BASUDEV KUMAR SANGHAI, MUMBAI V. CIT 14, MUMBAI

ITA 5300/MUM/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0379 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 21-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N P SINGH
• Keywords: Business income; Depreciation
• Section: 143(3); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B MUMBAI BEFORE SHRI D.T.GARASIA , JM AND SHRI RAJESH KUMAR, AM I.T.A. NO. 5300 /MUM/20 1 4 ( / ASSESSMENT YEAR : 20 11 - 12 ) BASUDEV KUMAR SANGHAI, 4 19, DAULAT BHAVAN, 419, KALBADEVI ROAD, MUMBAI - 40000 2 . / VS. COMMISSIONER OF INCOME TAX - 14, EARNEST HOUS E , NARIMAN POINT, MUMBAI - 400021 ./ PAN : AAGPS4266A ( / APPELLANT) : ( / RESPONDENT ) / A SSESSEE BY : SHRI NEEL KHANDELWAL / RE VENUE BY : SHRI N P SINGH / DATE OF HEARING : 1 1 .7 .2017 / DATE OF PRONOUNCEMENT : 21. 8. 201 7 / O R D E R PER RAJESH KUMAR, A. M: THE CAPTIONED IS A PPEAL BY THE ASSESSEE PERTAINING TO ASSESSMENT YEAR 20 11 - 12 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE C OMMISSIONER OF INCOME TAX - 14, MUMBAI , DATED 2 6 . 0 6 .201 4 PASSED U/S 263 OF THE INCOME TAX ACT, 1961 WHICH IN TURN HA VE ARISE N FROM AN ORDER PASSE D BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT. 2 I.T.A. NO. 5300 /MUM/201 4 2. GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE AS UNDER : ( 1 ) IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER U/S 263, PASSED BY THE HONBLE . COMMISSIONER OF INCOME TAX - 14, MUMBAI IS BAD IN LAW AND IS REQUIRED TO BE QUASHED ; ( 2 ) IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER U/S 263, PASSED BY THE HONBLE . COMMISSIONER OF INCOME TAX - 14, MUMBAI ERRED IN HOLDING THAT THE ASSESSMENT ORDER PASSED U/S 143(3) ON 27.12.201 3 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ( 3 ) IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER U/S 263, PASSED BY THE HONBLE . COMMISSIONER OF INCOME TAX - 14, MUMBAI ERRED IN SAYING AFTER CONSIDERING HE ABOVE FACT, I HAVE NO HESITATION TO ISSUE OF TAXING THE LICENSE FEE AS BUSINESS INCOME OR INCOME FROM HOUSE PROPERTY 3. ONLY ISSUE RAISED I N THE VARIOUS GROUNDS OF APPEAL IS AGAINST THE EXERCISING THE JURISDICTION UNDER SECTION 263 OF THE ACT BY LD.CIT SETTING ASIDE T HE O RDER OF THE AO PASSED UNDER SECTION 143(3) ON THE GROUND THAT THE ORDER IS ERRONEOUS AS WELL AS PREJUDICIAL O F THE INTEREST OF REVENUE. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 27.12 .2013 ASSESSING THE TOTAL INCOME AT RS.1,37,30,280/ - ACCEPTING THE RETURNED INCOME. THEREAFTER THE COMMISSIONER OF INCOME TAX ISSUED NOTICE UNDER SECTION 263 DATED 12.5.2015 EXERCISING REVISIONARY JURISDICTION TO SHOW CAUSE AS TO WHY THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT ,WHICH WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF INTEREST OF THE REVENU E , SHOULD NOT SET ASIDE. THE T EX T S OF NOTICE ARE REPRODUCED BELOW: 3 I.T.A. NO. 5300 /MUM/201 4 2. IN THE COMPUTATION OF INCOME, I FIND THAT THE ASSESSEE HAS SHOWN INCOME FROM HOUSE PROPERTY AT RS.96,67,212/ - WHEREIN THE ASSESSEE HAS SHOWN INCOME FROM HOUSE PROPERTY ON RECEIPT OF RENTAL INCOME FROM THE PROPERTIES GIVEN ON RENT. FURTHER, I ALSO FIND THAT THE ASSESSEE HAS GIVEN DETAILS REG A RDING T HE LEAVE AND LICENSE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND VARIOUS OTHER PARTIES KNOWN AS LICENSE E S IN RESPECT OF ALL THE SIX PROPERTIES; ON PERUSAL OF LEAVE AND LICENSE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND OTHER PARTIERS, IT MAY BE NOTED THAT ALL THESE PROPERTIES WERE GIVEN FOR LEA SE RENT FOR THE PERIOD 3 TO 5 YEARS FOR THE COMMERCIAL PURPOSE. FURTHER , IT HAS ALSO BE NOTED THAT INVARIABLY, THE ASSESSEE HAS RECEIVED SUBSTANTIAL AMOUNT AS INTEREST FREE REFUNDABLE SECURITY DEPOSITS IN RESPECT OF ALL THESE SIX PROPERTIES. IT IS ALSO WO RTH NOTING THAT THE A SSESSEE HAS GOT AN ORGANIZED BUSINESS IN THE FORM OF HIRING ON COMMERCIAL PROPERTY IN DIFFERENT PART OF THE BOMBAY CITY. FROM THE ABOVE FACT, IT IS CLEAR THAT SOME QUESTIONS DESIRED TO BE ASKED FROM THE ASSESSEE AS TO WHY THE ASSES SEE HAS OFFER INCOME FROM HOUSE PROPERTY RATHER THAN TO BE ASSESSED AS BUSINESS IN RESPECT OF RENTAL INCOME RECEIVED FROM THE COMMERCIAL PROPERTY. APPARENTLY THE AO HAS FAILED TO ASK THE QUESTION DESIRED TO BE RAISED ON THIS POINT 5 . THE SAID NOTICE U /S 263 OF THE ACT WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 30.5.2014 WHICH IS REPRODUCED AS UNDER : 30.5.2014 UNDER INSTRUCTIONS FROM AND ON BEHALF OF OUR ABOVE NAMED CLIENT WE HAVE TO SAY AND SUBMIT AS UNDER: - WE REFER TO YOUR HONOUR'S OFFICE NOTICE U/S 263 OF INCOME TAX ACT DATED 12.05.2014 BEARING REFERENCE NO. CIT - 14/ NOTICE U/S. 263/2014 - 15. THE MAIN CONTENTION RAISED BY YOUR HONOUR IN THE APPEAL IS THAT THE ASSESSEE HAS OFFERED RENT INCOME RECEIVED FROM COMMERCIAL PROPERTY AS INCOME FROM HOUSE PROPERTY RATHER THAN TO BE ASSESSED AS BUSINESS INCOME. IN THIS REGARD WE HAVE TO SAY AND SUBMIT THE FOLLOWING: 4 I.T.A. NO. 5300 /MUM/201 4 '1. RENT INCOME IS ASSESSABLE AS HOUSE PROPERTY INCOME AS ALL THE CONDITIONS OF SECTION 22 IS FULFILLED B Y THE ASSESSEE AS FOLLOWS: A. PROPERTY LET OUT IS BUILDING( RESIDENTIAL AND COMMERCIA L PROPERTY BOTH ARE COVERED) B. ASSESSEE IS THE OWNER C. PROPERTY IS NOT USED BY ASSESSEE FOR ANY OWN BUSINESS USE 2. PROPERTY LET OUT TO THIRD PERSONS AND NOT USED BY ASSESSEE FOR HIS OWN U SE 3. THE INTENTION WAS TO EARN RENTAL INCOME AND NOT TO CARRY ANY BUSINESS. 4. PERIOD OF LETTING IS FOR A SPECIFIC DURATION OF 3 TO 5 YEARS AND NOT FOR TEMPORARY PERIOD 5. PURPOSE OF USE BY THE TENANT IS IMMATERIAL FOR CHARGEABILITY U / S. 22. 6. N O BENEFIT IS EARNED FOR INTEREST FREE DEPOSIT. DEPOSIT IS TAKEN AS PER NORMAL PRACTICE TO SAFEGUARD RENT INCOME AND NOT WITH AN INTENTION TO EARN ANY BENEFIT 7. NO ORGANIZED BUSINESS OF LETTING OUT PROPERTIES IN DIFFERENT PART OF THE C ITY. 8. AS PER PR INCIPLE OF CONSISTENCY, OPINION TAKEN IN ONE YEAR CANNOT BE CHANGED IN ANOTHER YEAR. 9. ACT PROVIDES FOR A SEPARATE HEAD OF INCOME 10. NO EXPENDITURE INCURRED BY ASSESSEE. NO EXPENDITURE LIKE SALARY, CONVEYANCE, ELECTRICITY CHARGES INCURRED BY THE AS SESSEE. 11. PROPERTIES NOT HELD AS STOCK IN TRADE 12. TDS DEDUCTED U / S. 194 I 13. 263 IS NOT APPLICABLE IN THE SAID CASE. 5 I.T.A. NO. 5300 /MUM/201 4 A. AGREEMENTS AND RELEVANT DETAILS WAS DULY VERIFIED BY THE ASSESSING OFFICER B. THE ASSESSMENT ORDER IS NOT A ERRONEOUS ORDE R THE ABOVE POINTS ARE ELABORATED AS BELOW: ANNEXURE A: DETAILS OF PROPERTIES RENTED OUT ANNEXURE B: RENT INCOME ASSESSABLE AS HOUSE PROPERTY INCOME ANNEXURE C: APPLICABILITY OF SECTION 263 YOUR HONOUR IS REQUESTED TO PLEASE FIND THE ABOVE IN ORD ER AND NOT TO TAX THE RENTAL INCOME AS BUSINESS INCOME AND OBLIGE, IF YOUR HONOUR WISHES TO HAVE ANY FURTHER INFORMATION, EXPLANATIONS, DETAILS, DOCUMENTS, SUBMISSION .AND/ OR ANY MORE PERSONAL HEARING IN THE AFORESAID MATTER PLEASE INFORM US, THE SAME W ILL BE DULY COMPLIED WITH IMMEDIATELY. THANKING YOU AND ASSURING YOU OF MY BEST CO - OPERATION AT ALL THE TIMES. FINALLY, THE COMMISSIONER SET ASIDE THE ASSESSMENT BY HOLDING THAT ALL THESE PROPERTIES WERE LEA S ED OUT FOR COMMERCIAL PURPOSES AND IT WAS NO T POSSIBLE TO FIND OUT AS TO WHETHER THE ASSESSEE HAS PROVIDED SOME ADDITIONAL AMENITIES OR NOT LIKE LIFTMAN , AIR CONDITION, TELEPHONE, AND FURNITURE AND FIXTURE CANTEEN TO THE LICENSEE OR TENANT . THE COMMISSIONER ALSO NOTED THAT THE AO HAS NOT ENQUIRED OR ASKED ANY QUESTION ON THIS POINT. THE COMMISSIONER FURTHER NOTED THAT THE AO HAS IGNORED THE FACT THAT THE ASSESSEE WAS INVOLVED IN ORGANIZED ACTIVITIES OF HIRING THE PROPERTIES IN VARIOUS PARTS OF BOMBAY . THE SAID WERE LEAS ED OUT AND ACCEPTING HUGE RE FUNDABLE SECURITIES AND AS R ESULT 6 I.T.A. NO. 5300 /MUM/201 4 OF MOTIVE OF THE ASSESSEE W A S TO EARN PROFIT . IN THIS BACKGROUND OF THE MATTER, THE CIT SET ASIDE THE ASSESSMENT WITH A DIRECTION TO LOOK INTO THE MATER, WHETHER THE PROFI T ASSESSABLE AS BUSINESS INCOME OR INCOME FROM OTH ER SOURCES AND TAKE THE DECISION AS PER LAW. 6 . THE LD. COUNSEL VEHEMENTLY SUBMITTED BEFORE US THAT THE JURISDICTION U/S 263 OF THE ACT HAS BEEN INVOK ED BY THE CIT WITHOUT HAVING ANY VALID AUTHORITY UNDER LAW AS THE NECESSARY CONDITIONS PRECEDENT FOR INV OKING THE REVISIONARY POWER HA VE NOT BEEN SATISFIED . THE LD.AR SUBMITTED THAT IN RESPECT OF PROFIT FROM DECK PLAZA, CENTRAL MIDC, MUMBAI , THE RENT RECEIVED FROM THIS BUILDING WAS AS PER THE DEED IF LEASE ENTERED INTO THE EARLIER YEARS AND WA S BEING OFFERE D TO TAX UNDER THE INCOME FROM HOUSE PROPERTY AND WAS BEING ACCEPTED BY THE REVENUE AND THEREFORE THERE WA S NO REASON FOR THE RE V ENUE TO TAK E A DIFFERENT VIEW FROM WHAT HAS BEEN TAKEN AND ACCEPTED IN THE PAST . THE LD. AR SUBMITTED BY REFERRING TO PAGES 27 AND 28 OF THE PAPER BOOK THAT THE DETAILS OF ALL THESE PROPERTIES WERE FURNISHED VIDE LETTER DATED 22.7.2013 PARA 6 IN REPLY TO QUESTIONNAIRE POINT NO.4 OF NOTICE . IT WAS ALSO SUBMITTED THAT THE ASSESSEE H AS NOT CONDUCTED ANY BUSINESS BY LEASING OUT T HE PROPERTIES . THE LD. AR ALSO TOOK US THROUGH PAGES 41 AND 42 OF THE PAPER BOOK WHICH REPRESENT ED THE WRITTEN SUBMISSIONS DATED 3.12.2013 FILED BEFORE THE AO PARTICULARLY PARA NO.1 WHEREIN THE ASSESSEE HAS SUBMITTED THE DETAILS OF RENT RECEIVED ALO NG WITH COP IES OF RENT AGREEMENTS ENTERED 7 I.T.A. NO. 5300 /MUM/201 4 INTO WITH TENENATS/LESSEES VIZ. HIND TERMINALS PVT LTD, ASP SHIP MANAGEMENT (I) PVT(LTD), ASP CREW MANAGEMENT CORPORATION PVT LTD, ADITYA BIRLA MANAGEMENT CORPORATION PVT LTD, BIZMATICS INDIA PVT LTD AND AMADA IN DIA PVT LTD. MOREOVER , THE PROPERTIES WHICH WERE GIVEN ON RENT WERE SHOWN AS FIXED ASSETS IN THE STATEMENT OF ASSETS AND NOT AS STOCK - IN - TRADE AND NO DEPRECIATION WAS CLAIMED ON THE SAID ASSETS. REITERATING ALL THESE FACTS, THE LD. COUNSEL SUBMITTED BEFORE US THAT THE AO CALLED FOR ALL THE INFORMATION QUA RENT RECEIVED FROM THE PROPERTIES AND ALSO AGREEMENTS WITH THE TENANTS AND HAS TAKEN ONE OF THE POSSIBLE VIEW S AND FRAMED THE ASSESSMENT ACCORDINGLY AND THEREFORE THE SAME CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE LD. COUNSEL FURTHER CONTENDED THAT THE RENT RECEIVED FROM THE TENANTS DURING THE YEAR WAS NOT UNDER ANY NEW AGREEMENT S WHICH WERE ENTERED INTO WITH DIFFERENT TENANTS UNDER DIFFERENT TERMS AND CONDITIONS OR NO NEW MATERIAL HAS BEEN BROUGHT ON RECORD WHICH WARRANT ED A DIFFERENT STAND TO BE TAKEN BY THE DEPARTMENT. THE LD. COUNSEL ARGUED THAT ONCE THE AO HAS CALLED FOR THE INFORMATIONS /DETAILS AND AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE PASSED T HE ASSESSMENT ORDER , T HEN THE DECISION TAKEN BY THE AO CANNOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IN SUPPORT OF THIS CONTENTIONS, THE LD.AR PLACED RELIANCE ON THE FOLLOWING CASE LAWS: A) CIT V/S GABRIEL INDIA LTD. 1993 203 ITR 108 BOM ; B) CIT V/S RELIANCE COMMUNICTION 240 TAXMANN 651(BOM) 8 I.T.A. NO. 5300 /MUM/201 4 7 . O N THE OTHER HAND, THE LD.DR WHILE CONTROVERTING TO THE ARGUMENTS ADVANCED BY THE LD.AR CONTEN D ED THAT THE CA S E OF THE ASSESSEE WAS SELECTED FOR SCRUTINY FOR THE PURPOSE OF VERIFICATIO N OF TDS RECEIVED ON THE RENT AND INTEREST AND THEREFORE THE AO CALLED FOR TH E NECESSARY RECORDS AND RENT DETAILS AND ONLY FOR THE PURPOSE OF VERIFICATION OF RENT RECEIVED FROM THE PROPERTIES HELD BY ASSESSEE. THE AO HAS NOT GONE INTO WHETHER THE INCOME R ECEIVED CONSTITUTE D THE BUSINESS RECEIPTS OR TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR INCOME HELD UNDER THE HEAD INCOME FROM OTHER SOURCES . THE AO HAS COMPLETELY FAILED TO DISCHARGE HIS THE DUTIES CAST UPON HIM BY THE STATUTE . THE AO H AS NOT ANALYSED AND APPRECIATED THE FACTS CORRECTLY . THE LD.DR ALSO SUBMITTED THAT EACH YEAR IS A SEPARATE AND DISTINCT YEAR AND EACH YEAR IS A SEPARATE UNIT FOR THE PURPOSE OF CALCULATION OF INCOME TAX AND HENCE THE PROVISION OF PRINCIPLE OF RESJUDICAT T A IS NOT APPLICA BLE TO THE INCOME TAX PROCEEDINGS . IT IS NOT NECESSARY FOR THE AO TO FOLLOW THE SYSTEM FOLLOWED IN THE EARLIER YEAR. 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD INCLUDING THE IMPUGNED ORDERS, CASE LAW AS RELIED UPON BY THE PARTIES. WE FIND THAT IN THIS CASE T HE ASSESSEE HAS BEEN RECEIVING RENT AL INCOME FROM THE SIX PROPERTIES WHICH ARE BEING SHOWN UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER 9 I.T.A. NO. 5300 /MUM/201 4 YEARS. I N SOME CASES, THE AGREEMENT S W ERE EXECUTED IN THE EARLIER YEARS . WE FURTHER FIND THAT THE LD.CIT ASSUMED THE JURISDICTION U/S 263 OF THE ACT WITHOUT POINTING OUT AS TO HOW THE CONDITIONS PRECEDENTS TO INVOK ING THE REVISIONARY POWER HAVE BEEN SATISFIED. IN OTHER WORDS , HOW THE ORDER OF AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE . THE LD. CIT HAS SIMPLY STATED THAT THE AO SHOULD HAVE EXAMINED THE ISSUE WHETHER THE INCOME FROM PROPERTY WAS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR BUSINESS INCOME. THE CIT WA S ALSO COMPLETE LY FAILED TO POINT OUT AS TO HOW THE ASSESSMENT U/S 143(3) OF THE ACT WAS ERRONEOUS SO AS TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE THE POWER EXERCISED BY THE COMMISSIONER U/S 263 OF T HE ACT WAS WITHOUT ANY VALID REASON OR JUSTIFICATION . MOREOVER, THE DETAILS OF THE RENTS ALONG WITH THE AGREEMENTS WITH THE TENANTS WERE CALLED FOR BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ONLY AFTER EXAMINING THE SAME THE ASSESSMENT ORDE R U/S 143(3) WAS FRAMED. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE DECISION S OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GABRIEL INDIA LTD. (SUPRA) AND IN THE CASE OF RELIANCE COMMUNICATION (SUPRA) IN WHICH IT HAS BEEN HELD THAT IF THE AO HAS CALLED FOR THE DETAILS AND THE ASSESSEE HAS SUBMI TT ED THE DETAILS AND EXPLANATION THEREOF DURING THE COURSE OF ASSESSMENT PROCEEDINGS , IT W OULD BE WRONG TO SAY THAT THE ORDER OF AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF T HE REVENUE AS HE NOT DID NOT MAKE OUT ANY ELABORATE DISCUSSION IN THAT 10 I.T.A. NO. 5300 /MUM/201 4 REGARD . WE, THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE ABOVE MENTIONED CASES ARE OF THE CONSIDERED VIE W THAT THE REVISIONARY POWER EXERC ISED BY T HE CIT U/S 263 IS WITHOUT ANY VALID JURISDICTION AND THEREFORE , THE PROCEEDINGS U/S 263 ARE QUASHED AND SO IS THE CONSEQUENT ORDER. 9 . IN THE RESULT, THE APPEAL OF THE ASS ESS EE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST AUG , 2017 . S D SD ( D.T.GARASIA ) ( RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATE D : . 21 . 8 .2017 SR.PS:SRL: / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / C IT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI