M/s Bhadiad Industries, Morbi V. The Income Tax Officer, Ward-5(4), RAJKOT-GUJARAT

ITA 62/RJT/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2265 (ITAT-RAJKOT)
• Duration Of Justice: 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 03-12-2015
• Assessment Year: 1996-1997
• Appeal Filed On: 25-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C S ANJARIA
• Assessee Lawyers: HARISH RANPURA
• Keywords: Bogus purchase; Business income; Depreciation; Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH , RAJKOT BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER [CONDUCTED THROUGH E - COURT AT AHMEDABAD] M/S. B HADIAD IN DUSTRI E S, NAZARBAUGH, MORBI PAN: AACFB0243Q (APPELLANT) VS T HE ITO, WARD 5 (4), MORBI (RESPONDENT) REVENUE BY : S H RI C.S. ANJARIA , D . R. ASSESSEE BY: S H RI HARISH RANPURA , A.R. DATE OF HEARING : 03 - 12 - 2 015 DATE OF PRONOUNCEMENT : 23 - 02 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS ASSESSEE'S APPEAL FOR A.Y. 1996 - 97, ARISES FROM ORDER OF THE C IT(A) - 3, RAJKOT DATED 17 - 12 - 2014 IN APPEAL NO. CIT(A) - 3/RJT/0398/10 - 11, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT 'THE ACT' I T A NO . 62 / RJT /20 15 A SSESSMENT YEAR 1996 - 97 I.T.A NO. 62 /RJT /20 1 5 A.Y. 1996 - 97 PAGE NO M/S. BHADIAD IN DUSTRIES VS. ITO 2 2. THE ASSESSEE'S TWIN SUBSTANTIVE GROUNDS CHALLENGE THE LOWER APPELLATE ORDER UPHOLDING ASSESSING OFFICER'S ACTION IN ASSESSMENT ORDER DATED 21 - 03 - 2002 INTER ALIA DISALLOWING STATUTORY CLAIM OF DEDU CTION FOR REPAIRS OF RS. 69,077 / - THEREBY TREATING ITS RE NTAL INCOME UNDER THE HEAD BUSINESS AND LOSS OF RS. 1,73,915/ - HOLDING IT AS ARISING FROM BOGUS PURCHASE. 3. WE COME TO THE FORMER SUBSTANTIVE GROUND. THE ASSESSEE/A FIRM LET OUT A PART OF ITS SETS FROM 01 - 04 - 1995 TO 31 - 05 - 1195 FOR RS. 3,45,384/ - . ITS CASE WAS THAT ITS MANUFACTURING ACTIVITIES STOOD DISCONTINUED SINCE 1992 WHICH WERE NEVER RESUMED. IT STATED THAT THE POWER CONNECTION HAD ALWAYS BEEN DISCONNECTED. IT EMPHASIZED THAT THERE WAS NO MANUFACTURING ACTIVITY. THE ASSESSING OFFICER REJECTED THIS EXPLANATION. HE OBSERVED THAT ASSESSEE'S INCOME IN QUESTION HAD ARISEN FROM EXPLOITATION OF ITS BUSINESS ASSETS ONLY. HE WENT ON TO TREAT THE SAME AS BUSINESS THEREBY DENYING THE ASSESSEE ITS CLAI M OF REPA IRS AMOUNTING TO RS. 69 , 077/ - . 4. THE CIT(A) UPHOLDS ASSESSING OFFICER'S ACTION BY OBSERVING AS UNDER : - G ROUND NO. 3 IS REGARDING DISALLOWANCE OF RS.69077/ - RENTAL INCOME OF GODOWN AS BUSINESS INCOME. IT WAS FOUND BY THE A.O. THAT THE APPELLANT HAD OF THE FACTORY SHED FROM 1/4/1995 TO 31/5/1995. THE A.O. HELD THAT THE APPELLANT HAD EXPLOITED ITS BUSINESS ASSETS FOR A PERIOD OF TWO MONTHS IN THE ACCOUNTING YEAR AND THEREFORE IT SHOULD BE TREATED AS EXPLOITATION OF THE SAME FOR EARNING INCOME AND SHOULD BE TREATED AS INCOME FROM BUSINESS AND NOT FROM HOUSE PROPERTY. THE A.O. HAS RELIED UPON THE DECISION OF THE HON'BLE SUPREM E COURT IN CASE OF UNIVERSAL PL A ST LTD. VS. CIT 153 CTR 95. I.T.A NO. 62 /RJT /20 1 5 A.Y. 1996 - 97 PAGE NO M/S. BHADIAD IN DUSTRIES VS. ITO 3 6.1 DURING THE COURSE OF APPELLATE PROCEEDINGS, IT WAS CONTENDED BY THE APPELLANT THAT THE MANUFACTUR ING ACTIVITIES WERE DISCONTINUED IN 1992 AND THE GODOWN WAS GIVEN ON RENT FOR A SHORT PERIOD. THE APPELLANT HAS ALSO RELIED UPON THE SAME DECISION OF THE HON'BLE SUPREME COURT WHEREIN IT IS HELD THAT WHEN THE ASSESSE HAS DISMANTLED ITS BUSINESS NEVER TO RE TURN BACK, INCOME RECEIVED BY THE ASSESSE BY LEASING OUT FACTORY/GODOWN WAS NOT BUSINESS INCOME. 6.2 I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE APPELLANT AND THE ASSESSMENT ORDER. FIRST OF ALL, EVEN THOUGH THE BUSINESS WAS DISCONTINUED THE FACTORY B UILDING AND GODOWN WAS SHOWN AS AN ASSET BY THE APPELLANT AND DEPRECIATION ON THE SAME WAS CLAIMED. IT THUS CONTINUES TO BE A BUSINESS ASSET OF THE APPELLANT. SECONDLY, THE APPELLANT HAS NOT BEEN ABLE TO PROVE THAT THE BUSINESS WAS DISMANTLED WITH A VIEW N EVER TO RETURN BACK. NO NOTICE FOR DISCONTINUATION OF BUSINESS U/S. 176(3) HAS BEEN GIVEN. IN THE ABOVE REFERRED DECISION, THE HON'BLE SUPREME COURT HAS HELD AS UNDER : - 'IN THE LIGHT OF VARIOUS DECISIONS OF THE SUPREME COURT, THE PROPOSITIONS ARE (1) NO PR ECISE TEST CAN BE LAID DOWN TO ASCERTAIN WHETHER INCOME (REFERRED TO BY WHATEVER NOMENCLATURE, LEASE AMOUNT, RENTS, LICENCE FEE) RECEIVED BY AN ASSESSEE FROM LEASING OR LETTING OUT OF ASSETS WOULD FALL UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFE SSION'; (2) IT IS A MIXED QUESTION OF LAW AND FACT AND HAS TO BE DETERMINED FROM THE POINT OF VIEW OF A BUSINESSMAN IN THAT BUSINESS ON THE FACTS AND IN THE CIRCUMSTANCES OF EACH CASE, INCLUDING TRUE INTERPRETATION OF THE AGREEMENT UNDER WHICH THE ASSETS A RE LET OUT; (3) WHERE ALL THE ASSETS OF THE BUSINESS ARE LET OUT, THE PERIOD FOR WHICH THE ASSETS ARE LET OUT IS A RELEVANT FACTOR TO FIND OUT WHETHER THE INTENTION OF THE ASSESSEE IS TO GO OUT OF BUSINESS ALTOGETHER OR TO COME BACK AND RESTART THE SAME; A ND (4) IF ONLY OR A FEW OF THE BUSINESS ASSETS ARE LET OUT TEMPORARILY WHILE THE ASSESSEE IS CARRYING OUT HIS OTHER BUSINESS ACTIVITIES, THEN IT IS A CASE OF EXPLOITING THE BUSINESS ASSET S OTHERWISE THAN EMPLOYING THEM FOR HIS OWN USE FOR MAKING PROFIT FOR THAT BUSINESS; BUT IF THE BUSINESS NEVER STARTED OR HAS STARTED BUT CEASED WITH NO INTENTION TO BE RESUMED, THE ASSETS ALSO WILL CEASE TO BE BUSINESS ASSETS AND I.T.A NO. 62 /RJT /20 1 5 A.Y. 1996 - 97 PAGE NO M/S. BHADIAD IN DUSTRIES VS. ITO 4 THE TRANSACTION WILL ONLY BE EXPLOITATION OF PROPERTY BY AN OWNER THEREOF, BUT NOT EXPLOITATION OF BUSINESS ASSETS. ' 6.3 AS THE APPELLANT HAS NOT BEEN ABLE TO PROVE CONCLUSIVELY THAT THE BUSINESS HAS CEASED WITH NO INTENTION TO RESUME AT THE RELEVANT POINT OF TIME, I.E. THE ASSESS MENT PROCEEDINGS, THE RATIO OF THIS DECISION FULLY ENDORSES THE VIEW ADOPTED BY THE A.O. THE ACTION OF THE A. O. IN TREATING THIS AS INCOME FROM MESS IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED.' 5. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RIVAL CON TENTION. IT HAS COME ON RECORD THAT THE ASSESSEE'S MANUFACTURING ACTIVITIES STOOD DISCONTINUED IN THE YEAR 1992. THERE IS NO EVIDENCE THAT THE SAME HAS EVER BEEN REVIVED LATER ON. THIS LEAVES US TO INFER THAT ITS BUSINESS HAS CEASED TO EXIST WITH NO INTENT ION TO BE RESUMED. WE QUOTE HON'BLE APEX COURT DECISION, MORE PARTICULARLY CLAUSE 4 AND HOLD THAT THE ASSESSEE'S SHADES RENTED OUT ALSO SEIZED TO BE ITS BUSINESS ASSETS LEADING TO EXPLOITATION THEREOF IN THE NATURE OF DERIVING RENTAL INCOME. WE HOLD IN THE SE FACTS THAT THE ASSESSEE HAS MERELY EXPLOITED ITS PROPERTY BY EARNING RENTAL INCOME OF RS. 3,45,384/ - . IT IS HELD ENTITLED FOR ITS REPAIRS CLAIM OF RS. 69,007 - IN QUESTION. THIS FIRST SUBSTANTIVE GROUND SUCCEEDS. 6. THIS LEAVES US WITH THE SECOND SUBSTA NTIVE GR OUND PERTAINING TO RS. 1,73,915 / - HELD AS BOGUS. THE LOWER APPELLATE ORDER DEALS WITH THE ISSUE AS UNDER: - '7. GROUND NO.4 IS REGARDING DISALLOWANCE OF TOSS OF RS. 1,73,915/ - . THE APPELLANT HAD CLAIMED A LOSS OF RS. 1,73,915/ - IN RESPECT OF PURCHAS E AND SALE OF ROOFING TILES. THE A.O. HELD THAT M/S. PATEL ENTERPRISES FROM WHOM THE PURCHASES WERE MADE WAS A BOGUS I.T.A NO. 62 /RJT /20 1 5 A.Y. 1996 - 97 PAGE NO M/S. BHADIAD IN DUSTRIES VS. ITO 5 PARTY, BASED ON THE FINDINGS GIVEN IN THE BODY OF THE ORDER. THE A.O. THEREFORE HELD THIS LOSS TO BE BOGUS AND DISALLOWED THE SAME. 7.1 DURI NG THE COURSE OF APPELLATE PROCEEDINGS, IT IS CONTENDED BY THE APPELLANT THAT IT HAD PURCHASED 3.8 LAKH PIECES OF ROOFING TILES FROM M/S. PATEL ENTERPRISES. AS AGAINST THIS, THE APPELLANT SUPPLIED RIDGES OF RS.45000/ - AND THE BALANCE PAYMENT WAS MADE IN CA SH. ALSO, THE A.O. HAS NOT DOUBTED THE CASH BOOK WHEREIN THE PURCHASES FROM M/S. PATEL ENTERPRISES HAVE BEEN RECORDED AND HAS NOT INVOKED PROVISIONS OF S. 145. 7.2 I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE APPELLANT AND THE ASSESSMENT ORDER. IT IS CATEGORICALLY MENTIONED ON PAGE - 5 OF THE ASSESSMENT ORDER THAT THE INSPECTOR DEPUTED TO MAKE ENQUIRIES ABOUT M/S. PATEL ENTERPRISES REPORTED NON - EXISTENCE OF SUCH PARTY, SUMMONS ISSUED WAS RETURNED UNSERVED AND THE SALES TAX DEPARTMENT CONFIRMED THAT THE S ALES TAX NUMBER HAD BEEN CANCELLED FROM 27/3/1986. ALSO, THE XEROX COPIES OF ALL THE CHEQUES ISSUED TO PATEL ENTERPRISES WERE FOUND TO BE BEARER CHEQUES. THE APPELLANT HAS NOT GIVEN ANY EVIDENCE TO DENY ANY OF THESE FACTUAL FINDINGS. IN VIEW OF THE SAME, T HE ACTION OF THE A.O. IN TREATING THIS AS BOGUS LOSS IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED.' 7 . HEARD BOTH SIDES. CASE FILE PERUSED. THERE IS NO DISPUTE THAT THE ASSESSEE'S DULY AUDITED BOOKS HAVE NOWHERE BEEN REJECTED BY THE LOWER AUTHORITIES. NOR HAS BEEN ANY DISCREPANCY FOUND THEREIN. THE ASSESSING OFFICER DOES NOT IN ANY CASE DECLINE ASSESSEE'S SPECIFIC CLAIM TO HAVE PURCHASED THE MATERIAL IN QUESTION. HE ALSO NOWHERE ASKS THE ASSESSEE TO VERIFY PHYSICAL STATE OF THIS MATERIAL I.E. ROOFING TI LES AND RIDGES. WE HOLD IN THESE FACTS THAT THE ASSESSEE HAS BEEN ABLE TO MAKE OUT ITS INDEPENDENT CASE TO HAVE S UFFERED THE IMPUGNED LOSS OF RS, 1,73,915/ - . THIS DISALLOWANCE IS ACCORDINGLY DELETED. I.T.A NO. 62 /RJT /20 1 5 A.Y. 1996 - 97 PAGE NO M/S. BHADIAD IN DUSTRIES VS. ITO 6 8. THIS ASSESSEE S APPEAL IS ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OUR T ON 23 - 02 - 201 6 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 23 /02 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, RAJKOT