INDICLAY, MUMBAI V. ITO - 31(2)(1), MUMBAI

ITA 732/MUM/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1123 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 06-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K BEPARI
• Assessee Lawyers: CHETAN A KARIA
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'SMC' BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 732/MUM/2018 (ASSESSMENT YEAR: 2013-14) M/S. INDICLAY PLOT NO. 2, UDYOG NAGAR S.V. ROAD, GOREGAOAN (W) MUMBAI 400062 VS. INCOME TAX OFFICER - 31(2)(1) C-13, 14TH FLOOR, R. NO. 410 PRATYAKSHA KAR BHAVAN, BKC BANDRA (E), MUMBAI 400051 PAN AAAFI0450N APPELLANT RESPONDENT APPELLANT BY: SHRI CHETAN A. KARIA RESPONDENT BY: SHRI S.K. BEPARI DATE OF HEARING: 26.09.2018 DATE OF PRONOUNCEMENT: 30.11.2018 O R D E R PER SAKTIJIT DEY, JM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-42, MUMBAI DAT ED 09.10.2017 AND IT RELATES TO ASSESSMENT YEAR 2013-14. 2. THE DISPUTE IN THE PRESENT APPEAL IS CONFINED TO TH E ADDITION OF AN AMOUNT OF ` 28,80,000/- UNDER THE HEAD INCOME FROM HOUSE PROPE RTY. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A PA RTNERSHIP FIRM, WAS STATED TO BE CARRYING ON THE ACTIVITY OF MANUFACTUR ING OF PESTICIDES, FORMULATIONS FOR AGRICULTURAL USE. FOR THE PURPOSE OF ITS MANUFACTURING ACTIVITY THE ASSESSEE TOOK ON RENT AN INDUSTRIAL SH ED ADMEASURING 7000 SQ.FT. AS NOTED BY THE ASSESSING OFFICER (AO), THE AFORESAID BUSINESS ACTIVITY OF THE ASSESSEE CONTINUED TILL THE YEAR 20 04. AFTERWARDS, THE ASSESSEE FIRM AMENDED THE OBJECT CAUSE TO INCLUDE S UBLETTING OF THE PREMISES AND ACCORDINGLY THE BUSINESS PREMISES OF T HE ASSESSEE WAS SUBLET TO M/S. MOVIELABS FILMS PVT. LTD.. FOR THE ASSESSME NT YEAR UNDER DISPUTE THE ASSESSEE FILED ITS RETURN OF INCOME ON 22.07.20 13 DECLARING TOTAL ITA NO. 732/MUM/2018 M/S. INDICLAY 2 INCOME OF ` 5,52,411/-. DURING THE ASSESSMENT PROCEEDINGS THE A O NOTICED THAT WHILE COMPLETING THE ASSESSMENT IN ASSESSEES CASE FOR A.Y. 2010-11 THE AO HAD TREATED THE RENTAL INCOME RECEIVED FROM M/S. MOVIELABS FILMS P. LTD. AS INCOME FROM HOUSE PROPERTY. HE FURTHER N OTICED THAT IN THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS SHOWN RENTAL INCOME OF ` 29,05,200/- RECEIVED FROM M/S. MOVIELABS FILMS P. LTD. AS INCOME FROM BUSINESS AND PROFESSION. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE RENTAL INCOME SHOULD NO T BE ASSESSED AS INCOME FROM HOUSE PROPERTY. THOUGH, THE ASSESSEE OB JECTED TO THE AFORESAID VIEW PROPOSED TO BE TAKEN BY THE AO, HOWE VER, THE AO REJECTING THE OBJECTIONS OF THE ASSESSEE ULTIMATELY HELD THAT SINCE AS PER THE AGREEMENT WITH MOVIELABS FILMS P. LTD. THE ASSESSEE IS THE ABSOLUTE OWNER AND IN POSSESSION OF THE PREMISES, THE RENTAL INCOM E RECEIVED FROM LETTING OUT THE PROPERTY HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. ACCORDINGLY, AFTER ALLOWING THE STATUTORY DEDUCTION S UNDER SECTION 24 OF THE INCOME TAX ACT, 1961 (HEREINAFTER 'THE ACT') TH E AO ADDED BACK AN AMOUNT OF ` 20,16,000/- UNDER THE HEAD INCOME FROM HOUSE PROPE RTY. THOUGH, THE ASSESSEE CHALLENGED THE AFORESAID DECIS ION OF THE AO BEFORE THE FIRST APPELLATE AUTHORITY, HOWEVER, THE LEARNED CIT(A) DID NOT FIND MERIT IN ANY OF THE SUBMISSIONS MADE. ACCORDINGLY, HE UPHELD THE DECISION OF THE AO. WHILE DOING SO HE REFERRED TO A NUMBER O F JUDICIAL PRECEDENTS. 4. THE LEARNED AUTHORISED REPRESENTATIVE (A.R.) SUBMI TTED THAT THE BASIC PREMISES ON WHICH THE RENTAL INCOME HAS BEEN ASSESSED AS HOUSE PROPERTY INCOME IS COMPLETELY ERRONEOUS SINCE THE A SSESSEE IS NOT OWNER OF THE PROPERTY. DRAWING MY ATTENTION TO THE LEAVE AND LICENCE AGREEMENT BETWEEN THE ASSESSEE AND MOVIELABS FILMS P. LTD EXE CUTED ON 2 ND NOVEMBER, 2011, A COPY OF WHICH IS AT PAGE 1 OF THE PAPER BOOK, THE LEARNED A.R. SUBMITTED THAT THE SAID AGREEMENT CLEA RLY MENTIONS THAT THE ASSESSEE IS NOT THE OWNER OF THE LAND BUT HE IS A M ONTHLY TENANT. THE LEARNED A.R. SUBMITTED, THOUGH THE ASSESSEE IS A TE NANT OF THE PROPERTY IN QUESTION SINCE THE YEAR 1963, HOWEVER, IT CANNOT BE HELD AS OWNER OF THE PROPERTY AS NEITHER THE ASSESSEE IS APPEARING AS OW NER IN GOVERNMENT ITA NO. 732/MUM/2018 M/S. INDICLAY 3 RECORDS NOR BEFORE ANY OTHER AUTHORITY. THE LEARNED A.R. SUBMITTED, AS PER SECTION 27(IIIB) OF THE ACT ALSO THE ASSESSEE CANNO T BE TREATED AS OWNER OF THE PROPERTY. THUS, HE SUBMITTED, THE RENTAL INCOME DERIVED BY THE ASSESSEE UNDER ANY CIRCUMSTANCES CANNOT BE TREATED AS INCOME FROM HOUSE PROPERTY. IN SUPPORT OF SUCH CONTENTION HE RE LIED UPON THE FOLLOWING DECISIONS: - I) CIT VS. PELICAN INVESTMENTS P. LTD.(2013) 353 ITR 1 6 (BOM) II) VOLTAS LTD. VS. ACIT (2008) 113 ITD 19 (MUM) (WT)(S B) 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE (D.R.) STRO NGLY RELIED UPON THE OBSERVATIONS OF THE DEPARTMENTAL AUTHORITIES. 6. I HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE CORE ISSUE WHICH REQUIRES CONSIDERATION IS WHETHER THE ASSESSEE CAN BE TREATED AS OWNER OR DEEMED OWNER OF THE SUBJECT PROPERTY TO CONSIDER THE RENTAL INCOME RECEIVED FROM SUBLETT ING TO MOVIELABS FILMS P. LTD. AS INCOME FROM HOUSE PROPERTY. WHILE IT IS THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE IS HOLDING THE PROPERTY ON MONTHL Y TENANT BASIS, THE DEPARTMENT IS OF THE VIEW THAT THE ASSESSEE IS A DE EMED OWNER OF THE PREMISES. IN MY CONSIDERED OPINION, BEFORE TREATING THE ASSESSEE AS OWNER OR DEEMED OWNER OF THE PROPERTY FOR TREATING THE IN COME DERIVED FROM SUBLETTING OF THE PROPERTY AS HOUSE PROPERTY INCOME , THE DEPARTMENT MUST BRING MATERIAL ON RECORD TO ESTABLISH SUCH FACT. FR OM THE TENANCY AGREEMENT SUBMITTED IN THE PAPER BOOK IT APPEARS TH AT THE ASSESSEE IS IN POSSESSION/OCCUPATION OF THE PROPERTY AS A MONTHLY TENANT. THEREFORE, IT WAS INCUMBENT UPON THE AO TO BRING MATERIAL ON RECO RD TO ESTABLISH THAT THE ASSESSEE IS ENJOYING PROPERTY HAVING OWNERSHIP RIGHTS. FOR THIS PURPOSE IT IS ALSO NECESSARY TO EXAMINE WHETHER THE PROVISIONS OF SECTION 269UA(F)(I) IS APPLICABLE TO THE PRESENT CASE OR NO T. SINCE THE AFORESAID FACTUAL ASPECTS HAVE NOT BEEN PROPERLY EXAMINED BEF ORE TREATING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY, I AM INCLINED TO RESTORE THE ISSUE TO THE AO FOR DE NOVO ADJUDICATION KEEPING IN VIEW THE OBSERVATIONS MADE HEREINABOVE. WHILE DOING SO THE AO MUST KEEP IN VIE W THE RATIO LAID DOWN IN THE DECISIONS CITED ON BEHALF OF THE ASSESSEE. N EEDLESS TO MENTION, THE ITA NO. 732/MUM/2018 M/S. INDICLAY 4 AO MUST AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING THE ISSUE. 7. IN GROUND NO. 2 ASSESSEE HAS MADE A WITHOUT PREJUDI CE CLAIM TO THE EFFECT THAT IN CASE THE RENTAL INCOME RECEIVED IS T O BE ASSESSED AS INCOME FROM HOUSE PROPERTY, DEDUCTION TOWARDS RENT PAID SH OULD ALSO BE ALLOWED WHILE DETERMINING/COMPUTING ANNUAL LETTING VALUE OF THE PROPERTY UNDER SECTION 23 OF THE ACT. SINCE I HAVE RESTORED THE MA JOR ISSUE RELATING TO HEAD OF INCOME UNDER WHICH THE RENTAL INCOME IS TO BE AS SESSED, THIS CONTENTION ON THE CONSEQUENTIAL ISSUE IS ALSO RESTORED TO THE AO FOR DE NOVO ADJUDICATION DEPENDING UPON THE DECISION TO BE TAKE N IN RESPECT OF THE ISSUED RAISED IN GROUND NO. 1. 8. IN GROUND NO. 3 ASSESSEE HAS CHALLENGED LEVY OF IN TEREST UNDER SECTIONS 234A AND 234B OF THE ACT. LEVY OF INTEREST BEING CONSEQUENTIAL IS NOT REQUIRED TO BE ADJUDICATED AT THIS STAGE. ACCOR DINGLY, THE GROUND RAISED IS DISMISSED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2018. SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER MUMBAI, DATED: 30 TH NOVEMBER, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -42, MUMBAI 4. THE PR.CIT - 31, MUMBAI 5. THE DR, SMC BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.