G.R. Commercial Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 273/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91452 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 15-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Assessee Lawyers: O P PAHUJA
• Keywords: Reopening of assessment; Recovery proceedings; Business income; Depreciation; Rule of consistency; Additional evidence; Question of law; Initiation of penalty proceedings; Tangible material; Wrong claim; Difference of opinion; Assessment record; Revised return; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 234B; 115JB; 37(1); 147; 148

Judgement Text

ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER ITA NO.273/DEL/2013 ASSTT.YEAR: 2006-07 ITA NO.1134/DEL/2013 ASSTT.YEAR: 2005-06 G.R. COMMERCIAL PVT. LTD., VS IN COME TAX OFFICER, 27/17, UGF, EAST PATEL NAGAR, WARD 12(2), NEW DELHI. NEW DELHI. (PAN: AABCG9878L) (APPELLANT) (RESPOND ENT) APPELLANT BY: SHRI O.P. PAHUJA RESPONDENT BY: SHRI T. VASANTHAN, SR. DR DATE OF HEARING: 30.4.2015 DATE OF PRONOUNCEMENT: O R D E R PER C.M. GARG, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE HAS BEEN PREFERRED AGA INST THE ORDER OF THE CIT(A)-V, NEW DELHI DATED 21.11.2012 IN APPEAL NO.4 1/11-12 FOR AY 2006- 07. 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED IN HOLDING THAT INCOME E ARNED FROM EXPLOITATION OF COMMERCIAL SPACE HAS TO BE ASSESSED UNDER THE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 2 HEAD 'INCOME FROM HOUSE PROPERTY' INSTEAD OF UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS & PROFESSION' AND HA D INCORRECTLY AND UNJUSTIFIABLY UPHELD THE SAID ACTION OF LD. AO . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT ( A) ERRED IN UPHOLDING THE DISALL OWANCE OF FOLLOWING EXPENSES CLAIMED IN THE PROFIT AND LOSS A CCOUNT ON ACCOUNT OF:- [IN RS.] I) ACCOUNTING CHARGES 30,000.00 II) BANK CHARGES 1468.08 III) GENERAL EXPENSES 25,680.00 IV) TELEPHONE EXPENSES 3,600.00 V) PREOPERATIVE EXPENSES WRITTEN OFF 2,400.00 VI) STAFF WELFARE 8,695.00 VII) LEASE RENT EXPENSES 66448.00 VIII) MAINTENANCE CHARGES 85,208.00 IX) PRINTING & STATIONERY 6,090.00 X) REMUNERATION TO DIRECTOR 2, 88,000.00 XI) SALARY 1,80,000.00 XII) DEPRECIATION 2,50,781.00 WITHOUT ASSIGNING ANY REASONS, ESPECIALLY WHEN AFOR ESAID EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS OF THE COMPANY AND IN ORDER TO MAINTAIN IT S STATUS. 3. THAT THE LD. CIT(A) ERRED ON BOTH FACTS AND IN L AW IN CONFIRMING THE ACTION OF THE LD. AO, IN NOT ALLOWIN G THE SET OFF OF BROUGHT FORWARD ASSESSED BUSINESS LOSSES OF EARLIER YEARS WITHOUT APPRECIATING THAT THE SAID DISALLOWANCE IS NOT SUPP ORTED BY ANY COGENT REASON OR ANY MATERIAL ON RECORD. ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 3 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) ERRED IN REJECTING APPLICATION UNDER RULE 46A OF THE I'T RULES, 1962 AND IGNORING THE DOCUMENTS F ORMING PART OF THE ASSESSMENT RECORDS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT ( A) ERRED IN CONSIDERING LETTER D ATED 22.8.2008 FILED BY SHRI SANJEEV BHARDWAJ, WHO WAS NEVER AUTHO RIZED BY THE ASSESSEE COMPANY TO FILE SUCH A LETTER. IN THIS CON NECTION AN AFFIDAVIT EXECUTED BY DIRECTOR OF THE APPELLANT COM PANY SMT. SONALI ABUJA IS ENCLOSED. 6. THAT ON THE FACTS & IN LAW, THE LD. CIT (A) GROS SLY ERRED IN CONFIRMING THE INTEREST CHARGED BY THE LD. AO UN DER SECTION 234 B OF THE INCOME TAX ACT, 1961. 7. THAT ON THE FACTS & IN LAW, THE LD. CIT (A) GROS SLY ERRED IN CONFIRMING INITIATION OF PENALTY PROCEEDINGS U/S 271 (1)( C) OF THE INCOME TAX ACT, 1961 BY LD. A.O 3. BRIEFLY STATED THE FACTS GIVING RISE TO THIS APP EAL ARE THAT THE ASSESSEE FILED E-RETURN ON 30.11.2006 DECLARING AN INCOME OF RS.2, 45,851/- FOR AY 2006-07. SUBSEQUENTLY A PAPER RETURN WAS ALSO FILED ON 8.12. 2006 AFTER SETTING OFF OF BROUGHT FORWARD BUSINESS LOSS OF RS.7,67,190. THE ASSESSEE HAS SHOWN INCOME FROM ITS PROPERTY LOCATED AT SECTOR 18, NOIDA UNDER THE HEAD OF PROFIT AND GAINS OF BUSINESS AND PROFESSION BUT THE AO TREATED THE SAME AS INCOME FROM HOUSE PROPERTY. THE FIRST CONTENTION OF THE ASSESSEE IS THAT THE AO WRONGLY TREATED THE SAID INCOME UNDER THE HEAD OF INCOME FROM HOUSE PROPERTY WITHOUT ANY COGENT REASONS AND MERELY RELYING ON LETTER DATED 2 2.8.2008 PURPORTED TO BE FILED BY SHRI SANJEEV BHARDWAJ. AS PER ALLEGATION OF THE COMPANY, SHRI BHARDWAJ WAS NEVER AUTHORISED BY THE ASSESSEE COMPANY TO FIL E SUCH A LETTER. THE AO ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 4 FINALISED THE ASSESSMENT BY TREATING THE RECEIPTS O F RENT AS INCOME FROM HOUSE PROPERTY AND AFTER ALLOWING 30% FOR REPAIR AND MAIN TENANCE ALONG WITH AUDIT AND FILING FEE, THE ASSESSMENT WAS FRAMED AT NET TA XABLE INCOME OF RS. 13,67,361. THE AO DISALLOWED ALL OTHER EXPENSES ME NTIONED IN GROUND NO. 2 OF THE ASSESSEE IN THIS APPEAL. THE AGGRIEVED ASSESSE E PREFERRED AN APPEAL BEFORE THE CIT(A) WHICH WAS ALSO DISMISSED BY PASSING THE IMPUGNED ORDER. NOW, THE EMPTY HANDED ASSESSEE IS BEFORE THIS TRIBUNAL IN TH IS SECOND APPEAL WITH THE GROUND AS REPRODUCED HEREINABOVE. GROUND NO.4 4. NEXT ISSUE FOR OUR CONSIDERATION IS REJECTION OF APPLICATION OF THE ASSESSEE FILED UNDER RULE 46A OF THE INCOME TAX RULES 1962. FROM CAREFUL CONSIDERATION OF IMPUGNED ORDER, WE NOTE THAT THE C IT(A) REJECTED SAID APPLICATION OF THE ASSESSEE WITH FOLLOWING OBSERVAT IONS AND CONCLUSION:- 3. DURING APPEAL PROCEEDINGS, THE APPELLANT HAS F ILED AN APPLICATION UNDER RULE 46A AND HAS REQUESTED FOR AD MISSION OF ADDITIONAL EVIDENCE WHICH IS COPY OF ALL THE RETURN S ALREADY ON RECORD, CERTIFICATE OF INCORPORATION, OBJECTS OF TH E COMPANY. THE REASON FOR SUBMITTING THE APPLICATION UNDER RULE 46 A HAS BEEN STATED TO BE THE AO HAS NOT ALLOWED ANY OPPORTUNIT Y OF HEARING TO PRODUCE THE EVIDENCE WHICH WAS THOUGH REFERRED B Y MR. MIROLA I.E. ASSESSMENT RECORDS OF EARLIER YEARS. T HE AO HAD ALSO NOT ASKED TO PRODUCE THE SAME. IN VIEW OF THIS IT WAS FOUND NECESSARY TO FILE ALL THE RETURNS ALREADY ON RECORD , CERTIFICATE OF INCORPORATION, OBJECTS OF THE COMPANY, BOARDS RESO LUTION IN ORDER TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF THE CASE. THOUGH THESE DOCUMENTS ARE PART OF EARLIER ASSESSME NT RECORD BUT IN ORDER TO AVOID ANY CONTROVERSY AND ALSO BECA USE THESE DOCUMENTS WERE NOT FILED DURING THE COURSE OF ASSES SMENT ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 5 PROCEEDINGS IT WAS FOUND NECESSARY TO MAKE APPLICAT ION U/R 46A OF THE IT RULES ALONG WITH A DUPLICATE COPY OF THE EVIDENCE. IT IS HUMBLY REQUESTED SINCE APPELLANT WAS PREVENTED BY S UFFICIENT CAUSE FROM PRODUCING SUCH EVIDENCE RELEVANT TO GROU NDS OF APPEAL AND ALSO BECAUSE AO HAS NOT PROVIDED SUFFICI ENT OPPORTUNITY TO THE APPELLANT TO ADDUCE EVIDENCE REL EVANT TO GROUNDS OF APPEAL. DUE TO THIS THE APPELLANT'S CASE IS COVERED UNDER CLAUSE 'C & CLAUSE 'D' OF RULE 46AOF THE IT RULES.' THE APPLICATION WAS REFERRED TO THE AO FOR HIS COMM ENTS. THE AO RESISTED THE ADMISSION OF ADDITIONAL EVIDENC E ON THE GROUND THAT THE APPELLANT'S CASE DOES NOT FALL UNDE R ANY OF THE CLAUSES MENTIONED IN RULE 46A OF THE I.T. RULES. A PERUSAL OF THE RECORD OF PROCEEDINGS (NOTE SHEET) SHOWS THAT THE A PPELLANT WAS GIVEN REASONABLE OPPORTUNITY BY THE AO DURING PROCE EDINGS BEFORE HIM. THEREFORE THE APPELLANT CASE DOES NOT F ALL UNDER ANY OF THE CLAUSES MENTION U/R 46A. THEREFORE, THE ADDI TIONAL EVIDENCE IS NOT ADMITTED AND THE APPLICATION U/R 46 A IS REJECTED. 5. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ALL T HE RETURNS OF EARLIER YEARS ON RECORD OF THE REVENUE, CERTIFICATE OF INCORPORAT ION, OBJECTS OF THE COMPANY RELEVANT BOARD RESOLUTION WERE PART OF ASSESSMENT R ECORDS OF EARLIER YEARS BUT IN ORDER TO AVOID ANY CONTROVERSY, THE ASSESSEE FILED THE SAME UNDER APPLICATION U/R 46A OF THE RULES. IT WAS ALSO CONTENDED THAT DURIN G THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING THE SAME AS THE AO WAS NOT ALLOWED DUE OPPORTUNITY OF HEARING, HENC E, THE ISSUE FALLS UNDER CLAUSE (C) AND (D) OF RULE 465A OF THE RULES AND TH E CIT(A) WAS TOTALLY UNJUSTIFIED IN DISALLOWING THE SAME. 6. LD. DR REPLIED THAT THE AO PROVIDED DUE OPPORTUN ITY OF HEARING TO THE ASSESSEE, HENCE, THE CASE OF THE ASSESSEE DOES NOT FALL UNDER ANY OF THE CLAUSES OF RULE 46A OF THE RULES. LD. DR SUPPORTED THE ACTION OF THE CIT(A) IN THIS REGARD ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 6 AND SUBMITTED THAT THE ASSESSEE IS NOT ENTITLED TO FILE ANY ADDITIONAL EVIDENCE BEFORE THE CIT(A) EXCEPT ONE OR MORE CONDITIONS/CIR CUMSTANCES MENTIONED IN RULE 46A ARE FULFILLED. 7. IN THE PRESENT CASE, THE ASSESSEE HAS NOT PLACED ANY SUFFICIENT REASON WHICH PREVENTED IT IN FILING DOCUMENTS/EVIDENCE DUR ING ASSESSMENT PROCEEDINGS WHICH WAS FILED SUBSEQUENTLY BEFORE CIT(A) AS ADDIT IONAL EVIDENCE UNDER RULE 46A. THE ASSESSEE WAS GIVEN DUE OPPORTUNITY OF HEA RING BEFORE THE AO, HENCE THE AO RIGHTLY OBJECTED TO THE ADMISSION OF ADDITIO NAL EVIDENCE AND THE CIT(A) WAS QUITE JUSTIFIED IN REJECTING THE SAME. HENCE, GROUND NO. 4 OF THE ASSESSEE IS DISMISSED. GROUND NO. 5 8. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. AT THE VERY OUT SET, LD. COUNSEL OF THE ASSESSEE VEHEMENTLY CONTENDED THAT SHRI SANJEEV BHARDWAJ WAS NEVER AUTHORISED BY THE ASSESSEE COMPANY TO FILE ANY LETTER EITHER ON 22.8. 2008 OR ANY OTHER DATE CONSIDERING THAT THE RECEIPTS FROM RENT FROM THE PR OPERTY LOCATED IN SECTOR 18, NOIDA MAY BE TREATED AS INCOME FROM HOUSE PROPERTY. LD. COUNSEL HAS DRAWN OUR ATTENTION TOWARDS AFFIDAVIT DATED 14.1.2013 OF DIRECTOR OF THE ASSESSEE COMPANY SMT. SONALI AHUJA AND SUBMITTED THAT WHILE THE INCOME OF THE ASSESSEE COMPANY WAS REGULARLY TREATED AS BUSINESS INCOME DU RING ALL PRECEDING ASSESSMENT YEARS VIZ. FROM 2001-02 TO 2005-06, THEN THERE WAS NO QUESTION OF ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 7 MAKING SUCH REQUEST ON 22.8.2008 WHICH WAS PICKED U P BY THE AO FOR TREATING THE INCOME AS INCOME FROM HOUSE PROPERTY INSTEAD OF PROFITS AND GAINS OF BUSINESS AND PROFESSION. ON THIS ISSUE, LD. DR SUB MITTED THAT A LETTER WAS SUBMITTED ON 22.8.2008 BEFORE THE AO BY THE AR SHRI SANJEEV BHARDWAJ WHO SUBSEQUENTLY ATTENDED THE ASSESSMENT PROCEEDINGS, T HEREFORE, THE AO WAS CORRECT IN TREATING THE RENTAL RECEIPTS AS INCOME F ROM HOUSE PROPERTY. 9. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, F IRSTLY, WE NOTE THAT FROM BARE READING OF ASSESSMENT ORDER PARA 2 AT PAGE 3, WE NOTE THAT THE AO NOTED THAT IN RESPONSE TO REPLY/SHOW CAUSE LETTER, AR OF THE ASSESSEE COMPANY FILED A LETTER DATED 22.8.2008 AGREEING THAT THE INCOME OF THE ASSESSEE FROM RENT MAY BE TREATED AS INCOME FROM HOUSE PROPERTY. THE DIRECTOR OF THE ASSESSEE COMPANY SMT. SONALI AHUJA HAS FILED AN AFFIDAVIT CONTROVERT ING AND DISPUTING THIS LETTER WHICH IS ON RECORD BEFORE US AND THIS AFFIDAVIT HAS NOT BEEN REBUTTED BY THE REVENUE BY FILING ANY AFFIDAVIT OR ANY OTHER DETAIL S BEFORE US. ON CAREFUL CONSIDERATION OF RIVAL CONTENTIONS OF BOTH THE PART IES ON THIS ISSUE, WE ARE OF VIEW THAT IF THE RENTAL INCOME OF THE ASSESSEE COMP ANY WAS BEING ASSESSED AS PROFITS AND GAINS OF BUSINESS AND PROFESSION DURING THE EARLIER ASSESSMENT YEAR, THEN IN AN ORDINARY COURSE OF ACTION, THE COMPANY WOULD NOT AGREE TO TREAT THE SAME AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSIN ESS INCOME. FROM FIRST PARA OF THE ASSESSMENT ORDER, WE NOTE THAT ORIGINAL LY SHRI M.K. NIROLA, CA WAS ATTENDING THE PROCEEDINGS AND THE APPEARANCE OF SHR I SANJEEV BHARGAVA, CA HAS ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 8 BEEN NOTED BY THE AO SUBSEQUENTLY, WHO PURPORTEDLY FILED IMPUGNED LETTER DATED 22.8.2008 ACCEPTING THE STAND OF THE AO. IN THIS SITUATION, IN VIEW OF UNREBUTTED AFFIDAVIT OF THE DIRECTOR OF ASSESSEE CO MPANY AND OTHER FACTS AND CIRCUMSTANCES, WE HOLD THAT THE AO IS NOT ALLOWED T O TREAT THE RENTAL RECEIPTS OF THE ASSESSEE COMPANY AS INCOME FROM HOUSE PROPERTY WITHOUT CONSIDERING AND IGNORING THE OTHER RELEVANT FACTS AND CIRCUMSTANCES ONLY ON THE BASIS OF LETTER DATED 22.8.2008 WHICH WAS NOT FIELD ON THE INSTRUCT IONS OF THE ASSESSEE. THEREFORE, WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE LETTER DATED 22.8.2008 CANNOT BE HELD AS FILED ON BEHALF O F THE ASSESSEE AND ON THE INSTRUCTION OF THE ASSESSEE COMPANY. THE CONCLUSIO N OF THE AO CANNOT BE HELD AS SUSTAINABLE IN TREATING THE RENTAL RECEIPTS OF T HE ASSESSEE COMPANY AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME, AS CLAIMED BY THE ASSESSEE ONLY ON THE BASIS OF IMPUGNED LETTER DATED 22.8.2008 WHI CH WAS NOT FILED ON THE INSTRUCTIONS OF THE ASSESSEE COMPANY IN VIEW OF OUR FOREGOING DISCUSSION. ACCORDINGLY, GROUND NO. 5 OF THE ASSESSEE IS ALLOWE D. GROUND NO.1 10. APROPOS GROUND NO.1, THE LD. COUNSEL OF THE ASESSEE SUBMITTED THAT THE AO TREATED RENTAL RECEIPTS OF THE COMPANY AS INCOME FR OM HOUSE PROPERTY ONLY ON THE SOLE BASIS OF A LETTER DATED 22.8.2008 WHICH WA S NOT FILED ON THE INSTRUCTIONS OF THE ASSESSEE AND THE AO DID NOT CONSIDER THE TRE ATMENT GIVEN BY THE ASSESSEE AND ACCEPTED BY THE REVENUE IN EARLIER ASSESSMENT Y EAS AND OTHER RELEVANT FACTS. ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 9 LD. COUNSEL VEHEMENTLY CONTENDED THAT THE CIT(A) RE JECTED ADDITIONAL EVIDENCE OF THE ASSESSEE AND UPHELD THE CONCLUSION OF THE AO ONLY ON THE BASIS OF WRONG OBSERVATIONS OF THE AO WHICH WERE NOT SUSTAINABLE IN LAW AND ON THE FACTS OF THE CASE. 11. LD. DR REPLIED THAT THE AO HAD NO OPTION BUT TO ACCEPT THE ADMISSION LETTER OF THE ASSESSEE WHICH WAS FILED ON 22.8.2008 AND THE CIT(A) HAD NO ALTERNATIVE EXCEPT TO GO WITH THE CONCLUSION OF THE AO WHICH WAS SUPPORTED BY THE ASSESSEES LETTER ACCEPTING THE STAND AND ACTIO N OF THE AO. HOWEVER, THE LD. DR FAIRLY ACCEPTED THAT THE LOWER AUTHORITIES DID N OT CONSIDER THE OTHER RELEVANT FACTS AND CIRCUMSTANCES WHILE ADJUDICATING THIS ISS UE EXCEPT IMPUGNED LETTER DATED 22.8.2008 PURPORTED TO BE FILED BY THE AR. THE LD. DR PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF RAJASTHAN WAREHOUSING CORP. (2000) 242 ITR 450 (SC), S.G. MER CANTLE CORPN. LTD. VS CIT (1972) ITR 700 (SC), EAST INDIA HOUSING & LA ND DEV. TRUST VS CIT (1961) 42 ITR 49 (SC) AND THE ORDER OF THE SPECIAL BENCH OF ITAT DELHI IN ATMA RAM PROPERTIES PVT. LTD. VS JCIT (2006) 102TTJ (SB) (DEL) 345. 12. THE LD. COUNSEL OF THE ASSESSEE PLACED REJOINDE R TO THE CONTENTIONS OF THE LD. DR AND SUBMITTED THAT WHEN OBJECTS OF THE COMPA NY INCLUDE ACTIVITIES OF LETTING PROPERTIES AND EXPLOITING INCOME THEREFROM, THEN THE AO CANNOT TREAT THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY ESPECIA LLY WHEN THE REVENUE HAD ALREADY ACCEPTED THE SAME AS BUSINESS INCOME DURING EARLIER AY FROM 2001-02 ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 10 TO 2004-05 AND SUBSEQUENT ASSESSMENT YEARS 2007-08 AND 2011-12. LD. COUNSEL HAS ALSO DRAWN OUR ATTENTION TOWARDS YEAR-WISE CHAR T CONTAINING DETAILS OF RENTAL INCOME AND BUSINESS INCOME AND COPY OF THE ASSESSME NT ORDER PASSED U/S 143(3) OF THE ACT FOR AY 2011-12 WHEREIN THE RENTAL INCOME AND PROFIT ON SALE OF PROPERTY HAVE BEEN TREATED AS BUSINESS INCOME. LD. COUNSEL HAS PLACED RELIANCE ON THE FOLLOWING JUDGMENTS OF HONBLE SUPREME COURT AND HONBLE GUJARAT HIGH COURT:- 1. COMMISSIONER OF INCOME TAX VS. CALCUTTA NATIONAL BANK [1959],37 ITR 171 (SC) 2. UNIVERSAL PLAST VS COMMISSIONER OF INCOME TAX [1 999] 103 TAXMAN 493 (SC). 3. COMMISSIONER OF INCOME TAX VS. NEW INDIA IND. LT D.[1993] 201 ITR 208 (GUJARAT). 13. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, WE ARE OF THE OPINION THAT THE AUTHORITIES BELOW TREATED THE RENTAL RECEIPTS O F THE ASSESSEE AS INCOME FROM HOUSE PROPERTY REJECTING THE CLAIM OF THE ASSESSEE ONLY ON THE SOLE BASIS OF LETTER DATED 22.8.2008 WITHOUT CONSIDERING OTHER RE LEVANT FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS ACCEPTANCE OF THE REVENUE IN EARLIER AND SUBSEQUENT YEARS. SINCE BY THE EARLIER PART OF THE ORDER ON GROUND NO. 5, WE HAVE HELD THAT THE SAID LETTER DATED 22.8.2008 WAS NOT FILED ON BEHALF AND ON THE INSTRUCTIONS OF THE ASSESSEE AND HENCE, BASIS OF TH E ACTION OF THE AO IS NOT SUSTAINABLE. AT THE SAME TIME, WHEN WE CONSIDER TH E CONCLUSION OF THE AUTHORITIES BELOW WE FIND IT APPROPRIATE TO CONSIDE R FACTS OF PRESENT CASE UNDER ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 11 WHICH THE ASSESSEE EARNED IMPUGNED RENTAL INCOME. THEN IT WOULD SUFFICE TO CONSIDER THE APPLICABILITY OF THE RATIO OF THE JUDG MENTS AND ORDER AS RELIED BY BOTH THE PARTIES. 14. AS PER PARA 2 PAGE 2 OF WRITTEN SUBMISSIONS/SY NOPSIS FILED BY THE ASSESSEE BEFORE US NARRATED FACTS LEADING TO IMPUGNED RENTAL INCOME WHICH READS AS UNDER:- 2. IN TERMS OF THE AFORESAID OBJECTS, THE ASSESSE E PURCHASED SHOP IN SECTOR 18, NOIDA IN THE PERIOD RELEVANT TO THE AY 2001-02 AND USED IT FOR THE PURPOSE OF BUSINESS. THE APPELL ANT HAS EARNED COMMISSION INCOME IN THE FIRST YEAR ITSELF AMOUNTIN G TO RS.66,710/- AND CLAIMED DEPRECIATION ON ITS SHOP OP ENED AT SECTOR -18, NOIDA. THE ASSESSEE FILED RETURN FOR TH E AY 2001-02 DECLARING LOSS OF 63,180/- AFTER CLAIMING DEPRECIAT ION, INTER ALIA, ON AMOUNT INVESTED IN SHOP. FOR THE AY 2002-03, TH E ASSESSEE FILED RETURN DECLARING LOSS OF RS.2,05,553/- AND FO R THE AY 2003- 04, THE ASSESSEE FILED RETURN DECLARING LOSS OF RS. 1,03,106/- . ON 14-01-2003 THE BOARD OF DIRECTORS IN THE MEETING HE LD AT ITS REGISTERED OFFICE ANALYZED THAT IN SPITE OF THEIR B EST EFFORTS IN ALMOST TWO YEARS THEY ARE UNABLE TO EARN INCOME WHI LE THEY WERE INCURRING LOSSES FOR THE LAST THREE YEARS IT IS NEC ESSARY TO EXPLOIT THEIR COMMERCIAL SPACE AVAILABLE AT ITS NOIDA OFFIC E BY LETTING OUT SAME TEMPORALLY TILL THE COMPANY GETS SUFFICIENT PR OFITS FROM ITS MAIN BUSINESS ACTIVITIES. THIS WOULD REDUCE BURDEN OF EXPENDITURE AND ALSO REDUCE THE LOSSES SUFFERED BY THE COMPANY IN THE LAST THREE YEARS. (PAGE 113) IN THIS YEAR I.E. AY 2003-04, THE ASSESSEE LET OUT ITS SHOP AND REFLECTED RENT OF RS.90,000/-. IN THE AY 2004-05, THE ASSESSEE REFLECTED LOSS OF RS.5 ,04,985/- AND RENTAL INCOME OF SHOP WAS SHOWN AT RS.9,50,460/-. THE ASSESSEE ALSO PURCHASED ANOTHER SHOP IN THIS YEAR. IN THE AY 2005-06, THE ASSESSEE DECLARED INCOME OF RS.2,38,868/- IN TERMS OF PROVISIONS OF SEC. 115JB OF THE ACT. THESE RETURNS FOR THE AYS 2001-02 TO 2005-06, WERE ACCEPTED U/S 143(1) OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE 'ACT']. (EMPHASIS SUPPLIED BY US BY UNDERLINING). ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 12 15. IN VIEW OF ABOVE NARRATED FACTS SUBMITTED BY TH E ASSESSEE, WE NOTE THAT THE ASSESSEE COMPANY PURCHASED A SHOP AT SECTOR 18, NOI DA IN THE BEGINNING OF THE BUSINESS OPERATIONS I.E. DURING AY 2001-02 AND EARN ED COMMISSION INCOME OF RS.66,710 AND SUBMITTED RETURN DECLARING NEGATIVE I NCOME (LOSS) OF RS.63,180 AFTER CLAIMING DEPRECIATION, INTER ALIA, ON THE AMO UNT INVESTED ON SHOP. FOR AY 2002-03 THE ASSESSEE FILED RETURN DECLARING LOSS OF RS.2,05,553 AND FOR AY 2003-04 THE ASSESSEE FIELD RETURN DECLARING LOSS OF RS.1,03,106. THE ASSESSEE FURTHER SUBMITTED THAT IN THE BOARD MEETING HELD ON 14.1.2003 ANALYSED THE WORKING RESULTS OF THE COMPANY AND NOTICED THAT IN SPITE OF BEST EFFORTS IN ALMOST TWO YEARS THEY ARE UNABLE TO EARN INCOME WHILE THEY WERE CONTINUOUSLY INCURRING LOSSES FOR THE LAST CONSECUTIVE THREE YEARS. IT WAS ALSO DECIDED BY THE BOARD OF DIRECTORS OF THE ASSESSEE THAT IT IS NECESSARY TO E XPLOIT THEIR COMMERCIAL SPACE AVAILABLE AT ITS NOIDA OFFICE BY LETTING OUT THE SA ME TEMPORARILY TILL COMPANY GETS SUFFICIENT PROFITS FROM ITS MAIN BUSINESS ACTI VITIES WHICH WOULD FURTHER REDUCE BURDEN OF EXPENDITURE AND LOSSES OF LAST THR EE YEARS. 16 . ON CAREFUL CONSIDERATION OF THE WRITTEN SUBMIS SIONS OF THE ASSESSEE IN PARA 2 AT PAGE 2, AS REPRODUCED HEREINABOVE, WE NOTE THA T THE ASSESSEE COMPANY WAS FORMED WITH THE MAIN OBJECT OF EARNING COMMISSION I NCOME FROM PROPERTY TRANSACTIONS AND IT HAS EARNED COMMISSION INCOME OF RS.66,710 IN AY 2001-02, THE FIRST YEAR OF BUSINESS. SUBSEQUENTLY, IN AY 20 02-03, THERE WAS NEITHER ANY BUSINESS INCOME NOR ANY RENTAL INCOME FOR THE ASSES SEE COMPANY. SUBSEQUENTLY, ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 13 IN AY 2003-04 AND 2004-05, THE GROSS RENTAL INCOME WAS RS.90,000 AND RS.9,50,600 RESPECTIVELY AND THERE WAS NO BUSINESS INCOME FROM COMMISSION. IN THE AY 2005-06, THERE WAS RENTAL INCOME OF RS.17 ,88,000 AND THERE WAS NO COMMISSION INCOME DURING THIS PERIOD. IN THE YEAR UNDER CONSIDERATION I.E. AY 2006-07, THE ASSESSEE EARNED GROSS RENTAL INCOME OF RS.19,75,500 AND THERE WAS NO BUSINESS INCOME DURING THIS PERIOD. 17. UNDER ABOVE NOTED FACTS AND CIRCUMSTANCES AND AS PER YEAR WISE DETAIL OF GROSS RENTAL INCOME AND GROSS BUSINESS INCOME SUBMI TTED BY THE ASSESSEE, WE CLEARLY OBSERVE THAT THE ASSESSEE COMPANY EARNED CO MMISSION INCOME FROM PROPERTY TRANSACTION OF RS.66,710 ONLY IN AY 2001-0 2 AND IN THE SUBSEQUENT AY FROM 2002-03 TO 2006-07, THERE WAS NO BUSINESS INCO ME EITHER FROM COMMISSION OF PROPERTY TRANSACTION OR FROM ANY OTHER BUSINESS ACTIVITY. WHEN WE CONSIDER THE WRITTEN SUBMISSIONS OF THE ASSESSEE IN PARA 2, WE CLEARLY OBSERVE THAT THE ASSESSEE COMPANY PURCHASED A SHOP AT SECTOR 18, NOI DA IN THE FIRST YEAR OF BUSINESS OPERATION DURING AY 2001-02 AND THE SAME W AS FIRST TIME LET OUT AS PER DECISION OF BOARD OF DIRECTORS MEETING HELD ON 14.1 .2003 I.E. AT THE FAG END OF THE FINANCIAL PERIOD AND THERE WAS A GROSS RENTAL I NCOME OF RS.90,000 ONLY IN AY 2003-04. AS PER WRITTEN SUBMISSIONS IN PARA 2 O F THE ASSESSEE COMPANY, IT IS AMPLY CLEAR THAT IN THE INITIAL 2-3 YEARS, THERE WAS NO RENTAL INCOME FOR THE ASSESSEE COMPANY AND THERE WAS NO ACTIVITY TO EARN BUSINESS INCOME BUT IN THE BOARD MEETING DATED 14.1.2003 WHEN THE FINANCIAL RE SULTS OF THE COMPANY WERE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 14 ANALYSED, IT WAS NOTICED THAT IN SPITE OF BEST EFFO RTS IN ALMOST TWO YEARS, THE COMPANY WAS UNABLE TO EARN INCOME AND THERE WERE CO NTINUOUS LOSSES FOR THE LAST CONSECUTIVE THREE YEARS, THEREFORE, IT WAS DEC IDED BY THE BOARD OF DIRECTORS THAT IT IS NECESSARY TO EXPLOIT THEIR COMMERCIAL SP ACE BY LETTING OUT THE SAME TEMPORARILY TILL COMPANY GETS SUFFICIENT PROFITS FR OM ITS MAIN BUSINESS ACTIVITY WHICH WOULD FURTHER REDUCE BURDEN OF EXPENDITURE AN D LOSSES OF LAST THREE YEARS. 18. ON LOGICAL ANALYSIS OF ABOVE SUBMISSIONS, IT CA N SAFELY BE PRESUMED THAT THE ASSESSEE COMPANY WAS FORMED WITH THE MAIN OBJEC T OF EARNING INCOME FROM PROPERTY TRANSACTIONS IN THE FORM OF COMMISSION AND PROFITS ETC. IN THE FIRST THREE YEARS OF BUSINESS, THE ASSESSEE COMPANY DID N OT EARN ANY AMOUNT FROM RENTAL INCOME AND AT THE FAG END OF THIRD FINANCIAL YEAR 2002-03 RELEVANT TO AY 2003-04, THE BOARD OF DIRECTORS OF THE ASSESSEE COM PANY DECIDED TO LET OUT SHOP IN SECTOR 18, NOIDA AVAILABLE WITH THE ASSESSEE COM PANY BY TEMPORARILY LETTING OUT THE SAME TILL THE COMPANY GETS SUFFICIENT PROFI TS FROM ITS MAIN BUSINESS ACTIVITY. ON THE BASIS OF FOREGOING DISCUSSION OF FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO HOLD THAT THE ASSESSEE COMPANY WAS STAR TED WITH THE MAIN OBJECT OF EARNING PROFITS FROM PROPERTY TRANSACTION IN THE FO RM OF COMMISSION AND PROFITS BUT DESPITE SUFFICIENT EFFORTS, NO BUSINESS INCOME COULD BE EARNED FROM AY 2002-03 TO 2008-09 INCLUDING AY UNDER CONSIDERATION 2006-07. 19. NOW, WE PROCEED TO CONSIDER THE RATIO OF THE JU DGMENTS RELIED BY BOTH THE SIDES. IN THE CASE OF CIT VS CALCUTTA NATIONAL BANK LTD. (SUPRA), THE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 15 HONBLE SUPREME COURT HELD THAT THE REALISATION OF RENTAL INCOME BY THE ASSESSEE WAS IN THE COURSE OF ITS BUSINESS IN PROSE CUTION OF ONE OF ITS OBJECTS IN ITS MEMORANDUM AND WAS LIABLE TO BE INCLUDED IN ITS BUSINESS PROFITS AND WAS ASSESSABLE TO TAX AS BUSINESS PROFIT. IN THIS CASE , THE BANK OWNED A SIX-STOREYED BUILDING WHERE ITS OFFICE WAS LOCATED AT GROUND FLO OR AND PART OF SIXTH FLOOR AND REST OF THE BUILDING WAS LET OUT TO TENANTS ON RENT . IN THIS SITUATION, THE RENTAL RECEIPTS WERE TREATED AS BUSINESS INCOME. IN THE E XTANT CASE, THE ASSESSEE ONLY EARNED RENTAL INCOME WHICH WAS NOT PRIMARY ACTIVITY , HENCE, FACTS OF THE PRESENT CASE ARE DISTINGUISHABLE FROM THAT CASE. I N OUR HUMBLE UNDERSTANDING, BENEFIT OF THE RATIO OF THIS DECISION IS NOT AVAILA BLE FOR THE ASSESSEE AS THE FACTS OF THE PRESENT CASE ARE DISTINGUISHABLE FROM THAT C ASE. 20. IN THE JUDGEMENT OF UNIVERSAL PLAST LTD. VS CI T (SUPRA), IT WAS DECIDED THAT WHERE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GIVING COTTON STOPPED ITS BUSINESS AND LET OUT GODOWNS AND ALSO SEPARATED MAC HINERY AND LET OUT PRESSING FACTORY TO A METAL PRESSING FACTORY, RENTAL INCOME DERIVED THEREFROM COULD NOT BE ASSESSED AS BUSINESS INCOME. IN VIEW OF ABOVE, WE RESPECTFULLY NOTE THAT BENEFIT OF THE RATIO OF THIS JUDGMENT IS NOT AVAILA BLE FOR THE ASSESSEE. 21. IN THE CASE OF CIT VS NEW INDIA INSURANCE LTD. (SUPRA), LD. COUNSEL OF THE ASSESSEE HAS STRESSED UPON THE DICTUM THAT SO LONG AS THE COMMERCIAL ASSET IS CAPABLE OF BEING EXPLOITED AS SUCH, ITS INCOME IS B USINESS INCOME IRRESPECTIVE OF THE MANNER IN WHICH THE ASSET IS EXPLOITED BY TH E OWNER OF THE BUSINESS. THE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 16 ASSESSEE IS ENTITLED TO EXPLOIT IT TO HIS BEST ADVA NTAGE AND HE MAY DO SO EITHER BY USING IT FOR HIMSELF PERSONALLY OR BY LETTING IT OUT TO SOMEONE ELSE. 22. WHEN WE CONSIDER THE RATIO OF THE JUDGEMENTS AS RELIED BY THE LD. DR AND AUTHORITIES BELOW, WE FIND THAT SIMILAR ISSUE W AS CONSIDERED AND DECIDED BY THE ITAT DELHI SPECIAL BENCH IN THE CASE OF ATMA RA M PROPERTIES (P) LTD. VS CIT(SUPRA) AND WE NOTE THAT IT WAS HELD THAT RENTAL INCOME DERIVED BY THE ASSESSEE COMPANY BY LETTING OUT A PROPERTY SIMPLICI TOR WAS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCOME IRRESPECTIVE OF THE FACT THAT THE ASSESSEE COMPANY WAS DOING BUSINESS OF ACQUIRING, DEVELOPING AND SELLING PROPERTIES AS THE RENTAL INCOME WAS RECEIVED BY IT BECAUSE OF OWNERSHIP OF THE PROPERTY AND NOT BY EXPLOITATION OF PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITY. THE RELEVAN T OPERATIVE PART OF THIS ORDER OF SPECIAL BENCH READS AS FOLLOWS:- 25. WHILE CITING VARIOUS CASE LAWS IN SUPPORT OF T HE REVENUE'S CASE THAT THE RENTAL INCOME RECEIVED BY T HE ASSESSEE- COMPANY IN THE PRESENT CASE IS CHARGEABLE TO TAX UN DER THE HEAD 'INCOME FROM HOUSE PROPERTY', THE LEARNED DEPARTMEN TAL REPRESENTATIVE HAS HEAVILY RELIED ON THE DECISION O F HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. CHENNAI PR OPERTIES & INVESTMENTS LTD. (SUPRA). IN THE SAID DECISION, HON 'BLE MADRAS HIGH COURT HAS DISCUSSED AND ANALYZED VARIOUS DECIS IONS OF THE DIFFERENT HIGH COURTS AS WELL AS THAT OF HON'BLE SU PREME COURT AVAILABLE ON THE ISSUE. ON A CAREFUL PERUSAL OF THE SAID DECISION OF HON'BLE MADRAS HIGH COURT CITED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AND KEEPING IN VIEW THE VARIOUS JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE, THE LEGAL POSITION WHICH EMERGES CAN BE SUMMARISED AS FOLLOWS. IF IN T HE GIVEN CASE, THE ASSESSEE IS FOUND TO BE THE OWNER PROPERT Y AND RENTAL ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 17 INCOME IS EARNED BY HIM BY LETTING OUT PREDOMINANTL Y THE SAID PROPERTY, SUCH RENTAL INCOME WILL BE ASSESSABLE UND ER THE HEAD 'INCOME FROM HOUSE PROPERTY' AND NOT 'PROFITS AND G AINS OF BUSINESS OR PROFESSION'. WHAT IS LET OUT SHOULD BE PREDOMINANTLY THE SAID PROPERTY INASMUCH AS THE RENTAL INCOME SHO ULD BE FROM THE BARE LETTING OF THE TENEMENTS OR FROM LETTING A CCOMPANIED BY INCIDENTAL SERVICES OR FACILITIES. THE SUBJECT HIRE D OUT SHOULD NOT BE A COMPLEX ONE AND THE INCOME OBTAINED SHOULD NOT BE SO MUCH BECAUSE OF THE FACILITIES AND SERVICES RENDERED THA N BECAUSE OF THEIR LETTING OF THE TENEMENTS. IF SUCH A SITUATION IS FOUND TO BE OBTAINED, THE OTHER ASPECTS SUCH AS NATURE OF THE P ROPERTY BEING COMMERCIAL/BUSINESS ASSET, ETC. IN THE HANDS OF THE ASSESSEE AS WELL AS NATURE OF THE BUSINESS OF THE ASSESSEE DO N OT CHANGE THE CHARACTER OF THE INCOME AND THE RENTAL INCOME DOES NOT BECOME INCOME FROM TRADE OR BUSINESS. 26. IN THE PRESENT CASE, THE SUBJECT PROPERTY LET O UT BY THE ASSESSEE-COMPANY WAS UNDISPUTEDLY OWNED BY IT AND I T WAS A CASE OF BARE LETTING OF TENEMENT AND THE SUBJECT HI RED OUT WAS NOT A COMPLEX ONE. IT WAS THUS A CASE OF LETTING OUT OF A PROPERTY OWNED BY THE ASSESSEE SIMPLICITOR AND NOT A CASE OF EXPLOITATION OF THE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVI TY. THE RENTAL INCOME EARNED FROM THE SAID PROPERTY THUS WA S CHARGEABLE TO TAX UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' AND NOT UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' AS CLAIMED BY THE ASSESSEE. AS SUCH, CONSIDERING ALL T HE FACTS OF THE CASE AND KEEPING IN VIEW THE LEGAL POSITION EMANATI NG FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS DISCUSSED HEREINABO VE, WE HOLD THAT THE RENTAL INCOME RECEIVED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION WAS ASSESSABLE TO TAX UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' AND NOT UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. ACCORDINGLY, WE ANSWER THE QUESTION REFE RRED TO US IN THE NEGATIVE, I.E., IN FAVOUR OF THE REVENUE AND AG AINST THE ASSESSEE. 23. THE ISSUE INVOLVED IN PRESENT CASE IS ALSO OF T REATMENT OF RENTAL RECEIPTS EITHER AS INCOME FROM HOUSE RECEIPTS EITHER AS INCO ME FROM HOUSE PROPERTY OR AS BUSINESS INCOME. THE LD. COUNSEL OF THE ASSESSE E HAS FIRSTLY SUPPORTED THE CASE OF THE ASSESSEE ON THE PRINCIPLE OF CONSISTENC Y AND SUBMITTED THAT THE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 18 RENTAL INCOME WAS ASSESSED FROM AY 2003-04 TO AY 20 05-06 AS BUSINESS INCOME AND IN THE SIMILAR SET OF FACTS AND CIRCUMST ANCES, THE SAME WAS ASSESSED AS INCOME FROM HOUSE PROPERTY IN AY 2006-07 WITHOUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES AND WITHOUT ANY JUSTIFIED AND REA SONABLE BASIS. THUS, LD. COUNSEL OF THE ASSESSEE VEHEMENTLY CONTENDED THAT T HE REVENUE AUTHORITIES SHOULD RESPECT PRINCIPLE OF CONSISTENCY IN THE TAXA TION MATTERS WHICH HAVE NOT BEEN FOLLOWED IN THE PRESENT CASE. 24. LD. DR SUBMITTED THAT AS PER WRITTEN SUBMISSION S OF THE ASSESSEE, UNDISPUTEDLY AND ADMITTEDLY, THE RETURN OF ASSESSEE COMPANY WAS PROCESSED U/S 143(1) OF THE ACT RIGHT FROM FIRST ASSESSMENT YEAR 2001-02 TO 2005-06 WITHOUT TAKING ANY VIEW BY THE AO BY FOLLOWING A MECHANICAL PROCESS AND AY 2006- 07 WAS THE FIRST AY WHEREIN THE CASE WAS SELECTED F OR SCRUTINY AND AFTER DUE APPLICATION OF MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO TOOK A CORRECT VIEW THAT THE RENTAL INCOME OF THE ASSESSEE WAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS I NCOME AS DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME. 25. LD COUNSEL OF THE ASSESSEE PLACED A REJOINDER O N THIS ISSUE AND SUBMITTED THAT THE AO TREATED THE RENTAL RECEIPTS AS INCOME F ROM HOUSE PROPERTY ON THE BASIS OF LETTER DATED 22.8.2008 WHICH WAS NEITHER F ILED BY THE ASSESSEE NOR THE SAME WAS FILED ON THE INSTRUCTIONS OF THE ASSESSEE, THEREFORE, THE INCOME DERIVED FROM RENT SHOULD BE TREATED AS BUSINESS INC OME. ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 19 26. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, AT THE VERY OUTSET, WE ARE OF THE VIEW THAT THE PRINCIPLE OF CONSISTENCY CANNO T BE APPLIED TO THE ASSESSMENT ORDER WHICH WAS PASSED U/S 143(1) OF THE ACT BECAUSE UNDER THIS PROVISION, THE ASSESSMENT IS FRAMED IN A MECHANICAL MANNER BY ACCEPTING THE RETURN OF INCOME FILED BY THE ASSESSEE WITHOUT TAKI NG ANY VIEW ON A PARTICULAR ISSUE OR TREATMENT OF INCOME UNDER A SPECIFIC HEAD. HENCE, APPLICATION OF PRINCIPLE OF CONSISTENCY CANNOT BE PRESSED IN THE P RESENT CASE. 27. AT THE COST OF REPETITION, WE MAY POINT OUT THA T THE REVENUE AUTHORITIES HAVE NOT DISPUTED THIS FACT THAT THE ASSESSEE COMPA NY WAS INCORPORATED ON 12.12.2000 WITH A NUMBER OF OBJECTS INCLUDING AS FO LLOWS:- 'TO BUILD, CONSTRUCT, ESTABLISH, OWN, PURCHASE, SE LL, TAKE ON LEASE OR EXCHANGE OR OTHERWISE ACQUIRE, HOLD, MAINT AIN AND MANAGE INDUSTRIAL, COMMERCIAL OR RESIDENTIAL BUILDI NGS, APARTMENT HOUSES, HOTELS, MOTELS, HOSTELS, RESTAURA NTS AND TO LET, SUBLET, GIVE ON LEASE OR OTHERWISE PERMIT TO USE AN D OCCUPATION FOR RENT OR HIRE CHARGES AND TO PROVIDE FOR THE TEN ANTS AND OCCUPIERS THEREOF ALL OR ANY OF THE CONVENIENCES CO MMONLY PROVIDED IN RESIDENTIAL, COMMERCIAL AND INDUSTRIAL QUARTERS.' 28. IN VIEW OF ABOVE, THE ASSESSEE COMPANY WAS INCO RPORATED WITH THE MAIN OBJECT TO BUILD, CONSTRUCT, ESTABLISH, OWN, PURCHAS E, SELL, TAKE ON LEASE OR EXCHANGE OR OTHERWISE ACQUIRE, HOLD, MAINTAIN AND M ANAGE INDUSTRIAL, COMMERCIAL OR RESIDENTIAL BUILDINGS, APARTMENT HOUS ES, HOTELS, MOTELS, HOSTELS AND RESTAURANTS. AS PER OBJECTS OF THE ASSESSEE CO MPANY, BESIDES AFORESAID MAIN OBJECTS, THE LETTING AND SUB-LETTING OF PROPER TY WAS ALSO THE OBJECT OF THE ASSESSEE COMPANY. WHEN WE PROCEED TO EVALUATE AND ANALYSE THE BUSINESS ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 20 ACTIVITIES OF THE ASSESSEE COMPANY, IN VIEW OF AFOR ESAID MAIN AND OTHER OBJECTS, WE NOTE THAT THE ASSESSEE COMPANY EARNED COMMISSION INCOME OF RS.66,710 IN AY 2001-02 AND THERE IS NO BUSINESS INCOME FROM AY 2002-03 TO 2008-09. IF WE CONSIDER THE RENTAL INCOME OF THE ASSESSEE COMPA NY, WE NOTE THAT THERE WAS NO RENTAL INCOME DURING AY 2001-02 AND 2002-03 AND IN AY 2002-03, THE ASSESSEE COMPANY EARNED RENTAL INCOME OF RS.90,000 AS PER BOARD OF DIRECTORS DECISION DATED 14.1.2003 AT THE FAG END OF THE FINA NCIAL PERIOD WHEN ON THE LOGICAL ANALYSIS OF THE FINANCIAL RESULTS OF THE AS SESSEE COMPANY, IT WAS FOUND THAT DESPITE SEVERAL EFFORTS, THE ASSESSEE COMPANY COULD NOT EARN ANY MONEY FROM THE MAIN BUSINESS ACTIVITIES AND THEREFORE IT WAS DECIDED TO RENT OUT PROPERTY AT NOIDA SECTOR 18 WHICH WAS PURCHASED IN AY 2001-02 VIZ. IN THE FIRST YEAR OF INCORPORATION OF THE ASSESSEE COMPANY , TEMPORARILY TILL THE COMPANY GETS SUFFICIENT PROFITS FROM ITS MAIN BUSIN ESS ACTIVITY WITH THE INTENTION TO REDUCE BURDEN OF EXPENDITURE AND LOSSE S SUFFERED BY THE ASSESSEE COMPANY IN THE PRECEDING THREE FINANCIAL YEARS. 29. IN THIS SITUATION, IT IS AMPLY CLEAR THAT THE A SSESSEE COMPANY DID NOT UNDERTAKE ANY BUSINESS ACTIVITY AS PER MAIN OBJECTS OF THE COMPANY IN THE FIRST THREE FINANCIAL PERIODS, EXCEPT COMMISSION INCOME O F RS.66,710 IN AY 2001- 02. WE FURTHER CLEARLY OBSERVE THAT RENTAL INCOME OF RS.90,000 WAS EARNED DURING FY 2002-03 RELEVANT TO AY 2003-04 AS PER BOA RD OF DIRECTORS DECISION DATED 14.1.2003 IN PURSUANCE TO WHICH WAS THE SHOP AT SECTOR 18, NOIDA WAS ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 21 LET OUT TEMPORARILY TILL THE COMPANY GETS SUFFICIEN T PROFITS FROM ITS MAIN BUSINESS ACTIVITY WHICH WOULD FURTHER REDUCE BURDEN OF EXPENDITURE AND LOSSES. IN THIS SITUATION AND TOTALITY OF THE FACTS AND CIR CUMSTANCES, WE HAVE NO HESITATION TO HOLD THAT THE ASSESSEE COMPANY WAS FO RMED WITH THE MAIN OBJECT OF PROPERTY BUSINESS AND EARNING INCOME FROM PROPER TY TRANSACTIONS IN THE FORM OF COMMISSION AND PROFITS ETC. BUT WHEN THE COMPANY COULD NOT PERFORM WELL IN ITS MAIN OBJECTS, THEN AT THE END OF THIRD FY 20 02-03, IT WAS DECIDED BY THE BOARD OF DIRECTORS OF THE COMPANY THAT THE SAID SHO P PURCHASED IN THE FIRST YEAR OF BUSINESS OPERATIONS 2001-02 RELEVANT TO AY 2001- 02 SHOULD BE LET OUT TEMPORARILY TILL COMPANY GETS SUFFICIENT PROFITS FR OM ITS MAIN BUSINESS ACTIVITIES. 30. WITH THIS BACKGROUND AND AFORENOTED FACTS AND C IRCUMSTANCES, WE RESPECTFULLY TAKE COGNIZANCE OF RECENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES AND INVESTMENTS LTD . VS CIT (2015) 373 ITR 673 (SC) WHEREIN AFTER CONSIDERING ALL PREVIOUS JUDGMENTS O F HONBLE SUPREME COURT INCLUDING DICTA OF THE JUDGMENTS OF HONBLE APEX COURT IN THE CASE OF EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD. VS CIT (1961) 42 ITR 49(SC), DECISION OF HONBLE CONSTITUT IONAL BENCH TO SUPREME COURT IN THE CASE OF SULTAN BROTHERS (P) LT D. VS CIT (1964) 51 ITR 353 (SC) AND ALSO RATIO OF THE DECISION OF HONBLE SUPREME COURT IN ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 22 THE CASE OF KARANPURA DEVELOPMENT CO. LTD. VS CIT ( 1962) 44 ITR 362 (SC) , THEIR LORDSHIPS HELD AS FOLLOWS:- THE MEMORANDUM OF ASSOCIATION OF THE APPELLANT- COMPANY WHICH IS PLACED ON RECORD MENTIONS MAIN OBJ ECTS AS WELL AS INCIDENTAL OR ANCILLARY OBJECTS IN CLAUSE I II. (A) AND (B) RESPECTIVELY. THE MAIN OBJECT OF THE APPELLANT COMP ANY IS TO ACQUIRE AND HOLD THE PROPERTIES KNOWN AS CHENNAI H OUSE AND FIRHAVIN ESTATE BOTH IN CHENNAI AND TO LET OUT TH OSE PROPERTIES AS WELL AS MAKE ADVANCES UPON THE SECURI TY OF LANDS AND BUILDINGS OR OTHER PROPERTIES OR ANY INTEREST T HEREIN. WHAT WE EMPHASISE IS THAT HOLDING THE AFORESAID PROPERTI ES AND EARNING INCOME BY LETTING OUT THOSE PROPERTIES IS T HE MAIN OBJECTIVE OF THE COMPANY. IT MAY FURTHER BE RECORDE D THAT IN THE RETURN THAT WAS FILED, THE ENTIRE INCOME WHICH ACCR UED AND WAS ASSESSED IN THE SAID RETURN WAS FROM LETTING OUT OF THESE PROPERTIES. IT IS SO RECORDED AND ACCEPTED BY THE A SSESSING OFFICER HIMSELF IN HIS ORDER. IT TRANSPIRES THAT THE RETURN OF A TOTAL INCOME OF RS.244030 WAS FILED FOR THE ASSESSMENT YEAR IN QUESTION THAT IS ASSESSMENT YEAR 1983-1984 AND THE ENTIRE INCOME WAS THROUGH LE TTING OUT OF THE AFORESAID TWO PROPERTIES NAMELY, CHENNAI HOUSE AND FIRHAVIN ESTATE. THUS, THERE IS NO OTHER INCOME O F THE ASSESSEE EXCEPT THE INCOME FROM LETTING OUT OF THESE TWO PRO PERTIES. WE HAVE TO DECIDE THE ISSUE KEEPING IN MIND THE AFORES AID ASPECTS. WITH THIS BACKGROUND, WE FIRST REFER TO THE JUDGMEN T OF THIS COURT IN EAST INDIA HOUSING AND LAND DEVELOPMENT TR UST LTD.'S CASE WHICH HAS BEEN RELIED UPON BY THE HIGH COURT. THAT WAS A CASE WHERE THE COMPANY WAS INCORPORATED WITH THE OB JECT OF BUYING AND DEVELOPING LANDED PROPERTIES AND PROMOTI NG AND DEVELOPING MARKETS. THUS, THE MAIN OBJECTIVE OF THE COMPANY WAS TO DEVELOP THE LANDED PROPERTIES INTO MARKETS. IT S O HAPPENED THAT SOME SHOPS AND STALLS, WHICH WERE DEVELOPED BY IT, HAD BEEN RENTED OUT AND INCOME WAS DERIVED FROM THE RENTING OF THE SAID SHOPS AND STALLS. IN THOSE FACTS, THE QUESTION AROS E FOR CONSIDERATION WAS: WHETHER THE RENTAL INCOME THAT I S RECEIVED WAS TO BE TREATED AS INCOME FROM THE HOUSE PROPERTY OR THE INCOME FROM THE BUSINESS. THIS COURT WHILE HOLDING THAT THE INCOME SHALL BE TREATED AS INCOME FROM THE HOUSE PR OPERTY, RESTED ITS DECISION IN THE CONTEXT OF THE MAIN OBJE CTIVE OF THE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 23 COMPANY AND TOOK NOTE OF THE FACT THAT LETTING OUT OF THE PROPERTY WAS NOT THE OBJECT OF THE COMPANY AT ALL. THE COURT WAS THEREFORE, OF THE OPINION THAT THE CHARACTER OF THAT INCOME WH ICH WAS FROM THE HOUSE PROPERTY HAD NOT ALTERED BECAUSE IT WAS R ECEIVED BY THE COMPANY FORMED WITH THE OBJECT OF DEVELOPING AND SE TTING UP PROPERTIES. BEFORE WE REFER TO THE CONSTITUTION BENCH JUDGMENT IN THE CASE OF SULTAN BROTHERS (P) LTD., WE WOULD BE WELL ADVISED TO DISCUSS THE LAW LAID DOWN AUTHORITATIVELY AND SUCCI NCTLY BY THIS COURT IN 'KARANPURA DEVELOPMENT CO. LTD. V. COMMISS IONER OF INCOME TAX, WEST BENGAL' [44 ITR 362 (SC)]. THAT WA S ALSO A CASE WHERE THE COMPANY, WHICH WAS THE ASSESSEE, WAS FORMED WITH THE OBJECT, INTER ALIA, OF ACQUIRING AND DISPO SING OF THE UNDERGROUND COAL MINING RIGHTS IN CERTAIN COAL FIEL DS AND IT HAD RESTRICTED ITS ACTIVITIES TO ACQUIRING COAL MINING LEASES OVER LARGE AREAS, DEVELOPING THEM AS COAL FIELDS AND THEN SUB- LEASING THEM TO COLLIERIES AND OTHER COMPANIES. THUS, IN THE SAI D CASE, THE LEASING OUT OF THE COAL FIELDS TO THE COLLIERIES AN D OTHER COMPANIES WAS THE BUSINESS OF THE ASSESSEE. THE INC OME WHICH WAS RECEIVED FROM LETTING OUT OF THOSE MINING LEASE S WAS SHOWN AS BUSINESS INCOME. DEPARTMENT TOOK THE POSITION TH AT IT IS TO BE TREATED AS INCOME FROM THE HOUSE PROPERTY. IT WOULD BE THUS, CLEAR THAT IN SIMILAR CIRCUMSTANCES, IDENTICAL ISSU E AROSE BEFORE THE COURT. THIS COURT FIRST DISCUSSED THE SCHEME OF THE INCOME TAX ACT AND PARTICULARLY SIX HEADS UNDER WHICH INCO ME CAN BE CATEGORISED / CLASSIFIED. IT WAS POINTED OUT THAT B EFORE INCOME, PROFITS OR GAINS CAN BE BROUGHT TO COMPUTATION, THE Y HAVE TO BE ASSIGNED TO ONE OR THE OTHER HEAD. THESE HEADS ARE IN A SENSE EXCLUSIVE OF ONE ANOTHER AND INCOME WHICH FALLS WIT HIN ONE HEAD CANNOT BE ASSIGNED TO, OR TAXED UNDER, ANOTHER HEAD . THEREAFTER, THE COURT POINTED OUT THAT THE DECIDING FACTOR IS N OT THE OWNERSHIP OF LAND OR LEASES BUT THE NATURE OF THE A CTIVITY OF THE ASSESSEE AND THE NATURE OF THE OPERATIONS IN RELATI ON TO THEM. IT WAS HIGHLIGHTED AND STRESSED THAT THE OBJECTS OF TH E COMPANY MUST ALSO BE KEPT IN VIEW TO INTERPRET THE ACTIVITI ES. IN SUPPORT OF THE AFORESAID PROPOSITION, NUMBER OF JUDGMENTS OF O THER JURISDICTIONS, I.E. PRIVY COUNSEL, HOUSE OF LORDS I N ENGLAND AND US COURTS WERE TAKEN NOTE OF. THE POSITION IN LAW, ULTIMATELY, IS SUMMED UP IN THE FOLLOWING WORDS: - AS HAS BEEN ALREADY POINTED OUT IN CONNECTION WIT H THE OTHER TWO CASES WHERE THERE IS A LETTING OUT OF PRE MISES AND ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 24 COLLECTION OF RENTS THE ASSESSMENT ON PROPERTY BASI S MAY BE CORRECT BUT NOT SO, WHERE THE LETTING OR SUB-LETTIN G IS PART OF A TRADING OPERATION. THE DIVING LINE IS DIFFICULT TO FIND; BUT IN THE CASE OF A COMPANY WITH ITS PROFESSED OBJECTS AND TH E MANNER OF ITS ACTIVITIES AND THE NATURE OF ITS DEALINGS WITH ITS PROPERTY, IT IS POSSIBLE TO SAY ON WHICH SIDE THE OPERATIONS FALL A ND TO WHAT HEAD THE INCOME IS TO BE ASSIGNED. AFTER APPLYING THE AFORESAID PRINCIPLE TO THE FACTS , WHICH WERE THERE BEFORE THE COURT, IT CAME TO THE CONCLUS ION THAT INCOME HAD TO BE TREATED AS INCOME FROM BUSINESS AN D NOT AS INCOME FROM HOUSE PROPERTY. WE ARE OF THE OPINION T HAT THE AFORESAID JUDGMENT IN KARANPURA DEVELOPMENT CO. LTD .'S CASE SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. NO DOUBT IN SULTAN BROTHERS (P) LTD.'S CASE, CONST ITUTION BENCH JUDGMENT OF THIS COURT HAS CLARIFIED THAT MER ELY AN ENTRY IN THE OBJECT CLAUSE SHOWING A PARTICULAR OBJECT WO ULD NOT BE THE DETERMINATIVE FACTOR TO ARRIVE AT AN CONCLUSION WHE THER THE INCOME IS TO BE TREATED AS INCOME FROM BUSINESS AND SUCH A QUESTION WOULD DEPEND UPON THE CIRCUMSTANCES OF EAC H CASE, VIZ., WHETHER A PARTICULAR BUSINESS IS LETTING OR NOT. TH IS IS SO STATED IN THE FOLLOWING WORDS: - WE THINK EACH CASE HAS TO BE LOOKED AT FROM A BUSINESSMAN'S POINT OF VIEW TO FIND OUT WHETHER THE LETTING WAS THE DOING OF A BUSINESS OR THE EXPLOITATION OF HIS PROPERTY BY AN OWNER. WE DO NOT FURTHER THINK THAT A THING CAN BY ITS VERY NATURE BE A COMMERCIAL ASSET. A COMMERCIAL ASSET IS ONLY A N ASSET USED IN A BUSINESS AND NOTHING ELSE, AND BUSINESS MAY BE CARRIED ON WITH PRACTICALLY ALL THINGS. THEREFORE, IT IS NOT P OSSIBLE TO SAY THAT A PARTICULAR ACTIVITY IS BUSINESS BECAUSE IT IS CON CERNED WITH AN ASSET WITH WHICH TRADE IS COMMONLY CARRIED ON. WE F IND NOTHING IN THE CASES REFERRED, TO SUPPORT THE PROPOSITION T HAT CERTAIN ASSETS ARE COMMERCIAL ASSETS IN THEIR VERY NATURE. WE ARE CONSCIOUS OF THE AFORESAID DICTA LAID DOWN I N THE CONSTITUTION BENCH JUDGMENT. IT IS FOR THIS REASON, WE HAVE, AT THE BEGINNING OF THIS JUDGMENT, STATED THE CIRCUMSTANCE S OF THE PRESENT CASE FROM WHICH WE ARRIVE AT IRRESISTIBLE C ONCLUSION THAT IN THIS CASE, LETTING OF THE PROPERTIES IS IN FACT IS THE BUSINESS OF THE ASSESSEE. THE ASSESSEE THEREFORE, RIGHTLY DISCL OSED THE INCOME UNDER THE HEAD INCOME FROM BUSINESS. IT CANNOT BE T REATED AS 'INCOME FROM THE HOUSE PROPERTY'. WE, ACCORDINGLY, ALLOW THIS ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 25 APPEAL AND SET ASIDE THE JUDGMENT OF THE HIGH COURT AND RESTORE THAT OF THE INCOME TAX APPELLATE TRIBUNAL. 31. ON CAREFUL AND VIGILANT READING OF ABOVE JUDGME NT OF HONBLE SUPREME COURT, WE RESPECTFULLY NOTE THAT IN THE CASE OF CHE NNAI PROPERTIES INVESTMENT LTD. VS CIT, THE MEMORANDUM OF ASSOCIATION OF THE A SSESSEE COMPANY MENTIONS MAIN OBJECTS AS WELL AS INCIDENTAL OR ANCI LLARY OBJECTS AND AS PER THE MEMORANDUM, THE MAIN OBJECT OF THE ASSESSEE WAS TO ACQUIRE AND HOLD PROPERTIES KNOWN AS CHENNAI HOUSE AND FIRHAVIN E STATE BOTH IN CHENNAI AND TO LET OUT THESE PROPERTIES AS WELL AS MAKE ADV ANCES UPON THE SECURITY OF LANDS AND BUILDINGS OR OTHER PROPERTIES OR ANY INTE REST THEREIN. THEREFORE, AFTER CONSIDERING DICTA LAID DOWN BY CONSTITUTIONAL BENCH OF THE APEX COURT, IN THE CASE OF SULTAN BROTHERS (P) LTD. (SUPRA), IT WAS H ELD THAT LETTING OF PROPERTY, IN FACT WAS THE MAIN BUSINESS OF THE ASSESSEE AND, THE REFORE, THE ASSESSEE RATIONALLY DISCLOSED THE RENTAL INCOME UNDER THE HE AD OF INCOME FROM BUSINESS AND THE SAME CANNOT BE TREATED AS INCOME FROM HOUSE PROPERTY. 32. AT THE SAME TIME, WE RESPECTFULLY REFER TO THE RATIO OF THE DECISION OF THE CONSTITUTION BENCH OF THE HONBLE APEX COURT IN THE CASE OF SULTAN BROTHERS PVT. LTD. VS CIT (SUPRA) WHEREIN IT WAS HELD THAT MERELY AN ENTRY IN THE OBJECTS CLAUSE SHOWING A PARTICULAR OBJECT WOULD NOT BE A D ETERMINING FACTOR TO ARRIVE AT A CONCLUSION WHERE THE INCOME IS TO BE TREATED A S INCOME FROM BUSINESS AND SUCH A QUESTION WOULD DEPEND UPON THE CIRCUMSTANCES OF EACH CASE AND WHETHER A PARTICULAR BUSINESS IS LETTING OR NOT. THE HONBL E SUPREME COURT IN THE JUDGMENT OF ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 26 CHENNAI PROPERTIES AND INVESTMENTS LTD. VS CIT (SUP RA) HAVE GIVEN A DEMARCATION LINE AND ENLIGHTENED US BY PROVIDING A PROPOSITION THAT WHERE THE MAIN OBJECT OF THE ASSESSEE COMPANY IS TO ACQUIRE A ND HOLD PROPERTIES AND TO LET OUT THOSE PROPERTIES, THEN THE RENTAL INCOME HAD TO BE TREATED AS INCOME FROM BUSINESS AND NOT AS INCOME FROM HOUSE PROPERTY. TH E HONBLE APEX COURT AFTER CONSIDERING THE DICTA LAID DOWN BY ITS CONSTITUTION BENCH IN THE CASE OF SULTAN BROTHERS (SUPRA) ARRIVED AT AN IRRESISTIBLE CONCLUS ION THAT IN VIEW OF MAIN OBJECT OF THE ASSESSEE COMPANY, THE RENTAL INCOME FROM LET TING OF PROPERTY IS THE BUSINESS INCOME OF THE ASSESSEE. 33. AS WE HAVE ALREADY NOTED THAT IN THE JUDGMENT O F SULTAN BROTHERS (SUPRA), THE HONBLE APEX COURT CATEGORICALLY HELD THAT MERELY AN ENTRY IN THE OBJECT CLAUSE SHOWING A PARTICULAR OBJECT WOULD NOT BE THE DETERMINATIVE FACTOR TO ARRIVE AT A CONCLUSION WHETHER THE INCOME IS TO BE TREATED AS INCOME FROM BUSINESS AND SUCH A QUESTION WOULD DEPEND UPON THE CIRCUMSTANCES OF EACH CASE. IN THE LIGHT OF ABOVE RATIO IF WE ANALYSE TH E TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE HAVE NO HESIT ATION TO HOLD THAT THE MAIN OBJECT OF THE PRESENT ASSESSSEE COMPANY WAS NOT TO EARN RENTAL INCOME FROM LETTING OF PROPERTY WHICH WAS PURCHASED IN FY 2001- 02 AND LET OUT IN FY 2002- 03 TEMPORARILY TILL THE COMPANY GETS SUFFICIENT PRO FITS FROM ITS MAIN BUSINESS ACTIVITY WITH CAUTIOUS DECISION OF BOARD OF DIRECTO RS OF THE COMPANY DATED 14.1.2003 WITH THE INTENTION TO REDUCE BURDEN OF EX PENDITURE AND LOSSES ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 27 SUFFERED BY THE ASSESSEE COMPANY RIGHT FROM ITS INC ORPORATION DURING PRECEDING THREE YEARS. THE PRESENT CASE CLEARLY FALLS ON ALL FOUR CORNERS WITHIN THE DICTA OF THE CONSTITUTIONAL BENCH OF HONBLE APEX COURT IN T HE CASE OF SULTAN BROTHERS LTD. VS CIT (SUPRA) AS THE ASSESSEE COMPANY LET OUT THE SHOP SITUATED AT SECTOR 18, NOIDA NOT AS PER MAIN OBJECTS OF THE ASSESSEE C OMPANY AND THE SAME WAS LET OUT IN THE THIRD YEAR OF BUSINESS OPERATIONS TE MPORARILY WHEN THE ASSESSEE COMPANY COULD NOT EARN INCOME FROM ITS MAIN OBJECT IN SPITE OF THEIR BEST EFFORTS. AT THIS JUNCTURE, THE RATIO OF THE DECISI ON OF HONBLE SPECIAL BENCH, ITAT, DELHI IN THE CASE OF ATMA RAM PROPERTIES (P) LTD. ALSO SUPPORTS THE CASE OF THE REVENUE WHEREIN IT WAS HELD THAT RENTAL INCO ME DERIVED BY ASSESSEE COMPANY OF LETTING OUT PROPERTY SIMPLICITOR WAS CHA RGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCOME IRRESPECTIVE OF THE FACT THAT THE ASSESSEE COMPANY WAS DOING BUSINE SS OF ACQUIRING, DEVELOPING AND SELLING PROPERTIES BECAUSE THE RENTAL INCOME AC CRUED TO THE ASSESSEE COMPANY ONLY BECAUSE OF OWNERSHIP OF THE PROPERTY A ND NOT BY EXPLOITATION OF RENTED PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVI TY. 34. ON THE BASIS OF FOREGOING DISCUSSION, WE ARE IN CLINED TO HOLD THAT THE VIEW TAKEN BY THE AO AND UPHELD BY THE CIT(A) IS QU ITE JUSTIFIED AND REASONABLE. WE ARE UNABLE TO SEE ANY INFIRMITY, PE RVERSITY OR ANY OTHER REASON TO INTERFERE WITH THE SAME. ACCORDINGLY, GROUND NO . 1 OF THE ASSESSEE COMPANY IS DISMISSED. ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 28 GROUND NO. 2 35. APROPOS GROUND NO.2, LD. COUNSEL OF THE ASSESSE E SUBMITTED THAT CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF EXPENSES CLA IMED IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF ACCOUNTING CHARGES, BANK CHAR GES, GENERAL EXPENSES, TELEPHONE EXPENSES, PREOPERATIVE EXPENSES WRITTEN O FF, STAFF WELFARE, LEASE RENT EXPENSES, MAINTENANCE CHARGES, PRINTING AND STATION ERY, REMUNERATION TO DIRECTOR, SALARY AND REMUNERATION WITHOUT ASSIGNING ANY REASONS, SPECIALLY WHEN THE AFORESAID EXPENSES WERE INCURRED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE COMPANY NOR MAINTAINED ITS STATUS AND LEGAL EXISTENCE. TO SUPPORT OUR CONTENTIONS, LD. COUNSEL OF THE ASSESSEE HAS PLACED RELIANCE ON THE RATIO OF FOLLOWING DECISIONS OF HO NBLE SUPREME COURT, HONBLE CALCUTTA HIGH COURT, HONBLE ALLAHABAD HIGH COURT AND ITAT DELHI AND MUMBAI BENCHES:- 4. COMMISSIONER OF INCOME TAX VS. RAJENDRA PRASAD M OODY [1978 115 ITR 519(SC). 5. COMMISSIONER OF INCOME TAX VS GANGA PROPERTIES LTD. [1992] 62 TAXMAN 285 (CAL) 6. CIT VS NEW SAVAN SUGAR & GUR REFINING CO. LTD. (1991) 55 TAXMAN 189 (CAL) 7. CIT VS RAMPUR TIMBER & TURNERY CO. LTD [1981] 6 TAXMAN 241 (ALL.). 8. INCOME TAX OFFICER VS MOKUL FINANCE (P)LTD. [20 07]110 TTJ DELHI 9. M/S VATSALYA ENTERPRISES PVT. LTD VS ASSTT COMM ISSIONER OF INCOME TAX {ITA NO 6552/2011 DECIDED ON 28.01.2013 BY ITAT MUMBAI 'F' BENCH} ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 29 36. REPLYING TO THE ABOVE, LD. DR SUPPORTED THE ACT ION OF THE AO AND THE CIT(A) AND CONTENDED THAT THE ONLY INCOME OF THE AS SESSEE COMPANY WAS COMPUTED AND ASSESSED UNDER THE HEAD OF INCOME FROM HOUSE PROPERTY AND THERE WAS NO OTHER BUSINESS ACTIVITY DURING THE FIN ANCIAL YEAR UNDER CONSIDERATION, THEREFORE, THE EXPENSES CLAIMED BY T HE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT WERE RIGHTLY DISALLOWED BY THE AO. LD . DR ALSO SUBMITTED THAT THE AO TOOK A REASONABLE APPROACH IN ALLOWING CLAIM OF AUDIT FEE AND FILING FEE TO THE ASSESSEE. SUPPORTING THE IMPUGNED ORDER, LD . DR SUBMITTED THAT THE FIRST APPELLATE AUTHORITY WAS RIGHT AND CORRECT IN UPHOLD ING THE DISALLOWANCE MADE BY THE AO. 37. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, AT THE VERY OUTSET, WE RESPECTFULLY TAKE COGNIZANCE OF THE RATIO OF THE DE CISION OF HONBLE APEX COURT IN THE CASE OF CIT VS RAJENDRA PRASAD MOODY (SUPRA) AND JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS GANGA PRO PERTIES LTD. WHICH WERE REFERRED AND FOLLOWED BY ITAT F BENCH MUMBAI IN THE CASE OF M/S VATSALYA ENTERPRISES LTD. VS ACIT (SUPRA) AND IT WAS HELD TH AT THE EXPENSES CLAIMED BY THE ASSESSEE MOSTLY PERTAINED TO CARRYING OUT OF VA RIOUS OPERATIONS AND ACTIVITIES CARRIED ON BY THE ASSESSEE COMPANY WHICH ARE NECESSARY FOR MAINTAINING A CORPORATE ESTABLISHMENT AND WHICH AR E INEXTRICABLY LINKED WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE. THE RELEV ANT OPERATIVE PART OF THE ORDER OF THE TRIBUNAL READS AS UNDER:- ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 30 9. NOW, THE ISSUE BEFORE US IS WHETHER OR NOT THE EXPENDITURE CLAIMED BY THE ASSESSEE UNDER VARIOUS H EADS FOR SUMS AGGREGATING TO RS. 6,87,626, CAN BE ALLOWED? T HE ASSESSING OFFICER HAS DISALLOWED THESE EXPENSES BUT DID NOT MAKE ANY SEPARATE ADDITION ON THE GROUND THAT HE HAS DIS ALLOWED THE BUSINESS LOSS. THE LEARNED COMMISSIONER (APPEALS) H AS PARTLY ALLOWED SOME EXPENSES ON THE GROUND THAT THE ASSESS EE HAS TO MAINTAIN ITS CORPORATE STATUS AND HAS TO DISCHARGE CERTAIN LEGAL OBLIGATIONS. THE DETAILS OF EXPENSES ALLOWED BY HIM AND FINALLY SUSTAINED BY HIM HAVE ALREADY BEEN INCORPORATED IN THE FORGOING PARAGRAPHS. THE ASSESSEE IS A CORPORATE ENTITY AND THE EXPENDITURE WHICH HAVE BEEN MAINLY INCURRED ARE FOR CARRYING OUT INVESTMENT ACTIVITIES AND LETTING OUT OF THE PR OPERTY. THE ASSESSEE HAS ALSO MADE ADVANCE WITH A VIEW TO ENGAG E IN REAL ESTATE DEVELOPMENT. FOR CARRYING OUT ALL THE ACTIVI TIES, IT HAS TO MAINTAIN ITS ESTABLISHMENT FOR COMPLYING WITH VARIO US STATUTORY OBLIGATIONS AND THE OPERATIONS OF THE COMPANY EVEN IF THE ASSESSEE IS HAVING INCOME UNDER THE DIFFERENT HEADS . EVEN UNDER THE HEAD 'INCOME FROM OTHER SOURCES', THE EXPENDITU RE INCURRED BY THE COMPANY HAS TO BE ALLOWED. LOOKING TO THE NA TURE OF EXPENSES CLAIMED BY THE ASSESSEE, IT IS SEEN THAT M OST OF THESE EXPENSES PERTAIN TO NORMAL OPERATION OF THE COMPANY AND FOR CARRYING OUT VARIOUS ACTIVITIES AS PER ITS OBJECT C LAUSE IN MOU. THE HON'BLE SUPREME COURT IN CIT VS RAGHUNANDAN PRA SAD MOODY, [1978] 115 ITR 519 (SC), WHILE INTERPRETING THE ALLOWABILITY OF EXPENDITURE UNDER SECTION 57(III), OBSERVED AS UNDER:- '4. WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITUR E MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITURE THAT IS RELEVANT IN DETERMINING THE APPLICABILITY O F S. 57(III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. S EC. 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLE D IN ORDER TO QUALIFY THE EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS N FACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFIT BY WAY OF RETURN I N THE SHAPE OF INCOME. THE PLAIN NATURAL CONSTRUCTION OF THE LANGU AGE OF S. 57(III) IRRESISTIBLY LEADS TO THE CONCLUSION THAT T O BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSARY THAT ANY IN COME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF' THE EXPENDITU RE. IT MAY BE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 31 POINTED OUT THAT AN IDENTICAL VIEWS WAS TAKEN BY TH IS COURT IN EASTERN INVESTMENTS LTD. VS. CIT (1951) 20 ITR 1 (S C) : TC41R.491, WHERE INTERPRETING THE CORRESPONDING PRO VISION IN S. 12(2) OF THE INDIAN IT ACT, 1922, WHICH WAS IPSISSI MA VERBA IN THE SAME TERMS AS S. 57(III), BOSC J., SPEAKING ON BEHALF OF THE COURT, OBSERVED: 'IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE W AS A PROFITABLE ONE OR THAT IN FACT ANY PROFIT WAS EARNE D.' IT IS INDEED DIFFICULT TO SEE HOW, AFTER THIS OBSER VATION OF THE COURT THERE CAN BE ANY SCOPE FOR CONTROVERSY IN REGARD TO THE INTERPRETATION OF S. 57(III). IT IS ALSO INTERESTIN G TO NOTE THAT, ACCORDING TO THE REVENUE, THE EXPENDITURE WOULD DIS QUALIFY FOR DEDUCTION ONLY IF NO INCOME RESULTS FROM SUCH EXPEN DITURE IN A PARTICULAR ASSESSMENT YEAR, BUT IF THERE IS SOME IN COME, HOWSOEVER SMALL OR MEAGRE, THE EXPENDITURE WOULD BE ELIGIBLE FOR DEDUCTION. THIS MEANS THAT IN A CASE WHERE THE EXPENDITURE IS RS. 1,000, IF THERE IS INCOME OF EVEN RE. 1, THE EX PENDITURE WOULD BE DEDUCTIBLE AND THERE WOULD BE RESULTING LOSS OF RS. 999 UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. BUT IF THERE IS NO INCOME, THEN, ON THE ARGUMENT OF THE REVENUE, THE EXPENDITU RE WOULD HAVE TO BE IGNORED AS IT WOULD NOT BE LIABLE TO BE DEDUCTED. THIS WOULD INDEED BE A STRANGE AND HIGHLY ANOMALOUS RESU LT AND IT IS DIFFICULT TO BELIEVE THAT THE LEGISLATURE COULD HAV E EVER INTENDED TO PRODUCE SUCH ILLOGICALITY. MOREOVER, IT MUST BE REMEMBERED THAT WHEN A PROFIT AND LOSS ACCOUNT IS CAST IN RESP ECT OF ANY SOURCE OF INCOME, WHAT IS ALLOWED BY THE STATUTE AS PROPER EXPENDITURE WOULD BE DEBITED AS AN OUTGOING AND INC OME WOULD BE CREDITED AS A RECEIPT AND THE RESULTING INCOME O R LOSS WOULD BE DETERMINED. IT WOULD MAKE NO DIFFERENCE TO THIS PROCESS WHETHER THE EXPENDITURE IS X OR Y OR NIL; WHATEVER IS THE PROPER EXPENDITURE ALLOWED BY THE STATUTE WOULD BE DEBITED . EQUALLY, IT WOULD MAKE NO DIFFERENCE WHETHER THERE IS ANY INCOM E AND IF SO, WHAT, SINCE WHATEVER IT BE, X OR Y OR NIL, WOULD BE CREDITED. AND THE ULTIMATE INCOME OR LOSS WOULD BE FOUND. WE FAIL TO APPRECIATE HOW EXPENDITURE WHICH IS OTHERWISE A PROPER EXPENDI TURE CAN CEASE TO BE SUCH MERELY BECAUSE THERE IS NO RECEIPT OF INCOME. WHATEVER IS A PROPER OUTGOING BY WAY OF EXPENDITURE MUST BE DEBITED IRRESPECTIVE OF WHETHER THERE IS RECEIPT OF INCOME OR NOT. THAT IS THE PLAIN REQUIREMENT OF PROPER ACCOUNTING AND THE INTERPRETATION OF S. 57(III) CANNOT BE DIFFERENT. T HE DEDUCTION OF ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 32 THE EXPENDITURE CANNOT, IN THE CIRCUMSTANCES, BE HE LD TO BE CONDITIONAL UPON THE MAKING OR EARNING OF THE INCOM E. IT IS TRUE THAT THE LANGUAGE OF S. 37(1) IS A LITTL E WIDER THAN THAT OF S. 57(III), BUT WE DO NOT SEE HOW THAT CAN MAKE ANY DIFFERENCE IN THE TRUE INTERPRETATION OF S. 57(III) . THE LANGUAGE OF S. 57(III) IS CLEAR AND UNAMBIGUOUS AND IT HAS TO B E CONSTRUED ACCORDING TO ITS PLAIN NATURAL MEANING AND MERELY B ECAUSE A SLIGHTLY WIDER PHRASEOLOGY IS EMPLOYED IN ANOTHER S ECTION WHICH MAY TAKE IN SOMETHING MORE, IT DOES NOT MEAN THAT S . 57(III) SHOULD BE GIVEN A NARROW AND CONSTRICTED MEANING NO T WARRANTED BY THE LANGUAGE OF THE SECTION AND, IN FACT, CONTRA RY TO SUCH LANGUAGE. THIS VIEW WHICH WE ARE TAKING IS CLEARLY SUPPORTED BY THE OBSERVATIONS OF LORD THANKERTON IN HUGES VS. BANK O F NEW ZEALAND (1938) 6 ITR 636 (HL) TC16R.381, WHERE THE LEARNED LAW LORD SAID.' 'EXPENDITURE IN COURSE OF THE TRADE WHICH IS UNREMUNERATIVE IS NONE THE LESS A PROPER DEDUCTION, IF WHOLLY AND EXCLUSIVELY MADE FOR THE PURPOSES OF THE TRADE. IT DOES NOT REQUIRE THE PRESENCE OF A RECEIPT ON THE CREDIT SID E TO JUSTIFY THE DEDUCTION OF AN EXPENSE. ' 10. FURTHER, THE CALCUTTA HIGH COURT IN GANGA PROP ERTIES LTD. (SUPRA), RELYING UPON THE JUDGMENT OF ALLAHABAD HIG H COURT IN CIT VS RAMPUR TIMBER, [1981] 129 ITR 58 (ALL.), OBS ERVED AND HELD AS UNDER:- 'IN OUR VIEW, A LIMITED COMPANY, EVEN IF IT DOES NO T CARRY ON BUSINESS BUT IT DERIVES INCOME FROM 'OTHER SOURC ES' HAS TO MAINTAIN ITS ESTABLISHMENT FOR COMPLYING WITH STATU TORY OBLIGATIONS SO LONG IT IS IN OPERATION AND ITS NAME IS NOT STRUCK OFF THE REGISTER OR UNLESS THE COMPANY IS DISSOLVED WHICH MEANS CESSATION OF ALL CORPORATE ACTIVITIES OF THE COMPAN Y FOR ALL PRACTICAL PURPOSES. SO LONG AS IT IS IN OPERATION, IT HAS TO MAINTAIN ITS STATUS AS A COMPANY AND IT HAS TO DISC HARGE CERTAIN LEGAL OBLIGATIONS AND, FOR THAT PURPOSE, IT IS NECE SSARY TO APPOINT CLERICAL STAFF AND SECRETARY OR ACCOUNTANT AND INCU R INCIDENTAL EXPENSES. IN THIS BACKGROUND, THE CONCLUSION OF THE TRIBUNAL THAT THE EXPENSES INCURRED WERE WHOLLY AND EXCLUSIVELY F OR THE ACTIVITIES TO EARN INCOME IS PROMINENTLY A REASONAB LE CONCLUSION. WE HAVE CONSIDERED A SIMILAR CASE IN IT. REF. NO. 3 60 OF 1979 [CIT VS. NEW SAVAN SUGAR AND GUR REFINING CO. LTD ( 1990) 185 ITR 564 (CA I)], WHERE THE JUDGMENT WAS DELIVERED O N 18TH APRIL, ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 33 1989. FOR THE REASONS AFORESAID, WE ARE OF THE VIEW THAT THE TRIBUNAL WAS JUSTIFIED IN ALLOWING THE EXPENDITURE. THE THIRD QUESTION IS, THEREFORE, ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. ' 11. IF WE APPLY THE AFORESAID RATIO LAID DOWN BY TH E HON'BLE SUPREME COURT AND CALCUTTA HIGH COURT ON THE FACTS OF THE PRESENT CASE, THEN, EXCEPT FOR THE AMOUNT CLAIMED U NDER THE HEAD 'DEPRECIATION ON MOTORCAR & COMPUTER', ALL OTHER EX PENSES LISTED ABOVE IN FOREGOING PARAGRAPHS, ARE TO BE ALL OWED, AS THESE EXPENSES MOSTLY PERTAIN TO CARRYING OUT OF VARIOUS OPERATIONS AND ACTIVITIES CARRIED ON BY THE ASSESSEE COMPANY, WHICH ARE NECESSARY FOR MAINTAINING A CORPORATE ESTABLISHMENT AND ARE INTRICABLY LINKED FOR EARNING OF THE INCOME UNDER V ARIOUS HEADS, AS SHOWN BY THE ASSESSEE. 38. WHILE WE CONSIDER THE ASSESSMENT ORDER AS WELL AS THE APPELLATE ORDER, WE NOTE THAT THE RATIO OF THE RELEVANT DECISIONS OF HONBLE SUPREME COURT (SUPRA) AND HONBLE CALCUTTA HIGH COURT AND OTHER J UDGMENTS HAS NOT BEEN CONSIDERED BY THE AO AND ALL THE EXPENSES CLAIMED B Y THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT EXCEPT AUDIT FEES AND FILING FEES HAVE BEEN DISALLOWED AT THE THRESHOLD WITHOUT ANY FURTHER EXAMINATION AND VERIF ICATION ABOUT THE GENUINENESS OF THE CLAIM AS PER RELEVANT PROVISIONS OF THE ACT. IN THIS SITUATION, RESPECTFULLY FOLLOWING THE RATIO OF THE JUDGMENTS O F HONBLE SUPREME COURT IN THE CASE OF CIT VS RAJENDRA PRASAD MOODY (SUPRA), W E HOLD THAT IT IS NOT NECESSARY THAT ANY INCOME SHOULD, IN FACT, HAVE BEE N EARNED AS A RESULT OF EXPENDITURE AND EXPENSES INCURRED BY THE ASSESSEE T O MAINTAIN ITS CORPORATE AND LEGAL EXISTENCE CANNOT BE DISALLOWED MERELY BECAUSE NO INCOME HAS BEEN EARNED AS A RESULT OF ACTIVITIES CONDUCTED AND EXPE NDITURE INCURRED BY THE ASSESSEE COMPANY DURING THE RELEVANT PERIOD. WITH THE ABOVE PROPOSITION, THE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 34 ISSUE OF ALLOWABILITY OF EXPENDITURE CLAIMED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT, WHICH WERE DISALLOWED BY THE AO AND U PHELD BY THE CIT(A), IS RESTORED TO THE FILE OF AO FOR PROPER EXAMINATION A ND VERIFICATION AFTER AFFORDING DUE OPPORTUNITY OF HEARING FOR THE ASSESS EE AND WITHOUT BEING PREJUDICED OR INFLUENCED WITH THE EARLIER ASSESSMEN T AND IMPUGNED ORDER ON THIS ISSUE. ACCORDINGLY, GROUND NO. 2 OF THE ASSES SEE IS DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSES. GROUND NO.3 39. APROPOS GROUND NO.3, LD COUNSEL OF THE ASSESSEE SUBMITTED THAT THE CIT(A) ERRED ON BOTH FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE LD. AO, IN NOT ALLOWING THE SET OFF OF BROUGHT FORWARD ASSE SSED BUSINESS LOSSES OF EARLIER YEARS WITHOUT APPRECIATING THAT THE SAID DI SALLOWANCE IS NOT SUPPORTED BY ANY COGENT REASON OR ANY MATERIAL ON RECORD. LD. D R REPLIED THAT WHEN THE ASSESSEE COMPANY IS MAKING FALSE CLAIMS AND THERE W AS NO BUSINESS INCOME OF THE ASSESSEE COMPANY, THEN THE AO WAS CORRECT IN NO T ALLOWING THE SET OFF OF BROUGHT FORWARD ASSESSED BUSINESS LOSSES OF PRECEDI NG ASSESSMENT YEARS AND THE SAME WAS RIGHTLY CONFIRMED BY THE CIT(A). 40. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, FROM THE OPERATIVE PART OF THE ASSESSMENT ORDER, WE NOTE THAT THE AO HAS NO TED THAT A SIMILAR SITUATION PREVAILS IN THE ASSESSEES COMPUTATION OF INCOME FO R THE EARLIER YEARS ON ACCOUNT OF WHICH THE ASSESSEE HAD CLAIMED BROUGHT F ORWARD LOSSES, THEREFORE, ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 35 BENEFIT OF BROUGHT FORWARD LOSSES WAS NOT GIVEN TO THE ASSESSEE. DURING THE FIRST APPELLATE PROCEEDINGS, THE ISSUE OF BROUGHT F ORWARD LOSSES WAS DISMISSED BY THE CIT(A) BY HOLDING THAT BUSINESS LOSS CANNOT BE SET OFF AGAINST THE INCOME FROM HOUSE PROPERTY. 41. SINCE BY THE EARLIER PART OF THIS ORDER ON GRO UND NO. 1, WE HAVE HELD THAT THE RENTAL INCOME OF THE ASSESSEE COMPANY DESERVES TO BE TREATED AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME AS C LAIMED BY THE ASSESSEE, THEREFORE, BUSINESS LOSS CANNOT BE SET OFF AGAINST THE INCOME FROM HOUSE PROPERTY AND CONCLUSION OF THE CIT(A) WAS CORRECT O N THIS ISSUE. HOWEVER, WE FURTHER MAKE IT CLEAR THAT THE AO IS EMPOWERED TO P ROVIDE PROPER TREATMENT TO THE BROUGHT FORWARD LOSSES AS PER RELEVANT PROVISIO NS OF THE ACT IN THE PRESENT AY 2006-07 AND ALSO IN THE SUBSEQUENT ASSESSMENT YE ARS. ACCORDINGLY, GROUND NO. 3 OF THE ASSESSEE IS DISMISSED WITH THE AFORESAID DIRECTIONS OF THE AO TO PROVIDE PROPER, REASONABLE AND JUSTIFIED TREA TMENT TO THE SAME IN ACCORDANCE WITH LAW AND RELEVANT PROVISIONS OF THE ACT. GROUND NO.6 42. SINCE THE MAIN ISSUE OF THE ASSESSEE HAS BEEN R ESTORED TO THE FILE OF AO AND GROUND NO. 6 OF THE ASSESSEE PERTAINING TO INTE REST U/S 234B OF THE ACT BEING CONSEQUENTIAL IN NATURE IS ALSO RESTORED TO T HE FILE OF AO FOR A FRESH ADJUDICATION AS PER REASSESSMENT ORDER, ACCORDINGLY , GROUND NO. 6 OF THE REVENUE IS ALSO RESTORED TO THE FILE OF AO. ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 36 GROUND NO.7 43. GROUND NO. 7 CHALLENGING INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT IS PREMATURE AND WE DISMISS THE SAME WI THOUT ANY ADJUDICATION. 44. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DE EMED TO BE PARTLY ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. ITA NO.1134/DEL/2013 FOR AY 2005-06 45. THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED A GAINST THE ORDER OF THE CIT(A)-VIII, NEW DELHI DATED 19.12.2012 IN APPEAL N O.231/2011-12 FOR AY 2005-06. APPLICATION OF ASSESSEE FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL 45.1 WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. LD. COUNSEL OF THE ASSESSEE PLACING RELIANCE ON SEVERAL JUDGEMENTS OF HONBLE SUPREME COURT AND HONBLE HIGH COURT INCLUDING JUDGMENT IN THE CASE OF NTPC VS CIT (1998) 229 ITR 383 (SC) SUBMITTED THAT THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE PURELY LEGAL GROUNDS WHICH COULD NOT BE TAKEN BEFORE CIT(A) FOR WANT OF PROPER LEGAL ADVICE, THEREFORE, THE SAME MAY KINDLY BE ADMITTED FOR ADJUDICATION. LD. DR SUBMITTED THAT WHEN THE ASSESSEE DID NOT RAISE THES E LEGAL OBJECTIONS/GROUNDS BEFORE THE CIT(A), THEN THE SAME CANNOT BE RAISED D URING SECOND APPELLATE PROCEEDINGS BEFORE THE TRIBUNAL. ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 37 45.2 ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS AND PERUSAL OF ADDITIONAL GROUND RAISED BY THE ASSESSEE, WE OBSERVE THAT IN T HESE GROUNDS, THE ASSESSEE IS PLACING ITS OBJECTION REGARDING AVAILABILITY OF ASS UMPTION OF JURISDICTION FOR INITIATION OF PROCEEDINGS AND ISSUANCE OF NOTICE U/ S 147/148 OF THE ACT. THE ASSESSEE ALSO WANTS TO CHALLENGE THE REASSESSMENT P ROCEEDINGS ON THE GROUND OF SECTION 149(1)(B) OF THE ACT. IN VIEW OF JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF NTPC VS CIT (SUPRA), THE TRIBUNAL SHOUL D NOT BE PREVENTED FROM CONSIDERING THE QUESTION OF LAW ARISING IN ASSESSME NT PROCEEDINGS, ALTHOUGH NOT RAISED EARLIER. IT WAS FURTHER HELD THAT THE VIEW THAT THE TRIBUNAL IS CONFINED ONLY TO ISSUES ARISING OUT OF THE APPEAL BEFORE THE CIT(A) IS TOO NARROW A VIEW TO TAKE REGARDING POWERS OF THE TRIBUNAL. SINCE GR OUNDS/OBJECTIONS RAISED BY THE ASSESSEE BY WAY OF ADDITIONAL GROUNDS ARE PUREL Y LEGAL OBJECTIONS WHICH COULD NOT BE RAISED DURING FIRST APPELLATE PROCEEDI NGS BEFORE THE CIT(A) BUT THE ASSESSEE IS NOT PREVENTED TO RAISE THE SAME BEFORE THE TRIBUNAL. UNDER ABOVE NOTED FACTS AND CIRCUMSTANCES, RESPECTFULLY FOLLOWI NG THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF NTPC VS CIT (SUPRA), A DDITIONAL GROUNDS OF THE ASSESSEE ARE ADMITTED FOR ADJUDICATION WHICH READ A S UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN NOT APPRECIATING THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE I NCOME TAX ACT, 1961 IS WITHOUT JURISDICTION AND BAD IN LAW AS THE JURISDICTION U/S 147 IS VITIATED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) ERRED IN NOT APPRECIATING THAT THE ORDER ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 38 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE I NCOME TAX ACT, 1961 IS WITHOUT JURISDICTION AND BAD IN LAW AS THE AO DID NOT EVEN COMMUNICATE REASONS FOR ISSUANCE OF NOTICE U/S 148 OF THE ACT. 4. THE LD. CIT(A) FAILED TO APPRECIATE THAT PROCEED INGS U/S 147 CANNOT BE BASED ON CONJECTURES AND THAT THE REO PENING HAS TO BE BASED ON SOME TANGIBLE MATERIAL, SOMETHING TH AT CAN BE REGARDED AS HAVING A LIVE LINK/CLOSE NEXUS WITH THE CIRCUMSTANCES RELIED UPON FOR FORMATION OF BELIEF. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) ERRED IN CONFIRMING THE INITIATION OF PRO CEEDINGS UNDER SECTION 148 OF THE INCOME TAX ACT, 1961 AND THEREFORE THE ASSESSMENT MADE THEREON IS BAD IN LAW AND MUST BE Q UASHED. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE REASSESSMENT PROCEEDINGS ARE BARRED BY LIMITATION I N AS MUCH AS THE REASONS FOR REOPENING HAVE NOT BEEN SUPPLIED TO THE APPELLANT BEFORE THE EXPIRY OF SIX YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, WHICH IS BEYOND THE PERIOD PRESCRI BED UNDER SECTION 149( 1) (B) OF THE INCOME TAX ACT, 1961. 45.3 ALONG WITH ORIGINAL APPEAL, THE ASSESSEE RAISE D SIX GROUNDS WHICH READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED IN NOT APPRECIATI NG THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 IS WITHOUT JURISDICTION AND BAD IN LA W AS THE JURISDICTION U/S 147 IS VITIATED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) ERRED IN NOT APPRECIATING THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE I NCOME TAX ACT, 1961 IS WITHOUT JURISDICTION AND BAD IN LAW AS THE AO DID NOT COMMUNICATE REASONS FOR ISSUANCE OF NOTICE U/S 148 OF THE ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) ERRED IN HOLDING THAT INCOME E ARNED FROM EXPLOITATION OF COMMERCIAL SPACE HAS TO BE ASSESSED UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' INSTEAD OF UNDER THE HEAD ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 39 'PROFITS AND GAINS OF BUSINESS & PROFESSION' AND HA D INCORRECTLY AND UNJUSTIFIABLY UPHELD THE SAID ACTIO N OF LD. AO. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT( A) ERRED IN UPHOLDING THE DISALLO WANCE OF FOLLOWING EXPENSES CLAIMED IN THE PROFIT AND LOSS A CCOUNT ON ACCOUNT OF:- [IN RS.] I) ACCOUNTING CHARGES 24,000.00 II) BANK CHARGES 20,984.08 III) GENERAL EXPENSES 56,620.00 IV) TELEPHONE EXPENSES 17,747.00 V) PREOPERATIVE EXPENSES WRITTEN OFF 2,400.00 VI) TRAVELLING & CONVEYANCE 57,900.00 VII) LEASE RENT EXPENSES 49,010.00 VIII) MAINTENANCE CHARGES 85,140.00 IX) PRINTING & STATIONERY 4,280.00 X) REMUNERATION TO DIRECTOR 3,60,000.00 XI) SALARY 1,77,350.00 XII) DEPRECIATION 2,86,646.00 XIII) INTEREST ON LOANS 4,87,369.00 XIV) LEGAL FEES 36,000.00 WITHOUT ASSIGNING ANY REASONS, ESPECIALLY WHEN AFOR ESAID EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS OF THE COMPANY AND IN ORDER TO MAINTAIN IT S STATUS. 5. THAT ON THE FACTS AND IN LAW, THE LD. CIT(A) GRO SSLY ERRED IN CONFIRMING THE INTEREST CHARGED BY THE LD. AO UN DER SECTION 234B OF THE INCOME TAX ACT, 1961. 6. THAT ON THE FACTS AND IN LAW, THE LD. CIT(A) GR OSSLY ERRED IN CONFIRMING INITIATION OF PENALTY PROCEEDINGS U/S 27 1(1)( C) OF THE INCOME TAX ACT, 1961 BY THE LD. AO. ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 40 ADDITIONAL GROUND NO. 1 TO 5 AND GROUND NO. 1 & 2 O F THE ASSESSEE 46. APROPOS AFORESAID GROUND, WE HAVE HEARD ARGUMEN TS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON R ECORD. LD. COUNSEL OF THE ASSESSEE REITERATING ITS WRITTEN SUBMISSIONS ON GRO UND NO. 1 AND 2 INCLUDING ADDITIONAL GROUND SUBMITTED THAT THE AO IN ITS ORDE R DATED 27.11.2009 HAS NOT WHISPERED A WORD ABOUT THE DATE WHEN THE PROCEEDING S U/S 147 OF THE ACT WERE INITIATED AND WHEN THE REASONS WERE RECORDED. LD. COUNSEL POINTED OUT THAT IN THE FIRST PARA OF IMPUGNED ASSESSMENT ORDER, THE AO ONLY RECORDS THAT SUBSEQUENTLY, PROCEEDINGS U/S 147/148 OF THE ACT WE RE INITIATED AND NOTICE U/S 148 DATED 20.9.2008 WAS ISSUED FOR THE FOLLOWING RE ASONS. LD. COUNSEL FURTHER SUBMITTED THAT THE AO IN RESPONSE TO NOTICE U/S 148 OF THE ACT DID NOT SUPPLY A COPY OF THE REASONS RECORDED BEFORE ISSUING NOTICE U/S 148 OF THE ACT EVEN TILL TODAY VIZ. UPTO HEARING BEFORE US DESPITE ORAL REQU EST AND WRITTEN LETTER DATED 30.1.2013 AND 22.2.2013. LD. COUNSEL FURTHER POINT ED OUT THAT IN TERMS OF JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF GKN DRIVESHAFT S (INDIA) LTD. VS ITO & OTHERS (2003) 259 ITR 19 (SC) , THE AO IS BOUND TO FURNISH REASONS RECORDED BEFORE THE ISSUANCE OF NOTICE. THE REFORE, IN THESE CIRCUMSTANCES, COMPLETION OF ASSESSMENT U/S 143(3) OF THE ACT IS NOT IN ACCORDANCE WITH LAW AND, THEREFORE, NOTICE U/S 148 OF THE ACT AND ALL REASSESSMENT PROCEEDINGS NEED TO BE QUASHED. LD. C OUNSEL ALSO TOOK US THROUGH DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF BERGER P AINTS INDIA ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 41 LTD. VS ACIT & ORS. (2004) 266 ITR 462 (CAL.) AND SUBMITTED THAT THE ASSESSEE IS ENTITLED TO BE SUPPLIED WITH THE REASON S IN THE EVENT HE CHALLENGES THE NOTICE FOR REASSESSMENT; ASSESSEE IS NOT STOPPED FR OM CHALLENGING THE IMPUGNED NOTICE AFTER HAVING SUBMITTED TO THE JURISDICTION O F THE OFFICER BY FILING RETURNS. 46.1 LD. COUNSEL ALSO POINTED OUT THAT THE REASSESS MENT PROCEEDINGS ARE ALSO BARRED BY LIMITATION INASMUCH AS THE REASONS FOR RE OPENING HAVE NOT BEEN SUPPLIED TO THE ASSESSEE BEFORE EXPIRY OF SIX YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR WHICH IS BEYOND THE PERIOD PRESCRIB ED U/S 149(1)(B) OF THE ACT. LD. COUNSEL ALSO PLACED RELIANCE ON THE DECISION OF ITAT C BENCH, BANGALORE IN THE CASE OF SHRI G.N.MOHAN RAJU VS ITO DATED 10. 10.2014 IN ITA NO. 242 & 243/BANG/2013 FOR AY 2006-07 AND 2007-08 AND SUBMIT TED THAT THE AO DID NOT ISSUE NOTICE U/S 143(2) OF THE ACT BEFORE PICKING U P THE ASSESSMENT FOR SCRUTINY AND PASSING ORDER U/S 143(3) R/W SECTION 147 OF THE ACT, THEREFORE, ENTIRE REASSESSMENT PROCEEDINGS NEED TO BE QUASHED. 46.2 REPLYING TO THE ABOVE, LD. DR POINTED OUT THAT THE LETTER SUBMITTED BY THE ASSESSEE ASKING TO SUPPLY REASONS RECORDED FOR REOP ENING ARE DATED 30.1.2013 AND 20.2.2013 AND THE REASSESSMENT ORDER U/S 143(3) R/W SECTION 147 OF THE ACT WAS PASSED ON 27.11.2009, THEREFORE, THESE LETTERS HAVE BEEN FILED JUST TO CREATE A ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 42 LEGAL ISSUE IN FAVOUR OF THE ASSESSEE. LD. DR VEHE MENTLY POINTED OUT THAT AS PER RATIO OF THE DECISION OF HONBLE SUPREME COURT IN T HE CASE OF GKN DRIVESHAFTS (INDIA) LTD. VS ITO & OTHERS (SUPRA) AND DECISION O F HONBLE CALCUTTA HIGH COURT IN THE CASE OF BERGER PAINTS INDIA LTD. VS AC IT & ORS. (SUPRA), UNDISPUTEDLY WHEN A NOTICE U/S 148 OF THE ACT IS IS SUED, PROPER COURSE OF ACTION FOR THE NOTICE IS TO FILE THE RETURN AND IF HE (ASS ESSEE) SO DESIRES TO SEEK REASONS FOR ISSUING THE NOTICE. LD. DR FURTHER CONTENDED T HAT IF THE ASSESSEE DESIRES TO SEEK REASONS FOR REISSUANCE OF NOTICE, THE AO IS BO UND TO FURNISH REASONS FOR REOPENING WITHIN A REASONABLE TIME BUT WHEN THE ASS ESSEE IS NOT MAKING ANY EFFORT IN THIS REGARD AFTER RECEIPT OF NOTICE AND T ILL COMPLETION OF REASSESSMENT PROCEEDINGS, THEN IT SHOULD BE PRESUMED THAT THE AS SESSEE HAD ALREADY RECEIVED REASONS RECORDED FOR REOPENING AND HE IS NOT DESIRO US TO SEEK REASONS FROM THE AO FOR ISSUING NOTICE U/S 148 OF THE ACT. 46.3 ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, AT THE VERY OUTSET, IN OUR HUMBLE UNDERSTANDING OF THE RELEVANT PROVISIONS OF THE ACT, THERE IS NO MANDATORY PROVISION FOR PROVIDING REASONS RECORDED FOR REOPENING OF ASSESSMENT U/S 147/148 OF THE ACT TO THE ASSESSEE. HOWEVER, A S PER RATIO OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF SHRI G.N.MOHAN RA JU VS ITO (SUPRA) WHICH WAS ALSO REFERRED BY HONBLE CALCUTTA HIGH COURT IN THE CASE OF BERGER PAINTS INDIA LTD. VS ACIT & ORS. (SUPRA), IT HAS BEEN HELD THAT WHEN A NOTICE U/S 148 OF ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 43 THE ACT IS ISSUED, A PROPER COURSE OF ACTION FOR TH E NOTICE (ASSESSEE) IS TO FILE THE RETURN AND IF HE SO DESIRES TO SEEK REASONS FOR ISS UING THE NOTICE U/S 148 OF THE ACT. WHEN THE ASSESSEE EXPRESSES HIS WILLINGNESS O R DESIRE TO SEEK REASONS BEFORE THE AO, THEN THE AO IS BOUND TO FURNISH REAS ONS WITHIN A REASONABLE TIME. THE RELEVANT OPERATIVE PART OF THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD. VS ITO & OTHERS (SUPRA) WHICH WAS FOLLOWED BY HONBLE CALCUTTA HIGH COURT IN THE CASE OF BERGER PAINTS INDIA LTD. VS ACIT & ORS. (SUPRA), AT PAGE 20 IS BEING RESPECT FULLY REPRODUCED BELOW:- WE SEE NO JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER UNDER CHALLENGE. HOWEVER, WE CLARIFY THAT WHEN A NO TICE UNDER SECTION 148 OF THE INCOME TAX ACT IS ISSUED, THE PROPER COURSE OF ACTION FOR THE NOTICEE IS TO FILE RETURN AND IF HE SO DESIRES, TO SEEK REASONS FOR ISSUING NOTICES. THE ASSESSING OFFICER IS BOUND TO FURNISH REASONS WITHIN A REASONABLE TIM E. ON RECEIPT OF REASONS, THE NOTICEE IS ENTITLED TO FILE OBJECTI ONS TO ISSUANCE OF NOTICE AND THE ASSESSING OFFICER IS BOUND TO DISPOS E OF THE SAME BY PASSING A SPEAKING ORDER. IN THE INSTANT CASE, A S THE REASONS HAVE BEEN DISCLOSED IN THESE PROCEEDINGS, THE ASSES SING OFFICER HAS TO DISPOSE OF THE OBJECTIONS, IF FILED, BY PASS ING A SPEAKING ORDER BEFORE PROCEEDING WITH THE ASSESSMENT IN RESP ECT OF THE ABOVESAID FIVE ASSESSMENT YEARS. (EMPHASIS RESPECTFULLY SUPPLIED BY UNDERLINING) 46.4 IN VIEW OF ABOVE, WHEN WE ANALYSE THE WILLINGN ESS AND DESIRE OF THE ASSESSEE IN THE PRESENT CASE, WE OBSERVE THAT THE A SSESSEE WAS REPRESENTED BY SHRI M.K. NIRULA, CA AND AR OF THE ASSESSEE COMPANY RIGHT FROM THE BEGINNING TO THE END OF REASSESSMENT PROCEEDINGS WHICH WERE C OMPLETED ON 27.11.2009, HOWEVER, FROM THE LETTERS FILED AS ANNEXURE 1 ALONG WITH WRITTEN SUBMISSIONS OF THE ASSESSEE, IT IS CLEAR THAT THE ASSESSEE ASKED F OR THE REASONS OF REOPENING MUCH ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 44 LATER VIZ. ON 30.1.2013 AND 22.2.2013. IN THIS SIT UATION, WE RESPECTFULLY HOLD THAT IN OUR HUMBLE UNDERSTANDING OF THE RELEVANT PROVISI ONS OF THE ACT, THE ASSESSEE DID NOT PLACE HIS WILLINGNESS OR DESIRE SEEKING COP Y OF THE REASONS RECORDED FOR INITIATION OF PROCEEDINGS U/S 147/148 OF THE ACT AF TER RECEIPT OF NOTICE U/S 148 OF THE ACT UNTIL COMPLETION OF REASSESSMENT PROCEEDING S. IN VIEW OF ABOVE NOTED FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED V IEW THAT IN THE GIVEN SITUATION WHEN THE ASSESSEE DID NOT EXPRESS HIS DESIRE OR WIL LINGNESS SEEKING COPY OF THE REASONS RECORDED BY THE AO, THEN IN THIS SITUATION, IN OUR HUMBLE UNDERSTANDING, WE RESPECTFULLY HOLD THAT THE BENEFIT OF THE RATIO OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF SHRI G.N.MOHAN RAJU VS ITO (SU PRA) AND HONBLE CALCUTTA HIGH COURT IN THE CASE OF BERGER PAINTS INDIA LTD. VS ACIT & ORS. (SUPRA) IS NOT AVAILABLE FOR THE ASSESSEE AND THIS LEGAL ISSUE RAI SED BY THE ASSESSEE IS JETTISONED. 47. NOW, WE PROCEED TO CONSIDER ANOTHER LEGAL CONTE NTION OF THE ASSESSEE PLACED IN ADDITIONAL GROUND NO. 5 THAT THE REASONS FOR REOPENING HAVE NOT BEEN SUPPLIED TO THE ASSESSEE BEFORE EXPIRY OF SIX YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR WHICH IS BEYOND THE PERIOD PRESCRIB ED U/S 149(1)(B) OF THE ACT. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IN CASE REASONS FOR REOPENING OF THE ASSESSMENT HAVE NOT BEEN SUPPLIED TO THE ASSESSEE B EFORE EXPIRY OF SIX YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR WHICH IS B EYOND THE PERIOD PRESCRIBED U/S 149(1)(B) OF THE ACT, THEN REASSESSMENT PROCEED INGS ARE VITIATED AND DESERVE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 45 TO BE QUASHED. LD. DR SUBMITTED THAT AS PER PROVIS IONS OF SECTION 149(1)(B) OF THE ACT, NO NOTICE U/S 148 SHALL BE ISSUED FOR THE RELEVANT ASSESSMENT YEAR IF FOUR YEARS BUT NOT MORE THAN SIX YEARS HAVE ELAPSED FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS THE INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AMOUNTS TO OR IS LIKELY TO AMOUNT TO RUP EES ONE LAKH OR MORE FOR THAT PERIOD. LD. DR POINTED OUT THAT THE PRESENT CASE I S RELATED TO AY 2005-06 AND NOTICE U/S 148 OF THE ACT WAS ISSUED TO THE ASSESSE E ON 25.09.2008 WHICH IS VERY WELL WITHIN THE PRESCRIBED TIME LIMIT U/S 149(1)(B) OF THE ACT AND THE SAID PROVISION PRESCRIBES TIME LIMIT FOR ISSUANCE OF NOT ICE U/S 148 OF THE ACT WHEREIN SUPPLY OF REASONS RECORDED IS NOT A CRITERIA OR PRE CONDITION. 47.1 ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, WE ARE OF THE CONSIDERED VIEW THAT GROUND NO. 5 OF THE ASSESSEE IS DEVOID OF MERITS AS NOTICE U/S 148 OF THE ACT IN THIS CASE RELEVANT TO AY 2006-07 WAS ISSUED ON 25.9.2008 WHICH IS VERY WELL WITHIN THE PRESCRIBED TIME LIMIT AS PER PROVIS IONS OF SECTION 149(B) OF THE ACT. AS WE HAVE ALREADY NOTED THAT THE ASSESSEE DI D NOT PLACE HIS WILINESS OR DESIRE BEFORE THE AO AFTER RECEIPT OF NOTICE U/S 14 8 OF THE ACT UNTIL COMPLETION OF REASSESSMENT PROCEEDINGS ON 27.11.2009, SEEKING COPY OF REASONS RECORDED, THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR ANY BEN EFIT IN THIS REGARD. ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 46 47.2 WE FURTHER PROCEED TO CONSIDER THE PROPOSITION LAID DOWN BY ITAT, BANGALORE C BENCH IN THE CASE OF SHRI G.N.MOHAN R AJU VS ITO (SUPRA) WHEREIN IT WAS HELD THAT IF THERE WAS NO VALID ISSU E OF NOTICE U/S 143(2) OF THE ACT AND THE ASSESSMENTS WERE DONE WITHOUT FOLLOWING MANDATORY REQUIREMENTS OF THE ACT, THEN SUBSEQUENT PROCEEDINGS ARE INVALID . THE RELEVANT OPERATIVE PART OF THIS ORDER READS AS UNDER:- ONCE THE ORIGINAL RETURN FILED BY THE ASSESSEE WAS SUBJECT TO PROCESSING U/S 143(1) OF THE ACT, THE PR OCEDURE OF ASSESSMENT PURSUANT TO SUCH A RETURN, IN OUR OPINIO N CAME TO AN END, SINCE AO DID NOT ISSUE ANY NOTICE WITHIN THE 6 MONTHS PERIOD MENTIONED IN PROVISO TO SECTION 143(2)(II). NO DOUBT, IF THE WWW.TAXGURU.IN ITA NOS.242& 243(BANG)2013 10 IN COME HAS BEEN UNDERSTATED OR THE INCOME HAS ESCAPED ASSE SSMENT, AN AO IS HAVING THE POWER TO ISSUE NOTICE U/S 148 OF T HE IT ACT. NOTICE U/S 148 OF THE ACT, ISSUED TO THE ASSESSEE R EQUIRED IT TO FILE A RETURN WITHIN 30 DAYS FROM THE DATE OF SERVI CE OF SUCH NOTICE. THERE IS NO PROVISION IN THE ACT, WHICH WOU LD ALLOW AN AO TO TREAT THE RETURN WHICH WAS ALREADY SUBJECT TO A PROCESSING U/S 143(1) OF THE IT ACT, AS A RETURN FI LED PURSUANT TO A NOTICE SUBSEQUENTLY ISSUED U/S 148 OF THE ACT. HO WEVER, ONCE AN ASSESSEE ITSELF DECLARE BEFORE THE AO THAT HIS E ARLIER RETURN COULD BE TREATED AS FILED PURSUANT TO NOTICE U/S 14 8 OF THE IT ACT, THREE RESULTS CAN FOLLOW. ASSESSING OFFICER CA N EITHER SAY NO, THIS WILL NOT BE ACCEPTED, YOU HAVE TO FILE A F RESH RETURN OR HE CAN SAY THAT 30 DAYS TIME PERIOD BEING OVER I WI LL NOT TAKE COGNIZANCE OF YOUR REQUEST OR HE HAS TO ACCEPT THE REQUEST OF THE ASSESSEE AND TREAT THE EARLIER RETURNS AS ONE F ILED PURSUANT TO THE NOTICE U/S 148 OF THE IT ACT. IN THE FORMER TWO SCENARIOS, AO HAS TO FOLLOW THE PROCEDURE SET OUT FOR A BEST O F JUDGMENT ASSESSMENT AND CANNOT MAKE AN ASSESSMENT UNDER SECT ION 143(3). ON THE OTHER HAND, IF THE AO CHOSE TO ACCEP T ASSESSEES REQUEST, HE CAN INDEED MAKE AN ASSESSMENT UNDER SEC TION 143(3). IN THE CASE BEFORE US, ASSESSMENTS WERE COM PLETED UNDER SECTION 143(3) READ WITH SECTION 147. OR IN O THER WORDS AO ACCEPTED THE REQUEST OF THE ASSESSEE. THIS IN TU RN MAKES IT OBLIGATORY TO ISSUE NOTICE U/S 143(2) AFTER THE REQ UEST BY THE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 47 ASSESSEE TO TREAT HIS EARLIER RETURN AS FILED IN PU RSUANCE TO NOTICES U/S 148 OF THE IT ACT WAS RECEIVED. THIS RE QUEST, IN THE GIVEN CASE, HAS BEEN MADE ONLY ON 05-10-2010. ANY I SSUE WWW.TAXGURU.IN ITA NOS.242& 243(BANG)2013 11 OF NOT ICE PRIOR TO THAT DATE CANNOT BE TREATED AS A NOTICE ON A RETURN FILED BY THE ASSESSEE PURSUANT TO A NOTICE U/S 148 OF THE ACT. OR IN OTHER WORDS, THERE WAS NO VALID ISSUE OF NOTICE U/S 143(2) OF THE IT ACT, AND THE ASSESSMENTS WERE DONE WITHOUT FOLLO WING THE MANDATORY REQUIREMENT U/S 143(2) OF THE IT ACT. THI S IN OUR OPINION, RENDER THE SUBSEQUENT PROCEEDINGS ALL INVA LID. LEARNED CIT(A) HAD ONLY ADJUDICATED ON A POSITION WHERE THE RE WAS NO SERVICE OF NOTICES U/S 143(2) OF THE IT ACT. HE HAD NOT DEALT WITH THE SCENARIO, WHERE NOTICE WAS ISSUED PRIOR TO THE FILING OF RETURN BY THE ASSESSEE. WE THEREFORE, QUASH THE ASS ESSMENT DONE FOR THE IMPUGNED ASSESSMENT YEARS. SINCE THE APPEAL S OF THE ASSESSEE ARE ALLOWED ON ITS GROUND 3, OTHER GROUNDS ARE NOT ADJUDICATED. 47.3 IN THE LIGHT OF AFORESAID PROPOSITION IF WE AN ALYSE THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, FROM THE ASSESSM ENT ORDER, WE NOTE THAT THE AO HAS MENTIONED COMPLIANCE OF STATUTORY NOTICE U/S 143(2) OF THE ACT WITH THESE OBSERVATIONS:- NOTICE U/S 143 OF THE I.T. ACT, 1961 ISSUED ON 25.09.2008 FOR RE-ASSESS THE INCOME OF THE SAID ASS ESSMENT YEAR. IN RESPONSE OF THE NOTICE THE ASSESSEE HAS N EITHER FILED REVISED RETURN NOR STATED THAT THE SAME HAS BEEN TR EATED INCOME OF RETURN AND THEREAFTER PICKED UP FOR SCRUT INY. STATUTORY NOTICE U/S 143(2) WAS ISSUED IN THIS CASE IN RESPONSE TO WHICH SHRI M.K. NIROLA, CA & AR OF THE ASSESSEE COMPANY ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FILE D THE DETAILS ASKED FOR. ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 48 47.4 IN VIEW OF ABOVE NOTED FACTS ABOUT REASSESSMEN T ORDER, IT IS VIVID THAT THE NOTICE U/S 148 OF THE ACT WAS ISSUED ON 25.09.2008 FOR REASSESSMENT OF INCOME OF RELEVANT AY 2005-06. WE FURTHER OBSERVE THAT IN RESPONSE OF THE SAID NOTICE U/S 148 OF THE ACT, THE ASSESSEE HAD NEITHER FILED REVISED RETURN NOR STATED THAT THE RETURN ALREADY FILED BE TREATED INCOME OF RETUR N. THEREAFTER, THE AO PICKED UP THE CASE FOR SCRUTINY AND A REQUIRED STATUTORY N OTICE U/S 143(2) WAS ISSUED AND IN RESPONSE TO THE SAID NOTICE SHRI M.K. NIROLA, CA OF THE ASSESSEE COMPANY ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FILE D THE DETAILS ASKED BY THE ASSESSEE. IN THIS SITUATION, WHEN WE CONSIDER THE RATIO LAID DOWN BY ITAT BANGALORE BENCH, WE NOTE THAT IN THE PRESENT CASE, THE ASSESSEE HAD NEITHER FILED REVISED RETURN NOR STATED THAT THE EARLIER RETURN M AY BE TREATED AS INCOME OF RETURN IN RESPONSE TO NOTICE U/S 148 OF THE ACT. I N THIS SITUATION AS PER RATIO OF THE ORDER OF ITAT, BANGALORE (SUPRA), THE CASE OF THE PRESENT ASSESSEE FALLS WITHIN THE CATEGORY WHERE THE AO HAD ISSUED NOTICE U/S 143(2) OF THE ACT IN THE VERY BEGINNING OF THE REASSESSMENT PROCEEDINGS AND THE ASSESSEES REPRESENTATIVE ALSO ATTENDED THE PROCEEDINGS IN PUR SUANCE THERETO, THEREFORE, WE DECLINE TO ACCEPT THIS LEGAL CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE THAT THERE WAS NON-COMPLIANCE OF PROVISIONS OF SECTION 143(2) OF THE ACT BY THE AO. WE RESPECTFULLY HOLD THAT THE BENEFIT OF DECISION OF C OORDINATE BENCH IS NOT AVAILABLE TO THE ASSESSEE AS FACTS AND CIRCUMSTANCES OF THE C ASE ARE DISSIMILAR AS THE ASSESSEE HAD NEITHER FILED ANY RETURN NOR REQUESTED THE AO TO TREAT THE EARLIER RETURN AS HAS BEEN FILED IN PURSUANCE TO NOTICE U/S 148 OF THE ACT. ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 49 47.5 LD. COUNSEL OF THE ASSESSEE HAS ALSO ALLEGED THAT PROCEEDINGS U/S 147 OF THE ACT CANNOT BE BASED ON CONJECTURES AND THE REOP ENING HAS TO BE BASED ON SOME TANGIBLE MATERIAL, SOMETHING THAT CAN BE RECOR DED AS HAVING A LIVE LINK/CLOSE NEXUS WITH THE CIRCUMSTANCES RELIED UPON FOR FORMATION OF BELIEF BEFORE THE AO. LD COUNSEL OF THE ASSESSEE SUBMITTE D THAT WHEN THE SAME INCOME WAS TREATED AS BUSINESS INCOME IN THE EARLIER ASSES SMENT YEARS RIGHT FROM 2001- 02 TO 2005-06, THEN ON SIMILAR SET OF FACTS AND CIR CUMSTANCES WITHOUT ANY DEVIATION OR CHANGE, THE REOPENING U/S 147/148 OF T HE ACT WOULD BE CHANGE OF OPINION ON THE SAME MATERIAL AND, THEREFORE, ISSUAN CE OF NOTICE U/S 147 OF THE ACT WAS NOT VALID AND WITHOUT JURISDICTION AND BAD IN LAW AS THE JURISDICTION U/S 147 OF THE ACT IS VITIATED. 47.6 LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE O N VARIOUS DECISIONS INCLUDING DECISION OF JURISDICTIONAL HIGH COURT OF DELHI IN T HE CASE OF CIT VS ORIENT CRAFT LTD. IN ITA NO. 5555/DEL/2012 DECIDED ON 12.12.2012 AND SUBMITTED THAT THERE IS NOTHING IN THE LANGUAGE OF SECTION 147 OF THE AC T TO UNSHACKLE THE AO FROM THE NEED TO SHOW REASON TO BELIEVE. THE FACT TH AT THE INTIMATION ISSUED U/S 143(1) OF THE ACT CANNOT BE EQUATED TO ASSESSMENT U /S 143(3) OF THE ACT, LEAD TO THE CONCLUSION THAT THE REQUIREMENT OF SECTION 147 OF THE ACT CAN BE DISPENSED WITH WHEN THE FINALITY OF INTIMATION U/S 143(1) IS SOUGHT TO BE DISTURBED. LD. COUNSEL SUBMITTED THAT THE ASSESSMENT ORDER PASSED FOR EARLIER ASSESSMENT YEAR ON THE SAME FACTS AND MATERIAL CANNOT BE DISTURBED SUBSEQUENTLY BY WAY OF ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 50 INVOKING PROVISIONS OF SECTION 147/148 OF THE ACT, THEREFORE, ISSUANCE OF NOTICE U/S 148 OF THE ACT AND REASSESSMENT PROCEEDINGS SHO ULD BE QUASHED. 47.7 REPLYING TO THE ABOVE, LD. DR PLACED RELIANCE ON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF ACIT VS RAJAN JHAVERI STOCK BROKER PVT. LTD. (2001) 291 ITR 500(SC) AND RECENT DECISION IN THE CASE OF DCIT VS ZUARI ESTATE DEVELOPMENT AND.INVESTMENT CO. PVT. LT D. [2004] 373 ITR 661 (SC) AND ALSO ON THE DECISION OF FULL BENCH OF HONBLE J URISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS USHA INTERNATIONAL LTD. (2012) 348 ITR 485 (DEL)(FB) AND SUBMITTED THAT IF THE ASSESSEES RETURN WAS AC CEPTED U/S 143(1) OF THE ACT IN EARLIER FOUR CONSECUTIVE ASSES SMENTS AND WHEN THE AO INVOKES PROVISIONS OF SECTION 147/148 OF THE ACT IN VIEW OF SUBSEQUENT ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT, THEN THERE WAS NO QUESTION OF CHANGE OF OPINION INASMUCH AS WHILE ACCEPTING THE RETURN U/S 143(1) OF THE ACT FOR EARLIER ASSESSMENT YEARS, NO OPINION WAS F ORMED WHILE PROCESSING RETURN UNDER SAID PROVISION OF THE ACT AND, THEREFORE, ON THIS BASIS, NOTICE ISSUED TO THE ASSESSEE U/S 148 OF THE ACT SHOULD BE HELD AS VALID . LD. DR VEHEMENTLY CONTENDED THAT ORDER PASSED U/S 143(3) CANNOT BE HE LD AS PASSED AFTER FORMING AN OPINION ON A PARTICULAR ISSUE AND THEREFORE, ALLEGA TION OF CHANGE OF OPINION ON THE SAME MATERIAL CANNOT BE LEVELLED AGAINST THE A O BECAUSE WHILE ACCEPTING RETURN U/S 143(1) OF THE ACT, THE AO HAD NO OPPORTU NITY TO FORM AN OPINION ON THE MATERIAL OR DETAILS SUBMITTED BY THE ASSESSEE I N THE RETURN OF INCOME. ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 51 47.8 STRONGLY SUPPORTING THE ACTION OF THE AO FOR I SSUANCE OF NOTICE AND INITIATION OF REASSESSMENT PROCEEDINGS U/S 147/148 OF THE ACT, LD. DR LASTLY SUBMITTED THAT THE AO ASSUMED VALID JURISDICTION FO R ISSUANCE OF NOTICE AND REOPENING OF ASSESSMENT THAT CANNOT BE ALLEGED AS C HANGE OF OPINION BECAUSE THE DEPARTMENT HAD NO OPPORTUNITY TO FORM ANY OPINION D URING EARLIER ASSESSMENT YEAR PROCEEDINGS WHICH WERE COMPLETED U/S 143(1) OF THE ACT AND HENCE ON THE ISSUE OF RENTAL INCOME, THE AO HAD REASON TO BELIEV E THAT THE ASSESSEE HAD WRONGLY PLACED GROSS RENTAL RECEIPT AS BUSINESS INC OME INSTEAD OF INCOME FROM HOUSE PROPERTY WHICH HAS ESCAPED ASSESSMENT. 47.9 ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS OF BOTH THE SIDES AND CAREFUL PERUSAL OF THE RELEVANT MATERIAL PLACED ON RECORD, INTER ALIA REASONS FOR REOPENING ASSESSMENT ORDER AND RATIO OF THE ORDERS AND JUDGEMENTS RELIED BY BOTH THE SIDES, AT THE VERY OUTSET, WE NOTE THAT UN DISPUTEDLY AND ADMITTEDLY, THE ASSESSMENT WAS COMPLETED U/S 143(1) OF THE ACT IN T HE CASE OF ASSESSEE FROM COMMENCEMENT OF ITS BUSINESS I.E. AY 2001-02 TO 20 05-06 AND THE AO HAD NO OPPORTUNITY TO FORM ANY OPINION ABOUT THE TAXABLE H EAD OF RENTAL RECEIPTS OF THE ASSESSEE COMPANY IN THOSE ASSESSMENT YEARS. THE IS SUE CROPPED UP WHEN THE AO TOOK UP THE CASE OF THE ASSESSEE FOR AY 2006-07 FOR SCRUTINY AND REACHED TO A CONCLUSION THAT THE GROSS RENTAL RECEIPTS SHOWN B Y THE ASSESSEE DESERVE TO BE TREATED AS INCOME FROM HOUSE PROPERTY INSTEAD OF B USINESS INCOME AS CLAIMED AND DECLARED BY THE ASSESSEE. IN VIEW OF ASSESSMEN T ORDER FOR AY 2006-07, THE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 52 ASSESSEE RECORDED REASONS FOR INITIATION OF REASSES SMENT PROCEEDINGS AND ISSUED A NOTICE U/S 148 OF THE ACT WHICH WAS ENDED BY PASSIN G THE REASSESSMENT ORDER U/S 143(3) R/W 147 ON 27.11.2009. 48. AT THIS JUNCTURE, IT WOULD BE RELEVANT AND MSOT APPROPRIATE TO CONSIDER THE RATIO OF THE RECENT JUDGMENT OF HONBLE SUPREME COU RT IN THE CASE OF DCIT VS ZUARI ESTATE DEVELOPMENT & INVESTMENT CO. LTD. (SUP RA) WHEREIN THEIR LORDSHIPS SPEAKING FOR HONBLE APEX COURT AND AFTER REFERRING ITS EARLIER JUDGMENT IN THE CASE OF CIT VS RAJESH JHAVERI STOCK BROKERS (P) LTD. (SUPRA) AT PAGE 664 HELD AS FOLLOWS:- AFTER GOING THROUGH THE DETAILED ORDER PASSED BY T HE HIGH COURT, WE FIND THAT THE MAIN ISSUE WHICH IS IN VOLVED IN THIS CASE IS NOT AT ALL ADDRESSED BY THE HIGH COURT. A CONTENTION WAS TAKEN BY THE APPELLANT-DEPARTMENT TO THE EFFECT THA T SINCE THE ASSESSEES RETURN WAS ACCEPTED U/S 143(1) OF THE IN COME TAX ACT, THERE WAS NO QUESTION OF CHANGE OF OPINION INASMU CH AS WHILE ACCEPTING THE RETURN UNDER THE AFORESAID PROVISION, NO OPINION WAS FORMED AND, THEREFORE, ON THIS BASIS, THE NOTIC E ISSUED WAS VALID. WE FIND THAT THIS ASPECT IS SQUARELY COVERE D BY THE JUDGEMENT OF THIS COURT IN ASSTT.CIT VS RAJESH JHAV ERI STOCK BROKERS PRIVATE LTD. (2008) (14) SCC 208 IN THE FOL LOWING MANNER: IN THE SCHEME OF THINGS, AS NOTED ABOVE, THE INTIM ATION UNDER SECTION 143(1)(A) CANNOT BE TREATED TO BE AN ORDER OF ASSESSMENT. THE DISTINCTION IS ALSO WELL BROUGHT OU T BY THE STATUTORY PROVISIONS AS THEY STOOD AT DIFFERENT POI NTS OF TIME. UNDER SECTION 143(L)(A) AS IT STOOD PRIOR TO APRIL 1, 1989, THE ASSESSING OFFICER HAD TO PASS AN ASSESSMENT ORDER I F HE DECIDED TO ACCEPT THE RETURN, BUT UNDER THE AMENDED PROVISI ON, THE REQUIREMENT OF PASSING OF AN ASSESSMENT ORDER HAS B EEN DISPENSED WITH AND INSTEAD AN INTIMATION IS REQUIRE D TO BE SENT. VARIOUS CIRCULARS SENT BY THE CENTRAL BOARD OF DIRE CT TAXES SPELL OUT THE INTENT OF THE LEGISLATURE, I.E., TO MINIMIZ E THE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 53 DEPARTMENTAL WORK TO SCRUTINIZE EACH AND EVERY RETU RN AND TO CONCENTRATE ON SELECTIVE SCRUTINY OF RETURNS. THESE ASPECTS WERE HIGHLIGHTED BY ONE OF US (D. K. JAIN J) IN APOGEE INTERNATIONAL LIMITED V. UNION OF INDIA [(1996) 220 ITR 248]. IT MAY BE NOTED ABOVE THAT UNDER THE FIRST PROVISO TO THE NEWLY SUB STITUTED SECTION 143(1) , WITH EFFECT FROM JUNE 1, 1999, EXCEPT AS PROVIDED IN THE PROVISION ITSELF, THE ACKNOWLEDGMENT OF THE RETURN SHALL BE DEEMED TO BE AN INTIMATION UNDER SECTION 143(1) WHERE (A) EITHER NO SUM IS PAYABLE BY THE ASSESSEE, OR (B) NO REFUND IS DUE TO HIM. IT IS SIGNIFICANT THAT THE ACKNOWLEDGMENT IS NOT DO NE BY ANY ASSESSING OFFICER, BUT MOSTLY BY MINISTERIAL STAFF. CAN IT BE SAID THAT ANY ASSESSMENT IS DONE BY THEM? THE REPLY IS AN EMPHATIC NO. THE INTIMATION UNDER SECTION 143(1)(A) WAS DEEMED TO BE A NOTICE OF DEMAND UNDER SECTION 156 , FOR THE APPARENT PURPOSE OF MAKING MACHINERY PROVISIONS RELATING TO RECOVERY OF TAX APPLICABLE. BY SUCH APPLICATION ONLY RECOVERY INDIC ATED TO BE PAYABLE IN THE INTIMATION BECAME PERMISSIBLE. AND N OTHING MORE CAN BE INFERRED FROM THE DEEMING PROVISION. THEREFO RE, THERE BEING NO ASSESSMENT UNDER SECTION 143(1)(A) , THE QUESTION OF CHANGE OF OPINION, AS CONTENDED, DOES NOT ARISE. 48.1 HENCE, AS PER RATIO LAID DOWN BY THE HONBLE A PEX COURT AFTER CONSIDERING ITS EARLIER JUDGMENTS IN THE CASE OF CIT VS RAJESH JHAVERI STOCK BROKER (P) LTD., (SUPRA), DCIT VS ZUARI ESTATE DEVELOPMENT & INVESTMENT CO. PVT. LTD. (SUPRA), IT IS CLEAR THAT WHEN THE ORIGINAL ASSESSMENT IN EA RLIER ASSESSMENT YEARS WAS COMPLETED U/S 143(1) OF THE ACT, THEN THERE WAS NO QUESTION OF CHANGE OF OPINION INASMUCH AS WHILE ACCEPTING THE RETURN U/S 143(1) OF THE ACT, NO OPINION WAS FORMED BY THE AO AND THEREFORE, ON THIS BASIS N OTICE U/S 148 OF THE ACT CANNOT BE HELD AS INVALID. RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF DCIT VS ZUARI ESTATE DEVELOPMENT AND INVESTMENT CO. PVT. LTD. (SUPRA) AND IN THE CASE OF CIT VS RAJESH JHAVERI STOCK BROKER (P) LTD. AND ALSO THE RATIO LAID DOWN BY TH E HONBLE FULL BENCH OF ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 54 HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE C ASE OF CIT VS USHA INTERNATIONAL(SUPRA), IN THE FACTS AND CIRCUMSTANCE S OF THE PRESENT CASE, WE HOLD THAT THE AO VALIDLY ASSUMED JURISDICTION FOR INITIA TION OF REASSESSMENT PROCEEDINGS U/S 147 OF THE ACT AND ISSUANCE OF NOTI CE U/S 148 OF THE ACT AS THERE WAS VALID REASON TO BELIEVE THAT THE INCOME HAS ESC APED ASSESSMENT ON THE ISSUE OF TREATMENT OF RENTAL INCOME. THEREFORE, WE DECLI NE TO ACCEPT THE LEGAL CONTENTION OF THE ASSESSEE THAT THE REOPENING OF AS SESSMENT WAS NOT VALID, VOID AB INITIO AND BAD IN LAW. HENCE, ON THE BASIS OF F OREGOING DISCUSSION, WE HOLD THAT THE LEGAL CONTENTIONS RAISED BY THE ASSESSEE I N ADDITIONAL GROUNDS AS WELL AS IN THE MAIN GROUND NO. 1 AND 2 ARE NOT SUSTAINABLE AND HENCE, WE DISMISS THE SAME AS BEING DEVOID OF MERITS. GROUND NO. 3, 4, 5 & 6 48.2 SINCE FOR AY 2006-07, WE HAVE DECIDED SIMILAR ISSUE INVOLVED IN GROUND NOS. 3 TO 6 AND FACTS AND CIRCUMSTANCES OF AY 2005- 06 ARE SIMILAR TO THE FACTS OF AY 2006-07, THEREFORE, WITHOUT REPEATING THE ADJUDI CATION AND CONCLUSION, WE HOLD THAT OUR CONCLUSION ON GROUND NO. 2, 3, 6 & 7 SOF AY 2006-07 SHALL APPLY MUTATIS MUTANDIS FOR AY 2005-06. ACCORDINGLY, GROUND NO. 3 OF THE ASSESSEE IS DISMISSED, GROUND NO. 4 IS RESTORED TO THE FILE OF AO FOR FRESH ADJUDICATION, GROUND NO. 5 BEING CONSEQUENTIAL IN NATURE IS ALSO RESTORED TO THE FILE OF AO FOR A FRESH ADJUDICATION AS PER REASSESSMENT ORDER AND GR OUND NO. 6 CHALLENGING THE ITA NO. 273/D/2013 & 1134/D/2013 ASSTT. YEARS: 2006-07 & 2005-06 55 INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT BEING PREMATURE IS DISMISSED. 49. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.273/D/2013 FOR AY 2006-07 IS PARTLY ALLOWED ON GROUND NO. 2 & 3 FOR S TATISTICAL PURPOSES AND PARTLY ALLOWED ON GROUND NO. 5 AND ADDITIONAL GROUNDS AND OTHER REMAINING GROUNDS ARE DISMISSED. ITA NO.1134/D/2013 FOR AY 2005-06FO R AY 2005-06 OF THE ASSESSEE IS DEEMED TO BE ALLOWED FOR STATISTICAL PU RPOSES ON GROUND NO. 4 & 5 AND DISMISSED ON ALL REMAINING GROUNDS. ORDER PRONOUNCED IN THE OPEN COURT ON 28.7.2015. SD/- SD/- (R.S. SYAL) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 28TH JULY 2015 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ASSTT.REGISTRAR