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Income Tax Appellate Tribunal, KOLKATA-GUWAHATI ‘e-COURT’, KOLKATA
Before: Shri Rajpal Yadav, Vice-(KZ) & Dr. Manish Borad
Per Rajpal Yadav, Vice-President (KZ):- The Revenue is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals), Shillong dated 27.06.2013 passed for Assessment Year 2010-11.
In response to the notice of hearing, Shri Mayur Agarwal, FCA has filed a Power of Attorney. This appeal was listed for hearing in 2015. A request was made for adjournment on behalf of the assessee and hearing was adjourned. Thereafter time to time, every time request was made for an adjournment. On 29.03.2022, the appeal was listed for hearing, but no one appeared on behalf of the assessee, therefore, it was adjourned and a fresh notice was issued for 23.05.2022. Again on 23.05.2022, no one appeared inspite of service of notice but again a fresh notice was issued because Department has revised Form No. 36. Thereafter the assessee did not appear on 15.06.2022. Fresh notice was issued on 17.08.2022. The Bench did not function and fresh notice was issued. On the date of hearing, no one appeared but an adjournment application was filed by Shri Mayur Agarwal, FCA. We did not oblige the assessee because it is a 2013 appeal involving assessment year 2010-11. Therefore, we heard the appeal ex-parte and proceed to decide it on merit. 2
ITA No. 456/GAU/2013 Assessment Year: 2010-2011 Sri Kamakhya Borthakur, Tinsukia
In the first ground of appeal, Revenue has pleaded that ld. CIT(Appeals) has erred in taking into account additional evidence in violation of sub-Rule (3) of Rule 46A of Income Tax Rules, 1962. Though this ground has been raised by the Revenue but neither any paper book has been filed nor any material has been submitted specifying which item has been entertained by the ld. CIT(Appeals) afresh without providing an opportunity of hearing to the ld. Assessing Officer. Therefore, we do not find any merit in this ground of appeal. It is rejected.
In Ground No. 2, the grievance of the Revenue is that ld. CIT(Appeals) has erred in deleting the addition of Rs.42,00,000/-, which was added by the ld. Assessing Officer under section 68 of the Income Tax Act on account of unexplained unsecured loan.
Brief facts of the case are that the assessee has filed his return of income on 05.12.2011 declaring total income of Rs.57,31,744/-. The case of the assessee was selected for scrutiny assessment and a notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the ld. Assessing Officer that assessee was a partner in two partnership firms, namely M/s. Gargo Properties, Tinsukia and M/s. Borthakur & Co., Duliajan. Apart
ITA No. 456/GAU/2013 Assessment Year: 2010-2011 Sri Kamakhya Borthakur, Tinsukia from these two partnership firms, he was running a proprietorship concern in the name and style of M/s. Gargo Motors. His proprietorship firm took unsecured loan of Rs.42,00,000/- from M/s. Gargo Properties. This partnership firm had received an identical amount of Rs.42,00,000/- on the same day i.e. 31.03.2010 from M/s. Gargo Tower (P) Limited, in which assessee is a Director and holds controlling stake alongwith his family members. This Gargo Tower (P) Limited has received share application money of Rs.43,00,000/- from nine individuals between 25.03.2010 to 30.03.2010. Thus ld. Assessing Officer has directed him to produce all the nine individual alongwith their Bank accounts, PAN Cards, returns filing acknowledgment for A.Y. 2010-11, but the assessee did not produce anyone of them. The ld. Assessing Officer thereafter drew the diagrammatic presentation of the loan transaction and discussed the issue in paragraph no. 3.3. The discussion made by the ld. Assessing Officer reads as under:-
ITA No. 456/GAU/2013 ITA No. 456/GAU/2013 Assessment Year: 2010- -2011 Sri Kamakhya Borthakur, Tinsukia Sri Kamakhya Borthakur, Tinsukia
ITA No. 456/GAU/2013 ITA No. 456/GAU/2013 Assessment Year: 2010- -2011 Sri Kamakhya Borthakur, Tinsukia Sri Kamakhya Borthakur, Tinsukia
Penalty proceedings under Penalty proceedings under section 271(1)(c) is separately initiated for section 271(1)(c) is separately initiated for concealment of income”.
ITA No. 456/GAU/2013 Assessment Year: 2010-2011 Sri Kamakhya Borthakur, Tinsukia In this way, ld. Assessing Officer has made an addition of Rs.42,00,000/-.
The ld. CIT(Appeals), on the other hand, has deleted this addition. The ld. 1st Appellate Authority took a very theoretical approach in deleting this addition. According to the ld. CIT(Appeals), assessee has produced the details creditor, i.e. M/s. Gargo Properties, who had obtained the finance from Gargo Towers. Thus assessee has proved genuineness of the transaction and creditworthiness upto two degree. It cannot be compelled to prove source of source upto second degree.
With the assistance of ld. D.R., we have gone through the record carefully. A perusal of the assessment order would indicate that it is a managed show. In five days, one of the companies of the assessee where he is having major stake-holding and controlling the whole affairs of the company received share capital money from individuals and that money has been routed to the assessee between different layers. Therefore, ld. Assessing Officer was very much right in investigating the root source of such funds. It is not a genuine transaction but it is a staged transaction. Therefore, ld. CIT(Appeals) has erred in placing reliance upon the decision of Hon’ble Guwahati High Court in the case of Nemi Chand Kothari [264 ITR page 254]. The assessee
ITA No. 456/GAU/2013 Assessment Year: 2010-2011 Sri Kamakhya Borthakur, Tinsukia might have been proved the identity but failed to prove the creditworthiness and genuineness of the transaction. He just routed the transaction in such a manner that adjudicating authority ought to be persuaded to believe in his made belief story. Therefore, in our opinion, the finding of the ld. 1st Appellate Authority is not sustainable on this issue. We allow this ground of appeal and restore the finding of the ld. Assessing Officer on this issue. The addition of Rs.42,00,000/- as unexplained cash credit is confirmed.
Grounds No. 3 to 5 are inter-connected with each other. In these grounds of appeal, grievance of the Revenue is that depreciation on the Cranes given on lease by the assessee to Oil India Limited cannot be allowed @ 30%. In other words, according to the Revenue, such assets were not used for hire and, therefore, are not entitled to claim higher rate of depreciation.
Brief facts of the case are that the assessee had purchased certain Cranes, which were given on hire to M/s. Oil India Limited. He has shown receipt of Rs.2,83,13,699/-. The assessee has claimed depreciation @ 30%, which is admissible on the vehicles used for commercial purposes or used for in the assessee’s own business of running on hire. The ld. Assessing Officer
ITA No. 456/GAU/2013 Assessment Year: 2010-2011 Sri Kamakhya Borthakur, Tinsukia has assessed these receipts as income from other source and also allowed the depreciation @ 15%. In this way, he made an addition of Rs.1,25,13,776/-.
Dissatisfied with the assessment order, the assessee carried the matter in appeal before the ld. 1st Appellate Authority. The ld. CIT(Appeals) has allowed the claim of the assessee and deleted the disallowance. The finding recorded by the ld. CIT(Appeals) reads as under:- “6.4. I have carefully considered the various submissions of the Id. A/R of the assessee and perused the materials available on record. I find that the activity of the assessee of hiring Cranes to Oil India Ltd. was a continuous activity carried on by the assessee for last more than 4 years. The profit earned from this hiring activity was all along in the past in the case of assessee was treated as his business income. At my direction the Id. A/R of the assessee produced before me a copy of the hiring service agreement entered into by the assessee with Oil India Ltd. which shows that for earning hire charges the assessee is also required to run and maintain the Cranes, bear all operating expenses, provide operators, drivers, attendants, helpers for Cranes and is also responsible and liable for all claims, monetary or otherwise, arising out of the use of Cranes and it is the duty of the assessee to ensure that the Cranes deployed do not cause any damage to the property of the Oil India Ltd. and assessee is responsible for all the loss that may be caused to their property because of the running of Cranes. Thus, the hiring of Cranes by the assessee is a complex activity and for which the assessee is required to undertake a number of activities as stated above involving time, labour and finance. The above fact is further corroborated with the audited accounts of the assessee where from it is observed that Rs. 57,59,139/- was incurred by the assessee during the year under consideration under the head 'Crane Running Expenses'. Moreover, the said 'Crane Running Expenses' was accepted as business expenditure of the assessee in the impugned order of assessment. After accepting the expenditure incurred for running and maintaining Cranes as business expenses, in my considered view, it was not open to the AO
ITA No. 456/GAU/2013 Assessment Year: 2010-2011 Sri Kamakhya Borthakur, Tinsukia to not to accept the corresponding receipt of Crane Hire charges as business receipt of the assessee. I find that the AO has held that the rental income derived from hiring of Cranes cannot be treated as business income on the ground that Cranes were acquired for the sole purpose of letting out to others and were not used in the own business of the assessee of dealing in commercial vehicles or execution of civil contracts. I find that the AO has not considered the fact that the letting out of Cranes to others for hire was done by the assessee continuously for last more than 4 years in an organized and systemic manner and therefore, the AO has not considered as to why the these activities of hiring cranes in itself cannot be considered as 'business' of the assessee. In my considered view the word 'business' is a word of large and indefinite import. It is something which occupies the attention and labour of a person for the purpose o profit. It has a more extensive meaning than the word 'trade'. An activity carried on continuously in an organized manner with a set purpose and with a view to earn profit is business as held in the case of CIT v. M. P. Bazar (Supra), therefore, in my considered view the activity of hiring cranes to others by the assessee constitutes business in the hands of the assessee and accordingly, the profit earned on hiring cranes is assessable under the head 'Profits and gains of business or profession' in the hands of the assessee. The second related issue involved in this appeal relates to rate at which depreciation is allowable to the assessee in respect of such Cranes. The AO has held that higher rate of depreciation of 30% is not admissible because he opined that income from hiring of Cranes is not assessable as business income in the hands of the assessee and further, no material is available on record to show that Oil India Ltd. has used the Cranes in the business of running them on hire. I have already observed that the activity of letting out Cranes on hire in the instant case constitutes one of the businesses of the assessee and income earned there from is assessable as 'Business Income' of the assessee. As a corollary of the above, it is observed that the Cranes was used by the assessee in its business of hiring of Cranes and consequently, I have no hesitation in holding that the higher rate of depreciation @ 30% is admissible in respect of Cranes in the instant case. My above view finds support from the decision in the case of CIT v. Shaan Finance (P) Ltd. (1998) 231 ITR 308 (SC) and CIT v. M.G.F. (India) Ltd. (2006) 285 ITR 142 (Delhi). The Hon'ble Delhi High Court has in the case of MGF (India) Ltd. (supra) has held, "the vehicles which were subject matter of the lease agreement were in fact given by the 10
ITA No. 456/GAU/2013 Assessment Year: 2010-2011 Sri Kamakhya Borthakur, Tinsukia assessee to third parties. To this extent, the requirement of law had been met. There was no additional requirement on the assessee to show that the third parties had used those vehicles for hire. Therefore, the assessee was entitled to depreciation @ 40% on the vehicles given on hire". The above decision of the Hon'ble Delhi High Court has also been approved by the Hon'ble Supreme Court in its recent decision in the case of M/s. ICDS Ltd. (supra) where in it was held, at para 15, to quote; "In the present case before us, the assessee is a leasing company which leases out trucks that it purchases. Therefore, on a combined reading of Section 2(13) and Section 2(24) of the Act, the income derived from leasing of the trucks would be business income, or income derived in the course of business, and has been so assessed." Further, at para no. 30 of the said order, the Plon'ble Apex Court held, "With regard to the claim of the assessee for a higher rate of depreciation, the import of the same term "purposes of business", used in the second proviso to Section 32(1) of the Act gains significance. We are of the view that the interpretation of these words would not be any different from that which was ascribed to them earlier, under Section 32(1) of the Act. Therefore, the assessee fulfills even the requirements for a claim of a higher rate of depreciation, and hence is entitled to the same." Therefore, in view of the facts of the instant case and in view of the above decision of the Hon'ble Supreme Court, I direct the AO to treat income derived by the assessee from hiring of Cranes as 'Business Income and further, direct the AO to allow depreciation on Carnes at higher rate of 30% as claimed by the assessee. Thus, both the above grounds of appeal are allowed”.
With the help of ld. CIT(DR), we have gone through the record carefully. In our opinion, ld. Assessing Officer has misconstrued the provisions. The business activity of the assessee was letting of Cranes on hire and this activity amounts to a business activity. The ld. Assessing Officer was expecting from the assessee to demonstrate that these Cranes were used by M/s. Oil India for hire basis. He failed to appreciate that transaction is to be viewed in the hands of assessee. The moment assessee 11
ITA No. 456/GAU/2013 Assessment Year: 2010-2011 Sri Kamakhya Borthakur, Tinsukia has let out for the user of a third party, which means those equipments were used for commercial purposes in the business of the assessee whether the third party is using them at their own or giving on further let out, it is not the criteria to determine the nature of income in the hands of the assessee. In other words, the moment assessee has let out the Cranes, then it is to be construed that these assets were being used in the hiring business of the assessee. Therefore, the ld. 1st Appellate Authority has rightly appreciated the controversy in the finding extracted supra and we do not deem it necessary to interfere in this finding. Accordingly, this ground of appeal is rejected.
In Ground No. 6, the grievance of the Revenue is that ld. CIT(Appeals) has erred in restricting the addition to Rs.5,00,000/- instead of Rs.15,00,000/- added by the ld. Assessing Officer under section 68 of the Income Tax Act.
Brief facts of the case are that the assesese has sold out a piece of plot for a consideration of Rs.35,32,000/-. According to the assessee, the cost of this land was Rs.36,49,958/-. Hence he claimed a loss of Rs.1,17,958/-. On perusal of this transaction, ld. Assessing Officer found that in the Sale Deed, sale consideration is mentioned at Rs.20,32,000/-. The
ITA No. 456/GAU/2013 Assessment Year: 2010-2011 Sri Kamakhya Borthakur, Tinsukia assessee has enhanced the sale consideration by Rs.15,00,000/- on the ground that certain building material had lying in the plot and it was sold for a sum of Rs.15,00,000/- in cash. The assessee further contended that earlier he wanted to construct building. Accordingly building material was purchased, which was sold in cash. The ld. Assessing Officer did not accept this contention of the assessee and made the addition of Rs.15,00,000/-.
On appeal, the ld. CIT(Appeals) has partly allowed the claim of assessee by observing as under:- “7.4. I have carefully considered the various submissions of the Id. A/I of the assessee and perused the materials available on record. I find that it is not in dispute that building materials of Rs.14,53,458/- was purchased by the assessee in the previous year relevant to the assessment year 2008-09 and debited under the head Land Babotia Jorhat. Further, it is also not in dispute that for Rs.20,32,000/- only vacant land at Babotia, Jorhat was sold by the assessee on 22.03.2010. In the above facts, the claim of the assessee that the building materials such as sand, brick, stone chips etc purchased in F.Y. 2007-08 were sold in cash before 22.03.2010 cannot be ruled out However, in absence of proper evidence in support of the claim that Rs. 15 00,000/- was received on sale of those building materials also cannot be fu y accepted and inflation therein cannot be ruled out. Considering the entire facts and circumstances, in my considered opinion, it shall meet the interest of the justice the sale proceeds of old building materials which was purchased in F.Y. 2007-08 Rs.14,53,458/- is estimated at Rs. 10,00,000/-. I, accordingly, accept the sale of building materials at Rs.10,00,000/- and consequently, restrict account of unsupported claim of sale of building materials to Rs.5,00,000/, Thus, this ground of appeal is partly allowed”.
ITA No. 456/GAU/2013 Assessment Year: 2010-2011 Sri Kamakhya Borthakur, Tinsukia 15. The ld. 1st Appellate Authority has granted a partial relief after going through the audited accounts of the earlier year, wherein the assessee has debited a sum of Rs.14,53,458/- towards purchase of building material. After going through the above finding of the ld. CIT(Appeals), we do not find any ground to interfere in it because the assessee has proved his case with the help of audited accounts coupled with circumstantial evidences. The land has already sold but material is not available on the ground that there is no way-out to prove that no such material was sold by the assessee. Once it is demonstrated that he has purchased the material in earlier year and debited in the regular books of account, then weightage to that effect ought to be given, which has been given by the ld. 1st Appellate Authority on an estimate basis. Therefore, we do not wish to interfere in his discretion. This ground of appeal is rejected.
In the result, the appeal of the Revenue is partly allowed. Order pronounced in the open Court on 21.12.2022.
Sd/- Sd/- (Manish Borad) (Rajpal Yadav) Accountant Member Vice-President Kolkata, the 21st day of December, 2022
ITA No. 456/GAU/2013 Assessment Year: 2010-2011 Sri Kamakhya Borthakur, Tinsukia Copies to :(1) Deputy Commissioner of Income Tax, Circle-Tinsukia, Aayakar Bhawan, Bordoloi Nagar, Tinsukia-786125, Assam (2) Sri Kamakhya Borthakur, C/o. M/s. Gargo Motors, A.T. Road, Hijiguri, Tinsukia-786125,Assam Commissioner of Income Tax (Appeals), (3) Shillong, (4) Commissioner of Income Tax- , (5) The Departmental Representative (6) Guard File TRUE COPY By order
Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.