M/s Teri Oat Estaes Pvt. Limited, Chandigarh V. ACIT, Chandigarh

ITA 214/CHANDI/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1361 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S KEMWAL
• Assessee Lawyers: D S SETHI
• Keywords: Business income; Depreciation; Business expenditure
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 214/CHD/2010 ASSESSMENT YEAR: 2006-07 M/S TERI OAT ESTATES PVT. LTD., VS. THE ACIT, CHANDIGARH CIRCLE 4(1), CHANDIGARH PAN NO. AAACT5619H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.S.SETHI RESPONDENT BY: SHRI S.S.KEMWAL ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A), CHANDIGARH DATED 1.12.2009 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. A CT, 1961. 2 THE ONLY GROUND OF APPEAL RAISED BY THE ASSESSEE IS AS UNDER:- THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ASSESSMENT ORDER OF THE LD. ASSESSING OFFICER IN ASSESSING THE ENTIRE RECEIPT OF RS. 25,58,160/- AS INCOME UNDER THE HEAD HOUSE PROPERTY AS AGAINST INCOME COMPUTED BY THE APPELLANT COMPANY (I) FROM RENTAL INCOME AT RS. 16,23,741/- & (II) BUSINESS L OSS AT RS. 20,56,573/- AND IN IGNORING THE RESULTANT LO SS OF RS. 4,32,832/-. THE INCOME AS DECLARED BY THE APPELLANT BE ACCEPTED. 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY HAD DURING THE YEAR UNDER CONSIDERATION DECLARED RECEIPTS OF 2 6,58,1269/-, OUT OF WHICH A SUM OF RS. 23,19,630/- WAS SHOWN AS INCOME FROM HOUSE PROPERTY. AGAINST THE INCOME FROM BUSINESS, THE AS SESSEE DECLARED A BUSINESS LOSS OF RS. 20,56,573/-. THE COMPUTATION OF INCOME FILED BY THE ASSESSEE IS INCORPORATED AT UNDER PARA 2 AT PAGES 2 & 3 OF THE ASSESSMENT ORDER. THE ASSESSEE HAD SHOWED RENTAL INCOME OF SH OW ROOM SCO 126- 127, SECTOR 34-A, CHANDIGARH AS PER THE LIST OF TEN ANTS INCORPORATED UNDER PARA 5 AT PAGE 4 OF THE ASSESSMENT ORDER. THE ASSES SEE ALSO FURNISHED BEFORE THE ASSESSING OFFICER THE RENT DEED IN RESPE CT OF VARIOUS TENANTS WHICH ARE REPRODUCED BY THE ASSESSING OFFICER UNDER PARA 7 AT PAGES 5 TO 7 OF THE ASSESSMENT ORDER AND ANOTHER RENT DEED THE REAFTER. THE ASSESSING OFFICER ALSO ENCLOSED THE COPIES OF RENT DEED AS ANNEXURESC-1 TO C-6 OF THE ASSESSMENT ORDER. THE CONCLUSION OF THE ASSESSING OFFICER WAS THAT THE TOTAL RECEIPTS OF THE ASSESSEE ARE ON ACCOUNT OF RENTAL INCOME AND HENCE SHOULD BE INCLUDED AS INCOME FROM HOUSE P ROPERTY. THE CLAIM OF THE ASSESSEE WAS THAT THE TOTAL GROSS RECEIPT OF RS. 26,58,169/- COMPRISED OF TWO COMPONENTS I.E. RECEIPTS FROM COMM UNICATION CENTRE AND FINANCIAL CHARGES RS. 3,47,888 /- AND RENTAL INCOME OF RS. 23,10,281/-. AS PER THE ASSESSEE THE COMMUNICATION CHARGES HAD BEEN TREATED AS BUSINESS INCOME AND RESULTANT LOSS OF RS. 20,56,573/- CLAIME D AND RECEIPTS OF RS. 23,10,281/- HAS BEEN TREATED AS RENTAL INCOME AND T AXABLE INCOME UNDER THE HEAD INCOME FROM PROPERTY HAS BEEN SHOWN AT RS . 16,23,741/- . THE ASSESSING OFFICER VIDE PARA 10 OBSERVED THAT THERE WERE NO SEPARATE RECEIPTS FROM COMMUNICATION CENTRE AND FINANCIAL CH ARGES. THE ASSESSEE WAS ASKED VIDE ORDER SHEET DATED 22.10.2008 TO PROD UCE EVIDENCE OF RECEIPT OF COMMUNICATION CHARGES AND THE ASSESSEE F AILED TO PRODUCE ANY SUCH EVIDENCE. THE CONCLUSION OF THE ASSESSING O FFICER WAS THAT THERE 3 WERE NO SEPARATE COMMUNICATION AND FINANCIAL CHARGE S. THUS, THE TOTAL RECEIPTS WERE TREATED AS INCOME FROM HOUSE PROPERTY AND THE BUSINESS EXPENSES AS WELL AS DEPRECIATION WAS DISALLOWED. S IMILARLY, THE BUSINESS LOSS AND DEPRECIATION OF EARLIER YEAR WAS NOT SET O FF. THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER IN THE ABSENCE O F THE ASSESSEE FURNISHING ANY EVIDENCE TO PROVE ITS CLAIM OF BUSIN ESS INCOME. THE PLEA OF THE ASSESSEE THAT IT WAS FOLLOWING THIS METHOD O F ACCOUNTING FOR THE PAST SEVERAL YEARS WAS REJECTED IN VIEW OF THE ANY EVIDENCE NOT BEING FURNISHED ON RECORD BY THE ASSESSEE. THE CIT(A) AL SO NOTED THAT IN REPLY TO ORDER SHEET ENTRY DATED 10.9.2008, THE ASSESSEE HAD CLAIMED A SUM OF RS. 13,43,671/- BEING RECEIVED ON LETTING OUT CHARG ES AS ITS BUSINESS INCOME BUT THE ASSESSEE FAILED TO JUSTIFY THE SAID RECEIPTS AS BUSINESS INCOME. FURTHER, ASSESSEE FILED A MODIFICATION TO THE EARLIER REPLY IN WHICH RECEIPT FROM COMMUNICATION CENTRE AND FINANCI AL CHARGES WERE DECLARED AT RS. 3,47,888/-. THE ASSESSING OFFICER VIDE ORDER SHEET ENTRY DATED 22.10.2008 ASKED THE ASSESSEE TO FURNISH THE BASIS AND EVIDENCE OF THE SAME, WHICH THE ASSESSEE FAILED TO FURNISH. I N THE ABOVE SAID CIRCUMSTANCES, THE CIT(A) DISMISSED THE GROUND OF A PPEAL RAISED BY THE ASSESSEE. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE COPY OF THE RENT DEED IS ANNEXED TO THE ASSESSMENT ORDER AND THE PERUSAL OF THE SAME REVEALS THE ASSESSEE TO HAVE ENTERED IN TO A LEASE WITH DIFFERENT TENANTS. THE FIRST RENT DEED ANNEXUED AT C-1 IS WI TH SHRI ZAIL SINGH, UNDER WHICH THE LEASE WAS FOR A PERIOD OF 5 YEARS. THE LESSEE AGREES TO PAY THE RENT OF RS. 2,500/- AND THEREAFTER WITH INC REASE IN RENT AS STIPULATED IN PARA 2 AND AS PER PARA 5, THE ELECTRI CITY AND WATER CHARGES ARE FIXED AT RS. 250/- PER MONTH. AS PER CLAUSE 6 , THE STATE LEVIES ARE TO 4 BE BORNE BY THE LESSEE IN ADDITION TO RENT. AS PE R CLAUSE 7 OF THE AGREEMENT, THE PREMISES ARE TO BE USED FOR ELECTRIC REPAIR WORK. CLAUSES 8, 9, 10 TALKS ABOUT THE LIABILITY OF THE LESSEE T O MAINTAIN THE PREMISES AND CLAUSE 11 IS THAT NO SUBLETTING OR PARTING WITH THE POSSESSION OF THE TENANTED PREMISES BY THE LESSEE. CLAUSE 12 TALKS A BOUT THE FAILURE TO PAY AND AUTOMATIC TERMINATION OF THE AGREEMENT. SIMILA RLY, THE LEASE AGREEMENT PLACED AT ANNEXURE C-2, WITH SUNIL KUMAR BHASIN IS SIMILARLY DRAFTED AND ALL THE OTHER AGREEMENTS THEREAFTER. T HE TOTAL RENT RECEIVED BY THE ASSESSEE IS RS. 26,58,169/- AS INCORPORATED AT PAGE 3 OF THE ASSESSMENT ORDER AND ALSO AT ANNEXURE B TO THE ASSESSMENT ORDE R. THE ASSESSEE HAS FAILED TO FURNISH ON RECORD ANY EVIDENCE TO PROVE I TS CLAIM OF THE COMMUNICATION CENTRE AND FINANCIAL CHARGES BEING RE CEIVED EXCEPT FOR A COMPARATIVE CHART FURNISHED AT PAGE 3 OF THE PAPER BOOK. THE ASSESSEE HAS REFLECTED THAT DURING THE YEAR IT HAD RECEIVED COMMUNICATION CENTRE / FINANCIAL CHARGES OF RS. 3,47,888/- AS AGAINST SIMI LAR CHARGES OF RS. 3,18,662/- RECEIVED IN ASSESSMENT YEAR 2005-06 AND RS. 8,66,606/- IN ASSESSMENT YEAR 2006-07. IN THE ABSENCE OF ANY EV IDENCE BEING FILED TO ESTABLISH ITS CASE, WE FIND NO JUSTIFICATION IN THE CLAIM OF THE ASSESSEE AND HENCE THE SAME IS DISMISSED. 5. THE ASSESSEE HAS ALSO FILED THE COPY OF THE PROF IT AND LOSS ACCOUNT AT PAGES 5 & 6 OF THE PAPER BOOK, UNDER WHICH IT HA D CLAIMED THE EXPENDITURE ON ACCOUNT OF SALARY AND ALLOWANCES (RS . 3,50,286/-), DIRECTORS REMUNERATION (RS. 3,30,000/-), ELECTRICI TY AND WATER TELEPHONE, FINANCIAL CHARGES (RS. 11,31,205/-), DEPRECIATION ( RS. 2,66,676/-), COMMISSION RS. 30,6121/-, RATES AND FEES (1,59,898/ -) AND OTHER ALLIED EXPENDITURE. THE ASSESSEE HAD CLAIMED A NET LOSS OF RS. 20,56,573/- UNDER THE HEAD BUSINESS INCOME. THE ASSESSEE BEFO RE US IS A COMPANY 5 AND THE EXPENSES RELATING TO ITS DAY TO DAY EXISTEN CE ARE TO BE ALLOWED AS AN EXPENDITURE. HOWEVER, THE PERUSAL OF THE EXPEN DITURE CLAIMED BY THE ASSESSEE REFLECTS THE SAME TO BE EXCESSIVE. WE ARE OF THE VIEW THAT ONLY SUCH EXPENDITURE WHICH IS RELATABLE TO THE DAY TO D AY EXISTENCE OF THE ASSESSEE COMPANY AS A COMPANY LIKE AUDITORS REMUNE RATION AND LIKE MERITS TO THE ALLOWED IN THE HANDS OF THE ASSESSEE COMPANY EVEN IN THE ABSENCE OF BUSINESS INCOME. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO LOOK INTO THE CLAIM OF THE ASSESSEE IN THIS REGA RD AND DETERMINE THE BUSINESS LOSS ACCORDINGLY WHICH SHALL BE SET OFF AG AINST THE INCOME FROM PROPERTY. THE ASSESSEE IS NOT ENTITLED TO ANY CLAI M OF DEPRECIATION ON THE ASSETS NOR ANY SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AND DEPRECIATION, IN THE ABSENCE OF ANY BUSINESS ACTIVITY BEING CARRI ED ON BY THE ASSESSEE. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECT TO REC OMPUTE THE INCOME IN THE HANDS OF THE ASSESSEE. THE GROUND OF APPEAL RA ISED BY THE ASSESSEE IS THUS ALLOWED AS INDICATED ABOVE. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF FEBRUARY, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28 TH FEBRUARY, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 6