ITO 9(3)-2, MUMBAI V. SPRINGFIELD HOTELS P. LTD, MUMBAI

ITA 554/MUM/2012

• Counselvise Citation: 55419914 RSA 2012
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 10-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 27-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: P R TOPRANI
• Keywords: Business income; Bonafide belief; Difference of opinion

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./I.T.A. NO.554/MUM/2012 ( / ASSESSMENT YEAR :2006-07) INCOME TAX OFFICER 9(3) - 2, ROOM NO.227, 2 ND FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 / VS. M/S SPRINGFIELD HOTELS PVT. LTD. NATASHA, 52 HILL ROAD, BANDRA (W), MUMBSI-400050 ( / APPELLANT) .. ( !' / RESPONDENT) ./ #$ ./PAN/GIR NO. : AAACS8562L % / APPELLANT BY : SHRI PITAMBAR DAS !' & % /RESPONDENT BY : SHRI P.R.TOPRANI ' & ( ) / DATE OF HEARING : 10.7.2014 *+ & ( ) /DATE OF PRONOUNCEMENT : 11.7.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 21.11.2011 PASSED BY LD CIT(A)-20, MUMBAI AND IT RELATES TO TH E ASSESSMENT YEAR 2006-07. 2. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD C IT(A) IN DELETING THE PENALTY OF RS.11,30,976/- LEVIED BY THE AO U/S 271(1)(C) OF TH E ACT. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE COMPANY OWNED A BUILDING AND IT WAS LET OUT TO TWO DIFFERENT PARTIE S. THE ASSESSEE DECLARED RENT RECEIPT UNDER THE HEAD INCOME FROM BUSINESS. IN THE RETURN OF INCOME, THE ASSESSEE DECLARED NIL INCOME. THE AO, BY FOLLOWING THE DECISION REND ERED BY THE HONBLE SUPREME COURT IN THE CASE OF SHAMBO INVESTMENTS PVT LTD (263 ITR 143) AND EAST INDIA HOUSING DEVELOPMENT TRUST VS. CIT (42 ITR 49) HELD THAT THE RENTAL INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ACCORDINGL Y, THE AO DETERMINED THE TOTAL INCOME AT RS.34,23,790/-. IT APPEARS THAT THE ASSE SSEE HAD DECLARED NIL INCOME AFTER ADJUSTING THE BROUGHT FORWARD BUSINESS LOSS AGAINST THE INCOME OF THE INSTANT YEAR. I.T.A. NO.554/MUM/2012 2 SINCE THE AO HAD ASSESSED THE RENTAL INCOME UNDER T HE HEAD INCOME FROM HOUSE PROPERTY, IT APPEARS THAT THE BROUGHT FORWARD BUSI NESS LOSS WAS NOT ADJUSTED AGAINST IT AND HENCE THE SAME HAS RESULTED IN A POSITIVE TOTAL INCOME. THE ASSESSEE CHALLENGED THE VIEW TAKEN BY THE AO BY FILING APPEALS BEFORE L D CIT(A) AND ALSO BEFORE THE TRIBUNAL, BUT LOST ITS APPEAL IN BOTH THE FORUMS. THE AO HELD THAT THE ASSESSEE HAS COMMITTED DEFAULT WITHIN THE MEANING OF SEC. 271(1) (C) OF THE INCOME TAX ACT, 1961 (THE ACT) AND ACCORDINGLY LEVIED PENALTY OF RS.11,3 0,976/- @ 100% OF TAX SOUGHT TO BE EVADED. IN THE APPEAL FILED BY THE ASSESSEE, THE L D CIT(A) DELETED THE PENALTY AND HENCE THE REVENUE HAS FILED THIS APPEAL CHALLENGING THE ORDER PASSED BY LD CIT(A). 4. THE LD D.R VEHEMENTLY CONTENDED THAT THE AS SESSMENT OF RENTAL RECEIPTS UNDER THE HEAD INCOME FROM HOUSE PROPERTY HAS INCREASED THE TOTAL INCOME OF THE ASSESSEE AND HENCE THE SAID INCREASE HAS RESULTED IN CONCEAL MENT OF INCOME. IN THIS CONNECTION, HE PLACED RELIANCE ON THE DECISION RENDERED BY HON BLE DELHI HIGH COURT IN THE CASES OF CIT V/S ZOOM COMMUNICATION (327 ITR 510) AND CIT V/ S MORGAN FINVEST (P) LTD (213 TAXMANN 23). BY PLACING RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF MAK DATA (327 ITR 510), THE LD D.R SUBMITTED THAT THE EXPLANATION 1 TO SEC. 271 PLACES BURDEN UPON THE ASSESSEE TO OFFER E XPLANATION IN RESPECT OF THE ADDITION MADE TO THE TOTAL INCOME AND IN CASE OF FAILURE TO OFFER EXPLANATION WOULD LEAD TO DEEMED CONCEALMENT OF INCOME RELATING TO THE SAID A DDITION. THE LD D.R SUBMITTED THAT THE ASSESSABILITY OF RENTAL INCOME HAS SINCE BEEN S ETTLED LONG BACK BY THE HONBLE SUPREME COURT IN THE CASE OF SHAMBU INVESTMENTS LTD (SUPRA) AND HENCE THE EXPLANATIONS OFFERED BY THE ASSESSEE IS NOT ACCEPTA BLE. HENCE, THERE WAS DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO DECLARE THE RENTAL RECEIPTS UNDER THE HEAD INCOME FROM BUSINESS SO AS TO REDUCE THE TOTAL IN COME AND HENCE IT IS A FIT CASE FOR LEVYING PENALTY FOR CONCEALMENT OF INCOME. 5. ON THE CONTRARY, THE LD A.R SUBMITTED THAT T HE ASSESSEE DID NOT CONCEAL ANY PARTICULARS OF INCOME OR DID IT FILE ANY INACCURATE PARTICULARS OF INCOME WITH REGARD TO THE RENT RECEIVED BY IT. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN DECLARING THE RENTAL RECEIPTS AS ITS BUSINESS INCOME UPTO THE ASS ESSMENT YEAR 2005-06 AND IT WAS ALSO ACCEPTED BY THE DEPARTMENT. HE SUBMITTED THAT THE BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE INCLUDED RENTING OF COMMERCIAL PREMISES AN D THE SAME IS EVIDENT FROM THE OBJECTS CLAUSE SPECIFIED IN THE MEMORANDUM OF ASSO CIATION. HENCE, CONSISTENT WITH THE PAST PRACTICE AND ALSO IN TERMS OF ITS OBJECT CLAUS E, THE ASSESSEE DECLARED THE RENTAL RECEIPTS UNDER THE HEAD INCOME FROM BUSINESS. ON LY DURING THE YEAR UNDER CONSIDERATION, THE AO DID NOT ACCEPT THE STAND OF T HE ASSESSEE AND ACCORDINGLY ASSESSED I.T.A. NO.554/MUM/2012 3 THE RENTAL RECEIPTS UNDER THE HEAD INCOME FROM HOUS E PROPERTY BY CHANGING THE HEAD OF INCOME. THE LD A.R SUBMITTED THAT MERE CHANGE OF H EAD OF INCOME WOULD NOT GIVE RISE TO PENALTY AND IN THIS REGARD, THE LD A.R PLACED ST RONG RELIANCE ON THE FOLLOWING CASE LAW:- (A) CIT VS. ELOOR CONSTRUCTIONS (1996)(222 ITR 545 )(KER) (B) ACIT VS. VAZIR GLASS WORKS LTD (ITA NO.332/MUM /2007 DT. 24.11.08) THE LD A.R FURTHER SUBMITTED THAT THE INCOME COMPUT ED UNDER THE HEAD INCOME FROM HOUSE PROPERTY IS ELIGIBLE FOR STANDARD DEDUCTION OF 30% TOWARDS REPAIRS. SUCH KIND OF STANDARD DEDUCTION IS NOT AVAILABLE, IF THE RENTAL RECEIPTS ARE DECLARED UNDER THE HEAD INCOME FROM BUSINESS. ACCORDINGLY, THE LD A.R SU BMITTED THAT THE ASSESSABLE RENTAL INCOME HAS EFFECTIVELY REDUCED BY THE AO AND HENCE THE LD D.R WAS NOT CORRECT IN STATING THAT THE TOTAL INCOME HAS INCREASED BY CHAN GING THE HEAD OF INCOME FOR ASSESSING THE RENTAL RECEIPTS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. IN THE INSTANT CASE, ASSESSEE HAS DECLARED THE RENTAL RECEIPTS UNDER THE HEAD INCOME FROM BUSINESS AND THE AO HAS ASSESSED THE SAME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE EXPLANATION FURNISHED BY THE ASSESSEE SHOWS THAT IT HAS BEEN DECLARING THE RENTAL RECEIPTS AS ITS BUSINESS INCOME IN THE PAST YEARS A ND THE SAME WAS ALSO ACCEPTED BY THE DEPARTMENT. THE ASSESSEE HAS FURTHER SUBMITTED THA T THE OBJECT CLAUSES NO.45 AND 47 OF ITS MEMORANDUM OF ASSOCIATION HAS AUTHORIZED ITS TO LEASE THE LAND, BUILDING ETC AND ACCORDINGLY IT HAS GRANTED ON LEAVE AND LICENSE BAS IS A COMMERCIAL BUILDING. WE NOTICE THAT THE ASSESSING OFFICER HAS ALSO HAS RECORDED TH AT THE NATURE OF BUSINESS OF THE ASSESSEE AS LEASING OF PROPERTY & TRADING AND IN THE BODY OF THE ASSESSMENT ORDER, THE AO DESCRIBES THE BUSINESS OF THE ASSESSEE AS LEASIN G OF PROPERTY. THESE EXPLANATIONS SHOW THAT THE ASSESSEE WAS UNDER BONAFIDE BELIEF TH AT IT WAS CORRECT IN LAW IN DECLARING ITS RENTAL INCOME UNDER THE HEAD INCOME FROM BUSIN ESS. IN FACT, THE DEPARTMENT HAS ALSO ACCEPTED THE SAME UPTO THE ASSESSMENT YEAR 200 5-06, MAY BE UNDER SEC. 143(1). 7. IT IS A WELL SETTLED PROPOSITION OF LAW THAT THE AO, DURING THE COURSE OF PENALTY PROCEEDINGS, HAS TO VISIT THE MATTERS AFRESH AND IN THAT REGARD, THE FINDINGS GIVEN IN THE ASSESSMENT PROCEEDINGS CAN ONLY BE TAKEN AS A GUIDE . AS RIGHTLY POINTED OUT BY LD D.R, THE EXPLANATION 1 TO SEC. 271 PLACES BURDEN ON THE ASSESSEE TO DISCHARGE THE DEEMED CONCEALMENT OF INCOME PRESCRIBED UNDER THE EXPLANATION. THE FOREGOING DISCUSSIONS ALSO SHOW THAT THE EXPLANATIONS FURNISH ED BY THE ASSESSEE WERE NOT FOUND TO BE FALSE. THOUGH, THE LD D.R CONTENDED THAT THE LE GAL POSITION HAS BEEN SETTLED BY THE I.T.A. NO.554/MUM/2012 4 HONBLE SUPREME COURT IN THE CASE OF SHAMBU INVESTM ENTS (SUPRA), YET THE VERY FACT THAT THE ASSESSEE COMPANY WAS INCORPORATED WITH THE OBJECTIVE OF LEASING OF PROPERTY WOULD SHOW THAT THERE WAS SOME GROUND TO SUPPORT TH E STAND TAKEN BY THE ASSESSEE, EVEN THOUGH IT MIGHT NOT HAVE BEEN LEGALLY CORRECT. HENCE, IN OUR VIEW, THE ASSESSEE HAS DISCHARGED THE BURDEN PLACED UPON IT UNDER EXPL ANATION 1 TO SEC. 271 OF THE ACT. 8. NOW COMING THE QUESTION AS TO WHETHER THE CHA NGE OF HEAD HAS RESULTED IN INCREASING THE TOTAL INCOME OR NOT, WE NOTICE THAT THE ASSESSEE, IN FACT, GOT THE BENEFIT OF HIGHER RATE OF DEDUCTION, I.E., STANDARD DEDUCTI ON OF 30% TOWARDS REPAIRS AGAINST THE RENTAL RECEIPTS WHEN IT WAS ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. WE NOTICE THAT THE TOTAL INCOME CAME TO BE ASSESSED AT RS.34,23,790/-, ONLY FOR THE REASON THAT THE BROUGHT FORWARD BUSINESS LOSS WAS N OT ADJUSTED AGAINST THE INCOME COMPUTED UNDER THE HEAD HOUSE PROPERTY. OTHERWIS E, IT IS NOT THE CASE OF THE DEPARTMENT THAT THE ASSESSEE HAS CONCEALED ANY PART ICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. WE NOTICE THAT T HE CO-ORDINATE BENCH OF THE TRIBUNAL, IN THE CASE OF VAZIR GLASS WORKS LTD (SUPRA), HAS E XPRESSED THE VIEW THAT THE HONEST DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AND THE DEPARTMENT AS TO WHETHER THE INCOME WAS ASSESSABLE AS RENTAL INCOME UNDER THE HE AD INCOME FROM HOUSE PROPERTY OR AS BUSINESS INCOME COUPLED WITH BONAFIDE EXPLA NATIONS FURNISHED BY THE ASSESSEE WOULD NOT LEAD TO LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS.ELOOR CONSTRUCTIONS (SU PRA) HAS ALSO HELD THAT THE MISTAKE IN SHOWING THE INCOME UNDER WRONG HEAD CANNOT LEAD TO LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. 9. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN CANCELLING THE PENALTY LEVIED BY THE A O U/S 271(1)(C) OF THE ACT. 10. IN THE RESULT, THE APPEAL FILED BY THE REVEN UE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 11TH JULY, 2014. *+ ' , -. / 0 11TH JULY, 2014 + & 2 3 SD SD ( . . / H.L. KARWA) ( . . , / B.R. BASKARAN ) / PRESIDENT / ACCOUNTANT MEMBER I.T.A. NO.554/MUM/2012 5 - ' MUMBAI: 11TH JULY,2014. . . ./ SRL , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. ' 5( ( ) / THE CIT(A)- CONCERNED 4. ' 5( / CIT CONCERNED 5. 67 2 !(8 , ) 8 , - ' / DR, ITAT, MUMBAI CONCERNED 6. 2 9 : / GUARD FILE. ; ' / BY ORDER, TRUE COPY < # (ASSTT. REGISTRAR) ) 8 , - ' /ITAT, MUMBAI