. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE SOLD OFF ITS ONLY FACTORY UNIT NO. 3 SITUATED AT MAHALAKSHMI INDUSTRIAL ESTATE, DRAINAGE CHANNEL ROAD, GANDHI NAGAR, LOWER PAREL, MUMBAI 400013 TO SMT. SUSHMA RA. DALAL AS PER AGREEMENT DATED 12 TH JUNE, 2003. THE ASSESSEE-FIRM ALSO SOLD OFF ITS EN TIRE MACHINERY. AFTER APPROPRIATION OF BROKERAGE, TRANSFER CHARGES AND THE COST PRICE, THE PROFIT ON THIS SALE AMOUNTED TO ` 26,55,598/- WHICH IS DULY REFLECTED IN THE P & L ACCOUNT. THE SAME HAS BEEN THE BASIS FOR CALCUL ATION OF SHORT TERM CAPITAL GAIN. IN THE CALCULATION OF SHORT TERM GAIN , THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 54EC AMOUNTING TO ` 10,00,000/- BEING REINVESTMENT IN NATIONAL HOUSING BANK BONDS. THE IN TEREST ON THESE BONDS HAS ALSO BEEN OFFERED AS INCOME FROM OTHER SOURCES. THE ASSESSEE HAD NO ITA NO. 533/MUM/2009 M/S SHREERAM THREAD WORKS 2 PURCHASES OR SALES, DURING THE YEAR NOR DOES IT HAV E CLOSING STOCK. THE ASSESSEE SOLD THE ENTIRE OPENING STOCK OF ` 30,214/- FOR ` 750/-. THE A.O. HAS COME TO A CONCLUSION THAT THE ASSESSEE HAS PERMANEN TLY CLOSED DOWN ITS BUSINESS. HE FOUND THAT THE ASSESSEE HAS NOT ONLY S OLD OFF ITS ONLY INDUSTRIAL UNIT BUT IT ALSO PAID RETRENCHMENT COMPENSATION AND HAS NO ACTIVITY THEREAFTER. THUS HE DISALLOWED THE BUSINESS EXPENDI TURE CLAIMED BY THE ASSESSEE. ASSESSEE CARRIED THE MATTER IN APPEAL. 3. ASSESSEE TOOK THE GROUND THAT THE NOTICE UNDER SECT ION 143(2) HAS NOT BEEN SERVED ON THE ASSESSEE FIRM OR ITS PARTNERS OR AUTHORISED PERSONS. THE CIT(A) REJECTED THIS GROUND. HE ALSO REJECTED THE C LAIM OF THE ASSESSEE FOR ALLOWING EXPENDITURE OF ` 14,06,916/-. AGGRIEVED THE ASSESSEE IS BEFORE US ON THE FOLLOWING GROUNDS: - 01 THE ORDER PASSED BY THE LEANED LOWER AUTHORITIE S ARE BAD IN LAW AND BAD IN FACTS. 02 THE ASSESSMENT ORDER PASSED IS AB-INITIO VOID, I N ASMUCHAS, NO NOTICE U/S 143(2) OF THE IT ACT 1961 WAS SERVED UPO N THE APPELLANT, ITS PARTNERS OR AUTHORISED PERSONS WITHIN THE STATU TORY TIME LIMIT PRESCRIBED VIDE PROVISO TO SEC 143(2) OF THE IT ACT 1961. 03 THE LEARNED CIT(A) HAS GROSSLY ERRED IN HOLDING THAT THE NOTICE U/S 143(2) OF THE IT ACT 1961 WAS ISSUED ON 29.07.2005 & SERVED UPON THE APPELLANT ON 30.09.2005. THE FINDINGS OF THE LE ARNED CIT(A) ARE WRONG & CONTRARY TO THE EVIDENCE ON RECORD. 04 THE LEARNED LOWER AUTHORITIES HAVE GROSSLY ERRED IN DISALLOWING/ CONFIRMING THE DISALLOWANCE OF AN AGGREGATED AMOUNT OF RS.6,916/- BEING THE ENTIRE AMOUNT OF EXPENSES CLAIMED. REASON S ASSIGNED FOR THE IMPUGNED DISALLOWANCE ARE WRONG AND CONTRARY TO THE JUDICIAL PROPOSITIONS LAID DOWN BY THE HON'BLE BOMBAY HIGH C OURT & HON'BLE ITAT. 05 HAVING REGARD TO THE FACTS OF THE CASE PROVISION S OF LAW & JUDICIAL PROPOSITIONS THE IMPUGNED ADDITION/DISALLOWANCE OF EXPENSES AT RS.14,06,916/- IS WHOLLY UNCALLED FOR. 4. THE LEARNED COUNSEL FOR THE ASSESSEE, MR. G.P. MEHT A DISPUTED THE SERVICE OF NOTICE AND SUBMITTED THAT IT WAS SERVED TO ONE MR. NARMADA PRASAD TIWARI, WHO HAS NOTHING TO DO WITH THE FIRM AND POINTED OUT THAT THE ASSESSEE HAS FILED AN AFFIDAVIT TO THIS EFFECT. ON A QUERY FROM THE BENCH HE SUBMITTED THAT THE A.O. HAS DISPATCHED THE NOTICE T HROUGH SPEED POST AND THE POST OFFICE HAS WRONGLY SERVED THE NOTICE TO AN UNAUTHORISED PERSON. THE ITA NO. 533/MUM/2009 M/S SHREERAM THREAD WORKS 3 ASSESSEE ARGUED THAT THE SERVICE OF NOTICE WAS BAD IN LAW. HE RELIED ON THE ORDER OF THE DELHI BENCH OF THE ITAT IN THE CASE OF HIND BOOK HOUSE VS. ITO 93 TTJ (DEL) 224. HE FURTHER RELIED ON THE JUDGEMEN T OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHAN TEXTILES P. LTD. 287 ITR 370. HE FURTHER RELIED ON THE DECISION OF THE DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF KUBER TOBACCO PRODUCTS P. LTD. VS. DCIT 310 ITR (AT) 300 FOR THE PROPOSITION THAT SECTION 292BB, WOULD NOT CURE A IL LEGAL SERVICE OF NOTICE. ON MERITS HE PLEADED THAT THIS IS A TEMPORARY CLOSURE OF BUSINESS AND IN SUCH CIRCUMSTANCES THE EXPENDITURE CANNOT BE DISALLOWED. HE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. VIRMANI INDUSTRIES PVT. LTD. AND OTHERS 216 ITR 607. HE SUBMITTED THAT THE INTER EST INCOME EARNED IS NOTHING BUT BUSINESS INCOME. HE FURTHER PLEADED THA T THE ASSESSEE IS REQUIRED TO INCUR EXPENDITURE FOR PRESERVENCE OF ASSETS FOR CARRYING ON ANY FUTURE BUSINESS AND FOR MAINTAINING THE STATUS OF THE FIRM . FOR THE ABOVE PROPOSITION HE RELIED ON THE JUDGEMENT OF THE HON'BLE BOMBAY HI GH COURT IN THE CASE OF HINDUSTAN CHEMICAL WORKS LTD. VS. CIT 124 ITR 561. 5. THE LEARNED D.R., SHRI D. SANGATE, ON THE OTHER HAN D, SUBMITTED THAT THE A.O. HAS DESPATCHED THE NOTICE UNDER SECTION 14 3(2) BY REGISTERED POST ACKNOWLEDGEMENT DUE AND THE SAME WAS RECEIVED BY TH E ASSESSEE ON 30.07.2005. HE SUBMITTED THAT THE ASSESSEE HAS PART ICIPATED IN THE ASSESSMENT PROCEEDINGS AND THE PRESUMPTION IS THAT THE NOTICE HAS BEEN PROPERLY SERVED, WHEN THE POSTAL AUTHORITIES DID NO T REPORT OTHERWISE. HE RELIED ON THE FOLLOWING CASE LAWS: - (1) SATRUGHAN MALL. VS REVENUE COMMISSIONER, ORISSA (PA TNA HIGH COURT) (28 ITR 48) (2) TRADERS AND MINERS LIMITED. VS COMMISSIONER OF INC OME-TAX, BIHAR AND ORISSA (PATNA HIGH COURT) (27 ITR 241) HE ALSO RELIED ON THE ORDER OF THE FIRST APPELLATE AUTHORITY ON THE SAME. 6. COMING TO THE SECOND ISSUE, IT IS SUBMITTED THAT TH E ASSESSEE ADMITTEDLY CLOSED DOWN ITS BUSINESS, SOLD ITS FACTO RY AND TERMINATED ITS WORKERS. HE SUBMITTED THAT THE ONLY ASSETS AVAILABL E WITH THE ASSESSEE IS CASH AND BANK BALANCE AND NO EXPENDITURE IS REQUIRE D TO MAINTAIN THE ITA NO. 533/MUM/2009 M/S SHREERAM THREAD WORKS 4 SAME. HE SUBMITTED THAT INTEREST INCOME IS FROM PAR KING OF SURPLUS FUNDS AND HENCE IS ASSESSABLE UNDER THE HEAD OTHER SOURC ES. 7. THE LEARNED D.R. SUBMITTED THAT THE ORDER OF THE FI RST APPELLATE AUTHORITY IS TO BE UPHELD. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. ON A CARE FUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PAPERS PLACED ON RECORD AND ORDERS OF THE AUTHORITIES BELOW WE HOLD AS FOLLOWS: - - SERVICE OF NOTICE IN THIS CASE WAS DONE THROUGH P OSTAL AUTHORITIES. - NOTICE WAS SENT BY SPEED POST ACKNOWLEDGEMENT DUE TO THE ADDRESS FURNISHED BY THE ASSESSEE. - POSTAL AUTHORITIES HAVE GIVEN ACKNOWLEDGEMENT TO THE A.O. OF HAVING SERVED THAT NOTICE AT THE ADDRESS OF THE ASSESSEE. ON THE ABOVE FACTS, WE ARE OF THE CONSIDERED OPINIO N THAT THERE IS A PRESUMPTION OF PROPER SERVICE OF NOTICE. THE ASSESS EE HAS NOT FILED ANY COMPLAINT OR PROCEEDED AGAINST THE POSTAL DEPARTMEN T FOR WRONGLY SERVING ITS LETTERS ON SOME OTHER PERSON. CERTAINLY THE A.O . CANNOT BE BLAMED FOR WRONG SERVICE OF NOTICE. 9. COMING TO THE DECISION OF THE DELHI A BENCH OF TH E TRIBUNAL IN THE CASE OF HIND BOOK HOUSE VS. ITO 93 TTJ (DEL) 224, T HE SERVICE WAS THROUGH A NOTICE SERVER. IT WAS NOT A CASE OF SERVICE THROU GH THE POSTAL AUTHORITIES. THUS THIS CASE DOES NOT COME TO THE RESCUE OF THE A SSESSEE. AT PARA 7 OF THAT ORDER IT IS STATED THAT WHERE THE NOTICE IS NOT SER VED BY POST, IT HAS TO BE ESTABLISHED BY THE REVENUE THAT THE SERVICE HAS BEE N EFFECTED AS IF THE NOTICE IS A SUMMONS ISSUED BY THE COURT UNDER CPC. RULE 16 OF ORDER 5 OF CPC PROVIDES THAT WHEN THE SERVING OFFICER DELIVERS OR TENDERS A COPY OF THE SUMMONS TO THE DEFENDANT PERSONALLY OR TO AN AGENT OR OTHER PERSON ON HIS BEHALF, HE SHALL REQUIRE THE SIGNATURE OF THE PERSO N, TO WHOM THE COPY IS SO DELIVERED AND RENDERED, TO AN ACKNOWLEDGEMENT OF SE RVICE ENDORSED ON THE ORIGINAL SUMMONS. IT IS ALSO RECORDED THAT SECTION 114 OF THE INDIAN EVIDENCE ACT RAISES A PRESUMPTION THAT ALL THE OFFI CIAL ACTS ARE REGULARLY PERFORMED. ITA NO. 533/MUM/2009 M/S SHREERAM THREAD WORKS 5 10. COMING TO THE DECISION OF THE HON'BLE DELHI HIGH CO URT IN THE CASE OF BHAN TEXTILE P. LTD. THE FACTS ARE DIFFERENCE AS TH E NOTICE WAS RECEIVED BY THE ASSESSEE ON 1 ST DECEMBER 1997 WHEREAS THE TIME LIMIT FOR SERVICES OF NOTICE WAS 30 TH NOVEMBER 1997. THUS WE REJECTED THE CONTENTION OF THE ASSESSEE THAT THERE WAS NO PROPER NOTICE UNDER SECTION 143(2 ), ON THE BASIS OF THESE DECISIONS OF THE TRIBUNAL. 11. ON THE OTHER HAND, THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. MALCHAND SURANA 28 ITR 684 HELD AS FOLLOWS: WHETHER OR NOT THERE WAS PROPER AND SUFFICIENT SER VICE IN THE PRESENT CASE HAS TO BE DECIDED BY REFERENCE TO THE PROVISIO NS OF SECTION 27 OF THE GENERAL CLAUSES ACT AND ALSO TO A CERTAIN EXTENT TO SECTION 16, ILLUSTRATION (B), OF THE INDIAN EVIDENCE ACT AND IL LUSTRATION (F) OF SECTION 114 OF THE SAME ACT. WHAT, HOWEVER, SECTION 27 PROV IDES FOR IS ONLY A PRESUMPTION, AND A PRESUMPTION OF FACT CAN UNDOUBTE DLY BE REBUTTED. THE MERE FACT THAT THE PHYSICAL DELIVERY OF THE NOT ICE WAS MADE TO A PERSON OTHER THAN THE ADDRESSEE AND A PERSON WHO HA D NO AUTHORITY TO RECEIVE THE LETTER ON THE ADDRESSEE'S BEHALF WOULD NOT BE SUFFICIENT TO PROVE THAT THERE HAD BEEN NO PROPER SERVICE. THE PR ESUMPTION THAT A PROPER SERVICE HAD BEEN EFFECTED WOULD STILL BE THE RE AND WOULD NOT BE REBUTTED BY THE MERE FACT THAT THE ACTUAL SERVICE H AD BEEN EFFECTED ON A DIFFERENT PERSON AND THE ACKNOWLEDGMENT OF RECEIPT WAS BY HIM. THE ONUS WOULD BE ON THE ASSESSEE . IT IS UNDOUBTEDLY TRUE THAT SO FAR AS THE POSTAL PEON IS CONCERNED, HE SERVED THE NOTICE UPON C WHO ACCEPTED IT. BUT WHAT C DID WITH THE LETTER AND TO WHAT EXTENT T HE ASSESSEE CAME TO BE CONNECTED WITH IT OR TO KNOW OF IT, WAS NEVER IN VESTIGATED, NOR FOUND. THE CONTENTION OF THE ASSESSEE WHICH THE TRIBUNAL H AVE ACCEPTED IS THAT THE BROTHER NEVER COMMUNICATED TO HIM THE INFORMATI ON CONTAINED IN THE NOTICE. IN SO FAR AS TRIBUNAL HELD THAT THE MERE FA CT THAT THE NOTICE WAS PHYSICALLY DELIVERED TO A PERSON OTHER THAN THE ASS ESSEE, WHO HAD NO AUTHORITY FROM THE ASSESSEE TO RECEIVE LETTERS ON H IS BEHALF, WOULD BE SUFFICIENT TO ESTABLISH THAT NO PROPER OR LEGAL SER VICE HAD BEEN EFFECTED THEIR DECISION WAS PLAINLY WRONG AND THAT UNFORTUNA TELY IS THEIR WHOLE DECISION. THE TRIBUNAL WAS NOT JUSTIFIED IN HOLDING THAT THE SERVICE OF THE NOTICE WAS NOT SUFFICIENT SERVICE WITHIN THE MEANIN G OF SECTION 63 OF THE INDIAN IT ACT, MERELY ON THE FINDING THAT THE NOTIC E HAD BEEN SERVED UPON A BROTHER OF THE ASSESSEE WHO HAD NO AUTHORITY TO R ECEIVE IT ON THE ASSESSEE'S BEHALF, WITHOUT CONSIDERING THE PRESUMPT ION WHICH AROSE UNDER SECTION 27 OF THE GENERAL CLAUSES ACT AND WIT HOUT COMING TO ANY DECISION AS TO WHETHER THAT PRESUMPTION HAD BEEN RE BUTTED. (EMPHASIS OWN) 12. SIMILARLY THE HON'BLE HIGH COURT OF DACCA IN R.P. SHAH VS. CIT 27 ITR 231 HELD THAT WHEN A NOTICE IS SENT BY REGISTERED P OST AND THE SAME IS ITA NO. 533/MUM/2009 M/S SHREERAM THREAD WORKS 6 RECEIVED BY TWO PERSONS WHO SINGED FOR THE ASSESSEE AND THE ASSESSEE HAS NOT GIVEN ANY REBUTTING EVIDENCE, THE PRESUMPTION O F VALID SERVICE STANDS. IN THIS CASE ALSO, AS THE ASSESSEE HAS NO REBUTTING EV IDENCE, PRESUMPTION OF VALID SERVICE STANDS. THE ONLY EVIDENCE SOUGHT TO B E FILED IS AN AFFIDAVIT BEFORE US, WHICH IN OUR OPINION IS A SELF SERVING D OCUMENT. OBJECTION SHOULD HAVE BEEN TAKEN AT THE FIRST STAGE OF ASSESSMENT PR OCEEDINGS. 13. COMING TO THE ISSUE OF MERITS IN DISPUTE, THE FACT IS THAT THE ASSESSEE HAS SHUT DOWN IN ITS FACTORY, DISPOSED OFF THE SAME , RETRENCHED ITS WORKED AND HAS NOT COMMENCED THE BUSINESS TILL DATE. ON A QUERY FROM THE BENCH THE LEARNED COUNSEL SUBMITTED THAT TILL DATE THE AS SESSEE HAS NOT RE- COMMENCED BUSINESS. ON THIS FACTUAL MATRIX WE AGREE WITH THE FINDINGS OF THE REVENUE AUTHORITIES THAT NO EXPENDITURE, WHATSO EVER, CAN BE ALLOWED IN THE HANDS OF THE ASSESSEE. COMING TO THE ARGUMENTS THAT THE ASSESSEE HAS TO PRESERVE THESE ASSETS, WE FIND THAT THE ASSESSEE HAS ONLY LIQUID BALANCE IN THE FORM OF CASH AND BALANCE AT BANK, WHICH REQUIRE NO MAINTENANCE. BEING A FIRM THERE IS NO STATUTORY REQUIREMENT LIKE IN TH E CASE OF A COMPANY AND HENCE NO EXPENDITURE IS REQUIRED TO MAINTAIN THE ST ATUS OF THE FIRM. ASSESSEE HAS NOT MADE ANY CLAIM THAT HE SHOULD BE A LLOWED EXPENDITURE UNDER SECTION 57(III). THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. VIRMANI INDUSTRIES PVT. LTD. AND OT HERS 216 ITR 607 AND THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF HINDUSTAN CHEMICAL WORKS LTD. VS. CIT 124 ITR 561 ARE NOT APP LICABLE, AS IN THOSE CASES, IT WAS A TEMPORARY COLURE OF BUSINESS AND NO T A CASE OF PERMANENT CLOSURE AS IN THE CASE ON HAND. ACCORDINGLY WE DISM ISS GROUND NO. 2 OF THE ASSESSEE. 14. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH NOVEMBER 2010. SD/ SD/- (V. DURGA RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 26 TH NOVEMBER 2010 ITA NO. 533/MUM/2009 M/S SHREERAM THREAD WORKS 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XIV, MUMBAI 4. THE CIT XIV, MUMBAI CITY 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.