CHIKA OVERSEAS P. LTD, MUMBAI V. DCIT 1(1), MUMBAI

ITA 4002/MUM/2010

• Counselvise Citation: 400219914 RSA 2010
• Duration Of Justice: 1 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 17-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: AARTI VISSANJI
• Keywords: Business income; Business expenditure; Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 37(1); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH (ACCOUNTANT MEMBER) ITA NO. 4002/MUM/2010 ASSESSMENT YEAR-2006-07 M/S. CHIKA OVERSEAS PVT. LTD., INDUSTRIAL ASSURANCE BLDG., 5 TH FLOOR, CHURCHGATE, MUMBAI-400 020 PAN-AAACC 4609A VS. THE DCIT-1(1). AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. AARTI VISSANJI RESPONDENT BY: SHRI V.V. SHASTRI DATE OF HEARING : 05.03.2012 DATE OF PRONOUNCEMENT: 16.3.2012 O R D E R PER B.R. MITTAL, JM : THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR2006-07 AGAINST ORDER OF LD. CIT(A) DT. 30 TH DECEMBER, 2009. 2. GROUND NO. 1 OF APPEAL READS AS UNDER: THE LD. CIT(A) ERRED IN CONFIRMING THE TREATMENT O F BUSINESS CENTRE INCOME NOT AS BUSINESS INCOME AND A CCEPTING ONLY THE ALTERNATIVE SUBMISSION OF THE APPELLANTS T HAT THE INCOME SHOULD BE ASSESSED AS INCOME FROM HOUSE PROP ERTY. YOUR APPELLANTS SUBMIT THAT INCOME FROM BUSINESS CE NTRE OUGHT TO HAVE BEEN ASSESSED AS BUSINESS INCOME. 3. THE RELEVANT FACTS ARE THAT ASSESSEE IS THE OWNE R OF THE PREMISES OF BUSINESS CENTRE. THAT ASSESSEE HAS SHOWN BUSINESS CENTRE FEE RECEIVED OF RS. 36,65,728/- AND CONSIDERED IT AS BUSINESS INCOM E. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY BUSINESS CENTRE F EE RECEIVED SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES. ITA NO. 4002/M/2010 2 4. THE ASSESSEE FILED ITS REPLY VIDE LETTER DT. 8.1 2.2008, THE CONTENTS OF WHICH ARE STATED BY AO AT PAGE-2 OF ASSESSMENT ORDE R. IN THE SAID REPLY, ASSESSEE STATED THAT ACTIVITY OF GIVING OFFICE PREM ISES AS BUSINESS CENTRE IS IN THE REGULAR COURSE OF ITS BUSINESS AND ASSESSEE REF ERRED CLAUSE 65 OF THE MEMORANDUM OF ARTICLES TO SUBSTANTIATE ITS STAND TO THE FACT THAT GIVING OFFICE PREMISE AS BUSINESS CENTRE IS IN THE COURSE OF ITS BUSINESS ACTIVITY. HOWEVER, AO STATED THAT ASSESSEE IS NOT THE OWNER OF THE LET OUT PROPERTY AND HAS RECEIVED RENTAL INCOME AND THEREFORE CONSIDERED IT AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME AS CLAIMED BY AS SESSEE. IN THIS RESPECT, AO ALSO RELIED ON THE ORDER OF LD. CIT(A) FOR ASSES SMENT YEAR 2004-05 AND STATED THAT ACTION OF AO IN TREATING THE INCOME FRO M BUSINESS CENTRE AS INCOME FROM OTHER SOURCES WAS CONFIRMED BY HIM. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD. CIT(A). 5. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT ASS ESSEE ESTABLISHED BUSINESS CENTRE TO OUTSOURCE IT TO VARIOUS BUSINESS MEN TO UTILIZE THE INFRASTRUCTURE FACILITIES LIKE FURNITURE, FIXTURE, TELEPHONE BESIDES SECRETARIAL STAFF, PEON ETC, TO OUTSOURCE THE DESIRED INFRASTRU CTURE FACILITIES TO CARRY ON THE BUSINESS ON PAYMENT OF CHARGES. IT WAS CONTENDE D THAT INCOME SHOULD HAVE BEEN ASSESSED BY AO UNDER THE HEAD BUSINESS INCOME. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE APE X COURT IN THE CASE OF CIT VS SHAMBU INVESTMENT PVT. LTD. 263 ITR 143 (SC) AND SUBMITTED THAT THE PRIMARY OBJECT OF THE ASSESSEE UNDER THE SAID AGREE MENT IS TO LET OUT ITS PREMISES TO VARIOUS OCCUPANTS BY GIVING THEM ADDITI ONAL RIGHTS OF USING THE FURNITURE AND FIXTURES AND OTHER COMMON FACILITIES FOR WHICH RENT WAS BEING PAID MONTH BY MONTH, INCOME DERIVED FROM SUCH PREMI SES WOULD BE TREATED AS INCOME FROM HOUSE PROPERTY. IF ABOVE INCOME IS NOT CONSIDERED AS INCOME FROM BUSINESS, THE SAME SHOULD BE CONSIDERED AS INCOME FROM HOUSE PROPERTY. ITA NO. 4002/M/2010 3 6. LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF A SSESSEE HAS STATED THAT ASSESSEE HAS CREATED A BUSINESS CENTRE TO RENT IT O UT TO VARIOUS USERS AND RELYING ON THE ABOVE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS SHAMBU INVESTMENT (SUPRA) DIRECTED THE AO TO ASSESS THE INCOME OF ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. HENCE ASSESSEE IS IN FURTHER APPEAL BEFORE TRIBUNAL. 7. AT THE TIME OF HEARING, LD. AR SUBMITTED THAT AS SESSEE CLAIMED INCOME FROM BUSINESS CENTRE AS INCOME FROM BUSINESS BUT LD . CIT(A) ACCEPTED ALTERNATIVE SUBMISSION OF ASSESSEE AND TREATED THE SAID INCOME AS INCOME FROM HOUSE PROPERTY INSTEAD OF TREATING THE SAID IN COME FROM BUSINESS CENTRE. LD. AR SUBMITTED THAT SAID INCOME OUGHT TO HAVE BEE N ASSESSED AS BUSINESS INCOME. 8. DURING THE COURSE OF HEARING LD. DR SUBMITTED TH AT IN THE PRECEDING ASSESSMENT YEARS VIZ., ASSESSMENT YEAR 2003-04 AND 2004-05, THE SAID INCOME FROM BUSINESS CENTRE HAS BEEN CONSIDERED BY ITAT MUMBAI BENCH AS INCOME FROM OTHER SOURCES. LD. DR REFERRED THE ORD ER OF ITAT DT. 18.1.2012 IN ITA NO. 929/M/07 FOR ASSESSMENT YEAR 2003-04 AND SUBMITTED THAT SAID INCOME WAS TREATED AS INCOME FROM OTHER SOURCES BEC AUSE ASSESSEE DID NOT PRESS THIS GROUND BEFORE THE TRIBUNAL AS IT WAS TAX NEUTRAL. LD. DR FURTHER SUBMITTED THAT FOR ASSESSMENT YEAR 2004-05 I.E. IN ITA NO. 4009/M/08 ALSO THE ASSESSEE DID NOT PRESS THIS GROUND AND ACCORDIN GLY INCOME FROM BUSINESS CENTRE WAS FINALLY CONSIDERED AS INCOME FROM OTHER SOURCE. LD. DR FURTHER SUBMITTED THAT FOR ASSESSMENT YEAR 2005-06, RETURN OF ASSESSEE WAS ACCEPTED U/S. 143(1) OF THE I.T. ACT. 9. CONSIDERING THE ABOVE FACTS AND SUBMISSIONS OF L D. REPRESENTATIVES OF PARTIES THAT IN THE ASSESSMENT YEARS 2003-04 AND 20 04-05, THE INCOME FROM BUSINESS CENTRE WAS FINALLY ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AND SINCE THERE IS NO CHANGE IN THE FACTS I N ASSESSMENT YEAR UNDER CONSIDERATION, WE HOLD THAT SAID INCOME FROM BUSINE SS CENTRE IS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES A S ASSESSED BY AO. ITA NO. 4002/M/2010 4 THEREFORE GROUND NO. 1 OF APPEAL TAKEN BY ASSESSEE IS REJECTED BY RESTORING THE ORDER OF AO. BEFORE WE PART WITH THIS GROUND, WE MAY STATE THAT ASSESSEE IS IN APPEAL BEFORE US AND REVENUE HAS NOT FILED THE APPEAL THOUGH LD. CIT(A) ASSESSED THE SAID INCOME AS INCOME FROM HOUSE PROPERTY, BUT TO SET THE THINGS RIGHT AND TO TAKE A CONSISTENT STAND , WE HAVE MODIFIED THE ORDER OF LD. CIT(A) TO CONFIRM THE ACTION OF AO. 10. IN GROUND NO.2 OF APPEAL, ASSESSEE HAS DISPUTED THE ORDER OF LD. CIT(A) IN UPHOLDING DISALLOWANCE OF RS. 60,269/- OU T OF TRAVELLING EXPENSES OF RS. 12,05,375/- CLAIMED BY ASSESSEE. 11. WE HAVE CONSIDERED THE ORDERS OF AUTHORITIES BE LOW AND SUBMISSIONS OF LD. REPRESENTATIVES OF PARTIES. WE OBSERVE THAT TH E AO DISALLOWED 5% OF CLAIM OF ASSESSEE WHICH COMES TO RS. 60,269/- ON TH E GROUND THAT ALL THE BILLS AND VOUCHERS FOR VERIFICATION WERE NOT SUBMITTED AN D THUS THE ELEMENT OF NON BUSINESS EXPENDITURE CANNOT BE RULED OUT. WE OBSER VE THAT LD. CIT(A) HAS CONFIRMED THE ACTION OF AO ON THE GROUND THAT IT CO ULD NOT BE CONFIRMED THAT THE ASSESSEE INCURRED THE EXPENSES WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF ITS BUSINESS AND ALSO FOLLOWED HIS PREDECESSORS OR DER FOR ASSESSMENT YEAR 2004-05. 12. DURING THE COURSE OF HEARING BEFORE US LD. AR S UBMITTED THAT ASSESSEE IS A LIMITED COMPANY AND THEREFORE ELEMENT OF PERSO NAL EXPENDITURE BY ASSESSEE COULD NOT BE THERE AND IF ANY EXPENDITURE WHICH HAS BEEN REIMBURSED BY ASSESSEE TO ITS EMPLOYEES IS NOT FOR BUSINESS PURPOSES, THE SAME SHOULD BE ADDED IN THE HANDS OF CONCERNED EMPL OYEES AS PERQUISITES BUT NO DISALLOWANCE COULD BE MADE IN THE HANDS OF A SSESSEE COMPANY. HOWEVER, LD. DR SUBMITTED THAT ALL THE CLAIM OF ASS ESSEE AGGREGATING RS. 12,05,375/- UNDER THE HEAD TRAVELLING EXPENSES IS N OT VERIFIABLE AND HENCE IT COULD NOT BE SAID THAT ENTIRE EXPENSES WERE INCURRE D BY ASSESSEE FOR ITS BUSINESS PURPOSES. ITA NO. 4002/M/2010 5 13. LD. AR HAS NOT DISPUTED THE FACT THAT ALL THE B ILLS AND VOUCHERS IN RESPECT OF ABOVE CLAIM OF ASSESSEE HAD NOT BEEN PRO DUCED BEFORE THE AUTHORITIES BELOW. IT IS A FACT THAT ONUS IS ON TH E ASSESSEE TO PROVE THAT ALL THE EXPENSES CLAIMED BY IT HAVE BEEN INCURRED WHOLL Y AND EXCLUSIVELY FOR BUSINESS PURPOSE AND IF ASSESSEE FAILS TO PROVE ITS CLAIM WITH DOCUMENTARY EVIDENCES, AO CAN MAKE DISALLOWANCE U/S. 37(1) OF T HE ACT ON ACCOUNT OF NOT BEING SATISFIED THAT THE EXPENSES HAVE BEEN INCURRE D BY ASSESSEE WHOLLY AND EXCLUSIVELY FOR ITS BUSINESS PURPOSES. THE HONBLE APEX COURT HAS ALSO HELD IN THE CASE OF COMMISSIONER OF INCOME-TAX VS CALCUTTA A GENCY LTD. (SC) 19 ITR 191 THAT IF ASSESSEE FAILS TO ESTABLISH THE FACT TO SUPPORT ITS CLAIM FOR DEDUCTION U/S. 37(1), THE CLAIM IS NOT ADMISSIBLE. THE HONBLE ANDHERA PRADESH HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. TRANSPORT CORPORATION OF INDIA LTD. 256 ITR 701 HELD THAT AN UNSUPPORTED PAYMENT IS NOT DEDUCTIBLE. CONSIDERING THE ABOVE DECISIONS AND THE FACTS OF THE CASE BEFORE US, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF LD. CIT(A) AND CONFIRM THE ACTION OF AO TO DISALLOW 5% OF CLAIM OF ASSESSE E WHICH COMES TO RS. 60,269/- OUT OF THE TOTAL CLAIM OF RS. 12,05,375/-. HENCE GROUND NO. 2 OF APPEAL TAKEN BY ASSESSEE IS REJECTED. 14. IN GROUND NO.3 OF APPEAL, ASSESSEE HAS DISPUTED THE ORDER OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 1,19,5 05/- UNDER SECTION 14A R.W. RULE 8D OF I.T. RULES. 15. THE AO AS WELL AS LD. CIT(A) HAS MADE DISALLOWA NCE OF RS. 1,19,505/- UNDER RULE 8D ON ACCOUNT OF EXEMPTED INCOME OF ASSE SSEE U/S. 14A OF I.T. ACT. 16. WE AGREE WITH LD. AR THAT RULE 8D IS NOT APPLIC ABLE TO ASSESSMENT YEAR UNDER CONSIDERATION IN VIEW OF DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DCIT 32 8 ITR 81, WHEREIN IT HAS BEEN HELD THAT RULE 8D OF I.T. RULE IS PROSPECTIVE IN NATURE AND IS APPLICABLE FROM ASSESSMENT YEAR 2008-09. IN VIEW OF ABOVE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THE MATTER TO AO TO C ONSIDER THE DISALLOWANCE ITA NO. 4002/M/2010 6 TO BE MADE IN VIEW OF EXEMPT INCOME OF ASSESSEE U/S . 14A OF THE I.T.ACT WITH A DIRECTION TO RE-DECIDE THE SAME AFTER GIVING DUE OPPORTUNITY OF HEARING TO ASSESSEE AS PER LAW. HENCE, GROUND NO. 3 OF APPEAL TAKEN BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED ON THIS 16 TH DAY OF MARCH, 2012 SD/- SD/- ( RAJENDRA SINGH) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 16 TH MARCH,2012 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI