M/s Overseas Warehousing (P) Ltd., Ludhiana V. ACIT, Ludhiana

ITA 770/CHANDI/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3816 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 16-11-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 24-09-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTALDR
• Keywords: Depreciation; Opportunity of being heard; Tangible material; Difference of opinion; Deemed dividend; Reason to believe; Change of opinion
• Section: 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 770/CHD/2015 ASSESSMENT YEAR : 2003-04 M/S OVERSEAS WAREHOUSING VS THE ACIT, (P) LTD., C-205, FOCAL POINT, CIRCLE 1, LUDHIANA. LUDHIANA. PAN: AAACO2001J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR RESPONDENT BY : SHRI S.K.MITTAL,DR DATE OF HEARING : 23.11.2016 DATE OF PRONOUNCEMENT : 29.11.2016 O R D E R THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST ORDER OF LD. CIT(APPEALS)-I LUDHIANA DATED 20.08.20 15 FOR ASSESSMENT YEARS 2003-04. 2. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF AUTHORITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. 3. ON GROUND NOS. 1 AND 2, ASSESSEE CHALLENGED THE RE-OPENING OF THE ASSESSMENT UNDER SECTION 148 OF T HE I.T. ACT AND DISMISSING THE CLAIM OF ASSESSEE ON AC COUNT OF DEPRECIATION CLAIMED ON WAREHOUSE BUILDING @ 25% . BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE 2 COMPANY FILED RETURN OF INCOME ON 01.12.2003 SHOWIN G INCOME OF RS. 22,35,015/-. THE CASE WAS ASSESSED UNDER SECTION 143(1) OF THE ACT AT THE RETUNED INCO ME. THE CASE WAS REOPENED UNDER SECTION 148 OF THE INCO ME TAX ACT. THE REASONS ARE RECORDED IN THE IMPUGNED ORDERS IN WHICH THE ASSESSING OFFICER NOTED ON PERU SAL OF THE CHART OF THE FIXED ASSETS AND ALLOWABLE DEPRECIATION FURNISHED BY THE ASSESSEE THAT ASSESSE E HAS SHOWN WAREHOUSE UNDER THE HEAD PLANT AND MACHINERY AND CLAIMED 25% DEPRECIATION ON IT AMOUNTING TO RS. 2,49,170/- I.E. 25% OF RS. 9,96,68 0/- WHICH IS THE WDV AS ON 31.03.2003. THE WAREHOUSE I S ACTUALLY A BUILDING WHICH QUALIFIES FOR DEPRECIATIO N @ 10% ONLY, WHICH COMES OUT TO RS. 99,668/-. THEREFO RE, ASSESSEE CLAIMED EXCESS DEPRECIATION OF RS. 1,49,50 2/- WHICH NEEDS TO BE DISALLOWED. THE ASSESSING OFFICE R, THEREFORE, HAD A REASON TO BELIEVE THAT INCOME ESCA PED AMOUNTING TO RS. 1,49,502/- IN ASSESSMENT YEAR UNDE R APPEAL. THE ASSESSEE SUBMITTED BEFORE THE AUTHORIT IES BELOW THAT DEFINITION OF PLANT IN SECTION 43(3) O F THE ACT IS NOT EXHAUSTIVE BUT LEGISLATIVE AND HAS A WID E MEANING. THE APPARATUS OF BUSINESSMAN BY WHICH HE IS CARRYING ON BUSINESS, MAY BE TERMED AS PLANT. TH E APPARATUS NEED NOT TO BE USED BY MECHANICAL OPERATI ON OR BY ANOTHER PROCESS. IN CASE OF BUILDING, IT HA S TO BE SEEN WHETHER IT CAN BE SAID TO BE APPARATUS BY WHIC H THE BUSINESS IS TO BE CARRIED ON. THE STRUCTURE COU LD BE COVERED WITHIN THE TERM PLANT IF THE BUILDING OR 3 STRUCTURE OR PART THEREOF IS SUCH ON WHICH THE BUSI NESS ACTIVITIES ARE CARRIED ON, THEN IT WOULD AMOUNT TO PLANT. THE ASSESSEE, THEREFORE, RIGHTLY CLAIMED DEPRECIATION ON SAME. 3(I) THE ASSESSING OFFICER, HOWEVER, HELD THAT NATU RE OF BUSINESS OF THE ASSESSEE WAS RUNNING OF CONTAINER FREIGHT STATION ( AN INFRASTRUCTURE FACILITY). ACCO RDING TO MEANING OF THE WORD WAREHOUSE IN WIKIPEDIA IS A BUILDING ONLY. BY NO STRETCH OF IMAGINATION, CAN WAREHOUSE BE TERMED AS PLANT AND MACHINERY. AS PER THE DEFINITION, IT IS A BUILDING AND WAS ELIGIBLE F OR DEPRECIATION @ 10% ONLY AND DISALLOWED BY ASSESSING OFFICER, THEREFORE, ASSESSING OFFICER REOPENED THE CASE UNDER SECTION 148 OF THE ACT. THE ASSESSEE REITERA TED SAME SUBMISSIONS BEFORE LD. CIT(APPEALS). IT WAS A LSO SUBMITTED THAT NOTICE UNDER SECTION 154 OF THE ACT WAS ALSO ISSUED BUT IT WAS NOT DECIDED TILL PROCEEDINGS UNDER SECTION 148 OF THE ACT HAVE BEEN INITIATED. IT WAS FURTHER SUBMITTED THAT NOTICE UNDER SECTION 148 OF THE ACT HAVE BEEN ISSUED ON MERE CHANGE OF OPINION. 4. THE LD. CIT(APPEALS) NOTED THAT RE-OPENING OF TH E ASSESSMENT ON THE BASIS OF AN ERROR POINTED OUT BY THE AUDIT PARTY HAS BEEN HELD VALID BY THE HON'BLE SUPR EME COURT IN THE CASE OF CIT VS P.V.S. BEEDIES PVT. LTD . 237 ITR 13. THE LD. CIT(APPEALS) ALSO NOTED THAT IN TH IS CASE, RETURN WAS FINALIZED UNDER SECTION 143(1) OF THE ACT ONLY AND ASSESSING OFFICER HAS NOT EXPRESSED AN Y 4 OPINION ON THE ISSUE AND HAS NOT EXAMINED THIS ISSU E EARLIER. THEREFORE, THERE IS NO QUESTION OF CHANGE OF OPINION. THE LD. CIT(APPEALS), THEREFORE, CONFIRME D RE- OPENING OF THE ASSESSMENT AND DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. 4(I) THE ASSESSEE ON MERIT ALSO REITERATED SAME FAC TS AND SUBMISSIONS CLAIMING WAREHOUSE TO BE PLANT AND MACHINERY. THE LD. CIT(APPEALS) ALSO NOTED THAT N ATURE OF BUSINESS OF THE ASSESSEE IS RUNNING OF A CONTAIN ER FREIGHT STATION WHICH IS IN THE NATURE OF AN INFRASTRUCTURE FACILITY. A WAREHOUSE IS A COMMERCI AL BUILDING FOR STORAGE OF GOODS WHERE RAW MATERIAL OR MANUFACTURED GOODS CAN BE STORED. THESE ARE BUILDI NGS ONLY. HE HAS RELIED UPON ORDER OF ITAT HYDERABAD BENCH IN THE CASE OF A.P STATES WAREHOUSING CORPORATION LTD. VS DCIT 47 SOT 47 IN WHICH IT WAS HELD THAT, THE LEGISLATURE NEVER INTENDED TO GIVE SUCH BENEFIT ( DEPRECIATION @ 25%) OF SUCH DEPRECIATION TO A BUILDING WHICH IS USUALLY MORE DURABLE THAN PLAN T OR MACHINERY. IT WAS FURTHER HELD THAT BUILDING STRUCTURE DOES NOT PLAY ANY PART IN THE CARRYING OUT OF THE ACTIVITIES BY MERELY CONSTITUTES A PLAYS WITHIN WHI CH THEY ARE CARRIED OUT AND HENCE, CANNOT BE REGARDED AS A PLANT AND IT IS ELIGIBLE FOR DEPRECIATION AT THE RA TE APPLICABLE FOR BUILDING. 5 5. THE LD. CIT(APPEALS), ON MERIT ALSO, CONFIRMED T HE ADDITION AND DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. 6. AFTER CONSIDERING RIVAL SUBMISSIONS, I DO NOT FI ND ANY MERIT IN THESE GROUNDS OF APPEAL OF THE ASSESSE E. IT IS ADMITTED FACT THAT RETURN WAS MERELY PROCESSED U NDER SECTION 143(1) OF THE ACT, THEREFORE, THERE IS NO Q UESTION OF FORMING ANY OPINION ON CLAIM OF THE ASSESSEE AT ASSESSMENT STAGE. THEREFORE, THERE IS NO CHANGE OF OPINION IN THIS CASE. HON'BLE DELHI HIGH COURT IN THE CASE OF INDU LATA RANGWALA VS DCIT 384 ITR 337 HELD AS UNDER : HELD, DISMISSING THE PETITION, THAT THE RETURN HAVI NG BEEN PROCESSED UNDER SECTION 143(1) OF THE ACT, THERE WA S NO OCCASION FOR THE ASSESSING OFFICER TO FORM AN OPINI ON ON WHETHER THERE WAS ANY ESCAPEMENT OF INCOME. THE REA SONS TO BELIEVE REVEALED THAT THE ASSESSING OFFICER ON G OING THROUGH THE RETURN SUBSEQUENTLY FOUND THAT THE ASSE SSEE HAD SHOWED A LOSS OF THE FIRM AT RS. 3,12,885. THE LOSS OF RS. 12,94,055 OF THE FIRM WAS CONVERTED INTO A LOSS OF THE PROPRIETARY CONCERN. THUS IT WAS AFTER COMPARING TH E PROFIT AND LOSS ACCOUNT FOR THE TWO PERIODS, I.E., PRIOR TO THE ASSESSEE TAKING OVER THE FIRM AND THEREAFTER, T HAT IT WAS NOTICED THAT THE ASSESSEE HAD WRONGLY CLAIMED S HARE OF LOSS FROM THE FIRM WHICH WAS IMPERMISSIBLE IN TE RMS OF SECTION 10(2A) OF THE ACT. THE ASSESSING OFFICER WA S OF THE VIEW THAT THE ASSESSEE HAD 'ARTIFICIALLY AND WI TH AN ULTERIOR MOTIVE' REDUCED THE INCOME FROM THE PROPER TY BY SETTING OFF LOSS ACCRUING TO THE FIRM. APART FROM T HIS THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE SHOWED THAT SHE HAD CLAIMED A LOSS ON ACCOUNT OF THE BAD DEBT OF TH E FIRM. THE CONTENTION OF THE ASSESSEE THAT THE REASON TO B ELIEVE 6 HAD TO BE BASED ON SOME NEW TANGIBLE MATERIAL COULD NOT BE ACCEPTED. [THE COURT DID NOT EXPRESS ANY OPINION ON THE ASSESSING OFFICER'S REASON TO BELIEVE EXCEPT TO HOLD THAT IT COULD NOT BE SAID TO HAVE BEEN BASED ON A M ERE 'CHANGE OF OPINION'. THE INTERIM ORDER WAS VACATED WITH A DIRECTION TO THE ASSESSING OFFICER TO PASS A FINA L ORDER AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. 7. THE LD. COUNSEL FOR THE ASSESSEE MERELY CONTENDE D THAT THE WAREHOUSE IS PART OF THE BLOCK OF ASSET ON WHICH, EARLIER HIGHER DEPRECIATION WAS CLAIMED. THEREFORE, THE BLOCK OF ASSET CANNOT BE BIFURCATED. HOWEVER, LD. COUNSEL FOR THE ASSESSEE WAS NOT ABLE TO EXPLAIN AS TO HOW THE WAREHOUSE WAS PLANT AND MACHINERY IN THE CASE OF THE ASSESSEE. THE ASSESSEE , MERELY CLAIMED BEFORE THE AUTHORITIES BELOW THAT TH E APPARATUS OF THE BUSINESSMAN BY WHICH HE IS CARRYIN G ON BUSINESS, MAY BE TERMED AS PLANT. HOWEVER, TH E AUTHORITIES BELOW HAVE NOTED THAT NATURE OF BUSINES S OF THE ASSESSEE WAS RUNNING OF A CONTAINER FREIGHT STA TION WHICH IS AN INFRASTRUCTURE FACILITY ONLY. THEREFOR E, IT WAS CORRECTLY HELD TO BE BUILDING ONLY. EVEN DUR ING THE COURSE OF ARGUMENTS, NOTHING IS EXPLAINED AS TO HOW WAREHOUSE IN THE NATURE OF BUSINESS OF THE ASSESSEE WAS PLANT AND MACHINERY SO AS TO CLAIM HIGHER DEPRECIAT ION. MERELY BECAUSE IN EARLIER YEAR, WAREHOUSE WAS FORMI NG PART OF THE BLOCK OF ASSET ON WHICH NO OPINION HAVE BEEN EXPRESSED BY THE AUTHORITIES BELOW ON MERIT, WOULD NOT 7 ENTITLE THE ASSESSEE TO CLAIM HIGHER DEPRECIATION. IN THE ABSENCE OF ANY EVIDENCE OR MATERIAL ON RECORD TO PR OVE AS TO HOW WAREHOUSE IS PLANT AND MACHINERY IN THE C ASE OF THE ASSESSEE, I AM OF THE VIEW RE-OPENING OF THE ASSESSMENT IS WHOLLY JUSTIFIED IN THE MATTER AND ADDITION ON MERIT HAVE ALSO BEEN CORRECTLY MADE. GROUND NOS. 1 AND 2 OF APPEAL OF THE ASSESSEE ARE, ACCORDINGLY, DISMISSED. 8. ON GROUND NO. 3, ASSESSEE CHALLENGED THE ADDITIO N OF RS. 10 LACS ON ACCOUNT OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT OF THE INCOME TAX ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS ING OFFICER HAS FOUND THAT ASSESSEE COMPANY HAD RECEIVE D UNSECURED LOAN OF RS. 10 LACS FROM M/S NIJJER CLEAR ING AND SHIPPING AGENCY PVT. LTD., LUDHIANA DURING THE YEAR. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY SUCH LOAN BE NOT TREATED AS DIVIDEND UNDER SECTION 2(22) (E) OF THE ACT. THE ASSESSEE EXPLAINED THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE IN T HE CASE OF THE ASSESSEE. RS. 10 LACS WAS RECEIVED BY ASSES SEE COMPANY FROM M/S NIJJER CLEARING AND SHIPPING AGENC Y PVT. LTD. WHICH WAS ON ACCOUNT OF SECURITY AGAINST ROOM NO. 15 MEASURING 651 SQ. FT. SITUATED AT THE FIRST FLOOR OF THE COMPLEX AT LUDHIANA WHICH IS GIVEN ON RENT TO T HIS COMPANY FOR THE LAST SO MANY YEARS. PHOTO COPY OF THE LEASE AGREEMENT WAS FILED. COMPLETE COPIES OF RENT ACCOUNT OF BOTH THE CONCERNS WERE FILED. IT WAS 8 EXPLAINED THAT WHILE FINALIZING THE BALANCE SHEET O F THE ASSESSEE COMPANY, THE SAID AMOUNT WAS SHOWN AS UNSECURED LOAN BY AN OVERSIGHT INSTEAD OF SECURI TY. PROVISIONS OF SECTION 2(22)(E) OF THE ACT CAN BE AT TRACTED TO THE SHAREHOLDER ONLY AS IS HELD BY THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS HOTEL HI LLTOP 313 ITR 116. THE ASSESSING OFFICER, HOWEVER, NOTED THAT SHAREHOLDERS OF BOTH THE COMPANIES ARE COMMON AND NOTED THEIR SHARE HOLDING. THE ASSESSING OFFICER DI D NOT BELIEVE THE LICENCE DEED BECAUSE IT IS ON PLAIN PAP ER WITH THE SIGNATURE OF AUTHORIZED PERSONS AND IS NOT REGISTERED. THE ASSESSING OFFICER, ACCORDINGLY, AD DED THE AMOUNT TO THE INCOME OF THE ASSESSEE UNDER SECT ION 2(22)(E) OF THE ACT. THE ASSESSEE REITERATED SAME SUBMISSIONS BEFORE LD. CIT(APPEALS). THE LD. CIT(APPEALS), HOWEVER, CONFIRMED THE ADDITION. 9. AFTER CONSIDERING RIVAL SUBMISSIONS, I AM OF TH E VIEW MATTER REQUIRES RE-CONSIDERATION AT THE LEVEL OF THE ASSESSING OFFICER. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE COMPANY WAS NOT A SHAREHOLD ER IN M/S NIJJER CLEARING AND SHIPPING AGENCY PVT. LTD ., LUDHIANA FROM WHOM SECURITY HAVE BEEN RECEIVED. HE HAS RELIED UPON DECISION OF THE RAJASTHAN HIGH COUR T IN THE CASE OF CIT VS HOTEL HILLTOP 313 ITR 116 IN WHI CH IT WAS HELD AS UNDER : HELD, (I) THAT THE ASSESSEE WAS NOT SHOWN TO BE TH E SHAREHOLDER OF THE COMPANY AND THE TWO INDIVIDUALS WHO WERE PARTN ERS OF THE FIRM 9 WERE THE MAJORITY SHAREHOLDERS OF THE COMPANY. THER EFORE THE SECURITY ADVANCED BY THE COMPANY TO THE ASSESSEE CO ULD NOT BE DEEMED TO BE DIVIDEND AS THE ASSESSEE WAS NOT A SHA REHOLDER IN THE COMPANY. THE AMOUNT WAS PAID BY THE COMPANY TO THE ASSESSEE ON BEHALF OF THE INDIVIDUALS. THEREFORE, THE LIABILITY OF TAX AS DEEMED DIVIDEND COULD BE ATTRACTED IN THE HANDS OF THE INDIVIDUALS, BEING THE SHAREHOLDERS IN THE COMPANY. THE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE ORDER OF THE COMMISS IONER (APPEALS) DELETING THE ADDITION OF RS. 10 LAKHS MADE AS DEEME D DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. 10. THE AUTHORITIES BELOW HAVE NOT GIVEN ANY FINDIN G THAT ASSESSEE IS NOT A SHAREHOLDER OF THE COMPANY F ROM WHOM SECURITY HAVE BEEN RECEIVED. MERELY BECAUSE ON E OF THE DIRECTOR IS COMMON IN BOTH THE CONCERNS, WOU LD NOT BE SIGNIFICANT TO ATTRACT THE PROVISIONS OF SEC TION 2(22)(E) OF THE ACT. THE ASSESSEE EXPLAINED BEFORE AUTHORITIES BELOW THAT THE AMOUNT RECEIVED IS SECU RITY AND FILED COPY OF THE LEASE AGREEMENT AND COPY OF T HE RENT ACCOUNT ALSO WHICH IS COMING UP FROM EARLIER Y EARS. THEREFORE, THERE IS NO REASON TO DISBELIEVE EXPLANA TION OF THE ASSESSEE. MERELY BECAUSE LICENCE DEED WAS O N PLAIN PAPER AND NOT REGISTERED, WOULD NOT BE GROUND TO REJECT CONTENTION OF THE ASSESSEE. THE FACTUAL FIND INGS SHALL HAVE TO BE GIVEN BY THE AUTHORITIES BELOW WHE THER THE AMOUNT RECEIVED WAS SECURITY FROM THIS CONCER N AND WHETHER ASSESSEE WAS A SHAREHOLDER IN THE COMPA NY FROM WHOM SECURITY HAVE BEEN RECEIVED. IN CASE OF NEGATIVE FACTUAL FINDINGS ON FACTS, PROVISIONS OF S ECTION 2(22)(E) OF THE ACT WOULD NOT BE ATTRACTED IN THE C ASE OF 10 THE ASSESSEE. BOTH THE ISSUES THEREFORE, REQUIRE R E- CONSIDERATION AT THE LEVEL OF THE ASSESSING OFFICER . IN THIS VIEW OF THE MATTER, I SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FIL E OF ASSESSING OFFICER WITH DIRECTION TO RE-DECIDE THIS ISSUE AS PER LAW IN THE LIGHT OF JUDGEMENT OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF M/S HOTEL HILLT OP (SUPRA). THE ASSESSING OFFICER SHALL GIVE REASONAB LE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED: 29 TH NOVEMBER, 2016. POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT,DR ASSISTANT REGISTRAR, ITAT/CHD