TaxTMI 
TaxTMI 
2005 (7) TMI 710
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.... 2.That the worthy CIT(A) has also erred in holding that the version of the Assessing Officer that business income of ₹ 23,56,415 was income from other sources. 3.That addition made as per para 1 above and in upholding the fact of para No. 2 above that business income of ₹ 23,56,415 was income from other sources is against the facts and circumstances of the case. 4.That interest under sections 234B and 234C has wrongly been charged." 2. We have heard the learned representatives of both the parties and gone through the observations of the authorities below and details submitted in the paper book by the counsel for the assessee. 3. At the outset, the learned counsel for the assessee did not press ground No. 1(c) with regard to the addition of ₹ 2,94,900 in respect of unexplained cash credits. This ground is, therefore, dismissed. 4. Briefly the facts on the remaining grounds are that the assessee filed return of income declaring loss of ₹ 56,870. The assessee is in the business of manufacture and sale of fluorescent tubes and bulbs. However, it has shown sales of only ₹ 30,900 in the current year as against sales of ₹ 11.39 lakhs in t....
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....n of income, the assessee has also claimed depreciation of ₹ 7,46,209. The assessee was asked to explain as to why depreciation should not be disallowed, in view of the fact that no production activity took place during the year and that only sales were made out of opening stock. The assessee, however, replied before the Assessing Officer that the claim of depreciation has been made as per law and may be allowed. The Assessing Officer did not accept the contention of the assessee in view of the fact that there was no production activity carried during the year under consideration and that there was no business activity. The Assessing Officer also observed that the assessee has not filed any evidence to show that the assets was put to use during the previous year. The Assessing Officer accordingly disallowed the entire depreciation claimed by the assessee in a sum of ₹ 7,46,209. 7. The Assessing Officer further noticed that the assessee has declared other income of ₹ 23,56,415, which includes commission income of ₹ 16,56,415 and income from sale of Safeda trees of ₹ 7 lakhs. The assessee has taken this income in the profit and loss account and treated ....
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....g Officer further observed that similarly miscellaneous income was shown in the earlier year which was treated as income from undisclosed sources. The Assessing Officer considering the facts and the circumstances of the case treated the income of ₹ 23,56,415 under the head "Income from other sources" and, therefore, the same was taxed as income from other undisclosed sources. It resulted into the brought forward losses adjusted for the assessment year 1996-97 were not allowed as the income has become only under the head "Income from other sources". 10. The above addition was challenged before the CIT(A) and the counsel for the assessee filed written submissions before the CIT(A). It was pointed out that the expenses of ₹ 10,60,661 were necessary to maintain the office of the assessee even though no business carried out. It was explained that major expenditure was on account of electricity expenses and these were minimum charges of PSEB. It was further mentioned that though sales were minimum yet the same were effected at a sum of ₹ 30,900. The assessee relied upon the decision of the CIT(A), Jalandhar dated 1-8-1996 in which on the same facts ....
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....d to have been used for the purposes of the business being one of the conditions precedent for grant of the depreciation. The addition on account of depreciation was, therefore, confirmed. The counsel for the assessee on the issue of other income submitted before the CIT(A) that the miscellaneous income on account of sale of trees was supported by the documentary evidence in the form of agreements with the purchasers of the trees. As regards commission income, the same was earned on account of booking arrangements effected by the assessee with various distributors. Reliance was placed in this regard on the Memorandum and Articles of Association of the assessee-company. Details of the commission earned by the assessee alongwith theatre hire charges earned on screening of films were also submitted which in turn were supported by copies of bill of the sister concerns from whom the commission was earned. It was also mentioned that the claim regarding commission has already been accepted in the assessment proceedings in the case of the sister concern M/s. Shingar Palace wherein the said claim was accepted after verification by the Assessing Officer in the order passed under section 143(....
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....ributors. He has further submitted that in order to achieve the above objects ancillary or incidental to the attainment of the main objects are also provided therein. The learned counsel for the assessee further submitted that the assessee has made sales in the year under consideration and minimum expenditure were paid to the PSEB and other expenses were spent for wages and on account of maintaining staff which includes salary, auditors fees, postage, telephone, legal expenses, T.A. and conveyance, insurance, repair of building and bank charges and advertisement charges which are incurred for maintenance of the office and business activity of the assessee. He has further submitted that the genuineness of the expenditure have not been disputed. He has further submitted that the resolution was passed in the Board meeting of the company on 20-1-1996 in which is was noticed that there has been heavy losses in the business of manufacturing of electric tubes. Therefore, it was resolved that the assessee-company shall also carry on business of film distribution as per clause 3 of the main object of the company and further efforts shall be made to earn maximum income from this activity al....
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....AT, Chennai Bench in the matter of ITO v. Mrs. Vanishree Karunakaran [2003] 86 ITD 373 . The learned counsel for the assessee further submitted that similarly the depreciation in respect of machinery already in use which could not be used in the relevant year was also allowed. The learned counsel for the assessee submitted that the machinery was kept ready for use and all efforts were that to restore the said unit as soon as possible and ultimately the manufacturing activity of the assessee started in the next year itself. Therefore, the assessee is entitled for depreciation. The learned counsel for the assessee further submitted that since the depreciation was claimed on such assets, which was kept ready for use, therefore, the assessee was entitled to deduction for depreciation. He has relied upon the decision of the Hon'ble Delhi High Court in the matter of CIT v. Refrigeration & Allied Industries Ltd. [2000] 247 ITR 12 , decision of the Hon'ble Punjab and Haryana High Court in the matter of CIT v. Pepsu Road Transport Corpn. [2002] 253 ITR 303 and the decision of the Hon'ble Madras High Court in the matter of CIT v. Vayithri Plantations Ltd. [1981] 128 ITR 675 . 15....
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....s below and submitted that no evidence of growing of Safeda trees was filed before the Assessing Officer. Therefore, it was rightly held the income from undisclosed sources. He has further submitted that the income earned by way of commission not supported by any documentary evidence, therefore, the authorities below were justified in treating the commission income to be income from undisclosed sources. 18. We have heard the rival submissions and material available on record and the case laws referred to by the learned counsel for the assessee. We give our findings on all the grounds issue-wise as under :- 19. Ground No. 1(a) and (b) for disallowing the expenditure in a sum of ₹ 9,60,661 and addition on account of depreciation of ₹ 7,46,200 :- The relevant material facts on record show that the assessee had three main objects for the purpose of incorporating the business i.e., carry on business of manufacturing of Bulbs and Tubes, to carry out the business of manufacturing, trading, export, import of incandescent lamps, fluorescent lamps and to carry out business of cinema halls and film distributors. Other objects are ancillary and incidental to the attainment of t....
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....nt year under appeal. However, the assessee has been able to re-start the manufacturing of electric tubes in the subsequent assessment year 1999-2000. These facts would clearly establish the fact that the assessee had no intention to close the business of manufacturing permanently during the assessment year in question. There were sales in the year under appeal and expenses were also made for the purpose of business and the production also restarted in the next year. These factors would clearly prove that it was because of lull in the business of the assessee as regards manufacturing activity. Similarly the assessee has been able to prove that the assets upon which the depreciation has been claimed were kept ready for the purpose of manufacturing activity. There is no denial that in the earlier assessment year the manufacturing activity of the assessee was going on. In subsequent year also manufacturing activity were carried out by the assessee. Therefore, due to business exigency and in order to minimise the business loss in the trading activity, the Board of Directors resolved to suspend the manufacturing activity temporarily and to start achieving the other main objects of film ....
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....#8377; 1,36,000, assessee incurring expenses of ₹ 96,600 on staff and ₹ 35,379 towards administrative charges - it was a case of temporary suspension and lull in the business of assessee nurtured a hope of reviving the business - Further, the lease was for a period of two years only - It was a case of exploitation of commercial asset and the lease income was assessable under the head 'Business income' - Matter remanded to the Assessing Officer for the limited purpose of examining the allowability of expenditure claimed by the assessee. (6)The order of the ITAT, Calcutta Bench in the matter of Asstt. CIT v. Master Stores [2002] 75 TTJ (Cal.) 452 in which it was held that the expenses incurred by the assessee towards retrenching its staff at the time of temporary cessation of the business was allowable as a business expenditure incurred by it wholly and exclusively in connection with this business deduction. (7)The order of the ITAT, Hyderabad Bench in the matter of ITO v. Smt. C. Kusuma Kumari [1989] 33 TTJ (Hyd.) 124 in which it was held that set off of carried forward loss of assessment year 1980-81 against income from the assessment year 1982-83 was refuse....
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....tter of CIT v. Swarup Vegetables Products India Ltd. [2005] 145 Taxman 253 in which it was held 'Assessee-company claimed depreciation on plant and machinery of its vegetable ghee unit - Assessing Officer rejected assessee's claim on ground that plant and machinery was not actually used for full year relevant to assessment year 1977-78. On appeal, Tribunal, in finding that vanaspati unit though was not actually in use, but it was kept ready for use and all efforts were made to restore said unit as soon as possible, allowed claim of assessee'. The Hon'ble Allahabad High Court confirmed the view of the Tribunal. (2)The order of the ITAT, Ahmedabad Bench in the matter of Gujarat Narmada Valley Fertilizers Co. Ltd. v. Dy. CIT [2001] 73 TTJ (Ahd.) 787 in which it was held that the depreciation - user for business - active or passive user - if the plant and machinery are kept ready for user but not used due to factors beyond assessee's control, depreciation cannot be disallowed. (3)The decision of the Hon'ble Madras High Court in the matter of Vayithri Plantations Ltd. (supra) in which it was held that user of machinery - machinery should be kept ready for use....
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....ale of Safeda trees. The assessee has to prove the existence of Safeda trees at the time of purchase of the same were grown by the assessee. However, the assessee has failed to prove both the factors and as such in the absence of any evidence the authorities below were justified in pleading the income earned by way of Safeda trees to be the income from the undisclosed sources. We confirm the findings of the authorities below on this issue and dismiss the appeal of the assessee on this issue. Issue No. 3 :- 24. This issue relates to the commission income of ₹ 16,56,415. We have recorded above that one of the objects of the assessee-company was to carry on the business of cinema Hall or film distributors. The Borad of Directors resolved that since in the manufacturing of tubes and bulbs, there were heavy losses, therefore, that activity was temporarily suspended. Further resolved to carry out the third object of the assessee, therefore, in view of the respondent, the assessee-company started carrying business for making arrangement of the films to the sister concerns. The assessee earned commission income in the preceding assessment year 1997-98 and the assessment year under ....
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....e Assessing Officer has not made any disallowance of the commission paid in this case. All these factors clearly proved that the assessee earned commission from all these three parties. All these parties have disclosed and claimed deduction of commission in their respective profit and loss account not only in the year under consideration but in the subsequent year also. The names of the films and amount of commission also strengthens the submission of the learned counsel for the assessee that assessee actually earned commission income from three parties. Copies of confirmations are also filed. 26. The I.T.A.T., Calcutta Bench in the matter of Asstt. CIT v. Master Stores [2002] 75 TTJ (Cal.), 452 held "Business income - vis-a-vis income from other sources - Commission income - Assessee had shown receipt of commission and submitted full particulars and also a certificate from the payer concerned before the Assessing Officer - Simply because the payer did not respond to the summons issued by the Assessing Officer under section 131, it could not be said that the receipt of commission was not there - Assessing Officer has not been able to prove conclusively that there was no recei....