M/s. Manav Packaging Industries Pvt. Ltd., Pune V. ITO, Ward 11(1), Pune

ITA 801/PUN/2013

• Counselvise Citation: 80124514 RSA 2013
• Duration Of Justice: 2 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 04-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Question of law; Tax effect
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE M S SUSHMA CHOWLA , JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 764 /PN/201 3 ASSESSMENT YEAR: 200 5 - 0 6 THE INCOME TAX OFFICER, WARD 11(1), PUNE . APPELLANT VS. M/S. MANAV PACKAGING INDUSTRIES PVT. LTD., PLOT NO.76/77, D - 3 BLOCK , MIDC, CHINCH WAD, PUNE 411019 . RESPONDENT PAN: AABCM1824A ITA NO. 1932 /PN/201 4 ASSESSMENT YEAR: 200 5 - 0 6 M/S. MANAV PACKAGING INDUSTRIES PVT. LTD., PLOT NO.76/77, D - 3 BLOCK, MIDC, CH INCHWAD, PUNE 411019 . APPELLANT PAN: AABCM1824A PAN: AABCM1824A VS. THE INCOME TAX OFFICER, WARD 11(1), PUNE . RESPONDENT ITA NO S . 80 1 TO 803 /PN/201 3 ASSESSMENT YEAR S : 200 6 - 0 7 TO 2008 - 09 M/S. MANAV PACKAGING INDUSTRIES PVT. LTD., PLOT NO.76/77, D - 3 BL OCK, MIDC, CHINCHWAD, PUNE 411019 . APPELLANT PAN: AABCM1824A VS. THE INCOME TAX OFFICER, WARD 11(1), PUNE . RESPONDENT ASSESSEE BY : SHRI KISHOR PHADKE REVENUE BY : SHRI RAJESH DAMOR DATE OF HEARING : 21 - 0 5 - 201 5 DAT E OF PRONOUNCEMENT : 29 - 0 5 - 201 5 ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 2 ORDER PER SUSHMA CHOWLA, J M : OUT OF THIS BUNCH OF APPEALS, CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE ARE AGAINST CONSOLIDATED ORDER OF CIT(A) - I , PUNE , DATED 28 . 0 1 .201 3 RELATING TO ASSESSMENT YEAR 200 5 - 0 6 AGAINST ORDER PASSED UNDER SECTION 143(3) R.W.S. 263 OF THE INCOME TAX ACT, 1961. FURTHER, THE ASSESSEE HAS FILED APPEALS AGAINST CONSOLIDATED ORDER OF CIT(A) - I , PUNE , DATED 28 . 01 .201 3 RELATING TO ASSESSMENT YEAR S 200 6 - 0 7 TO 2008 - 09 AGAINST ORDER S PASSED UNDER SECTION ASSESSMENT YEAR S 200 6 - 0 7 TO 2008 - 09 AGAINST ORDER S PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2 . ALL THE APPEALS RELATING TO THE SAME ASSESSEE S ON SIMILAR ISSUES WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3 . THE ASSESSEE IN THE APPEALS RELATING TO ASSESSMENT YEARS 2006 - 07 TO 2008 - 09 IN ITA NOS.801 TO 803/PN/2013 HAS RAISED SIMILAR GROUNDS OF APPEAL . THE FACTS IN ALL THE APP EALS BEFORE US ARE IDENTICAL. HOWEVER, REFERENCE IS BEING MADE TO THE FACTS AND ISSUES IN ITA NO. 801 /PN/20 1 3 TO ADJUDICATE THE ISSUES. 4. THE GROUNDS OF APPEAL RAISED IN ITA NO.801/PN/2013 ARE AS UNDER: - 1. THE LEARNED CIT(A) - I , PUNE HAS ERRED IN LA W AND ON FACTS IN C ONFIRMING THE ORDER OF THE LEARNED AO TREATING THE LEASE INCOME OF RS . 17 , 36 , 000 AS INCOME FR OM OTHER SOURCES ' INSTEAD OF ' INCOME FROM BUSINESS AND PROFESSION ' . 2. WITHOUT PREJUDICE TO GROUND NO 1 ABOVE , THE LEARNED CIT(A) - I , PUNE ERRED IN LAW AND ON FACTS IN CONFIRMING THE ORDER OF THE LEARNED AO TREATING THE LEASE INCOME OF RS . 17 , 36 , 000 AS ' INCO ME FROM OTHER SOURCES ' INSTEAD OF ' INCOME FROM HOUSE PROPERTY ' . 3. THE LEARNED CIT(A ) - I , PUNE ERRED IN LA W AND ON FACTS IN CONF IR MING THE ADDITION OF RS . 1 , 06 , 530 / - MADE BY THE LEARNED AO ON ACCOUNT OF 50 % OF INTEREST PAID ON SECURED LOANS ON THE GROUND OF LACK OF NEXUS . 4. THE LEARNED CIT(A) - I, PUNE ERRED IN LAW AND ON FACTS IN CONFIRMING THEDISALLOWANCE OF KEYMAN INSURANCE EXPENDITURE OF RS. 1,00 , 922/ - BEING EXPENSES OF DISCONTINUED MANUFACTURING BUS I NESS. ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 3 5. THE LEARNED CIT ( A) - I , PUNE ERRED IN LA W AND ON FA CTS IN CONFIRMING THE DISALLO W ANCE FOR CLAIM OF DEDUCTION IN RESPECT OF PAYMENTS MADE IN A Y 2006 - 07 AND CLAIMED U/S 43B. 6. THE APPELLANT CRAVES LEAVE TO ADD / MODIFY / ALTER / DELETE ALL / ANY OF THE GROUNDS OF APPEAL . 5. IN ASSESSMENT YEAR 2007 - 08, IN AD DITION TO THE ABOVE, THE ASSESSEE HAS RAISED GROUND OF APPEAL NO.6 WHICH READS AS UNDER: - 6. THE LEARNED CIT(A) I, PUNE ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION ON ACCOUNT OF THE INCOME TAX REFUND, CREDITED TO P & L, WHILE COMPUTING THE REVISED COMPUTATION OF INCOME. 6. AT THE OUTSET, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT THE GROUNDS OF APPEAL NOS.1 AND 3 IN ALL THE APPEALS ARE NOT PRESSED , HENCE, THE SAME ARE DISMISSED AS NOT PRESSED. FURTHER, THE LEAR NED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STATED THAT THE GROUND OF APPEAL NO.6 RAISED IN ASSESSMENT YEAR 2007 - 08 IS NOT PRESSED, HENCE, THE SAME IS ALSO DISMISSED AS NOT PRESSED. 7. BY WAY OF GROUND OF APPEAL NO.2 , THE ASSESSEE HAS RAISED AN ALTERNA TE PLEA IN RESPECT OF THE TREATMENT OF LEASE INCOME RECEIVED BY THE ASSESSEE. THE ASSESSEE HAD DECLARED THE SAID LEASE INCOME AS INCOME FROM BUSINESS. HOWEVER, THE AUTHORITIES BELOW HAVE ASSESSED THE SAME AS INCOME FROM OTHER SOURCES . B UT THE PLEA OF TH E ASSESSEE BEFORE US IS THAT THE SAID LEASE INCOME SHOULD BE ASSESSED AS INCOME FROM HOUSE PROPERTY IN THE HANDS OF THE ASSESSEE. 8. BRIEFLY, IN THE FACTS OF THE PRESENT CASE BEFORE US, THE ASSESSEE WAS PREVIOUSLY CARRYING ON THE BUSINESS OF MANUFACTURI NG OF CORRUGATED BOXES AND DUE TO LOSSES, THE SAID BUSINESS WAS STOPPED IN FINANCIAL YEAR 2003 - 04 . THEREAFTER, THE ASSESSEE HAD LEASE D OUT THE FACTORY PREMISES AS PER LEAVE AND LICENCE AGREEMENT W.E.F. 07.01.2004 . THE ASSESSEE OFFERED RENTAL INCOME AS LICENCE AGREEMENT W.E.F. 07.01.2004 . THE ASSESSEE OFFERED RENTAL INCOME AS IN COME FROM BUSINESS AND CLAIMED CERTAIN EXPENDITURE AGAINST THE SAID BUSINESS ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 4 INCOME . IN ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 , THE ASSESSEE CLAIMED THAT IT WAS ALSO CARRYING ON TRADING OF CORRU G ATED BOXES, AGAINST WHICH IT CLAIMED THE SAID EXPENDITURE TO B E ALLOWED IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER AFTER GOING THROUGH THE TERMS OF THE LEAVE AND LICENCE AGREEMENT, SHOW CAUSED THE ASSESSEE TO EXPLAIN AS TO WHY THE OTHER INCOME OFFERED UNDER THE HEAD BU SINESS INCOME SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES. IN REPLY, THE ASSESSEE CLAIMED THAT BECAUSE OF LACK OF ORDERS AND WORLDWIDE INDUSTRIAL RECESSION AND DUE TO AGGRESSIVE LABOUR DEMANDS, THE BOARD OF DIRECTORS INFORMED THE WORKERS ON 30.10.2002 TO LEAVE THEIR JOBS. BECAUSE OF LA BOUR UNREST AND THE DEMANDS OF THE BANK , THE MANAGEMENT SUSPENDED THE BUSINESS ACTIVITY AND IN ORDER TO TIDE OVER FINANCIAL CRISIS, DECIDED TO GIVE FACTORY PREMISES ON MONTHLY COMPENSATION BASIS. THE ASSESSING OFFICER AFTER GOING THROUGH VARIOUS CASE LAWS ON THE ISSUE WHETHER BUSINESS OF MANUFACTURING HAD BEEN DISCONTINUED OR IT WAS ONLY A TEMPORARY SUSPENSION OF BUSINESS TO BE STARTED LATER, CAME TO A FINDING THAT THE OLD BUSINESS OF MANUFACTURE OF CORRUGATED BOXES HAD SEIZED OR DISCONTINUED AFTER FINANCI AL YEAR 2003 - 04. ANOTHER ASPECT OF THE ISSUE NOTED BY THE ASSESSING OFFICER WAS WHETHER THE INCOME FROM LEASING OF FACTORY BUILDING WAS ASSESSABLE AS INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES / HOUSE PROPERTY, CAME TO THE CONCLUSION THAT ON SUBSTA NTIVE BASIS THE LEASE INCOME FROM LETTING OUT THE FACTORY BUILDING SHALL BE ASSESSED AS INCOME FROM OTHER SOURCES AND ONLY ON PROTECTIVE BASIS, THE LEASE INCOME I S HELD TO BE AS INCOME FROM PROPERTY. THE ASSESSING OFFICER FURTHER WAS OF THE VIEW THAT SINC E THE ASSESSEE HAD DISCONTINUED ITS MANUFACTURING BUSINESS, THE EXPENSES / LOSSES PERTAINING TO THE DISCONTINUED BUSINESS COULD NOT BE ALLOWED TO BE SET OFF AGAINST THE PROFIT IN OTHER BUSINESS INCOME UNDER ANY OTHER HEAD IN SUBSEQUENT YEARS. IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT THE TRADING BUSINESS HAD BEEN STARTED ONLY IN THE ASSESSMENT YEAR 2007 - 08 , WHEREAS THE LEASING OF THE ASSETS HAD BECOME W.E.F. 07.01.2004. I N VIEW ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 5 THEREOF, THE LOSSES OF EARLIER YEARS WERE HELD TO BE NOT ALLOWABLE WHERE THE MANUFACTURE OF CORRUGATED BOXES AGAINST WHICH, SUCH LOSSES WERE INCURRED , HAD BEEN DISCONTINUED. IT WAS FURTHER HELD BY THE ASSESSING OFFICER THAT DURING THE CURRENT ASSESSMENT YEAR ONLY THOSE EXPENDITURE SHALL BE ALLOWED WHICH HAVE DIRECT NEXUS TO T HE TRADING ACTIVITY OR WITH THE ACTIVITY OF EARNING OF RENTAL INCOME ON BUILDINGS, WHICH WAS ASSESSABLE AS INCOME FROM OTHER SOURCES. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED 50% OF THE INTEREST EXPENSES OF RS.2,13,061/ - HAVING NO NEXUS WITH THE EARN ING OF ANY INCOME. THE ASSESSEE HAD ALSO CLAIMED DEDUCTION ON ACCOUNT OF PAYMENT OF PREMIUM UNDER KEYMAN INSURANCE POLICY AT RS.1,00,922/ - , THE SAME WAS ALSO DISALLOWED BY THE ASSESSING OFFICER. 9. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER IN ASSE SSING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCE S IN TURN RELYING ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN NARAYAN SWADESHI WEAVING MILLS VS. CIT (1954) 26 ITR 765 (SC) AND NEW SAWAN SUGAR AND GUR REFINING COMPANY LTD. (1954) 26 ITR 765 (SC) AND NEW SAWAN SUGAR AND GUR REFINING COMPANY LTD. VS. CIT, 74 I TR 7 (SC) , HONBLE BOMBAY HIGH COURT IN CIT VS. UNIVERSAL RADIATORS LTD., 197 ITR 1 (BOM) AND HONBLE SUPREME COURT IN UNIVERSAL PLAST LTD. VS. CIT, 237 ITR 454 (SC). THE CIT(A) ALSO UPHELD THE DISALLOWANCE OF INTEREST AND THE DISALLOWANCE OF KEYMAN INSUR ANCE EXPENDITURE. 10. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A) . V IDE GROUND OF APPEAL NO.2 , T HE ASSESSEE HAS RAISED AN ALTERNATE PLEA BEFORE US THAT THE INCOME FROM LEASING OUT OF PROPERTY SHOULD BE ASSESSED AS INCOME FROM HOUSE PROPERTY A ND NOT AS INCOME FROM OTHER SOURCES. THE ASSESSEE FURTHER RAISED GROUND OF APPEAL NO. 4 IN RELATION TO THE DISALLOWANCE OF KEYMAN INSURANCE EXPENDITURE. VIDE GROUND OF APPEAL N O .5, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF CIT(A) IN DISALLOWING THE CLAIM OF DEDUCTION UNDER SECTION 43B OF THE ACT. 11. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF CORRUGATED BOXES. ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 6 HOWEVER, BECAUSE OF LOSSES AND LABOUR UNREST, THE SAID MAN UFACTURING UNIT WAS CLOSED BY THE ASSESSEE AND EVEN THE PLANT & MACHINERY WAS SOLD BY THE ASSESSEE. THEREAFTER, THE FACTORY PREMISES WAS LEASED OUT TO A PERSON WHO WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF PLASTIC COMPONENT S , WHICH WAS NOT IN THE LINE OF BUSINESS OF THE ASSESSEE. OUR ATTENTION WAS DRAWN TO THE COPY OF LEAVE AND LICENCE AGREEMENT PLACED AT PAGES 25 TO 39 OF THE PAPER BOOK AND IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE PERUSAL OF TERMS AND COND ITIONS REFLECT THAT IT WAS THE BUSINESS PREMISES, WHICH WAS LEASED OUT BY THE ASSESSEE TO THE LESSEE , ALONG WITH CERTAIN ITEMS OF FURNITURE AND NO PLANT & MACHINERY WAS HANDED OVER TO THE LESSEE . THE CLAIM OF THE ASSESSEE BEFORE US WAS THAT THE SAID LEASI NG OF THE PREMISES BY THE ASSESSEE WAS AS AN OWNER OF THE PREMISES AND SAID LEASE INCOME WAS ASSESSABLE AS INCOME FROM HOUSE PROPERTY IN THE HANDS OF THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE DECISIO NS RELIED UPON BY THE CIT(A) ARE DISTINGUISHABLE ON FACTS AND EVEN THE DECISIONS RELIED UPON BY THE ASSESSING OFFICER TO COME TO A FINDING THAT THE LEASE INCOME IS ASSESSABLE AS INCOME FROM OTHER SOURCES IN THE FACTS OF ASSESSEE ARE DISTINGUISHABLE. IN TU RN, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY HONBLE HIGH COURT OF KERALA IN DR. P.A. VARGHESE VS. CIT (1971) 80 ITR 180 (KER) . 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHE R HAND MADE A SPECIAL REFERENCE TO THE OBSERVATIONS OF THE CIT(A) IN PARAS 3.4 AND 3.5 OF THE APPELLATE ORDER AND POINTED OUT THAT THE INCOME WAS ASSESSABLE IN THE HANDS OF THE ASSESSEE AS INCOME FROM OTHER SOURCES. ANOTHER SUBMISSION MADE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE WAS THAT THE CIT(A) HAS COME TO A FINDING THAT THE BUSINESS HAD BEEN CLOSED BY THE ASSESSEE AND AFTER THE CLOSURE OF BUSINESS WHERE THE ASSESSEE HAS EARNED LEASE INCOME, THE SAME IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 7 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE ARISING IN ASSESSMENT YEAR S 2006 - 07 TO 2008 - 09 IS IN RELATION TO THE ASSESSABILITY OF THE LEASE INCOME RECEIVED BY THE ASSESSEE. THE CONTENTION OF THE ASSESS EE BEFORE AUTHORITIES BELOW WAS THAT THE SAID INCOME WAS ASSESSABLE IN HIS HANDS AS INCOME FROM BUSINESS, WHEREAS BOTH THE ASSESSING OFFICER AND CIT(A) WERE OF THE VIEW THAT THE SAME IS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES . THE ASSESS EE BY WAY OF GROUND OF APPEAL NO.2 IN ALL THE RESPECTIVE APPEALS HAS RAISED AN ALTERNATE PLEA THAT THE SAID INCOME BE ASSESSED AS INCOME FROM HOUSE PROPERTY IN THE HANDS OF THE ASSESSEE. 14. IN THE FACTS OF THE PRESENT CASE BEFORE US, THE ASSESSEE WAS ENG AGED IN THE MANUFACTURE OF CORRUGATED BOXES IN THE EARLIER YEARS AND THE INCOME FROM BUSINESS WAS BEING OFFERED BY THE ASSESSEE. HOWEVER, DUE TO VARIOUS FACTORS, THE BUSINESS OF THE ASSESSEE RAN INTO LOSSES AND THERE WAS LABOUR UNREST IN THE MANUFACTURING UNIT OF THE ASSESSEE AND ALSO THE BANKERS WERE PRES SING FOR THE MANUFACTURING UNIT OF THE ASSESSEE AND ALSO THE BANKERS WERE PRES SING FOR THE REPAYMENT OF LOAN , IN SUCH CIRCUMSTANCES, THE MANAGEMENT OF THE ASSESSEE COMPANY DECIDED TO CLOSE THE MANUFACTURING BUSINESS AND LEASED OUT THE PREMISES. IN VIEW THEREOF, THE ASSESSEE ENTERE D INTO A LEASE AGREEMENT ON 06.04.2004 WITH M/S. PRIDE BROTHERS LTD., WHO WAS DESIROUS OF SETTING UP OF BUSINESS FOR THE MANUFAC TURE OF PLASTIC COMPONENTS . THE COPY OF THE LEAVE AND LICENSE AGREEMENT IS PLACED AT PAGES 25 TO 39 OF THE PAPER BOOK. THE PRE AMBLE OF THE SAID AGREEMENT REFLECTS THAT THE ASSESSEE WAS SEIZED AND POSSESSED OF LAND ADMEASURING 1 HECTARE 59.2 ARES TOGETHER WITH THE STRUCTURES ADMEASURING 3251.58 SQ.MTRS. (APPROX.) AT S.NO./GAT NO.1225, SANASWADI, PUNE - NAGAR ROAD, TAL: SHIRUR, DIST: PUNE . AS PER THE TERMS OF THE AGREEMENT, THE UNDERSTANDING BETWEEN THE PARTIES WAS THE USE AND OCCUPATION AN D ENJOYMENT OF THE SAID LICENSED PREMISES WOULD NOT TANTAMOUNT TO TENANCY OR SUB - TENANCY. IT WAS ALSO AGREE D UPON THAT THE LICENSEE AT NO POINT O F TIME WOULD CONTEND THAT THE OCCUPATION OF THE SAID LICENSED PREMISES G A VE ANY TITLE OR OTHER SIMILAR RIGHT OR ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 8 INTEREST TO THE L I CENSEE IN RESPECT OF THE SAID LICENSED PREMISES. AS PER CLAUSE 2 OF THE AGREEMENT, THE LICENSOR I.E. THE ASSESSEE BEFORE US P ERMITTED THE LICENSEE, THE RIGHT TO USE THE SAID LICENCED PROPERTY AS DESCRIBED IN THE SCHEDULE ALONG WITH THE FURNITURE, FIXTURES AND FITTINGS FOR A PERIOD OF 66 MONTHS UPON THE TERMS AND CONDITIONS CONTAINED IN THE AGREEMENT, SUBJECT TO PAYMENT OF LICENC E FEES OF RS.1,23,000/ - PER MONTH FOR THE FIRST 33 MONTHS AND RS.1,38,000/ - FOR THE NEXT 33 MONTHS. THE OTHER CONDITIONS FOR THE USE OF THE SAID LICENCED PREMISES AND THE RIGHTS AND LIABILITITES OF THE LICENSOR AND THE LICENSEE ARE PROVIDED IN THE SAID AG REEMENT. AS PER CLAUSE 7(D) OF THE SAID AGREEMENT, THE LICENCEE WAS TO USE THE LICENCED PREMISES FOR THE MANUFACTUR E OF PLASTIC COMPONENTS AND RELATED ITEMS AND THERE WAS A RESTRICTION ON THE LICENCEE NOT TO ALLOW ANY OTHER PERSON TO RUN THE BUSIN E SS UNDE R ANY PRETEXT WHATSOEVER. AS PER THE ANNEXURE TO THE SAID AGREEMENT, THE DETAILS OF FURNITURE AND FIXTURES AT THE OFFICE ON THE FIRST FLOOR W ERE PROVIDED , WHICH INTER - ALIA INCLUDED THE FOLLOWING ITEMS: - 1) ONE BIG CABIN (PARTLY GLASS) WITH LONG EXECUTIVE L SHAPE TABLE WITH DRAWERS, FAN, TELEPHONE POINT, SWITCHES & PLUG. 2) ONE SMALL CABIN (PARTLY GLASS) WITH L SHAPE TABLE WITH DRAWERS, FAN, TELEPHONE POINT, SWITCHES & PLUG. 3) ONE RECEPTION DESK WITH BIG FILLING CABINATES, FAN, SWITCHES & PLUG. 4) THRE E TABLES FOR STAFF WITH LARGE DRAWERS, FILLING CAINATES, TELEPHONE POINTS & FAN. 5) GROUND FLOOR TUBE LIGHTS 55 NOS. 6) TUBE HOLDERS 45 NOS. 7) TWO FANS ON WALL 8) TWO MERCURY LIGHTS OUTSIDE ON 2 CORNERS OF FACTORS. 15. THE ASSESSEE AFTER LEASING OUT ITS FACTORY PREMISES STARTED TRADING IN CORRUGATED BOXES, WHICH IN TURN WAS SUPPL IED TO SISTER CONCERN M/S. BALAJI PACKAGES. THE FINDING OF THE ASSESSING OFFICER IN THIS REGARD WAS THAT THE SAID TRADING BUSINESS WAS STARTED BY THE ASSESSEE FROM ASSESS MENT YEAR 2007 - 08 . ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 9 BOTH THE AUTHORITIES BELOW HAVE GIVEN A FINDING THAT THE ASSESSEE HAD SOLD MOST OF ITS PLANT & MACHINERY IN THE EARLIER YEARS AND RET RENCHED ALL ITS WORKERS AND IN VIEW THEREOF, IT COULD NOT BE SAID THAT THERE WAS ANY INTENTION TO RE - ST ART THE OLD BUSINESS AND THERE WAS ONLY TEMPORARY SUSPENSION OF ITS ERSTWHILE BUSINESS. 16. THE HONBLE SUPREME COURT IN UNIVERSAL PLAST LTD. VS. CIT (SUPRA) HAD LAID DOWN CERTAIN PRINCIPLES TO DECIDE AS TO WHETHER THE INCOME DERIVED FROM LEASING OR LET TING OUT OF ASSETS WOULD FALL UNDER THE HEAD PROFITS OR GAINS OR PROFESSION. THE HONBLE SUPREME COURT HELD THAT THE SAID PROPOSITION WAS A MIXED QUESTION OF LAW AND FACT AND HAD TO BE DETERMINED ON THE FACTS AND IN THE CIRCUMSTANCES OF EACH CASE INCLUDIN G THE TRUE INTERPRETATION OF THE AGREEMENT, UNDER WHICH THE ASSETS WERE LET OUT. THE HONBLE SUPREME COURT FURTHER HELD THAT WHERE ALL THE ASS ETS OF THE BUSINESS ARE LET OUT, THE PERIOD FOR WHICH THE ASSETS ARE LET OUT IS A RELEVANT FACTOR TO FIND OUT WHE THER THE INTENTION OF THE ASSESSEE IS TO GO OUT OF BUSINESS ALTOGETHER OR TO COME BACK AND RESTART THE ASSESSEE IS TO GO OUT OF BUSINESS ALTOGETHER OR TO COME BACK AND RESTART THE SAME. IF ONLY OR A FEW OF THE BUSINESS ASSETS ARE LET OUT TEMPORARILY WHILE THE ASSESSEE IS CARRYING ON HIS OTHER BUSINESS ACTIVITIES , THEN IT IS A CASE OF EXPLOITING THE BUSINESS ASSETS OTHERWISE THAN EMPLOYING THEM FOR HIS OWN USE FOR MAKING PROFIT FOR THAT BUSINESS; BUT IF THE BUSINESS NEVER STARTED OR HAS STARTED BUT CEASED WITH NO INTENTION TO BE RESUMED, THE ASSETS ALSO WILL CEASE TO BE BUSINESS ASS ETS AND THE TRANSACTION WILL ONLY BE EXPLOITATION OF PROPERTY BY AN OWNER THEREOF, BUT NOT EXPLOITATION OF BUSINESS ASSETS. APPLYING THE ABOVE SAID TESTS, THE CIT(A) VIDE PARA 3.4 HAD COME TO THE FOLLOWING FINDING: - 3.4. APPLYING THESE TESTS IN THE APPEL LANT'S CASE IT IS SEEN THAT THE ENTIRE FACTORY PREMISES I.E. LAND ALONG WITH BUILDING STRUCTURES , FURNITURE AND FIXTURES HAS BEEN LEASED OUT TO A THIRD PARTY WHICH IS ENGAGED IN TH E BUS INESS OF MANUFACTURING OF PLASTIC COMPONENTS, WHICH IS DIFFER E NT FR O M T HE APPELLANT'S BUSINESS OF MANUFACTURING OF CORRUGATED BOXES . THE APPELLANT HAS SOLD MOST OF THE PLANT AND MACHINERY IN EARLIER YEARS . I N FACT, PROFIT ON SALE OF ASSETS HAS BEEN OFFERED TO TAX FOR THE AY. 2005 - 06 BY THE APPELLANT ITSELF WHILE CO MPUTING TH E REVISED COMPUTATION OF INCOME. AS PER THE TAX AUDIT REPORT, THE SCHEDULE 14 SHOWS THAT THE APPELLANT NO LONGER HAS INSTALLED CAPACITY FOR MANUFACTURING AFTER THE SALE OF THE ASSETS. THE WORKERS ARE ALSO RETRENCHED BY THE APPELLANT. THE LICENSEE HAS BEEN ALLOWED TO CONSTRUCT NEW STRUCTURES THEREIN . IT IS FURTHER ASCERTAINED DURING APPELLATE PROCEEDINGS THAT THE APPELLANT COMPANY HAS NOT BEEN ABLE TO RESTART ITS ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 10 BUSINESS ACTIVITIES RELATED TO THE MANUFACTURE OF CORRUGATED BOXES TILL DATE. ALL THESE FACTS GO TO SHOW THAT THE INTENTION OF THE APPELLANT COMPANY IS NOT TO TEMPORARILY LEASE THE BUSINESS ASSETS BUT TO CONFINE ITSELF TO DERIVING SOME INCOME IN VIEW OF ITS OWNERSHIP THEREOF BY LEAS E. 1 7 . THE ABOVE SAID FINDING OF THE CIT(A) HAS NOT BEEN CONTROVER TED BY EITHER OF THE AUTHORIZED REPRESENTATIVES. HOWEVER, THE RELATED ISSUE ARISING BEFORE US IS THAT IN THE ABOVE SAID CIRCUMSTANCES WHETHER THE LEASE INCOME RECEIVED BY THE ASSESSEE COMPANY WAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES OR INCOME FROM HOUSE PROPERTY IN THE HANDS OF ASSESSEE. 18. THE HONBLE SUPREME COURT IN NARAYAN SWADESHI WEAVING MILLS VS. CIT (SUPRA) IN THE FACTS OF THE CASE BEFORE IT WHERE THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING ACTIVITY AND HAD SOLD THE ENTIRE LAND AND BUI LDING AND LEASED OUT THE PLANT & MACHINERY, IT WAS HELD THAT THE SAID LEASE INCOME COULD NOT BE CLASSIFIED AS BUSINESS INCOME AS THE PLANT & MACHINERY SEIZED TO BE COMMERCIAL ASSET IN THE FACTS OF THE ASSESSEE. 19. THE HONBLE SUPREME COURT IN NEW SAWAN SUGAR AND GUR REFINING COMPANY LTD. VS. CIT (SUPRA) WHERE THE ASSESSEE HAD LEASED OUT ITS FACTORY PREMISES AFTER THE BUSINESS WAS IN LOSSES , HELD THAT THE INCOME COULD NOT BE SAID TO BE DERIVED FROM THE OWNERSHIP OF THE ASSET BY THE ASSESSEE IN CAPACITY O F TRADER AND IN SUCH A SITUATION, THE LEASE RENT WAS ASSESSABLE AS INCOME FROM OTHER SOURCES. IN OTHER CASES REFERRED TO BY THE CIT(A), THE FACTORY PREMISES ALONG WITH PLANT & MACHINERY WERE LEASED OUT AND IT WAS HELD THAT SUCH LEASE INCOME COULD NOT BE H ELD TO BE BUSINESS INCOME. 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE BEFORE US HAS PLACED RELIANCE ON THE SAID CASE LAWS, WHICH IN TURN, HAD BEEN RELIED UPON BY THE CIT(A) . WE FIND NO MERIT IN THE AFORESAID RELIANCES OF THE LEARNED DE PARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE RATIO LAID IN NARAYAN SWADESHI WEAVING MILLS VS. CIT (SUPRA ), WHEREIN ONLY THE PLANT & MACHINERY WAS LEASED OUT, WHICH ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 11 IS NOT THE CASE BEFORE US. IN RESPECT OF NEW SAWAN SUGAR AND GUR REFINING COMPANY LTD. VS. CIT (SUPRA) , WHERE THE ASSESSEE HAD LEASED OUT THE ENTIRE FACTORY PREMISES, IT WAS HELD THAT THE SAME IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. HOWEVER, IN THE FACTS OF T HE PRESENT CASE , AS PER FINDINGS OF THE AUTHORITIES BELOW, THE ASSESSEE IN THE PRESENT CASE HAD SOLD ITS PLANT & MACHINERY IN THE EARLIER YEARS AND HAD LEASED OUT THE PREMISES TO A THIRD PARTY, WHO WAS ENGAGED IN A BUSINESS DIFFERENT FROM THAT OF THE ASSESSEE. 21. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WHER E THE INTENTION OF THE ASSESSEE WAS TO EXPLOIT ITS ASSETS BY WAY OF LEASING OUT THE SAME TO EARN INCOME FROM ITS OWNERSHIP STATUS, THEN SUCH LETTING OUT OF THE BUILDING BY THE ASSESSEE IS NOT IN FURTHERANCE OF BUSINESS CARRIED ON BY THE ASSESSEE. HOWEVER, WHERE THE LETTING OUT OF THE PROPERTY WAS IN FURTHERANCE OF OWNERSHIP OF THE ASSESSEE, THEN SUCH LEASE INCOME IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY IN THE HANDS OF THE ASSESSEE. WHERE THE ASSESSEE HAD ENTERED INTO AN PROPERTY IN THE HANDS OF THE ASSESSEE. WHERE THE ASSESSEE HAD ENTERED INTO AN AGREEMENT TO LEASE OUT ONLY THE LAND AND BUILDING OWNED BY IT, THEN THE AGREEMENT PERSE WAS IN RESPECT OF THE SAID PROPERTY OWNED BY THE ASSESSEE AND LEASE INCOME ON THE EXPLOITATION OF SUCH ASSET OWNED BY THE ASSESSEE IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY IN THE HANDS OF THE ASSESSEE. UNDER SECTION 14 OF THE ACT, THE HEADS OF INCOME ARE PROVIDED AND IN CASE ANY OF THE INCOME IS NOT INCLUDED IN THE HEADS OF INCOME I.E. (A) TO (E), THEN IT IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES UNDER THE HEAD (F) . HOWEVER , THE LEAS E INCOME EARNED BY THE ASSESSEE IS ASSESSABLE AS INCOME FROM HOUSE PROPERTY UNDER THE HEAD (C) AND CONSEQUENTLY, THERE IS NO MERIT IN INCLUDING THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES. REVERSING THE ORDER OF CIT(A), WE DIRECT THE ASSESSING OFFIC ER TO COMPUTE THE INCOME FROM PROPERTY IN THE HANDS OF ASSESSEE AFTER ALLOWING THE STATUTORY DEDUCTIONS ALLOWABLE TO THE ASSESSEE. CONSEQUENTLY, GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS ALLOWED. ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 12 22. THE ASSESSEE IN ASSESSMENT YEAR S 2007 - 08 AND 200 8 - 09 HAS RAISED IDENTICAL GROUND OF APPEAL NO.2, WHICH IS ALSO ALLOWED. 23 . THE SECOND ISSUE RAISED IN ALL THE APPEAL S IS IN RESPECT OF ALLOWANCE OF KEYMAN INSURANCE EXPENDITURE PAID BY THE ASSESSEE. ADMITTEDLY, THE ASSESSEE IN ASSESSMENT YEAR 2006 - 07 WA S NOT CARRYING ON ANY BUSINESS, CONSEQUENTLY, THE SAID EXPENDITURE INCURRED ON KEYMAN INSURANCE IS NOT ALLOWABLE TO THE ASSESSEE IN ASSESSMENT YEAR 2006 - 07 . HOWEVER, IN ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 , THE ASSESSEE WAS ENGAGED IN TRADING OF CORRUGATE D BOXES AND CONSEQUENTLY, WAS EARNING BUSINESS INCOME AGAINST WHICH, THE CLAIM OF KEYMAN INSURANCE IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE. WE FIND NO MERIT IN THE OBSERVATIONS OF AUTHORITIES BELOW THAT THE SAID EXPENDITURE OUGHT TO BE DISALLOWED BE CAUSE OF DISCONTINUATION OF MANUFACTURING BUSINESS. ACCORDINGLY, GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2006 - 07 IS DISMISSED AND IN ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 IS ALLOWED. DISMISSED AND IN ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 IS ALLOWED. 24 . IN ASSESSMENT YEARS 2006 - 07 AND 2007 - 08, THE ASSESSEE BY WAY OF GROUND OF APPEAL NO.5 IS AGGRIEVED BY THE DISALLOWANCE OF DEDUCTION IN RESPECT OF PAYMENTS MADE AND CLAIMED UNDER SECTION 43B OF THE ACT. THE PLEA OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US WAS THAT CERTAIN EXP ENDITURE WAS DISALLOWED IN THE HANDS OF ASSESSEE BECAUSE OF NON - PAYMENT OF THE SAID DUES, CESS, ETC. WITHIN STIPULATED PERIOD. HOWEVER, DURING THE RESPECTIVE ASSESSMENT YEARS WHERE THE ASSESSEE HAD PAID THE SAID PAYMENTS, THE SAME WERE CLAIMED AS DEDUCTIB LE IN THE HANDS OF ASSESSEE IN ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 IN THE COMPUTATION OF INCOME FILED FOR THE RESPECTIVE YEARS. IN THE FIRST INSTANCE, THE SAID DISALLOWANCE WAS MADE OUT OF MANUFACTURING BUSINESS CARRIED ON BY THE ASSESSEE AND IS NOT RELA TABLE TO THE TRADING BUSINESS CARRIED ON BY THE ASSESSEE. SECONDLY , THE PERUSAL OF ASSESSMENT ORDERS REFLECT THAT NO DISCUSSION IN RESPECT OF THE SAID EXPENDITURE TO BE ALLOWED OR NOT TO BE ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 13 ALLOWED IN THE HANDS OF ASSESSEE. FURTHER , THE ASSESSEE HAD RAIS ED GROUNDS OF APPEAL BEFORE THE CIT(A) IN THIS REGARD AND IT WAS HELD THAT WHERE THE ERSTWHILE BUSINESS OF MANUFACTURING STANDS DISCONTINUED, THE AMOUNTS NOW PAID IN RESPECT OF THAT BUSINESS COULD NOT BE ALLOWED UNDER SECTION 43B OF THE ACT. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUND OF APPEAL NO.5 RAISED IN ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 . THE APPEALS FILED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 2 5 . NOW, COMING TO CROSS APPEALS FILED FOR ASSESSMENT YEAR 2005 - 06 , THE 2 5 . NOW, COMING TO CROSS APPEALS FILED FOR ASSESSMENT YEAR 2005 - 06 , THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL: - 1. THE LEARNED CIT(A) I, PUNE HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ORDER OF THE LEARNED AO TREATING THE LEASE INCOME OF RS.14,76,000/ - AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM HOUSE PROPERTY 2. THE APPELLANT CRAVES LEAVE TO ADD / MODIFY / ALTER / DELETE ALL / ANY OF THE GROUNDS OF APPEAL. 26. THE PRESENT APPEAL BEFORE US IS FILED BY THE ASSESSEE AFTER DELAY OF 572 DAYS. THE ASSESSEE HAS MOVED CONDONATION APPLICATION ALONG WITH AN AFFIDAVIT, DAYS. THE ASSESSEE HAS MOVED CONDONATION APPLICATION ALONG WITH AN AFFIDAVIT, WHICH READ AS UNDER: - AFFIDAVIT MYSELF, MANAV SURENDRAKUMAR GHUWALEWALA, AGE 40 YEAR, DESIGNATION DIRECTOR OF M/S. MANAV PACKAGING INDUSTRIES PVT. LTD., HAS TO SOLEMNLY STATE AND AFFIRM AS UNDER WE CARRY ON BUSINESS ACTIVITY BY THE NAME M / S MANA V PAC KAGIN G INDU S TRI ES PVT . LTD. WHICH IS ENGAGED IN CARRYING A BUSINESS OF MANUFACTURIN G A ND DEALING IN CORRUGATED BOXES , CORRUGATED PACKING PAPERS, DUPLEX BO A RD S ETC . T HE I - T PROCEEDINGS FOR A . Y. 2005 - 06 WERE ONGOIN G BEFORE THE L EA RN E D INCOME - TAX PROCEEDINGS FOR A . Y. 2005 - 06 WERE ONGOIN G BEFORE THE L EA RN E D INCOME - TAX OFFICER (A O) AND THEREAFTER, BEFORE THE LEARNED COMMISSIONER OF INCOME - TA X (APPEALS) IN PUNE. ASSESSMENT ORDER REC E IV E D FROM TH E L EA RN E D A O W AS OBJECTED BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A) GAVE P A RTIAL RELIEF V IDE HI S APP E LLATE ORDER DATED 28 / 01 / 2013 FOR A .Y. 2 005 - 0 6 . W E RE C E I V ED TH E S A ID APPELLATE ORDER OF THE LEARNED CIT(A) ON 05102 1 2013 . T H E QUANTUM IN V OL V ED IN THE A .Y. 2006 - 07 TO A.Y. 2 008 - 09 WAS H EAVY A S C OMP AR ED TO QUANTUM FOR A.Y. 2005 - 06. IT IS FUR T HER SUBMITTED TH A T , L D . CIT(A ) HAD GIVEN PARTIA L RELIEF IN THE SAID ASSESSM E NT Y E A R A ND A FT E R TAK IN G EFFEC T O F THE BROUGHT FOR W ARD LOSSES AND UNABSORBED D E PR E CIATION , TH E R E WAS NO T A X DEMAND GENERATING FOR THAT YEAR . HENCE , APPELLANT PREFERRED NOT TO FIL E A PPEAL FOR A .Y. 2005 - 06 . WHEREAS; DURING TH E A PP E LLAT E PROC EE DIN GS B EFOR E HONOR A BL E ITAT 2005 - 06 . WHEREAS; DURING TH E A PP E LLAT E PROC EE DIN GS B EFOR E HONOR A BL E ITAT BENCH , PUNE , FOR A.Y. 2006 - 07 TO A.Y. 2 008 - 09 , A PP E L LA NT R E ALIZED TH A T NON FILING OF APPEAL FOR A.Y. 2005 - 06 MA Y B E INT E RPR ETE D A S ACCE P TA N CE O F D E P A RTMENT ' S S T A ND ON TH E I SSU E C ONTE S TED IN S UB SEQ U E N T ASSE SSM E NT YEA RS . A S SU C H , APPELLANT D E CIDED TO FILE A PPE A L FOR A.Y. 2 0 0 5 - 0 6 A L SO. ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 14 IN T H E M E AN T I M E, PRECIOUS TIME TO PREFER APPE A L WAS LOST . I N A LL THIS PRO CESS , DE L A Y OF A BOU T 63 5 D AYS HA S CR E PT INTO THE MA T TE R UNFORTUNA TE L Y . T H E SA I D DEL AY C R E PT IN DUE TO MERE IN ADVERTENCE. THE SAID DELA Y W A S NON - INT E NTI O N A L . C R E PT IN DUE TO MERE IN ADVERTENCE. THE SAID DELA Y W A S NON - INT E NTI O N A L . WE H AVE R E QU E STED FOR CONDONATION OF THE DELAY B Y MAKING A S E P A R A T E D E L AY CONDONATION PETITION . P L ACE : PUN E D ATE : 2 8 / 1 0/2014 FOR M/S MANAV PACKAGING INDUSTRIES PVT. LTD. MANAV GHUWALEWALA DIRECTOR 2 7 . THE PRESENT APPEAL FILED BY THE ASSESSEE IS LATE BY 572 DAYS AS THE ASSESSEE DID NOT PURSUE THE APPEAL BECAUSE OF LOW TAX EFFECT AND ONLY WHEN APPELLATE PROCEEDINGS FOR ASSESSMENT YEAR S 2006 - 07 TO 2008 - 09 WERE COMPLETED, THE ASSESSEE REALIZED THE MERIT O F NOT FILING THE APPEAL FOR ASSESSMENT YEAR 2005 - 06 BEFORE THE TRIBUNAL. IN THE ENTIRETY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE FIND MERIT IN THE CONDONATION APPLICATION FILED BY THE ASSESSEE AND WE CONDONE THE DELAY OF 572 DAYS AND PROCEED TO DECI DE THE PRESENT APPEAL AFTER HEARING BOTH THE AUTHORIZED REPRESENTATIVES. 2 8 . THE ORIGINAL ASSESSMENT IN THE CASE WAS COMPLETED UNDER SECTION 143(3) OF THE ACT WHERE THE ASSESSING OFFICER H AD ASSESSED THE INCOME RETURNED BY THE ASSESSEE AS INCOME FROM BUSI NESS. TH EREAFTER, THE COMMISSIONER VIDE ORDER PASSED UNDER SECTION 263 OF THE ACT, DATED 30.03.2010 HELD THE ASSESSMENT PASSED UNDER SECTION 263 OF THE ACT, DATED 30.03.2010 HELD THE ASSESSMENT ORDER TO BE BOTH ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE AND SHOW CAUSE NOTICE WAS ISSUED UNDER SECTION 263 OF THE ACT. IN VIEW OF THE ORDER PASSED BY THE ASSESSING OFFICER WITHOUT APPLICATION OF MIND, THE SAME WAS HELD TO BE ERRONEOUS AND BECAUSE OF FAILURE OF THE ASSESSING OFFICER TO ASSESS LOSS / COMPENSATION UNDER THE APPROPRIATE HEAD AND CONSEQUENTLY, ADJUSTMENT OF BUS INESS LOSSES CARRIED FORWARD HAD RESULTED IN THE ORDER BEING PREJUDICIAL TO THE BUS INESS LOSSES CARRIED FORWARD HAD RESULTED IN THE ORDER BEING PREJUDICIAL TO THE INTEREST OF REVENUE. THE COMMISSIONER IN VIEW THEREO F, HELD THAT THE ISSUE BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER TO EXAMINE ALL THE FACTS AND ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 15 EVIDENCE PERTAINING T HERETO AND DECIDE THE SAME AFRESH IN THE LIGHT OF OBSERVATIONS MADE THEREUNDER. 29. THE ASSESSING OFFICER CONSEQUENT TO THE DIRECTIONS OF COMMISSIONER UNDER SECTION 263 OF THE ACT , PASSED THE ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 263 OF THE ACT. THE ASSESSING OFFICER VIDE SAID ORDER HELD THAT THE LEASE INCOME WAS ASSESSABLE AS INCOME FROM OTHER SOURCES ON SUBSTANTIVE BAS I S AND ON PROTECTIVE BASIS, THE SAME WAS HELD TO BE ASSESSABLE AS INCOME FROM HOUSE PROPERTY. WITH REGARD TO THE SET OFF OF BRO UGHT FORWARD BUSINESS LOSSES, IT WAS HELD THAT BECAUSE OF DISCONTINUATION OF THE BUSINESS, THE SAID LOSSES BROUGHT FORWARD FROM EARLIER YEARS COULD NOT BE SET OFF AGAINST THE OTHER INCOME, IF ANY, EARNED BY THE ASSESSEE. FURTHER, DISALLOWANCE WAS MADE ON ACCOUNT OF INTEREST EXPENDITURE, KEYMAN INSURANCE AND OTHER DISALLOWANCES. 30. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER IN ASSESSING THE INCOME AS INCOME FROM OTHER SOURCES. HOWEVER, IN RESPECT OF THE OTHER DISALLOWANCES MADE BY THE ASSESSING O FFICER, IT WAS HELD THAT JURISDICTION TO BE EXERCISED DURING THE RE - ASSESSMENT PROCEEDINGS CONSEQUENT TO ORDER PASSED UNDER SECTION 263 OF THE ACT OUGHT TO BE CONFINED TO THE DIRECTION AS CONTAINED IN SUCH AN ORDER, AS HELD BY THE HONBLE GUJARAT HIGH COUR T IN C IT VS. D.N. DOSANI (2006) 153 TAXMAN 13 . 31 . THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF ASSESSING OFFICER IN HOLDING THAT THE LEASE INCOME IS ASSESSABLE AS INCOME FROM OTHER SOURCES AND THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A) IN D ELETING OTHER ADDITIONS IN THE HANDS OF ASSESSEE. 3 2. COMING TO THE APPEAL FILED BY THE ASSESSEE, WE FIND THAT THE ISSUE IS IDENTICAL TO THE ISSUE RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2006 - 07 AND ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 16 FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE LEASE INCOME IS ASSESSABLE AS INCOME FROM HOUSE PROPERTY IN THE HANDS OF ASSESSEE. 33. THE REVENUE IN ITA NO.764/PN/2013 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1 THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) I S CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE . 2 . THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN DELETING THE ADDITIONS / DISALLOWANCES MADE IN THE ASSESSMENT ON ACCOUNT OF PROFIT ON SALE OF ASSETS ( RS . 6 , 90 , 987/ - ), I NTEREST PAI D ON SECURED LOANS (RS . 49 , 156/ - ) KEYMAN INSURANCE EXPENDITURE SECURED LOANS (RS . 49 , 156/ - ) KEYMAN INSURANCE EXPENDITURE (RS . 1 ,00, 922/ - ) AND DEDUCTION U/S 43B (RS . 10 , 82 , 323/ - ) SOLELY ON THE GROUND THAT THE COMMISSIONER OF INCOME - TAX - I PUNE VIDE HIS ORDER U/S 263 HAD ONLY REMITTED THE ISSUE RELATING TO INCOME DERI VED BY THE ASSESSEE FROM LEASING OUT THE FACTORY PREMISES AND HAD NOT ORDERED THAT THE ASSESSMENT BE DONE AFRESH DE - NOVO . 3. THE L EARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT ONCE THERE IS CHANGE IN HEAD OF IN COME I.E. FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION TO INCOME FROM OTHER SOURCES ', THERE IS BOUND TO BE CONSEQUENTIAL DISALLOWANCES OF CLAIMS NOT ADMISSIBLE UNDER THE NEW HEAD OF INCOME. 4 . FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF THE HEARING , THE ORDER OF THE LEARNED COMM I SSIONER OF INCOME - TAX (APPEALS) HEARING , THE ORDER OF THE LEARNED COMM I SSIONER OF INCOME - TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED . 5 . THE APPELLANT CRAVES LEAVE TO ADD , AMEND , ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING T HE COURSE OF THE APPELLATE P R OCEEDINGS BEFORE THE HON ' BLE TR I BUNAL . 34 . NOW, COMING TO THE APPEAL FILED BY THE REVENUE, UNDER WHICH IT IS AGGRIEVED BY THE ORDER OF CIT(A) IN DELETING THE ADDITIONS MADE ON ACCOUNT OF PROFIT ON SALE OF ASSETS, INTEREST PAID ON SECURED LOANS, KEYMAN INSURANCE PROFIT ON SALE OF ASSETS, INTEREST PAID ON SECURED LOANS, KEYMAN INSURANCE EXPENDITURE AND DEDUCTION UNDER SECTION 43B OF THE ACT. THE PERUSAL OF ORDER PASSED BY THE CIT(1), PUNE UNDER SECTION 263 OF THE ACT REFLECTS THAT THE ORIGINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECT ION 143(3) OF THE ACT IN ASSESSING THE INCOME UNDER THE HEAD INCOME FROM BUSINESS WAS HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE COMMISSIONER HAD REMITTED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER WITH DIRECTIONS TO ASSESS REMITTED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER WITH DIRECTIONS TO ASSESS THE SAME UNDER APPROPRIATE HEAD. ONCE THE APPROPRIATE HEAD OF ASSESSMENT HAS TO BE DETERMINED IN THE HANDS OF ASSESSEE, CONSEQUEN CES THERETO , WOULD ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 17 FOLLOW . W HEN THE INCOME WAS BEING ASSESSED IN THE HANDS OF ASSESSEE A S INCOME FROM BUSINESS , THE CONSEQUEN T DEDUCTIONS ON ACCOUNT OF EXPENDITURE IS TO BE ALLOWED AS ALLOWABLE IN THE HANDS OF ASSESSEE. HOWEVER, WHERE THE HEAD OF INCOME IS CHANGED AND THE SAME IS ASSESSED AS INCOME FROM OTHER SOURCES, THEN IN THE ABSENCE OF THE ASSESSEE CARRYING ON ANY BUSINESS , THE EXPENDITURE RELATING TO CARRYING ON OF SUCH BUSINESS CANNOT BE ALLOWED IN THE HANDS OF ASSESSEE. IN VIEW THEREOF, WE REVERSE THE FINDING OF CIT(A) IN THIS REGARD AND HOLD THAT ADDITIONS MADE BY THE ASSESSING OFFICER CAN BE LOOKED INTO BY THE ASSESSI NG OFFICER WHILE RE - ASSESSING THE INCOME IN THE HANDS OF ASSESSEE UNDER SUITABLE HEAD OF INCOME. 35 . NOW, WE PROCEED TO TAKE UP THE ADDITIONS MADE IN THE HANDS OF ASSESSEE. THE FIRST ADDITION WAS IN RESPECT OF THE PROFIT ON SALE OF ASSETS, AGAINST WHICH THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS NOT MADE ANY SUBMISSIONS AND ACCORDINGLY, WE UPHOLD THE SAID ADDITION TO THE EXTENT OF SUBMISSIONS AND ACCORDINGLY, WE UPHOLD THE SAID ADDITION TO THE EXTENT OF RS.6,90,987/ - . THE SECOND ADDITION MADE IN THE HANDS OF ASSESSEE WAS ON ACCOUNT OF INTEREST PAID. WHERE THE FINDING OF ASSESSING OFFICER WAS THAT THE SAID LOAN HAS NOT BEEN UTILIZED FOR THE PURPOSE OF BUS I NESS AND HAS BEEN UTILIZED FOR INTEREST FREE LOANS AND HENCE, INTEREST TO THE EXTENT OF RS.49,156/ - IS TO BE DISALLOWED IN THE HANDS OF ASSESSEE. ANOTHER ADDI TION MADE BY THE ASSESSING OFFICER WAS IN RESPECT OF KEYMAN INSURANCE. FOLLOWING OUR ORDER IN THE PARAS HEREINABOVE, THE SAID EXPENDITURE IS NOT ALLOWABLE IN THE HANDS OF ASSESSEE AS THE ASSESSEE WAS NOT CARRYING ON ANY BUSINESS DURING THE YEAR UNDER CONS IDERATION . THE FINDING S OF ASSESSING OFFICER AND CIT(A) ARE THAT THE ASSESSEE HAD STARTED TRADING OF CORRUGATED BOXES IN ASSESSMENT YEAR 2007 - 08 AND IN THE ABSENCE OF ANY BUSINESS CARRIED ON BY THE ASSESSEE, SUCH EXPENDITURE CANNOT BE ALLOWED AS DEDUCTION . ANOTHER DEDUCTION CLAIMED BY THE ASSESSEE WAS UNDER SECTION 43B OF THE ACT AND IN VIEW OF OUR DECISION IN THE PARAS HEREINABOVE, WHERE THE ASSESSEE HAS DISCONTINUED ITS MANUFACTURING ITA NO. 764 /PN/ 13 ITA NO. 1932 /PN/14 ITA NOS. 801 TO 803 /PN/ 13 M/S. MANAV PACKAGING IND USTRIAL P VT LTD 18 ACTIVITY, THE SAID EXPENDITURE IS NOT ALLOWABLE IN THE HANDS OF ASSESS EE. IN ANY CASE THE ASSESSEE WAS NOT CARRYING ON ANY BUSINESS DURING THE YEAR AND HENCE NO DEDUCTION IS ALLOWABLE UNDER SECTION 43B OF THE ACT. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE ALLOWED. 36 . IN THE RESULT, THE APPEALS OF THE ASSESSEE IN IT A NO.1932/PN/2014 AND ITA NOS.801 TO 803/PN/2013 ARE PARTLY ALLOWED AND THE APPEAL OF REVENUE IS ALSO ALLOWED. ORDER P RONOUNCED ON THIS 29 TH DAY OF MAY , 201 5 . SD/ - SD / - ( R.K. PANDA ) ( SUSHMA CHOWLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 29 TH MAY , 2015 GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A) - I , PUNE ; 4) THE CIT - I, PUNE ; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SENIOR P RIVATE SECRETARY I.T.A.T., PUNE