V.N. KARBHATKAR, MUMBAI V. D.C.I.T.-6(2), MUMBAI

ITA 1838/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1782 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 19-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 04-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Keywords: Business income; Depreciation; Additional evidence; Initiation of penalty proceedings; Surrender of tenancy right
• Section: 143(3); 56(2); 234B; 12; 28; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 1838/MUM/2011 (ASSESSMENT YEAR: 2006-07) SHRI V.N. KARBHATKAR VS. INCOME TAX OFFICER - 19(3)(4) 4 - 5, CHAPEL AVENUE CHAPEL ROAD, BANDRA (W) MUMBAI 400050 MUMBAI PAN AACPK2651B APPELLANT RESPONDENT APPELLANT BY: SHRI NITESH JOSHI RESPONDENT BY: MS. POOJA SWAROOP DATE OF HEARING: 17.11.2016 DATE OF PRONOUNCEMENT: 01.12.2016 O R D E R PER JASON P. BOAZ, A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- 30, MUMBAI DATED 20.12.2010 FOR A.Y. 2006-07. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: - 2.1 THE ASSESSEE, PROPRIETOR OF M/S. VENUS CONFECTI ONERS AND M/S. VENUS CAKES & COOKIES, ENGAGED IN THE BUSINESS AS A MANUF ACTURER OF CONFECTIONARY GOODS, FILED HIS RETURN OF INCOME FOR A.Y. 2006-07 ON 31.10.2006 DECLARING TOTAL INCOME OF ` 4,32,665/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX AC T, 1961 (IN SHORT 'THE ACT') AND THE CASE WAS SUBSEQUENTLY TAKEN UP FOR SC RUTINY. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 19.12.2008; WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT ` 95,76,400/-. THE ASSESSEES APPEAL BEFORE THE CIT(A )-30, MUMBAI WAS PARTIALLY ALLOWED VIDE THE IMPUGNED ORDER DATED 20. 12.2010. ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 2 3. AGGRIEVED BY THE ORDER OF THE CIT(A)-30, MUMBAI DAT ED 20.12.2010 FOR A.Y. 2006-07, THE ASSESSEE HAS PREFERRED THIS APPEA L RAISING THE FOLLOWING CONCISE GROUNDS: - 1. THE COMMISSIONER OF INCOME TAX (APPEALS) [HERE INAFTER CALLED THE CIT (A)] ERRED IN NOT ADMITTING ADDITIONAL EVIDENCE S AS SUBMITTED BY THE APPELLANT. 2. THE CIT (A) ERRED IN CONFIRMING THE DISALLOWING RS.50000 OUT OF ADMINISTRATIVE EXPENSES OF RS.684372. 3. THE CIT (A) ERRED IN CONFIRMING TREATMENT OF TH E COMPENSATION OF:- A. RS. 480000 FROM LEAVE AND LICENSE OF THE APPELLANT' S BAKERY (ALONG WITH MACHINERY AND ALL AMENITIES REQUIRED FO R MANUFACTURING BAKERY PRODUCTS) B. RS. 240000 FROM LEAVE AND LICENSE OF THE APPELLANT' S SHOP (ALONG WITH FURNITURE, FIXTURE & KITCHEN EQUIPMENTS REQUIR ED FOR RUNNING THE SHOP FOR SELLING BAKERY PRODUCTS) SITUATED AT GROUND FLOOR OF BUILDING KNOWN AS PRAB HU SMARAN UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' INSTEAD OF INCOME UNDER THE HEAD 'INCOME FROM BUSINESS' / 'INCOME FRO M OTHER SOURCES'. 4. THE CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF EXPENDITURE OF RS. 497486 IN RESPECT OF VASAI PROPERTY [INCOME TAXED U NDER THE HEAD 'INCOME FROM HOUSE PROPERTY' AS AGAINST THE CLAIM O F 'INCOME FROM OTHER SOURCE'] AND CAR REGISTERED AT VASAI BUT USED FOR OTHER BUSINESS COMPRISING OF :- A. PROPERTY TAX RS. 18,349, B. FACTORY INSURANCE RS.15,024, C. BANK INTEREST & CHARGES RS.84,078, D. CAR EXPENSES RS.40,843 (REGISTERED AT VASAI ADDR ESS BUT USED FOR OTHER BUSINESS CARRIED ON AT BANDRA AND JOGESHW ARI, INCOME FROM WHICH IS TAXED UNDER THE HEAD 'INCOME FROM BUS INESS'), E. DEPRECIATION OF RS.1,93,515 ON PREMISES, F. DEPRECIATION OF RS.75,124 ON MACHINERY, EQUIPMEN T AND FURNITURE GIVEN ALONG WITH FACTORY AND SHOP, AND G. DEPRECIATION OF RS.70,553 ON CAR (REGISTERED AT VASAI ADDRESS BUT USED FOR OTHER BUSINESS CARRIED ON AT BANDRA AN D JOGESHWARI, INCOME FROM WHICH IS TAXED UNDER THE HE AD 'INCOME FROM BUSINESS') 5. THE CIT (A) ERRED IN CONFIRMING TAXING OF CAPITA L GAINS ARISING FROM TRANSFER / RELINQUISHMENT OF TENANCY RIGHT IN PART OF GROUND FLOOR AND ENTIRE FIRST FLOOR IN 'VILLA MARIA' AT 7A REBEL LO ROAD, BANDRA (WEST), MUMBAI 400 050 IN AY 2005-06 ON SUBSTANTIVE BASIS AND ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 3 IN AY 2006-07 ON PROTECTIVE BASIS AS AGAINST AY 200 7-08 CLAIMED BY THE APPELLANT. 6. THE CIT (A) ERRED IN CONFIRMING CHARGING OF INTE REST UNDER SECTION 234B OF THE INCOME TAX ACT, 1961 (THE ACT) OF RS.6, 86,328 AND UNDER SECTION 234C OF THE ACT OF RS 820 7. THE CIT (A) ERRED IN HOLDING THAT THE GROUND REL ATING TO INITIATION OF THE PENALTY PROCEEDINGS U/S 271(1) (C) OF THE ACT I S PREMATURE. 4. GROUND NO. 1 ADMISSION OF ADDITIONAL EVIDENCE 4.1 IN THIS GROUND, THE ASSESSEE CONTENDS THAT THE LEARNED CIT(A) ERRED IN NOT ADMITTING OR CONSIDERING THE ADDITIONAL EVIDENC E PUT FORTH. WE HAVE HEARD THE RIVAL CONTENTIONS PUT FORTH AND PERUSED A ND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IN OUR VIEW, THE AVERMENTS MADE BY THE ASSESSEE APPEAR TO BE UNFOUNDED AND FACTUALLY INCORRECT. IT IS A MATTER OF RECORD THAT AT PARA 3.1 OF THE IMPUGNED ORDER, THE LEARNED CIT(A) HAS NOTED THAT IN THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSEE SUBMITTED ADDITIONAL EVIDENCE IN THE FORM OF COPIES OF LEDGER ACCOUNTS A ND VOUCHERS, WHICH WERE FORWARDED TO THE ASSESSING OFFICER (AO) UNDER RULE 46A OF THE I.T. RULES, 1962 FOR MAKING NECESSARY ENQUIRIES/VERIFICATION AN D REPORT THEREON. IT IS ALSO RECORDED THAT THE AO SUBMITTED THE REMAND REPO RT DATED 24.06.2010 IN THE MATTER. IN THESE CIRCUMSTANCES, WE FIND NO M ERIT IN THE ASSESSEES CONTENTIONS THAT THE ADDITIONAL EVIDENCE PUT FORTH WAS NOT ADMITTED OR CONSIDERED BY THE LEARNED CIT(A) AND ACCORDINGLY DI SMISS GROUND NO. 1. 5. GROUND NO. 2 DISALLOWANCE OUT OF ADMINISTRATIVE E XPENDITURE ` `` ` 50,000/- 5.1 IN THIS GROUND, THE ASSESSEE ASSAILS THE LEARNE D CIT(A) IN CONFIRMING THE DISALLOWANCE OF ` 50,000/- OUT OF ADMINISTRATIVE EXPENSES OF ` 6,84,372/-. ACCORDING TO THE LEARNED A.R. OF THE AS SESSEE ALL THE ADMINISTRATIVE EXPENSES WERE INCURRED FOR THE PURPO SE OF THE ASSESSEES BUSINESS EXCEPT FOR A PART OF THE RESIDENTIAL TELEP HONE EXPENSES OF ` 32,817/-, DONATION OF ` 14,000/- AND PREVIOUS YEARS EXPENSES OF ` 6,575/- WHICH WERE ALREADY DISALLOWED IN THE RETURN OF INCO ME. IT IS CONTENDED THAT THE ADHOC DISALLOWANCE OF ` 50,000/- MADE AND CONFIRMED BY THE AUTHORITIES BELOW WAS EXCESSIVE AND MADE WITHOUT AN Y PROPER REASON BEING ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 4 ASSIGNED FOR THE SAME AND THEREFORE THE SAME SHOULD BE DELETED OR SUBSTANTIALLY REDUCED. 5.2 PER CONTRA, THE LEARNED D.R. FOR REVENUE PLACED STRONG RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 5.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS NOT DISPUT ED THAT THE AO MADE AN ADHOC DISALLOWANCE OF ` 50,000/- OBSERVING THAT THE ASSESSEE COULD NOT PRODUCE ALL THE BILLS AND VOUCHERS TO SUPPORT THESE EXPENSES AND ALSO SINCE THEY WOULD ENTAIL SOME ELEMENT OF EXPENDITURE OF PERSONAL NATURE. ON APPEAL, WE FIND THAT THE ADDITIONAL EVIDENCE PUT FORTH BY THE ASSESSEE IN THIS REGARD WAS FORWARDED TO THE AO UNDER RULE 4 6A OF THE I.T. RULES FOR REMAND REPORT THEREON. IN OUR VIEW, A PERUSAL OF TH E RELEVANT PORTION OF THE REMAND REPORT (EXTRACTED AT PARA 3.1 OF THE IMPUGNE D ORDER) SHOWS THAT THE AO HAS NOT POINTED OUT ANY DEFECT IN THE ADDITI ONAL EVIDENCE PUT FORTH, BUT HAS TRIED TO JUSTIFY THE ADHOC ADDITION; WHICH VIEW WAS ENDORSED BY THE LEARNED CIT(A). 5.3.2 MOST OF THE EXPENSES UNDER THE HEAD ADMINIST RATIVE EXPENSES INCURRED FOR ADVERTISEMENT, AUDIT FEES, COMPUTER EX PENSES, INSPECTION FEES, LICENCE FEES, MUNICIPAL TAXES, PRINTING AND STATION ERY, PROPERTY TAX, RENT, PROFESSIONAL AND LEGAL FEES, SUNDRY EXPENSES FOR FI RE EXTINGUISHER, OFFICE TELEPHONE AND POSTAGE, SALES PROMOTION, ETC. WOULD APPEAR TO US TO BE EXPENDED FOR THE ASSESSEES BUSINESS PURPOSES, SINC E ADMITTEDLY NOTHING ADVERSE HAS BEEN REPORTED IN RESPECT OF ANY SUCH CL AIM BY THE AO IN REMAND PROCEEDINGS. AS SUBMITTED BY THE ASSESSEE, THE ELEM ENT OF PERSONAL EXPENDITURE IS ADMITTEDLY EMBEDDED IN THE TELEPHONE EXPENSES FOR RESIDENCE (VIZ. ` 32,817/-) AND CHARITY/DONATION ( ` 14,000/-). IN THESE FACTUAL CIRCUMSTANCES OF THE CASE, AS DISCUSSED ABOVE, WE H OLD THAT EXPENDITURE ON DONATIONS OF ` 14,000/- AND ABOUT 20% OF THE TELEPHONE EXPENSES OF RESIDENCE (APPROX. ` 6,500/-) COULD BE JUSTIFIABLY BE CONSIDERED AS HAVI NG BEEN EXPENDED FOR PERSONAL OR /AND NON BUSINESS PURPOSES . WE, THEREFORE, SUSTAIN THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES TO ` 20,500/- (I.E. ` 14,000/- ON ACCOUNT OF DONATION PLUS ` 6,500/- OUT OF RESIDENTIAL TELEPHONE/POSTAGE ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 5 EXPENSES) AS AGAINST ` 50,000/- DISALLOWED BY THE AO. THE AO IS ACCORDINGL Y DIRECTED. CONSEQUENTLY, GROUND NO. 2 OF ASSESSEES APPEAL IS PARTLY ALLOWED. 6. GROUND NO. 4 INCOME FROM LETTING OUT OF BAKERY SH OP 6.1.1 IN THIS GROUND, THE ASSESSEE ASSAILS THE IMPU GNED ORDER OF THE LEARNED CIT(A) IN SUSTAINING THE AOS ORDER IN HOLD ING THAT: - (I) THE COMPENSATION OF ` 4,80,000/- (@ ` 40,000/-) RECEIVED BY THE ASSESSEE FROM LEAVE AND LICENCE OF HIS BAKERY (ALON G WITH MACHINERY AND ALL AMENITIES REQUIRED FOR MANUFACTURE OF BAKERY PR ODUCTS), AND (II) THE COMPENSATION OF ` 2,40,000/- (@ ` 20,000/- P.M.) RECEIVED FROM LEAVE AND LICENCE OF HIS SHOP (ALONG WITH FURNITURE , FIXTURES AND KITCHEN EQUIPMENTS REQUIRED FOR RUNNING THE SHOP FOR SALE O F BAKERY PRODUCTS) IS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUS E PROPERTY INSTEAD OF AS INCOME FROM OTHER SOURCES/INCOME FROM BUSINESS AS DECLARED BY THE ASSESSEE. 6.1.2 ACCORDING TO THE LEARNED A.R. OF THE ASSESSEE THE LEAVE AND LICENCE AGREEMENTS FOR THE AFORESAID TWO PROPERTIES WERE DA TED 04.07.2003. EARLIER THERE WAS NO DISPUTE WITH REVENUE IN REGARD TO THE ASSESSEES DECLARATION OF THIS INCOME AS INCOME FROM OTHER SOURCES OR INCOM E FROM BUSINESS. IT IS ONLY IN THE PERIOD UNDER CONSIDERATION, I.E. A.Y. 2 006-07, THAT REVENUE HAS DISPUTED THE ASSESSEES PROPOSITION AND ASSESSED TH E AFORESAID INCOME AS INCOME FROM HOUSE PROPERTY. IN THE EARLIER A.Y. 2 005-06, THE ASSESSEES DECLARATION OF THIS COMPENSATION FROM LETTING OUT O F THESE PROPERTIES AS INCOME FROM BUSINESS / INCOME FROM OTHER SOURCES HAS BEEN ACCEPTED IN SCRUTINY PROCEEDINGS UNDER SECTION 143(3) OF THE AC T VIDE ORDER DATED 18.12.2007 (PLACED AT PG. 137 -138 OF PAPER BOOK); FOR A.Y. 2007-08 UNDER SECTION 143(1) OF THE ACT (DETAILS AT PG 255 OF PAP ER BOOK) AND ALSO FOR A.Y. 2008-09 THE ASSESSEES CLAIM WAS NOT DISPUTED BY RE VENUE IN ORDER OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE ACT V IDE ORDER DATED 08.12.2010 (DETAILS PLACED AT PG. 287 TO 315 OF PAP ER BOOK). IT WAS PLEADED THAT THERE WAS NO MERIT OR CONSISTENCY IN THE REVEN UES STAND AND THEREFORE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE I S NOT SUSTAINABLE. ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 6 6.1.3 THE LEARNED A.R. FURTHER SUBMITTED THAT IN CO MING TO THIS FINDING THAT THE INCOME/COMPENSATION ON LETTING OUT THE ASSESSEE S BAKERY AND SHOP PREMISES WAS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY., REVENUE PLACED STRONG RELIANCE ON THE DECISION OF T HE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF SHAMBHU INVESTMENTS PVT. LTD. 263 ITR 143 TO HOLD THAT LEAVE AND LICENCE AGREEMENTS SHOW THAT THE MAI N INTENTION OF THE ASSESSEE FOR LETTING OUT THE AFORESAID PROPERTIES W AS TO EARN RENTAL INCOME. IN THIS REGARD, THE LEARNED A.R. OF THE ASSESSEE PL ACED RELIANCE ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF DUDHSAGAR INVESTMENTS (P) LTD. (2014) 47 TAXMANN.COM 354 (BOM BAY). IT IS SUBMITTED THAT IN THE CITED CASE, WHICH IS FACTUALLY SIMILAR TO THE CASE ON HAND, THE QUESTION BEFORE THE HON'BLE HIGH COURT WAS WHETHER INCOME RECEIVED BY THE ASSESSEE TOWARDS LETTING OUT OF A FURNISHED OFFICE PREMISES WAS TO BE ASSESSED AS BUSINESS INCOME OR INCOME FROM OUT S OURCES AS CLAIMED BY THE ASSESSEE OR AS INCOME FROM HOUSE PROPERTY AS ASSESSED BY REVENUE. THE HON'BLE HIGH COURT, AFTER CONSIDERING VARIOUS J UDICIAL PRONOUNCEMENTS; INCLUDING SHAMBHU INVESTMENTS PVT. LTD., HAD HELD T HAT INCOME RECEIVED BY THE ASSESSEE BY LETTING OUT FULLY FURNISHED OFFICE PREMISES ALONGWITH FURNITURE IS REQUIRED TO BE ASSESSED AS INCOME FRO M OTHER SOURCES. IT WAS PRAYED THAT IN VIEW OF THE ABOVE FACTUAL AND LEGAL POSITION OF THE CASE, THE ASSESSEES CLAIM BE ALLOWED THAT THE SAME BE ASSESS ED AS INCOME FROM OTHER SOURCES/BUSINESS INCOME. 6.2 PER CONTRA, THE LEARNED D.R. PLACED STRONG RELI ANCE ON THE DECISION OF THE AUTHORITIES BELOW. 6.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED. THE FACTS OF THE MATTER AS EMANATE FROM THE RECORD ARE THAT THE ASSESSEE ENTERED INTO LEAVE AND LICENCE AGREEMENTS DATED 04.07.2003 FOR LETTING OUT HIS BAKERY PREMISES, ALONGWITH ALL AMEN ITIES FOR MANUFACTURE OF BAKERY PRODUCTS @ ` 40,000/- P.M. AND SHOP PREMISES, ALONGWITH FURNITUR E FIXTURES AND KITCHEN EQUIPMENTS FOR RUNNING AND SAL E OF BAKERY PRODUCTS @ ` 20,000/- PER MONTH. AS PER THE DETAILS BROUGHT OUT BY THE LEARNED A.R. OF ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 7 THE ASSESSEE AND RECORDED AT PARA 6.1.2 OF THIS ORD ER (SUPRA), THERE HAS BEEN NO DISPUTE BETWEEN REVENUE AND THE ASSESSEE ON THIS ISSUE EITHER BEFORE OR AFTER THIS YEAR, I.E. 2006-07. IT IS ONLY IN THIS Y EAR THAT THE ASSESSEES CLAIM THAT THIS INCOME WAS INCOME FROM BUSINESS/ INCOM E FROM OTHER SOURCES WAS REJECTED AND THE AUTHORITIES BELOW HAVE HELD TH AT THE INCOME EARNED FROM LETTING OUT OR LEAVE AND LICENCE THE ASSESSEE S BAKERY AND SHOP WAS ASSESSABLE AS INCOME FROM HOUSE PROPERTY; PLACING RELIANCE ON THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN SHAMBHU INVES TMENTS PVT. LTD. (SUPRA). IT IS NOT DISPUTED THAT, BOTH FOR THE EARL IER A.Y. 2005-06 VIDE ORDER UNDER SECTION 143(3) OF THE ACT DATED 18.12.2007 (A T PG. 137-138 OF PAPER BOOK); FOR A.Y. 2007-08 UNDER SECTION 143(1) OF THE ACT OF THE ACT DATED 14.03.2009 (AT PG. 255 OF PAPER BOOK-II) AND A.Y. 2 008-09 VIDE ORDER UNDER SECTION 143(3) OF THE ACT DATED 08.12.2010 (AT PG. 287-315 OF PAPER BOOK-II) THIS INCOME HAS BEEN ASSESSED AS INCOME FROM OTHER SOURCES/BUSINESS INCOME AS DECLARED BY THE ASSESSEE. 6.3.2 WE HAVE CAREFULLY PERUSED THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DUDHSAGAR INVESTMENTS P. LTD. (SUPRA), WHICH IN OUR CONSIDERED VIEW IS ON SIMILAR FACT SITUATION AS THE CASE ON HAND. THE QUESTION BEFORE THE HON'BLE HIGH COURT WAS WHETHER INCOME RECEIVED BY THE ASSESSEE TOWARDS LETTING OUT OF A FURNISHED OFFICE PREMISES WAS TO BE ASSESSED AS BUSINESS INCOME/ INCOME FROM OTHER S OURCES AS DECLARED BY THE ASSESSEE OR AS INCOME FROM HOUSE PROPERTY AS ASSESSED BY REVENUE. THE HON'BLE BOMBAY HIGH COURT, AFTER CONSIDERING, I NTER ALIA, THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF SHAM BHU INVESTMENTS P. LTD. (SUPRA), AT PARAS 13 TO 16 OF ITS ORDER HELD T HAT INCOME RECEIVED BY THE ASSESSEE BY LETTING OUT FULLY FURNISHED OFFICE PREM ISES ALONG WITH FURNITURE IS REQUIRED TO BE ASSESSED AS INCOME FROM OTHER SOURC ES. THE RELEVANT PORTION IS EXTRACTED HERE UNDER: - 13. THE CONSTITUTION BENCH IN SULTAN BROTHERS (P) LTD. (SUPRA), HAD AN OCCASION TO CONSIDER THE PROVISIONS OF SECTIONS 9, 10 AND 22 OF INCOME TAX ACT, 1922 WHICH PROVISIONS ARE PARI MATE RIA WITH SECTIONS 22, 28 AND 56 OF THE INCOME TAX ACT, 1961. IN THE S AID CASE, THE APPELLANT THEREIN WAS LIMITED A COMPANY AND WAS THE OWNER OF A BUILDING FITTED WITH FURNITURE AND FIXTURES FOR BEI NG RUN AS A HOTEL. BY ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 8 THE LEASE DATED 30/08/1949, THE APPELLANT LET OUT T HE BUILDING FULLY EQUIPPED AND FURNISHED TO VOYANTZIS FOR A TERM OF S IX YEARS FROM 1946 FOR RUNNING A HOTEL AND FOR CERTAIN OTHER ANCILLARY PURPOSES. THE AGREED MONTHLY RENT WAS RS. 5,950/- FOR THE BUILDING AND R S. 5,000/-FOR HIRE OF FURNITURE AND FIXTURES. THE QUESTION WHICH FELL FOR CONSIDERATION BEFORE THE SUPREME COURT WAS HOW THE INCOME RECEIVE D AS A RENT ON HIRE IS TO BE ASSESSED I.E. UNDER WHICH SECTION OF INCOME TAX ACT, 1922 IS IT ASSESSABLE. THE APPELLANT IN THAT CASE ALSO C ONTENDED THAT THE ENTIRE INCOME SHOULD BE ASSESSED UNDER SECTION 10 A S AN INCOME FROM BUSINESS OR IN THE ALTERNATIVE INCOME SHOULD BE ASS ESSED UNDER SECTION 12 AS INCOME FROM RESIDUARY SOURCES I.E. INCOME FRO M OTHER SOURCES. THE CONSTITUTION BENCH OF APEX COURT HELD THAT INCO ME UNDER THE LEASE CANNOT BE ASSESSED UNDER SECTION 10 OF THE INCOME T AX ACT, 1922 AS THE INCOME FROM THE BUSINESS. REGARDING THE QUESTIO N WHETHER INCOME CAN BE ASSESSED UNDER SECTION 12 AS AN INCOME FROM RESIDUARY SOURCES OR INCOME FROM OTHER SOURCES, THE OBSERVATI ONS OF THE APEX COURT IN PARAGRAPHS 13, 15 AND 16 ARE RELEVANT WHIC H ARE REPRODUCED AS UNDER : 13. THE NEXT QUESTION IS, DOES THE PRESENT LETTING COME WITHIN THE TERMS OF SUB-SECTION (4) OF SECTION 12? THAT PR OVISION REQUIRES TWO CONDITIONS, NAMELY, THAT THE FURNITURE SHOULD B E LET AND ALSO BUILDINGS AND THE LETTING OF THE BUILDINGS SHOULD B E INSEPARABLE FROM THE LETTING OF THE FURNITURE. NOW HERE BOTH FU RNITURE AND BUILDING HAVE NO DOUBT BEEN LET. THE QUESTION IS: A RE THEY INSEPARABLY LET? THE HIGH COURT DOES NOT APPEAR TO HAVE ANSWERED THIS QUESTION FOR IT WAS OF THE VIEW THAT NOT ONLY MUST THE TWO BE INSEPARABLY LET OUT BUT ALSO THAT 'THE P RIMARY LETTING MUST BE OF THE MACHINERY, PLANT OR FURNITURE AND TH AT TOGETHER WITH SUCH LETTING OR ALONG WITH SUCH LETTING, THERE IS A LETTING OF BUILDINGS'. THE HIGH COURT HELD THAT THE PRIMARY LE TTING IN THE PRESENT CASE WAS OF THE BUILDING AND, THEREFORE, DE PRIVED THE APPELLANT OF THE BENEFIT OF SECTION 12(4). WE MAY S TATE HERE THAT THE TRIBUNAL HAD THOUGHT THAT BY REQUIRING THAT THE LETTING OF ONE SHOULD BE INSEPARABLE FROM THE LETTING OF THE OTHER , THE SECTION REALLY MEANT THAT THE PRIMARY LETTING WAS OF THE MA CHINERY AND THE LETTING OF THE BUILDING WAS ONLY INCIDENTAL TO THE LETTING OF THE MACHINERY. IT ALSO HELD THAT IN THE PRESENT CASE TH E PRIMARY LETTING WAS OF THE BUILDING. 15. WHAT, THEN, IS INSEPARABLE LETTING? IT WAS SUGG ESTED ON BEHALF OF THE RESPONDENT CIT THAT THE SUB-SECTION CONTEMPL ATES A CASE WHERE THE MACHINERY, PLANT OR FURNITURE ARE BY THEI R NATURE INSEPARABLE FROM A BUILDING SO THAT IF THE MACHINER Y, PLANT OR FURNITURE ARE LET, THE BUILDING HAS ALSO NECESSARIL Y TO BE LET ALONG WITH IT. THERE ARE TWO OBJECTIONS TO THIS ARGUMENT. IN THE FIRST PLACE, IF THIS WAS THE INTENTION, THE SECTION MIGHT WELL HAVE PROVIDED THAT WHERE MACHINERY, PLANT OR FURNITURE A RE INSEPARABLE FROM A BUILDING AND BOTH ARE LET, ETC. THE LANGUAGE HOWEVER IS NOT THAT THE TWO MUST BE INSEPARABLY CONNECTED WHEN LET BUT THAT THE ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 9 LETTING OF ONE IS TO BE INSEPARABLE FROM THE LETTIN G OF THE OTHER. THE NEXT OBJECTION IS THAT THERE CAN BE NO CASE IN WHIC H ONE CANNOT BE SEPARATED FROM THE OTHER. IN EVERY CASE THAT WE CAN CONCEIVE OF, IT MAY BE POSSIBLE TO DISMANTLE THE MACHINERY OR PLANT OR FIXTURES FROM WHERE IT WAS IMPLANTED OR FIXED AND SET IT UP IN A NEW BUILDING. AS REGARDS FURNITURE, OF COURSE, THEY SIM PLY REST ON THE FLOOR OF THE BUILDING IN WHICH IT LIES AND THE TWO INDEED ARE ALWAYS SEPARABLE. WE ARE UNABLE, THEREFORE, TO ACCEPT THE CONTENTION THAT INSEPARABLE IN THE SUB-SECTION MEANS THAT THE PLANT , MACHINERY OR FURNITURE ARE AFFIXED TO A BUILDING. 16. IT SEEMS TO US THAT THE INSEPARABILITY REFERRED TO IN SUB- SECTION (4) IS AN INSEPARABILITY ARISING FROM THE I NTENTION OF THE PARTIES. THAT INTENTION MAY BE ASCERTAINED BY FRAMI NG THE FOLLOWING QUESTIONS: WAS IT THE INTENTION IN MAKING THE LEASE AND IT MATTERS NOT WHETHER THERE IS ONE LEASE OR TW O, THAT IS, SEPARATE LEASES IN RESPECT OF THE FURNITURE AND THE BUILDING THAT THE TWO SHOULD BE ENJOYED TOGETHER? WAS IT THE INTE NTION TO MAKE THE LETTING OF THE TWO PRACTICALLY ONE LETTING ? WOULD ONE HAVE BEEN LET ALONE AND A LEASE OF IT ACCEPTED WITH OUT THE OTHER? IF THE ANSWERS TO THE FIRST TWO QUESTIONS AR E IN THE AFFIRMATIVE, AND THE LAST IN THE NEGATIVE THEN, IN OUR VIEW, IT HAS TO BE HELD THAT IT WAS INTENDED THAT THE LETTINGS W OULD BE INSEPARABLE. THIS VIEW ALSO PROVIDES A JUSTIFICATIO N FOR TAKING THE CASE OF THE INCOME FROM THE LEASE OF A BUILDING OUT OF SECTION 9 AND PUTTING IT UNDER SECTION 12 AS A RESIDUARY HE AD OF INCOME. IT THEN BECOMES A NEW KIND OF INCOME, NOT C OVERED BY SECTION 9, THAT IS, INCOME NOT FROM THE OWNERSHIP O F THE BUILDING ALONE BUT AN INCOME WHICH THOUGH ARISING FROM A BUI LDING WOULD NOT HAVE ARISEN IF THE PLANT, MACHINERY AND F URNITURE HAD NOT ALSO BEEN LET ALONG WITH IT. 14. IT IS ABUNDANTLY CLEAR FROM THE ABOVE OBSERVATI ONS THAT THE APPELLANT'S INCOME IS REQUIRED TO BE ASSESSED UNDER SECTION 56 AS CONTENDED BY THE ASSESSEE. AS FAR AS THE ANSWERS TO THREE QUESTIONS, WHICH ARE MENTIONED IN PARAGRAPH 16 OF THE JUDGMENT IN SULTAN BROTHERS (P) LTD. (SUPRA), QUOTED ABOVE, ARE CONCE RNED, THERE IS NO DISPUTE AMONGST THE LEARNED COUNSEL APPEARING FOR T HE RESPECTIVE PARTIES THAT ANSWERS TO FIRST TWO QUESTIONS WERE IN AFFIRMATIVE. IN THE PRESENT CASE, THE DISPUTE IS REGARDING ANSWER TO TH E THIRD QUESTION, NAMELY WOULD ONE HAVE BEEN LET ALONE AND A LEASE OF IT ACCEPTED WITHOUT THE OTHER ? IN OUR CONSIDERED OPINION, THE ANSWER TO THIS QUESTION WOULD BE IN THE NEGATIVE, CONSIDERING THE INTENTION OF THE APPELLANT- ASSESSEE COUPLED WITH CLAUSES OF THE AGR EEMENT. THE AGREEMENT, UNEQUIVOCALLY, MAKES THE INTENTION OF TH E ASSESSEE CLEAR TO LET OUT THE OFFICE PREMISES ALONG WITH FURNITURE. I N OUR VIEW, LETTING OF THE OFFICE PREMISES WAS INTENDED TO BE INSEPARABLE FROM THE LETTING OF THE FURNITURE. THE RATIO OF THE CONSTITUTION BENCH IS, THEREFORE, PERFECTLY APPLICABLE TO THE PRESENT CASE. ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 10 15. IN SMT. P. ANDAL AMMAL (SUPRA), THE DIVISION BENCH OF MADRAS HIGH COURT, IN SIMILAR FACTS, HELD THAT THE INTENTI ON OF THE PARTIES WAS THAT THOUGH THERE WERE TWO SEPARATE LEASES IN RESPE CT OF FURNITURE AND THE BUILDING, BOTH THE SPECIES OF THE PROPERTIES WE RE ENJOYED BY PAYMENT OF ONE LUMP SUM WHICH ALSO GAVE INDICATION THAT LETTING OF THE BUILDING AND LETTING OF THE FURNITURE WAS ONE LETTI NG. THE DIVISION BENCH FOUND THAT THE ASSESSEE WOULD NOT HAVE LET OUT THE BUILDING ALONE WITHOUT THE LEASE OF FURNITURE OR OTHER AMENITIES A ND ONE DID NOT EXIST WITHOUT THE OTHER. CONSEQUENTLY, THE DIVISION BENCH HELD THAT THE PROPER HEAD OF INCOME WOULD BE INCOME FROM OTHER SO URCES. THE DECISION OF THE DIVISION BENCH OF THE CALCUTTA HIGH COURT IN SHABHU INVESTMENT (P) LTD (SUPRA), IS CONFIRMED BY THE AP EX COURT IN CIVIL APPEAL NO. 6459 AND 6466 OF 2001 I.E. SHABHU INVES TMENT (P) LTD VS. CIT REPORTED IN (2003) 263 ITR 143 (SC). THE APEX COURT REFUSED TO INTERFERE IN THE CONCLUSION ARRIVED AT BY THE CALCU TTA HIGH COURT ON THE QUESTION FRAMED UNDER SECTION 56(2) OF THE ACT AND, THEREFORE, CIVIL APPEALS CAME TO BE DISMISSED. THE QUESTION FELL FOR CONSIDERATION BEFORE THE DIVISION BENCH OF CALCUTTA HIGH COURT WA S WHETHER THE INCOME DERIVED FROM THE PREMISES IN QUESTION IS REN TAL INCOME OR BUSINESS INCOME ? THE DIVISION BENCH, IN CALCUTTA HIGH COURT, IN THE FACTS OF THAT CASE, HELD THAT THE INCOME DERIVED FR OM THE PROPERTY IN QUESTION IS INCOME FROM THE PROPERTY AND SHOULD BE ASSESSED AS SUCH. THE DECISION OF THIS CASE DOES NOT APPLY TO THE FAC TS AND CIRCUMSTANCES OF THE PRESENT CASE. 16. IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CAS E AND ESPECIALLY, IN THE LIGHT OF THE DECISION OF THE CONSTITUTION BENCH IN SULTAN BROTHERS (P) LTD. (SUPRA), WE HOLD THAT THE INCOME RECEIVED BY THE ASSESSEE BY LETTING OUT FULLY FURNISHED OFFICE PREMISES AND FUR NITURE IS REQUIRED TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE APPEALS ARE, ACCORDINGLY, ALLOWED. CONSEQUENTLY, THE IMPUGNED OR DER IS SET ASIDE TO THAT EXTENT. THE ASSESSING OFFICER IS DIRECTED TO A SSESS THE ASSESSEE'S INCOME ACCORDINGLY IN THE LIGHT OF THE ABOVE OBSERV ATIONS. 6.3.3 RESPECTFULLY FOLLOWING THE DECISION OF THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF DUDHSAGAR, WHICH IS FACTUALLY SIMILAR TO THE CASE ON HAND AND IS SQUARELY APPLICABLE, WE HOLD THAT THE I NCOME EARNED BY THE ASSESSEE FROM LETTING OUT OF BAKERY ALONGWITH EQUIP MENTS REQUIRED TO MANUFACTURE BAKERY PRODUCTS AND SHOP ALONGWITH FURN ITURE, FIXTURE AND KITCHEN EQUIPMENTS FOR RUNNING AND SALE OF BAKERY P RODUCTS, IS TO BE ASSESSED AS INCOME FROM OTHERS SOURCES/BUSINESS INCOME AS DECLARED BY THE ASSESSEE AND CONSEQUENTLY REVERSE THE ORDERS OF THE AUTHORITIES BELOW HOLDING THE SAME TO BE EXIGIBLE TO TAX UNDER THE HE AD INCOME FROM HOUSE PROPERTY. IT IS ACCORDINGLY ORDERED. THEREFORE, GR OUND NO. 3 OF THE ASSESSEES APPEAL IS ALLOWED. ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 11 7. GROUND NO. 4 CLAIM FOR EXPENDITURES 7.1 IN THIS GROUND, THE ASSESSEE HAS RAISED AN ALTE RNATE PLEA; THAT IF THE INCOME OF THE ASSESSEE FROM LETTING OUT ON LEAVE AN D LICENCE ITS BAKERY (ALONGWITH EQUIPMENTS FOR MANUFACTURE OF BAKERY PRO DUCTS) AT VASAI WAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY, AS AGAINST THE ASSESSEES CLAIM THAT IT WAS TO BE ASSESSED AS INCOME FROM OT HER SOURCES, CERTAIN EXPENDITURES LISTED THEREIN AT (A) TO (G) OUGHT TO BE ALLOWED. IN VIEW OF OUR ALLOWING THE ASSESSEES CLAIM IN GROUND NO. 3 AT PA RAS 6.3.1 TO 6.3.3 (SUPRA); THAT THE INCOME FROM LETTING OUT THE FULLY FURNISHED BAKERY AT VASAI WAS TO BE ASSESSED AS INCOME FROM OTHER SOUR CES AS CLAIMED BY THE ASSESSEE AND NOT AS INCOME FROM HOUSE PROPERTY; TH IS GROUND IS RENDERED INFRUCTUOUS AND WE ACCORDINGLY DISMISS GROUND NO. 4 . 8. GROUND NO. 5 CAPITAL GAINS ON RELINQUISHMENT OF T ENANCY RIGHTS 8.1 IN THIS GROUND, THE ASSESSEE ASSAILS THE IMPUGN ED ORDER OF THE LEARNED CIT(A) IN UPHOLDING THE TAXING OF CAPITAL GAINS ON RELINQUISHMENT OF TENANCY RIGHTS IN PART OF GROUND FLOOR AND ENTIRE F IRST FLOOR IN VILLA MARIA, PLOT NO. 54, CTS NO. B/337, REBELLO ROAD, BANDRA (W ) (REFERRED TO AS BANDRA PROPERTY ) IN A.Y. 2005-06 ON SUBSTANTIVE BASIS AND ON PROTECTIVE BASIS IN A.Y. 2006-07, THE YEAR UNDER CONSIDERATION INSTEAD OF IN A.Y. 2007-08 AS CLAIMED BY THE ASSESSEE. 8.2.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. THE QUESTION FOR CONSIDERATION IS THE ASSESSMENT YEAR IN WHICH THE CAPITAL GAINS ARISING ON RELINQUISHMENT OF TENANCY RIGHTS ON THE BANDRA PROPERTY IS TO BE ASSE SSED. THE FACT OF THE MATTER AS EMANATE FROM THE RECORD ARE THAT THE ASSE SSEE IS A TENANT IN THE SAID BANDRA PROPERTY. THE OWNER OF THE PROPERTY M RS. AGNES FERNANDES ENTERED INTO AN AGREEMENT WITH M/S. STREAMLINE BUIL DERS DATED 27.05.2004, WHEREBY, INTER ALIA, AS PER CLAUSE 4(A) & (B), THE TENANT, I.E. THE ASSESSEE WAS TO BE PAID ` 65 LAKHS FOR RELINQUISHING THE RIGHTS TO THE SAID BANDRA PROPERTY AS UNDER: - ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 12 (I) ` 20 LAKHS ON 03.11.2003; IN PERIOD RELEVANT TO A.Y. 2005-06 (AS PER CLAUSE 5(A). (II) ` 45 LAKHS DURING F.Y. 2005-06; IN PERIOD RELEVANT TO A.Y. 2006-07 (AS PER CLAUSE 5(B). (III) THE POSSESSION OF THE BANDRA PROPERTY WAS TO BE MADE OVER TO THE BUILDER BY THE ASSESSEE TENANT ON 30.12.2006 (RELEV ANT TO A.Y. 2007-08 SIMULTANEOUSLY TO THE TRANSFER OF OWNERSHIP OF SHOP NO. 5 BY DEVELOPER/ BUILDER TO ASSESSEE AT CHAPEL AVENUE. THAT THE TRAN SFER (SUPRA) TOOK PLACE ON 30.12.2006 AS SET OUT IN THE DEVELOPMENT AGREEME NT, HAS BEEN CONFIRMED BY M/S. STREAMLINE BUILDERS VIDE CONFIRMA TION DATED 31.12.2006 (COPY PLACED AT PAGE 183 OF PAPER BOOK). ADMITTEDLY, THE ASSESSEE HAS DECLARED THE CAPITAL GAINS ON THE TRAN SACTION IN A.Y. 2007-08 WHICH HAS BEEN ACCEPTED BY REVENUE VIDE ORDER UNDER SECTION 143(1) OF THE ACT DATED 14.03.2009. 8.2.2 IN THE ORDER OF ASSESSMENT FOR A.Y. 2006-07, THE AO HAS DISCUSSED HIS VIEWS ON THE MATTER AT PARAS 12 TO 26 THEREOF. HE WAS OF THE VIEW THAT THE SURRENDER OF TENANCY RIGHTS IN QUESTION HAS TAK EN PLACE AS PER PROVISIONS OF SECTION 2(47)(V) OF THE ACT R.W.S. 53 A OF TRANSFER OF PROPERTY ACT AND THAT THE FULL CONSIDERATION OF ` 65 LAKHS PLUS SHOP ACCRUED TO THE ASSESSEE AS ON 27.05.2004 AND IS EXIGIBLE TO TAX IN A.Y. 2005-06. HE HELD THAT ALTHOUGH THE LTCG ON SURRENDER OF TENANCY RIG HTS PERTAINS TO A.Y. 2005-06, TO PROTECT THE INTEREST OF REVENUE, THE SA ME IS BEING TAXED IN A.Y. 2006-07, THE CURRENT YEAR ON PROTECTIVE BASIS. THIS VIEW OF THE AO WAS UPHELD BY THE LEARNED CIT(A) IN THE IMPUGNED ORDER. 8.2.3 WE HAVE CAREFULLY PERUSED THE PROVISIONS OF S ECTION 2(47) OF THE ACT AND SECTION 53 OF THE TRANSFER OF PROPERTY ACT. ACC ORDING TO AUTHORITIES BELOW, IN ORDER TO ATTRACT THE PROVISIONS OF SECTIO N 53A OF THE TRANSFER OF PROPERTY ACT, THE FOLLOWING CONDITIONS REQUIRE TO B E FULFILLED: - (I) THERE SHOULD BE A CONTRACT FOR CONSIDERATION; (II) IT SHOULD BE IN WRITING; (III) IT SHOULD BE SIGNED BY THE TRANSFEROR; (IV) IT SHOULD PERTAIN TO THE TRANSFER OF IMMOVABLE PROPERTY; ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 13 (V) THE TRANSFEREE SHOULD HAVE TAKEN POSSESSION OF THE PROPERTY; AND (VI) THE TRANSFEREE SHOULD BE READY TO PERFORM HIS PART OF THE CONTRACT. ADMITTEDLY AS PER THE RECITALS IN THE AGREEMENT AN D THE CONFIRMATION OF THE BUILDER, POSSESSION OF THE SAID PROPERTIES B Y THE ASSESSEE AND THE BUILDER WERE MADE OVER/TAKEN OVER SIMULTANEOUSLY BY BOTH PARTIES ONLY ON 30.12.2006 AND NOT BEFORE THAT. THEREFORE, IN THIS FACTUAL MATRIX OF THE CASE, IN OUR VIEW, THE CAPITAL GAINS ARISING ON REL INQUISHMENT OF TENANCY RIGHTS BY THE ASSESSEE IS NOT EXIGIBLE TO TAX EITHE R SUBSTANTIALLY OR PROTECTIVELY IN THE PERIOD UNDER CONSIDERATION, I.E . A.Y. 2006-07, BUT IN THE PERIOD RELEVANT TO A.Y. 2007-08. THE FACT THAT THE ASSESSEE HAS DECLARED THE CAPITAL GAINS ON RELINQUISHMENT OF TENANCY RIGH TS IN THE SAID PROPERTY IN ITS RETURN OF INCOME FOR A.Y. 2007-08, WHICH HAS BEEN ACCEPTED IN ORDER UNDER SECTION 143(1) OF THE ACT DATED 14.03.2009 IS NOT DISPUTED BY REVENUE; AND RIGHTLY SO. IN THE FACTUAL AND LEGAL M ATRIX OF THE CASE AS DISCUSSED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE CAPITAL GAINS ON RELINQUISHMENT OF TENANCY RIGHT BY THE ASSESSEE IS NOT EXIGIBLE TO TAX IN THE YEAR UNDER CONSIDERATION, I.E. A.Y. 2006-07 AS HELD BY THE AUTHORITIES BELOW AND DIRECT THE AO TO DELETE THE ADDITION MADE TO THE ASSESSEES INCOME ON THIS ACCOUNT. WE HOLD AND DIRECT ACCORDIN GLY. CONSEQUENTLY, GROUND NO. 5 OF THE ASSESSEES APPEAL IS ALLOWED. 9. GROUND NO. 6 CHARGING OF INTEREST UNDER SECTIONS 234B AND 234C 9.1 IN THIS GROUND, THE ASSESSEE DENIES ITSELF LIAB LE TO BE CHARGED INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT. THE CHARGI NG OF INTEREST IS CONSEQUENT AND MANDATORY AND THE AO HAS NO DISCRETI ON IN THE MATTER. THIS PRINCIPLE HAS BEEN UPHELD BY THE HON'BLE APEX COURT IN THE CASE OF ANJUM H. GHASWALA 252 ITR 1), AND WE THEREFORE UPHO LD THE ACTION OF THE AO IN LEVYING INTEREST UNDER THE AFORESAID SECTIONS . THE AO IS, HOWEVER, DIRECTED TO RECOMPUTE THE INTEREST CHARGEABLE UNDER SECTIONS 234B AND 234C OF THE ACT, IF ANY, WHILE GIVING EFFECT TO THI S ORDER. 10. GROUND NO. 7 10.1 IN THIS GROUND, THE ASSESSEE CHALLENGES THE IN ITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THI S GROUND BEING ITA NO. 1838/MUM/2011 SHRI V.N. KARBHATKAR 14 PREMATURE AS NO CAUSE OF ACTION ARISING TO THE ASSE SSEE BY MERE INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF T HE ACT, THIS GROUND NO. 7 IS NOT MAINTAINABLE AND IS ACCORDINGLY DISMISSED AS INFRUCTUOUS. 11. IN THE RESULT, THE ASSESSEES APPEAL FOR A.Y. 2006- 07 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST DECEMBER, 2016. SD/ - SD/ - (SANDEEP GOSAIN) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 1 ST DECEMBER, 2016 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -30, MUMBAI 4. THE CIT - 19, MUMBAI 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.