M/S QUALITY APPAREL EXPORTERS PVT LTD., Mumbai V. ITO WARD 11(1)(1), Mumbai

ITA 2352/MUM/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 2995 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 11-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: LETTING IT; ANY COMMERCIAL OR
• Keywords: Business income; Depreciation; Business expenditure; Tax effect; Tax effect; TDS; FORM 26AS
• Section: 143(3); 142(1); 143(1); 250; 143(2); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI G.S.PANNU,PRESIDENT & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 2352 & 2353/Mum/2019 (A.Y: 2012-13 & 2013-14) M/s. Quality Apparel Exports Pvt Ltd, Unit No.4, Wicel Bldg, Seepz, MIDC, Moral, Andheri (E), Mumbai 400093 Vs. ITO -Ward -11(1)(1) Room No. 201, 2 nd Floor,Aayakar Bhavan, M.K. Road, Mumbai – 400020 ./ज आइआर ./PAN/GIR No. : AAACQ1711F Appellant .. Respondent Appellant by : None Respondent by : Mr.T.Shankar.DR Date of Hearing 20.04.2022 Date of Pronouncement 04.05.2022 आद श / O R D E R PER PAVAN KUMAR GADALE JM: These are the appeals filed the by the assessee against the separate orders of the Commissioner of Income Tax (Appeals)-18, Mumbai passed u/s 143(3) r.w.s 250 of the Act. Since the issues in these two appeals are common and identical, hence are clubbed, heard and consolidated order is passed. ITA No. 2352 & 2353/Mum/2019 M/s Quality Apparel Exports Pvt Ltd., Mumbai. - 2 - 2. On perusal of the facts, the appeal was filed by the assessee on 12.04.2019 and the case was posted for hearing on 10.12.2020, 09.02.2021, 07.04.2021, 07.06.2021, 28.08.2021, 14.10.2021, 01.12.2021, 19.01.2022, 08.03.2022 and today i.e 20.04.2022, none appeared on dates of hearing nor any application was filed for adjournment. On considering the facts and the action of the assessee in non appearance on date of hearing. The presumption is that after filling the appeal, the assessee is not inclined/interested to prosecute the appeal. Accordingly, we heard the Ld. DR submissions and decided the appeal based on the material information available on record. 3. For the sake of convenience, we shall take up assessee appeal in ITA No. 2352/Mum/2019, for the A.Y 2012-13 as a lead case and the facts narrated. The assessee has raised the following grounds of appeal. 1. On the facts and circumstances of the case as well as in law the Ld. CIT(A) has erred in confirming the action of the Ld. Assessing Officer disallowing a sum of Rs.80,70,309. Out of Total disallowed, Rs.64,09,715 is disputed in appeal for which the tax effect would be as under- ITA No. 2352 & 2353/Mum/2019 M/s Quality Apparel Exports Pvt Ltd., Mumbai. - 3 - Tax on Income Assessed - Rs. 18,55,780 Tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which cross-objection is intended to be filed - Rs. NIL Tax Effect - Rs. 18,55, 780 2. On the facts and circumstances of the case as well as in law the Ld. CIT(A) has erred in confirming the action of the Ld. Assessing Officer without appreciating the fact that be incurred even if there are no business activities. The Learned AD has disallowed expenses which is not related to House Property Income including Depreciation. Details of the same shall be provided at the time of hearing. 3. The assessing Officer has considered rent for the Period January to March 2012 Rs.4,41,000 against actual rent of Rs.4,00,000 and added Rs.1,23,000 towards Income from House Property though tenant has paid Rs.4,00,000 only being the negotiated rent which is also reflected in form 26AS. 4. The order passed by the Learned A.O. is devoid of any merit, arbitrary, uncalled for and bad in law, the appellant be given such relief or reliefs as prayed for. 5. Appellant craves leave to add, alter and/or modify the grounds of appeal on or before the date of hearing of the appeal. 4. The Brief facts of the case are that, the assessee company is engaged in the business of manufacturing and exporting of garments.The assessee has filed the return of income electronically for the ITA No. 2352 & 2353/Mum/2019 M/s Quality Apparel Exports Pvt Ltd., Mumbai. - 4 - A.Y 2012-13 on 30.09.2012 disclosing a total income of Rs.8,32,370/- and the return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny under the CASS and notice u/s 143(2) and 142(1) of the Act are issued. In compliance, the Ld. AR of the assessee appeared from time to time and furnished the details and the case was discussed. The assessing officer (A.O) on perusal of the financial statements in particular profit and loss account found that the assessee has disclosed the revenue from operations of Rs. 87,76,600/- and the information was called in respect of business receipts. Whereas the assessee has filed the details of business receipts and the A.O found that the business receipts consists of rental income from three parties and TDS u/sec194I of the Act was deducted. 5. The A.O. has perused the rental agreements and observed that the property was leased out to tenants and the income received from the property is treated as income/receipts from business and the assessee has claimed the other expenditure including salaries & wages, director’s remuneration, staff welfare expenses and depreciation. The A.O has dealt on the provisions ITA No. 2352 & 2353/Mum/2019 M/s Quality Apparel Exports Pvt Ltd., Mumbai. - 5 - of Sec.22 of the Act and judicial decisions and a show cause notice was issued. Further the A.O. has dealt on the facts and provisions of Sec. 23(1)(a) of the Act and computed the rental income under income from house property and annual value of the property and further allowed deduction of municipal taxes paid and deduction u/s 24(a) of the Act @ 30% of Net rent and determined the income from house property of Rs. 60,05,745/-. The A.O. observed that similar addition was made in assessee own case for A.Y 2010-11 and was confirmed by the CIT(A). Finally the A.O. assessed the total income of Rs.60,05,750/- and passed the order u/s 143(3) of the Act dated 31.03.2015. 6. Aggrieved by the order, the assessee has filed an appeal before the CIT(A). The CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the A.O and followed the predecessor order of earlier year on the disputed issue and dismissed the assessee appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Hon’ble Tribunal. ITA No. 2352 & 2353/Mum/2019 M/s Quality Apparel Exports Pvt Ltd., Mumbai. - 6 - 7. At the time of hearing, the none appeared on behalf of the assessee. The Ld.DR submitted that on the similar issue, the CIT(A) in earlier years has confirmed the addition on treatment of rental income under house property and supported the order of the CIT(A). 8. We heard the Ld. DR submissions and perused the material on record. The sole crux of the disputed issue is in respect of disclosure of rental income received from the property by the assessee as business receipts and the assessee has claimed the other expenditure against the business receipts. Whereas, the A.O. has recomputed the rental income under income from house property and applied the provisions of Sec. 23(1)(a) of the Act in respect of annual value of the property and assessed the total income after allowing the deduction of municipal taxes paid and deduction u/s 24(a) of the Act. On perusal of the grounds of appeal raised by the assessee, the contentions are that the assessee is a private limited company and certain statutory fixed expenditure has to be incurred even though there is no business activities. We find the assessee has claimed the expenditure against the ITA No. 2352 & 2353/Mum/2019 M/s Quality Apparel Exports Pvt Ltd., Mumbai. - 7 - rental income and the CIT(A) has observed at page 7 Para 4.3 to 4.3.8 of the order which is read as under: 4.3 Decision: I have carefully considered the assessment order submissions made by the Authorized Representative of the appellant and the facts of the case. The A.O has observed that the appellant has shown under the head revenue from operation at Rs.87,78.600/. It was contended by the Assessing Officer that it is noticed from rent agreement, the appellant has leas out its property to M/s. Gitanjali Gems Ltd., La Casa De .Joailier Pvt. Ltd. and Bharati Airtel Ltd. situated at Unit No. 4A, Western Industrial Estate, Plot No. F-il & 12, MIDC Industrial Area, Marol Andheri(E), Mumbai. As per 26AS, it was notice that the appellant has received income from above parties and said parties have deducted TDS on the rent as per provision of section 1941 of the Income Tax Act, 1961. The Assessing Officer has relied on the decision of Honbie Supreme Court the case of East India Housing and Land Development trust Ld. vs. CIT(1961) 42 ITR 49(SC) and Shambhu Investment (P) Ltd. vs. CIT (263 ITR 143) (SC) and CIT vs. Chennai Properties & Investments Ltd. - 266 ITR 685 (Mad. HC) and taxed the rent or rent agreement between two parties should be assessed under the head income from house property u/s. 22 of the Income Tax Act, 1961, 4.3.1The appellant submitted that the Company was incorporated on 7 November 1984 and was engaged in manufacturing and exporting garments. However in mid-1990 due to unfortunate circumstances the company was declared as defaulters by Income Tax department, Customs, SAFEMA and COFEPOSA. Due to this reason assessee had no option but to shut down their operation on temporary basis. The Assessee Company intends to start the operation once the ITA No. 2352 & 2353/Mum/2019 M/s Quality Apparel Exports Pvt Ltd., Mumbai. - 8 - pending Judicial matters are being decided & disposed off by the respective authorities. As Assessee Compaiiy was in need of funds to close down the pending matters, Part of the Buii.ing was given on Rent. During the year, there was no manufacturing activity except rental receipt which the assessee company has shown as business income. The Assessing Officer accepted the same as Income from House Property. Income arising from assets let out for temporary period as a part of exploitation to tide over crises condition is to be assessed as business income and not income from house property. The appellant further relied on the decision of Hon’ble Supreme Court namely CIT Vs. Vikram Cotton Mills Ltd (1988) 169 ITR 597, Cept Vs Shri Laxmi Silk Mills (1951) 20 ITR 451 and CIT Vs. Maheshwari Devi Jute Mills Ltd (1965) 57 ITR 36 and CIT Vs Vikram Cotton Mills Ltd. (1988) 169 ITR 597 and contended that rent income should not be taxed as Income from House Property. 4.3.2 After examining the explanation of the appellant and the contention of the Assessing Officer I am of the view that in the assessment order the Assessing Officer contended, the appellant was the owner of the property. According to him, appellant had rented it out to multiple tenants and was earning rental income therefrom. As per the Assessing Officer, by virtue of judgments of Hon'ble Jurisdictional Supreme Court in the case of East India Housing & Land Development Trust Ltd. v/s. CIT (196 1)42 TTR 49 (SC) and Shambhu Investment (P) Limited Vs. CIT, (263 ITR 143)(SC) and Madras High Court, in the case of CIT vs. Chennai Properties & Development Ltd. 266 ITR 685, such income could be considered only under the head "Income from House Property. 4.3.3 I have considered the contentions of the Assessing Officer that appellant had shown the rental income under the ITA No. 2352 & 2353/Mum/2019 M/s Quality Apparel Exports Pvt Ltd., Mumbai. - 9 - head 'Income from Business/ Profession". What I note from the assessment orders for the impugned assessment years is that assessee had not carried on any business. It has been disputed by the appellant that the House Property located at Unit No. 4A, Western Industrial Estate, Plot No. F- li & 12 MIDC Industrial Area, Marol Andheri(E), Mumbai, on which it was earning the rental income was constructed by it, though it was situated in a leased property. Ownership of the building therefore vested with the appellant. May be appellant was not sure under which head of income, the rentals had to be shown. However, income earned by the appellant by letting it, any commercial or business activity is chargeable under the head 'Income from House Property" as held by Jurisdictional High Court in the case of Keyaram Hotels (P.) Ltd. (supra). It is noticed that the appellant could be considered as owner of the property since the property and section 27(iiib) would be attracted. However, in my opinion answer to the question lies in Section 22 of the Act, which is the charging section 22 of the Act is reproduced hereunder: "The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property 4.3.4 A reading of the above section clearly show that annual value of the property which is in the nature of a property is to be charged under the head " Income from House Property", if the assessee is the owner of the such property. Admittedly assessee was the owner of the building ITA No. 2352 & 2353/Mum/2019 M/s Quality Apparel Exports Pvt Ltd., Mumbai. - 10 - though. It is not essential that a person who owns a building should be owner of the land upon which it stands for assessing the rental income under the head "Income from House Property". In the circumstances, I am of the opinion that lower authorities were justified in considering the rental income under the head "Income from House Property". Once income is assessed under the head "Income from House Property", assessee will be eligible only for allowance mentioned in Section 24 of the Act. I thus do not find any reason to interfere with the orders of the Assessing Officer. 4.3.5 I find that the issued is covered in the favour of Revenue by the following decisions. i. Tektronics Engineering Development (Ind) Vs. DCIT (HC Kar), 2014, 41 taxman. 510 ii. Keyaram Hotels (P) Ltd. Vs. DCIT (HC) iii. Anil Financeial Services (P.) Ltd Vs. ITO, [2013] 35 taxmann.com 430 (Mumbai-Trib) iv. JG Exports Vs. ITO, Chennai [2017] 88 taxmann.com 96, (Chennai-Trib) 4.3.6 In view of the above, rental income of property has to be taxed as income from house property in view of provisons of Sec. 22 of t he Act. ITA No. 2352 & 2353/Mum/2019 M/s Quality Apparel Exports Pvt Ltd., Mumbai. - 11 - 4.3.7. In the light of the foregoing discussion the addition of Rs. 63,99,050/- under the head income from house property by the AO is hereby confirmed. It may also be noted that my predecessor has also confirmed the same issue in appellants own case for A.Y 2010-11 vide order dated 20.11.2014. 4.3.8 In the result, the Ground No. 2 is dismissed. 9. In the course of hearing, we found that the assessee has not filed any supporting evidences to substantiate the claim except the papers/ orders filed along with the appeal memo. On perusal of the facts, prima-facie the claim of business expenses against the rental income in not a prudent practice. We are of the opinion that the CIT(A) has considered the facts, circumstances, provisions of the Act, judicial decisions,and the assessee own case for theA.Y2010-11 of his predecessor and sustained the addition and passed the reasoned order. Accordingly, we do not find any infirmity in the order of the CIT(A) and uphold the same and dismiss the grounds of appeal of the assessee. ITA No. 2353/Mum/2019, A.Y 2013-14 10. As the facts and circumstances in this appeal are identical to ITA No. 2352/Mum/2019, for A.Y 2012-13 ITA No. 2352 & 2353/Mum/2019 M/s Quality Apparel Exports Pvt Ltd., Mumbai. - 12 - the decision rendered in above paragraphs would apply mutatis mutandis for this case also. Accordingly,the grounds of appeal of the assessee are dismissed. 11. In the result, both the appeals filed by the assessee are dismissed. Sd/- Sd/- (G.S PANNU) (PAVAN KUMAR GADALE) PRESIDENT JUDICIAL MEMBER Mumbai, Dated 04.05.2022 KRK, PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. Concerned CIT 5. DR, ITAT, Mumbai 6. Guard file. आदेशान ु सार/ BY ORDER, //True Copy// 1. ( Asst. Registrar) ITAT, Mumbai ITA No. 2352 & 2353/Mum/2019 M/s Quality Apparel Exports Pvt Ltd., Mumbai. - 13 - Date Initial 1. Draft dictated on 21.04.2022 PS 2. Draft placed before author 25.04.2022 PS 3. Draft proposed & placed before the second member PS 4. Draft discussed/approved by Second Member. PS 5. Approved Draft comes to the Sr.PS/PS PS 6. Kept for pronouncement on 7. File sent to the Bench Clerk 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Dictation Pad is enclosed 2. Other Member... on whi