Nirvan Clothing Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 5790/DEL/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4743 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 20-10-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Business income; Depreciation
• Section: 143(3); 142(1); 32; 56

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C, NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 5790/DEL/2015 ASSESSMENT YEAR: 2012-13 M/S NIRVAN CLOTHING CO. (P) LTD., A-41, MAYAPURI INDL. AREA, PHASE-1, DELHI-64 (PAN: AAACN2430N) VS. INCOME TAX OFFICER, WARDS 13(3), C.R. BUILDING, NEW DELHI (APPELLANT) (RESPONDENT) ORDER PER H.S. SIDHU, J.M.: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORD ER DATED 10.9.2015 PASSED BY THE LD. CIT(A)-20, NEW DELHI ON THE FOLLOWING GROUNDS:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO AND CIT(A) HAVE GROSSLY ERRED; I) IN ASSESSING TOTAL INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST THE NIL INCOME SHOWN IN THE RETURN OF INCOME (WHEREIN THE ADJUSTMENT OF BROUGHT FORWARD LOSS OF RS. 14,45,146/-) WAS CLAIMED AGAINS T THE CURRENT INCOME), BY ASSESSING THE LEASE / RENTAL ASSESSEE BY SH. KVSR KRISHNA, ADV. DEPARTMENT BY SMT. RANU MUKHARJEE, SR. DR. 2 INCOME FROM MACHINERY AND BUILDING AND ALSO SUPERVISION RECEIPTS UNDER THE HEAD OTHER SOURCES AS AGAINST BUSINESS INCOME, SHOWN BY THE ASSESSEE COMPANY WHICH IS AGAINST THE PREVIOUS ACCEPTED HISTORY OF THE COMPANY. II) IN CHARGING PENAL INTEREST OF RS. 3,64,488/- AS INTERE ST U/S. 234B. 2. WITHOUT PREJUDICE TO THE APPELLANTS CLAIM WITH REGAR D TO ASSESSMENT OF INCOME UNDER THE HEAD OTHER SOURCES INS TEAD OF BUSINESS INCOME, THE AO AND CIT(A) OUGHT TO HAVE ALLOWED THE FOLLOWING EXPENSES EVEN AGAINST INCOME F ROM OTHER SOURCES: SL. NO. PARTICULARS AMOUNT SECTION UNDER WHICH ALLOWABLE A) EMPLOYEES BENEFIT EXPENSES 3,65,077/ - 57(III) B) FINANCE COST 10,697/ - 57(III) C) OTHER EXPENSES 1,57,650/ - 57(III) 3. APPELLANT CRAVES TO ADD, FILE, MODIFY ANY OTHER G ROUND BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FILED RETURN OF INCOME OF RS. NIL ELECTRONICALLY ON 26.9.2011 AND THE SAME WAS PROCESSED U/S. 143(1) OF THE I.T. ACT, 1961 AT DECLA RED INCOME. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY THROUG H CASS ON THE REASONS TO EXAMINE SHARE APPLICATION MONEY RECEIVED AGAINST UN- ALLOTTED SHARES, NOTICE U/S. 143(2) OF THE ACT, WAS IS SUED ON 23.9.2013 AND SERVED UPON THE ASSESSEE. SUBSEQUENTL Y, NOTICE U/S. 142(1) OF THE ACT WAS ALSO ISSUED AND SERVED UP ON THE 3 ASSESSEE AND INCOMPLIANCE THEREOF THE A.R. OF THE ASSE SSEE APPEARED FROM TIME TO TIME BEFORE THE AO AND FURNISHE D WRITTEN SUBMISSIONS AND DETAILS. THE SAME WERE EXAMINED B Y THE AO. THE ASSESSEE COMPANY WAS INCORPORATED ON 29.1.1996 WITH ITS MAIN OBJECTS OF MANUFACTURING AND EXPORT OF READYMADE GAR MENTS. DURING THE PERIOD UNDER CONSIDERATION, ASSESSEE COMP ANY HAS LEASED OUT ITS BUILDING AND PLANT AND MACHINERY AND HAS RECEIVED INCOME FROM LEASE RENT, INTEREST INCOME AND JOB WORK O N SUPERVISION OF GARMENT MANUFACTURING. THE ORIGINAL A SSESSMENT U/S. 143(3) OF THE ACT WAS COMPLETED AND ASSESSED AT A TOTA L INCOME OF RS. 63,68,998/- BY MAKING VARIOUS ADDITIONS VIDE ORD ER DATED 31.3.2014. THE ASSESSEE HAS ALSO PREFERRED APPEAL AGAINST THIS ORDER BEFORE THE LD. CIT(A)-20, NEW DELHI WHO VIDE HIS IMPUGNED ORDER DATED 10.9.2015 HAS PARTLY ALLOWED THE APPEAL O F THE ASSESSEE. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT LOWER AUTHORITIES ERRED IN ASSESSING TOTAL INCOME UNDER THE HEAD INCO ME FROM OTHER SOURCES AS AGAINST THE NIL INCOME SHOWN IN THE RETUR N OF INCOME (WHEREIN THE ADJUSTMENT OF BROUGHT FORWARD LOSS OF RS. 14,45,146/-) WAS CLAIMED AGAINST THE CURRENT INCOME), BY ASSESSIN G THE LEASE / RENTAL INCOME FROM MACHINERY AND BUILDING AND ALSO SUPERVISION RECEIPTS UNDER THE HEAD OTHER SOURCES AS AGAINST BU SINESS INCOME, SHOWN BY THE ASSESSEE COMPANY WHICH IS AGAINST THE PREVIOUS ACCEPTED HISTORY OF THE COMPANY. HE FURTHER SUBMITTED THAT THE AUTHORITIES BELOW ALSO ERRED IN CHARGING PENAL INTERE ST OF RS. 3,64,488/- AS INTEREST U/S. 234B. IT WAS FURTHER SUB MITTED THAT LOWER AUTHORITIES ALSO OUGHT TO HAVE ALLOWED SOME EXPE NSES AS MENTIONED IN GROUND NO. 3. 4 4. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF THE LD. CIT(A) AND STATED HE HAS PASSED A WELL REASONED ORD ER, WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECO RDS ESPECIALLY THE IMPUGNED ORDER. WE FIND THAT LD. CI T(A) HAS ELABORATELY DISCUSSED THE ISSUES IN DISPUTE IN HIS IMP UGNED ORDER FROM PARA NO. 5.4 TO 6 AT PAGE NO. 7 TO 11. THE REL EVANT FINDINGS OF THE LD. CIT(A) IS REPRODUCED AS UNDER:- {5.4} I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND SUBMISSIONS THEREOF. THE FACTS OF THE CASE AS PER ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT ARE AS UNDER; 1. THAT THE APPELLANT COMPANY IS INCORPORATED ON 29/01/1996 AND FOR LAST MANY YEARS NOT DOING ANY BUSINESS. 2. THAT AS PER THE APPELLANTS SUBMISSION, DISPUTE DEVELOPED AMONGST THE SHAREHOLDERS AND THE DIRECTORS OF THE COMPANY IN THE YEAR 2005. AS A RESULT OF WHICH MAJORITY OF DIRECTORS RESIGNED AND LEFT THE COMPANY. 3. THAT THE APPELLANT COMPANY HAD ENTERED INTO A LEASE CUM RENT AGREEMENT WITH M/S RICHA GLOBAL EXPORTS PVT LTD ON 24/11/2011. AS PER THE AGREEMENT THE APPELLANT COMPANY HAS LEASED OUT ITS PLANT AND MACHINERY AND THE PREMISES AT A MONTHLY RENTALS FOR AN INITIAL PERIOD OF 9 YEARS. 5 {5.5} THE A.O HAS TAKEN A VIEW THAT THE COMPANY HAS NOT RECEIVED INCOME FROM THE ACTIVITIES FOR WHICH IT HAS BEEN CONSTITUTED. IT HAS GONE BEYOND ITS OBJECTIVES AS PER MEMORANDUM OF ASSOCIATION. THUS MERELY STATING THAT UNDER FORCED CIRCUMSTANCES, COMPANY LEASED OUT ITS ASSETS CANNOT MAKE IT A CASE WHERE ACTIVITIES CAN BE TREAT AS BUSINESS ACTIVITIES. IN VARIOUS JUDICIAL PRONOUNCEMENTS, THE COURTS HAVE HELD THAT WHAT IS BUSINESS ACTIVITY FOR A COMPANY DEPENDS ON THE ACTIVITY WHICH HAS BEEN AUTHORIZED IN THE MEMORANDUM OF ASSOCIATION. IN THE INSTANT CASE, THE ACTIVITY OF LEASING OUT ASSETS OF THE COMPANY IS NOT AN OBJECT OF THE COMPANY AS PER MEMORANDUM OF ASSOCIATION. IN VIEW OF THIS FACT THE FOLLOWING RECEIPTS WILL BE TREATED AND ASSESSED AS INCOME FROM OTHER SOURCES: A. LEASE RENT OF PLANT AND MACHINERY RS. 12,00,000/- B. LEASE RENT OF BUILDING RS. 40,84,000/- C. SUPERVISION OF GARMENTS MANUFACTURING RS. 7,79,686/- D. INTEREST INCOME RS. 3,05,312/- TOTAL: RS. 63,68,998/- {5.6} I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND ASSESSMENT ORDER. IT IS CLEAR FROM THE APPELLANTS SUBMISSION THAT THE APPELLANT COMPANY 6 IS NOT DOING BUSINESS AFTER DISPUTE DEVELOPED AMONGST THE DIRECTORS AND SHAREHOLDERS. LATER, THE APPELLANT COMPANY HAS ENTERED INTO A LEASE CUM RENTAL AGREEMENT WITH M/S RICHA GLOBAL EXPORTS PVT LTD. WHEREIN THE PLANT AND MACHINERY AND THE PREMISES ARE GIVEN ON 9 YEARS RENT/LEASE. THE APPELLANT HAS CITED HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF UNIVERSAL PLASTICS LTD VRS COMMISSIONER OF INCOME TAX (1999) 103 TAXMAN 493/237 I.T.R 454 (SC). THE ESSENCE OF OPERATIVE PART OF THE JUDGMENT IS AS UNDER; ...IF THE BUSINESS ASSETS ARE LET OUT TEMPORARILY WHILE THE ASSESSEE IS CARRYING OUT OTHER BUSINESS ACTIVITIES, THEN IT IS A CASE OF EXPLOITING BUSINESS ASSETS OTHERWISE THAN BY EMPLOYING THEM FOR HIS OWN USE FOR MAKING PROFIT FOR THAT BUSINESS; BUT IFV THE BUSINESS IS NEVER STARTED OR HAS STARTED BUT CEASED WITH NO INTENTION TO BE RESUMED, THE ASSET ALSO WILL ME EASE TO BE BUSINESS ASSETS AND THE TRANSACTION WILL ONLY BE EXPLOITATION OF PROPERTY BY AN OWNER THEREOF, BUT NOT EXPLOITATION OF BUSINESS ASSETS HERE IN THIS CASE THE APPELLANT COMPANY HAS CEASED DOING THE BUSINESS BECAUSE OF DISPUTES AMONG THE SHAREHOLDERS AND DIRECTORS, SO MUCH SO THAT MOST OF THEM HAVE RESIGNED OVER A PERIOD OF TIME. NOW, IN 2011, THE APPELLANT COMPANY HAS ENTERED INTO A LEASE CUM RENT AGREEMENT TO LET OUT ITS 7 BUSINESS ASSETS LIKE PREMISES AND PLANT AND MACHINERY FOR AN INITIAL PERIOD OF 9 YEARS. THE FACTS AND CIRCUMSTANCES OF THE CASE MADE IT AMPLY CLEAR THAT THE THERE IS NO APPARENT SCOPE FOR THE REVIVAL OF THE BUSINESS AND THAT IS THE REASON THE ASSETS HAVE BEEN LET OUT FOR A VERY LONG LEASE PERIOD WITH THE INTENTION OF EXTENDING THE LEASE EVEN BEYOND 9 YEARS. THUS, RELYING ON THE ABOVE MENTIONED APEX COURT JUDGMENT AND ALSO THE SURROUNDING FACTS AND CIRCUMSTANCES, I AM INCLINED TO AGREE WITH THE A.O THAT THE INCOME SO EARNED FROM LEASING OUT SUCH ASSETS DOES NOT COME UNDER THE AMBIT OF BUSINESS INCOME. THEREFORE, HE HAS RIGHTLY TAXED IT UNDER THE HEAD INCOME FROM OTHER SOURCES. THE APPELLANT HAS SHOWN AN AMOUNT OF RS.7,79,686/- AS BUSINESS INCOME FROM SUPERVISION OF GARMENTS MANUFACTURING BUT THE APPELLANT HAS NOT FILED ANY DETAILS OF SUCH INCOME DURING THE APPELLANT PROCEEDINGS. TO ME IT SEEMS TO BE A SELF SERVING CLAIM JUST TO SHOW THAT THE COMPANY IS DOING SOME SORT OF BUSINESS TO ADVANCE ITS CLAIM OF TAXING ITS INCOME EARNED FROM LEASING OUT ASSETS UNDER THE HEAD BUSINESS INCOME. IN ABSENCE OF ANY CREDIBLE EVIDENCE, THE A.O HAS RIGHTLY TERMED IT AS INCOME FROM OTHER SOURCES. HOWEVER, EVEN IF THE INCOME IS TO BE TAXED AS INCOME FROM OTHER SOURCES, THE APPELLANT IS ENTITLED FOR DEDUCTIONS UNDER SECTION 57 OF THE ACT 8 FOR EARNING THAT INCOME. THE PROVISIONS OF SECTION 56 & 57 OF THE ACT ARE REPRODUCED AS UNDER; 56. (1) INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM OTHER SOURCES, IF IT IS NOT CHARGEABLE TO INCOME-TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14, ITEMS A TO E. (II) INCOME FROM MACHINERY, PLANT OR FURNITURE BELONGING TO THE ASSESSEE AND LET ON HIRE, IF THE INCOME IS NOT CHARGEABLE TO INCOME- TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION; (III) WHERE AN ASSESSEE LETS ON HIRE MACHINERY, PLANT OR FURNITURE BELONGING TO HIM AND ALSO BUILDINGS, AND THE LETTING OF THE BUILDINGS IS INSEPARABLE FROM THE LETTING OF THE SAID MACHINERY, PLANT OR FURNITURE, THE INCOME FROM SUCH LETTING, IF IT IS NOT CHARGEABLE TO INCOME- TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION ; 57. DEDUCTIONS THE INCOME CHARGEABLE UNDER THE HEAD' INCOME FROM OTHER SOURCES' SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS, NAMELY:- (II) IN THE CASE OF INCOME OF THE NATURE REFERRED TO IN CLAUSES (II) AND 9 (III) OF SUB- SECTION (2) OF SECTION 56, DEDUCTIONS, SO FAR AS MAY BE, IN ACCORDANCE WITH THE PROVISIONS OF SUB- CLAUSE (II) OF CLAUSE (A) AND CLAUSE (C) OF SECTION 30, SECTION 31,5 SUB- SECTIONS (1)6 ] AND (2)] OF SECTION 32 AND SUBJECT TO THE PROVISIONS OF7 SECTION 38]; THEREFORE, IN VIEW OF THE ABOVE MENTIONED PROVISIONS OF THE ACT, THE APPELLANT COMPANY IS ENTITLED FOR CLAIMING DEDUCTION UNDER SECTION 32 OF THE ACT I.E DEPRECIATION ON THE ASSETS LET OUT. IN RESPECT OF OTHER EXPENSES CLAIMED BY THE APPELLANT, THE APPELLANT HAS NOT BEEN ABLE TO PROVE EITHER BEFORE THE A.O OR DURING THE APPELLATE PROCEEDINGS THAT SUCH EXPENSES HAVE BEEN LAID OUT OR EXPENDED EXCLUSIVELY FOR THE PURPOSE OF EARNING THE INCOME. APPELLANTS CLAIM THAT IN THE PAST, INCOME FROM LEASING OUT PLANT AND MACHINERY WERE ACCEPTED BY THE DEPARTMENT IS ALSO OF NOT MUCH HELP AS IN THE PRESENT CASE THE LEASE CUM RENTAL AGREEMENT IS SIGNED DURING THE FINANCIAL YEAR I.E 24/11/201 RELEVANT TO THE A.Y 2012-13. ACCORDINGLY, A.O IS DIRECTED TO ALLOW DEPRECIATION UNDER SECTION 32 OF THE ACT WHILE COMPUTING INCOME FROM OTHER SOURCES WITH 10 REGARD TO RENTALS RECEIVED ON ACCOUNT OF LEASING OUT PLANT, MACHINERY AND PREMISES. {6}. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 6. AFTER PERUSING THE AFORESAID FINDING, WE ARE OF T HE CONSIDERED VIEW THAT LD. CIT(A) HAS GIVEN A SUFFICIENT RELIEF TO THE ASSESSEE BY PASSING A SPEAKING AND WELL REASONED ORDER, WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART. THEREFORE, WE UPHOLD TH E ORDER OF THE LD. CIT(A) ON THE ISSUES IN DISPUTE AND REJECT THE GROUNDS RAISED BY THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-10-2018. SD/- SD/- [L.P. SAHU] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE:29/10/2018 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT (A) 5. D R, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES