SOHAM TRADING AND INVESTMENTS PVT. LTD., MUMBAI V. A.C.I.T. 7(2), MUMBAI

ITA 4579/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2616 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 12-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 06-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV KASHYAPDR
• Assessee Lawyers: S C TIWARI
• Keywords: Business income; Depreciation; Opportunity of being heard; Principle of natural justice; Condonation of delay
• Section: 143(3); 56

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI C. N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.4579 /MUM/2012 ( / ASSESSMENT YEAR : 2008-09) SOHAM TRADING AND INVESTMENTS PRIVATE LIMITED MAHALAXMI INDUSTRIAL ESTATE GROUND FLOOR, L.J.ROAD NO.1 MAHIM(WEST) MUMBAI- 400016 / V. ASSISTANT COMMISSIONER OF INCOME TAX-7(2) MUMBAI ./ PAN : AABCS4422J ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI S C TIWARI & MS. RUTUJA N. PAWAR REVENUE BY : SHRI SANJEEV KASHYAP,DR / DATE OF HEARING : 02-08-2016 / DATE OF PRONOUNCEMENT : 07-10-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING ITA NO. 4579/MUM/2012, IS DIRECTED AGAINST THE APPELLATE OR DER DATED 27 TH DECEMBER, 2011 PASSED BY LEARNED COMMISSIONER OF IN COME TAX (APPEALS)- 13, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR T HE ASSESSMENT YEAR 2008- 09, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CI T(A) ARISING FROM THE ASSESSMENT ORDER DATED 30 TH NOVEMBER , 2010 PASSED BY THE LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME TAX ACT,1961 (HEREINAFTER CALLED THE ACT). ITA 4579/MUM/2012 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COM PANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL , MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER(APPEALS) [ FOR SHORT LD. CIT( A)] HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER [ FOR SHORT LD. AO ] IN TREATING THE LEGITIMATE BUSINESS INCOME IN THE FO RM OF LEAVE & LICENSE FEES AND MAINTENANCE & AMENITIES CHARGES RE CEIVED AS INCOME FROM OTHER SOURCES. 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING THE BUSINESS LOSS ON SA LE OF SECURITIES UNDER PORTFOLIO MANAGEMENT SERVICE AS SHORT TERM C APITAL LOSS AND ENHANCED ASSESSMENT WITHOUT AFFORDING REAL OPPORTUNITY REAL OPPORTUNITY OF BEING HEARD IN THE MATTER. 3. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN ENHANCING ASSESSMENT BY DISALLOWING DEPRECIATION ALLOWED BY LEARNED ASSESSING OFFICER ( FOR SHORT LD. AO) OF RS.1,71,006/- WITHOUT AFFORDING REAL OPPORTUNITY OF BEING HEARD IN THE MATTER. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF PREMISES SERVICE PROVIDER ON LEAVE AND LICENSE BASIS. IT ALSO PROVIDES AMENITIES. THE FILING OF THIS APPEAL IS DE LAYED BY 11 DAYS AND CONDONATION OF DELAY IN FILING THE APPEAL IS SOUGHT BY THE ASSESSEE VIDE AFFIDAVIT DATED 16-07-2013 OF MR. NIMESH L. JOSHI, MANAGING DIRECTOR OF THE ASSESSEE COMPANY WHICH IS PLACED IN FILE , WHEREIN IT IS SUBMITTED BY THE SAID MR. NIMESH L. JOSHI THAT THE APPEAL WAS DELAYED BY 11 DAYS DUE TO HIS ILLNESS DURING THE RELEVANT PERIOD . THE LD DR DID NOT RAIS ED ANY OBJECTION TO THE DELAY. THE DELAY OF 11 DAYS IN FILING APPEAL LATE IS CONDONED AND THE APPEAL IS BEING HEARD ON MERITS. 4. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS TAKEN ON LEASE PREMISES OWNED BY M/S MAHALAXMI ENGINEERING COMPANY PRIVATE LIMITED AND SUB- ITA 4579/MUM/2012 3 LEASED THE SAME PROPERTY TO M/S G E COUNTRYWIDE CON SUMERS AND FINANCIAL SERVICES LIMITED AND RECEIVED INCOME IN THE FORM OF MAINTENANCE CHARGES OF RS.46,51,200/- AND LEAVE AND LICENSE FEES OF RS.72, 38,430/-FROM THE SUB- LEASE AND SHOWN UNDER THE HEAD PROFIT AND GAINS FR OM BUSINESS AND PROFESSION. THE AO SHOW CAUSED THE ASSESSEE AS TO WHY THE SAME SHOULD NOT BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THERE ARE TWO SEPARATE AGREEMENTS FOR PROVIDING THE LICENSE AND AMENITIES / SERVIC ES TO THE OCCUPANTS OF THE PREMISES AND THIS A COMPLEX PROCESS OF PROVIDING TH E SPACE SOLUTIONS HAVING INGREDIENT OF BUSINESS ACTIVITIES. THE ASSESSEE SUB MITTED BEFORE THE AO THAT THIS NATURE OF THE BUSINESS OF THE ASSESSSEE IS PR EMISES SERVICE PROVIDER WHICH INCLUDES THE SERVICES OF PROVIDING ELECTRICIT Y, USE OF LIFTS, UNINTERRUPTED SUPPLY OF WATER, MAINTENANCE OF STAIRCASES AND COMM ON AREAS, WATCH AND WARD FACILITIES WHICH CONSTITUTE COMPLEX BUSINESS A CTIVITIES. THE ACCOUNTS ARE AUDITED UNDER THE PROVISIONS OF SECTION 44AB OF THE ACT WHEREBY THE AUDITORS HAVE TREATED THE ENTIRE ACTIVITY AS BUSINESS OPERAT IONS. THE ASSESSEE SUBMITTED THAT IT INCURRED SALARY , TELEPHONE, ELEC TRICITY AND OTHER EXPENSES SUCH AS AUDIT FEES, LEGAL FEES , BANK CHARGES, ROC FEES ETC. WHICH REFLECTS THAT THE ASSESSEE IS PRIMARILY CARRYING ON BUSINESS ACTI VITIES. IT WAS SUBMITTED THAT IF THE EXPENSES FALL UNDER SPECIFIC HEAD OF IN COME , THEN THE SAME CANNOT BE BROUGHT TO TAX UNDER RESIDUARY HEAD U/S. 56 OF T HE ACT . THE ASSESSEE RELIED UPON DECISION OF HONBLE SUPREME COURT IN TH E CASE OF (1960) BIHAR STATE BANK V. CIT 39 ITR 114(SC). IT WAS SUBMITTED BEFORE THE AO THAT THE CHARACTER AND NATURE OF THE INCOME, ACCORDING TO TH E COMMON NOTIONS OF PRACTICAL MEN HAS TO BE DETERMINED AND ACCORDINGLY CHARGED TO TAX UNDER THE SPECIFIC HEAD OF INCOME RELYING ON THE DECISION IN THE CASE OF NALINIKANT MODY V. NARAYAN ROW 61 ITR 428(SC) , CIT V. NEW INDIA 20 1 ITR 208, GOPI V. CIT 225 ITR 320. ITA 4579/MUM/2012 4 THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE AS IT WAS HELD BY THE AO THAT THE INCOME FROM SUB-LEASED ASSETS DOES NOT COME WIT HIN THE PURVIEW OF BUSINESS INCOME AS AN ACT OF TAKING A SINGLE PROPER TY ON LEASE FROM A RELATED CONCERN AND GIVING THE SAME ON SUB-LEASE CANNOT BE TERMED AS A BUSINESS ACTIVITY. IT WAS OBSERVED BY THE AO THAT THE ASSESS EE IS NOT THE OWNER OF THE PREMISES AND HENCE THE INCOME CANNOT BE INCLUDED UN DER THE HEAD INCOME FROM HOUSE PROPERTY. SINCE THE INCOME DOES NOT FALL UNDER ANY OF THE HEADS OF INCOME, IT WILL FALL UNDER THE RESIDUARY HEAD OF I NCOME FROM OTHER SOURCES, AS WAS HELD BY THE AO VIDE ASSESSMENT ORDER DATED 30-1 1-2010 PASSED BY THE AO U/S. 143(3) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-11-20 10 PASSED BY THE AO U/S. 143(3) OF THE ACT, THE ASSESSEE FILED FIRST AP PEAL WITH THE LEARNED CIT(A), WHICH APPEAL WAS DISMISSED BY THE LEARNED CIT(A) AS THE ASSESSEE DID NOT HAD ANY EVIDENCE TO SHOW THAT IT IS IN THE BUSINESS OF LETTING OUT PREMISES ON COMMERCIAL BASIS, VIDE APPELLATE ORDER DATED 27-12- 2011 PASSED BY LEARNED CIT(A). THE LEARNED CIT(A) ALSO DISALLOWED DEPRECIA TION ON ASSETS TO THE TUNE OF RS.1,71,006/- SINCE THE RENTAL INCOME AND MAINTE NANCE INCOME HAS BEEN ASSESSED TO TAX AS INCOME FROM OTHER SOURCES , NO DEPRECIATION IS ALLOWABLE U/S 57(2) OF THE ACT AS THE DEPRECIATION DOES NOT R ELATE TO INCOME FROM PLANT AND MACHINERY OR FURNITURE. 5. AGGRIEVED BY THE APPELLATE ORDER DATED 27-12-201 1 PASSED BY LEARNED CIT(A), THE ASSESSEE FILED SECOND APPEAL WITH THE T RIBUNAL. 6. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED B EFORE THE TRIBUNAL THAT THE ASSESSEE CASE IS COVERED BY THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF THE SISTER CONCERN OF THE ASSESSEE NAMELY S HREENATH BALAJI COMPUTECH PRIVATE LIMITED V. ACIT IN ITA NO. 6251 & 6253/MUM/2012 FOR THE ASSESSMENT YEARS 2006-07 AND 2008-09 VIDE ORDER S DATED 17-06-2015. ITA 4579/MUM/2012 5 THE ASSESSEE ALSO RELIED UPON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES AND INVESTMENT LIMITED V . CIT IN (2015) 373 ITR 0631(SC) AND DECISION OF MUMBAI TRIBUNAL IN THE CAS E OF ITO V. RASIKLAL & CO. REPORTED IN (2009) 119 ITD 61(MUM. TRIB). 7. THE LEARNED DR RELIED UPON THE ORDERS OF THE LEA RNED CIT(A). 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE MATERIAL ON RECORDS INCLUDING CASE LAWS RELIED UPON. WE HAVE OB SERVED THAT THE ASSESSEES IS ENGAGED IN BUSINESS AS PREMISES SERVICE PROVIDE R ON LEAVE AND LICENSE BASIS AND ALSO PROVIDING AMENITIES. THE ASSESSEES MAIN INCOME IS ON ACCOUNT OF LEAVE AND LICENSE FEES AND MAINTENANCE AND AM ENITIES FEES . THE ASSESSEE IS NOT THE OWNER OF THE PROPERTY AND HAS TAKEN THE PROPERTY ON LEASE FROM M/S MAHALAXMI ENGINEERING COMPANY PRIVATE LIMITED A ND SUB-LEASED THE SAME PROPERTY TO M/S G E COUNTRYWIDE CONSUMER AND F INANCIAL SERVICES LIMITED AND RECEIVED INCOME IN THE FORM OF MAINTEN ANCE CHARGES OF RS. 46,51,200/- AND LEAVE AND LICENSE FEES OF RS.72,38, 430/- FROM THE SUB-LEASE. THE ASSESSEE HAS ALSO CLAIMED TO BE PREMISES SERVI CE PROVIDER WHICH INTER- ALIA INCLUDED THE SERVICES OF PROVIDING ELECTRICITY , USE OF LIFTS, UNINTERRUPTED WATER SUPPLY, MAINTENANCE OF STAIRCASES AND COMMON AREAS, WATCH AND WARD FACILITIES . THE ASSESSEE HAVING RECEIVED MAINTENA NCE AND AMENITY CHARGES FOR PROVIDING ADDITIONAL SERVICES TO THE SUB-LESSEE , WHICH WAS IN ADDITION TO THE SUB-LEASE CHARGES BEING LEAVE AND LICENSE FEE R ECEIVED FOR THE OCCUPATION OF THE SAID PREMISES. THE SAID INCOME WAS OFFERED FOR TAX BY THE ASSESSEE AS BUSINESS INCOME UNDER THE HEAD PROFIT AND GAINS FR OM BUSINESS OR PROFESSION WHILE THE REVENUE ASSESSED THE SAME AS INCOME FROM OTHER SOURCES ON THE GROUNDS THAT THE ACTIVITY OF TAKING A SINGLE PROPERTY ON LEASE FROM RELATED CONCERN AND GIVING THE SAME ON SUB-LEA SE CANNOT BE TERMED AS A BUSINESS ACTIVITY AND SINCE THE ASSESSEE IS NOT TH E OWNER OF PREMISES AND HENCE THE SAME CANNOT BE ASSESSED TO TAX UNDER THE HEAD INCOME FROM ITA 4579/MUM/2012 6 HOUSE PROPERTY. SINCE IT DID NOT FELL UNDER ANY OF THE OTHER SPECIFIED HEAD OF INCOME, THE REVENUE BROUGHT TO TAX THE SAID INCOME AS INCOME FROM OTHER SOURCES WHICH IS A RESIDUARY HEAD OF INCOME . THE SAID ASSESSMENT ORDER OF THE AO WAS UPHELD BY THE LEARNED CIT(A) ON THE GROU NDS THAT THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE IS IN BUSINESS O F LETTING OUT OF THE PREMISES ON COMMERCIAL BASIS AND HENCE THE INCOME F ROM THE SAME CANNOT BE BROUGHT TO TAX UNDER THE HEAD PROFITS AND GAINS FR OM BUSINESS OR PROFESSION. WE HAVE OBSERVED THAT THE ASSESSEES MAIN OBJECTS I N THE OBJECT CLAUSE OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE ASSES SEE COMPANY (PB-I/PAGE 1-30) DID NOT SPECIFY THAT THE ASSESSEE WOULD TAKE ANY PREMISES ON LEASE AND WOULD IN TURN SUB-LEASE THE SAME OF LEAVE AND LICEN SE BASIS , BUT THE INTENTION OF THE ASSESSEE TO EXPLOIT THE ASSET LEAS ED BY IT IS CLEAR FROM ACTIVITIES CARRIED ON BY THE ASSESSEE FROM THE PERU SAL OF ITS AUDITED FINANCIAL STATEMENTS (PB-I/PAGE 31-65) . THE ASSESSEE IN OUR CONSIDERED VIEW IS INVOLVED IN A SYSTEMATIC ACTIVITY OF EXPLOITING ITS ASSET, WHICH IN TURN IT HAD TAKEN ON LEASE , IS THUS INVOLVED IN CARRYING ON BU SINESS ACTIVITY. THUS, THE INCOME ARISING THERE FROM SUCH BUSINESS ACTIVITY IS TO BE ASSESSED TO TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD PROFITS A ND GAINS FROM BUSINESS OR PROFESSION AS INCOME FROM BUSINESS. THE ASSESSEE IS ENTITLED FOR CLAIM OF EXPENDITURE INCLUDING DEPRECIATION OF ASSETS BUT NO T ON THE BUILDING , AS THE BUILDING WAS LEASED BY THE ASSESSEE WHEREIN THE ASS ESSEE IS NOT THE OWNER , AS DEDUCTION AGAINST SUCH BUSINESS INCOME . THE CAS E OF THE ASSESSEE IS COVERED BY THE DECISION OF MUMBAI TRIBUNAL IN THE C ASE OF SHREENATH BALAJI COMPUTECH PRIVATE LIMITED V. ACIT IN ITA NO. 6251/M UM/2012 AND 6253/MUM/2012 VIDE ORDERS DATED 17-06-2015 WHEREIN THE TRIBUNAL HELD THE SAID INCOME FROM LEAVE AND LICENSE FEE AS WELL MAINTENANCE CHARGES AS INCOME FROM BUSINESS TO BE BROUGHT TO TAX AS PROFI T AND GAINS OF BUSINESS OR PROFESSION AND ALSO ALLOWED THE CLAIM OF DEPRECIAT ION ON ASSETS EXCEPT ON BUILDING WHICH WAS LEASED BY THE TAX-PAYER IN THAT CASE , AS THE FACTS IN THE ITA 4579/MUM/2012 7 INSTANT CASE ARE SIMILAR. THUS THE GROUND NO. 1 AN D 3 ARE ALLOWED. WE ORDER ACCORDINGLY. 9. THE NEXT GROUND BEING GROUND NO 2 RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE TRIBUNAL IS WITH RESPECT TO T REATMENT BY LEARNED CIT(A) OF BUSINESS LOSS ON SALE OF SECURITIES UNDER PORTFOLI O MANAGEMENT SERVICES AS SHORT TERM CAPITAL LOSS BY THE LEARNED CIT(A) WITHO UT AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE ON THE GROUNDS THAT TH E ASSESSEE HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW HOW THE SALE OF SECURITIES IS A BUSINESS LOSS AND AS SUCH THE SAID LOSS WAS TREATED AS SHORT TERM CAPITAL LOSS BY THE LEARNED CIT(A). THE LEARNED CIT(A) FURTHER H ELD THAT THE AO HAS ALLOWED SHORT TERM CAPITAL LOSS AGAINST INCOME FROM OTHER SOURCES WHILE COMPUTING GROSS TOTAL INCOME . THE LEARNED CIT(A) HELD THAT T HE ASSESSEE IS NOT ENTITLED FOR SET OFF OF SHORT TERM CAPITAL LOSS AGAINST ANY OTHER HEAD OF INCOME AS PER PROVISIONS OF SECTION 71(3) OF THE ACT AND HENCE TH E SET OFF OF LOSS BEING SHORT TERM CAPITAL LOSS OF RS.8,08,101/- WAS WITHDRAWN AN D THE INCOME WAS ENHANCED TO THAT EXTENT BY THE LEARNED CIT(A). THE ASSESSEE IS AGGRIEVED THAT THE LEARNED CIT(A) ENHANCED ASSESSMENT WITHOUT AFFO RDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE LEARNED DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. THE POWER OF LEARNED CIT(A) IS CO-TERMINUS WITH POWERS OF THE AO WHICH INCLUDE POWER OF ENHANCEMENT OF THE AS SESSMENT BY THE LEARNED CIT(A) BUT PRINCIPLES OF NATURAL JUSTICE ARE TO BE ADHERED TO AND THE LEARNED CIT(A) OUGHT TO HAVE GIVEN PROPER OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE BE FORE ENHANCING OF THE ASSESSMENT. THUS IN ORDER TO DO COMPLETE JUSTICE IN THE MATTER, THIS ISSUE IS TO BE SET ASIDE AND RESTORED TO THE FILE OF THE LEA RNED CIT(A) TO DE-NOVO ADJUDICATE THE ISSUE ON MERITS AFTER AFFORDING OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. NEEDLESS TO SAY THAT PROPER AND SUFFI CIENT OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED BY LEARNED CIT(A) TO THE AS SESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LA W. THE ASSESSEE WILL BE ITA 4579/MUM/2012 8 ALLOWED TO SUBMIT RELEVANT EVIDENCES AND EXPLANATIO NS TO SUBSTANTIATE AND SUPPORT ITS CONTENTIONS IN ITS DEFENSE. THIS DISPO SES OF GROUND NO 2 RAISED BY THE ASSESSEE IN MEMO OF APPEAL FILED WITH THE TRIBU NAL. WE ORDER ACCORDINGLY. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO. 4579/MUM/2012 FOR THE ASSESSMENT YEAR 2008-09 IS ALLOWED AS INDIC ATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH OCTOBER, 2016. # $% &' 07-10-2016 ( ) SD/- SD/- (C.N. PRASAD) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 07 -10-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI E BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI