JASUBHAI BUSINESS SERVICES P. LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 6651/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2789 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2010-2011
• Appeal Filed On: 14-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH PATNADE
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 6651/MUM/2013,(A. Y : 2010-11) ITA NO.4633/MUM/2014(A.Y : 2010-11) JASUBHAI BUSINESS SERVICES PVT.LTD., 26, MAKER CHAMBER,VI, NARIMAN POINT, MUMBAI 400 021. PAN: AAACE 0847L ... APPELLANT VS. THE DCIT, CIR.3(2), AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400020 .... RESPONDENT APPELLANT BY : SHRI K.SHIVRAM RESPONDENT BY : SHRI PRAKASH PATNADE DATE OF HEARING : 22/06/2016 DATE OF PRONOUNCEMENT : 30/06/2016 ORDER PER G.S.PANNU, A.M: THE CAPTIONED APPEALS OF THE ASSESSEE ARE DIRECTE D AGAINST THE ORDER PASSED BY CIT(A)-4, MUMBAI DATED 04/10/2013 & 28/05/2014, PERTAINING TO THE ASSESSMENT YEAR 2010-11, WHICH IN TURN HAVE ARISEN FROM THE ORDERS PASSED BY THE ASSESSING OFFICER DAT ED 24/12/2012 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) AND DATED 23/12/2013 UNDER SECTION 250 OF THE ACT R ESPECTIVELY. 2 ITA NO. 6651/MUM/2013,(A. Y : 2010-11) ITA NO.4633/MUM/2014(A.Y : 2010-11 ITA NO.6651/MUM/2013: 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING REVISED GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF LEARNED ASSESSING OFFICER TREATING BUSINESS SERVICES CHARG ES RECEIVED OF RS. 2,52,55,504/- AS INCOME FROM HOUSE PROPERTY WITHOUT APPRECIATING THAT ASSESSEE IS IN THE BUSINESS OF PROVIDING BUSIN ESS SERVICE CENTRE AND BUSINESS SERVICE CHARGES ARE CONSISTENTLY ASSES SED AS BUSINESS INCOME AND HENCE BUSINESS SERVICE CHARGES RECEIVED MAY BE TREATED AS INCOME FROM BUSINESS AND PROFESSION U/S 28 OF TH E INCOME TAX ACT. 2. THE LEARNED CIT(A) ERRED IN DISALLOWING RS. 12,1 0,223/- U/S 14A R.W.RULE 8D WITHOUT APPRECIATING THAT SEC. 14A R.W. RULE 8D CANNOT BE INVOKED IN ON AUTOMATIC FASHION AND THAT ASSESSE E HAD NOT INCURRED ANY ADMINISTRATIVE OR OTHER EXPENSES FOR E ARNING THE EXEMPT INCOME AND HENCE DISALLOWANCE U/S. 14 R.W. R ULE 8D MAY BE DELETED. 2.1 WITHOUT PREJUDICE TO GROUND NO. 1 & 2 IF THE INCOME OF BUSINESS SERVICE CHARGES ARE TREATED AS INCOME FROM HOUSE PR OPERTY AND NO EXPENSES ARE ALLOWED THEN NO DISALLOWANCE U/S. 14A R.W. RULE 8D CAN BE MADE. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER O R DELETE ANY OR ALL THE ABOVE GROUNDS OF APPEAL. 3.. THE APPELLANT IS A COMPANY INCORPORATED UNDER T HE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGED IN THE BUSINESS OF PROVIDING COMPOSITE BUSINESS INFRASTRUCTURE FACILIT Y AS A BUSINESS CENTRE SERVICES. THE SUBSTANTIVE DISPUTE IN THIS YEAR PER TAINS TO ASSESSABILITY OF INCOME EARNED BY THE ASSESSEE FOR PROVIDING BUSINES S CENTRE FACILITIES. IN ITS RETURN OF INCOME, ASSESSEE DISCLOSED THE NAT URE OF SUCH INCOME AS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. THE ASSESSING OFFICER, HOWEVER, TREATED IT AS AN INCOME ASSESSABL E UNDER THE HEAD HOUSE PROPERTY. THE CIT(A) HAS ALSO AFFIRMED THE STAND OF THE ASSESSING OFFICER AND ACCORDINGLY THE ASSESSEE IS I N FURTHER APPEAL BEFORE US. 3 ITA NO. 6651/MUM/2013,(A. Y : 2010-11) ITA NO.4633/MUM/2014(A.Y : 2010-11 3. BEFORE US, LD. REPRESENTATIVE FOR THE ASSESSEE P OINTED OUT THAT THE LOWER AUTHORITIES HAVE ERRED IN TREATING THE RE CEIPTS FROM PROVIDING BUSINESS SERVICE CENTRE AS ASSESSABLE UNDER THE HE AD INCOME FROM HOUSE PROPERTY, WHEREAS IN THE PAST AS WELL AS IN THE SUBSEQUENT YEARS, SUCH INCOME STANDS DULY ACCEPTED AS INCOME F ROM BUSINESS AND PROFESSION. APART THEREFROM, REFERENCE HAS ALSO B EEN MADE TO THE WRITTEN EXPLANATION FURNISHED BEFORE LOWER AUTHORIT IES, COPIES OF WHICH HAVE BEEN PLACED IN THE PAPER BOOK AT PAGES 39 TO 4 3, IN ORDER TO JUSTIFY THAT THE INCOME IS EARNED FOR PROVIDING COMPOSITE BUSINESS CENTRE SERVICE FACILITIES AND NOT MERELY FOR LETTING OUT O F THE PREMISES. THE LD. REPRESENTATIVE FOR THE ASSESSEE EXPLAINED THAT SO F AR AS RENTALS EARNED FROM THE TWO PREMISES SITUATED AT CHENNAI & PUNE I S CONCERNED, THE SAME HAS BEEN OFFERED BY THE ASSESSEE ITSELF AS INC OME FROM HOUSE PROPERTY SINCE THE PROPERTIES WERE LET OUT TO TENA NTS AND NOT USED FOR THE BUSINESS OF PROVIDING BUSINESS CENTRE SERVICES. IT WAS, THEREFORE, CONTENDED THAT ASSESSEE HAD ITSELF DEMARCATED ITS I NCOME FROM BUSINESS AND INCOME FROM HOUSE PROPERTY BASED ON TH E MANNER IN WHICH THE SERVICES HAVE BEEN RENDERED BY THE ASSESS EE. 4. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE HAS POINTED OUT THAT THE ASSESSING OFFICER HAS ANALYZED THE ACT IVITIES BEING CARRIED OUT BY THE ASSESSEE AND BECAUSE THE INCOME IS DERI VED FROM EXPLOITATION OF PROPERTY, THE SAME WAS LIABLE TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. FACTUALLY SPEAKING, THE DISCUSSION IN THE ORDERS OF THE AUTHO RITIES BELOW AS WELL AS THE MATERIAL ON RECORD REVEALS THAT ASSESSEE IS IN THE BUSINESS OF 4 ITA NO. 6651/MUM/2013,(A. Y : 2010-11) ITA NO.4633/MUM/2014(A.Y : 2010-11 PROVIDING COMPOSITE BUSINESS SERVICES. ASSESSEE IS RUNNING COMMERCIAL BUSINESS CENTRES WITH FURNISHED INFRASTRUCTURE FACI LITIES INCLUDING FACILITIES OF COMMUNICATION SUCH AS INTERNET, MAINT ENANCE OF AIR- CONDITIONING SERVICES, PROVIDING OF INFRASTRUCTURE FACILITIES, RECEPTIONIST, TELEPHONE AND FAX-CONNECTIVITY, HOUSE-KEEPING SERVI CES, COMPUTER SERVICES, ETC. IT HAS ALSO BEEN CANVASSED BEFORE THE LOWER AUTHORITIES THAT SUCH ACTIVITIES HAVE BEEN CARRIED OUT BY THE A SSESSEE FOR OVER FIFTEEN YEARS. IT WAS ALSO ASSERTED BY THE ASSESS EE THAT THE MANAGEMENT, MAINTENANCE AND PROVISION OF FACILITIE S OF THE BUSINESS CENTRE AND THE PHYSICAL CONTROL OF THE PREMISES VES TS IN THE ADMINISTRATIVE MANAGER, WHO IS AN EMPLOYEE OF THE ASSESSEE COMPANY. BASED ON THE MANNER IN WHICH SUCH SERVICES ARE REND ERED, ASSESSEE HAD SET-UP A PLEA THAT THERE WAS DIFFERENCE BETWEEN LET TING OUT OF HOUSE PROPERTY AND THE RUNNING OF COMMERCIAL BUSINESS CENTRE. THE RELEVANT DISCUSSION IN THE ORDERS OF THE AUTHORITIES BELOW R EVEALS THAT NONE OF THE FACTUAL ASPECTS CANVASSED BY THE ASSESSEE HAVE BEEN NEGATED BY THE INCOME-TAX AUTHORITIES. IN FACT, THE EMPHASIS OF THE ASSESSING OFFICER HAS BEEN THAT SINCE THE PREMISES OWNED BY THE ASSESSEE ARE USED TO PROVIDE SUCH SERVICES, INCOME THEREFROM B E TAXED AS INCOME FROM HOUSE PROPERTY. IN OUR CONSIDERED OPINION, TH E SIMPLISTIC APPROACH ADOPTED BY THE ASSESSING OFFICER IS CLEARL Y UNTENABLE AND THE CONTROVERSY HAS TO BE ADDRESSED KEEPING IN MIND TH E NATURE AND MANNER IN WHICH ACTIVITIES HAVE BEEN CARRIED OUT B Y THE ASSESSEE. MOREOVER, EVEN ON THE PRINCIPLES OF CONSISTENCY, WE FIND THAT THE ASSESSEE IS JUSTIFIED IN ASSERTING THAT THE IMPUG NED INCOME IS LIABLE TO BE TREATED AS INCOME FROM BUSINESS. IN THE PAPE R BOOK, ASSESSEE HAS FURNISHED ASSESSMENT ORDER PASSED UNDER SECTION 143 (3) OF THE ACT FOR 5 ITA NO. 6651/MUM/2013,(A. Y : 2010-11) ITA NO.4633/MUM/2014(A.Y : 2010-11 ASSESSMENT YEAR 2012-13 DATED 9/1/2015, WHEREIN SUC H INCOME HAS BEEN ASSESSED AS INCOME FROM BUSINESS. SIMILAR I S THE SITUATION IN ASSESSMENTS MADE FOR ASSESSMENT YEARS 2008-09, 2007 -08 AND 2009-10, COPIES OF WHICH HAVE ALSO BEEN PLACED ON RECORD. A PART THEREFROM, LD. REPRESENTATIVE FOR THE ASSESSEE BROUGHT TO OUR NOTI CE COPIES OF EXPLANATIONS FURNISHED BY THE ASSESSEE IN OTHER ASS ESSMENT YEARS JUSTIFYING INCOME FROM BUSINESS SERVICE CENTRE AS B USINESS INCOME, WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. IT WAS POINTED OUT THAT SIMILAR EXPLANATION HAS BEEN FURNISHED IN THIS YEAR ALSO, BUT THE ASSESSING OFFICER HAS MADE A DEPARTURE FROM THE S TAND IN OTHER YEARS. 5.1 IN OUR CONSIDERED OPINION, THERE IS NO MATERIAL TO ESTABLISH THAT THE FACT-SITUATION IN OTHER ASSESSMENT YEARS BROUGH T OUT BY THE ASSESSEE IS ANY WAY DIFFERENT FROM THE INSTANT ASSE SSMENT YEAR. QUITE CLEARLY, THE ASSESSING OFFICER HAS ERRONEOUSLY TREA TED THE INCOME FROM BUSINESS SERVICE CENTRE AS INCOME FROM HOUSE PROPER TY WITHOUT BRINGING ON RECORD ANY FACT OR LAW SITUATION, WHICH WAS INCONSISTENT FROM THE OTHER YEARS. EVEN BEFORE US, NO COGENT CH ANGE IN FACTS OR LAW HAS BEEN BROUGHT OUT BY THE REVENUE, WHICH WOULD JU STIFY THE DEPARTURE FROM THE EARLIER STAND OF TREATING THE IN COME FROM PROVIDING BUSINESS SERVICE CENTRE FACILITY AS INCOME FROM BUS INESS INCOME. THEREFORE, ON THESE ASPECT WE SET-ASIDE THE ORDER O F CIT(A) AND DIRECT THE ASSESSING OFFICER TO TREAT THE INCOME EARNED B Y THE ASSESSEE FROM BUSINESS SERVICE CENTRE AS INCOME FROM BUSINESS I N CONFORMITY WITH HIS STAND FOR THE OTHER ASSESSMENT YEARS. THUS, ASSESS EE SUCCEEDS ON THIS ASPECT OF THE CONTROVERSY. 6 ITA NO. 6651/MUM/2013,(A. Y : 2010-11) ITA NO.4633/MUM/2014(A.Y : 2010-11 6. THE ONLY OTHER ISSUE REMAINING IS WITH REGARD T O THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. IN THIS CONTEX T, BRIEF FACTS ARE THAT ASSESSEE COMPANY WAS FOUND TO HAVE EARNED DIVIDEND INCOME OF RS.31,01,182/-, WHICH WAS EXEMPT FROM TAX. IN ITS RETURN OF INCOME ASSESSEE HAD DISALLOWED A SUM OF RS.7,93,306/- BEIN G INTEREST EXPENDITURE, WHICH WAS RELATABLE TO EARNING OF SUCH EXEMPT INCOME IN TERMS OF SECTION 14A OF THE ACT . THE ASSESSING OF FICER , HOWEVER, INCREASED THE DISALLOWANCE TO RS.12,10,223/- BY CON SIDERING PROPORTIONATE ADMINISTRATIVE EXPENSES ALSO BEING RE LATABLE TO EARNING OF SUCH EXEMPT INCOME. IN FACT, BEFORE THE ASSESSI NG OFFICER ASSESSEE CONTENDED THAT NO ADMINISTRATIVE EXPENSES HAVE BEEN INCURRED AS THE ENTIRE INVESTMENT WAS IN A PARTNERSHIP FIRM AND MUT UAL FUND, WHICH WAS A ONETIME INVESTMENT. THE CIT(A) HAS ALSO AFFIRMED THE DISALLOWANCE, THEREFORE, ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 6.1 BEFORE US, THE ONLY PLEA RAISED BY THE ASSESSEE IS THAT THE ASSESSING OFFICER HAS ENHANCED THE DISALLOWANCE WIT HOUT RECORDING ANY SATISFACTION AS TO HOW THE DISALLOWANCE COMPUTED BY THE ASESSEE WAS UNREASONABLE OR UNJUSTIFIED. 6.2 THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE HAS ONLY RELIED ON THE ORDER OF THE ASSESSING OFFICER IN SU PPORT OF THE CASE OF THE REVENUE. 6.3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. QUITE CLEARLY, THE CASE SET-UP BY THE ASSESSEE IS BASED O N THE PROVISIONS OF SECTION 14A(2) OF THE ACT, WHICH REQUIRES THE ASSES SING OFFICER TO RECORD A SATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM B Y THE ASSESSEE BEFORE PROCEEDING TO DISALLOW ANY EXPENDITURE, WHICH ACCOR DING TO HIM HAS 7 ITA NO. 6651/MUM/2013,(A. Y : 2010-11) ITA NO.4633/MUM/2014(A.Y : 2010-11 BEEN INCURRED IN RELATION TO EARNING EXEMPT INCOME . THE NECESSITY OF RECORDING SUCH SATISFACTION HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS C.I. T. (2012) 247 CTR (DELHI) 162 IN THE PRESENT CASE, WE FIND FROM THE DISCUSSION IN THE ASSESSMENT ORDER THAT THERE IS NO SATISFACTION RECO RDED BY THE ASSESSING OFFICER ABOUT THE CORRECTNESS OF THE CLAIM OF THE A SSESSEE AND HE HAS PROCEEDED TO RE-COMPUTE THE DISALLOWANCE UNDER SECT ION14A OF THE ACT BY APPLYING THE PROVISIONS OF RULE 8D OF INCOME TAX RULES, 1962 IN A MECHANICAL MANNER. THEREFORE, IN OUR VIEW THE ACTI ON OF THE ASSESSING OFFICER IS LACKING IN JURISDICTION AND DESERVES TO BE SET ASIDE. WE HOLD SO. AS A CONSEQUENCE, WE SET-ASIDE THE ORDER OF TH E CIT(A) AND DIRECT THE ASSESSING OFFICER TO RETAIN THE DISALLOWANCE MA DE BY THE ASSESSEE IN HIS RETURN OF INCOME AND DELETE THE BALANCE. THUS ON THIS ASPECT ASSESSEE PARTLY SUCCEEDS. 7. IN THE RESULT, THIS APPEAL, OF THE ASSESSEE IS P ARTLY ALLOWED, AS ABOVE. ITA NO.4633/MUM/2014: 8. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL:- THE APPELLANT OBJECTS TO THE ORDER DATED 28/05/201 4 PASSED BY COMMISSIONER OF INCOME TAX, APPEAL 4, MUMBAI FOR TH E ASST. YEAR 2010-11 ON THE FOLLOWING AMONG OTHER GROUNDS. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED CIT (A) ERRED IN CONFIRMING THE ORDER OF DC IT IN NOT DELET ING INTEREST INCOME OF RS. 9,58,865/-. 2. LEARNED CIT (A) FAILED TO APPRECIATION THAT INTE REST INCOME OF RS. 9,85,865/- WAS NOT OFFERED IN RETURN OF INCOME AS I NCOME FROM OTHER SOURCES. 8 ITA NO. 6651/MUM/2013,(A. Y : 2010-11) ITA NO.4633/MUM/2014(A.Y : 2010-11 3. LEARNED CIT (A) FAILED TO APPRECIATE THAT APPELL ANT HAS OFFERED ENTIRE NET PROFIT UNDER THE HEAD BUSINESS INCOME AN D ASSESSING OFFICER TREATING ENTIRE INCOME AS INCOME FORM HOUSE PROPERTY. 4. EACH ONE OF THE ABOVE GROUNDS IS WITHOUT PREJUD ICE TO THE OTHER. 9. AT THE TIME OF HEARING, LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT DUE TO SMALLNESS OF THE AMOUNT INVOL VED, THE APPEAL IS NOT BEING PRESSED. HENCE, THIS APPEAL IS DISMISSED AS NOT PRESSED. 10. RESULTANTLY, WHEREAS THE APPEAL IN ITA NO. 6651/MUM/2013 IS PARTLY ALLOWED, THE APPEAL IN IT A NO.4633/MUM/2014 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/06/201 6. SD/- SD/- (SANJAY GARG) (G.S.PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 30 /06/2016 VM , SR. PS 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