SHUBHMANGAL PORTFOLIO P. LTD, MUMBAI V. ITO 7(2)(3), MUMBAI

ITA 258/MUM/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9330 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 26-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 11-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Deemed to accrue or arise in india; Wrong claim
• Section: 56(2); 14A; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM ./ I.T.A. NO. 258/MUM/2011 ( / ASSESSMENT YEAR: 2005-06) SHUBHMANGAL PORTFOLIO PVT. LTD. B-1, TULSI VIHAR, DR. A. B. ROAD, WORLI NAKA, MUMBAI-400 018 / VS. CIT, CITY-7, AAYAKAR BHAVAN, MUMBAI ' ./# ./PAN/GIR NO. AABCS 1968 D ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' ( / APPELLANT BY : SHRI NISHIT GANDHI %&'$ ' ( / RESPONDENT BY : SHRI ASGHAR ZAIN )* + ' , / DATE OF HEARING : 26.02.2015 -./ ' , / DATE OF PRONOUNCEMENT : 13.03.2015 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-13, MUMBAI (CIT(A) FOR SH ORT) DATED 09.09.2010, CONFIRMING THE LEVY OF PENALTY U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2005-06 VIDE ORDER DATED 30.01.2008. 2. OPENING THE ARGUMENTS FURNISHED FOR AND ON BEHAL F OF THE ASSESSEE, IT WAS SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE (AR) , THE ASSESSEES COUNSEL, THAT PENALTY STANDS LEVIED IN THE INSTANT CASE QUA TWO ADDITIONS/DISALLOWANCES, I.E., ASSESSMENT OF RENTAL INCOME AS INCOME FROM HOUSE PROPERTY AS AG AINST BUSINESS INCOME RETURNED BY THE ASSESSEE AND, TWO, DISALLOWANCE U/S. 14A. IN FA CT, THEREFORE, THE FIRST IS ONLY A RECATEGORISATION OF THE ASSESSEES INCOME. SURELY, A DIFFERENT TREATMENT OF THE SAME 2 ITA NO. 258/MUM/2011 (A.Y. 2005-06) SHUBHMANGAL PORTFOLIO PVT. LTD. VS. CIT INCOME, PARTICULARS OF WHICH HAVE BEEN DULY RETURNE D AS RENTAL INCOME, SHOULD NOT ENTAIL LEVY OF PENALTY U/S. 271(1)(C) IN-AS-MUCH AS THERE IS NO CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. AS REGARDS THE SE COND DISALLOWANCE; TRUE, THE ASSESSEE HAD NOT MADE ANY SUO MOTU DISALLOWANCE OF EXPENDITURE U/S. 14A QUA THE DIVIDEND INCOME OF RS.8,56,036/-, BUT THEN THE FACT OF THE M ATTER IS THAT NO EXPENDITURE HAD IN FACT BEEN INCURRED BY THE ASSESSEE AGAINST THE SAID TAX- EXEMPT DIVIDEND INCOME, INVESTMENT IN RESPECT OF WHICH STANDS MADE IN THE PAST. NO PENALT Y COULD BE LEVIED ON THE BASIS OF A PRESUMPTION ALONE. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD, ON THE OTHER HAND, SUBMIT THAT IN-AS-MUSH AS THE ADJUSTMENTS TO THE RETURNED INCOM E HAVE TAX IMPLICATIONS, THE SAME WOULD CARRY PENALTY IMPLICATION AS WELL, AS THAT IS WHAT, I.E., A DETERRENCE FOR EVASION OF TAX, THE LEVY OF PENALTY U/S. 271(1)(C), A CIVIL LI ABILITY, IS ALL ABOUT. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE SHALL TAKE UP EACH OF THE TWO ADJUSTMENTS TO THE RETURNED INCOME QUA WHICH PENALTY STANDS LEVIED AND CONFIRMED IN THE INSTANT CASE, SEPARATELY, AS UNDER : A) ASSESSMENT OF RENTAL INCOME AS INCOME FROM HOUSE PROPERTY THE ASSESSEES ARGUMENT SUPRA OF THE SAME BEING ONL Y A DIFFERENTIAL TREATMENT OF THE VERY SAME, I.E., RENTAL, INCOME, SO THAT THERE HAS BEEN THUS NEITHER ANY CONCEALMENT NOR FURNISHING OF INACCURATE PARTICULARS OF INCOME, THOUGH APPEALING, IS MISCONCEIVED. THE REASON IS SIMPLE. YES, THE ASSESSEE HAS APPAREN TLY STATED THE QUANTUM AND NATURE OF THE INCOME CORRECTLY. HOWEVER, PENALTY U/S 271(1)(C ) IS NOT ONLY QUA THE MISSTATEMENT OF FACT/S BUT ALSO OF LAW. WHEN THE LAW IS CLEAR AND W ELL SETTLED, AS IN THE FACTS OF THE PRESENT CASE, THE SO CALLED DIFFERENTIAL TREATMENT, WHICH THE LAW DOES NOT ADMIT OF, I.E., QUA THE ADMITTED NATURE OF THE INCOME, IS ONLY ADMITTEDLY A WRONG CLAIM IN LAW. THIS IS MORE SO WHERE THE SAID CLAIM HAS TAX IMPLICATION. INCOME HA S TO BE NECESSARILY COMPUTED UNDER SEPARATE, MUTUALLY EXCLUSIVE HEADS OF INCOME, ALLOW ING DEDUCTIONS AS PER THE COMPUTATIONAL PROVISIONS OF THE RESPECTIVE HEAD OF INCOME, AND TOWARD WHICH THE ASSESSING OFFICER (A.O.) HAS RELIED ON UNITED COMMERCIAL BANK LTD. VS. CIT [1957] 32 3 ITA NO. 258/MUM/2011 (A.Y. 2005-06) SHUBHMANGAL PORTFOLIO PVT. LTD. VS. CIT ITR 688 (SC) AND CIT VS. CHUGANDAS AND CO. [1965] 55 ITR 17 (SC). IN FACT, THE DIFFERENTIAL TREATMENT WOULD BE RENDERED AS OF NO CONSEQUENCE, SO THAT NO PENALTY COULD BE LEVIED, WHERE IT CARRIES THE SAME OR A SIMILAR T AX BURDEN; THE WHOLE PREMISE THEREOF BEING ONLY A LESSER TAX LIABILITY, SO THAT WHOLE IS SUE THEREFORE BOILS DOWN TO WHETHER IT IS THE CASE OF TAX AVOIDANCE, WHICH IS LEGALLY PERMISS IBLE, OR OF TAX EVASION, WHICH THE LAW SEEKS TO PENALIZE, AND WHICH THEREFORE HAS TO BE A DJUDGED ON THE BASIS OR EDIFICE OF THE ASSESSEES EXPLANATION FOR ITS ADOPTED TREATMENT. T HE TERM DIFFERENTIAL TREATMENT, WHICH IS THUS TO BE EXAMINED ON THE TOUCHSTONE OF THE VAL IDITY OR PLAUSIBILITY, OR OTHERWISE, OF THE LEGAL CLAIM, CARRIES NO LEGAL MEANING IN ITSELF . HOW COULD, ONE MAY ASK, THE ASSESSEE JUSTIFY ITS CLAIM OF THE DECLARED NATURE OF THE IN COME AS RENT, WHEN IT DECLARES AS IT AS BUSINESS INCOME, CLAIMING ALL EXPENSES THERE-AGAI NST ? THAT IS, COULD IT BE SAID THAT THE ASSESSEE HAS FURNISHED ACCURATE PARTICULARS OF INCO ME WHEN IT, DE HORS SETTLED LAW, CLAIMS ALL REGULAR, BUSINESS EXPENDITURE, INCLUDING DEPREC IATION ON BUILDING, THERE-AGAINST, SO THAT THE ASSESSEES CLAIM OF HAVING STATED FACT/S CORRECTLY IS ALSO HIGHLY SUSPECT. IN FACT, THE TAX IMPLICATION IN THE INSTANT CASE ARISES ONLY ON ACCOUNT OF AND, FURTHER, DESPITE THE FACT THAT RENTAL INCOME IS SUBJECT TO A STATUTORY D EDUCTION FOR REPAIRS @ 30% OF RENTAL VALUE, WHICH STANDS ALLOWED (REFER PARA 3(B)), THE CLAIM/S OF SUCH EXPENDITURE. TRUE, IT WOULD BE A DIFFERENT MATTER ALTOGETHER WHE RE THE ASSESSEE HAS AN ARGUABLE CASE AND, THUS, A PLAUSIBLE EXPLANATION ON FACTS, F OR RETURNING THE INCOME THUS, I.E., AS BUSINESS INCOME, AS WHERE THE LETTING IS COMPLEX, F ORMING PART OF A COMPOSITE ACTIVITY. NO SUCH CONTENTION HAS BEEN RAISED, MUCH LESS EXHIB ITED. THE ASSESSEES CASE, BOTH IN THE QUANTUM AND THE PENALTY PROCEEDINGS HAS BEEN THAT I T HAD ALLOWED THE USER OF A PART OF ITS PREMISES, I.E., WHICH WAS NOT BEING USED FOR ITS BU SINESS PURPOSES, BY ITS SISTER CONCERNS, M/S. HIND ALUMINUM AND M/S. NIRAV COMMERCIAL LTD., FOR A COMPENSATION, AND WHICH MUST THEREFORE BE CONSIDERED AS, OR AS A PART OF, I TS BUSINESS INCOME IN-AS-MUCH AS THE SAME REPRESENTS OR ARISES BY WAY OF EXPLOITATION OF A BUSINESS ASSET. THE ARGUMENT, THOUGH ATTRACTIVE, IS MISCONCEIVED. THE LAW, PER SE CTION 22, SEEKS TO BRING TO TAX THE INHERENT HEREDITAMENT OF A HOUSE PROPERTY TO YIELD PROFIT, WHICH IS DEFINED AS ITS ANNUAL VALUE, ALSO PRESCRIBING THE MANNER FOR ITS DETERMI NATION, TO TAX. AS SUCH, WHERE HIS HOUSE 4 ITA NO. 258/MUM/2011 (A.Y. 2005-06) SHUBHMANGAL PORTFOLIO PVT. LTD. VS. CIT PROPERTY IS NOT BEING USED BY AN ASSESSEE FOR HIS O WN BUSINESS OR PROFESSION, ITS ANNUAL VALUE IS LIABLE TO TAX, WHICH THUS IS ON THE DEEMED INCOME FROM A PROPERTY, AND NOT A TAX ON THE PROPERTY ITSELF (REFER: CHELMSFORD CLUB VS. CIT [2000] 243 ITR 89 (SC)). THAT PROFIT STANDS ACTUALLY REALIZED IN THE INSTANT CASE BY LETTING IT, WHICH IS THUS NOT CONSIDERED UNDER THE ACT AS A BUSINESS IN ITSELF, IS ONLY INCI DENTAL, AND ONLY IN REALIZATION OF THAT INHERENT POTENTIAL. THE IDENTITY OF THE TENANT OR T HE USER OF THE PROPERTY, I.E., A SISTER CONCERN OR NOT, IS IRRELEVANT. THE HOUSE PROPERTY S O LET IS, TO THAT EXTENT, IN FACT, NO LONGER, OR CEASES TO BE, A BUSINESS ASSET. THE APEX COURT A S FAR BACK AS IN SULTAN BROTHERS (P.) LTD. VS. CIT [1964] 51 ITR 353 (SC) CLARIFIED THAT WHETHER A PA RTICULAR LETTING IS BUSINESS HAS TO BE DECIDED IN THE CIRCUMSTANCES OF EACH CASE, WH ILE NO SUCH CASE, AS OBSERVED EARLIER, HAS BEEN MADE OUT. AS REGARDS THE ARGUMENT OF THE H OUSE PROPERTY BEING A COMMERCIAL ASSET, IT WAS CLARIFIED BY IT THAT A THING IS NOT B Y ITS VERY NATURE A COMMERCIAL ASSET. THE COMMERCIAL ASSET IS ONLY AN ASSET USED IN A BUSINES S AND NOTHING ELSE, AND BUSINESS MAY BE CARRIED ON WITH PARTICULAR ALL THINGS. THEREFORE , IT IS NOT POSSIBLE TO SAY THAT A PARTICULAR ACTIVITY IS BUSINESS BECAUSE IT IS CONCERNED WITH A N ASSET WITH WHICH TRADE IS COMMONLY CARRIED ON. THE PLEA OF DIFFERENTIAL TREATMENT IS THUS AN ALIBI OR A FALSE PLEA, AND NOT VALID, BOTH ON FACTS AND IN LAW. THIS WOULD ALSO ME ET THE ASSESSEES RELIANCE ON THE DECISION, WHERE SO, ON CIT VS. RELIANCE PRODUCTS (P.) LTD. [2010] 322 ITR 158 (SC), AND TOWARD WHICH WE MAY RELY ON THE DECISIONS IN THE CA SE OF CIT VS. ZOOM COMMUNICATION (P.) LTD . [2010] 327 ITR 510 (DEL.); CIT VS. ESCORTS FINANCE LTD . [2010] 328 ITR 44 (DEL); AND CIT VS. USHA INTERNATIONAL LIMITED [2013] 214 TAXMANN.COM 519 (DEL), BESIDES MAK DATA (P.) LTD. VS. CIT [2013] 358 ITR 593 (SC). COMING TO THE ASSESSEES RELIANCE ON OTHER CASE LAW , I.E., QUA THE ASSESSMENT OF RENTAL INCOME EITHER U/S. 28 OR U/S. 56, I.E., AS BUSINESS INCOME OR AS INCOME FROM OTHER SOURCES, WE HAVE ALREADY NOTED ABSENCE OF ANY CIRC UMSTANCES WHICH COULD IN LAW ADMIT OF SUCH A CLAIM, FOR WHICH THE LAW ITSELF PROVIDES FOR UNDER CERTAIN CIRCUMSTANCES, SPECIFIED IN SECTION 56(2) (III). FURTHER, EVEN AS OBSERVED AND ADMITTED BY THE LD. AR DURING HEARING, ALL THE CASE LAW RELIED UPON IS PRI OR TO THE DECISION BY THE APEX COURT IN SHAMBHU INVESTMENTS VS. CIT [2003] 263 ITR 143(SC). IN FACT, PER THE SAID DECI SION, 5 ITA NO. 258/MUM/2011 (A.Y. 2005-06) SHUBHMANGAL PORTFOLIO PVT. LTD. VS. CIT APEX COURT ONLY FOLLOWS ITS CONSTITUTIONAL BENCH D ECISION IN SULTAN BROTHERS PVT. LTD . (SUPRA), AND IS IN CONFORMITY OF ITS EARLIER DECISI ONS, AS IN EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD. VS. CIT [1961] 42 ITR 49 (SC). THE MATTER WITH REGARD TO TH E TAXABILITY OF RENTAL INCOME, WHEREBY THE LAW SEEKS TO BRING TO TAX THE RENTAL OR THE HIRE CAPACITY OF A HOUSE PROPERTY, IRRESPECTIVE OF WHETH ER IT IS ACTUALLY LET AND, THUS, YIELDS RENT OR NOT, STANDS SETTLED PER A SERIES OF DECISIONS, I NCLUDING THOSE CITED SUPRA, AS IN D. M. VAKIL VS. CIT [1946] 14 ITR 298 (BOM); LIQUIDATOR OF MAHAMUDABAD PROPERTIES (P.) LTD . VS. CIT [1980] 124 ITR 31 (SC); BHAGWAN DASS JAIN VS. UNION OF INDIA [1981] 128 ITR 315 (SC) (AT PG. 320), TO CITE SOME. IN OUR VIEW, THEREFORE, PENALTY STANDS RIGHTLY LEVI ED QUA THE ASSESSEES CLAIM OF RENTAL INCOME AS BUSINESS INCOME. WE DECIDE ACCORDI NGLY. B) DISALLOWANCES U/S. 14A WE ARE, EQUALLY, UNABLE TO FATHOM THE REVENUES CAS E IN RESPECT OF LEVY OF PENALTY QUA THIS DISALLOWANCE. THE REASON IS AGAIN SIMPLE. THE SUO MOTU DISALLOWANCE COULD ONLY BE MADE BY THE ASSESSEE IN THE COMPUTATION OF BUSINESS INCOME, WHICH DOES NOT SURVIVE FOR ASSESSMENT; THE RENTAL INCOME BEING ASSESSED U/S.22 , AND AGAINST WHICH ONLY SPECIFIC, STATUTORY ALLOWANCES/CLAIMS, WHICH HAVE NOTHING IN COMMON WITH THE ADMINISTRATIVE EXPENSES DISALLOWABLE QUA THE DIVIDEND INCOME, ARE VALID. IN SUM, THERE IS A BSENCE OF ANY TAX SOUGHT TO BE EVADED IN THE FACTS AND CIRCUMSTAN CES OF THE CASE, WHICH WOULD BE APPARENT FROM THE COMPUTATION OF ASSESSED INCOME, A S UNDER: (AMOUNT IN RS. ) INCOME FROM HOUSE PROPERTY OFFICE PREMISES AT LOWER PAREL RENT RECEIVED 3,60,000 LESS: DEDUCTION U/S.24(A) @ 30% 1,08,000 2,52,000 INCOME FROM BUSINESS NET PROFIT (AS PER STATEMENT OF INCOME) (-) 8,92,4 20 LESS: INCOME CONSIDERED SEPARATELY RENT RECEIVED 3,60,000 (-) 12,52,420 ADD: AS DISCUSSED ABOVE : DEPRECIATION ON OFFICE PREMISES 2,98,010 SOCIETY MAINTENANCE CHARGES 16,360 6 ITA NO. 258/MUM/2011 (A.Y. 2005-06) SHUBHMANGAL PORTFOLIO PVT. LTD. VS. CIT PROPORTIONATE EXPENDITURE (U/S.14A) 9,38,050 12,52,420 NIL TOTAL INCOME 2,52,000 NO PENALTY, ACCORDINGLY, QUA DISALLOWANCE U/S. 14A, WHICH IS CLEARLY MISSING IN THE COMPUTATION AFORE-STATED, SHALL ARISE. WE, THE REFORE, THOUGH OF THE CLEAR VIEW THAT NO PENALTY QUA THE SAID DISALLOWANCE COULD ARISE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, MAY CLARIFY THAT OUR REASON FOR SO HOLDING IS WHOLL Y DIFFERENT FROM THE BASIS ON WHICH THE ASSESSEE ARGUED ITS CASE BEFORE US, I.E., OF THE DI SALLOWANCE U/S. 14A BEING MADE ON THE BASIS OF A PRESUMPTION. WHY, NO ADDITION /DISALLOWA NCE, MUCH LESS PENALTY, COULD BE EFFECTED ON THE BASIS OF A PRESUMPTION, UNLESS OF C OURSE IT HAS A SOUND BASIS ON FACTS AND IS WELL SUPPORTED BY LAW, IN WHICH CASE THE STATUTO RY PRESUMPTION HAS TO BE GIVEN EFFECT TO. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. 0/ 1 )2 30 ' * 4 ' 56 ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 13, 201 5 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 7+ MUMBAI; 8) DATED : 13.03.2015 *.)../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. ;*< = %)>2 , , >2/ , 7+ / DR, ITAT, MUMBAI 6. = ?3 @ + / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , 7+ / ITAT, MUMBAI