Income Tax Appellate Tribunal - Delhi
Shobha Trading Co. (P.) Ltd. vs Income-Tax Officer on 17 October, 1994
Equivalent citations: [1995]52ITD188(DELHI)
ORDER
Manzoor Ahmed Bakshi, Judicial Member
1. We find it convenient to dispose of these four appeals of the assessee relating to the assessment years 1985-86 and 1986-87 by this consolidated order. Two appeals relate to the quantum and two relate to the penalty under Section 271(1)(c) of the Income-tax Act. We shall first deal with the quantum appeals.
2. Common issue involved in these appeals is relating to allowance of interest as a deduction in computing the income from business.
3. The appellant is a company. It's first previous year ended on 30th June, 1981. It has purchased a house property which was partly let out to tenants even at the time of the purchase by the assessee-company. Part of the house property is stated to be utilised by the Directors for their residence. The assessee had borrowed loans from its Directors for the purchase of the said property. Interest was paid to the Directors on such borrowings. Assessee had claimed deduction on account of interest paid to the Directors in respect of money utilised for the purchase of the building. Deduction up to the assessment year 1984-85 was allowed to the assessee. The interest received from the assessee-company has been disclosed by the Directors in their individual returns and has been assessed as such. For assessment years 1985-86 and 1986-87 Assessing Officer has held that the assessee has not purchased the building for the purpose of business and that the same has been purchased in order to circumvent the provisions of the tax laws. The deduction has thus been denied to the assessee. CIT (Appeals) has confirmed the view of the Assessing Officer. It has been pointed out by the learned CIT (Appeals) that the assessee-company is run by Shri Ashok Kumar and his wife, Mrs. Shobha Kumar. Shri Sachhin Kumar, minor son of Shri Ashok Kumar, is also the shareholder. The CIT (Appeals) has held that Shri Ashok Kumar was carrying on business in the status of a firm, where the wife Smt. Sobha Kumar was the partner. The share income earned by the wife in that firm was clubbed in the hands of Shri Ashok Kumar under Section 64 of the Act. The assessee-company has shown income from commission received from a concern run by Shri Ashok Kumar in the capacity of a partner. The learned CIT (Appeals) has further held that it is clear from facts that the firm has passed on the commission to the assessee-company and that the company has no other independent business of its own. The CIT (Appeals), accordingly held that the facts clearly go to show that the company had acquired the property for being used by the Director himself. According to the learned CIT (Appeals), there was no necessity for acquisition of the property by the company especially when there were no funds available with it. The assessee-company was carrying on the business from the same premises where the firm from which the company has received the commission was carrying on the business. There was thus no necessity for purchasing the property for the purposes of business. She has accordingly confirmed the disallowance.
4. Learned Counsel for the assessee contended that the Revenue was not justified in taking a different view during the year under appeal when in the past deduction was allowed to the assessee and when the interest paid to the Directors has been assessed to tax. According to the learned Counsel, the property has been acquired for the purpose of business of the company and interest paid on the loans utilised for its purchase is allowable as a deduction. The learned Counsel further contended that by virtue of provisions of Benami Transactions Prohibition Act of 1987 Revenue is precluded from claiming that the property in the name of the company was a benami transaction. In this connection, reliance was placed on the decision of the Supreme Court in the case of Mithilesh Kumari v. Prem Behari Khare [1989 ] 177 ITR 97 and that of the Kerala High Court in the case of C. Narayanan v. Gangadharan (No. 2) [1989] 180 ITR 503. The learned Counsel further relied upon the order of the Tribunal in the case of Smt. Godavari Devi Sehgal v. ITO [1992] 198 ITR 108 (Delhi) (A.T.), where it has been held that unless new facts have come Into being the Revenue is not entitled to deviate from the earlier decisions.
5. Learned Counsel has pointed out that the finding of the CIT (Appeals) that assessee's counsel had pleaded for ignoring the property income is not correct. According to Shri Aggarwal, learned Counsel had requested to allow the deduction as the Assessing Officer had included the income from the said property as the income of the company. Shri Aggarwal further contended that the Assessing Officer has not disputed the incorporation of the company. He has further contended that Assessing Officer has not established that assessee has adopted a colourable device. It was accordingly contended that the deduction may be allowed to the assessee on account of interest paid to the Directors.
6. Learned Departmental Representative, on the other hand, contended that principles of res judicata are not applicable to the income-tax proceedings. Each year of assessment is independent and the Assessing Officer is not bound to follow the decision of his predecessor in the earlier assessment years. According to learned Departmental Representative, the fact that assessee was utilising the said property for the residence of its only Directors and that there was no business necessity to purchase the property had not been disclosed by the assessee in earlier years. Assessing Officer having made inquiries during the year under appeal and discovered new facts which justify a different conclusion than arrived at by the Assessing Officer in earlier years. It was accordingly con tended that the decision of the CIT (Appeals) may be confirmed. Referring to the contention raised on behalf of the assessee that the Revenue is precluded from claiming that the property was held as benami in view of the provisions of Benami Transactions Prohibition Act of 1987, the learned Departmental Representative contended, that the property not having been acquired for purposes of business deduction on account of interest on such purchase is not permissible. Reliance has been placed on the decision of the Kerala High Court in the case of CIT v. Chemmeens [1994] 207 ITR 909 in support of the contention that the Tribunal is duty bound to consider the grounds raised by the Revenue and not to confine its decision on the basis of earlier years or subsequent years' decision. Reliance has also been placed on the decision of the Punjab & Haryana High Court in the case of Dashmesh Transport Co. (P.) Ltd. v. CIT [1980] 125 ITR 681 in support of the contention that the principles of resjudicata do not apply to Income-tax proceedings.
7. We have given our careful consideration to the rival contentions. Under Section 29 of the Income-tax Act income from business is to be computed in accordance with the provisions contained in Sections 30 to 43D. Assessee has claimed deduction on account of interest paid to the Directors as an expenditure incurred for purposes of business. No deduction has been claimed by the assessee on account of interest in computing the property income. It is, therefore, relevant to consider as to whether the expenditure incurred by the assessee by way of interest is an expenditure for purposes of business. Incidental to that issue, is the issue as to whether the property purchased by the assessee-company in its name is necessitated by the business considerations or any other consideration. The fact of incorporation of the company cannot .be disputed as all the legal formalities in its incorporation have been complied with and the company as such is legally incorporated.
8. The property in question has also been purchased in the name of the company of which Shri Ashok Kumar and his wife are the Directors. Therefore, the issue as to whether the property belongs to Shri Ashok Kumar and his wife in their individual capacity or to the company is immaterial, and in our view, irrelevant. What is important for consideration of the issue in hand is as to whether the expenditure incurred by the assessee in the purchase of a property is an expenditure laid out for the purposes of the business and whether the Assessing Officer is bound by the decision of his predecessor in having allowed a deduction on account of interest. Let us consider the background of the facts indicated by the CIT (Appeals) as also by the Assessing Officer as to whether the property has been purchased by the assessee-company for the purposes of business. The findings of fact recorded by the CIT (Appeals) are contained in para 2.1 of her order, the relevant portion of which is reproduced below :
2.1 I have carefully considered the submissions made. At the outset it may be mentioned that there are 3 directors in the appellant-company who are members of the same family. Shri Ashok Kumar is husband of Mrs. Shobha Kumar and father of Shri Sachin Kumar. As apprised by the counsel during the course of the appellate proceedings prior to the incorporation of the company Shri Ashok Kumar was carrying on business in the status of a firm where the other partner was his wife Smt. Shobha Kumar. The share income earned by his wife was clubbed in the hands of Shri Ashok Kumar under Section 64 of the Act. The office of the aforesaid business was located at Kirti Nagar where the appellant-company also started doing its business. The firm owned a flour mill, the income of which was assessed in the individual hands of Shri Ashok Kumar before the company came into existence. In its first year of business, the income shown by the company was in the form of commission received from the concern run in the capacity of a firm by Shri Ashok Kumar. There was no other income earned by the aforesaid company. Thus, it was clear that for the sales effected by the firm the commission was passed on to the appellant-company where his wife and his son were directors. The company had no other independent business of its own. The appellant-company as admitted by the company, had no premises of its own and had operated from the business premises where the firm had been carrying on its business. Thus apparently, there were two concerns, the main work was done by Shri Ashok Kumar in whose hand ultimately the income came to be assessed. All these facts clearly establish that the property was acquired with the sole purpose of being used by the director himself. Apart from the fact that the building acquired was in a residential colony, there appeared to be no necessity for acquisition of the property specifically when there were no funds available with it and it did not need the premises for earning an income which was only from the commission received from the firm. This was further confirmed from the fact that the investment made in the property came out of the loans raised on the strength of the personal properties of the directors. The property was used by the directors for their own residential purposes. These facts clearly show that the conclusion drawn by the Assessing Officer was correct.
The finding of the learned CIT (Appeals) that the only income of the assessee has been the commission received from the concerned loan by Shri Ashok Kumar in the capacity of the firm has not been disputed before us. The finding that assessee was carrying on the said business from the same premises from which the business of the payee firm was carried on is also not disputed. Other facts described by the CIT (Appeals) as above have all remained uncontroverted by any evidence. The Assessing Officer has pointed out in the assessment order that up to 1987 the registered office of the company has not been shifted in the building which is purchased by the assessee-company. It has also been pointed out by the Assessing Officer that buying and selling of property or letting out of the house property is not one of the objects of the company for which it has been incorporated nor is it the business of the company. Neither before us nor before the Revenue authorities the purpose for which the property has been purchased by the assessee-company has been indicated. Whatever might have been the purpose for the purchase of the property it has not been established before us or before the Revenue authorities that the property had been acquired in furtherance of business interests. The rental income of the property as disclosed is Rs. 18,000. Interest paid to the partners is Rs. 1,76,692. Thus, it is clear that the property had not been acquired for purposes of making money by letting out. As has been highlighted by the CIT (Appeals), assessee was not in need of having its own business premises for furtherance of business interests as the only source of income of the assessee-company was commission income. For running such business assessee did not require the said property. Moreover, it is evident from records that assessee has not carried on any of its activities from the said premises during the relevant assessment year. The property has basically been used by Shri Ashok Kumar for his own residence. The assessee has not shown any obligation legally or otherwise for providing accommodation to Shri Ashok Kumar. We are, therefore, satisfied that the expenditure claimed by the assessee by way of interest to its Directors in respect of the loan raised for the purchase of the property is not an expenditure incurred for purposes of business.
9. The only other issue that remains for our consideration is as to whether the Assessing Officer was justified in taking a different view during the year under appeal as compared with the view taken by his predecessor(s). The law in this regard is settled. Principles of resjudicata do not apply to Income-tax proceedings. The Assessing Officer in the preceding year has not cared to consider the facts and circumstances of the case nor had collected material in order to examine the legality of the claim made by the assessee. The Assessing Officer in this year has raised queries, considered material and taken a different view on the basis of facts which were not investigated in earlier years. This, in our view, is permissible. It is also well-settled by the decision of the Supreme Court in CIT v. Jwalaprasad Agarwala [1967] 66 ITR 154 that if the assessee has paid tax erroneously in the past he is not precluded from claiming in the subsequent assessment year(s) that no tax is payable by him. Similarly Revenue is also not precluded from taking a different view in accordance with law in the subsequent assessment year simply because in the preceding assessment years the Assessing Officer has failed to investigate facts and failed to take a view in accordance with law. Each year of assessment is an independent unit of assessment. It is more important that the issue is decided in accordance with law than what has happened in the past.
10. In the case of Joint Family of Udayan Chinubhai v. CIT [1967] 63 ITR 416 at page 423 Their Lordships of the Supreme Court have held that "It is true that an assessment year under the Income-tax Act is self-contained assessment period and a decision in the assessment year does not ordinarily operate as resjudicata in respect of the matter decided in any subsequent year, for the Assessing Officer is not a court and he is not precluded from arriving at a conclusion inconsistent with his conclusion in another year. It is open to the Income-tax Officer, therefore, to depart from his decision in subsequent year, since the assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made. A decision reached in one year would be a cogent factor in the determination of a similar question in a following year, but ordinarily there is no bar against the investigation by the Income-tax Officer of the same facts on which a decision in respect of an earlier year was arrived at". As already stated, if a wrong has been committed in the past, the same could not be allowed to be perpetuated irrespective of the fact whether the decision goes in favour or against the assessee. We, accordingly, dismiss the claim made by the assessee in this regard.
11. The disallowance made by the Assessing Officer on account of interest is accordingly confirmed.
I.T.A. Nos. 5658 and 5659 (Delhi) of 1992 :
12. These appeals relate to the imposition of penalties under Section 271(1)(c) for assessment years 1985-86 and 1986-87. The Assessing Officer had disallowed the claim of interest on account of funds borrowed for the purchase of house property by the company. Penalty proceedings under Section 271(1)(c) had been initiated and the penalties of Rs. 99,839 and Rs. 95,458 were imposed for assessment years 1985-86 and 1986-87 respectively. We have discussed the facts above in the quantum appeal of the assessee. We have also confirmed the disallowance. However, in our view, penalty on the facts and in the circumstances of the case is not warranted. The assessee had made the claim in earlier years also which had been allowed by the Assessing Officer or in appeal. In such circumstances, the assessee could not have visualised that the claim on account of interest on borrowed money utilised for the purchase of house property would be disallowed by the Assessing Officer. It is well-settled principles of law that penalty for concealment cannot be levied merely because certain deduction, relief or benefit has been denied to the assessee.. The facts and circumstances of the case must lead to the conclusion that the assessee has concealed particulars of income or furnished inaccurate particulars of income. It has been observed by us that the CIT (Appeals) in paragraph 6 of his order has recorded a finding that the Directors have not shown any interest received in their returns of income. This fact is incorrect. The learned Counsel has made a statement before us that interest paid to the Directors has been declared by them in their individual returns and shown as such.
13. Considering the facts and circumstances of the case, and the decision of the Supreme Court in the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, we are of the view that penalty under Section 271(1)(c) is not attracted in this case. We, accordingly, cancel the penalty imposed for assessment year 1985-86 as well as assessment year 1986-87.
14. In the result, the quantum appeals of the assessee in ITA Nos. 4237(Delhi) of 1989 and 6772 (Delhi) of 1989 are dismissed whereas the penalty appeals in ITA Nos. 5658 and 5659 (Delhi)/1992 are allowed.