THE ITO 8(3)-2, MUMBAI V. M/S. SINDOORI TRADERS PVT. LTD, MUMBAI

ITA 4058/MUM/2008

• Counselvise Citation: 405819914 RSA 2008
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 23-08-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 06-06-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Keywords: Reopening of assessment; Business income; Difference of opinion; Notional interest; Change of opinion
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J : MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI P.M.JAGTAP, ACCOUNTANT MEMBER ITA. NO. 4058/MUM/2008 ASSESSMENT YEAR 1999-2000 ITO 8 (3)-2 MUMBAI 20. VS. M/S. SINDOORI TRADERS P. LTD. MUMBAI 400 072 PAN AAACS6166Q (APPELLANT) (RESPONDENT) ITA. NO. 4208/MUM/2008 ASSESSMENT YEAR 1999-2000 M/S. SINDOORI TRADERS P. LTD. MUMBAI 400 072 PAN AAACS6166Q VS. ITO 8 (3)-2 MUMBAI 20. (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI D.S.SUNDER SINGH (D.R.) FOR ASSESSEE : -NONE- DATE OF HEARING : 23-08-2011 DATE OF PRONOUNCEMENT : 23-08-2011 ORDER PER D. MANMOHAN, V.P. 1. THESE ARE CROSS-APPEALS ARISING OUT OF THE ORDE R PASSED BY THE CIT(A)-XXIX, MUMBAI AND THEY PERTAIN TO THE ASSESSMENT YEAR 1999-2000. THESE CASES WERE ADJOURNED ON NUMBER OF OCCASIONS AT THE REQUEST OF THE ASSESSEE AND THUS POSTED FOR HEA RING ON 23-8-2011 ON WHICH DATE LEARNED COUNSEL SHRI RAKESH MILAN SOU GHT ADJOURNMENT ON THE GROUND THAT HE IS BUSY IN THE AU DIT WORK. IN OUR CONSIDERED OPINION, MERELY BECAUSE A COUNSEL IS BUS Y IN OTHER ASSIGNMENT IT CANNOT BE SUFFICIENT REASON FOR SEEKI NG ADJOURNMENT. IF SUCH PLEA IS PERMISSIBLE, A COUNSEL WHO GIVES LESS IMPORTANCE TO A PARTICULAR MATTER MIGHT KEEP HIMSELF BUSY WITH OTHE R MATTERS AND PERENNIALLY HE MAY SEEK ADJOURNMENTS IN A PARTICULA R CASE. HAVING 2 REGARD TO THE FACT THAT THE ASSESSEES COUNSEL HAS ALREADY SOUGHT ADJOURNMENT ON NUMBER OF OCCASIONS IN THE PAST AND ALSO IN VIEW OF THE FACT THAT WE ARE NOT IMPRESSED WITH THE REASON GIVEN BY THE LEARNED COUNSEL, WE REJECT THE REQUEST FOR ADJOURNM ENT AND PROCEED TO DISPOSE OF THE MATTERS EX-PARTE, QUA THE ASSESSEE. 2. WE HAVE ALSO NOTICED THAT THE ISSUES INVOLVED I N BOTH THE APPEALS DO NOT REQUIRE DETAILED INVESTIGATION OF FA CTS AS THE ISSUES ARE MORE OR LESS COVERED BY THE EARLIER ORDERS OF THE T RIBUNAL IN ASSESSEES OWN CASE. 3. WE SHALL FIRST TAKE-UP THE APPEAL FILED BY THE REVENUE. THE CASE OF THE REVENUE IS THAT THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF NOTIONAL INTEREST OF RS. 22,08,000/- ON INTEREST FREE DEPOSITS RECEIVED ON LETTING OUT OF PROPERTY. THE A SSESSING OFFICER WAS OF THE OPINION THAT THE RENT DECLARED BY THE ASSESS EE WAS LOW AND NOTIONAL INTEREST ALSO SHOULD BE TAKEN INTO CONSIDE RATION FOR ARRIVING AT THE ANNUAL LETTING VALUE. CASE OF THE ASSESSEE W AS THAT THERE IS NO PROVISION IN THE ACT TO TREAT NOTIONAL INTEREST ON DEPOSITS AS PART OF ANNUAL VALUE OF THE PROPERTY. SECTION 23 (1) (A) OF THE I.T. ACT, 1961, ON WHICH THE ASSESSING OFFICER RELIED, STATES THAT ANNUAL VALUE SHALL BE A SUM FOR WHICH PROPERTY MIGHT REASONABLY BE EXP ECTED TO LET FROM YEAR TO YEAR. IN OTHERWORDS, SO LONG AS THE RENT DE CLARED BY THE ASSESSEE IS ON PAR WITH MARKET RENT OR STANDARD REN T OR MUNICIPAL RENT, ASSESSING OFFICER IS NOT JUSTIFIED IN ENHANCI NG THE INCOME BY TAKING INTO CONSIDERATION NOTIONAL INTEREST THAT WO ULD HAVE BEEN EARNED BY THE ASSESSEE ON DEPOSITS. LEARNED CIT(A) CONSIDERED THIS ISSUE IN GREAT DETAIL AND IN PARA 7.3 OF HIS ORDER HE CONCLUDED THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN ADDING NOTION AL INTEREST UNDER SECTION 23(1)(A) OF THE ACT. IN THIS REGARD, HE OBS ERVED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANYTHING ON RECOR D TO SUGGEST THAT RENT RECEIVED WAS NOT AS PER MARKET RATE. IN OTHERW ORDS, THE RENT RECEIVED IS NOT SHOWN TO BE LOWER THAN THE STANDARD RENT FOR SIMILAR TYPE OF PROPERTY. HE HAS ALSO TAKEN NOTE OF THE FAC T THAT INTEREST FREE 3 DEPOSIT IS RECEIVED FROM OUTSIDE PARTIES AND THERE IS NO EVIDENCE ON RECORD TO INDICATE THAT THE RENT RECEIVED AND ACCEP TED IS NOT A REASONABLE RENT. HE STRESSED UPON THE FACT THAT THE ASSESSING OFFICER, AT NO STAGE ESTABLISHED THAT THE RENT RECEIVED BY T HE ASSESSEE WAS OTHERWISE INADEQUATE AND NOT AS PER MARKET RATE AND INTEREST FREE DEPOSIT WAS TAKEN ONLY TO COMPENSATE SUCH INADEQUAT E RENT. 4. AGGRIEVED BY THE FINDINGS OF THE LEARNED CIT(A) , REVENUE IS IN APPEAL BEFORE US. LEARNED D.R. SUBMITTED THAT TH E ASSESSEE RECEIVED RENT OF RS. 1.2 CRORES FOR A COMMERCIAL PR OPERTY OF 13,500 SQ. FEET AND IN ADDITION THERETO, ASSESSEE-COMPANY HAD RECEIVED A DEPOSIT OF RS. 1.84 CRORES AND AS PER THE PRIME LENDING REN T AS PER RBI EVEN IF INTEREST IS TAKEN AT 1% PER MONTH NOTIONAL INTEREST WORKS OUT TO RS.22,08,000/- AND THE SAME HAS TO BE ADDED TO THE RENT RECEIVED. HE ALSO RELIED UPON THE ORDER OF THE ASSESSING OFFICER TO SUBMIT THAT UNDER SECTION 23(1)(A) OF THE ACT ANNUAL VALUE OF T HE PROPERTY SHALL BE DEEMED TO BE THE SUM FOR WHICH PROPERTY MIGHT REASO NABLY BE EXPECTED TO LET FROM YEAR TO YEAR AND ACTUAL RENT R ECEIVED IS THEREFORE NOT RELEVANT. SINCE ASSESSEE HAS RECEIVED HUGE DEPO SIT IT HAS TO BE ASSUMED THAT IT WAS WITH A VIEW TO REDUCE THE RENT. IT IS NOT OUT OF PLACE TO MENTION THAT THE ASSESSING OFFICER OBSERVE D THAT THE SHEER QUANTUM OF THE DEPOSIT DEMONSTRATES THAT THE HEAVY DEPOSIT HAS BEEN GIVEN TO COMPENSATE LOSS OF RENT. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND GONE THROUGH THE RECORD. IN OUR CONSIDERED OPINION, MERELY BECAUSE THE ASSESSEE HAS RECEIVED SOME INTEREST FREE DEPOSI T NOTIONAL INTEREST SHOULD NOT BE ADDED TO THE RENT ACTUALLY RECEIVED B Y THE ASSESSEE. UNDER SECTION 23(1)(A) OF THE ACT DUTY OF THE ASSES SING OFFICER IS TO EXAMINE AS TO WHETHER THE RENT RECEIVED BY THE ASSE SSEE IS THE MARKET RENT OR NOT AND ONLY IN THE EVENT OF SHOWING THAT I T IS LESS THAN THE STANDARD RENT, INTEREST FREE DEPOSIT CAN BE TAKEN A S ONE OF THE FACTORS TO FIND-OUT THE STANDARD RENT RECEIVABLE - HAVING R EGARD TO THE LANGUAGE OF SECTION 23 (1) (A) I.E., ANNUAL VALUE O F ANY PROPERTY SHALL 4 BE DEEMED TO BE THE SAME FOR WHICH PROPERTY MIGHT R EASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR. IN THE INSTAN T CASE, THE LEARNED CIT(A) CATEGORICALLY OBSERVED THAT THE RENT RECEIVE D BY THE ASSESSEE IS THE MARKET RATE OF RENT AND THERE IS NO FINDING BY THE ASSESSING OFFICER THAT THE RENT ACTUALLY RECEIVED WAS INADEQUATE RENT . SUCH BEING THE CASE, THERE IS NO CASE FOR MAKING A FURTHER ADDITIO N MERELY BECAUSE SOME INTEREST FREE DEPOSIT WAS TAKEN BY THE ASSESSE E. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) AND THEREFORE, DISMISS THE APPEAL FI LED BY THE REVENUE, AS PRONOUNCED IN THE OPEN COURT. 6. WE SHALL NOW DEAL WITH THE APPEAL FILED ON BEHA LF OF THE ASSESSEE-COMPANY. VIDE GROUND NO.1, THE ASSESSEE CO NTENDS THAT THE RE-ASSESSMENT PROCEEDINGS ARE BAD IN LAW AND VOID A BINITIO. FACTS IN SHORT ARE THAT THE ASSESSEE-COMPANY FILED ITS RETUR N OF INCOME ON 31/12/1999 AND THE SAID RETURN WAS PROCESSED UNDER SECTION 143(1)(A) OF THE ACT. THEREAFTER, IT WAS REOPENED A ND AN ASSESSMENT WAS MADE UNDER SECTION 143 (3) READ WITH SECTION 14 7 OF THE ACT ON 20-11-2006 WHEREIN TOTAL INCOME WAS DETERMINED AT R S.98,78,086/-. ASSESSING OFFICER OBSERVED THAT THE ASSESSEE DECLAR ED RENTAL INCOME AS INCOME FROM BUSINESS WHEREAS ON THE SAME ISSUE, WHI LE COMPLETING THE ASSESSMENT FOR THE ASSESSMENT YEARS 2001-2002 A ND 2003-2004, IT WAS HELD THAT RENTAL INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY; THIS LEAD TO REOPENING OF THE ASSESSMENT BY ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT. 7. THE CASE OF THE ASSESSEE WAS THAT REOPENING CAN NOT BE MADE MERELY ON CHANGE OF OPINION. LEARNED CIT(A) CO NSIDERED THE ISSUE IN GREAT DETAIL TO COME TO THE CONCLUSION THA T REOPENING OF ASSESSMENT IS VALID. OPERATIVE PORTION OF THE ORDER IS REPRODUCED FOR IMMEDIATE REFERENCE : 2.3. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION MADE BY THE APPELLANT. THE APPELLANT HAS 5 OBJECTED TO THE RE-OPENING OF THE CASE ON THE GROUN D THAT NOTICE U/S. 148 WAS ISSUED WITHOUT CONSIDERING THE FACTS OF THE CASE. THE APPELLANT HAS RELIED ON VARIOUS CASE LAWS TO SUPPORT ITS CLAIM THAT RE-OPENING CANNOT BE MADE ME RELY ON CHANGE OF OPINION. A.O. HAD HOWEVER, REOPENED THE C ASE BY RECORDING HIS REASONS WHEREIN HE HAS RECORDED THAT THE CLAIM OF ASSESSEE WAS NOT AS PER LAW WHICH HAS RESU LTED INTO EXCESSIVE RELIEF. FROM THE FACTS OF THE CASE A S IT WOULD BE DISCUSSED LATER IN THIS ORDER IT CAN BE SEEN THA T THERE IS EXCESSIVE RELIEF CLAIMED IN THE ORIGINAL RETURN, IN RESPECT OF INCOME ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY BY DECLARING RENTAL INCOME AS BUSINESS I NCOME. AND TO THAT EXTENT, THE REASON RECORDED BY A.O. HAS NO INFIRMITY. IT MUST BE NOTED THAT AT THE TIME OF REC ORDING REASONS, ONLY PRIMA FACIE SATISFACTION IS REQUIRED TO BE RECORDED AND NO FINDINGS IN RESPECT OF FINAL ESCAPE MENT IS TO BE RECORDED. IN THE CASE OF APPLICANT NO ASSESSM ENT WAS MADE AND ONLY PROCEEDINGS U/S. 143(1) WAS DONE. PROCESSING U/S. 143(1) IS NOT AN ASSESSMENT (111 IT D 243 (MUM.) ). THERE IS NO OCCASION TO EXAMINE THE GENUI NENESS OF ANY CLAIM U/S. 143(1). HENCE, OPENING OF A CASE AFTER 143(1) PROCESS CANNOT BE CLASSIFIED AS CHANGE OF OP INION. IN THE CASE OF APPELLANT, A.O. HAS RECORDED REASONS WH ICH IS BASED ON PRIMA FACIE BELIEF THAT EXCESSIVE RELIEF H AS BEEN ALLOWED ON ACCOUNT OF INCORRECT CLAIM OF EXPENDITUR E FROM HOUSE PROPERTY INCOME WHICH ARE NOT PERMISSIBLE UND ER THE LAW. I DO NOT FIND ANY ERROR IN THE REOPENING O F ASSESSMENT BY A.O. ON THE FACTS OF THE APPELLANTS CASE. THIS GROUND IS THEREFORE DISMISSED. 8. AGGRIEVED BY THE FINDINGS OF THE LEARNED CIT(A) , ASSESSEE PREFERRED AN APPEAL BEFORE US. AT THE TIME OF HEARI NG, LEARNED DR PLACED BEFORE US A COPY OF THE ORDER OF THE ITAT, J BENCH, MUMBAI IN 6 ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-20 02 (ITA. NO. 7623/MUM/2004) TO SUBMIT THAT UNDER IDENTICAL CIRCU MSTANCES RE- ASSESSMENT PROCEEDINGS WERE UPHELD BY THE ITAT. THI S VIEW WAS REITERATED BY THE ITAT, E BENCH, MUMBAI IN ASSESS EES OWN CASE FOR THE ASSESSMENT YEARS 2000-2001, 2002-2003 AND 2005- 2006 (ITA. NOS. 4940 TO 4942/MUM/2008). 9. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE ORDER PASSED BY THE LEARNED CIT(A ), ON THIS ISSUE, DOES NOT CALL FOR INTERFERENCE. WE, THEREFORE, REJE CT GROUND NO.1 OF THE ASSESSEE. 10. VIDE GROUND NO.2 ASSESSEE CONTENDS THAT THE CI T(A) ERRED IN COMING TO THE CONCLUSION THAT BUSINESS CENTRE RE CEIPTS OF THE ASSESSEE ARE TAXABLE UNDER THE HEAD INCOME FROM HO USE PROPERTY AND NOT INCOME FROM BUSINESS OR PROFESSION. 11. VIDE GROUND NO.3, IT WAS CONTENDED THAT SERVIC E CHARGES RECEIVED BY THE ASSESSEE ARE TAXABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION WHEREAS THE LEARNED CIT(A) HAS WRONGLY COME TO THE CONCLUSION THAT SERVICE CHARGES ARE ASSESSAB LE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. 12. GROUND NO.4 IS ALSO CONNECTED TO GROUND NOS. 2 AND 3. THE CASE OF THE ASSESSEE IS THAT ADMINISTRATIVE EXP ENSES LIKE RENT, PROFESSIONAL CHARGES, AUDIT FEES, ETC., OUGHT TO HA VE BEEN ALLOWED AS DEDUCTION AGAINST THE INCOME FROM OTHER SOURCES IN THE EVENT OF TREATING THE SERVICE CHARGES AS INCOME FROM OTHER S OURCES. LEARNED CIT(A) RELIED UPON THE ORDER OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-2004 WHEREIN IT WAS HE LD THAT THE INCOME EARNED FROM THE PROPERTY IS ASSESSABLE TO TA X UNDER THE HEAD INCOME FROM HOUSE PROPERTY. SIMILARLY, INTEREST E ARNED ON SURPLUS MONEY KEPT AS FIXED DEPOSIT WITH BANK WAS HELD TO B E NOT ASSESSABLE 7 AS BUSINESS INCOME. SERVICE CHARGES WERE ALSO TREAT ED AS INCOME FROM OTHER SOURCES. 13. AGGRIEVED, ASSESSEE OBJECTED TO THE FINDINGS O F THE LEARNED CIT(A) BEFORE US. LEARNED D.R. FAIRLY ADMITTED THAT SERVICE CHARGES SHOULD ALSO BE ASSESSABLE TO TAX UNDER THE HEAD IN COME FROM HOUSE PROPERTY. HOWEVER, HE CONTENDED THAT ADMINISTRATIV E EXPENSES ETC., ARE NOT ALLOWABLE AS DEDUCTION UNLESS IT IS POINTED OUT THAT THEY ARE ALLOWABLE UNDER SECTION 24 OF THE ACT. IN THE LIGHT OF DECISION OF THE ITAT, IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEA R 2001-2002 WE HOLD THAT BUSINESS CENTRE RECEIPTS AND SERVICE CHAR GES RECEIVED BY THE ASSESSEE ARE ASSESSABLE TO TAX UNDER THE HEAD INCO ME FROM HOUSE PROPERTY. WE, THEREFORE, DIRECT THE ASSESSING OFFI CER ACCORDINGLY. 14. HOWEVER, ASSESSEE IS NOT ENTITLED TO DEDUCTION REFERABLE TO ADMINISTRATIVE EXPENSES, RENT, PROFESSIONAL CHARGES , AUDIT FEES, SALARIES ETC., IN ADDITION TO ADHOC 10% EXPENDITURE UNLESS IT IS PROVED THAT SUCH DEDUCTION IS ADMISSIBLE UNDER ANY SPECIFI C PROVISION OF THE ACT. WE THEREFORE, REJECT GROUND NO.4 OF THE ASSESS EE. 14. TO SUM-UP THE APPEAL FILED BY THE REVENUE IS A LLOWED AND THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PART LY ALLOWED. ORDER PRONOUNCED ACCORDINGLY IN THE OPEN COURT ON 23 RD AUGUST, 2011. SD/- SD/- (P.M.JAGTAP) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATE 23 RD AUGUST, 2011. VBP/- 8 COPY TO 1. THE ITO 8 (3)-2, ROOM NO.201, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI 400 020. 2. M/S. SINDOORI TRADERS P. LTD., 301-A, SOLARIS-1, OPP. L & T GATE NO.6, SAKI VIHAR ROAD, POWAI, MUMBAI 400 072 PAN AAACS6166Q 3. CIT(A)-XXIX, MUMBAI 4. CIT-8, MUMBAI 5. DR J BENCH 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, MUMBAI BENCHES MUMBAI.