The ACIT, Circle-4(1), Visakhapatnam v. M/s Visakha Machinery (P) Ltd., Visakhapatnam

ITA 403/VIZ/2009 | 2006-2007
Pronouncement Date: 07-09-2010 | Result: Allowed

Appeal Details

RSA Number 40325314 RSA 2009
Assessee PAN AABCV4000H
Bench Visakhapatnam
Appeal Number ITA 403/VIZ/2009
Duration Of Justice 1 year(s) 1 month(s) 1 day(s)
Appellant The ACIT, Circle-4(1), Visakhapatnam
Respondent M/s Visakha Machinery (P) Ltd., Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 07-09-2010
Appeal Filed By Department
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 07-09-2010
Date Of Final Hearing 07-04-2010
Next Hearing Date 07-04-2010
Assessment Year 2006-2007
Appeal Filed On 05-08-2009
Judgment Text
ITA NOS.402 & 403/09 VISAKHA MACHINERY (P) LTD. VIZAG PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NOS.402 & 403/VIZAG/2009 ASSESSMENT YEARS: 2005-06 & 2006-07 M/S. VISAKHA MACHINERY (P) LTD. VISAKHAPATNAM VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-4(1) VISAKHAPATNAM (APPELLANT) PAN NO: AABCV 4000 H (RESPONDENT) APPELLANT BY: SHRI D.S. SUNDER SINGH DR RESPONDENT BY: SHRI C. SUBRAMANYAM CA ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECTE D AGAINST THE COMMON ORDER DATED 22.5.2009 PASSED BY LD. CIT(A) VISAKHAPATNAM AND THEY RELATE TO THE ASSESSMENT YEARS 2005-06 AND 200 6-07. SINCE THE ISSUES URGED IN THESE TWO APPEALS ARE COMMON IN NATURE WE FIND IT CONVENIENT TO DISPOSE THEM OF BY THIS COMMON ORDER. 2. THE MAIN QUESTION THAT IS REQUIRED TO BE ADJ UDICATED IS WHETHER THE INCOME OF THE ASSESSEE IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR UNDER THE HEAD INCOME FROM OTHER SOUR CES. 3. THE FACTS RELATING TO THE ISSUE ARE STATED I N BRIEF. THE ASSESSEE COMPANY WAS EXECUTING FABRICATION AND ERECTION WORK S ON CONTRACT BASIS. DUE TO DISPUTES WITH VISAKHAPATNAM STEEL PLANT THE EXECUTION OF CONTRACT WORKS GOT DISRUPTED AND THE DISPUTES WERE TAKEN TO ARBITRATION AND COURTS. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE DI D NOT EXECUTE ANY ITA NOS.402 & 403/09 VISAKHA MACHINERY (P) LTD. VIZAG PAGE 2 OF 5 CONTRACT WORK FOR ABOUT A DECADE. FOR THESE TWO YE ARS UNDER CONSIDERATION THE ASSESSEE FILED RETURNS OF INCOME DECLARING INCO ME UNDER THE HEAD INCOME FROM BUSINESS. THE AO NOTICED THAT THE MAIN RECEIPT DURING THE YEAR WAS INTEREST INCOME FROM BANK DEPOSITS ONL Y. SINCE THE ASSESSING OFFICER HAD ALREADY HELD THAT THE ASSESSEE HAD DISC ONTINUED HIS BUSINESS HE PROCEEDED TO ASSESS THE INTEREST INCOME UNDER THE H EAD INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE I S MAINTAINING OFFICE AND ESTABLISHMENT AND ACCORDINGL Y ALLOWED CERTAIN EXPENSES AGAINST THE INTEREST INCOME. 3.1 DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2005-06 THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED INTEREST PAYMENTS TO VARIOUS PARTIES AND THE RATE OF INTEREST PAID TO THEM WAS IN THE RANGE OF 12% TO 15%. THE ASSESSEE HAD ALSO PAID INTEREST @ 20% ON THE LOAN TAKEN FROM THE WIFE OF MANAGING DIRECTOR. SINCE TH E ASSESSEE COMPANY WAS HAVING BANK DEPOSITS TO THE TUNE OF RS.1.77 CRORES ON WHICH IT WAS GETTING INTEREST INCOME @ 3.5% TO 6.5% THE ASSESSING OFFIC ER OPINED THAT THE INTEREST ON LOANS SHOULD BE ALLOWED @ 6% ONLY. HOW EVER HE DID NOT ALLOW ANY INTEREST EXPENDITURE AS HE FINALLY DECIDED TO A SSESS THE INTEREST INCOME FROM BANKS UNDER THE HEAD INCOME FROM OTHER SOURCES . 4. IN THE APPEAL PREFERRED BY THE ASSESSEE LEAR NED CIT(A) NOTICED FOLLOWING FACTS. (A) THOUGH THE ASSESSEE COMPANY DID NOT EXECUTE A NY CONTRACT WORK SINCE ASST. YEAR 1996-97 YET IT HAD MAINTAINE D THE BASIC BUSINESS INFRASTRUCTURE SINCE THERE WAS BILLS RECEIVABLES AN D FURTHER THERE WAS PENDING LITIGATIONS. (B) THE ASSESSEE IS MAINTAINING THE ASSETS & LIAB ILITIES AS SHOWN IN THE BALANCE SHEET AND ITS ACCOUNTS ARE AUDITED UNDE R THE COMPANIES ACT. THE LEARNED CIT(A) ALSO CONSIDERED THE DECISIONS RE NDERED IN THE FOLLOWING CASE LAW TO UNDERSTAND THE DISTINCTION BETWEEN THE CESSATION OF BUSINESS AND TEMPORARY LULL IN THE BUSINESS. ITA NOS.402 & 403/09 VISAKHA MACHINERY (P) LTD. VIZAG PAGE 3 OF 5 (A) HINDUSTAN COMMERCIAL WORKS LTD. V CIT (124 ITR 5461 (BOM)) (B) CIT V SOUTHERN HYDROCARBON LTD. (146 CTR 55 (M AD)) ON A CONSPECTUS OF THE MATTER LEARNED CIT(A) HELD THAT THERE IS ONLY A TEMPORARY LULL IN THE BUSINESS OF THE ASSESSEE AND IT HAS NOT DISCONTINUED ITS BUSINESS. FURTHER BY FOLLOWING HIS OWN DECISION DA TED 31-08-2004 IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 IN ITA NO.27/JC/R- 4/VSP/04-05 HE DIRECTED THE ASSESSING OFFICER TO A CCEPT THE BUSINESS LOSS DISCLOSED BY THE ASSESSEE COMPANY FOR BOTH THE YEAR S UNDER CONSIDERATION. THE REVENUE IS AGGRIEVED BY THE ORDER PASSED BY LEA RNED CIT(A) AND HENCE THEY ARE IN APPEAL BEFORE US FOR THESE TWO YEARS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. DURING THE COURSE OF HEARING THE LEARNED AUTHORISE D REPRESENTATIVE CARRIED US THROUGH THE PAPER BOOK FILED BY HIM TO REITERATE HIS POINTS THAT (A) THE ASSESSEE IS MAINTAINING BASIC INFRASTRUCT URE REQUIRED FOR CARRYING ON ITS BUSINESS INCLUDING THE FIXED ASSETS AND IT HAS NOT DISPOSED OF ITS ASSETS. (B) THE ASSESSEE HAS BEEN RECEIVING ARBITRATION AWARDS AND THE AWARDS SO RECEIVED WERE OFFERED AS BUSINESS INCOM E ONLY. THE REVENUE HAS ACCEPTED THE RETURNS OF INCOME FILED BY THE ASS ESSEE FOR THE ASST. YEARS 2002-03 2003-04 AND 2004-05 WHEREIN THE ARBITRATI ON AWARDS RECEIVED BY THE ASSESSEE WERE DULY DISCLOSED. (C) THE ACCOUNTS ARE AUDITED UNDER THE COMPANIE S ACT AND THE ASSESSEE HAS NOT DISCONTINUED ITS BUSINESS OPERATIO NS. IT COULD NOT CARRY ON ITS BUSINESS OPERATIONS SINCE IT WAS INVOLVED IN TH E LITIGATION MATTERS. ACCORDINGLY THE TEMPORARY CESSATION OF ITS BUSINES S OPERATIONS CANNOT BE TAKEN AS DISCONTINUANCE OF BUSINESS ACTIVITIES. ON THE OTHER HAND THE CONTENTION OF LEARNED DEPART MENTAL REPRESENTATIVE IS THAT THE ASSESSEE HAD STOPPED ITS BUSINESS OPERA TIONS ABOUT 10 YEARS BACK AND HENCE IT CANNOT BE TAKEN AS A TEMPORARY LU LL IN THE BUSINESS ACTIVITIES. 6. ON A CAREFUL SCRUTINY OF THE PAPER BOOK FILE D BY THE ASSESSEE WE NOTICE THAT THE ASSESSEE HAS BEEN MAINTAINING ITS B USINESS INFRASTRUCTURE ITA NOS.402 & 403/09 VISAKHA MACHINERY (P) LTD. VIZAG PAGE 4 OF 5 INCLUDING ITS FIXED ASSETS. THE FIXED ASSET SCHEDU LE SHOWS THAT THE ASSESSEE OWNS PLANT AND MACHINERY WHOSE GROSS VALUE STANDS A T RS.34.07 LAKHS BESIDES BUILDING FURNITURE VEHICLES ETC. THERE I S NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE IS RECEIVING ARBITRATION AWARDS AND THE AWARDS SO RECEIVED DURING THE YEARS RELEVANT TO THE ASSESSMEN T YEARS 2002-03 TO 2004-05 WAS OFFERED TO TAX UNDER THE HEAD INCOME FR OM BUSINESS. THUS IT CAN BE NOTICED THAT THE ASSESSEE IS MAINTAINING THE BASIC BUSINESS INFRASTRUCTURE AND THE LITIGATIONS IT WAS PURSUING RELATED TO ITS BUSINESS OPERATIONS ONLY. WHEN THE ASSESSEE WAS RECEIVING AR BITRATION AWARDS IT WAS OFFERED/ASSESSED AS INCOME FROM BUSINESS ONLY. THE ASSESSEE HAS ALSO NOT DISPOSED OF ITS FIXED ASSETS. ALL THESE ACTIVITIES WOULD SHOW THAT THE ASSESSEE HAS NOT DISCONTINUED ITS BUSINESS OPERATIO NS. HENCE WE ARE UNABLE TO AGREE WITH THE VIEW OF THE ASSESSING OFFI CER THAT THE ASSESSEE HAS STOPPED ITS BUSINESS ACTIVITIES. WE ARE OF THE VIE W THAT THE ASSESSEE CONTINUE TO CARRY ON ITS BUSINESS ACTIVITIES AND WE ORDER ACCORDINGLY. 7. THE ASSESSING OFFICER HAS HELD THAT THE ASSE SSEE HAD DISCONTINUED THE BUSINESS AND ACCORDINGLY PROCEEDED TO COMPUTE THE I NCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. IN VIEW OF THE ABOVE THE ASSESSING OFFICER HAS NOT PROCEEDED TO COMPUTE THE INCOME FROM THE PR OFIT AND LOSS ACCOUNT PREPARED BY THE ASSESSEE. FOR THAT REASON ONLY HE HAS IGNORED THE INTEREST CLAIM AND SOME OF OTHER EXPENDITURE CLAIMS. NOW WE HAVE REVERSED THE SAID DECISION OF THE ASSESSING OFFICER. THUS THE V ERY PRESUMPTION ON WHICH THE ASSESSING OFFICER PROCEEDED TO COMPUTE THE INCO ME OF THE ASSESSEE HAS BEEN REVERSED. IN THAT CASE WE FEEL IT NECESSARY TO RE-COMPUTE THE TOTAL INCOME OF THE ASSESSEE IN ACCORDANCE WITH THE LAW B Y TAKING INTO ACCOUNT THE FACT THAT THE ASSESSEE IS CARRYING ON ITS BUSIN ESS ACTIVITIES. THE ASSESSING OFFICER HAS ALREADY DISCUSSED ABOUT THE A LLOWABILITY OF INTEREST IN THE ASSESSMENT ORDER RELATING TO THE ASSESSMENT YEA R 2005-06. WE ARE IN AGREEMENT WITH THE AO WITH REGARD TO THE RESTRICTIO N OF INTEREST EXPENDITURE BY TAKING INTO ACCOUNT THE COMMERCIAL CONSIDERATION S AND ALSO SECTION ITA NOS.402 & 403/09 VISAKHA MACHINERY (P) LTD. VIZAG PAGE 5 OF 5 40A(2)(B). WITH REGARD TO THE ISSUE OF ASSESSABILI TY OF INTEREST INCOME FROM BANK DEPOSITS UNDER THE HEAD BUSINESS OR OTHER SOUR CES WE LEAVE THE ISSUE OPEN SO THAT THE ASSESSING OFFICER MAY DECIDE THE S AID ISSUE IN ACCORDANCE WITH THE LAW BY TAKING INTO ACCOUNT THE FACTS AND C IRCUMSTANCES OF THE CASE. WITH THESE DIRECTIONS WE RESTORE THE MATTER BACK T O THE FILE OF THE ASSESSING OFFICER FOR FRAMING ASSESSMENT AFRESH. N EEDLESS TO MENTION THE ASSESSEE SHOULD BE GIVEN NECESSARY OPPORTUNITY OF B EING HEARD. 8. IN THE RESULT BOTH THE APPEALS OF THE REVENUE AR E TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 7 TH SEPTEMBER 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE: 07-09- 2010 COPY TO 1 THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE- 4(1) 3 RD FLOOR DIRECT TAXES BUILDING DOUBLE ROAD MVP COLONY VIS AKHAPATNAM 17 2 M/S. VISAKHA MACHINERY PVT. LTD. PLOT NO.177 D BLOCK AUTONAGAR VISAKHAPATNAM 3 4. THE CIT 2 VISAKHAPATNAM THE CIT(A) VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM