Abhishek Engineers Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(1), Ahmedabad

ITA 1318/AHD/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9554 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 02-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Assessee Lawyers: R C SHAH
• Keywords: Capital asset; Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD BEFORE S/SHRI G. D. AGARWAL, VP & RAJPAL YADAV, J M ITA NOS.1318 & 1818/AHD/2011 ASST. YEARS 2006-07 & 2007-08 .ABHISHEK ENGINEERS (P) LTD., ABHISHEK HOUSE, 5, SHRIMALI SOCIETY, NR. NAVRANGPURA JAIN DERASAR, NAVRANGPURA, AHMEDABAD. VS INCOME-TAX OFFICER, WARD 1(1), AHMEDABAD. (APPELLANT) (RESPONDENT) PA NO. AAACA 9827E APPELLANT BY SHRI R. C. SHAH, AR RESPONDENT BY SHRI ROOPCHAND, SR. DR DATE OF HEARING: 24/4/2015 DATE OF PRONOUNCEMENT: 29/5/15 O R D E R PER SHRI RAJPAL YADAV, JUDICIAL MEMBER. THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTAN CE OF ASSESSEE AGAINST THE ORDERS OF LD. CIT(A) DATED 24 .2.2011 & 2.5.2011 FOR AYS 2006-07 & 2007-08 RESPECTIVELY. CO MMON ISSUES ARE INVOLVED IN BOTH THE APPEALS, THEREFORE, WE HEA RD TOGETHER AND DEEM IT APPROPRIATE TO DISPOSE THEM BY THIS COMMON ORDER. ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 2 2. THE FIRST COMMON GROUND IN BOTH THE APPEALS RELA TES TO DISALLOWANCE OF DEPRECIATION ON THE MOTOR CAR AMOUN TING TO RS.63,597/- AND RS.1,17,655/- IN AY 2006-07 & 2007- 08 RESPECTIVELY. 3. BRIEF FACTS OF THE CASE ARE THAT THE BOARD OF DI RECTORS DECIDED VIDE RESOLUTION DATED 20 TH FEBRUARY, 2006 TO PURCHASE A CAR LANCER LXI MODEL IN THE NAME OF DIRECTOR. THE CAR BEARING REGN. NO.GJ-1- HL-4000 WAS PURCHASED IN THE NAME OF SHRI SURESH J. SHAH, VIDE BILL NO.00065 DATED 3.3.2006. THE COST OF THE CASE ALONG WITH ACCESSORIES WAS RS.8,06,656/-. THE ASSESSEE CLAIMED DEPRECIATION ON THE CAR WHICH HAS BEEN DISALLOWED BY THE AO IN B OTH THE YEARS STATING THAT THE COMPANY IS NOT THE REGISTERED OWNE R OF THE CAR. 4. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. ON PAGE NOS.2 TO 12-A OF THE PAPER BOOK, ASSESSEE HAS PLACED ON RECORD SCHEDULE OF ASS ET, DECLARATION FROM SHRI SURESH JADAVJI SHAH DEPOSING THEREIN THAT HE HAS NO RIGHT, TITLE OF INTEREST IN HIS PERSONAL CAPACITY OVER THE SAID CAR. THE RESOLUTION OF THE BOARD IS AVAILABLE ON PAGE 6 AND THE INVOICE OF THE ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 3 CAR IS AVAILABLE ON PAGE 7. REPAYMENTS OF LOAN ARE AVAILABLE ON PAGES 8 TO 10. THE COMPANY HAS REPAID THE LOAN. THE DIRECTOR HAS CATEGORICALLY DECLARED THAT HE HAS NO PERSONAL RIGH T, TITLE OR INTEREST OVER THE CAR. THUS FOR ALL PRACTICAL PURPOSES THE C AR WAS OWNED BY THE COMPANY. THE EXPENSES HAVE BEEN DEBITED IN THE ACCO UNTS OF THE COMPANY. A SIMILAR ISSUE HAD COME UP BEFORE THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. BASTI SUGAR MILLS CO. LTD. 257 ITR 88 (DEL) WHEREIN THE HONBLE HIGH COURT HAS UPHELD THE ALLOWANCE OF DEPRECIATION ON THE CAR WHICH WAS NOT REGISTERED IN THE NAME OF COMPANY BUT USED FOR THE BUSINESS PURPOSES OF THE C OMPANY. HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. NAVDURGA TRANSPORT CO. 235 ITR 158 (ALL) HAS ALSO ALLOWED DE PRECIATION ON VEHICLES THOUGH WHICH WERE NOT REGISTERED IN THE NA ME OF THE FIRM BUT BECOME ASSET OF THE FIRM AND USED FOR THE BUSINESS OF THE FIRM THROUGH THE AGENTS. RESPECTFULLY FOLLOWING THESE TW O DECISIONS, WE ARE OF THE VIEW THAT ASSESSEE HAS ESTABLISHED THAT FOR ALL PRACTICAL PURPOSES THE CAR WAS OWNED BY THE COMPANY AND IT WA S USED FOR THE BUSINESS PURPOSES OF THE COMPANY, THEREFORE, THE DE PRECIATION IS ADMISSIBLE TO THE ASSESSEE ON THE CAR. THIS GROUND OF APPEAL IS ALLOWED FOR BOTH THE YEARS. ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 4 6. NOW WE TAKE INDEPENDENT GROUNDS OF APPEAL FOR AY 2006-07. THE NEXT GROUND OF APPEAL IS THAT LD.AO HAS ERRED I N DISALLOWING THE MOTOR CAR EXPENSES OF RS.473/-. THESE EXPENSES HAVE BEEN DIS- ALLOWED FOR THE REASONS THAT THE CAR WAS NOT OWNED BY THE COMPANY. IN VIEW OF OUR FINDINGS ON GROUND NO.1, THESE ARE A LLOWED. GROUND NO.2 OF ASSESSEES APPEAL IS ALLOWED. 7. IN GROUND NO.3 ASSESSEE HAS PLEADED THAT LD. CIT (A) HAS ERRED IN TREATING THE BUSINESS LOSS OF RS.4,50,500/- SUFF ERED ON SALE OF BASEMENT OFFICE AS A SHORT-TERM CAPITAL LOSS AND AL LOWED THE SAME TO BE CARRIED FORWARD. 8. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAD AC QUIRED THE BASEMENT OFFICE AT B-1, CORPORATE HOUSE, OPP. DINES H HALL, NAVRANGPURA, AHMEDABAD IN THE YEAR 2003 FOR A TOTAL COST OF RS.14,00,501/-. ACCORDING TO THE ASSESSEE THIS OFFI CE WAS PURCHASED FOR RE-SALE PURPOSES BUT SOMEHOW THERE WAS A RECESS ATION IN THE REAL ESTATE BUSINESS. IT WAS LET OUT FOR A SHORT PERIOD PRIOR TO THE DATE OF SALE. ULTIMATELY IT WAS SOLD FOR A SUM OF RS.9,50,0 00/- AND THEREFORE, THE ASSESSEE HAS SUFFERED BUSINESS LOSS OF RS.4,50, 500/-. THE ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 5 ASSESSEE CLAIMED THIS LOSS IN THE RETURN WHICH HAS BEEN DISALLOWED BY OBSERVING THAT IT IS A SHORT-TERM CAPITAL LOSS. 9. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 10. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE CONT ENDED THAT ASSESSEE IS IN THE BUSINESS OF REAL ESTATE. IT HAS PURCHASED PROPERTIES AND SOLD THEM. IT IS ALSO EARNING RENTAL INCOME AS BUSINESS INCOME. RENTALS EARNED FROM THESE PROPERTIES WERE A LSO OFFERED AS BUSINESS INCOME. THE ASSESSEE HAS NOT CLAIMED ANY D EPRECIATION ON THE SAME BECAUSE IT WAS STOCK-IN-TRADE. 11. ON THE OTHER HAND, THE LD. DR RELIED UPON THE O RDERS OF REVENUE AUTHORITIES BELOW. 12. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. THE LD. FIRST APPELLA TE AUTHORITY HAS MADE A LUCID ENUNCIATION OF LAW AND FACTS. THE FINDING R ECORDED IN PARAGRAPH 3.3 ON THIS ISSUE IS WORTH TO NOTE. IT RE ADS AS UNDER :- 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE, ASS ESSMENT ORDER AND APPELLANTS SUBMISSION. APPELLANT SOLD BASEMENT OFF ICE BUILDING ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 6 DURING THE YEAR ON WHICH LOSS WAS CLAIMED AS REVENU E. THE SAID OFFICE PREMISE WAS SHOWN AS CAPITAL WORK IN PROGRES S IN FIXED ASSETS IN THE BALANCE SHEET. IT IS NOT IN DISPUTE THAT THE SAID ASSET WAS NOT SHOWN AS STOCK IN TRADE IN THE ACCOUNTS TO CLAIM TH AT IT WAS BUSINESS ASSET AND NOT CAPITAL ASSET. SINCE ASSET WAS NOT ST OCK IN TRADE BUT CAPITAL WORK IN PROGRESS THE LOSS ON SALE OF THE SA ME IS NOT BUSINESS LOSS BUT CAPITAL LOSS ASSESSABLE IN CAPITAL GAIN HE AD. APPELLANTS ARGUMENT THAT IT EARNED RENT ON THE PROPERTY WHICH WAS DISCLOSED AS BUSINESS INCOME IS NOT RELEVANT TO TREAT THIS PROPE RTY AS STOCK IN TRADE. RENT RECEIVED ON ANY PROPERTY NOT USED FOR T HE PURPOSE OF OWN BUSINESS AND GIVEN ON RENT IS ASSESSABLE IN HOUSE P ROPERTY HEAD AS PER SECTION 22 OF IT ACT. THEREFORE, APPELLANTS AR GUMENT THAT ITS INCOME WAS SHOWN AS BUSINESS INCOME IS NOT RELEVANT TO DECIDE THE NATURE OF ASSET. THE LOSS COULD HAVE BEEN CLAIMED A S BUSINESS LOSS ONLY WHEN THE PROPERTY IN QUESTION WAS SHOWN AS STO CK IN TRADE IN THE BOOKS OF THE APPELLANT. SINCE THE PROPERTY WAS NOT SHOWN AS STOCK IN TRADE BUT CAPITAL WORK IN PROGRESS, THE LOSS ON SAL E IS NOT BUSINESS LOSS BUT CAPITAL LOSS. THE COPY OF ACCOUNT OF THIS PROPERTY AS PER ACCOUNTS SUBMITTED BY THE APPELLANT ALSO REFLECTED THIS LOSS AS CAPITAL LOSS OF RS.450501/-. IN VIEW OF THIS IT CANNOT BE S AID THAT THE LOSS IS BUSINESS LOSS FOR TAX PURPOSES. JUST BECAUSE DEPREC IATION WAS CLAIMED ON PROPERTY SHOWN AS CAPITAL WORK IN PROGRE SS, THE SAME IS NOT OUTSIDE THE PURVIEW OF CAPITAL GAIN HEAD. ASSES SING OFFICER HAS RIGHTLY TREATED THE SALE OF PROPERTY AS TRANSFER OF CAPITAL ASSET TAXABLE UNDER SECTION 45. THE APPLICABILITY OF SECTION 50 I N THE CASE OF DEPRECIABLE ASSET IS NOT RELEVANT IN THIS CASE. SIN CE THE PROPERTY SOLD IS CAPITAL ASSET, THE LOSS ON SALE IS SHORT TERM CA PITAL LOSS SINCE IT WAS ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 7 HELD FOR LESS THAN 36 MONTHS. ACCORDINGLY THE ADDIT ION MADE BY THE ASSESSING OFFICER IS CONFIRMED. FROM PERUSAL OF THE ABOVE FINDING IT REVEALS THAT A SSESSEE HAS NEVER ACCOUNTED THIS ASSET AS A STOCK IN TRADE IN THE ACC OUNTS, THEREFORE, IT CAN NEVER CLAIM AS BUSINESS LOSS ON SALE OF THE OFF ICE PREMISES WHICH IS OTHERWISE A CAPITAL ASSET. WE DO NOT FIND ANY ER ROR IN THE FINDING OF LD. CIT(A). ACCORDINGLY THIS GROUND IS REJECTED. 13. THE APPEAL OF THE ASSESSEE FOR AY 2006-07 IS PA RTLY ALLOWED. 14. NOW WE TAKE THE REMAINING GROUNDS OF ITA NO.181 8/AHD/2011 FOR AY 2007-08. 15. GROUND NO.2 IN THIS GROUND OF APPEAL GRIEVANC E OF ASSESSEE IS THAT LD.CIT(A) HAS ERRED IN CONFIRMING THE DISAL LOWANCE OF RS.29,272/- WHICH WAS DISALLOWED BY THE AO ON THE G ROUND THAT ASSESSEE FAILED TO DEPOSIT THE PF CONTRIBUTION COLL ECTED FROM THE EMPLOYEES WITHIN THE DUE DATE PROVIDED IN THE P.F. ACT. IT EMERGES FROM THE RECORD THAT ASSESSEE HAS DEPOSITED EMPLOYE ESCONTRIBUTION OF RS.29,272/- IN THE PF ACCOUNT AFTER 5 DAYS OF TH E DUE DATE PROVIDED UNDER THE PF ACT. THE LD. COUNSEL FOR THE ASSESSEE ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 8 CONTENDED THAT THIS ISSUE IS COVERED AGAINST THE AS SESSEE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF G.S.R.T. CORPN. REPORTED IN 366 ITR 170. HONBLE GUJARAT HIG H COURT HAS HELD THAT IF ASSESSEE FAILS TO DEPOSIT EMPLOYEES CONTRI BUTION WITHIN THE DUE DATE PROVIDED UNDER THE P.F. ACT THEN ASSESSEE WILL NOT BE ENTITLED FOR DEDUCTION. ACCORDINGLY, THE LD. FIRST APPELLATE AUT HORITY HAS RIGHTLY CONFIRMED THE DISALLOWANCE. THIS GROUND OF APPEAL I S REJECTED. 16. GROUND NOS. 3 TO 5 ARE INTER CONNECTED WITH EAC H OTHER. IN THESE GROUNDS OF APPEAL ASSESSEE HAS PLEADED THAT L D. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATIO N OF RS.13,11,225/- OUT OF DEPRECIATION CLAIMED ON THE BUILDINGS. THE A SSESSEE FURTHER PLEADED THAT CIT(A) HAS ERRED IN HOLDING THAT LEASE RENTAL INCOME EARNED FROM THE IMMOVABLE PROPERTY AND SHOWN AS BUS INESS INCOME IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY . THE CIT(A) FURTHER ERRED IN DIRECTING THE AO TO TAKE REMEDIAL ACTION WHEREVER ADMISSIBLE IN LAW FOR EARLIER YEARS TOO. 17. BRIEF FACTS OF THE CASE ARE THAT ON SCRUTINY OF THE ACCOUNTS IT REVEALED TO THE AO THAT ASSESSEE HAD MADE SEVERAL A DDITIONS IN THE ASSETS UNDER THE HEAD BUILDING. THE ASSESSEE HA S BEEN EARNING ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 9 RENTAL INCOME AS BUSINESS INCOME FROM LEASING O F THE PROPERTIES OWNED BY IT OR ACQUIRED BY IT ON LEASE. IT EMERGES OUT THAT ASSESSEE HAS MADE ADDITION OF RS.90 LAKHS IN AJARARNAR FLATS . THESE FLATS ACCORDING TO THE ASSESSEE WERE PURCHASED BEFORE 30/ 09/2006 AND, THEREFORE, IT IS ENTITLED FOR THE DEPRECIATION. THE OTHER FLATS HAVE BEEN PURCHASED SUBSEQUENTLY. THE ASSESSEE HAD FURTHER PU RCHASED PROPERTIES FOR A SUM OF RS.1,42,91,990/- AT ETERNIA COMPLEX. ACCORDING TO THE AO THE ASSESSEE FAILED TO PROVIDE COMPLETE DETAILS OF THE PROPERTIES AND HOW THEY WERE BEING PUT TO US E FOR THE BUSINESS PURPOSES. THE LD. AO HAS DISALLOWED THE CLAIM OF AS SESSEE AND MADE AN ADDITION OF RS.13,11,225/-. 18. ON APPEAL THE LD. FIRST APPELLATE AUTHORITY HAS CONFIRMED THE DISALLOWANCE. THE LD. CIT(A) ON THE STRENGTH OF FOL LOWING DECISIONS 1. MANGLA HOMES (P) LTD. VS. INCOME-TAX OFFICER (20 09) 182 TAXMAN 55 (BOM). 2. EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LT D. VS. COMMISSIONER OF INCOME-TAX (1961) 42 ITR 49 (SC). 3. KEYARAM HOTELS (P) LTD. VS. ASSTT. COMMISSIONER OF INCOME-TAX (2008) 173 TAXMAN 262 (MAD). 4. SHAMBHU INVESTMENT (P) LTD. VS. COMMISSIONER OF INCOME-TAX (2003) 129 TAXMAN 70 (SC). ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 10 HAS OBSERVED THAT INCOME FROM HOUSE PROPERTY IS TO BE ASSESSED UNDER THE HEAD AS INCOME FROM HOUSE PROPERTY. A CCORDING TO THE LD. CIT(A) WHEN A SPECIFIC HEAD HAS BEEN PROVIDED UNDER THE INCOME-TAX ACT FOR ASSESSING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY THEN IT CANNOT BE ASSESSED AS BUSINESS INCOME. 19. WITH THE ASSESSEES LD. REPRESENTATIVE WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE LD. COUNSEL FOR THE ASSES SEE HAS PLACED ON RECORD THE DETAILS OF THE FLATS PURCHASED DURING TH E YEAR. AT AJARMAR FLATS, ASSESSEE HAD PURCHASED 17 FLATS ON 27.9.2006 . OUT OF THEM 9 FLATS HAD BEEN LEASED OUT. THE ASSESSEE HAS OFFERED RENTAL INCOME AS BUSINESS INCOME. THE AO HAS ALSO RECOGNIZED THIS FACT IN THE ASSESSMENT ORDER BUT HE OBSERVED THAT LEASE RENTS W ERE NOT RECEIVED BY THE ASSESSEE FROM FLAT NOS. FF01, FF01A, FF03, F F10, GF01, GF01A, GF03, GF10. THE CONTENTION OF THE ASSESSEE W AS THAT ALL THE FLATS WERE PURCHASED IN ONE LOT. THEY WERE READY TO USE. SOME OF THE FLATS HAVE ACTUALLY BEEN LEASED OUT AND LEASE RENTA L INCOME HAS RESULTED TO THE ASSESSEE. AS FAR AS THE REMAINING F LATS ARE CONCERNED THE PASSIVE USER FOR THE PURPOSE OF THE BUSINESS HA S BEEN ESTABLISHED. BECAUSE THEY WERE ALSO READY FOR LEASI NG OUT. SOMEHOW ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 11 THE PROSPECTIVE TENANTS WERE NOT AVAILABLE. THE OTH ER ADDITION TO THE PROPERTY RELATES TO ETERNIA COMPLEX. THE ASSESSEE H AS PURCHASED 8 UNITS ON 31 ST MARCH, 2007. NONE OF THE UNIT WAS LEASED OUT. 20. THE STAND OF THE LD. DR ON THE OTHER HAND WAS, THAT THE INCOME FROM THESE PROPERTIES ARE TO BE ASSESSED UNDER THE HEAD HOUSE PROPERTY INCOME AND NO DEPRECIATION CAN BE GRANTE D TO THE ASSESSEE. IT IS STATED THAT SPECIFIC DEDUCTION IS A VAILABLE UNDER SECTION 24 OF THE I.T. ACT. 21. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTEN DED THAT CIT(A) HAS ERRED IN OBSERVING THAT THE RENTAL INCOME CAN N EVER BE ASSESSED UNDER THE HEAD HOUSE PROPERTY INCOME HE RELIED UP ON THE JUDGEMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CA SE OF CIT-1 VS. PRAKASH AGRIHOTRI 46 TAXMANN.COM 145 (ALL). HE PLAC ED ON RECORD A COPY OF THE DECISION. IN THIS CASE THE ASSESSEE OWN ED A SHOPPING MALL. HE LET OUT A PORTION OF THE SAID MALL. HE OFF ERED THE RENTAL INCOME AS A BUSINESS INCOME. HOWEVER, THE AO ASSESS ED THE INCOME UNDER THE HEAD HOUSE PROPERTY INCOME. THE TRIBUNAL HAS ALLOWED THE CLAIM OF THE ASSESSEE WITH OBSERVATION THAT IF EARNING OF RENTAL INCOME IN AN ORGANIZED MANNER OF RUNNING THE BUSINESS IS ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 12 BEING CARRIED OUT THEN THAT INCOME HAS TO BE ASSESS ED AS BUSINESS INCOME. HONBLE ALLAHABAD HIGH COURT HAS UPHELD THE VIEW OF THE TRIBUNAL IN THIS RESPECT. 22. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES WE FIND THAT AS FAR AS THE DECISIONS REFERRED TO BY THE LD. CIT(A) ARE CONCERNED, THEY ARE NOT APPLICABLE ON THE FACTS OF PRESENT CASE. IN THOSE DECISIONS EARNING OF RENTAL INCOME WAS NOT CA RRIED OUT AS A BUSINESS ACTIVITY RATHER IT WAS AN INCIDENTAL INCOM E. FOR EXAMPLE IN THE FIRST CASE I.E.MANGLA HOMES (P) LTD. (SUPRA) TH E ASSESSEE COMPANY WAS INCORPORATED WITH THE MAIN OBJECT OF CA RRYING OUT BUSINESS OF DEALING WITH INVESTMENT IN PROPERTIES- FLATS, WAREHOUSES, ETC. THE ASSESSEE HAD PURCHASED CERTAIN FLATS FOR T RADING PURPOSES. DUE TO RECESSATION IN THE MARKET SAID FLATS COULD N OT BE SOLD AND HENCE THOSE WERE LET OUT. THE RENTAL INCOME WAS OFF ERED AS BUSINESS INCOME. HOWEVER, IT WAS HELD THAT SUCH INCOME WAS T O BE UPHELD AS A HOUSE PROPERTY INCOME. THERE IS A DISTINCTION BETWE EN THE FACTS. THE MAIN ACTIVITY OF THE ASSESSEE WAS NOT EARNING RENTA L INCOME RATHER IT WAS AN ACTIVITY OF TRADING IN THE FLATS. RENTAL WAS AN INCIDENTAL INCOME. SIMILAR ARE THE FACTS OF OTHER CASES. THE M AIN ACTIVITY OF THE ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 13 ASSESSEE WAS NOT THE EARNING OF RENTAL INCOME. THE INCOME-TAX ACT DOES NOT PROHIBIT CARRYING OUT EARNING OF RENTAL IN COME AS A BUSINESS INCOME IN AN ORGANIZED MANNER IF THAT BE SO THE INC OME WILL BE ASSESSED AS A BUSINESS INCOME AND NOT UNDER THE HEA D HOUSE PROPERTY INCOME. THE LD. CIT(A) IS NOT JUSTIFIED I N CHANGING THE HEAD WHICH WAS ACCEPTED BY THE AO. IN VIEW OF THE ABOVE, THE DIRECTIONS OF THE LD. CIT(A) FOR TAKING THE REMEDIAL ACTION IN AL L OTHER ASSESSMENT YEARS WHERE IT IS POSSIBLE AS PER LAW IS CONCERNED, THESE DIRECTIONS WILL AUTOMATICALLY BE EXTINGUISHED BECAUSE RENTAL I NCOME IN THE CASE OF THE ASSESSEE IS TO BE ASSESSED AS BUSINESS INCOM E. 23. AS FAR AS ALLOWANCE OF DEPRECIATION IS CONCERNE D WE FIND THAT THE AJARMAR FLATS WERE PURCHASED BY THE ASSESSEE BE FORE 30 TH SEPTEMBER, 2006. OUT OF 17 FLATS, 9 FLATS WERE ACTU ALLY LET OUT, EXHIBITING THE FACT THAT THE ASSET WAS READY FOR US E IN THE BUSINESS. IT IS CONSTRUED THAT ASSETS WERE USED PASSIVELY FOR TH E PURPOSE OF BUSINESS AND, THEREFORE, DEPRECIATION IS ADMISSIBLE TO THE ASSESSEE. WE DIRECT THE AO TO GRANT DEPRECIATION ON THE VALUE OF THESE FLATS. THE LD. AO SHALL CARRY OUT THIS EXERCISE AFTER PROV IDING OPPORTUNITY TO THE ASSESSEE. ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 14 24. AS FAR AS THE PROPERTIES PURCHASED AT ETERNIA C OMPLEX IS CONCERNED, THESE PURCHASES WERE MADE ON 31 ST MARCH, 2007 I.E. LAST DAY OF ACCOUNTING YEAR AND THE ASSESSEE COULD NOT B RING ANY EVIDENCE ON THE RECORD DEMONSTRATING THAT THESE FLA TS WERE READY FOR USE OR GIVING THEM ON RENT. THERE IS NO EVIDENCE OF THIS ON RECORD. THUS THERE CANNOT BE ANY PASSIVE USER OF THESE FLAT S. THE ASSESSEE IS NOT ENTITLED FOR DEPRECIATION ON THESE ASSETS. W E CONFIRM THE VIEW OF AO ON THIS POINT. ACCORDINGLY THIS ISSUE IS PART LY ALLOWED. 25. IN THE RESULT, BOTH THE APPEALS OF ASSESSEE AR E PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/5/2015 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (RAJPAL YADAV) JUDICIAL MEMBER DATED 29/5/15 MAHATA/- ITA NOS 1318 & 1818/AHD/2011. ASST. YEARS 2006-07 & 2007-08 15 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 26/5/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 27/5/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 29/5/15 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: