S.Vinodh Kumar, CHENNAI V. ACIT Non Corporate Circle 10(1), CHENNAI

CO 9/CHNY/2018

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3662 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-03-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 12-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T N SEETHARAMAN
• Assessee Lawyers: A R V SREENIVASAN IRS
• Keywords: Business income; Depreciation; Fair market value

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./ I.T.A. NO.2527/CHNY/2017 & C.O.NO.9/CHNY/2018 ( ITA NO.2527/CHNY/2017 ) / ASSESSMENT YEAR : 2011-2012. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 10 (1) CHENNAI. VS. SHRI. S. VINODH KUMAR, NO.25, RANGANATHAN AVENUE, KILPAUK, CHENNAI 600 010. [PAN AAIPV 5798G] ( () / APPELLANT) (RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : SHRI. ARV SREENIVASAN, IRS, JCIT. /RESPONDENT BY : SHRI. T.N. SEETHARAMAN, ADVOCATE /DATE OF HEARING : 19-03-2018 ! /DATE OF PRONOUNCEMENT : 05-04-2018 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE APPEAL AND CROSS OBJECTION OF THE REVEN UE AND ASSESSEE RESPECTIVELY DIRECTED AGAINST AN ORDER DA TED 16.08.2017 OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-12, CHENNA I. APPEAL OF THE REVENUE IS TAKEN UP FIRST FOR DISPOSAL. ITA NO. 2527-17, CO-09-18 :- 2 -: 2. THERE ARE FIVE GROUNDS RAISED BY THE REVENUE, OF WH ICH GROUND NO.1 & 5 ARE GENERAL NEEDING NO SPECIFIC ADJ UDICATION. 3. THROUGH ITS GROUND NO.2, GRIEVANCE RAISED BY THE R EVENUE IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) H ELD INTEREST OF D54,49,764/- RECEIVED BY THE ASSESSEE AS ITS BUSINE SS INCOME AND DIRECTED ALLOWANCE OF EXPENDITURE INCURRED AGAINST SUCH INCOME. 4. LD. COUNSEL FOR THE REVENUE SUBMITTED THAT LD. ASS ESSING OFFICER HAD FOUND THE ASSESSEE TO BE AN EMPLOYEE OF TWO COMPANIES AND HELD THAT HE WAS NOT CARRYING ON ANY BUSINESS . AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, ASSESSEE HAD RECEIVED INTEREST INCOME FROM ONE M/S. SIYAT HOLDING PVT. LTD. CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE WAS THAT ASSESSEE CLAI MED SUCH INTEREST AS HIS BUSINESS INCOME, BUT, ON THE OTHER HAND, HAD NOT PAID INTEREST ON FUNDS RECEIVED FROM NINE PARTIES. AS PER THE L D. DEPARTMENTAL REPRESENTATIVE, LD. ASSESSING OFFICER HAD COME TO A CORRECT CONCLUSION THAT ASSESSEE HAD IN THE CASE OF SOME PARTIES RECEI VED INTEREST WHEREAS IN CASE OF SOME OTHER PARTIES NOT CHARGED A NY INTEREST. AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, ASSESSEE WAS N OT DOING ANY BUSINESS ACTIVITY. CONTENTION OF THE LD. DEPARTMENT AL REPRESENTATIVE WAS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN GOING BY THE SUBMISSIONS OF THE ASSESSEE AND HOLDING THAT ASSESSEE WAS ITA NO. 2527-17, CO-09-18 :- 3 -: PURSUING A BUSINESS ACTIVITY. RELIANCE WAS PLACED ON THE JUDGMENTS OF HONBLE APEX COURT IN THE CASE OF M/S. NARAIN SWADESHI WEAVING MILLS LTD. VS. CEPT, 26 ITR 765 AND M/S. VIJAYA L AXMI SUGAR MILLS LIMITED VS. CIT, 191 ITR 641 . 5. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. A READING OF THE O RDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) SHOW THAT LD. ASSESSING OFFICER HIMSELF HAD MENTIONED THE BUSINESS OF THE ASSESSEE AS THAT OF INVESTMENT AND FINANCE IN THE ASSESSMENTS DONE FOR EARLIER YEARS. ASSESSEE HAD FILED AUDIT REPORT IN FORM NO.3CD, AF TER CONDUCTING THE AUDIT U/S.44AB OF THE ACT, AND ALSO HIS PROFIT AN D LOSS ACCOUNT AS WELL AS BALANCE SHEET ALONGWITH THE RETURN OF INCOME. IN HIS COMPUTATION OF INCOME FILED ALONG THE RETURN, ASSESSEE HAD MAD E SUO-MOTU DISALLOWANCE OF THE FOLLOWING EXPENDITURE:- ADVERTISEMENT EXP 1,179 CONVEYANCE 545 DEMAT CHARGES 331 DEPRECIATION 4,101 DONATION PAID 10,00,000 FOREIGN TOUR EXPENSES 14,060 INSURANCE PAID 1,079 MEETING EXPENSES 8,000 ITA NO. 2527-17, CO-09-18 :- 4 -: MISCELLANEOUS EXPENSES 17,016 MEMBERSHIP FEE PAID 25,403 MAINTENANCE CHARGES 14,500 PROVIDED FUND 86,400 PROFESSIONAL TAX 2,190 PROFESSIONAL FEES 600 PROPERTY TAX 71,954 SECURITY SERVICES CHARGES 12,060 SHARE TRADING EXP. 523 TRAVELLING EXP 2,15,901 WATER CHARGES 600 WATER TAX 7,276 THE FOLLOWING ITEMS WERE CONSIDERED SEPARATELY :- RENT RECEIVED 53,44,193 PPF INTEREST 1,99,853 SALARY RECEIVED 3,96,00,000 PROFIT ON SALE OF SHARES LTCG 69,900 PROFIT ON SALE OF SHARES FOREIGN COMPANY 1,18,259 MISCELLANEOUS INCOME 1,670 DIVIDEND RECEIVED. 7,07,421 IN OUR OPINION NON CHARGING OF INTEREST FROM FEW PE RSONS TO WHOM ASSESSEE HAD ADVANCED LOANS WOULD NOT BE A SUFFIC IENT ENOUGH A REASON TO HOLD THAT ASSESSEE WAS NOT DOING A FINAN CE AND INVESTMENTS BUSINESS. ASSESSMENT ORDER FOR ASSESSMENT YEAR 20 09-2010 PLACED BY THE ASSESSEE AT PAPER BOOK PAGES 21 TO 23 CLEARL Y SHOW THAT LD. ITA NO. 2527-17, CO-09-18 :- 5 -: ASSESSING OFFICER HAD ACCEPTED THE BUSINESS OF THE ASSESSEE AS ONE OF FINANCE AND INVESTMENT. LD. DEPARTMENTAL REPRESENTA TIVE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS OR ANY CHANGE OF FACTS FROM WHAT EXISTED FOR ASSESSMENT YEAR 2009-2010, VIS-A-VIS TH E IMPUGNED ASSESSMENT YEAR. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIF IED IN TAKING A VIEW THAT INTEREST INCOME OF THE ASSESSEE HAD TO BE CONSIDERED UNDER THE HEAD BUSINESS INCOME AND ALLOWING THE EXPEN DITURE EXCLUSIVELY INCURRED FOR EARNING SUCH INCOME. AS FOR THE RELI ANCE PLACED BY THE REVENUE ON THE JUDGMENTS OF HONBLE APEX COURT IN T HE CASE OF NARAIN SWADESHI WEAVING MILLS LTD. (SUPRA) AND M/S. VIJAYA LAXMI SUGAR MILLS LIMITED (SUPRA) THE FACTS IN THESE CASE WERE ENTIRELY DIFFERENT. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). GROUND NO.2 OF THE REVEN UE STANDS DISMISSED. 7. VIDE ITS GROUND NO.3, GRIEVANCE RAISED BY THE REVEN UE IS THAT DIVIDEND INCOME RECEIVED BY MINOR V. PRATEEK AND M INOR V.PALAK WERE ALLOWED EXEMPTION U/S.10(34) R.W.S. 115O OF THE ACT, BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 8. LD. DEPARTMENTAL REPRESENTATIVE FAIRLY ADMITTED THA T ASSESSEE HAD PRODUCED RECORDS WHICH DEMONSTRATED PA YMENT OF ITA NO. 2527-17, CO-09-18 :- 6 -: DIVIDEND DISTRIBUTION TAX BY THE CONCERNED COMPANIE S FROM WHICH DIVIDENDS WERE RECEIVED BY MINOR V. PRATEEK AND MI NOR V.PALAK. IN OUR OPINION, DIVIDEND DISTRIBUTION TAX UNDER SECTI ON 115O OF THE ACT, HAVING BEEN PAID BY THE COMPANIES CONCERNED, LD. CO MMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN HOLDING THAT DIVIDEND INCOME RECEIVED BY MINOR V. PRATEEK AND MINOR V.PALAK WERE EXEMPT U/S.10(34) OF THE ACT. GROUND NO.3 OF THE REVENUE STANDS DISMISSED. 9. VIDE ITS GROUND NO.4, GRIEVANCE RAISED BY THE REVEN UE IS THAT ADDITION CLAIMED BY THE ASSESSEE U/S.35AC OF THE AC T WAS ALLOWED TO IT. RELEVANT GROUND IS REPRODUCED HEREUNDER:- THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DECI SION ON DELETION OF DISALLOWANCE OF DEDUCTION CLAIMED BY THE ASSESSEE U/S.35AC IS ONLY COROLLARY TO THE DECISION ON GROUND NO.1 ABOVE AND HENCE, THE ASSESSEES CLAIM O F DEDUCTION U/S.35AC IS NOT AN ALLOWABLE EXPENDITURE AS THE ASSESSEE HAS NO BUSINESS INCOME . A READING OF THE ABOVE GROUND CLEARLY SHOW THAT IT IS RAISED AS COROLLARY TO GROUND NO.2 REGARDING TREATMENT OF THE INTEREST INCOME EARNED BY THE ASSESSEE. WE HAVE ALREADY UPHELD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT INTEREST RECEIVED BY THE ASSESSEE WAS RIGHTLY TREATED AS BUSINESS INCOME OF THE ASSESSEE. ACCORDINGLY, GROUND NO.4 BECOMES INFRUCTUOUS AND I S DISMISSED. ITA NO. 2527-17, CO-09-18 :- 7 -: 10. NOW, WE TAKE UP THE CROSS OBJECTION OF THE ASSESSEE . GRIEVANCE RAISED BY THE ASSESSEE IS THAT LD. COMMIS SIONER OF INCOME TAX (APPEALS) DISALLOWED UNREALIZED RENT OF D32,27, 156/- WHILE COMPUTING ITS INCOME FROM HOUSE PROPERTY, FOR A WAR EHOUSE PREMISE AT PUZHAL, CHENNAI OWNED BY MINOR V. PALAK. 11. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE MAN NER IN WHICH FAIR MARKET VALUE WAS TO BE COMPUTED WAS SET OUT IN SUB SECTION (1) OF SECTION 23 OF THE ACT. AS PER THE L D. AUTHORISED REPRESENTATIVE ACTUAL RENT RECEIVED OR RECEIVABLE C ANNOT INCLUDE UNREALIZED RENT AS COMPUTED UNDER RULE 4 OF THE INC OME TAX RULES, 1962 (IN SHORT THE RULES). CONTENTION OF THE LD . AUTHORISED REPRESENTATIVE WAS THAT LOWER AUTHORITIES HAD DENIE D THE DEDUCTION FOR UNREALIZED RENT, JUST FOR A REASON THAT ASSESSEE CO ULD NOT SUBSTANTIATE HOW THE AMOUNT REMAINED UNREALIZED. 12. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONGL Y SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS). 13. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. ASSESSEE HAD CLUBB ED INCOME FROM HOUSE PROPERTY EARNED BY MINOR V. PALAK WITH HIS I NCOME IN ACCORDANCE WITH SECTION 64 OF THE ACT. AGAINST THE RENTAL INCOME OF D54,68,000/-, ASSESSEE HAD CLAIMED DEDUCTION OF D32 ,27,156/- AS ITA NO. 2527-17, CO-09-18 :- 8 -: UNREALIZED DUES FROM ONE SHREE KRISHNA CORPN LIMITE D. LD. ASSESSING OFFICER HAD DENIED THE CLAIM FOR A REASON THAT A SSESSEE COULD NOT DEMONSTRATE HOW THE AMOUNT REMAINED UNREALIZED. LD . CIT (A) WAS OF THE OPINION THAT ASSESSEE WAS MAINTAINING ACCOUNTS ON ACCRUAL BASIS AND HENCE SUCH CLAIM FOR UNREALIZED AMOUNT COULD NO T BE ALLOWED. SECTION 23 OF THE ACT IS APPOSITE HERE AND IS REP RODUCED HEREUNDER:- 1) FOR THE PURPOSES OF SECTION 22, THE ANNUAL VALUE OF ANY PROPERTY SHALL BE DEEMED TO BE? (A) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR ; O R (B) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE B Y THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SU M REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED O R RECEIVABLE ; OR (C) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR AND OWING TO SUCH VACANCY THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS LESS THAN THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED OR RECEIVABLE : PROVIDED THAT THE TAXES LEVIED BY ANY LOCAL AUTHORI TY IN RESPECT OF THE PROPERTY SHALL BE DEDUCTED (IRRESPEC TIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUC H TAXES WAS INCURRED BY THE OWNER ACCORDING TO THE METHOD O F ACCOUNTING REGULARLY EMPLOYED BY HIM) IN DETERMININ G THE ANNUAL VALUE OF THE PROPERTY OF THAT PREVIOUS YEAR IN WHICH SUCH TAXES ARE ACTUALLY PAID BY HIM. EXPLANATION FOR THE PURPOSES OF CLAUSE (B) OR CLAUS E (C) OF THIS SUB-SECTION, THE AMOUNT OF ACTUAL RENT RECEIVE D OR RECEIVABLE BY THE OWNER SHALL NOT INCLUDE, SUBJECT TO SUCH RULES AS MAY BE MADE IN THIS BEHALF, THE AMOUNT OF RENT WHICH THE OWNER CANNOT REALISE. ITA NO. 2527-17, CO-09-18 :- 9 -: EXPLANATION CLEARLY SAY THAT AMOUNT OF ACTUAL RENT SHALL NOT INCLUDE THE AMOUNT OF RENT WHICH A OWNER CANNOT REALIZE. THE M ETHOD OF COMPUTING UNREALIZED RENT IS SET OUT IN RULE 4 OF T HE INCOME TAX RULES, 1962 AND THUS IS REPRODUCED HEREUNDER:- 4. FOR THE PURPOSES OF THE EXPLANATION BELOW SUB SE CTION (1) OF SECTION 23, THE AMOUNT OF RENT WHICH OWNER CANNOT REALISE SHALL BE EQUAL TO THE AMOUNT OF RENT PAYABL E BUT NOT PAID BY A TENANT OF THE ASSESSEE AND SO PROVED TO BE LOST AND IRRECOVERABLE WHERE-- (A) THE TENANCY IS BONA FIDE; (B) THE DEFAULTING TENANT HAS VACATED, OR STEPS HAVE BEEN TAKEN TO COMPEL HIM TO VACATE THE PROPERTY; (C) THE DEFAULTING TENANT IS NOT IN OCCUPATION OF A NY OTHER PROPERTY OF THE ASSESSEE; (D) THE ASSESSEE HAS TAKEN ALL REASONABLE STEPS TO INSTITUTE LEGAL PROCEEDINGS FOR THE RECOVERY OF THE UNPAID RENT OR SATISFIES THE ASSESSING OFFICER THAT LEGAL PROCEEDINGS WOULD BE US ELESS; WE FIND THAT NONE OF THE LOWER AUTHORITIES HAD EXAM INED THE ISSUE BASED ON THE SECTION AND RULE MENTIONED SUPRA. ISS UE IN OUR OPINION REQUIRES A REVISIT BY THE LD. ASSESSING OFFICER. W E THEREFORE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THIS ISSUE BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRE SH. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMI SSED WHEREAS CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL ITA NO. 2527-17, CO-09-18 :- 10 -: PURPOSE. ORDER PRONOUNCED ON THURSDAY, THE 5 TH DAY OF APRIL, 2018, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 5TH APRIL, 2018 KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF