KARE ELEVATOR & ENGG CO P.LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 5433/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88688 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 29-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: N M PORWAL
• Keywords: Business income; Depreciation
• Section: 56(2)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A BENCH , , BEFORE S/SH. I P BANSAL,JUDICIAL ME MBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.5433/MUM/2012, ! ! ! ! / ASSESSMENT YEAR-2008-09 KARE ELEVATOR & ENGINEERING CO. PVT. LTD., 09, RAVIRAJ, VEERA DESAI ROAD, ANDHERI (EAST), MUMBAI-400058 PAN:AAACK1795P VS DCIT 8(1), R.NO. 354, 3RD FLOOR, AAYKAR BHAVAN,M K ROAD, MUMBAI-20 ( '# / ASSESSEE) ( $%'# / RESPONDENT) &' &' &' &' ( ( ( ( /ASSESSEE BY :SHRI N. M. PORWAL ) ( / REVENUE BY :SHRI NEIL PHILIP ) )) ) '* '* '* '* / DATE OF HEARING :31 - 03 -2015 +,! ) '* / DATE OF PRONOUNCEMENT :31 -03-2015 , 1961 ) )) ) 254(1) ' ' ' '-' -'-' -' . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM CHALLENGING THE ORDER DT.19.06.2012 OF THE CIT(A)-1 7,MUMBAI,ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 01. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ARRIVING AT THE CONCLUSION T HAT INTEREST RECEIVED OF RS. 5080328/- BY THE APPELLANT IS TAXABLE UNDER THE HEAD 'INCOME FROM OT HER SOURCES AND NOT UNDER THE HEAD 'INCOME FROM BUSINESS' AND NO PART OF EXPENDITURE IS ALLOWA BLE OUT OF SAID RECEIPTS. 02. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ARRIVING AT THE CONCLUSION T HAT SALES OF RS. 138125/- IS TAXABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES AND NOT UNDER THE H EAD 'INCOME FROM BUSINESS' AS THE APPELLANT HAS FAILED TO ESTABLISH THAT SAID INCOME IS EARNED OUT OF BUSINESS ACTIVITY. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN REJECTING CLAIM OF EXPENDITURE OF THE APPELLANT AND ARRIVING AT THE CONCLUSION THAT AND N O PART OF EXPENDITURE IS ALLOWABLE OUT OF SAID INCOME. 03.THE APPELLANT CRAVE LEAVE TO ADD, AMEND, ALTER A ND / OR VARY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2. ASSESSEE-COMPANY,DERIVING INCOME FROM INVESTMENT,FI LED ITS RETURN OF INCOME ON 28.09.2008 DECLARING TOTAL INCOME OF RS.36,56,090/- .THE ASSESSING OFFICER (AO) COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT ON 26.11.10 DE TERMINING THE INCOME OF THE ASSESSEE AT RS. 1,00,48,080/-. 3. EFFECTIVE GROUND OF APPEAL IS ABOUT ASSESSING THE I NTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND NOT ALLOWING EXPENDITURE IN CURRED BY IT.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD SHO WN SALES AT RS.1,38,125/- AND OTHER INCOME AT RS. 60.67 LAKHS, THAT IT HAD CLAIMED EXPE NDITURE, INCLUDING COST OF RAW MATERIAL AT RS. 48.29 LAKHS, THAT IT HAD SHOWN THE SALES AS LAB OUR CHARGES RECEIVED FOR MODERNIZATION OF LIFT AT RS. 1.14 LAKHS AND RS. 24, 125/- AS REPAYME NT CHARGES,THAT IT HAD RECEIVED INTEREST INCOME ON 54 EC BONDS FD, TERM DEPOSIT AND FROM M/S .JAYANT REALTORS.AS PER THE AO,DURING THE ASSESSMENT PROCEEDINGS,THE ASSESSEE H AD NOT FILED ANY EVIDENCE IN RESPECT OF SALE SHOWN/PURCHASE MADE/EXPENDITURE CLAIMED. HE HE LD THAT IT HAD NOT ESTABLISHED THE 2 ITA NO. 5433/M/12 KARE ELEVATOR & ENGINEERING CO. P VT. LTD. GENUINENESS OF BUSINESS CARRIED ON BY IT, THAT IT H AD NOT ALSO ESTABLISHED THE GENUINENESS OF THE EXPENDITURE CLAIMED.THEREFORE,HE TREATED SALES SHOWN BY THE ASSESSEE AS INCOME FROM OTHER SOURCES.BESIDES,EXPENSES INCLUDING INTEREST A ND DEPRECIATION CLAIMED WAS ALSO DISALLOWED, CONSIDERING THE FACT THAT IT HAD NOT PR ODUCED ANY NEXUS OF ALL THE EXPENSES WITH EARNING OF INCOME. 4. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,THE ASSESSEE AR GUED THAT IT HAD CARRIED OUT THE BUSINESS OF FINANCING AND INVESTMENTS AS PER ITS MEMORANDUM OF ASSOCIATION, THAT THE AO HAD ERRED IN TREATING THE SAME AS INCOME FROM OTHER SOURCES, THA T IF THE INCOME WAS TO BE TAXED U/S.56 THE ASSESSEE WAS ENTITLED TO SET OFF THE EXPENDITURE AN D DEPRECIATION U/S.57 OF THE ACT.DURING THE COURSE OF APPELLATE PROCEEDINGS,HE DIRECTED THE ASS ESSEE TO FILE COPIES OF SALE BILLS, EXPENDITURE BILLS, MEMORANDUM OF ASSOCIATION,SALE A GREEMENT AND COPY OF THE NON-COMPETE AGREEMENT. HE ALSO ASKED THE ASSESSEE TO SHOW AS TO WHY THE RENTAL INCOME SHOULD NOT BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. VIDE ITS REPLY,DATED 18.06.2012,THE ASSESSEE SUBMITTED THAT IN CASE RENTAL INCOME WAS T REATED AS INCOME FROM HOUSE PROPERTY IT WOULD BE ENTITLED FOR DEDUCTION U/S.24 OF THE ACT, THAT IT WOULD ALSO BE ENTITLED TO DEDUCTION OF MAINTENANCE CHARGE OF RS. 41,240/-.IT WAS FURTHE R STATED THAT IN TERMS OF ARTICLE 2.3 OF THE AGREEMENT IT WAS ENTITLED TO COMPLETE THE ONGOING I NSTALLATION CONTRACTS AND THE ONGOING MODERNIZATION CONTRACT BY THE VENDOR, THAT THE SALE PROCEEDINGS OF RS.1.38 LAKHS WAS PURSUANT TO THAT ARTICLE,THAT IT COULD NOT BE SAID THAT THERE WAS NO BUSINESS BEING CARRIED OUT- EVEN IF OTHER INCOMES WERE HELD TO BE NOT ASSESSED AS BUSINESS INCOME. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT THE ASSESSEE HAD SHOWN INCOME FROM THREE SOURCES I. E. SALES, INTEREST, RENT, THAT IN THE COMPUTATION OF INCOME ENTIRE RECEIPTS HAD BEEN OFFE RED FOR TAXATION UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION,THAT AFTER SETTING OFF EXPENSES,AMOUNTING TO RS. 48.29 LAKHS,THE NET PROFIT HAD BEEN ARRIVED AT RS. 13.76 LAKHS,THAT IN THE COMPUTATION THE TOTAL INCOME WAS SHOWN AT RS. 36.56 LAKHS, THAT THE AO HA D TREATED THE ENTIRE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND HAD DISALLOWED T HE ENTIRE EXPENSES. THE FAA HELD THAT IN VIEW THE SPECIFIC CLAUSE OF SECTION 56(2) OF THE ACT THERE WAS NO DOUBT THAT INTEREST RECEIVED OF RS. 50.80 LAKHS WAS ASSESSABLE UNDER TH E HEAD INCOME FROM OTHER SOURCES,THAT IN MEMORANDUM OF ASSOCIATION THE MAIN OBJECT OF THE AS SESSEE WERE WITH REGARD TO BUSINESS OF INSTALLING AND MAINTAINING ELEVATORS, THAT IT WAS O NLY IN ANCILLARY OBJECT THAT THE INVESTMENT HAD BEEN HELD TO BE AN OBJECTIVE, THAT SAME WOULD N OT BE TAKEN TO MEAN THAT LANDING OF MONEY ON INTEREST WAS THE BUSINESS OF THE ASSESSEE, THAT THE ENTIRE INTEREST HAD BEEN EARNED BY THE ASSESSEE FROM BONDS,THAT THE INTEREST INCOME WA S TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES,THAT NO EVIDENCE WAS PRODUCED TO PROV E THAT EXPENDITURE INCURRED BY THE ASSESSEE WAS LAID OUT WHOLLY AND EXCLUSIVELY FOR EA RNING INTEREST INCOME,THAT SAME COULD NOT ALLOWED U/S.57(III), THAT AS FAR AS INCOME FROM OTH ERS SOURCES WAS CONCERNED NO EXPENDITURE WAS ALLOWABLE.WITH REGARD TO THE RENTAL INCOME HE D IRECTED THE AO TO COMPUTE THE SAME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ABOUT TH E INCOME SHOWN UNDER THE HEAD INCOME FROM SALES OF RS.1.38 LAKHS THE ASSESSEE SUBMITTED THAT THOUGH IT HAD SOLD OF ITS MAIN BUSINESS IN JANUARY 2005 YET IT WAS ENTITLED TO COM PLETION OF ONGOING INSTALLATION CONTRACTS. FROM THE PERUSAL OF SALE BILLS,THE FAA FOUND THAT B ILLS HAD BEEN RAISED FOR MODERNIZATION AND FOR REPAIR WORK AT SITE, THAT NO EVIDENCE HAD BEEN FILED TO SHOW THAT THE SAID WORK WAS SPECIFICALLY WITHIN THE PURVIEW OF ARTICLE2.3 OF NO N-COMPETE ACTIVITY. HE HELD THAT AS PER THE AGREEMENT THE ASSESSEE WAS NOT ENTITLED TO PURSUE A NY BUSINESS ACTIVITY FOR A PERIOD OF 5 YEARS,THAT THE ASSESSEE HAD NOT BEEN ABLE TO ESTABL ISH THAT THE INCOME OF RS.1.38 LAKHS HAD ARISEN OUT OF ANY BUSINESS ACTIVITY, THAT SAME HAD RIGHTLY BEEN HELD TO BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES.HE FURTHER HELD THAT EXPENDITURE U/S.57(III) COULD BE ALLOWED UNDER CERTAIN CIRCUMSTANCES ONLY,THAT THERE HAD TO BE DIRECT NEXUS BETWEEN THE INCOME AND EXPENDITURE, THAT THE ASSESSEE HAD NOT BEEN ABLE TO ESTABLISH ANY SUCH NEXUS BETWEEN THE 3 ITA NO. 5433/M/12 KARE ELEVATOR & ENGINEERING CO. P VT. LTD. INCOME AND THE EXPENSES DEBITED TO P&L A/C.FINALLY, HE PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE. 5. BEFORE US,AUTHORISED REPRESENTATIVE (AR) STATED THA T ASSESSEE HAD ENTERED INTO NON- COMPETE AGREEMENT,THAT IT HAD EXECUTED MODERNIZATIO N OF SOME LIFTS,THAT THE INCOME HAD TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND PR OFESSION.DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.ON A QUERY BY THE BENCH THE AR SHOWED HIS INABILITY TO PROVE ANY CONT RACT WAS ENTERED INTO WITH THE CUSTOMERS FOR MODERNIZING THE LIFTS OR CARRYING OUT THE BUSIN ESS DURING THE YEAR UNDER CONSIDERATION. HE COULD NOT PROVE THAT INCOME EARNED BY THE ASSESSEE FELL UNDER THE HEAD BUSINESS INCOME. HE ALSO ADMITTED THAT THE INTEREST INCOME EARNED BY TH E ASSESSEE WAS ATTRIBUTABLE TO INTEREST RECEIVED ON BONDS. CONSIDERING THE ABOVE FACTS,WE A RE OF THE OPINION THAT THE ASSESSEE HAD NOT CARRIED OUT ANY BUSINESS DURING THE YEAR UNDER CONSIDERATION, THAT IT HAD FAILED TO ESTABLISH THE LINK BETWEEN THE EXPENDITURE INCURRED AND INCOME EARNED.AS THE EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUS INESS,THEREFORE, SAME WAS RIGHTLY DISALLOWED BY THE FAA.WE FIND THAT FAA HAD GIVEN TH E ASSESSEE PART RELIEF WITH REGARD TO HOUSE PROPERTY INCOME. IN OUR OPINION, HIS ORDER DO ES NOT SUFFER FROM ANY LEGAL INFIRMITY. THEREFORE, CONFIRMING HIS ORDER, WE DECIDE THE EFFE CTIVE GROUND (GROUND NO. 1& 2) AGAINST THE ASSESSEE. AS A RESULT,APPEAL F ILED BY THE ASSESSEE STANDS DISMISSED . 0'1 &' 2 3 ) - UK 4 ) ' 56 . ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST ,MARCH,2015. . ) +,! 7 8 31 9 ,2015 , ) - : SD/- SD/- ( /I P BANSAL) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, 8 /DATE: 31.03.2015 SK . . . . ) )) ) $'; $'; $'; $'; <;!' <;!' <;!' <;!' / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / '# 2. RESPONDENT / $%'# 3. THE CONCERNED CIT(A)/ = > , 4. THE CONCERNED CIT / = > 5. DR A BENCH, ITAT, MUMBAI / ;?- $' , , . . . 6. GUARD FILE/ - 0 %;' $' //TRUE COPY// . / BY ORDER, @ / 5 DY./ASST. REGISTRAR , /ITAT, MUMBAI.