H.L. Malhotra & Company (P) Ltd., New ... vs Department Of Income Tax

ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "C", NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A.No.3875/DEL/2011 A.Y. : 2005-06 ACIT, VS. M/S HL MALHOTRA & CIRCLE-12(1), CO. PVT. LTD. New Delhi 506, DAKHA HOUSE, PUSA LANE, 18/17, WEA KAROL BAGH, NEW DELHI (PAN: AAACH0936J) (APPELLANT) (RESPONDENT) I.T.A. NO. 3884/Del/2011 A.Y. : 2005-06 M/S HL MALHOTRA & VS. ACIT, CO. PVT. LTD. CIRCLE-12(1), 506, DAKHA HOUSE, New Delhi PUSA LANE, 18/17, WEA KAROL BAGH, NEW DELHI (PAN: AAACH0936J) (APPELLANT) (RESPONDENT) I.T.A.No.756/DEL/2012 A.Y. : 2008-09 M/S HL MALHOTRA & VS. ACIT, CO. PVT. LTD. CIRCLE-12(1), 506, DAKHA HOUSE, New Delhi PUSA LANE, 18/17, WEA KAROL BAGH, NEW DELHI (PAN: AAACH0936J) (APPELLANT) (RESPONDENT) I.T.A. NO. 983/Del/2012 A.Y. : 2008-09 ACIT, VS. M/S HL MALHOTRA & CIRCLE-12(1), CO. PVT. LTD. New Delhi 506, DAKHA HOUSE, PUSA LANE, 18/17, WEA KAROL BAGH, NEW DELHI (PAN: AAACH0936J)

(APPELLANT) (RESPONDENT)

1 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

Department by : Sh. Robin Rawal, Sr. DR Assessee by : Sh. Rohit Jain, CA & Sh. Rohit Garg, CA

Date of Hearing : 19-1-2015

Date of Order : 23-1-2015 ORDER

PER BENCH

These are the Cross Appeals filed by the Revenue as well as Assessee emanate out of respective Orders passed by the Ld. CIT(A)-X, New Delhi pertaining to assessment years 2005-06 & 2008-09 respectively.

2. The grounds raised in the Revenue's Appeal No. 3875/Del/2011 (AY. 2005-06) reads as under:-

"1. On the facts and circumstances of the case in law, the Ld. CIT(A) has erred in giving relief of Rs. 18,35,634/- out of total disallowance of Rs. 27,04,339/- made by the AO on account of expenses and depreciation.

2. On the facts and circumstances of the case, the Ld. CIT(A) was not right in taking cognizance of the facts which were not available to the AO during the course of assessment proceedings and it was during the appellate proceedings only that assessee has been found to have resumed business.

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ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

3. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing."

3. The grounds raised in the Assessés Appeal No. 3884/Del/2011 (A.Y. 2005-06) read as under:-

"1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in assessing service charges of Rs.19,610 and interest income of Rs.1,52,970 under the head 'Income from other sources' instead of 'Profits and Gains from Business and Profession', as declared by the appellant.

2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the disallowance of the following expenditure holding the same to be personal expenditure of the directors of the appellant:

1. Electricity & water expenses - Rs.1 ,46,739; and

2. Watch & ward expenses Rs.1,08,000

2.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in not appreciating that the above expenditure were incurred in respect of the registered 'office of the appellant.

2.2 That the Commissioner of Income' Tax (Appeals) further failed to appreciate that these cannot be disallowance of any expenditure in case of a corporate assessee on account of personal expenses.

3. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the disallowance of the

3 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

travelling expenditure to the extent of Rs.3,96,735 holding the same to be personal expenditure of the directors of the appellant.

3.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in alleging that the appellant failed to produce any details justifying the above travelling expenditure.

3.2 That the Commissioner of Income Tax (Appeals) further failed to appreciate that these cannot be disallowance of any expenditure in case of a corporate assessee on account of personal expenses.

4. That the Commissioner of Income Tax (Appeals) erred on facts and in law in making ad-hoc disallowance of 50% out of the total director's remuneration of Rs 4,80,000 on the ground that part of such remuneration pertains to earning of rental income.

The appellant craves leave to add, alter, amend or vary from the above grounds of appeal before or at the time of hearing."

4. The grounds raised in the Asessee's Appeal No. 756/Del/2012 (A.Y. 2008-09) read as under:-

1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in assessing service charges of Rs 4,06,675 and interest income of Rs.1,67,584 under the head 'Income from 'Other sources' instead of 'profits and Gains from Business and Profession', as declared by the appellant.

2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the disallowance of the following expenditure holding the same to be personal expenditure of the directors of the appellant:

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ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

i) Electricity and water charges : Rs.1,85,113; and

ii) Watch and ward expenses : RS. 1,47,420

2.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in not appreciating that the above expenditure were incurred in respect of the registered office of the appellant.

2.2 That the Commissioner of Income Tax (Appeals) further failed to appreciate that these cannot be disallowance of any expenditure in case of a corporate assessee on account of personal expenses.

3. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the disallowance of the travelling expenditure to the extent of Rs.4,48,227 holding the same to be personal expenditure of the directors of the appellant.

3.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in alleging that the appellant failed to produce any details justifying the above travelling expenditure.

3.2 That the Commissioner of Income Tax (Appeals) further failed to appreciate that these cannot be disallowance of any expenditure in case of a corporate assessee on account of personal expenses.

4. That the Commissioner of Income Tax (Appeals) erred on facts and in law in making ad-hoc disallowance of 50% out of the total director's remuneration of Rs4,80,000 on the ground that part of such remuneration pertains to earning of rental income.

The appellant craves leave to add, alter, amend or vary from the above grounds of appeal before or at the time of hearing.

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ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

5. The grounds raised in the Revenue's Appeal No. 983/Del/2012 (A.Y. 2008-09) read as under:-

1. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in giving relief to the assessee of Rs. 21,97,811/- against the disallowance of Rs. 32,18,941/- made by the AO on account of expenses debited to profit and loss account.

2. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of hearing."

REVENUE'S & ASSESSEE'S APPEALS (ITA NOS. 3875/DEL/2011 & 3884/DEL/2011) (A.Y. 2005-06)

6. Assesse filed its Return of income declaring a total income of Rs.3,44,492/- on 27.10.2005 and was processed u/s 143(1) of the I.T. Act on 11.03.2006. The case of the assessee was selected for scrutiny and notice u/s 143(2) of the I.T. Act was issued to assessee on 30.10.2006. In response to the same the Authorised Representative of the assessee appeared before the AO and filed necessary details/ documents. The assessee is engaged in the business of Travel related activities for the last more than 23 years. During the year under consideration the assessee company has not carried out any business activities. The company has shown income from house property as Ieave and license fees of Rs.41,11,890/- and income from other sources as interest income of Rs.1,52,970/- and service charges of Rs.19,610/-. Against this income, the assessee company has claimed expenses of Rs.27,04,339/- and 30% statutory deduction against house property of Rs.12,33,567/-. The AO asked to furnish justification regarding allowability of business expenses and depreciations as no business activities appear to have conducted during the year and immediate preceding year. The assessee company filed details in respect of house property including leave & lease agreement but could not offer any justification for claiming of expenses against no business income. The AO asked the assessee to furnish the

6 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

explanation for not submitting any justification for claim of huge expenses against no business income and show cause as to why the entire expenses including depreciation of RS.27.04 lacs should not be disallowed as company has not carried out any' business activities not only during year but since 1999-2000. The assessee vide letter dated 14.12.2007 submitted that "the assessee company has been carrying on the business of travel related activities for the last more than 23 years and during the previous year relevant to the assessment year 2005-06 has continued the same business activities. In the past the assessee company have been General Selling Agent for Japan Airlines and Alitalia and had been having branch offices in Punjab, Haryana, Bengal and many other states and cities. Further, after termination of contracts by Japan Airlines and Alitalia the branch offices were closed. The main income of the assessee company consists of leave and license fee, service charges and interest. Assessee further submitted that for the purpose of carrying on the business the assessee company has incurred expenses on salaries, rent of office, electricity, printing and stationery, audit fee. telephone, filing fee of registrar of companies, watch and ward, depreciation etc. The assessee has filed the profit and loss accounts contains the detail of the said expenses. Assessee further submitted before the AO that in the past the said expenses have been allowed by the AO by completing the assessment under section 143(3) of the I.T. Act.

6.1 The AO considered the contention of the assessee considered and found in accurate as assessee company not only not carrying out its business activities since past 7-8 years but also not carried out any business activities in future 2-3 years. Therefore, the assessee company is entitled only for the expenses incurred u/s 57 of the Act against income from other sources earned u/s 56 and 30% deduction under sub-section

(a) of section 24 of the I.T. Act is allowable against income from house property. The assessee has claimed business expenses as well as 30% deduction u/s 24 against house property of Rs.41,11,890/- and against income from other sources of RS.1,72,580/- deliberately with special

7 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

motive to reduce its income from house property and income from other sources just to defraud revenue, even though no business activities in any manner were carried out.

6.2 AO has also held that the assessee company has not any intention to regularize its business activities in the near future, as per the details/ documents filed by the assessee company. Keeping in view of the aforesaid discussion, the AO was of the view that the entire expenses and depreciation of Rs. 27,04,339/- claimed by the assessee company as business expenses are disallowed and therefore, completed the assessment u/s. 143(3) of the I.T. Act vide his order dated 24.12.2007.

7. Aggrieved with the assessment order dated 24.12.2007, assessee filed an appeal before the Ld. First Appellate Authority who vide impugned order dated 31.5.2011 partly allowed the appeal filed by the assessee and restricted the disallowance of Rs. 8,68,705/- by allowing the relief of Rs. 18,35,634/- out of the total disallowance made by the AO amounting to Rs. 27,04,339/- on account of expenses and depreciation.

8. Revenue has filed the Appeal against the relief given by the Ld. First Appellate Authority amounting to Rs. 18,35,634/- and the assessee has filed the Cross Appeal against the disallowance of expenditure amounting to Rs.8,68,705/-mentioned in the impugned order and as per prayer made.

9. At the time of hearing Sh. Robin Rawal, Ld. Sr. DR appeared for the Revenue and stated that the assessee company has not carried out its business activities since past 7-8 years but also not carried out any business activities in future 2-3 years. He further submitted that the assessee company is entitled only for the expenses incurred u/s 57 of the Act against income from other sources earned u/s 56 and 30% deduction under sub-section (a) of section 24 of the I.T. Act is allowable against income from house property. He stated that the assessee has claimed business expenses as well as 30% deduction u/s 24 against house property of Rs.41,11,890/- and against income from other sources of Rs.1,72,580/- deliberately with special motive to reduce its income from

8 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

house property and income from other sources in spite of the fact that no business activity in any manner were carried out by the assessee. Finally, he argued that Ld. CIT(A) has wrongly restricted the disallowance of expenditure of Rs. 8,68,705/- on account of electricity, water expenses and watch and ward expenses and Director's remuneration which is contrary to the law and facts of the case. He requested that the AO has passed the assessment order as per law and the Ld. CIT(A)'s order is contrary to the law and the same may be cancelled.

10. Shri Rohit Jain and Shri Rohit Garg, Chartered Accountants appeared for the assessee and argued that the AO has wrongly observed that assessee was not carrying out the business activities during the year under consideration and has wrongly assessed the services charges and interest income as income from other sources. In fact the assessee has booked the commission charges on booking of air-tickets which was the principal business of the assessee and the service charges received by the assessee are part and parcel of the assessee's business activities and his business income. As regards to the interest income he stated that the same represent bank interest of available business funds of the assessee and was also in the nature of business income which has been accepted by the Department in the earlier assessment years. He also draw our attention toward the impugned order at Page 4-5 to support his contention. He further submitted that the principle of Rule of Consistency must be followed by the Tax Authorities, in view of the various decisions of the Hon'ble Apex Court; Hon'ble High Courts and the Tribunal. In support of his contention he filed the copies of the case laws in the shape of Paper Book pages 1-69. He also draw our attention toward the relevant paragraphs of the decisions rendered by the Hon'ble Supreme Court of India as well as Hon'ble High Courts. He requested that the Revenue Authority has wrongly disallowed the expenses claimed by the assessee merely on the ground that the assessee's business has not functional for the past 7-8 years and for the 2-3 subsequent years. Whereas infact these expenses are very much necessary for maintaining

9 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

the assessee's office, retaining the staff and other related expenditure to keep the assessee company alive. Therefore, the impugned order passed by the Ld. CIT(A) may be cancelled and the Appeal filed by the assessee may be allowed.

11. We have heard both the parties and perused the relevant records, especially the order passed by the Revenue Authroity alongwith the case laws cited by the Ld. Counsel of the assessee as well as other documentary evidence filed by the assessee's counsel in the shape of paper book. We are of the considered view that the assessee has claimed the expenses of RS. 27,04,339/- for which the details of the same are as under:-

To Salaries 642,432.00 To Rent 50,388.00 To Electricity AND Water 146,740.00 To Office Maintenance 44,420.00 To Printing Stationery 6,224.00 To Postage, Telegrams AND Couriers 3,380.00 To Repairs and Maintenance 113,247.00 To Telephone AND Trunk Calls 124,403.00 To Travelling AND Conveyance 449,418.00 To Car Maintenance 198,855.00 To Bank Charges AND Commission 5,606.00 To Insurance 11,849.00 To Staff Welfare 16,202.00 To Staff Medical 16,531.00 To Staff Uniform 4,275.00 To SubScriptions 21,770.00 To News Papers AND Trade Journals 2,799.00 To Filing Fee 2,454.00 To Bonus 9,000.00 To Auditors Remunerations 19,980.00 To Legal AND Professional Fees 22,500.00 To Documentation 3,497.00 To Watch AND Wards 108,000.00 To Directors' Remunerations 480,000.00 To Meeting AND Conference 4,459.00 To Loss on Sale of Assets 3,979.00 To Diwali Expenses 11,501.00. To Depreciation 180,430.00

11.1 The AO has disallowed the entire expenses and depreciation total amounting Rs. 27,04,339/- by holding that the assessee company has not only carrying out its business activities past 7-8 years but also

10 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

not carried out any business activities in future 2-3 years. He further observed that only expenses incurred u/s 57 of the Act against income from other sources earned u/s 56 and 30% deduction under sub-section

(a) of section 24 of the I.T. Act is allowable against income from house property. AO was of the view that assessee has claimed business expenses as well as 30% deduction u/s 24 against house property of Rs.41,11,890/- and against income from other sources of RS.1,72,580/- with the objective to reduce its income from house property and income from other sources in spite of the fact that no business activity in any manner were carried out by the assessee. Assessee company has no intention to regularize its persons activities in future also, as per the details and documentary evidence filed by the assessee. Ld. CIT(A) after hearing both the parties and documentary evidence filed by the assessee has allowed the following expenses. He has mentioned at Page No. 30 of the impugned order:-

Ground Description Amount Decision in brief No. involved(Rs.) 1 General - Does not require adjudication 2 i) Interest on Bank FDR i) Rs. 117355 The view of the assessing officer to

ii) Interest on IT Refund ii) Rs. 35615 treat the same as

iii) Service charges iii) Rs. 19610 "income from other sources" is upheld.

3 Disallowance of Rs. 27,04,339/- In view of the expenditure in the P&L discussion made A/c hereinabove out of total expenses of Rs. 27,04,339/- debited in P&L A/c, the following expenses are directed to be disallowed.

(a) Electricity & Water Expn. (Rs. 1,23,970) (b) Watch & Ward (Rs.

11 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

1,08,000) (c) Travelling Exp. (Rs. 2,96,735) (d) Directors Remunerati on (Rs. 2,40,000/-) Totaling Rs. 8,68,705/-

11.2 After considering the aforesaid finding of the AO as well as by the Ld. CIT(A), we are of the considered view that it is an admitted fact that the assessee is a company and its business is travelling related activities.

During the assessment year in dispute assessee has shown its income from house property of Rs. 41,11,89/- and income from other sources Rs. 1,52,970/- and service charges of Rs. 19,610/-. Against this income assessee has claimed expenses of Rs. 27,40,339/- and the AO has disallowed the total expenses on the ground that assessee company not carry out any business since 7-8 years and but also not carried out any business activities in future 2-3 years and only expenses incurred u/s 57 & u/s. 24 of the I.T. Act are allowable. Ld. CIT(A) treated services charges as income from other sources, but according to the assessee that the assessee is entitled for all business expenses even during lull period in the business as covered under section 30 to 37 of the I.T. Act. All expenses are to be allowed to either keep the corporate status alive or incurred for the purpose of business during the period of lull. Therefore, the Ld. CIT(A) after examining all the expenses has restricted the disallowance to the tune of Rs. 8,68,705/- and given the relief of Rs. 18,35,634/- out of the total disallowance of Rs. 27,04,339/-. We have considered the arguments advanced by both the parties and the order of the Revenue Authority alongwith the details of the expenses incurred by the assessee as well as expense allowed by the Ld. CIT(A). As per the details submitted by the assessee in Paper Book dated 29.10.2012 at Page no. 77 in which the assessee has shown the details of salary of the

12 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

employees working with the assessee. For the sake convenience the same is reproduced as under:-

Name Amount (Rs.)

1. SH. Bhupender Kumar 117000.00 Accounts Officer 2. Sh. Upendra Prasad 87000.00 Accounts Assistant

3. Sh. Subhash Chandar 75000.00 Executive 4. SH. Hakesh Sharma 73367.00 Computer Operator

5. Sh. Ravinder Singh 74800.00 Executive 6.Sh. Shiv Nandan 50665.00 Driver

7.Krishan Dutt Shukla 49400.00 Driver

8. Sh.Ramesh Chand Jukhwal 34800.00 Peon

9. Sh. Shankar Rawat 38400.00 Chartered Accountant 10. Sh. Dhirender Panday 14000.00 Assistant

11. Ms. Pooja Gupta 4000.00 Computer operator

Total 642432.00

11.3 Keeping in view of the above details of salaries paid to the

aforesaid employees of the assessee company, we find that Ld. CIT(A) has

allowed the entire salary expenses to the assessee in the impugned order

which is not permissible under the facts and circumstances of the present

case, because the assessee company is not carrying out its business

activities since past 7-8 years and also not carry out for subsequent 2-3

years amount to Rs. 6,42,432/- has wrongly been allowed by the Ld.

CIT(A). After examining the same, we are of the view that under the facts

and circumstances of the case and to keep the corporate status alive,

minimum expenses on account of salary should be allowed to the

13 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

assessee. Therefore, we allow the salary of one Account Assistant

amounting to Rs. 87000/-; Computer Operator Rs. 73,367/-; Driver Rs.

49,400/-; Peon Rs. 38,400/- and salary of one CA Rs. 24,000/- only and

salary for others claimed by the assessee and the other expenses are

disallowed. AO is directed to recompute the income of the assessee, as

per the directions given as aforesaid.

12. As regards the Assessee's Cross Appeal NO. 3884/Del/2011 (A.Y.

2005-06) in which assessee has raised four grounds of appeal and

challenged the impugned order passed by the Ld. CIT(A),

12.1 As regard No. 1 raised in the assessee's appeal is concerned, we

find that the assessee has assailed the findings of the Ld. CIT(A) in holding

that services charges of Rs. 19,610/- and interest income of Rs.

1,52,970/- both have to be assessed under the head "income from other

sources", instead of profit and gains from business and profession. As far

as the issue regarding the interest income on FDR is concerned, the same

is not mere res integra and we concur with the finding of the Ld. CIT(A)

recorded in para 4.6 of his order. As far as the issue regarding the

taxability of service charges under the head "income from other sources"

vis-a-vis profits and gains on business or profession is concerned, we find

that the services charges were merely received. The same has been

received from M/s Span Excursion Pvt. Ltd. on account of "referral" of

some passengers to other travel agents. Ld. CIT(A) in para 4.8 of his

order has observed that the service charges had been received for

referring cases of its own Directors, relatives and business associates. In

14 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

the back drop of this fact Ld. CIT(A) has rightly concluded as under vide

para no. 4.9 & 4.10 as under:-

4.9. Although it was strenuously argued by the Ld.

A.R.s that the receipts by way of service charges should be

treated as "income from business" as against "income from

other sources" held by the assessing officer, arguments for

the following reasons:

(i) Section 2(13) of the LT. Act defines "business"- as

under:

"S.2(13) - "business" includes any trade, commerce

or manufacture or any adventure or concern in the nature

of trade, commerce or manufacture"

Applying the above principles, I find that the

receipts by way of service charges does not form a

continuous and systematic course of activity for the

appellant. Some stray "referrals" in the case of its own

directors and their relatives (for example director's son Sh.

R. Malhotra and couple of business associates) resulted in

booking of tickets through Span Excursions Pvt Ltd. Against

that purchase, a few thousand by way of service charges

has been received during the year. The income, therefore,

was more of a casual nature.

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ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

(ii) Earlier till 1993, the appellant company was

operating as a General Selling Agent (G.S.A.) for Alitalia

Airlines (Italian Airlines) and Japan Airlines (JAL). However,

after the discontinuance of the GSA business of Alitalia

Airlines (Italian

Airlines) and Japan Airlines (JAL), the appellant continued

to struggle in the same line for some time. Thereafter, it

has tied up with Infolink (P) Ltd.[now known a Spryance

(India) Pvt Ltd] for providing business support services and

had earned some service charges in earlier years.

However, the fact remains that neither in the impugned

assessment year nor in subsequent 2 assessment years

there is any regular source of income from any activity,

which can be categorized as "business" or "trade" or

"adventure in the nature of trade" within the meaning of

section 2(13) of the I. T. Act.

(iii) The assessee's other argument that in the earlier

assessment years, such income has been disclosed under

the head "profit and gains from business and profession"

and, therefore, this accepted view of the department

should not be disturbed, has no merit because as can be

seen from the details given below, there was not enough

reason to do so in earlier years because in those years, the

appellant company was receiving income from secretarial

16 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

and other support services, which activity actually fell

under the head "business".

A.Y. Amount in (Rs.)

2001-02 3,60,000

2002-03 3,60,000

2003-04 6,30,000

2004-05 5,40,000

(iv) Further the "principle of consistency" would not

apply in a case where there is a material change in the

factual position. This has been so held in a 3-Member

judgment of the same Apex Court reported in BSNL vs.

Union of India 282 ITR 273 (SC) wherein the Lordships have

held as under:

"The decision cited above uniformly held that res judicata

does not apply in matters pertaining to tax for different

assessment years because course of action for each

assessment year is different & distinct (para 20). The

courts will generally adopt an earlier pronouncement of the

law or a conclusion of fact unless there is a new ground

urged or a material change in factual position. "

(v) In this 3-Member judgement, the Supreme Court

has impliedly over-ruled the earlier decision of the 2,-

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ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

Member Judge Bench of the Supreme Court in the case of

Radhasoami Satsangl vs. CIT 193 ITR 321(SC), wherein it

had been held that "principle of consistency" must be

followed by tax authorities. But even in Radhasoami

Satsang case, the Hon'ble Supreme Court had categorically

mentioned that its findings would not be cited as a

precedent in any other case. The relevant portion of the

said judgement is reproduced hereunder:

"Counsel for the Revenue had told us that the facts of this

case being very special, nothing should be said in a

manner which would have general application. We are

inclined to accept this submission and would like to state in

clear terms that the decision is confined to the facts of the

case and may not be treated as an authority on aspects

which have been decided for general application"

(emphasis mine)

(vi) The appellant has also submitted that beginning

with F. Y. 2007-08 relevant to AY. 2008-09, the assessee

has again started rendering some outsourcing services to

I.P. Engine Management (I) Pvt Ltd. However, the fact

remains that during the impugned assessment year and its

subsequent 2 assessment years i.e. 2005-06 and 2006-07,

there has been no income under the head "business".

Under the Income Tax Act, each assessment, being

18 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

separate, principle of "res judicata" will not strictly apply,

more so when the facts are different. This is a settled

position of law on which there could be no difference of

opinion. The Hon'ble Delhi High Court in CIT v. M. Chawla

(1989) 177 ITR 299 (Del), has held that each assessment is

separate and independent. In another recent decision, the

Hon'ble Delhi Tribunal in a case reported in K.K. Khullar vs.

DCIT 304 ITR (AT) 295 (Del) has held the same view in the

following words:

"Coming to the issue of consistency of assessments, it may

be mentioned that the Hon'ble Supreme Court itself

mentioned in Radhasoami Satsang vs. CIT 193 ITR 321

(SC) that their findings should not be followed in every

case. We may add that if a manifestly wrong decision is

taken by the AO in one year or in a number of years, it will

not bind the AO in the assessment of a subsequent year

because there cannot be any estoppel against the law"

4.10. Hence, the assessee's contention to treat "service

charges" as "income from business" cannot be accepted.

Accordingly, as in the case of interest on FDs as well as

interest on income tax refund, the service charges of Rs.

19,610/- is also to be treated as income from other

sources. Accordingly, Ground No.2 stands dismissed."

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ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

12.2 Keeping in view of the facts noted by the Ld. CIT(A) we are in

agreement with his findings that there was no business income earned

during the year and the amounts received in the form of credit notes were

primarily casual in nature. Thus, they were rightly assessed under the

head "income from other sources".

12.3 As regards the disallowances assailed by the Assessee vide Ground

Nos. 2 to 4, we are of the view that Ld. CIT(A) has rightly disallowed the

expenditure on account of electricity and water charges, watch and ward

charges, traveling expenses and Director's remuneration, we uphold the

same. Accordingly, the ground nos. 2 to 4 are dismissed.

13. In the result, the appeal filed by the Revenue stands partly allowed

and appeal filed by the assessee stands dismissed.

ASSESSEE'S & REVENUE'S APPEALS (ITA NOS. 756/DEL/2012 & 983/DEL/2012) (A.Y. 2008-09)

14. We have gone through the facts of the cross appeals and we are of

the view that the facts of the present appeals are identical to the facts of

the Appeal No. 3576 & 3884/Del/2011 (A.Y. 2005-06) as aforesaid.

Therefore, need not to repeat here for the sake of brevity.

15. We have heard both the parties on the issues in dispute and

perused the relevant records available with us especially the Paper Books

filed by the assessee's counsel alongwith the case laws filed in the shape

of the paper book. We are of the view that the issue in the present

appeals are identical to the issue involved in the cross appeal for the

Asstt. year 2005-06 as aforesaid. Since we have discussed the facts and

20 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

circumstances of the case, detailed arguments of both the parties in the

Revenue's Appeal for asstt. year 2005-06, which are applicable in the

present cross appeals also.

16. In the present cross appeals the AO has made almost the identical

disallowance on a different ground by holding that the assessee can

claim expenses to the extent of business receipts only. In our considered

view the finding of the AO is not as per law and the facts of the

assessment year in dispute. As stated by the Ld. Counsel of the assessee

that assessee has written to the AO vide letter dated 16.12.2010

regarding the balance and profit and loss account for the succeeding

years ending 31.3.2009 and 31.3.2010 showing the business activities of

the assessee. In spite of these facts the AO has made the disallowance as

per the assessment year 2005-06 which is contrary to the facts of the

present case. He also stated that these facts have also brought to the

notice of the Ld. CIT(A) by filing the written submissions dated 1.11.2011,

but the same has also not been appreciated by the Ld. CITA(). He

requested that the assessee is entitled for the expenses under section 30

to 37, even during the lull period. But in the present case the assessee

has run its business as pointed out to the revenue authority as stated

above. He requested that the issue involved in the present asstt. year

required re-examination at the level of the AO and he requested that the

issue in dispute may be set aside to the AO to allow the admissible

expenses under section 30 to 37 of the Act.

21

ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

16.1 Ld. DR has not raised any objection to the request of the assessee's

counsel.

17. We have heard both the parties and perused the relevant records

available with us, we are of the considered view that no doubt the issue in

dispute in the present cross appeals are identical, but in the present

appeal, with regard to ground no. 1, we find that Ld. CIT(A) has followed

the findings of asstt. year 2005-06 and thus assailed that the service

income is to be income under the head "income from other sources". In

this regard, we find that in the year under consideration the business has

revived and therefore, the matter needs to be considered afresh by the

AO in order to find out the source from which the service income has been

earned. Accordingly, Ground NO. 1 is set aside to the file of the AO to

consider the same afresh.

17.1 We also find that assessee has started its business activities for

which the assessee is entitled for deduction of expenses u/s. 30 to 37 of

the I.T. Act. As requested by the Ld. Counsel of assessee as aforesaid and

non-opposition of the same by the Ld. DR, we are of the view that the AO

has wrongly held that the assessee can claim expenses to the extent of

business receipts only. Whereas the assessee is entitled to claim

expenses covered under section 37 of the I.T. Act, therefore, direction is

issue to the AO to reexamine the expenses and allow the same in view of

the provisions of section 37 of the I.T. Act. In the result, both the

appeals are allowed for statistical purposes.

22

ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

18. In the result, the Revenue's Appeal No. 3875/Del/2011 (A.Y. 2005-

06) is partly allowed and Assessee's Appeal No. 3884/Del/2011 (A.Y.

2005-06 is dismissed and Assessee's another Appeal No. 756/Del/2012

(A.Y. 2008-09) and Revenue's Appeal No. 983/Del/2012 (A.Y. 2008) are

allowed for statistical purpose.

Order pronounced in the Open Court 23-1-2015.

Sd/- Sd/-

[S.V. MEHROTRA] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date 23/1/2015

"SRBHATNAGAR"

Copy forwarded to: - 1. Appellant - 2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT

TRUE COPY

By Order,

Assistant Registrar, ITAT, Delhi Benches

23 ITA NOS.3875 & 3884/Del/2011 & ITA NOS. 756 & 983/DEL/2012

24