Appeal details
Counselvise Citation
[2022] 106 COUNSELVISE.COM (IT) 5184 (ITAT-COCHIN)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 month(s) 5 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
20-06-2022
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
DB
Assessment Year
2017-2018
Appeal Filed On
14-02-2022
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri George George K., Judicial Member and Shri Laxmi Prasad Sahu, Accountant Member ITA No. 81/Coch/2022 (Assessment Year: 2017-18 M/s. Trichur Trade Center (Represented by Managing Director Kunhu Muhammed) Kurruppam Road Thrissur 680001 Vs. The Income Tax Officer Ward - 2(5) Trissur PAN – AADFT8310M Appellant Respondent SA No. 10/Coch/2022 (Arising out of ITA No.81/Coch/2022) (Assessment Year: 2017-18 M/s. Trichur Trade Center (Represented by Managing Director Kunhu Muhammed) Kurruppam Road Thrissur 680001 Vs. The Income Tax Officer Ward - 2(5) Trissur PAN – AADFT8310M Applicant Respondent Appellant by: Shri P.V. Hariharan, CA Respondent by: Smt. J.M. Jamuna Devi, Sr. D.R. Date of Hearing: 20.06.2022 Date of Pronouncement: 21.06.2022 O R D E R Per: L.P. Sahu, A.M. This is an appeal filed by the assessee against the order of the learned CIT(A), NFAC dated 17.12.2021 and it pertains to AY 2017-18. 2. The assessee has raised the following grounds of appeal: - 1. The impugned order of the learned CIT(A) dated 17/12/2021 is beyond the tenets of law and natural justice. ITA No. 81& SA No, 10/Coch/2022 M/s. Trichur Trade Center 22. The learned CIT(A) had erred in not cognizing the fact that the CIT(A) being the 1st appellate authority has all the powers to do all that is necessary to make a fair and reasonable assessment according to law and give direction to the assessing authority in that respect Thus, the learned CIT(A) had gone wrong in sustaining the addition/adjustment made to the income returned resulting in an unlawful demand. 3. Learned CIT(A) ought to have quashed the intimation issued as the addition/adjustment contained therein sans legal backing in as much as that it traverses beyond the scope and spirit of sub clauses (i) to (vi) of clause (a) of Section 143(1). For detailed explanation on this ground, kind attention is invited to the discussion under the caption "(B) Explanation (or certain ofthe grounds stated in the Grounds of Appeal" in the Annexure forming an integral part of this appeal. 4. It is established law that any adjustment of the sort (i.e., where substantial amount of the category of income is added not to the head under which the income was declared by the appellant; but to a new head of income) made by the assessing officer could be done only after proper enquiry and after calling for such documents and evidences from the appellant before resorting to the action taken by the assessing officer and that is possible only under sub sections 2 and 3 of Section 143. The learned CIT(A), thus, had gone wrong in not cognising this aspect and in negating the Intimation u/s 143(1) and the consequential demand. For detailed explanation on this ground, kind attention is invited to the discussion under the caption "(B) Explanation (or certain of the grounds stated in the Grounds of Appeal" in the Annexure forming an integral part of this appeal. 5. The learned CIT(A) had failed to distinguish the case of the appellant from Certain judicial pronouncements by the Honourable Supreme Court and the circular 16/217 dated 25-04-2017 issued by CBDT., cited by CIT(A) in the appeal order Though the CBDT circular refers only to letting out of developed space along with other facilities in an industrial Park/SEZ, it is clear from the wording of the circular that the reason for the issuance of the said circular is the judicial pronouncements with regard to letting out of commercial space referred to therein. The spirit and the intention of the circular in essence is not different from the principles enunciated by the apex court in their pronouncements in Chennai Properties & Investments, Kanpura Development and Raya la Corporation cited by CIT(A). Kind attention is invited to detailed discussion under the caption (B) Explanation for certain of the grounds stated in the Grounds of Appeal" in the Annexure forming an ITA No. 81& SA No, 10/Coch/2022 M/s. Trichur Trade Center 3integral part of this appeal. 6. From the discussions contained in the annexure referred to above it can be seen that appellant's case squarely falls within the ambit of the principle enunciated in the judicial pronouncement cited above. Thus, in not taking cognizance of the said fact the learned CIT(A) had gone wrong in confirming the demand without categorically distinguishing the case of the appellant form the rationale of the decisions cited or the spirit of the CBDT Circular cited by him. 7. Nowhere in the order there is any mention by the learned CIT(A) of having given an opportunity to the appellant to explain as to why the appellant has treated the rental income as "Profits and Gains from Business or Profession" and why the same shall not be treated as falling under the category of "Income from House Property". Hence, the action of the CIT(A) in confirming the assessment by rejecting the appeal without hearing the appellant is not in conformity with spirit and intention of Section 250, sans the basic tenets of law, and is therefore arbitrary, irrational and bad in law. 8. In the absence of any information called for to examine the true facts as stated in paragraph 7 above, the learned CIT(A) had failed to learn that the rental income earned by the appellant is inseparable and hence is not capable of being assessed under "Income from House Property" but only under the head "Profits and Gains from Business or Profession". This is because in such a case, provisions of Section 56(2) will apply. Kind attention is invited to detailed discussion under the caption (B) Explanation for certain of the grounds stated in the Grounds of Appeal" in the Annexure forming an integral part of this appeal. Thus, in view of this too, the order of CIT(A) is biased, arbitrary and deserves only to be quashed. 9. Another significant point to be noted in this context is that while the income declared representing deemed profit of out of the gross rental income earned by the appellant is accepted, Rs. 55,45,346 stated by the CIT(A) to be 70% of the same rental income is added under "Income from House Property". Without prejudice to the arguments in the previous paragraphs that the order of the CIT(A) in confirming the action of the assessing officer in making the impugned adjustment and the resultant demand is erroneous and should be negated, a point of worthy note in this context is that had the intention of the assessing officer been to treat the category of income earned by the appellant as "Income from House Property" (which is held to be correct by the learned CIT(A)), then no part of the same category of income could have been allowed to be included under another head i.e., "Profits and Gains from Business or Profession"; and ITA No. 81& SA No, 10/Coch/2022 M/s. Trichur Trade Center 4hence, should have in all fairness been deleted by CIT(A). In view of what is stated above, the action of the assessing officer in this regard and the action of CIT(A) in confirming the same are with malicious intention and beyond the scope and intention of law. The order of the learned CIT(A), thus deserves only to be quashed. 3. The brief facts of the case are that the assessee is a partnership firm and has filed the return of income on 29th March, 2018 declaring an income of Rs.7,31,011/- under the head “profit and gains of business or profession”. It was processed by the Centralized Processing Centre on 26th March, 2019 determining the total income at Rs.62,76, 360/-. As per the order under Section 143(1)(a) of the Income Tax Act, 1961 by the CPC there was an income declared by the assessee from business or profession whereas as per the order under Section 143(1)(a) it was assessed as income from house property of Rs.55,45,346/- and income from business or profession was the same as taken by the assessee. It means that the total income was assessed at Rs. 62,76,360/-and raised a demand after adjusting the TDS. Against the intimation received under Section 143(1)(a) assessee filed appeal before the learned CIT(A) objecting that the CPC has wrongly assessed the income under the head income from house property whereas the CIT(A), after considering the submission quoted in his order, decided the issue against the assessee and held that the rent received from letting out of the property is to be taxed under the head income from house property. Aggrieved, the assessee filed this appeal before the Tribunal. 4. The learned A.R. reiterated the submission made before the CIT(A) and he submitted that no opportunity was given by the CPC before making any adjustment under Section 143(1)(a) and the learned CIT(A) has also not given proper opportunity of hearing. He further submitted that the assessee is a partnership firm and as per the Deed of Partnership the main object of the firm is to carry on the business of letting out of commercial property which was owned by the partnership firm. He also produced a copy of the sample of the rent agreement and it was not considered by the CIT(A) while deciding the actual head of the income of the assessee under which income should be computed and he further submitted that such ITA No. 81& SA No, 10/Coch/2022 M/s. Trichur Trade Center 5type of adjustment cannot be done as per Section 143(1)(a) of the Act. In Section 143(1)(a) of the Act only a prim facie adjustment can be made but the CPC had no any material available at the time of making adjustments and it is out of purview of Section 143(1)(a) of the Act, therefore the adjustment made is not sustainable in law. The learned A.R. further submitted that the CIT(A) has ignored certain judicial pronouncements of the Hon’ble Apex Court and he also not dealt with the circular No. 16/216 dated 25.04.2017 issued By CBDT and he also not discussed the issue in detail how the income shall be taxed under the head income from house property and not business income. 5. On the other hand, the learned D.R. relied on the orders of the lower authorities and submitted that the main activity of the firm is to carry on letting out of commercial property and it is the rent received by the assessee from letting out of the property with common services. Once the property is let out the income from letting out is to be taxed under the head income from house property. It cannot be considered as income under Section 28 of the Income Tax Act. Section 28 of the Act is very clear that only the business income can be assessed as income from business or profession. The main object of the partnership firm is letting out of property, which is evident from the rent agreement and partnership deed, will not affect the nature of income for taxability under the head income from house property. The learned CIT(A) has rightly decided the issue in favour of the Revenue. Therefore the order of the CIT(A) should be upheld. 6. After considering the rival submission we find that the assessee filed its return of income under Section 139(1) of the Act and the rent receipt declared as business income and offered income under Section 44AD of the Act. The return was processed under Section 143(1)(a) of the Act by the CPC by treating it as income from house property to which the assessee objected and the assessee also objected that the such adjustments cannot be done under Section 143(1)(a) of the Act. He also submitted that no opportunity was given to the assessee before making the adjustments. On going through the orders of the lower authorities we find that the ITA No. 81& SA No, 10/Coch/2022 M/s. Trichur Trade Center 6objections raised by the assessee have not been dealt with in any way by the lower authorities. Therefore considering the totality of the facts and circumstances of the case we think it fit to restore the matter back to the file of the AO for reconsideration of the issue raised before us by the assessee as per grounds of appeal supra and the assessee is also given opportunity to produce all the documents as required for substantiating his case that the income is to be treated as business income. The assessee is directed not to seek unnecessary adjournments for earlier disposal of the case. Needless to say that reasonable opportunity of being heard should be provided to the assessee and the AO will decide the issue as per law. Assessee’s appeal is allowed for statistical purposes. 7. Since we have allowed the appeal of the assessee the stay application of the assessee become infructuous. 8. In the result, the appeal filed by the assessee is allowed for statistical purposes and the stay application of the assessee become infructuous. Dictated and pronounced in the open Court on 21st June, 2022. Sd/- Sd/- (George George K.) (Laxmi Prasad Sahu) Judicial Member Accountant Member Cochin, Dated: 21st June, 2022 Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) -NFAC 4. The CIT - 5. The DR, ITAT, Cochin 6. Guard File By Order //True Copy// Assistant Registrar ITAT, Cochin n.p.
