M/S AISHWARYA JEWELLERS P LTD., Jaipur V. DCIT, Jaipur

ITA 702/JPR/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62025 (ITAT-JAIPUR)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 29-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Assessee Lawyers: JK RANKA; SIDDHARTH RANKA CA ARS
• Keywords: Business income; Business expenditure; Wrong claim; Difference of opinion
• Section: 143(3); 147; 148; 263; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE T RIBUNAL JAIPUR BENCHE S A, JAIPUR BEFORE S/SHRI R.K. GUPTA, JM AND SANJAY ARORA, AM I.T.A NO. 702/JP/2011 ASSESSMENT YEAR: 2004-05 AISHWARYA JEWELLERS (P.) LTD., NOBLE HOUSE, 22, CHANDRA PATH, CIVIL LINES, JAIPUR [PAN: AABCA 4084G] VS THE DY. CIT, CIRCLE- 2, JAIPUR (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI J.K. RANKA, ADVOCATE AND SHRI SIDDHARTH RANKA, CA ARS REVENUE BY SHRI D.K. MEENA, JR. DR DATE OF HEARING 19/04/2012 DATE OF PRONOUNCEMENT 25/05/2012 O R D E R PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, JAIPUR (CIT (A) FOR SH ORT) DATED 16-05-2011, DISMISSING THE ASSESSEE'S APPEAL AGITATING THE ORDER DATED 23/3/20 09 IMPOSING PENALTY U/S. 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FO R THE ASSESSMENT YEAR (A.Y.) 2004-05. 2.1 IT WOULD BE RELEVANT TO RECOUNT THE BACKGROUND FACTS OF THE CASE LEADING TO THE CONFIRMATION OF THE PENALTY BY THE FIRST APPELLATE AUTHORITY. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF JEWELLERY, WITH A SHOW-R OOM AT M.I. ROAD, JAIPUR. IT RETURNED ITS INCOME FOR THE YEAR AT RS. 7,88,693/- ON 1-11-2 004, I.E., AT A BUSINESS LOSS OF RS. 11.21 LACS AND A POSITIVE INCOME FROM HOUSE PROPERTY AT R S. 19.10 LACS, DULY SUPPORTED BY FINANCIAL STATEMENTS, VIZ. THE PROFIT AND LOSS, BAL ANCE SHEET, ETC. THE ONLY DEDUCTION 2 CLAIMED FROM THE RENTAL INCOME OF RS. 27.28 LACS WA S FOR STANDARD DEDUCTION U/S. 24(A) AT RS. 8.18 LACS. THE RETURN WAS PROCESSED AS SUCH U/S . 143(1)(A) ON 30-12-2004. SUBSEQUENTLY, IT WAS OBSERVED THAT THE ASSESSEE HAD CLAIMED EXPENDITURE IN THE SUM OF RS. 11.21 LACS THROUGH THE PROFIT AND LOSS ACCOUNT, EVEN AS NO BUSINESS WAS ACTUALLY CARRIED OUT DURING THE YEAR; THE ENTIRE RECEIPT OF RS. 27.28 LACS BEING BY WAY OF RENTAL INCOME FROM HOUSE PROPERTY. THE ASSESSEE HAD THUS W RONGLY CLAIMED THE SAID EXPENDITURE, WHICH COULD NOT BE ALLOWED U/SS. 29 TO 44D, IN COMPUTING THE INCOME CHARGEABLE U/S. 28 OF THE ACT. THE ASSESSMENT WAS A CCORDINGLY REOPENED U/S. 148 OF THE ACT, AND THE ASSESSMENT FRAMED U/S. 143(3) READ WIT H SECTION 147 OF THE ACT AT RS. 19.10 LACS, I.E., THE HOUSE PROPERTY INCOME AS RETURNED, ON THE PREMISES THAT NO CLAIM FOR ALLOWANCE OF ANY BUSINESS EXPENDITURE WAS MADE OUT. 2.2 IN APPEAL, THE ASSESSEE WAS ABLE TO SECURE R ELIEF QUA THE ENTIRE INCREASE OF RS. 11.21 LACS EFFECTED IN ASSESSMENT TO ITS RETURNED INCOME (I.E., RS. 19.10 LACS RS. 7.89 LACS). THE INTEREST EXPENDITURE (RS. 9.34 LACS) HAD BEEN I NCURRED ONLY IN RELATION TO THE CAPITAL BORROWED FOR THE PURPOSE OF CONSTRUCTION/REPAIR/REN OVATION OF THE HOUSE PROPERTY, A BUSINESS ASSET, SO THAT IT WAS ALLOWABLE IN FULL. S IMILARLY, THE DISALLOWANCE OF VARIOUS EXPENSES WAS NOT JUSTIFIED; BEING ONLY IN MINOR SUM S, TO MAINTAIN THE CORPORATE/ORGANIZATIONAL STATUS OF THE COMPANY, AND STOOD VACATED FOR THAT REASON. HOWEVER, IN THE VIEW OF THE LD. CIT(A), THE ASSESSE E HAD WRONGLY RETURNED THE RENTAL INCOME AS FROM HOUSE PROPERTY, CLAIMING STANDARD DE DUCTION AT RS. 8.18 LACS THERE- AGAINST. THE BUSINESS HAD NOT BEEN CLOSED DOWN, AND IT WAS A CASE OF ONLY A TEMPORARY LULL THEREIN, HAVING BEEN FINALLY STARTED IN THE YE AR RELEVANT TO THE ASSESSMENT YEAR 2006- 07. THE RENTAL INCOME FROM THE BUSINESS PREMISES WA S THUS ONLY A BUSINESS INCOME, EVEN AS HELD, AMONGST OTHERS, IN THE CASE OF CIT VS. KOHINOOR TOBACCO PRODUCTS (P.) LTD . (2006) 283 ITR 162 (M.P.), WHEREIN IT STOOD HELD TH AT THE RENTAL INCOME FROM SOME GOWDOWNS OF THE BUSINESS PREMISES, LET OUT TEMPORAR ILY, IS ONLY A BUSINESS INCOME BY WAY OF THEIR COMMERCIAL EXPLOITATION AND TO MITIGAT E THE COSTS OF THE BUSINESS EXPERIENCING A LULL. THE ASSESSEE'S INCOME WAS THUS FINALLY ASSESSED AT RS. 16.07 LACS, I.E., 3 BY DISALLOWING ITS CLAIM FOR STANDARD DEDUCTION U/S . 24(A) AT RS. 8.18 LACS, AS BUSINESS INCOME, AND HOUSE PROPERTY INCOME REDUCED TO NIL. T HE PRESENT PROCEEDINGS IMPUGN THE LEVY OF PENALTY ON THE SAID DISALLOWANCE AT THE RAT E OF 100% OF THE TAX THEREON, HAVING BEEN SINCE CONFIRMED BY THE FIRST APPELLATE AUTHORI TY. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD, AND GIVEN OUR CAREFUL CONSIDERATION TO THE MATTER. 3.1 THE BASIS OF THE REVENUES CASE IS THAT THE ASSESSEE HAD PREFERRED A WRONG CLAIM, AND DELIBERATELY AT THAT. THAT IS, IT IS NOT A CASE OF A DEBATABLE CLAIM OR EVEN AN INADVERTENT MISTAKE. THE ASSESSEE, ON THE OTHER HAN D, STAKES ITS CLAIM ON THE BASIS OF HAVING MADE A BONA FIDE CLAIM. IN ADDITION, IT SEEKS TO DRAW MILEAGE FROM THE FACT THAT THE ASSESSING OFFICER (AO) HAD HIMSELF ALLOWED THE IMPU GNED CLAIM (FOR STANDARD DEDUCTION) IN THE ORIGINAL ASSESSMENT. SECONDLY, NO ENHANCEMEN T NOTICE WAS ISSUED BY THE FIRST APPELLATE AUTHORITY BEFORE PROCEEDING TO EFFECT THE SAID DISALLOWANCE THEREAT, I.E., IN THE QUANTUM PROCEEDINGS. WE CONSIDER BOTH THE ASSESSEE PLEAS AS OF LITTLE MERIT. NEITHER ADDRESSES THE ISSUE ON ITS MERITS, I.E., THE ASSESS EE'S EXPLANATION IN MAKING THE IMPUGNED CLAIM FOR STANDARD DEDUCTION FOR REPAIRS U/S. 24(A) OF THE ACT. IF THE ASSESSING AUTHORITY HAD ERRED, COULD THAT FORM THE BASIS OF RELIEF OR A JUSTIFICATION FOR HAVING PREFERRED A WRONG CLAIM ? IF SUCH A VIEW IS ACCEPTED, NO PENALTY COULD, AS A MATTER OF RULE, BE LEVIED WHERE A DISALLOWANCE/ADDITION IS SUSTAINED ON AN AS SESSMENT FRAMED IN PURSUANCE TO A REVISION ORDER U/S. 263 OF THE ACT. THE ASSESSEE HA D ITSELF CLAIMED INTEREST AS BUSINESS EXPENDITURE, BEING ADMITTEDLY ONLY AGAINST CONSTRUC TION/REPAIR/RENOVATION OF THE HOUSE PROPERTY, A BUSINESS ASSET, WHICH WAS THOUGH FOR TH E TIME BEING UNABLE TO BE USED AS SUCH AND, ACCORDINGLY, LET OUT, I.E., TO THE EXTENT LETT ABLE. THEREFORE, MERITS APART, THE QUESTION AS TO WHETHER THE RENTAL INCOME IS BUSINESS INCOME OR FROM HOUSE PROPERTY WAS INCIDENTAL AND GERMANE TO THE ISSUE AT HAND; IT ITSELF JUSTIFY ING THE CLAIM FOR OTHER BUSINESS EXPENSES ALSO, ON THE GROUND THAT THE SAME REPRESENTED A TEM PORARY LULL IN BUSINESS, WHICH WAS NOT FULLY STOPPED; IN FACT, BY PLACING RELIANCE ON THE VERY DECISION ON WHICH THE FIRST APPELLATE 4 AUTHORITY BASED HIS DECISION (IN THE QUANTUM PROCEE DINGS) ON, I.E., IN THE CASE OF CIT VS. KOHINOOR TOBACCO PRODUCTS (P.) LTD .(SUPRA). FURTHER, THE ASSESSEE HAVING BEEN DULY SHOW CAUSED U/S. 274, WE DO NOT THINK THAT THE OTHE R COLLATERAL ISSUES RAISED BY THE ASSESSEE, VIZ. NON-RECORDING AND, IN ANY CASE, NON- COMMUNICATION OF THE REASONS RECORDED WHILE INITIATING THE PENALTY PROCEEDINGS; OF ALLOWA NCE OF STANDARD DEDUCTION AS NOT BEING IN CONTEMPLATION WHILE RECORDING REASONS U/S. 148, AS OF ANY MOMENT. 3.2 SO, HOWEVER, WE ARE UNABLE TO SEE AS TO HOW THE ASSESSEES EXPLANATION IS NOT BONA FIDE , WITH IT HAVING FURNISHED ALL THE RELEVANT FACTS. IT MAY BE A CASE OF AN INCORRECT CLAIM, BASED ON A GENUINE DIFFERENCE OF OPINION. NO DOUBT, THE ASSESSEE MADE THE IMPUGNED CLAIM IN FULL KNOWLEDGE OF THE FACTS OF THE CASE, B UT IS IT NOT ENTITLED TO CLAIM BOTH, THE INTEREST EXPENSE AS WELL AS THE STANDARD DEDUCTION, AGAINST INCOME FROM HOUSE PROPERTY? IF THAT BE SO, AS IT INDEED IS, HOW WOULD IT MATTER THAT THE INTEREST HAD BEEN CLAIMED AS A BUSINESS EXPENSE, RATHER THAN AGAINST HOUSE PROPERT Y? IT NEEDS TO BE APPRECIATED THAT THE DEFAULT, I.E., IF WE MAY SAY SO, IS NOT IN PREFERRI NG THE IMPUGNED CLAIM PER SE , WHICH IS INCIDENTAL, BUT IN THE CLASSIFICATION OF THE HEAD O F INCOME UNDER WHICH THE RENTAL INCOME IS LIABLE TO BE TAXED. WE COULD UNDERSTAND OF THE R EVENUE HAVING A CASE WHERE THE ASSESSEE HAD CLAIMED REPAIRS AS A BUSINESS EXPENSE, WHILE ALSO CLAIMING STANDARD DEDUCTION IN ITS RESPECT. AND WHICH IS NOT SO; THE LD. AR TAKING US THROUGH THE P&L A/C FOR THE RELEVANT YEAR (PB PG. 23), WHICH BEARS ONLY NOMINAL EXPENSES, I.E., APART FROM THE INTEREST EXPENSE AT RS. 9.34 LACS. THE CLAIM FOR RE PAIRS U/S. 30, IT MAY BE NOTED, IS ONLY QUA CURRENT REPAIRS, WHILE NO SUCH QUALIFICATION ATTEN DS THE CLAIM FOR STANDARD DEDUCTION U/S. 24(A). AGAIN, IT WOULD HAVE A DIFFERENT MATTER IF THE ASSESSEE IS ENTITLED TO EITHER, I.E., DEDUCTION ON ACCOUNT OF INTEREST OR STANDARD DEDUCT ION, SO THAT IT SOUGHT TO PRESS THE INTEREST CLAIM AS A BUSINESS EXPENSE TO BE ABLE TO CLAIM STANDARD DEDUCTION AGAINST PROPERTY INCOME AND, THUS, MAKE A CLAIM WHICH WAS L EGALLY UNTENABLE, AND FOR WHICH IT HAD THUS NO EXPLANATION OTHER THAN A LOWER TAX INCI DENCE. RATHER, WE WOULD THINK THAT THE CLAIM OF INTEREST AS BUSINESS EXPENDITURE TO BE A T ENUOUS CLAIM INASMUCH AS IT NOT ONLY 5 SWELLED THE `BUSINESS LOSS, BUT ALSO RAISES AN ISS UE WITH REGARD TO ITS ALLOWANCE, AS NO BUSINESS WAS IN FACT CARRIED OUT DURING THE RELEVAN T YEAR. 3.3 LETTING OUT A BUSINESS ASSET, WHERE IT IS A HOUSE PROPERTY, AFTER UNDERTAKING EXTENSIVE REPAIRS OR RENOVATION, IS A DIFFERENT PRO POSITION THAN GIVING IT ON RENT AS SUCH, I.E., TO CAPITALIZE ON THE COMMERCIAL VALUE OF THE ASSET LYING IDLE FOR THE TIME BEING. THE RENT FETCHED, WHICH WOULD ONLY BE ON PUTTING THE SU BJECT PROPERTY TO BUSINESS USER BY THE TENANT, WOULD ITSELF SUGGEST THAT BUSINESS COULD IN DEED BE CARRIED THEREAT, AND THE ASSESSEES DECISION NOT TO ITSELF ENGAGE THEREIN WA S GUIDED BY OTHER CONSIDERATIONS, BESIDES OF BEING ABLE TO RECLAIM THE PROPERTY WHEN THE BUSINESS WAS TO BE COMMENCED. CHAPTER IV-C OF THE ACT DRAWS NO DISTINCTION WHETHE R THE HOUSE PROPERTY LET OUT IS A COMMERCIAL OR A NON-COMMERCIAL PROPERTY. THE APEX C OURT IN SULTAN BROS. (P.) LTD. V. CIT (1964) 51 ITR 353 (SC) HAS CLARIFIED THAT NOTHING MUCH TURNS ON THE HOUSE PROPERTY UNDER REFERENCE BEING A BUSINESS OR A COMMERCIAL AS SET, AS BUSINESS COULD BE CARRIED OUT WITH PRACTICALLY ANY ASSET. FURTHER, THAT WHETHER A PARTICULAR LETTING IS BUSINESS IS TO BE DECIDED IN THE CIRCUMSTANCES OF EACH CASE, WHICH HA VE TO BE LOOKED AT FROM THE BUSINESSMAN POINT OF VIEW. ASSESSABILITY OF RENTAL INCOME, I.E., WHETHER AS BUSINESS INCOME OR FROM HOUSE PROPERTY, IS, THUS, AND INDEED IN THE INSTANT CASE WAS, A MIXED QUESTION OF FACT AND LAW, AND THE NON-ACCEPTANCE OF THE ASSESSEE'S CLAIM IN QUANTUM PROCEEDINGS WOULD NOT MAKE IT ANY LESS A HONEST CLA IM. WOULD, FOR EXAMPLE, ONE MAY ASK, THE DECISION BY THE HON'BLE COURT IN THE CASE OF CIT VS. KOHINOOR TOBACCO PRODUCTS (P.) LTD. (SUPRA) , HOLDING THE RENTAL INCOME TO BE ASSESSABLE AS BUS INESS INCOME, RENDER THE CLAIM OF THE ASSESSEE IN THAT CASE AS FALSE, LIABLE FOR PENALTY ? IT IS FOR THESE REASONS THAT THE HIGHER COURTS OF LAW HAVE DISAPPROVED OF THE LE VY OF PENALTY WHERE THE ISSUE, THOUGH DECIDED AGAINST THE ASSESSEE IN QUANTUM PROCEEDINGS , IS DEBATABLE OR CONTENTIOUS. THAT THE ASSESSEES CLAIM BEARS A LOWER INCIDENCE OF TAX IS A MATTER INCIDENTAL, AND BY ITSELF OF NO CONSEQUENCE. WHAT IS MATERIAL IS WHETHER THE CLA IM SUPPORTED BY A BONA FIDE EXPLANATION, I.E., A GENUINE GROUND, WITH THE MATER IAL FACTS HAVING BEEN DISCLOSED, AND WHICH WE FIND AS SO. IN FACT, TO THE EXTENT THE CLA IM IS FOR STANDARD DEDUCTION AGAINST 6 RENTAL INCOME, THE SAME RAISES NO QUESTION OF SUBST ANTIATION, I.E., IS SELF CORROBORATIVE. IT IS AT BEST A CASE OF AN INCORRECT CLAIM, WITH ALL T HE MATERIAL FACTS ON RECORD. THE RATIO OF THE DECISIONS IN THE CASE OF CIT V. RELIANCE PETROPRODUCTS (P.) LTD . (2010) 322 ITR 158 (SC) AND CHANDRA PAL BAGGA V. ITAT , 261 ITR 67 (RAJ.), RELIED UPON BY THE ASSESSEE, WOULD, AMONG OTHERS, APPLY IN THE FACTS AND CIRCUM STANCES OF THE CASE. 3.3 IN VIEW OF THE FOREGOING, NO CASE FOR THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT, IN OUR VIEW, IS MADE OUT IN THE GIVEN FACTS AND CIR CUMSTANCES OF THE CASE. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS ALLOWED. SD/- SD/- (R.K. GUPTA) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: JAIPUR DATED: MAY 25, 2012 *MISHRA COPY TO: 1. M/S. AISHWARYA JEWELLERS (P.) LTD., JAIPUR 2. THE DCIT, CIRCLE- 2, JAIPUR 3. THE CIT (A), JAIPUR 4. THE CIT CONCERNED 5. THE D.R., I.T.A.T. 6. GUARD FILE (ITA NO.702/JP/2011) BY ORDER (ASSISTANT REG ISTRAR) ITAT, JAIPUR BENCHES