DCIT 8(2), MUMBAI v. M/S. LEELA SCOTTISH LACE PVT. LTD, MUMBAI

ITA 1261/MUM/2007 | 2003-2004
Pronouncement Date: 24-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 126119914 RSA 2007
Assessee PAN AAACD9926D
Bench Mumbai
Appeal Number ITA 1261/MUM/2007
Duration Of Justice 3 year(s) 15 day(s)
Appellant DCIT 8(2), MUMBAI
Respondent M/S. LEELA SCOTTISH LACE PVT. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 24-02-2010
Date Of Final Hearing 30-12-2009
Next Hearing Date 30-12-2009
Assessment Year 2003-2004
Appeal Filed On 09-02-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI R.K. GUPTA JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER ITA NO 733/MUM/2007 (ASSESSMENT YEAR: 2003-04) LEELA SCOTTISH LACE PVT LTD LEELA BAUG SIR M V ROAD ANDHERI (EAST) MUMBAI -400 059 PAN: AAACD 9926 D VS DCIT 8(2) R NO.216-A AAYAKAR BHAVAN M K ROAD MUMBAI -400 020 APPELLANT RESPONDENT ITA NO 1261/MUM/2007 (ASSESSMENT YEAR: 2003-04) DCIT 8(2) R NO.216-A AAYAKAR BHAVAN M K ROAD MUMBAI -400 020 VS LEELA SCOTTISH LACE PVT LTD LEELA BAUG SIR M V ROAD ANDHERI (EAST) MUMBAI -400 059 PAN: AAACD 9926 D APPELLANT RESPONDENT ASSESSEE BY: SHRI NITESH JOSHI REVENUE BY: SHRI DAYA SHANKAR ORDER PER R.K. GUPTA JUDICIAL MEMBER THESE ARE TWO APPEALS BY THE ASSESSEE AND THE DEPAR TMENT AGAINST THE ORDER OF CIT (A) RELATING TO ASSESSMENT YEAR 2003-04. GROUN D A 1 IN APPEAL OF THE ASSESSEE IS AGAINST RENTAL INCOME FROM COMMERCIAL COMPLEX TREAT ED AS INCOME FROM HOUSE PROPERTY AGAINST BUSINESS INCOME AS ORIGINALLY ASSESSED BY THE ASSESSING OFFICER. ITAS 733 & 1261/M/2007 LEELA SCOTTISH LACE PVT LTD 2 2. GROUND NO.3 IN APPEAL OF THE DEPARTMENT IS AGAIN ST DIRECTING THE ASSESSING OFFICER TO TREAT LEASE RENTAL INCOME AS INCOME FROM HOUSE P ROPERTY WITHOUT APPRECIATING THE FACTS OF THE CASE. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE WHILING FILING THE RETURN OF INCOME HAS DECLARED RENTAL INCOME AS INCOME FROM BU SINESS AND VARIOUS EXPENSES WERE CLAIMED INCLUDING INTEREST PAID TO HDFC @ RS.5 60 6 8 870/-. THE ASSESSING OFFICER TREATED PROPERTY INCOME AS BUSINESS INCOME AND VARI OUS EXPENDITURE CLAIMED WERE ALSO ALLOWED INCLUDING INTEREST PAID TO HDFC AS MENTION ED ABOVE. ASSESSEE PREFERRED AN APPEAL AGAINST VARIOUS DISALLOWANCES BEFORE CIT (A) . AN ADDITIONAL GROUND WAS RAISED BY WHICH IT WAS STATED THAT THE RENTAL INCOME FROM COM MERCIAL COMPLEX MAY BE TREATED AS PROPERTY INCOME IN VIEW OF THE DECISION OF THE SUP REME COURT IN CASE OF SHAMBHU INVESTMENT (P) LTD 249 ITR 47. 4. THE CIT (A) ACCEPTED THE ADDITIONAL GROUND AND D IRECTED THE ASSESSING OFFICER TO TREAT THE RENTAL INCOME AS INCOME FROM HOUSE PROPER TY AS PER PROVISIONS OF LAW WHILE DIRECTING SO THE CIT (A) ALSO DIRECTED THAT SINCE NO EVIDENCE HAS BEEN PLACED IN RESPECT TO CLAIM OF DEDUCTION ON ACCOUNT OF INTEREST PAID T O HDFC AMOUNTING TO RS 5 60 68 870/- THEREFORE THE DEDUCTION OF INTEREST AMOUNT WAS NOT ALLOWED. 5. NOW ASSESSEE & DEPARTMENT ARE HEREIN APPEAL BEF ORE THE TRIBUNAL. 6. THE COUNSEL OF THE ASSESSEE HAS NOT PRESSED GROU ND NO.A 1 WHICH RELATES TO RENTAL INCOME AS INCOME FROM HOUSE PROPERTY. HOWEV ER THE DEPARTMENT HAS PRESSED THIS GROUND. THE LEARNED DEPARTMENTAL REPRESENTATI VE HAS STRONGLY STATED THAT NEITHER THE REVISED RETURN WAS FILED BY THE ASSESSEE NOR AN Y CLAIM WAS MADE BEFORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS THAT THE RENTAL INCOME MAY BE TREATED AS INCOME FROM HOUSE PROPERTY. HOWEVER AD DITIONAL GROUND HAS BEEN RAISED BEFORE THE CIT (A) TO TREAT THE RENTAL INCOME AS IN COME FROM HOUSE PROPERTY WHICH HAS ITAS 733 & 1261/M/2007 LEELA SCOTTISH LACE PVT LTD 3 BEEN ACCEPTED BY THE LEARNED CIT (A). ACCEPTANCE O F ADDITIONAL GROUND AT THE END BY THE CIT (A) WITHOUT AFFORDING ANY OPPORTUNITY TO TH E ASSESSING OFFICER IS NOT JUSTIFIED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDER ED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERI AL ON RECORD WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE SHOULD GO BACK TO T HE FILE OF THE ASSESSING OFFICER TO EXAMINE THE SAME AFRESH. NEITHER ANY FACTS HAS BEE N DISCUSSED BY THE ASSESSING OFFICER NOR BY THE LEARNED CIT (A) AS LEARNED CIT (A) HAS G IVEN HIS FINDING IS ONLY THAT IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENT (P) LTD THE RENTAL INCOME IS ASSESSABLE AS INCOME FROM HOUSE PR OPERTY. NO DOUBT THE HONBLE SUPREME COURT HAVE HELD THAT IF PROPERTY IS GIVEN O N RENT THEN THE RENTAL INCOME IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY HOWEVER TH E RATIO OF THE DECISION OF THE HONBLE SUPREME COURT MAY NOT BE APPLICABLE ON THE FACTS OF THE PRESENT CASE. AS STATED ABOVE FACTS OF THE CASE HAS NOT BEEN DISCUSSED AT ALL BY ANY OF THE LOWER AUTHORITIES THEREFORE TO ESTABLISH THAT INCOME RECEIVED AS REN T IS INCOME FROM HOUSE PROPERTY OR BUSINESS INCOME IS TO BE ASCERTAINED. NO OPPORTUNI TY HAS BEEN GIVEN TO THE ASSESSING OFFICER TO EXAMINE THIS ASPECT WHILE DISPOSING OFF THE ADDITIONAL GROUND RAISED BEFORE THE CIT (A). IN VIEW OF THESE FACTS AND CIRCUMSTANCES AND TO MEET THE END OF JUSTICE WE SET ASIDE THE ORDER OF LEARNED CIT (A) AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE ISSUE AFRESH AFTER AFFORDING THE OPPORTUNITY TO THE ASSESSEE. 8. GROUND NOS. B & C IN APPEAL OF THE ASSESSEE RELA TES TO THE DISALLOWANCE OF INTEREST PAYMENT TO HDFC AT RS 5 60 68 870 AND ENHANCING THE ASSESSMENT WITHOUT GIVING ANY NOTICE TO THE ASSESSEE. 9. THE CIT (A) WHILE ADJUDICATING ADDITIONAL GROUN D OF THE ASSESSEE HELD THAT THE RENTAL INCOME IS ASSESSABLE UNDER THE HEAD INCOME F ROM HOUSE PROPERTY AND SINCE NO EVIDENCE WAS FILED IN RESPECT OF INTEREST PAID TO H DFC THEREFORE DISALLOWANCE WAS MADE. ITAS 733 & 1261/M/2007 LEELA SCOTTISH LACE PVT LTD 4 10. WE HAVE RESTORED THE ISSUE IN RESPECT OF RENTAL INCOME TO THE FILE OF THE ASSESSING OFFICER THEREFORE THIS ISSUE ALSO NEEDS RE-VERIFI CATION AND ACCORDINGLY THIS ISSUE IS ALSO SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. 11. GROUNDS D & E RELATES TO DISALLOWANCE OF PART O F EXPENSES OF NON-EOU MANUFACTURING UNITS AT RS.97 93 763. 12. THE DEPARTMENT HAS ALSO RAISED SIMILAR GROUND I.E. GROUND NO.1 OBJECTING DIRECTING TO ALLOCATE THE EXPENDITURE AT RS.97 93 7 63/- TO EOU-I UNIT INSTEAD OF RS 1 89 61 987/- ALLOCATED BY THE ASSESSING OFFICER W HILE COMPUTING DEDUCTION U/S 10B OF THE ACT. 13. SINCE GROUNDS RAISED BY BOTH THE PARTIES ARE IN TER-LINKED THEREFORE THEY ARE DISPOSED OFF TOGETHER. 14. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSIN G OFFICER NOTICED THAT VARIOUS EXPENSES CLAIMED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT OF VARIOUS UNITS HAVE BEEN ALLOCATED ON THE UNITS WHERE DEDUCTION U/S 10B ARE NOT ALLOWABLE. IN VIEW OF THESE FACTS THE ASSESSING OFFICER INFERRED THAT THE ASSE SSEE HAS REDUCED THE EXPENSES CLAIMED IN THE UNIT WHERE DEDUCTION U/S 10B IS ELIGIBLE TO GET MORE DEDUCTION. 15. AFTER EXAMINING THE VARIOUS DETAILS OF EXPENSES OF VARIOUS UNITS THE ASSESSING OFFICER POINTED OUT VARIOUS EXPENSES BY PREPARING T HE CHART THAT HOW THEY ALLOCATION IS UN-PROPORTIONATELY AMONG THREE UNITS. ACCORDINGLY HE ESTIMATED THE EXPENSES OF ALL THE UNITS FOR THE PURPOSE OF DEDUCTION AGAINST ALL THE UNITS WHICH RESULTED IN REDUCTION OF ALLOCATION OF EXPENSES AT RS.1 89 61 987/- TO THE U NIT WHICH IS ELIGIBLE FOR DEDUCTION U/S 80IB. ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A) . THE CIT (A) BY OBSERVING THAT THE AD-HOC ESTIMATION MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED. HE WAS OF THE VIEW THAT THE ESTIMATION SHOULD HAVE BEEN MADE ON THE BASIS O F PROFITS OF VARIOUS UNITS. THE CIT (A) OBSERVED THAT IN CASE OF EOU UNITS THE NUMBER OF PCS PRODUCED IS 61.81 LAKHS ITAS 733 & 1261/M/2007 LEELA SCOTTISH LACE PVT LTD 5 WHEREAS EOU I UNIT HAS PRODUCED 7.98 LAKHS. UNDER THESE CIRCUMSTANCES THE CIT (A) CONCLUDED THAT AGAINST ALLOCATION MADE BY THE ASSES SING OFFICER THE EXPENDITURE TO THE EOU I UNIT AMOUNTING TO RS 1 89 61 987/- THE ALLOC ATION SHOULD BE TO THE EXTENT OF RS.97 93 763/-. THE ASSESSING OFFICER ACCORDINGLY WAS DIRECTED TO RECOMPUTE THE DEDUCTION AVAILABLE TO THE ASSESSEE U/S 10B OF THE ACT. 16. NOW BOTH ARE IN APPEAL. THE LEARNED COUNSEL OF THE ASSESSEE STATED THAT SEPARATE BOOKS OF ACCOUNTS ARE MAINTAINED BY THE AS SESSEE AND EACH AND EVERY EXPENSE ARE IDENTIFIABLE THEREFORE ALLOCATION OF EXPENSES ON AD-HOC ESTIMATE BASIS OR ON THE BASIS OF PRODUCTION OF EACH UNIT IS NOT JUSTIFIED. ALTER NATIVELY IT WAS SUBMITTED THAT DIRECT EXPENSES CANNOT BE ALLOCATED ON AD-HOC BASIS OR PRO DUCTION BASIS HOWEVER INDIRECT EXPENSES LIKE SALE PROMOTION EXPENSES LEGAL FEES AUDITOR FEES ETC ETC CAN BE ALLOCATED PROPORTIONATELY. IN REPLY THE LEARNED DEPARTMENTA L REPRESENTATIVE STATED THAT THERE IS NO DISPUTE THAT ASSESSEE HAS CLAIMED HIGHER EXPENSE S IN THE UNIT WHERE DEDUCTION U/S 10B IS NOT ELIGIBLE AND ACCORDINGLY THE DEDUCTION U/S 10B WHICH IS ELIGIBLE IN OTHER UNIT HAS BEEN CLAIMED THEREFORE ASSESSING OFFICER WAS RIGHT IN ALLOCATING THE EXPENSES ON AD- HOC BASIS. IT WAS ALSO SUBMITTED THAT AD-HOC BASIS DISALLOWANCE MADE BY THE ASSESSING OFFICER IS ON THE BASIS OF VARIOUS EXPENSES SHOWN A ND CLAIMED BY THE ASSESSEE WHICH WERE NOT ACCORDING TO THE EXPENSES OF EACH UNIT AND ACCORDING TO THE PRODUCTION OF EACH UNIT. ACCORDINGLY IT WAS REQUESTED THAT ESTIMATE MADE BY THE ASSESSING OFFICER SHOULD BE SUSTAINED. 17. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD WE FOUND THAT THIS ISSUE ALSO NEEDS RE-VERIFICATION AT THE E ND OF THE ASSESSING OFFICER. THERE IS NO DISPUTE THAT WHILE COMPLETING THE ASSESSMENT U/S 14 3(3) THE ASSESSING OFFICER CAN EXAMINE THE VERACITY OF THE EXPENSES CLAIMED IN PRO FIT & LOSS ACCOUNT OF EACH UNIT. SOME OF THE INDIRECT EXPENSES LIKE SALE PROMOTION EXPENSES LEGAL FEES & AUDITORS REMUNERATION HAVE BEEN CLAIMED IN THE UNIT WHERE DE DUCTION U/S 10B IS NOT ALLOWABLE. THESE EXPENSES SHOULD HAVE ALSO BEEN CLAIMED IN THE UNIT WHERE DEDUCTION U/S 10B IS ALLOWABLE. THEREFORE THE CONTENTION OF LEARNED AU THORISED REPRESENTATIVE THAT THE ITAS 733 & 1261/M/2007 LEELA SCOTTISH LACE PVT LTD 6 SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED AND CORRE CT EXPENDITURE IN EACH UNIT HAS BEEN BOOKED SEEMS NOT TO BE CORRECT. ACCORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT (A) AND RESTORE THE ISSUE TO THE FILE OF THE AS SESSING OFFICER TO EXAMINE THE ISSUE AFRESH. OF-COURSE DIRECT EXPENSES OF A PARTICULAR UNIT CANNOT BE ALLOCATED TO OTHER UNIT. INDIRECT EXPENSES CAN BE ALLOCATED AS PER VOLUME OF THE WORK IN THE RESPECTIVE UNIT. THIS EXERCISE HAS NOT BEEN DONE EARLIER THEREFORE WE R ESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO PASS A FRESH ORDER AFTER AFFOR DING OPPORTUNITY TO THE ASSESSEE. 18. GROUND F IN APPEAL OF THE ASSESSEE IS AGAINST C ONFIRMING THE DISALLOWANCE IN PART OF ESIC PAYMENTS OF RS 2 67 623/- ON EOU-II MANUFAC TURING UNIT. 19. THIS ISSUE IS NOW COVERED BY THE DECISION OF TH E APEX COURT IN THE CASE OF CIT VS ALOM EXTRUSION LTD (319 ITR 306). IF THE AMOUNT IS PAID BEFORE FILING THE RETURN OF INCOME THEN THE SAME HAS TO BE ALLOWED. THIS FACT AS TO BE VERIFIED THEREFORE THE ASSESSING OFFICER IS DIRECTED TO DO THE NEEDFUL. 20. THERE IS NO OTHER GROUND IN APPEAL OF THE ASSES SEE. 21. THERE IS ONE MORE GROUND IN APPEAL OF THE DEPAR TMENT THAT IS DELETING THE DISALLOWANCE OF RS 41 12 504/- MADE U/S 43B ON ACCO UNT OF DELAYED PAYMENT OF EMPLOYERS AND EMPLOYEES CONTRIBUTION TO PF & ESIC . 22. THE CIT (A) ALLOWED THE ISSUE FOLLOWING THE DEC ISION OF SPECIAL BENCH IN CASE OF KAWALITY MILK FOODS 284 ITR 89 (AT PORTION) AS THE AMOUNT WAS PAID BEFORE THE DUE DATE APPLICABLE FOR FILING HIS RETURN U/S 139(1). SIMIL AR ISSUE WAS INVOLVED IN APPEAL OF THE ASSESSEE WE HAVE HELD THAT THE IN VIEW OF THE DECI SION OF THE SUPREME COURT IN CASE OF ALOM EXTRUSION LTD 319 ITR 306. THIS CLAIM IS ALLO WABLE. SINCE THERE IS NO DISPUTE THAT AMOUNT WAS PAID BEFORE DUE DATE OF FILING OF THE RE TURN U/S 139(1) ACCORDINGLY WE SEE NO INFIRMITY IN THE FINDING OF THE LEARNED CIT (A) TH EREFORE THE SAME IS CONFIRMED. ITAS 733 & 1261/M/2007 LEELA SCOTTISH LACE PVT LTD 7 23. IN THE RESULT BOTH THE APPEALS ARE ALLOWED IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 24TH DAY OF FEBRUARY 2010. SD/- (J. SUDHAKAR REDDY) ACCOUNTANT MEMBER SD/- (R.K. GUPTA) JUDICIAL MEMBER MUMBAI DATE: 24TH FEBRUARY 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) VIII MUMBAI. 4) THE CIT-MC- VIII MUMBAI. 5) THE D.R. H BENCH ITAT MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T. MUMBAI ITAS 733 & 1261/M/2007 LEELA SCOTTISH LACE PVT LTD 8 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 17.02.10 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 17/23.02.10 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER