OVERSEAS PLASTICS MOULDERS INDIA LTD, MUMBAI V. ITO 8(2)(4), MUMBAI

ITA 4856/MUM/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9031 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 22-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Assessee Lawyers: VIPUL J SHAH
• Keywords: Business income; Business expenditure
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C, MU MBAI BEFORE SHRI P.K. BANSAL, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.4856/MUM/2014 (ASSESSMENT YEAR- 2008-09) OVERSEAS PLASTICS MOULDERS INDIA LIMITED, 1-SANSKAR, ROAD NO.8, JUHU SCHEME, VILE PARLE (W), MUMBAI-400059 PAN: AAACO9679C VS. ITO-8(2)(4), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIPUL J. SHAH (AR) REVENUE BY : SHRI RAJAT MITTAL (DR) DATE OF HEARING : 08.08.2017 DATE OF PRONOUNCEMENT : 11.10.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF THE IN COME-TAX ACT (THE ACT) IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-17, MUMBAI DATED 15.04.2014 FOR THE ASSESSMENT YEAR (AY) 2008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL . 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED COMMISSIONER OF INCOME TAX - APPEAL (CIT-A) ERRED I N CONFIRMING THE RENT INCOME OF RS.30,00,000/-, RECEIVED ON LETTING OUT O F WAREHOUSE, AS INCOME FROM HOUSE PROPERTY INSTEAD OF INCOME FROM BUSINESS AND PROFESSION. WITHOUT PREJUDICE TO ABOVE 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED COMMISSIONER OF INCOME TAX - APPEAL (CIT-A) ERRED I N NOT ALLOWING THE EXPENSES OF PROPERTY TAX OF RS.1,22,690/- AND SERVI CE TAX OF RS.3,67,200/- PAID FOR THE PROPERTY LET OUT, WHICH ARE ALLOWABLE AS EXPENSES UNDER SEC.23 OF THE I T ACT, 1961. ITA NO.4856/M/2014- OVERSEAS PLASTICS MOULDERS INDIA LIMITED. 2 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND L AW THE LEARNED COMMISSIONER OF INCOME TAX - APPEAL (CIT-A) ERRED I N CONFIRMING THE DISALLOWANCE OF BUSINESS EXPENSES WITHOUT APPRECIAT ING THE FOLLOWING; I. THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF PLASTIC MOULDING, WHICH FACT IS CONFIRMED BY THE AO HIMSELF IN HIS ORDER. II. THAT ONE OF THE MAJOR EXPENSE WAS INTEREST PAID ON LOAN AVAILED FOR PURCHASE OF PLANT AND MACHINERY WHICH ARE USED IN THE BUSINE SS AND THE SAID FACT IS NOT DENIED BY THE LEARNED AO. III. THAT THE BOOKS OF ACCOUNT OF THE APPELLANT ARE DULY AUDITED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND THE SAME ARE WELL ACCEPTED BY THE LEARNED AO, LEADING TO THE FACT THAT EXPENSES ARE G ENUINE IN NATURE. IV. THAT THE REASON ADVOCATED BY THE LEARNED AO FOR DISALLOWING THE EXPENSES IS AGAINST THE FUNDAMENTAL PRINCIPLES AND PROVISION S OF I T ACT, 1961 AND AGAINST THE INTENT OF SEC. 71 FOR SET OFF OF INTER HEAD LOSS AND SEC. 72 GOVERNING CARRY FORWARD OF LOSS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE BUSINESS OF MANUFACTURE, PROCESS, DISTRIBUTE AND DE AL IN ALL KINDS OF PLASTIC MOLDED PRODUCTS. THE ASSESSEE FILED ITS RETURN OF I NCOME FOR RELEVANT AY ON 30.09.2008 DECLARING TOTAL INCOME AT RS. 77,107/-. THE RETURN OF INCOME WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUE NTLY, THE ASSESSMENT WAS RE-OPENED ON 17.02.2012. NOTICE UNDER SECTION 1 48 WAS SERVED UPON THE ASSESSEE. IN RESPONSE TO THE NOTICE, THE ASSESSEE R ELIED ON THE RETURN ALREADY FILED ON 30.09.2008. THE ASSESSMENT WAS COMPLETED U NDER SECTION 143(3) R.W.S 147 OF THE ACT ON 12.03.2013. THE ASSESSEE OF FERED RENTAL INCOME AS BUSINESS INCOME. HOWEVER, THE ASSESSING OFFICER (AO ) WHILE PASSING THE ASSESSMENT ORDER TREATED THE RENTAL INCOME OF RS. 3 0,00,000/- UNDER THE HEAD INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS I NCOME. CONSEQUENT UPON DISALLOWED THE CLAIM OF EXPENDITURE OF BUSINES S FOR RS. 29,22,893/-. ON APPEAL BEFORE THE LD. CIT(A), THE ACTION OF AO W AS SUSTAINED. THUS, ITA NO.4856/M/2014- OVERSEAS PLASTICS MOULDERS INDIA LIMITED. 3 FURTHER AGGRIEVED BY THE ORDER OF LD. CIT(A), THE A SSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) FOR THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENU E AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. AR OF THE ASS ESSEE ARGUED THAT ASSESSEE WAS A PARTNERSHIP FIRM. THE PARTNERSHIP FIRM WAS CO NVERTED INTO A COMPANY. THE ASSESSEES PROPERTY LET A HOUSE (GODOWN) ON 1 ST SEPTEMBER 2005 AND THE INCOME EARNED FROM LETTING OUT OF THE BUSINESS PREM ISES WAS OFFERED AS BUSINESS INCOME. IT WAS SUBMITTED THAT AS PER OBJ ECT CLAUSE-6 OF MEMORANDUM OF ASSOCIATION, ONE OF ITS ACTIVITIES IS TO EARN INCOME FROM LETTING OF PROPERTY. THE ASSESSEE MADE THE SUBMISSION BEFO RE THE LOWER AUTHORITIES TO TREAT THE RENTAL INCOME AS BUSINESS INCOME AND FURTHER TO ALLOW THE CLAIM OF EXPENSES OF BUSINESS EXPENDITURE FOR THE RELEVANT FINANCIAL YEAR. IN SUPPORT OF HIS SUBMISSION, THE L D. AR OF THE ASSESSEE RELIED UPON THE RECENT DECISION OF HONBLE SUPREME COURT IN CASE OF M/S RAYALA CORPORATION PVT. LTD. VS. ACIT IN CIVIL APPE AL NO. 6438 OF 2016 DATED 11.08.2016. THE LD. AR OF THE ASSESSEE WITHOU T PREJUDICE TO HIS CONTENTION FURTHER ARGUED THAT HE HAS RAISED GROUND NO.2 THAT LD. CIT(A) NOT ALLOWED THE EXPENSES OF PROPERTY TAX AND SERVICE TA X PAID ON LET OUT THE PROPERTY WHICH WAS ALLOWABLE EXPENSES AS PER SECTIO N 23 OF THE ACT, IF THE RENTAL INCOME IS TREATED AS INCOME FROM HOUSE PROP ERTY. THEN THE ASSESSEE IS ENTITLED TO ALL EXPENSES. ON THE OTHER HAND, THE LD. DR FOR THE ITA NO.4856/M/2014- OVERSEAS PLASTICS MOULDERS INDIA LIMITED. 4 REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. I T WAS ARGUED THAT AS PER THE MEMORANDUM OF ASSOCIATION, THE MAIN OBJECT OF T HE ASSESSEE-COMPANY IS TO MANUFACTURE, PROCESS, MARKETING, DISTRIBUTION , BUY AND SALE OF PLASTIC METAL OR ALLIED MATERIAL FOR INDUSTRIAL, COMMERCIAL AND DOMESTIC USE. THE LETTING OF THE PROPERTY IS NOT THE MAIN OBJECT OF T HE ASSESSEE. IN INCIDENTAL OBJECT, THE ASSESSEE HAS REFERRED SO MANY INCIDENTA L OBJECTS. THE ASSESSEE HAS NOT SHOWN/OFFERED ANY INCOME FROM ITS BUSINESS ACTIVITY. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE GROUND NO. 1 AND 3 ARE INTERCONNECTED, THUS BOTH THE GROUNDS ARE TAKEN TOG ETHER FOR ADJUDICATION. DURING THE ASSESSMENT PROCEEDING THE ASSESSING OFFI CER NOTICED THAT ASSESSEE HAS CREDITED THE RENTAL INCOME OF RS. 30 LAKHS UNDE R THE HEAD OTHER INCOME AND CLAIMED BUSINESS EXPENSES OF RS. 29,22,893/-. T HUS, OFFERED BUSINESS INCOME OF RS.77,107/-. THE ASSESSEE WAS ASKED AS TO WHY THE RENTAL INCOME BE NOT TREATED AS INCOME FROM HOUSE PROPERTY AS T HERE IS NO BUSINESS INCOME DURING THE YEAR. THE ASSESSEE FILED ITS REPL Y DATED 15 TH FEBRUARY 2013. IN THE REPLY THE ASSESSEE CONTENDED THAT THE MAIN ACTIVITIES OF THE ASSESSEE IS TO CARRY OUT BUSINESS OF PROVIDING WARE HOUSE STORES AND THAT SUCH ACTIVITIES ARE COMMERCIAL ACTIVITY, WHICH IS WITHIN MAIN OBJECT OF THE ASSESSEE. THE EXPLANATION OF THE ASSESSEE WAS NOT A CCEPTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER CONCLUDED THAT THE M AIN BUSINESS OF ASSESSEE IS PLASTIC MOLDING PRODUCT. THE ASSESSEE FAILED TO EXPLAIN AS TO WHY SECTION ITA NO.4856/M/2014- OVERSEAS PLASTICS MOULDERS INDIA LIMITED. 5 23 IS NOT APPLICABLE. THE ASSESSING OFFICER FURTHER CONCLUDED THAT THE ASSESSEE IS CLAIMING VARIOUS EXPENSES WHICH ARE OTH ERWISE NOT ALLOWABLE UNDER SECTION 24. THE ASSESSING OFFICER TREATED THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY AND GRANTED STANDARD DEDUCTIO N AT THE RATE OF 30%. THE ADMINISTRATIVE EXPENSES OF RS. 13,07,763/-AND F INANCIAL EXPENSES OF RS. 16,16,544/-WAS ADJUSTED AND TREATED THOSE AMOUNT A S LOSS. THE ASSESSING OFFICER FURTHER HOLD THAT LOSS MAINLY REPRESENT TO THE INCOME TAXABLE UNDER THE HEAD OTHER THAN HOUSE PROPERTY AND INCOME FR OM OTHER SOURCES. 5. ON APPEAL BEFORE THE COMMISSIONER (APPEALS) THE ASS ESSEE CONTENDED THAT IF THE RENTAL INCOME IS NOT ASSESSED AS BUSINESS INCO ME THE ASSESSEE BE HELD ENTITLED FOR THE STANDARD DEDUCTION AND EXPENSES OF MUNICIPAL TAXES OF RS.1,22,690/- AND SERVICE TAX OF RS. 3,67,200/- (TO TAL FOR RS. 4,89,890/-) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE LEARNED COMMISSIONER (APPEALS) OBSERVED THAT NO GENERAL PRINCIPLES CAN BE LAID DOW N WHICH MAY BE APPLICABLE IN ALL CASES, EACH CASE IS TO BE DECIDED ON THE FACT AND CIRCUMSTANCES OF THE CASE. ON THE BASIS OF HIS OBSE RVATION THE LEARNED COMMISSIONER (APPEALS) CONCLUDED THAT IF MAIN OBJEC T OF THE ASSESSEE IS TO EARN INCOME BY LETTING THE PROPERTY OR ANY PORTION IT MUST BE CONSTRUED AS RENTAL INCOME FROM THE HOUSE PROPERTY. AND IN CASE IT IS FOUND THAT MAIN INTENTION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY W AY OF COMPLEX COMMERCIAL ACTIVITIES, IN THAT EVENT, IT MUST BE TR EATED AS BUSINESS INCOME. IT WAS FURTHER CONCLUDED THAT OF THE MAIN INTENTION IS TO USE THE PROPERTY AS ITA NO.4856/M/2014- OVERSEAS PLASTICS MOULDERS INDIA LIMITED. 6 BUSINESS ASSET INCOME THEREOF SHOULD BE ASSESSED AS BUSINESS INCOME AND IF THE PRIMARY INTENTION IS TO LET OUT PROPERTY SIMPLI CITOR THE INCOME HAS TO BE TREATED AS INCOME FROM HOUSE PROPERTY. ON THE BAS IS OF ABOVE CONCLUSION THE LEARNED COMMISSIONER (APPEALS) CONCLUDED THAT T HE RENTAL INCOME EARNED BY ASSESSEE IS TO BE TAXED UNDER THE INCOME FROM HOUSE PROPERTY AND THUS CONFIRMED THE ACTION OF ASSESSING OFFICER. IN OUR VIEW THE LEARNED COMMISSIONER (APPEALS) APPRECIATED THE FACT IN A CO RRECT PERSPECTIVE. THE PERUSAL OF OBJECTS IN THE MEMORANDUM OF ASSOCIATION OF ASSESSEE COMPANY REVEALS THAT INCOME FROM LETTING OUT OF THE PROPERT Y IS NOT ITS MAIN OBJECT. IN THE ANCILLARY OBJECTS THE ASSESSEE HAS REFERRED A N UMBER OF BUSINESS ACTIVITIES. THE ASSESSEE HAS NOT CARRIED OUT ANY OF THE ACTIVITIES MENTIONED IN ANCILLARY OBJECT. EVEN OTHERWISE THE ASSESSEE HAS N OT SHOWN ANY BUSINESS ACTIVITY DURING THE RELEVANT YEAR UNDER CONSIDERATI ON. 6. THE DECISION OF HONBLE SUPREME COURT RELIED BY LEA RNED AR OF THE ASSESSEE IN CASE OF RAYALA CORPORATION (SUPRA) IS N OT APPLICABLE ON THE FACTS OF THE PRESENT CASE. IN OUR UNDERSTANDING THE HONB LE APEX COURT IN RAYALA CORPORATION HELD THAT IN ORDER TO CLAIM RENTAL INCO ME TAXABLE UNDER HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', RENT SHOULD BE MAIN SOURCE OF INCOME, OR EARNING INCOME FROM RENT SHOULD BE FOR P URPOSE FOR WHICH COMPANY IS INCORPORATED. THE ASSESSEE-COMPANY IN RA YALA CORPORATION WAS ENGAGED IN BUSINESS OF LEASING ITS PROPERTIES TO EA RN RENT. FURTHER, IT WAS ONLY BUSINESS OF ASSESSEE-COMPANY. HOWEVER, IN THE CASE IN HAND THE EARNING ITA NO.4856/M/2014- OVERSEAS PLASTICS MOULDERS INDIA LIMITED. 7 FROM LETTING OUT OF THE PROPERTY IS NOT THE MAIN BU SINESS ACTIVITY OF THE ASSESSEE COMPANY. THUS, THE CASE LAW RELIED BY LEAR NED AR OF THE ASSESSEE IS NOT HELPFUL TO THE ASSESSEE. THUS, THE GROUND NO 1 AND 3 OF APPEAL RAISED BY ASSESSEE ARE NOT ACCEPTABLE TO US. IN THE RESULT THE GROUNDS NO.1 AND 3 OF APPEAL ARE DISMISSED. 7. AN ALTERNATIVE THE ASSESSEE HAS RAISED THE GROUND N O.2 OF APPEAL TO THE EFFECT THAT THE ASSESSEE BE ALLOWED DEDUCTION OF EXPENSES OF PROPERTY TAX AND SERVICE TAX. IN OUR VIEW BOTH THE EXPENSES ARE ALLO WABLE DEDUCTIONS. THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE EXPENSE S AND GRANT THE DEDUCTION ACCORDING TO LAW. IN THE RESULT THIS GROUND OF APPE AL IS ALLOWED SUBJECT TO VERIFICATION BY THE ASSESSING OFFICER. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DAY OF OCTOBE R 2017. SD/- SD/- (P.K. BANSAL) (PAWAN SINGH) VICE-PRESIDENT JUDICIAL MEMBER MUMBAI; DATED 11/10/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/