The ACIT, Circle 2, RAJKOT-GUJARAT V. Smt Parulben Jayantkumar Doshi, RAJKOT-GUJARAT

ITA 849/RJT/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6831 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 27-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 16-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: RANJIT LALCHANDANI
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT. BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO. 849/RJT/2010. (ASSESSMENT YEAR 2006-07) THE A.C.I.T.,CIRCLE-2, VS. SMT. PARULBEN JAYANTKUMAR DOSHI, RAJKOT. ILLA VILLA, ASHAPURA ROAD, RAJK OT. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RANJIT LALCHANDAN I. DEPARTMENT BY : SHRI M. K. SINGH, D.R . O R D E R PER AL GEHLOT, AM: THIS APPEAL IS DIRECTED AGAINST THE ORDER OF C.I.T.(A),RAJKOT DATED 28-01-2010 FOR ASSESSMENT YE AR 2006-07. 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE REPRODUCED BELOW :- (I) THE LD. C.I.T.(A)-III HAS ERRED IN LAW AND FACT S IN DELETING THE DISALLOWANCE OF SHARE OF LOSS OF RS.3,05,931/-. (II) THE LD. C.I.T.(A)-III HAS ERRED IN LAW AND FAC TS IN DELETING THE DISALLOWANCE OF SHARE OF INTEREST EXPENSES RS.38,25,424/-. (III) THE LD. C.I.T.(A)-III HAS ERRED IN LAW AND FA CTS IN DELETING THE ADDITION OF RS.1,34,407/- MADE OUT OF TRANSPORT EXPENSES. (IV) THE LD. C.I.T.(A)-III HAS ERRED IN LAW AND FAC TS IN DELETING THE ADDITION OF RS.11,918/- MADE OUT OF PACKING EXPENSES. ITA. 849-RJT-2010. A.Y.. 2006- 07. .. 2 (V) THE LD. C.I.T.(A)-III HAS ERRED IN LAW AND FACT S IN DIRECTING TO ALLOW THE SET OFF OF EARLIER YEAR LOSSES. 3. THE FIRST GROUND RAISED IN REVENUES APPEAL IS I N RESPECT OF DELETION OF DISALLOWANCE OF SHARE OF LOSS OF RS.3,0 5,931/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED LOSS OF RS.3,05,931/- BEING A 25% SHARE OF LOSS FROM PARTNERSHIP FIRM NAMED AS M/S. CORONATION MOTORS (NUT BOLT DIVISION) WHICH WAS SET OFF AGAINST OTHER PROPERTY INCOME AND ALSO INCOME FROM OTHER SOURCES AND BUSINESS INCOME OF TH E PROPRIETARY CONCERN OF THE ASSESSEE. IT WAS CONTENDED BEFORE T HE A.O. THAT ON IDENTICAL SET OF FACTS, THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT IN A.Y.1994-95. THE A.O. STATED THAT THE FACTS OF A.Y.1994-95 WERE DIFFERENT THAN THE FACTS OF THE CASE UNDER CONSIDERATION A.Y.2006-07. THE A.O. FURTHER STATED THAT A DEED OF PARTNERSHIP HAS BEEN CHANGED WITH EFFECT FROM 01-04 -1998 AND IN THAT PARTNERSHIP DEED, THE OBJECT CLAUSE OF THE PAR TNERSHIP FIRM WAS TO DEAL IN MANUFACTURE OF NUT BOLTS ETC. AND ALSO GIVI NG INDUSTRIAL SHEDS ON HIRE. THE A.O. WAS OF THE VIEW THAT SINCE LETTI NG OUT INDUSTRIAL SHEDS ON HIRE IS BUSINESS INCOME EARNED FROM EXPLOI TATION OF THE COMMERCIAL ASSETS. THEREFORE, THE RENT INCOME HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS IN CASE OF FIRM AND SO THE SHARE OF THE ASSESSEE IN SUCH BUSINESS INCOME/LOSS CANNOT BE CONSIDERED EITHER AS TAXABLE INCOME OR TAXABLE LOSS IN INDIVIDUAL CASE OF THE PARTNERS. THE A.O. ACCORDINGLY DISALLOWED TH E SET OFF THE SHARE OF LOSS OF RS.3,05,931/-. THE C.I.T.(A) DELETED TH E ADDITION FOLLOWING ITA. 849-RJT-2010. A.Y.. 2006- 07. .. 3 HIS OWN ORDER FOR A.Y. 2005-06 WHEREIN THE C.I.T.(A ) HAS FOLLOWED THE ORDER OF ITAT. THE FINDING RECORDED FROM HIS ORDER FOR A.Y. 2005-06 REPRODUCED BY THE C.I.T.(A) READS AS UNDER :- 6.2. I HAVE CAREFULLY CONSIDERED THE FINDING GIVEN BY THE ASSESSING OFFICER AND THE ABOVE SUBMISSION OF THE A .R. OF THE APPELLANT. IT IS FOUND THAT SEC.26 WILL BE APPLICA BLE IN THIS CASE. RESPECTIVE SHARES ARE DEFINITE AND ASCERTAINABLE AS PER PARTNERSHIP DEED. THE HONBLE ITAT VIDE ORDER DTD .29-3-2004 IN THE CASE OF CORONATION MOTORS (NUT BOLT DIVISION ) HAS SET ASIDE THE MATTER WITH DIRECTIONS TO ASSESSING OFFIC ER TO DETERMINE AS TO WHETHER SHARES OF EACH CO-OWNERS OF THE PROPERTY IS DEFINITE OR NOT? IF HE FOUNDS THAT THE SHARE OF EACH CO-OWNER IS DEFINITE, HE SHOULD APPLY PROVISIONS OF SECTION 26 OF THE I.T. ACT. THE ASSESSING OFFICERS FINDING ON T HE ISSUE IS PERVERSE AND CONTRARY TO THE HONBLE ITAT DIRECTION S. ASSESSING OFFICER TRIED TO OVERRULE THE HONBLE ITA TS DECISION FOR WHICH HE IS NOT EMPOWERED. ACCORDINGLY, THE AS SESSING OFFICERS ACTION FOR DISALLOWING THE LOSS IS CANCEL LED. THIS GROUND OF APPEAL IS ALLOWED. 4. THE LD. D. R. RELIED UPON THE ORDER OF A.O. AND SUBMITTED THAT THE EARLIER ORDER OF THE ITAT IS DISTINGUISHABLE ON FACTS AS IN THE CASE UNDER CONSIDERATION, FACTS ARE SOME DIFFERENT THAT A NEW PARTNERSHIP DEED HAS BEEN EXECUTED WITH EFFECT FROM 01-04-1998. THEREFORE, FACTS IN A.Y. 2004-05 AND IN THE YEAR UNDER CONSIDE RATION ARE DIFFERENT. THE LD. D. R. SUBMITTED THAT THE A.O. H AS RIGHTLY DISALLOWED THE LOSS CLAIMED BY THE ASSESSEE AGAINST THE OTHER HEAD OF THE INCOME. 5. THE LD. A. R. ON THE OTHER HAND, SUBMITTED THAT THE FACTS ARE IDENTICAL TO THE FACT OF A.Y. 2004-05 AND IN THE CA SE UNDER CONSIDERATION. THOUGH, THE ASSESSEE CHANGED PARTNER SHIP DEED WITH ITA. 849-RJT-2010. A.Y.. 2006- 07. .. 4 EFFECT FROM 01-04-1998, BUT OBJECTS OF THE CLAUSE W ERE SAME AS IN EARLIER PARTNERSHIP FIRM. THE LD. A. R. SUBMITTED THAT THE SAID INCOME IS CONSISTENTLY DECLARED U/S. 26 OF THE ACT. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, RECORD PERUSED. WE FIND THAT ON IDENTICAL SET OF F ACTS, FIRST TIME ISSUE ARISES IN A.Y. 2004-05. THE ITA IN CROSS APPEALS IN A.Y.2004-05 HAS CONSIDERED THIS ISSUE AND VIDE ITA NO.261/RJT/2000 AND ITA NO.266/RJT/2000 FOR A.Y. 1994-95 ORDER DATED 29-03- 2004 DECIDED THE SAME IN FAVOUR OF ASSESSEE. THE ITAT AFTER CON SIDERING THE FACTS HOLD THAT SECTION 26 IS APPLICABLE TO THE CASE UNDE R CONSIDERATION. THE FINDING OF THE ITAT FROM THE SAID ORDER REPRODU CED AS BELOW :- WE ARE OF THE CONSIDERED VIEW THAT PROVISIONS OF S ECTION 26 ARE APPLICABLE, BUT, IT IS NOT CLEAR FROM THE RE CORDS AS TO WHETHER SHARE OF EACH OWNER WAS DEFINITE IN THE PRO PERTY. WE, THEREFORE, RESTORE THIS MATTER TO THE ASSESSING OFF ICER FOR A LIMITED PURPOSE OF DETERMINING AS TO WHETHER SHARE OF EACH CO- 0WNER OF THE PROPERTY IS DEFINITE OR NOT. IF HE FOU NDS THAT THE SHARE IS DEFINITE, HE SHOULD APPLY PROVISIONS OF SE CTION 26 AND THE SHARE OF EACH SUCH PERSON IN THE INCOME FROM PR OPERTY AS COMPUTED IN ACCORDANCE WITH SECTION 22 TO 25 SHOULD BE INCLUDED IN HIS TOTAL INCOME, AND THE ASSESSEE SHOU LD NOT BE ASSESSED AS AN AOP. WITH REGARD TO THE VATAV COMMISSION/INTEREST ON LOAN BORROWED FROM M/S. RELI ABLE CONSTRUCTION, WE DIRECT THE ASSESSING OFFICER TO AL LOW IN FULL IN SO FAR AS THE AGREEMENT WITH RELIABLE CONSTRUCTION CO., THE ASSESSEE AGREED TO MAKE THE PAYMENT AND SINCE THE P AYMENT COULD NOT BE MADE, IT HAD CREATED A CHARGE IN FAVOU R OF RELIABLE CONSTRUCTION CO. AND THEREFORE ENTITLED TO FULL DED UCTION FROM THE PROPERTY INCOME THE FINANCE COMMISSION/INTEREST , IN WHATEVER NAME IT HAS BEEN PAID ITA. 849-RJT-2010. A.Y.. 2006- 07. .. 5 7. THE LD. A. R. DURING THE COURSE OF HEARING REFER RED THE ASSESSMENT ORDER FOR A.Y. 1994-95 AND SUBMITTED THA T IN THAT YEAR, THE A.O. TAKEN THE VIEW THE SAME WHICH HAS TAKEN IN A.Y. 2006-07. THE A.O. HAS TRIED TO DISTINGUISH THE FACTS OF THE CASE IN THE YEAR UNDER CONSIDERATION ON THE GROUND THAT THERE IS CHA NGE IN PARTNERSHIP DEED. BUT WE FIND THAT THE FACTS RELATED TO DECIDE THE ISSUE ARE IDENTICAL. THE OBJECT CLAUSE POINTED OUT BY THE A.O . WAS SAME AS IN EARLIER YEAR THAT THE BUSINESS OF ASSESSEE WAS TO G IVE ON HIRE INDUSTRIAL SHED ETC. THERE IS A PROPERTY OF WHICH O WNERS ARE CO- OWNERS IN EARLIER YEAR. THE SAID PROPERTYS INCOME WAS ASSESSABLE IN ACCORDANCE WITH SECTION 26 WHICH HAS BEEN CONFIRMED BY THE ITAT IN THAT YEAR. IN THE YEAR UNDER CONSIDERATION ALSO TH E PROPERTY IS SAME. THEREFORE, TO MAINTAIN CONSISTENCY, SUCH INCOME IN THE YEAR UNDER CONSIDERATION IS ASSESSABLE IN ACCORDANCE WITH SECT ION 26 OF THE ACT. WE THEREFORE, OF THE VIEW THAT THE C.I.T.(A) HAS RI GHTLY DELETED THE ADDITION, THE ORDER OF C.I.T.(A) IS CONFIRMED. 8. THE SECOND GROUND OF THE APPEAL IS IN RESPECT OF INTEREST EXPENSES. DURING THE ASSESSMENT PROCEEDINGS, THE A. O. NOTICED THAT THERE IS A NEGATIVE CAPITAL BALANCE IN THE BALANCE SHEET AS ON 31-03- 2006 OF THE ASSESSEE. THE A.O. HAS ALSO STATED THA T THE BORROWED FUNDS WERE UTILIZED FOR PERSONAL USE. THE A.O. WAS OF THE VIEW THAT THE INTEREST PAID ON BORROWED CAPITAL WAS USED FOR PERSONAL PURPOSES THEREFORE, INTEREST IS NOT ALLOWABLE. THE C.I.T.(A ) FOLLOWED HIS OWN ORDER FOR A.Y. 2005-06 AND DELETED THE SAID ADDITIO N. ITA. 849-RJT-2010. A.Y.. 2006- 07. .. 6 9. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, RECORD PERUSED. THE LD. A. R. SUBMITTED THAT ON ID ENTICAL SET OF FACTS, THE ITAT IN A.Y. 2005-06 HAS DELETED THE ADDITION. WE FIND THAT IN THE YEAR UNDER CONSIDERATION, THE CASE OF THE A.O. IS T HAT THE ASSESSEE HAS USED BORROWED FUNDS FOR PERSON PURPOSES THEREFO RE, INTEREST IS NOT ALLOWABLE. ON PERUSAL OF BALANCE SHEET OF THE ASSESSEE FOR YEAR 31-03-2006, WE FIND THAT THERE IS A NEGATIVE BALANC E OF CAPITAL. WE HAVE ALSO FOUND THAT THE BORROWED FUNDS WERE UTILIZ ED FOR PURCHASE OF ORNAMENTS RS.6,53,633/- AND OTHER ITEMS OF THE BALA NCE SHEET SHOWING UTILIZATION OF BORROWED FUNDS ARE BUSINESS ASSETS OR INVESTMENT. UTILIZATION OF BORROWED FUNDS IS MIXED UTILIZATION FOR THE PURPOSE OF BUSINESS AND FOR THE PURPOSE OF PERSONAL . THE CLAIM OF THE INTEREST IS FOR EACH YEAR. THEREFORE, THE A.O. IS EMPOWERED TO EXAMINE THAT CLAIM IN EACH YEAR. IN THE YEAR UNDER CONSIDERATION, WE NOTICED FROM BALANCE SHEET OF WHICH COPY HAS BEEN F ILED AT PAGE-36 OF PAPER BOOK THAT BORROWED FUNDS TO THE EXTENT OF RS,6,53,633/- UTILIZED FOR PERSONAL PURPOSES ON ACCOUNT OF ORNAME NTS. THEREFORE, TO THAT EXTENT, DISALLOWANCE IS WARRANTED WHEREAS THE C.I.T.(A) HAS DELETED THE ENTIRE ADDITION. AFTER CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE SET ASIDE THE ORDER OF C.I.T.(A) ON THIS ISSUE AND SENT BACK TO THE FILE OF A.O. FOR LIMITED PURPOSE TO CAL CULATE AMOUNT TO BE DISALLOWED TO THE EXTENT OF PERSONAL USE OF BORROWE D FUNDS OF RS.6,53,633/-. THUS, THE PROPORTIONATE DISALLOWANC E OF THE INTEREST EXPENSES IS CONFIRMED. THE A.O. IS DIRECTED TO CAL CULATE THE PROPORTIONATE AMOUNT OF DISALLOWANCE, AFTER PROVIDI NG OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA. 849-RJT-2010. A.Y.. 2006- 07. .. 7 10. THE THIRD GROUND IS IN RESPECT OF DELETION OF A DDITION OF RS.1,34,407/- OUT OF TRANSPORT EXPENSES. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE A SSESSEE HAS CLAIMED RS.13,44,170/- ON ACCOUNT OF TRANSPORT AND MATERIAL HANDLING EXPENSES. THE A.O. NOTED THAT THE ASSESSEE FAILED TO PROVE THE GENUINENESS AND ACTUAL EXPENSES INCURRED BY PRODUCI NG COGENT PROOF IN SUPPORT OF THE CLAIM. THE ASSESSEE HAS NOT SUBM ITTED ANY DETAILS WITH REGARD TO THE TRANSPORT EXPENSES. THEREFORE, T HE A.O. DISALLOWED 1/10 TH OF THE TOTAL EXPENSES OF WHICH CALCULATION COMES TO RS.1,34,407/-. THE DISALLOWANCE MADE BY THE A.O. H AS BEEN DELETED BY THE C.I.T.(A) OBSERVING THAT THE A.O. DID NOT BR OUGHT ON RECORD ANY INSTANCE TO SHOW THAT THE PAYMENT WAS MADE IN EXCES S OF MARKET RATE OR WAS PAID OTHER THAN THE BUSINESS PURPOSE. 11. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF T HE PARTIES, RECORD PERUSED. WE FIND THAT THE C.I.T.(A) HAS DEL ETED THE ADDITION WHICH THE A.O. HAS MADE ON ADHOC 10% OF THE EXPENDI TURE. IT IS NOT CASE OF THE A.O. THAT THE EXPENSES WERE NON-GENUINE . THE CASE OF THE A.O. IS THAT THE ASSESSEE FAILED TO PRODUCE THE NECESSARY DETAILS REQUIRED BY A.O. THE C.I.T.(A) WHILE DELETING THE ADDITION HAS ALSO CONSIDERED THE ANOTHER POINT OF VIEW OF GP AND FOUN D THAT THE ENTIRE PAYMENT WAS NOT EXCESSIVE OR UNREASONABLE. HOWEVER , 10% OF THE ADDITION WAS NOT WARRANTED TO COVER LAPSES. THE RE VENUE HAS FAILED TO POINT OUT ANY CONTRARY MATERIAL TO THE FINDINGS OF THE C.I.T.(A) OR ANY MATERIAL BASIS ON WHICH A DIFFERENT ESTIMATION CAN BE MADE AT THIS STAGE. IN THE LIGHT OF FACTS, WE CONFIRM THE ORDER OF THE C.I.T.(A) ON THIS ISSUE. ITA. 849-RJT-2010. A.Y.. 2006- 07. .. 8 12. THE FOURTH GROUND IS IN RESPECT OF DELETION OF ADDITION OF RS.11,918/- MADE OUT OF PACKING EXPENSES. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. DISALLOWED 10% WHI CH HAS BEEN DELETED BY THE C.I.T.(A). AFTER HEARING LEARNED RE PRESENTATIVES OF THE PARTIES, WE FIND THAT THIS DISALLOWANCE IS SIMILAR TO THE DISALLOWANCE OF ABOVE PARA-11. CONSIDERING THE SAID DISCUSSION, WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF THE C.I.T.(A) ON THIS ISS UE ALSO. THE ORDER OF THE C.I.T.(A) IS CONFIRMED. 13. THE FIFTH GROUND IS IN RESPECT OF SET OFF OF EA RLIER YEAR LOSSES. THE LEARNED REPRESENTATIVES OF THE PARTIES SUBMITTE D THAT IT IS CONSEQUENTIAL GROUND TO THE EFFECT OF THE ADDITION MADE BY THE A.O. THE SAID GROUND IS REQUIRED TO BE CONSIDERED IN THE LIGHT OF FINAL OUTCOME OF THE MERITS OF THE CASE. THE C.I.T.(A) D IRECTED THE A.O. TO VERIFY THE CLAIM OF THE ASSESSEE THAT ADEQUATE LOSS UNDER THE HEAD OF BUSINESS IS AVAILABLE. IF SAME IS AVAILABLE, SET O FF OF LOSS AGAINST BUSINESS INCOME BE ALLOWED ACCORDINGLY. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE C.I.T.(A) AS IT IS CONSEQUENTIA L TO OTHER GROUNDS OF THE APPEAL AND WE THEREFORE, DO NOT FIND ANY INFIRM ITY IN THE ORDER OF THE C.I.T.(A). 14. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-07-2011. SD/- SD/- (N.R.S. GANESAN) ( A. L. GEHLOT ) JUDICIAL MEMBER. ACCOUNTANT MEMBER. RAJKOT, DT : 29-07-2011. ITA. 849-RJT-2010. A.Y.. 2006- 07. .. 9 NVA/- COPY TO: 1.THE A.C.I.T., CIRCLE-2, RAJKOT. 2.SMT. PARULBEN JAYANTKUMAR DOSHI, RAJKOT. 3.THE CIT(A)- RAJKOT. 4.THE C.I.T. 5.THE D.R., I.T.A.T., RAJKOT. TRUE COPY. BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT.