DCIT, Hyderabad V. M/s Srinivasa Paper and Board Mills (P) Ltd., Secunderabad

ITA 1045/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66545 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 15-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPT
• Assessee Lawyers: E S RANGANATH
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1045/HYD/2009 ASSESSMENT YEAR : 2005-06 DY. COMMISSIONER OF INCOME-TAX, ASSESSEE CIRCLE 3(2), RANGE 3, HYDERABAD. VS. SRINIVASA PAPER AND BOARD MILLS (P) LTD., RES PONDENT SECUNDERABAD. (PAN AACCS9044B) APPELLANT BY : SMT. AMISHA S. GUPT RESPONDENT BY : SHRI E.S. RANGANATH DATE OF HEARING : 21/11/2012 DATE OF PRONOUNCEMENT : 27/11/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF CIT-IV, HYDERABAD DATED 31/07/2009, FOR THE ASSE SSMENT YEAR 2005-06. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A PRIVATE LIMITED COMPANY. FOR THE ASST YEAR 2005-06, IT HAS FILED THE RETURN OF INCOME ON 28.11.2005 SHOWING LOSS OF RS. 13,29,9 30/-. IN THE STATEMENT OF COMPUTATION OF TOTAL INCOME, THE ASSES SEE HAD SHOWN INCOME UNDER THREE HEADS. UNDER THE HEAD 'INCOME FR OM HOUSE PROPERTY', THE ASSESSEE HAD SHOWN INCOME AT RS. 2,1 8,554/- AND UNDER THE HEAD 'INCOME FROM OTHER SOURCES', IT HAD SHOWN INCOME OF 2 ITA NO. 1045/HYD/2009 M/S SRINIVASA PAPER AND BOARD MILLS LTD. RS. 6,82,747/-. AFTER SHOWING LOSS OF RS. 22,31,236 /- UNDER THE HEAD 'INCOME FROM BUSINESS' AND SETTING OFF THE SAI D AMOUNT AGAINST THE POSITIVE' INCOME FROM THE ABOVE TWO HEADS, THE TOTAL LOSS WAS SHOWN AT RS. 13,29,930/- AS SHOWN IN THE RETURN. FO LLOWING SCRUTINY ASSESSMENT, THE ASSESSING OFFICER MADE DISALLOWANCE OF A SUM OF RS. 18,45,572/- OUT OF THE EXPENSES CLAIMED UNDER T HE HEAD 'BUSINESS' AND FURTHER DISALLOWED A SUM OF RS. 1,25 ,206/- CLAIMED TOWARDS DEPRECIATION UNDER THIS HEAD. AFTER CONSIDE RING THE GROSS RENTALS IN RESPECT OF HOUSE PROPERTY AT RS. 34,46,7 42/- AND SUCH RECEIPTS FOR THE PURPOSE OF 'INCOME FROM OTHER SOUR CES' AT RS. 13,02,000/-, HE RECOMPUTED INCOME UNDER BOTH THESE HEADS AT RS. 7,56,523/- AND RS. 11,76,537/- RESPECTIVELY. TAKING THESE AMOUNTS AND AFTER ALLOWING SET OFF FOR AN AMOUNT OF RS. 3,0 0,000/- TOWARDS LOSS FROM BUSINESS, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT DETERMINING TOTAL INCOME AT R S. 16,33,060/-. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT()A). 4. BEFORE THE CIT(A), THE LEARNED AR OF THE ASSESSE E, AMONG OTHER OBJECTIONS, OBJECTED TO THE ADDITION ON ACCO UNT OF RENT OF RS. 4,93,790/-, WHICH CANNOT BE REALIZED WHEN THE ASSES SEE COMPANY IS FIGHTING A CASE OF EVICTION OF THE TENANT IN THE CO URT AND ULTIMATELY EVICTED FROM THE PREMISES AND TENANT DID NOT PAY TH E ARREARS OF RENT. THE LEARNED AR VEHEMENTLY OBJECTED TO THE ADD ITION MADE BY THE AO OF THE UNREALIZED RENT AND HIRE CHARGES AND SUBMITTED THAT IT WAS CONTRARY TO THE PROVISIONS OF THE SECTION 23(1) (B) OF THE ACT. HE FURTHER STATED THAT THE AO WAS NOT RIGHT IN HIS OBSERVATION THAT ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG AND RENT DUE SHOULD HAVE BEEN ACCOUNTED FOR IGNORING THE FACT TH AT PART OF THE 3 ITA NO. 1045/HYD/2009 M/S SRINIVASA PAPER AND BOARD MILLS LTD. RENT WHICH CANNOT BE REALIZED DOES NOT ACCRUE. IT W AS ARGUED THAT EVEN IF THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE RENT WHICH CANNOT BE REALIZED CANNOT BE CONSIDE RED AS INCOME. THE LEARNED AR FURTHER SUBMITTED THAT UNREALIZED RE NT IS DEFINED UNDER RULE 4 OF IT RULES, 1962, AS UNDER: 11.1 FOR THE PURPOSE OF THE EXPLANATION BELOW SUB SECTION (1) OF SECTION 23 THE AMOUNT OF RENT WHICH THE OWNER CANNOT REALIZE SHALL BE EQUAL TO THE AMOUNT OF REN T PAYABLE BUT NOT PAID BY A TENANT OF THE ASSESSEE AND SO PR OVED TO BE LOST AND IRRECOVERABLE WHERE:- (A) THE TENANCY IS BONAFIDE; (B) THE DEFAULTING TENANT HAS VACATED OR STEPS HAVE BEEN TAKEN TO COMPEL HIM TO VACATE THE PROPERTY; (D) THE DEFAULTING TENANT IS NOT IN OCCUPATION OF ANY OTHER PROPERTY OF THE ASSESSEE (E) 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 USELESS 12. THE ID AR SUBMITTED HAVING REGARD TO THE ABOVE PROVISIONS OF RULE 4 OF THE LT. RULES AND THE EXPLANATION, TH E RENT RECEIVED / RECEIVABLE AS PER PROVISIONS OF SECTION 23 (L)(B) OF THE ACT, READ WITH THE ABOVE EXPLANATION GIVEN BELOW THAT SECTION, THE SAME SHOULD BE LIMITED TO THE AC TUAL RENT RECEIVED. IT WAS STATED THAT IN THE CASE OF THE ASS ESSEE COMPANY, IT HAS RECEIVED RENT FOR THE PERIOD FROM A PRIL 2004 TO NOVEMBER 2004 ( PARTLY) AND FOR THE REMAINING PERIO D FROM DECEMBER, 2004 TO MARCH, 2005 AND ALSO PART OF NOVEMBER, 2004, IT HAS NOT RECEIVED ANY RENT AS EV ICTION PROCEEDINGS WERE INITIATED BY THE ASSESSEE BY FILI NG PETITION BEFORE THE COURT. IT WAS SUBMITTED THAT AFTER CONS IDERING THEIR PETITION, THE HON'BLE COURT PASSED ORDER FOR EVICTION FROM 4 ITA NO. 1045/HYD/2009 M/S SRINIVASA PAPER AND BOARD MILLS LTD. THE PREMISES BY THE TENANT IN FEB. 2005. THE ID. AR FURNISHED BEFORE ME COPIES OF THE PETITION FILED BY THE ASSES SEE AGAINST THE TENANT, SHL BEFORE HON'BLE CITY CITY CIVIL COU RT ON 1.11.2004 AND THE ORDER DT 4/207 OF THE HON'BLE AD DL. CHIEF JUDGE, CITY CIVIL COURT, SECUNDERABAD. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, AS WELL AS THE PROVISIONS OF RULE 4 OF THE LT. RULES, 1962 AN D THE PETITION FILED U/S 151 CPC IN IA NO 2415/2004 ON 1.11.2004 BEFORE THE HON'BLE CITY CIVIL COURT, SECUNDERABAD, AGAINST SHL, REQUES TING FOR VACATION AND HANDING OVER OF ITS LET OUT PREMISES BY SHL AND THE ORDER DT 4.2.2005 IN IA NO 2415/2004 PASSED BY THE HON'BLE A DD!. CHIEF JUDGE, CITY CIVIL COURT, SECUNDERABAD, DIRECTING FO R VACANT POSSESSION OF THE PROPERTY BEARING NO. 3-1-215 TO 3 -1-220, SOMASUNDARAM STREET, SECUNDERABAD, THE CIT(A) HELD THAT AS PER THE EXPLANATION BELOW SECTION 23 OF THE ACT, THE AM OUNT OF RENT WHICH AN ASSESSEE CANNOT REALIZE SHALL NOT BE CONSI DERED FOR THE PURPOSE OF DETERMINING 'ANNUAL VALUE' OF THE CONCER NED LET OUT PROPERTY UNDER CLAUSE (B) TO SUB-SECTION 1 TO THE S AID SECTION I.E. SECTION 23 OF THE ACT. HAVING REGARD TO THE PROVISI ONS OF SECTION 23(1)(B) AND THE PROVISIONS CONTAINED IN RULE 4 OF THE I.T RULES 1962, AND ALSO CONSIDERING THE FACTS THAT THE CIT( A) HAS NOT REALIZED ANY AMOUNT FROM THE SAID TENANT, OVER AND ABOVE THE AMOUNT SHOWN AS RECEIVED IN THE PREVIOUS YEAR ( SHO WN IN THE RETURN FILED FOR ASST YEAR 2005-06) TILL THE SAID T ENANT ACTUALLY VACATED THE PREMISES ON 27.1.2006, THE CIT(A) WAS O F THE VIEW THAT THE AMOUNT OF RENT RECEIVABLE PERTAINING TO THE PER IOD FROM PART OF NOVEMBER, 2004 TO 31.3.2005, CANNOT BE CONSIDERED I N THE HANDS OF THE ASSESSEE FOR COMPUTING THE GROSS RENTALS FOR TH IS ASST YEAR UNDER BOTH THE HEADS, THE INCOME FROM HOUSE PROPER TY AND 5 ITA NO. 1045/HYD/2009 M/S SRINIVASA PAPER AND BOARD MILLS LTD. INCOME FROM OTHER SOURCES. HE, THEREFORE, HELD TH AT THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT FOR A N AMOUNT OF RS. 4,93,790/- TOWARDS GROSS RENT UNDER THE HEAD 'INCOM E FROM HOUSE PROPERTY' CANNOT BE SUSTAINED. HENCE, THE SAME IS D ELETED. FOR THE SAME REASON, THE ADDITION OF RS. 4,93,790/- MADE BY THE ASSESSING OFFICER UNDER HIRE CHARGES, WHILE COMPUTING INCOME UNDER THE HEAD 'OTHER SOURCES' WAS ALSO HELD BY THE CIT(A) AS NOT SUSTAINABLE. HOWEVER, HE MENTIONED THAT IF, SUBSEQUENTLY, THE A SSESSING OFFICER FINDS THAT THE ASSESSEE HAS REALIZED ANY RENTAL AMO UNT PERTAINING TO THE SAID PERIOD I.E. FOR THE PERIOD COMPRISING PART OF NOVEMBER, 2004 TO 31.3.2005, IN VIEW OF THE PROVISIONS OF SEC TION 25AA OF THE ACT, HE MAY TAKE APPROPRIATE ACTION FOR BRINGING TO TAX THE SAID AMOUNT. 6. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US AN D HAS RAISED THE FOLLOWING GROUND OF APPEAL: THE CIT(A) OUGHT TO HAVE UPHELD THE DECISION OF THE AO IN COMPUTING THE INCOME FROM HOUSE PROPERTY AND HIRE CHARGES ON ACCRUAL BASIS. 7. THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT DURIN G THE PREVIOUS YEAR THE ASSESSEE HAS LET OUT CERTAIN PROPERTIES AN D HAS SHOWN BOTH RENTAL INCOME AND HIRE CHARGES FROM THOSE PROPERTIE S LET OUT. THE ASSESSEE HAS CREDITED IN THE P&L A/C A SUM OF RS. 29,52,922//TOWARDS RENT AND SUM OF RS. 8,08,210/- T OWARDS HIRE CHARGES. FROM THE DETAILS FURNISHED BY THE ASSESSEE , THE ASSESSING OFFICER FOUND THAT THAT IT HAS ACCOUNTED THE RENTAL RECEIPT PERTAINING TO THE PERIOD FROM APRIL 2004 TO NOVEMBER, 2004 (PA RTLY). HE FURTHER NOTED THAT THE ASSESSEE HAS LET OUT ITS PRO PERTY TO M/S 6 ITA NO. 1045/HYD/2009 M/S SRINIVASA PAPER AND BOARD MILLS LTD. SIDDHARTHA HOSPITAL LTD (SHL). IT WAS RECEIVING AN AMOUNT OF RS. 2,17,000/-PER MONTH FROM THE SAID TENANT. OUT OF TH AT AMOUNT, A SUM OF RS. 1,08,500/- WAS CONSIDERED BY THE ASSESSE E TOWARDS RENT AND THE BALANCE AMOUNT WAS CONSIDERED AS HIRE CHARG ES. THE ASSESSEE HAS SUBMITTED THAT THEY HAVE RECEIVED RENT FROM THE ABOVE TENANT TILL NOV. 2004. THEY HAVE NOT RECEIVED ANY' RENT FOR THE SUBSEQUENT PERIOD AS THEY WERE IN THE PROCESS OF EV ICTING THE SAID TENANT FROM THEIR PREMISES. FOR THIS PURPOSE, THEY HAVE APPROACHED THE COURT. WITH THESE SUBMISSIONS AND STATING THAT THEY HAVE NOT REALIZED ANY RENT FROM THE SAID TENANT FROM NOV. 20 04 TO MARCH, 2005, THE ASSESSEE HAS CONTENDED THAT RENTAL AMOUNT PERTAINING TO THE PERIOD FROM NOV 2004 TO MARCH 2005 SHOULD NOT B E CONSIDERED AS INCOME IN THEIR HANDS FOR THE ASST YEAR 2005-06. FURTHER, REFERRING TO THE PROVISIONS OF SECTION 23 OF THE AC T AND THE PROVISIONS OF RULE 4 OF THE LT. RULES, 1962, THE AS SESSEE SUBMITTED THAT UNREALIZED RENT SHOULD NOT BE CONSIDERED AS IN COME IN THEIR HANDS. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCE PT SUCH SUBMISSIONS OF THE ASSESSEE. HE NOTED THAT THE 'ANN UAL VALUE' OF THE PROPERTY SHOULD BE BROUGHT TO TAX U/S 22 OF THE ACT . HE OBSERVED THAT THE ASSESSEE HAS LET OUT ITS PROPERTY AND WAS REALIZING RENT FROM ITS TENANT. HE FURTHER NOTED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. HE WAS OF THE VIEW THAT THE ASSESSEE SHOULD HAVE ACCOUNTED FOR THE RENT REALIZA BLE BY IT FROM THE TENANT. ACCORDING TO HIM, FILING OF COURT CASE OR INITIATION OF EVICTION PROCEEDINGS HAS NO RELEVANCE WITH THE AMOU NT OF REALIZABLE RENT. HE FURTHER OBSERVED THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO SHOW THAT IT WAS NOT IN A POSITION TO R EALIZE FURTHER RENT AND THE SAME BECOME IRRECOVERABLE. WITH THESE OBSER VATIONS AND TAKING INTO ACCOUNT THE GROSS RENTALS FOR 12 MONTHS , @ 2,17,000/- 7 ITA NO. 1045/HYD/2009 M/S SRINIVASA PAPER AND BOARD MILLS LTD. PER MONTH FROM SHL, AT RS. 26,06,000/-, HE COMPUTED THE INCOR1JT UNDER THE HEAD 'HOUSE. PROPERTY' AND 'INCOME FROM O THER SOURCE. 8. ON FURTHER APPEAL BEFORE THE CIT(A), THE CIT(A) HELD THAT THE AMOUNT OF RS. 4,93,790/- TOWARDS GROSS RENT UNDER T HE HEAD INCOME FORM HOUSE PROPERTY AND THE ADDITION OF RS . 4,93,790/- UNDER HIRE CHARGES UNDER THE HEAD OTHER SOURCES I S NOT SUSTAINABLE AND DELETED THE SAME. 9. WE HAVE HEARD THE ARGUMENTS OF THE LEARNED DR. S MT. AMISHA S. GUPT AND THE LEARNED COUNSEL FOR THE ASSESSEE SH RI E.S. RANGANATH. 10. AS PER THE EXPLANATION BELOW SECTION 23 OF THE ACT, THE AMOUNT OF RENT WHICH AN ASSESSEE CANNOT REALIZE SHALL NOT BE CONSIDERED FOR THE PURPOSE OF DETERMINING ANNUAL VALUE OF THE CO NCERNED LET OUT PROPERTY UNDER CLAUSE (B) TO SUB-SECTION 1 TO THE S AID SECTION I.E. SECTION 23 OF THE ACT AND ALSO CONSIDERING THE PROV ISIONS CONTAINED IN RULE 4 OF THE IT RULES, 1962 AND THE FACT THAT T HE TENANT ACTUALLY VACATED THE PREMISES ON 27/01/2006 AND ALSO THE TEN ANT HAD NOT PAID ANY AMOUNTS OVER AND ABOVE THE AMOUNT SHOWN AS RECEIVED FROM 2004-05 TILL THE DATE OF EVICTION. 11. WE FIND FROM THE ORDER OF THE CITY CIVIL COURT THE FACT RELATING TO THE PAYMENT OF RENT, WHICH IS AS FOLLOWS: 15. VIDE ORDER DT 4.2.2005 IN IA NO 2415/2004, THE HON'BLE ADDL. CHIEF JUDGE, CITY CIVIL COURT, WHILE ALLOWING THE PETITION OF THE AP PELLANT PETITIONER, HAS DIRECTED SHL ( THE TENANT) FOR HANDING OVER VACANT POSSESSI ON OF THE SCHEDULE PROPERTY TO THE APPELLANT. IT HAS BEEN SUBMITTED T HAT THE SAID TENANT HAS VACATED THE SAID PREMISES ON 27.1.2006. IT HAS BEEN FURTHER STATED THAT THE TENANT DID NOT PAY ANY AMOUNTS, OVER AND ABOVE THE AMOUNT SHOWN AS RECEIVED IN 8 ITA NO. 1045/HYD/2009 M/S SRINIVASA PAPER AND BOARD MILLS LTD. THE PREVIOUS YEAR 2004-05, TILL THE SAID TENANT AC TUALLY VACATED THE PREMISES ON 27.1.2006. 12. HENCE, PLACING RELIANCE ON THE ORDER OF THE CI TY CIVIL COURT, WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE AO ON THIS ACCOUNT FOR AN AMOUNT OF RS. 4,93,790/- TOWARDS GROSS RENT UNDE R THE HEAD INCOME FROM HOUSE PROPERTY AND THE SAME AMOUNT UN DER HIRE CHARGES UNDER THE HEAD OTHER SOURCES IS TO BE DELE TED. THEREFORE, WE UPHOLD THE ORDER OF THE CIT(A) IN DELETING THE A DDITIONS MADE BY THE AO ON THESE COUNTS AND DISMISS THE GROUND OF AP PEAL RAISED BY THE REVENUE. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 27 TH NOVEMBER, 2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAY ARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 27 TH NOVEMBER, 2012 KV COPY TO:- 1) DCIT, CIRCLE 3(2), RANGE-3, HYDERABAD 2) M/S SRINIVASA PAPER AND BOARD MILLS (P) LTD., ROAD NO. 10, 3 RD FLOOR, SRINATH COMMERCIAL COMPLEX, SD ROAD, SECUNDERABAD. 3) THE CIT(A)-IV, HYDERABAD 4) THE CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYD ERABAD.