DCIT, New Delhi V. M/s D.R.S. Warehousing (North) Pvt. Ltd., New Delhi

ITA 4354/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98164 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 09-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AMRIT LAL
• Keywords: Capital asset; Business income; Opportunity of being heard; Additional evidence; Revenue expenditure; Capital expenditure

Judgement Text

1 ITA NO.4354/DEL/12 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 4354/DEL/2012 (ASSESSMENT YEA R-2009-10) DCIT CIRCLE 10(1), NEW DELHI (APPELLANT) VS D.R.S. WAREHOUSING (NORTH) PVT. LTD. 308, NEELKANTH PLAZA PITAMPURA NEW DELHI AAFCM1297B (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF LD. CIT (A), XIII, NEW DELHI PASSED ON 14/05/2012. 2. THE GROUNDS OF APPEAL IS AS FOLLOWS:- 1. WHETHER ON THE CIRCUMSTANCES OF THE CASE LD. C IT(A) WAS RIGHTLY HOLDING THAT THE RENTAL INCOME DERIVED BY T HE APPELLANT BY SH. AMRIT LAL, SR. DR RESPONDENT BY SH. SATYAM SETHI, ADV DATE OF HEARING 07.12.2015 DATE OF PRONOUNCEMENT 16.12.2015 2 ITA NO.4354/DEL/12 ASSESSEE BY WAY OF ADVANTAGE FROM LAND AND BUILDING IS A BUSINESS INCOME AS AGAINST THE RENTAL INCOME TREATE D BY THE A.O. 2. WHETHER ON THE CIRCUMSTANCES OF THE CASE LD. CIT (A) WAS RIGHT IN HOLDING THAT THE PAYMENT OF INTEREST FOR T HE WORK IN PROGRESS IS REVENUE EXPENDITURE AS AGAINST THE CAPI TAL EXPENDITURE TREATED BY THE A.O. 3. WHETHER ON THE CIRCUMSTANCES OF THE CASE LD. CIT (A) RIGHT THAT THE UNDER WRITING CHARGES PAID BY THE ASSESSEE TO THE AXIS BANK FOR THE ARRANGEMENT OF LOANS UTILIZED FOR CONSTRUCTION OF A CAPITAL ASSET IS A REVENUE EXPEND ITURE WHERE HAS CAPITAL EXPENDITURE. 4. WHETHER ON THE CIRCUMSTANCES OF THE CASE LD. CIT (A) RIGHT IN HOLDING THAT THE INTEREST FREE ADVANCES OF RS. 9 CRORE GIVEN BY THE COMPANY TO ITS GROUP COMPANY FOR THE CONSTRUCTION OF A CAPITAL ASSET IS A REVENUE EXPEND ITURE WHEREAS THE A.O HAS TREATED THE SAME AS CAPITAL EXPENDITURE. 5. WHETHER ON THE CIRCUMSTANCES OF THE CASE LD. CIT (A) WAS RIGHT IN HOLDING THAT THE PURCHASE PRICE AND REGIST RATION CHARGES PAID TOWARD ACQUISITION TOWARDS A CAPITAL A SSET IS A CAPITAL EXPENDITURE BUT THE COMMISSION PAID FOR ACQUISITION OF CAPITAL ASSET IS A REVENUE EXPENDITU RE. 6. WHETHER ON THE CIRCUMSTANCES OF THE CASE LD. CIT (A) ERRED IN ADMITTING ADDITIONAL EVIDENCE ON POINTS 2 AND 4 ABOVE WITHOUT CALLING FOR A REMAND REPORT FROM THE ASSESS ING OFFICER ? 3. THE ASSESSEE COMPANY HAS TAKEN OVER THE BUSINESS OF M/S BANKE BIHARI LOGISTICS PVT. LTD AND IS NOW OPERATIN G UNDER THE NAME AND STYLE OF M/S DRS WAREHOUSING PVT. LTD. TH E BUSINESS OF THE ASSESSEE COMPANY IS TO CONSTRUCT WAREHOUSES AT DIFFERENT PLACES 3 ITA NO.4354/DEL/12 IN THE COUNTRY AND FOR WAREHOUSING PURPOSES AND EAR NING INCOME FROM WAREHOUSING. DURING THE YEAR, ASSESSEE COMPAN Y HAS RECEIVED WAREHOUSING CHARGES OF RS. 4,41,91,942/- D ECLARED AS BUSINESS RECEIPTS OF THE ASSESSEE COMPANY. HOWEVER , THE ASSESSING OFFICER HAS TREATED SUCH WAREHOUSING CHARGES AS REN TAL INCOME OF THE ASSESSEE AND TAXED THE SAID INCOME UNDER THE HE AD INCOME FROM HOUSE PROPERTY AFTER ALLOWING DEDUCTION U/S 24 (A) OF THE IT ACT. DURING THE YEAR, THE ASSESSEE COMPANY HAS CLA IMED INTEREST PAYMENT AND BANK CHARGES OF RS. 3,57,78,200/- ON AC COUNT OF CONSTRUCTION OF WAREHOUSES. SUCH INTEREST PAYMENT WAS RESTRICTED TO 50% OF THE ABOVE AMOUNT ON THE GROUND THAT BALAN CE INTEREST PERTAINS TO THE AMOUNT UTILIZED FOR CONSTRUCTING WA REHOUSES WHICH ARE STILL UNDER CONSTRUCTION BY THE A.O. THE ASSES SEE HAS CLAIMED UNDERWRITING/PROCESSING CHARGES OF RS. 2,65,00,199/ - WHICH WERE PAID TO AXIS BANK FOR PROCESSING AND UNDERWRITING T HE LOANS. THE SAID AMOUNT WAS CAPITALIZED AND DISALLOWED BY A.O. THE ASSESSING OFFICER ALSO DISALLOWED INTEREST PAYMENT U/S 36 (1) (III) OF THE IT ACT OF RS.1,32,39,376/- ON THE GROUND THAT ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSES. THE ASSESSEE ALSO CLAIMED BROKERAGE AND COMMISSION OF RS.7,76,00 0/- FOR HIRING OF WAREHOUSES. THE ASSESSING OFFICER TREATED SUCH PAYMENTS AS EXPENDITURE INCURRED FOR ACQUIRING OF LAND ETC. AND DISALLOWED IT. AGGRIEVED BY THE SAME THE ASSESSEE FILED APPEAL BEF ORE THE CIT(A). 4 ITA NO.4354/DEL/12 4. THE CIT(A) HELD THAT THE RECEIPTS RECEIVED BY TH E ASSESSEE FROM EXPLOITATION OF COMMERCIAL ASSETS IN THE FORM OF WA REHOUSE TREATED AS BUSINESS INCOME AND DELETED THE FINDING OF THE A SSESSING OFFICER THAT WAREHOUSING RECEIPTS ARE INCOME FROM HOUSE PR OPERTY. AFTER CERTAIN PERUSAL OF THE ADDITIONAL DOCUMENTS PRODUCE D BY THE ASSESSEE BEFORE THE CIT(A) WHICH WAS NOT VERIFIED B Y THE ASSESSING OFFICER, THE CIT(A) RESTRICTED THE DISALLOWANCES OF INTEREST PERTAINING FOR CONSTRUCTION PERIOD TO RS. 97,78,899/-(RS.19740 64 + RS.6386795 + RS.1418040) AND THE BALANCE AMOUNT OF DISALLOWANCE OF INTEREST OF RS.81,10,201/- WAS DELETED. 5. THE CIT(A) FURTHER HELD THAT THE AMOUNT OF PROCE SSING CHARGES/COMMITMENT CHARGES WHICH IS TO BE CAPITALIZ ED COMES TO RS.64,31,598 WHICH IS 24.27% OF THE TOTAL COMMITMEN T / PROCESSING CHARGES PAID. AS A RESULT ADDITION TO TH E EXTENT OF 64,31,598 WAS UPHELD BY LD. CIT(A) AND BALANCE ADDI TION OF RS.2,00,68,601 DELETED. THE CIT(A) HELD THAT NO INT EREST REQUIRES TO BE DISALLOWED U/S. 36(1)(II). THE LD. CIT(A) OBSERV ED THAT THE ADDITION MADE BY ASSESSING OFFICER WAS BASED ON INC ORRECT FACTS AND ASSESSEE GETS RELIEF OF RS. 1,32,39,376/-. 6. THE CIT(A) FURTHER HELD THAT PAYMENT FOR BROKERA GE TO DIFFERENT PARTIES IS A REVENUE EXPENDITURE AND ALLOWED RELIEF OF RS. 7,76,000/- TO THE ASSESSEE. 5 ITA NO.4354/DEL/12 7. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER AND THE SAME IS REASONED ORDER. 8. AS RELATES TO GROUND NO. 1, THE LD. AR SUBMITTED THAT THE DECIDING FACTOR IS NOT THE OWNERSHIP OF LAND OR LEA SES BUT THE NATURE OF THE ACTIVITY OF THE ASSESSEE AND THE NATURE OF T HE OPERATIONS IN RELATION TO THEM. THE ASSESSEE COMPANY WAS INTO THE BUSINESS OF THE LETTING OF THE PROPERTIES AND THEREFORE, THE AS SESSEE RIGHTLY DISCLOSED THE INCOME UNDER THE HEAD INCOME FROM BUS INESS. THE LD. AR RELIED UPON THE JUDGMENT OF THE HONBLE SUPR EME COURT IN CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD. V. CO MMISSIONER OF INCOME-TAX, CENTRAL III, TAMIL NADU [373 ITR 673 (SC)] WHEREIN THE SAME FACTUAL POSITION WAS HIGHLIGHTED. 9. THE LD. AR FURTHER SUBMITTED THAT AS RELATES TO GROUND NO. 2, 3 & 4, THE CIT (A) HAS TAKEN INTO ACCOUNT ADDITIONA L EVIDENCE WITHOUT GIVING OPPORTUNITY TO THE ASSESSING OFFICER AND SUBMITTED BEFORE US THAT THE SAME MAY BE REMANDED BACK FOR AD JUDICATION BEFORE THE ASSESSING OFFICER. THE LD. DR AGREED FO R THE SAME. 10. AS RELATES TO GROUND NO. 5, THE LD. AR SUBMITTE D THAT THE CIT(A) HAS PROPERLY TAKEN INTO CONSIDERATION ALL TH E ASPECTS RELATED TO THE COMMISSION PAID FOR ACQUISITION OF CAPITAL A SSET. THE CIT(A)S ORDER HAS PROPERLY DEALT WITH ADJUDICATION OF THE EVIDENCE 6 ITA NO.4354/DEL/12 PRODUCED BEFORE THE ASSESSING OFFICER. THE SAID EVI DENCE WAS ANNEXED TO PAPER BOOK PRODUCED BY THE ASSESSEE AT P AGE 198-202. 11. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH THE PARTIES. AS RELATES TO GROUND NO. 1, THE ASSESSEE COMPANY WA S INCORPORATED TO PROVIDE MATERIAL HANDLING, STORAGE, TRANSPORTATI ON, DISTRIBUTION, MOVERS, PACKING AND WAREHOUSING FACILITIES WHICH FO RM PART OF ITS BUSINESS. THUS THE ASSESSING OFFICER IS INCORRECT I N PROCEEDING THAT ANY INCOME WHICH COMES OUT FROM PROPERTY HAS TO BE TAXED UNDER THE HEAD OF INCOME FROM HOUSE PROPERTY. THE CIT(A ) HAS RIGHTLY HELD THAT INCOME FROM EXPLOITATION OF WAREHOUSES WA S INCOME FROM BUSINESS. THE HONBLE SUPREME COURT IN CASE OF CHEN NAI PROPERTIES & INVESTMENTS LTD. (SUPRA) HOLD THAT CIRCUMSTANCES OF THE CASE IN RESPECT OF LETTING OF THE PROPERTIES HAS TO BE DETE RMINED FIRST AND IN ASSESSEES CASE, LEASING OF WAREHOUSE IS BUSINESS O F THE ASSESSEE. IN RESULT, GROUND NO. 1 OF THE REVENUE IS DISMISSED. 12. IN RESPECT OF GROUND NO. 2, 3, & 4, THE LD. AR AND DR AGREED TO REMAND BACK THE ISSUES DISCUSSED IN GROUND NO. 2 , 3 & 4 BEFORE THE ASSESSING OFFICER FOR ADJUDICATION AS PER LAW. WE HEREBY DIRECT THE ASSESSING OFFICER TO DECIDE THE SAME A FRESH. N EEDLESS TO SAY, THE ASSESSEE MAY BE GIVEN OPPORTUNITY TO BE HEARD. 7 ITA NO.4354/DEL/12 13. AS RELATES TO GROUND NO. 5, COMMISSION PAID FOR ACQUISITION OF CAPITAL ASSET (LAND) ACQUIRED BY THE ASSESSEE AS TH E COMMISSION WAS PAID FOR ARRANGING CLIENTS FOR HIRING OF WAREHOUSES AND SUBMISSION TO THAT EFFECT WAS MADE BEFORE THE ASSESSING OFFICE R. SINCE THE COMMISSION WAS PAID FOR ARRANGING CLIENTS TO LEASE OUT WAREHOUSES, THEREFORE, CIT(A) HAS CORRECTLY DELETED THE DISALLO WANCE MADE BY THE ASSESSING OFFICER. IN RESULT, GROUND NO. 5 OF THE R EVENUE IS DISMISSED. 14. AS RELATES TO GROUND NO. 6, THE SAME IS RELATED TO GROUND NO. 2, 3 & 4. HENCE DOES NOT SURVIVE. IN RESULT, GROUN D NO. 6 OF THE REVENUE IS DISMISSED. 15. IN RESULT, THE APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSE. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 16 TH OF DECEMBER 2015. SD/- SD/- (S. V. MEHROTRA) (SUCHI TRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16/12/2015 *R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 8 ITA NO.4354/DEL/12 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 07.12.2015 PS 2. DRAFT PLACED BEFORE AUTHOR 08.12.2015 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .12.2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. .12.2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS .12.2015 PS/PS 6. KEPT FOR PRONOUNCEMENT ON .12.2015 PS 7. FILE SENT TO THE BENCH CLERK 1712.2015 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.