SUYASH HOLDING & ESTATE DEVELOPERS PRIVATE LIMITED, MUMBAI V. INCOME TAX OFFICER 8(2)(4), MUMBAI

ITA 341/MUM/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6903 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 15-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Notional interest; Tax effect
• Section: 14A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 341/ MUM/20 18 TO 344/MUM/2018 ( ASSESSMENT YEAR : 2009 - 10,2011 - 12, 2013 - 14 & 2014 - 15 ) M/S. SUYASH HOLDING & ESTATE DEVELOPERS PVT. LTD., 1076, DR. E. MOSES ROAD, WORLI NAKA, MUMBAI 400 218 VS. INCOME TAX OFFICER 8 (2)(4), AAYAKAR BHAVAN ROOM NO.618, 6 TH FLOOR M.K.ROAD, MUMBAI MAHARASHTRA 400 020 PAN/GIR NO. AABCS1983N APPELLANT ) .. RESPONDENT ) ASSESSEE B Y DR. K. SHIVRAM & MS. NEELAM C. JADHAV REVENUE BY MS. N. HEMALATHA DATE OF HEARING 06 / 06 /201 8 DATE OF PRONOUNCEMENT 20 / 06 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORD ER OF CIT(A) - 14, MUMBAI DATED 27/10/2017 FOR A.Y. 2009 - 10, 2011 - 12, 2013 - 14 & 2014 - 15 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. 2. COMMON GRIEVANCE OF ASSESSEE IN ALL THE YEARS PERTAINS TO TREATMENT OF INCOME OFFERED UNDER THE HEAD BUSINESS AND PROFESSION AS INCOME FROM HOUSE PROPERTY. ITA NO. 341 - 344/MUM/2018 M/S. SIYASH HOLDING & ESTATE DEVELOPERS PVT. LTD., 2 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. RENTAL INCOME OFFERED BY ASSESSEE UNDER THE HEAD OF BUSINESS AND PROFESSION WAS DECLINED BY THE AO AND TREATED AS INCOME FROM HOUSE PR OPERTY AFTER HAVING THE FOLLOWING OBSERVATION: - 2. THE ASSESSEE HAD PURCHASED AN IMMOVABLE PROPERTY (FLAT) ADMEASURING ABOUT 1342 SQ.FT. ON THE BUILDING KNOWN AS VENUS APARTMENTS SITUATED AT 87, CUFFE PARADE, MUMBAI - 400 005,IN 1997 - 98 FOR A TOTAL CONSIDERATION OF RS.3,53,24,387/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE ASSESSEE'S OWN CASE FOR A.Y. 2012 - 13, IT WAS OBSERVED THAT ASSESSEE COMPANY HAD LET OUT THE SAID FLAT TO ITS DIRECTOR SHRI. VIPIN KUMAR JAIN AT A FIXED MO NTHLY RENT; OF RS.25,000/ - P.M. IN THE YEAR 1998 AND HAD TAKEN SECURITY DEPOSIT OF RS.70,00,000/ - FROM HIM. THE DIRECTOR OF THE ASSESSEE COMPANY SHRI VIPIN KUMAR JAIN CONTINUOUSLY RESIDES IN THE SAID FLAT AT A FIXED MONTHLY RENTAL INCOME OF RS. 25,000/ - P.R N. THE ASSESSEE COMPANY HAD OFFERED THIS RENTAL INCOME AS BUSINESS INCOME RATHER THAN INCOME FROM HOUSE PROPERTY. OTHER THAN THIS RENTAL INCOME OF RS. 3,00,000/ - , THE ASSESSEE HAS NOT RECEIVED ANY INCOME FROM BUSINESS DURING THE SAID YEAR. ON BEING A SKED, THE ASSESSEE HAS STATED THAT PREVAILING MARKET RENT OF THE FLAT WAS RS. 1,00,000/ - TO RS. 1.,25,000/ - . THEREFORE, AFTER CONSIDERING ALL THE SUBMISSIONS FILED BY THE ASSESSEE AND AFTER DISCUSSING THE FACTS OF THE CASE IN DETAIL, THE A.O. HAS PASSED THE ASSESSMENT ORDER FOR A.Y. 2012 - 13 TREATING THE SAID RENTAL INCOME AS INCOME FROM HOUSE PROPERTY. THE A.O. HAS ADOPTED THE PREVAILING FAIR MARKET RENTAL VALUE @RS.1,50,000/ - P.M. FOR THE SAID FLAT AND ALSO GIVEN THE BENEFIT OF DEEMED IN TEREST ON THE SECURITY DEPOSIT RECEIVED BY THE ASSESSEE. THE A.O. HAD ALSO MADE ADDITIONS OF BUSINESS EXPENSES OF RS.80,426/ - AND DISALLOWANCE U/S. 14A R.W.RULE 8D IN THE SAID ORDER. 3. DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR, THE ASSESSEE HAS RECEIVED THE SAME FIXED RENT OF RS.25,000/ - P.M. AS RENT WITHOUT ADOPTING THE FAIR MARKET RENTAL VALUE FO R THE SAID FLAT; IN VIEW O F THE ABOVE, THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WAS REOPENED TO ASSESS THE ESC APED INCOME. 4. IN RESPONSE TO THE NOTICES ISSUED DURING THE SCRUTINY PROCEEDINGS, THE AUTHORIZED REPRESENTATIVE OF THE ITA NO. 341 - 344/MUM/2018 M/S. SIYASH HOLDING & ESTATE DEVELOPERS PVT. LTD., 3 ASSESSEE COMPANY . SMT. PRIYA R MEHTA, FROM M/S. D.V. DALAI 65 CO., CHARTERED ACCOUNTANTS ATTENDED FROM TIME TO TIME AND FILED SUBMISSIONS AS CALLED FOR. 5. THE ASSESSEE COMPANY HAD CLAIMED TO BE IN THE BUSINESS OF BUILDERS AND DEVELOPERS. HOWEVER, AS NOTICED IN THE EARLIER YEARS , AND SUCCEEDING YEARS, THE ASSESSEE NEITHER CARRIED ON ANY BUSINESS ACT IVITY NOR OFFERED ANY OTHER BUSINESS INCOME EXCEPT THE RENTAL INCOME FROM THE ABOVE SAID PROPERTY. THE BALANCE SHEET OF THE ASSESSEE AS ON 31 ST MARCH, 2009 IS REPRODUCED AS UNDER: PARTICULARS AMOUNT IN RS. SHAREHOLDER'S FUNDS: SHARE CAPITAL 1,05,0 20 SHARE APPLICATION MONEY 2,00,00,000 RESERVES & SURPLUS 85,48,273 UNSECURED LOANS 1,82,27,455 DEPOSIT RECEIVED AGAINST PREMISES 70,00,000 TOTAL OF LIABZLITEIS 5,33,80,748 APPLICATION OF FUNDS FIXED ASSETS PREMISES 3,53,24,387 INVESTMENT 10,33,937 CURRENT ASSETS, LOANS & ADVANCES; SUNDRY DEBTORS 5,79,215 LOANS, ADVANCES AND DEPOSITS 13,22,170 ITA NO. 341 - 344/MUM/2018 M/S. SIYASH HOLDING & ESTATE DEVELOPERS PVT. LTD., 4 CASH AND HANK BALANCE 3,77,496 LESS: CURRENT LIABILITIES AND PROVISIONS 22,78,881 1,39,873 NET CURRENT ASSETS 21, 39,008 PROFIT AND LOSS ACCOUNT 1,53,83,416 TOTAL OF ASSETS 5,38,80,748 5.1. ON PERUSAL OF THE ABOVE BALANCE SHEET OF THE ASSESSEE, IT IS SEEN THAT THE ASSESS E E HAS INVESTED ALL ITS FUNDS INCLUDING THE FUNDS BROUGHT ON INTEREST IN A SINGLE PREMIS ES(I.E., FLAT) AND ONLY MINISCULE AMOUNT OF FUNDS INVESTED IN OTHER INVESTMENT OPTIONS. SINCE, THE RENTAL INCOME IS AN INCOME FROM HOUSE PROPERTY, VIDE SHOW CAUSE NOTICE ISSUED DT.25.11.2016, THE ASSESSEE WAS ASKED TO EXPLAIN 'WHY THE RENTAL INCOME RECEI VED BY IT SHOULD NOT BE COMPUTED UNDER THE HEAD INCOME FROM HOUSE PROPERTY'. IN RESPONSE TO THE SAME, THE REPRESENTATIVE OF THE ASSESSEE COMPANY VIDE HIS LETTER DT. 28.11.2016 HAS STATED THAT IT IS ONE OF THE MAIN OBJECTIVES OF THE ASSE SSEE COMPANY TO LEASE THE HOUSE PROPERTIES AND HENCE RENTAL INCOME RECEIVED IS TREATED AS BUSINESS INCOME. IT IS FURTHER STATED THAT 'THE HON'BLE SUPREME COURT IN THE CASE OF M/S. CHENNAI PROPERTIES VS INVESTMENTS LTD VS CIT - CENTRAL - III (CIVIL APPEAL NO.4494 OF 2004) HAD RECENTLY ALLOWED THE APPEAL OF THE ASSESSEE WITH REGARD TO LETTING OUT OF HOUSE PROPERTY AS ITS BUSINESS ACTIVITY AND ALLOWING THE INCOME TO BE TREATED AS INCOME FROM BUSINESS AND PROFESSION AS AGAINST THE TREATMENT BY A. O. AS INCOME FROM HOUSE PROPERTY.' THE ASSESSEE HAS ALSO RELIED ON THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF RAYALA CORPORATION (P.) LTD (APPEAL NO. 6437 TO 6441 OF 2016 DATED. AUGUST 11,2016) STATING THAT AS PER THE SAID DECISION 'EVEN IF THE ASSESSEE HAS SINGLE PROPERTY, THE INCOME HAS TO BE TREATED UNDER THE BUSINESS INCOME'. 5.2. THE ABOVE EXPLANATION SUBMITTED BY THE REPRESENTATIVE OF THE ASSESSE E IS CONSIDERED. THE EXPLANATION COULD NOT BE ACCEPTED IN VIEW OF THE FOL LOWING FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO. 341 - 344/MUM/2018 M/S. SIYASH HOLDING & ESTATE DEVELOPERS PVT. LTD., 5 (I) THE ASSESS E E HAS RELIED ON DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES 85 INVESTMENTS LTD ., CHENNAI VS CIT (CIVIL APPEAL NOS. 4491 - 4494 OF 2004) AND RAYALA CORPORATION PVT. LTD. VS, ACIT(CIVIL APPEAL NO.6437: : OF 2016). ON PERUSAL OF THE DECISION IN THE CASE OF ROYALS, CORPORATION IT IS SEEN THAT THE ASSESS E E IS IN THE BUSINESS 'PF RENTING ITS PROPERTIES AND IS RECEIVING RENT AS ITS BUSINESS INCOME AND SHOWN IT UNDER THE HEAD INCOME FROM BUSINESS . WHILE DECIDING THE APPEAL THE HON'BLE SUPREME COURT HAS RELIED SQUARELY ON THE DECISION IN THE CASE OF. CHENNAI PROPERTIES AND INVESTMENT LTD. (II) WHILE DECIDING THE APPEAL BY THE HON'BLE SUPREME COURT IN THE CASE OF CHENNAI P ROPERTIES & INVESTMENTS LTD., IT CONCLUDED THAT 'MERELY AN OBJECT CLAUSE SHOWING A PARTICULAR OBJECT WOULD NOT BE THE DETERMINATIVE FACTOR TO ARRIVE AT AN CONCLUSION WHETHER THE INCOME IS TO BE TREATED AS INCOME FORM BUSINESS AND SUCH A QUESTION WOULD DEPE ND UPON THE CIRCUMSTANCES OF EACH CASE I.E., WHETHER A PARTICULAR BUSINESS IS LETTING OR NOT'. FURTHER IT IS POINTED OUT BY THE HON'BLE SUPREME COURT THAT '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. A COMMERCIAL ASSET IS ONLY AN ASSET USED IN A BUSINESS AND NOTHING ELSE, AND BUSINESS MAY BE CARRIED ON WHICH PRACTICALLY ALL THINGS. IN THE CIRCUMSTANCES OF THE PRESENT CASE FROM WH ICH WE ARRIVE AT IRRESISTIBLE CONCLUSION THAT IN THIS CASE, LETTING OF THE PROPERTIES IS IN FACT IS THE BUSINESS OF THE ASSESSEE. ' FROM THE ABOVE CONCLUSION OF THE HON'BLE SUPREME COURT IT IS CRYSTAL CLEAR THAT BY JUST HAVING A WORD IN ITS OBJECT CLAUSE IS ITSELF NOT SUFFICIENT BUT IT SHOULD BE SUPPORTED BY THE CIRCUMSTANCES O F EACH CASE. 5.3. THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE .. ARE COMPLETELY DIFFERENT FROM THE ABOVE MENTIONED CASES ON WHICH THE DECISIONS WERE GIVEN BY THE HON'BLE SUPREME COURT. IN THE PRESENT CASE, THE ASSESS E E HAS INVESTED ALMOST ALL ITS RESOURCES LIKE SHARE , CAPITAL, RESERVES AND SURPLUS AND UNSECURED LOANS TO INVEST IN - A SINGLE RESIDENTIAL FLAT AMOUNTING TO RS. 3.53 CRORES(APPROX..J AND HO OTHER RESOURCES WERE LEFT W ITH THE COMPANY TO DO A BUSINESS OR INVEST IN ANY OTHER AVENUES. ONL Y A MINISCULE AMOUNT OF RS. 10 (LA CS APPROX..) WAS GIVEN BY COMPANY AS LOANS AND ADVANCES, RS. 10 LACS(APPROX.) INVESTED IN SHARES AND AN AMOUNT OF RS. 13 LACS(APPROX.. ) WAS ITA NO. 341 - 344/MUM/2018 M/S. SIYASH HOLDING & ESTATE DEVELOPERS PVT. LTD., 6 LEFT AS BANK BALANCES. THE COMPANY IS NOT DOING ANY SORT OF BUSINESS FROM MANY YEARS. THE INVESTMENT IN FLAT ,IS SHOWN AS ASSET OF THE COMPANY AND NOT AS STOCK IN TRADE. THE SAID FLAT PURCHASED BY THE ASSESS E E AFTER INVESTING ALL ITS FUNDS HAS BE E N GIVEN TO ITS DIRECTOR ON A FIXED RENT OF RS. 25,000/ - P.M FROM T H E YEAR 1998 TO TILL DATE WITHOUT CITING ANY REASON FOR NOT INCREASING THE RENT. IN SUPPORT, THE COPY OF THE RENT AGREEMENT DTD. 31.03.1,908 HAS BEEN SUBMITTED BY THE ASSESS E E STATING THAT T HE SAID FLAT IS GIVEN ON RENT FOR A PERIOD OF ONE YEAR FOR A RENT OF RS. 25,000/ - P.M AND IN CASE THE AGREEMENT IS TO BE EXTENDED THEN THE RENT OF RS. 30, 000/ - P.M IS TO BE PAID AFTER ONE YEAR. THE AGREEMENT WAS ALSO NOT REGISTERED AND IT IS MADE ON A STAMP PAPER. FURTHER, SUPPLEMENTARY AGREEMENT DTD. 05.04.1999 IS PREPARED IT IS AGREED TO RENEW THE AGREEMENT FOR FURTHER PERIOD OF FIVE YEARS AT THE SAME FIXED RATE OF RS. 25,000/ - P.M WITHOUT CITING ANY REASONS. LEASE AGREEMENT WAS NOT SUBMITTED FOR THE FURTHER PERIOD. 5.4. AT THIS JUNCTURE, THE ISSUE THAT ARISES FOR A CONSIDERATION IS AS TO WHETHER THE INCOME OFFERED BY THE ASSESSEE UNDER THE HEAD 'BUSINESS AND PROFESSION' IS CORRECT, OR AS TO WHETHER THE INCOME' NEEDS TO BE AS SESSED UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. 5.5. IN ORDER TO COME TO A CONCLUSION ABOUT THE CORRECT HEAD OF INCOME UNDER WHICH HEAD THE RECEIPT IS TAXABLE, IT WOULD BE NECESSARY TO RUN THROUGH THE RELEVANT PROVISIONS OF THE INCOME TAX ACT, MORE SP ECIFICALLY SECTION 14, WHICH DEALS WITH THE HEADS OF INCOME AND THE CHAPTER IV -