Karan Raghav Exports Pvt. Ltd, New Delhi V. DCIT, New Delhi

ITA 677/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2422 (ITAT-DELHI)
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 15-12-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 24-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Assessee Lawyers: DR S NARAYANAN
• Keywords: Business income; Depreciation; Earning of tax free income
• Section: 143(3); 244A; 14A; 143(1); 43D; 32; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : D : NEW DELHI BEFORE SHRI RAJPAL YADAV AND SHRI R.C. SHARMA ITA NO.677/D/09 ASSESSMENT YEAR : 2005-06 KARAN RAGHAV EXPORTS PVT. LTD., VS. D.C.I.T., 2/28, W.H.S., KIRTI NAGAR, CIRCLE 5(1), NEW DELHI NEW DELHI PAN NO.AABCK3517A ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : DR. S. NARAYANAN, ADVOCATE RESPONDENT BY : SHRI B.K. GUPTA, SR. DR O R D E R PER R.C. SHARMA, AM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A) DATED 31.12.2008, IN THE MATTER OF ASSESSMENT FRAMED UNDE R SECTION 143(3) OF THE I.T. ACT FOR THE ASSESSMENT YEAR 2005-06, WHEREIN T HE FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE THE LE ARNED ASSESSING OFFICER HAS ERRED IN:- I) NOT ALLOWING THE CLAIM OF DEPRECIATION OF RS.41,62, 650/- WHICH IS ALLOWABLE AGAINST THE INTEREST INCOME OF RS.2,52,000/- EARNED BY THE ASSESSEE COMPANY FROM M /S GAURAV INTERNATIONAL, A FIRM, IN WHICH THE COMPANY IS A PARTNER AND THE SAME IS ASSESSABLE U/S 28(V) OF THE INCOME TAX ACT, 1961, PARTICULARLY WHEN HE HAS ALLO WED THE OTHER EXPENDITURES SUCH AS AUDIT FEES, BANK CHA RGES, PROFESSIONAL FEES, FEES AND TAXES AND INSURANCE CHA RGES AGAINST SUCH INCOME. 2 II) NOT ALLOWING THE CLAIM OF SET OFF OF BROUGHT FORWAR D LOSS OF THE EARLIER YEARS TO THE EXTENT OF RS.48,43,300/ - WHILE COMPLETING THE ASSESSMENT. III) CREATING THE DEMAND BY NOT ALLOWING THE CREDIT OF T HE ADVANCE TAX PAID AMOUNTING TO RS.2,50,000/- WITH TH E RESULT OF WRONG WITHDRAWAL OF INTEREST U/S 244A AT RS.2,863/- AND WRONGLY CHARGING A SUM OF RS.7,314/- U/S 234D AS INTEREST, WHEN/ HE HAS STILL NOT GRANTED RE FUND U/S 143(1) WHICH IS PENDING FOR REVALIDATION BEFORE HIM . 2. THE LEARNED ASSESSING OFFICER HAS NOT CONSIDERED TH E NOTES SUBMITTED BY THE ASSESSEE IN RETURN OF TAXABL E INCOME, WHICH IS AN EXPLANATION TENDERED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING IN COMPLIANCE TO HIS QUERY VIDE LETTER DATED 07.08.200 7. THE SAID NOTE WAS WITH REGARD TO THE APPLICABILITY OF THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. TEXTILE & GENERAL TRADING COMPANY 244 ITR 876 IN SUPPORT OF THE CLAIM OF DEPRECIATION. 3. THE LEARNED ASSESSING OFFICER HAS ERRED IN ARRIVING AT A WRONG CONCLUSION THAT THE CLAIM OF THE ASSESSEE COMPANY IS WITHOUT ANY LEGAL AUTHORITY AND DELIBERATELY CLAIMED DEDUCTION OF DEPRECIATION ON BUILDING ON THE WRONG FOOTING THAT THE SAID BUILDIN G IS NOT BEING USED FOR THE BUSINESS PURPOSES AND FURTHE R ERRED IN OBSERVING THAT THE ASSESSEE COMPANY HAS FAILED INACCURATE PARTICULARS OF INCOME BY WAY OF CLAIMING DEPRECIATION ON AN ASSET WHICH WAS NOT BEI NG USED FOR ITS BUSINESS AND CONCEALED THE INCOME. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY INCO RPORATED WITH THE MAIN OBJECT OF CARRYING ON THE BUSINESS OF EXPORT AND IM PORT. THE ASSESSEE BECAME PARTNER IN M/S GAURAV INTERNATIONAL, A FIRM ENGAGED IN THE EXPORT BUSINESS AND CONTRIBUTED CAPITAL IN THE FORM OF BUI LDING AND CASH. AS PER 3 PARTNERSHIP DEED DATED 2.4.2004 OF M/S GAURAV INTER NATIONAL, THE ASSESSEE AGREED TO PROVIDE ITS FACTORY PREMISES LOCATED AT 2 25, UDYOG VIHAR, PHASE-1, GURGAON, HARYANA FOR USE OF PARTNERSHIP BUSINESS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY WAS IN RECEIPT OF SHARE OF PROFIT OF RS.12.38 LAKHS AND ALSO INTEREST OF RS.2,52,000/- O N THE AMOUNT CONTRIBUTED TO M/S GAURAV INTERNATIONAL. THE INTEREST INCOME W AS ASSESSABLE IN THE HANDS OF THE ASSESSEE AS INCOME FROM BUSINESS AND P ROFESSION AS PER PROVISIONS OF SECTION 28(IV). THE SHARE OF PROFIT EARNED FROM THE PARTNERSHIP FIRM WAS LIABLE TO BE EXEMPTED U/S 10(2A) OF THE IT ACT. IN THE RETURN OF INCOME SO FILED, THE ASSESSEE HAS CLAIMED DEDUCTION OF DEPRECIATION, INSURANCE PREMIUM IN RESPECT OF FACTORY BUILDING SO CONTRIBUTED, AGAINST THE INTEREST INCOME EARNED FROM THE PARTNERSHIP FIRM. THE AO DECLINED THE CLAIM OF DEPRECIATION ON THE PLEA THAT BUILDING WAS NOT USED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS, BUT WAS USED BY TH E PARTNERSHIP FIRM IN WHICH THE ASSESSEE HAS CONTRIBUTED THE SAME AS CAPITAL. THE CLAIM WITH REGARD TO INSURANCE CHARGES IN RESPECT OF THE BUILDING WAS AL LOWED BY THE AO. THE CIT(A) UPHELD THE ACTION OF THE AO WITH REGARD TO D ECLINE OF THE CLAIM OF DEPRECIATION. THE CIT(A) FURTHER OBSERVED THAT NO EXPENDITURE IS ALLOWABLE AGAINST THE EXEMPT INCOME. INSOFAR AS SHARE OF PRO FIT FROM PARTNERSHIP FIRM WAS EXEMPT U/S 10(2A), AS PER CIT(A), IN VIEW OF TH E PROVISIONS OF SECTION 4 14A, SUCH EXPENDITURE CANNOT BE ALLOWED AGAINST EXE MPT INCOME. THE CLAIM OF INSURANCE CHARGES WHICH WAS ALLOWED BY THE AO WA S REVERSED BY THE CIT(A) AND ADDED TO THE INCOME OF THE ASSESSEE ON T HE PLEA THAT WHEN DEPRECIATION IS NOT ALLOWABLE ON THE BUILDING, THE CLAIM OF INSURANCE PREMIUM ON THE SAME BUILDING CANNOT BE ALLOWED. TH E ASSESSEE IS IN FURTHER APPEAL BEFORE US AGAINST THE ORDER OF CIT(A). 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GON E THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAD ALSO DELIBERATED ON THE CASE LAWS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AND CITED BY LEARNED AR AND LEARNED DR DURING THE COURSE OF HEARING BEFORE US, IN THE CONTEXT OF FACTUAL MATRIX OF INSTANT CASE BEFORE US. FROM THE RECORD, WE FOUND THAT ASSESSEE COMPANY WAS INCORPORATED WITH THE OBJECT OF CARRYIN G ON THE BUSINESS OF EXPORT. TO ACHIEVE ITS MAIN OBJECT, THE ASSESSEE H AS BECOME PARTNER OF M/S GAURAV INTERNATIONAL. AS PER THE TERMS OF THE PART NERSHIP DEED, THE ASSESSEE COMPANY HAS CONTRIBUTED ITS FACTORY BUILDING FOR US E IN THE BUSINESS OF PARTNERSHIP FIRM. THE ASSESSEE HAS ALSO CONTRIBUTE D LIQUID FUNDS AS ITS CAPITAL. DURING THE YEAR, THE ASSESSEE WAS IN RECE IPT OF ITS SHARE OF PROFIT WHICH WAS CLAIMED TO BE EXEMPT U/S 10(2A), IT HAS A LSO RECEIVED INTEREST WHICH IS LIABLE TO BE TAXED AS INCOME FROM BUSINESS AND PROFESSION U/S 28(V) OF THE ACT. THERE IS NO DISPUTE TO THE FACT THAT F ACTORY BUILDING SO 5 CONTRIBUTED AS CAPITAL WAS UTILIZED BY THE PARTNERS HIP FIRM M/S GAURAV INTERNATIONAL FOR THE PURPOSE OF ITS BUSINESS. THE RE IS ALSO NO DENIAL OF THE FACT THAT MAIN OBJECT OF THE ASSESSEE COMPANY WAS T O CARRY ON BUSINESS AS EXPORTER AND/OR IMPORTER OF ANY OR ALL THE ARTICLES AND IN GENERAL, TO EXPORT AND IMPORT BOTH TRADITIONAL AND NON-TRADITIONAL ITE MS AND ALSO TO ACT AS AN EXPORT HOUSE. THE MAIN OBJECT CLAUSE AS PER THE AS SESSEES MEMORANDUM OF ASSOCIATION CLEARLY STIPULATE THIS CLAUSE AND TO AC HIEVE THE OBJECT OF CARRYING ON THE BUSINESS OF EXPORTER, THE ASSESSEE COMPANY H AS CONTRIBUTED ITS FACTORY BUILDING WHICH WAS UNDISPUTEDLY UTILIZED BY THE PAR TNERSHIP FIRM FOR CARRYING ON ITS BUSINESS. THE ASSESSEE COMPANY HAD ALSO EARNED INTEREST ON THE CASH CAPITAL CONTRIBUTED TO THE FIRM. THE COMP UTATION OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON IS MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 29. SECTION 29 PROV IDES THAT DEDUCTION ELIGIBLE U/S 30 TO 43D IS TO BE ALLOWED WHILE COMPU TING THE BUSINESS PROFITS. THE CLAIM OF DEPRECIATION ON THE BUILDING CONTRIBUT ED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS IS TO BE CONSIDERED U/S 32. THUS, WHATEVER THE ASSESSEE COMPANY HAS EARNED EITHER IN THE FORM OF S HARE OF PROFIT OR INTEREST WHICH IS A BUSINESS INCOME OF THE ASSESSEE HAS TO B E COMPUTED AFTER ALLOWING DEDUCTION OF EXPENDITURE PERMISSIBLE U/S 30 TO 43D. SECTION 14A STIPULATE FOR DISALLOWANCE OF EXPENDITURE AGAINST THE EXEMPT INCOME. HOWEVER, IF THE 6 EXPENDITURE IS INCURRED IN RESPECT OF THE EXEMPT IN COME, SUCH EXPENDITURE IS TO BE REDUCED FROM THE EXEMPT INCOME AND THE NET EX EMPT INCOME IS TO BE CONSIDERED WHILE COMPUTING THE NET PROFIT. SECTION 14A DECLINES SUCH CLAIM OF EXPENDITURE WHICH IS INCURRED FOR EARNING EXEMPT INCOME, AGAINST THE INCOME LIABLE TO TAX. IN THE INSTANT CASE, THE ASS ESSEE HAS NOT CLAIMED EXPENDITURE AGAINST THE EXEMPT INCOME WHICH IS IN T HE FORM OF SHARE OF PROFIT, BUT AGAINST THE INCOME LIABLE TO TAX U/S 28 (V), UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. 4. IN THE INSTANT CASE, THE ASSESSEES CLAIM FOR DE PRECIATION ALLOWANCE IS REQUIRED TO BE EXAMINED IN TERMS OF SECTION 32 WHIC H STIPULATES THAT ASSET SHOULD BE OWNED BY THE ASSESSEE AND IT SHOULD HAVE BEEN USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. FIRST CONDITI ON WITH REGARD TO OWNERSHIP OF FACTORY BUILDING IS ESTABLISHED. HOWE VER, UNCONTROVERTED FACT IS THAT THIS FACTORY BUILDING WAS NOT USED BY THE A SSESSEE COMPANY BUT BY THE PARTNERSHIP FIRM FOR THE PURPOSE OF ITS BUSINESS. SINCE THE USE OF BUILDING WAS NOT BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSI NESS, WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF LOWER AUTHORITIES FOR DE CLINING THE CLAIM OF DEPRECIATION IN THE HANDS OF THE ASSESSEE COMPANY I N RESPECT OF FACTORY BUILDING WHICH WAS NOT PUT TO USE BY THE ASSESSEE B UT BY THE PARTNERSHIP FIRM TO WHOM SAME WAS CONTRIBUTED AS PER THE TERMS OF PA RTNERSHIP DEED. 7 ASSESSEES CLAIM FOR INSURANCE PREMIUM IN RESPECT O F THIS BUILDING CANNOT ALSO BE ALLOWED AGAINST INTEREST INCOME. ONLY INTE REST EXPENDITURE INCURRED ON THE AMOUNT BORROWED FOR THE PURPOSE OF CONTRIBUT ING FUNDS IN THE FORM OF CAPITAL IN PARTNERSHIP FIRM CAN BE ALLOWED AGAINST THE INTEREST INCOME RECEIVED FROM PARTNERSHIP FIRM ON THE CREDIT BALANC E OF CAPITAL. BECAUSE BY PAYMENT OF INSURANCE PREMIUM ON BUILDING OWNED BY A SSESSEE, IT HAS NOT EARNED INTEREST INCOME. INTEREST INCOME IS EARNED BECAUSE OF CAPITAL CONTRIBUTED IN THE PARTNERSHIP FIRM. HAD THE PREMI UM PAID BY PARTNERSHIP FIRM THE SAME COULD BE CONSIDERED FOR ALLOWING WHIL E COMPUTING BUSINESS INCOME OF PARTNERSHIP FIRM. WE ARE THEREFORE IN AG REEMENT WITH LEARNED DR THAT THE PREMIUM PAID FOR THE BUILDING CANNOT BE AL LOWED IN THE HANDS OF THE ASSESSEE AGAINST ITS INTEREST INCOME FROM THE PARTN ERSHIP FIRM ON ACCOUNT OF CAPITAL CONTRIBUTED BY THE ASSESSEE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. THIS ORDER PRONOUNCED IN THE COURT ON 24-12-2009. SD/- SD/- ( RAJPAL YADAV ) ( R.C. SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 24-12-2009 NS : 8 COPY FORWARDED TO : - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY DY. REGISTRAR,