M/s Sheela Overseas Pvt. Ltd.,, New Delhi v. ACIT, New Delhi

CO 23/DEL/2010 | 2006-2007
Pronouncement Date: 19-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 2320123 RSA 2010
Assessee PAN AABCS0790D
Bench Delhi
Appeal Number CO 23/DEL/2010
Duration Of Justice 16 day(s)
Appellant M/s Sheela Overseas Pvt. Ltd.,, New Delhi
Respondent ACIT, New Delhi
Appeal Type Cross Objection
Pronouncement Date 19-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 19-02-2010
Assessment Year 2006-2007
Appeal Filed On 03-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G : NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA VICE PRESIDENT AND SHRI I.P. BANSAL JUDICIAL MEMBER ITA NO.4687/DEL/2009 ASSESSMENT YEAR : 2006-07 ACIT CIRCLE 8(1) ROOM NO.163 CR BUILDING NEW DELHI. VS. SHEELA OVERSEAS PVT. LTD. A-42 MAYAPURI INDUSTRIAL AREA PHASE II NEW DELHI. PAN : AABCS0790D CO NO. 23/DEL/2010 (ITA NO.4687/DEL/2009) ASSESSMENT YEAR : 2006-07 SHEELA OVERSEAS PVT. LTD. A-42 MAYAPURI INDUSTRIAL AREA PHASE II NEW DELHI. PAN : AABCS0790D ACIT CIRCLE 8(1) ROOM NO.163 CR BUILDING NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI T.R. TALWAR ADVOCATE REVENUE BY : SHRI INDERJIT SINGH SR. DR ORDER PER I.P. BANSAL JUDICIAL MEMBER THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE. BOTH OF THEM ARE DIRECTED AGAINST THE OR DER OF THE CIT (A) DATED 4 TH SEPTEMBER 2009 FOR ASSESSMENT YEAR 2006-07. GROUND S OF APPEAL AND GROUNDS OF CROSS OBJECTION READ AS UNDER:- GROUNDS OF APPEAL 1. LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN RESTRICTING THE DISALLOWANCE OF RS.14 45 360/- MADE BY THE ASSE SSING ITA NO.4687/DEL/2009 C.O. NO.23/DEL/2010 2 OFFICER ON ACCOUNT OF INDIRECT EXPENSES TO RS.1 00 643/- 2. LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AND ON THE FACT AND CIRCUMSTANCES OF THE CASE IN D ELETING THE ADDITION OF RS.1 48 760/- MADE BY THE ASSESSING OFF ICER ON ACCOUNT OF DIRECT EXPENSES. 3. THE APPELLANT CRAVES TO AMEND MODIFY ALTER A DD OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR D URING THE HEARING OF THIS APPEAL. GROUNDS OF CROSS OBJECTION ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A) HAS ERRED IN NOT ALLOWING DEPRECIATION OF RS.10 94 734/- ON THE ASSETS WHEN THE SAME WERE KEP T READY FOR ACTUAL USE IN THE PROFIT MAKING APPARATUS THE M OMENT A NEED ARISES. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE EXPORT OF LEATHER GOODS VALETS AND PURSES ETC. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS DECLARED LOSS OF RS.11 75 920/-. DURING THE YEAR UNDER CONS IDERATION THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVITY AND THE FOLLOWING A MOUNT WAS CLAIMED AS AN EXPENDITURE:- I) DIRECT EXPENSES RS.1 48 708/- II) INDIRECT EXPENSES RS.14 45 360/- III) DEPRECIATION RS.13 69 707/- TOTAL RS.29 63 775/- 3. THE REPLY OF THE ASSESSEE TO THE QUERY REGARDING ALLOWABILITY OF ABOVE MENTIONED EXPENDITURE WAS AS UNDER:- DURING THE YEAR THE COMPANY DID NOT CARRY ANY PRO DUCTION ACTIVITY AS IT DID NOT RECEIVE ORDERS AT THE FEASIBLE RATES. THE COMPANY IS ENGAGED IN MANUFACTURING/FABRICATION OF LEATHER VAL ETS AND LADIES PURSES ETC. AND THERE WAS STIFF RATE COMPETITION F ROM OTHER COMPETITORS. SINCE THE PRODUCTION WAS SUSPENDED DU E TO REASONS BEYOND THE CONTROL OF THE MANAGEMENT AND THE MINIMU M EXPENSES WERE INCURRED TO MAINTAIN THE UNIT FOR FUTURE PRODU CTION THE EXPENSES ARE ADMISSIBLE UNDER THE PROVISION OF INCO ME TAX ACT. ITA NO.4687/DEL/2009 C.O. NO.23/DEL/2010 3 4. BEING NOT SATISFIED WITH THE ABOVE EXPLANATION THE AO ASSESSED THE RENT RECEIVED BY THE ASSESSEE BY TREATING THE SAME AS HO USE PROPERTY INCOME AND THE INCOME OF THE ASSESSEE WAS COMPUTED AT A SUM OF RS.11 32 137/- AS PER THE FOLLOWING COMPUTATION:- INCOME FROM HOUSE PROPERTY:- RENT RECEIVED RS.9 11 284/- LESS REPAIRS: RS.2 73 384/- RS.6 37 900/- ADD: (I) INTEREST FROM FDR RS.4 64 991/- (II) INTEREST ON IT REFUND RS.29 246/- (III) SHARE INCOME FROM LESS EXEMPT RS.22 741/- RS.22 741 NIL TOTAL INCOME RS.11 32 137/- 5. BEFORE CIT (A) IT WAS SUBMITTED THAT AS A RESULT OF STIFF COMPETITION FROM THE INTERNATIONAL MARKET. THE ASSESSEE WAS NOT ABL E TO DO ANY PRODUCTION. HOWEVER IT CONTINUED ITS EFFORTS TO OBTAIN FRESH O RDERS AND WAS ABLE TO RESUME PRODUCTION IN SUBSEQUENT PERIOD. FOLLOWING FIGURES WERE GIVEN TO SHOW THAT IN SUBSEQUENT PERIOD THE ASSESSEE WAS ABLE TO REVIVE I TS BUSINESS:- (AMOUNT IN RS. LACS) FIN. YEAR TURNOVER NET PROFIT (-) LOSS 2006-07 8.16 (-)7.93 2007-08 11.75 (-)11.13 2008-09 33.08* 6. THE LD. CIT (A) AFTER CONSIDERING THESE SUBMISSI ONS OF THE ASSESSEE OBSERVED THAT ASSESSEE HAD INCURRED DIRECT EXPENSES OF RS.1 48 708/ AS AGAINST RS.13 14 755/- FOR THE IMMEDIATE PRECEDING YEAR AND THUS THE EXPENSES WAS IN THE NATURE OF GENERATOR EXPENSES LABOUR WAGES MAC HINERY REPAIR AND ESI AND PF PAYMENTS REQUIRED FOR RUNNING A BUSINESS. LD. C IT (A) ALSO NOTED THAT THERE WAS LEGAL OBLIGATION UNDER THE COMPANIES ACT TO MAI NTAIN THE ACCOUNTS GET THEM AUDITED FILING STATUTORY RETURNS ETC. AND THERE IS NO MATERIAL ON RECORD THAT THERE WAS ANY DESIRE OR INTENTION OF THE ASSESSEE TO DISC ONTINUE OR CLOSE ITS BUSINESS AS IT HAS NEITHER BEEN ESTABLISHED BY THE AO IN HIS ORDER AND CONSIDERING THESE CIRCUMSTANCES THE CIT (A) OBSERVED THAT THE ASSESS EE WAS ENTITLED TO INCUR SUCH EXPENDITURE AND HE DELETED THE ADDITION WITH RESPEC T TO DIRECT EXPENSES. ITA NO.4687/DEL/2009 C.O. NO.23/DEL/2010 4 7. COMING TO INDIRECT EXPENSES THE CIT (A) OBSERVE D THAT THESE EXPENSES WERE AMOUNTING TO RS.14 45 360/- AS AGAINST RS.32 0 1 555/- AND MAJOR EXPENSES UNDER THE SAID HEAD WERE ON DIRECTORS REM UNERATION STAFF SALARY CAR PETROL TOYOTA TELEPHONE FAX ETC. INSURANCE PREM IUM HORTICULTURE INTEREST ON CAR LOAN ETC. HE OBSERVED THAT THESE EXPENSES WER E TO BE INCURRED FOR RUNNING OF BUSINESS EVEN IF THERE WAS BUSINESS ACTIVITY DUR ING THE YEAR. HE ALSO OBSERVED THAT THE ASSESSEE ITSELF HAS ADDED A SUM O F RS.1 07 361/- IN THE COMPUTATION OF TAXABLE INCOME WHICH WAS IGNORED BY THE AO. HE ALSO OBSERVED THAT THE ASSESSEE HAS EARNED INTEREST INCOME OF RS. 4 64 991/- AS AGAINST RS.7 95 792/- FOR IMMEDIATE PRECEDING YEAR AND HAS INCURRED EXPENSES OF RS.3 03 107/- AS AGAINST RS.3 44 367/- FOR IMMEDIAT E PRECEDING YEAR AND THOUGH THE AO HAS TAKEN THE INCOME RECEIVED OF INTEREST B UT IGNORED THE EXPENSES THE ASSESSEE WITHDRAWN CERTAIN DEPOSITS FROM THE BANK F OR BUSINESS EXPENSES AND DEPOSITS WERE REDUCED. THE LOSS OF RS.98 89 744/- WHICH WAS INCURRED IN THE PREVIOUS YEAR WAS OUT OF OWN SOURCES OF THE ASSESSE E THEREFORE THE INTEREST WAS SUBSTANTIALLY REDUCED AND AFTER EXAMINING ALL T HESE FACTS THE CIT (A) OBSERVED THAT ALL THESE EXPENSES WERE INCURRED BY T HE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS EXCEPT THE EXPENSES OF RS.1 00 643/- (INCURRED ON TOYOTA CAR) AND THE ASSESSEE IS ENTITL ED FOR RELIEF OF THE BALANCE AMOUNT. 8. ON DEPRECIATION LD. CIT (A) OBSERVED THAT AS MA CHINERY WAS NOT USED THEREFORE PROVISIONS OF SECTION 32/38(2) WILL BE A TTRACTED. HE ALSO OBSERVED THAT THE RECORD DOES NOT JUSTIFY THAT THE MACHINERY IN Q UESTION WAS EMPLOYED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS THEREFORE HE REFUSED TO ACCEPT THE CLAIM OF THE ASSESSEE REGARDING DEPRECIATION. REVENUE IS AGGRIEVED BY THE DELETIONS MADE BY THE CIT (A) AND THE ASSESSEE IS AGGRIEVED B Y THE ADDITION SUSTAINED BY THE CIT (A) HENCE BOTH ARE IN APPEAL AND CROSS OB JECTION. 9. AFTER NARRATING THE FACTS LD. DR PLEADED THAT T HE ASSESSEE DID NOT CARRY ON ANY MANUFACTURING ACTIVITY DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE RENTED THE PART OF ITS BUILDING. THE AO A SSESSED THE RENTAL INCOME OF ITA NO.4687/DEL/2009 C.O. NO.23/DEL/2010 5 THE ASSESSEE AS HOUSE PROPERTY INCOME. THE ASSESSEE DID NOT RAISE ANY GROUND AGAINST SUCH TREATMENT GIVEN BY THE AO. HE SUBMITT ED THAT IN THE ABSENCE OF ANY MANUFACTURING ACTIVITY/BUSINESS ACTIVITY THE AO WA S RIGHT IN DISALLOWING THE EXPENDITURE AND ALSO DISALLOWING THE DEPRECIATION. HE SUBMITTED THAT AGAINST HOUSE PROPERTY INCOME ASSESSED THE AO HAS ALSO GIV EN THE STATUTORY DEDUCTION U/S 24 AND THEREFORE THE ORDER OF THE CIT (A) ON THESE ISSUES MAY BE SET ASIDE AND THAT OF AO BE RESTORED. 10. ON THE OTHER HAND IT WAS SUBMITTED BY LD. AR T HAT THERE WAS A TEMPORARY LULL IN THE BUSINESS AND FROM THE FACT IT IS CLEAR THAT IN SUBSEQUENT YEAR THE ASSESSEE WAS ABLE TO CARRY ON ITS BUSINESS. THEREF ORE HE PLEADED THAT THE CIT (A) WAS RIGHT IN ALLOWING THE NECESSARY EXPENDITURE WHICH WAS INCURRED BY THE ASSESSEE TO ENABLE IT TO KEEP ITS BUSINESS ASSETS I NTACT. HE CONTENDED THAT DEPRECIATION IS ALLOWABLE EVEN IN THE CASES WHEN TH E ASSETS ARE KEPT READY FOR USE. THERE BEING TEMPORARY LULL IN THE BUSINESS T HE ASSETS WERE KEPT READY FOR USE AND THEREFORE DISALLOWANCE OF DEPRECIATION TH EREON WAS NOT IN ACCORDANCE WITH LAW. 11. LD. AR HAS SUBMITTED THE SYNOPSIS OF HIS SUBMIS SIONS WHICH ARE AS FOLLOWS:- BEFORE THE HONBLE ITAT G BENCH NEW DELHI IN ITA NO. 4687/D/09 IN THE CASE OF ACIT CIRCLE 8(1 ) NEW DELHI VS. M/S SHEELA OVERSEAS PVT. LTD.ASSESSMENT YEAR 2006- 07. LIST OF CASES CITED ON LULL IN BUSINESS THERE IS A CATENA OF DECISIONS WHEREIN IT HAS BEEN HELD THAT IF THERE IS LULL IN BUSINESS THEN IT CANNOT BE SAID THAT TH E ASSESSEE CEASES TO CARRY ON THE BUSINESS AND THEREFORE IT IS TO BE HE LD THAT IN RESPECT OF SUCH BUSINESS ASSESSING OFFICER IS BOUND TO COMPUTE THE PROFIT OR LOSS IF ANY OF SUCH BUSINESS. ITA NO.4687/DEL/2009 C.O. NO.23/DEL/2010 6 1. CIT V. BHARAT NIDHI LTD. (1966) 60 ITR 520 (PUB.) ONCE A BUSINESS HAS COMMENCED IT DOES NOT CEASE TO BE CARRIED ON MERELY BECAUSE THERE IS A PERIOD OF LULL QUIESCENC E OR TEMPORARY INACTIVITY. A BUSINESS MAY BE INACTIVE FOR A PERIOD AND MERELY BECAUSE OF THE DORMANCY OF THE BUSINESS THE CONCLU SION THAT IT HAS CEASED TO RUN DOES NOT ARISE. 2. INDER CHAND HARI R AM V. CIT (1953) 23 ITR 437 (ALL) THE MERE FACT THAT FOR SOME TIME HE IS NOT ABLE TO SECURE A CONTRACT OR DO THE WORK WHICH HE SET OUT TO DO SHOULD NOT D ISQUALIFY FROM PLEADING THAT THE EXPENDITURE THAT HE HAD INCURRED WAS EXPENDED FOR THE PURPOSES OF THE BUSINESS. 3. KARSONDAS RANCHHODDASS V. CIT (1972) 83 ITR 1 (BORN .) 4. SAROJINI RAJA V. CIT V. (1969) 71 ITR 504 (MAD.) ON DEPRECIATION READY FOR USE IS USE. PASSIVE USE IS GOOD ENOUGH FO R SATISFACTION OF THE USER TEST . 1. CAPITAL BUS SERVICE LTD. V. CIT (1980) 123 ITR 4 04 (DELHI) THE ALLOWANCE FOR NORMAL DEPRECIATION DOES NOT DEPE ND UPON THE ACTUAL WORKING OF THE MACHINERY: IT IS SUFFICIENT I F THE MACHINERY IN QUESTION IS EMPLOYED BY THE ASSESSEE FOR THE PURPOS ES OF THE BUSINESS AND FOR NO OTHER BUSINESS AND IT IS KEPT B Y HIM READY FOR ACTUAL USE. 2. CIT V. OP KHANNA & SONS (1983) 140 ITR 558 (P& H) 3. CIT V. GEO TECH CONSTRUCTION CORPORATION (2000) 244 ITR 452 (KER) 4. CIT V. SOUTHERN PETROCHEMICAL INDUSTRIES CORPORATIO N LTD. (2007) 292 ITR 362 (MAD) (2008) 301 ITR 255 (MAD.) 5. SIV INDUSTRIES LTD. V. DY. CIT (2008) 306 ITR 114 ( MAD.) AGAINST WHICH SPECIAL LEAVE PETITION FILED BY THE D EPT. WAS ALSO DECLINED (2008) 306 ITR (ST.) 6. GUJRAT NARMADA VALLEY FERTILIZERS CO. LTD. V. DY. C IT (2001) 73 TTJ (AHD.) 787 796 7. SUMERPUR COOPERATIVE MARKETING SOCIETY LTD. V. ASST T. CIT (2002) 75 TTJ (JODH) 324 327 ITA NO.4687/DEL/2009 C.O. NO.23/DEL/2010 7 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF THE MATERIAL PLACED ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF AO AND CIT (A). DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD GIVEN ITS PREMISES PARTLY ON RENT FROM WHERE THE INCOME HAS B EEN EARNED BY THE ASSESSEE AND SUCH INCOME HAS BEEN ASSESSED BY THE AO AS INCO ME FROM HOUSE PROPERTY AND STATUTORY DEDUCTION REGARDING REPAIR HAS BEEN G IVEN OUT OF THE SAID INCOME AND THE INCOME HAS BEEN COMPUTED ACCORDINGLY. THOU GH THE SUBMISSION HAS BEEN MADE BEFORE THE CIT (A) AXS IT APPEARS FROM TH E PAPERS FILED ALONG WITH THIS APPEAL THAT AREA DURING THE YEAR WHICH WAS GIVEN ON LEASE WAS HAVING 59.18% AND THUS IT WAS THE SUBMISSION OF THE ASSESSEE TH AT IF THE PROPORTION IS CONSIDERED THEN THE DEPRECIATION RELATING TO LEASE WILL BE AN AMOUNT OF RS.4 18 190/- AS AGAINST THE CLAIM OF THE ASSESSEE FOR SUCH ASSET OF RS.7 06 558/-. THESE SUBMISSIONS ARE PART OF WRITT EN SUBMISSIONS MADE BEFORE THE CIT (A) DATED 8 TH APRIL 2009. THERE IS NO SUCH FINDING IN THE ORDE R OF THE CIT (A) REGARDING THAT ASPECT OF THE MATTER. THE CIT ( A) HAS ACCEPTED THAT THERE WAS A TEMPORARY LULL IN THE BUSINESS. FROM THE FACTS S TATED BEFORE US ALSO IT IS CLEAR THAT IT WAS A TEMPORARY LULL IN THE BUSINESS. THE CIT (A) HAS GIVEN A FINDING OF FACT THAT THE ASSESSEE HAS INCURRED THESE EXPENDITU RE AS THESE WERE NECESSARILY TO BE INCURRED FOR THE PURPOSE OF BUSINESS AND IF I T IS SO THEN HIS ORDER REGARDING DELETING THE ADDITIONS REGARDING EXPENSES AND MAINT AINING CERTAIN PART ADDITION WHICH WAS ON ACCOUNT OF NON-BUSINESS USER CANNOT BE SAID TO HAVE ANY INFIRMITY IN ACCORDANCE WITH THE LAW. THEREFORE WE DECLINE TO INTERFERE SO FAR AS IT RELATES TO DISALLOWANCES MADE BY THE CIT (A) EXCEPT DEPRECI ATION. SO FAR AS IT RELATES TO DEPRECIATION WE ARE OF THE OPINION THAT THIS MATTE R HAS NOT BEEN PROPERLY EXAMINED BY THE CIT (A). IT HAS NEVER BEEN THE CAS E OF THE ASSESSEE EITHER IN THE GROUNDS OF APPEAL FILED BEFORE THE CIT (A) OR I N THE GROUNDS OF APPEAL FILED BEFORE US THAT THE TREATMENT GIVEN BY THE AO TO THE HOUSE PROPERTY INCOME WAS WRONG. IF IT IS SO THEN THE DEPRECIATION WITH RE GARD TO THAT PART CANNOT BE ALLOWED AS STATUTORY DEDUCTION REGARDING HOUSE PROP ERTY INCOME HAS ALREADY BEEN ALLOWED. SO FAR AS IT RELATES TO OTHER ASSETS THE DETAILS HAVE NOT BEEN DISCUSSED EITHER BY THE AO OR CIT (A). IF THE AS SETS ON WHICH DEPRECIATION HAS ITA NO.4687/DEL/2009 C.O. NO.23/DEL/2010 8 BEEN CLAIMED ARE IN THE NATURE THAT THEY HAVE NECES SARILY TO BE MAINTAINED OR KEPT READY FOR THE USE OF BUSINESS THEN THE CLAIM OF THE ASSESSEE CAN BE CONSIDERED IN THE LIGHT OF THE DECISION RELIED UPON BY HIM. AS THERE IS LACK OF CLARITY ON FACTS SO AS IT RELATES TO ISSUE REGARDI NG DEPRECIATION WE RESTORE THIS ISSUE TO THE FILE OF AO TO CONSIDER THE SAME DENOVO AS PER LAW AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 13. TO SUM UP OUR FINDING ON THE APPEAL OF THE DEP ARTMENT AND CROSS OBJECTION FILED BY THE ASSESSEE ARE AS UNDER: I) THE CIT (A) WAS RIGHT IN DELETING THE ADDITIONS AND THUS THE APPEAL FILED BY THE REVENUE IS DISMISSED; II) SO AS IT RELATES TO ASSESSEES CROSS OBJECTION WE RESTORE THIS ISSUE TO THE FILE OF AO TO RE-CONSIDER THE SAME AS PER THE D IRECTIONS GIVEN HEREINABOVE. THEREFORE THE CO IS PARTLY ALLOWED F OR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 14. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED F OR STATISTICAL PURPOSES.. . THE ORDER PRONOUNCED IN THE OPEN COURT ON 19.02.20 10. SD/- SD/- [G.E. VEERABHADRAPPA] [I.P. BANSAL] VICE PRESIDENT JUDICIAL MEMBER DATED 19.02.2010. DK ITA NO.4687/DEL/2009 C.O. NO.23/DEL/2010 9 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES