M/s. Star Builders, Hyd, Hyderabad V. ITO Ward- 5(1), Hyderabad

ITA 1136/HYD/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7164 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 13-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHD FAKKRUDDIN
• Assessee Lawyers: T DIWAKAR PRASAD
• Keywords: Business income
• Section: 143(3)

Judgement Text

INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH BEFORE SHRI CHANDRA POOJARI, A,M. AND SMT. ASHA VIJAYARAGHAVAN, JM ITA NO.1221/HYD/2011 ASSESSMENT YEAR 2007-08 THE ITO, HYDERABAD VS M/S STAR BUILDERS, PUTLI BOWLI, HYDERABAD (PAN AAYFS0492E) APPEL LANT RESPONDENT ITA NO.1136/HYD/2011 ASSESSMENT YEAR 2007-08 M/S STAR BUILDERS, PUTLI BOWLI, HYDERABAD (PAN AAYFS0492E) VS THE ITO, HYDERABAD APPELLANT RESPONDENT ASSESSEE BY : SHRI T.DIWAKAR PRASAD REVENUE BY : MOHD. FAKKRUDDIN DATE OF HEARING : 12.10.2011 DATE OF PRONOUNCEMENT : 16.12.2011 ORDER PER ASHA VIJAYARAGHAVAN, JM: THESE ARE CROSS APPEALS PREFERRED BY THE ASSESSEE AS WELL AS THE REVENUE ARE DIRECTED AGAINST THE ORDER PASSED B Y THE CIT(A) V, HYDERABAD DATED 12.4.2011 AND PERTAINS TO THE ASSES SMENT YEAR 2007-08. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SALE OF COLD DRINKS AND SNACKS AND ALSO IS EARNING INCOME FROM PROPERTY . THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 8.1.2008. THE ASSESSING OFFICER COMPLETED THE ASSE SSMENT U/S 143(3) OF THE IT ACT. WITH RESPECT TO RENTAL INCOM E RECEIVED FROM THE PROPERTY, THE ASSESSING OFFICER STATED THAT THE CLA IM OF THE ASSESSEE ITA NO.1221 & 1136 OF 2011 STAR BUILDERS, HYDERABAD 2 WITH REGARD TO REMUNERATION AND INTEREST PAID TO PA RTNERS OUT OF RENTAL INCOME IS TO BE DISALLOWED AFTER AGREEMENT W ITH THE ASSESSEE. THE INCOME WAS RECOMPUTED BY GIVING THE FOLLOWING R EASONS: THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND A NOTICE U/S 143(2) WAS ISSUED. IN RESPONSE TO THE NOTICE, SHRI MOHAMMAD YOSUF, AR OF THE ASSESSEE APPEARED FROM TIME TO TIM E AND FURNISHED THE INFORMATION CALLED. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE ASSESSEES COUNSEL IS ASKED TO EXP LAIN AS TO HOW THE ASSESSEE IS ELIGIBLE FOR CLAIMING REMUNERATION AND INTEREST FROM THE PROPERTY INCOME. HE IS ALSO ASKED TO EXPLAIN A S TO WHY THE INCOME FROM BUSINESS SHOULD NOT BE ESTIMATED IN THE ABSENCE OF BOOKS. FURTHER HE IS ALSO ASKED TO CLARIFY WHY THE CLAIM OF INTEREST PAYMENT ON THE LOAN TAKEN FOR THE PURPOSE OF CONSTR UCTION OF PROPERTY SHOULD NOT BE RESTRICTED TO ONE THIRD AS O NLY ONE FLOOR OUT OF THE THREE FLOORS WAS LET OUT ON THE GROUND THAT THE INTEREST CLAIMED WILL BE RESTRICTED TO THE EXTENT OF AREA FR OM WHICH THE ASSESSEE IS DERIVING RENTAL INCOME. THE LEARNED CO UNSEL CLARIFIED THAT THE ASSESSEE IS CLAIMING REMUNERATION AND INTE REST ON THE TOTAL INCOME INCLUDING RENTAL INCOME, TREATING THE SAME AS BUSINESS INCOME. IT IS ALSO CLARIFIED THAT THE ASS ESSEE COULD NOT LET OUT THE ENTIRE PROPERTY, HOWEVER FOR THE PURPOSE OF CLAIMING DEDUCTION THE TOTAL INTEREST ON THE LOAN AMOUNT USE D FOR CONSTRUCTION IS CLAIMED. AFTER DISCUSSION, THE A R OF THE ASSESSEE HAS AGREED FOR DISALLOWANCE OF REMUNERATION AND INT EREST TO PARTNERS AND FOR PROPORTIONATE DISALLOWANCE OF INTE REST ON LOAN AND MUNICIPAL TAXES AND ALSO ESTIMATING THE INCOME AT 5% ON SALE OF SNACKS AND COOL DRINKS. THUS AFTER DISCUSSION W ITH THE COUNSEL OF THE ASSESSEE, THE INCOME OF THE ASSESSEE IS COMP UTED AS UNDER: 1. INCOME FROM BUSINESS ESTIMATED AT 5% SALE I.E. RS.13,272 RS.2,65,400/- ITA NO.1221 & 1136 OF 2011 STAR BUILDERS, HYDERABAD 3 2. RENTAL INCOME RECEIVED RS.10,99,000 LESS 1/3 MUNICIPAL TAX PAID RS. 7,698 _____________ RS.10,92,160 LESS 30% OF STANDARD DEDUCTION RS. 3,64,053 _____________ RS.7,28,107 LESS 1/3 INTEREST ON LOAN RS. 66,490 _____________ REVISED TOTAL INCOME RS.6,61,617 ___________ RS.6,74,889 OR RS.6,74,890 3. ON FURTHER APPEAL BEFORE THE CIT(A), THE LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD AGREED TO THE DISALLOWANCE ONLY WITH RESPECT TO MUNICIPAL TAX AND INTEREST ON LOAN WHEREAS THE INCOME FROM THE PROPERTY WAS TO BE TREA TED AS BUSINESS INCOME AND FURTHER THERE WAS PARTNERSHIP DEED WITH RESPECT TO BUSINESS INCOME WHEREIN REMUNERATION AND INTEREST T O PARTNERS HAS BEEN MENTIONED. ACCORDINGLY, THE LEARNED COUNSEL F OR THE ASSESSEE REQUESTED THAT THE DISALLOWANCE ON ACCOUNT OF REMUN ERATION AND INTEREST TO PARTNERS AMOUNTING TO RS.1,16,636/- AND RS.1,93,071/- RESPECTIVELY TO BE ALLOWED. 4. THE CIT(A) HELD THAT THERE IS NO EVIDENCE TO SH OW THAT THE ASSESSEE HAD AGREED TO THE DISALLOWANCE AS STATED B Y THE ASSESSING OFFICER AND THEREFORE DIRECTED THE ASSESSING OFFICE R TO TREAT THE RENTAL INCOME OF RS.10,99,000/- AS BUSINESS INCOME FROM BU ILDING AND ALLOW THE DEDUCTIONS AMOUNTING TO RS.3,09,707/- IN RESPECT OF INTEREST TO PARTNERS AND REMUNERATION TO PARTNERS. ACCORDINGLY THE CIT(A) HELD THAT DEDUCTIONS ALLOWED BY THE ASSESSI NG OFFICER UNDER THE HEAD INCOME FROM HOUSE PROPERTY WILL NO LONGE R TO BE ALLOWED. 5. AGGRIEVED THE DEPARTMENT IS IN APPEAL BEFORE US . ITA NO.1221 & 1136 OF 2011 STAR BUILDERS, HYDERABAD 4 6. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI MOHAM MAD FAKKRUDDIN, REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A). 7. WE HEARD BOTH THE PARTIES. WE FIND THAT THE AS SESSING OFFICER HAD WRONGLY STATED IN ITS ORDER THAT THE ASSESSEES REPRESENTATIVE HAD AGREED FOR DISALLOWANCE OF REMUNERATION AND INT EREST. DURING THE HEARING BEFORE US IT WAS SUBMITTED THAT THE ASS ESSEES REPRESENTATIVE AGREED ONLY FOR PROPORTIONATE DISALL OWANCE OF MUNICIPAL TAX AND INTEREST TO BANK FOR THE PURPOSE OF ARRIVING AT THE PROPERTY INCOME. BOTH REMUNERATION AND INTEREST H AVE TO BE ALLOWED AS DEDUCTION AS THEY ARE IN ACCORDANCE WITH THE TERMS OF THE PARTNERSHIP DEED. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND HENCE WE HOLD THAT THE RENTAL INCOME SHO ULD BE TREATED AT RS.10,99,000/- AS BUSINESS INCOME FROM BUILDING AND DEDUCTIONS AMOUNTING TO RS.3,09,707/- IS TO BE ALLOWED. 8. IN THE RESULT, THE REVENUE APPEAL STANDS DISMIS SED AND THAT OF THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT: 14.12.2011 SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDEICIAL MEMBER DATED THE 14 TH DECEMBER., 2011 COPY FORWARDED TO: 1. M/S STAR BUILDERS, 4-7, 1121/4, PUTLI BOWLI, HYDER ABAD 2. THE ITO, BASHEERBAGH, HYDERABAD 3. THE CIT(A) -V, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/