M/s Bommidala Tobacco Services, Guntur V. The ITO, Ward-2(2), Guntur

ITA 313/VIZ/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2712 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 06-10-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 28-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: C V K PRASAD
• Keywords: Reopening of assessment; Audit objection
• Section: 148; 2

Judgement Text

ITA NOS 313 TO 316 OF 2010 BOMMIDALA TOBACCO SERVICE S, GUNTUR PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NOS.313 TO 316/VIZAG/2010 ASSESSMENT YEARS:2001-02 TO 2004-05 M/S BOMMIDALA TOBACCO SERVICES, GUNTUR VS. ITO WARD-2(2) GUNTUR (APPELLANT) PAN NO: AADFB 6160 F (RESPONDENT) APPELLANT BY: SHRI C.V.K. PRASAD, ADVOCATE RESPONDENT BY: SHRI D.S.SUNDER SINGH, (DR) ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THESE APPEALS FILED AT THE INSTANCE OF THE ASSESSE E ARE DIRECTED AGAINST THE COMMON ORDER DATED 26-3-2010 PASSED BY LD CIT (A) GUNTUR AND THEY RELATE TO THE ASSESSMENT YEARS 2001 TO 200 4-05. 2. THE ASSESSEE IS ASSAILING THE DECISION OF THE LD CIT (A) IN HOLDING THAT: A) REOPENING OF ASSESSMENT OF THESE YEARS UNDER CONSID ERATION U/S 148 OF THE ACT IS VALID. B) INCOME FROM LETTING OF GODOWNS IS TO BE ASSESSED UND ER THE HEAD INCOME FROM HOUSE PROPERTY. 3. THE FACTS RELATING TO THESE ISSUES ARE STAT ED IN BRIEF. THE ASSESSEE OFFERED RENTAL INCOME RECEIVED FROM LETTING OF GODO WNS UNDER THE HEAD INCOME FROM BUSINESS IN ALL THESE YEARS UNDER CON SIDERATION. THE SAID RETURNS OF INCOME WERE PROCESSED INITIALLY U/S 143 (1) BY ACCEPTING THE INCOME DISCLOSED BY THE ASSESSEE. SUBSEQUENTLY THE A.O REOPENED THE ASSESSMENT AND ASSESSED THE RENTAL INCOME DERIVED B Y THE ASSESSEE UNDER ITA NOS 313 TO 316 OF 2010 BOMMIDALA TOBACCO SERVICE S, GUNTUR PAGE 2 OF 5 THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSEE C HALLENGED THE REOPENING OF ASSESSMENT AND ALSO THE ACTION OF THE ASSESSING OFFICER IN ASSESSING THE RENTAL INCOME UNDER THE HEAD INCOME F ROM HOUSE PROPERTY IN THE APPEAL FILED BEFORE LEARNED CIT(A), BUT COULD N OT SUCCEED. HENCE THE ASSESSEE HAS FILED THESE APPEALS BEFORE US. 4. THE FIRST ISSUE RELATES TO THE VALIDITY OF REOPE NING OF ASSESSMENT U/S 148 OF THE ACT. THE ASSESSEE CONTENDED THAT THE REO PENING IN BAD IN LAW, AS THE AO HAS REOPENED THE ASSESSMENT ON THE BASIS OF AUDIT OBJECTIONS. HOWEVER, THE LD CIT (A) HAS NOTICED THAT THE AO HAD INITIALLY CALLED FOR DETAILS OF RENTAL INCOME; VIDE HIS LETTER DATED 20- 6-2006. LATER, VIDE ANOTHER LETTER DATED 9-3-2007, THE AO CALLED FOR FU RTHER DETAILS AND ONLY IN THAT LETTER A REFERENCE TO THE AUDIT OBJECTION WAS MADE. THE ASSESSEE FILED HIS REPLY ON 14-3-2007. AFTER THE RECEIPT OF THE R EPLY FROM THE ASSESSEE THE AO HAS ISSUED NOTICES U/S 148. IN VIEW OF THE AB OVE FACTS, THE LD CIT (A) HELD THAT THE AO HAS REOPENED THE IMPUGNED ASSE SSMENT ONLY AFTER SATISFYING HERSELF ON ESCAPEMENT OF INCOME. THE LD CIT (A) ALSO NOTICED THAT THE REOPENING OF IMPUGNED ASSESSMENT YEARS ARE ALSO VALID SINCE THEY ARE SQUARELY COVERED BY CLAUSE (B) OF EXPLANATION-2 TO SEC.147. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE SAID EXPL ANATION 2 BELOW: EXPLANATION 2.FOR THE PURPOSE OF THIS SECTION, THE FOLLOWING SHALL BE DEEMED TO BE CASES WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, NAMELY:- (A) .. (B) WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS UNDERSTATED IN THE INCOME OR HAS CLAIMED EXCESSIVE LOSS, DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN:. 4.1. THE LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE TAX AUTHORITIES, IN PARTICULAR, HE SUBM ITTED THAT THE ASSESSMENT ITA NOS 313 TO 316 OF 2010 BOMMIDALA TOBACCO SERVICE S, GUNTUR PAGE 3 OF 5 OF RENTAL INCOME OF THE TYPE RECEIVED BY THE ASSESS EE DEPENDS UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE AND HENCE THE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. PH ABAOMAL & SONS, 158 ITR 773 (AP), WHICH WAS RELIED UPON BY THE TAX AUTH ORITIES, IS NOT APPLICABLE TO THE ASSESSEE. HE FURTHER SUBMITTED TH AT THE ASSESSMENT CANNOT BE REOPENED ON THE BASIS OF AUDIT OBJECTIONS AND IN THIS REGARD HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF INDIAN & EASTERN NEWS PAPER SOCIETY VS. CIT 119 ITR 996 (SC) . HE FURTHER SUBMITTED THAT THE ASSESSEE HAS LET OUT TWO GODOWNS TO TWO DIFFERENT PARTIES AND THE RETURN OF INVESTMENT HAS WORKED OUT TO 10% IN THE HANDS OF THE ASSESSEE, WHICH IS EQUAL TO THE RETURN EXPEC TED IN ANY BUSINESS ACTIVITY. ACCORDINGLY HE PRAYED THAT THE ORDER OF THE TAX AUTHORITIES BE REVERSED. ON THE OTHER HAND THE LD DR STRONGLY PLA CED RELIANCE ON THE ORDERS OF THE TAX AUTHORITIES. 4.2 WE HAVE HEARD THE PARTIES ON THIS ISSUE AND CAR EFULLY PERUSED THE RECORD. AS NOTICED BY THE LD CIT (A), THE AO HAS MA DE A REFERENCE TO AUDIT OBJECTIONS IN HIS LETTER DATED 9-3-2007. HOWEVER, T HE IMPUGNED ISSUE OF THE TAXABILITY OF THE INCOME RECEIVED BY THE ASSESSEE W AS UNDER HIS CONSIDERATION SINCE JUNE 2006 AND ONLY AFTER RECEIV ING THE REPLY OF THE ASSESSEE DATED 14-3-2007, THE AO HAS PROCEEDED TO R EOPEN THE ASSESSMENT U/S 148 OF THE ACT. HENCE THERE IS NO M ATERIAL TO SUGGEST THAT THE AO HAS REOPENED THE IMPUGNED ASSESSMENT ONLY ON THE BASIS OF AUDIT OBJECTIONS. BESIDES THE ABOVE THE RETURNS OF INCOME OF THE IMPUGNED ASSESSMENT YEARS HAD BEEN PROCESSED U/S 143 (1) AND AS NOTICED BY THE LD CIT (A) THE CASES UNDER CONSIDERATION ARE SQUARELY COVERED BY CLAUSE (B) OF EXPLANATION-2 TO SECTION 147, EXTRACTED ABOVE. IN V IEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE LD CIT (A ) HAS CORRECTLY UPHELD THE REOPENING OF THE ASSESSMENT AND ACCORDINGLY UPHOLD HIS VIEW ON THIS ISSUE. ITA NOS 313 TO 316 OF 2010 BOMMIDALA TOBACCO SERVICE S, GUNTUR PAGE 4 OF 5 5. THE NEXT ISSUE RELATES TO THE ASSESSABILITY OF R ENTAL INCOME RECEIVED ON LETTING OF GODOWNS. AS STATED EARLIER THE ASSESS EE OFFERED THE RENTAL INCOME RECEIVED BY IT UNDER THE HEAD BUSINESS; WH EREAS THE AO HAS ASSESSED THE SAME UNDER THE HEAD HOUSE PROPERTY. WE HAVE GONE THROUGH THE ORDER OF THE LD CIT (A) ON THIS ISSUE A ND WE EXTRACT BELOW THE OPERATIVE PORTION OF THE ORDER: 4.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT. THE GENERAL PRINCIPLES LAID DOWN BY THE JURISDICTIO NAL ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. PHABIOMAL & SONS (SUPRA) AND THE CASE OF CIT VS. VEERABHADRA INDUSTRI ES (240 ITR 5) ARE (I) A SINGLE ACT OF CONSTRUCTING A GOD OWN AND LETTING IT OUT CANNOT BE TREATED AS A BUSINESS. (II ) THE EXPRESSION BUSINESS CONTEMPLATES CONTINUOUS ACTIV ITY FROM YEAR TO YEAR. (III) LETTING OUT OF A PROPERTY DOES NOT ACCORD WITH THE GENERAL CONCEPT OF BUSINESS. (IV) LETTING OUT I S INCIDENTAL TO OWNERSHIP OF THE PROPERTY. 4.3 IT IS SEEN THAT IN THE CASE OF CIT VS. VEERABHA DRA INDUSTRIES ALSO, THE MAIN ACTIVITY OF THE ASSESSEE W AS TO LET OUT GODOWNS. IN SPITE OF THIS THE HIGH COURT HELD THAT THE INCOME FROM LETTING OUT IS TO BE ASSESSED AS INCOME FROM H OUSE PROPERTY AND CANNOT BE ASSESSED AS INCOME FROM BUSI NESS. IN THE APPELLANTS CASE, IT IS SEEN THAT THE APPELLANT CONSTRUCTED A GODOWN IN THE YEAR 1999 AND LET IT OUT FROM YEAR TO YEAR. THERE IS NO CONTINUOUS AND CONSCIOUS ACTIVITY OF CO NSTRUCTING NEW GODOWNS AND LETTING IT OUT. IN THE CASES RELIED UPON BY THE APPELLANT, THE ASSESSEE HAD LET OUT COMMERCIAL ASSETS WHEN THEY WERE LYING IDLE DUE TO A SLACK IN THE BUS INESS. THE LETTING OUT IN SUCH CASES WAS THUS PURELY TEMPORARY AND THE ASSETS WOULD AGAIN BE UTILIZED FOR THE ASSESSEES O WN BUSINESS ONCE THE BUSINESS ACTIVITY PICKED UP. 4.4. THE FACTS OF THE APPELLANTS CASE ARE DIFFEREN T, IN THAT, THE LETTING OUT IS NOT THE FALL OUT OF A BUSINESS SLOW DOWN. THE PRINCIPLES LAID DOWN BY THE AP HIGH COURT ARE SQUAR ELY APPLICABLE TO THE FACTS OF THE APPELLANTS CASE. I, THEREFORE, HOLD THAT THE INCOME EARNED FROM THE LETTING OUT OF THE GODOWN BY THE APPELLANT IS TO BE ASSESSED UNDER THE HEAD INCOME FROM PROPERTY AND NOT INCOME FROM BUSINESS . THE ASSESSING OFFICERS STAND IS UPHELD AND THE APPELLA NT GETS NO RELIEF. ITA NOS 313 TO 316 OF 2010 BOMMIDALA TOBACCO SERVICE S, GUNTUR PAGE 5 OF 5 5.1. ON A PERUSAL OF THE ORDER OF THE LD CIT (A), W E NOTICE THAT THE FIRST APPELLATE AUTHORITY HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE HAS LET OUT THE IMPUGNED GODOWNS IS NOT DUE TO THE FALL OUT OF THE BUSINESS SLOW DOWN, MEANING THEREBY THE ASSESSEE HAS TAKEN A CONS CIOUS DECISION TO LET OUT THE IMPUGNED GODOWNS WITH THE SPECIFIC PURPOSE OF EARNING RENTAL INCOME. HENCE WE DO NOT FIND ANY INFIRMITY IN HER D ECISION AND ACCORDINGLY UPHOLD THE SAME. 9. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE AR E DISMISSED. PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 16-11-2010 COPY TO 1 2 3 4 M/S. BOMMIDALA TOBACCO SERVICES D.NO.4-4-120, 5 TH LINE, CHANDRAMOULI NAGAR, GUNTUR-522 007 THE INCOME TAX OFFICER WARD-2(2) GUNTUR THE CIT (A) GUNTUR THE CIT, GUNTUR 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM