CAMORON FINANCE & INVESTMENTS, MUMBAI V. ACIT 25(2), MUMBAI

ITA 5157/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2211 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 04-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: HARESH BUCH; JISHAAN JAIN
• Keywords: Reopening of assessment; Depreciation; Business expenditure
• Section: 142(1); 147; 148; 139

Judgement Text

1 ITA NO.5157/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO.5157/MUM/2017 (ASSESSMENT YEAR : 2008-09) M/S CAMORON FINANCE & INVESTMENTS, 139-140B, SHIV, CROSSING OF SAHAR ROAD AND W.E.HIGHWAY, VILE PARLE (E), MUMBAI-400 057 PAN : AAAFC5210A VS ACIT-25(2), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY SHRI HARESH BUCH & JISHAAN JAIN RESPONDENT BY SHRI ABI RAMA KARTHIKEYAN DATE OF HEARING 14-11-2018 DATE OF PRONOUNCEMENT 16-11-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-37, MUMBAI DATED 28-06-2017 AND IT PERTAINS TO AY 2008-09. THE ASSESSEE AND RAISED THE FOLLOWING GROUNDS OF APPEAL :- GROUND I: 1. THE COMMISSIONER OF INCOME-TAX(APPEALS)-3 7 ('CIT(A)') ERRED IN UPHOLDING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME TAX- 25(2), MUMBAI ('AO') IN REOPENING THE ASSESSMENT UNDER SEC TION 147 OF THE INCOME TAX ACT, 1961 ('THE ACT'). 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT THAT ALL THE RELEVANT FACTS WERE DISCLOSED IN THE RETURN OF INCOME AND TH E REOPENING WAS UNJUSTIFIED, UNWARRANTED AND BAD-IN-LAW. 3. THE APPELLANT, THEREFORE, PRAYS THAT THE REOPENING OF ASSESSMENT U/S. 147 OF THE ACT BE HELD TO BE AB-INITIO AND/OR OTHER WISE VOID AND BAD IN LAW. 2 ITA NO.5157/MUM/2017 GROUND 11 : 1. THE CIT (A) ERRED IN CONFIRMING THE ACTIO N OF THE AO OF TREATING INCOME RECEIVED IN RESPECT OF THE AMENITIES AGREEME NT WITH THE LESSEE OF THE PREMISES UNDER THE HEAD 'INCOME FROM OTHER SOURCES' INSTEAD OF 'INCOME FROM HOUSE PROPERTY', AS CLAIMED BY THE APPELLANT. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT SUCH INCOME RECEIVED UNDER THE AMENITIES AGREEMENT WAS ASSESSABLE UNDER THE HE AD 'INCOME FROM HOUSE PROPERTY' ONLY, ALONG WITH THE RENTAL INCOME RECEIV ED UNDER THE LEASE AGREEMENT WITH THE LESSEE FOR THE SAME PREMISES. THE APPELLANT THEREFORE PRAYS THAT THE SAID INCOME RECEIVED UNDER AMENITIES AGREEMENT BE ASSESSED AS 'INCOME FROM HOUSE PROPERT Y'. 1. THE CIT (A) OUGHT TO HAVE CONSIDERED THAT I F AT ALL ANY PART OF THE AMOUNT RECEIVED UNDER THE AMENITIES AGREEMENT IS ASCRIBED TO ITS OBLIGATION TO CARRY OUT REPAIRS ETC., THE SAME MUST BE TREATED AS RECEI PTS IN ADVANCE, TO BE SET OFF AGAINST SUCH EXPENDITURE IN FUTURE YEARS. 2. THE APPELLANT THEREFORE PRAYS THAT SUCH REC EIPTS UNDER THE AMENITIES AGREEMENT BE DIRECTED TO BE TREATED AS 'RECEIPTS IN ADVANCE' AND NOT AS 'INCOME'. GROUND IV: 1. THE CIT (A) ERRED IN CONFIRMING THE ADDIT ION OF ? 6,06,316/- MADE BY A.O. IN DISALLOWING DEPRECIATION, LEGAL AND PROFESS IONAL FEES AND ADMINISTRATIVE EXPENSES ON THE GROUND THAT THE APPE LLANT DID NOT CARRY ON ANY BUSINESS AND THEREBY DENYING THE BUSINESS LOSS AS C LAIMED BY THE APPELLANT IN THE RETURN OF INCOME. V 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT APPELLANT WAS INTO REAL ESTATE DEVELOPMENT BUSINESS. IN FACT, IN AY 20 07-08, ON WHICH RELIANCE WAS PLACED FOR MAKING DISALLOWANCE, THE AO HAD HIMS ELF ALLOWED BUSINESS EXPENSES. 3. THE APPELLANT PRAYS THAT THE AO BE DIRECT ED TO DELETE THE SAID DISALLOWANCE OF ? 6,06,316/-. GROUND V; 1. ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AO ERRED IN COMPUTING INTEREST CHARGED U/S. 234B/234C OF THE AC T. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF RUNNING CINEMA THEATRES, FILED ITS RETURN OF INCOME FOR AY 2008-09 ON 01-09-2008 DECLARING TOTAL INCOME OF RS.5,67,38,760. THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT, 19 61. THEREAFTER, THE ASSESSMENT HAS BEEN REOPENED U/S 147 FOR THE REASON S RECORDED, AS PER WHICH, INCOME CHARGEABLE TO TAX TO THE EXTENT OF RS.1.91 C RORES HAVE ESCAPSED INCOME 3 ITA NO.5157/MUM/2017 WITHIN THE MEANING OF SECTION 147 OF THE I.T. ACT, 1961. IN RESPONSE TO THE NOTICE, THE ASSESSEE, VIDE ITS LETTER DATED 13-04-2 015 STATED THAT THE ORIGINAL RETURN FILED U/S 139 SHALL BE TREATED AS RETURN FIL ED IN RESPONSE TO NOTICE U/S 148 OF THE I.T. ACT, 1961. THEREAFTER, THE CASE HA S BEEN SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICES U/S 143(2) AND 142(1) OF T HE ACT WERE ISSUED. IN RESPONSE TO NOTICE, THE AUTHORIZED REPRESENTATIVE O F THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED VARIOUS DETAILS, AS CAL LED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSE E HAS DECLARED AMENITY CHARGES ON BUILDINGS LET OUT TO TENANTS UNDER THE H EAD INCOME FROM OTHER SOURCES. THE AO FURTHER OBSERVED THAT WHILE GOING THROUGH AMENITIES AGREEMENT IT IS SEEN THAT CLAUSE 4 OF AMENITIES AGR EEMENT CLEARLY STATES THAT AMOUNT IS RECEIVED THROUGH MAINTENANCE TO CARRY ON STRUCTURAL AND MAJOR REPAIRS AND PAYMENT OF MUNICIPAL TAX BY THE LESSOR. THE ASSESSEE HAS NOT BIFURCATED RENTAL INCOME AND AMENITY CHARGES, BUT I T HAS TREATED THE ENTIRE INCOME UNDER INCOME FROM OTHER SOURCESAND HAS TAKEN DEDUCTION OF PROPERTY TAX AND 30% TOWARDS STANDARD DEDUCTION. THEREFORE, AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE AND ALSO BY FOLLOWING I TAT ORDER IN ASSESSEES OWN CASE FOR AY 2009-10 IN ITA NO.7497/MUM/2012, HELD T HAT INCOME RECEIVED TOWARDS AMENITIES CHARGES IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND ACCORDINGLY RE-WORKED INCOME UNDER THE HEAD INCOME FROM 4 ITA NO.5157/MUM/2017 OTHER SOURCES AFTER EXCLUDING 30% STANDARD DEDUCTI ON CLAIMED ON TOTAL AMENITY CHARGES RECEIVED. FURTHER, THE AO ALSO DIS ALLOWED LOSS CLAIMED BY THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS OR PR OFESSION ON THE GROUND THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY IN THE YEAR UNDER CONSIDERATION, EXCEPT DERIVING INCOME FROM LETTING OUT OF PREMISES WHICH HAS BEEN ASSESSED UNDER THE HEAD INCOME FROM HOUSE PRO PERTY AND INCOME FROM OTHER SOURCES. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PRE FERRED APPEAL BEFORE CIT(A). THE CIT(A), BY FOLLOWING HIS PREDECESSORS ORDER FOR EARLIER ASSESSMENT YEAR, WHICH WAS SUPPORTED BY THE ORDER OF ITAT IN A SSESSEES OWN CASE, UPHELD THE ADDITION MADE BY THE AO TOWARDS RE-WORKING OF A MENITY CHARGES RECEIVED, UNDER THE HEAD INCOME FROM OTHER SOURCES. AGGRIE VED BY THE ORDER OF LD.CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 4. AT THE TIME OF HEARING, THE LD.AR FOR THE ASSESS EE SUBMITTED THAT HE DOES NOT WANT TO PRESS GROUND NO.1 CHALLENGING REOPENING OF THE ASSESSMENT U/S 147 OF THE I.T. ACT, 1961 AND HENCE, GROUND 1 IS DI SMISSED, AS NOT PRESSED. 5. AT THE TIME OF HEARING, THE LD.AR FOR THE ASSESS EE AS WELL AS LD.DR SUBMITTED THAT GROUNDS 2 & 3 ARE COVERED IN FAVOUR OF THE REVENUE BY THE DECISION OF ITAT, MUMBAI IN ASSESSEES OWN CASE FOR AY 2009-10 IN ITA NO.7497/MUM/2012 WHERE, UNDER SIMILAR FACTS, THE IT AT HAS UPHELD THE ACTION 5 ITA NO.5157/MUM/2017 OF THE AO IN TREATING AMENITY CHARGES RECEIVED UNDE R THE HEAD INCOME FROM OTHER SOURCES IN PLACE OF INCOME FROM HOUSE PROPE RTY DECLARED BY THE ASSESSEE. WE FIND THAT THE CO-ORDINATE BENCH HAS C ONSIDERED SIMILAR ISSUE AND AFTER CONSIDERING RELEVANT FACTS HAS HELD THAT AMEN ITY CHARGES RECEIVED IS ASSESSABLE UNDER THE HEAD, INCOME FROM OTHER SOURC ES. THE ITAT HAS ALSO CONSIDERED THE ALTERNATIVE PLEA OF THE ASSESSEE INS OFAR AS TREATING THE AMENITY CHARGES AS ADVANCE AND HELD THAT THERE IS NO MERIT IN THE CLAIM OF THE ASSESSEE THAT THESE ARE ADVANCES RECEIVED AS THE SAID CHARGE S HAVE BEEN RECEIVED IN PURSUANCE TO AN AGREEMENT AND HENCE, THE AO WAS RIG HT IN ASSESSING AMENITY CHARGES UNDER THE HEAD, INCOME FROM OTHER SOURCES . THE RELEVANT OBSERVATIONS OF THE ITAT ARE EXTRACTED BELOW:- 6. GROUND NO. 2 IS AN ALTERNATE PLEA BY WHIC H THE ASSESSEE HAS CLAIMED THAT THE AMENITIES CHARGES RECEIVED BY IT SHOULD BE TREA TED AS ADVANCE. IT IS THE CLAIM OF THE ASSESSEE THAT AMENITY CHARGES SHOULD BE TREATED AS ADVANCE, AS IT RUNS THROUGH THE PERIOD OF LEASE. THEREFORE FOR THE YEAR UNDER C ONSIDERATION, THE AMENITY CHARGES SHOULD BE TREATED AS ADVANCE. 7. WE DO NOT SUBSCRIBE TO THIS CLAIM OF THE ID. COU NSEL. THE AMENITY CHARGES HAVE BEEN RECEIVED BY THE ASSESSEE AS PER THE AGREE MENT AND THE SAME HAS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES' AS HELD HEREINABOVE. THE ALTERNATE CLAIM OF THE ASSESSEE IS ACCORDINGLY DISM ISSED. 6. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH T HE VIEW TAKEN BY THE CO- ORDINATE BENCH, WE HAVE TO HOLD THAT THE LD.CIT(A) WAS RIGHT IN CONFIRMING THE ACTION OF THE AO IN ASSESSING AMENITY CHARGES UNDER THE HEAD INCOME FROM OTHER SOURCES . HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF LD.CIT(A) AND REJECT GROUND TAKEN BY THE ASSESSEE. 6 ITA NO.5157/MUM/2017 7. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N FROM GROUND 4 IS DISALLOWANCE OF TOTAL EXPENSES CLAIMED UNDER THE HE AD, ADMINISTRATIVE & OTHER EXPENSES. THE AO HAS DISALLOWED A SUM OF RS .5,72,472 TOWARDS ADMINISTRATIVE & OTHER EXPENSES INCLUDING DEPRECI ATION ON THE GROUND THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVIT Y FOR THE YEAR UNDER CONSIDERATION AND HENCE, WHATEVER LOSS CLAIMED UNDE R THE HEAD, INCOME FROM BUSINESS OR PROFESSION CANNOT BE ALLOWED AS DEDUCT ION. IT IS THE CLAIM OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT THE AO H AS BLINDLY DISALLOWED TOTAL EXPENSES CLAIMED BY THE ASSESSEE BY FOLLOWING HIS P REDECESSORS ORDER FOR AY 2007-08 WITHOUT INDEPENDENTLY EXAMINING THE NATURE OF EXPENSES BEFORE MAKING SUCH DISALLOWANCES. THE ASSESSEE FURTHER CL AIMED THAT IT HAS CLAIMED NOMINAL EXPENDITURE TOWARDS OFFICE AND OTHER ADMINI STRATIVE EXPENSES TO MAINTAIN CORPORATE STATUS OF THE ASSESSEE, THEREFOR E, EVEN IF THERE IS NO BUSINESS ACTIVITY, THESE EXPENSES NEED TO BE INCURR ED TO MAINTAIN THE STATUS OF THE ASSESSEE AND HENCE, THERE IS NO REASON FOR THE AO TO DISALLOW THESE EXPENSES. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE AO HAS DISALLOWED TOTAL EXPENSES CLAIM ED BY THE ASSESSEE UNDER THE HEAD, ADMINISTRATIVE EXPENSES INCLUDING DEPRE CIATION AND LEGAL AND PROFESSIONAL FEES. ACCORDING TO THE AO, THE ASSESS EE DID NOT EARN ANY REVENUE 7 ITA NO.5157/MUM/2017 FROM BUSINESS OPERATIONS, AND THEREFORE, THE QUESTI ON OF INCURRING EXPENSES DOES NOT ARISE. THE AO HAS TAKEN SUPPORT FROM THE ASSESSMENT ORDER FOR AY 2007-08 TO COME TO THE CONCLUSION THAT A SIMILAR DI SALLOWANCE HAS BEEN MADE FOR AY 2007-08. WE FIND THAT THE ASSESSEE HAS CLAI MED TOTAL EXPENDITURE OF RS.5,72,472 UNDER THE HEAD ADMINISTRATIVE EXPENSES INCLUDING LEGAL AND PROFESSIONAL FEES AND DEPRECIATION ON ASSETS. ON P ERUSAL OF DETAILS OF EXPENSES CLAIMED IN THE P&L ACCOUNT, WE FIND THAT THESE EXPE NSES ARE ROUTINE NOMINAL EXPENSES INCURRED TO MAINTAIN CORPORATE STATUS OF T HE ASSESSEE. WE FURTHER OBSERVE THAT THOUGH THE AO HAS TAKEN SUPPORT FROM T HE ORDER FOR AY 2007-08, ON PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE AO FOR AY 2007-08, WE FIND THAT THE AO HAS ALLOWED ADMINISTRATIVE & OTHER EXPE NSES INCLUDING LEGAL AND PROFESSIONAL FEES FOR AY 2007-08. IN THIS YEAR, TH E AO HAS DISALLOWED SIMILAR EXPENSES WITHOUT THERE BEING ANY CHANGE IN FACTS. WE FURTHER NOTICE THAT THE ASSESSEE OUGHT TO INCUR EXPENSES EVEN THOUGH THERE IS NO BUSINESS ACTIVITY TO MAINTAIN CORPORATE STATUS OF THE ASSESSEE LIKE AUDI T FEES, POSTAGE EXPENSES, TELEPHONE CHARGES AND OTHER DAY TODAY EXPENSES. SI NCE THE EXPENDITURE INCURRED BY THE ASSESSEE ARE IN THE NATURE OF GENER AL ADMINISTRATIVE EXPENSES, WHICH ARE REQUIRED TO BE INCURRED EVEN THOUGH THERE IS NO BUSINESS ACTIVITY, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO REASON FOR THE AO TO DISALLOW THE SAID EXPENSES, WHEN HE HAS ALLOWED SIMILAR EXPENSES IN THE PAST. ACCORDINGLY, 8 ITA NO.5157/MUM/2017 WE DELETE ADDITION MADE BY THE AO TOWARDS DISALLOWA NCE OF TOTAL EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD ADMINISTRAT IVE & OTHER EXPENSES INCLUDING DEPRECIATION, LEGAL AND PROFESSIONAL FEES AND DIRECT HIM TO ALLOW BUSINESS LOSS AS CLAIMED BY THE ASSESSEE. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2018. SD/- SD/- (C.N. PRASAD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 17 TH NOVEMBER, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI