ITO, New Delhi V. M/s Sigma Information System, New Delhi

ITA 5232/DEL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3375 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 19-04-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 04-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEDOBANI CHAUDHURI
• Keywords: Business income; Question of law; Tax effect
• Section: 43B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC NEW DELHI BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO.5232/DEL/2016 ASSESSMENT YEAR 2013-14 ITO, WARD-30(1), NEW DELHI PAN: ABEFS 3498M VS. SIGMA INFORMATION SYSTEM, SHED 1 & 2, OPPOSITE RADIO MIRCHI, OKHLA INDUSTRIAL AREA, PHASE- IV, NEW DELHI. PAN: ABEFS 3498M (ASSESSEE) (RESPONDENT) REVENUE BY : MS. BEDOBANI CHAUDHURI, SR.D.R. ASSESSEE(S) BY : SHRI RAHUL KHARE, ADV. / DATE OF HEARING : 24/04/2017 / DATE OF PRONOUNCEMENT: 27/04/2017 ORDER THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER O F LEARNED CIT(A)-X, NEW DELHI, VIDE ORDER DATED 18.03.2016 FO R THE ASSESSMENT YEAR 2013-14. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL AS UNDER: 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD . CIT(A) HAS ERRED IN DIRECTING THE AO TO TREAT THE RENTAL INCOME AS I NCOME FROM HOUSE PROPERTY AND ALLOW DEDUCTION U/S 24(A) AND 24(B) OF THE IT A CT , 1961 AS CLA I MED BY THE ASSESSEE WHEREAS THE ASSESSING OFFICER HAS ASSE SSED THE INCOME OF THE ASSESSEE AS INCOME FROM BUSINESS ON THE BASIS OF TH E BUSINESS OF RENTING OF PROPERT I ES OF THE ASSESSEE AND AUDITOR'S REPORT' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD . CIT(A) HAS ERRED IN NOT APPRECIATING THE FACTS OF THE CASE THAT IN T HE TAX AUDIT REPORT , THE AUDITOR OF THE ASSESSEE HAS HIMSELF DESCRIBED THE R ENTING OF PROPERT I ES AS BUSINESS INCOME . FURTHER, IN THE ASSTT. YEAR 2011-12 , THE ASSESSEE HAS DECLARED RENT FROM PROPERTIES AS BUSINESS INCOME' . 3. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD . CIT(A) HAS ERRED I N NOT CONSIDERING AND OVERLOOKING THE REMARKS AND OBSERVA TIONS CONTAIN IN THE REPORT OF THE AUDITOR'S WHICH CLEARLY ESTABLISH THA T THE IMPUGNED INCOME IS ITA NO.5232/DEL/2016 2 BUSINESS I NCOME AND NOT RENTAL I NCOME ' 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD . CIT(A) HAS ERRED I N DELET I NG THE ADDITION OF RS . 4 , 96,952/- MADE U/S 43B OF THE INCOME TAX ACT , 1961 BY IGNORING THE PROVISIONS OF SECTION 43B(A), WH I CH USES THE EXPRESSION ' ANY SUM PAYABLE BY WAY OF TAX' AND SERVICE TAX , THEREFORE , QUAL I FY THE TERM TAX USED IN THE SUB SECTION . 2. GROUNDS NO.1 AND 3 ARE RELATED TO TREAT THE RENT AL INCOME AS BUSINESS INCOME AND GROUND NO.4 IS RELATED TO THE R EDUCTION U/S.43B OF THE ACT. GROUND NO.5 IS GENERAL IN NATURE, THEREFOR E, DOES NOT REQUIRE ANY ADJUDICATION. 3. THE BRIEF FACTS OF THE CASE IN ALL THE GROUNDS A RE AS PER LEARNED CIT(A) ORDER WHICH IS REPRODUCED HEREINBELOW: DU RING THE YEAR UNDER CONSIDERATION ASSESSEE HAD SHOW N LOSS UNDER THE HEAD HOUSE PROPERTY AMOUNTING TO RS.18 , 14 , 533 / - , BUS I NESS LOSS RS . 3 , 81 , 853 / - AND INCOME FROM OTHER SOURCE OF RS . 8 , 65 , 069 /-. WHILE COMPLET I NG THE ASSESSMENT , IT WAS OBSERVED BY THE AO THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF LETTING OUT OF PROPERTY AND IN THE P&L A/C AMOUNT OF RS.1 , 34 , 40 ,000 /- WAS CREDITED ON ACCOUNT OF RENTAL INCOME . APART FROM THE ABOVE , ASSESSEE HAD ALSO DISCLOSED INTEREST INCOME AND SALES AND AFTER CLAIMING VARIOU S EXPENSES NET PROFIT OF RS . 27 ,00 , 683/- WAS SHOWN DURING THE YEAR UNDER CONSIDERATION . AO FURTHER NOTICED THAT IN THE COMPUTATION OF INCOME THE RENTA L INCOME WAS COMPUTED UNDER THE HEAD ' INCOME FROM HOUSE PROPERTY ' AND LOSS OF RS . 13 , 31 , 317/- WAS RETUNED. AO FURTHER NOTICED THAT IN THE BALANCE SHE ET AND TAX AUDIT REPORT SERVICE TAX PAYABLE WAS SHOWN OF RS4 , 96 , 952/- WHICH WAS NOT PAID TILL THE DATE OF FILING OF RETURN . CONSIDERING THE FACT MENTIONED IN THE AUDIT REPORT THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF RENTING OF PROPERTY AND ASSESSEE ITSELF IN THE A Y 2011-12 ALSO TREATED THE SAME AS BUSINESS INCOME , AO ISSUED SHOW CAUSE TO THE ASSESSEE ON 11 . 02 . 2016 TO EXPLAIN AS TO WHY THE RENTAL INCOME BE NOT TREATED AS BUSINESS INCOME INSTEAD OF INCOME FROM H OUSE PROPERTY AND WHY THE AMOUNT OF RSA , 96 , 952/- BE NOT DISALLOWED U/S 43B OF THE IT ACT AND T HE SAME IS TREATED AS PART OF TAXABLE INCOME FOR THE Y EAR UNDER CONSIDERATION . AS MENTIONED IN THE ASSESSMENT ORDER , ASSESSEE FILED ITS REPLY VIDE LETTE R DT . 16 . 02 . 2016 IN RESPONSE TO THE ABOVE SHOW CAUSE , WHERE I N IT WAS SUBMITTED THAT AUDITOR INADVERTENTLY UNDER THE BONAFIDE RELIE F TREATED THE RENTAL RECEIPTS AS PART OF THE TURNOVER . WITH REGARD TO PROPOSED DISALLOWANCE U/S 43B , I T WAS EXPLAINED TO THE AO THAT SERVICE TAX WHICH WAS RECE IVED I S NOT A PART OF RENTAL INCOME . THE SERVICE TAX SO RECEIVED AND PAID IS NEITHER AN I NCOME NOR AN EXPENSE AND THE DELAY I N DEPOSIT DOES NOT ATTRACT THE PROVISIONS OF SECTIO N 43E OF THE ACT . HOWEVER , AO FOUND THE ABOVE REPLY OF THE ASSESSEE DEVOID OF AN) MERITS CONSIDERING THE FACT THAT ASSESSEE ITSELF IN THE AY 2011-12 TREATED THE RENTAL RECEIPTS AS INCOME FROM BUSINESS OR PROFESSI ON . FURTHER RELYING ON THE PROVISIONS OF SECTION 43B , AO HELD THAT SINCE ENTIRE SERVICE TAX WAS NOT PAID WITHIN THE DUE DATE OF FILING OF RETURN AND EVEN TI LL THE DATE OF FILING OF ITR FOR THE ITA NO.5232/DEL/2016 3 AY UNDER CONSIDERATION , THE SAME DESERVES TO BE ADDED BACK AS PER PROVISION S OF SECTION 43B OF THE ACT . WITH THESE OBSERVATIONS , AO RE-COMPUTED THE INCOME OF THE ASSESSEE AS UNDER: PROFIT AND GAINS FROM BUSINESS OR PROFESSION PROFIT BEFORE TAX AS PER P&L A/C RS.27,00,68/- ADD: SERVICE TAX PAYABLE RS.4,96,952/- RS.31,97,635/- LESS: INTEREST INCOME RS.8,65,069/- RS.23,32,566/- RS.23,32,566 INCOME FROM OTHER SOURCES INTEREST INCOME AS DECLARED RS.8,65,069/- TOTAL INCOME RS.31,97,635/- R/O RS.31,97,640/- 4. LEARNED CIT(A) DELETED THE ADDITIONS FOR THE REA SONS MENTIONED IN HIS ORDER. 5. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE FACTS OF THE CASE. I FIND NO INFIRMITY IN THE ORDER OF LEARNED CIT(A) WHOSE ORDER IS A REASONED ORDER THAT AO HAS ASSESSED THE RENTAL I NCOME AS BUSINESS INCOME RELYING ON THE OBSERVATION OF THE AUDITOR IN THE AUDIT REPORT WHEREIN IT WAS SHOWN THAT ASSESSEE WAS ENGAGED IN T HE BUSINESS OF RENTING OUT OF PROPERTIES . FURTHER , RELIANCE HAS BEEN PLACED BY THE AO THAT ASSESSEE ITSELF IN THE A.Y. 2011-12 HAS SHOWN THE R ENTAL INCOME AS PART OF ITS BUSINESS INCOME . HOWEVER , ON THE OTHER HAND , LD. AR HAS EXPLAINED THAT IN THE COMPUTATION OF INCOME ASSESSEE HAS BIFU RCATED THE I TEMS OF INCOME SHOWN IN THE P&L A/C UNDER DIFFERENT HEADS I . E . INCOME FROM HOUSE PROPERTY WHEREIN RENTAL INCOME WAS SHOWN OF R S . 1 , 34 , 40 , 000/- AND AFTER CLAIMING DEDUCTION U/S. 24(A) AND U/S. 24(B) LOSS TO THE TUNE OF RS . 18 , 14 , 533/- WAS SHOWN . SIMILARLY , LOSS OF RS . 3 , 81 , 853/- WAS SHOWN UNDER THE HEAD ' PROFIT OR GAINS FROM BUSINESS OR PROFESSION AFTER MAKING CERTAIN ADJUSTMENTS ON ACCOUNT OF DEDU CTING RENTAL INCOME AND INTEREST INCOME FROM THE BUSINESS PROFIT WHICH WERE SEPARATELY SHOWN IN THE COMPUTATION UNDER THE HEAD HOUSE PROPE RTY AND INCOME FROM OTHER SOURCES . SIMILARLY , INTEREST INCOME OF RS . 8 , 65,069/- WAS ITA NO.5232/DEL/2016 4 DISCLOSED UNDER THE HEAD 'INCOME FROM OTHER SOURCES ' WHICH WAS REFLECTED IN THE P&L A/C BEING INTEREST ON BANK FDR S OF RS . 8 , 38 , 869/- AND INTEREST ON INCOME TAX REFUND OF RS.26,200/- . WITH THESE SUBMISSIONS, IT HAS BEEN CONTENDED THAT ASSESSEE HA S RIGHTLY DISCLOSED THE RENTAL INCOME OF RS . 1 , 34 , 40 , 000/- UNDER THE HEAD ' INCOME FROM HOUSE PROPERTY ' AND DESERVES TO CLAIM DEDUCTIONS THEREON U/S.24(A) 24(B) OF THE ACT . 5.1 IT WAS FURTHER OBSERVED BY LD. CIT(A) THAT ASSE SSING OFFICER SHOULD HAVE CONSIDERED ALL THE FACTS DISCLOSED IN T HE RETURN OF INCOME AND NOT ENTIRELY ON THE BASIS OF OBSERVATION OF THE AUD ITO R , WHICH SOMET I MES CAN BE WRONG AND IF ASSESSMENT IS MADE TOTALLY ON T HE BASIS OF AUDIT REPORT , NO ADDITION CAN BE MADE RELYING ON THE AUDITOR ' S REPORT WHEREIN NO ADVERSE COMMENTS HAVE BEEN MADE. THEREFORE , IT IS CONCLUDED THAT AUDITOR ' S REPORT CAN BE A BASIS FOR DRAWING INFERENCE BUT W HOLE ASSESSMENT CANNOT BE MADE ENTIRELY ON THE BASIS OF AUDIT REPORT . AO SHOULD HAVE TAKEN INTO CONSIDERATION ALL THE RELEVA NT FACTS AND INFORMATION AVAILABLE ON RECORD OR PROVIDED BY THE ASSESSEE DURING THE ASSESSMENT STAGE AND AFTER CONSIDERING THE SAME , CONCLUSION SHOULD BE DRAWN . IN THE PRESENT CASE , THE FACT REMAINS THAT IN THE COMPUTATION OF INCOME, ASSESSEE HAS BIFURCATED THE ITEMS OF INCOME OF TRAD ING AND P&L A/C WHICH MAKES IT EVIDENTLY CLEAR THAT APART FROM BUSINESS INCOME , ASSESSEE HAD SHOWN RENTAL INCOME AND INTEREST INCOM E DURING THE YEAR UNDER CONSIDERATION . COMPUTATION OF TOTAL INCOME MAKES IT EVIDENTLY CLEAR THAT ON THE BASIS OF TRADING AND P&L A/C , ASSESSEE SEPARATELY DISCLOSED INCOME FROM HOUSE PROPERTY , INCOME FROM BUSINESS AND PROFESSION AND INCOME FROM OTHER SOURCES , WHICH WERE CONSOLIDATEDLY SHOWN IN THE TRADING AND P&L A/C. THEREFORE , IT CANNOT BE CONCLUDED THAT ITA NO.5232/DEL/2016 5 ASSESSEE HAS EARLIER SHOWN THE RENTAL INCOME AS BUS INESS INCOME WHICH HAS LATER ON CHANGED TO REDUCE THE TAX EFFECT . 5.2 IN VIEW OF THE ABOVE FACTUAL MATRIX OF THE CASE , IT IS HELD THAT ASSESSEE HAS RIGHTLY SHOWN THE RENTAL INCOME AS INC OME FROM HOUSE PROPERTY IN THE COMPUTATION OF INCOME AND IS ALLOWA BLE TO CLAIM DEDUCTION U/S.24(A) AND U/S.24(B) OF THE IT ACT . AO WAS ACCORDINGLY DIRECTED RIGHTLY TO TREAT THE RENTAL INCOME AS INCO ME FROM HOUSE PROPERTY AND ALLOW DEDUCTION U/S.24(A) AND 24(B) AS CLAIMED BY THE ASSESSEE. 6. AS REGARDS THE DEDUCTION U/S.43B OF THE ACT, I F IND NO INFIRMITY IN THE ORDER OF LEARNED CIT(A) THAT T HE SPEC I FIC PROV I S I ONS OF SECTION 438 C L EA RL Y IN D I CATES T HA T TH ESE A R E R E L ATED I N R ESPECT OF SPEC I F I C SUMS AS M E NTI O N ED IN C L A U SE ( A ) TO (F) O F THI S SECT I ON , AND SE R V I CE TAX DOES N O T CO M E U N DE R TH E P URVI EW O F I TE M S S H O WN ABOVE . FU R THER I N THE PRESEN T CASE , THE SE R VICE TAX CO LL ECT I O N AND I TS DEPOSIT IN THE GOVERNMENT EXCHEQUE R DOES NOT COVE R UNDE R THE PU R VIEW OF SECTION 28 OF THE ACT AS ASSESSEE H AS R ECEIVED THE SE R V I CE TAX I N R ESPECT OF RENTA L I NCOME , WH I CH I S ASSESSED T O T AX U N DE R TH E H EAD H O U SE P R OPE RTY A N D D I SA LL OWANCE CAN N O T BE M ADE B Y A P P LYIN G TH E PR O VI S I O N S O F SEC TI O N 438 OF THE I T AC T , 1 96 1 . WITHOUT PREJUDICE TO THE FACTS OF T H E PRESENT CASE , I T I S PERTINE NT TO MENT I ON HERE THAT EVEN WH IL E MAK I NG THE ASSESS M E N T IN R ESPECT OF B US I NESS I NCOME , NO ADD I T I O N CAN BE M ADE U/ S 438 IF TH E SE RVI CE T AX H AS N O T BEE N R OUTED THROUGH T HE P&L A/C AS H E L D BY JURI S DI C TI O N A L HI G H C O URT IN TH E CASE O F C I T VS . NOBE L & H EW I T T IN D I A P. LT D . ( 20 0 8 ) 30 5 IT R 3 24 (D E L) H O LDING AS UNDER : '6 ... . I N OUR OP IN ION SINCE THE ASSESSED DID NOT DEBIT THE AMOUNT TO THE PROFIT & LOSS ACCOUNT AS AN EXPENDI T URE NOR DID THE ASSESSED C L AIM ITA NO.5232/DEL/2016 6 ANY DEDUC T ION IN RESPECT OF THE AMOUNT AND CONSIDERING THAT T HE ASSESSED IS FOLLOWING THE MERCANTILE SYSTEM OF ACCO UNTING , THE QUESTION OF DISALLOWING THE DEDUCTION NOT CLAIMED W OULD NOT ARISE . 7. LEARNED COUNSEL FOR THE REVENUE SUBMITS THAT THE A SSESSED HAS SOUGHT TO EVADE TAX UNDER THE MERCANTILE SYSTEM OF ACCOUNTING . WE ARE OF THE VIEW THAT IT IS NOT FOR THE REVENUE AUTH ORITIES TO TELL THE ASSESSED HOW TO MAINTAIN ITS ACCOUNTS . 8. WE CANNOT FIND ANY FAULT IN THE VIEW TAKEN BY TH E TRIBUNAL AND FIND NO MERIT IN T H IS APPEAL. 9. NO SUBSTANTIAL QUESTION OF LAW ARISES. 10. THE APPEAL IS DISMISSED. ' 6.1 KEEP I NG I N V I EW TH E F AC T S A ND C IRCUM S T A NC ES O F T H E IN STA NT CASE , AS ENUME R ATED ABOVE , IT I S A N UN D I SPUTE D F AC T TH AT RI GO R O F SE CTI O N 438 C A NN O T BE APP LI ED IN T H E CASE O F T HE ASSESSEE CONS I DE RI NG T H E F ACT T HA T SE R V I CE TAX COLLECTED BY THE ASSESSEE I S I N R ESPEC T OF R ENTAL I NCOME WHICH I S ASSESSED TO T AX UNDE R T HE HEAD HO U SE PROPE R TY AND P R OV I S I O N S OF SEC TI ON 438 CANNOT BE APP LI ED W H IL E CO M P UTI NG TH E IN COME FROM H O U SE P R O P E RTY. E V E N CONSIDERING THE FACTS OF THE PRESENT CASE, IT CAN NOT BE DENIED THAT ASSESSEE HAS NOT CLAIMED THE SERVICE TA X IN THE P&L A/C. HENCE, EVEN OTHERWISE NO ADDITION CAN BE MADE BY AP PLYING THE PROVISIONS OF SECTION 43-B IN RESPECT OF SERVICE TA X WHICH HAS NOT BEEN ROUTED THROUGH THE TRADING AND P&L A/C. THEREFORE, ASSESSING OFFICER WAS RIGHTLY DIRECTED TO DELETE THE ADDITION OF RS.4 ,96,952/- MADE U/S.43B OF THE ACT. THUS, BOTH THE ISSUES OF THE REVENUE AR E DISMISSED 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY 27 TH APRIL, 2017 SD/- (B.P. JAIN) ACCOUNTANT MEMBER DATED: 27/04/2017