DCIT, CHENNAI V. M/s. VGP Evergreen Plantation Ltd., CHENNAI

ITA 977/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1155 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-02-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 04-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NOS. 974, 975, 976, 977 & 978/MDS/2012 (ASSESSMENT YEARS : 2003-04 TO 2007-08) THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE IV(3), CHENNAI - 600 034 . (APPELLANT) V. M/S VGP EVERGREEN PLANTATION LTD., NO.6, VGP SQUARE, DHARMARAJA KOIL STREET, SAIDAPET, CHENNAI - 600 015. PAN : AABCV 1790 N (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY : SHRI A.S. SRIRAMAN, ADVOC ATE DATE OF HEARING : 19.02.2013 DATE OF PRONOUNCEMENT : 07.03.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE REVENUE, DIRECTED AGAINST AN ORDER DATED 27.2.2012 OF COMMISSIONER OF INCOME TAX (APPE ALS)-I, CHENNAI, FOR THE IMPUGNED ASSESSMENT YEARS. REVENUE HAS RAI SED TWO EFFECTIVE GROUNDS FOR ASSESSMENT YEAR 2003-04, WHEREAS, THERE IS ONLY ONE GROUND FOR ALL OTHER YEARS. COMMON GROUND RUNNING THROUGH ALL THE YEARS, ASSAILS THE DIRECTION OF CIT(APPEALS) TO ASS ESS RENTAL INCOME RECEIVED BY THE ASSESSEE UNDER THE HEAD INCOME FRO M BUSINESS. 2 I.T.A. NOS. 974 TO 978/MDS/12 2. FACTS APROPOS ARE THAT ASSESSEE, WHICH WAS IN TH E BUSINESS OF GROWING TREE PLANTATIONS AND SELLING TEAK UNITS, HA D HIRED OUT ITS BUSINESS STRUCTURE. AS PER THE ASSESSEE, SUCH HIRING WAS RE SORTED BECAUSE OF LULL IN BUSINESS. RENTAL INCOME RECEIVED BY THE ASSESSE E WAS SHOWN UNDER THE HEAD INCOME FROM BUSINESS. ASSESSING OFFICER WAS HOWEVER OF THE OPINION THAT SUCH RENTALS COULD ONLY BE CONSIDERED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. RESULT WAS THAT HE S HIFTED THE HEAD FROM INCOME FROM BUSINESS TO INCOME FROM HOUSE PROPER TY AND ASSESSEE WAS ALLOWED ONLY STATUTORY DEDUCTION OF 30%. IN OT HER WORDS, OTHER EXPENSES CLAIMED AGAINST BUSINESS INCOME STOOD DISA LLOWED. 3. ASSESSEE MOVED IN APPEALS BEFORE CIT(APPEALS) FO R ALL THE YEARS. ARGUMENT OF THE ASSESSEE WAS THAT THE STRUCTURE WAS LET OUT ONLY BECAUSE THAT THERE WAS A LULL IN ITS BUSINESS ACTIV ITIES AND ITS INTENTION WAS ALWAYS TO RESTART THE BUSINESS. RELYING ON THE ORDER OF SECURITIES APPELLATE TRIBUNAL (SAT) DATED 28.11.2006, ASSESSEE ARGUED THAT IT WAS TO WIND UP THE BUSINESS ON OR BEFORE 28 TH FEBRUARY, 2007. THEREFORE, AS PER ASSESSEE, IT COULD HARDLY HAVE THOUGHT THAT RES TARTING THE BUSINESS WAS NOT POSSIBLE ATLEAST UPTO 28 TH FEBRUARY, 2007. LETTING OUT WAS, THEREFORE, ASSESSABLE ONLY UNDER THE HEAD INCOME FROM BUSINESS. LD. CIT(APPEALS) WAS APPRECIATIVE OF THESE CONTENTIONS OF THE ASSESSEE. ACCORDING TO HIM, TILL 28 TH FEBRUARY, 2007, THERE EXISTED A POSSIBILITY FOR THE ASSESSEE TO REVIVE ITS BUSINESS. THEREFORE, AC CORDING TO HIM, UPTO 3 I.T.A. NOS. 974 TO 978/MDS/12 THAT DATE, INCOME FROM LETTING OUT THE BUSINESS STR UCTURE HAD TO BE CONSIDERED ONLY AS INCOME FROM BUSINESS. HE THUS D IRECTED THE ASSESSING OFFICER TO CONSIDER RENTALS AS INCOME FRO M BUSINESS AND ALLOW THE CLAIM OF EXPENSES MADE BY THE ASSESSEE. 4. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT ASSESSEE HAD RENTED OU T THE STRUCTURES. ASSESSEE WAS NOT RENTING OUT A FACTORY OR MANUFACTU RING PLANT. ASSESSEE WAS ONCE UPON A TIME DOING A BUSINESS OF T REE PLANTATION AND SELLING TEAK UNITS. IT HAD STOPPED THE BUSINESS LO NG BACK. ASSESSEE HAD NEVER RESTARTED THE BUSINESS AND THERE WAS NOTHING ON RECORD TO SHOW ITS INTENTION TO RESUME THE BUSINESS. IT WAS NOT A COMPLEX LETTING OUT OF PLANT AND MACHINERY, BUT, ONLY AN OFFICE SPACE. AS SESSEE COULD NOT SHOW THAT THERE WERE ANY COMPLEX FACILITIES OFFERED ALONG WITH THE STRUCTURES WHICH WERE LET OUT. THEREFORE, ACCORDIN G TO HIM, CIT(APPEALS) FELL IN GROSS ERROR IN CONSIDERING SUCH INCOME UNDE R THE HEAD INCOME FROM BUSINESS. LEARNED D.R. PLACED RELIANCE ON TH E DECISION OF HON'BLE APEX COURT IN THE CASE OF UNIVERSAL PLAST LTD. V. CIT (237 ITR 454) AND THAT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT V VENKATESWARA AGRO CHEMICALS AND MINERALS P. LTD. (3 38 ITR 428). 5. PER CONTRA, LEARNED A.R., IN SUPPORT OF THE LD. CIT(APPEALS)S ORDERS, SUBMITTED THAT THE ORDER OF SAT CLEARLY IND ICATED ASSESSEES 4 I.T.A. NOS. 974 TO 978/MDS/12 INTENTION TO REVIVE THE BUSINESS. ACCORDING TO LEA RNED A.R., TILL 28 TH FEBRUARY, 2007, IT COULD NOT BE PRESUMED THAT ASSES SEE HAD NO INTENTION TO RESTART ITS BUSINESS. RELIANCE WAS PLACED ON TH E DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT V. VIKRAM COTTON MILL S LTD. (169 ITR 597). 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. ADMITTEDLY, ASSESSEE WAS ONCE UPON A TIME, ENGAGED IN THE BUSINESS OF TREE PLANTATIONS AND SELLING TEAK UNITS. EVEN DURI NG RELEVANT PREVIOUS YEAR, ASSESSEE HAD REPURCHASED THE TEAK UNITS FROM ITS CUSTOMERS AND IN EXCHANGE THEREOF ASSESSEE HAD OFFERED HOUSING PLOTS TO SOME OF THE CUSTOMERS. ASSESSEE ITSELF HAD ADMITTED TO AN INCR EASE IN CLOSING STOCK WAS ON ACCOUNT OF REPURCHASE OF UNITS FROM CUSTOMER S. THIS WOULD CLEARLY IMPLY THAT ASSESSEE HAD ABANDONED ITS BUSIN ESS IN TREE PLANTATION. IF THE ASSESSEE HAD NOT ABANDONED SUCH BUSINESS, IT WOULD NOT HAVE GIVEN PLOTS IN EXCHANGE OF TEAK UNITS. TH IS ACT OF THE ASSESSEE, IN OUR OPINION, CLEARLY SHOWS THAT IT HAD NO INTENT ION TO RE-START ITS BUSINESS AT ALL. IT IS NOT EQUIVALENT TO A CASE WH ERE THERE WAS ONLY A TEMPORARY LULL IN BUSINESS. NOTHING HAS BEEN PLACE D ON RECORD TO SHOW THAT ASSESSEE HAD ANY INTENTION TO RE-START THE BUS INESS. IN THE CASE OF VENKATESWARA AGRO CHEMICALS AND MINERALS P. LTD. (S UPRA), HON'BLE JURISDICTIONAL HIGH COURT HAD HELD THAT WHEN THERE WAS NOTHING TO SHOW ON RECORD THE INTENTION OF THE ASSESSEE TO RESUME I TS BUSINESS, RENTAL INCOME COULD NOT BE CONSIDERED AS BUSINESS INCOME, EVEN IF WHAT WAS 5 I.T.A. NOS. 974 TO 978/MDS/12 RENTED OUT WAS A FACTORY. THEIR LORDSHIP HELD THAT RENTAL INCOME WAS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S. HOWEVER, IN THE CASE BEFORE US, WHAT WAS RENTED OUT WAS A STRUC TURE AND NOT ANY FACTORY OR COMPLEX COMMERCIAL PREMISES. AS FOR TH E RELIANCE PLACED BY THE ASSESSEE ON THE DECISION OF HON'BLE APEX COU RT IN THE CASE OF VIKRAM COTTON MILLS LTD. (SUPRA), THE FACTS WOULD S HOW THAT IT WAS THE CASE OF AN ASSESSEE, WHO WAS IN THE MANUFACTURE OF TEXTILES. THERE WAS A WINDING UP PETITION BEFORE THE HIGH COURT BY ONE OF THE CREDITORS AND THE SAID CREDITOR HAD TAKEN ACTUAL POSSESSION OF IM MOVABLE PROPERTY. A SCHEME WAS EVOLVED BY THE HIGH COURT WITH THE APPRO VAL OF ASSESSEE- COMPANY AND CREDITORS FOR EXPLOITATION OF BUSINESS ASSET AND ACCORDINGLY, THE BUSINESS ASSETS WERE LET OUT FOR P ERIOD OF TEN YEARS. INTENTION WAS THAT THE CREDITORS WOULD BE PAID OUT OF LEASE MONEY AND ONCE THE CREDITORS WERE PAID, ASSESSEE COULD RE-STA RT ITS BUSINESS. FACTS OF THE PRESENT CASE BEFORE US ARE ENTIRELY DI FFERENT. IT IS NOT A CASE WHERE BUSINESS STRUCTURES WERE RENTED OUT FOR PAYIN G CREDITORS NOR WAS SUCH A LEASE BASED ON ANY APPROVED SCHEME OF HON'BL E JURISDICTIONAL HIGH COURT. ORDER OF SAT ONLY REQUIRED THE ASSESSE E TO WIND ITSELF UP BY 28 TH FEBRUARY, 2007. THIS CANNOT BE IMPLICATION MEAN T HAT ASSESSEE HAD AN INTENTION TO RESTART ITS BUSINESS UPTO THAT DATE. WE ARE, THEREFORE, OF THE OPINION THAT CIT(APPEALS) FELL IN ERROR WHEN HE HELD THAT INCOME FROM RENTING OUT SHOULD BE CONSIDERED UNDER THE HEA D INCOME FROM 6 I.T.A. NOS. 974 TO 978/MDS/12 BUSINESS. WE SET ASIDE THE ORDERS OF CIT(APPEALS) IN THIS REGARD AND REINSTATE THE ADDITION MADE BY THE A.O. UNDER THE H EAD INCOME FROM HOUSE PROPERTY AND DISALLOWING THE CLAIMS OF EXPEN SES OTHER THAN STATUTORY DEDUCTIONS. 7. THERE IS ONE MORE GROUND RAISED BY THE REVENUE F OR THE ASSESSMENT YEAR 2003-04. IN SUCH GROUND, REVENUE A SSAILS THE ORDER OF CIT(APPEALS) INSOFAR AS HE DELETED AN ADDITION O F ` 1,91,29,150/- MADE TOWARDS VALUE OF CLOSING STOCK. 8. FACTS APROPOS ARE THAT IN THE BALANCE SHEET FILE D ALONG WITH RETURN OF INCOME, ASSESSEE HAD SHOWN CLOSING STOCK OF ` 6,55,89,054/-. CLOSING STOCK AS ON 31.3.2003 WAS ONLY ` 4,64,59,904/-. ASSESSEE WAS REQUIRED TO EXPLAIN HOW THERE WAS A DIFFERENCE OF ` 1,91,29,150/- SINCE THE PROFIT & LOSS ACCOUNT FILED DID NOT REFLECT ANY STOCK AT ALL. REPLY OF THE ASSESSEE WAS THAT IT HAD TO ABANDON THE BUSINES S OF TREE PLANTATION AND HAD TO REFUND THE AMOUNT TO CUSTOMERS. AS PER ASSESSEE, CUSTOMERS WERE GIVEN BUILDING PLOTS IN EXCHANGE OF TEAK UNITS RE- PURCHASED AND THIS WAS THE REASON WHY THE CLOSING S TOCK VALUE WENT UP. ASSESSEE ALSO SUBMITTED THAT EVEN IF THE RE-PURCHAS ED UNITS WERE SHOWN IN THE PROFIT & LOSS ACCOUNT, IT WOULD MAKE ANY DIF FERENCE TO THE FINAL RESULTS. AS PER ASSESSEE, THERE WAS NO SELLING ACT IVITY AND THEREFORE, THERE WAS NO QUESTION OF ANY ADDITION BEING MADE FO R SUPPRESSION OF STOCK. HOWEVER, ASSESSING OFFICER WAS NOT IMPRESSE D. ACCORDING TO 7 I.T.A. NOS. 974 TO 978/MDS/12 HIM, ASSESSEE SHOULD HAVE VALUED THE STOCK-IN-TRADE AT COST OR MARKET PRICE, WHICHEVER WAS LESS, AND IT HAD FAILED TO DO SO. THEREFORE, HE MADE AN ADDITION OF ` 1,91,29,150/-, BEING THE DIFFERENCE. 9. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF T HE ASSESSEE WAS THAT THE INCREASE IN CLOSING STOCK WAS ONLY DUE TO RE-PURCHASE OF UNITS AND THERE WAS NO INCOME ARISING TO IT. LD. CIT(APP EALS) WAS APPRECIATIVE OF THIS CONTENTION OF THE ASSESSEE AND DELETED THE ADDITION. 10. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT WHEN THE CLOSING STOCK HAD INCREASED, IT WAS NECESSARY FOR THE ASSESSEE TO SHOW CORRESPONDIN G INCOME WHICH IT HAD NOT DONE. 11. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF CIT(APPEALS). 12. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. AS NOTED BY THE ASSESSING OFFICER, IN THE PROFIT & LOS S ACCOUNT FILED BY THE ASSESSEE ALONG WITH RETURN OF INCOME, NO STOCK WHAT SOEVER WAS MENTIONED. HOWEVER, ASSESSEE HAD FILED A REVISED P ROFIT & LOSS ACCOUNT BEFORE THE ASSESSING OFFICER AS WELL AS CIT (APPEALS), IN WHICH IT HAD SHOWN OPENING STOCK AS WELL AS CLOSING STOCK AN D DIFFERENCE WAS SHOWN AS TEAK UNITS RE-PURCHASED FROM CUSTOMERS. A SSESSING OFFICER HAS NOT GIVEN ANY FINDING REGARDING ASSESSEES CONT ENTION REGARDING 8 I.T.A. NOS. 974 TO 978/MDS/12 REPURCHASE OF UNITS. ASSESSEE MIGHT HAVE CHOSEN TO INCREASE ITS STOCK, WITHOUT SHOWING VALUE OF THE UNITS RE-PURCHASED IN ITS TRADING ACCOUNT. THIS HARDLY MADE ANY DIFFERENCE SINCE BOTH OPENING AND CLOSING STOCK WERE NOT SHOWN. EVEN IF THE SAID AMOUNT WAS CREDIT ED IN THE TRADING ACCOUNT, CLOSING STOCK WOULD HAVE INCREASED BY THE SAME AMOUNT. ADMITTEDLY, ASSESSEE HAD STOPPED ITS BUSINESS LONG BACK AND NO SELLING WHATSOEVER WAS EFFECTED. THEREFORE, WE ARE OF THE OPINION THAT ADDITION WAS NOT CALLED FOR AND RIGHTLY DELETED BY THE CIT(A PPEALS). NO INTERFERENCE IS REQUIRED. 13. APPEAL OF THE REVENUE FOR ASSESSMENT YEARS 2004 -05 TO 2007-08 IS ALLOWED, WHEREAS THAT OF ASSESSMENT YEAR 2003-04 IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 7 TH OF MARCH, 2013, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 7 TH MARCH, 2013. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-I, CHENNAI (4) CIT, CENTRAL-I, CHENNAI (5) D.R. (6) GUARD FILE