M/s KRS Enterprises (P) Ltd., Bangalore V. ACIT, Bangalore

ITA 640/BANG/2010

• Counselvise Citation: 64021114 RSA 2010
• Duration Of Justice: 1 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 10-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SARAVANAN
• Assessee Lawyers: A SHANKAR
• Keywords: Business income; Principle of natural justice; Diversion of income
• Section: 143(3); 234B; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO.640/BANG/2010 (ASSESSMENT YEAR : 2007-08) M/S. K.R.S. ENTERPRISES P. LTD., NO.337/1A, 18 TH CROSS, UPPER PALACE ORCHARDS, SADASHIVNAGAR, BANGALORE-560 080 PAN AACK 3085C . APPELLANT. VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI A. SHANKAR. RESPONDENT BY : SHRI B. SARAVANAN. DATE OF HEARING : 15.03.2012. DATE OF PRONOUNCEMENT : 27.04.2012. O R D E R PER SHRI JASON P. BOAZ, A.M . : THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, BANGALORE D ATED 10.03.2010 FOR THE ASSESSMENT YEAR 2007-08. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE COMPANY, IN THE BUSINESS OF PROPER TY DEVELOPMENT AND REAL ESTATE WAS INCORPORATED UNDER THE COMPANIES ACT ON 24.4.2002. THE ASSESSEE FILED ITS RETURN OF 2 ITA NO.640/BANG/10 INCOME FOR THE ASSESSMENT YEAR 2007-08 DECLARING IN COME OF RS.60,69,540. THE RETURN WAS PROCESSED U/ 143(1) AND TAKEN UP FOR SCRUTINY B Y ISSUE OF NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED AS 'THE ACT'). THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE-COMPANY HAD ENTERED INTO A LEASE AGREEMENT WITH SHRI K.R. SHIVAPRAKASH, A DIRECTOR OF THE COMPANY VIDE LEASE DEED DT.29.7.2002 IN RESPECT OF PROPERTY SITUATED AT NO.69/3, MILLERS ROAD, BANGALO RE FOR A PERIOD OF 12 YEARS, RENEWABLE AS PER TERMS OF THE LEASE DEED. IN ACCORDANCE WITH THE TERMS OF THE LEASE DEED, THE ASSESSEE-COMPANY HAD TO DEVELOP THE LAND AND PURSUA NT TO THE SAME, HAS IN FACT DEVELOPED THE LAND AND PUT UP A COMMERCIAL BUILDING COMPLEX. THE SAID BUILDING HAS BEEN LET OUT TO M/S. YODLEE INFOTECH PVT LTD AND M/S. NETSCALER PVT LTD AND THE INCOME EARNED ON ACCOUNT OF RENTING/LEASING OUT HAS BEEN OFFERED TO TAX AS INCOME FROM HOUSE PROPERTY. INCOME RECEIVED BY THE ASSESSEE FROM THESE PARTIES IN RESPECT OF MAINTENANCE CHARGES ETC HAS BEEN OFFERED FOR TAX AS INCOME FROM BUSINES S. THE ASSESSEE-COMPANY HAS INCURRED EXPENDITURE AMOUNTING TO RS.3,89,82,236 ON PUTTING UP THE SAID COMMERCIAL COMPLEX BUILDING AND RS.3,20,91,785 FOR ACQUIRING OTHER ASS ETS LIKE FURNITURE AND FIXTURES, GENERATORS, INTERIORS, NET WORKING ETC. IN THE RET URN OF INCOME FILED, IT WAS SEEN THAT THE ASSESSEE CLAIMED AMORTIZATION OF THE COST OF THE BU ILDING OVER A PERIOD OF 12 YEARS AS A DEDUCTION AGAINST INCOME FROM HOUSE PROPERTY BY APP LYING THE PRINCIPLE OF DIVERSION OF INCOME BY OVERRIDING TITLE AND ALSO CLAIMED THE IN COME EARNED FROM MAINTENANCE CHARGES AS INCOME FROM BUSINESS. THE ASSESSING OFFICER COM PLETED THE ASSESSMENT BY AN ORDER DT.15.12.2009 UNDER SECTION 143(3) OF THE ACT HOLDI NG THAT THE ENTIRE INCOME WAS TO BE 3 ITA NO.640/BANG/10 ASSESSED TO INCOME FROM HOUSE PROPERTY. THE ASSESS ING OFFICER DID NOT GRANT THE ASSESSEE THE AMORTIZATION OF THE COST OF BUILDING C LAIMED BY IT BUT HOWEVER ALLOWED INTEREST AND OTHER DEDUCTIONS ALLOWABLE UNDER SECTI ON 24 OF THE ACT. 2.2 THE ASSESSEE-COMPANY WENT IN APPEAL BEFORE THE CIT(A) WHO RELIED ON HIS FINDINGS FOR THE EARLIER ASSESSMENT YEAR 2005-06 AND APPLIED THE SAME FOR THE RELEVANT ASSESSMENT YEAR 2007-08 BY DISMISSING THE APPEAL OF THE ASSESSEE. 3. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US RA ISING THE FOLLOWING GROUNDS : 1. THE ORDER OF THE AUTHORITIES BELOW IN SO FAR AS IT IS AGAINST THE APPELLANT, IS OPPOSED TO LAW, WEIGHT OF EVIDENCE, NATURAL JUSTICE , PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE. 2. THE APPELLANT DENIES ITSELF LIABLE TO BE ASSESS ED ON A TOTAL INCOME OF RS.1,93,97,364 AS AGAINST THE RETURNED INCOME OF RS .60,69,540 UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN LAW IN DENYING THE AMORTIZATION OF COSTS TO THE EXTENT OF RS.32,48,530 AND WITHOUT APP RECIATING THE FACT THAT THE BUILDING AND OTHER STRUCTURES IS TO BE HANDED OVER TO THE LESSOR AFTER THE LEASE PERIOD AND THE SAME AMOUNTS TO DIVERSION OF INCOME BY OVERRIDING TITLE ON THE AMORTIZED BUILDING VALUE UNDER THE FACTS AND CIRCUM STANCES OF THE CASE. 4. THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN LAW IN HOLDING THAT THE MAINTENANCE CHARGES COLLECTED BY THE APPELLANT OF R S.1,42,81,063 AS INCOME FROM OTHER SOURCES AS AGAINST THE CLAIM OF THE APPE LLANT AS BUSINESS INCOME UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN LAW IN NOT APPRECIATING THE FACT THAT THE APPELLANT CARRIED ON THE BUSINESS OF PROPE RTY DEVELOPMENT AND THE LETTING OUT OF THE PROPERTY WAS SUB-SERVIENT TO THE MAIN OBJECTS. 6. WITHOUT PREJUDICE, THE LEARNED AUTHORITIES BELO W ARE NOT JUSTIFIED IN LAW IN NOT ALLOWING THE SET OFF OF BUSINESS LOSS ON THE EX PENDITURE INCURRED DURING THE YEAR WITHOUT ASSIGNING ANY REASON WHATSOEVER. THE LEARNED ASSESSING OFFICER OUGHT TO HAVE ALLOWED THE SET OFF OF BUSINESS LOSS AGAINST THE INCOME ASSESSED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 4 ITA NO.640/BANG/10 7. THE APPELLANT DENIES HIMSELF LIABLE TO BE CHARG ED TO THE INTEREST UNDER SECTION 234B AND 234C OF THE INCOME TAX ACT, 1961, UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELET E OR SUBSTITUTE ANY OF THE GROUNDS URGED ABOVE. 9. IN THE VIEW OF THE ABOVE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF THE HEARING OF THE APPEAL, THE APPELLANT PRAYS T HAT THE APPEAL MAY BE ALLOWED IN THE INTEREST OF JUSTICE AND EQUITY. 4. WE HAVE HEARD BOTH PARTIES ON THE ISSUES RAISED IN THE APPEAL AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE FINDINGS OF THE ASSESSING OFFICER AND THE CIT(A) ARE SIMILAR TO THE FINDINGS IN ASSESSMENT YEAR 2005-06. THE LEARNED CIT(A) IN HIS ORDER DT.10.3.2 010 HAS DISMISSED THE ASSESSEES APPEAL BASED ON HIS FINDINGS IN HIS ORDER FOR THE A SSESSMENT YEAR 2005-06 DT.28.8.2009, WHICH WE HAVE DISPOSED OFF VIDE OUR DETAILED ORDER IN ITA NO.1040/BANG/2009 (APPEAL FILED BY REVENUE AND ITA NO.1047/BANG/2009 (APPEAL FILED BY ASSESSEE) DT.20.4.2012. 5. SINCE THE ISSUE IN THE YEAR UNDER CONSIDERATION IS INTER-RELATED TO THE FINDINGS IN ASSESSMENT YEAR 2005-06, FOLLOWING THE FINDINGS IN OUR DETAILED ORDER PASSED FOR ASSESSMENT YEAR 2005-06 IN ITA NOS.1040 AND 1047/BA NG/2009 DT.20.4.2012, WE HOLD AS UNDER : I) GROUND NOS.1, 2, 8 AND 9 BEING GENERAL IN NATURE, NO ADJUDICATION IS CALL ED FOR THEREON. II) GROUND NO.3 REGARDING THE CLAIM OF AMORTIZATION OF THE COST O F BUILDING OVER THE PERIOD OF LEASE BY APPLYING THE PRINCIPLE OF DIVERSION OF INCOME BY OVERRIDING TITLE, IT IS HELD AGAINST THE ASSESSEE. 5 ITA NO.640/BANG/10 III) GROUND NOS.4 & 5 ON THE ISSUE OF MAINTENANCE CHARGES COLLECTED BY THE ASSESSEE, WE HOLD THAT MAINTENANCE CHARGES COLLECTED FROM ITS TENANTS IS TO BE ASSESSED AS INCOME FROM BUSINESS. THE ASSESSING OFFICER IS DIRECTED TO ENSURE THAT WHILE GIVING EFFECT TO THE ORDER DUE CARE IS TAKEN TO ENSURE THAT THE SAME EXPENDITURE IS NOT ALLOWED TWICE I.E. ONCE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AN D ONCE AGAIN UNDER THE HEAD INCOME FROM BUSINESS AND THUS PREVENT A DOUBLE CLAIM. AC CORDINGLY THE ASSESSEES GROUND IS ALLOWED. IV) GROUND NO.6 , THE PROVISIONS OF SECTION 71(1) OF THE ACT, IN R ESPECT OF ASSESSMENT YEAR 2005-06, STIPULATE THAT LOSS, IF ANY, UNDER THE HEA D INCOME FROM HOUSE PROPERTY CAN BE SET OFF AGAINST THE INCOME, IF ANY, UNDER THE HEAD INCOME FROM BUSINESS. SIMILARLY, LOSS, IF ANY UNDER THE HEAD INCOME FROM BUSINESS CAN BE SE T OFF AGAINST THE INCOME, IF ANY, UNDER THE HEAD INCOME FROM HOUSE PROPERTY. KEEPING IN VIEW THE PROVISIONS OF THIS SECTION AND TAKING INTO ACCOUNT OUR DECISIONS ON THE OTHER ISSU ES AS DISCUSSED AND MENTIONED ABOVE, THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE S AME IN ACCORDANCE WITH LAW WHILE GIVING EFFECT TO THIS ORDER. V) GROUND NO.7 IS REGARDING CHARGING OF INTEREST U/S. 234B AND 23 4C OF THE ACT. THE CHARGING OF INTEREST IS CONSEQUENTIAL AND MANDATORY AND THE ASSESSING OFFICER HAS NO JURISDICTION IN THE MATTER. THE ASSESSING OFFICER IS, HOWEVER, DIRECTED TO RECOMPUTE THE INTEREST CHARGEABLE UNDER SECTION 234B AND 234C OF THE ACT, IF ANY, WHILE GIVING EFFECT TO THIS ORDER. 6 ITA NO.640/BANG/10 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL, 2012. SD/- SD/- (P. MADHAVI DEVI) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED:27.04.2012. *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - A BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDE R ASSTT. REGISTRAR, ITAT, BANGALORE .