ITO WD 10(3)(3), MUMBAI V. PATEL CORPORATION P.LTD, MUMBAI

ITA 7298/MUM/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0221 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 08-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAJAT MITTAL
• Keywords: Business income; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 7298/MUM/2014 ASSESSMENT YEAR: 2009 - 10 ITO WARD 10(3 )(3), VS. M/S PATEL CORPORATION PVT. LTD. ROOM NO. 213, 2 ND FLOOR, PATEL ESTATE, OFF S V. ROAD, AAYAKARBHAVAN ,. JOGESHWARI (W), M.K. ROAD, MUMBAI 400102. MUMBAI 400020 PAN NO. AAACP6250A (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJAT MITTAL, D R REVENU E BY: SHRI MAYURKISNADWALA, A R DATE OF HEARING : 23 /05/2017 DATE OF PRONOUNCEMENT: 18/08/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE . THE RELEVANT ASSESSMENT YEAR IS 2009 - 10 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 17, MUMBAI AND ARISES OUT OF ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ITA NO. 7298/MUM/2014 2 2. THE GRO UNDS OF APPEAL READ AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN TREATING IN INTEREST INCOME AS BUSINESS INCOME WITHOUT APPRECIATING THAT NO BUSINESS ACTIVITY WAS CARRIED OUT DURING THE YEAR. 2. ON THE FACTS AND C IRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 8,54,965 / - WITHOUT APPRECIATING THE FACT THAT NO BUSINESS ACTIVITY WAS CARRIED OUT BY THE ASSESSEE DURING THE YEAR. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION MADE OF ACCOUNT OF INTEREST FROM RS.29,37,825/ - TO RS.6,09,665/ - WITHOUT CONSIDERING THE FACT THAT AS PER TDS CERTIFICATE THE INTEREST INCOME PERTAINED TO A.Y. 2009 - 10. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(IA) ON THE BASIS OF THE SUBMISSIONS MADE BY THE ASSESSEE AT THE TIME OF APPELLATE PROCEEDINGS WITHOUT GIVING AN OPPORTUNITY OF THE ASSESSING OFFICER FOR VERIFICATION OF TH E SAME. 3. WE BEGIN WITH THE 1 ST GROUND OF APPEAL. THE ASSESSING OFFICER (AO) NOTICED THAT IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE HAD CREDITED INTEREST INCOME OF RS.35,47,231/ - . THE AO NOTED THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVITY DU RING THE RELEVANT PREVIOUS YEAR. THE ASSESSEE ALSO FAILED TO BRING ANY EVIDENCE ON RECORD TO SHOW THAT IT WAS A REGISTERED NON - BANKING FINANCE COMPANY ENGAGED IN THE BUSINESS OF FINANCING. THEREFORE, THE ASSESSEE TREATED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES. 3.1 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HELD THAT (I) AS PER THE ITA NO. 7298/MUM/2014 3 MEMORANDUM OF ASSOCIATION, THE ASSESSEE IS PERMITTED TO CARRY ON NUMEROUS OBJECTS OF WHICH THE FINANCING OBJECT IS ONE OF THEM, (II) IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2006 - 07, 2007 - 08 AND 2008 - 09, THE AO HAS ACCEPTED THE CONTENTION THAT THE INCOME OF INVESTING AND FINANCING IS ASSESSABLE AS BUSINESS INCOME, (III) THE NEED FOR CONSISTENCY IS AS IMPORTANT FOR REVENUE AUTHORITIES AS IT IS EXPECTED FROM THE ASSESSEE. THEREFORE, THE LD. CIT(A) DIRECTED THE AO TO ASSESS RS.35,47,231/ - AS BUSINESS INCOME. 3.2 BEFORE US, THE LD. DR SUPPORTS THE ORDER OF THE AO, WHEREAS THE LD. COUNSEL OF THE ASSESS EE SUPPORTS THE ORDER OF THE LD. CIT(A). 3.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE AO HAS NOT MADE ANY INQUIRY OR VERIFICATION TO ARRIVE AT HIS FINDING THAT INTEREST INCOME OF RS.35,47,231/ - WAS TO BE TREATED AS INCOME FROM OTHER SOURCES. AS MENTIONED BY THE LD. CIT(A) IN THE ASSESSEES OWN CASE FOR THE AY 2006 - 07, 2007 - 08 AND 2008 - 09, THE AO HAS ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE INCOME OF INVESTING AND FINANCING BE ASSESSABLE AS INCOME FROM BUSINESS. THE NEED FOR CONSISTENCY HAS BEEN EMPHASIZED BY THE HONBLE SUPREME COURT IN RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321 (SC). IN VIEW OF THE ABOVE FACTS, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE 1 ST GROUND OF APPEAL . ITA NO. 7298/MUM/2014 4 4 . WE MOVE TO THE 2 ND GROUND OF APPEAL. BRIEFLY STATED, THE FACTS OF THE CASE ARE T HAT THE AO FOUND DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT IN THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE ON ITS OWN HAS DISALLOWED EXPENDITURE OF RS.23,70,845/ - WHICH, INTER ALIA INCLUDED DEPRECIATION AND DONATION. THE ASSESSEE STATED BEFORE THE AO THAT EX PENDITURE OF RS.21,95,067/ - WERE ALREADY DISALLOWED AS EXPENSES DISALLOWED EXCEPT CORPORATE EXPENSES. THUS THE AO NOTED THAT THE ASSESSEE EFFECTIVELY CLAIMED EXPENDITURE OF RS.12,49,965/ - AS CORPORATE EXPENDITURE. ON EXAMINATION OF THE PROFIT AND LOSS AC COUNT , THE AO OBSERVED THAT THE ASSESSEE HAD NOT CARRIED OUT ANY BUSINESS ACTIVITY OF WHICH REVENUE WAS RECOGNIZED. IN THE COMPUTATION OF TOTAL INCOME THE ASSESSEE HAS MENTIONED THAT IN THE ABSENCE OF ANY BUSINESS ACTIVITY CARRIED ON DURING THE YEAR, EX CEPT CORPORATE EXPENSES, NONE OF THE OTHER CORPORATE EXPENSES HAS BEEN CLAIMED AS DEDUCTION . THE AO FOUND THAT THE ASSESSEE FAILED TO JUSTIFY THE CLAIM OF EXPENDITURE OF RS.12,49,965/ - AS REVENUE EXPENDITURE. THEREFORE, THE AO DISALLOWED THE ABOVE EXPENDI TURE OF RS.12,49,965/ - DEBITED TO THE PROFIT AND LOSS ACCOUNT. 4 .1 IN APPEAL, THE LD. CIT(A) HAS FOLLOWED THE DECISION IN THE CASE OF CIT VS. EASTMAN INDUSTRIES 327 ITR 29 (P&H) WHEREIN IT IS HELD THAT WHAT HAS TO BE LOOKED INTO IS THE SUBSTANCE OF THE AC TIVITIES CARRIED ON BY THE ASSESSEE. OUT OF EXPENSES OF RS.12,49,965/ - , THE ASSESSEE HAS ACCEPTED EXPENSES OF RS.3,95,000/ - AS CAPITAL EXPENDITURE. THE ASSESSEE HAD CLAIMED DEDUCTION OF REVENUE EXPENSES OF RS.8,54,965/ - (RS.12,49,965 RS.3,95,000). CONSIDERING THE FACTS OF THE CASE, THE LD. CIT(A) THUS DELETED THE DISALLOWANCE OF RS.8,54,965/ - MADE BY THE AO. ITA NO. 7298/MUM/2014 5 4 .2 BEFORE US, THE LD. DR SUBMITS THAT T HE ASSESSEE WAS NOT REGISTERED AS A NBFC DURING THE RELEVANT PERIOD AND THE AO HAS RIGHTLY MADE A DISALLOWANCE OF RS.8,54,965/ - . 4 .3 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 4.4 WE HAVE HEARD THE RIV AL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. A COMPANY MAY NOT OBTAIN, OR ABLE TO EXECUTE, A SINGLE BUSINESS CONTRACT FOR MONTHS AND YET IT MAY BE DEEMED TO CARRY ON ITS BUSINESS, IF DURING THE PERIOD OF LULL AND INACTIVITY IT IS KEPT ALIVE AND IF IT RETAINS ITS REGISTERED OFFICE AND HOLDS MEETINGS . I T IS NOT NECESSARY THAT A BUSINESS TO BE IN EXISTENCE SHOULD HAVE WORK ALL THE TIME. THERE MAY BE LONG INTERVALS OF INACTIVITY AND A CONCERN MAY STILL BE A GOING CONCERN, THOUGH IT MAY, FOR SOME TIME, BE QUIET AND DORMANT. THE MERE FACT THAT A BUSINESSMAN HAS NOT BEEN ABLE TO OBTAIN A CONTRACT AND THE BUSINESS HAS FOR SOME TIME BEEN IN THAT SENSE DORMANT WOULD NOT MEAN THAT IT HAS CEASED TO EXIST, IF THE ASSESSEE CONTINUES TO MAINTAIN AN ESTABLIS HMENT AND INCUR EXPENSES IN THE EXPECTATION THAT WORK WOULD COME AND THE BUSINESS WOULD BE SUCCESSFUL . IN THIS CONTEXT, WE MAY REFER TO THE DECISION IN L. VE. VAIRAVAN CHETTIAR VS. CIT , (1969) 72 ITR 114, 119 (MAD); GENERAL CORPORATION LTD. VS. CIT (1935) 3 ITR 350, 355 (MAD); CIT VS. BHARAT NIDHI LTD. (1966) 60 ITR 520 (PUNJ); INDERCHAND HARI RAM VS. CIT , (1953) 23 ITR 437, 4 42 - 3 (ALL); K ARSONDAS RANCHHODDASS VS. CIT , (1972) 83 ITR 1, 20 (BOM); MRS. SAROJINI RAJAH VS. CIT , (1969) 71 ITR 504 (MAD). ITA NO. 7298/MUM/2014 6 HAVING GONE THROUGH THE ORDER OF THE AO , WE FIND THAT THE DISALLOWANCE OF RS.8,54,965/ - MADE BY HIM IS NOT BASED ON ANY MATERIAL OR REASONS. THEREFORE, WE FOLLOW THE RATIO LAID DOWN IN THE DECISIONS MENTIONED HERE - IN - ABOVE AND UPHOLD THE ORDER OF THE LD. CIT(A) O N THE ABOVE GROUND OF APPEAL. THUS THE 2 ND GROUND OF APPEAL IS DISMISSED. 5. WE NOW TURN TO THE 3 RD GROUND OF APPEAL. THE AO NOTICED THAT THE ASSESSEE FAILED TO OFFER ANY EXPLANATION AS TO WHY THE INTEREST RECEIPTS OF RS.26,90,478/ - , RS.53,699/ - AND RS.1,50,000/ - FROM M/S PATEL ENGINEERING, M/S SAMRAT GEMS PVT. LTD. AND AMRFINA CONSTRUCTION LTD. RESPECT IVELY SHOULD NOT BE BROUGHT TO TAX. ALSO IT IS OBSERVED BY THE AO THAT THE ASSESSEE FAILED TO EXPLAIN THE SHORT FALL OF INTEREST RECEIPTS OF RS.53,309/ - FROM SHRI SANJAY JAGDISH JOSHI. THE TOTAL AMOUNT COMES TO RS.29,47,486/ - . BECAUSE OF THE ABOVE FACTS TH E AO BROUGHT TO TAX THE TOTAL INTEREST OF RS.29,47,486/ - AS INCOME FROM OTHER SOURCES. 5.1 IN APPEAL THE LD. CIT(A) IN HIS ORDER DATED 24.09.2014 AT PARA 3.3.7 HELD AS UNDER: THEREFORE, FROM THE RECORD IT IS EVIDENT THAT THE INTEREST OF RS.20,80,817/ - OUT OF RS.26,90,478/ - AN ACCOUNT OF INTEREST RECEIVED FROM PATEL ENGINEERING LTD. WAS OFFERED TO TAX IN THE PREVIOUS ASSESSMENT YEAR I.E. AY 2008 - 09 AND THIS INCOME THUS CANNOT BE SUBJECTED TO DOUBLE TAXATION. IT IS A MATTER OF RECORD NOT DISPUTED BY THE LD. AO THAT M/S PATEL ENGINEERING LTD. HAS GIVEN THE INTEREST [NET OFF TDS] OF RS.20,80,817/ - ON 03.10.2007 VIDE CHEQUE NO. 143318. IT IS ALSO AN EQUALLY SETTLED POSITION OF LAW THAT LEVY OF INTEREST U/S 201(1A) OF THE A CT DOES NOT DETERMINE THE YEAR OF TA XABILITY OF THE INTEREST INCOME IN THE HANDS OF THE RECIPIENT. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION TO THE EXTENT OF RS.20,80,817/ - OUT OF RS.26,90,478/ - AS SUCH AMOUNT HAS BEEN ITA NO. 7298/MUM/2014 7 ALREADY TAXED IN AY 2008 - 09. THE BALANCE AMOUNT OF RS.6,09,6 61/ - BEING THE AMOUNT OF TDS DEPOSITED BY THE PAYER NAMELY PATEL ENGINEERING LTD. DURING AY 2009 - 10 BE TAXABLE AS INCOME IN AY 2009 - 10 AND HENCE TO THAT EXTENT THE ADDITION IS SUSTAINED. 5.2 BEFORE US, THE LD. DR SUPPORTS THE ORDER OF THE AO WHEREAS THE LD. COUNSEL OF THE ASSESSEE RELIES ON THE ORDER PASSED BY THE LD. CIT(A). 5.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT INTEREST OF RS.20,80,817/ - OUT OF RS.26,90,478/ - ON ACCOUNT OF INTEREST RECEIVED F ROM PATEL ENGINEERING LTD. WAS OFFERED TO TAX IN THE AY 2008 - 09. ALSO M/S PATEL ENGINEERING LTD. WAS GIVEN THE INTEREST, NET OF TDS, OF RS.20,80,817/ - ON 03.10.2007 VIDE CHEQUE NO. 143318. THEREFORE, THE LD. CIT(A) HAS RIGHTLY DIRECTED THE AO TO DELETE THE ADDITION TO THE EXTENT OF RS.20,80,817/ - OUT OF RS.26,90,478/ - . ALSO THE LD. CIT(A) HAS RIG HTLY SUSTAINED THE ADDITION OF THE BALANCE AMOUNT OF RS.6,09,661/ - BEING THE AMOUNT OF TDS DEPOSITED BY THE PAYER NAMELY PATEL ENGINEERING LTD. DURING THE AY 2009 - 1 0. THUS WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THE ABOVE GROUND AND DISMISS THE 3 RD GROUND OF APPEAL. 6. WE FINALLY COME TO THE 4 TH GROUND OF APPEAL. THE AO VIDE NOTICE DATED 21.07.2011 ASKED THE ASSESSEE TO FILE DETAI LS OF TDS, NAME AND ADDRESS OF TH E DEDUCTEES , COPIES OF TDS RETURNS, DATE OF CREDIT/PAYMENT AND DATE OF DEPOSIT OF TDS. AS THE ASSESSEE FAILED TO FILE THE SAID DETAILS , THE AO HELD THE EXPENDITURES INCLUDING INTEREST PAID AS DISALLOWABLE U/S ITA NO. 7298/MUM/2014 8 40(A)(IA) WITHOUT PREJUDICE TO THE FACT THAT THESE EXPENSES WERE HELD DISALLOWABLE FOR THE REASONS DISCUSSED IN THE ASSESSMENT ORDER. 6.1 IN APPEAL, THE LD. CIT(A) HAS HELD THAT PERUSAL OF THE EXPENDITURE OF RS.12,49,969/ - CLAIMED AS DEDUCTION REVEALED TH AT TAX IS DEDUCTIBLE ONLY ON THE INTEREST EXPENDITURE OF RS.6,18,131/ - (RS.5,95,837 + RS.23,904) AS ALL OTHER EXPENDITURE INCURRED IS BELOW THRESHOLD FOR DEDUCTION OF TAX AT SOURCE. HE HAS FOUND THAT TDS HAS BEEN MADE IN THE CASE OF INTEREST PAYMENT TO ACE HOUSING AND CONSTRUCTION LTD., AHCL PEL. THEREFORE, THE LD. CIT(A) DELETED THE DISALLOWANCE U/S 40(A)(IA) MADE BY THE AO. 6.2 BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO WHEREAS THE LD. COUNSEL OF THE ASSESSEE RELIES ON THE ORDER PASSED BY THE LD. CIT(A). 6.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE ORDER OF THE AO IN RESPECT TO THE ABOVE GROUND OF APPEAL IS NOT BASED ON MATERIAL EVIDENCE. WE HAVE MENTIONED AT PARA 6.1 HERE - IN - ABOVE THE FIN DINGS OF THE LD. CIT(A). AS THE SAME IS BASED ON EXAMINATION OF THE DOCUMENTS, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE 4 TH GROUND OF APPEAL. 7. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN C OURT ON 18/08/2017 . SD/ - SD/ - ( MAHAVIR SINGH ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 18/08/2017 RAHUL SHARMA, SR. P.S. ITA NO. 7298/MUM/2014 9 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI