ACIT, Faridabad V. M/s Lakhani Footwear Ltd, Faridabad

ITA 766/DEL/2009

• Counselvise Citation: 76620114 RSA 2009
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 09-01-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 02-03-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: S C VASUDEVA
• Keywords: Business income; Depreciation
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.766/DEL./2009 (ASSESSMENT YEAR : 2004-05) ACIT, CIRCLE II, VS. M/S. LAKHANI FOOTWEAR LIMIT ED, FARIDBAD. PLOT NO.130, SECTOR 24, FARIDABAD. (PAN : AAACL3112H) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.C. VASUDEVA, CA REVENUE BY : MS. Y. KAKKAR, DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT (APPEALS), FARIDABAD DATED 31.12.2008. 2. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY. SCHEDULE VII TO THE BALANCE SHE ET REFLECTS THE SOURCE OF INCOME AS DIVIDEND, RENT, ETC. THE DETAILS ARE AS UNDER :- OTHER INCOME SHARE OF PROFIT FROM FIRMS 825,477.42 DIVIDEND RECD. 1,638,900.00 RENT RECEIVED 6,504,000.00 (RS.53,04,000/- ON A CCOUNT OF RENT FROM LEASING OF PROPERTIES AND RS.12,00,000/- ON ACCOUNT OF LEASING OF MACHINERY. INSURANCE CLAIM RECEIVED - ITA NO.766/DEL./2009 2 FREIGHT & HANDLING - INTEREST RECEIVED 414,218.00 INCOME TAX REFUND - PROFIT ON SALE OF ASSETS 2,877,316.00 12,259,911.41 3. THE REVISED GROUNDS OF APPEAL READ AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING TH E ADDITION OF RS.22,80,241/- MADE BY THE ASSESSING OFFICER EVEN T HROUGH THE CONDITIONS OF SECTION 22 OF THE LT. ACT, 1961 WERE MET, THEREFORE, THE CLAIM FOR DEPRECIATION WAS NOT MAINTAINABLE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDIT ION OF RS.13,00,683/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF DEPRECIATION ON MOULD AND DIES EVEN THOUGH THE CLAI M OF THE ASSESSEE COMPANY WAS NOT ADMISSIBLE AS NO MANUFACTU RING ACTIVITIES HAD BEEN CARRIED OUT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDIT ION OF RS.23,90,601/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF VARIOUS EXPENSES INCLUDING THE ADDITION OF RS.40,880/- INCU RRED ON EXEMPTED INCOME AND NOT ALLOWABLE UNDER SECTION 14A OF THE ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WITHOUT PREJUDICE TO THE GROUND NO.(III) ABOVE, THE ORDER O F THE LD. CIT(A) IS ALSO PERVERSE ON FACTS IN DELETING THE ADDITION OF RS.15,83,135/- (WHICH HAD BEEN ADDED BY THE ASSESSEE HIMSELF IN TH E COMPUTATION OF TOTAL INCOME) OUT OF TOTAL ADDITION OF RS.23,90, 601/- DISREGARDING THE FACT THAT THE ASSESSING OFFICER HA D COMPUTED THE ASSESSED INCOME FROM NET PROFIT AS PER P & L ACCOUN T AND NOT FROM RETURNED INCOME. 5. THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME O F HEARING OF APPEAL. 4. IN THE GROUND NO.1, THE ISSUE INVOLVED IS DELETI NG THE ADDITION OF RS.22,80,241/- MADE BY THE ASSESSING OFFICER BY HOL DING THAT THE CONDITIONS OF ITA NO.766/DEL./2009 3 SECTION 22 OF THE INCOME-TAX ACT, 1961 HAVE BEEN MA DE, THEREFORE, THE CLAIM OF DEPRECIATION WAS NOT MAINTAINABLE. 5. LEARNED DR SUBMITTED THAT IT IS AN UNDISPUTED FA CT THAT ASSESSEE HAD NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR. THE ASSESSING OFFICER ASKED TO EXPLAIN AND JUSTIFY THE CLAIM OF DEPRECIATION. THE ASSESSING OFFICER ALSO SHOW CAUSED THE ASSESSEE, WHY THE INCOME FROM THE RENT S HOULD NOT BE ASSESSED AS INCOME FROM HOUSE PROPERTY. ASSESSING OFFICER ALSO ASKED TO FURNISH THE RENT AGREEMENT IN RESPECT OF VARIOUS PREMISES LET OUT. THE ASSESSEE SUBMITTED THE AGREEMENTS IN RESPECT OF PROPERTIES, I.E., 130/24, FARIDABAD AND 143/24, FARIDABAD ONLY. NO EVIDENCE OR AGREEMENTS WERE SUBMITTED IN RESPECT OF REMAINING PROPERTIES. LEARNED DR ALSO PLEADED THAT THE CIT (A) HAD CONFIRMED THE ASSESSMENT OF RENTAL INCOME AS INCOME FROM HOUSE PROPERTY, HOWEVER, HE LIMITED THE DEPRECIATION TO THE EXTENT OF 33.60% AND HE ALLOWED SELF OCCUPIED PORTIONS. LEAR NED DR SUBMITTED THAT THE ASSESSEE HAS NOT SUBMITTED FULL PARTICULARS INCLUDI NG ALL THE LEASE DEEDS WHICH COULD JUSTIFY THE CLAIM OF THE SELF OCCUPATION AND RENTED OUT AREA. HE ALSO PLEADED THAT NONE OF THE LEASE AGREEMENT SPECIFIES THE LET OUT A REA. THE CLAIM OF THE ASSESSEE THAT 33.60% PROPERTIES WERE UNDER SELF OCCUPATION IS ALS O NOT VERIFIABLE. 6. LEARNED AR RELIED ON THE ORDER OF THE CIT (A). HE ALSO PLEADED THAT ASSESSING OFFICER ASSUMED THE AREA OF THE LET OUT P ARTIES AND SELF OCCUPATION WITHOUT GIVING ANY OPPORTUNITY TO EXPLAIN THE CLAIM . 7. WE HAVE HEARD BOTH THE SIDES IN DETAIL. CIT (A) DECIDED THE ISSUE AS UNDER :- 6. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF LD. AR AND PERUSED THE ORDER OF ASSESSMENT. I HAVE GONE INTO M Y OWN ORDER IN THE INSTANT CASE IN APPEAL NO 158/06-07 FOR AY. 199 9-2000 ITA NO.766/DEL./2009 4 WHEREIN IT HAS BEEN HELD THAT A SIMILAR ISSUE AROSE IN THE SISTER CONCERN OF THE GROUP M/S LAKHANI RUBBER UDYOG PVT. LTD.. IN THE YEAR 1999-00 AND 2000-01, WHEREIN ON THE SIMILAR FA CTS AND CIRCUMSTANCES THE INCOME FROM RENTED BUILDING SHOWN AS BUSINESS INCOME BY THE APPELLANT COMPANY WAS ACCORDINGLY CON FIRMED TO BE THE 'INCOME FROM PROPERTY' INSTEAD OF 'INCOME FROM BUSINESS' BY THE AD. HOWEVER, THE ACTION OF THE AO IN DISALLOWING TH E DEPRECIATION ON THE RENTED BUILDING IN THESE TWO YEARS, ON CAPIT ALIZATION METHOD AS PER WEALTH TAX ACT IS NOT LEGALLY DEFENSIBLE IN THIS PARTICULAR INSTANCE. THE DEPRECIATION SHOULD BE ALLOWED ON THE BASIS OF W.D.V. AS PROVIDED IN THE BOOKS OF ACCOUNT IN RESPE CT OF THE LET OUT PROPORTION ONLY AS PER THE FINDING IN THE CASE OF M /S LAKHANI RUBBER UDYOG PVT. LTD. FOR AY. 1999-00 AND 2000-01 WHERE IT WAS DECIDED TO BE ALLOWED ON W.D.V. BASIS ON THE RENTED PORTION OF THE BUILDING. THEREFORE, A SIMILAR DECISION IS IMPERATI VE IN THE CASE UNDER CONSIDERATION AND THEREFORE, THE ACTION OF TH E AO IN SHIFTING THE INCOME FROM BUSINESS INCOME TO INCOME FROM HOUS E PROPERTY IS UPHELD, BUT HE IS DIRECTED TO ALLOW THE DEPRECIATIO N ON THE W.D.V. OF THE RENTED PORTION OF THE BUILDING AS PER THE IN COME TAX RULES, 1962.' THEREFORE, ON THE IDENTICAL FACT AND CIRCUMS TANCES, DISALLOWANCE OF DEPRECIATION ON THE WHOLE OF THE PR OPERTIES IS NOT APPROPRIATE. THE SAME OUGHT TO HAVE BEEN LIMITED TO RENTED-OUT PORTION ONLY, WHICH WAS ONLY 33.60% AS ALREADY EXPL AINED BY THE APPELLANT BEFORE THE A.O. DURING THE ASSESSMENT PRO CEEDINGS. HENCE THE DISALLOWANCE SO WORKED OUT BEING ON SUSPI CIONS AND ARBITRARINESS IS DIRECTED TO BE DELETED. FROM THE FINDING OF THE CIT (A), IT IS CLEAR THAT T HE AREA OF SELF OCCUPATION AND LET OUT HAS NOT BEEN SPECIFIED. CIT (A) HAD ONLY DIREC TED TO ALLOW DEPRECIATION ON THE W.D.V. OF THE RENTED PORTION OF THE BUILDING. SINC E ASSESSEE HAD NOT FILED ALL RENT AGREEMENTS WHICH SPECIFY THE AREA. IN VIEW OF THES E FACTS, THE ISSUE REQUIRES A FRESH LOOK ON THE FACTUAL ASPECTS. THE ASSESSEE SHALL SU BMIT ALL THE NECESSARY AGREEMENTS AND ALSO THE EVIDENCES TO JUSTIFY THE CLAIM OF THE SELF OCCUPIED AREA OF THE BUILDING. THE ASSESSING OFFICER SHALL WORK OUT THE SELF OCCUP ATION PORTION OF THE BUILDING AND DIRECTED TO ALLOW THE DEPRECIATION ON THE W.D.V. OF THE SAME ACCORDINGLY. HENCE, THIS MATTER IS RESTORED TO THE FILE OF THE ASSESSIN G OFFICER. ITA NO.766/DEL./2009 5 8. IN THE GROUND NO.2, THE REVENUE HAS RAISED THE I SSUE REGARDING THE DELETION OF ADDITION OF RS.13,00,683/- MADE BY ASSESSING OFFICE R ON ACCOUNT OF DEPRECIATION ON MOULD AND DIES. 9. LEARNED DR SUBMITTED THAT THERE WAS NO MANUFACTU RING ACTIVITY CARRIED OUT BY THE ASSESSEE DURING THE YEAR, THEREFORE, THE CIT (A) IS NOT JUSTIFIED IN ALLOWING THE DEPRECIATION. HE ALSO PLEADED THAT THE CIT (A) HAS WRONGLY DIRECTED TO ALLOW DEPRECIATION BY HOLDING THAT EVEN THOUGH THERE WAS NO BUSINESS ACTIVITY, ASSETS LIKE PLANT AND MACHINERY HAD BEEN KEPT READY FOR USE AND DEPRECIATION ON THEM OUGHT TO HAVE BEEN ALLOWED EVEN FOR THE PASSIVE USE. LEARN ED DR PLEADED TO SET ASIDE THE ORDER OF CIT (A). 10. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THA T THE CLAIM OF DEPRECIATION OF RS.13,00,683/- WAS MADE ON THE MOULDS AND DIES. TH ESE ASSETS WERE LEASED OUT. THE INCOME FROM LETTING OUT OF THESE MOULDS AND DIE S IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. ASSESSING OFFICER HAS ASSESSED THE INCOME UNDER THE HEAD INCOME FROM PROPERTY. IT SHOULD HAVE BEEN ASSESSED INCOME FROM OTHER SOURCES, ON SUCH INCOME, DEPRECIATION IS ALLOWED U/S 57(II) OF ACT. THE ASSESSEE DESERVES FOR DEPRECIATION ON THESE ASSETS AS PER SECTION 57(II) OF INCOME-TAX ACT. HE ALSO PLEADED THAT EVEN THE DEPRECIATION IS ALLOWABLE FOR PASSIVE USE. FOR THIS, HE RELIED ON THE DECISION OF ACIT VS. CHENNAI PETROLEUM CORPORATION LIMITED 32 DTR 187. 11. WE HAVE HEAD BOTH THE SIDES. FROM THE PLEADING S OF BOTH SIDES AND FROM RECORD, WE FIND THAT THE FACTS ON ISSUE HAVE NOT BE EN BROUGHT OUT CLEARLY. WHETHER THE RENTAL INCOME RECEIVED BY THE ASSESSEE OF RS.12 LACS PERTAINS TO THE RENTAL OF MOULDS AND DIES. TO WHOM THESE ASSETS WERE LET OUT . WHAT WAS THE AGREEMENT? ITA NO.766/DEL./2009 6 ALL THESE FACTS ARE NECESSARY TO ASCERTAIN THE CORR ECT NATURE OF THE INCOME AND ONLY THEN THE CLAIM OF DEPRECIATION ON THESE ASSETS COUL D BE ENTERTAINED. WHETHER THE DEPRECIATION IS TO BE ALLOWED FOR PASSIVE USE OR IT HAS TO BE ALLOWED UNDER SECTION 57(II) OF THE INCOME-TAX ACT. UNDER WHICH HEAD OF INCOME THE RENTAL INCOME RECEIVED ON ACCOUNT OF LETTING OUT MOULDS AND DIES IS TO BE ASSESSED. THEREFORE IN OUR CONSIDERED VIEW, THIS ASPECT ALSO REQUIRES RECO NSIDERATION AT THE LEVEL OF THE ASSESSING OFFICER. THEREFORE, WE RESTORE THIS ISSU E TO THE FILE OF ASSESSING OFFICER TO DECIDE AFRESH. 12. IN THE GROUND NO.3, THE ISSUE IS REGARDING THE DELETION OF ADDITION OF RS.23,90,601/- MADE BY ASSESSING OFFICER INCLUDING THE ADDITION OF EXPENSES OF RS.40,880/- INCURRED ON EXEMPTED INCOME AND NOT ALL OWABLE UNDER SECTION 14A OF THE INCOME-TAX ACT. GROUND NO.4 IS AGAINST THE DEL ETION OF ADDITION OF RS.15,83,135/- WHICH HAD BEEN ADDED BY THE ASSESSEE HIMSELF IN COMPUTATION OF TOTAL INCOME OUT OF TOTAL ADDITION OF RS.23,90,601/ -. ASSESSING OFFICER COMPUTED INCOME FROM NET PROFIT AS PER P&L ACCOUNT AND NET F ROM RETURNED INCOME. 13. LEARNED DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. LEARNED AR RELIED ON THE ORDER OF THE CIT (A). 14. WE HAVE HEARD BOTH THE SIDES. WE FIND THAT THE TOTAL DISALLOWANCE OF RS.23,90,601/- INCLUDES FIVE ITEMS (I) OUT OF BUI LDING REPAIR RS.1,54,690/-; (II) OUT OF RATE AND TAX RS.3,72,933/-; (III) OUT OF INSURAN CE RS.2,238,963/-; (IV) 10% OUT OF REMAINING RS.40,880/- (RS.4,088/-); AND (V) EXPENSE S DISALLOWED IN COMPUTATION OF INCOME OF RS.15,83,135/-. WE ALSO FIND THAT THE ISSUE REGARDING EXPENDITURE UNDER THE HEAD BUILDING REPAIRS, RATES AND TAXES AND INSU RANCE HAD NOT BEEN THRASHED OUT ITA NO.766/DEL./2009 7 PROPERLY. SOME OF THE BUILDINGS OR PARTS THEREOF W ERE LET OUT AND THE INCOME FROM THE SAME IS BEING ASSESSED AS INCOME FROM HOUSE PRO PERTY, ON WHICH DEDUCTIONS ARE ALLOWED AS PER SECTIONS 23 & 24 OF THE INCOME-TAX A CT. NO FURTHER DEDUCTION CAN BE ALLOWED UNDER THIS HEAD OF INCOME. ONLY EXPENSE S RELATED TO THE SELF OCCUPIED FOR BUSINESS PURPOSE CAN BE CLAIMED. THE FACTS NEE D CLARITY ABOUT THE EXPENSES TO WHICH THESE EXPENSES PERTAIN. THESE FACTS ARE NECE SSARY TO DECIDE THE CLAIM OF ASSESSEE. THEREFORE, THIS ISSUE REQUIRES FRESH CON SIDERATION AT THE LEVEL OF THE ASSESSING OFFICER. THE SAME IS RESTORED TO THE FIL E OF THE ASSESSING OFFICER TO BE DECIDED AFRESH. SIMILARLY, THE ISSUE RAISED IN GRO UND NO.4 ALSO NEEDS VERIFICATION. THIS IS A FACTUAL ASPECT WHICH CAN BE VERIFIED FROM RECORDS. THEREFORE, THIS ISSUE ALSO RESTORED TO THE FILE OF ASSESSING OFFICER. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF JANUARY, 2012. SD/- SD/- (R.P. TOLANI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 31 ST DAY OF JANUARY, 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), FARIDABAD. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.