DCIT CIR 3(3)(2), MUMBAI V. TRANSWARRANTY ADVISORS P.LTD, MUMBAI

ITA 731/MUM/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2206 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 11-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D G PANSARILD
• Assessee Lawyers: M SUBRAMANIYAMLD
• Keywords: Business income; Depreciation; Business expenditure; Carry forward of business losses
• Section: 143(3); 14A

Judgement Text

M/S TRANSWARRANTY ADVISORS PRIVATE LIMITED ASSESSMENT YEARS - 2006-07 TO 2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE HONBLE SHRI JOGINDER SINGH, VP AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.8905/MUM/2010 ( / ASSESSMENT YEAR: 2006-07) TRANSWARRANTY ADVISORS PVT. LTD. 403, REGENT CHAMBERS, NARIMAN POINT MUMBAI-400 021 / VS. D Y. COMMISSIONER OF INCOME TAX 3(3)(2) ROOM NO.609, 6 TH FLOOR AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020 ./ ./PAN/GIR NO. AAACH 6068 C ( /APPELLANT ) : ( / RESPONDENT ) & ./I.T.A. NO.731/MUM/2016 ( / ASSESSMENT YEAR: 2007-08) & ./I.T.A. NO.5765/MUM/2013 ( / ASSESSMENT YEAR: 2008-09) & ./I.T.A. NO.4317/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) DY. COMMISSIONER OF INCOME TAX 3(3)(2) ROOM NO.609, 6 TH FLOOR AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020 / VS. TRANSWARRANTY ADVISORS PVT LTD 403, REGENT CHAMBERS, NARIMAN POINT MUMBAI-400 021 ./ ./PAN/GIR NO. AAACH 6068 C ( /APPELLANT ) : ( / RESPONDENT ) ASSESSEE BY : SHRI M. SUBRAMANIYAM-LD. AR REVENUE BY : SHRI D.G. PANSARI-LD. DR / DATE OF HEARING : 22/10/2018 / : 16/11/2018 M/S TRANSWARRANTY ADVISORS PRIVATE LIMITED ASSESSMENT YEARS - 2006-07 TO 2009-10 2 DATE OF PRONOUNCEMENT / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEALS BY ASSESSEE AS WELL AS REVENUE FOR DIFFERENT ASSESSMENT YEARS AGITATE SEPARATE ORDERS OF FIRST A PPELLATE AUTHORITY. SINCE COMMON ISSUES ARE INVOLVED, WE DISPOSE-OFF TH E SAME BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND B REVITY. FIRST WE TAKE UP ASSESSEES APPEAL ITA NO. 8905/MUM/2010 FOR ASSESSMENT YEAR [AY] 2006-07 WHICH CONTEST THE ORDER OF LD. COMMISS IONER OF INCOME TAX (APPEALS)-7, MUMBAI, [CIT(A)], APPEAL NO.CIT(A)-7/DCIT.3(3)/IT- 444/09-10 DATED 05/10/2010 BY RAISING THE FOLLOWING GROUNDS O F APPEAL:- 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF THE CARRY FORWARD OF THE BUSINESS L OSS AS CLAIMED OF RS.31,26,440/- 2) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ERRONEOUS CONCLUSION ARRIVED AT BY THE ASSESSING OF FICE THAT THE EXPENSES CLAIMED BY YOUR PETITIONER WERE NOT ALLOWABLE AS BUSINESS E XPENSES SINCE NO BUSINESS ACTIVITY WAS CARRIED OUT AND THE ONLY ACTIVITY ACCO RDING TO THEM WAS EARNING RENTAL INCOME FROM HOUSE PROPERTY. 3) YOUR PETITIONER CONFIRMS THAT, THERE WAS NO RENT AL INCOME EARNED AND THE EXPENSES INCURRED INCLUDING DEPRECIATION WERE BUSIN ESS EXPENSES. 4) YOUR PETITIONER FURTHER PRAYS THAT PROVISIONS OF SECTION 14A R.W.R 8D ARE NOT APPLICABLE. 5) YOUR PETITIONER PRAYS THAT THE DISALLOWANCES OF BUSINESS EXPENDITURE OF RS.13,15,107/- AND DEPRECIATION OF RS.12,21,700/- B E DELETED AND/OR SET ASIDE. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. DEPUTY COMMISSIONER OF INCOME TAX-CIRCLE 3(3), MUMBAI [AO] U/S. 143(3) VIDE ORDER DATED 16/10/2008 WHEREIN THE LOSS OF THE ASSESSEE WAS ASSESSED AT RS.5.37 LACS AS AGAINST RETURNED LOSS OF RS.18.5 7 LACS FILED BY THE ASSESSEE ON 24/11/2006. THE ASSESSEE WAS ASSESSED A S R ESIDENT CORPORATE ENTITY. M/S TRANSWARRANTY ADVISORS PRIVATE LIMITED ASSESSMENT YEARS - 2006-07 TO 2009-10 3 2. DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THAT THE ASSESSEE REFLECTED ADDITION OF OFFICE BUILDING FOR RS.293.53 LACS AND CLAIMED DEPRECIATION AGAINST THE SAME @10% FOR SECOND HALF OF THE YEAR. THE PREMISE WAS LET OUT TO THREE SISTER CONCERNS NAMELY TRANSWARRANTY CAPITAL PVT. LTD., TRANSWARRANTY CREDIT CARE PVT. L TD. & TRANSWARRANTY FOREX & COMMODITIES PVT. LTD. AGAINST THE PREMISE, THE ASSESSEE HAD TAKEN A RENTAL DEPOSIT OF RS.637.52 LACS. HOWEVER, THE ASSESSEE HAD NO FURNITURE & FIXTURE OR OTHER INFRASTRUCTURE WHICH S UGGESTED CARRYING OUT OF ANY BUSINESS ACTIVITY. THE ONLY ACTIVITY CARRIED OU T BY THE ASSESSEE WAS LETTING OUT BUILDING TO SISTER CONCERNS, AGAINST WH ICH NO INCOME / RECEIPTS WERE REFLECTED. BESIDES DEPRECIATION, THE ASSESSEE CLAIMED VARIOUS ADMINISTRATIVE EXPENDITURE AGGREGATING TO RS.16.28 LACS, THE DETAILS OF WHICH HAVE ALREADY BEEN EXTRACTED AT PARA 3 OF THE QUANTUM ASSESSMENT ORDER. THE ASSESSEE REFLECTED INCOME OF RS.0.54 LA CS IN THE SHAPE OF DIVIDEND / INTEREST / LIABILITIES NOT PAYABLE OUT OF WHICH DIVIDEND OF RS.0.47 LACS WAS CLAIMED AS EXEMPT. IN THIS MANNER, BUSINESS LOSS WAS COMPUTED BY THE ASSESSEE AS RS.31.26 LACS WHICH WAS STATED TO BE CARRIED FORWARD FOR SET-OFF IN SUBSEQUENT YEARS. HOWEVER, THE AFORESAID FACTS LED THE LD. AO TO REACH A CONCLUSIO N THAT NO BUSINESS ACTIVITY WAS BEING CARRIED OUT BY THE ASSESSEE DURI NG IMPUGNED AY AND THEREFORE, THE VARIOUS EXPENDITURE CLAIMED BY THE A SSESSEE UNDER THE HEAD BUSINESS INCOME COULD NOT BE ALLOWED SINCE THE ASSESSEE WAS ENTITLED TO CLAIM STATUTORY DEDUCTION OF 30% ONLY A GAINST RENTAL INCOME. RESULTANTLY, THE RECEIPTS IN THE SHAPE OF DIVIDEND, INTEREST AND LIABILITIES NOT PAYABLE AGGREGATING TO RS.0.54 LACS WERE TREATED AS INCOME FROM OTHER SOURCES AGAINST WHICH THE ASSESSEE WAS ALLOWED EXPENDITURE OF M/S TRANSWARRANTY ADVISORS PRIVATE LIMITED ASSESSMENT YEARS - 2006-07 TO 2009-10 4 RS.5.92 LACS. THE RESULTANT LOSS OF RS.5.37 LACS UN DER THE HEAD INCOME FROM OTHER SOURCES WAS NOT ALLOWED TO BE CARRIED FORWARD. THE VARIOUS EXPENDITURE AND DEPRECIATION AS CLAIMED BY THE ASSE SSEE AS BUSINESS EXPENDITURE WERE ALSO DISALLOWED WHICH RESULTED INTO DENIAL OF CARRY FORWARD OF BUSINESS LOSSES TO SUBSEQUENT YEARS. THE LD. AO, IN THE ALTERNATIVE, COMPUTED DISALLOWANCE OF RS.1.57 LAC S U/S 14A IN VIEW OF THE FACT THAT THE ASSESSEE HAD EARNED EXEMPT DIVIDE ND INCOME DURING IMPUGNED AY. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITHO UT ANY SUCCESS BEFORE FIRST APPELLATE AUTHORITY VIDE IMPUGNED ORDE R DATED 25/11/2008 WHEREIN THE STAND OF LD. AO GOT CONFIRMED. AGGRIEVE D, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND PERUSED. U PON PERUSAL, WE FIND THAT THE ASSESSEE HAD PURCHASED TWO OFFICE PRE MISES SITUATED AT REGENT CHAMBERS, NARIMAN POINT, MUMBAI VIDE SEPARATE SALE DEEDS BOTH DATED 24/01/2006. THESE OFFICE PREMISES HAVE B EEN CAPITALIZED UNDER THE HEAD FIXED ASSETS, AGAINST WHICH DEPRECIATION HAS BEEN CLAIMED FOR SECOND HALF OF THE YEAR. IN OTHER WORDS , THE OFFICE PREMISES HAVE BEEN SHOWN AS BUSINESS ASSETS. THE AFORESAID O FFICE PREMISES, PRIMA FACIE, HAVE BEEN USED BY THREE SISTER CONCERNS OF THE ASSE SSEE AND IT IS UNDISPUTED FACT THAT THE ASSESSEE HAS NOT REFLECTED ANY RENTAL INCOME / RECEIPTS AGAINST THE SAME. THE PERUSAL OF FINANCIAL STATEMENTS / MATERIAL ON RECORD REVEAL THAT THE ASSESSEE HAS REC EIVED INTEREST FREE SECURITY DEPOSIT OF RS.637.52 LACS FOR THE USAGE OF THE PREMISES. THE LD. AO CAME TO THE CONCLUSION THAT NO BUSINESS ACTI VITIES HAVE BEEN CARRIED OUT BY THE ASSESSEE DURING IMPUGNED AY AND THEREFORE, THE M/S TRANSWARRANTY ADVISORS PRIVATE LIMITED ASSESSMENT YEARS - 2006-07 TO 2009-10 5 EXPENDITURE INCLUDING DEPRECIATION AS CLAIMED BY TH E ASSESSEE COULD NOT BE ALLOWED. IT HAS ALSO BEEN CONCLUDED THAT RENTAL INCOME / RECEIPTS WERE ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. DESPITE THESE CONCLUSIONS / OBSERVATION, WE FIND THAT NO INCOME H AS BEEN BROUGHT TO TAX BY LD. AO UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE RECEIPTS OF RS.0.54 LACS AS REFLECTED BY THE ASSESSEE HAS BE EN ASSESSED AS INCOME FROM OTHER SOURCES AGAINST WHICH CERTAIN EXPENDITURE HAS BEEN ALLOWED AND THE INCOME HAS BEEN COMPUTED AT LOSS OF RS.5.37 LACS. HOWEVER, THE AFORESAID RECEIPTS INCLUDE EXEMPT DIVI DEND INCOME OF RS.0.47 LACS ALSO WHICH IS EVIDENT FROM THE FACT TH AT LD. AO HAS PROPOSED DISALLOWANCE U/S 14A AGAINST THE SAME. FIN ALLY, THE LOSSES UNDER THE HEAD BUSINESS INCOME AS WELL AS UNDER THE HEAD INCOME FROM OTHER SOURCES HAVE NOT BEEN ALLOWED TO BE CARRIED FORWARD. THE LD . CIT(A), WITHOUT DUE APPLICATION OF MIND, CONFIRMED THE STAND OF LD. AO. UPON CONSIDERATION OF OVERALL FACTUAL MATRIX, WE AR E OF THE CONSIDERED OPINION THAT BOTH THE LOWER AUTHORITIES HAVE FAILED TO CLINCH THE ISSUE IN THE PROPER PERSPECTIVE AND THEREFORE, WE HAVE NO OP TION BUT TO REMIT THE MATTER BACK TO THE FILE OF LD. AO FOR PROPER APPREC IATION OF THE FACTS AND RE-ADJUDICATION AS PER LAW. IT IS MADE CLEAR THAT I NCOME FROM OFFICE PREMISES SHALL BE ASSESSED AS PER THE STATUTORY PRO VISIONS DEPENDING UPON THE FACT THAT WHETHER THE SAME IS ASSESSED AS INCOME FROM HOUSE PROPERTY OR AS BUSINESS INCOME. THE DIVIDEND INCOME OF RS.0.47 LACS HAS BEEN CLAIMED AS EXEMPT, AGAINST WHICH, DISALLOW ANCE U/S 14A, IF DEEMED FIT AS PER CIRCUMSTANCES, MAY BE COMPUTED. T HE LIABILITIES NOT PAYABLE, PRIMA-FACIE, SEEMS TO BE OF THE NATURE COVERED BY SECTION 41(1) AND THEREFORE ASSESSABLE AS BUSINESS INCOME. THE INTEREST ON TAX M/S TRANSWARRANTY ADVISORS PRIVATE LIMITED ASSESSMENT YEARS - 2006-07 TO 2009-10 6 REFUND SHALL BE ASSESSABLE AS INCOME FROM OTHER SOURCES. WHATEVER STAND IS ADOPTED BY LOWER AUTHORITIES WITH RESPECT TO OFFICE PREMISES, THE EXPENDITURE FOUND NECESSARY TO MAINTAIN THE CORPORA TE PERSONALITY / IDENTITY SHALL BE ALLOWABLE UNDER THE HEAD BUSINESS INCOME. THE DEDUCTIBILITY OF OTHER EXPENDITURE INCLUDING DEPREC IATION SHALL BE ASCERTAINED AT THE THRESHOLD OF STAND OF LOWER AUTH ORITIES WITH RESPECT TO FACT THAT WHETHER THE INCOME FROM OFFICE PREMISES W AS ASSESSABLE AS BUSINESS INCOME OR INCOME FROM HOUSE PROPERTY. WITH THESE DIRECTIONS, THE APPEAL STANDS ALLOWED FOR STATISTICAL PURPOSES. REVENUES APPEAL FOR AY 2007-08, 2008-09 & 2009-10 5. THE REVENUE IS UNDER APPEAL FOR ALL THESE YEARS AGAINST THE ORDER OF FIRST APPELLATE AUTHORITY IN HOLDING THAT VARIOUS E XPENDITURE WAS ALLOWABLE TO THE ASSESSEE AS BUSINESS EXPENDITURE DESPITE THE FACT THAT NO BUSINESS ACTIVITY WAS BEING CARRIED OUT BY THE ASSE SSEE AND THE RENTAL INCOME WAS ASSESSABLE AS INCOME FROM HOUSE PROPERTY. 6. WE FIND THAT THE DECISION OF FIRST APPELLATE AUT HORITY FOR AY 2007-08 AND 2008-09 RELIES ON THE ORDER FOR AY 2009-10 AND THEREFORE, WE TAKE UP REVENUES APPEAL FOR AY 2009-10, ITA NO. 4317/MUM/2013. THE ASSESSEE HAS BEEN ASSESSED U/S 143(3) ON 26/12/2011 AT INCOME OF RS.32.62 LACS AS AGAINST RETURNED LOSS OF RS.64.84 LACS. THE DIFFERENCE BETWEEN THE TWO PRIMARILY STEM FROM THE FACT THAT R ENTAL INCOME OF RS.14.93 LACS REFLECTED BY THE ASSESSEE AS BUSINESS INCOME HAS BEEN ASSESSED AT RS.44.79 LACS UNDER THE HEAD INCOME FROM HOUSE PROPERTY AGAINST WHICH STATUTORY DEDUCTION OF 30% HAS BEEN A LLOWED. CONSEQUENTIALLY, DEPRECIATION OF RS.24.69 LACS & SO CIETY MAINTENANCE M/S TRANSWARRANTY ADVISORS PRIVATE LIMITED ASSESSMENT YEARS - 2006-07 TO 2009-10 7 CHARGES OF RS.1.78 LACS CLAIMED AS BUSINESS EXPENDITURE HAS BEEN DISALLOWED. ANOTHER DISALLOWANCE OF RS.54.56 LACS H AS BEEN MADE U/S 36(1)(III) SINCE INTEREST BEARING FUNDS WERE DIVERT ED TO GRANT INTEREST FREE LOANS AND ADVANCES. AGGRIEVED, THE ASSESSEE AGITATE D THE SAME WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORD ER DATED 27/01/2012 WHEREIN IT WAS HELD THAT RENTAL INCOME WAS ASSESSAB LE AS BUSINESS INCOME AND CONSEQUENTLY, THE IMPUGNED DISALLOWANCE OF DEPR ECIATION, SOCIETY MAINTENANCE EXPENSES WAS DELETED. THE DISAL LOWANCE U/S 36(1)(III) WAS DELETED ON THE PREMISE THAT THE LOAN WAS OBTAINED TO PURCHASE THE PREMISES AND HENCE BUSINESS EXPENDITUR E ALLOWABLE TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID CONCLUSIONS, T HE REVENUE IS IN FURTHER APPEAL BEFORE US. 7. SINCE, WE HAVE RESTORED THE MATTER FOR AY 2006-0 7 TO THE FILE OF LD. AO FOR RE-ADJUDICATION WITH CERTAIN DIRECTIONS, WIT H A VIEW TO MAINTAIN CONSISTENCY, THE MATTER FOR THIS YEAR ALSO STANDS R EMITTED BACK TO THE FILE OF LD. AO FOR FRESH ADJUDICATION ON SIMILAR LINES. NEEDLESS TO ADD THAT A CONSISTENT VIEW SHALL BE ADOPTED BY THE REVENUE TO FRAME THE ASSESSMENT FOR THIS YEAR ALSO. THE APPEAL STANDS AL LOWED FOR STATISTICAL PURPOSES. 8. THE REVENUES APPEAL FOR AY 2007-08 & 2008-09 RA ISES IDENTICAL WORDED GROUNDS OF APPEAL. FOR AY 2007-08, THE FIRST APPELLATE AUTHORITY HAS RELIED UPON THE APPELLATE ORDERS FOR AY 2008-09 & 2009-10. SIMILARLY, FOR AY 2008-09, THE FIRST APPELLATE AUTH ORITY HAS RELIED UPON THE APPELLATE ORDER FOR AY 2009-10. FACTS AND CIRCUMSTA NCES BEING PARI- MATERIA THE SAME, BOTH THESE YEARS ALSO STAND REMITTED BACK TO THE FILE OF M/S TRANSWARRANTY ADVISORS PRIVATE LIMITED ASSESSMENT YEARS - 2006-07 TO 2009-10 8 LD. AO FOR RE-ADJUDICATION ON SIMILAR LINES. THESE APPEALS STANDS ALLOWED FOR STATISTICAL PURPOSES. CONCLUSION 9. ALL THE APPEAL STANDS ALLOWED FOR STATISTICAL PU RPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2018. SD/- SD/- (JOGINDER SINGH) (MAN OJ KUMAR AGGARWAL) / VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI; DATED : 16.11.2018 SR.PS:-JAISY VARGHESE / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. $ ( ) / THE CIT(A) 4. $ / CIT CONCERNED 5. #% &###' , #' , / DR, ITAT, MUMBAI 6. & ()* / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI