M/s Vaibhav Empire Pvt Ltd., Eluru V. The ACIT, Circle-1, Eluru

ITA 287/VIZ/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6971 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 27-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Keywords: Business income; Corroborative evidences

Judgement Text

PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO287/VIZAG/2009 ASSESSMENT YEAR: 2004-05 VAIBHAV EMPIRE PVT. LTD., ELURU VS. ACIT, CIRCLE-1, ELURU (APPELLANT) (RESPONDENT) PAN NO: AABCV 8928 J APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI G.S.S. GOPINATH, DR ORDER PER SHRI B R BASKARAN, ACCOUNTANT MEMBER : THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 12-03-2009 PASSED BY THE LD CIT (A) RAJAHMUNDRY AND IT RELATES TO THE ASSESSMENT YEAR 2004-05. 2. THE GROUNDS RAISED BY THE ASSESSEE GIVE RISE TO THE FOLLOWING ISSUES: A) WHETHER THE LD CIT (A) IS JUSTIFIED IN HOLDING T HAT THE RENTAL INCOME RECEIVED FROM LET OUT BUILDING IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY B) WHETHER THE LD CIT (A) IS JUSTIFIED IN CONFIRMIN G THE DISALLOWANCE OF INTEREST PAID TO THE BANK. 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN B RIEF. THE IMPUGNED BUILDING, LOCATED AT VISAKHAPATNAM, WAS ORIGINALLY OWNED BY A COMPANY NAMED M/S ANANT HOTEL (P) LTD., AND IT WAS RUN AS A HOTEL. THE PRESENT M ANAGEMENT ACQUIRED THE COMPANY AND CHANGED THE NAME OF THE COMPANY TO THE PRESENT NAME M/S VAIBHAV EMPIRE PVT. LTD. THE BUILDING CONSISTED OF GROUND FLOOR AND 5 FLOORS . AFTER THE PURCHASE, THE NEW MANAGEMENT UNDERTOOK EXTENSIVE RENOVATION OF THE BU ILDING. THE ASSESSEE COMPANY CARRIED OUT REPAIRS TO SUIT THE NEEDS OF THE PROPOS ED TENANTS AND AS A RESULT OF WHICH THE ELEVATION AND ALSO THE INTERIORS UNDERWENT CUST OMIZED CHANGES AS PER THE REQUIREMENT OF THE TENANTS. SUBSEQUENTLY THE GROUN D FLOOR WAS LET OUT TO TWO TENANTS, PAGE 2 OF 4 VIZ., M/S VLCC AND CORN CLUB; 2 ND TO 5 TH FLOOR WERE LET OUT TO BSNL. THE 1 ST FLOOR WAS LEFT UNOCCUPIED. THE ASSESSEE ADMITTED THE RENTAL INCOM E UNDER THE HEAD INCOME FROM BUSINESS AND SUPPORTED ITS CASE BY STATING THAT IT HAS GOT INTENTIONS TO REVIVE THE HOTEL BUSINESS IN FUTURE. THE ASSESSING OFFICER TOOK THE VIEW THAT THE RENTAL INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPER TY. IN THIS REGARD, THE ASSESSING OFFICER RELIED ON THE DECISION IN THE FOLLOWING CAS E LAW: (A) SULTAN BROTHERS PVT. LTD., VS. CIT (51 ITR 353) (SUPREME COURT) (B) CIT VS. NEW INDIA INDUSTRIES LTD. (201 ITR 208) (GUJARAT HIGH COURT) (C) EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST L TD. VS. CIT (42 ITR 49) (SUPREME COURT) (D) D.R. PUTTANNA SONS PVT. LTD., VS. CIT (162 ITR 468) (KARNATAKA) THE ASSESSING OFFICER ALSO COUNTERED THE RELIANCE P LACED BY THE ASSESSEE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF UNIVERSAL PLAST LTD. VS. CIT (237 ITR 454) BY REFERRING TO THE RELEVANT PORTION OF OBSERVATION OF THE COURT AS UNDER: ..BUT IF THE BUSINESS NEVER STARTED OR HAS START ED BUT CEASED WITH NO INTENTION TO BE RESUMED, THE ASSETS ALSO WILL CEASE TO BE BUS INESS ASSETS AND THE TRANSACTION WILL ONLY BE EXPLOITATION OF PROPERTY B Y AN OWNER THEREOF, BUT NOT EXPLOITATION OF BUSINESS ASSETS. ACCORDINGLY THE AO ASSESSED THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND WHILE DOING SO DISALLOWED THE INTERES T CLAIM OF RS.7,35,032/- RELATING TO THE TERM LOAN OBTAINED FROM KARUR VYSYA BANK LIMITE D FOR THE REASON THAT THE PURPOSE OF LOAN WAS SHOWN AS PERSONAL CONSUMPTION AND BUSI NESS USE AND NOT AS FOR RENOVATION OF THE BUILDING. WITHOUT PREJUDICE TO TH E COMPUTATION OF THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY, THE AO A LTERNATIVELY SOUGHT TO COMPUTE THE SAME AS BUSINESS INCOME IN THE EVENT OF THE A PPELLATE AUTHORITIES SUPPORTING THE STAND OF THE ASSESSEE THAT SUCH RENTAL INCOME SHOUL D BE ASSESSED AS BUSINESS INCOME. WHILE DOING SO THE AO TOOK THE VIEW THAT THE EXTENS IVE RENOVATION WORK, INCLUDING THE ELECTRICAL FITTING AND INSTALLATION OF LIFT, CARRIE D ON BY THE ASSESSEE FOR AN AMOUNT OF RS.16,05,091/- SHOULD BE TREATED AS CAPITAL EXPEND ITURE AND ACCORDINGLY DISALLOWED THE SAME. 4. IN THE APPEAL PREFERRED BY THE ASSESSEE THE LD C IT (A), AFTER STUDYING THE CASE LAW, FACTS AND CIRCUMSTANCES OF THE CASE, HELD THAT THE RENTAL INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM FIRST PROPERTY ONLY. WITH R EGARD TO THE INTEREST CLAIM OF RS.7,35,032/- THE LD CIT (A) CONFIRMED THE DISALLOW ANCE MADE BY THE AO. SINCE THE LD PAGE 3 OF 4 CIT (A) UPHELD THE ACTION OF THE AO IN ASSESSING TH E RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY, HE DID NOT GO INTO THE ALTERNATIVE COMPUTATION MADE BY THE AO TREATING THE INCOME UNDER THE HEAD INCOME F ROM BUSINESS. AGGRIEVED BY THE ORDER OF THE LD CIT (A) THE ASSESSEE IS IN APPEAL B EFORE US. 5. WE HAVE HEAD THE PARTIES AND CAREFULLY PERUSED T HE RECORD. WE NOTICE THAT THE IMPUGNED BUILDING WAS USED AS HOTEL BY THE PREVIOUS MANAGEMENT BY NAME M/S HOTEL ANANT PVT. LIMITED. THE PRESENT MANAGEMENT ACQUIRED THE COMPANY AND CHANGED THE NAME OF THE COMPANY TO M/S VAIBHAV EMPIRE (P) LIMIT ED. IT IS A FACT THAT THE NEW MANAGEMENT DID NOT CONTINUE THE HOTEL BUSINESS, INS TEAD PROCEEDED TO LET OUT THE BUILDING TO BSNL AND OTHER BUSINESS CONCERNS. IN ORDER TO LET OUT THE BUILDING, THE ASSESSEE ALSO CARRIED OUT RENOVATION OF THE BUILDIN G TO SUIT THE REQUIREMENTS OF THE PROSPECTIVE TENANTS. THE LD CIT(A) HAS ALSO NOTICE D THAT THE ASSESSEE COMPANY HAS LET OUT ON LONG TERM LEASE. HENCE THE ACTION OF THE AS SESSEE COMPANY DEFEATS ITS CLAIM THAT IT IS HAVING AN INTENTION TO CARRY ON HOTEL BUSINES S IN FUTURE. WE ALSO NOTICE THAT THE LD CIT (A) HAS CATEGORICALLY OBSERVED THAT MERELY BECA USE THE PREVIOUS OWNER CARRIED ON HOTEL BUSINESS FROM THE SAID BUILDING, THE SAME CAN NOT BE TREATED AS A COMMERCIAL ASSET IN THE HANDS OF THE ASSESSEE COMPANY, WITHOUT THE A SSESSEE COMPANY CONTINUING THE HOTEL BUSINESS AFTER THE ACQUISITION OF THE BUILDIN G. FURTHER ON A CAREFUL PERUSAL OF THE ORDER OF THE LD CIT (A), WE NOTICE THAT THE LD CIT (A) HAS ANALYSED THE ISSUE IN PROPER PERSPECTIVE AND ARRIVED AT A CONSCIOUS DECISION. H ENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CIT (A) IN HOLDING THAT THE REN TAL INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 6. WITH REGARD TO THE ISSUE RELATING TO INTEREST ON LOAN TAKEN FROM BANK, THE LD CIT (A) HAS OBSERVED THAT THE PURPOSE OF SANCTION OF LO AN WAS FOR PERSONAL CONSUMPTION AND BUSINESS USAGE AND FURTHER THE ASSESSEE HAS MI SERABLY FAILED TO ESTABLISH WITH THE SUPPORTING EVIDENCES THAT IT HAD UTILIZED THE LOAN FUNDS FOR THE RENOVATION OF THE BUILDING IN VIOLATION OF THE PURPOSE FOR WHICH IT WAS SANCTI ONED. ACCORDINGLY THE LD CIT (A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. BEFORE US ALSO THE ASSESSEE COULD NOT PRODUCE ANY MATERIAL TO CONTRADICT THE FINDING OF T HE TAX AUTHORITIES. HENCE, WE HAVE NO OTHER OPTION BUT TO UPHOLD THE ORDER OF THE LD CIT (A) ON THIS ISSUE ALSO. 7. THE ASSESSEE HAS ALSO RAISED A GROUND ON THE ALTERNATIVE COMPUTATION OF THE ASSESSING OFFICER TREATING THE INCOME AS BUSINESS I NCOME. SINCE IT HAS BEEN HELD THAT PAGE 4 OF 4 THE RENTAL INCOME IS ASSESSABLE UNDER THE HEAD INC OME FROM HOUSE PROPERTY, THE QUESTION OF ASSESSING THE SAME UNDER THE HEAD INCO ME FROM BUSINESS DOES NOT ARISE AND HENCE IT IS NOT NECESSARY FOR US ALSO TO GO INT O THOSE ISSUES. 8. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON 23-3-2010. S D/ - SD/ - (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 23 RD MARCH, 2010. COPY TO 1 M/S VAIBHAV EMPIRE PVT. LTD., 7A - 9 - 21 MAIN BAZAR, ELURU 2 THE ACIT, CIRCLE - 1, ELURU 3 THE CIT RAJAHMUNDRY 4 THE CIT(A), RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM