Income Tax Appellate Tribunal - Mumbai
The Sonawala Co. P. Ltd , Mumbai vs Department Of Income Tax on 27 August, 2014
आयकर अपील य अ धकरण, मब
ुं ई यायपीठ "एफ" मबुं ई
IN THE INCOME TAX APPELLATE TRIBUNAL "F" BENCH, MUMBAI
BEFORE HON'BLE S/SHRI H.L. KARWA, PRESIDENT AND B.R.BASKARAN (AM)
सव ी एच.एल. कावा, अ य एवं बी.आर.बा करन, लेखा सद य
आयकर अपील सं./I.T.A. No. 4004/Mum/2010
( नधारण वष / Assessment Year :2007-08)
M/s The Sonawala Company बनाम/ Addl. Commissioner of Income Tax-
Pvt. Ltd., Vs. Range-4(3),
135, Sheikh Memon Street, Aayakar Bhavan,
Zhaveri Bazar, M.K.Road,
Mumbai-400002 Mumbai-400020
(अपीलाथ /Appellant) .. ( यथ / Respondent)
आयकर अपील सं./I.T.A. No. 4645/Mum/2010
( नधारण वष / Assessment Year :2007-08)
Asstt. Commissioner of Income बनाम/ M/s The Sonawala Company Pvt.
Tax- 4(3), Vs. Ltd.,
Room No.649, 6th Floor, 135, Sheikh Memon Street,
Aayakar Bhavan,M.K.Road, Zhaveri Bazar,
Mumbai-400020 Mumbai-400002.
(अपीलाथ /Appellant) .. ( यथ / Respondent)
थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. : AAACT2087P
अपीलाथ ओर से / Appellant by : Shri Rajneesh K Arvind
यथ क ओर से/Respondent by : Shri Jitendra Jain
सन
ु वाई क तार ख / Date of Hearing : 26.8.2014
घोषणा क तार ख /Date of Pronouncement : 27.8.2014
आदे श / O R D E R
Per B.R.BASKARAN, Accountant Member:
These cross appeals are directed against the order dated 30.03.2010 passed by Ld CIT(A)-8, Mumbai and they relate to the assessment year 2007-08.
I.T.A. No. 4004/Mum/2010 2 I.T.A. No. 4645/Mum/2010
2. The revenue is assailing the decision of Ld CIT(A) in granting relief in respect of the following issues:-
(a) Disallowance of Expenses - Rs.34,85,822/-
(b) Income from sale of Land & Deduction allowed u/s 54EC.
3. The assessee is in appeal in respect of the following issues:-
(a) Disallowance of Depreciation, interest on car loan and car expenses aggregating to Rs.85,940/- in respect of the Car owned by the Director.
(b) Disallowance made u/s 14A of the Act.
4. The facts relating to the case are stated in brief. The assessee filed its return of income for the year under consideration declaring a total income of Rs.1,73,02,965/-. It had declared business income from Hoarding charges/compensation and also from trading in silver. The AO noticed that the hoarding charges/compensation were received from various companies for leasing out open spaces. The gross income of Rs.37,88,010/- received as hoarding charges/compensation consisted of hoarding charges, lease rent, parking charges etc. The AO noticed that the lease period for hoardings were from 3 years to 15 years. Accordingly the AO took the view that the assessee has earned only rental income and accordingly assessed the above said receipts under the head "Income from Other sources".
5. The AO noticed that the assessee has carried out only one transaction of purchase and sale of Silver during the instant year. The said transactions were also seen entered with sister concerns only. The assessee had declared a profit of Rs.5,11,225/- from the said transaction. The AO took the view that the single transaction of purchase and sale was a colourable device to make believe the I.T.A. No. 4004/Mum/2010 3 I.T.A. No. 4645/Mum/2010 business transaction. By placing reliance on the decision of Hon'ble Supreme Court in the case of McDowell & co. Ltd Vs. CTO (1985)(154 ITR 148), the AO felt that the assessee has adopted dubious method. Accordingly he held that the assessee has not carried on any business. Accordingly, he assessed the profit derived from silver business also under the head Income from Other sources.
6. The assessee had claimed expenses aggregating to Rs.37,71,762/- under various heads. The AO allowed only 10% of the same against the income discussed in the preceding paragraphs and accordingly disallowed remaining 90% of the claim.
7. The assessee had sold a plot admeasuring 5561.74 Sq. Mts., located in Pune for a consideration of Rs.2.23 crores. The assessee had acquired the lease hold rights on it through an agreement dated 11.12.1941. The assessee declared the profit arising on sale of above said plot as long term capital gain and claimed deduction u/s 54EC of the Act. The AO noticed that the assessee had proposed to construct flat on the above said land about 20 years back and had also obtained advances from the parties. The assessee had also prepared plans for construction of residential premises and also obtained sanction from Pune Municipal Corporation. However, the project was abandoned and the advances received from parties excepting a sum of Rs.73,200/- were returned back. The AO took the view that the assessee had converted the above said plot as "Business asset" and accordingly assessed the gain arising on sale of land as business income. Consequently he rejected the claim for deduction u/s 54EC of the Act.
I.T.A. No. 4004/Mum/2010 4 I.T.A. No. 4645/Mum/2010
8. The AO also computed disallowance u/s 14A of the Act at Rs.1,30,332/- and added the same to the total income of the assessee.
9. The assessee challenged the assessment order by filing appeal before Ld CIT(A). The first appellate authority held that the income arising from hoarding charges/compensation and also from trading in silver should be assessed as "Income from business" only. With regard to the expenses, the Ld CIT(A) confirmed the disallowance of transfer fee of Rs.2.00 lakhs (treated as Capital expenditure) and car expenses of Rs.85,940/- (incurred on car owned by the director). The Ld CIT(A) directed the assessing officer to delete the disallowance of remaining amount.
10. With regard to the Pune land, the Ld CIT(A) noticed that the development activity undertaken by the assessee during the FY 1984-85 had failed and the proposed business activity was nipped in bud. Accordingly he held that the assessee cannot be held to have carried business activity. Since the assessee did not hold the land as "Stock in trade", the Ld CIT(A) held that the gain arising on its sale should be assessed as "Long term Capital gain" only. Accordingly he directed the AO to allow the deduction u/s 54EC after verifying with the fulfillment of the conditions prescribed under that section.
11. The Ld CIT(A) confirmed the disallowance made u/s 14A of the Act.
12. We shall first take up the appeal filed by the revenue. The first issue relates to the disallowance of expenses. The Ld D.R placed strong reliance on the assessment order. On the contrary, the Ld A.R submitted that the assessing officer has made such kind of disallowance only during the year under I.T.A. No. 4004/Mum/2010 5 I.T.A. No. 4645/Mum/2010 consideration. Referring to the assessment order passed for AY 2004-05, which is placed at page 42 of the paper book, the Ld A.R submitted that the assessing officer has all along accepted that the assessee is engaged in the business of trading in Bullion. He submitted that the assessee has been declaring the income from hoarding charges and trading in bullion since past several years. He submitted that the assessee company was incorporated in British Era. He submitted that the assessing officer has taken a different view only during the year under consideration. He submitted that the business income declared by the assessee in the subsequent years were not disturbed, though they were assessed u/s 143(1) of the Act. Accordingly he submitted that there was no reason for the assessing officer to take a different view and to make disallowance.
13. We have heard the rival contentions on this issue. As submitted by the Ld A.R, the assessing officer has accepted that the assessee is engaged in the business of trading in bullion in the assessment order passed u/s 143(3) of the Act for AY 2003-04. It seems that the AO did not disturb the said position in any other years except in the year under consideration. From the order passed by Ld CIT(A), we notice that the Ld CIT(A) has appreciated the fact that the assessee is meticulously computing its total income under different heads. The Ld CIT(A) has also observed that the single transaction of purchase and sale shall also constitute business. Accordingly he has held that the activity of the assessee relating to income from hoarding, cable video charges, parking charges etc. involve expenses like putting up lighting and maintaining the same, cleaning the hoarding, tower providing security, maintaining such towers etc. In our view, the Ld CIT(A) has analyzed this issue in proper perspective and accordingly I.T.A. No. 4004/Mum/2010 6 I.T.A. No. 4645/Mum/2010 he has given his decision that the above said income is assessable as business income only. Before us, the Ld D.R could not controvert the findings given by Ld CIT(A). With regard to the expenses, we notice that the Ld CIT(A) has analysed each expense and has given proper reasoning to allow the same. As noticed earlier, the Ld CIT(A) has confirmed disallowance of transfer charges and car expenses. Since we have confirmed the decision of the Ld CIT(A) that the hoarding charges and trading in silver are required to be assessed as Business income, we do not find any infirmity in the decision of Ld CIT(A) in directing the AO to allow the expenses claimed. Accordingly we uphold his order on this issue.
14. The next issue pertains to the assessment of gain arising on sale of Pune land. We have heard the parties on this issue. We have already noticed that the assessee has acquired the leasehold right of the impugned land in the year 1941. The only activity, which was considered by the AO to treat the land as business asset, was about the attempt made to construct the flats on the land. As noticed by the Ld CIT(A), the assessee has abandoned the project after obtaining the approval of the building plan, meaning thereby, the assessee has not started the project at all. From the assessment order also, we notice that the assessing officer did not bring any material to show that the assessee indeed started the execution of the project. The Ld CIT(A) has also noticed that the assessee has been continuously showing the land as its Fixed asset only. We further notice that the commencement certificate given by the Pune municipal corporation was for construction of one residential premises only along with out houses. The initial attempt to develop the land has failed due to the decision rendered by I.T.A. No. 4004/Mum/2010 7 I.T.A. No. 4645/Mum/2010 Bombay High Court. Accordingly the Ld CIT(A) has come to the conclusion that the assessee has throughout held the impugned land as Capital asset and the assessee has not converted the same into business asset. Accordingly, the Ld CIT(A) has held that the gain arising on sale of land is assessable as Long term Capital gain. With regard to the claim for deduction u/s 54EC of the Act, as noticed earlier, the Ld CIT(A) has restored the matter to the file of the AO with the direction to examine the fulfillment of conditions prescribed u/s 54EC of the Act.
15. We notice that the Hon'ble Punjab & Haryana High Court had considered an identical issue in the case of CIT Vs. Raj Bricks Industry (2010)(322 ITR 625). The assessee therein was a partnership firm and carried on the business of running brick-kiln. It sold a land, which it had purchased earlier, and declared long term capital gain. The AO assessed the gain arising on sale of land as business income. The Hon'ble High Court held that the gain arising on sale of land cannot be assessed as business income, the assessee is not engaged in the business of dealing in land. Since the assessee was using the land for brick-kiln business, the profit arising on its sale is assessable as Capital gain only. The High Court further held that the said income cannot also be considered as derived from adventure in the nature of trade. In the instant case also, the assessee has been holding the leasehold right in the land since 1941. It has sold the sold the same after holding it for about 65 years. About 20 years back, the assessee had attempted to develop the same, but it was prevented by the order of Hon'ble Bombay High Court. Hence, the assessee could not develop the same. Subsequently, the assessee has obtained permission to construct a residential premises. All these sequences would show that the assessee has I.T.A. No. 4004/Mum/2010 8 I.T.A. No. 4645/Mum/2010 continued to hold the land as its Capital asset. Under these circumstances, we are of the view that the Ld CIT(A) was justified in holding that the gain arising on sale of land should be assessed as "Long term Capital gain" only. Consequently the Ld CIT(A) was also justified in holding that the assessee can claim deduction u/s 54EC of the Act, subject to the fulfillment of conditions prescribed in that section.
16. We shall now take up the appeal filed by the assessee. At the time of hearing, the Ld A.R did not press the grounds relating to the disallowance made u/s 14A of the Act. Accordingly, the grounds relating to the said issue are dismissed.
17. The other issue in the appeal of the assessee pertains to the disallowance of Car expenses in respect of the Car owned by a Director. The Ld A.R admitted that the Car is owned by the director. However, he submitted that the director has used the said car only for the purpose of the business of the assessee company only. Accordingly he submitted that the disallowance relating to the car may be allowed. On the contrary, the Ld D.R supported the order of Ld CIT(A) on this issue.
18. We have heard the rival contentions on this issue. When it was asked as to whether the company has passed any resolution in respect of the Car expenses of the director or was there any agreement between the assessee company and the director with regard to the usage of car, the Ld A.R fairly admitted that the assessee did not possess such kind of documents. In the absence of any agreement or any other document to support the claim of the I.T.A. No. 4004/Mum/2010 9 I.T.A. No. 4645/Mum/2010 assessee, we have no other option, but to confirm the order passed by Ld CIT(A) on this issue.
19. In the result, the appeal filed by the revenue as well as the assessee are dismissed.
The above order was pronounced in the open court on 27th August, 2014.
घोषणा खल
ु े यायालय म दनांकः 27th August, 2014 को क गई ।
Sd sd
(एच.एल. कावा/ H.L. KARWA) (बी.आर. बा करन,/ B.R. BASKARAN)
अ य / PRESIDENT लेखा सद य/Accountant Member
मब
ुं ई Mumbai: 27th August,2014.
व. न.स./ SRL , Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु त(अपील) / The CIT(A)- concerned
4. आयकर आयु त / CIT concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मब
ुं ई /
DR, ITAT, Mumbai concerned
6. गाड फाईल / Guard file.
आदे शानस
ु ार/ BY ORDER,
True copy
सहायक पंजीकार (Asstt. Registrar)
आयकर अपील य अ धकरण, मंब
ु ई /ITAT, Mumbai