Cache Propertied Private Limited, Hyderabad, Hyderabad V. DCIT, Circle-1(2), Hyderabad, Hyderabad

ITA 689/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2460 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 18-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S NARASAMMA
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Business income; Revision of order; Assessment record
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 689/HYD/2017 ASSESSMENT YEAR: 2012-13 CACHE PROPERTIES PVT. LTD., HYDERABAD. PAN AABCC 8841C VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHAN RAO REVENUE BY : SMT. S. NARASAMMA DATE OF HEARING : 23-08-2017 DATE OF PRONOUNCEMENT : 31-10-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX - I, HYDE RABAD, DATED 31/03/2017 PASSED U/S 263 OF THE ACT, FOR AY 2012- 13 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY HAD FILED ITS RETURN OF INCOME FOR THE A.Y. 2012-13 ON 28.09.2012 ADMITTING TOTAL INCOME OF RS.6,88,57.610/- UNDER NO RMAL PROVISIONS AND BOOK PROFITS OF RS.7,41,68,735/- UNDER THE PROV ISIONS OF SEC.115JB. THE CASE WAS SELECTED FOR 'COMPLETE SCRU TINY' UNDER CASS AND THE SCRUTINY ASST. WAS COMPLETED U/S.143 ( 3) ON 27.02.2015 ACCEPTING THE INCOME RETURNED UNDER NORMAL PROVISIO NS. 3. THE CIT BY EXERCISING POWERS VESTED U/S 263 OF THE ACT, CALLED FOR ASSESSMENT RECORD AND ON EXAMINING THE SAME, O BSERVED THAT FROM THE P&L A/C. ASSESSEE OFFERED 'INCOME FROM OPE RATIONS' 2 ITA NO. 689/H/17 CACHE PROPERTIES PVT. LTD. AMOUNTING TO RS.15,13,48,379/- WHICH INCLUDES RENTA L INCOME OF RS. 14,85,52,805/-. IN THE COMPUTATION OF TOTAL INCOME, THE RENTAL INCOME WAS REDUCED FROM THE NET PROFIT SHOWN IN THE P&L A/ C AND OFFERED SEPARATELY UNDER THE HEAD 'INCOME FROM HOUSE PROPER TY'. HOWEVER, AS NOTICED FROM THE 3CD REPORT [COLUMN 8(A)], THE NATU RE OF BUSINESS OF THE ASSESSEE WAS MENTIONED AS 'INFRASTRUCTURE DEVEL OPMENT AND RENTAL SERVICES'. FURTHER, AS PER THE DIRECTOR'S RE PORT, THE COMPANY WAS INCORPORATED ON 19-06-2002 TO CARRY ON THE BUSI NESS OF REAL ESTATE AND OTHER RELATED ACTIVITIES. CIT ALSO NOTIC ED FROM THE LEASE DEEDS THAT THE ASSESSEE COMPANY IS A DEVELOPMENT AG REEMENT HOLDER REPRESENTING SONS OF LATE SRI G. MOHAN RAO, WHO INC LUDE SRI G. SRINIVAS, MANAGING DIRECTOR OF THE COMPANY. THE AUD IT REPORT, THE DIRECTOR'S REPORT AND THE LEASE DEEDS PLACED ON ASS ESSMENT RECORD INDICATE THAT THE ASSESSEE COMPANY HAS BEEN CARRYIN G ON THE BUSINESS OF THE REAL ESTATE AND RELATED ACTIVITIES AND IN THE COURSE OF SUCH ACTIVITY IT DEVELOPS PROPERTIES AND GIVES THEM ON LEASE AS A BUSINESS PROPOSITION. HE OPINED THAT IN SUCH CIRCUM STANCES, THE RENTAL INCOME FROM THE PROPERTIES GIVEN ON LEASE BY THE COMPANY AND CLASSIFIED AS OPERATIONAL INCOME IN THE FINANCIALS IS LIABLE TO BE ASSESSED UNDER THE HEAD 'INCOME FROM BUSINESS' AND NOT AS 'INCOME FROM HOUSE PROPERTY'. CIT NOTED THAT THIS POINT WAS APPARENTLY OVERLOOKED BY THE ASSESSING OFFICER DURING THE ASSE SSMENT PROCEEDINGS AND THE COMPUTATION OF RENTAL INCOME UN DER THE HEAD 'INCOME FROM HOUSE PROPERTY' AS ADMITTED BY THE ASS ESSEE WAS ACCEPTED IN THE ASSESSMENT ORDER DATED 27.02.2015. 3.1 FURTHER, CIT OBSERVED THAT THOUGH THE DIRECTOR S REPORT (LAST PAGE) INDICATE THAT THE ASSESSEE COMPANY DID NOT AC CEPT ANY DEPOSITS DURING THE YEAR AND NOTE 6 (OTHER LONG T ERM LIABILITIES) CLEARLY DEPICT THAT AN INCREASE OF RS. 1.57 CRORES AS COMPARED TO LAST YEAR; IN THIS BACK GROUND, AS PER CIT, AO OUGHT TO HAVE EXAMINED THE GENUINENESS OF THE DEPOSITS DURING THE YEAR. 3 ITA NO. 689/H/17 CACHE PROPERTIES PVT. LTD. IT WAS STATED IN DIRECTOR'S REPORT (LAST PAGE), AS SESSEE COMPANY HAS NOT ACCEPTED ANY DEPOSITS DURING THE YEAR. HOWEVER, IT IS NOTICED FROM NOTE NO.6. 'OTHER LONG TERM LIABILITIES', THE RENTA L DEPOSITS HAD SHOWN AN INCREASE OF RS.1,57,79,108/- AS COMPARED TO LAST YEAR AND IN THIS BACKGROUND THE ASSESSING OFFICER OUGHT TO HAVE EXAM INED THE GENUINENESS OF THE DEPOSITS INTRODUCED DURING THE Y EAR. HE OPINED THAT THE MATERIAL PLACED ON RECORD DOES NOT INDICA TE THAT THIS ASPECT WAS EXAMINED BY THE AO BEFORE FINALIZING THE ASSESS MENT. 3.2 IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT HEL D THAT THE ASSESSMENT U/S.143(3) MADE FOR A.Y. 2012-13 ACCEPT ING THE RETURNED INCOME IS PRIMA-FACIE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE AS ENVISAGED IN SEC.263 OF THE IT ACT AND PROPOSED TO REVISE THE ASSESSMENT ON THE ABOVE LINES. ACCORDING LY, ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE. 4. IN RESPONSE TO THE SHOW CAUSE LETTER, THE ASSESS EE FILED WRITTEN SUBMISSIONS DATED 19/12/2016, WHICH WERE EXTRACTED BY THE CIT IN HIS ORDER AT PAGES 2 TO 7. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT, INTER-ALIA, OBSERVED AS UNDER: 9.1 THE AUDIT REPORT, THE DIRECTOR'S REPORT AND THE LEASE DEEDS AVAILABLE ON ASSESSMENT RECORD CLEARLY INDICATE THA T THE ASSESSEE COMPANY HAS BEEN CARRYING ON THE BUSINESS OF REAL ESTATE, RENTAL SERVICES AND RELATED ACTIVITIES AND IN THE COURSE OF SUCH ACTIVITY IT HAS DEVELOPED A COMMERCIAL COMP LEX AND THE SPACE IN THE COMPLEX WAS GIVEN ON LEASE ALONG WITH CERTAIN AMENITIES AND DERIVED RENTAL INCOME. FROM THE INCEP TION OF THE COMPANY, THE INTENTION AND OBJECT OF THE COMPANY WA S TO DEVELOP COMMERCIAL COMPLEX AS A SYSTEMATIC BUSINESS ACTIVITY TO EARN PROFIT AND NOT JUST EARNING OF RENTAL INCOM E. THE ASSESSEE WAS LEASING OUT SPACE WITH CERTAIN AMENITI ES AND SUCH ACTIVITIES TOGETHER WOULD CONSTITUTE AN ORGANI ZED STRUCTURE FOR MAKING PROFITS AND WOULD NECESSARILY CONSTITUTE A BUSINESS. A PERUSAL OF LEASE AGREEMENTS AND THE STIPULATIONS CONTAINED THEREIN WOULD NOT LEAVE ANY DOUBT ABOUT THE COMMERC IAL CHARACTER OF THE RELATIONSHIP BETWEEN THE PARTIES A S 4 ITA NO. 689/H/17 CACHE PROPERTIES PVT. LTD. DISTINGUISHED FROM THAT MERELY OF A LANDLORD AND HI S TENANT. AS THE PRIMARY OBJECT OF THE ASSESSEE IS TO EXPLOIT TH E PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES, THE INCOME FR OM THE SAME WAS TO BE CONSIDERED AS BUSINESS INCOME I.E. O PERATIONAL INCOME AS SHOWN BY THE ASSESSEE IN FINANCIALS FOR T HE YEAR. 9.2 ANOTHER IMPORTANT ASPECT TO BE NOTED IN THE PRE SENT CASE IS THAT INCOME FROM GENERATORS, PARKING SPACE RENT ETC . HAS BEEN TREATED AND OFFERED AS BUSINESS INCOME AND IT IS ON LY INCOME FROM OFFICE SPACE THAT HAS BEEN TREATED AS INCOME F ROM HOUSE PROPERTY. IT IS NOT CLEAR ON WHAT BASIS THE ASSESSE E HAS SEGREGATED THE RENTAL INCOME AS INCOME FROM HOUSE P ROPERTY OR BUSINESS INCOME, SINCE THE RENT RECEIVED IS INCLUSI VE OF OFFICE SPACE, GENERATOR CHARGES & PARKING SPACE. AS PER TH E LEASE DEEDS SUBMITTED BY THE ASSESSEE, THE OFFICE SPACE H AS BEEN GIVEN ON RENT ALONG WITH THE CAR PARKING SPACE, ELE CTRICITY SUPPLY AMENITIES PROVIDING LIFT AND SUCH OTHER AMEN ITIES IS AN INTEGRAL PART OF THE LEASE OF OFFICE SPACE IN THE C OMPLEX AND SUCH SERVICES DO NOT CONSTITUTE A SEPARATE ACTIVITY . SUCH AMENITIES RUN CONCURRENTLY WITH THE TERM FOR WHICH THE PREMISES WERE GIVEN ON LEASE AND THEREFORE THE RENT CANNOT B E DIVORCED FROM THE OTHER INCOME AND THEREFORE RENT INCOME IS ALSO ASSESSABLE UNDER THE HEAD 'INCOME FROM BUSINESS' AL ONG WITH CHARGES FOR AMENITIES. IN THIS CONTEXT, IT MAY BE R ELEVANT TO REFER TO THE DECISION OF ALLAHABAD HIGH COURT IN TH E CASE OF GEOL BUILDERS VS. CIT (331 ITR 344) WHICH DIRECTLY COVERS THE ISSUE ON HAND. 5.1 IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT HELD THAT THE AO OVERLOOKED THE FACTUAL ASPECTS AND THE LEGAL POSITI ON WHILE FINALIZING THE IMPUGNED ASSESSMENT AND THE COMPUTATION OF RENT AL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS ADMI TTED BY THE ASSESSEE WAS ACCEPTED IN THE ASSESSMENT ORDER DATED 27/02/2015, THEREFORE, THE ASSESSMENT ORDER PASSED BY THE AO IS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTERESTS OF REVENUE AS ENVISAGED U/S 263 OF THE ACT. HE, ACCORDINGLY, DIRE CTED THE AO TO ASSESS THE RENTAL INCOME OF RS. 14,85,52,805/- AS INCOME FROM BUSINESS INSTEAD OF INCOME FROM HOUSE PROPERTY. 6. AGGRIEVED BY THE ORDER OF THE CIT, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 5 ITA NO. 689/H/17 CACHE PROPERTIES PVT. LTD. 1. THE REVISIONARY ORDER U/S 263 OF THE ACT, IS ERR ONEOUS BOTH IN LAW AND ON FACTS. 2. THE LD. PR. CIT OUGHT TO HAVE APPRECIATED THAT T HE RECOURSE TO REVISION U/S 263 OF THE ACT IS NOT JUSTIFIED BEC AUSE THE ASSESSING OFFICER HAS TAKEN ONE OF THE COURSES PERM ISSIBLE IN LAW WHEREAS THE PRO CIT REVISED THE ASSESSMENT BY C HANGE OF OPINION. 3. THE LD. PR. CIT ERRED IN TREATING THE ASSESSMENT ORDER AS ERRONEOUS WITHOUT APPRECIATING THAT THE ASSESSING O FFICER HAD COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT, AF TER CONSIDERING ALL THE RELEVANT FACTS EXPLANATIONS AND SUBMISSIONS PLACED BEFORE HIM WITH REGARD TO THE IMPUGNED ISSUE . 4. THE LD. PR. CIT OUGHT TO HAVE APPRECIATED THAT T HE ASSESSEE COMPANY HAD CONSTRUCTED THE ONLY PROPERTY AND THAT IT HAD NOT PURCHASED OR SOLD ANY OTHER PROPERTY AS ON DATE. 5. THE LD. PR. CIT ERRED IN TREATING THE RENTAL INC OME FROM HOUSE PROPERTY AS INCOME FROM BUSINESS. 6. THE LD. PR. CIT HAS GROSSLY ERRED IN CHANGING TH E HEAD OF INCOME FROM 'INCOME FROM HOUSE PROPERTY' TO 'INCOME FROM BUSINESS OR PROFESSION'. 7. THE ASSESSEE CRAVES SPACE TO ADD, ALTER OR MODIF Y ANY GROUND BEFORE OR AT THE TIME OF PROCEEDINGS BEFORE THE ITAT. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. THE MAIN DISPUTE IS WHETHER THE RENTAL I NCOME EARNED BY THE ASSESSEE SHOULD BE ASSESSED UNDER THE HEAD INC OME FROM HOUSE PROPERTY OR BUSINESS INCOME. THE AO HAS COMPLETED THE ASSESSMENT U/S 143(3) TREATING THE RENTAL INCOME UNDER THE HEA D INCOME FROM HOUSE PROPERTY BY ALLOWING ASSESSEE TO CLAIM DEDUC TION U/S 24(I). ASSESSEE OBJECTED THE ACTION OF THE CIT U/S 263 THA T AO HAS TAKEN A VIEW, WHICH IS ONE OF THE POSSIBLE VIEWS AVAILABLE TO HIM, FOR WHICH THE CIT CANNOT OBJECT BY INVOKING PROVISIONS OF SEC TION 263. FOR THIS PROPOSITION, ASSESSEE HAS RELIED ON VARIOUS JUDICIA L PRONOUNCEMENTS. WHEREAS THE CIT OPINED THAT THE MAIN OBJECT OF THE ASSESSEE WAS TO EXPLOIT ITS PROPERTIES BY LETTING THEM OUT ON RENT AS BUSINESS PROPOSITION. MOREOVER, THE ASSESSEE DEVELOPED THE PROPERTY AS A 6 ITA NO. 689/H/17 CACHE PROPERTIES PVT. LTD. DEVELOPER AND NOT MERELY AS THE OWNER OF THESE PROP ERTIES. CIT ALSO REFERRED TO APEX COURT DECISIONS IN THE CASE OF M/S RAYALA CORPORATION PVT. LTD., VS. ACIT, 386 ITR 500 AND IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD., VS. CIT, 373 ITR 673 WHEREIN IT WAS HELD THAT RENTAL INCOME RECEIVED BY THE ASSE SSEE HAVING A BUSINESS OF RENTING THE PROPERTY AS THE MAIN OBJECT SHOULD BE ASSESSED AS BUSINESS INCOME. HENCE, HE WAS OF THE V IEW THAT RENTAL INCOME SHOULD BE ASSESSED AS BUSINESS INCOME. 7.1 IN OUR CONSIDERED VIEW, THE ASSESSEE OUGHT TO H AVE SUBMITTED RELEVANT INFORMATION BEFORE THE AO TO SUBSTANTIATE THAT THE INCOME EARNED ON LEASING OUT THE PROPERTIES IS ASSESSABLE TO TAX UNDER THE HEAD PROPERTY INCOME. THE AO HAD NOT INDICATED TH AT HE HAS ACTUALLY CALLED FOR ANY INFORMATION TO SEEK CLARIFI CATION AS TO WHETHER THE IMPUGNED INCOME IS ASSESSABLE UNDER THE HEAD I NCOME FROM HOUSE PROPERTY OR UNDER THE HEAD BUSINESS INCOME . LD. COUNSEL RELIED UPON SEVERAL CASES TO CONTEND THAT INCOME DE RIVED BY ASSESSEE COMPANY FROM TENANTS OF SHOPS AND STALLS, UNDER SUCH CIRCUMSTANCES, IS ASSESSABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND IT COULD NOT BE ALTERED MERELY BECAUSE ASSESSEE COMPANY HAS BEEN CONFERRED WITH THE OBJECT OF SETTI NG UP AND DEVELOPING LANDED PROPERTIES (EAST INDIA HOUSING AN D LAND DEVELOPMENT TRUST LTD., [1961] 42 ITR 49 (SC) ). HO WEVER, THE FACT REMAINS THAT THIS CAN BE SETTLED ONLY WHEN THE AO A PPLIES HIS MIND TO THE ISSUE. IN THE BACKDROP OF THE AVAILABLE RULINGS OF THE HONBLE SUPREME COURT, AS RIGHTLY POINTED OUT BY THE CIT, T HE HONBLE SUPREME COURT IN THE RECENT PAST OBSERVED (M/S RAY ALA CORPORATION PVT. LTD. VS. ACIT, 386 ITR 500) THAT IN THE EVENT OF LEASING OUT PROPERTY BY A COMPANY, SUCH INCOME SHOULD BE TREATE D AS ITS BUSINESS INCOME. SIMILAR VIEW HAS TAKEN IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD. VS. CIT (373 ITR 673 ). SINCE SUCH MATTERS HAVE TO BE CONSIDERED BY ANALYSING UNDER BR OADER ASPECTS OF LAW BY REFERRING TO THE FACTS OF EACH CASE, IT IS T HE DUTY OF THE 7 ITA NO. 689/H/17 CACHE PROPERTIES PVT. LTD. AO TO HAVE OBTAINED THE RELEVANT INFORMATION, BUT, THE RECORD DOES NOT INDICATE THAT THE AO APPLIED HIS MIND. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CASE LAW RELIED UPON BY TH E ASSESSEE (MALABAR INDUSTRIAL CO. LTD., 243 ITR 83 (SC) AND O THER SUCH CASES TAKING A SIMILAR VIEW) HAVE NO APPLICATION TO THE I NSTANT CASE; IN THE AFORECITED CASES, ONLY AO HAS TAKEN A SPECIFIC STAN D UPON APPLICATION OF MIND, IT IS ONE OF THE VIEWS POSSIBLE IN THE CIR CUMSTANCES AND THOSE CASE LAW CANNOT BE APPLIED WHERE THE AO HAS NOT APP LIED HIS MIND. HAVING REGARD TO THE CIRCUMSTANCES AND FOR THE DETA ILED REASONING GIVEN BY THE REVISIONAL AUTHORITY, WE ARE OF THE VI EW THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO TH E INTERESTS OF REVENUE. HOWEVER, IN OUR CONSIDERED VIEW, THE ISSUE AS TO WHETHER THE SAID INCOME IS ASSESSABLE UNDER THE HEAD INCOM E FROM HOUSE PROPERTY OR INCOME FROM BUSINESS HAS TO BE CONSI DERED IN THE BACKDROP OF THE CASE LAW ON THE ISSUE AND THEREFORE , THE MATTER DESERVES TO BE SET ASIDE TO THE FILE OF THE AO INST EAD OF DIRECTING THE AO TO TREAT THE INCOME AS INCOME FROM BUSINESS. AC CORDINGLY, WE MODIFY THE ORDER OF REVISIONAL AUTHORITY AND DIRECT THE AO TO RECONSIDER THE MATTER IN ACCORDANCE WITH LAW BY PR OPERLY ANALYSING THE FACTS AND CONSIDER THE ISSUE ON THE TOUCHSTONE OF THE CASE LAW AVAILABLE ON THE ISSUE OF INCOME EARNED BY A COMPAN Y BY LEASING OUT THE PROPERTIES. ACCORDINGLY, WE MODIFY THE ORDER OF THE REVISIONAL AUTHORITY, THOUGH IN PRINCIPLE, WE AGREE THAT IT IS A FIT CASE OF INVOCATION OF SECTION 263. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS T REATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2017. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHMAN ) VICE PRESIDENT AC COUNTANT MEMBER HYDERABAD, DATED: 31 ST OCTOBER, 2017. 8 ITA NO. 689/H/17 CACHE PROPERTIES PVT. LTD. KV COPY TO:- 1) M/S CACHE PROPERTIES PVT. LTD., C/O P. MURALI & CO., CAS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500 082 2) DCIT, CIRCLE 1(2), HYDERABAD. 3) CIT - 1, HYDERABAD 4 ADDL. CIT, RANGE - 1, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE