POPULAR BRASS P.LTD, MUMBAI V. DCIT 9(2), MUMBAI

ITA 6319/MUM/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9755 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 13-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Keywords: Business income; Wrong claim
• Section: 143(3); 27; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO.6319 /MUM/2014 ASSESSMENT YEAR: 2008 - 09 & ITA NO.6320/MUM/2014 ASSESSMENT YEAR: 2011 - 12 M/S POPULAR BRASS PVT. LTD. ASHOK NAGAR, A.C. ROAD, KANDIVALI (E), MUMBAI - 400101 VS. DCIT - 9(2) MUMBAI . APPELLANT RESPONDENT PAN NO. AABCP5810D ASSESSEE BY : SHRI HARI O MTULSYAN , AR REVENUE BY: SHRI RAJAT MITTAL , DR DATE OF HEARING : 04/05 /2017 DATE OF PRONOUNCEMENT: 28/07/2017 ORDER PER N.K. PRADHAN, A.M . THESE CAPTIONED APPEAL S FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 20 , MUMBAI AND ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 FOR AY 2008 - 09 & U/S 143(3) FOR AY 2011 - 12 OF THE IN COME TAX ACT 1961 ( T HE ITA NO. 6319 & 6320/MUM/2014 2 ACT). AS COMMON ISSUES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF THROUGH A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: - ASSESSMENT YEAR 2008 - 09: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) - 20, MUMBAI HAS ERRED CONFIR MING THE ACTION OF THE DCIT 9(2), MUMBAI IN RE - OPENING THE CASE OF THE ASSESSEE COMPANY U/S 148 OF THE INCOME TAX ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) - 20, MUMBAI HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE AO OF RS.30,29,824/ - BY TREATING THE RENTAL INCOME EARNED BY THE ASSESSEE COMPANY AS 'INCOME FROM BUSINESS AND PROFESSION' AS AGAINST THE CLAIM OF THE ASSESSEE COMPANY OF IT BEING AN 'INCOME FROM HOUSE PROPERTY' AND SO RIGHTFULLY OFFERED IN ITS RET URN OF INCOME U/S 139(1) OF THE ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) - 20, MUMBAI HAS ERRED IN CONFIRMING THE ERRONEOUS ADDITION OF RS.2,07,178/ - BEING EXPENSES ALREADY DISALLOWED BY THE ASSESSEE COMPANY WHILE C OMPUTING ITS INCOME FROM BUSINESS/ PROFESSION. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) - 20, MUMBAI HAS ERRED IN CONFIRMING THE ERRONEOUS ADDITION OF RS.7,02,042/ - BEING INTEREST RECEIVED BY THE ASSESSEE COMPANY AS REFL ECTED IN THE P/L ACCOUNT AS 'INCOME FROM OTHER SOURCES' WHILE SUCH INCOME WAS ALREADY OFFERED FOR TAX UNDER THE HEAD 'INCOME FROM BUSINESS/ PROFESSION' AND THE AO FAILED TO DEDUCT THE SAME WHILE COMPUTING THE INCOME UNDER 'INCOME FROM BUSINESS/ PROFESSION' . THEREBY , THE SAID INCOME OF RS.7,02,042/ - HAS BEEN TAXED TWICE. ITA NO. 6319 & 6320/MUM/2014 3 ASSESSMENT YEAR 2011 - 12: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) - 20, MUMBAI HAS ERRED IN CONFI RMING THE ADDITION MADE BY THE AO OF RS.22,91,790/ - BY TREATING THE RENTAL INCOME EARNED BY THE ASSESSEE COMPANY AS INCOME FROM BUSINESS AND PROFESSION AS AGAINST THE CLAIM OF THE ASSESSEE COMPANY OF IT BEING AN INCOME FROM HOUSE PROPERTY AS OFFERED TO TAX IN ITS RETURN OF INCOME U/ S 139(1) OF THE ACT. 3. WE BEGIN WITH THE GROUNDS OF APPEAL FOR THE AY 2008 - 09 . DURING THE COURSE OF HEARING , THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT FOR THE AY 2008 - 09 THE ASSESSEE DOES NOT PRESS 1 ST , 3 RD & 4 TH GROUND OF APPEAL. SO WE ARE LEFT WITH ONLY THE 2 ND GROUND OF APPEAL. THE ASSESSEE - COMPANY POPULAR BRASS PVT. LTD. (PBPL) FILED ITS RETURN OF INCOME FOR THE ABOVE ASSESSMENT YEAR ON 29.09.2008 DECLARING TOTAL INCOME OF RS.39,35,016/ - AFTER CLAIMING CARRY FORWARD OF LOSS OF RS.17,15,091/ - . THE R ETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT. THEN THE ASSESSING OFFICER (AO) RE - OPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 ON THE REASON THAT THE ASSESSEE HAD MADE WRONG CLAIM OF DEDUCTION OF 30% BY CHANGING THE HEAD OF INCOME. THE AO ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT NOTICED THAT THE ASSESSEE HAD SHOWN LEASE RENT RECEIPT OF RS.72,75,843/ - . THE SAME WAS SHOWN AS I NCOME FROM H OUSE P ROPERTY . THE ASSESSEE CLAIMED DEDUCTION U/S 24 ON THE ABOVE LEASE RENTAL RECEIPT. IN AY 20 07 - 08, THE ASSESSEE HAD EARNED INCOME FROM PROPERTY GIVEN ON RENT. THE INCOME WAS SHOWN AS INCOME FROM BUSINESS AND PROFESSION BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2008 - 09, THE AO ITA NO. 6319 & 6320/MUM/2014 4 ASKED THE ASSESSEE TO EXPLAIN AS TO WHY T HE SAME SHOULD NOT BE TREATED AS BUSINESS INCOME AS AGAINST HOUSE PROPERTY WHICH WAS FOLLOWED BY THE ASSESSEE IN THE PAST ASSESSMENT YEARS . IN RESPONSE TO IT, THE ASSESSEE FILED A REPLY BEFORE THE AO ON 28.08.2013 CONTENDING THAT THE RENTAL INCOME WAS EARN ED BY IT FROM TWO PROPERTIES. ONE PROPERTY WAS OWNED BY THE ASSESSEE. THE SECOND ONE WAS LEASED FROM A GROUP COMPANY AND SUB - LEASED TO A THIRD PARTY. ALSO IT WAS CONTENDED BEFORE THE AO THAT THE PROPERTIES LEASED WERE NEVER USED IN TRADING BUSINESS AND WER E FOR THE PURPOSE OF EARNING RENTAL INCOME. 3.1 HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE. REASON BEING THE ASSESSEE HAD LEASED PROPERTIES AND RECEIVED LEASE RENT. INCOME FROM SUB - LETTING IS NOT WITHIN THE PURVIEW OF SEC TION 22 OF THE ACT. THE AO HAS NOTED THAT A PROPERTY CANNOT HAVE TWO OWNERS. FOR THE PURPOSE OF SECTION 22, THE OWNER MUST BE THAT PERSON WHO IS HAVING THE RIGHTS OF THE OWNERS AND NOT ON B EHALF OF ANOTHER PERSON. AS PER THE AO , THE ASSESSEE HAD EARNED INCOME BY SUB - LETTING THE PROPERTY WHICH WAS WITH IT. AS THE ASSESSEE EARNED INCOME BY SUB - LETTING THE PROPERTY, THE SAME SHOULD BE ASSESSED AS BUSINESS INCOME. THEREFORE, THE AO BROUGHT TO TAX THE RENTAL INCOME OF RS.72,75,843/ - U NDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) AGREED WITH THE FINDINGS OF THE AO AND DISMISSED THE APPEAL. ITA NO. 6319 & 6320/MUM/2014 5 5. BEFORE US, THE LD. COUNSEL OF THE AS SESSEE FILES A WRITTEN SUBMISSIONS STATING THAT PBPL IS ENGAGED IN THE BUSINESS OF DEALING IN NON - FERROUS METALS LIKE BRASS ROD ETC. FOR THE AY 2008 - 09 AND AY 2011 - 12, PBPL RETURNED GROSS RENTAL INCOME OF RS.72,75,843/ - AND RS.75,82,890/ - RESPECTIVELY. THE INCOME EARNED BY WAY OF RENT RELATED TO TWO PROPERTIES. ONE OF THESE PROPERTIES I.E. VERMA CHAMBERS IS OWNED BY PBPL WHILE THE OTHER PROPERTY I.E. CAMA ESTATE IS TAKEN BY THE ASSESSEE ON LEASE AND LET OUT. INCOME FROM BOTH THE PROPERTIES IS SHOWN AS I NCO ME F ROM H OUSE P ROPERTY. THE DISPUTE IS REGARDING THE RENTAL INCOME RECEIVED FROM THE LEASED PROPERTY I.E. CAMA ESTATE. THIS PROPERTY WAS TAKEN ON LEASE FROM M/S COOPER CONNELL & CLIFFORD PVT. LTD. IT WAS TAKEN ON LEASE FOR A PERIOD OF 40 YEARS. IN TURN IT WAS SUB - LEASED TO CANARA BANK FOR 15 YEARS. THE RENTAL INCOME FROM THE SAME HAS BEEN SHOWN BY THE ASSESSEE AS I NCOME FROM H OUSE P ROPERTY . BUT THE AO HAS TREATED THE SAME AS BUSINESS INCOME AND IT HAS BEEN CONFIRMED BY THE LD. CIT(A). 5.1 THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITS THAT SECTION 22 OF THE ACT LAYS DOWN THAT THE ANNUAL VALUE OF A BUILDING OF WHICH THE ASSESSEE IS THE OWNER SHALL BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN THE INSTANT CASE THE PROPERTY IN QUESTION WAS TAK EN ON LEASE FOR 40 YEARS. AS PER SECTION 27 (IIIB) A PERSON WHO ACQUIRES ANY RIGHT BY WAY OF LEASE IN ANY BUILDING BY VIRTUE OF A TRANSACTION AS REFERRED TO IN CLAUSE (F) OF SECTION 269 UA OF THE ACT SHALL BE DEEMED TO BE THE OWNER OF THAT BUILDING. IN IT A PERIOD OF 12 YEARS HAS BEEN PROVIDED. THE LD. COUNSEL FURTHER RELIED ON THE DECISION IN RAKESH ITA NO. 6319 & 6320/MUM/2014 6 BUILDERS VS. DCIT (2010) 35 SOT 119 (MUM), CHENNAI PROPERTIES & INVESTMENT LTD. VS. CIT (2015) 373 ITR 673 (SC) AND RAYALA CORPORATION PVT. LTD. VS. ACIT (2016 ) 386 ITR 500 (SC). THUS IT IS SUBMITTED BY HIM THAT THE RENTAL INCOME DERIVED BY THE ASSESSEE HAS BEEN RIGHTLY SHOWN AS INCOME FROM HOUSE PROPERTY. 6. PER CONTRA THE LD. DR RELIES ON THE ORDER PASSE D BY THE LD. CIT(A) AND THE AO. HE SUBMITS THAT IN THE AY 2007 - 08, PBPL HAD EARNED INCOME FROM PROPERTY GIVEN ON RENT. THIS INCOME WAS SHOWN AS INCOME FROM BUSINESS OR PROFESSION. HOWEVER, DURING THE AY 2008 - 09, PBPL HAD CLAIMED THAT RENT AS INCOME FROM HOUSE PROPERTY. THE LD. DR CONT ENDS THAT THIS HAS BEEN DONE BY THE ASSESSEE INTENTIONALLY TO REDUCE THE TAX LIABILITY. 7. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED T HE RELEVANT MATERIAL ON RECORD. A SIMILAR ISSUE AROSE IN THE CASE OF RAKESH BUILDERS (SUPRA). IN THAT CASE THE ASSESSEE WAS A REGISTERED PARTNERSHIP FIRM . I T TOOK TENANCY RIGHT OF A PREMISE VIDE AGREEMENT DATED 01.01.1999 FROM ANOTHER PARTNERSHIP FIRM NAMELY, A THEATRE. THE CASE OF THE ASSESSEE WAS THAT THE SAID MONTHLY TENANCY AGREEMENT WAS LATER ON CONVERTED IN TO A LEASE AGREEMENT FOR 15 YEARS FROM 01.04.2004 AND, THUS, THE ASSESSEE BECAME DEEMED OWNER OF THE PROPERTY, IN THE LIGHT OF PROVISIONS OF SECTION 27(III)(B), READ WITH CLAUSE (F) OF SECTION 269UA. SUBSEQUENTLY, THE ASSESSEE PERMITTED USE OF AFORESAID PR EMISES TO MTNL ON LEASE AND LICENSE BASIS. IN THE RETURN OF INCOME, THE ASSESSEE SHOWED AMOUNT DERIVED FROM MTNL UNDER THE HEAD PROPERTY INCOME AFTER DEDUCTING THEREFROM AMOUNT PAID TO A THEATRE. THE ASSESSEE ITA NO. 6319 & 6320/MUM/2014 7 CLAIMED THAT SINCE IT WAS A DEEMED OWNER, S TANDARD DEDUCTION WAS PERMISSIBLE UNDER SECTION 24(A). THE AO NOTICED THAT LEASE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND MTNL WAS NEITHER REGISTERED NO R NOTARIZED AND THUS, IT HAS NO LEGAL SANCTITY. HE FURTHER NOTED THAT THE PARTNERS OF THE ASSESSE E AND A THEATRE WERE SAME. ACCORDINGLY, THE AO CONCLUDED THAT THE LEASE AGREEMENT WAS A COLOURABLE TRANSACTION ADOPTED BY THE ASSESSEE WITH A VIEW TO REDUCE THE TAX LIABILITY. IN SUCH CIRCUMSTANCES, THE AO HELD THAT AMOUNT RECEIVED BY THE ASSESSEE FROM M TNL WAS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES AND THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 24(A) WAS TO BE REJECTED . ON APPEAL, THE COMMISSIONER (APPEALS) UPHELD THE ORDER OF THE AO . ON SECOND APPEAL, THE TRIBUNAL HELD THAT (I) I N THE INSTANT APPEAL, IT WAS SEEN THAT EVEN THOUGH LEASE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND A THEATRE WAS NEITHER REGISTERED NOR NOTARIZED, YET BOTH PARTIES ACTED UPON IT AND, THUS, FACTUM OF GIVING PROPERTY ON LEASE FOR 15 YEARS COULD NOT B E DISPUTED, (II) IN THE AFORESAID SITUATION, THE ASSESSEE - FIRM WAS TO BE CONSIDERED AS DEEMED OWNER OF THE PROPERTY IN LIGHT OF THE PROVISIONS OF SECTION 27 (IIIB), READ WITH CLAUSE (F) OF SECTION 269UA AND, THEREFORE, INCOME DERIVED BY ASSESSEE FROM MTNL WAS TO BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY, (III) AS FAR AS ASSESSEES CLAIM FOR DEDUCTION U/S 24(A) WAS CONCERNED, MATTER WAS TO BE REMANDED BACK TO THE AO FOR DISPOSAL AFRESH IN ACCORDANCE WITH TERMS OF AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND A THEATRE. ITA NO. 6319 & 6320/MUM/2014 8 7.1 WE MAY ALSO REFER TO THE DECISION IN PROLIFIC CONSULTANCY SERVICES (P) LTD. VS. ITO (2016) 74 TAXMANN.COM 203 (MUM - TRIB). IN THAT CASE IT HAS BEEN HELD THAT WHERE THE ASSESSEE EARNED INCOME FROM SUB - LEASE OF PROPERTY, SINCE NEITHER THE MAIN OBJECT NOR BUSINESS ACTIVITY OF THE ASSESSEE WAS TO TAKE ON LEASE AND SUB - LET PROPERTIES, AMOUNT IN QUESTION WAS RIGHTLY ASSESSED AS INCOME FROM HOUSE PROPERTY. 7.2 LET US LOOK INTO THE AUDITED ACCOUNTS OF PBPL. ITS TOTAL TURNOVER FOR THE TWO ASSESSMENT YEARS UNDER CONSIDERATION WAS RS.7.65 CRORES AND RS.22.19 CRORES RESPECTIVELY. IT ALSO EARNED INCOME FROM RENT. FOR THE TWO ASSESSMENT YEARS UNDER CONSIDERATION RENTAL INCOME WAS RS.72,75,843/ - AND RS.75,82,890/ - RESPECTIVELY. WE ARE OF THE CONSIDERED VIEW THAT THE ISSUES IN THE INSTANT APPEAL ARE ADDRESSED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO - ORDINATE BENCH IN RAKESH BUILDERS (SUPRA) AND PROLIFIC CONSULTANCY SERVICES (P) LTD. (SUPRA). WE FOLLOW THE ABOVE ORDERS OF THE CO - ORDINATE BENCH AND DIRECT THE AO TO TREAT THE RENTAL INCOME EARNED BY THE ASSESSEE - COMPANY AS INCOME FROM HOUSE PROPERTY AFTER EXAMINING THE CLAIM OF DEDUCTION FOR THE AY 2008 - 09 AND AY 2011 - 12. 8. THEREFORE, THE 1 ST , 3 RD AND 4 TH GROUND OF APPEAL FOR THE AY 2008 - 09 ARE DISMISSED AS NOT PRESSED, WHEREAS THE 2 ND GROUND OF APPEAL IS ALLOWED. THUS THE APPEAL FOR THE AY 2008 - 09 IS PARTLY ALLOWED. ITA NO. 6319 & 6320/MUM/2014 9 9. NOW WE TURN TO THE AY 2011 - 12. WE FIND THAT THE GROUND OF APPEAL RAISE D BY THE ASSESSEE IN AY 2011 - 12 IS SIMILAR TO THE 2 ND GROUND OF APPEAL RAISED IN AY 2008 - 09. THE ONLY DIFFERENCE IS THE ADDITION MADE BY THE AO OF RS.22,91,790/ - IN AY 2011 - 12 AND RS.30,29,824/ - IN AY 2008 - 09. FACTS BEING SIMILAR, WE FOLLOW THE ORDER OF THE CO - ORDINATE BENCH IN RAKESH BUILDERS (SUPRA) AND PROLIFIC CONSULTANCY SERVICES (P) LTD. (SUPRA) FOR THE AY 2011 - 12 ALSO. OUR FINDINGS FOR AY 2 008 - 09 APPLY MUTATIS MUTANDIS TO AY 2011 - 12. 10. THE APPEAL FOR THE AY 2011 - 12 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 28/07/2017. SD/ - SD/ - ( JOGINDER SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 28/07/2017 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI