KALPANA TRADING CORPORATION, MUMBAI V. ITO 12(3)(1), MUMBAI

ITA 6024/MUM/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2345 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 04-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIDDARAMAPPA KAPPATTANAVAR
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO S . 6024 & 6025 /MUM/201 0 : (A.Y S : 200 5 - 06 & 2006 - 07 ) M/S. KALPANA TRADING CORPORATION 701, TULSIANI CHAMBERS, FREE PRESS JOURNAL MARG, NARIMAN POINT, MUMBAI 400 021 (APPELLANT) PAN : AAAFK7082L VS. ITO - 12(3)(1), MUMBAI (RESPONDENT) ASSESSEE BY : SHRI J.P. BAIRAGRA REVENUE BY : SHRI SHIDDARAMAPPA KAPPATTANAVAR DATE OF HEARING : 03 /0 6 /2016 DATE OF PRONOUNCEMENT : 29 /0 7 /2016 O R D E R PER G.S. PANNU , AM : THE CAPTIONED TWO APPEALS HAVE BEEN PREFERRED BY THE SAME ASSESSEE FOR TWO DIFFERENT ASSESSMENT YEARS BUT INVOLVE COMMON ISSUE. THEREFORE, THEY HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. SINCE THE FACTS AND CIRCUMSTANCES ARE IDENTICAL IN BOTH THE APPEALS, APPEAL FOR ASSESSMENT YEAR 2005 - 06 IN ITA NO. 6024/MUM/ 2010 IS BEING TAKEN AS THE LEAD CASE. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 23 , MUMBAI DATED 2 M/S. KALPANA TRADING CORPN. ITA NOS. 6024 & 6025/MUM/2010 24 . 05 .201 0 , WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER DATED 1 8 .12.20 07 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ) . 3. ALTHOUGH THE ASSESSEE HAS RAISED MULTIPLE GROUNDS OF APPEAL, BUT ESSENTIALLY THE GRIEVANCE IS AGAINST THE ACTION OF INCOME - TAX AUTHORITIES IN HOLDING THAT NO BUSINESS ACTIVITY WAS CARRIED OUT BY THE ASSESSEE, THEREBY DENYING THE CLAIM OF LOSS DETERM INED ON ACCOUNT OF EXPENSES CLAIMED IN THE PROFIT & LOSS ACCOUNT. TO PUT IT DIFFERENTLY, THE CLAIM OF THE ASSESSEE IS THAT THE BUSINESS LOSS DETERMINED AT RS. 24,35,949/ - HAS ERRONEOUSLY NOT BEEN CONSIDERED BY THE ASSESSING OFFICER FOR SET - OFF AGAINST OTH ER INCOME OF THE YEAR. 4. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE APPELLANT IS A PARTNERSHIP FIRM WHOSE STATED BUSINESS OBJECTIVES ARE TRADING IN POLYESTER YARN, FABRICS, SHARES AND SECURITIES, COMMISSION AGENCY. FOR THE ASSESSMENT YEAR 2005 - 06, IT FILED RETURN OF INCOME DECLARING A LOSS OF RS.6,99,235/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS ACCOMPANIED BY BALANCE - SHEET, PROFIT & LOSS ACCOUNT AND COMPUTATION OF INCOME, WHEREIN INCOME WAS COMPUTED UNDER THE HEAD S INCOME FROM HOUSE PROPERT Y AND INCOME FROM BUSINESS. THE INCOME UNDER THE HEAD HOUSE PROPERTY DETERMINED AT RS.17,36,714/ - WAS SET - OFF AGAINST BUSINESS LOSS DETERMINED AT RS.24,35,949/ - THEREBY RESULTING IN NET LOSS OF RS.6,99,235/ - . IN THE ENSUING ASSESSMENT, THE ASSESSING OF FICER NOTED THAT IN THE PROFIT & LOSS ACCOUNT ASSESSEE HAD NOT SHOWN ANY ACTIVITY OF SALE AND PURCHASE. THE ASSESSING OFFICER ALSO NOTED THAT EVEN THE ACTIVITY OF TRADING IN SHARES HAS NOT BEEN CARRIED OUT BY THE ASSESSEE 3 M/S. KALPANA TRADING CORPN. ITA NOS. 6024 & 6025/MUM/2010 FOR THE PAST SEVERAL YEARS. IN SU M AND SUBSTANCE, AS PER THE ASSESSING OFFICER THERE WAS NO BUSINESS ACTIVITY AND, THEREFORE, THE EXPENSES CLAIMED, WHICH HAD RESULTED IN DETERMINATION OF LOSS UNDER THE HEAD INCOME FROM BUSINESS , WAS NOT A GENUINE LOSS. AS A CONSEQUENCE, THE ASSESSING O FFICER DETERMINED THE TAXABLE INCOME AT RS.17,36,714/ - , WHICH WAS THE INCOME DECLARED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 5. IN APPEAL BEFORE THE CIT(A), ASSESSEE POINTED OUT THAT THE ASSESSEE WAS DOING THE BUSINESS OF TRADING IN SHARES THOUGH THE BUSINESS OF TRADING IN POLYESTER YARN, FABRICS, ETC. WAS TEMPORARILY FACING A LULL. IT WAS ALSO POINTED OUT THAT SO FAR AS INVESTMENT IN STOCK - IN - TRADE OF SHARES WERE CONCERNED, IT WAS MADE IN THE PAST YEARS OUT OF FUNDS AVAILABLE WITH THE ASSESSEE BY WAY OF PARTNERS CAPITAL, INTEREST FROM DEPOSITS AND INTEREST BEARING LOANS RAISED FROM TIME TO TIME. IN THIS MANNER, EXPENDITURE ON INTEREST WAS SOU GHT TO BE JUSTIFIED. WITH REGARD TO THE GENERAL ADMINISTRATIVE EXPENSES CLAIMED IN THE PROFIT & LOSS ACCOUNT, IT WAS POINTED OUT THAT SAME WERE GENUINE. IT WAS POINTED OUT THAT THOUGH IN THE YEAR UNDER CONSIDERATION THERE WAS NO SALE OF SHARES, BUT FOR T HE IMMEDIATELY PRECEDING ASSESSMENT YEAR ASSESSEE HAD SOLD SHARES OF RS.24,99,400/ - OUT OF ITS OPENING STOCK OF SHARES. IT WAS, THEREFORE, SOUGHT TO BE POINTED OUT THAT THE FINDING OF THE ASSESSING OFFICER THAT THERE WAS NO TRADING ACTIVITY CARRIED OUT BY THE ASSESSEE IN THE LAST 8 YEARS WAS ERRONEOUS. THE CIT(A), HOWEVER, DID NOT FIND ANY JUSTIFICATION IN THE PLEAS OF THE ASSESSEE AND HAS INSTEAD AFFIRMED THE ACTION OF THE ASSESSING OFFICER. 4 M/S. KALPANA TRADING CORPN. ITA NOS. 6024 & 6025/MUM/2010 6. AGAINST THE AFORESAID, LEARNED REPRESENTATIVE FOR THE ASSES SEE SUBMITTED BEFORE US THAT THE LOWER AUTHORITIES HAVE ERRED IN NOT RECOGNIZING THE BUSINESS LOSS SUFFERED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IT WAS POINTED OUT THAT IT IS A CASE WHERE THERE IS A TEMPORARY LULL IN THE BUSINESS AND IT CA NNOT BE UNDERSTOOD TO MEAN THAT THE BUSINESS HAS BEEN DISCONTINUED. THE LEARNED REPRESENTATIVE POINTED OUT THAT IN ASSESSMENT YEARS 2007 - 08 AND 2008 - 09, SIMILAR EXPENSES INCURRED BY THE ASSESSEE HAVE BEEN ALLOWED AND BUSINESS LOSS HAS BEEN RECOGNIZED. FO R THIS PURPOSES, OUR ATTENTION HAS BEEN INVITED TO THE ASSESSMENT ORDERS PASSED U/S 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2007 - 08 DATED 21.12.2009 AND FOR ASSESSMENT YEAR 2008 - 09 DATED 24.12.2010, COPIES OF WHICH HAVE BEEN PLACED IN THE PAPER BOOK. IT WAS ALSO POINTED OUT THAT EVEN IN THE PRECEDING ASSESSMENT YEAR OF 2002 - 03, THE ASSESSING OFFICER HAS ALLOWED THE CLAIM OF EXPENSES AND DETERMINED LOSS FROM BUSINESS IN AN ASSESSMENT FINALIZED U/S 143(3) OF THE ACT DATED 31.12.2004. IT WAS, THEREFORE, POI NTED OUT THAT THOUGH IN THE ASSESSMENT YEAR 2005 - 06 THERE ARE NO SALES UNDERTAKEN, BUT IT CANNOT BE SAID THAT THE BUSINESS HAS BEEN DISCONTINUED. WITH RESPECT TO THE DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF INTEREST PAYMENTS MADE TO HDFC, PARTNERS AND OT HER LOANS, THE LEARNED REPRESENTATIVE POINTED OUT THAT A SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 1998 - 99 AND VIDE ITA NO. 3167/MUM/2001 DATED 15.3.2005, THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED. EVEN ON THIS COUNT, IT WAS SOUGHT TO BE CONTENDED THAT THERE WAS NO REASON TO DISALLOW THE EXPENDITURE ON INTEREST OR EVEN ON GENERAL AND OTHER ADMINISTRATIVE EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT. 5 M/S. KALPANA TRADING CORPN. ITA NOS. 6024 & 6025/MUM/2010 7. ON THE OTHER HAND, THE LD. DR APPEARING FOR THE REVENUE HAS PRIMARILY REITERA TED THE ARGUMENTS TAKEN BY THE LOWER AUTHORITIES, WHICH WE HAVE ALREADY ADVERTED TO IN THE EARLIER PARAGRAPHS AND ARE NOT REPEATED FOR THE SAKE OF BREVITY. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE SUM AND SUBSTANCE OF THE CASE SET - UP BY THE ASSESSING OFFICER IS THAT IN THE PRESENT YEAR THERE ARE NO SALES UNDERTAKEN BY THE ASSESSEE, WHICH ACCORDING TO HIM SHOW THAT NO TRADING ACTIVITIES HAVE TAKEN PLACE . THEREFORE, AS PER THE ASSESSING OFFICER THE EXPENSES CLAIMED IN THE PROFIT & LOSS AC COUNT ON ACCOUNT OF INTEREST PAYMENTS AND OTHER GENERAL AND ADMINISTRATIVE EXPENDITURE ARE NOT TO BE ALLOWED SINCE THERE IS NO BUSINESS ACTIVITY. PER CONTRA, THE CLAIM OF THE ASSESSEE IS THAT IT IS ONLY A TEMPORARY LULL IN BUSINESS INASMUCH AS IN THE IMME DIATELY PRECEDING ASSESSMENT YEAR OF 2004 - 05, ASSESSEE HAD MADE SALE OF SHARES OF RS.24,19,400/ - IN THE COURSE OF THE BUSINESS OF TRADING IN SHARES. IT HAS ALSO BEEN POINTED OUT THAT IN ASSESSMENT YEAR 2002 - 03, IN THE ASSESSMENT FINALIZED U/S 143(3) OF TH E ACT, THE ASSESSING OFFICER HAS DETERMINED AND RECOGNIZED THE LOSS INCURRED IN BUSINESS. SIMILAR IS THE SITUATION IN THE ASSESSMENT FINALIZED FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 U/S 143(3) OF THE ACT. ON SUCH BASIS, IT IS SOUGHT TO BE POINTED OUT T HAT IT IS NOT A CASE OF CLOSURE OR DISCONTINUATION OF BUSINESS, BUT IT IS A CASE WHERE THERE IS A TEMPORARY LULL IN BUSINESS AND IN SUCH A SITUATION, THE EXPENDITURE DEBITED BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT DESERVE S TO BE ALLOWED. IT IS FURTHE R POINTED OUT THAT THE EXPENSES ARE OF ROUTINE NATURE BY WAY OF SALARIES, BONUS, STAFF 6 M/S. KALPANA TRADING CORPN. ITA NOS. 6024 & 6025/MUM/2010 WELFARE, BOOKS AND PERIODICALS, LEGAL AND PROFESSIONAL CHARGES, PRINTING, STATIONERY, ETC. IN OUR CONSIDERED OPINION, THE FACTUAL MATRIX OF THE CASE SUPPORTS THE PLEA O F THE ASSESSEE THAT IT IS NOT A CASE OF DISCONTINUATION OR CLOSURE OF BUSINESS, BUT TEMPORARY LULL IN ACTIVITY. DURING THIS PERIOD OF LULL OR INTERREGNUM, THE ASSESSEE IS EXPECTED TO CONTINUE MAINTENANCE OF ITS BUSINESS APPARATUS AND FOR THAT PURPOSE THE EXPENSES OF GENERAL AND ADMINISTRATIVE NATURE CLAIMED BY THE ASSESSEE DESERVE TO BE ALLOWED. IN THIS CONTEXT, WE FIND THAT THE RATIO OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ANITA JAIN, 182 ITR 173 (DEL) , WHICH WAS RELIED UPON BY THE ASSESSEE BEFORE US, SUPPORTS THE ALLOWABILITY OF SUCH EXPENDITURE. THEREFORE, ON THIS COUNT WE ALLOW THE PLEA OF THE ASSESSEE. 9. INSOFAR AS THE PAYMENT OF INTEREST IS CONCERNED, THE DISPUTE RAISED IS SIMILAR TO WHAT WAS CONSIDERED BY THE TRIBUNAL IN AS SESSEES OWN CASE FOR ASSESSMENT YEAR 1998 - 99 ( SUPRA ). ON THIS ASPECT, ASSESSEE HAD POINTED OUT BEFORE THE LOWER AUTHORITIES THAT SINCE THE PAST INVESTMENTS HAVE BEEN MADE IN STOCK - IN - TRADE OF SHARES AND SUCH INVESTMENTS WERE MADE OUT OF FUNDS AVAILABLE F ROM PARTNERS CAPITAL AND OTHER LOAN FUNDS, ON SUCH LOAN FUNDS ASSESSEE HAD INCURRED INTEREST EXPENDITURE WHICH HAS BEEN DISALLOWED. IN ASSESSMENT YEAR 1998 - 99 SIMILAR CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE WAS DISALLOWED BY THE ASSESSING OFFICER, WHI CH WAS ALLOWED BY THE TRIBUNAL VIDE ORDER DATED 15.3.2005 ( SUPRA ). FOLLOWING THE SAID PRECEDENT, IN THE PRESENT YEAR ALSO, SUCH A CLAIM OF THE ASSESSEE DESERVES TO BE ALLOWED. IN FACT, IN ASSESSMENT YEAR 2002 - 03, AS ALSO IN ASSESSMENT YEARS 2007 - 08 AND 2 008 - 09, INTEREST EXPENDITURE INCURRED BY THE ASSESSEE HAS BEEN 7 M/S. KALPANA TRADING CORPN. ITA NOS. 6024 & 6025/MUM/2010 ALLOWED. THEREFORE, CONSIDERING THE AFORESAID PRECEDENTS, WE FIND NO REASON TO DENY ASSESSEES CLAIM FOR DEDUCTION ON ACCOUNT OF INTEREST EXPENDITURE IN THE INSTANT YEAR. 10. IN SUM AND SUBST ANCE, ASSESSEES CLAIM FOR BUSINESS LOSS OF RS.24,35,949/ - DESERVES TO BE RECOGNIZED AND ACCORDINGLY, THE ORDER OF CIT(A) IS SET - ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE TOTAL INCOME ACCORDINGLY. 11. THUS, THE ASSESSEES APPEAL FOR ASS ESSMENT YEAR 2005 - 06 IS ALLOWED. 12. INSOFAR AS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2006 - 07 IS CONCERNED, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE FACTS AND CIRCUMSTANCES ARE PARI MATERIA TO THOSE CONSIDERED BY US IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2005 - 06, THEREFORE, OUR DECISION IN APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2005 - 06 SHALL APPLY MUTATIS MUTANDIS IN OTHER ASSESSMENT YEAR ALSO. 13. RESULTANTLY, THE CAPTIONED APPEALS OF THE ASSESSEE ARE A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 9 T H JULY, 2016. SD/ - SD/ - ( SANDEEP GOSAIN ) JUDICIAL MEMBER ( G.S. PANNU ) ACCOUNTANT MEMBER MUMBAI, DATE : 2 9 T H JULY, 2016 *SSL* 8 M/S. KALPANA TRADING CORPN. ITA NOS. 6024 & 6025/MUM/2010 COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, A BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI