ITO 12(3)(4), MUMBAI v. AMOL PAPER SYNDICATE, MUMBAI

ITA 4227/MUM/2009 | 2005-2006
Pronouncement Date: 28-02-2011 | Result: Partly Allowed

Appeal Details

RSA Number 422719914 RSA 2009
Bench Mumbai
Appeal Number ITA 4227/MUM/2009
Duration Of Justice 1 year(s) 7 month(s) 19 day(s)
Appellant ITO 12(3)(4), MUMBAI
Respondent AMOL PAPER SYNDICATE, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 28-02-2011
Assessment Year 2005-2006
Appeal Filed On 09-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYARA GHAVAN (JM) ITA NO. 4227/MUM/2009 ASSESSMENT YEAR- 2005-06 THE ITO - 12(3)(4) AAYAKAR BHAVAN MUMBAI-400 020 VS. M/S. AMOL PAPER SYNDICATE 26A SYNDICATE BANK BLDG. SIR P.M. ROAD MUMBAI-400 001 PAN-AAAFA 3283H (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.S. SRIVASTAVA RESPONDENT BY: SHRI RAJEEV WAGLAY O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 5.5.2009 PASSED BY THE LD. CIT(A)- XII FOR TH E ASSESSMENT YEAR 2005-06. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS CONSIDERED THE RENT RECEIVED AS INCOME FROM HOUSE PROPERTY AND AFTER CL AIMING DEDUCTION OF RS. 7 00 763/- U/S. 24 THE ASSESSEE HAS COMPUTED A NET INCOME FROM HOUSE PROPERTY AT RS. 1 63 51 112/-. THE ASSESSEE HAS THEN SET OFF THE LOSS FROM BUSINESS AGAINST THE SAME AND HAS SHOWN T HE TOTAL INCOME AT RS. 9 55 518/-. THE ASSESSING OFFICER OBSERVED THA T IN A.YRS 2001-02 AND 2002-03 SIMILAR RENTAL INCOME HAS BEEN TREATED AS INCOME FROM BUSINESS AND THE ASSESSEE HAS NOT CONTESTED THE SA ME IN APPEAL. ACCORDINGLY THIS YEAR ALSO THE RENTAL INCOME OF R S. 23 35 875/- WAS TREATED AS INCOME FROM BUSINESS AND TAXED ACCORDING LY. ITA NO. 4227/M/09 2 3. THE LD. COUNSEL FOR THE ASSESSEE MADE ELABORATE SUBMISSION BEFORE THE LD. CIT(A) AT PARA 2.2. BROUGHT OUT IN T HE ORDER OF THE LD. CIT(A). 4. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS MADE FOR THE APP ELLANT AND THE ASSESSMENT ORDER. IT IS SEEN THAT THE AO H AS ASSESSED THE INCOME FROM HOUSE PROPERTY MERELY ON THE BASIS OF S IMILAR TREATMENT IN EARLIER YEARS. AS A MATTER OF NATURAL JUSTICE HE SHOULD HAVE GIVEN THE OPPORTUNITY TO THE APPELLANT TO RAISE OBJECTION S IF ANY TO THE PROPOSED ACTION. SINCE EVERY ASSESSMENT IS A NEW E XERCISE AND SEPARATE FROM EARLIER ONES WHETHER TO CONTEST A PA RTICULAR ACTION BEFORE APPELLATE AUTHORITY IS ALSO A NEW AND SEPARA TE EXERCISE TO BE CARRIED OUT BY THE APPELLANT. AS FAR AS FACTUAL PO SITION IS CONCERNED THE APPELLANT HAD LET OUT A PART OF THE PREMISES TO BANK OF MAHARASHTRA AND THE BUSINESS ACTIVITIES WERE CARRIE D OUT FROM THE REMAINING PART. SINCE THERE IS NO NEXUS BETWEEN BO TH THE ACTIVITIES THE SAME ARE TO BE ASSESSED SEPARATELY. IN THE ABS ENCE OF ANY SPECIFIC FINDINGS BY THE AO OR ANY CONCRETE MATERIA LS ON RECORD THE AOS ACTION OF INTERFERING WITH THE ACCOUNTING PRAC TICE FOLLOWED BY THE APPELLANT DOES NOT HAVE ANY JUSTIFICATION. THE HONBLE SUPREME COUNT IN THE CASE OF SHAMBHU INVESTMENTS PVT. LTD. VS CIT 143(SC)70/263) HAD HELD THAT WHEN THE INCOME ARISES FROM HOUSE PROPERTY AND WHERE THERE IS NO NEXUS BETWEEN BUSINE SS ACTIVITIES AND THE LETTING OUT ACTIVITIES THE INCOME HAS TO B E TREATED AS INCOME FROM HOUSE PROPERTY. IN VIEW OF THE ABOVE THE AO IS DIRECTED TO RE- COMPUTE THE INCOME BY CONSIDERING THE RENTAL INCOM E AS INCOME FROM HOUSE PROPERTY. BOTH THESE GROUNDS OF APPEAL ARE ALLOWED. 5. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SHRI RAJEEV WAGLAY SUBMITTED THAT THE GROUND RAISED BY THE REVENUE IS NOT PROPERLY WORDED IN AS MUCH AS THE ASSESSEE IS THE OWNER OF THE PROP ERTY AND THE DEPARTMENT HAS ERRED IN RAISING THE GROUND THAT THE ASSESSEE WAS NOT THE OWNER OF THE PROPERTY WHICH WAS LET OUT. HE POINTED OUT AT PAGE 22 OF THE PAPER BOOK WHERE THE CERTIFICATE OF THE CO-OPERATIV E SOCIETY HAS BEEN ANNEXED STATING THAT THE ASSESSEE IS THE OWNER OF T HE PROPERTY. 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) WHICH IS AS FOLLOWS: ITA NO. 4227/M/09 3 IF ONE REFERS TO THE CIRCUMSTANCES AND SITUATION R ELATED TO A.Y. 2002-03 (THE ASSESSMENT FOR WHICH WAS COMPLETE D ON 29.10.2004 AND THE A.Y 2001-02 WAS COMPLETED ON THE BASIS OF THIS ORDER LATER ON 19.12.2006) IT COULD BE SEEN THAT IN THE MAIN PART OF THE ORDER THE AO HAS ACCEPTED THE FACT THAT THE BUS INESS ACTIVITIES WERE CONSIDERABLY DOWN IN ALL THESE YEARS AND IT WA S SPECIFICALLY MENTIONED IN THE ORDER THAT FROM A.Y. 2004-05 THE R EGULAR BUSINESS ACTIVITIES HAVE STARTED AND SINCE THE APPELLANT WAS REQUIRED TO MAINTAIN THE OFFICE INFRASTRUCTURE TO MAINTAIN CONT INUITY OF THE APPELLANTS BUSINESS ALL THE INCOME EARNED WAS CON SIDERED AS A PART OF TEMPORARY BUSINESS VENTURE. SINCE THE AO H AS TAKEN INTO ACCOUNT THE REAL FACTUAL POSITION AND THIS BEING ON LY OF A TEMPORARY PHENOMENON THE APPELLANT DID NOT CONTEST THE ORDER . FROM A.Y. 2003-04 ONWARDS THE REGULAR BUSINESS ACTIVITIES STA RTED GETTING STABILIZED THE APPELLANT SHOWED THE INCOME FOR A.Y . 2003-04 ONWARDS SEPARATELY I.E. UNDER HEADS OF INCOME FROM HOUSE PROPERTY AND INCOME FROM HOUSE PROPERTY AND INCOME FROM BUSI NESS WHICH WAS DULY ACCEPTED BY THE DEPARTMENT. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2001-02 AND 2002-03 THE AO HAD GIVEN US OPPORTUNITY TO EXPLAIN AS TO WHY THE HEAD OF INCOME BE NOT CHANGED. IN THE CASE FOR A.Y. 2005-06 THE AO DID NOT FOLLOW THIS COURSE NOR HINTED ABOUT HIS PROPOSED ACTION OR GIV EN ANY OPPORTUNITY TO HEAR THE ARGUMENTS OF THE ASSESSEE FOR SUCH CHANGE OF HEAD OF INCOME. THE AO MERELY MENTIONED THAT TH E RENTAL INCOME IS BEING TREATED AS BUSINESS INCOME AS THE SAME HAD BEEN DONE SO IN THE A.Y. 2001-02 & 2002-03. IT WAS ALSO SUBMITT ED THAT THE UNILATERAL ACT ON THE PART OF THE AO IS TOTALLY UNJ USTIFIED AS EVERY ASSESSMENT IS NEW EXERCISE AND SEPARATE FROM EARLIE R ONES. THE AO HAD NOT GIVEN ANY OPPORTUNITY TO THE ASSESSEE TO PR ESENT THE OBJECTIONS. THERE WAS NO INDICATION ABOUT THE INTE NTION OF CHANGING THE HEAD OF INCOME. SEC. 145 OF THE I.T. ACT 1961 PROVIDES THAT IF THE AO IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLE TENESS OF THE ACCOUNTS OF THE ASSESSEE OR IF THE METHOD OF ACCOU NTING HAD NOT BEEN REGULARLY FOLLOWED THE AO MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SEC. 144. SEC. 144 PROVIDES FOR THE NE CESSARY OPPORTUNITY TO BE GIVEN TO THE ASSESSEE TO PRESENT HIS OBJECTIONS. THE ASSESSMENT PROCEEDINGS FOR A.Y. 2001-02 WERE IN TIATED BY ISSUING NOTICE U/S. 147 AND THE ORDER WAS BASED ON THE FINDINGS FOR THE A.Y. 2002-03. THE AO HAS TAKEN THE SHELTER BE HIND THE ORDERS U/S. 143(3) BY ASSUMING THAT THERE IS NO CHANGE IN THE SITUATION AND GROSSLY IGNORING THE FACTS OF THE CASE. MERE ONE L INE OBSERVATION SHOULD NOT BE THE BASIS FOR SUCH A MAJOR CHANGE OF TAX COMPUTATION. RELIANCE IN THIS REGARD WAS PLACED IN THE DECISION OF PATNA HIGH COURT IN THE CASE OF CIT VS RAMDAS & SONS 225 ITR 4 16 (PAT) WHEREIN IT IS CLEARLY HELD THAT: ITA NO. 4227/M/09 4 A) RENTAL RECEIPTS FROM BUILDING IN ORDER TO BE CLASSI FIED AS BUSINESS INCOME MUST HAVE SOME NEXUS WITH BUSINESS ACTIVITIES AND NOT MERELY THE OWNERSHIP. B) EACH A.Y IS A UNIT BY ITSELF AND THE LIABILITY OF T HE ASSESSEE IS TO BE DETERMINED IN RESPECT OF STATE OF AFFAIRS AS EXISTING IN THE PARTICULAR YEAR. 7. WE HEARD BOTH THE PARTIES. THE SUPREME COURT IN THE CASE OF SHAMBU INVESTMENTS PVT. LTD. VS CIT 263 ITR 143 HA S CLEARLY HELD THAT WHEN THERE IS ONLY LETTING OUT OF THE PREMISES THE INCOME HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY . THE AO HAS NOT NOTED THE CHANGE IN THE SITUATION OF THE ASSESSEE. HAVING REGARD TO THE FACTS OF THE CASE THAT THE ASSESSEE IS FOLLOWING A PARTICULAR METHOD OF ACCOUNTING AND PREPARED THE COMPUTATION OF INCOME B ASED ON THAT FOR THIS PARTICULAR YEAR THE AO CANNOT TREAT THE INCOM E FROM THE HOUSE AS INCOME FROM BUSINESS MERELY BECAUSE IN A.Y. 2001-02 AND 2002-03 SIMILAR RENTAL INCOME WAS TREATED AS INCOME FROM BU SINESS AND ASSESSEE HAS NOT CONTESTED THE SAME IN APPEAL. HENCE WE CO NFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE FIRST GROUND OF THE REVENUE. 8. WITH RESPECT TO SECOND GROUND OF APPEAL THE FAC TS OF THE CASE ARE AS FOLLOWS: DURING THE YEAR THE ASSESSEE HAD WRITTEN OFF A SUM OF RS. 4 75 974/- AS BAD DEBTS IN RESPECT OF THE FOLLOWING PARTIES: 1. M/S. A&M AGENCIES RS. 27 000/- 2. M/S. ABHYUDAYA TRADING CORPN. RS. 2 28 500/- 3. M/S. VISHWA PHARMA PVT. LTD. RS.2 20 474/- ------------------- RS.4 75 974/- THE AO HAS OBSERVED THAT THE ASSESSEE DID NOT FURNI SH COMPLETE DETAILS OF IDENTITY OF THE DEBTORS NATURE OF DEBT PERIOD TO WHICH IT RELATES ETC. VOLUNTARILY. THE ASSESSEE HA D RELUCTANYTLY DISCLOSED CERTAIN INFORMATION REGARDING THE IDENTIT Y OF THE DEBTORS AFTER IT WAS REPEATEDLY REQUISITIONED. THE ASSESSE E DID NOT FURNISH ITA NO. 4227/M/09 5 THE COMPLETE DETAILS OF THE CLAIM REALIZING THAT ON CE THE SAME ARE DISCLOSED THE CLAIM WILL NOT BE ALLOWED. EVEN AS PER THE AMENDED PROVISIONS OF SEC. 36(1)(VII) OF THE I.T. ACT 1961 AN ASSESSEE MAKING A CLAIM OF DEDUCTION FOR BAD DEBTS HAS TO PROVE THA T THE DEBTS HAD BECOME BAD. THE AO HAS ALSO RELIED UPON THE HONBL E KERALA HIGH COURT DECISION IN THE CASE OF TRAVANCORE TEA ESTATE S CO. LTD. VS. CIT (197 ITR 528). ACCORDINGLY THE AO DISALLOWED THE ASSESSEES CLAIM OF BAD DEBTS AMOUNTING TO RS. 4 75 974/-. 9. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS MADE FOR THE APP ELLANT `AND THE ASSESSMENT ORDER. IT COULD BE SEEN THAT T HE AMBIGUITY AND NON CLARITY ON THE ENTIRE ISSUE OF BAD DEBTS IS TOT ALLY REMOVED AFTER AMENDMENT AS W.E.F. 1.4.1989. THE PROVISIONS RELA TING TO ALLOWABILITY OF BAD DEBTS ARE CRYSTAL CLEAR IN SE. 36(2). FURTHER THE CIRCULAR NO. 551 DT. 23.1.1990 ON THE SUBJECT IS A LSO VERY CLEAR. IN VIEW OF THE AMENDMENT IT IS SUFFICIENT IF THE BAD DEBTS ARE WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND THE ASSESSEE IS NO LONGER REQUIRED TO PROVE THAT THE DEBT HAD ACTUALLY BECOME BAD. IN THE APPELLANTS CASE THE FACTS THAT THE DEBTS WERE APPEARING IN IT S BOOKS IT HAD BEEN OFFERED TO TAX IN EARLIER YEARS THE IDENTITY OF THE DEBTORS AND THEIR CONFIRMATIONS AND ALSO THE EXPLANATIONS THAT THE SAID DEBTORS HAVE CLOSED DOWN THEIR BUSINESS AND HAVE BECOME DEF UNCT ARE NOT DISPUTED. THE FACT THAT THE APPELLANT HAD ALSO WRI TTEN OFF THE AMOUNTS IN ITS BOOKS DUE FROM THE THREE DEBTORS AR E NOT DISPUTED. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE WRI TING OFF OF BAD DEBTS AMOUNTING TO RS. 4 75 974/- BY THE APPELLANT HAS TO BE ACCEPTED AS JUSTIFIED. THE APPELLANTS CASE IS ALS O SUPPORTED BY THE JUDICIAL DECISIONS CITED ABOVE. ACCORDINGLY THE A O IS DIRECTED TO DELETE THE DISALLOWANCE OF BAD DEBTS AMOUNTING TO R S. 4 75 974/-. 10. AGGRIEVED REVENUE IS IN APPEAL BEFORE US. THE LD. DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT THE AO HAS HELD THA T THE ASSESSEE HAS NOT PROVED THAT THE DEBT WAS OWING TO THE ASSESSEE AND HAD BEEN OFFERED TO TAX IN ANY OF THE PREVIOUS YEARS AND IT HAS ARIS EN DURING THE COURSE OF BUSINESS. HE FURTHER SUBMITTED THAT NO FACTUAL EXA MINATION HAS BEEN DONE BY THE LD. CIT(A) WITH RESPECT TO THE SAME. T HEREFORE WE DEEM IT FIT TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO TO V ERIFY WHETHER THE DEBT HAS BEEN OFFERED TO TAX IN ANY OF THE PREVIOUS YEARS A ND IT HAS ARISEN IN THE ITA NO. 4227/M/09 6 COURSE OF THE BUSINESS OF THE ASSESSEE. THE ASSESS EE MAY BE GIVEN REASONABLE OPPORTUNITY TO PRESENT ITS CASE. 11. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF FEBRUARY 2011 SD/- SD/- ( P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 28 TH FEBRUARY 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 4227/M/09 7 DATE INITIALS 1 DRAFT DICTATED ON: 24 . 02 .201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 24 .02.2011 ______ SR. PS/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/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: __ _______ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______