The ITO, Ward-7(2), Surat V. M/s. Karp manufacturing Co., Surat

ITA 3251/AHD/2007

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80521 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 14-11-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 02-08-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Assessee Lawyers: RASESH SHAH
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 325 1 / AHD/ 20 07 (A SSESSMENT YEAR: 2004 - 05) INCOME - TAX OFFICER, WARD - 7(2), SURAT V/S M/S. KARP MANUFACTURING CO., 66, SHANTA BHAWAN, LALDARWAJA, SURAT. (APPELL ANT) (RESPONDENT) PAN: AAEFK5003Q APPELLANT BY : SHRI ROOP CHAND, SR. D.R. RESPONDENT BY : SHRI RASESH SHAH, A.R. ( )/ ORDER DATE OF HEARING : 14 - 11 - 2014 DATE OF PRONOUNCEMENT : 21 - 11 - 2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - IV, SURAT DATED 28.05.2007 FOR A.Y. 2004 - 05. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A PARTNERSHIP FIRM STATED TO HAVE BEEN NEWLY ESTABLISHED AND ENGAGED IN THE BUSINESS OF MANUFACTURING AND IMPORT AND EXPORT OF DIAMONDS. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 04 - 05 ON 31.10.2004 DECLARING TOTAL INCOME OF RS. 37,76 0/ - . THE CASE WAS SELECTED FOR S CRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SE CTION 143(3) VIDE ORDER DATED 29.12.2006 AND ITA NO 3251/AHD/2007 . A.Y. 2004 - 05 2 THE TOTA L INCOME WAS DETERMINED AT RS. 53,77,580/ - . AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO VIDE ORDER DATED 28.05.2 007 GRANTED PARTIAL RELIEF TO THE ASSESSEE . AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), REVENUE PREFERRED APPEAL BEFORE HON BLE TRIBUNAL WHO VIDE ORDER DATED 12.02.2010 GRANTED PARTIAL RELIEF TO REVENUE. AGGRIEVED BY THE AFORESAID ORDER OF TRIBUNAL, THE MA TTER WAS CARRIED BY THE REVENUE BEFORE HON BLE GUJARAT HIGH COURT , WHERE THE HON BLE HIGH COURT IN TAX APPEAL NO. 1689/AHD/2010 ORDER DATED 09.01.2012 AT PARA NO. 3 HELD AS UNDER: - 3. COUNSEL FOR THE REVENUE SUBMITTED THAT THE TRIBUNAL'S OBSERVATIONS ARE B ASED ON THE PREMISE THAT THE ASSESSEE RECEIVED INTEREST FREE DEPOSIT OF RS.5 CRORES. HOWEVER, THE SAME IS NOT BORNE OUT FROM THE RECORD. IF THAT BE SO, IT WOULD BE OPEN FOR THE REVENUE TO APPROACH THE TRIBUNAL BY FILING A RECTIFICATION APPLICATION, WHICH M AY BE DECIDED IN ACCORDANCE WITH LAW, IT SO FILED. 4. PURSUANT TO THE ORDER OF HIGH COURT DATED 9.01.2012, REVENUE MOVED AN M.A WHEREBY IN M.A. NO. 51/AHD/2012 (ORDER DATED 28.06.2013) THE ORDER DATED 12.02.2010 PASSED BY THE TRIBUNAL WAS RECALLED TO DECIDE THE ISSUE WITH RESPECT TO ADDITION ON ACCOUNT OF INCOME FROM HOUSE PROPERTY AND THUS THE REVENUE IS NOW IN APPEAL BEFORE US. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE HAD GIVEN BUILDING PREMISES , NAMELY KRISHNA DIVISION , TO KARP IMPEX LTD A SISTER CONCERN OF ASSSESSEE, ON A MONTHLY RENT OF RS. 9,000/ - PER MONTH FOR 4 MONTHS AND AS PER THE CERTIFICATE OF THE ARCHITECT , THE BUILT UP AREA OF WAS 66966.71SQ. FT. AND THE ASSESSEE S PREMISES WAS LOCATED IN THE PRIME LOCATION. A.O WAS THEREFORE OF THE VIEW THAT RENT CHARGED BY THE ASSESSEE TO ITS SISTER CONCERN AND OFFERED UNDER THE HEAD INCOME FROM HOUSE PROPERTY WAS LOW. THE ASSESSEE S SUBMISSION THAT THE RENT OF RS. 9,000/ - WAS BECAUSE THE LICENSEE WAS SUPPOSED TO GIVE INTERES T FREE DEPOSIT OF 5 CRORE TO THE ASSESSEE WAS NOT FOUND ACC EPTABLE TO THE A.O. HE THEREAFTER CONSIDERING THE STANDARD RENT TO BE AT RS. 18.45 PER SQ. FT. PER MONTH , WORKED OUT THE STANDARD RENT OF THE PROPERTY AT RS. 12,35,183/ - AND THUS WORKED OUT THE TOT AL RENTAL INCOME AT RS. 49, 40,732/ - (12,35,183X 4 MONTHS ) . AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO DELETED THE ADDITION BY HOLDING AS UNDER: - ITA NO 3251/AHD/2007 . A.Y. 2004 - 05 3 I HAVE CONSIDERED THE SUBMISSIONS AND FIND THAT THE APPELLANT I S RUNNING ITS OWN BUSINESS OF M ANUFACTURE OF POLISHED DIAMONDS FROM RAW DIAMONDS AND THE TOTAL TURN OVER OF THE APPELLANT FROM ITS OWN ACTIVITIES DURING THE YEAR WAS MORE THAN RS.30 CRORES. THE APPELLANT HAS CONSTRUCTED A FACTORY BUILDING AND EQUIPPED IT WI TH PLANT & MACHINERY AND HAS GIVEN IT ON RENT TO ITS SISTER CONCERN. THIS IS A CASE OF LETTING OUT A BUSINESS ASSET AND IS CLEARLY EXPLOITING THE BUSINESS ASSETS OTHERWISE THAN EMPLOYING THIS FOR HIS OWN USE FOR MAKING PROFIT FOR THEIR BUSINESS. THE APPELL ANT S REGULAR BUSINESS CONTINUES AND THEREFORE IN VIEW OF HON BLE SUPREME COURT S DECISION IN THE CASE OF UNIVERSAL PLAST (SUPRA), THE RENTAL INCOME WOULD PARTAKE THE CHARACTER OF INCOME FROM BUSINESS. NOW THE ONLY QUESTION WOULD BE THE QUANTUM OF INCOME W HICH IS BEING DERIVED FROM THE SAID PROPERTY. SINCE THE INC O ME IS HELD TO BE INCOME FROM BUSINESS, THERE IS N O JUSTIFICATION OF ADOPTING A NOTIONAL VALUE FOR RENT WHICH WOULD HAVE BEEN RECEIVED BY THE APPELLANT FOR LETTING OUT THE SAID PROPERTY. IT IS ONLY THE REAL INCOME WHICH CAN BE TAXED AND NOT THE NOTIONAL INCOME UNDER THE HEAD BUSINESS & PROFESSION . FURTHER, IT IS ALSO SEEN THAT THE APPELLANT RECEIVED A INTEREST FREE DEPOSIT OF RS.5 CRORES FROM THE SISTER CONCERN IN THE MONTH OF APRIL/MAY AFTER LET TING THE PROPERTY OUT FOR A PERIOD OF FO UR MONTHS IN THE CURRENT YEAR, B UT DURING THE CURRENT YEAR ALSO INTEREST FREE LOANS FROM THE SISTER CONCERN WAS OF THE TUNE OF RS.5.33 CRORES, THE INTEREST ON WHICH WOULD BE MORE THAN RS.5 LACS WHICH WOULD HAVE BEEN SAVED BY THE APPELLANT. THEREFORE, THE RENT, CHARGED BY THE APPELLANT SHOULD NOT BE CONSIDERED ON LOWER SIDE MUNICIPAL VALUE OF THE PROPERTY IS ONLY FOR ESTIMATING THE ANNUAL LETTING VALUE FOR COMPUTING INCOME FROM HOUSE PROPERTY AND CANNOT FORM THE BASIS FOR DETERMINING INCOME FROM BUSINESS. FURTHER, THE COMPARISON OF RENT PAID BY THE STATE BANK OF INDIA SITUATED IN THE SAME LOCALITY IS ALSO WITHOUT JUSTIFICATION FOR THE VARIOUS REASONS CITED BY THE APPELLANT. THEREFORE, ADDITION MADE ON ACCOUNT OF RENTAL INCOME AND TREATING THE SAME AS INCOME FROM HOUSE PROPERTY IS NOT SUSTAINABLE AND IS DIRECTED TO BE DELETED. 6. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O AND FURTHER SUBMITTED THAT BEFORE A.O, ASSESSEE HAS SUBMITTED THAT ASSESSEE WAS SUPPOSED TO RECEIV E INTEREST FREE DEPOSIT OF RS. 5 CRORE BUT ON THE OTHER HAND LD. CIT(A) HAS NOTED THAT ASSESSEE HA D RECEIVED INTEREST FREE LOAN OF RS. 5 CRORE AND THUS THERE WAS CONTRADICTION BETWEEN BOTH THE STATEMENTS. HE FURTHER SUBMITTED THAT ASSESSEE HAS NOT PRODUCED ANY MATERIAL WHICH COULD DEMONSTRATE THE RECEIPT OF INTEREST FREE LOAN AND THE T ERMS AND CONDITIONS ON WHICH IT WAS RECEIVED . HE FURTHER SUBMITTED THE BASIS OF CONCLUSION OF LD. CIT(A) ABOUT RECEIPT OF INTEREST FREE LOAN IS NOT DISCERNABLE FROM THE ORDER. HE THEREFORE SUBMITTED THAT THE A.O WAS JUSTIFIED IN MAKING THE ADDITION AND SUPPO RTED THE ORDER OF A.O. ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE WAS IN RECEIPT OF INTEREST FREE UNSECURED LOAN OF RS. 5,33,05,000/ - . HE THEREFORE SUBMITTED THAT THE ORDER OF CIT(A) AND TRIBUNAL BE UPHELD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD, W E FIND THAT BEFORE THE A.O, THE SUBMISSION OF THE ASSESSEE ( WHICH HAS BE EN REPRODUCED AT PAGE 7 OF HIS ORDER ) WAS THAT THE LICENSEE WAS SUPPOSED TO GIVE INTEREST FREE ITA NO 3251/AHD/2007 . A.Y. 2004 - 05 4 DEPOSIT OF RS. 5 CRORE TO THE ASSESSEE BUT ON THE OTHER HAND CIT(A) HAS DELETED THE ADDITION FOR THE REASON THAT THE ASSESSEE HAD RECEIVED INTEREST FREE LOANS FR OM ASSESSEE. BEFORE US, ALSO LD. A.R. HAS SUBMITTED THAT ASSESSEE HAS RECEIVED INTEREST FREE LOANS BUT NO MATERIAL HAS BEEN PLACED ON RECORD ABOUT THE TERMS AND CONDITIONS STIPULATED FOR THE RECEIPT OF INTEREST FREE LOANS. FURTHER THERE IS CONTRADICTION IN THE FACTS AS NOTED BY A.O (THAT ASSESSEE WAS TO RECEIVE INTEREST FREE DEP OSITS) AND AS NOTED BY CIT (THAT ASSESSEE HAS RECEIVED INTEREST FREE LOANS). W E ARE THEREFORE OF THE VIEW THAT THE CORRECT FACTUAL ASPECT NEEDS VERIFICATION AT THE LEVEL OF A.O. WE T HEREFORE REMIT THE ISSUE BACK TO THE FILE OF A.O AND DIRECT HIM TO RECORD A FACTUAL FINDING AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AND MORE SO IN THE LIGHT OF THE OBSERVATION BY THE HIGH COURT IN TAX APPEAL NO. 1689/AHD/2010 . NEEDLESS TO ST ATE, A.O SHALL ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THIS GROUND OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 21 - 11 - 201 4 . SD/ - SD/ - (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE A PPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD