SILVASSA FIBERS P. LTD, MUMBAI V. DCIT CIR 3(3), MUMBAI

ITA 6523/MUM/2009

• Counselvise Citation: 652319914 RSA 2009
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 02-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 21-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Business income; Depreciation; Business expenditure; Speculation loss
• Section: 143(3); 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI, J. SUDHAKAR REDDY, ACCOUNTANT MEMBER A ND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 6523/MUM./2009 (ASSESSMENT YEAR : 2006-07 ) DATE OF HEARING: 2.6.2011 SILVASSA FIBRES PVT. LTD. 82, MAKER CHAMBERS-III NARIMAN POINT, MUMBAI 400 021 PAN AABCS7950F .. APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE-3(3), AAYAKAR BHAVAN MUMBAI 400 020 .... RESPONDENT ITA NO. 593/MUM./2009 (ASSESSMENT YEAR : 2005-06 ) DY. COMMISSIONER OF INCOME TAX CIRCLE-3(3), AAYAKAR BHAVAN MUMBAI 400 020 .. APPELLANT V/S SILVASSA FIBRES PVT. LTD. 82, MAKER CHAMBERS-III NARIMAN POINT, MUMBAI 400 021 PAN AABCS7950F .... RESPONDENT ASSESSEE BY : MR. VIJAY MEHTA REVENUE BY : MR. M.R. KUBAL SILVASSA FIBRES PVT. LTD. ITA NO.6523/MUM./2009 ITA NO.593/MUM./2009 2 O R D E R PER J. SUDHAKAR REDDY, A.M. THE APPEAL PREFERRED BY REVENUE, IS DIRECTED AGAINS T THE IMPUGNED ORDER DATED 30 TH OCTOBER 2009, PASSED BY THE COMMISSIONER (APPEALS) -VII, MUMBAI, FOR ASSESSMENT YEAR 2006-07 AND THE APPEAL PREFERRED BY ASSESSEE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 28 TH NOVEMBER 2008, PASSED BY THE COMMISSIONER (APPEALS)-III, MUMBAI, FOR ASSE SSMENT YEAR 2005-06 RESPECTIVELY. FIRST WE TAKE UP ASSESSEES APPEAL IN ITA NO.6523/M UM./2009. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE IS A COMPANY AND FILED ITS RETURN OF INCOME ON 9 TH NOVEMBER 2006, DISCLOSING TOTAL INCOME OF ` 1,82,87,447. THE ASSESSING OFFICER, IN HIS ORDER PA SSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT') A T PARAS-5.4 AND 5.5, HELD AS FOLLOWS:- 5.4 IN RESPONSE, THE ASSESSEE STATED THAT ONLY THE LOSS TO THE EXTENT OF ` 340 ( ` 4,028 ` 3,688) MAY BE TREATED AS SPECULATIVE LOSS AS PER THE PROVISIONS OF SECTION 43(5). THE OTHER LOSS IS ON ACCOUNT OF REGULAR BUSINESS CARRIED OUT BY THE ASSESSEE. THE ASSESSEE REFERRED TO THE DECISION OF LEARNED CIT(A) FOR THE A.Y. 2005-06 WHE REIN HE HAS HELD THAT EVEN WHEN THERE WAS NO BUSINESS ACTIVITY DURIN G THE YEAR, THE LOSS IS ALLOWABLE. 5.5 THE REPLY OF THE ASSESSEE IS NOT ACCEPTABLE. TH E ORDER OF THE LEARNED CIT(A) IS IN DIFFERENT SET OF FACTS. THE IS SUE IN THE IMMEDIATE PREVIOUS YEAR WAS THAT THE ASSESSEE DID NOT HAVE AN Y INCOME UNDER THE HEAD INCOME FROM BUSINESS & PROFESSION. AS TH ERE WAS NO INCOME UNDER THE HEAD INCOME FROM BUSINESS & PROFE SSION, THEREFORE, THE A.O. HAD DISALLOWED THE LOSS. HOWEVE R, DURING THE YEAR UNDER CONSIDERATION, BY ASSESSEES OWN ACCOUNT, THE RE HAVE BEEN BUSINESS TRANSACTIONS IN THE SALE AND PURCHASE OF S HARES. THE SHARES WERE PURCHASED AND SOLD ON THE SAME DAY WITHOUT TAK ING DELIVERY OF THE SHARES. THEREFORE, THE LOSS OF ` 32,61,883 IS TREATED AS SPECULATION LOSS AND NOT ALLOWED TO BE SET OFF. SILVASSA FIBRES PVT. LTD. ITA NO.6523/MUM./2009 ITA NO.593/MUM./2009 3 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L, WHEREIN, BEFORE THE COMMISSIONER (APPEALS), THE ASSESSEE SUBMITTED THAT IT WAS CARRYING THE BUSINESS OF MANUFACTURING YARN AND THAT THE SAID AC TIVITY WAS DISCONTINUED IN THE YEAR 2004 DUE TO SLUGGISH MARKET. HE SUBMITTED THAT THE BUSINESS ACTIVITY HAS BEEN DISCONTINUED TEMPORARILY AND THE ASSESSEE IS EXPLORING OTHER BUSINESS AVENUES. HE CONTENDED THAT THE ASSES SEE CONTINUED TO RETAIN ITS STAFF AND ALSO THE BUSINESS ASSETS, IN ANTICIPA TION OF THE COMMENCEMENT OF THE BUSINESS IN THE SAME FIELD OR ANY OTHER FIEL D. HE SUBMITTED THAT THE ASSESSEE HAS INCURRED EXPENDITURE FOR MAINTAINING I TS BUSINESS ASSETS & HUMAN RESOURCES AND THAT IT IS NOT IN THE BUSINESS OF SPECULATION. IT WAS SUBMITTED THAT TWO SMALL TRANSACTIONS WERE CARRIED OUT DURING THE YEAR WHICH WERE IN THE NATURE OF SPECULATION AS PER THE PROVIS IONS OF SECTION 43(5) OF THE ACT AND THAT THESE TWO TRANSACTIONS WERE NOT EN TERED INTO IN THE ORDINARY COURSE OF BUSINESS OF THE ASSESSEE COMPANY. IT WAS HIS CASE THAT THE ASSESSING OFFICER ERRED IN TREATING ONE OF THE TRAN SACTIONS AS BUSINESS TRANSACTIONS AND, AS THEY RELATE TO TRADING IN SHAR ES, HE HELD THAT THE ENTIRE EXPENDITURE WAS INCURRED TOWARDS SPECULATION BUSINE SS AND, CONSEQUENTLY, DISALLOWING ` 32,61,883, AS SPECULATION LOSS. 4. THE FIRST APPELLATE AUTHORITY AT PAGE-3, HELD AS FO LLOWS:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE FINDINGS OF THE A.O. AND OBSERVE THAT IT IS A MATTER OF FACT TH AT MANUFACTURING / PRODUCTION ACTIVITY IN THE APPELLANTS PLANT HAD BE EN DISCONTINUED FROM THE YEAR 2004 AND THE BUSINESS HAS NOT STARTED UPTO THE CURRENT FINANCIAL YEAR ENDING ON 31.3.2006. EVEN IF IT IS ADMITTED TH AT THERE IS A TEMPORARY DISCONTINUATION OF BUSINESS ACTIVITY AND THE ASSESSEE IS LOOKING FOR NEW BUSINESS AVENUES IN THE MARKET, I H OLD THAT THERE IS NO BUSINESS SENSE IN RETAINING THE ENTIRE ADMINISTRATI VE SET UP INCLUDING THE WORKFORCE BY THE APPELLANT. NO PRUDENT BUSINESS MAN WILL INDULGE IN SUCH HEAVY EXPENDITURE WHICH ARE NOT WHOLLY NECESSARILY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS SPECIALLY WHEN THE COMPANY IS NOT GENERATING ANY INCOME FROM BUSINESS OVER LAST FEW YEARS. AS NO TED ABOVE, THE APPELLANT HAD CARRIED OUT ONLY TWO SOLITARY TRANSAC TIONS IN THE WHOLE YEAR IN SHARES OF ZEE TELEFILMS AND ONE JSW STEEL AND TH AT TOO WERE SPECULATIVE IN NATURE AS THE SALE PURCHASE OF SHARE S WERE CARRIED OUT ON A SINGLE DAY WITHOUT ANY DELIVERY OF SHARES. SINCE, INTEREST INCOME WHICH SILVASSA FIBRES PVT. LTD. ITA NO.6523/MUM./2009 ITA NO.593/MUM./2009 4 HAS BEEN CLAIMED AS BUSINESS INCOME HAS ALSO BEEN A SSESSED AS INCOME FROM OTHER SOURCES THEN IN THE GIVEN CIRCUMSTANCES, THE A.O. APPEARS TO BE RIGHT IN DISALLOWING THE BUSINESS EXPENSES CLAIM ED BY THE APPELLANT. HOWEVER, KEEPING IN VIEW THAT MY LD. PREDECESSOR IN THE PRECEDING ASSESSMENT YEAR OF THE APPELLANT HAS CONCLUDED THAT THE BUSINESS ACTIVITY OF THE APPELLANT HAS NOT CLOSED DOWN IN TO TALITY AND THEREBY HAS ALLOWED THE ENTIRE BUSINESS LOSS OF ` 25,58,404 CLAIMED BY THE APPELLANT, I HOLD THAT THE COMPANY HAS NOT CEASED TO EXIST UND ER THE YEAR UNDER CONSIDERATION AND AS SUCH HAD TO INCUR CERTAIN MAND ATORY EXPENSES TO RETAIN ITS CORPORATE STATUS, HENCE IT WILL BE REASO NABLE TO ALLOW 20% OF THE EXPENSES CLAIMED BY THE APPELLANT. THE A.O. IS DIRECTED TO RE- COMPUTE THE INCOME OF THE APPELLANT ACCORDINGLY. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD MR. VIJAY MEHTA, LEARNED COUNSEL, APP EARING ON BEHALF OF THE ASSESSEE AND MR. M.R. KUBAL, LEARNED DEPARTM ENTAL REPRESENTATIVE, ON BEHALF OF THE REVENUE. 6. LEARNED COUNSEL HAS NOT PRESSED GROUNDS NO.3 AND 4. CONSEQUENTLY, THESE GROUNDS ARE DISMISSED AS NOT PRESSED . 7. GROUNDS NO.1, 5, 6 AND 7, BEING GENERAL IN NATURE, NO SEPARATE ADJUDICATION IS NEEDED. THIS LEAVES US ONLY GROUND NO.2. 8. THE COMMISSIONER (APPEALS), THOUGHT IT FIT TO ALLOW 20% OF THE EXPENDITURE CLAIMED BY THE ASSESSEE. WE DO NOT SEE ANY REASON AS TO WHY COMMISSIONER (APPEALS) HAS DISALLOWED 80% OF THE EX PENDITURE. THE GENUINENESS OF THE EXPENDITURE IS NOT DOUBTED BY TH E ASSESSING OFFICER WHILE THE COMMISSIONER (APPEALS) HAD A DOUBT, HE DID NOT CALL FOR REMAND REPORT OR DIRECT INVESTIGATION. THE ENTIRE EXPENDITURE CAN NOT BE ATTRIBUTED TO THE TWO SHARE TRANSACTIONS. THE COMMISSIONER (APPEALS) CANNOT STEP IN THE SHOES OF THE BUSINESSMAN AND DECIDE WHETHER IT IS P RUDENT FOR THE ASSESSEE TO INCUR THE EXPENDITURE. THE REVENUE HAS NOT PREFE RRED ANY APPEAL CHALLENGING THE FINDINGS OF THE COMMISSIONER (APPEA LS) THAT THIS IS NOT A CASE OF CLOSURE OF BUSINESS BUT IT IS ONLY A TEMPORARY D ISCONTINUATION OF BUSINESS ACTIVITY. WHEN THESE FINDINGS ARE NOT DISPUTED, THE RE IS NO BASIS OF AD-HOC SILVASSA FIBRES PVT. LTD. ITA NO.6523/MUM./2009 ITA NO.593/MUM./2009 5 DISALLOWANCE WHEN THE EXPENDITURE OF THE ASSESSEE I S NOT FOUND TO BE FALSE. HENCE, THE SAME IS DELETED AND THE GROUND IS ALLOWE D. 9. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED IN PART . NOW, WE TAKE UP REVENUES APPEAL IN ITA NO.593/MUM. /2009. 10. THE SOLE GROUND RAISED BY THE REVENUE IS, WHETHER O R NOT THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN ALLOWING BU SINESS LOSS OF ` 35,58,404, WHICH INCLUDES DEPRECIATION LOSS OF ` 28,69,854. 11. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT FOR A SSESSMENT YEAR 2006- 07, THE REVENUE HAS NOT DISPUTED THE FINDINGS OF TH E COMMISSIONER (APPEALS) THAT THERE IS A TEMPORARY DISCONTINUATION OF BUSINESS ACTIVITY AND NOT A CLOSURE OF BUSINESS. WHEN IN THE SUBSEQUENT Y EAR, IT IS EXPECTED THAT THE ASSESSEE IS CONTINUING HIS BUSINESS, THE FINDIN GS OF THE COMMISSIONER (APPEALS) FOR THE EARLIER YEAR 2005-06, CANNOT BE F AULTED WITH. THERE SHOULD BE A CONSISTENCY IN THE STAND TAKEN BY THE REVENUE. IN FACT, THE ASSESSING OFFICER HIMSELF HAS TAKEN A VIEW THAT THE ASSESSEE IS IN THE BUSINESS OF TRADING IN SHARES IN ASSESSMENT YEAR 2006-07. 12. KEEPING IN VIEW THE AFORESAID DISCUSSIONS, WE DISMI SS THE GROUND RAISED BY THE REVENUE. 13. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 14. TO SUM UP, ASSESSEES APPEAL IS ALLOWED IN PART AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.6.2011 SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH JUNE 2011 SILVASSA FIBRES PVT. LTD. ITA NO.6523/MUM./2009 ITA NO.593/MUM./2009 6 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, H BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI 6, 7, 8 MEMBER ON LEAVE DATE INITIAL 1. DRAFT DICTATED ON 3.6.2011 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 9.6.2011 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 9.6.2011 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 9.6.2011 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 16.6.2011 SR.PS/PS 6. DATE OF PRONOUNCEMENT 24.6.2011 SR.PS 7. FILE SENT TO THE BENCH CLERK 24.6.2011 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER