Raj Enterprises, New Delhi V. ACIT, New Delhi

ITA 4333/DEL/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1740 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 23-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 09-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Assessee Lawyers: HARSIMRAN GREWAL CAS
• Keywords: Business income; Reason to believe; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SHRI G.C. GUPTA , VICE PRESIDENT AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO S . 4331 TO 4333 /DEL/201 2 ASSESSMENT YEAR S : 2003 - 04 TO 2005 - 06 RAJ ENTERPRISES, F - 121, VS. ASSTT. COMMISSIONER OF MAIN MARKET, RAJOURI GARDEN INCOME TAX, NEW DELHI NEW DELHI (PAN: AAFFR1403B ) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. G.S. GREWAL & MS. HARSIMRAN GREWAL, CAS RESPONDENT BY: SH. VIKRAM SAHAY, SR. DR DATE OF HEARING: 03.07.2015 DATE OF PRONOUNCEMENT: 12.08.2015 ORDER PER INTURI RAMA RAO, A.M. : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE CONSOLIDATED ORDER OF CIT(A), DT. 28.05.2012 FOR THE ASSESSMENT YEAR S 2003 - 04, 2004 - 05 AND 2005 - 06. SINCE COMMON GROUNDS OF APPEAL HAVE BEEN RAISED IN ALL THE APPEALS, WE PROCEED TO DECIDE THE APPEAL S BY A CONSOLIDATED ORDER. GROUNDS OF APPEAL RAISED IN ITA NO. 4331/DEL/2012 ARE REPRODUCED AS UNDER: I. THE LEARNED CIT(A) XVIII, NEW DELHI HAS ERRED IN VALIDATING THE REOPENING PROCEEDINGS U/S 148 BY THE LEARNED ASSESSING OFFICER. II. THE LEARNED CIT(A) XVIII, NEW DELHI HAS ERRED IN UPHOLDING THE DECISIO N OF THE LEARNED ASSESSING OFFICER TO TREAT COMMISSION AS RENTAL INCOME AND NOT BUSINESS INCOME. III. THE ASSESSEE CRAVES TO ADD OR DELETE ANY GROUND OF APPEAL BEFORE THE APPEAL IS HEARD. 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT IS A PARTNERSHIP FIRM AND IT IS THE OWNER OF APPROXIMATELY 50% SHARES IN THE IMMOVABLE PROPERTY BEARING MUNICIPAL NO. F - 121, MAIN MARKET, RAJOURI GARDEN, NEW DELHI. THE RETURN OF INCOME FOR THE AY 2003 - 04 WAS FILED ON 30.09.2003, DISCLOSING INCOME OF RS. 10,68,870/ - ; FOR AY 2004 - 05 ON 02.11.2004, DECLARING INCOME OF RS. 10,50,610/ - AND FOR AY 2005 - 06 ON 20.09.2005, DECLARING INCOME OF RS. 11,12,066/ - UNDER THE INCOME FROM BUSINESS AND PROFESSION. THE RETURNS WERE ACCEPTED UNDER SECTION 143(1) OF THE INCOME - TAX ACT, 1961 ( FOR SHORT THE ACT ) . SUBSEQUENTLY, NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED AND DULY SERVED UPON THE ASSESSEE. FROM THE REASON S RECORDED, IT APPEARS THAT THE REASSESSMENT PROCEEDINGS WERE INITIATED FOR THE PURPOSE OF ASSESSING THE BUSINESS INCOME AS A RENTAL AND ACCORDINGLY THE REASSESSMENT WAS COMPLETED FOR THE ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 , WHEREAS THE REGULAR ASSESSMENTS WERE DONE FOR THE ASSESSMENT YEARS 2003 - 04, 2004 - 05 AND 2005 - 06 AT A TOTAL INCOME OF RS. 19,90,370/ - , 19,46,000/ AND 19,7 4,550/ - RESPECTIVELY VIDE ORDER DATED 31.12.2007 ASSESSING THE BUSINESS INCOME OFFERED AS A RENTAL INCOME. BEING AGGRIEVED BY THIS ORDERS, AN APPEAL WAS FILED BEFORE THE CIT(A), WHO DISMISSED THE SAME. BEING AGGRIEVED, NOW THE APPELLANT ASSESSEE IS BEFORE US WITH THE PRESENT APPEALS FOR THE ASSESSMENT YEARS 2003 - 04, 2004 - 05 AND 2005 - 06. 3. THE LEARNED AR SUBMITTED AS UNDER: THE APPELLANT IS A PARTNERSHIP FIRM AND OWNER OF 1/2 PORTION OF COMMERCIAL PROPERTY BEARING NO. F - 121, RAJOURI GARDEN, MAIN MARKET, NEW OELHI - 11002 2. THAT HE APPELLANT ON 3 RD AUGUST, 2001 ENTERED INTO FRANCHISE AGREEMENT WITH M/S RAM CHANDRA KRISHAN CHANDRA FANTASY, HEREINAFTER AS 'RCKC', A FAMOUS 3 AND REPUTED SARI AND CLOTH MERCHANTS/RETAILERS FOR CARRYING OUT BUSINESS OF RETAIL OF SAREES ETC ON THE TERMS AND CONDITIONS OUT BUSINESS OF RETAIL OF SAREES ETC ON THE TERMS AND CONDITIONS STIPULATED IN FRANCHISE AGREEMENT. 3. THAT IN TERMS OF FRANCHISE AGREEMENT DATED 3 RD AUGUST, 2001 RCKC WERE TO STORE THEIR PROD UCTS IN THE PREMISES OWNED BY APPELLANT AND TO SELL THE SAME FOR WHICH APPELLANT WAS ENTITLED FOR COMMISSION @ 2% OF THE TOTAL TURNOVER AND 1.5% OF THE TURNOVER MADE ON ACCOUNT OF DISCOUNT SALES SUBJECT TO MINIMUM GUARANTEED COMMISSION OF RS. 2.25 LAC WHIC H WAS LATER ON REVISED TO RS. 2.40 LAC PER MONTH VIDE SUPPLEMENT AGREEMENT DATED 18 TH OCTOBER, 2001. IN TERMS OF SAID AGREEMENT, THE APPELLANT WERE IN POSSESSION OF PREMISES AND WERE ALSO HAVING OFFICE AT THE SECOND FLOOR FOR ITS BUSINESS PURPOSES INCLUDIN G BUT NOT LIMITED TO SUPERVISION OF SALE AND ACCOUNTING THEREOF AND TO ENFORCE ITS RIGHTS AND DISCHARGE ITS DUTIES HAVE TO KEEP STAFF. 4. APPELLANT RECEIVED REMUNERATION/FRANCHISE COMMISSION AFTER DEDUCTION OF TAX AT SOURCE AS COMMISSION. 5. THAT MR. RUS HIT RASTOGI, PARTNER OF M/S RAM CHANDRA KRISHAN CHANDRA FANTASY BY AFFIDAVIT DATED 4. 10.2007 CONFIRMED THAT FIRM HAVE ENTERED INTO FRANCHISE AGREEMENT AND COMMISSION WAS PAID TO APPELLANT IN TERMS OF FRANCHISE AGREEMENT. 6. APPELLANT FILED ITS RETURN CLA IMING FRANCHISE COMMISSION AS BUSINESS INCOME UNDER THE HEAD 'INCOME FROM BUSINESS AND PROFESSION' AND THE SAME WAS ACCEPTED U/S 143(1)(A) OF THE INCOME TAX ACT, 1961, HEREINAFTER REFERRED TO AS 'ACT', FOR ASSESSMENT YEAR 2003 - 04 AND 2004 - 05 HOWEVER ASSESS MENT FOR 2005 - 06 WAS COMPLETED U/S 143(3) OF ACT. 7. THAT APPELLANT RECEIVED NOTICES DATED 29TH MAY, 2006 AND 23 RD AUGUST, 2006 U/S 148 OF ACT IN RESPECT OF ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 RESPECTIVELY HOWEVER NOTICE DATED 19TH SEPTEMBER, 2006 WAS ISSUED IN RESPECT OF ASSESSMENT YEAR 2005 - 06 U/S 143(2) OF THE ACT. 8. THAT THE NOTICES U/S 148 HAVE ALLEGEDLY BEEN ISSUED BECAUSE IN THE ASSESSMENT PROCEEDINGS OF RCKC (FRANCHISER) IT HAS BEEN NOTICED THAT M/S RAJ ENTERPRISES HAS DISCLOSED HOUSE PROPERT Y INCOME AS BUSINESS INCOME AND CLAIMED EXPENSES, THEREFORE IT IS A FIT CASE FOR SCRUTINY. THE REASONS FOR ISSUANCE OF NOTICES PRIMARILY ARE: - TO VERIFY THE GENUINENESS OF THESE EXPENSES IT SEEMS TO BE A FIT CASE FOR SCRUTINY AND I HAVE REASON TO BELIEVE THAT INCOME AMOUNTING TO RS. 18,16,134/ - AND RS. 18,29,389/ - HAS ESCAPED ASSESSMENT. THEREFORE, NOTICE U/S 148 FOR AY 2003 - 04 AND 2004 - 05 ARE ISSUED RESPECTIVELY. 9. NOTICE ISSUED U/S 148 FOR ASSESSMENT YEAR 2003 - 04 AND 2004 - 05 WAS OBJECTED ON VARIOUS GROUNDS HOWEVER, SAME WAS REJECTED BY ORDERS DATED 20/12/2007 AND ASSESSMENT WAS COMPLETED U/S 143(3)/148 BY ORDERS DATED 31/12/2007. 10. THAT FOLLOWING DATES AND EV ENTS ARE RELEVANT FOR TO APPRECIATE THE ISSUES RAISED IN THIS APPEAL. 4 DATE EVENT FOR A. Y. 2003 - 04 & 2004 - 05 29 TH MAY, 2006 NOTICE ISSUED U/S 148 OF ACT. 3 RD JULY, 2006 NOTICE ISSUED U/S 143(2) OF ACT. 27 TH AUGUST, 2006 OBJECTIONS FILED TO ISSU E OF NOTICE U/S 148 OF ACT 20 TH DECEMBER, 2007 ORDER PASSED REJECTING OBJECTIONS RAISED TO ISSUE OF NOTICE U/S 148 OF ACT. 30 TH DECEMBER, 2007 ASSESSMENT ORDER PASSED U/S 43(3)/148 OF ACT WITHOUT ISSUING ANY NOTICE U/S 143(2) OF ACT SUBSEQUENT TO REJECTION OF OBJECTIONS ON 20 TH DECEMBER, 2007. 11. THAT IN ALL THE ASSESSMENT ORDERS PASSED, LD. ASSESSING OFFICER HAS TREATED TOTAL FRANCHISE COMMISSION RECEIVED AS RENT UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' AND DEDUCTION IN RESPECT OF MUNIC IPAL TAXES PAID AND STATUTORY DEDUCTION OF 30% U/S 24 OF THE ACT WAS ALLOWED. HOWEVER ALL THE EXPENSES INCURRED WERE DISALLOWED SO MUCH SO SALARY PAID TO PARTNERS AND TAXED AS INCOME UNDER THEIR INDIVIDUAL RETURNS HAVE ALSO BEEN DISALLOWED RESULTING IN DOU BLE TAXATION. YEAR WISE DETAIL CHART OF INCOME DECLARED AND ASSESSEE IS AS UNDER: PARTICULARS AY 03 - 04 AY 04 - 05 AY 05 - 06 FRANCHISE 28,80,000 28,80,000 31,32,000 COMMISSION RECEIVED LESS ALLOWABLE EXPENSES CLAIMED OTHER THAN SALARY TO PARTNERS 9,55,500 9,42,389 8,80,720 DONATION 5,000 NIL NIL MUNICIPAL TAXES 1,00,000 1,00,000 3,11,214 SALARY TO PARTNERS 8,00,000 7,87,000 8,28,00 TOTAL EXPENSES 18,60,500 18,29,389 20,19,934 INCOME DECLARED 10,68,870 10,50,610 11,12,070 TOTAL INCOME DECLARED BY APPELLANT AND PARTNERS 18,68,870 18,37,610 19,40,070 INCOME ASSESSED BY LD. AO 19,90,370 19,46,000 DIFFERENCE 1,21,500 1,08,390 34,480 12. APPELLANT FILED APPEAL BEFORE YOUR GOODSELF RAISING THE ISSUES MENTIONED HEREINABOVE. 13. IN SUPPORT OF FIRST ISSUE INVOLVED APPELLANT REFERRED NOTE OF SATISFACTION WHICH IS THE BASIS OF INITIATING THE PROCEEDINGS. THE NOTE OF SATISFACTION IS WITH REGARD TO VERIFICATION OF GENUINENESS OF EXPENSES WHICH CAN BE GROUND FOR 5 ISSUING NOTICE U/S 143(2) OF ACT BUT NOT U/S 148. IT IS ALSO SUBMITTED THAT PROCEEDINGS U/S 148 ARE NOT SUBSTITUTE TO THE PROCEEDINGS U/S 143(2). 14. APPELLANT RELIED UPON FOLLOWING JUDGMENTS IN SUPPORT OF CONTENTION RAISED. A) TUTICORIN ALKALI & FERTILIZERS LTD. VS. CIT (1997) 227 ITR 172 (SC) WHERE HON'BLE APEX COURT HELD THAT VARIOUS HEADS OF INCOME AS DEFINE U/S 14 OF THE ACT ARE MUTUALLY EXCLUSIVE AND SIGNIFICANT. B) PYRAMID SOFTWARE & TECHNOLOGIES VS. DCIT (2006) 104 TTJ 353 WHEREIN IT WAS HELD THAT THERE NEED TO BE DIRECT NEXUS BETWEEN THE INFORMATION BASED ON WHICH NOTICE IS ISSUED. C) CIT - III VS. SFIL STOCK BROKING LIMITED ITA 1056/2009(2010) 3251TR 285[DELHI). IN THIS JUDGMENT HON'BLE DELHI HIGH COURT AFTER TAKIN G COUNTENANCE OF THE JUDGMENT OF HON'BLE SUPREME COURT IN ACIT VS, RAJESH JHAVERI STOCK BROKERS LTD. (2007) 291 ITR 500 SC AND CATENA OF OTHER JUDGMENTS HELD IN PARA 8 OF THE JUDGMENT WHICH INTER - ALIA READS: - 'WE FIND THAT THE SUPREME COURT IN RAJESH JHAV EN (SUPRA) MADE IT ABSOLUTELY CLEAR THAT BEFORE THE ASSESSING OFFICER ISSUES A NOTICE U/S 148, THEREBY REOPENED THE ASSESSMENT U/S 147 OF THE SAID ACT, HE MUST HAVE FORMED A BELIEF THAT INCOME HAD ESCAPED ASSESSMENT AND THERE MUST BE SOME BASIS FOR FORMING SUCH A BELIEF. THE SUPREME COURT MADE IT CLEAR THAT THE BASIS OF SUCH BELIEF COULD BE DISCERNED FROM THE MATERIAL ON RECORD WHICH WAS AVAILABLE WITH THE AO. HOWEVER, THE SUPREME COURT IN RAJESH JHAVERI (SUPRA) DID NOT SAY THAT IT WAS NOT NECESSARY FOR THE AO TO FORM A BELIEF AND THAT HE MERE FACT THAT THERE WAS SOME MATERIAL ON RECORD WAS SUFFICIENT. ' (D) THAT THE HON'BLE DELHI HIGH COURT IN THE MATTER OF SIGNATURE HOTELS PVT. LTD. VS. INCOME TAX OFFICER AND ANOTHERS (2011) 338 ITR 51 (DELHI) WHILE NOTIC ING REQUIREMENT OF SATISFACTION OF AAO AFTER ANALYZING THE FACTS WHEREIN LD. AO INITIATED REASSESSMENT PROCEEDINGS BASED ON INFORMATION RECEIVED FROM INVESTIGATION WING AS IS THE CASE OF APPELLANTS, IN PARA 15 HELD WHICH INTER ALIA READS: THE AFORESAID R EASONS DO NOT SATISFY THE REQUIREMENTS OF SECTION 147 OF THE ACT. THE REASONS AND THE INFORMATION REFERRED TO IS EXTREMELY SCANTY AND VAGUE. IT IS APPARENT THAT HE ASSESSING OFFICE DID NOT APPLY HIS OWN MIND TO THE INFORMATION AND EXAMINE THE BASIS AND MAT ERIAL OF THE INFORMATION. THE AO ACCEPTED THE PLEA ON THE BASIS OF VAGUE INFORMATION IN A MECHANICAL MANNER. THE COMMISSIONER ALSO ACTED ON THE SAME BASIS BY MECHANICALLY GIVING HIS APPROVAL. THE REASONS RECORDED REFLECT THAT THE AO DID NOT INDEPENDENTLY A PPLY HIS MIND TO THE INFORMATION RECEIVED FROM THE DIRECTOR OF INCOME TAX (INVESTIGATION) AND ARRIVE AT A BELIEF WHETHER OR NOT ANY INCOME HAD ESCAPED ASSESSMENT. ' E) IT IS IMPORTANT TO NOTE THAT THE TOTAL FRANCHISE COMMISSION/RECEIPTS WERE DULY REFLECTE D IN THE PROFIT AND LOSS ACCOUNTS OF THE APPELLANT COMPANY FOR DIFFERENT YEARS AS FRANCHISE COMMISSION AND THE ID. AO WAS WELL AWARE THAT THE SAME HAS DULY BEEN DISCLOSED, THEREFORE NO ROOM IS LEFT FOR THE LD. AO TO FORM A BELIEF THAT INCOME HAS ESCAPED AS SESSMENT AND THEREFORE NOTICES ISSUED ITSELF ARE VOID AND LIABLE TO BE SET ASIDE. 6 15. THE NEXT ISSUE FOR CONSIDERATION IS WHETHER THE NOTICE ISSUED U/S 143(2) OF ACT WAS PREMATURE AND WHETHER ASSESSMENT COMPLETED WITHOUT ISSUING NOTICE U/S 143(2) OF THE A CT AFTER DISPOSAL OF OBJECTIONS IS VALID? 16. APPELLANT SUBMITS THAT IT IS SETTLED PROPOSITION OF LAW THE LD. AO ASSUMES THE JURISDICTION TO REASSESS U/S 147 OF ACT ONLY AFTER DISPOSING OFF THE OBJECTIONS RAISED BY THE ASSESSEE TO THE INITIATION OF PROCEE DINGS U/S 148 OF ACT. THE HON'BLE SUPREME COURT AS IN GKN DRIVE SHAFT (I) LID. VS, INCOME TAX OFFICERS & ORS. (2003) 179 CTR (SC) 11 THAT INTER - ALIA HELD: ' WE CLARIFY THAT WHEN A NOTICE U/S 148 OF THE INCOME TAX ACT IS ISSUED, THE PROPER COURSE OF ACTIO N FOR THE NOTICE IS TO FILE RETURN AND IF HE SO DESIRES, TO SEEK REASONS FOR ISSUING NOTICES. THE AO IS BOUND TO FURNISH REASONS WITHIN A REASONABLE TIME. ON RECEIPT OF REASONS, THE NOTICE IS ENTITLED TO FILE OBJECTIONS TO ISSUANCE OF NOTICE AND THE AO IS BOUND TO DISPOSE OF THE SAME BY PASSING A SPEAKING ORDER. IN THE INSTANT CASE, AS THE REASONS HAVE BEEN DISCLOSED IN THESE PROCEEDINGS, THE AO HAS TO DISPOSE OF THE OBJECTIONS, IF FILED, BY PASSING A SPEAKING ORDER, BEFORE PROCEEDING WITH THE ASSESSMENT IN RESPECT OF THE ABOVE SAID FIVE ASSESSMENT YEARS.' 17. APPELLANT FURTHER SUBMITS THAT THE HON'BLE SUPREME COURT IN THE MATTER OF ACIT VS. HOTEL BLUEMOON [2010] 321 ITR 362 (SC) AND HON'BLE HIGH COURT IN THE MATTER OF PAWAN GUPTA [2009] 318 ITR 322 (DELH) HELD THAT THE LD. AO AFTER DISPOSING OFF THE OBJECTIONS RAISED BY THE ASSESSEE TO THE INITIATION OF THE PROCEEDINGS U/S 148 OF ACT IS REQUIRED TO SERVE A NOTICE U/S 143(2) TO ASSUME JURISDICTION TO ASSESS U/S 143(2) OF ACT IS REQUIRED TO BE ISSUED WITHIN T HE TIME STIPULATED IN PROVISO TO SECTION 143(2) OF ACT . APPELLANT SUBMITS THAT IN ASSESSMENT YEAR 2003 - 04 AND 2004 - 05 THE LD. AO DISPOSED OFF THE OBJECTIONS BY ORDER DATED 20/12/2007 AND THE NOTICES U/S 143(2) WERE ONLY ISSUED PRIOR TO DISPOSAL OF THE OB JECTIONS THOUGH THE OBJECTIONS WERE FILED ON 22/08/2006 JUST AFTER RECEIPT OF THE REASONS FOR ISSUE OF NOTICE U/S 148 OF ACT HENCE THE ORDER PASSED BY THE ID. AO IS BAD IN LAW AND IS LIABLE TO BE STRIKE DOWN ON THIS GROUND ITSELF. 19. APPELLANT SUBMITS TH AT EVEN OTHERWISE THE TIME FOR ISSUE OF NOTICE U/S 143(2) OF ACT AS PROVIDED IN THE PROVISO LAPSED BY THE TIME OBJECTIONS WERE DISPOSED OFF BY THE LD. AO I.E. 20 TH DECEMBER, 2007 THEREFORE, THE PROCEEDINGS WERE TIME BARRED AND HENCE THE ASSESSMENT ORDERS PASSED FOR ASSESSMENT YEAR 2003 - 04 AND 2004 - 05 ARE NULL AND VOID. 20. THE NEXT ISSUE IN APPEAL IS WHETHER THE FRANCHISE COMMISSION IS TO BE TAXED AS BUSINESS INCOME OR INCOME FROM HOUSE PROPERTY. 21. THE LD. AO TAXED THE INCOME AS INCOME FROM HOUSE PROPE RTY ON THE FOLLOWING GROUNDS: A) APPELLANT FAILED TO PRODUCE EMPLOYEES IN SUPPORT OF CONTENTION THAT EMPLOYEES WERE DEPUTED AT THE PREMISES. B) IN THE STATEMENT RECORDED OF SHRI RUCHIT RASTOGI, PARTNER OF M/S RCKC ON 24/12/2007 HE DENIED THAT ANY EMPLO YEE WAS DEPUTED BUT CONFIRMED THAT THEY ENTERED INTO FRANCHISE AGREEMENT. 7 C) NO OPPORTUNITY OF CROSS EXAMINE CAN BE GIVEN BECAUSE THERE IS NO PROVISION IN THE INCOME TAX ACT WHICH CONFER RIGHT OF THE ASSESSEE TO CROSS EXAMINE THE PERSON WHO HAS GIVEN THE STATEMENT. D) THE AO CONCLUDED THAT BUSINESS IS DONE BY RCKC AND CONSIDERATION IS PAID FOR THE USE OF THE PREMISES BECAUSE NO OTHER SERVICE IS BEING PROVIDED BY THE ASSESSEE. WHEN THE INCOME IS RECEIVED FOR THE USE OF THE PREMISES, THE INCOME CAN ONLY BE TAXED AS RENTAL INCOME. 22. APPELLANT CONTENTION IN BRIEF ARE AS UNDER: A) UNDER THE PROVISIONS OF LAW, APPELLANT HAS NO AUTHORITY TO CAUSE PRESENCE OF ANY PERSON OR EMPLOYEES MOREOVER THE APPELLANT WAS ASKED TO PRODUCE EMPLOYEES BY NOTICE DATED 26/12/ 2007 AND ASKED APPELLANT TO PRODUCE THEM ON 31/12/2007, THE LAST DATE OF PASSING ASSESSMENT, WITH SUCH A SHORT SPAN OF TIME APPELLANT MADE EFFORTS BUT COULD NOT CAUSE THEIR PRESENCE. B) THE STATEMENT OF SHTI RUCHIT RASTOGI, PARTNER OF FRANCHISER WAS RECOR DED AT THE BACK OF APPELLANT AND NO OPPORTUNITY WAS GIVEN TO CROSS EXAMINE DESPITE OF SPECIFIC REQUEST AND HENCE NO COGNIZANCE CAN BE TAKEN OF THE STATEMENT. MOREOVER IN THE STATEMENT RECORDED HE CONFIRMED THA THE RELATION BETWEEN TWO ARE NOT AS TENANT LAN DLARD BUT OF FRANCHISOR AND FRANNCHISEE . IT IS PERTINENT TO NOTE THAT STATEMENT OF MR. RUCHIT RASTOGI, PARTNER OF THE FIRM EVEN OTHERWISE CANNOT BE RELIED UPON IN VIEW OF HIS AFFIRMED AFFIDAVIT 4. 10.2007 CONFIRMING THAT FIRM HAS ENTERED INTO FRANCHISE A GREEMENT AND COMMISSION WAS PAID AS PER FRANCHISE AGREEMENT ONLY. C ) APPELLANT ARE THE OWNER OF COMMERCIAL BUILDING. D ) APPELLANT ENTERED INTO FRANCHISE AGREEMENT TO CARRY ON THE BUSINESS WITH M/S RCKC AN EARNED COMMISSION INCOME WAS RECEIVED AFTER DE DUCTION OF TAX AT SOURCE U/S 194 H OF ACT. E) APPELLANT FOR ITS BUSINESS PURPOSES INCLUDING BUT NOT LIMITED TO SUPERVISION OF SALE AND ACCOUNTING THEREOF AND TO ENFORCE ITS RIGHTS AND DISCHARGE ITS DUTIES HAVE TO DEPLOY STAFF FOR SUPERVISION. F) LOCK AND KEY OF THE PREMISES WERE WITH THE APPELLANT. G) APPELLANT EXPLOITED COMMERCIAL PREMISES TO CARRY OUT BUSINESS ON FRANCHISE BASIS. H) THE RELATION BETWEEN THE TWO WAS NOT OF TENANT AND LANDLORD AND FRANCHISER WAS NOT IN EXCLUSIVE POSSESSING OF THE PREMISES. 22. THAT SECTION 4 OF INCOME TAX ACT IS A CHARGING SECTION WHEREAS, THE INCOME WHICH IS LIABLE TO BE TAXED IS REQUIRED TO BE CLASSIFIE D AS PER HEADS OF INCOME SPECIFIED U/S 14 OF THE ACT WHICH ARE SACROSANCT. IT IS ESTABLISHED PRINCIPLE OF LAW THAT ANY INCOME WHICH IS TAXABLE UNDER PARTICULAR HEAD OF INCOME U/S 14 OF THE ACT IF CANNOT BE TAXED FOR ANY REASON, THE SAME CANNOT BE TAXED UND ER ANY OTHER HEAD OF INCOME INCLUDING RESIDUARY HEAD I.E. 'INCOME FROM OTHER 'SOURCES' TO SUPPORT THE CONTENTION RAISED WHERE RELYING AND REFERRING THE JUDGMENT OF HON'BLE SUPREME COURT IN THE MATTER OF TUTICORIN(SUPRA). 23. APPELLANT SUBMITS THAT CHAPTER IV PART C STIPULATES THE PROVISIONS FOR TAXING INCOME FROM HOUSE PROPERTY CONSISTING SECTION 22 TO 27. 8 24. APPELLANT SUBMITS THAT AS PER PROVISIONS OF SECTION 22 OF ACT IN CASE THE FOLLOWING CONDITIONS ARE SATISFIED, THE ANNUAL VALUE OF THE BUILDING OR L AND APPURTENANT THERETO SHALL BE CHARGED TO TAX UNDER CHAPTER IV - C OF ACT. THE CONDITIONS ARE: (II) SUCH BUILDING OR LAND APPURTENANT THERETO IS TO BEING USED FOR THE PURPOSE OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM THE PROFITS OF WHICH ARE CHARGEA BLE TO INCOME TAX. 25. ANALYZING THE ABOVE PROVISIONS VIS - A - VIS FACTS OF THE APPELLANT THERE IS NO DISPUTE THAT THE APPELLANT IS THE OWNER OF THE PROPERTY AND HAS BEEN USING THE PROPERTY FOR TO CARRYOUT BUSINESS. SINCE CONDITIONS STIPULATED ARE NOT SATIS FIED BY APPELLANT THEREFORE AS PER PROVISIONS OF ACT THE INCOME DECLARED CANNOT BE TAXED UNDER SECTION 23 OF ACT. 26. APPELLANT IN SUPPORT OF CONTENTION RELYING UPON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: - A) CIT VS. FAITH REAL ESTATE PVT. LTD. (2008) 1 73 TAXMANNN 405 [DELHI]: THE FACTS OF THIS CASE ARE PARI MATERIAL WITH THE FACTS OF APPELLANT IN THIS CASE IT WAS HELD THAT THE AGREEMENT BETWEEN THE ASSESSEE AND ITS TENANT WAS NOT A MERE RENT AGREEMENT BUT IT ALSO REQUIRED INVOLVEMENT OF THE ASSESSEE, TH E AMOUNT RECEIVED BY THE ASSESSEE AS A SPECIFIED PERCENTAGE OF SALES OF THE TENANT FOR THE USER OF THE PREMISES IS TO BE TREATED AS BUSINESS INCOME AND TO AS INCOME FROM HOUSE PROPERTY. B ) CIT VS. DS PROMOTERS & DEVELOPERS PVT. LTD. (2011) 330 ITR 291 (D ELHI). IN THIS CASE IT WAS HELD THAT SINCE THE PURPOSE OF THE ASSESSEE COMPANY WAS TO COMMERCIALLY EXPLOIT THE BUILDING IN QUESTION, THE AMOUNT RECEIVED BY THE ASSESSEE IN TERMS OF FRANCHISE AGREEMENT WAS RIGHTLY TREATED AS BUSINESS INCOME. C) ASSTT. COMM ISSIONER OF WEALTH TAX VS. HAJEE MOOSA LTD. 91992) 42 ITO (MADRAS) 292. IT WAS HELD THAT THE BUILDINGS OWNED BY THE ASSESSEE FRANCHISOR IN WHICH FRANCHISEES ARE CARRYING ON BUSINESS ON LEAVE AND LICENCE BASIS WITHOUT PAYING ANY RENT BUT COMMISSION AT THE R ATE OF 1 % OF THE NET PURCHASE VALUE CAN BE SAID TO BE USED BY THE ASSESSEE FOR THE PURCHASE OF ITS OWN BUSINESS. D) INCOME TAX OFFICER VS. MERCANTILE & MARINE SERVICE.[1991] 41 TTJ (COCH) 435 E ) PFH MALL & RETAIL MANAGEMENT LTO VS. INCOME TAX OFFICER, [2007] , 16 SOT 83 (KOL) 27. THE NEXT ISSUE ARISE FOR CONSIDERATION IS WHETHER REMUNERATION OF PARTNERS CAN BE TAXED UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. APPELLANT SUBMITS THAT LD. ASSESSING OFFICER IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) / 147 OF ACT TAXED FRANCHISE COMMISSION AS INCOME FROM HOUSE PROPERTY BUT FAILED TO RECTIFY THE ASSESSMENTS COMPLETED OF THE PARTNERS WHEREIN REMUNERATION PAID AS PARTNER CONTINUE TO BE TAXED AS 'INCOME FROM BUSINESS AND PROFESSION' WHICH IS A CONTRADICTI ON IN ITSELF. 28. NEXT ISSUE ARISE FOR CONSIDERATION IS WHETHER EXPENSES CLAIMED WHICH HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS ARE ALLOWABLE UNDER SECTION 30 TO 43D OF ACT AS ADMITTEDLY LD. ASSESSING OFFICER HAS NOT GIVEN ANY ADVERSE FINDING TO 9 THE EFFECT THAT THE EXPENSES INCURRED ARE CAPITAL IN NATURE, INCURRED FOR PERSONAL PURPOSES OR HAVE NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS THEREFORE, AS PER PROVISIONS OF SECTION 30 TO 43D OF ACT THE EXPENSES INCURRED ARE LIABLE TO BE ALLOWED EVEN IN A BSENCE OF CORRESPONDING INCOME. 29. THE NEXT ISSUE FOR CONSIDERATION IS THE PASSING OF ASSESSMENT ORDER WITHOUT GIVING OPPORTUNITY TO CROSS EXAMINED MR. RUCHIT RASTOGI, PARTNER OF RCKC ON THE GROUND THAT UNDER: THE PROVISIONS OF INCOME TAX ACT THERE IS N O REQUIREMENT TO ALLOW CROSS EXAMINATION. APPELLANT IN SUPPORT RELYING UPON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE MATTER OF CIT VS. ASHWANI GUPTA, (2010) 322 ITR 396 (DEL.) WHEREIN IT IS HELD THAT STATEMENT OF THIRD PARTY CANNOT BE RELIED UPON WI THOUT GIVING OPPORTUNITY TO CROSS EXAMINE. 30. THE NEXT ISSUE FOR CONSIDERATION IS THE COMPLETION OF ASSESSMENT BY PASSING ANTE DATED ENTRIES IN THE ORDER SHEET. 3. HE FURTHER SUBMITTED THAT THE REASSESSMENT PROCEEDINGS WERE NOT VALID IN LAW, INASMUCH AS, THERE WAS NO FRESH INFORMATION BROUGHT ON RECORD OR REASONS TO BELIEF THAT THE INCOME GOT ESCAPED ASSESSMENT. HE FURTHER SUBMITTED THAT THE REASSESSMENT PROCEEDINGS WERE ALSO INVALID IN LAW AS THERE IS NO INDEPENDENT APPLICATION OF MIND BY THE ASSESSI NG OFFICER. 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE APPEALS WERE FILED CHALLENGING THE VALIDITY OF THE REASSESSMENT PROCE EDINGS OF THE ASSESSMENT YEAR S 2003 - 04 AND 2004 - 05 AND REGULAR ASSESSMENT FOR 2005 - 06. F ROM THE REASONS RECORDED FOR THE ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 , WE FIND THAT THERE WERE NO FRESH MATERIAL BROUGHT ON RECORD SUGGESTING THE ESCAPED ASSESSMENT. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THERE ARE NO REASONS TO BELIEF THAT INCOME GOT ESCAPED ASSESSMENTS . A S REGARDS TO THE ASSESSMENT YEAR 2005 - 06 , THE ISSUE IN APPEAL IS COVERED BY THE RATIO LAID DOWN BY THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. D.S. 10 PROMOTERS & DEVELOPERS (P) LTD., (2011) 330 ITR 0291 IS SQUARELY APPLICABLE. HENCE, FOLLOWING THE ABOVE DECISION, WE ALLOW THE APPEALS FILED BY THE ASSESSEE. 6. IN THE RESULT, THE AP PEAL S FILED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2003 - 04, 2004 - 05 AND 2005 - 06 ARE ALLOWED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 1 2 T H A U G U S T , 2015. S D / S D / - ( G.C. GUPTA ) (INTURI RAMA RAO) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 1 2 T H A U G U S T , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI