Sunitha Leather Trading Company (Madras) (P) Ltd., CHENNAI V. ITO, CHENNAI

ITA 685/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8240 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 31-12-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 06-04-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: K MEENAKSHISUNDHARAM
• Keywords: Business income
• Section: 44AD

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ , % ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A.NO.685/MDS/2015 & S.P.NO.391/MDS/2015 (IN ITA NO.685/MDS/2015) ( / ASSESSMENT YEAR: 2011-12) M/S. SUNITHA LEATHER TRADING COMPANY (MADRAS) P.LTD., 7, THIRUNEERMALAI ROAD, NAGALKENI, CHROMPET, CHENNAI-600 044. VS INCOME TAX OFFICER, CORPORATE WARD-6(4), CHENNAI. PAN: AAJCS1457P ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.K.MEENAKSHISUNDHARAM, ADVOCATE /RESPONDENT BY : MR. A.B.KOLI, JCIT /DATE OF HEARING : 31 ST DECEMBER, 2015 /DATE OF PRONOUNCEMENT : 6 TH JANUARY, 2016 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHE NNAI DATED 27.02.2015 FOR THE ASSESSMENT YEAR 2011-12. 2. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFI ED IN SUSTAINING THE ADDITION OF ` 2,18,400/- UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST INCOME FROM BUSINESS. 2 ITA NO.685/MDS/2015 & SP NO.391/MDS/2015 3. BRIEF FACTS ARE THAT THE ASSESSING OFFICER IN TH E COURSE OF ASSESSMENT PROCEEDINGS REQUIRED THE ASSESSEE TO PRODUCE LEDGER ACCOUNT OF SALES AND DETAILS OF BUSINESS ACT IVITIES CARRIED ON, AS THE ASSESSEE ADMITTED AN AMOUNT OF ` 2,18,400/- AS SALES IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE SUBMITTED A REPLY STATING THAT THERE WERE NO PURCHASES DURING THE YEAR AND SALES WERE MADE OUT O F OPENING STOCK AND SALES ARE MADE ONLY TO KEEP SALES TAX LICENSE AND OTHER STATUTORY LICENSES ALIVE AND TH E ACCOUNTANT WHO MAINTAINED ALL ACCOUNTS, BILLS AND V OUCHERS HAD LEFT SERVICES AND IT IS DIFFICULT TO TRACE HIM. HOWEVER, THE ASSESSING OFFICER TREATED THE SALES AS INCOME FROM OTHER SOURCES, AS THE ASSESSEE COULD NOT SUBSTANTIATE TH E CLAIM OF CONDUCT OF BUSINESS ACTIVITY IN THE YEAR UNDER CONS IDERATION. IT IS ALSO THE OBSERVATION OF THE ASSESSING OFFICER TH AT BANK ACCOUNT REVEALS THAT CREDITS ARE ONLY RENTAL RECEIP TS RECEIVED REGULARLY EVERY MONTH AND DEBITS ARE TOWARDS WATER CHARGES AND VEHICLE LOANS. ON APPEAL, THE COMMISSIONER OF I NCOME TAX (APPEALS) SUSTAINED THE ADDITION AGAINST WHICH THE ASSESSEE IS IN APPEAL. 3 ITA NO.685/MDS/2015 & SP NO.391/MDS/2015 4. COUNSEL FOR THE ASSESSEE REITERATES THE SUBMISSI ONS MADE BEFORE THE LOWER AUTHORITIES. 5. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDERS OF LOWER AUTHORITIES. 6. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES. THE ASSESSEE CLAIMED THAT IT HAD MADE SALES DURING THE YEAR UNDER CONSIDERATION. HOWEVER, IN THE COURSE OF ASSE SSMENT PROCEEDINGS, ASSESSEE COULD NOT ESTABLISH THAT ASSE SSEE HAD IN FACT CONDUCTED ANY BUSINESS. THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ADDITION UNDER THE HEAD INCOME FROM OTHER SOURCES AGAINST BUSINESS INCOME OBSERVI NG AS UNDER:- 5.1.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AR OF THE APPELLANT AND ALSO FINDINGS OF THE AO CAREFU LLY. THE CLAIMS MADE BY THE APPELLANT THAT IT HAS CARRIED OU T BUSINESS ACTIVITY RELATING TO SALE OF TANNERY CHEMI CALS LIKE WATTLE BARK, SODIUM CHLORIDE WERE NOT SUBSTANTIATED BY PRODUCING THE BILLS AND VOUCHERS FOR THE SERVICES RENDERED. IN THE P&L ACCOUNT, THE APPELLANT CLAIMED HUGE EXPENSES WITHOUT FURNISHING BASIC EVIDENCES IN SUPP ORT OF ITS CLAIM. EVEN BEFORE THE UNDERSIGNED, THE AR OF T HE APPELLANT FAILED TO PROVE THAT ANY BUSINESS ACTIVIT Y WAS IN FACT CARRIED OUT DURING THE YEAR UNDER CONSIDERATIO N BY PRODUCING THE EVIDENCES LIKE SALE BILLS, SALE INVOI CES AND RELATED EXPENSES. NO EVIDENCES WERE ALSO FURNISHED WITH RESPECT TO CLAIM OF EXPENSES DEBITED IN THE P&L ACC OUNT OTHER THAN THE MUNICIPAL TAXES PAID. THEREFORE, THE AO IS LEGALLY CORRECT IN TREATING THE RECEIPT SHOWN IN P& L ACCOUNT FOR THE AMOUNT OF RS.2,18,400/- AS ASSESSAB LE 4 ITA NO.685/MDS/2015 & SP NO.391/MDS/2015 UNDER THE HEAD INCOME FROM OTHER SOURCES. THE NINTH GROUND OF APPEAL FILED BY THE APPELLANT TO ALLOW TH E PROPORTIONATE EXPENSES RELATING TO EARNING OF INCOM E OF RS.2,18,000/- IS ALSO NOT ACCEPTED AS THE AR OF THE APPELLANT COULD NOT ESTABLISH THE NATURE OF THE INC OME EARNED BY THE APPELLANT TO THE EXTENT OF RS.2,18,00 0/- AND ALSO COULD NOT PROVE THE NECESSITY OF MAKING EXPEND ITURE IN THE ABSENCE OF THE DOCUMENTARY EVIDENCE ABOUT TH E NATURE OF INCOME EARNED BY THE APPELLANT. THE AR OF THE APPELLANT ALSO COULD NOT CONCLUSIVELY PROVE THAT CE RTAIN PORTION OF THE EXPENSES CLAIMED IN THE P & L ACCOUNT ARE LAID OUT FOR THE PURPOSE OF EARNING INCOME OF RS.2,18,000/-. THE APPELLANT'S PLEA TO ASSESS AT 8% OF GROSS RECEIPTS OF RS.2,18,000/- IS ALSO NOT ACCEPTA BLE FOR LACK OF EVIDENCE IN SUPPORT OF CLAIM WITH RESPECT T O ELIGIBLE BUSINESS U/S 44AD OF THE IT ACT. MOREOVER, THE APPELLANT HAD SHOWN ENTIRE GROSS RECEIPTS OF RS.2,18,000/- AS INCOME IN THE ACCOUNTS. THEREFORE, THE GROUNDS OF APPEAL RELATING TO THIS ISSUE IS REJECTE D.. 7. ON GOING THROUGH THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS) , WE DO NOT FIND ANY INFIRMITY IN HOLDING THAT THE RECEIPTS SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. THUS, WE AFFIRM THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS) AND REJECT THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE. 8. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTA INING THE ORDER OF THE ASSESSING OFFICER IN TREATING RENT FROM GODOWNS AND WARE HOUSES UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS AGAINST BUSINESS INCOME. 5 ITA NO.685/MDS/2015 & SP NO.391/MDS/2015 9. BRIEF FACTS ARE THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF TANNERY AT NO.4, PERIYAPALAYATHAMMAN KO IL STREET, CHROMPET, CHENNAI. LATER ON, THE ASSESSEE CONVERTED THE LEATHER PROCESSING UNIT INTO COMMERCI AL COMPLEX AND THE RENTAL INCOME WAS SHOWN AS BUSINESS INCOME BY THE ASSESSEE. HOWEVER, THE ASSESSING OFF ICER TREATED SUCH RENTAL INCOME AS INCOME FROM HOUSE PRO PERTY. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE ACTION OF THE ASSESSING OFFICER IN TR EATING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY AS AGAI NST THE CLAIM OF THE ASSESSEE UNDER THE HEAD BUSINESS. 10. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE LOWER AUTHORITIES ERRED IN IGNORING THE FACT THAT LETTIN G OF PART OF THE BUSINESS PREMISES FOR RENTAL PURPOSES HAD BEEN ONL Y A STOP- GAP ARRANGEMENT TILL BETTER DAYS RETURN TO LEATHER INDUSTRY. HE SUBMITS THAT ATMOSPHERE IN THE FACTORY PREMISES WA S NOT CONDUCIVE FOR RESIDENTIAL PURPOSES AND THE LOCAL A UTHORITIES TREATED THE LET OUT PORTIONS AS COMMERCIAL PROPERTI ES, ELECTRICITY RATES HAVE BEEN CHARGED ONLY ON COMMER CIAL TARIFF RATES. THERE HAD BEEN NO POTABLE WATER AND THERE H AD BEEN 6 ITA NO.685/MDS/2015 & SP NO.391/MDS/2015 NO PROPER DRAINAGE FACILITIES IN THE PREMISES AND THEREFORE INCOME FROM SUCH PROPERTY CANNOT BE ASSESSED AS INC OME FROM HOUSE PROPERTY. 11. ON A QUERY FROM THE BENCH AS TO IN WHICH YEAR T HE FACTORY WAS LET OUT, THE DEPARTMENTAL REPRESENTATIV E SUBMITS THAT IN THE ACCOUNTING YEAR 2007-08 ONWARDS THE FAC TORY WAS LET OUT ON YEAR TO YEAR BASIS. THE DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDERS OF LOWER AUTHORI TIES. 12. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES. THIS ASPECT OF THE MATTER HAS BEEN CONSIDERED BY TH E COMMISSIONER OF INCOME TAX (APPEALS) WITH REFERENC E TO THE LEASE AGREEMENT AND CLAUSES THEREON AND HELD THAT ASSESSING OFFICER HAD CORRECTLY ASSESSED THE INCOM E FROM LETTING OUT OF GODOWNS FOR COMMERCIAL SPACE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. WHILE HOLDING SO, THE COMMISSIONER OF INCOME TAX (APPEALS) HELD AS UNDER: - 5.2.3 : I HAVE PERUSED THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO PERUSED THE FINDINGS GIVEN BY TH E AO IN THE ORDER OF ASSESSMENT. I HAVE ALSO PERUSED THE SA MPLE COPY OF THE LEASE DEED REFERRED BY THE AO DATED 1.1 .2011 WITH M/S.A.V.THOMAS LEATHER AND ALLIED PRODUCTS (P) LTD AND DATED 1.11.2009 MR. M.A.M.BALACHANDER. I FIND T HAT THE VARIOUS CLAUSES OF THE LEASE AGREEMENT RELATE T O LEASE OF THE BUILDING AND PARCEL OF THE LAND FOR A MONTHL Y RENT OF RS.46,000/- AND ALL THE EXPENDITURES RELATED FOR TH E 7 ITA NO.685/MDS/2015 & SP NO.391/MDS/2015 MAINTENANCE OF THE GODOWN WAS TO BE BORNE BY LESSEE ONLY AT THEIR OWN COST. THE LESSEE IS ONLY RESPONSI BLE FOR MAINTENANCE OF THE GOODS AT THE GODOWN PREMISES WHI CH WAS TAKEN ON LEASE FROM THE APPELLANT FOR A FIXED P ERIOD. THE APPELLANT IS IN NO WAY CONCERNED WITH MAINTENAN CE OF THE GODOWN AND ALSO UPKEEP OF THE GOODS KEPT IN THE GODOWN. THE LESSEE IS RESPONSIBLE FOR PAYMENT OF ES I AND EPF AND SALARIES TO THE EMPLOYEES OR LABOURERS FOR STORING AND KEEPING VIGIL ON THE GOODS STORED BY THE LESSEE . THE NATURE OF THE AGREEMENT BETWEEN THE APPELLANT AND T HE LESSEES ARE SIMPLE LEASE AGREEMENTS FOR LEASING THE BUILDING ALONG WITH THE LAND FOR A FIXED MONTHLY RE NT PAYABLE TO THE APPELLANT. MERELY BECAUSE THE PREMIS ES ARE LET OUT FOR COMMERCIAL USE TO THE LESSEES WOULD NOT MAKE THE TRANSACTION AS A BUSINESS ACTIVITY. THE APPELLA NT IS NOT ENGAGED IN THE BUSINESS OF LEASING PROPERTIES I.E. TAKING THE PROPERTIES ON LEASE AND AGAIN SUB-LEASING PROPE RTIES TO VARIOUS USERS. IN THE INSTANT CASE THE APPELLANT HA S LET OUT THE PROPERTY FOR A FIXED CONSIDERATION IN THE CAPACITY OF THE OWNER OF THE PROPERTY. THE GODOWNS WHICH ARE RENTED BY THE APPELLANT ARE NOT IN THE NATURE OF PLANT AND MACHIN ERY. THE MANNER OF END-USE OF THE PROPERTY CONSISTING OF BUI LDINGS OR LANDS WILL NOT ALTER THE ASSESSABILITY OF INCOME FR OM HOUSE PROPERTY TO A BUSINESS ACTIVITY. THE AO HAD CORRECT LY APPLIED THE RATIO OF THE DECISION OF THE HON'BLE JURISDICTI ONAL HIGH COURT IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS [266 ITR 685] AND THE RATIO OF THE APEX COURT DECISION I N THE CASE OF SHAMBU INVESTMENTS [263 ITR 143]. IT IS TO BE ME NTIONED HERE THAT THE VARIOUS EXPENSES CLAIMED BY THE APPEL LANT IN THE P & L ACCOUNT ARE NOT LAID OUT FOR PURPOSE OF E ARNING THE RENTAL INCOME. THE VARIOUS EXPENSES CLAIMED IN THE P & L ACCOUNT ARE IN NO WAY CONNECTED WITH THE EARNING TH E RENTAL INCOME. THEREFORE, I AM OF THE CONSIDERED VIEW THAT THE AO HAD CORRECTLY ASSESSED THE INCOME FROM LETTING OUT THE GODOWNS OR COMMERCIAL SPACE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. HENCE ALL THE GROUNDS OF APPEAL FI LED ON THIS ISSUE ARE REJECTED. 13. ON GOING THROUGH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WE DO NOT FIND ANY INFIRMITY IN HOLDING THAT LEASE INCOME FROM LETTING OUT OF THE UNIT OF T HE ASSESSEE IS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NOT AS INCOME FROM BUSINESS. THUS, WE UPHOLD 8 ITA NO.685/MDS/2015 & SP NO.391/MDS/2015 THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) AND REJECT THE GROUNDS RAISED BY THE ASSESSEE ON THIS I SSUE. 14. SINCE THE MAIN APPEAL OF THE ASSESSEE ITSELF I S DISPOSED OFF, THE STAY PETITION FILED BY THE ASSESS EE BECOMES INFRUCTUOUS AND THE SAME IS DISMISSED. 15. IN THE RESULT, BOTH THE APPEAL AND STAY PETITI ON OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JANUARY, 2016. SD/- SD/- ( ' ) ( % '' ) ( CHANDRA POOJARI ) ( CHALLA NAG ENDRA PRASAD ) ) / ACCOUNTANT MEMBER ' ) / JUDICIAL MEMBER ' /CHENNAI, + /DATED 6 TH JANUARY, 2016 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2.RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .