ACIT, New Delhi V. M/s. Chawla Construction Co., New Delhi

ITA 4509/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3565 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 27-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAJNISH AGARWAL
• Keywords: Business income; Depreciation; Rule of consistency; Source of fund; TDS
• Section: 143(3); 37(1); 37

Judgement Text

ITA NO. 4509/DEL/2009 A.Y. 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4509/DEL/2009 A.Y. : 2006-07 ASSTT. COMMISSIONER OF INCOME TAX, M/S CHAWLA CON STRUCTION CO., CIRCLE 23(1), ROOM NO. 190, 17, SANT NAGAR, NEW DELHI-19 C.R. BUILDING, (PAN: AAAFCS5405D) I.P. ESTATE, NEW DELHI [APPELLANT] (RESPONDENT) ASSESSEE BY : SH. RAJNISH AGARWAL, CA DEPARTMENT BY : SHRI MANISH GUPTA, D.R. PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONERS OF INCOME TAX (APPEALS) DATED 02.09.2 009 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE GROUNDS RAISED READ AS UNDER:- (I) ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CA SE THE LD. C.I.T.(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING T HE FAT THAT ASSESSING OFFICER HAS SUBMITTED CONCLUSIVE EVIDENC E TO PROVE THAT THE EXPENSES CLAIMED BY THE ASSESSEE ARE NOT GENUIN E. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. C.I.T.(A) HAS ERRED IN LAW AND ON FACTS HOLDING THAT THE INCOME F ROM MAINTENANCE CHARGES IS INCOME FROM BUSINESS, IGNORING THE FACT THAT RECEIPT OF MAINTENANCE ARE INCIDENTAL TO RENTAL INCOME AND AS SUCH IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES . THE ITA NO. 4509/DEL/2009 A.Y. 2006-07 2 ALLOWANCES AND EXPENSES AGAINST THE OTHER SOURCES I NCOME ARE TO BE CONSIDERED U/S. 57 OF THE I.T. ACT. (III) ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CASE THE LD. C.I.T.(A) HAS ERRED IN LAW AND ON THE FACTS IN HOLDING THE IN COME FOR MAINTENANCE CHARGES, INTEREST INCOME AND INTERNET C AF BUSINESS AS BUSINESS INCOME AND THUS ALLOWING EXPENSES UNDER SE CTION 37 WHERE AS EACH INCOME IS TO BE ASSESSED UNDER APPROPRIATE HEAD AND EXPENSES ARE TO BE ALLOWED UNDER THE CONCERNED CHA PTER. 3. IN THIS CASE ASSESSING OFFICER NOTED THAT THE A SSESSEE DERIVED INCOME FROM BUSINESS AND PROFESSION AND INCOME FROM HOUSE PROPE RTY. ASSESSING OFFICER FURTHER OBSERVED THAT ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT, IT WAS FOUND THAT THE ASSESSEE HAD SHOWN INCOME FROM RENT, MAINTENANC E CHARGES, INTEREST AND INTERNET SALES. ASSESSING OFFICER FURTHER OBSERVE D THAT RENT RECEIVED GOES TO INCOME FROM HOUSE PROPERTY. HOWEVER, AGAINST REMAI NING THREE SOURCES OF INCOME NAMELY MAINTENANCE CHARGES, INTEREST RECEIV ED AND INTERNET SALES, ASSESSEE HAS CLAIMED NUMEROUS EXPENSES IN THE DISGU ISE OF SECTION 37 OF THE I.T. ACT. 3.1 ASSESSING OFFICER FURTHER OBSERVED THAT SECTIO N 37(1) CLEARLY STATES THAT ONLY THOSE EXPENSES ARE ALLOWED WHICH ARE NOT PERS ONAL IN NATURE AND WHICH ARE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOS ES. 3.2 ASSESSING OFFICER FURTHER HELD THAT IT CANNOT BE SAID THAT THE EXPENSES WHICH ARE SHOWN IN PROFIT AND LOSS ACCOUNT ARE FOR EARNING THESE INCOMES. HE HELD THAT ASSESSEE IN FACT IS NOT CARRYING ANY BUSINES S. THE THREE SOURCES OF INCOME MUST GO TO THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY, HE HELD THAT ONLY ITA NO. 4509/DEL/2009 A.Y. 2006-07 3 THE RELEVANT EXPENSES WILL BE ALLOWED U/S 57(III) OF THE IT ACT. ACCORDINGLY, ASSESSING OFFICER PROCEEDED TO HOLD AS UNDER:- FROM THE MAINTENANCE AGREEMENT, IT CAN BE SEEN THA T THE ASSESSEE IS LIABLE TO MAKING THE FOLLOWING EXPENSES: A) REPAIR, SERVICING AND WEAR AND TEAR BREAKDOWN TO T HE AIR CONDITIONARY EQUIPMENT INSTALLED. B) CLEANLINESS, PAINTING, REPAIR OF BUILDING. C) MAINTENANCE OF TUBE WELL AND PUMPSET. D) MAINTENANCE OF WORK AND SEWAGE DISPOSAL SYSTEM. E) MAINTENANCE OF STAIRCASE. F) MAINTENANCE OF APPROACH AREA OF BUILDING. G) MAINTENANCE OF TERRACE AREA AND RAIN WATER DRAINAGE . H) PROVIDE WATCH AND WARD SECURING SERVICE. I) MAINTENANCE OF GLASS PANELS AND WINDOWS. J) MAINTENANCE OF GENSET. K) MAINTENANCE OF ELECTRIC SYSTEM. ACCORDINGLY, FOR THE INCOME OF RS. 3,32,000/-, ON ACCOUNT OF MAINTENANCE CHARGES, FOLLOWING EXPENSES WILL BE ALL OWED : I) A.C. REPAIR RS. 14,200 II) GENERATOR REPAIRS RS. 1,794 III) MAINTENANCE EXPENSES RS. 15,966 IV) SECURITY EXPENSES RS. 1,53,942 V) GENERATOR RS. 8,304 ITA NO. 4509/DEL/2009 A.Y. 2006-07 4 =========== RS. 1,94,206 DISALLOWING 20% OF IT ON THE GROUNDS OF PERSONAL EXPENSES RS. 38,841 THEREFORE EXPENSES ALLOWED RS. 1,55,365 SIMILARLY, ASSESSEE HAS INCOME FROM INTEREST RECEIV ED AMOUNTING TO RS. 23,24,153/-. ASSESSEE HAS ADVANCED LOAN TO VARI OUS PARTIES FROM WHOM HE IS GETTING INTEREST INCOME. HE WAS SPECIFICALL Y ASKED ABOUT SUCH INTEREST INCOME. HE STATED THAT HE HAS BORROWED MONEY FROM V ARIOUS PARTIES LOWER RATE AND GIVEN TO OTHER PARTIES AT HIGHER RATE. EVEN THOUGH, NO DIRECT CO- RELATION HAS BEEN PROVED BETWEEN LOAN TAKEN EXPENSE S OF INTEREST PAID ACCOUNT AMOUNTING RS. 6,46,368/- SHALL BE ALLOWED. SIMILARLY, ASSESSEE HAS SHOWN INCOME FROM INTEREST SALES AMOUNTING TO RS. 3,12,290/- ON ASKING ABOUT IT, ASSESSEE SUB MITTED THAT HE IS OPERATING A CYBER CAF. INTERNET SALES IS THE FEE S HE IS CHARGING FOR THE USE OF INTERNET. HE HAS SPECIFICALLY CLAIMED EXPENSE ON A/C OF INTEREST CHARGES WHICH HE HAS INCURRED FOR RUNNING THIS CYBER CAF. SUCH EXPENSES ONLY SHALL BE ALLOWED AS BEING INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF EARNING INCOME FROM INTERNET. THUS, EXPENSES ON AC COUNT OF INTERNET EXPENSES AMOUNTING TO RS. 1,71,144/- SHALL BE ALLOW ED. 4. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) ASSESSEE INTER-ALIA SUBMITTED AS UNDER:- THE APPELLANT HAS BEEN ENGAGED IN BUSINESS OF (I) INTERNET CYBER CAF FOR PROVIDING INTERNET FACILITIES THROUGH EIGHT COMPUTE RS, (II) INTEREST INCOME FROM MONEY-LENDING AND (III) PROVIDING FOR VARIOUS FACILITIES IN RESPECT OF FLATS OF COMMERCIAL COMPLEX NO. 17, SANT NAGAR, NEW DELHI AND (IV) REAL ESTATE BUSINESS FOR PURCHASING THE PROPERTIES AND M AKING ADDITIONS, ALTERATIONS AND RENOVATIONS THEREOF BEFORE THEIR SA LE. BESIDES, THE APPELLANT FIRM HAD INCOME FROM HOUSE PROPERTY. THE SOURCES OF THE SAID INCOMES WERE ALSO SHOWN IN THE PRECEDING YEARS. THE INCOME FROM THE SAID ITA NO. 4509/DEL/2009 A.Y. 2006-07 5 BUSINESSES WERE ACCEPTED FROM YEAR TO YEAR INCLUDIN G THE SCRUTINY ASSESSMENT FOR THE ASSESSMENT YEAR 2003-04. THE APPELLANT IS FILING THE COPY OF THE MAINTENANC E AGREEMENT IN RESPECT OF FLATS OF PROPERTY NO. 17, SANT NAGAR, NEW DELHI AS IN THE PAST. THE PERUSAL OF THE AGREEMENT WOULD SHOW THAT THE APPELLANT HAD PRO VIDED THE VARIOUS FACILITIES TO THE LESSEES OF THE SAID FLATS AND AS SUCH THE INCOME OR THE EXPENSES INCIDENTAL THERETO REPRESENTED THE BUSINES S ACTIVITIES IN THE LIGHT OF THE JUDGEMENTS OF THE SUPREME COURT OF INDIA IN THE CASES OF KARNANI PROPERTIES LTD. VS. C.I.T. (1971) 82 ITR 547 (SC) A ND S.G. MERCANTILE CORPORATION PVT. LTD. (1972) 83 ITR 700 (SC). THE APPELLANT HAD SHOWN MAINTENANCE INCOME RECEIPTS OF RS. 3,32,000/-. INTE RNET SALES OF RS. 3,12,290/- FROM INTERNET CYBER CAF AND INTEREST IN COME RECEIPTS OF RS. 23,24,152/- FROM MONEY LENDING BUSINESS. THE APPELL ANT HAD SHOWN NET BUSINESS INCOME OF RS. 8,06,656/- BESIDES INCOME FR OM HOUSE PROPERTY OF RS. 11,10,900/- IN ITS INCOME TAX RETURN FOR THIS Y EAR. 4.1 LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD AS UNDER:- I HAVE CONSIDERED THE IMPUGNED ORDER AND THE REMAN D REPORT OF THE LD. ASSESSING OFFICER AND THE SUBMISSION MADE BY THE A SSESSEE. IN THE ENQUIRY UNDER SUB SECTION (4) OF SECTION 250, M/S SIFY LTD. HAS CONFIRMED THAT THEY HAD AN AGREEMENT WITH THE ASSESSEE, EVEN THOUGH THE Y STATED THAT THE VERACITY OF THE INFORMATION RECEIVED BY THE ASSESS EE COULD NOT BE CERTIFIED, IN AS MUCH AS THEY NEVER VISITED THE BUSINESS SITE OF THE ASSESSEE. IT HAS FURTHER BEEN CONFIRMED BY M/S SIFY LTD. THAT THIS B USINESS RELATIONSHIP WITH THE ASSESSEE WAS TERMINATED ON 15.9.2006. THE LD. A SSESSING OFFICER, HAS DRAWN AN ADVERSE CONCLUSION IN THIS REGARD. I AM UNABLE TO APPRECIATE THAT HOW THE TERMINATION OF THE AGREEMENT ON 15.9.2006, WHICH CORRESPONDS WITH A.Y. 2007-08, CAN BE THE BASIS FOR DRAWING AN ADVERSE CONCLUSION, ESPECIALLY IN THE BACKDROP OF THE FACT THAT M/S SIF Y LTD. HAS CONFIRMED OFF THE VERACITY OF TDS CERTIFICATES AND AN AGREEMENT WITH THE ASSESSEE. THE SECOND GROUND FOR DRAWING AN ADVERSE CONCLUSION IS THE REPORT OF THE ITI, DATED 20.5.2009. THE SAID REPORT DOES NOT MENTION T HE NAME AND DESIGNATION OF THE OFFICIAL, WHO HAD BEEN APPROACHE D BY THE ITI, WHICH WOULD HAVE BEEN A PERSUASIVE EVIDENCE AGAINST THE ASSESSEE. SIGNIFICANTLY, VIDE LETTER DATED 4.5.2009, THE LD. ASSESSING OFFIC ER HAD SPECIFICALLY BEEN DIRECTED THAT THE ASSESSEE SHOULD BE CONFRONTED, I F ANY ADVERSE MATERIAL ITA NO. 4509/DEL/2009 A.Y. 2006-07 6 WAS FOUND. NO SUCH EFFORT HAS BEEN MADE BY THE LD. ASSESSING OFFICER AND WOULD BE EVIDENT FROM THE REMAND REPORT SUBMITTED B Y HIM. IN VIEW OF THE ABOVE, I HOLD THAT THE ASSESSEE WAS ENGAGED IN BUSINESS ACTIVITIES DURING THE YEAR IN QUESTION. TH ERE IS ANOTHER ANGLE TO THIS ASPECT VIZ. RULE OF CONSISTENCY. IN THE EARLIER Y EARS, THE ASSESSEE HAD FILED SIMILAR RETURNS WITH ALMOST THE SAME SOURCES OF INC OME. THE CASE WAS ALSO SCRUTINIZED IN THE YEAR 2003-04. NO ADVERSE INFEREN CE IN THIS REGARD WAS DRAWN BY THE LD. ASSESSING OFFICER . 4.2 REFERRING TO SEVERAL CASE LAWS LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IN VIEW OF THE DECISIONS, THE ASSESSEE WA S ENGAGED IN THE BUSINESS AND THE ASSESSEE WOULD BE ASSESSED UNDER THE HEAD INCO ME FROM BUSINESS AND EXPENDITURE AS CLAIMED BY THE ASSESSEE WOULD BE ALL OWED. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. THE FIRST GRIEVANCE OF THE REVENUE PROJECTED IN THE GROUNDS OF APPEAL IS LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN AS MUCH AS ASS ESSING OFFICER HAS SUBMITTED CONCLUSIVE EVIDENCE TO PROVE THAT THE EXPENSES CLAI MED BY THE ASSESSEE ARE NOT GENUINE. WE FIND THAT THERE IS NOT EVEN A WHISPER IN THE ASSESSING OFFICERS ORDER THAT THE EXPENSES ARE NOT GENUINE. ASSESSING OFFIC ER HAS PROCEEDED TO DISALLOW THE EXPENSES ON THE GROUND THAT ASSESSEE WAS NOT DO ING ANY BUSINESS. 6.1 THE OTHER GRIEVANCE OF THE REVENUE IS THAT INC OME FROM MAINTENANCE CHARGES CANNOT BE SAID TO BE BUSINESS INCOME, IN AS MUCH AS RECEIPT OF MAINTENANCE ARE INCIDENTAL TO RENTAL INCOME AND AS SUCH ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. IT HAS FURTHER BEEN U RGED THAT ALLOWANCES AND EXPENSES AGAINST THE OTHER SOURCES OF INCOME ARE T O BE CONSIDERED U/S 57 OF THE IT ACT. HENCE THIS GROUND IS NOT AT ALL SUSTAINABL E. ITA NO. 4509/DEL/2009 A.Y. 2006-07 7 6.2 IN THIS REGARD, LD. COUNSEL OF THE ASSESSEE SU BMITTED THAT ASSESSEE HAS BEEN SUBMITTING SIMILAR RETURN OF INCOME AND THE SA ME HAS BEEN ASSESSED AS SUCH IN THE PREVIOUS YEAR WITHOUT ANY MODIFICATION. IN THIS REGARD, HE SUBMITTED BEFORE US THAT ASSESSMENT ORDER FOR ASSESSMENT YEAR 2003-04 WHICH WAS UNDER ASSESSMENT UNDER SECTION 143(3) OF THE IT ACT. IT IS NOTED THAT THE COMPUTATION OF INCOME IN THE SAID RETURN WAS AS UNDER:- TOTAL INCOME OF THE FIRM IS RECOMPUTED AS FOLLOW S: (A) INCOME FROM HOUSE PROPERTY RS. 21,00,426. 00 (AS DECLARED) (B) INCOME FROM BUSINESS RS. 2,94,530.00 (AS DECLARED) ADD: OUT OF OFFICE EXPENSES OF RS. 9030/-; TELEPHONE EXPENSES OF RS. 9866/-; ENTER- TAINMENT EXPENSES OF RS. 5971/-; CAR EXPENSES OF RS. 69,400/-; CAR LOAN INTEREST OF RS. 1205/-; DEPRECIATION ON CAR OF RS. 82,124/- AND ON TELEPHONE OF RS. 3294/-; 1/4 TH IS DISALLOWED FOR PERSONAL USE RS. 45,223.00 RS. 3,39,753.00 ============== TOTAL INCOME RS. 24,40,179.00 ============== 6.3 IN THE PRESENT CASE, WE FIND THAT LD. COMMISSIO NER OF INCOME TAX (APPEALS) HAS GIVEN A CATEGORICAL FINDING THAT ASSESSEE WAS ENGAGED IN BUSINESS RELATIONSHIP WITH M/S SIFY LTD. AND THE CONFIRMATIONS FROM THE SAID PARTY, AGREEMENT THEREOF ITA NO. 4509/DEL/2009 A.Y. 2006-07 8 AND TDS CERTIFICATE WAS ALSO PRODUCED. HENCE, THE IT CANNOT BE SAID THAT THE ASSESSEE WAS NOT DOING ANY BUSINESS. WE FIND OUR SELVES IN AGREEMENT WITH THE LD. COMMISSIONER OF INCOME TAX (APPEALS)S FINDING THAT ASSESSEE WAS ENGAGED IN BUSINESS. FURTHERMORE, RECEIPT OF MAINTENANCE CH ARGES HAS BEEN ACCEPTED BY THE REVENUE IN EARLIER YEARS ALSO AS BUSINESS INCO ME. THERE IS NO CHANGE IN THE FACT OR LAW IN THE PRESENT YEAR. UNDER THESE CIRCUM STANCES, IN OUR CONSIDERED OPINION, ANY DIFFERENT VIEW IN THIS REGARD IS NOT T ENABLE. 6.4 IN THE BACKGROUND OF THE AFORESAID DISCUSSION, WE FIND THAT THERE IS NO INFIRMITY IN THE LD. COMMISSIONER OF INCOME TAX (AP PEALS)S FINDING THAT ASSESSEE WAS ENGAGED IN BUSINESS, IN AS MUCH AS THERE WAS I NCOME FROM INTERNET CAF WHICH WAS SUPPORTED BY AGREEMENT AND CONFIRMATIONS FROM M/S SIFY LTD AND TDS CERTIFICATES. MAINTENANCE CHARGES IN EARLIER Y EARS HAS BEEN ACCEPTED BY THE REVENUE AS PART OF THE BUSINESS INCOME. ASSESSEE HAS BEEN PROVIDING VARIOUS FACILITIES IN RESPECT OF FLATS OF COMMERCIAL COMPLE X AT 17, SANT NAGAR, NEW DELHI. THE COPY OF MAINTENANCE AGREEMENT HAS BEEN SUBMITT ED BEFORE THE AUTHORITIES BELOW IN THE CURRENT AS WELL AS IN THE PREVIOUS Y EARS. IN THESE CIRCUMSTANCES, THERE IS NO REASON FOR THE ASSESSING OFFICER TO DI SALLOW THE EXPENSES OF THE ASSESSEE AS NOT RELATED TO THE BUSINESS. ACCORDIN GLY, WE AFFIRM THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 6.5 IN THIS REGARD, WE PLACE RELIANCE UPON THE HO NBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF C.I.T. VS. DALMIA PROMOTERS DEVELOPERS P LTD. 281 ITR 346 WHEREIN IT WAS HELD THAT FOR REJECTING THE VIEW TAKE N FOR EARLIER ASSESSMENT YEARS, THERE MUST BE MATERIAL CHANGE IN THE FACT, SITUATIO N OR LAW. WE FURTHER FIND THAT HONBLE APEX COURT IN 193 ITR 321 IN THE CASE RADHA SOAMI SATSAND VS. C.I.T. HAS ITA NO. 4509/DEL/2009 A.Y. 2006-07 9 HELD THAT IN THE ABSENCE OF ANY MATERIAL CHANGE JUST IFYING THE REVENUE TO TAKE THE DIFFERENT VIEW OF THE MATTER. REVENUE IS NOT JUSTIF IED IN TAKING DIFFERENT VIEW. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/07/2010. SD/- SD/- [A.D. JAIN ] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 16/07/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES