2010 (11) TMI 606 - AT - Income Tax

Reassessment - Validity of notice - Business income or other sources - assessment of firm - Consequent on decontrol of coffee trade, the Coffee Board dispensed with the business with the assessee and then the assessee let-out its go-downs for storage of commercial goods and collecting ware-housing charges - assessee, according to the AO, vide its letter dated 26.11.2008 had admitted that it was a partnership firm and also provided a copy of Deed of Partnership entered into on 1.8.1995 - it is clear that when there is a change in the constitution of a firm, it is for the assessee to seek again status of a firm for the purpose of an assessment by filing a certified copy of the revised deed of partnership - assessee had provided a copy of the partnership deed dated 1.8.1995 and as per clause 6 of the Deed of partnership entered into the partnership is terminable AT WILL - Held that status of the assessee is of firm Regarding business or other income - assessee had not continued the business of curing on its own as it did when it was tagged with the Coffee Board, however, permitted others like Longway Trade-links to cure coffee in its premises for a consideration - It is also seen that the expenses incurred, employees employed, books of accounts maintained were common and, thus, income derived from this business has, no doubt, to be assessed as business income only. - In a nut-shell, the income of the assessee is to be assessed under the head income from business only in stead of bifurcating its income under various heads as did by the AO in his impugned orders for all the AYs under challenge - Appeals are partly allowed

Issues Involved:
1. Reopening of assessments and conclusion of reassessment proceedings.
2. Status of the assessee as a 'firm' or 'AOP'.
3. Classification of income as 'business income' or under various heads.
4. Disallowance of expenses claimed.
5. Set off of carried forward business losses.
6. Deduction for bad debts written off.

Detailed Analysis:

1. Reopening of Assessments and Conclusion of Reassessment Proceedings:
The assessee contended that reopening of assessments for AYs 2002-03 to 2007-08 was based on a change of opinion without tangible material. The AO had reason to believe that income chargeable to tax had escaped assessment as the assessee had not shown any income from house property, but disclosed it under 'business income'. According to Section 147 of the Act, the AO was justified in reopening the assessments. The Tribunal upheld the AO's decision to reopen the assessments, stating it was within the parameters of the Act.

2. Status of the Assessee as a 'Firm' or 'AOP':
The assessee argued that it should be assessed as an 'AOP' due to non-compliance with Section 184 of the Act. However, the AO and CIT(A) treated the assessee as a 'firm', considering the registered partnership deed and PAN allotted in the status of a firm. The Tribunal upheld the AO's decision, stating that the assessee's status should be treated as a 'firm'.

3. Classification of Income as 'Business Income' or Under Various Heads:
The AO categorized income from weighbridge collections and money lending as 'business income', but treated warehousing charges as 'income from house property'. The assessee argued that all activities constituted a single business. The Tribunal found merit in the assessee's contention, stating that the income from warehousing, money lending, and other activities should be assessed under the head 'business income'. The AO was directed to allow the expenses incurred for earning business income.

4. Disallowance of Expenses Claimed:
The AO disallowed expenses such as establishment, traveling, service charges, etc., claimed by the assessee. The Tribunal directed the AO to look into this aspect and allow the claims wherever supported by vouchers.

5. Set Off of Carried Forward Business Losses:
The assessee was denied the benefit of carried forward losses as the AO assessed income under various heads. The Tribunal held that the income should be assessed as 'business income', allowing the assessee to carry forward and set off business losses. Reference was made to the Karnataka Light Metal Industries (Pvt) Ltd. v. CIT and CIT v. Ramnath Goenka cases to support this decision.

6. Deduction for Bad Debts Written Off:
The AO denied the deduction for bad debts written off. The Tribunal held that once the assessee had written off debts as irrecoverable in its accounts, it need not prove that they had become bad. The Tribunal directed the AO to allow the deduction for bad debts written off, in line with various judicial pronouncements, including T.R.F. Ltd. v. CIT.

Conclusion:
The Tribunal partly allowed the assessee's appeals for AYs 2002-03 to 2007-08, directing the AO to assess the income under the head 'business', allow the expenses claimed, and permit the set off of carried forward business losses and deduction for bad debts written off. The reassessment proceedings were upheld, and the status of the assessee was confirmed as a 'firm'.

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