M/s P.F.X. Saldanha & Sons, Mangalore V. ITO, Mangalore

ITA 700/BANG/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8659 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 22-10-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MEERA SRIVASTAVA JT
• Assessee Lawyers: S VENKATESAN
• Keywords: Business income; Depreciation; Tangible material; Bad and doubtful debts; Difference of opinion; Reason to believe; Unabsorbed depreciation; Change of opinion; Reassessment proceedings; TDS; Set aside; Capital Gains
• Section: 133A; 234B; 143(1); 147; 148; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NOS. 116/BANG/2010 & 696 TO 700/BANG/2010 ASSESSMENT YEARS : 2006-07, 2002-03 TO 2005-06 & 2007-08 P.F.X. SALDANHA & SONS, D.NO.7-21-1498, HIGHLAND COFFEE WORKS, FALNIR, MANGALORE. : APPELLANT VS. THE INCOME TAX OFFICER, WARD 2(2), MANGALORE. : RESPONDENT APPELLANT BY : SHRI S. VENKATESAN, C.A. RESPONDENT BY : SMT. MEERA SRIVASTAVA, JT. CIT O R D E R PER BENCH THESE SIX APPEALS OF THE ASSESSEE FIRM ARE DIRECTE D AGAINST THE ORDERS OF THE CIT(A), MANGALORE IN ITA NOS: 84 TO 88/MNG/CIT(A)/MNG/2009-10 DATED: 29.3.2010 FOR THE ASSESSMENT YEARS 2002-03, 03-04, 04-05, 05-06 AND 07-08 AND IN ITA NO: 55/CIT(A)/MNG/08- 09 DATED: 15.12.2009 FOR THE ASSESSMENT YEAR 2006 - 07 . ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 2 OF 36 I. ITA NOS:696,697,698,699 & 700/B/10 [AYS.02-03, 03-04, 04-05, 05.06& 07.08: 2. THE ASSESSEE HAS RAISED TWELVE IDENTICAL GROUNDS FOR THE AYS.02- 03, 03-04, 04-05, 05-06 AND 07-08, OUT OF WHICH, GR OUND NOS. 1 & 12 BEING GENERAL IN NATURE AND NO SPECIFIC ISSUES INVOLVED, THEY HAVE BECOME NON - CONSEQUENTIAL . 2.1. THE ISSUE OF CHARGING OF INTEREST U/S 234B OF THE ACT RAISED IN GROUND NO.11 IS NOT MAINTAINABLE IN ALL THE AYS UNDER DISPUTE A S CHARGING OF INTEREST U/S 234B OF THE ACT IS MANDATORY AND CO NSEQUENTIAL IN NATURE AND, THEREFORE, THE SAME IS DISMISSED FOR ALL THE AYS UNDER DISPUTE. 2.2. SINCE THE ISSUES IN THE REMAINING GROUNDS WERE ILLUSTRATIVE AND IN EXHAUSTIVE MANNER, FOR THE SAKE OF CONVENIENCE AND CLARITY AND ALSO FOR THE APPRECIATION OF FACTS, THEY ARE REFORMULATED, IN CO NCISE MANNER, AS UNDER: (I) THE REASSESSMENT ORDERS WERE BAD IN LAW AND VOID-AB -INITIO FOR WANT OF REQUISITE JURISDICTION AS THE MANDATORY REQ UIREMENTS TO ASSUME JURISDICTION U/S 148 OF THE ACT DID NOT EXIS T AND ALSO HAVE NOT BEEN COMPLIED WITH; (II) THE ASSESSEE WAS CARRYING ON INDIVISIBLE INTEGRATE D BUSINESS OF RUNNING COFFEE CURING WORKS, PROVIDING WARE-HOUSING FACILITIES, WEIGH BRIDGE, ESTATE SUPPLIES, MONEY LENDING ETC., AND, THUS, ITS INCOME WAS TO BE TAXED UNDER THE HEAD BUSINESS ON LY (III) THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN ASSESSI NG THE RECEIPTS SUCH AS SERVICE CHARGES, INTEREST, MISC. RECEIPTS U NDER THE HEAD OTHER SOURCES AS AGAINST BUSINESS INCOME; (IV) AUTHORITIES BELOW ERRED IN DISALLOWING THE EXPENSES SUCH AS ESTABLISHMENT, TRAVELING, SERVICE CHARGE ETC. WHICH WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS; (V) THE AUTHORITIES ERRED IN DISALLOWING THE CARRY FORW ARD LOSSES; ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 3 OF 36 II. ITA NO: 116/B/10 AY 2006-07: 3. FOR THIS ASSESSMENT YEAR, THE ASSESSEE HAD RAIS ED EIGHT GROUNDS. GROUND NOS. 1 AND 8 BEING GENERAL IN NATURE, THEY DO NOT SURVIVE FOR ADJUDICATION. 3.1. IN GROUND NO. 7 , THE ASSESSEE HAD RAISED TWIN ISSUES, NAMELY: (I) CHARGING OF INTEREST U/S 234B OF THE ACT: THIS PART OF THE GROUND IS NOT MAINTAINABLE AS CHARGING OF INTEREST UNDER THIS SECTION IS MANDATORY AND CONSEQUENTIAL IN NATURE; & (II) CHARGING OF INTEREST U/S 234D OF THE ACT: LEVY OF INTEREST U/S 234D IS PURELY A LEGAL GROUND AND IS CHARGEABLE FOR THE AY 2006-07 FOLLOWING THE ORDER OF THE SPECIAL BENCH IN ITO V. EKTA PROMO TERS P. LTD. (2008) 113 ITD 719 -ITAT DELHI E SPECIAL BENCH. 3.2. THE OTHER ISSUES RAISED IN THE REMAINING GROU NDS ARE REFORMULATED AS UNDER: (I) THE AUTHORITIES BELOW FAILED TO RECOGNIZE THAT THE SAME BUSINESS ACTIVITY OF COFFEE CURING WAS CONTINUED DURING THE PREVIOUS YEAR AND THE INCOME FROM SUCH ACTIVITY WAS TO BE ASSESSE D UNDER THE HEAD BUSINESS AS AGAINST EITHER AS OTHER SOURCES OR HOUSE PROPERTY; (II) WITHOUT PREJUDICE, THE CARRIED FORWARD BUSINESS LOS S WAS REQUIRED TO BE ALLOWED TO SET OFF AGAINST SUCH INCO ME; (III) THE AUTHORITIES BELOW ERRED IN DISALLOWING THE EXPE NSES CLAIMED SUCH AS TRAVELING EXPENSES, SERVICE CHARGES, REPAIR AND MAINTENANCE ETC., (IV) THE CIT(A) ERRED IN DIRECTING THE AO TO BIFURCATE T HE INCOME UNDER THE HEAD BUSINESS IN THE EARLIER YEARS INTO HOUSE PROPERTY AND OTHER SOURCES TO DENY SET OFF OF CA RRY FORWARD OF BUSINESS LOSS. ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 4 OF 36 3.3. IN THE MEANWHILE, THE ASSESSEE VIDE ITS APPLI CATION DATED: NIL PRAYED, DURING THE COURSE OF HEARING ON 11.5.2010 F OR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL FOR THE AY 2006-07. T HE ADDITIONAL GROUNDS SOUGHT TO BE RAISED ARE LISTED AS UNDER: (I) THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN ASSESSI NG THE ASSESSEE AS FIRM INSTEAD OF AOP OR FIRM ASSESSABLE AS AOP SINCE THE ASSESSEE HAD NOT COMPLIED WITH THE MANDATORY RE QUIREMENT OF S.184 OF THE ACT EVER-SINCE THE DEATH OF A.J.F.X .SALDANHA AND CONSEQUENTIAL RECONSTITUTION; (II) THE ASSESSMENT SO MADE ON THE ASSESSEE AS FIRM WA S CONTRARY TO LAW AND EXPRESS PROVISIONS OF S.184 OF THE ACT AS N O RETURN IN THE STATUS OF FIRM WAS FILED AND THE ASSESSEE CANNOT BE ASSESSED IN RESPECT OF RETURN FILED BY AOP AS FIRM AND, TH EREFORE, THE ASSESSMENT MADE ON THE ASSESSEE AS FIRM WAS BAD IN LAW AND LIABLE TO BE ANNULLED; & (III) FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING OF THE APPEAL, YOUR ASSESSEE HUMBLY PRAYS T HAT THE APPEAL MAY BE ALLOWED AND JUSTICE RENDERED. 3.3.1. AFTER DUE CONSIDERATION OF THE SUBMISSION O F EITHER PARTY, THE ASSESSEES PRAYER FOR ADMISSION FOR ADDITIONAL GROU NDS WAS ACCEDED TO AND THE REGISTRY WAS DIRECTED TO PLACE THE ASSESSEES A PPLICATION ON RECORD. 4. AS THE ISSUES RAISED IN THE ABOVE APPEALS WERE SIMILAR AND INTER-LINKED, FOR THE SAKE OF CONVENIENCE AND CLAR ITY, THEY WERE HEARD, CONSIDERED AND DISPOSED OFF IN THIS COMMON ORDER. A.Y 2006-07: 5. BRIEFLY STATED, THE ASSESSEE FIRM [THE ASSESSE E IN SHORT] WAS ENGAGED IN THE BUSINESS OF COFFEE CURING AS AN AGEN T OF COFFEE BOARD UNDER THE NAME OF M/S. HIGHLAND COFFEE WORKS UNTIL 1995. CONSEQUENT ON ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 5 OF 36 DECONTROL OF COFFEE TRADE, THE COFFEE BOARD DISPENS ED WITH THE BUSINESS WITH THE ASSESSEE AND THEN THE ASSESSEE LET-OUT ITS GO-DOWNS FOR STORAGE OF COMMERCIAL GOODS AND COLLECTING WARE-HOUSING CHARGE S. DURING THE PREVIOUS YEAR RELEVANT TO THE AY 2006-07 , THE ASSESSEE WAS IN RECEIPT OF RS.28,85,649/- UNDER THE HEAD MACHINERY HIRE AND W ARE-HOUSING CHARGES. CONSIDERING THIS, AS BUSINESS INCOME, THE ASSESSEE SET-OFF OF BROUGHT FORWARD BUSINESS LOSS FOR THE AY 98-99 AGAINST THE ENTIRE INCOME AND FURNISHED A NIL RETURN. HOWEVER, THE AO, FOR THE REASONS RECORDED IN AN ELABORATIVE MANNER, TOOK A VIEW THAT RS.28.85 LAKHS WAS CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM HOUSE PROPER TY AND ARRIVED AT THE FIRMS TOTAL INCOME AT RS.32.08 LAKHS. 6. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE WITH THE CIT (A). IT WAS CONTENDED BEFORE THE CIT (A) THAT GIVEN THE BAC K-GROUND AND HISTORY OF THE CASE, THERE WERE COMPELLING CIRCUMSTANCES FOR C OMMERCIAL EXPLOITATION OF EXISTING ASSETS AND INFRASTRUCTURE WITHOUT ADDIN G ADDITIONAL COST TO THE BUILDING AND ASSETS AFTER COFFEE BOARD HAD WITHDRAW N ITS OPERATION IN THE ASSESSEES BUSINESS PREMISES. IT WAS, FURTHER, CON TENDED THAT THE WARE- HOUSING CHARGES INCLUDED THE RENT REALIZED FROM OPE N YARD AND SHED AND FOR VARIOUS FACILITIES, SERVICES AND SECURITY REN DERED TO ITS CUSTOMERS. IT WAS PLEADED THAT THE ENTIRE INCOME BE TREATED AS IN COME FROM BUSINESS ETC. 6.1. TAKING INTO ACCOUNT THE CONTENTIONS PUT-FORTH BY THE ASSESSEE AND ALSO EXTENSIVELY CITING VARIOUS JUDICIAL PRONOU NCEMENTS ON THE ISSUE, THE LD. CIT (A) WAS OF THE VIEW THAT ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 6 OF 36 18..THAT THE APPELLANT FIRM HAD CEAS ED TO CARRY ON THE COFFEE CURING BUSINESS AND HAD OPTED T O LEASE OUT ITS GO-DOWNS AND MACHINERY, AS AN ALTERNATIVE WAY OF EARNING INC OME, RATHER THAN A PART OF ITS BUSINESS. THUS, THE RENTAL INCOME DERIVED F ROM LEASING OUT PROPERTY COULD NOT BE HELD AS BUSINESS INCOME PARTICULARLY W HEN THE SAID SEGMENT OF BUSINESS, VIZ., COFFEE CURING HAD CEASED TO EXIST. THE AO HAS ALREADY ACCEPTED THAT THE APPELLANT FIRM HAD DERIVED BUSINE SS INCOME FROM OTHER ACTIVITIES LIKE PHOTO-COPYING, WEIGH BRIDGE, COIN B OX, GENERATOR COLLECTIONS ETC., IN RESPECT OF WHICH HE HAS ALLOWED CORRESPOND ING EXPENDITURE. I THEREFORE DISMISS THE APPELLANTS GROUNDS OF APPEAL AND CONFIRM THE ASSESSMENT OF RS.19,93,396 AS THE FIRMS INCOME FRO M HOUSE PROPERTY. 6.2. WITH REGARD TO THE ASSESSEE CLAIM OF SET-OFF OF UNABSORBED DEPRECIATION AND CARRIED FORWARD BUSINESS LOSSES OF EARLIER AYS, THE CIT(A)S REASONING WAS THAT 19..THE QUESTION OF SET-OFF WOULD ARISE ONLY I F THE FIRM HAD BUSINESS INCOMES TO SET OFF SUCH LOSSES OR DEPRECIATION AGAI NST. IN THE STATEMENT SHOWING THE BREAK-UP OF INCOMES APPENDED TO THE APP ELLANTS SUBMISSION DATED: 26.11.2008 FILED BEFORE THE ASSESSING OFFICE R, THE FIRM HAS SHOWN THAT THERE WAS NO BUSINESS INCOME IN THE FORM OF AGENCY REMUNERATION FROM COFFEE BOARD, RETURN ON CAPITAL FROM COFFEE BOARD, COFFEE RANSOMING CHARGES ETC., FROM ASSESSMENT YEAR 1998-99 ONWARDS. THE ONLY INCOME RECEIVED IN THAT PERIOD WAS MACHINERY HIRE AND WAR EHOUSING CHARGES. THESE CONSISTED ONLY OF LEASE RENTALS RECEIVED IN R ESPECT OF GO-DOWNS, YARDS AND MACHINERY GIVEN ON RENT, WHICH I HAVE HELD TO B E INCOME FROM HOUSE PROPERTY. WHEN THERE WAS NEITHER BUSINESS INCOME N OR LOSS, NOR WAS DEPRECIATION ALLOWABLE ON INCOME FROM HOUSE PROPERT Y, THE QUESTION OF SET OFF COULD HARDLY ARISE. AYS.02-03, 03-04, 04-05, 05-06& 07-08: 7. FOR THESE ASSESSMENT YEARS, THE ASSESSEE HAD FU RNISHED ITS RETURNS OF INCOME, ADMITTING NIL INCOME. THERE WA S A SURVEY OPERATION U/S 133A OF THE ACT IN THE ASSESSEES BUSINESS PREMISES ON 9.,5.2007 AND DURING THE SURVEY, IT WAS NOTICED THAT THOUGH IT WA S IN RECEIPT OF HOUSE PROPERTY INCOME, IT HAD DECLARED IT AS BUSINESS IN COME AND CLAIMED VARIOUS DEDUCTIONS. IN THE OPINION OF THE AO THERE WAS ESCAPEMENT OF ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 7 OF 36 INCOME FROM HOUSE PROPERTY FOR THE AYS UNDER DISPUT E AND THE ASSESSEE WAS CALLED UPON TO FURNISH ITS RETURNS OF INCOME BY ISSUANCE OF NOTICES U/S 148 OF THE ACT AND IN COMPLIANCE, THE ASSESSEE HAD REQUESTED THAT THE ORIGINAL RETURNS FURNISHED EARLIER BE TREATED AS IN RESPONSE TO THE SAID NOTICES. 7.1. IN BRIEF, THE ASSESSEE WAS ENGAGED IN THE BUS INESS OF COFFEE CURING AS AN AGENT OF COFFEE BOARD UNDER THE NAME O F M/S. HIGHLAND COFFEE WORKS UNTIL 1995. CONSEQUENT ON DECONTROL O F COFFEE TRADE, THE COFFEE BOARD DISPENSED WITH THE BUSINESS WITH THE A SSESSEE AND THEN THE ASSESSEE LET-OUT ITS GO-DOWNS FOR STORAGE OF COMMER CIAL GOODS AND COFFEE CURING BY OTHERS ON JOB WORK BASIS AND COLLECTED WA RE-HOUSING CHARGES FROM THEM. THE AO HAD REASONED THAT THESE AMOUNTS RECEIVED AS RENTS WERE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOM E FROM HOUSE PROPERTY AND, ACCORDINGLY RECOMPUTED THE ASSESSEE S TOTAL INCOME FOR THE AYS UNDER CONSIDERATION. 7.2. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUES BE FORE THE CIT (A) FOR SOLACE. DURING THE COURSE OF APPELLATE PROC EEDINGS, IT WAS PLEADED ON BEHALF OF THE ASSESSEE THAT (I) HIGHLAND COFFEE WORKS WAS 100 YEARS OLD AND WAS AC TING AS AN AGENT OF COFFEE BOARD UNTIL DECONTROL OF COFFEE TRA DE IN 1995 AND SINCE THOUGH THE FIRM WAS NOT DOING COFFEE CURING BUSINESS, THE FACILITY WAS BEING UTILIZED BY OTHERS FOR WHICH THE ASSESSEE GETTING REMUNERATION FROM TIME TO TIME AS PER AGREEMENTS EN TERED INTO; (II) THE FACILITY EXTENDED TO COFFEE BOARD WAS CONTINUE D TO BE GIVEN TO LONGWAY TRADEWINGS AND THE IDLE CAPACITY IN OTHE R AREAS WAS GIVEN TO OTHERS WITH A SOLE INTENTION TO EARN INCOM E BY COMMERCIAL EXPLOITATION OF THE ASSESSEES ASSETS AN D FACILITY; ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 8 OF 36 (III) UNABLE TO DISTINGUISH THE TYPE OF INCOME EARNED BY THE ASSESSEE, THE AO HAD CLASSIFIED THE INCOME AS INCOME FROM HOU SE PROPERTY, BUT, INCOME FROM HIRE OF MACHINERY AND WAREHOUSING CHARGES OFFERED WAS TREATED AS BUSINESS INCOME; (IV) THE FIRM WAS NOT RECONSTITUTED AFTER THE DEMISE OF A.J.F.X. SALDANHA ON 19.1.1991 DUE TO DIFFERENCE CROPPED UP AMONG HIS LEGAL HEIRS. HOWEVER, THE AO CONCLUDED THE ASSESSM ENTS IN THE STATUS OF FIRM ON THE GROUND THAT NO NEW DEED OF PARTNERSHIP WAS FILED AND NOT COMPLIED WITH THE REQUIREMENTS OF S.1 84 OF THE ACT. - THE AO WAS NOT JUSTIFIED IN TREATING THE ASSESSEE AS A FIRM WITHOUT REFERRING TO THE MANDATORY REQUIREMENTS OF S.184 OF THE ACT A ND, THUS, THE STATUS OF THE ASSESSEE BE TREATED AS AN AOP AS PER THE RETURNS FU RNISHED; (V) THE AO HAD NOT APPRECIATED THE FACTS OF THE BUSINES S ACTIVITIES CARRIED ON BY THE ASSESSEE AND THE NUMEROUS EVIDENC ES IN THE SHAPE OF DOCUMENTS PRODUCED BEFORE HIM AND, THUS, H E WAS NOT JUSTIFIED IN CONSIDERING THE INCOME RECEIVED ON JOB WORK CHARGES AND MACHINERY HIRE RECEIVED FROM LONGWAY TRADEWINGS AS INCOME FROM HOUSE PROPERTY; - HAVING MIXED UP BUSINESS INCOME AS INCOME FROM HOUS E PROPERTY, THE AO SPLIT THE INCOME AS (A) INCOME FROM HOUSE PR OPERTY; (B) BUSINESS INCOME; AND (C) INCOME FROM OTHER SOURCES AND IN THE PROCESS DENIED THE LEGITIMATE CLAIM OF BUSINESS EXP ENSES; - THE AO HAD FAILED TO NOTICE THAT THE ASSESSEE WAS E NGAGED IN FINANCING AND THE MONEY LENDING ACTIVITIES EVEN AS ON DATE AND THE MONEY LENDING LICENSE HAD BEEN RENEWED; & (VI) THE AO HAD DENIED THE CLAIM OF SETTING OFF UNABSORB ED DEPRECIATION AND BROUGHT FORWARD OF BUSINESS LOSSES OF THE EARLIER YEARS AS PER RECORDS. HE HAD REOPENED THE ASSESSME NTS WITH A VIEW TO RE-COMPUTE THE INCOME BASED ON THE ASSESSME NT CONCLUDED BY HIS PREDECESSOR FOR THE AY 2006-07 AND WHEN THE REVENUE HAVING ACCEPTED THE RETURNS OF INCOME AS BUSINESS I NCOME ALL THESE YEARS, THE REOPENING OF COMPLETED ASSESSMENTS AMOUNTS TO CHANGE OF OPINION WAS, THEREFORE, BAD IN LAW. 7.3. AFTER CONSIDERATION OF THE FACTS OF THE ISSUE S RAISED BY THE ASSESSEE AS WELL AS THE REASONING OF THE AO AND EXT ENSIVELY QUOTING THE VARIOUS JUDICIAL VERDICTS, THE LD. CIT (A) HAD OBSE RVED THUS ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 9 OF 36 (1) STATUS OF THE ASSESSEE : TAKING CUE FROM THE FINDINGS OF THE HONBLE SUPREME COURT IN THE CASE OF (I) DULICHAND LAXMINAR AYAN V. CIT 29 ITR 535 (SC) AND (II) ADDANKI NARAYANAPPA V. BHASKARA K RISHNAPPA [AIR 1966 SC 1300], HE HAD RECORDED THAT ALTHOUGH THE ASSESSE E HAD INDICATED ITS STATUS AS AN AOP IN THE RETURNS OF INCOME, IT HAD A PPLIED FOR A PAN IN THE STATUS OF A FIRM AND THE PAN ALLOTTED TO IT WAS UND ER THE STATUS OF A FIRM AND AS PER THE COPY OF PARTNERSHIP DEED DATED 1.8.1995 AND AS PER CLAUSE 6 OF THE SAID DEED, THE ASSESSEE WAS CONSTITUTED AS A PA RTNERSHIP FIRM TERMINABLE AT WILL. AS PER CLAUSE 23 OF THE DEED, THE PROVISIONS OF THE INDIAN PARTNERSHIP ACT, 1932 WERE APPLICABLE TO THE PARTNERS. (2) ASSESSING THE INCOME AS INCOME FROM HOUSE PROP ERTY : EXTENSIVELY QUOTING THE FINDINGS OF THE AO IN HIS IMPUGNED ORDE RS AND ALSO TAKING SANCTUARY ON THE RULINGS OF THE HONBLE APEX COURT IN THE CASES OF (I) A.V.THOMAS AND CO. LTD. V. CIT (1963) 48 ITR 67 (SC ); (II) UNIVERSAL PLAST LTD. V. CIT (1999) 237 ITR 454 (SC) AND THE HONBLE A.P.HIGH COURT IN THE CASE OF GUNTUR MERCHANTS COTTON PRESS CO., LTD. V. CIT (1985) 21 TAXMAN 324 (AP), THE CIT (A) WAS OF THE VIEW THAT 27I AM INCLINED TO ACCEPT THE ASSESSING OF FICERS POINT OF VIEW THAT THE APPELLANT FIRM HAD CEASED TO CARRY ON THE COFFEE CURING BUSINESS AND HAD OPTED TO LEASE OUT I TS GO-DOWNS AND MACHINERY, AS AN ALTERNATIVE WAY OF EARNING INCOME RATHER THAN AS A PART OF ITS BUSINESS. THUS, THE RENTAL INCOME DERI VED FROM LEASING OUT PROPERTY COULD NOT BE HELD AS BUSINESS INCOME, PARTICULARLY WHEN THE SAID SEGMENT OF BUSINESS, VIZ., COFFEE CUR ING, HAD CEASED TO EXIST. THE ASSESSING OFFICER HAS ALREADY ACCEPTED THAT THE APPELLANT FIRM HAD DERIVED BUSINESS INCOME FROM OTHER ACTIVIT IES LIKE PHOTOCOPYING, WEIGH BRIDGE, AND COIN BOX SAND GENER ATOR COLLECTIONS ETC., IN RESPECT OF WHICH HE HAS ALLOWE D CORRESPONDING EXPENDITURE, I THEREFORE DISMISS THE APPELLANTS GR OUNDS OF APPEAL AND CONFIRM THE ASSESSMENT OF THE FIRMS INCOME FRO M HOUSE PROPERTY. ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 10 OF 36 28. I CANNOT FIND FAULT WITH THE ASSESSING OFFICE R FOR CATEGORIZING THE APPELLANTS INCOME INTO DIFFERENT SOURCES BECAU SE ALL KINDS OF INCOMES CANNOT BE ASSESSED UNDER A SINGLE HEAD AS P ER THE SCHEME OF I.T. ACT. I FIND NO SUBSTANCE IN THE APPELLANT S ARGUMENT THAT THE AO HAD FAILED TO APPRECIATE THE APPELLANTS BUSINES S AND REJECT THAT GROUND OF APPEAL. SIMILARLY, DISALLOWANCE OF EXPEN DITURE WAS WARRANTED AND JUSTIFIED TO THE EXTENT THEY DID NOT RELATE TO BUSINESS INCOME. HOWEVER, AS THE AO HAS HELD THAT A PART OF THE APPELLANTS INCOME WAS FROM BUSINESS, HE MAY ALLOW (I) SET OFF OF CARRIED FORWARD BUSINESS LOSSES OF EARLIER ASSESSMENT YEARS TO THE EXTENT BUSINESS INCOME IS AVAILABLE FOR SET-OFF; (II) UNAB SORBED DEPRECIATION IN RESPECT OF ASSETS STILL BEING USED IN THE APPELLANTS OWN BUSINESS, BUT NOT ON THOSE LET OUT; AND (III) A NY ADDITIONAL EXPENDITURE TO THE EXTENT PROVED BY THE APPELLANT T O BE RELATED TO SUCH BUSINESS INCOME. 8. TOTALLY DISMAYED WITH THE FINDINGS OF THE LD. C IT (A), THE ASSESSEE HAS COME WITH THE PRESENT APPEALS FOR THE ASSESSMENT YEARS UNDER CONSIDERATION. DURING THE COURSE OF THE HEAR ING, THE LD. A R CAME UP WITH A LENGTHY ARGUMENT CONTESTING THE AUTHORITI ES STAND IN TREATING THE ASSESSEES STATUS AS FIRM AS WELL AS TREATING ITS I NCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY, THE SUBSTANCE OF WHIC H, IS SUMMARIZED AS UNDER: - THE ASSESSEE WAS A PARTNERSHIP FIRM WHICH CONTINUED TO CARRY ON ITS BUSINESS COFFEE CURING WORKS KNOWN AS HIGHLAN D COFFEE CURING WORKS WAS LIABLE TO BE ASSESSED IN THE STA TUS OF AOP IN VIEW OF THE MANDATORY PROVISIONS OF S.185 OF THE AC T IN AS MUCH AS IT HAD NOT COMPLIED WITH THE TERMS OF S.184 OF THE ACT. THEREFORE, THE ASSESSEE THOUGH CONSTITUTED AND GOVERNED BY A V ALID INSTRUMENT OF PARTNERSHIP WAS LIABLE TO BE ASSESSED AS AN AOP IN TERMS OF S. 185 OF THE ACT;; - THE ASSESSEE HAD OBTAINED A PAN EARLIER IN THE STAT US OF FIRM AND THE SAID PAN ALONE WAS REPORTED IN RESPECT OF T HE RETURN FILED IN THE STATUS OF AOP WHICH IT WAS OBLIGED TO REPORT LAWFULLY IN VIEW OF S.185 OF THE ACT; ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 11 OF 36 - THOUGH THE ASSESSEE WAS NOT SERIOUS AND OF NO MATER IAL CONSEQUENCE ABOUT THE AO ASSESSING IN THE STATUS OF FIRM WHICH WOULD BE CONTRARY TO THE PROVISIONS OF S.185 OF THE ACT AND, THUS, IT WAS NOT IN ACCORDANCE WITH LAW ESPECIALLY, THE ASSE SSMENT FOR THE AY 2006-07 WAS NOT IN RESPONSE TO ANY NOTICE TO FIL E A RETURN IN THE STATUS OF FIRM, BUT, A RETURN FILED VOLUNTARILY AS AOP AND AS FAR AS THE OTHER AYS WERE CONCERNED, THEY WERE IN RESPO NSE TO NOTICES U/S 148 OF THE ACT AND THE ASSESSEE HAD REQUESTED T O TREAT THE RETURNS FURNISHED EARLIER IN THE STATUS OF AOP AS T HE RETURNS FILED IN RESPONSE TO NOTICE U/S 148 OF THE ACT; - HOWEVER, THE AO TOOK A STAND FOR THE AY 2006-07 THA T THE OBJECT OF CLAIMING AND INSISTING THE STATUS OF AOP WAS TO AVA IL THE BENEFITS OF S.26 OF THE ACT IN THE EVENT OF PROPERTY OF THE FIRM WERE TO BE SOLD IN FUTURE AND THAT THE ASSESSEE WAS A FIRM AND ITS CLAIM WAS TO BE ASSESSED AS AOP WAS AN AFTERTHOUGHT AND UNTENABL E; - THE ASSESSEE WAS A FIRM, BUT IN TERMS OF S. 185 O F THE ACT AS IT HAD NOT COMPLIED WITH THE PROVISIONS OF S.184 OF THE AC T, THE ASSESSEE NEED TO BE ASSESSEE AS AN AOP IN ACCORDANCE WITH S.185 AND NOT AS A FIRM; - IF THE ASSETS WERE TO BE SOLD IN FUTURE AND SINCE T HEY WERE ASSETS OF THE PARTNERSHIP FIRM AND THE CAPITAL GAINS WAS ASSE SSABLE IN THE HANDS OF THE FIRM OR AOP ALONE AS THE CASE MAY BE A ND, FURTHER, S.26 OF THE ACT WAS ONLY WITH REFERENCE TO HOUSE P ROPERTY INCOME AND NOT W. R. TO CAPITAL GAINS AND, THEREFORE, TH E AOS FINDING WAS CONTRARY TO S.185 OF THE ACT. THERE WAS NO TAX ADVANTAGE IN CLAIMING THE STATUS OF AOP IN STEAD OF FIRM AS TH E ASSESSEE HAS BEEN INCURRING LOSS AND SUCH LOSSES OUGHT TO BE CAR RIED FORWARD EITHER IN THE HANDS OF AOP OR FIRM, EVEN IF THE INC OME REQUIRES TO BE ASSESSED UNDER VARIOUS HEADS AND, THUS, THE MOTI VES ATTRIBUTED TO CLAIM THE STATUS AS AOP WERE UNCALLED FOR; RELIES ON FINDING OF THE HONBLE ITAT, CHENNAI IN DAWOOD SONS 124 ITD 367 - THE ASSESSEE HAS BEEN ACTING AS AN AGENT OF THE COF FEE BOARD FOR CURING COFFEE AND FOR THIS PURPOSE IT HAD ESTABLISH ED AN UNDERTAKING TO CURE COFFEE AND TO STORE THE RAW AS WELL CURED COFFEE SEEDS; THAT THE UNDER-TAKING INCLUDED APART FROM THE MACHINERY FOR CURING COFFEE, GO-DOWN SPACE TO WAREH OUSE THE COFFEE STOCKS. ACCORDING TO THE TERMS OF THE AGREE MENT ENTERED INTO WITH COFFEE BOARD ON 31.12.1987 [P 10 26 OF PB AR], THE ASSESSEE WAS ENTITLED TO RECEIVE, CURE, STORE AND D ELIVER THE COFFEE ON BEHALF OF COFFEE BOARD. AS PER THE DIRECTIONS OF THE BOARD, THE ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 12 OF 36 ASSESSEE HAD TO STORE, CURE AND DELIVER THE COFFEE AND FOR SUCH SERVICES RENDERED, THE ASSESSEE WAS ENTITLED TO REC EIVE AGENCY REMUNERATION, MANSOONING CHARGES, COFFEE CURING CH ARGES, COFFEE BUILDING CHARGES, MACHINERY HIRE ETC., - THE ASSESSEE AS AN AGENT OF COFFEE BOARD HAD TO DIS TRIBUTE FUNDS TO THE PLANTERS WHO DELIVERED COFFEE FOR CURING ON BEH ALF OF THE BOARD FOR WHICH PAYMENTS USED TO BE MADE BY BOARD TO THE ASSESSEE AND THUS THE ASSESSEE WAS CONSTANT TOUCH WITH THE PLANT ERS. THE ASSESSEE HAD TO MAKE ESTATE SUPPLIES LIKE MANURE TO THE PLANTS AND ALSO DERIVED INTEREST FOR HAVING ADVANCED FUNDS., THUS, THE ASSESSEE WAS DERIVING INCOME BY WAY OF RECEIPT OF INTEREST WHICH WAS A BUSINESS CARRIED ON BY THE ASSESSEE. APART FR OM ESTABLISHING A WEIGH BRIDGE FOR WEIGHING THE COFFEE LOADS WHEREB Y IN RECEIPT OF INCOME BY WAY OF WEIGH BRIDGE COLLECTIONS, BESIDES ESTABLISHING OF TELEPHONE [BOOTH] FACILITY, XEROX ETC. ALL THESE IN COME EARNING ACTIVITIES WERE SO DOVETAILED WITH ONE ANOTHER THAT IT WAS A SINGLE INTEGRATED BUSINESS; THAT COMMON BOOKS OF ACCOUNTS WERE MAINTAINED AND THERE HAS BEEN INTERLACING AND INTE RVENING OF THE FUNDS WHICH WERE CONTROLLED AND MANAGED BY THE FIRM . THUS, ALL THESE EARNING ACTIVITIES CONSTITUTED A SINGLE BUSIN ESS AND THESE WERE NOT A DIFFERENT BUSINESSES AND INCOME FROM ALL THESE ACTIVITIES WAS BEING ASSESSED UNDER THE HEAD BUSINESS AND NO T PART OF IT WAS ASSESSED UNDER THE HEAD HOUSE PROPERTY EXCEPT CERTAIN PORTIONS OF PREMISES LET OUT TO BANK PRIOR TO 1996; - EVEN FOR THE YEARS UNDER DISPUTE, THE AO ASSESSED T HE INCOME FROM WEIGH-BRIDGE COLLECTIONS, MONEY LENDING ETC. AS BUS INESS INCOME, BUT, THE WARE-HOUSING CHARGES UNDER THE HEAD OTHER SOURCES AND, THUS, THERE HAS BEEN NO DISCONTINUANCE OF BUSINESS TO DENY SET OFF OF CARRIED FORWARD LOSSES; - MONEY LENDING AND ESTATE SUPPLIES WERE TO THE PLANT ERS WHO CONSIGNED THE COFFEE TO THE ASSESSEE AND THE AMOUNT S PAYABLE TO THEM FOR THE COFFEE SEEDS DELIVERED FOR CURING WAS TO BE MADE THROUGH THE ASSESSEE AS THE CURER WHICH GAVE SUFFIC IENT SECURITY TO THE ASSESSEE FOR THE RECOVERY OF AMOUNTS ADVANCED I N THE COURSE OF BUSINESS EITHER AS LOAN OR FOR ESTATE SUPPLIES AND, THUS, THESE ACTIVITIES EVEN IF WERE TO BE CONSIDERED AS SEPARAT E WERE INTER- LINKED TO THE AGENCY BUSINESS. THEREFORE, ALL THES E ACTIVITIES TOGETHER CONSTITUTED A SINGLE BUSINESS AND NOT SEVE RAL BUSINESSES. THE EXPENSES INCURRED, EMPLOYEES EMPLOYED, BOOKS OF ACCOUNTS MAINTAINED WERE COMMON AND, THUS, INCOME DERIVED FR OM THIS BUSINESS UNDERTAKING WAS BUSINESS INCOME ONLY. RELIES ON THE CASE LAW KARNATAKA LIGHT METAL INDUSTRIES PVT. LTD. 225 ITR 947 (KAR) ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 13 OF 36 - DUE TO DECONTROL OF COFFEE, THE AGENCY BUSINESS OF THE ASSESSEE WITH THE COFFEE BOARD CAME TO AN END WHEREBY THE ASSESSE E HAD NO SUFFICIENT FUNDS EITHER TO RUN CURING WORKS ON ITS OWN OR ADVANCING FUNDS TO PLANTERS AS IT DID EARLIER. THE ASSESSEE H AD NOT DISCONTINUED THE BUSINESS OF CURING, HOWEVER, PERMI TTED OTHERS LIKE LONGWAY TRADE-LINKS TO CURE COFFEE IN ITS PREMISES FOR CONSIDERATION. THE OTHER PORTIONS OF THE UNDERTAKI NG WHICH WERE USED AS WAREHOUSES WERE GIVEN ON LICENSE BASIS TO O THERS FOR STORING AND THE ASSESSEE WAS GETTING INCOME FROM WA REHOUSING ACTIVITY FROM GO-DOWN PORTIONS OF THE UNDERTAKING. NO TENANCY WAS ENTERED INTO WHICH, ACCORDING TO THE ASSESSEE, WOULD COME IN ITS WAY TO RESUME ITS EARLIER COFFEE CURING BUSINES S ON ITS OWN AND, THUS, NO TENANCY WAS GRANTED FOR THE WAREHOUSES GIV EN ON LICENSE BASIS. THE POSSESSIONS OF THE GO-DOWNS WERE WITH T HE ASSESSEE AND ONLY LICENSES GRANTED FOR STORING THEIR MATERIA LS; - THE BUSINESS ACTIVITY OF EXPLOITING THE PREMISES CO NTINUED IN THE SHAPE OF EXTENDING WAREHOUSING FACILITIES WHICH THE ASSESSEE WAS EXTENDING TO COFFEE BOARD EARLIER AND, THEREFORE, T HE INCOME DERIVED BY THE ASSESSEE FROM WAREHOUSING ACTIVITY H AS TO BE ASSESSED UNDER THE HEAD BUSINESS ALONG WITH THE M ONEY LENDING ACTIVITY, WEIGH-BRIDGE COLLECTIONS ETC., AS THE ASS ETS CONTINUED TO REMAIN AS BUSINESS ASSETS OF THE UNDERTAKING; - RELIES ON CASE LAWS: (I) CIT V. SRI LAKSHMI MILLS 20 ITR 451 (SC) (II) CIT V. MAHESWARI DEVI JUTE MILLS LTD. 57 ITR 36 (SC ) (III) CIT V. VIKRAM COTTON MILLS LTD. 169 ITR 596 (SC) (IV) CIT V. NEO POLY PACK P. LTD. 245 ITR 492 (DEL) (V) ADDL. CIT V. HINDUSTAN MACHINE TOOLS LTD. 121 ITR 7 98 (KAR) (VI) UNIVERSAL PLAST LTD. V. CIT 237 ITR 454 (SC) (VII) KARNATAKA LIGHT METAL INDUSTRIES V. CIT 225 ITR 947 (KAR) - THE ASSESSEE HAD MADE NO ATTEMPT TO SELL AWAY THE P ROPERTY WOULD GO TO SHOW THAT IT WAS STRUGGLING TO SURVIVE BUT NO T TO DISCONTINUE THE BUSINESS; - THE AOS STAND WAS ERRONEOUS THAT THE AMOUNTS RECEI VED BY WAY OF INCOME FROM LICENSE FOR CURING COFFEE IN THE CURING SECTION AND ALSO THE OTHERS FOR USING THE WARE-HOUSING FOR STOR ING THEIR PRODUCTS WAS NOT ON COMMERCIAL BASIS; ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 14 OF 36 - THE ASSESSEE HAD NOT GIVEN THEM EXCLUSIVE POSSESSIO N AND IT WAS A MERE CASE OF LICENSE; - THE MERE CHANGE WAS THAT EARLIER, THE INCOME FROM T HE COFFEE CURING WORKS AND ASSETS WAS BEING RECEIVED FROM COF FEE BOARD AND NOW IT WAS BEING RECEIVED FROM SEVERAL PERSONS WHICH DOES NOT CHANGE THE CHARACTER OF THE INCOME SO RECEIVED - WHEN THE COFFEE BOARD WAS IN HELM OF COFFEE CURING BUSINESS, IT HAD REQUIRED THE GO-DOWNS FOR WARE-HOUSING THE COFF EE SEEDS FOR CURING AND STORING. THUS, EXTENDING THE WARE-HOUSI NG OR STORING FACILITIES WAS PART OF THE ASSESSEES ACTIVITIES DU RING THE AGENCY BUSINESS AND THE INCOME RECEIVED BY WAY OF WAREHOU SING CHARGES FROM OTHERS WAS BUSINESS INCOME ONLY AND NOT INCOME FROM LETTING OUT OF THE PROPERTY LIABLE FOR ASSESSMENT UNDER H OUSE PROPERTY; - WAREHOUSING FACILITY WAS A BUSINESS INCOME WHICH WA S LIABLE TO BE TAXED FOR WHICH TDS WAS TO BE MADE AND, ACCORDINGLY , THE AO HAD GRANTED CERTIFICATE U/S 197(1) OF THE ACT DT.7.7.20 03 FOR THE AYS 2002-03 TO 2005-06 AND 2007-08 AND IT WAS ONLY AFTE R THE INTRODUCTION OF S.194-I OF THE ACT, WARE-HOUSING CH ARGES WAS ALSO BROUGHT U/S 194-I OF THE ACT; - THERE WERE NO ADDITIONS TO THE EXISTING PREMISES TO DERIVE ANY FURTHER INCOME BY WAY OF RENT AND, THUS, WHAT WAS B EING RECEIVED DURING THE ASSESSMENT YEARS UNDER CHALLENGE WAS IN SUBSTITUTION TO WHAT WAS RECEIVED FROM THE COFFEE BOARD AS AGENCY C OMMISSION WHICH WAS NOTHING BUT BY WAY OF EXPLOITING THE VERY SAME UNDERTAKING IN A DIFFERENT MANNER. THEREFORE, THER E WAS ONLY A SINGLE BUSINESS CARRIED ON FROM THE UNDERTAKING AND ALL THE RECEIPTS BY WAY OF WAREHOUSING CHARGES ETC., CONSTI TUTED A SINGLE BUSINESS; - AY 2006-07 : BY BIFURCATING THE INCOME UNDER VARIOUS HEADS, TH E AO HAD NOT ALLOWED THE BAD DEBTS OF RS.15,14,758/- WRITTEN OFF IN RESPECT OF WHICH DETAILS HAVE BEEN FURNISHED TO THE AO; RELIES ON CASE LAW: TRF LTD 35 ITR 156 (SC) - NO BENEFIT OF CARRIED FORWARD LOSSES WAS ALLOWED ON THE GROUND THAT THE INCOME FROM THE COMMERCIAL ASSETS REQUIRED TO BE ASSESSED UNDER THE HEAD OTHER THAN BUSINESS EIT HER OTHER SOURCES OR HOUSE PROPERTY - INCOME FROM THESE COMMERCIAL ASSETS OF THE UNDERTAK ING WAS LIABLE TO BE ASSESSEE UNDER THE HEAD BUSINESS ONL Y AND IF FOR ANY REASON THE SAME HAS TO BE ASSESSEE UNDER DIFFERENT HEADS, NAMELY, ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 15 OF 36 HOUSE PROPERTY OR OTHER SOURCES, SUCH INCOME ST ILL CONSTITUTE INCOME FROM BUSINESS THOUGH ASSESSABLE UNDER DIFF ERENT HEADS AND UNDER SUCH CIRCUMSTANCES, THE CARRY FORWARD LOS S CANNOT BE DENIED RELIES ON CASE LAW: (A) WESTERN STATE TRADING COMPANY 80 ITR 24 (SC) (B) KOKANADA RADHASAMI BANK 57 ITR 306 (SC) (C) CIT V. RAMANATH GOENKA 259 ITR 26 (MAD) (D) ORIENTAL HOSPITALS LIMITED 315 ITR 422 (MAD) - AYS. 2002-03 TO 2005-06 & 2007-0 8: THE RE-OPENING OF THE ASSESSMENTS WAS SUBSEQUENT TO THE AOS ERRONEOUS PE RCEPTION FOR THE AY 2006-07 THAT THE ASSESSEES INCOME REQUIRED TO BE C HARGED UNDER DIFFERENT HEADS NOT UNDER THE HEAD BUSINESS AND, THUS, THE R EOPENING WAS PLAINLY ON A CHANGE OF OPINION FROM THE EA RLIER YEARS; RELIES ON RADHASOAMI SATSANG 193 ITR 321 (SC) - AFTER THE TERMINATION OF AGENCY WITH THE COFFEE BOA RD IN THE YEAR 1995-96, THE ASSESSEE HAD FURNISHED ITS RETURNS, CO MPUTING ITS INCOME UNDER THE HEAD BUSINESS AND CLAIMING CARRY FORWARD LOSSES ETC., WHICH WERE ACCEPTED BY THE REVENUE, TH OUGH NOT UNDER SCRUTINY ASSESSMENTS. FOR THE AY 1995-96, THE ASSE SSMENT WAS CONCLUDED AFTER SCRUTINY PROCEEDINGS AND, THUS, THE REVENUE WAS WELL AWARE OF THE TERMINATION OF THE AGENCY WITH CO FFEE BOARD; - HOWEVER, THERE WAS A CHANGE IN THE STAND OF THE BAS IC FACTS DURING THE ASSESSMENT PROCEEDINGS FOR THE AY 2006-07 AND, CONSEQUENTLY, ASSESSMENTS FOR EARLIER AYS UNDER DIS PUTE WERE REOPENED NOT BECAUSE OF ANY TANGIBLE MATERIALS THAT INCOME HAD ESCAPED ASSESSMENTS; - THE REASONING OF THE AO WAS THAT THE APPELLANT HAD NOT REPORTED THE INCOME UNDER THE HEAD HOUSE PROPERTY WHEREAS SUCH INCOME WAS REPORTED UNDER THE HEAD BUSINESS. AS SUCH, THERE WAS NO QUESTION OF ESCAPEMENT OF ANY INCOME LIABLE FOR ASS ESSMENT FOR A PARTICULAR YEAR WHICH WAS ABSOLUTELY NECESSARY FOR A VALID REOPENING. IT WAS NOT THE CASE OF THE AO THAT SUCH RECEIPTS WERE NOT REPORTED TO CONSTITUTE ESCAPEMENT AND, THEREF ORE, ON THE BASIS OF THE REASONS RECORDED, THE REASSESSMENTS WE RE NOT SUSTAINABLE RELIES ON THE CASE LAWS : (A) CIT V. K.ADINARAYANA MURTHY 65 ITR 607 (B) CIT V. K.L.VENUGOPAL 162 ITR 551 (KAR) ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 16 OF 36 (C) ABDUL SATTAR M.MOKASHI 174 ITR 368 (KAR) (D) B.B.BIDDAPPA V. DCIT 85 ITR 947 (KAR) (E) KARNATAKA METAL INDUSTRIES PVT. LTD. V CIT 225 ITR 947 (KAR). 8.1. ON THE OTHER HAND, THE LD. D.R WAS VERY FORCE FUL IN REBUTTING THE CONTENTIONS PUT FORTH BY THE RIVAL PARTY. THE SUBMISSIONS OF THE LD. D.R, FOR THE SAKE OF CLARITY AND PROPER APPRECIATION OF FACTS, ARE SUMMARIZED AS BELOW: WITH REGARD TO THE STATUS OF THE ASSESSEE : - THERE WERE TWO REGISTERED PARTNERSHIP DEEDS WHICH QUALIFIES THE REQUIREMENTS OF S.184(1) OF THE ACT THAT - (A) A FIRM SHALL BE ASSESSED AS A FIRM FOR THE PURP OSES OF THE ACT, IF (I) THE PARTNERSHIP IS EVIDENCED BY AN INSTRU MENT; AND (II) THE INDIVIDUAL SHARES OF THE PARTNERS ARE SPECIFIED IN THAT INSTRUMENT; - THE ASSESSEE HAD FILED ITS RETURN OF INCOME QUOTI NG THE PAN REQUIRED FOR PROCESSING THE RETURN U/S 143(1) OF THE ACT WHICH W AS ALLOTTED IN THE NAME OF THE FIRM; - IT HAD FURNISHED ITS RETURN FOR THE AY 95-96 STAT ING THAT THERE WAS NO CHANGE IN THE CONSTITUTION OF THE FIRM OR REMUNERAT ION AND INTEREST PAYABLE TO THE PARTNERS. THE ASSESSMENT FOR 1993-94 WAS MADE U/S 143(1)(A) D ATED: 23.2.1994 ON THE BASIS OF DEED OF PARTNERSHIP DT.1. 2.1991. HENCE, NO SEPARATE DEED OF PARTNERSHIP WAS ENCLOSED AS PER S. 184(3) OF THE ACT WHICH SATISFIES THE CONDITIONS OF S.184(3) FOR THAT YEAR; - FURNISHED ITS RETURN OF INCOME FOR AY 1996-97 STATI NG THAT AS THE FIRM HAS NOT COMPLIED WITH THE REQUIREMENTS OF S.184 OF THE I.T .ACT FOR THE PURPOSES OF TAXATION, THE STATUS WILL BE AOP , DESPITE THE FACT THAT THE PAN QUOTED WAS THAT ALLOTTED TO FIRM; - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT W AS NOTICED THAT A NEW PARTNERSHIP DEED WAS AVAILABLE DT.1.8.1995 WHICH AL SO MEANS THAT FOR THE PERIOD 1.4.95 TO 31.7.95, THE PARTNERSHIP DEED IN O PERATION PERTAINED TO THE PARTNERSHIP DEED DT.1.2.1991; - AS PER S.184 (3) THE REQUIREMENT WAS THAT WHERE A FIRM IS ASSESSED AS SUCH FOR ANY ASSESSMENT YEAR, IT SHALL BE ASSESSED IN TH E SAME CAPACITY FOR EVERY SUBSEQUENT YEAR, THERE IS NO CHANGE IN THE CONSTITU TION OF THE FIRM OR THE SHARE OF THE PARTNERS AS EVIDENCE BY THE INSTRUMENT OF PARTNERSHIP ON THE BASIS OF WHICH THE ASSESSMENT AS A FIRM WAS FIRST S OUGHT WHICH MEANS THAT ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 17 OF 36 FOR THE FOUR MONTHS OF THE YEAR, RELIANCE COULD BE PLACED ON THE PARTNERSHIP DEED OF 1991 WHICH THE ASSESSEE NEED NOT HAVE FILED AS PER THE PROVISIONS OF S.184(3) OF THE ACT; - THE QUESTION IS (I) WHAT IS THE LEGAL STATUS OF THE ASSESSEE GIV EN THE FACT THAT A VALID REGISTERED PARTNERSHIP DEED WAS AVAILABLE AND PAN QUOT ED WAS THAT OF THE FIRM? (II) WHETHER MERE WRITING IN THE RETURN THAT AS THE FIRM HAS NOT COMPLIED WITH THE REQUIREMENTS OF S.184 OF THE ACT FOR THE P URPOSES OF TAXATION, THE STATUS WILL BE AOP WOULD RELIEVE THE FIRM OF THE LIABILITY OF BEING TR EATED AS SUCH? - THE ASSESSEE IN ITS LETTER DT.26.11.2008 HAD STAT ED THAT IT WAS A PARTNERSHIP FIRM AND ALSO PROVIDED A COPY OF THE DEED OF PARTNE RSHIP ENTERED INTO ON 1.8.1995 AND THAT IN THE RETURN OF INCOME, IT HAD D ECLARED ITS STATUS AS AOP; - WHEN THE ALPHANUMERIC SYSTEM OF ALLOTMENT OF PAN WAS INTRODUCED, THE ASSESSEE HAD APPLIED FOR PAN AS A FIRM WHICH WAS GE NERATED ON 10.12.1999 IN THE STATUS OF FIRM; - AS PER THE CLAUSE 6 OF THE DEED OF PARTNERSHIP CI TED SUPRA, THE PARTNERSHIP WAS TERMINABLE AT WILL AND, FURTHER, AS PER CLAUSE 23 OF THE SAID DEED, THE PROVISIONS OF THE INDIAN PARTNERSHIP ACT, 1932 WERE APPLICABLE ON THE PARTNERS; - OBSERVATIONS OF THE CIT(A): THE ASSESSEE FIRM WAS CONSTITUTED UNDER A PARTNERSHIP DEED DT.1.8.1995 WHICH SETS OUT THE SHA RE OF INCOME OF ITS PARTNERS; THAT THE INCOME OF THE FIRM WAS CHARGEABL E TO TAX UNDER HEAD BUSINESS INCOME, HOUSE PROPERTY AND OTHER SOURC ES; AND THAT IN VIEW OF THE MATTER, THE ASSESSEE WAS A PARTNERSHIP FIRM [DU LICHAND LAXMINARAYANA V. CIT 29 ITR 535 (SC)] IN ORDER TO ATTRACT S.26 OF THE ACT, THE PROPERTY MUST BE OWNED BY TWO OR MORE PERSONS AND THEIR RESPECTIV E SHARES MUST BE DEFINITE AND ASCERTAINABLE AND THAT THE PARTNERS CA NNOT BE SAID TO HAVE DEFINITE AND ASCERTAINABLE SHARE TO THE PROPERTIES OF THE FIRM [156 ITR 509 (SC) AIR 966 SC 1300 IN ADDANKI NARAYANAPPA V. BHAS KARA KRISHNAPPA. HENCE, THE ASSESSEE HAS TO BE ASSESSED AS PARTNERSH IP FIRM; & - IN VIEW OF THE JUDICIAL PRONOUNCEMENTS AND FACTUA L POSITION ON THE ISSUE, THE ASSESSEES STATUS SHOULD BE TREATED AS FIRM. RELIES ON THE CASE LAW: MUNILAL SHIVNARAIN KOTHARI V CIT (1984) 149 ITR 567 (RAJ) ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 18 OF 36 9. WE HAVE DECISIVELY CONSIDERED THE RIVAL SUBMISS IONS, DILIGENTLY PERUSED THE RELEVANT RECORDS AND ALSO VO LUMINOUS PAPER BOOKS - VOLUMES I, II, III, IV & V - FURNISHED BY THE LD. A R DURING THE COURSE HEARING. 9.1. AS THE ASSESSEE HAS RAISED VARIOUS GROUNDS, F OR THE SAKE OF CLARITY, THEY ARE DEALT WITH CHRONOLOGICALLY, IN AS SESSMENT YEARS WISE, AS UNDER: A.YS. 2002-03, 03-04, 04-05, 05-06 & 07-08 : RE-OPENING OF ASSESSMENTS AND CONCLUSION OF REASSES SMENT PROCEEDINGS : (I) WE HAVE DULY CONSIDERED THE SPIRITED ARGUME NTS PUT-FORTH BY THE LD. A.R. THE ESSENCE OF THE CONTENTIONS OF THE ASS ESSEE WAS THAT THERE WAS A CHANGE IN THE STAND, STANCE AND PERCEPTION O F BASIC FACTS WHEN THE ASSESSMENT WAS TAKEN UP FOR SCRUTINY FOR THE AY 200 6-07 AND CONSEQUENT OF THIS CHANGE, ASSESSMENTS FOR THE AYS UNDER DISPU TE [EXCEPT FOR THE AY 06-07] WERE REOPENED AND NOT ON ACCOUNT OF ANY TANG IBLE MATERIALS TO FORM A BELIEF THAT INCOME HAD ESCAPED ASSESSMENTS. (II) ON A GLIMPSE OF THE REASONS RECORDED FOR RE OPENING OF ASSESSMENTS, IT WAS SEEN THAT THE ASSESSEE HAD NOT SHOWN ANY INCOME FROM HOUSE PROPERTY, HOWEVER, DISCLOSED INCOME UNDE R THE HEAD BUSINESS AND SET OFF OF BUSINESS LOSS OF EARLIER ASSESSMENT YEARS WHICH HAVE RESULTED IN NIL TAXABLE INCOME. THE ASSESSEE HAD ALSO PROVIDED DETAILS OF UNABSORBED BUSINESS AND DEPRECIATION LOSSES TO BE C ARRIED FORWARD ETC. IN VIEW OF THE ABOVE FACTS, ACCORDING TO THE AO, THE A SSESSEE HAD NOT ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 19 OF 36 DECLARED ANY INCOME FROM HOUSE PROPERTY, BUT, ADM ITTED ONLY BUSINESS INCOME AFTER CLAIMING ALL DEDUCTIONS AND IN THE LIG HT OF THE FINDINGS FOR THE AY 2006-07, HE HAD REASON TO BELIEVE THAT INCOME CH ARGEABLE TO TAX FOR THE AYS UNDER DISPUTE ESCAPED ASSESSMENT. LET US HAVE A GLANCE AT WHAT S.147 OF THE ACT SAYS . 147. IF THE ASSESSING OFFICER HAS REASON TO BELIEV E THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY AS SESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 T O 153, ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHAR GEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTED THE LOSS OR THE DEPRECIATION ALLOWANCE O R ANY OTHER ALLOWANCE, AS THE CASE MAY BE, FOR THE ASSESSMENT Y EAR CONCERNED.. (III) ACCORDING TO THE AO, HE HAD REASON TO BELIE VE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT AND AS PER S.147 OF THE ACT , IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT AN Y INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR REASSE SS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPE D ASSESSMENT. AND, THUS, THE AO, WE ARE OF THE FIRM VIEW, WAS WIT HIN HIS REALM TO ASSUME THE JURISDICTION U/S 148 OF THE ACT AND THE REASSES SMENTS CONCLUDED WERE WITHIN THE PARAMETERS OF THE ACT. AS RIGHTLY HIGHL IGHTED BY THE LD. CIT (A), IN TERMS OF CLAUSE (C) OF EXPLANATION 2 OF S.147 OF THE ACT, WHERE AN ASSESSMENT HAS BEEN MADE, BUT, (I) INCOME CHARGEABLE TO TAX HAS BEEN UNDER-ASSESSED, OR (II) SUCH INCOME HAS BEEN ASSESS ED AT TOO LOW A RATE; OR (III) SUCH INCOME HAS BEEN MADE THE SUBJECT OF E XCESSIVE RELIEF UNDER ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 20 OF 36 THIS ACT; OR (IV) EXCESSIVE LOSS OR DEPRECIATION AL LOWANCE OR ANY OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED, THE CASE WAS DEEMED TO BE ONE WHERE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSE SSMENT. (IV) CONSIDERING THE FACTS OF THE ISSUE AS DELIB ERATED UPON IN THE FORE-GOING PARAGRAPH, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS JUSTIFIED IN RE-OPENING THE ASSESSMENTS UNDER CHALL ENGE U/S 147 OF THE ACT BY ISSUANCE OF NOTICES U/S 148 OF THE ACT. IT IS O RDERED ACCORDINGLY. 9.2. WE SHALL NOW PROCEED TO DEAL WITH THE ISSUES RAISED BY THE ASSESSEE ON MERITS. STATUS : THE ASSESSEES ARGUMENT, IN BRIEF, WAS THAT IT WAS A PARTNERSHIP FIRM WHICH CONTINUED TO CARRY ON ITS BUSINESS COF FEE CURING WORKS KNOWN AS HIGHLAND COFFEE CURING WORKS WAS LIABLE TO BE ASSESSED IN THE STATUS OF AOP IN VIEW OF THE MANDATORY PROVISIONS OF S.1 85 OF THE ACT IN AS MUCH AS IT HAD NOT COMPLIED WITH THE TERMS OF S.184 OF T HE ACT. THEREFORE, THE ASSESSEE THOUGH CONSTITUTED AND GOVERNED BY A VALID INSTRUMENT OF PARTNERSHIP WAS LIABLE TO BE ASSESSED AS AN AOP I N TERMS OF S. 185 OF THE ACT. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS AND ALSO REASONING OF THE AO AS RECORDED IN HIS IMPUGNED ORDERS WHICH ARE UNDER CHALLENGE TO TREAT THE ASSESSEE AS A FIRM. DURING THE COURSE HEARING, THE LD. D R WAS VEHEMENT IN HER URGE THAT THE LEGAL STATUS OF THE A SSESSEE, ACCORDING TO ITS REGISTERED PARTNERSHIP DEED AND ALSO ONE THE BASIS OF POSSESSION OF PAN WHEREIN THE ASSESSEE WAS QUOTED AS FIRM. MERE WRIT ING IN THE RETURN OF ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 21 OF 36 INCOME THAT AS THE FIRM HAD NOT COMPLIED WITH THE REQUIREMENTS OF S. 184 OF THE ACT FOR THE PURPOSES OF TAXATION OF THE STATUS WILL BE AOP WOULD RELIEVE THE FIRM OF THE LIABILITY OF BEING TREATED AS SUCH. AS A MATTER OF FACT, THE ASSESSEE , ACCORDING TO THE AO, VIDE ITS LETTER DATED: 26.11.2008 HAD ADMITTED THAT IT WAS A PARTNERSHIP FIRM AND ALSO PROVIDED A COPY OF DEED OF PARTNERSHIP ENTERED INTO ON 1.8.1995. THE PARTNERSHIP DEED SETS OUT THE SHARE OF INCOME OF VA RIOUS PARTNERS. HOWEVER, THE ASSESSEE IN ITS RETURN HAD DECLARED IT S STATUS AS AOP. FURTHERMORE, WHILE ARGUING HIS C ASE DURING THE COURSE OF HEARING BEFORE THIS BENCH, THE LD. A R ADMITTED THA T THE ASSESSEE WAS NOT SERIOUS AND OF NO SERIOUS MATERIAL CONSEQUENCE ABOU T THE AO ASSESSING THE ASSESSEE IN THE STATUS OF FIRM, HOWEVER, HIS INSISTENCE WAS THAT THE STAND OF THE AO IN TREATING THE ASSESSEE AS A FIRM WAS CONTRARY TO THE PROVISIONS OF S.185 OF THE ACT. WE HAVE DULY PERUSED THE CASE LAWS ON WHICH THE AS SESSEE HAD PLACED ITS STRONG RELIANCE TO DRIVE HOME ITS POINT, THE DETAILS OF WHICH ARE AS UNDER: (I) CIT, ANDHRA PRADESH V. K.ADINARAYANA MURTHY 65 IT R 607 (SC) : THE ISSUE BEFORE THE HONBLE COURT, IN BRIEF, WAS T HAT THE ASSESSEE WAS A HUF AND SUBSEQUENT TO THE ORIGINAL ASSESSMENT, THE ITO HAD INFORMATION THAT THE ASSESSEE HAD DONE SOME PROCUREMENT BUSINES S AND EARNED LARGE PROFITS WHICH HAD ESCAPED ASSESSMENT FOR THE AY 194 9-50. SINCE THE ASSESSMENT AY 1954-55, THE ITO HAD TAKEN THE STATUS OF THE ASSESSEE TO ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 22 OF 36 BE THAT OF AN INDIVIDUAL, HE ISSUED A NOTICE U/S 34 OF THE ACT TO REOPEN THE ASSESSMENT FOR THE AY 49-50 IN THE STATUS OF AN IN DL TO MAKE THE REASSESSMENT IN THAT STATUS. THE ASSESSEE, HOWEVER , FILED A RETURN IN THE STATUS OF HUF. PENDING THE PROCEEDINGS, THE AAC IN AN APPEAL AGAINST THE ASSESSMENT FOR THE AY 1954-55 HELD THAT THE STATUS OF THE ASSESSEE WAS THAT OF A HUF. THEREAFTER, THE ITO ISSUED A FRESH NOTICE TO REASSESS THE INCOME OF THE ASSESSEE FOR THE AY 49-50 AS A HUF. THE QUESTION BEFORE THE HONBLE COURT WAS - WHETHER THE ASSESSMENT MADE PURSUANT TO THE SECOND NOTICE AND THE SECOND RETURN, IGNORING THE F IRST RETURN FILED PURSUANT TO THE FIRST NOTICE WAS VALID? AFTER ANALYZING THE PROS AND CONS OF THE ISSUE, THE HONBLE COURT RULED THAT THE SECOND NOTICE ISSUED WAS VALID AND THE RETURN FILED IN RESPONSE TO THAT NOTICE AND TH E ASSESSMENT THEREON WERE VALID. WITH DUE RESPECTS, WE WOULD LIKE TO POINT OUT THAT IN THE PRESENT CASE, THE NOTICES WERE ISSUED IN THE STATUS OF FIR M AND THE REASSESSMENTS IN QUESTION WERE CONCLUDED IN THE STATUS OF FIRM AND, THUS, THE RULING OF THE HONBLE SUPREME COURT CITED SUPRA RELIED ON BY THE ASSESSEE HAS NO RELEVANCE AND IS CLEARLY DISTINGUISHABLE. (II) CIT V. K.L.VENUGOPAL 162 ITR 551 (KAR) : THE ISSUE BEFORE THE JURISDICTIONAL COURT WAS THAT THE ASSESSEE WAS BEING ASSESSED AS AN INDIVIDUAL, FILED ITS RETURN IN THE STATUS OF A HUF, BUT, THE ITO REJECTED HIS CLAIM AND MADE THE ASSESSMENTS IN THE STATUS OF AN INDIVIDUAL AS IN THE PAST, ISSUED NOTICE U/S 148 O F THE ACT CALLING UPON THE ASSESSEE TO FURNISH RETURNS IN THE STATUS OF INDIV IDUAL. AS THERE WAS NO ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 23 OF 36 RESPONSE, THE AO INITIATED ACTION U/S 147(A) R.W. S EC. 144 AND CONCLUDED THE ASSESSMENT WHICH WAS AFFIRMED BY THE AAC ON APP EAL, BUT, DIRECTED THE AO TO ACCEPT THE FIGURES RETURNED BY THE ASSESS EE. ON AN APPEAL, THE TRIBUNAL HELD THAT SINCE THE ASSESSEE HAD ALL ALONG BEEN ASSESSED IN THE STATUS OF AN INDIVIDUAL, THE ASSESSEE TO KEEP HIS C LAIM IN REGARD TO THE STATUS ALIVE, CONTINUED TO FILE THE RETURNS IN THE STATUS OF HUF THAT THE ITO AS IN THE PAST SHOULD HAVE DETERMINED THE CORRECT S TATUS AS INDIVIDUAL AND COMPLETED THE ASSESSMENT, THAT IT WAS INCORRECT TO PRESUME THAT UNLESS AND UNTIL THE ASSESSEE FILED A RETURN IN THE STATUS AS DETERMINED BY THE ITO, IT AMOUNTED TO NON-COMPLIANCE WITH THE PROVISIONS OF S .139 AND, THEREFORE, SET ASIDE THE ORDER OF THE AAO. ON A REFERENCE, TH E HONBLE COURT HELD THAT SINCE NO RETURN WAS FILED BY THE ASSESSEE IN THE ST ATUS OF AN INDIVIDUAL IN RESPONSE TO THE NOTICE ISSUE BY THE ITO U/S 148, TH E ITO WAS JUSTIFIED IN PROCEEDING ON THE BASIS THAT NO RETURN WAS FILED BY THE ASSESSEE. WITH DUE RESPECTS, WE HAVE PERUSED THE RULING OF THE HONBLE COURT. IN THE PRESENT CASE, THE ASSESSEE WAS REQUI RED TO FURNISH HIS ITS RETURN IN THE STATUS OF FIRM AS IT WAS BEING ASSE SSED AS SUCH, IN STEAD, THE ASSESSEE CHOSE TO FURNISH ITS RETURN IN THE STATUS OF AOP IN COMPLIANCE TO THE NOTICE U/S 148 OF THE ACT WHEREAS THE ISSUE BEF ORE THE HONBLE COURT WAS THAT THE ASSESSEE WHO HAD BEEN ASSESSED AS AN INDIVIDUAL FILED A RETURN IN THE STATUS OF HUF, BUT, THE AO ISSUED A N OTICE U/S 148 OF THE ACT CALLING UPON THE ASSESSEE TO FURNISH HIS RETURN IN THE STATUS OF AN INDIVIDUAL. SINCE THE ISSUE BEFORE THE HONBLE C OURT WAS ON A DIFFERENT FOOTING, THE CASE LAW RELIED ON BY THE ASSESSEE HAS NO RELEVANCE. ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 24 OF 36 (III) ABDUL SATTAR M.MOKASHI V. CIT 174 ITR 368 (KAR) : THE ASSESSEE WAS CARRYING ON TRANSPORT BUSINESS. H IS STATEMENT BEFORE THE EXCISE AUTHORITIES THAT HE WAS THE REAL OWNER O F THE TRUCKS STANDING IN THE NAMES OF HIS BROTHERS WHICH FACT HAD NOT BEEN D ISCLOSED TO THE INCOME- TAX AUTHORITIES AND, HENCE, THE ITO STARTED REASSES SMENT PROCEEDINGS U/S 147(A) AND THE NOTICE ISSUED TO THE ASSESSEE WAS IN THE STATUS OF AN INDIVIDUAL AND REASSESSMENT PROCEEDINGS WERE COMPLE TED IN THE SAME STATUS. ON APPEAL, THE AAC HELD THAT THE BUSINESS JOINTLY ORGANIZED AND CONDUCED BY THE ASSESSEE AND HIS BROTHERS ATTRACTED ASSESSMENT IN THE STATUS OF AOP AND DIRECTED THE ITO TO CHANGE THE ST ATUS OF THE ASSESSEE AND THIS WAS CONFIRMED BY THE TRIBUNAL. ON A REFER ENCE, IT WAS HELD BY THE HONBLE COURT THAT (A) THAT IN VIEW OF THE STATEMENT MADE BY THE ASSESSEE BEFORE THE EXCISE AUTHORITIES, THE ITO WAS JUSTIFIED IN DRAWING THE I NFERENCE THAT THE TRUCKS STANDING IN THE NAMES OF THE ASSESSEES BRO THERS ACTUALLY BELONGED TO HIM AND THE INITIATION OF REASSESSMENT PROCEEDINGS WAS VALID; (B) THAT THE AAC AND THE TRIBUNAL HAD EXAMINED THE FACT S AND COME TO THE CONCLUSION THAT THERE EXISTED AN AOP CONSISTING OF THE ASSESSEE AND HIS BROTHERS. THE TRIBUNAL WAS JUSTIFIED IN LA W IN ARRIVING AT SUCH A CONCLUSION; (C) THAT HOWEVER, THE ITO HAD ISSUED THE NOTICE OF REAS SESSMENT TO THE ASSESSEE IN THE STATUS OF AN INDIVIDUAL AND COMPLET ED THE REASSESSMENT IN THE SAME STATUS. THE ITO COULD NOT CHANGE THE STATUS OF THE ASSESSEE TO AOP AND THE AAC HAD NO JU RISDICTION TO DIRECT THE ITO TO CHANGE THE STATUS WITH HIGHEST REGARDS, WE HAVE DILIGENTLY PERUSED TH E VERDICT OF THE HONBLE COURT CITED SUPRA WHEREIN THE ISSUE BEFORE THE COURT WAS ENTIRELY DIFFERENT AS THE ASSESSEE WAS BEING ASSESSED IN THE STATUS OF AOP, BUT, THE AO STARTED REASSESSMENT PROCEEDINGS BY ISSUANCE OF NOTICE U/S 147(A) ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 25 OF 36 OF THE ACT IN THE STATUS OF INDIVIDUAL WHEREAS TH E ISSUE ON HAND, THE ASSESSEE WAS BEING ASSESSED IN THE STATUS OF FIRM AND THE NOTICES U/S 148 OF THE ACT WERE SLAPPED ON THE ASSESSEE IN THE STAT US OF FIRM AND, THUS, IN OUR CONSIDERED VIEW, THE ASSESSEE CANNOT SEEK SANCT UARY UNDER THIS CASE LAW TO GO SCOT-FREE. (IV) DAWOOD SONS V. ACIT (2010) 124 ITD 367 (C HENNAI) : DURING THE AY 2003-04, THERE WAS A RECONSTITUTION EFFECTED IN THE ASSESSEE FIRM AND THE ASSESSEE HAD NOT FILED A COPY OF THE REVISED DEED ALONG WITH THE RETURN. THE AO WAS OF THE OPIN ION THAT NON-FILING OF THE REVISED PARTNERSHIP DEED WOULD NOT MANDATORILY RESU LT IN ASSESSING THE ASSESSEE IN THE STATUS OF AOP AND HELD THAT THE REV ISED PARTNERSHIP DEED WAS DELIBERATELY NOT FILED BY THE ASSESSEE SO AS TO TAKE THE BENEFIT OF LESS TAX APPLICABLE TO AN AOP WHICH WAS CONFIRMED BY THE CIT (A) ON THE GROUND THAT THE ASSESSEE HAD FILED ITS RETURN IN TH E STATUS OF A FIRM. ON AN APPEAL, IT WAS HELD BY THE HONBLE TRIBUNAL THAT THE STATUTORY PROVISIONS REGARDING THE ASSESSMENT OF A FIRM MAKE IT CLEAR THAT THE FIRST CONDITION IS THAT AN ASSESSEE SEEKIN G THE STATUS OF A FIRM IS TO ESTABLISH THAT THE PARTNERSHIP IS EVIDENCED BY AN I NSTRUMENT AND INDIVIDUAL SHARES OF PARTNERS ARE SPECIFIED IN THAT INSTRUMENT . ONCE THAT CONDITION IS SATISFIED, THE SECOND CONDITION IS THAT THE ASSESSE E SHALL FILE A CERTIFIED COPY OF INSTRUMENT OF PARTNERSHIP DEED BEFORE THE ASSESS ING AUTHORITY. BOTH THE ABOVE CONDITIONS ARE MANDATORILY TO BE SATISFIED BY AN ASSESSEE SEEKING STATUS OF A FIRM FOR THE PURPOSE OF AN ASSESSMENT. THE ABOVE PROVISIONS ARE EQUALLY APPLICABLE TO A CASE WHERE A CHANGE IN THE CONSTITUTION OF THE FIRM HAS TAKEN PLACE. SUB-SECTION (4) OF S.184 PROVIDES THAT WHEN THERE IS A CHANGE, THE ASSESSEE SHALL FURNISH A CERTIFIED COPY OF THE RECONSTITUTED INSTRUMENT OF PARTNERSHIP DEED ALONG WITH THE RETUR N AND ALL THE PROVISIONS OF SUB-SECTIONS (1) AND (2) SHALL APPLY. THEREFORE , IT IS CLEAR THAT WHEN THERE IS A CHANGE IN THE CONSTITUTION OF A FIRM, IT IS FOR THE ASSESSEE TO SEEK AGAIN STATUS OF A FIRM FOR THE PURPOSE OF AN ASSE SSMENT BY FILING A CERTIFIED COPY OF THE REVISED DEED OF PARTNERSHIP. IF SUB-SE CTION (4) IS NOT SATISFIED, THE SAME SHALL BE CONSTRUED AS NON-SATISFACTION OF SUB-SECTION (1) AND (2) OF S.184. THE RESULT IS THAT THE ASSESSEE GOES OUT O F THE PURVIEW OF S.184 AS FAR ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 26 OF 36 AS STATUS OF ASSESSMENT IS CONCERNED. IN SUCH CIRC UMSTANCES, THE LAW PROVIDES THAT S.185 SHALL OPERATE AND THE ASSESSEE SHALL BE ASSESSED IN THE STATUS OF AN AOP.. HOWEVER, IN THE PRESENT CASE, ACCORDING TO THE AO ( ON P.6 OF THE ASSESSMENT ORDER), THE ASSESSEE VIDE ITS LETTER DATED 21.12.2009 HAS REITERATED THE STAND TAKEN IN ITS SUBMISSION DATED: 26.11.2008 FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASST. YEAR 2006-07 AND IN THAT IT HAS STATED THAT IT IS A PARTNERSHIP FIRM. IT HAD A LSO PROVIDED A COPY OF THE DEED OF PARTNERSHIP ENTERED INTO ON THE 1 ST DAY OF AUGUST, 1995. HOWEVER, IN THE RETURN OF INCOME THE ASSESSEE HAS D ECLARED ITS STATUS AS AN AOP..AS PER THE CLAUSE 6 OF THE DEED OF PARTN ERSHIP ENTERED INTO ON 1.8.1995 THE PARTNERSHIP IS TERMINABLE AT WILL. FURTHER, AS PER THE CLAUSE 23 OF THE SAID DEED THE PROVISIONS OF THE IN DIAN PARTNERSHIP ACT, 1932, ARE APPLICABLE ON THE PARTNERS. WHILE AFFIRMING THE STAND OF THE AO, THE LD. CIT (A) WENT ON FURTHER TO ADD THAT THE ASSESSEE HAD APPLIED FOR A PAN IN THE STATUS OF FIRM AND THE PAN ALLOTTED TO IT WAS UNDER THE STATUS OF A FIRM. THE ASSESSEE HAD PROVIDED A COPY OF THE PARTNERSHIP DEED DATED: 1.8.1995 AND AS PER CLAUSE 6 OF THE DEED OF PARTNERSHIP ENTERED INTO THE PARTNER SHIP IS TERMINABLE AT WILL. FURTHER, AS PER THE CLAUSE 23 OF THE SAID DEED THE PROVISIONS OF THE INDIAN PARTNERSHIP ACT, 1932, ARE APPLICABLE ON THE PARTNERS. THE DEED ALSO SETS OUT THE SHARES OF VAR IOUS PARTNERS IN THE INCOME OF THE FIRM. TAKING CUE FROM THE RULING OF THE HONBLE SUPREME COURT IN THE CASE OF DULICHAND LAXMINARAYAN V. CIT (1956) 29 ITR 535 (SC), THE CIT (A) SUSTAINED THE STAND OF THE AO ON THIS ISSUE. ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 27 OF 36 IN VIEW OF THE ABOVE FACTS, WE A RE OF THE CONSIDERED VIEW THAT THE AO WAS JUSTIFIED IN TREATING THE ASSESSEES STA TUS THAT OF THE FIRM. IT IS ORDERED ACCORDINGLY. 9.3. WHETHER THE INCOME IS TO BE TREATED AS BUSINESS IN COME OR UNDER VARIOUS HEADS? BRIEFLY, UNTIL 1995, THE ASSESSEE WAS ENGAGED IN TH E BUSINESS OF COFFEE CURING AN AGENT OF COFFEE BOARD AND FOLL OWING DECONTROL OF COFFEE TRADE, THE COFFEE BOARD DISPENSED WITH THE B USINESS WITH THE ASSESSEE IN THAT YEAR AND CONSEQUENT OF WHICH, THE ASSESSEE HAD LET OUT ITS GO-DOWNS AND MACHINERIES TO OTHERS FOR STORAGE OF COMMERCIAL GOODS AND COFFEE CURING BY OTHERS ON JOB WORK BASIS AND C OLLECTED WARE-HOUSING CHARGES FROM THEM. HOWEVER, THE AO TOOK A STAND TH AT THESE AMOUNTS RECEIVED AS RENT WERE CHARGEABLE TO INCOME-TAX UNDE R THE HEAD INCOME FROM HOUSE PROPERTY AND, ACCORDINGLY, RE-COMPUTED ITS INCOME FOR THE REASONS SET-OUT IN HIS IMPUGNED ORDERS WHICH ARE UN DER CHALLENGE. AFTER EXAMINING THE AGREEMENTS ENTERED INTO BY THE ASSESS EE WITH WHOM IT HAD LET-OUT ITS GO-DOWNS ETC., THE AO ARRIVED AT A CONC LUSION THAT THE ASSESSEE WAS NOT IN ANY WAY INVOLVED IN THE TENANTS DAY-TO- DAY BUSINESS ACTIVITIES, THE ASSETS LEASED OUT HAD LOST THEIR COMMERCIAL CHA RACTERS. HOWEVER, THE CONTENTIONS OF THE ASSESSEE WAS THAT AS AN AGENT OF COFFEE BOARD IT HAD TO DISTRIBUTE FUNDS TO THE PLAN TERS WHO DELIVERED COFFEE FOR CURING ON BEHALF OF THE BOARD FOR WHICH PAYMENT S USED TO BE MADE BY THE BOARD TO THE ASSESSEE AND, THUS, THE ASSESSEE W AS CONSTANT TOUCH WITH THE PLANTERS. THE ASSESSEE HAD TO MAKE ESTATE SUPP LIES LIKE MANURE TO THE ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 28 OF 36 PLANTS AND ALSO DERIVED INTEREST FOR HAVING ADVANCE D FUNDS AND, THUS, THE ASSESSEE WAS DERIVING INCOME BY WAY OF RECEIPT OF INTEREST WHICH WAS A BUSINESS CARRIED ON BY IT. APART FROM ESTABLISHING A WEIGH BRIDGE FOR WEIGHING THE COFFEE LOADS WHEREBY IN RECEIPT OF INC OME BY WAY OF WEIGH BRIDGE COLLECTIONS, BESIDES ESTABLISHING OF TELEPHO NE [BOOTH] FACILITY, XEROX ETC. ALL THESE INCOME EARNING ACTIVITIES WERE SO ME RGED WITH ONE ANOTHER THAT IT WAS A SINGLE INTEGRATED BUSINESS; THAT COMM ON BOOKS OF ACCOUNTS WERE MAINTAINED AND THERE HAS BEEN CONNECTING AND INTERVENING OF THE FUNDS WHICH WERE CONTROLLED AND MANAGED BY THE FIRM . THUS, ALL THESE EARNING ACTIVITIES, AS CONTENDED BY THE ASSESSEE, C ONSTITUTED A SINGLE BUSINESS AND THESE WERE NOT DIFFERENT BUSINESSES A ND INCOME FROM ALL THESE ACTIVITIES WAS TO BE ASSESSED UNDER THE HEAD BUSINESS AND NO PART OF IT WAS TO BE ASSESSED UNDER THE HEAD HOUSE PROP ERTY. AS COULD BE SEEN FROM THE IMPUGNED ASSES SMENT ORDERS FOR THE ASSESSMENT YEARS UNDER DISPUTE, THE AO ASSESSED THE INCOME FROM WEIGH- BRIDGE COLLECTIONS, MONEY LENDING ETC. AS BUSINESS INCOME, HOWEVER, THE CHARGES RECEIVED FROM WARE-HOUSING UNDER THE HEAD OTHER SOURCES WHICH GOES TO PROVE THAT THERE HAS BEEN NO DISCONTINUANCE OF BUSINESS TO DENY THE LEGITIMATE CLAIM OF THE ASSESSEE TO SET OFF OF CARRIED FORWARD LOSSES; AS ADMITTED BY THE ASSESSEE, DUE TO DECO NTROL OF COFFEE, THE AGENCY BUSINESS OF THE ASSESSEE WITH THE COFFEE BOARD CAME TO AN END WHEREBY THE ASSESSEE COULD NOT RUN CURING WORKS ON ITS OWN DUE TO PAUCITY OF FUNDS. THOUGH THE ASSESSEE HAD NOT CONTINUED THE BUSINESS OF CURING ON ITS OWN AS IT DID WHEN IT WAS TAGGED WITH THE COFFEE BOARD, HOWEVER, PERMITTED ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 29 OF 36 OTHERS LIKE LONGWAY TRADE-LINKS TO CURE COFFEE IN I TS PREMISES FOR A CONSIDERATION. THE OTHER PORTIONS OF THE ASSESSEE WHICH WERE USED AS WAREHOUSES GIVEN ON LICENSE BASIS TO OTHERS FOR STO RING THEIR MATERIALS AND THE ASSESSEE WAS GETTING INCOME FROM SUCH WAREHOUSI NG ACTIVITY. ACCORDING TO THE ASSESSEE, IT HAD NOT ENTERED INTO ANY TENANCY WHICH MAY COME IN ITS WAY TO RESUME ITS EARLIER COFFEE CURING BUSINESS ON ITS OWN IN FUTURE AND, THUS, NO TENANCY WAS GIVEN AND, THUS, THE POSSESSION OF THE GO-DOWNS WERE WITH THE ASSESSEE AND ONLY LICENSES G RANTED FOR STORING THEIR MATERIALS. ON A CRITICAL ANALYZE OF THE ASSESSEES ARGUMENT, WE FIND THERE IS FORCE IN ITS CONTENTION THAT THE BUSINESS ACTIVITY OF EXPLOITING THE PREMISES CONTINUED IN THE NATURE OF EXTENDING WAREHOUSING FA CILITIES WHICH THE ASSESSEE WAS EXTENDING TO COFFEE BOARD EARLIER AND, THEREFORE, THE INCOME DERIVED BY THE ASSESSEE FROM WAREHOUSING ACTIVITY T O OTHERS ALSO HAS TO BE ASSESSED UNDER THE HEAD BUSINESS ALONG WITH THE M ONEY LENDING ACTIVITY, WEIGH-BRIDGE COLLECTIONS ETC., AS THE ASSETS CONTIN UED TO REMAIN AS BUSINESS ASSETS OF THE ASSESSEE. IT WAS AN UN-DENIABLE FACT THAT WHEN TH E COFFEE BOARD WAS AT HELM OF COFFEE CURING BUSINESS, IT HAD REQUIRED GO-DOWNS OF THE ASSESSEE FOR WARE-HOUSING THE COFFEE SEEDS FOR CURING AND STORIN G. THUS, EXTENDING THE WARE-HOUSING OR STORING FACILITIES WAS PART OF ITS ACTIVITIES DURING THE AGENCY BUSINESS AND THE INCOME RECEIVED BY WAY OF WAREHOU SING CHARGES FROM OTHERS TOO WAS BUSINESS INCOME ONLY AND LETTING OU T OF THE PROPERTY CANNOT ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 30 OF 36 BE LABELED AS LIABLE FOR ASSESSMENT UNDER HOUSE P ROPERTY AS DETERMINED BY THE REVENUE. A CLINCHING EVIDENCE WHICH WAS IN FAVO UR OF THE ASSESSEE THAT WAREHOUSING FACILITY WAS A BUSINESS INCOME WHICH WA S LIABLE TO BE TAXED FOR WHICH TDS REQUIRED TO BE MADE AND, ACCORDINGLY , THE AO HIMSELF HAD GRANTED A CERTIFICATE U/S 197(1) OF THE ACT DT.7.7. 2003 IN FORM NO.15AA TO PRAKASH ELECTRICAL CO. (P) LTD AUTHORIZING IT TO DE DUCT TAX AT THE RATE OF 1% FOR THE WAREHOUSING CHARGES PAYABLE TO THE ASSESSEE [SOURCE: P 102 OF PB AR]. FURTHER THE WAREHOUSING ACTIVITY BECAME A T AXABLE SERVICE UNDER SERVICE-TAX ACT AND THEREFORE, THE APPELLANT WAS OB LIGED TO OBTAIN LICENSE AND THE COPY OF THE LICENSE IS PLACED AT PAGE NO.27 OF THE PAPERBOOK. THUS, THE INCOME RECEIVED BY WAY OF WAREHOUSING CHA RGES FROM OTHERS IS BUSINESS INCOME ONLY AND NOT INCOME FROM LETTING OU T OF THE PROPERTY LIABLE FOR ASSESSMENT UNDER THE HEAD HOUSE PROPERTY. THE AO HAD NOT BROUGHT ANY DOCUMENTARY EVIDENCE TO THE EFFECT THAT THE ASSESSEE HAD MADE ADDITIONS TO THE EXISTIN G PREMISES TO DERIVE ANY FURTHER INCOME BY WAY OF RENT AND, THUS, WHAT W AS BEING RECEIVED DURING THE ASSESSMENT YEARS UNDER CHALLENGE WAS IN CHANGEOVER TO WHAT WAS RECEIVED FROM THE COFFEE BOARD AS AGENCY COMMIS SION WHICH IN OTHER WORDS BY WAY OF EXPLOITING THE VERY SAME UNDERTAKIN G IN A DIFFERENT MANNER. THEREFORE, THERE WAS ONLY A SINGLE BUSINES S CARRIED ON BY THE ASSESSEE AND ALL THE RECEIPTS BY WAY OF WAREHOUSING CHARGES ETC., CONSTITUTED A SINGLE BUSINESS ONLY. ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 31 OF 36 IT IS ALSO SEEN THAT THE EXPENSES IN CURRED, EMPLOYEES EMPLOYED, BOOKS OF ACCOUNTS MAINTAINED WERE COMMON AND, THUS, INCOME DERIVED FROM THIS BUSINESS HAS, NO DOUBT, TO BE ASSESSED AS BUSINESS INCOME ONLY. IN AN OVER ALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AS DELIBERATED UPON IN THE FORE-GOING PARAGRA PHS AND ALSO HAVING REGARD TO THE STAND OF THE AUTHORITIES BELOW, WE AR E OF THE CONSIDERED VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN TR EATING THE (I) INCOME RECEIVED FROM MACHINERIES AND GO-DOWNS AS INCOME FR OM HOUSE PROPERTY AND (II) INCOME FROM SERVICE CHARGES, INTEREST, MIS CELLANEOUS RECEIPTS ETC., AS INCOME FROM OTHER SOURCES. FURTHER, THE AO HAD RESORTED TO DISA LLOW THE EXPENSES CLAIMED IN THE P & L ACCOUNT, SUCH AS, ESTABLISHMENT EXPENSES, TRAVELING EXPENSES, SERVICE CHARGES, INSURANCE, REPAIRS AND MAINTENANCE , INTEREST PAID ETC., IT WAS CLAIMED DURING THE COURSE OF HEARING THAT THES E EXPENSES WERE SUPPORTED BY VOUCHERS WHICH HAD INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS ONLY. IN VIEW OF THE ABOVE, T HE AO IS DIRECTED TO LOOK INTO THIS ASPECT AND ALLOW THE CLAIM OF THE ASSESSE E WHICH WERE SUPPORTED BY VOUCHERS. AS THE ASSESSEES INCOME REQUIRES TO B E ASSESSED AS INCOME FROM BUSINESS, THE ASSESSEE IS ENTITLED TO THE FACILIT Y OF CARRY FORWARD OF EARLIER YEARS LOSSES. IN THIS CONNECTION, WE ARE DRAWING STRENGTH FROM THE RULING OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F KARNATAKA LIGHT METAL INDUSTRIES (PVT) LTD. V. CIT REPORTED IN (1997) 225 ITR 947 (KAR) WHEREIN THE HONBLE COURT HELD THAT IN ORDER TO GET THE BENEFIT OF SET OFF OR CARRY ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 32 OF 36 FORWARD OF BUSINESS LOSS OF EARLIER YEARS AGAINST T HE INCOME OF THE RELEVANT YEAR, THE BUSINESS MUST BE CARRIED ON AND SUCH BUSI NESS MUST BE OF SUCH NATURE WHICH HAS BEEN CARRIED ON BY THE ASSESSEE. IN THE CASE OF CIT V. RAMNATH GOE NKA REPORTED IN 259 ITR 27 (MAD), THE HONBLE MADRAS HIGH COURT, IN ITS WISDOM , HAD HELD THAT THE ADJUSTMENT OF THE CARRIED FORWARD LOSS UNDER THE 19 22 ACT AS ALSO UNDER THE 1961 ACT IS AGAINST THE PROFITS AND GAINS OF BUSINE SS OR PROFESSION. NEITHER ACT WHILE REFERRING TO THAT ADJUSTMENT REFERS TO TH E HEADS OF INCOME. THE AMOUNT OF DIVIDEND WOULD FORM PART OF THE INCOME FR OM THE BUSINESS OF THE ASSESSEE IF THE SHARES WERE A PART OF THE ASSESSEE S TRADING ASSET EVEN WHEN THE DIVIDEND RECEIVED ON THOSE SHARES HAD BEEN COMP UTED AS BEING PART OF THE ASSESSEES INCOME UNDER THE HEAD OTHER SOURCES . BUSINESS LOSS CARRIED FORWARD FROM EARLIER YEARS CAN BE SET OFF AGAINST T HE DIVIDEND INCOME DERIVED FROM SHARES HELD AS STOCK-IN-TRADE. IN A NUT-SHELL , THE INCOME OF THE ASSESSEE IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS ONLY IN STEAD OF BIFURCATING ITS INCOME UNDER VARIOUS HEADS AS DID BY THE AO IN HIS IMPUGNED ORDERS FOR ALL THE AYS UNDER CHALLENGE. WHILE DOING SO, THE AO SHALL ALLOW THE EXPENSES INCURRED BY THE ASSESSEE DURING THE COURSE OF EARNING ITS BUSINESS INCOME. IT IS ORDERED ACCORDINGLY. ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 33 OF 36 FURTHER, THE ASSESSEE HAD CLAIMED DEDUCTION FOR BAD DEBTS WRITTEN OFF WHICH HAVE BEEN DENIED BY THE REVENUE. THE DETAILS OF SUCH BAD DEBTS WRITTEN OFF [IN ASSESSMENT YEARS WISE] A RE AS UNDER: ASSESSMENT YEAR AMOUNT 2002-03 RS. 1,77,111 2003-04 RS. 41,363 2004-05 RS. 16,589 2005-06 RS. 69,045 2006-07 RS.15,25,758 AT THE OUT-SET, WE WOULD LIKE TO POINT OUT THAT ONC E THE ASSESSEE HAD WRITTEN OFF DEBTS AS IRRECOVERABLE IN ITS ACCOUNTS, THE ASS ESSEE NEED NOT BE REQUIRED TO PROVE THAT THEY HAVE BECOME BAD ETC., OUR VIEW IS IN CONSONANCE WITH THE VARIOUS JUDICIAL PRONOUNCEMENT S ON THE ISSUE, CHIEFLY - (I) IN THE CASE OF LAWLYS ENTERPRISES P. LT D. V. CIT REPORTED IN (2009) 314 ITR 297 (PATNA) THE HONBLE PATNA HIGH COURT WA S PLEASED TO OBSERVE THAT -, THE LAWS AS AMENDED WITH EFFECT FROM APRIL 1, 1989 , PERMITTED DEDUCTION OF THE AMOUNT OF ANY BAD DEBT OR PART THEREOF, WHICH W AS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR. THE ASSESSEE HAVING WRITTEN OFF THE AMOUNT AS IRRECOVER ABLE IN ITS ACCOUNTS FOR THE PREVIOUS YEAR WAS ENTITLED TO DEDUCTION OF THE AMOUNT OF THE BAD DEBT. . (II) THE HONBLE HIGH COURT OF HIMACHAL PRADESH I N THE CASE OF SURESH GAGGAL V. ITO REPORTED IN (2009) 222 CTR (HP) 96 HA D HELD THAT - ONCE THE ASSESSEE WRITES OFF THE DEBT AS IRRECOVERA BLE, HIS CLAIM FOR DEDUCTION CANNOT BE REJECTED ON THE GROUND THAT THE DEBT HAS NOT BEEN ESTABLISHED TO HAVE BECOME IRRECOVERABLE. THE AFOR ESAID POSITION IS ALSO SUPPORTED BY THE AMENDMENT MADE TO S.36(2) W.E.F. 1 ST APRIL, 1989 AND ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 34 OF 36 ANY DOUBT, IF REMAINING, HAS BEEN CLARIFIED BY CIRC ULAR NO.551 DATED: 23 RD JANUARY, 1990. (III) THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT V. STAR CHEMICALS (BOMBAY) P. LTD. REPORTED IN (2009) 313 ITR 126 (BO M), IN ITS WISDOM HAD HELD THAT UNDER SECTION 36(1)(VII) OF THE INCOME-TAX ACT, 196 1 AND CIRCULAR NO.551 DATED JANUARY, 23, 1990 IF THE ASSESSEE HAD WRITTEN OFF THE DEBT AS A BAD DEBT THAT WOULD SATISFY THE PURPOSE OF THE SECT ION. (IV) THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. V. CIT 323 ITR 397 (SC) HELD THAT FTER THE AMENDMENT OF SECTION 36(10(VII) OF THE IN COME- TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN O RDER TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE: IT IS ENO UGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. ACCORDINGLY, WE HOLD THAT THE BAD DEBTS WRITTEN OFF BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT SHALL BE ALLOWED AS A DEDUC TION. IT IS ORDERED ACCORDINGLY. A.Y. 2006-07 : 9.4. IN ITS ADDITIONAL GROUNDS, AS REFERRED AB OVE, THE ASSESSEE HAS RAISED THE ISSUE OF TREATING ITS STATUS AS FIRM I N STEAD OF AOP. WE HAVE SINCE DECIDED THE ISSUE AGAINST THE ASSESSEE FOR TH E REASONS RECORDED SUPRA; THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS DISMISSED. 9.5. THE FIRST GROUND OF THE ASSESSEE BEING TH AT THE AUTHORITIES BELOW FAILED TO RECOGNIZE THAT THE SAME BUSINESS ACTIVITY OF COFFEE CURING WAS ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 35 OF 36 CONTINUED DURING THE PREVIOUS YEAR AND THE INCOME F ROM SUCH ACTIVITY WAS TO BE ASSESSED UNDER THE HEAD BUSINESS AS AGAINST EITHER AS OTHER SOURCES OR HOUSE PROPERTY. THIS ISSUE HAS SINCE BEEN DECIDED IN FAVOUR OF THE ASSESSEE FOR THE REASONS RECORDED SUPRA FOR THE AYS 2002-03, 03- 04, 04-05, 05-06 & 07-08. AS THE ISSUE RAISED IS IDENTICAL TO THAT OF THE ISSUE FOR THE AYS REFERRED ABOVE, THE SAME FINDING HOLDS GOOD FOR THI S ASSESSMENT YEAR AS WELL. IT IS ORDERED ACCORDINGLY. 9.6. THE NEXT ISSUE RAISED WAS IN RESPECT OF TH E CARRIED FORWARD BUSINESS LOSS WAS REQUIRED TO BE ALLOWED TO SET OFF AGAINST SUCH INCOME. INCIDENTALLY, AN IDENTICAL ISSUE HAD CROPPED FOR TH E AYS CITED SUPRA WHICH WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE ABOVE F INDING HOLDS GOOD FOR THIS AY TOO. 9.7. WITH REGARD TO THE DISALLOWANCE OF THE EXPENSES CLAIMED SUCH AS TRAVELING EXPENSES, SERVICE CHARGES, REPAIR AND MAINTENANCE ETC., THE AO IS DIRECTED TO LOOK INTO THIS ASPECT AND ALLOW T HE CLAIM OF THE ASSESSEE WHEREVER THE CLAIMS WERE SUPPORTED BY VOUCHERS. 9.8. THE LAST GROUND OF THE ASSESSEE WAS THAT THE CIT(A) ERRED IN DIRECTING THE AO TO BIFURCATE THE INCOME UNDER THE HEAD BUSINESS IN THE EARLIER YEARS INTO HOUSE PROPERTY AND OTHER SOUR CES TO DENY SET OFF OF CARRY FORWARD OF BUSINESS LOSS. ITA NOS.116/B/10, 696 TO 700/B/10 PAGE 36 OF 36 THIS ISSUE HAS BECOME REDUNDANT SINCE WE H AVE DIRECTED THE AO TO TREAT THE INCOME OF THE ASSESSEE UNDER THE HEAD BU SINESS FOR THE REASONS RECORDED FOR THE AYS 2002-03, 03-04, 04-05, 05-06 A ND 07-08 (SUPRA). 10. IN THE RESULT : THE ASSESSEES APPEALS FOR THE AYS 2002-03, 2003- 04, 2004-05, 2005-06, 2006-07 AND 2007-08 ARE PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF NOVEMBER, 2010. SD/- SD/- ( A. MOHAN ALANKAMONY ) ( GEORGE GEORGE K. ) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE, DATED, THE 19 TH NOVEMBER, 2010. DS/- COPY TO: BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE. 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE