TAINWALA HOLDING P. LTD, MUMBAI V. ITO 8(3)(3), MUMBAI

ITA 4713/MUM/2010

• Counselvise Citation: 471319914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 29-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D B SHAH
• Keywords: Business income; Depreciation; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI P.M.JAGTAP (A.M) & SHRI N.V.VASUDEVAN (J.M) ITA NO.4713/MUM/2010(A.Y.2006-07) TAINWAL HOLDING PVT. LTD. 401B, ELEGANT BUSINESS PARK, MIDC CROSS ROAD, ANDHERI(E), MUMBAI 59. PAN:AAACT1542R (APPELLANT) VS. INCOME TAX OFFICER, WARD 8(3)(3), AAYKAR BHAVAN, MK ROAD, MUMBAI. (RESPONDENT) APPELLANT BY : SHRI K.GOPAL RESPONDENT BY : SHRI D.B.SHAH DATE OF HEARING : 29/09/2011 DATE OF PRONOUNCEMENT : 05/10/2011 ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 20/4/2010 OF CIT(A)18, MUMBAI RELATING TO THE ASSESSMENT YEAR 2006-07. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS FOLLOWS: 1. TREATING INCOME BY WAY OF RENT AND SERVICE CHAR GES AS INCOME FROM HOUSE PROPERTY THE COMMISSIONER OF INCOME-TAX (APPEALS), HAS ERRED IN TREATING THE INCOME, AGGREGATING TO RS. 18,00,000/-, EARNED BY A SSESSEE BY WAY OF RENT FOR PROPERTY NOT OWNED BY THE APPELLANT AND SE RVICE CHARGES AS INCOME FROM HOUSE PROPERTY, ALTHOUGH THE INCOME W AS EARNED BY THE APPELLANT AS BUSINESS INCOME. THE APPELLANT, HENCE, PRAYS THAT THE ENTIRE INCOME OF RS. 18,00,000/- BE ASSESSED AS BUSINESS INCOME. 2. AD-HOC DISALLOWANCE OF DEPRECIATION AND BUSINES S EXPENSES. ITA NO.4713/MUM/2010(A.Y.2006-07) 2 THE COMMISSIONER OF INCOME-TAX (APPEALS), HAS ERR ED IN CONFIRMING AD-HOC DISALLOWANCE OF FOLLOWING EXPENDITURE ON THE GROUND THAT NO BUSINESS WAS CARRIED ON BY THE APPELLANT DURING THE YEAR WHEN, IN FACT, THE APPELLANT HAD ONLY PERMITTED USE OF THE P ROPERTY TO ITS CLIENT SAMSONITE SOUTH ASIA PVT. LTD. (SAMSONITE) IN THE C OURSE OF BUSINESS NEGOTIATIONS FOR COMPREHENSIVE BUSINESS SUPPORT SER VICES. A) PERSONNEL COST - RS. 60,000/- B) INSURANCE - RS. 19,945/- C) ADMINISTRATIVE COST - RS. 71,428/- THE APPELLANT PRAYS THAT SINCE THE EXPENSES WERE IN CURRED WHOLLY AND EXCLUSIVELY FOR AND IN THE COURSE OF BUSINESS AND B USINESS DEVELOPMENT, DEDUCTION FOR THE SAME AND STATUTORY DEPRECIATION BE ALLOWED. 2. THE ASSESSEE IS AN COMPANY. IT IS ENGAGED IN TH E BUSINESS OF PROVIDING LOGISTIC AND INFRASTRUCTURE SUPPORT SERVICES AND IN VESTMENT CONSULTANCY. THE ASSESSEE RECEIVED A SUM OF RS. 18.00 LACS IN RE SPECT OF RENTING OUT ITS PREMISES TO SAMSONITE SOUTH ASIA PVT. LTD. IT WAS THE PLEA OF THE ASSESSEE THAT THE SAID LETTING WAS NOT LETTING OUT OF THE PR EMISES INCLUDING PROVIDING PERSONNEL, CONTROL AND MANAGEMENT CONSULTANCY SERVI CES, SECRETARIAL SUPPORT ETC. ACCORDING TO THE ASSESSEE THE AGREEME NT FOR LETTING WAS INITIALLY FOR A PERIOD OF TWO YEARS UPTO NOVEMBER 1997. IT W AS FURTHER EXTENDED UPTO 31/12/03. THEREAFTER THE ARRANGEMENT CONTINUED BUT THE TERMS WERE BEING NEGOTIATED. IT WAS THE PLEA OF THE ASSESSEE THAT I NCOME FROM LETTING OF THE PREMISES HAS TO BE ASSESSED AS INCOME FROM BUSINESS AND NOT INCOME FROM HOUSE PROPERTY. HOWEVER, IN THE RETURN OF INCOME T HE ASSESSEE HAD DECLARED THE SUM OF RS.18.00 LACS RECEIVED FROM SAMSONITE SO UTH ASIA PVT. LT. UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT WAS THE CL AIM OF THE ASSESSEE THAT THIS WAS PURELY A MISTAKE WHILE FILING THE RETURN O F INCOME. ITA NO.4713/MUM/2010(A.Y.2006-07) 3 3. THE RECEIPTS OF THE ASSESSEE DURING THE PREVIOUS YEAR COMPRISED OF RENTAL INCOME AND SERVICE CHARGES OF RS.18.00 LACS AND OTHER INCOME OF RS.20,48,220/-. THE OTHER INCOME COMPRISED OF THE FOLLOWING: (I) BALANCE WRITTEN BACK RS. 8,22,774/- (II) GAIN ON TRANSFER OF SHARES RS. 32,128/- (III) INTEREST ON LOAN RS. 1,58,473/- (IV) INTEREST ON I.T. REFUND RS.10,34,345/- ------------------ RS. 20,48,220/- ============= AS AGAINST THE ABOVE RECEIPTS THE ASSESSEE HAD CLAI MED THE FOLLOWING EXPENDITURE: (I) PERSONNEL COST RS. 60,000/- (II) LEGAL & PROFESSIONAL FEES RS. 300/- (III)INSURANCE RS. 19,945/- (IV) ADMINISTRATIVE & OTHER GENERAL EXPS. R S. 71,428/- (V) DEPRECIATION RS. 14,29,721/- (VI) AUDIT RS. 16,836/- -------------------- TOT AL : RS.15,98,230/- ============= THE AO HELD THAT THE INCOME FROM LEASED PREMISES HA S TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE AO DISALL OWED THE CLAIM FOR DEPRECIATION BECAUSE THE PROPERTY HAD BEEN LET OUT AND USED FOR THE PURPOSE OF ASSESSEES BUSINESS. THEREAFTER THE AO DISALLOW ED PERSONNEL COST OF RS.60,000/-, INSURANCE RS.19,945/- AND ADMINISTRATI VE AND OTHER GENERAL EXPENSES OF RS.71,428/- BECAUSE THERE WAS NO INCOME FROM BUSINESS AND THESE EXPENSES COULD NOT BE ALLOWED UNDER THE OTHER RECEIPTS SHOWN BY THE ASSESSEE IN THEP&L ACCOUNT ALSO. 4. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT I NCOME FROM LETTING HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPER TY. THIS WAS REJECTED ITA NO.4713/MUM/2010(A.Y.2006-07) 4 BY THE CIT(A) FOR THE REASON THAT THERE WAS NO SYST EMATIC ACTIVITY CARRIED OUT BY THE ASSESSEE AND IT WAS A CASE OF SIMPLE EXPLOIT ATION OF IMMOVABLE PROPERTY. THE ASSESSEE MADE AN ALTERNATIVE CONTENT ION THAT THE PERSONNEL COST, INSURANCE AND ADMINISTRATIVE EXPENSES DISALLO WED BY AO SHOULD BE ALLOWED AS A DEDUCTION BY TREATING THE OTHER INCOME SHOWN IN THE P&L ACCOUNT AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND TREATING THE AFORESAID EXPENDITURE AS EXPENSES INCURRED IN E ARNING INCOME FROM OTHER SOURCES. THIS WAS REJECTED BY THE CIT(A) FOR THE F OLLOWING REASONS: THERE APPEARS TO BE NO CONNECTION BETWEEN THE INCO ME OFFERED UNDER THE HEAD OTHER INCOME AND THE EXPENSES CLAIMED BY T HE ASSESSEE OF PERSONNEL COST RS.60,000/-, INSURANCE 19,945/- AND ADMINISTRATIVE EXPENSES RS.71,428/-. IN THE ABSENCE OF ANY EVIDENC E THAT THESE EXPENSES ARE INCURRED FOR EARNING THE INCOME UNDER THE HEAD OTHER SERVICES, THESE EXPENSES CAN NOT BE ALLOWED. THE VE RY NATURE OF INCOMES OFFERED UNDER THE HEAD OTHER INCOME CLEARLY SHOWS THAT NO EXPENSES ARE REQUIRED TO BE INCURRED. ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO OF RS. 1,51,373/- IS CONFIRMED. 5. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSE E HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL SUBMISSION. GROUND NO.1 WAS NOT PRESSED, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. A S FAR AS GROUND NO.2 IS CONCERNED WE ARE OF THE VIEW THAT THE CLAIM FOR DEP RECIATION CANNOT BE ALLOWED BECAUSE THE PROPERTY WAS NOT USED FOR THE P URPOSE OF BUSINESS OF THE ASSESSEE. AS FAR AS THE OTHER EXPENSES ARE CONCERN ED WE ARE OF THE VIEW THAT TO THE EXTENT THAT THESE EXPENSES ARE NECESSARY FOR MAINTAINING THE CORPORATE ENTITY OF THE ASSESSEE THEY HAVE TO BE AL LOWED. THESE EXPENSES CANNOT BE CONSIDERED AGAINST INCOME FROM OTHER SOU RCES BECAUSE THESE EXPENSES HAVE NO NEXUS WITH THOSE INCOME. THE QUE STION OF ALLOWING THESE EXPENSES IS, THEREFORE, REMANDED TO THE AO FOR FRES H CONSIDERATION. THE AO ITA NO.4713/MUM/2010(A.Y.2006-07) 5 WILL GIVE OPPORTUNITY OF BEING HEARD TO THE ASSESSE E AND ALLOW EXPENSES WHICH ARE NECESSARY FOR MAINTAINING THE CORPORATE E NTITY. FOR STATISTICAL PURPOSES THE APPEAL IS TREATED AS PARTLY ALLOWED. 6. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS TRE ATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON T HE 5 TH DAY OF OCT.. 2011. SD/- SD/- (P.M.JAGTAP ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 5 TH OCT.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RF BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.4713/MUM/2010(A.Y.2006-07) 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 29/9/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 30/9/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER