TMI Blog2011 (2) TMI 1596X X X X Extracts X X X X X X X X Extracts X X X X ..... . During the course of assessment proceedings it was noted by AO that assessee was in the process of starting a business of manufacturing sewage water treatment plant (SWTP for short) and explanations were sought. Vide its letter dated 18-03-2008, assessee submitted that during the first two years after its incorporation, it was in the business of manufacturing of moulds for plastic industry and thereafter it had switched over to letting car on hire. The latter business, as per assessee was carried on for four years viz. A.Ys. 2000-01 to 2003-04. According to assessee, thereafter there was lull in the business activity and during the previous year relevant to the impugned A.Y it had started the new business line of manufacturing SWTP. Assessee had shown a sale of SWTP to one M/s Modista Resortwear, Goa ( Modista for short) for ₹ 5.20 lakhs. In support of this claim assessee also produced invoices raised by it to Modista, alongwith goods consignment note of one Ezhumalaiyan Transport Group. As per the said invoice and goods consignment note the goods were dispatched on 08-11-2005. AO issued a notice to the said Modista, who replied on 12-08-2008 and relevant part of such repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the absence of a power we are not considering the petition for adjournment filed by Shri S.Sridhar, Advocate. 9. Ld. DR strongly assailing the order of CIT(A) submitted that CIT(A) did not correctly assimilate the facts and accepted the plea of the assessee that there was a business carried on by it. According to him, sale itself was not there and even otherwise one sale of one item would not be sufficient to hold that assessee was carrying on any business. Further, as per ld. DR the purchaser had denied the transaction and CIT(A) just went by transport invoices. Ld. DR further pointed out that there was an alleged purchase of pumps and motors for ₹ 1,00,700/- from M/s A.G.Best Electrical Works on 17-10-2005, stated to have been used in the plant sold by assessee, and any such sale to the assessee was denied by proprietor of the said M/s. A.G.Best Electrical Works, Shri P.Gunasekaran. 10. We have perused the orders and carefully considered the submissions of the ld. DR. The primary question is whether sale of waste water treatment plant alleged to have been made to Modista can be accepted or not. Assessee had produced invoice raised on Modista on 0811-2005. Assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground No.3, grievance of the Revenue is that the CIT(A) erred in allowing expenses under the heads repairs and maintenance professional charges and freight . Assessee had in its profit and loss account claimed expenses of ₹ 4,44,249/- on repairs and maintenance, ₹ 1,42,050/- on professional charges and ₹ 22,570/- as freight expenses. As per assessee, repairs and maintenance were incurred by it in a factory leased at Karapakkam and it had to be allowed as a revenue expenditure. AO was not appreciative of this contention. According to him, assessee had started a new line of business of waste water treatment plant and therefore such expenditure had to be capitalized. Insofar as the claim of professional charges was concerned, AO was of the opinion that it related to registration of a patent for the waste water treatment plant and hence was a capital outgo. There being no sales, freight charges was also not considered as allowable. 12. However, ld. CIT(A) was of the opinion that AO was unable to make out a clear case why the above expenses were not allowable and he had come to a hasty conclusion. He, therefore, allowed the claim of expenses. 13. Now befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of the Revenue for A.Y 2006-07 stands allowed. 16. Now we take up appeal of the Revenue for A.Y 2003-04 in ITA No.2047/Mds/10. 17. Four grounds have been taken by Revenue of which ground Nos.1 and 4 are general in nature needing no adjudication. 18. Vide its ground No.2 grievance of the Revenue is that CIT(A) allowed claim of the assessee that it was carrying on a business of hiring its car. 19. Short facts apropos are that assessee had during the relevant previous year returned a total income of ₹ 25,77,504/-. The said total income was arrived at by setting off business loss of ₹ 1,42,413/- against income from house property ₹ 27,19,917/-. During the course of assessment proceedings it was noted by AO that the only business income shown by assessee was rental received on hiring of a car. Assessee was having a Ford Escort car purchased in July 1999. As per assessee, the said car was under the control of its general manager and used by its staff for general purposes. When the car was not used it was hired to persons known to the company at rates lower than market value. Loss claimed by assessee arising out of this car hire was disallowed by AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enance of car, petrol, depreciation etc. is to be allowed as business expenses. 9. After hearing the rival contentions and gone through the facts of the case it is seen that neither the AO nor the CIT(A) has gone into ;the relevant details and it is not clear whether the same was filed before the AO or not. Even the AO has not examined as to whether the assessee s business was under suspension or not so as to claim a business loss or business expenditure. In view of these facts and circumstances, we are of the view that this issue be remitted back to the file of the AO with specific direction to find out whether the assessee has temporarily suspended its business and actually incurred the expenditure to the extent of the claim for hiring of car business. Accordingly, we remit the issue to the file of the AO with the above directions. 20. Pursuant to such direction the issue was reconsidered by the AO. Assessee was required to produce evidence for expenditure incurred and receipts in relation to the car hire business. The details called for by AO were as under: 1. Cash book ledger bills vouchers. 2. Mode of receipt of car hire charges. 3. Original receipt book for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd is that except for a receipt book for receipt of car hire charges, nothing was produced by assessee. The question is whether assessee could be considered as running a business of hiring of cars in such a situation. As already noted by us in para-14 above, in relation to appeal of the Revenue for AY 2006-07, assessee itself had submitted that it was having only one activity during AYs 2000-01 to 200304, which was the business of letting out of its car on hire. It was in such circumstances, the Tribunal directed the AO to verify whether assessee had only temporarily suspended its earlier business. The argument that there was a temporary suspension of earlier business, and the hiring of car could be considered only as hiring of commercial assets during such lull, cannot be accepted when such lull exceeded four years. Stopping the business activities for four years continuously cannot be termed in any way as a lull. Initially for the first two years assessee s claim was that it was carrying on business of manufacturing moulds, which is stated in its letter dated 18-03-2008 filed during the course of hearing for AY 2006-07. Name of the assessee company itself is M/s Ramgosri Constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay is condoned and appeal admitted. 28. Short facts apropos are that AO noted from the Income-tax return filed by assessee that its main income was rental income from factory, land and building. Income-tax return for the impugned AY showed annual rent of ₹ 24,32,640/- as income from house property. Since assessee had not filed any return of Wealth notice under sec. 17 of the Wealth-tax Act,1957 ( the Act for short) was issued. Submission of the assessee was that the notice issued was time barred and hence no action was required from its side WTO was of the opinion that notice under sec. 17 of the Act was issued on 31-03-2005 and for AY 1998-99 such notice could be issued upto 31-03-2005. According to AO even if the notice was served on the assessee in April 2005 service of notice was not relevant but only the issue of notice was relevant. He therefore, proceeded to complete the assessment exparte under sec.16(5) of the Act. Relying on sec. 2(ea) of the Act AO held that the property owned by assessee was not a part of its stock in trade nor used for its business, nor allotted to any employee and hence was to be considered as part of its taxable net wealth. He worked out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that the rental received by assessee was from factory land and building. So what was rented out was factory- land and building. In no sense of the term factory- land and building can be considered as something other than a commercial establishment. CWT(A) held that changes to Section 2(ea) of the Act made through Finance Act 1998, with effect from 01-04-1999, which in effect excluded commercial establishment from the definition of asset , had retrospective effect. Here it is necessary to have a look at cl.(i) of sub-section (ea) to Section 2 of the Act prior to the changes made by Finance ( No.2) Act, 1998 and after that. What was done through Finance (No.2) Act, 1998 was a substitution. Before such substitution cl. (i) read as under: (i) any building or land appurtenant thereto (hereinafter referred to as house ) whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house situated within twenty-five kilometers from local limits of any municipality (whether known as municipality, municipal corporation or by any other name) or a cantonment board, but does not include- (1) a house meant exclus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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