2018 (12) TMI 1205 - AT - Income Tax

Addition u/s 41(1) in respect of liability written back pertaining to dues payable to Bombay Port Trust - Held that - There is no double benefit claimed by the assessee in the facts of the instant case, Moreover, we hold that the provisions of Section 41(1) of the Act could be invoked only if deduction for the very same sum has been allowed in earlier years for the assessee, which in the facts of the instant case, was not granted vide order of Ld. AO dated 30/3/2009. Accordingly, we direct the Ld. AO to delete the addition made u/s 41(1) - Decided in favour of assessee Disallowance in respect of sales promotion expense - expenditure pertains to purchase of Gold and Silver which were given to various customers for promoting its business - Held that - Details before us to ascertain whether similar items of expenditure in the form of purchase of Gold and Silver were incurred in the past and whether the same were allowed as revenue expenditure by the department for the earlier AY. Hence we have to look at this issue in isolation based on the material available on record. It is not in dispute the assessee had duly produced the bills for incurrence of purchase of Gold and Silver to the tune of ₹ 2,04,186/-. But we find that the assessee had not established the nexus between the incurrence of this expenditure vis- -vis the warehousing revenue derived by it. Hence, we hold that the lower authorities were justified in disallowing this claim of ₹ 2,04,186/- towards sales promotion expenses - Decided against assessee Rental income derived from the warehousing activities - income from business or income from house property - violation of provisions of Rule 46A of the Income Tax Rules by the Ld. CIT(A) by not affording an opportunity to the Ld. AO while granting relief to the assessee in respect of this issue - Held that - We find that the impugned issue is fairly covered in favour of the assessee in its own case by the order of this Tribunal for AY 2010-11 as decided assessee is not providing warehousing service to one or two fixed customers. There is number of customers to whom warehousing service is provided. Apart from that the godwown control of the assessee; customer had no right of occupancy. As per the definition of business u/s 2(13) of the Act, business include adventure or concern in the nature of trade. - Decided in favour of assessee

Issues Involved:
1. Delay in filing of appeal.
2. Addition under Section 41(1) of the Income Tax Act.
3. Disallowance of sales promotion expenses.
4. Classification of rental income from warehousing activities.
5. Violation of Rule 46A of the Income Tax Rules.

Issue-wise Analysis:

1. Delay in Filing of Appeal:
The assessee's appeal was initially considered delayed by 362 days. However, it was clarified that the date of communication of the order was incorrectly mentioned. Upon review, it was found that there was no actual delay in filing the appeal.

2. Addition under Section 41(1) of the Income Tax Act:
The primary issue was whether the addition of ?17,11,818/- under Section 41(1) was justified. The assessee had written back liabilities representing incremental rentals payable to the Bombay Port Trust (BPT). These rentals had been previously disallowed as deductions. The Tribunal found that the assessee was entitled to reduce this amount from the computation of total income as the deduction was not allowed in earlier years. It was held that the provisions of Section 41(1) could only be invoked if the deduction for the same sum had been allowed in earlier years, which was not the case here. The Tribunal directed the deletion of the addition.

3. Disallowance of Sales Promotion Expenses:
The issue was whether the disallowance of ?2,04,186/- towards sales promotion expenses was justified. The amount was spent on purchasing gold and silver for promoting the assessee's warehousing business. The Tribunal found that the assessee failed to establish a direct nexus between this expenditure and the warehousing revenue. Consequently, the disallowance by the lower authorities was upheld.

4. Classification of Rental Income from Warehousing Activities:
The revenue contended that the rental income from warehousing should be taxed under the head "income from house property" rather than "income from business." The Tribunal referred to its previous decision for AY 2010-11, where it was held that the warehousing activities constituted a complex commercial activity, and the income should be treated as business income. This precedent was applied to the current case, and the revenue's appeal on this ground was dismissed.

5. Violation of Rule 46A of the Income Tax Rules:
The revenue argued that the CIT(A) violated Rule 46A by not allowing the AO to examine the facts before granting relief to the assessee. The Tribunal found no evidence that additional evidence was accepted by the CIT(A) without providing an opportunity for cross-examination. Thus, there was no violation of Rule 46A, and this ground of the revenue was dismissed.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal directing the deletion of the addition under Section 41(1). The disallowance of sales promotion expenses was upheld. The revenue's appeal was dismissed, affirming that the rental income from warehousing should be treated as business income and there was no violation of Rule 46A.

← Previous Next →