IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "G", MUMBAI
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER
ITA No. 03/Mum/2012
Assessment Year: 2008-09
Addl. CIT 18(1) M/s. Go Go International
1st Floor, Piramal 318, Shah & Nahar
Chambers, Lalbaug Mumbai Industrial Estate, A-1,
Vs.
Dhanraj Mills Compound,
Lower Parel,
Mumbai- 400 013
PAN: AADFG 0471 C
(Appellant) (Respondent)
Assessee by : Shri Haridas Bhat
Revenue by : Shri S.P. Walimbe
Date of hearing : 25.08.2014
Date of Pronouncement : 28.08.2014
ORDER
PER Dr. S.T.M. PAVALAN, JM:
This appeal filed by the Revenue is directed against the order of the
Ld.CIT(A) -29, Mumbai dated 21.10.2011 for the Assessment Year 2008-09.
2. In this appeal, the revenue has agitated decision of the Ld.CIT(A) deleting the
addition of Rs.68,70,793/- being short term capital gain and the disallowance made
by the AO u/s 40(a)(ia) of Rs.40,15,425/-.
3. As regards the deletion of the impugned addition of Rs.68,70,793/-, the
relevant facts are that the assessee, a registered firm engaged in the business
manufacturing, trading and exporting of readymade, during the year under
consideration, had sold six house properties and the details are extracted as
hereunder:-
Sr. Name of the Location/Address Dt. Of Sale Value WDV Profit/Loss
No. Property Sale
1 Heritage Flat Block No. 11, 25.03.08 20,40,000 9,37,423 11,02,577
ITA No. 03/Mum/2012
2 M/s. Go Go International
Assessment Year: 2008-09
Unitech,
Yelahenka, Bang
2 Pavani Estate Pavanti residency, 31.03.08 28,15,500 14,25,941 12,38,959
Flat Yelahenka
Bangalore
3 Shirke Flat 76/5, MIG/B, 5A 25.03.08 7,47,000 3,14,325 4,32,675
Block Yelahenka,
Bangalore
4 Lonavala Flat 17/18, Nagpal 11.05.07 29,37,538 14,76,474 14,61,064
Dream Valley,
Lonavala, Pune
5 Gurgon 24.10.07 45,00,000 22,89,346 22,10,654
The assessee had claimed depreciation @ 10% on these properties and had reduced
the sale consideration of the above properties from total block of building. In the
assessment framed, the AO issued a show cause notice stating that the rate of
depreciation in case of residential properties is only 5% and the depreciation for
commercial properties is 10%. The AO was of the opinion that the block of
residential properties in which the rate of depreciation should be 5% has ceased to
exist because of the sale of properties by the assessee and therefore the provisions
u/s 50 are attracted. Further the AO was of the opinion that since the residential
block does not exist, the gain had to be treated as short term capital gain. According
to the assessee the property on the question where commercial properties. Although
located in residential area since the properties were used for commercial purposes
from year to year and depreciation @ 10% was consistently charged on them.
However, the AO did not agree the contention of the assessee for following
reasons:-
"(i) The explanation of the assessee for properties at Tirupur and Kolkata is
acceptable. However the reply in respect of three properties in Bangalore and
one property at Lonavala is not acceptable. Assessee is a manufacturer of
garments and has not used these places for manufacturing or for
warehousing or for office.
(ii) Purchase or sale of these properties are under residential category and
they have been categorized as such for stamp valuation.
(iii) The explanation of the assessee that the properties have been used for
holding trainings etc. also cannot be accepted. The certificates produced by
ITA No. 03/Mum/2012
3 M/s. Go Go International
Assessment Year: 2008-09
the assessee are dated July 2005 and stray use of those properties for
business purposes would not change the character of the property.
(iv) The Lonavala property also does not have any third party evidence that
any training activity etc. were conducted at that premises. It is quite possible
that partners used these properties as their house or guest house. No details
for the Gurgaon property has been furnished inspite of specific query made
as per order sheet noting dated 14.10.2010.
(v) The Municipal Authorities also do not allow residential property for
commercial purposes. It is also surprising that the properties are sold to
partners only or other family members."
Accordingly, the AO rejected the claim of the assessee to reduce the sale
consideration from the block of assets. On appeal, the Ld.CIT(A) has examined the
claim of the assessee with respect to each individual property and held that the
assessee proved that the flats under consideration were used by the assessee for
business purposes all along. Aggrieved by the impugned decision, the Revenue has
raised ground no 2 in the appeal.
3.1 Having heard both the sides and perused the material on record, it is relevant
to state that as regards Flat No. 7 (Heritage) Block No. 1, Unitech, Yelahanka,
Bangalore, Flat No. 2, Pavani Residency, Yelahanka Bangalore, Flat No. 76/8, MIG/B,
5A, Yelahanka, Bangalore, the Ld.CIT(A) considered the following aspect for coming
to a conclusion that the properties have been used by the assessee for business
purpose. The relevant extract of the consideration of the Ld.CIT(A) in this
connection is hereunder:
"(a) The assessee has submitted the registration certificates of the
establishment issued by Government of Karnataka, Department of Labour to
the firm, M/s. Go Go International certifying that the disputed flats are to be
used as training centers by the appellant. These certificates have been issued
under Karnataka shops and Establishments Act, 1961. The registration
numbers are 492, 491 and 490, respectively. They have been issue in July
2005 with a validity period till 31.12.2009.
(b) The appellant has filed details of training given to middle level managers
on Systems and ERP module at Flat No. 7, Herigate Buiding, Unitech
Bangalore. Further evidence has been give for training of Computer data
entry operators at Flat No. 2, Pavani Residency, Bangalore. Evidence
regarding use of flat at Shirke, Yelhanka for training of workers and hand
embroidery work has also been filed.
(c) It has been argued that appellant firm is undertaking its business activities
from its office at Site No. 6 KHB Industrial Area, Yelhanka, Bangalore. Due to
ITA No. 03/Mum/2012
4 M/s. Go Go International
Assessment Year: 2008-09
shortage of office space these flats have been used which were in the said
Yelhanka locality for commercial purposes as stated above.
(d) The photograph of employees attending course, invoice of parties raising
bills for consultancy provided in respect of activities in these locations have
been provided. The details of persons attending training centers and their
attendance sheet have been submitted.
(e) This fact has also been accepted by earlier scrutiny assessments and
depreciation @ 10% has been invariably granted by the several Assessing
Officers without drawing any adverse inference."
As regards the residential property at 7/80 Nagpal Dream Valley Lonavala Pune, the
Ld. CIT(A) has considered the internal letters stating the buyers meet, meeting of
sales executives, training programmes for various executives and ERP courses
conducted with participant executives and various speakers. The Ld. CIT(A) has also
considered that the assessee has conducted seminars on and professional charges
have been paid to consultants after deducting tax for conducting events at this
place. Hence, the Ld.CIT(A) has held that the treatment given by the AO cannot be
sustained in respect of this flat and accordingly deleted an amount of Rs.14,61,064/.
In respect of flat at Gurgon, New Delhi it is noted that during the assessment
proceedings, the AO never asked anything in respect of the details about the use of
this particular flat. On appeal, the Ld. CIT(A) considered various evidences such as
bills by National Insurance Company Ltd., Eastern Air Courier Pvt. Ltd., Bill of Pionex
Courier and Cargo Services, motor repairing bills, interior bills, mobile bills to come
to a conclusion that the Gurgaon property has been used regularly as business
address and business premises of the assessee. Therefore, the Ld.CIT(A) was of the
view that the addition made by the AO cannot be sustained in respect of this flat.
Having considered the entirety of facts, we are of the considered opinion that the
Ld.CIT(A) has correctly relied on the evidences for holding that the properties
involved having been used for business purpose of the assessee, the decision of the
Ld.CIT(A) on this count deserves to be upheld. Resultantly, Ground No 2 is
dismissed.
4. Regarding the deletion of the disallowance of expenses of Rs.40,15,425/-
made by the AO u/s 40(a)(ia), it is pertinent to mention that the AO has stated that
the assessee incurred a sum of Rs.50,29,293/- towards test report charges and
deducted TDS @ 2.22% u/s 194C. The AO was of the view that these were
ITA No. 03/Mum/2012
5 M/s. Go Go International
Assessment Year: 2008-09
professional and technical services which should fall u/s 194J. According to the
assessee, the test report charges were given to works contract undertaken by the
agencies to take out recourse on fabrics by particular machine after applying
chemicals and other materials and there is no professional skill or technical service
rendered by the agencies. Whereas the work was done on contract basis on the
basis of fabrics and other items supplied by the assessee. Therefore, according to
the assessee, it cannot be said that section 194J is applicable in the case of the
assessee. However, the said contention was not accepted by the AO and thereby
disallowed the impugned expenditure. On appeal, the Ld. CIT(A) found that there is
no rendering of technical service by the respective agencies for submitting test
reports which contained the quality of the fabrics used which is suitable for garments
to be exported. The examination of technical details and exercise of suitability has
been done at the assessee's end and not by the agencies themselves. Therefore, the
Ld. CIT(A) has held that there has been neither rendering of professional nor of
technical service and since the process involves works contracts, the governing
section will be section 194C. Accordingly, the Ld.CIT(A) has deleted the disallowance
made by the AO. After considering the facts, we are of the considered view that the
Ld.CIT(A) has correctly held that the process involves works contract and the
governing section will be 194C. Accordingly, we do not find any infirmity in the
decision of the Ld. CIT(A) in deleting the disallowance made by the AO. Resultantly,
Ground No 3 is dismissed.
5. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on this 28th day of August, 2014.
Sd/- Sd/-
(N.K. BILLAIYA) (Dr. S.T.M. PAVALAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 28.08.2014
*Srivastava
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR "G" Bench
//True Copy//
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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