2011 (2) TMI 1596 - AT - Wealth-tax

Summary

Issues Involved:
1. Validity of business loss claim for AY 2006-07.
2. Allowability of expenses under 'repairs and maintenance', 'professional charges', and 'freight' for AY 2006-07.
3. Validity of business loss claim for AY 2003-04.
4. Inclusion of factory land and building as taxable wealth for AY 1998-99.

Issue-wise Detailed Analysis:

1. Validity of Business Loss Claim for AY 2006-07:
The Revenue challenged the CIT(A)'s decision to allow the assessee's claim of business loss, which the AO had rejected. The assessee claimed a business loss of Rs. 8,64,486 by setting it off against house property income. The AO found discrepancies in the assessee's claim of selling a sewage water treatment plant (SWTP) to Modista Resortwear, Goa. Modista denied any transaction, and another supplier, M/s A.G. Best Electrical Works, also denied selling pumps and motors to the assessee. The CIT(A) accepted the assessee's documents without thorough verification. The Tribunal concluded that the AO's rejection was justified due to stronger evidence against the assessee's claims, thus allowing the Revenue's appeal on this ground.

2. Allowability of Expenses under 'Repairs and Maintenance', 'Professional Charges', and 'Freight' for AY 2006-07:
The Revenue contended that the CIT(A) erred in allowing these expenses. The AO had capitalized these expenses, considering them pre-operative since the business had not commenced. The CIT(A) allowed the expenses, stating the AO did not make a clear case. The Tribunal found that the assessee's business activities were inconsistent, and no business had commenced in the relevant year. Therefore, the AO's decision to capitalize the expenses was upheld, and the Revenue's appeal on this ground was allowed.

3. Validity of Business Loss Claim for AY 2003-04:
The Revenue contested the CIT(A)'s decision to allow the assessee's claim of business loss from car hiring. The AO found insufficient evidence of a car hire business, as the assessee had only one car and no substantial records. The CIT(A) accepted the assessee's cash receipts without proper verification. The Tribunal noted that a four-year lull in business could not be considered temporary suspension and upheld the AO's rejection of the business loss claim. Consequently, the Revenue's appeal on this ground was allowed.

4. Inclusion of Factory Land and Building as Taxable Wealth for AY 1998-99:
The Revenue appealed against the CIT(A)'s decision to exclude the factory land and building from taxable wealth, citing a retrospective application of the Finance Act, 1998 amendment to Section 2(ea) of the Wealth-tax Act. The Tribunal found that the amendment, effective from 01-04-1999, was not retrospective and that factory land and building were commercial properties included in taxable wealth for AY 1998-99. Therefore, the Revenue's appeal on this ground was allowed.

Summary:
The Tribunal allowed all the appeals of the Revenue, rejecting the assessee's claims of business loss and expenses for AY 2006-07 and AY 2003-04 and including the factory land and building in taxable wealth for AY 1998-99.