TMI Blog2005 (7) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 the last year. All the sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly and that the assessee has not conducted any production activity and entire sales were made out of opening stock. The Assessing Officer accordingly disallowed the entire expenses debited to the profit and loss account in a sum of ₹ 10,60,661 and made the addition. 6. In the computation 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile evidence in support of growing Safeda trees alongwith other evidence such as details of expenses incurred on growing of these trees, expenditure on maintenance and preserving of these trees, details of land on which these trees were grown etc. However, no detail or the evidence was filed as required by the Assessing Officer. The Assessing Officer, therefore, was of the view that assessee has failed to discharge the onus cast upon it to prove the genuineness of the transaction. The Assessing 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue of depreciation, the counsel for the assessee argued before the CIT(A) that the depreciation was claimed in accordance with law even though production was not carried in the year, the some activity for sale of stock was undertaken. It was further mentioned that staff was kept for lubricating the machines and for upkeep of the machinery. The CIT(A), however, confirmed the order of the Assessing Officer as the assets on which the depreciation was claimed were not proved 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel for the assessee submitted that the Memorandum and Articles of Association of the assessee provides main object to be pursued by the assessee-company are : (1)To carry on the business of manufacturing. Trading, export, import of incandescent lamps, Fluroscent Lamps, Tubes, Bulbs, Glass Shells and Automobile Bulbs. (2)To carry on the business of selling, trading, manufacturing of Glass and articles of Glass. (3)To carry on the business of Cinema Halls and Film Distributors. 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 genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution of Board of Directors and the copy of the auditors report filed for the assessment year 1999-2000. We will discuss the case law referred to above by the learned counsel for the assessee subsequently. The learned counsel for the assessee further submitted that the assessee was having other business income also as per main object of the assessee, therefore, even on that issue there was no discontinuation of business. In support of his contention, he has relied upon the order of the ITAT, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon'ble Bombay High Court in the matter of CIT v. Paramount Premises (P.) Ltd. [1991] 190 ITR 259 and the decision of the Hon'ble Calcutta High Court in the matter of CIT v. Tirupati Woollen Mills Ltd. [1992] 193 ITR 252 . The learned counsel for the assessee submitted that the findings of the CIT(A) are contradictory and such orders of the authorities below are liable to be set aside on the issue. 17. On the other hand, the learned D.R. relied upon the orders of the authorities 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dea of minimise the business losses was carried out. These facts coupled with fact that there was also sale in the year under consideration as noticed by the Assessing Officer and that the assessee had incurred business expenditure on the electricity charges, consumable and other office expenses would support the contention of the learned counsel for the assessee that there was lull in the business of the assessee in the year under consideration. Therefore, no manufacturing activity was carried on during the assessment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also in preceding year - It was a period of temporary lull power charges and engine hire charges had to be incurred necessarily - same allowable - similarly, depreciation in respect of machinery already in use which could not be used in the relevant year was also allowable. (5)The order of the ITAT, Delhi (SMC) Bench in the matter of Onkar Engineers (P.) Ltd. v. ITO [2004] 84 TTJ (Delhi) 776 in which it was held that the assessee maintaining staff and also incurring administrative expenses - as against rental income of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee's claim for loss and registration to firm-not justified on facts. In this case also, it was held that business during the year in question was lull and inactive. Therefore, merely becuse there was lull and inactive, it cannot be held that business had ceased to exist. 21. The learned counsel for the assessee relied upon the following decisions in support of the contention to grant depreciation on the assets which were kept ready for use of business :- (1)The decision of the Allahabad High Court in the matter 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, Ahme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. Issue No. 2 (Income from sale of Safeda trees):- 23. The assessee did not file any details before the Assessing Officer for explaining the expenditure for growing of Safeda trees in the land of the assessee. The authorities below noted that documents of ownership of the land also did not prove if there was any standing of Safeda trees in the land of the assessee. In the absence of any evidence on record, the authorities below were justified in rejecting the claim of the assessee with regard to the earning income by way of sale 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-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from M/s. Shingar Palace, M/s. Midi Shingar and M/s. Mini Shingar from pages 17 to 32 of the paper book. The details of the names of the firms and commission received from the parties are filed. The proof of filing income-tax return in the case of M/s. Midi Shingar and M/s. Mini Shingar is also filed in which they have claimed deduction by way of commission paid to the assessee for making arrangement of films. In the assessment year 1997-98 in the case of M/s. Shingar Palace, copy of assessment order under section 143(3) is also filed which shows that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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