ACIT, CIR-35, KOLKATA, Kolkata V. Smt Madhu Devi Saraf, Kolkata

ITA 1325/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1015 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 28-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACHARJEE
• Assessee Lawyers: P N KESHARI
• Keywords: Business income; Earning of tax free income; Fair market value; Competent authority; Reassessment proceedings
• Section: 143(3); 14A; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SHRI M.BALAGANESH, AM & SHRI S.S. VISWANETHRA RAVI, JM] I.T.A NO. 1325/KOL/20 15 ASSESSMENT YEAR : 2010-1 1 ACIT, CIRCLE-35, KOLKATA -VS- SMT. MADH U DEVI SARAF [PAN: ALIPS 0989 F] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI ARINDAM BHATT ACHARJEE, ADDL. CIT FOR THE RESPONDENT : SHRI P.N. KESHARI, FCA DATE OF HEARING : 06.11.2017 DATE OF PRONOUNCEMENT : 15.11.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORD ER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-10, KOLKATA [IN SHORT THE LD CI T(A)] IN APPEAL NO. 30/CIT(A)- 10/CIR-35/2014-15/KOL DATED 27.08.2015 AGAINST THE ORDER PASSED BY THE ACIT, CIRCLE- 35, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 14 7/251/154/143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 06.02.2015 FO R THE ASSESSMENT YEAR 2010-11. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 14A OF THE ACT READ WITH RULE 8D(2)(II) OF THE ACT, IN THE FACTS AND CIRCUMSTANCES OF THE C ASE. 3. THE BRIEF FACT OF THIS ISSUE IS THAT THE ASSESSE E FILED HER RETURN OF INCOME ON 30.10.2010 DECLARING TOTAL INCOME OF RS. 8,42,27,18 2/- FOR THE ASSESSMENT YEAR 2010-11. 2 ITA NO.1325/KOL/2015 MADHU DEVI SARAF A.YR.2010-11 2 THE ORIGINAL ASSESSMENT WAS FRAMED U/S 143(3) OF TH E ACT ON 15.03.2013 DETERMINING TOTAL INCOME AT RS. 8,82,18,700/-. THIS INCOME WAS LATER REDUCED TO RS. 4,53,07,588/- VIDE ORDER PASSED U/S 251/154/143(3) OF THE ACT DAT ED 04.02.2015. THE ASSESSEE DERIVED EXEMPT INCOME IN THE FORM OF DIVIDEND TO THE TUNE O F RS. 1,69,63,044/- AND INTEREST FROM PPF AMOUNTING TO RS. 4,77,417/-. THE ASSESSEE VOLUNTARILY DISALLOWED THE SUM OF RS. 5 LAKHS ON AN AD HOC BASIS U/S 14A OF THE ACT I N THE ORIGINAL RETURN OF INCOME. IN THE ORIGINAL ASSESSMENT, THE LD. AO OBSERVED THAT THOUG H THE DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE RULES WORKS OUT TO RS. 75,60,83 9/-, SINCE THE ASSESSEE HAD DEBITED TOTAL EXPENSES IN HER PROFIT AND LOSS ACCOUNT ONLY TO THE TUNE OF RS. 40,73,576/-, THE DISALLOWANCE U/S 14A OF THE ACT WAS ALSO RESTRICTED TO RS. 40,73,576/-. THE LD. AO LATER OBSERVED THAT THE ASSESSEE HAD ACTUALLY PAID A SUM OF RS. 1,39,77,495/- TOWARDS INTEREST ON LOANS WHICH WAS NETTED OFF WITH INTEREST INCOME IN THE PROFIT AND LOSS ACCOUNT, THEREBY REDUCING THE TOTAL AMOUNT DEBITED TO PROFIT AND LOSS ACCOUNT TO RS. 40,73,576/-. SINCE, THIS HAS A BEARING ON THE DISALLOWANCE MADE U/S 14A OF THE ACT IN THE ORIGINAL ASSESSMENT, THE LD. AO REOPENED THE ASSESSMENT U/S 147 OF THE ACT. IN THE REASSESSMENT, THE LD. AO DISALLOWED THE SUM OF RS. 70,60,839/- (75,60,839 5,00,000) U/S 14A OF THE ACT READ WITH RULE 8D(2) OF THE RULE S. 4. THE LD. CIT(A) OBSERVED THAT THE APPEAL AGAINST THE ORIGINAL ASSESSMENT ORDER U/S 143(3) OF THE ACT DATED 15.03.2013 WAS DISPOSED OFF BY THE LD. CIT(A)-XX VIDE ORDER DATED 09.09.2014, WHEREIN, THE ASSESSEE HAS ONLY PO SITIVE INTEREST INCOME (NET OF RS. 4,50,84,575/-) AND HENCE, THERE IS NO SCOPE FOR DIS ALLOWANCE OF INTEREST IN TERMS OF RULE 8D(2)(II) OF THE RULES. IN RESPECT OF DISALLOWANCE TO BE MADE UNDER RULE 8D(2)(III), THE LD. CIT(A)-XX HAD OBSERVED THAT THE TOTAL REMAINING EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT TO THE TUNE OF RS. 40,73,576/- PERTAIN ED TO THE EXPENSES RELATED TO BUSINESS INCOME OF THE ASSESSEE AND HENCE, THEY CANNOT BE AT TRIBUTED AS EXPENDITURE INCURRED FROM EARNING EXEMPT INCOME. ACCORDINGLY, THE DISALL OWANCE MADE UNDER RULE 3 ITA NO.1325/KOL/2015 MADHU DEVI SARAF A.YR.2010-11 3 8D(2)(III) WAS ALSO DELETED BY THE ERSTWHILE LD. CI T(A) IN THE ORIGINAL ASSESSMENT PROCEEDINGS FRAMED U/S 143(3) OF THE ACT FOR THE AS SESSMENT YEAR 2010-11. 4.1. THE LD. CIT(A) WHILE PASSING THE IMPUGNED ORD ER PLACED RELIANCE ON THE SAID ORDER OF HIS PREDECESSOR AND DELETED THE DISALLOWANCE MAD E U/S 14A READ WITH RULE 8D(2)(II) OF THE RULES TO THE TUNE OF RS. 49,31,531/-. AGGRIE VED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE U/S 14A READ WITH RULE 8 D(II) WITHOUT CONSIDERING THAT COMPUTATION OF DISALLOWANCE UNDER RULE 8D(II) IS BASED ON TOTAL INTEREST PAID AND NOT ON THE NETTING OF INTEREST INCOME. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THA T IN THE ORIGINAL ASSESSMENT PROCEEDINGS FRAMED U/S 143(3) OF THE ACT FOR THE AS SESSMENT YEAR 2010-11, THE DISALLOWANCE MADE U/S 14A OF THE ACT WAS DELETED BY THE LD. CIT(A) VIDE ORDER DATED 09.09.2014. AGAINST THIS ORDER, THE REVENUE HAD PRE FERRED AN APPEAL BEFORE THIS TRIBUNAL AND THIS TRIBUNAL IN I.T.A. NO. 2216/KOL/2014 DATED 16.08.2017 HAD HELD THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS WHICH IS SEVERAL TIMES MORE THAN THE INVESTMENT MADE BY HER AND HENCE, THERE IS NO NEED TO MAKE ANY DISA LLOWANCE UNDER RULE 8D(2)(II) OF THE RULES. THIS TRIBUNAL ALSO HELD WITH REGARD TO THE D ISALLOWANCE UNDER RULE 8D(2)(III), THE ASSESSEE ON HER OWN HAD DISALLOWED A SUM OF RS. 5 L ACS IN THE RETURN OF INCOME OUT OF TOTAL ADMINISTRATIVE EXPENSES OF RS. 40,73,576/-. T HE LD. AO HAD NOT RECORDED ANY SATISFACTION AS TO HOW THE SAID DISALLOWANCE MADE BY THE ASSESSEE IS INCORRECT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IN TERMS OF SECTION 14A(2) OF THE ACT READ WITH RULE 8D(1) OF THE RULES. ACCORDINGLY, THIS TRIBUNAL HELD THAT THE OTHER DISALLOWANCE UNDER RULE 8D(2)(III) DELETED BY THE LD. CIT(A) WAS IN ORDER AND DISMISSED THE APPEAL OF THE REVENUE. WE FIND THAT THE AFORESAID FINDING GIVEN WOULD SQUARELY APPLY TO THE 4 ITA NO.1325/KOL/2015 MADHU DEVI SARAF A.YR.2010-11 4 INSTANT APPEAL ALSO AS ADMITTEDLY THE REVENUE HAD A GITATED THE DISALLOWANCE MADE UNDER RULE 8D(2)(II) OF THE RULES IN THE SUM OF RS. 49,31 ,531/-. SINCE, THIS ISSUE HAD ALREADY BEEN DECIDED BY THIS TRIBUNAL IN I.T.A. NO. 2216/KO L/2014 DATED 16.08.2017 IN ASSESSEES CASE FOR THE ASSESSMENT YEAR 2010-11 IN ORIGINAL ASSESSMENT PROCEEDINGS, THERE IS NO NEED TO ADJUDICATE THE SAME AGAIN IN TH E REASSESSMENT PROCEEDINGS. HENCE, THE GROUND NO. 1 RAISED BY THE REVENUE IS DISMISSED . 6. THE NEXT GROUND TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE TOWARDS REN TAL INCOME IN THE SUM OF RS. 8,40,000/- IN RESPECT OF FIVE SHOPS, IN THE FACTS A ND CIRCUMSTANCES OF THE CASE. 7. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE HAD ACQUIRED FIVE SHOPS AT SATYANARAYAN PARK, A.C. MARKET, KOLKATA FROM HER LA TE HUSBAND SHRI SANKAR LAL SARAF, WHO EXPIRED ON 15.05.2005. THESE FIVE SHOPS WERE VE STED ON THE ASSESSEE IN TERMS OF LAST WILL OF HER HUSBAND. LATE SHRI SANKAR LAL SARA F HAD ACQUIRED THESE SHOPS UNDER DEED OF SUB-LICENSE MADE ON 25.08.1995 BETWEEN HAPPY HOM ES & HOTELS PVT. LTD. (LICENSEE AND SANKAR LAL SARAF AS SUB-LICENSEE). LATE SHRI SA NKAR LAL SARAF HAD PAID A SUM OF RS. 3,77,576/- AS PREMIUM TO M/S HAPPY HOMES & HOTELS P VT. LTD. FOR THE ABOVE FIVE SHOPS. M/S CALCUTTA MUNICIPAL CORPORATION, BEING LI CENSOR OF SATYANARAYAN PARK, AC MARKET, IS THE OWNER OF THE SHOPS BEING CONSTRUCTED AND DEVELOPED BY LICENSEE M/S HAPPY HOMES & HOTEL PVT. LTD.. IGNORING THE AFORES AID FACTS, THE LD. AO IN THE REASSESSMENT PROCEEDINGS OBSERVED, THAT THE ASSESS EE IS THE OWNER OF FIVE SHOPS AT SATYANARAYAN PARK, AC MARKET AND SINCE THERE WAS NO RENTAL INCOME OFFERED BY THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN RESPECT OF THESE FIVE SHOPS, HE DEPUTED HIS INSPECTOR FOR ASCERTAINING THE FAIR MAR KET VALUE OF RENT FOR THESE FIVE SHOPS. THE INSPECTOR REPORTED THE FAIR MARKET RENT OF THES E SHOPS AT RS. 20,000/- PER MONTH PER 5 ITA NO.1325/KOL/2015 MADHU DEVI SARAF A.YR.2010-11 5 SHOP OF APPROXIMATELY 80 SQ. FT. ACCORDINGLY, THE L D. AO DETERMINED THE GROSS RENTAL INCOME AT RS. 12 LACS, BEING THE ANNUAL VALUE DETER MINED BASED ON INSPECTORS REPORT (20,000 X 12X 5 SHOPS = 12 LACS). FROM THIS GROSS RENTAL INCOME, THE LD. AO GRANTED STANDARD DEDUCTION @ 30% TOWARDS REPAIRS AND DETERM INED THE NET RENTAL INCOME OF RS. 8,40,000/- UNDER THE HEAD INCOME FROM HOUSE PROPERT Y AND COMPLETED THE REASSESSMENT. 8. BEFORE THE LD. CIT(A), THE ASSESSEE PLEADED THAT SHE IS NOT THE OWNER OF THE PROPERTY AND HENCE THERE COULD NOT BE ANY CHARGE OF RENTAL I NCOME OF NOTIONAL BASIS UNDER THE HEAD INCOME FROM HOUSE PROPERTY ON HER. SHE ALSO PL ACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF R.B. JODHA MAL KUTHIALA VS. CIT REPORTED IN [1971] 82 ITR 570; DECISION OF HONBLE KARNATAKA HI GH COURT IN THE CASE OF CIT VS. SMT. DIVYA DEVI REPORTED IN [1996] 217 ITR 824 & TH E DECISION OF HON'BLE SUPREME COURT IN THE CASE OF S.G. MERCANTILE PVT. LTD. VS. CIT REPORTED IN [1972] 83 ITR 700 IN SUPPORT OF HER CONTENTIONS. THE LD. CIT(A) DELETED THE ADDITION BY MAKING THE FOLLOWING OBSERVATIONS:- 10. I HAVE CONSIDERED THE OBSERVATION OF AO AND AL SO THE SUBMISSION MADE BY LD. AR. IT IS NOTED FROM DEED OF SUB-LICENSE MADE ON 25.08 .1995 THAT THE APPELLANT IS SUB- LICENSEE OF THE SHOPS AND M/S HAPPY HOME & HOTEL P VT. LTD. IS LICENSE AND THE CALCUTTA MUNICIPAL CORPORATION IS LICENSOR OF THE SATYANARAYAN PARK, A. C. MARKET. ACCORDINGLY, IT IS QUITE CLEAR THAT THE APPELLANT I S NOT THE OWNER OF THE SHOPS. IN TERMS OF PROVISION OF SECTION 22 OF I.T. ACT, 1961 THE ANNU AL VALUE OF PROPERTY CONSISTING OF ANY BUILDING OR LANDS APPURTENANT THERETO OF WHICH THE ASSESSEE IS THE OWNER, OTHER THAN SUCH PORTIONS OF SUCH PROPERTY AS HE MAY OCCUPY FO R THE PURPOSE OF ANY BUSINESS OF PROFESSION CARRIED ON BY HIM THE PROFITS OF WHICH A RE CHARGEABLE TO INCOME TAX HEAD INCOME FROM HOUSE PROPERTY. I AM UNABLE TO AGREE WITH THE OBSERVATION OF THE AO THAT THE SHOP(S) IS A BUSINESS ASSET AND COVERED U NDER HOUSE PROPERTY INCOME FOR TAXABILITY. THEREFORE, I AM UNABLE TO SUSTAIN THE ADDITION OF R S. 8,40,000/- MADE BY AO TOWARDS THE INCOME FROM HOUSE PROPERTY FOR DEEMED RENT. THE SAID ADDITION IS DIRECTED TO BE DELETED. 6 ITA NO.1325/KOL/2015 MADHU DEVI SARAF A.YR.2010-11 6 9. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN CONSIDERING THAT THE ASSESSEE IS NOT THE OWNER OF T HE SHOPS AND DELETING THE ADDITION ON RENTAL INCOME WHICH IS SUPPORTED BY LD. CIT(A)S ORDER DATED 12.06.2015 FOR THE A.Y. 2011-12 ON THE SAME ISSUE A ND ON THE FINDINGS MADE BY THE AO ON THE BASIS OF DEPARTMENTAL INSPECTOR. LD. CIT(A) HAS ALSO ERRED BY NOT CONSIDERING THE ORDER DATED 12.06.2015 ON THE SAME ISSUE PASSED BY HIS PREDECESSOR. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THE LD. CIT(A) HAD GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE IS NOT THE OW NER OF THESE FIVE SHOPS HENCE, THE PROVISION OF SECTION 22 OF THE ACT CANNOT BE INVOKE D IN THE INSTANT CASE. WE FIND THAT THE PROVISION BEING DEEMED TO BE LET OUT WOULD APPL Y ONLY WHEN THE ASSESSEE PRIMA FACIE IS THE OWNER OF THE PROPERTY. THE SAME CANNOT BE MADE APPLICABLE FOR BUSINESS ASSETS. IN THE INSTANT CASE, THE ASSESSEE HAD USED THESE FIVE SHOPS FOR THE PURPOSE OF HER BUSINESS IN THE CAPACITY OF SUB-LICENSEE. THESE FAC TS ARE NOT IN DISPUTE. HENCE THERE IS NO SCOPE FOR ASSESSMENT OF RENTAL INCOME ON NOTIONAL B ASIS ON FAIR MARKET VALUE DETERMINED BY THE INSPECTOR OF INCOME TAX. THE LD. AR ALSO DRE W OUR ATTENTION TO THE PROVISIONS OF NEWLY INSERTED SUB-SECTION (5) TO SECTION 23 OF THE FINANCE ACT, 2017 W.E.F. 01.04.2018. FOR THE SAKE OF CONVENIENCE, THE NEWLY INSERTED SEC TION 23(5) IS REPRODUCED HEREIN BELOW: 5. WHERE THE PROPERTY CONSISTING OF ANY BUILDING O R LAND APPURTENANT THERETO IS HELD AS STOCK-IN-TRADE AND THE PROPERTY OR ANY PART OF THE PROPERTY IS NOT LET DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR, THE ANNUAL VALUE OF SUCH PROPERTY OR PART OF THE PROPERTY, FOR THE PERIOD UP TO ONE YEAR FROM THE END OF THE F INANCIAL YEAR IN WHICH THE CERTIFICATE OF COMPLETION OF CONSTRUCTION OF THE PROPERTY IS OB TAINED FROM THE COMPETENT AUTHORITY, SHALL BE TAKEN TO BE NIL. 7 ITA NO.1325/KOL/2015 MADHU DEVI SARAF A.YR.2010-11 7 FROM THE AFORESAID PROVISION, IT WOULD BE CLEAR THA T THE LEGISLATURE IN ITS WISDOM HAD CONTEMPLATED TO BRING TO TAX THE RENTAL INCOME FROM PROPERTIES HELD AS STOCK IN TRADE ON NOTIONAL BASIS AFTER ONE YEAR FROM THE DATE ON WHIC H THEY WERE ACQUIRED, AND THIS AMENDMENT IS EFFECTIVE ONLY FROM 01.04.2018. WE FIN D SIMILAR PROVISION WAS CONSPICUOUSLY ABSENT PREVIOUSLY UNDER THE INCOME TA X ACT MORE PARTICULARLY, UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR CHARGEABILITY OF NOTIONAL INCOME FOR FIVE SHOPS. HENCE, WE HOLD THAT THE LD. CIT(A) HAD RIGHTLY DELETED THE ADDITION MADE TOWARDS RENTAL INCOME UNDER THE HEAD INCOME FR OM HOUSE PROPERTY IN THE INSTANT CASE AND ACCORDINGLY, THE GROUND NO. 2 OF THE REVEN UE IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 15.11.2017 SD/- SD/- [S.S. VISWANETHRA RAVI] [ M.BALAGA NESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 15.11.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. ACIT, CIRCLE-35, KOLKATA, AAYAKAR BHAWAN POORVA, 8 TH FLOOR, 110, SHANTI PALLI, KOLKATA- 700107. 2. SMT. MADHU DEVI SARAF, 31, SHAKESPEARE SARANI, J ASMINE TOWER, 4 TH FLOOR, R. NO. 405A & B, KOLKATA-700017. 3..C.I.T.- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S