ITO, Chandigarh V. M/s Horological Component (P) Ltd., Chandigarh

ITA 709/CHANDI/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9839 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 06-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Business income; Depreciation; Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 709/CHD/2014 (ASSESSMENT YEAR: 2008-09) THE INCOME TAX OFFICER, VS. HOROLOGICAL COMPONEN T(P)LTD. WARD 4(3), SCO NO.196-197, SECTOR 34-A, CHANDIGARH. CHANDIGARH. PLOT NO.47, INDUSTRIAL AREA, SECTOR 1, PARWANOO, PAN NO. AAACH3607B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K.MITTAL, DR RESPONDENT BY : NONE DATE OF HEARING : 06.07.2015 DATE OF PRONOUNCEMENT : 07.07.2015 O R D E R PER H.L.KARWA, VP : THIS APPEAL FILED BY THE REVENUE IS DIRE CTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH DATED 1.5.2014 RELATING TO AS SESSMENT YEAR 2008-09. 2. GROUND NO.1 OF THE APPEAL IS GENERAL IN NATURE, AND HENCE NO FINDINGS ARE BEING GIVEN. 2 3. GROUND NOS.2 AND 3 OF THE APPEAL READ AS UNDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE C1T(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS. 14,13,478/- MADE BY THE AO U/S 40A(2) OF THE ACT WITHOUT GIVING ANY COGENT REASON FOR DOING SO AND ALSO WITHOUT CONSIDERING THE FACT THAT THE AO WHILE MAKING THE ASSESSMENT HAS ESTABLISHED THAT THE LABOUR AND PURCHASES WERE MADE FROM SISTER CONCERNS OPERATING FROM THE SAME PREMISES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE C1T (A) HAS ERRED IN RESTRICTING THE ADDITION OF RS. 14,13,478/- MADE BY THE AO U/S 40A(2) OF THE ACT BY ACCEPTING THE FRESH SUBMISSION/EVIDENCES OF THE ASSESSEE WITHOUT FOLLOWING THE PROCEDURE AS LAID DOWN IN RULE 46A OF THE INCOME TAX RULES, 1962, INTER ALIA, WITHOUT ALLOWING A REASONABLE OPPORTUNITY TO THE AO TO EXAMINE THOSE SUBMISSIONS AND EVIDENCES. 4. IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF LEARNED CIT (APPEALS) IN ALLOWING A RELIE F OF RS.10,77,304/-. THE ASSESSEE CLAIMED TO HAVE PAI D LABOUR CHARGES OF RS.15,83,355/- TO M/S CROWN INDUSTRIES. ACCORDING TO THE ASSESSING OFFICER, THE AFORESAID C ONCERN IS PROPRIETARY CONCERN OF SMT.MALIKA MALHOTRA, WIFE OF ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER OPINED THAT THE PAYMENT MADE TO M/S CROWN INDUSTRIE S WAS COVERED UNDER SECTION 40A(2) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSING OFFICER ALSO NOTI CED THAT THE ASSESSEE HAD DEBITED PURCHASES TO THE TUNE OF RS.19 ,50,339/- MADE FROM M/S SHARY ENTERPRISES, A PARTNERSHIP FIRM OF 3 SMT.RAJNI MALHOTRA AND SMT.MALIKA MALHOTRA, WIVES O F THE DIRECTORS OF ASSESSEE COMPANY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER DEPUT ED INCOME TAX INSPECTOR TO MAKE SPOT INQUIRIES. THE ASSESSI NG OFFICER ALSO RECORDED THE STATEMENT OF SHRI SANJEEV SHARMA, ACCOUNTS MANAGER OF ASSESSEE COMPANY AND CONCLUDED THAT THOU GH TDS HAD BEEN DEDUCTED FROM THE JOB WORK CHARGES AND CON CERNS HAD FILED THEIR RETURNS OF INCOME, THE EXPENDITURE BOOKED WAS EXCESSIVE UNDER SECTION 40A(2) OF THE ACT, AND SO H E DISALLOWED 40% OF LABOUR CHARGES PAID TO M/S CROWN INDUSTRIES AS WELL AS OF THE PURCHASES MADE FROM M/ S SHARY ENTERPRISES. CONSEQUENTLY, AN ADDITION OF RS.6,33 ,342/- WAS MADE ON ACCOUNT OF DISALLOWANCE OUT OF EXCESSIVE EX PENDITURE BOOKED IN THE NAME OF M/S CROWN INDUSTRIES. SIMI LARLY, AN ADDITION OF RS.7,80,136/- WAS MADE ON ACCOUNT OF DISALLOWANCE OUT OF EXCESSIVE EXPENDITURE BOOKED IN THE NAME OF M/S SHARY ENTERPRISES. THUS, THE ASSESSING OFF ICER DISALLOWED A SUM OF RS.14,13,478/- BY INVOKING PROV ISIONS OF SECTION 40A(2) OF THE ACT. 5. ON APPEAL, THE LEARNED CIT (APPEALS) ALLOWED PA RT RELIEF TO THE ASSESSEE, OBSERVING AS UNDER : 3.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUNSEL. IT APPEARS THAT NO ENQUIRIES WERE MADE BY THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEEDIN GS OF A.Y. 1998-99, AS WERE DONE DURING THE YEAR UNDER CONSIDER ATION AND SO THE DECISION OF HON'BLE TRIBUNAL IN A.Y. 1998-99 WILL NOT BE APPLICABLE TO THE YEAR IN QUESTION. IN THAT YEAR, THE H ON'BLE TRIBUNAL HAD DELETED THE ADDITION MADE OUT OF THE PA YMENTS TO M/S CROWN INDUSTRIES ON THE GROUND THAT IT WAS NOT TH E 4 ALLEGATION OF THE DEPARTMENT THAT EXCESS PAYMENT WA S MADE AND ADDITION COULD NOT BE MADE SIMPLY BECAUSE THE SAID INDUSTRY WAS LOCATED IN THE SAME PREMISES. 3.3.1 TO VERIFY THE AFFAIRS OF M/S CROWN INDUSTRI ES AND M/S SHARY ENTERPRISES, THE ASSESSING OFFICER GOT THE SPOT ENQUIRIES MADE AT THE PREMISES OF THE APPELLANT COMP ANY TO FIND THAT THESE TWO CONCERNS WERE BEING RUN FROM THE SAM E PREMISES, THERE WAS NO SEPARATE ELECTRICITY/ WATER CONNECTION, NO SEPARATE STAFF AND DIRECTORS OF THE APPELLANT COMPANIES WERE LOOKING AFTER THE BUSINESS AFFAIRS OF THESE TWO CONCERNS, EXPLANATION OF THE LD. COUNSEL IS THAT M/S SHARY ENTERPRISES WAS BEING RUN FROM DIFFERENT PREMISES AN D M/S CROWN INDUSTRIES HAD ITS OWN EMPLOYEES, BUT THE OTHE R FINDING RECORDED BY THE ASSESSING OFFICER THAT THE DIRECTOR S OF THE COMPANIES WERE LOOKING AFTER THE BUSINESS OF BOTH T HESE CONCERNS HAS NOT BEEN CONTROVERTED BY THE LD. COUNSEL. IN FACT , IF RENT RECEIVED & RENT OF COMPUTER IS EXCLUDED, THERE WILL BE H UGE BUSINESS LOSS. THE APPELLANT HAD CLAIMED EXCESS EXPENSES TO THE EXTENT OF THE SERVICES PROVIDED TO THESE TWO CONCERNS, INCLUDIN G THE SERVICES PROVIDED BY THE DIRECTORS OF THE APPELLANT COMPANY. HOWEVER, KEEPING IN VIEW THE EXPLANATION OF THE APPELLANT AND FA CTS OF THE CASE, IN MY CONSIDERED VIEW, A DISALLOWANCE OF 20% OF THE LABOUR CHARGES IN THE CASE OF M/S CROWN INDUSTRIES AND 10% OF THE PAYMENT MADE TOWARDS PURCHASES MADE FROM M/S SHARY ENTERPRISES WOULD MEET THE END OF JUSTICE. THE ADDITI ON TO BE MADE ON ACCOUNT OF DISALLOWANCE OUT OF PAYMENT TO M/S CR OWN INDUSTRIES WORKS OUT TO RS. 3,16,671/- AND RS, 19,503/- OUT OF THE PAYMENT FOR PURCHASES MADE FROM M/S SHARY ENTERPRISES. THE T OTAL DISALLOWANCE WILL THUS BE RS. 3,36,174/- (3,16,671 + 1 9,503). THE APPELLANT GETS RELIEF OF RS. 10,77,304/- (14,13,478 - 3,36,174) GROUNDS OF APPEAL NOS. 3 & 4 ARE PARTLY ALLOWED. 6. I HAVE HEARD SHRI S.K.MITAL, LEARNED D.R. AT LE NGTH AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RE CORD. NONE WAS PRESENT ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE. FOR MAKING A DISALLOWANCE UNDER SECTION 4 0A(2) OF 5 THE ACT, ONUS TO PROVE UNREASONABLENESS IS ON THE A SSESSING OFFICER. IN THE INSTANT CASE, THERE WAS NO MATERI AL BEFORE THE ASSESSING OFFICER, SUCH AS COMPARABLE RATES, ETC. T O COME TO THE CONCLUSION THAT EXCESSIVE PAYMENT/EXPENDITURE W AS MADE TO SISTER CONCERN, WHICH WARRANTED ADHOC DISALLOWAN CE. THE ASSESSING OFFICER HAS MADE A DISALLOWANCE OF 40% OU T OF THESE EXPENSES. HE HAS NOT GIVEN ANY COGENT REASON WHIL E MAKING A DISALLOWANCE OF 40% OUT OF THESE EXPENSES. THUS , CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE PRESENT CASE, I AM OF THE VIEW THAT THE LEARNED CIT (APPEAL S) WAS FULLY JUSTIFIED IN MAKING THE DISALLOWANCE OF 20% OUT OF LABOUR CHARGES IN THE CASE OF M/S CROWN INDUSTRIES AND 10 % OF THE PAYMENT MADE TOWARDS PURCHASES MADE FROM M/S SHARY ENTERPRISES. ACCORDINGLY, I UPHOLD THE ORDER OF THE LEARNED CIT (APPEALS) ON THIS ISSUE. 7. GROUND NO.4 OF THE APPEAL READS AS UNDER : 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) HAS ERRED IN HOLDING THAT INCOME DERIVED BY THE ASSESSEE FROM A PART OF INDUSTRIAL BUILDING OWNED BY ASSESSEE ITSELF FROM A PERSON HAVING BUSINESS LINK WITH THE ASSESSEE, IS INCOME FROM 'HOUSE PROPERTY' INSTEAD OF INCOME FROM BUSINESS & PROFESSION'. 8. THE ASSESSEE HAS DECLARED INCOME FROM HOUSE PROPERTY AT RS.11,43,417/-. THE ASSESSEE CLAIMED THAT TWO FLOORS OF FACTORY BUILDING WERE GIVEN ON RENT TO M/ S TIMEX WATCHES LTD. THE ASSESSING OFFICER ASKED THE ASS ESSEE AS TO 6 WHY THE ABOVE INCOME MAY NOT BE TREATED AS INCOME FROM BUSINESS AND PROFESSION AS THE PROPERTY WAS IN THE PREMISES OF THE ASSESSEE COMPANY AND THE ASSESSEE HAS BUSINE SS LINK WITH THE TENANT. THE ASSESSING OFFICER HAS ALSO N OTED THAT THE COMPANY HAS ALSO GIVEN ON RENT A GENERATOR SET ALONGTWITH THE BUILDING. THEREFORE, THE ASSESSING OFFICER CO NCLUDED THAT THE INCOME DERIVED AS RENT FROM BUILDING AS WELL AS GENERATOR WAS REQUIRED TO BE CONSIDERED UNDER THE HEAD INCOM E FROM BUSINESS AND PROFESSION. ACCORDINGLY, DEDUCTION C LAIMED UNDER SECTION 24(A) OF THE ACT, AMOUNTING TO RS.4,9 0,036/- WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME O F THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER ALLOWED D EPRECIATION TO THE ASSESSEE OF RS.1,59,065/- ON THE BUILDING. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS AL READY CLAIMED DEPRECIATION ON THE GENERATOR. 9. ON APPEAL, THE LEARNED CIT (APPEALS) ALLOWED TH E CLAIM OF THE ASSESSEE FOR THE REASONS GIVEN IN PARA 4.3 OF THE IMPUGNED ORDER. THE LEARNED CIT (APPEALS) HAS OBS ERVED THAT THE ASSESSEE DID HAVE BUSINESS LINK WITH M/S TIMEX WATCHES LTD., BUT THAT DOES NOT MEAN THAT SIMPLY FOR THIS R EASON, THE RENTAL INCOME IS TO BE ASSESSED AS BUSINESS INCOME . ACCORDING TO THE LEARNED CIT (APPEALS), THE CONCLUS ION DRAWN BY THE ASSESSING OFFICER IN THIS REGARD WAS NOT COR RECT. HE FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAD RENT ED OUT THE GENERATOR THAT WAS BY WAY OF A SEPARATE AGREEME NT AND RENTING OUT OF GENERATOR ALSO DOES NOT MEAN THAT TH E RENTAL INCOME IS TO BE ASSESSED AS BUSINESS INCOME. IT IS ALSO 7 OBSERVED BY THE LEARNED CIT (APPEALS) THAT THE SAID BUILDING HAS BEEN RENTED OUT TO ANOTHER COMPANY AFTER 2009, WHICH ONLY IMPLIES THAT THE MAIN INTENTION OF THE ASSESSE E WAS TO LET OUT THE PROPERTY. 10. I HAVE HEARD THE LEARNED D.R AT LENGTH AND HAV E ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. NOBODY APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE . UNDER THESE CIRCUMSTANCES, I AM CONSTRAINED TO DISPOSE OF F THE APPEAL AFTER HEARING THE LEARNED D.R. THE ASSESSI NG OFFICER HAS TREATED THE RENTAL INCOME IN QUESTION AS BUSIN ESS INCOME MERELY ON THE GROUND THAT THE ASSESSEE COMPANY HAD RENTED OUT THE GENERATOR TO THE SAME TENANT ALONGWITH THE BUILDING AND, THEREFORE, THE INCOME DERIVED AS RENT FROM BUI LDING AS WELL AS GENERATOR WAS CONSIDERED AS INCOME UNDER TH E HEAD INCOME FROM BUSINESS AND PROFESSION AS AGAINST TH E INCOME DECLARED UNDER THE HEAD INCOME FROM HOUSE PROPERTY . IT IS APPARENT FROM RECORD THAT THE ASSESSEE COMPANY HAD RENTED OUT THE GENERATOR BY EXECUTING A SEPARATE AGREEMENT AND RENTING OUT OF GENERATOR DOES NOT MEAN THAT THE ENT IRE RENTAL INCOME IS TO BE ASSESSED AS BUSINESS INCOME. THE L EARNED CIT (APPEALS) HAS CATEGORICALLY OBSERVED THAT THE FACTO RY BUILDING WAS RENTED OUT TO ANOTHER COMPANY AFTER 2009, WHICH ONLY IMPLIES THAT THE MAIN INTENTION OF THE ASSESSEE WAS TO LET OUT THE PROPERTY. THE LEARNED CIT (APPEALS) HAS ALSO OBSERVED THAT THE JUDGMENT OF THE HON'BLE SUPREME COURT IN T HE CASE OF M/S SHAMBHU INVESTMENT (P) LTD., 263 ITR 143 IS APP LICABLE TO THE FACTS OF THE PRESENT CASE. IN MY OPINION, THE LEARNED 8 CIT (APPEALS) HAS CORRECTLY OBSERVED THAT THE ASSES SING OFFICER WAS NOT RIGHT IN ASSESSING THE RENTAL INCOM E RECEIVED FROM M/S TIMEX WATCHES LTD. AS INCOME FROM BUSINES S AND DISALLOWING DEDUCTION UNDER SECTION 24(A) OF THE AC T. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE PRESENT CASE, I DO NOT SEE ANY INFIRMITY IN THE ORDER OF TH E LEARNED CIT (APPEALS) ON THIS ISSUE AND ACCORDINGLY, I UPHOLD T HE SAME. GROUND NO.4 OF THE APPEAL STANDS REJECTED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF JULY, 2015. SD/- (H.L.KARWA) VICE PRESIDENT DATED : 7 TH JULY, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH