NAWAL TEXTILES LTD, MUMBAI V. ACIT (OSD) CIR 2(2), MUMBAI

ITA 5725/MUM/2009

• Counselvise Citation: 572519914 RSA 2009
• Duration Of Justice: 1 year(s) 11 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 26-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P K B MENON
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, MUMBAI. BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND PRAMOD KUMAR, ACCOUNTANT MEMBER I.T.A NO.5725/ MUM/2009 ASSESSMENT YEAR: 2006-07 NAWAL TEXTILES LTD. .. APPELLANT PODAR CHAMBERS, 4 TH FLOOR, S.A.BRELVI ROAD, FORT, MUMBAI PA NO.AAACP 8763 A VS ACIT (OSD), CIRCLE 2(2) .. RESPONDEN T AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. APPEARANCES: AARTI VISSANJI, FOR THE APPELLANT P.K.B.MENON , FOR THE RESPONDENT DATE OF HEARING : 5.10.2011 DATE OF PRONOUNCEMENT : 25 -10-2011 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF CIT(A)S ORDER DATED 20 TH AUGUST, 2009, IN THE MATTER OF ASSESSMENT UNDER SE CTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESS MENT YEAR 2006-07 ON THE FOLLOWING GROUNDS: I.T.A NO.5725/ MUM/2009 ASSESSMENT YEAR: 2006-07 2 1. THE AUTHORITIES BELOW ERRED IN DETERMINING THE INCOME OF THE APPELLANT COMPANY AT RS.NIL AS AGAINST THE LOSS OF RS.1,13,78 ,954 RETURNED BY THE APPELLANT COMPANY WITHOUT APPRECIATING AND CONSIDER ING ALL THE MATERIAL FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE AUTHORITIES BELOW ERRED IN DISALLOWING THE A MOUNT OF RS.86,26,450 RELATING TO PURCHASE OF POY IN THE EARLIER YEARS WH ICH WAS WRITTEN BACK IN THE EARLIER YEAR AND WAS OFFERED AS INCOME AND WHICH WA S REQUIRED TO BE ULTIMATELY PAID TO THE SELLER OF THE POY AND HAS AC TUALLY BEEN PAID. 3. THE AUTHORITIES BELOW ERRED IN NOT ALLOWING ANY EXPENSES WHICH IS ESSENTIAL FOR THE RUNNING OF THE APPELLANT COMPANY AS DETAILE D BELOW: A) OPENING STOCK 68,424 B) STOCK RAW MATERIAL/STORES & SPARE WRITTEN OFF 2 26199 C) RENT PAID 5479 D) RATES & TAXES 1700 E) PRINTING & STATIONERY 212 F) POSTAGE, TELEPHONE AND TELEX 283 G) TRAVELLING & CONVEYANCE EXPENSES 1556 H) MISC. EXPENSES 26217 I) LEGAL AND PROFESSIONAL CHARGES 26520 J) PAYMENT TO AUDITORS 16836 K) INTEREST AND FINANCE EXPENSES 21,86,183 4. THE AUTHORITIES BELOW ERRED IN DISALLOWING THE I NTEREST PAID OF RS.21,86,183 ON THE LOANS, WHICH WAS USED FOR THE P URPOSE OF BUSINESS OF THE APPELLANT COMPANY WITHOUT ANY BASIS & REASONABLE GR OUND AND WITHOUT APPRECIATING AND CONSIDERING ALL THE MATERIAL FACTS AND CIRCUMSTANCES OF THE CASE 2. TO ADJUDICATE ON THE ABOVE GRIEVANCES, ONLY A FE W MATERIAL FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE WAS PREVIOUSLY ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTURISED YARN, BUT THE PRODUCTIO N ACTIVITIES IN THE FACTORY HAD COME TO A COMPLETE HALT IN 1999 SINCE THE FACTORY W AS TAKEN OVER BY SICOM AND MSFC IN 1999. ON THESE FACTS, THE ASSESSING OFFICER DEC LINED ALL THE EXPENSES AND LOSS CLAIMED BY THE ASSESSEE AND OBSERVED THAT THERE AR E NO BUSINESS ACTIVITIES OF THE ASSESSEE COMPANY SINCE 1999.. AND THERE WAS NO ACT IVITY OF THE COMPANY DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER SCRUTINY. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. LEARNED I.T.A NO.5725/ MUM/2009 ASSESSMENT YEAR: 2006-07 3 CIT(A) OBSERVED THAT IT IS NOT EVEN THE CASE OF THE ASSESSEE THAT THERE WAS A TEMPORARY LULL IN THE BUSINESS AND BUSINESS HAS COM E TO A HALT, AND THAT NO EXPENDITURE OF A STOPPED BUSINESS CAN BE ALLOWED. ONE ARGUMENT TAKEN BEFORE THE CIT(A) WAS THAT SINCE THE ASSESSEE HAD OFFERED TO T AX RS.6,63,424, ON ACCOUNT OF EXCHANGE DIFFERENCE, IN RESPECT OF LOSS OF RS.86,26 ,450 DISALLOWED IN THIS YEAR, THE EXPENSE CLAIM SHOULD ALSO BE ALLOWED. THIS CLAIM WA S ALSO DECLINED BY THE CIT(A) BY OBSERVING THAT MERELY BECAUSE ASSESSEE HAS OFFERED TO TAX A PART OF LIABILITY OR LOSS DISALLOWED, THE ORIGINAL CLAIM CAN NOT BE ALLOWED. THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFORE US. 3. LEARNED COUNSEL FAIRLY ACCEPTS THAT IT IS NOT HE RE CASE THAT THERE WAS A TEMPORARY LULL IN THE BUSINESS BUT CONTENDS THAT EX PENSES SHOULD BE ALLOWED TO THE EXTENT SAME ARE NECESSARY FOR KEEPING THE COMPANY A LIVE, AND TO THE EXTENT RELATED WRITE BACK HAVE BEEN ACCEPTED FOR TAXATION IN THE SUBSEQUENT YEAR. IN THE ALTERNATIVE, SHE PRAYS THAT A DIRECTION MAY BE ISSU ED SO AS THE RELATED INCOME NOT BE TAXED. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIES UPON THE ORDERS OF THE AUTHORITIES BELOW. 4. WE SEE MERITS IN THE LIMITED PLEA OF THE LEARNED COUNSEL. TO THE EXTENT, EXPENSES ARE NECESSARY TO KEEP THE COMPANY ALIVE, T HE EXPENSES ARE TO BE ALLOWED AS DEDUCTION U/S.37(1) AS WAS HELD BY A COORDINATE BE NCH OF THIS TRIBUNAL IN THE CASE OF ITO VS. MOKUL FINANCE PVT LTD (110 TTJ 445) WHIC H, IN TURN, RELIED UPON HONBLE PUNJAB & HARYANA HIGH COURTS JUDGMENT IN THE CASE OF NAKODAR BUS SERVICES PVT LTD V. CIT(179 ITR 506) AND HONBLE ALLAHABAD HIGH COUR TS JUDGEMENT IN THE CASE OF CIT VS .RAMPUR TIMBERY & TURNEY CO LTD.9129 ITR 58). A S REGARDS THE QUESTION WHETHER INCOME CAN BE TAXED U/S.41(1) WHEN CLAIM IS NOT ALLOWED IN PRECEDING YEAR, IT IS FOR THE ASSESSEE TO TAKE UP THE MATTER IN APP ROPRIATE PROCEEDINGS FOR THE YEAR IN WHICH INCOME IS OFFERED. IT IS NOT, IN OUR HUMBLE UNDERSTANDING, OPEN TO US TO GIVE DIRECTION FOR ANOTHER YEAR. WE, THEREFORE, CONFINE OUR RELIEF ON THE GROUND OF EXPENSES FOR KEEPING THE COMPANY ALIVE. NO OTHER IS SUE IS PREFERRED BEFORE US. I.T.A NO.5725/ MUM/2009 ASSESSMENT YEAR: 2006-07 4 5. IN VIEW OF THE ABOVE DISCUSSIONS, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSES OF GIVING DEDUCTION IN RESPECT OF EXPENSES NECESSARY TO KEEP THE CORPOR ATE EXISTENCE ALIVE IN TERMS OF ABOVE OBSERVATIONS. 6. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 25 TH OCTOBER, 2011 SD/- (D.MANMOHAN) VICE PRESIDENT SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATED 25 TH OCTOBER, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),II, MUMBAI 4. COMMISSIONER OF INCOME TAX, 2 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH B MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI