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TMI Blog2014 (11) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of the P&L a/c, the AO noticed that the assessee declared loss of Rs. 83,86,814/-. On examination of the same, the AO noticed that the assessee has declared income from Labour charges to the tune of Rs. 7,96,000/- and other income of Rs. 4,71,229/-. The other income consisted of rental income from M/s Reliance Infratel Ltd and M/s Seto Teknolog P Ltd and bank interest. The assessee treated the other income as also as business receipts. 4. The AO further noticed that the assessee company has been taken over by M/s Seto Teknolog P Ltd and hence the assessee company has become its subsidiary. It was further noticed that the assessee has let out its entire factory building to its holding company cited above. Besides the above, the assessee has let out terrace of the building and a small portion of ground floor to M/s Reliance Infratel to erect a telephone tower. The assessee, however, claimed to have incurred administrative expenses to the tune of Rs. 17,22,361/-. It also claimed to have carried out some job work for its holding company M/s Seto Teknolog P Ltd. The AO noticed that the assessee did not enter into any agreement with its holding company for providing the labour servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessed the same under the head "House Property". Since the assessing officer had determined the ALV on the basis of market rate, he held that there is no necessity to add notional interest computed on the deposit of Rs. 3.00 crores received by the assessee. The AO further noticed that the assessee had claimed bad debts of Rs. 59,51,514/-, but the AO noticed that the assessee failed to show that the said amount had been taken as income in the current year or in any of the prior years. Though the amount of bad debts was shown as Rs. 59,51,514/- in the Profit and Loss account, yet the assessee had claimed a sum of Rs. 54,12,950/- in the computation statement. The assessee did not reconcile both the amounts. The AO also noticed that the shareholding pattern of the assessee company has changed from 5.9.2006. Hence, the AO also expressed that the question of allowing loss incurred prior to that date requires consideration. Accordingly, the AO disallowed the claim of bad debts also. 6. In the appellate proceedings, the Ld CIT(A) accepted that the assessee was carrying on business activity. Accordingly he allowed the claim of administrative expenses, depreciation and bad debts. He also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services performed by it to its holding company. Since the assessee has claimed to have received the labour charges from its holding company by carrying out certain technical activity and since it forms the foundation to determine whether the assessee was continuing to carry on the business, the onus to prove its claim is fully placed upon the assessee. In the instant case, we notice that the assessee has failed to discharge the said onus. Hence, in our view, the Ld CIT(A) was not justified in accepting the claim of the assessee that it has continued to carry on its business. On the contrary, we are of the view that the assessing officer has brought out more important points to support that it was mere make believe arrangement, viz., (a) no electricity expenses was incurred, meaning thereby the machineries of the assessee company were not used. (b) entire factory premises have been let out to the holding company and in that case the assessee should specify as to from which place the assessee was doing job works. (c) the monthly bill raised by the assessee did not specify the nature of services rendered. (d) there is no written agreement between the holding company and the subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of CEPT Vs. Shri Lakshmi Mills Ltd (1951)(20 ITR 451). 12. There is no dispute with regard to the proposition that the rent received on letting out of factory premises on temporary basis due to lull in the business is normally assessed as "Business income", since the object of the assessee in such type of cases was not mere earning of rental income, but effective exploitation of business assets. Another important factor is that the assessee, in such type of cases, would be taking all possible steps to revive the business activities. However, in order to apply this proposition, one should consider the facts prevailing in each case, i.e., the assessee has to show that the letting out was not with the intention to earn rental income but for commercial exploitation of the assets, which was induced by the lull in the business. Generally the lull in the business is caused by the factors, which are beyond the control of the assessee, some of them may be, high fluctuation in the prices making production unviable for a while, sudden slump in the demand for products manufactured by the assessee, act of god, machinery break downs requiring long time to set right, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er noticed that the assessee company has become subsidiary of M/s Seto Teknolog Pvt. Ltd and the premises have been let out to the above said company only, meaning thereby, there is a possibility that the assessee company has let out the factory premises in pursuance of a business policy decision. We have already noticed that the letting out of factory business should be due to the fact of temporary lull in the business and the intention of the assessee could be ascertained from the efforts taken to revive the business activities. In the instant case, though the assessee claims that the letting out of factory premises was for a temporary period, yet no material was brought on record to substantiate the said claim. Further, the relationship between the assessee and its holding company also weakens the said claim. The assessee has also failed to show that it was taking efforts to revive its business activities. All these factors cumulatively show that the intention of the assessee in letting out the factory premises could not be due to temporary lull in the business. Accordingly, in our view, the assessing officer was justified in assessing the rental income under the head Income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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