M/S PROLIFIC CONSULTANCY SERVICES (MUMBAI) PRIVATE LIMITED, MUMBAI V. INCOME TAX OFFICER 10(3)(4), MUMBAI

ITA 3489/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1266 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 22-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Unabsorbed depreciation
• Section: 201; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (V I RTUAL COURT) , C BENCH MUMBAI BEFORE SHRI M.BALAGANESH, AM & SHRI RAVISH SOOD , JM ITA NO. 3489 /MUM/ 20 19 ( ASSESSMENT YEAR : 201 4 - 1 5 ) & ITA NO. 3490 /MUM/ 2019 ( ASSESSMENT YEAR : 2013 - 14 ) M/S. P ROLIFIC CONSULTANCY SERVICES (MUMBAI) PVT. LTD., NOW PROLIFIC VENTURES PVT. LTD., 1, WILSON HOUSE, NAGARDAS ROAD, ANDHERI (E), MUMBAI 400 069 VS. INCOME TAX OFFICER 10(3) - 4, MUMBAI OFFICE OF ITO - 10(3)(4) ROOM NO.554, 5 TH FLOOR AAYAKAR BHAVAN M.K.ROAD, MUMBAI - 20 PAN/GIR NO. AACCP5402E (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI ASHOK BANSAL REVENUE BY MS. SHREEKALA PARDESHI DATE OF HEARING 10 / 12 /2020 DATE OF PRONOUNCEMENT 16/12 /2020 / O R D E R PER M. BALAGANESH ( A.M) : THE S E APPEAL S IN ITA NO. 3489/MUM/2019 AND 3490/MUM/2019 FOR A.Y. 2013 - 14 & 2014 - 15 RESPECTIVELY ARISE OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 17, MUMBAI IN APPEAL NO. CIT(A) - ITA NO . 3489 & 3490/MUM/2019 M/S. PROLIFIC CONSULTANCY SERVICES (MUMBAI) P. LTD., 2 17/IT - 410/10350/16 - 17 & APPEAL NO.CIT(A) - 17/IT - 41 1(10686/16 - 17 DATED 25/03/2019 (LD. CIT(A) IN SHORT) AGAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 14/03/2016 & 29/07/2016 RESPECTIVELY BY THE LD. ITO, WARD 10(3) - 4, MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). 2. AS IDENTICAL ISSUES ARE INVOLVED IN THESE APPEALS, THEY ARE TAKEN TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. WITH THE CONSENT OF BOTH T HE PARTIES, THE APPEAL FOR THE ASST YEAR 2013 - 14 IS TAKEN AS THE LEAD CASE AND THE DECISION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE FOR ASST YEAR 2014 - 15 ALSO EXCEPT WITH VARIANCE IN FIGURES. 3. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE DISALLO WANCE OF BUSINESS LOSS AND DEPRECIATION LOSS TOTALLING TO RS 33,91,561/ - AND CONSEQUENTLY DENYING THE SET OFF OF THE SAME WITH THE HOUSE PROPERTY INCOME IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ACQUIRING PROPERTY ON LEASE AND SUB - LEASING THE PROPERTY. WE FIND THAT THE ASSESSEE HAD TAKEN A PROPERTY NAMED WILSON HOSUE ON LEASE FROM VIMLA D WARKADAS SANGHVI. THE LEASE AGREEMENT IN THIS CASE WAS SIGNED ON 25.2.2002 FOR LEASE RENT OF RS 1,80,000/ - . THE BUILDING CONSISTED OF GROUND FLOOR AND GIVE UPPER FLOORS MEASURING 18150 SQ.FT. THE ASSESSEE COMPANY ENTERED INTO SERVICE AGREEMENT WITH HBL G LOBAL PVT LTD AND SUB - LET PART OF THE PREMISES TO HBL GLOBAL PVT LTD AND WAS ALSO USING SPECIFIC FLOOR OF THE PREMISES FOR ITA NO . 3489 & 3490/MUM/2019 M/S. PROLIFIC CONSULTANCY SERVICES (MUMBAI) P. LTD., 3 THE PURPOSE OF ITS OWN BUSINESS. FOLLOWING THE JUDGEMENT IN ASSESSEES OWN CASE IN EARLIER YEARS, WHEN INCOME FROM SUB - LEASE OF PROP ERTY WAS TO BE TAXED UNDER INCOME FROM HOUSE PROPERTY, THE ASSESSEE COMPANY HAD OFFERED THE SAME UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN THIS YEAR ALSO. WE FIND THAT THE SAID SUB - LEASING RENTAL INCOME WAS DULY CREDITED IN THE PROFIT AND LOSS ACCOUN T OF THE ASSESSEE. WE FIND THAT THE ASSESSEE HAD FILED ITS COMPUTATION OF INCOME AS UNDER: - IMCOME FROM HOUSE PROPERTY 5292906 LET OUT NAME OF TENANT : HDB FINANCE ADDRESS : HDB FINANCE, MUMBAI, MAHARASHTRA ANNUAL VALUE 1380000 LESS: STANDAR D DEDUCTION U/S 24(A) - 414000 TAXABLE INCOME FROM HOUSE PROPERTY 966000 ====== LET OUT NAME OF TENANT : HBL GLOBAL ADDRESS : A WING, KAMALA MILL COMPOUND TRADE WORLD, BEASEMENT, SENAPAT I BAPAT MARG, LOWER PAREL, MUMBAI, MAHARASHTRA AN NUAL RENT 6848175 LESS: HOUSE TAX - 831659 ANNUAL VALUE 6016516 ANNUAL VALUE 6016516 LESS: STANDARD DEDUCTION U/S 24(A) - 1804955 T AXABLE INCOME FROM HOUSE PROPERTY 4211561 ADD: UNREALISED RENT RECOVERD 115345__ 4326906 ======= PROFITS AND GAINS FROM BUSINESS AND PROFESSION INCOME FROM OTHER ACTIVITIES PROFIT BEFORE TAX AS PER PROFIT AND LOSS ACCOUNT 1760911 ADD : DEPRECIATION DISALLOWED 961585 DIS ALLOWED U/S 37 2945410 DISALLOWED U/S 40A 75000 ___ 3981995 5742906 LESS: HOUSE PROPERTY INCOME 8228175 ALLOWED DEPRECIATION 906292__ - 9134467 - 3391561 ITA NO . 3489 & 3490/MUM/2019 M/S. PROLIFIC CONSULTANCY SERVICES (MUMBAI) P. LTD., 4 OUT OF LOSS OF RS. 3391561, UNABSORBED DEPR ECIATION IS RS. 906292 & BUSINESS LOSS IS RS. 2485269. INTER - HEAD ADJUSTMENT OF LOSSES U/S.71 BUSINESS LOSS SET OFF FROM HOUSE PROPERTY INCOME RS. - 2485269 UNABSORBED DEPRECIATION SET OFF FROM: HOUSE PROPERTY INCOME - 906292 GROSS TOTAL INCOME 1901345 TOTAL INCOME 1901345 TOTAL INCOME ROUNDED OFF U/S.288A 1901350 5. FROM THE ABOVE, IT COULD BE SEEN THAT THE ASSESSEE HAD ARRIVED AT THE LOSS UNDER THE HEAD INCOME FROM BUSINESS DUE TO REDUCTION OF RENTAL INCOME OF RS 82,28,175/ - F ROM BUSINESS INCOME AS THE SAME HAD BEEN OFFERED SEPARATELY TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. APART FROM THIS, THE ASSESSEE HAD ALSO INCURRED CERTAIN REGULAR AND STATUTORY BUSINESS EXPENSES WHICH ARE MANDATORILY TO BE INCURRED FOR MAINT AINING ITS CORPORATE IDENTITY AND WHICH ARE ROUTINE IN NATURE. WE FIND THAT THE ASSESSEE HAD PLEADED THAT ITS BUSINESS WAS TAKING PROPERTY ON LEASE AND SUB - LEASING THE SAME AND DERIVE RENTAL INCOME THEREON. THERE IS ABSOLUTELY NO DISPUTE ABOUT THE NATUR E OF BUSINESS STATED IN THE RETURN OF INCOME OF THE ASSESSEE. INFACT WE FIND THAT THE LD AO IN THE FRONT PAGE OF THE ASSESSMENT ORDER HAD CATEGORICALLY STATED ASSESSEES NATURE OF BUSINESS TO BE ACQUIRING PROPERTY ON LEASE AND SUB - LEASING THE PROPERTY ( EMPHASIS SUPPLIED BY US) . THE RENTAL INCOME DERIVED OUT OF SUB - LEASING ACTIVITY MAY GET TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS PER CERTAIN PROVISIONS OF THE ACT AND JUDICIAL PRECEDENTS. BUT IT CANNOT BE DENIED THAT THE ASSESSEE HAD INDEED CARRIED ON ITS BUSINESS OF SUB - LEASING THE PROPERTY. HENCE IT HAS TO MANDATORILY INCUR CERTAIN BUSINESS EXPENDITURE TO MAINTAIN ITS CORPORATE IDENTITY, WHICH WOULD IN ANY CASE, BE ALLOWABLE AS DEDUCTION. ONCE THESE EXPENSES ARE DEBITED IN PROFIT AND LO SS ACCOUNT, IT WOULD ONLY ITA NO . 3489 & 3490/MUM/2019 M/S. PROLIFIC CONSULTANCY SERVICES (MUMBAI) P. LTD., 5 RESULT IN BUSINESS LOSS WHICH HAD TO BE MANDATORILY SET OFF AGAINST THE HOUSE PROPERTY INCOME. WE FIND THAT THE TOTAL LOSS OF RS 33,91,561/ - COMPRISED OF DEPRECIATION LOSS OF RS 9,06,292/ - AND BUSINESS LOSS OF RS 24,85,269/ - . I N THE INSTANT APPEALS BEFORE US, THERE IS NO DISPUTE AS TO UNDER WHICH HEAD THE RENTAL INCOME IS TO BE TAXED. THE SHORT DISPUTE IS WHETHER THE ROUTINE AND MANDATORY EXPENSES INCURRED BY THE ASSESSEE FOR MAINTAINING ITS CORPORATE IDENTITY WOULD BE ELIGIBLE AS REGULAR BUSINESS LOSS AND CONSEQUENTIAL SET OFF OF THE SAME WITH HOUSE PROPERTY INCOME. WE HOLD THAT THE ASSESSEE HAD TO INCUR CERTAIN MANDATORY EXPENSES TO MAINTAIN ITS CORPORATE IDENTITY AND THE SAME HAD TO BE INCURRED IRRESPECTIVE OF THE FACT WHETH ER IT IS HAVING ANY BUSINESS INCOME OR NOT. HENCE THE SAID EXPENSES WOULD BE SQUARELY ALLOWABLE AS DEDUCTION FOR A COMPANY. CONSEQUENTLY THE ASSESSEE WOULD BE ELIGIBLE FOR SET OFF OF THE SAME WITH THE HOUSE PROPERTY INCOME. ACCORDINGLY, THE GROUND RA ISED BY THE ASSESSEE IS ALLOWED. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON 16 / 12 /2020 BY WAY OF PROPER MENTIONING IN THE NOTICE BOARD. SD/ - ( RAVISH SOOD ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 16 / 12 / 2020 KARUNA , SR.PS ITA NO . 3489 & 3490/MUM/2019 M/S. PROLIFIC CONSULTANCY SERVICES (MUMBAI) P. LTD., 6 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//