DCIT 1(1), MUMBAI v. BHOR INDUSTRIES LTD, MUMBAI

ITA 4480/MUM/2011 | 2006-2007
Pronouncement Date: 30-09-2016 | Result: Dismissed

Appeal Details

RSA Number 448019914 RSA 2011
Assessee PAN AAACV3535C
Bench Mumbai
Appeal Number ITA 4480/MUM/2011
Duration Of Justice 5 year(s) 3 month(s) 26 day(s)
Appellant DCIT 1(1), MUMBAI
Respondent BHOR INDUSTRIES LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 30-09-2016
Date Of Final Hearing 09-09-2016
Next Hearing Date 09-09-2016
Assessment Year 2006-2007
Appeal Filed On 03-06-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI BEFORE SHRI R.C.SHARMA (AM) AND SHRI RAM LAL NEGI (JM ) ITA NO. 4480/MUM/2011 ASSESSMENT YEAR: 2006-07 THE DY. CIT - 1(1)(1) 579 AAYAKAR BHAWAN M.K.ROAD MUMBAI- 400 020. VS. M/S. BH OR INDUSTRIES LTD. TANNA HOUSE ANNEXE 11-A NATHALAL PAREKH MARG COLABA MUMBAI- 400 005. PAN: AAACV3535C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. SURABHI SHARMA RESPONDENT BY : SHRI. S.C.TIWARI & MS. RUTUJA N.PAWAR DATE OF HEARING: 1 6/09/2016 DATE OF PRONOUNCEMENT: 30/09/20 16 O R D E R PER RAM LAL NEGI JM THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAIN ST ORDER DATED 06/01/2011 PASSED BY THE LD. CIT(APPEALS)-1 MUMBAI FOR THE ASST. YEAR 2006-07 WHEREBY THE LD. CIT(A) ALLOWED THE APPEAL PREFERRED BY THE ASSESSEE AGAINST ASSESSMENT ORDER DATED 19/12/2008 PASSED U/ S 143 (3) OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED ITS RETURN OF INCOME FOR THE A.Y. 2006-07 DECLARING THE TOTAL INCOME OF (-) RS. 70 53 440/-. THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT ORDER WAS PASS ED U/S 143(3) OF THE ACT. IT WAS NOTICED THAT THE ASSESSEE HAD CREDITED ONLY THE OTHER INCOME OF RS. 14 31 880/- IN THE P&L ACCOUNT. OUT OF THE SAID INC OME THE ASSESSEE HAD 2 ITA NO. 4480/MUM/2011 ASSESSMENT YEAR: 2006-07 CLAIMED PROFIT ON SALE OF FIXED ASSETS OF RS.69 859 /- PROFIT ON SALE OF INVESTMENT OF RS. 2 50 150/- UNDER THE HEAD INCOME FROM CAPITAL GAIN IN THE COMPUTATION OF INCOME. THE OTHER RECEIPTS UNDER THE HEAD OTHER INCOME ARE INTEREST RENT SALE OF PROCESSING MATERIAL EXCESS LIABILITIES/PROVISIONS WRITTEN BACK AND MISCELLANEOUS. INCOME. AGAINST THE SAME I NCOME THE ASSESSEE HAS CLAIMED THE EXPENSES OF RS. 2 01 01 623/- IN THE P& L ACCOUNT ON ACCOUNT OF RAW MATERIAL CONSUMED MANUFACTURING EXPENSES PAY MENTS TO EMPLOYEES FINANCE CHARGES ADMINISTRATIVE AND SELLING EXPENS ES DEPRECIATION ETC. OUT OF RS. 2 01 01 623/ - CLAIMED THE A.O ALLOWED THE EX PENSES OF RS. 1 LAKH TO UP KEEP THE STATUS OF THE COMPANY. 3. AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE C HALLENGED THE IMPUGNED ORDER BEFORE THE CIT(A). THE CIT(A) AFTER HEARING T HE ASSESSEE SET ASIDE THE ASSESSMENT ORDER AND ALLOWED THE EXPENDITURE OF ENT IRE AMOUNT CLAIMED BY THE ASSESSEE HOLDING THAT THE BUSINESS OF APPELLANT WAS NOT DISCONTINUED BUT IT WAS MERELY A SUSPENSION OF MANUFACTURING ACTIVITIES WHICH CANNOT BE CONSIDERED AS CLOSURE OR DISCONTINUATION OF BUSINES S ACTIVITIES. THE APPELLANTS BUSINESS WAS IN OPERATION DURING THE YEAR UNDER CON SIDERATION AND EXPENSES WERE INCURRED IN CONNECTION WITH THE BUSINESS OF TH E ASSESSEE. FURTHER THE PROVISIONS OF SECTION 44AB ARE NOT APPLICABLE TO TH E PRESENT CASE AS IN THE YEAR UNDER CONSIDERATION THE APPELLANTS GROSS TURNOVER WAS BELOW THE PRESCRIBED LIMIT. AGGRIEVED BY THE IMPUGNED ORDER THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND IT HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF EX PENDITURE OF RS. 2 00 01 623/- DESPITE THE FACT THAT THE A.O HAD GI VEN A FINDING DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT TH ERE WAS NO BUSINESS INCOME DERIVED BY THE ASSESSEE AND THE ASS ESSEE HAS NOT 3 ITA NO. 4480/MUM/2011 ASSESSMENT YEAR: 2006-07 CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION FOR IT TO BE ELIGIBLE TO CLAIM BUSINE SS EXPENDITURE. 2. THE CIT(A) FURTHER ERRED IN HOLDING THAT THE BUS INESS OF APPELLANT HAS NOT DISCONTINUED AND IT WAS MERELY SUSPENSION OF BUSINESS WITHOUT PROPER JUSTIFICATION WHERE IN FACT THE MAN UFACTURING ACTIVITY HAD BEEN DISCONTINUED . 4. BEFORE US THE AUTHORISED REPRESENTATIVE (AR) SU BMITTED THAT THE LD CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF EXPENSES. FURTHER THE LD. CIT(A) HAS RIGHTLY HELD THAT THE PROVISIONS OF SECTION 44AB OF THE ACT ARE NOT APPLICABLE IN VIEW OF THE FACT THAT ASSESSEES GROSS TURNOVER DURING THE YEAR UNDER CONSIDERATION WAS LESS THAN THE PRESCRIBED LIMIT. THE LD. A.R. PLACIN G RELIANCE ON THE DECISIONS OF THE HONBLE HIGH COURTS IN L.VE. VARIAVAN CHETTIAR VS. CIT (1969) 72 ITR 114 (MADRAS) CIT VS. RAMPUR TIMBER & TURNERY CO. LTD. (1981) 129ITR 58 (ALLAHABAD) HINDUSTAN CHEMIVALS WORKS LTD. VS. CIT (1980) 124 ITR 561(BOM) EASTERN INVESTMENTS LTD. VS. CIT (1951) 20 ITR 0001 (SC) CIT VS. MALAYALAM PLANTATIONS LTD. (1964) 53 ITR 0140(SC) CIT VS. SA LITHO ORES LTD. (2012) 344 ITR 0161 (HC BOM AT GOA) & CIT VS. RAJENDRA PRASAD MODY (1978) 115 ITR 519(SC) SUBMITTED THAT AS PER THE PRINCIPLES OF LAW LAID DO WN BY THE HONBLE SUPREME COURT AND HONBLE HIGH COURTS IN THE CASES ABOVE RE FERRED ANY EXPENDITURE WHICH IS INCURRED FOR KEEPING THE BUSINESS ALIVE IS CONSIDERED AS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE AS SESSEE HAS TO MEET ESTABLISHMENT CHARGES AND OTHER EXPENSES DURING THE PERIOD OF INACTIVITY OF THE ENTITY. THE LD. A.R. FURTHER SUBMITTED THAT THE IMP UGNED ORDER PASSED BY THE LD. CIT(A) IN ACCORDANCE WITH THE PRINCIPLES OF LAW LAID DOWN IN THE AFORESAID CASES. 4 ITA NO. 4480/MUM/2011 ASSESSMENT YEAR: 2006-07 5. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESENT ATIVE (DR) RELYING ON THE ASSESSMENT ORDER SUBMITTED THAT SINCE NO BUSINESS A CTIVITY WAS CARRIED OUT BY THE ASSESSEE DURING THE ASSESSMENT YEAR UNDER CONSI DERATION THE ASSESSEE CANNOT CLAIM EXPENSES OF RS. 2 01 01 623/-. MOREOVE R THE ASSESSEE HAD NOT FILED ANY TAX AUDIT REPORT IN THE FORM NO. 3CD FOR THE CURRENT FINANCIAL YEAR. HENCE THE ASSESSEES VARIOUS CLAIMS OF EXPENSES AR E NOT AUDITED AND VOUCHED BY THE TAX AUDITOR. THE A.O HAS RIGHTLY ALLOWED TH E EXPENSE OF RS. 1 LAKH TO ITS STATUS AS A COMPANY. HENCE THE IMPUGNED ORDER IS L IABLE TO BE SET ASIDE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PE RUSED THE MATERIAL PLACED BEFORE US INCLUDING THE CASE LAW RELIED UPON BY THE PARTIES. THE ONLY ISSUE TO BE DECIDED IN THE PRESENT CASE IS WHETHER IN THE GI VEN SITUATION THE ASSESSEE IS ENTITLED FOR DEDUCTION OF EXPENDITURE CLAIMED AS BU SINESS EXPENSES BY IT? THE LD. CIT (A) HAS ALLOWED THE BUSINESS EXPENSES CLAIM ED BY THE ASSESSEE HOLDING AS UNDER:- 5.5 I HAVE CONSIDERED THE A.O.S ORDER AS WELL AS THE APPELLANTS A/R SUBMISSION. I HAVE ALSO TAKEN NOTE OF THE CASE LAWS RELIED ON BY THE APPELLANT. HAVING CONSIDERED BOTH I FIND THAT THE A.O HAS NOT GIVEN ANY FINDING IN SUPPORT OF THIS DISALLOWANCE NOR HAS HE POINTED OUT ANY SPECIFIC INSTANCE TO JUSTIFY THE SAID DISAL LOWANCE. IT ALSO REVEALS THAT THE A.O HAS MERELY DISALLOWED THE SAID SUM ON PROPORTIONATE BASIS WHICH IS HIGHLY UNJUSTIFIABLE. ON PERUSAL OF THE APPELLANTS A/R SUBMISSION IT REVEALS THAT THE BUS INESS OF THE APPELLANT WAS NOT DISCONTINUED BUT IT WAS MERELY A SUSPENSION OF MANUFACTURING ACTIVITY. FURTHER I AM ALSO IN AGREEM ENT WITH THE APPELLANT THAT STOPPAGE OF MANUFACTURING ACTIVITY F OR A TEMPORARY PERIOD CANNOT BE CONSIDERED AS CLOSURE OR DISCONTIN UATION OF BUSINESS ACTIVITY. THUS AFTER TAKING NOTE OF THIS FACT I CONSIDER IT PROPER TO HOLD THAT THE APPELLANTS BUSINESS WAS IN OPERATION DURING THE YEAR UNDER CONSIDERATION AND THE EXPENSES ARE I N THE NATURE OF R BUSINESS PURPOSE ONLY. FURTHER THE CONTENTION OF TH E APPELLANT THAT THE PROVISIONS OF SECTION 44AB OF THE ACT 1961 ARE NOT APPLICABLE TO THE APPELLANT IS ALSO ACCEPTABLE AS IN THE YEAR UND ER CONSIDERATION THE APPELLANTS GROSS TURNOVER IS BELOW THE PRESCR IBED LIMIT AND THE 5 ITA NO. 4480/MUM/2011 ASSESSMENT YEAR: 2006-07 APPELLANT BEING A CORPORATE ENTITY ITS ACCOUNTS ARE SUBJECTED TO AUDIT AND THE SAME ARE AUDITED BY STATUTORY AUDITORS UNDE R THE PROVISIONS OF THE COMPANIES ACT 1961 FURTHER IT IS ALSO SUBM ITTED BY THE APPELLANT THAT THE SAID AUDITORS HAVE NOT POINTED O UR ANY DEFECTS FOR THESE EXPENSES IN THEIR AUDIT REPORT. THUS TAKING NOTE OF ALL THESE FACTS I CONSIDER IT PROPER AND APPROPRIATE TO HOLD THAT THE A.O. WAS NOT JUSTIFIED IN MAKING THIS DISALLOWANCE. ACCORDIN GLY THESE GROUNDS OF APPEAL ARE ALLOWED. 7. THE LD. CIT(A) HAS OBSERVED THAT THE A.O HAS NEI THER GIVEN ANY FINDING TO SUBSTANTIATE THE DISALLOWANCE NOR HAS POINTED OUT ANY SPECIFIC INSTANCE TO JUSTIFY THE SAID DISALLOWANCE. ON THE OTHER HAND T HE APPELLANT ITSELF HAS DISALLOWED THE SUM OF RS. 1 02 76 653/- WHILE COMPU TING THE INCOME FILED WITH THE RETURN OF INCOME. AS CONTENDED BY THE ASSESSEE THE BOOKS OF ACCOUNT ARE AUDITED BY THE STATUTORY AUDITORS AND THE SAID AUDI TORS HAVE NOT POINTED OUT ANY DEFECT IN THEIR REPORT. 8. FROM THE DETAILS OF EXPENDITURE SO INCURRED AND CLAIMED WE FIND THAT THE ASSESSEE HAS MERELY CLAIMED THE EXPENSES WHICH ARE NECESSARY TO RETAIN THE ESTABLISHMENT. OTHER EXPENSES HAVE BEEN SUO MOTU ADDED BY THE ASSESSEE WHILE COMPUTING TAXABLE INCOME. FROM THE P&L ACCOUN T WE NOTICE THAT THE LOSS WORKS OUT TO BE RS. 1 86 69 943/- HOWEVER THE ASSE SSEE HAS CLAIMED LOSS OF RS. 70 53440/- IN ITS RETURN OF INCOME. IT MEANS TH E ASSESSEE HIMSELF HAS DISALLOWED THE LOSS OF RS. 1 16 15 803/-. SO WE DO NOT FIND ANY INFIRMITY IN CIT(A) ORDER IN ALLOWING LEGITIMATE CLAIM OF BUSINE SS EXPENDITURE INCURRED BY THE ASSESSEE. 9. THE HONBLE MADRAS HIGH COURT IN CASE L.VE VAIRAVAN CHETTIAR VS. CIT (SUPRA) HAS OBSERVED AS UNDER:- 12. THE COMPANY MAY NOT OBTAIN OR BE ABLE TO EXECU TE A SINGLE BUSINESS CONTRACT FOR MONTHS AND YET IT MAY BE DEEMED TO CAR RY ON ITS BUSINESS IF DURING THE PERIOD OF LULL AND INACTIVITY IT IS KEPT ABOVE AND IF IT RETAINS ITS 6 ITA NO. 4480/MUM/2011 ASSESSMENT YEAR: 2006-07 REGISTERED OFFICE AND HOLDS MEETINGS. IT IS NOT NEC ESSARY THAT A BUSINESS TO BE IN EXISTENCE SHOULD HAVE WORK ALL THE TIME. THER E MAY BE LONG INTERVALS IN INACTIVITY AND A CONCERN MAY STILL BE A GOING CO NCERN THOUGH IT MAY FOR SOMETIME BE QUIET AND DORMANT. THE MERE FACT THAT A BUSINESS HAS FOR SOME TIME BEEN IN THAT SENSE DORMANT WOULD NOT MEAN THAT IT HAS CEASED TO EXIST THE ASSESSEE CONTINUES TO MAINTAIN AN EST ABLISHMENT AND INCUR EXPENSES IN THE EXPECTATION THAT WORK WOULD COME AN D THE BUSINESS WOULD BE SUCCESSFUL 10. IN CIT VS. RAMPUR TIMBER & TURNERY CO. LTD. (SUPRA) THE QUESTION BEFORE THE HONBLE ALLAHABAD HIGH COURT WAS THAT WHETHER O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE HAVING HELD THAT THE ASS ESSEE WAS NOT CARRYING ON ANY BUSINESS THE TRIBUNAL WAS LEGALLY CORRECT IN A LLOWING THE ENTIRE EXPENSES OF RS.11 295/- IN THE AY1969-70 AND RS.10 613 IN TH E AY 1970-71 EXCEPT IN SO FAR AS IT CAN BE RELATED TO THE INCOME FROM PROPERT Y? THE HONBLE COURT ANSWERED THE QUESTION IN AFFIRMATIVE IN FAVOUR OF T HE ASSESSEE AND AGAINST THE REVENUE HOLDING THAT TRIBUNAL HAS ON FACTS HELD THA T THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS CLAIMED ONLY FOR THE PURPOSE OF KEEPING THE COMPANY ALIVE AND THE EXPENDITURE INCURRED FOR RETAINING THE STAT US OF THE COMPANY NAMELY MISCELLANEOUS EXPENSES SALARY LEGAL EXPENSES TRA VELLING EXPENSES ETC. WOULD BE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. 11. IN THE CASE OF HINDUSTAN CHEMICAL WORKS LTD. VS. CIT (SUPRA) THE HONBLE JURISDICTION HIGH COURT HAS UPHELD THE FINDING OF T HE TRIBUNAL THAT EVEN THOUGH NO INCOME WAS ACTUALLY EARNED FOR SOME TIME FROM THE ASSETS WHICH WERE IN THE POSSESSION OF THE COMPANY THAT FACT WAS NOT RELEVANT FOR CONSIDERING THE ASSESSEES CLAIM FOR DEDUCTION OF E XPENDITURE I.E. EXPENDITURE INCURRED ON SALARIES MACHINERY DISMANTLING CHARGES RENTS TAXES AND INSURANCE POSTAGE TELEGRAMS TELEPHONES AND OTHER ITEMS HOLDING THAT THE VIEW TAKEN BY THE TRIBUNAL IS BASED ON THE DECISION OF THIS COURT IN ORMERODS 7 ITA NO. 4480/MUM/2011 ASSESSMENT YEAR: 2006-07 (INDIA) P. LTD. VS. CIT (1959) 36 ITR 329 (BOM) . THIS DECISION HAS NOW BEEN APPROVED BY THE SUPREME COURT IN CIT VS. RAJENDRA PRASAD MOODY 1978 CTR (SC) 141 . 12. HONBLE SUPREME COURT IN THE CASE OF CIT VS. MALAYALAM PLANTATIONS LTD. (SUPRA) HELD THAT THE EXPRESSION FOR THE PURPOSE OF THE BUSINESS IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EA RNING PROFITS. ITS RANGE IS WIDE WHICH MAY INCLUDE MEASURES FOR THE PRESERVATIO N OF THE BUSINESS AND FOR THE PROTECTION OF ITS ASSETS AND PROPERTY. 13. IN VIEW OF THE FACTS OF THE CASE AND THE PRINC IPLES OF LAW LAID DOWN BY THE HONHLE SUPREME COURT AND THE HIGH COURTS DISCUSSE D IN THE FOREGOING PARAS WE DO NOT FIND ANY LEGAL OR FACTUAL INFIRMITY IN TH E IMPUGNED ORDER OF THE LD. CIT(A). HENCE IN OUR CONSIDERED VIEW THE ORDER PA SSED BY THE LD. CIT(A) IS BASED ON THE EVIDENCE ON RECORD AND THE ESTABLISHED PRINCIPLES OF THE LAW. WE THEREFORE UPHOLD THE ORDER PASSED BY THE LD. CIT(A ) AND DISMISSED BOTH THE GROUNDS OF APPEAL OF THE REVENUE. 14. IN THE RESULT APPEAL FILED BY THE REVENUE FOR THE A.Y. 2006-07 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 30 TH SEPTEMBER 2016. SD/- SD/- ( R.C.SHARMA ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED:30/09/2016 8 ITA NO. 4480/MUM/2011 ASSESSMENT YEAR: 2006-07 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' $ !'% / DR ITAT MUMBAI 6. &' ( / GUARD FILE. / BY ORDER ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI PRAMILA