ARY FASHION P. LTD, MUMBAI V. ITO WD 6(1)3, MUMBAI

ITA 5352/MUM/2011

• Counselvise Citation: 535219914 RSA 2011
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 15-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Assessee Lawyers: SITARAM PAREEK
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, SMC, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT I T A NO: 5352/MUM/2011 (ASSESSMENT YEAR: 2008-09) M/S ARY FASHION PRIVATE LTD., MUMBAI APPELLANT (PAN: AACCA7806K) VS INCOME TAX OFFICER 6(1)-3, MUMBAI RESPONDENT ASSESSEE BY: MR SITARAM PAREEK REVENUE BY: MR G P TRIVEDI DATE OF HEARING: 13 TH SEPTEMBER 2011 DATE OF PRONOUNCEMENT: 16 TH SEPTEMBER 2011 O R D E R THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSM ENT YEAR 2008-09. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF PROCURING FABRICS FROM THE MARKET, GETT ING GARMENTS MANUFACTURED ON JOB WORK BASIS AND SELLING THE SAME IN THE DOMESTIC MARKET. THE PRESENT APPEAL ARISES OUT OF THE ASSES SMENT ORDER PASSED ON 29 TH OCTOBER 2010, UNDER SECTION 143(3) OF THE INCOME T AX ACT, 1961. 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE QUITE LENGTHY. HOWEVER, A PERUSAL THEREOF SHOWS THAT THE ASSESSEE HAS DISPUTED THE FOLLOWING THREE ISSUES: - (I) DISALLOWANCE OF SALARY OF ` 2,91,711/- (II) DISALLOWANCE OF TELEPHONE EXPENSES OF ` 16,483/- (III) ASSESSMENT OF INTEREST INCOME UNDE R THE RESIDUARY HEAD. 2 ITA NO: 5352/MUM/2011 3. AS REGARDS THE DISALLOWANCE OF THE SALARY, IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS OBS ERVED THAT THE TOTAL RECEIPTS OF THE BUSINESS WERE ONLY ` 85,021/- AFTER INCURRING EXPENSES OF ` 4,84,388/-. HE HAS FURTHER OBSERVED THAT THE ASSES SEE HAS CLAIMED SALARY PAYMENT OF ` 2,92,883/-. THE ASSESSING OFFICER FOUND THAT THE ASSESSEES SISTER CONCERN, WHICH IS A PARTNERSHIP FIRM BY NAME FASHION EXIM WAS ALSO CARRYING ON BUSINESS F ROM THE SAME PREMISES AND THEREFORE THE POSSIBILITY OF THE COMMON EMPLOYEES CANNOT BE RULED OUT . THE ASSESSING OFFICER ALSO COMPARED THE ASSESSEES BUSINESS RECEIPTS OF ` 85,021/- WITH THE TURNOVER OF THE SISTER CONCERN, WHICH WAS ` 2,16,18,157/-. HE AGGREGATED BOTH THESE FIGURES, WHICH CAME TO ` 2,17,03,178/- AND HIS LOGIC WAS THAT OUT OF THE AGGREGATE FIGURE, 99.60% BELONGED TO THE ASSESSEES SISTER CONCERN AND THEREFORE THE SAID PERCENTAGE OF THE SALARY PAY MENT EFFECTED BY THE ASSESSEE SHOULD BE DISALLOWED. THE ASSESSEE OB JECTED TO THE PROPOSAL AND POINTED OUT THAT THOUGH THE TURNOVER F OR THE YEAR WAS LOW, THE GARMENT MANUFACTURING BUSINESS IN THE GALA AT P RAGATI INDUSTRIAL ESTATE, MUMBAI, WAS NOT CLOSED AND THE BUSINESS WAS KEPT ALIVE, THOUGH NO BUSINESS COULD BE DONE DURING THE YEAR BE CAUSE OF SLACKNESS IN THE MARKET. IT WAS SUBMITTED THAT THI S CANNOT BE A GROUND FOR DISALLOWING 99.60% OF THE SALARY PAID BY THE AS SESSEE. 4. THE ASSESSING OFFICER DID NOT ACCEPT THE SUBMISS ION OF THE ASSESSEE. HE REITERATED HIS LOGIC AND DISALLOWED 9 9.60% OF THE SALARY PAYMENT OF ` 2,92,883/- MADE BY THE ASSESSEE, WHICH CAME TO 3 ITA NO: 5352/MUM/2011 ` 2,91,711/-. THIS AMOUNT WAS DISALLOWED. THE DISAL LOWANCE HAVING BEEN CONFIRMED BY THE CIT(A), THE ASSESSEE IS IN FU RTHER APPEAL BEFORE THE TRIBUNAL. 5. I HAVE HEARD THE RIVAL CONTENTIONS AND EXAMINED THE FACTS. THE LOGIC ADOPTED BY THE DEPARTMENTAL AUTHORITIES DOES NOT APPEAL TO ME. THERE IS NO DISPUTE THAT THE ASSESSEE HAS NOT CLOSE D ITS BUSINESS OF MANUFACTURING GARMENTS. ITS SUBMISSION BEFORE THE ASSESSING OFFICER THAT THE GARMENT MANUFACTURING UNIT HAS NOT BEEN CL OSED DOWN AND THAT THE BUSINESS WAS KEPT ALIVE IN ANTICIPATION OF BETTER BUSINESS PROSPECTS IN FUTURE HAS NOT BEEN FOUND INCORRECT. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IT CANNOT BE EXPECTED T O DISCHARGE ITS STAFF MERELY BECAUSE THE BUSINESS HAS SLACKENED DURING TH E RELEVANT ACCOUNTING YEAR. THE SCHEDULE H TO THE ACCOUNTS SHOWS THAT THERE WERE PURCHASES OF FABRIC OF ` 57,750/- DURING THE YEAR AS AGAINST ` 39,907/- IN THE EARLIER YEAR. THE ASSESSEE HAS ALS O PAID JOB WORK STITCHING CHARGES OF ` 8,695/- DURING THE YEAR AS AGAINST ` 3,150/- IN THE EARLIER YEAR. IT HAS PAID ` 2,33,669/- AS SALARY TO EMPLOYEES IN THE EARLIER YEAR AS I SEE FROM THE SCHEDULE I TO THE FINAL ACCOUNTS AND APPARENTLY THERE WAS NO DISALLOWANCE OF THE SALARY OR ANY PART THEREOF IN THE EARLIER YEAR. THERE IS ALSO NO EVIDENCE TO SHOW THAT THE ASSESSEES STAFF DID NOT RENDER SERVICES TO THE ASS ESSEE BUT RENDERED THEM TO THE SISTER CONCERN SO THAT NO PAYMENT OF SA LARY TO THEM BY THE ASSESSEE WAS JUSTIFIED. EVEN THE ASSESSING OFFICER HAS ONLY OBSERVED THAT THE POSSIBILITY OF COMMON EMPLOYEES CANNOT BE RULED OUT. WHEN 4 ITA NO: 5352/MUM/2011 ALMOST THE ENTIRE SALARY PAYMENT IS BEING DISALLOWE D, ONE WOULD EXPECT STRONGER EVIDENCE OR MATERIAL ON WHICH THE DISALLOW ANCE SHOULD BE BASED, INSTEAD OF A SURMISE OR CONJECTURE. I ALSO FIND FROM THE ACCOUNTS OF THE SISTER CONCERN, NAMELY, FASHION EXI M, FILED AT MY INSTANCE, THAT IT HAS PAID STAFF SALARY OF ` 14,00,625/-. IN THIS VIEW OF THE MATTER I DELETE THE DISALLOWANCE OF THE SALARY PAYMENT OF ` 2,91,711/-. 6. AS REGARDS THE DISALLOWANCE OF THE TELEPHONE EXP ENSES, THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE EXPENSE S ON THE GROUND THAT THE TELEPHONE BILLS WERE IN THE NAME OF THE ST AFF AND NOT IN THE NAME OF THE ASSESSEE. EVEN SO, THE TELEPHONES WERE INSTALLED IN THE ASSESSEES BUSINESS PREMISES ONLY. TAKING AN OVERA LL VIEW OF THE MATTER AND CONSIDERING THE POSSIBILITY OF SOME PERS ONAL USE OF THE TELEPHONE, I DIRECT THAT 20% OF THE TELEPHONE CHARG ES MAY BE DISALLOWED AND THE BALANCE SHOULD BE ALLOWED. 7. THE NEXT DISPUTE RELATES TO THE ASSESSMENT OF TH E INTEREST INCOME OF ` 5,62,061/-. WHEREAS ACCORDING TO THE ASSESSEE THE ABOVE AMOUNT SHOULD BE ASSESSED AS BUSINESS INCOME, THE DEPARTMENTAL AUTHORITIES HAVE TAKEN THE VIEW THAT IT SHOULD BE A SSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEES S UBMISSION BEFORE THE ASSESSING OFFICER WAS THAT SINCE THE BUSINESS W AS SLACK DURING THE YEAR, THE INTEREST BEARING BORROWED FUNDS WERE TEMP ORARILY PARKED IN INTEREST EARNING ADVANCES SO THAT THE LOSSES COULD BE REDUCED. IT WAS ALSO SUBMITTED THAT THE MEMORANDUM OF ASSOCIATION P ERMITTED THE 5 ITA NO: 5352/MUM/2011 ASSESSEE TO BORROW AND LEND THE MONEY AND THEREFORE THIS ACTIVITY SHOULD BE TREATED AS A BUSINESS ACTIVITY. THE SUBM ISSIONS WERE NOT ACCEPTED BY THE ASSESSING OFFICER. HE ACCORDINGLY BROUGHT THE NET INTEREST INCOME OF ` 5,62,061/- UNDER THE RESIDUARY HEAD. THE SAME WAS UPHELD BY THE CIT(A). 8. I HAVE HEARD THE RIVAL SUBMISSIONS ON THIS POINT . THE LEARNED REPRESENTATIVE FOR THE ASSESSEE WAS UNABLE TO PRODU CE ANY DETAILS OR FACTS BEFORE ME TO SUBSTANTIATE THE CLAIM THAT THE INTEREST SHOULD BE ASSESSED AS BUSINESS INCOME. HE WAS NOT ALSO ABLE TO FILE DETAILS ABOUT THE PERSONS OR ENTITIES TO WHOM THE ASSESSEE ADVANCED THE MONIES. IN THE ABSENCE OF THESE DETAILS, IT IS DIF FICULT TO COUNTENANCE THE ASSESSEES CLAIM. THE ASSESSEE WAS ALSO NOT AB LE TO PRODUCE BEFORE ME ANY RESOLUTION OF THE BOARD OF DIRECTORS TAKING A DECISION TO PARK THE BORROWED FUNDS IN PLACES AS A BUSINESS PRO POSITION. THERE IS LACK OF EVIDENCE TO SUBSTANTIATE THE ASSESSEES CLA IM. I AM THEREFORE UNABLE TO ACCEPT THE CLAIM. THE SAME IS REJECTED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. NO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER 2011. SD/- ( R V EASWAR ) MUMBAI, DATED 16 TH SEPTEMBER 2011 PRESIDENT SALDANHA 6 ITA NO: 5352/MUM/2011 COPY TO: 1. M/S ARY FASHION PRIVATE LIMITED 246, PRAGATI INDUSTRIAL ESTATE 316, N M JOSHI MARG, LOWER PAREL MUMBAI 400 011 2. ITO 6(1)-3, MUMBAI 3. CIT-6, MUMBAI 4. CIT(A)-14, MUMBAI 5. DR SMC BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI