ACIT, New Delhi V. M/s. Renken Partner, New Delhi

ITA 707/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8119 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 03-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 07-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Keywords: Business income; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 707/DEL/2014 AY: 20 10-11 ASSTT.COMMISSIONER OF INOME TAX, VS RENKEN PARTNER, CIRCLE 31(1), DLF CENTRE, 9 TH FLOOR, NEW DELHI. SANSAD MARG, NEW DELHI-110001 (PAN: AAFFR2063P) (APPELLANT) (RESP ONDENT) APPELLANT BY : SHRI O.P. MEENA, SR. DR RESPONDENT BY : SHRI R.S. SINGHVI, CA DATE OF HEARING: 03.02.2016 DATE OF PRONOUNCEMENT: ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER THE PRESENT APPEAL IS PREFERRED BY THE DEPARTMENT AGAINST THE ORDER DATED 25.11.2013 PASSED BY THE LD. CIT(A) -XXVI, NEW DELHI AND PERTAINS TO ASSESSMENT YEAR 2010-11. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1 THE CIT (A) HAS ERRED IN DELETING THE DISALLOWAN CE OF RS. 11,79,27,144/- MADE BY THE ASSESSING OFFICER U/ S 24A OF THE IT ACT AS THE PROPERTY WAS CONSTRUCTED A ND DEVELOPED BY THE PARTNERS/ DLF GROUP OF THE FIRM. 2. THE CIT (A) HAS ERRED IN DIRECTING THAT RENTAL INCOME OF THE ASSESSEE SHOULD BE ASSESSED UNDER THE HEAD 'INCOME FORM HOUSE PROPERTY' AND NOT AS BUSINESS INCOME. I.T.A. NO. 707/DEL/2014 ASSESSMENT YEAR: 2010-11 2 3. THE CIT (A) HAS ERRED IN DELETING THE DISALLOW ANCE OF RS. 14,68,401/- MADE BY THE AO U/S 57(III) OF TH E IT ACT/PRIOR PERIOD EXPENSE. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AM END ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING T HE COURSE OF THE HEARING OF APPEAL. 2. AT THE TIME OF HEARING BEFORE US, IT WAS SUBMI TTED BY THE LEARNED COUNSEL THAT THE SAME ISSUE HAS ALREADY BEE N CONSIDERED BY THE ITAT IN ASSESSEES OWN CASE IN I.T.A. NO. 11 27/DEL/2012 AND 694/DEL/2013 FOR ASSESSMENT YEARS 2008-09 AND 2 009-10 RESPECTIVELY. HE SUBMITTED THAT THE ASSESSEE IS ON E OF THE GROUP CONCERNS OF DLF GROUP AND IN THIS CONCERN WHICH IS A PARTNERSHIP FIRM, CERTAIN ASSETS ARE OWNED ON WHICH RENT IS BEING RECEIVED. THE ASSETS ARE KEPT AS INVESTMENT AND THE ASSETS KEPT IN THIS FIRM ARE NOT STOCK IN TRADE. THE LD. AR SUB MITTED THAT RENT IS RECEIVED YEAR AFTER YEAR AND IS BEING DISCL OSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN THE PRECEDING TWO YEARS, THE INCOME DISCLOSED UNDER THE HEAD INCOME FROM HOU SE PROPERTY HAS BEEN UPHELD BY THE ITAT. HE, THEREFORE, SUBMITT ED THAT THE ORDER OF LEARNED CIT (A) SHOULD BE SUSTAINED. 3. LEARNED DR, ON THE OTHER HAND, FAIRLY ADMITT ED THAT THE ISSUE IS COVERED BY THE ORDER OF THE ITAT. I.T.A. NO. 707/DEL/2014 ASSESSMENT YEAR: 2010-11 3 4. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED RELEVANT MATERIAL PLACED BEFORE U S. WE FIND THAT IN PARAGRAPH NOS. 7 AND 9, THE F BENCH OF TH E ITAT, NEW DELHI IN I.T.A. NO. 1127/DEL/2012 HAS BEEN HELD AS UNDER:- 7. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SID ES AND THE FACTS OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE ABOVE CONCLUSION OF THE LEARNED CIT (A). THE ASSESS EE IS OWNER OF ONE BUILDING WHICH WAS LET OUT FROM PAST S EVERAL YEARS. THE ASSET WHICH IS LET OUT IS HELD AS INVEST MENT AND NOT AS STOCK IN TRADE. IN ALL THE PRECEDING YEA RS, RENTAL INCOME IS SHOWN AS INCOME FROM HOUSE PROPERT Y AND WHICH HAS BEEN ACCEPTED BY THE REVENUE AS SUCH. THE LEARNED DR HAS ARGUED AT THE TIME OF HEARING BE FORE US THAT RULE OF RES-JUDICATA DOES NOT APPLY TO INCO ME TAX PROCEEDINGS. IT IS TRUE THAT THE RULE OF RES-JUDICA TA DOES NOT APPLY TO INCOME TAX PROCEEDINGS BUT, AT THE SAM E TIME, THE RULE OF CONSISTENCY DOES APPLY. WHEN THE FACTS ARE SIMILAR AND RENTAL INCOME FROM THE SAME PROPERT Y IS ACCEPTED AS INCOME FROM HOUSE PROPERTY IN THE PRECE DING YEARS, THERE CANNOT BE ANY JUSTIFICATION TO TREAT T HE RENTAL INCOME AS BUSINESS INCOME IN THE YEAR UNDER CONSIDERATION WITHOUT THERE BEING ANY CHANGE IN THE FACTS OR IN LAW. MOREOVER, THE ASSESSEE IS NOT CARRYING O N ANY ACTIVITY WHICH CAN BE SAID TO BE IN THE NATURE OF B USINESS ACTIVITY. IT IS SIMPLY RECEIVING THE RENT OF THE BU ILDING OWNED BY IT. 8. XXXXX 9. HOWEVER, FROM THE ABOVE, IT IS EVIDENT THAT THE PARTNERSHIP DEED HAS MENTIONED NOT ONLY THE SETTING UP OF THE COMMERCIAL COMPLEX FOR SALE BUT ALSO MENTIONED FOR LETTING OUT AND EARNING RENTAL INCOME THEREFROM. TH AT IT IS A COMMON PRACTICE THAT THE PARTNERSHIP DEED OR A MEMORANDUM OF ASSOCIATION OF THE COMPANY ARE DRAFTE D COVERING LARGE NUMBER OF ACTIVITIES BUT WHICH OF SE VERAL ACTIVITIES MENTIONED IN THE PARTNERSHIP DEED OR I.T.A. NO. 707/DEL/2014 ASSESSMENT YEAR: 2010-11 4 MEMORANDUM OF ASSOCIATION IS CARRIED ON BY THE ASSE SSEE WILL BE RELEVANT FOR THE PURPOSE OF ASSESSMENT UNDE R THE INCOME TAX ACT. WHEN FROM THE FACTS OF THE ASSESSEE S CASE IT IS EVIDENT THAT THE ASSESSEE OWNS A COMMERC IAL COMPLEX FOR LETTING OUT AND EARNING RENTAL INCOME T HEN MERELY BECAUSE THE PARTNERSHIP ALSO PERMITS THE ASS ESSEE TO SALE THE COMMERCIAL COMPLEX WILL NOT CHANGE THE NATURE OF RENTAL INCOME. ORDINARILY, THE RENTAL INCOME FRO M A BUILDING IS TO BE ASSESSED UNDER THE HEAD INCOME FR OM HOUSE PROPERTY. IN VIEW OF THE TOTALITY OF ABOVE FA CTS, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF LEARNED CIT (A). THE SAME IS SUSTAINED AND REVENUE S APPEAL FOR AY 2008-09 IS DISMISSED. 5. THE DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2009 -10 WAS ALSO DISMISSED ON A SIMILAR REASONING BY THE ITAT. IN VIEW OF THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE IN 2008- 09 AND ASSESSMENT YEAR 2009-10, WE DISMISS GROUND N OS. 1 AND 2 OF THE DEPARTMENTS APPEAL. 6. THE ONLY OTHER GROUND REMAINING FOR ADJUDICATION PERTAINS TO THE ISSUE OF DISALLOWANCE OF RS. 14,68,401/- U/S 57(III) OF THE INCOME TAX ACT, 1961 WHICH HAS BEEN DELETED BY THE LD. CIT(A). 7. THE ISSUE HAS BEEN DEALT BY THE LD. CIT(A) IN PA RAGRAPHS 10 AND 10.1 OF THE IMPUGNED ORDER AND THE SAME ARE BEI NG REPRODUCED FOR READY REFERENCE AS UNDER:- I.T.A. NO. 707/DEL/2014 ASSESSMENT YEAR: 2010-11 5 10 . ONE OF THE APPELLANTS, NAMELY, M/S RENKON PARTNERS, HAS RAISED THE ISSUE OF DISALLOWANCE OF L OSS OF INTEREST OF RS. 14,68,401/- DUE TO PRE-MATURE ENCASHMENT OF FDRS. THE ENTIRE PROVISIONS REGARDING THE METHOD OF ACCOUNTING WERE CONTAINED IN SECTION 145. AS PER THAT SECTION, THE INCOME UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OT HER SOURCES' SHALL BE COMPUTED ACCORDING WITH EITHER CA SH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IN OTHER WORDS, THE INCOME TAX ACT RECOGNIZES TWO SYSTEM OF ACCOUNTING, CASH SYSTEM AN D MERCANTILE SYSTEM. THE SECTION ALSO PROVIDES THAT T HE CENTRAL GOVERNMENT IS AUTHORIZED TO NOTIFY FROM TIM E TO TIME THE ACCOUNTING STANDARD TO BE FOLLOWED, PARTIC ULARLY IN THE CASE OF ANY ASSESSEE OR IN RESPECT OF ANY IN COME. THE CENTRAL GOVERNMENT HAS NOTIFIED CERTAIN ACCOUNT ING STANDARDS. THE ACCOUNTING STANDARD-2 CLAUSE (A) PROVIDES THAT A CHANGE IN THE ACCOUNTING POLICY SHA LL BE MADE ONLY IF THE ADAPTATION OF A DIFFERENT POLICY I S REQUIRED BY THE STATUTE OR IF IT IS CONSIDERED THAT THE CHANGE WOULD RESULT IN A MERE APPROPRIATE PREPARATI ON OR PRESENTATION OF THE FINANCIAL STATEMENT OF AN ASSESSEE. 10.1 I HAVE PERUSED THE RECORD AND FIND FORCE IN THE ARGUMENT OF THE LD. AR THAT THE APPELLANT HAS OFFER ED INTEREST OF RS.42,18,273/- ON ACCRUAL BASIS ON FDRS IN THE AY 2009-10, WHICH WAS TAXED ACCORDINGLY IN THAT YEAR. HOWEVER, DUE TO PREMATURE ENCASHMENT ON 09.04.2009, THE ACTUAL RECEIPT OF INTEREST IS LESSE R BY RS.14,68,401/-. SINCE THE APPELLANT HAS ALREADY OFF ERED THIS INTEREST INCOME OF RS.14,68,401/- ON MERCANTIL E BASIS IN THE AY 2009-10, THEREFORE, IT CLAIMED NON- REALIZATION OF INTEREST INCOME OF RS.14,68,401/- AS LOSS IN THE AY 2010-11. SINCE THE APPELLANT IS OFFERING INTEREST INCOME ON ACCRUAL BASIS AS PER ACCOUNTING METHOD FOLLOWED BY IT, THEREFORE, I AM OF THE CONSI DERED VIEW THAT A REVERSAL ENTRY OF THE LOSS OF INTEREST OF RS. 14,68,401/- (THE INTEREST WHICH HAS NOT ACCRUED TO THE APPELLANT) HAS TO BE PASSED IN THE BOOKS OF ACCOUNT OF THE RELEVANT ASSESSMENT YEAR AS THIS LOSS HAS I.T.A. NO. 707/DEL/2014 ASSESSMENT YEAR: 2010-11 6 CRYSTALLIZED IN THIS YEAR DUE TO THE PREMATURE ENCASHMENT OF FDRS. I HAVE CONSIDERED THE ENTIRE IS SUE AND COME TO CONCLUSION THAT IT IS NOT A CASE OF PRI OR PERIOD EXPENSES RELATABLE TO PRECEDING YEAR AS HELD BY THE AO BECAUSE IT IS NOT EXPENDITURE AND IN CASE IT IS EXPENDITURE THEN IT HAS CRYSTALLIZED IN THE RELEVAN T AY. IN CASE, THE AO'S ACTION IS HELD VALID THEN IT AMOUNTS TO DOUBLE TAXATION, ONCE ON ACCRUAL BASIS AND TWICE ON RECEIPT/DISALLOWANCE BASIS. I THINK THE AO'S ACTION IS IN THE NATURE OF CHANGING OF ACCOUNTING METHOD WITHOUT ASSIGNING ANY VALID REASON FOR THAT. THUS, IT IS HE LD THAT THE ACTION OF THE AO HOLDING ABOVE MENTIONED LOSS O F INTEREST AS PRIOR PERIOD EXPENSES IS CONTRARY TO TH E PROVISIONS OF THE LAW AND ACCOUNTING PRINCIPLE. ACCORDINGLY, THE ADDITION OF INTEREST INCOME OF RS. 14,68,401/- IN THE HANDS OF M/S RENKON PARTNERS IS THEREFORE, DELETED. THE AO IS DIRECTED TO GIVE CONSEQUENTIAL RELIEF IN THE CASE OF M/S RENKON PART NERS. 8. IN VIEW OF THE SPECIFIC FINDING OF THE LD. CIT ( A), WHICH THE DEPARTMENT COULD NOT CONTROVERT BEFORE US, WE DECLI NE TO INTERFERE AND REJECT GROUND NO. 3 OF THE DEPARTMENT S APPEAL. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH APRIL, 2016. SD/- SD/- (N.K. SAINI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICI AL MEMBER DATED: THE 29TH OF APRIL, 2016 GS I.T.A. NO. 707/DEL/2014 ASSESSMENT YEAR: 2010-11 7 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 4. DR, ITAT BY ORDER ASSTT. REGISTRAR