JAFKAY P. LTD, MUMBAI V. ITO 4(2)(3), MUMBAI

ITA 3841/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9121 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 17-09-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 12-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VASANTI B PATEL
• Keywords: Business income
• Section: 143(3); 147; 148

Judgement Text

ITA NO.3841 OF 2010 JAFKAY PRIVATE LIMITED MUMBAI PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.3841/MUM/2010 (ASSESSMENT YEAR: 2004-05) M/S JAFKAY INDIA PVT. LTD., 212/A HIND SAURASHTRA INDUSTRIAL ESTATE, 85-86 M.V. ROAD, MAROL, ANDHERI (E) MUMBAI 400059 PAN: AABCJ 0293 Q VS. INCOME TAX OFFICER 4(2)(3) AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY: MS. VASANTI B. PATEL DEPARTMENT BY: SHRI MANOJ KUMAR, DR DATE OF HEARING: 11/12/2012 DATE OF PRONOUNCEMENT: 14/12/2012 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS AN ASSESSEES APPEAL AGAINST THE ORDERS OF THE CIT (A)- 8 MUMBAI, DATED 03.02.2010. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER (AO) IN RE- OPENING THE ASSESSMEN T UNDER SECTION 147 OF THE INCOME-TAX ACT. 2. WITHOUT PREJUDICE TO THE ABOVE THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE RE-ASSESSMENT ORDER UNDER SECT ION 147 WAS BAD IN LAW AS THE AO HAD NOT ISSUED NOTICE UNDER SECTION 143(2) IN RESPECT OF RETURN FILED PUR SUANT TO NOTICE UNDER SECTION 148 AND THEREFORE ASSESSMENT M ADE UNDER SECTION 147 R.W.S 143(3) IS BAD IN LAW AND TH E SAME SHOULD BE QUASHED. 3. WITHOUT PREJUDICE TO THE ABOVE, THE CIT (A) ERRED I N ARRIVING AT A CONCLUSION THAT THE APPELLANT HAD NOT OBJECTED THE ACTION OF THE AO UNDER SECTION 148 OF THE ACT. THE CIT (A) FAILED TO APPRECIATE THAT IT IS WELL SE TTLED THAT THE ISSUE OF JURISDICTION CAN ALWAYS BE RAISED AND ENTERTAINED AT ANY STAGE AS THE SAME GOES TO THE RO OT OF THE MATTER. 4. WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) HAS FURT HER ITA NO.3841 OF 2010 JAFKAY PRIVATE LIMITED MUMBAI PAGE 2 OF 6 ERRED IN NOT APPRECIATING THE SUBMISSION MADE BEFOR E HIM IN RESPECT OF PROPERTY INCOME AND ERRED IN TAXING T HE SAME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' AS AGAI NST 'BUSINESS INCOME' DECLARED BY THE APPELLANT. 5. THE CIT (A) FURTHER ERRED IN HOLDING THAT THE APPEL LANT WAS OWNER OF THE PREMISES DISREGARDING THE EVIDENCE FUR NISHED BY THE APPELLANT WHICH CLEARLY ESTABLISHES THAT R K GOLIA (HUF) WAS THE OWNER OF THE PREMISES AND WHICH FACT IS ACCEPTED BY THE DEPARTMENT IN EARLIER YEARS. 6. THE CIT(A) FAILED TO APPRECIATE THAT IT WAS NOT PER MISSIBLE TO TAKE DIFFERENT VIEW ON THE SAME FACTS WHICH WERE DULY CONSIDERED BY THE AO AND ACCEPTED IN EARLIER YEARS. 7. THE APPELLANT SUBMITS THAT IF THE CIT(A) HAD DOUBTE D THE EVIDENCE FILED BY THE APPELLANT, THEN HE SHOULD HAV E EXAMINED THE CONCERNED PARTIES. IN ABSENCE OF SUCH EXERCISE BEING NOT DONE BY THE AO I CIT(A), HE WAS NOT JUSTIFIED IN DISBELIEVING THE EVIDENCE FILED BY THE APPELLANT AND TAXING THE PROPERTY INCOME UNDER THE HEAD 'INCO ME FROM HOUSE PROPERTY' AGAINST THE BUSINESS INCOME CL AIMED BY THE APPELLANT. 8. THE CIT(A) ERRED IN DISALLOWING THE FOLLOWING E XPENSES INCURRED BY THE APPELLANT IN THE COURSE OF CARRYING ON ITS BUSINESS ACTIVITIES : S.NO PARTICULARS AMOUNT ( ` `` ` .) SALARIES/BONUS 3,02,400 2 STAFF WELFARE 1,12,329 3 MOTOR CAR EXPENSES 1,72,016 4 MOTOR CAR HIRE CHARGES 3,60,000 5 TRAVELLING EXPENSES (INLAND) 95,037 6 TRAVELLING EXPENSES (FOREIGN) 2,00,729 7 BUSINESS PROMOTION 2,00,000 8 TELEPHONE CHARGES 30,926 TOTAL 14,73,437 9. THE CIT (A) OUGHT TO HAVE ALLOWED DEDUCTION UNDE R SECTION 35AC ON THE BASIS OF EVIDENCE WHICH WAS FUR NISHED BEFORE HIM. 2. IN THE COURSE OF THE ARGUMENTS ASSESSEE HAS NOT PRE SSED GROUND NOS. 1 TO 3. THEREFORE, THE ISSUES ARE TO BE CONSIDERED FROM GROUND NOS. 4 TO 9. 3. ASSESSEE WAS DOING BUSINESS IN TRADING AND IN THE L AST FEW YEARS IS OBTAINING THE RENTS AND OTHER INCOMES ON I NVESTMENTS. THE RENT IS OBTAINED VIDE THE BUSINESS SERVICE AGREEMEN T ENTERED WITH ITA NO.3841 OF 2010 JAFKAY PRIVATE LIMITED MUMBAI PAGE 3 OF 6 M/S BIRLA SUN LIFE INSURANCE CO. LTD DATED 14.11.20 00 AND SUPPLEMENTARY AGREEMENT DATED 14.11.2003. THE PROP ERTY WHICH WAS LET OUT WAS OWNED BY SHRI R.K. GOLIA (HUF) AND ASSESSEE WAS PERMITTED TO LEASE OUT THE PROPERTY BY AN IRREVOCAB LE AND UNCONDITIONAL PERMISSION GRANTED TO ASSESSEE BEFORE ENTERING INTO BUSINESS SERVICE AGREEMENT. ON THE BASIS OF THE AGR EEMENT BETWEEN THE ORIGINAL OWNER AND ASSESSEE AND ANALYZING THE P ROVISIONS OF SECTION 27(IIIA) & (IIIB) OF THE INCOME TAX ACT, TH E CIT (A) HELD THAT ASSESSEE BECAME THE DEEMED OWNER AS THE LEASE WAS F OR A PERIOD EXCEEDING ONE YEAR AND IS NOT A LEASE FROM MONTH TO MONTH. ACCORDINGLY, HE UPHELD AOS CONTENTION THAT THE PRO PERTY INCOME RECEIVED SHOULD BE ASSESSED AS INCOME FROM HOUSE PR OPERTY. IN ASSESSING THE INCOME FROM THE HOUSE PROPERTY, THE E XPENDITURE CLAIM AT ` 14,73,437 BY ASSESSEE WAS DISALLOWED WHEREAS AO WHI LE COMPUTING THE INCOME UNDER THE HEAD HOUSE PROPERTY CONSIDERED DEDUCTION UNDER SECTION 24(A) AT ` .11,80,935. ASSESSEE IS CONTESTING THE ALLOWANCE OF EXPENDITURE CLAIMED AS BUSINESS EX PENDITURE. ASSESSEE ALSO PAID AN AMOUNT OF ` .10.00 LAKHS UNDER SECTION 35AC WHICH WAS NOT ALLOWED BY AO AS ASSESSEE HAS NO BUSI NESS INCOME. CONSIDERING THE SUBMISSIONS OF ASSESSEE, THE CIT (A ) DIRECTED AO TO ALLOW THE DEDUCTION UNDER SECTION 80GGA AFTER VERIF YING THE CONDITIONS. ASSESSEE IS AGGRIEVED ON THE ABOVE ACTI ON OF AO AND CIT (A). 4. REFERRING TO THE AGREEMENT PLACED ON RECORD AND PAS T HISTORY OF THE ASSESSMENTS IN ASSESSEES CASE, IT WAS THE S UBMISSIONS OF THE LEARNED COUNSEL THAT ASSESSEE WAS RUNNING A BUSINES S CENTRE AND THE INCOME SHOULD BE CONSIDERED AS INCOME FROM BUSI NESS ONLY. THE LEARNED COUNSEL REFERRED TO THE ASSESSMENT ORDER IN AY 1997-98 WHEREIN THE ASSESSEE COMPANYS BUSINESS WAS NOTED A S ASSESSEE COMPANYS BUSINESS IS IN TRADING IN ELECTRICAL ITEM S AND BUSINESS CENTRE SERVICES. REFERRING TO THE ORDER IN THE AY 1997-98, IT WAS SUBMITTED THAT AO RECORDED THE FACTS WRONGLY IN THE PRESENT ASSESSMENT ORDER THAT THERE IS NO RENTAL INCOME IN AY 1997-98 WHEREAS ASSESSEE HAS RENTAL INCOME BY VIRTUE OF ORI GINAL AGREEMENT ITA NO.3841 OF 2010 JAFKAY PRIVATE LIMITED MUMBAI PAGE 4 OF 6 ENTERED WAY BACK IN MARCH, 2006 TO ANOTHER COMPANY. REFERRING TO THE TERMS OF THE AGREEMENT IT WAS THE CONTENTION OF THE LEARNED COUNSEL THAT THE INCOME SHOULD BE CONSIDERED AS INC OME FROM BUSINESS AND REFERRED TO THE SEQUENCE OF THE EVENTS PLACED IN PAPER BOOK AT PAGE NO.1 AND THE FACT THAT ASSESSEE HAS BE EN OFFERING INCOME AS BUSINESS INCOME IN ALL THE YEARS FROM ASS ESSMENT YEAR 1997-98. THE LEARNED COUNSEL ALSO PLACED ON RECORD VARIOUS CASE LAW IN SUPPORT OF THE CONTENTION THAT INCOME SHOULD BE ASSESSED AS BUSINESS INCOME. 5. THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF AO AND THE CIT (A) TO SUBMIT THAT THERE ARE NO SERVICES PROVID ED IN THE AGREEMENT AND EXPLOITATION OF PROPERTY INCOME CANNO T BE CONSIDERED AS INCOME FROM BUSINESS. THEREFORE, HE S UPPORTED THE ORDERS OF THE AUTHORITIES. 6. IN REPLY THE LEARNED COUNSEL SUBMITTED THAT THE ISS UE OF SERVICES WAS NOT EXAMINED BY THE AUTHORITIES AT ANY POINT OF TIME AND ASSESSEE HAS NO OBJECTION IF THE MATTER IS REST ORED TO THE FILE OF AO FOR EXAMINATION ON THIS ISSUE. 7. WE HAVE CONSIDERED THE ISSUE AND THE RIVAL ARGUMENT S. AS SEEN FROM THE SEQUENCE OF THE EVENTS PLACED IN PAPE R BOOK ASSESSEE HAS ORIGINALLY ENTERED INTO THE AGREEMENT WAY BACK IN MARCH 1996 WITH ONE M/S UNITED MOTORS INDIA LTD AND THE INCOME THEREIN WAS ACCEPTED AS BUSINESS INCOME IN THAT YEAR UNDER SECT ION 143(3) BY AO AS ASSESSEE HAD OTHER TRADING INCOME AS WELL. SU BSEQUENTLY TILL ASSESSMENT YEAR 2003-04 THERE WAS NO SCRUTINY AND A LL THE RETURNS WERE ACCEPTED UNDER SECTION 143(1) ONLY. EVEN THOUG H THE PRESENT AGREEMENT SEEMS TO BE CONTINUATION OF THE SAME AGR EEMENT FROM ASSESSMENT YEAR 2001-02, AS THE ISSUE HAS COME UP F OR SCRUTINY AO CONSIDERED THE FACTS OF THE CASE AND LAW ON THE ISS UE AND CONSIDERED THE SAME AS INCOME FROM HOUSE PROPERTY I N THE RE- ASSESSMENT PROCEEDINGS INITIATED FOR THIS PURPOSE. THE CIT (A) ALSO ANALYZED THE NATURE OF THE AGREEMENT BETWEEN M/S R. K. GOLIA (HUF) WHO IS THE OWNER OF THE PROPERTY( INCIDENTALLY THE MEMBERS OF THE ITA NO.3841 OF 2010 JAFKAY PRIVATE LIMITED MUMBAI PAGE 5 OF 6 HUF ARE DIRECTORS IN THE COMPANY) AND THE IRREVOCA BLE PERMISSION GIVEN TO THE ASSESSEE COMPANY FOR ENTERING INTO BUS INESS SERVICE AGREEMENT COME TO A CONCLUSION THAT ASSESSEE IS OWN ER FOR PURPOSE OF HOUSE PROPERTY INCOME. ACCORDINGLY, HE UPHELD TH E CONTENTION THAT THE INCOME IS TO BE ASSESSED AS INCOME FROM HO USE PROPERTY. AS SEEN FROM THE AGREEMENT ALSO EXCEPT ENTERING INT O THE PROPERTY RENTAL AGREEMENT FOR A PERIOD OF THREE YEARS WITH T HE PROVISIONS OF NOMINAL SERVICES LIKE A PEON AND TELEPHONE, THERE I S NO OTHER ACTIVITY UNDERTAKEN BY THE ASSESSEE COMPANY SO AS T O CONSIDER THE SAME AS A BUSINESS ACTIVITY. IN THIS SENSE, THE DEC ISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SHAMBHU INVEST MENTS 263 ITR 143 (SC) WILL EQUALLY APPLY. HOWEVER, AS POINTED OUT BY THE LEARNED COUNSEL THIS ASPECT OF SERVICES WAS NEITHER EXAMINED BY AO NOR ANY EVIDENCE WAS PLACED ON RECORD BY ASSESSEE A T ANY POINT OF TIME EARLIER. THEREFORE, IN THE INTEREST OF JUSTICE , WE ARE OF THE OPINION THAT THE ISSUE OF PROVIDING ANY SERVICES SH OULD BE EXAMINED BY AO AND IF THERE ARE NO SERVICES SPECIFICALLY OTH ER THAN THOSE INCIDENTAL TO THE LEASING OUT OF THE PROPERTY, THEN THE RENTAL INCOME HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUS E PROPERTY. IN CASE THERE ARE ANY SERVICES ALONG WITH LEASE OF ANY MACHINERY ETC, THEN TO THAT EXTENT THE INCOME CAN BE CONSIDERED AS BUSINESS INCOME OR INCOME FROM OTHER SERVICES DEPENDING ON T HE FACTS OF THE CASE. THEREFORE, THE ISSUE IS RESTORED TO THE FILE OF AO FOR FRESH EXAMINATION OF THE FACTS. NEEDLESS TO SAY THAT ASSE SSEE SHOULD BE GIVEN DUE OPPORTUNITY IN THIS REGARD. 8. GROUND NO.9 IS ON THE ISSUE OF CLAIM OF DEDUCTION U NDER SECTION 35CCA. AFTER CONSIDERING ASSESSEES SUBMISS ION, THE CIT (A) HAS GIVEN THE FOLLOWING DIRECTIONS TO AO: 2.2 THE APPELLANTS SUBMISSION THAT THE INCOME IS T O BE ALLOWED UNDER SECTION 80GGA IS FOUND TO BE VALID. T HE DEDUCTION AT THE RATE OF 100% OF PAYMENT FOR ELIGIB LE PROJECTS OR SCHEME APPROVED UNDER SECTION 35AC BY T HE NATIONAL COMMITTEE IS ALLOWABLE UNDER SECTION 35AC, IF THE CONTRIBUTION IS OUT OF BUSINESS INCOME AND THE PAYMENT IS ALLOWABLE UNDER SECTION 80GGA IN COMPUTI NG THE TOTAL INCOME OF ASSESSEE WITH RESPECT TO ANY OT HER ITA NO.3841 OF 2010 JAFKAY PRIVATE LIMITED MUMBAI PAGE 6 OF 6 COURSE OF INCOME. AO IS THEREFORE, DIRECTED TO ALLO W DEDUCTION OF ` .10,00,000 UNDER SECTION 80GGA AFTER VERIFYING THAT THE CONDITIONS OF FURNISHING OF CERT IFICATES REFERRED TO IN CLAUSE (A) OF SUB-SECTION (2) OF SEC TION 35AC ARE FILED BY THE APPELLANT. 9. WE ARE NOT INFORMED ABOUT THE CONSEQUENTIAL ACTION TAKEN BY AO NOR THE LEARNED COUNSEL PLACED ANY ARGUMENTS ON THIS BEFORE US AT THE TIME OF HEARING. THEREFORE, WE DIRECT AO TO FOLLOW THE DIRECTION OF THE CIT (A) ON THIS ISSUE. ACCORDINGLY THE GROUN DS ARE PARTLY ALLOWED. 10. IN THE RESULT APPEAL FILED BY ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH DECEMBER, 2012. SD/- SD/- (D.K.AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 14 TH DECEMBER, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI