Noor Resorts Pvt. Ltd., Kullu V. Chief CIT (OSD), Shimla

ITA 860/CHANDI/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3479 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 31-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR G S PHANI KISHORE CIT
• Assessee Lawyers: MOHIT GUGLANI
• Keywords: Business income; Depreciation; Business expenditure; Rule of consistency; Assessment record; TDS; Set aside
• Section: 143(3); 142(1); 40(a)(ia); 143(1); 143(2); 64; 194J; 72; 13; 22; 263; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH B, CHANDIGARH .., ! '# $ %#& '(, ) (* BEFORE: SHRI. N.K.SAINI, VP & SHRI , SATBEER SINGH GODARA, JM ITA NO.860/CHD/2019 ASSESSMENT YEAR : 2014-15 NOOR RESORTS PVT. LTD. SH. DHARAM SINGH MOHI, MOHI FARMS, NOOR RESORTS PVT. LTD. THE RIVER SIDE, PARGANOO, BHUNTER DISTT- KULLU HIMACHAL PRADESH CHIEF CIT(OSD) THE MALL SHIMLA-HIMACHAL PRADESH PAN NO: AAACN6151G APPELLANT RESPONDENT !' ASSESSEE BY : SHRI MOHIT GUGLANI, CA #!' REVENUE BY : DR. G.S. PHANI KISHORE, CIT $ %! & DATE OF HEARING : 02/11/2020 '()*! & DATE OF PRONOUNCEMENT : 11/11/2020 (+/ ORDER PER N.K. SAINI, VICE PRESIDENT THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDE R OF THE LD. PR. CIT(A), SHIMLA DT. 28/03/2019. 2. FOLLOWING GROUNDS HAS BEEN RAISED IN THIS APPEAL: 1. THE LEARNED PR. COMMISSIONER OF INCOME TAX HAS E RRED BY SETTING ASIDE THE ASSESSMENT ORDER U/S 143(3] OF THE INCOME TAX ACT D ATED 20.10.2016 FOR THE AY 2014-2015. HE FAILED TO APPRECIATE THAT, ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THAT THE APPELLANT COMPANY WAS ENGAGED IN THE BUSINESS OF PURCHASE & SALE & RENTING OF IMMOVABLE PROPERTIES & THE SITUATION, FACTS, NATURE OF ACTIVITY & NATURE OF OPERATIONS IS IDENTICAL AS IN CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD WHERE EARNING OF RENTAL INCOME IS P ART OF TRADING OPERATIONS & FOR DOING BUSINESS. THE DIVING LINE IS DIFFICULT TO FIN D; BUT IN OUR CASE BEING A COMPANY WITH ITS PROFESSED OBJECTS & THE MANNER OF ACTIVITI ES & THE NATURE OF DEALINGS WITH THE PROPERTY, IT CAN BE INFERRED ON WHICH SIDE THE OPERATIONS FALL. AS PER LEARNED PR. COMMISSIONER OF INCOME TAX, AS PER MEMORANDUM O F ASSOCIATION OF 2 COMPANY, THE MAIN OBJECT OF THE APPELLANT COMPANY I NCLUDES LETTING OUT OF HOUSES, FLATS & FARM HOUSES & NOT SPECIFICALLY IN R ESPECT OF SHOPS & BASEMENTS, I.E., THE DEPARTMENT IS OF THE CONTENTION THAT INCOME FRO M LETTING OUT OF COMMERCIAL ESTABLISHMENTS IS NOT INCOME FROM BUSINESS. HE FAIL ED TO APPRECIATE THE INTENTION OF THE APPELLANT COMPANY; AS THE COMPANY WAS IN EXI STENCE SINCE 1997 & WAS DULY SHOWING INCOME FROM LETTING OUT OF COMMERCIAL ESTABLISHMENTS AS INCOME FROM BUSINESS & PROFESSION SINCE INCEPTION/ ACQUISI TION OF PROPERTY. THE COMPANY'S PROFESSED OBJECTIVE IS TO DERIVE TRADING/ MAJOR INC OME FROM LETTING OUT OF PROPERTIES IRRESPECTIVE OF THE NATURE OF THE PROPER TY. 2. THE LEARNED PR. COMMISSIONER OF INCOME TAX HAS A LSO DISALLOWED THE DEPRECIATION & VEHICLE EXPENSES AS NO BUSINESS WAS DONE DURING RELEVANT ASSESSMENT YEAR UNDER APPEAL. IN THIS REGARD, WE SU BMIT THAT THE CLOSING STOCK OF THE APPELLANT COMPANY AS ON 31.03.2014 IS RS. 51,98 ,161/- THE STOCK OF LAND SHOWN AS CLOSING STOCK IS AVAILABLE FOR SALE & TH E COMPANY IS KEENLY INTERESTED & ARE ACTIVELY INVOLVED FOR SALE OF SAID LAND BUT DUE TO VARIANCE IN MARKET PRICES NO SUITABLE BUYER WAS FOUND AT THAT TIME. NO PURCHASE/ SALE OF PROPERTY WAS BEING CARRIED OUT DURING THE YEAR PER SE CANNOT EVEN LEAD TO THE CONCLUSION THAT THE BUSINESS WAS DISCONTINUED OR IS UNDER NON CONTINUAT ION. 3. THE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO THE DIRECTION GIVEN BY THE LD. PR. CIT, SHIMLA TO THE A.O. BY PASSING THE IMPUGN ED REVISION ORDER UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT). 4. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE ELE CTRONICALLY FILED ITS RETURN OF INCOME ON 26/09/2014 DECLARING NIL INCOME AND CLAIMING REFUND OF RS. 1,96,140/-. THE SAID RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE A CT LATER ON THE CASE WAS SELECTED FOR SCRUTINY. THE A.O. ISSUED THE NOTICE DT. 0 1/09/2015 UNDER SECTION 143(2) OF THE ACT AND QUESTIONNAIRE ALONGWITH NOTICE UNDER SECTION 142 (1) OF THE ACT ON 09/08/2016. THE A.O. IN THE ASSESSMENT ORDER DT. 16/0 9/2016 OBSERVED THAT IN COMPLIANCE TO THE STATUTORY NOTICES, SHRI C.M. KATYAN, SR. ADVOCATE, ON BEHALF OF THE ASSESSEE ATTENDED THE PROCEEDINGS TIME TO TIME AND FI LED REQUISITE REPLIES AND DOCUMENTS AND THAT THE BOOKS OF ACCOUNTS I.E; LEDGER, C ASH BOOK, LEDGER EXPENSES BILLS AND VOUCHERS WERE PRODUCED WHICH WERE EXAMINED B Y TEST CHECK AND THE CASE WAS DISCUSSED WITH HIM. THE A.O. MADE THE ADDITION OF R S. 34,832,/- UNDER SECTION 40(A)(IA) OF THE ACT AND RS. 1,00,000/- OUT OF THE EX PENSES DEBITED IN THE P& L ACCOUNT BY OBSERVING AS UNDER: 2. THE ASSESSEE IS CARRYING OUT THE BUSINESS OR RE NTING OF IMMOVABLE PROPERTIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT HE ASSESSEE HAS DEBITED IN THE PROFIT AND LOSS ACCOUNT RS. 34,832/- ON ACCOUNT OF AUDIT FEES TO 3 M/S KUMAR BHAGWAD AND CO. BUT NOT TDS U/S 194J OF T HE INCOME TAX ACT, 1961 HAS BEEN DEDUCTED. THUS, THE SAME IS BEING DISALLOW ED U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961 AND ADDED BACK TO THE INCOME O F THE ASSESSEE. 3. THE PERUSAL OF PROFIT & LOSS ACCOUNT IT HAS BEEN NOTICED THAT THE ASSESSEE HAS DEBITED FOLLOWING EXPENSES ON ACCOUNT OF FOLLOWING HEAD AS UNDER: 1. TELEPHONE RS. 28,698/- 2. VEHICLE RUNNING AND MAINTENANCE EXP. RS. 4,28, 718/- 3. DEPRECIATION RS. 4,90,865/- TOTAL RS. 9,48,281/- THE PERSONAL USE BY THE ASSESSEE CANNOT BE RULED OU T. THEREFORE, AN ADHOC ADDITION DISALLOWANCE OF RS. 1,00,000/- IS MADE OUT OF EXPENSES DEBITED ABOVE AND ADDED IN THE RETURNED INCOME. 4.1 ACCORDINGLY THE INCOME WAS ASSESSEED AT RS. 1,34, 832/- INSTEAD OF NIL DECLARED BY THE ASSESSEE. THEREAFTER THE LD. PR. CIT EXERCISED HIS REVISIONARY POWERS UNDER SECTION 263 OF THE ACT AND OBSERVED THAT THE ASSESSMENT ORDER DT . 20/10/2016 WAS SUBMITTED TO HIS OFFICE, ON PERUSAL THEREOF AND THE ASSESSMENT RECORD MADE AVAILABLE BY THE A.O, IT WAS NOTICED THAT THE ASSESSEE HAD EARNED RENTAL INCOME OF RS. 26,63,438/- WHICH HAD BEEN SHOWN AS INCOME FROM BUSINESS & PROFESSION RA THER THAN SHOWING THE SAME AS INCOME FROM HOUSE PROPERTY AND THAT THE SAID INCOME WAS FURTHER SET OFF AGAINST THE VARIOUS EXPENSES CLAIMED VIZ DIRECTORS REMUNERATION, D EPRECIATION AND OTHER EXPENSES RESULTING INTO NET PROFIT OF RS. 28,903/- ONLY. 4.2 LD. PR. CIT ALSO MENTIONED THAT THE A.O. SUBMITTED THAT THE INCOME FROM LETTING OUT OF HOUSE PROPERTY SHOULD BE ASSESSED UNDER THE HEA D INCOME FROM HOUSE PROPERTY AND NOT UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION, FOR THIS PROPOSITION THE RELIANCE WAS PLACED ON THE DECISION OF I TAT KANPUR IN THE CASE OF HOTEL ARTI DELUX PVT. LTD. VS. ACIT WHEREIN IT WAS HELD THAT THE INCOME DERIVED BY THE ASSESSEE FROM OWNERSHIP OF THE BUILDING WAS IN THE NATURE OF INCOM E FROM HOUSE PROPERTY. ACCORDINGLY A SHOW CAUSE NOTICE UNDER SECTION 263 OF THE ACT WAS ISSUED VIDE LETTER DT. 04/10/2018 INTER-ALIA ASKING THE ASSESSEE TO EXPLAIN AS TO WHY THE RENTAL INCOME RECEIVED MAY NOT BE TREATED AS INCOME FROM HOUSE PR OPERTY RATHER THAN CONSIDERING THE SAME AS INCOME FROM BUSINESS AND PROFESSION. IT WAS ALSO POINTED OUT THAT SINCE THE A.O. WAS REQUIRED TO VERIFY THE COMPLETE FACTS AB OUT THE RENTAL INCOME RECEIVED 4 DURING THE YEAR UNDER CONSIDERATION AS PER THE RELEVANT PR OVISIONS OF THE ACT WHICH APPARENTLY THE A.O. HAD FAILED TO DO SO THEREFORE TH E ASSESSMENT ORDER PASSED HAD BECOME ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO T HE INTEREST OF THE REVENUE WITHIN THE MEANING OF PROVISIONS OF SECTION 263 OF THE ACT. IN RE SPONSE THE ASSESSEE FURNISHED A CHART ON 28/11/2018 EXPLAINING THAT IF THE RENTAL INCOME WAS TO BE ASSESSED AS ITS INCOME FROM HOUSE PROPERTY, THE RESULTANT LOSS OF RS . 7,70,160.40 WOULD BE MUCH HIGHER THAN THE RESULTANT LOSS OF RS. 3,89,226/-, IF THE SAME WAS TO BE ASSESSED AS ITS INCOME FROM BUSINESS AND PROFESSION. IT WAS FURTHER S UBMITTED THAT SINCE THE LOSS ASSESSED WAS LESSER THAN THE LOSS TO BE ASSESSED, IF T HE RENTAL INCOME WAS TO BE CONSIDERED AS INCOME FROM HOUSE PROPERTY. THEREFORE THE ASSESSMENT ORDER PASSED BY THE A.O. WAS NOT BECOMING ERRONEOUS TO THE INTEREST OF T HE REVENUE AND THE PROVISIONS OF SECTION 263 OF THE ACT WOULD NOT BE APPLICABLE. THE ASSESSEE ALSO FURNISHED A CHART SHOWING THE CLOSING STOCK AS ON 31/03/2014 OF RS. 51,98, 161/- PERTAINING TO TWO DIFFERENT PLOTS OF LAND WHICH WERE STATED TO BE AVAILABLE FOR SALE BEING PART OF ITS STOCK IN TRADE. IT WAS SUBMITTED THAT SINCE THE ASSESSEE WAS DEALING I N THE BUSINESS OF REAL ESTATE DEVELOPMENT AND MERELY BECAUSE DUE TO SLUMP IN THE MA RKET, THE STOCK IN TRADE REMAINED SAME AT THE BEGINNING AND AT THE END OF THE YEAR, IT COULD NOT BE HELD THAT THE BUSINESS WAS DISCONTINUED. THE RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF RAYALA CORPORATION PVT. LTD. VS. ACIT REPORTED IN 386 ITR 500 AND CHENNAI PROPERTIES AND INVESTMENTS LTD. VS. CIT REPORTED IN 373 ITR 673. 4.3 IT WAS ACCORDINGLY SUBMITTED THAT THE RENTAL INCOME FROM HOUSE PROPERTY IN THE CASE OF THE ASSESSEE WAS RIGHTLY ASSESSED BY THE A.O. AS ITS INCOME FROM BUSINESS AND PROFESSION BECAUSE AS PER THE MEMORANDUM OF ASSOCIA TION (MOA) OF THE ASSESSEE COMPANY THE MAIN OBJECT CLAUSE AND THE ANCILLARY CLAUSE READ AS UNDER: TO CARRY ON THE BUSINESS OF REAL ESTATE DEALERS & DEV ELOPERS INCLUDING PURCHASE & SALE OF LAND, LAND DEVELOPMENT, COLONIZATION, OPURCHASE , SALE CONSTRUCTION & LETTING OUT OF HOUSES, FLATS, FARM HOUSES. (OBJECT CLA USE) TO SELL, IMPROVE, ALTER, MANAGE, DEVELOP EXCHANGE, LEA SE, MORTGAGE, DISPOSE OF, TURN TO ACCOUNT OR OTHERWISE DEAL WITH ALL OR ANY PARTS OF THE BUSINESS, LAND, PROPERTY, ASSETS, RIGHTS & THE RESOURCES & UNDERTAKINGS OF THE COMPANY IN WHOLE 5 OR IN PART IN SUCH MANNER & ON SUCH TERMS AS THE DIRECTORS MAY THINK FIT. (ANCILLARY CLAUSE) 4.4 IT WAS CONTENDED THAT THE LETTING OUT OF IMMOVABLE P ROPERTY WAS ONE OF THE MAIN BUSINESS OF THE ASSESSEE COMPANY AND THEREFORE IN V IEW OF THE AFORESAID REFERRED TO JUDGMENT OF THE HON'BLE SUPREME COURT THE INCOME DERI VED FROM SUCH SOURCES SHALL BE ASSESSED AS ITS BUSINESS INCOME AND NOT AS ITS INC OME FROM HOUSE PROPERTY. 4.5 THE LD. PR. CIT AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE CALLED THE REPORT FROM THE A.O. WITH REGARD TO THE SUBMISSIONS OF THE ASSE SSEE THAT IF THE RENTAL INCOME WAS TO BE CONSIDERED AS ITS INCOME FROM HOUSE PROPERT Y THE RESULTANT LOSS TO BE ASSESSED WOULD BE MORE THAN THE RESULTANT LOSS ALREADY ASSESSED BY THE A.O. BY CONSIDERING THE SAME AS ITS INCOME FROM BUSINESS THERE FORE THE ASSESSMENT ORDER WAS NOT ERRONEOUS TO THE INTEREST OF THE REVENUE. 4.6 THE LD. PR. CIT OBSERVED THAT THE ASSESSEE WAS THE OWNER OF SHOPS IN THE GROUND FLOOR AND BASEMENTS IN SCO NOS 126 & 127, SECTOR 8C, M ADHYA MARG, CHANDIGARH. FIRST FLOOR AND SECOND FLOORS OF THESE SCOS WERE STATED TO BE ALREADY SOLD BY THE ASSESSEE WITH IN A YEAR OF ITS PURCHASE IN THE YEAR 2005-06. THE SAID SHOPS & BASEMENTS WERE LET OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATIO N AGAINST WHICH IT HAS EARNED RENTAL INCOME OF RS. 26,63,438/- AS DISCLOSED IN THE R ETURN OF INCOME. HE FURTHER OBSERVED THAT IN THE BALANCE SHEET, THE SAID PROPERTY W AS SHOWN AS ITS INVESTMENT ASSET AND NOT PART OF STOCK IN TRADE. ACCORDING TO THE LD. PR. CIT THE AFORESAID PROPERTY WAS THE ONLY PROPERTY WHICH WAS GIVEN AT ANNUAL LEASE RENT RIGHT FROM ITS BEGINNING OF THE ACQUISITION OR PURCHASE I.E; FROM THE Y EAR 2005-06 TILL DATE. 4.7 HE ALSO OBSERVED THAT THE ASSESSEE ALTHOUGH SUBMIT TED THAT IT HAD AND SOLD LAND / PLOTS, THE INCOME EARNED THEREFROM WAS SHOWN ITS INCOME FROM BUSINESS IN DIFFERENT ASSESSMENT YEARS HOWEVER, THE FIRST FLOOR AND SECOND FL OORS OF THE SAID SCO NOS. 126 & 127(I.E OFFICES) WERE STATED TO BE SOLD IMMEDIATELY AFTER ITS ACQUISITION, THE GAIN OR PROFIT THEREOF WAS SHOWN AS INCOME FROM SHORT TERM CAPITAL GAIN. BESIDES THIS NO OTHER HOUSE PROPERTY WAS LET / LEASED OUT BY THE ASSESSEE SINCE ITS INCORPORATION TILL DATE AND THE DEPRECIATION ON THIS PROPERTY WAS CLAIMED FROM THE YEA R OF ITS ACQUISITION TILL DATE. 6 LD. PR. CIT POINTED OUT THAT AS PER THE COPY OF MEMORA NDUM OF ASSOCIATION (MOA) ONE OF THE MAIN OBJECTS AND ANCILLARY OBJECTS OF THE ASSESS EE WERE AS UNDER: 3. TO CARRY ON THE BUSINESS OF REAL ESTATE DEALERS AND DEVELOPERS INCLUDING PURCHSE AND SALE OF LAND, LAND DEVELOPMENT, COLONIZ ATION, PURCHASE, SALE, CONSTRUCTION AND LETTING OUT OF HOUSES, FLATS, FARM HOUSES. 4.8 ACCORDING TO THE LD. PR. CIT, MERELY BECAUSE THERE WAS AN ENTRY IN THE OBJECT CLAUSE OF THE BUSINESS SHOWING A PARTICULAR OBJECT, WOU LD NOT BE THE DETERMINATIVE/CONCLUSIVE FACTOR TO ARRIVE AT A CONC LUSION THAT THE INCOME WAS TO BE TREATED AS INCOME FROM BUSINESS. THE RELIANCE WAS PL ACED ON THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF SULTAN BROTHERS PVT. L TD. VS. CIT REPORTED IN 51 ITR 353 (SC). 4.9 THE LD. PR. CIT POINTED OUT THAT NO ANCILLARY SERVIC ES WERE RENDERED BY THE ASSESSEE TO ITS TENANTS AND IT HAD LET OUT THE PREMISE S ON MONTHLY LEASE RENT RIGHT FROM THE BEGINNING OF ITS ACQUISITION / PURCHASE AND THE A.O. HA D NOT VERIFIED THE LEASE DEEDS EXECUTED BY THE ASSESSEE AS NO SUCH COPY OF TH E LEASE DEEDS WERE EITHER FILED BY THE ASSESSEE OR CALLED FOR BY THE A.O. DURING THE AS SESSMENT PROCEEDINGS. 4.10 HE ALSO POINTED OUT THAT THE QUERY LETTERS ISSUED BY THE A.O. AND THE REPLIES FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEE DINGS WERE SILENT ON THIS ISSUE, THEREFORE, THE A.O. WAS ASKED TO PROCURE THE COPY OF T HE RELEVANT LEASE DEEDS EXECUTED AS PERTAINING TO THIS YEAR EITHER FROM THE ASS ESSEE OR FROM THE CASE RECORDS OF SOME OTHER ASSESSMENT YEAR SO THAT ALL THE FACTS WERE TAKEN INTO CONSIDERATION BEFORE ADJUDICATING THIS ISSUE. 4.11 THE LD. PR CIT OBSERVED THAT IT WAS CATEGORICALL Y SPECIFIED IN THE LEASE DEED THAT THE LESSOR(THE ASSESSEE) SHALL AT ITS OWN COST KEEP THE DEMISED PREMISES IN SUBSTANTIAL REPAIR AND TENABLE CONDITION, IT SHALL CARRY OUT MAJOR, HEAVY AND / OR STRUCTURE REPAIRS AND KEEP THE DEMISED PREMISES BOTH EXTERIOR AND INTERIOR IN GOOD ORDER WHEREAS, ALL MINOR REPAIRS OF INTERIOR IS THE RESPONSIBILITY OF THE TENANT OR LESSEE AND THAT THE PENALTY WAS PROVIDED ON LESSEE IN CASE THE LEASE RENT WAS NOT P AID ON TIME. THE STATUTORY DUES AND OTHER CHARGES INCLUDING WATER CHARGES, MUNICIPAL TAXE S I.E. HOUSE TAX, SERVICE TAX, 7 PROPERTY TAX AND ELECTRICITY CHARGES ETC. AS PER ACT UAL BASIS, WERE TO BE BORNE/PAID BY THE LESSEE OR TENANT ONLY AND THAT THE LEASE AGREEMENT W AS RENEWED AFTER THE EXPIRY OF LEASE PERIOD ON FRESH TERMS AND CONDITIONS MUTUALLY AG REED UPON BY BOTH THE PARTIES. THEREFORE MERELY BECAUSE THE MOA OF THE ASSESSEE COMPA NY HAVING ONE OF ITS MAIN OBJECTS-TO CARRY ON THE BUSINESS OF REAL ESTATE DEALER S AND DEVELOPERS INCLUDING PURCHASE AND SALE OF LAND, LAND DEVELOPMENT, COLONIZATI ON, PURCHASE, SALE CONSTRUCTION AND LETTING OUT OF HOUSES, FLATS AND FARM HO USES, WOULD NOT MAKE THE RENTAL INCOME TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY PARTICULARLY IN VIEW OF THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CAS E OF M/S RAJ DADARKAR AND ASSOCIATES VS. CIT REPORTED IN 394 ITR 592(SC) AND IN THE CASE OF M/S SULTAN BROTHERS PVT. LTD. (SUPRA). 4.12 LD. PR. CIT WAS OF THE VIEW THAT THE ASSESSEE WAS NOT INTO THE SYSTEMATIC BUSINESS OF RENTING OUT OR LEASING OUT ITS SHOPS INCLUDING BASEM ENTS, IN ANY OF THE ASSESSMENT YEARS, RIGHT FROM ITS INCEPTION TILL DATE AND IT HAD NOT LET OUT OR RENTED OUT ANY PREMISES EXCEPT SCO NOS 126 & 127, SECTOR 8-C CHANDIGARH. THE N ATURE OF ACTIVITY BEING LETTING OUT OR LEASING OUT OF ITS ONLY SHOP CUM BASEMENT IN SCO 126 & 127, SECTOR 8C, CHANDIGARH WAS FOUND IN THE NATURE OF LETTING OUT OR RENTING OUT OF THE PROPERTY WITH CERTAIN TERMS AND CONDITION AS PER THE SPECIFIC LEASE / RENT DEEDS EXECUTED WHICH WOULD NEVER MAKE THE SAID ACTIVITY OF THE ASSESSEE TO BE IN THE NATURE OF A SYSTEMATIC BUSINESS ACTIVITY INSPITE OF THE FACT THAT LETTING OUT OF HOUSE, FLATS & FARM HOUSES WAS MENTIONED IN ITS MAIN OBJECT IF THE DECISIONS OF THE HON'B LE SUPREME COURT IN THE CASE OF M/S RAJ DADARKAR & ASSOCIATES (SUPRA) READ WITH S ULTAN BROTHER PVT. LTD. (SUPRA) WERE TAKEN INTO CONSIDERATION. 4.13 THE LD. PR. CIT FURTHER OBSERVED THAT EVEN THE ASS ESSEE HAD LET OUT SHOP WITH BASEMENT ON MONTHLY LEASE RENT, WHERE AS THE OBJECT CLAUSE WAS IN RESPECT TO LETTING OUT OF HOUSES, FLATS & FARM HOUSES AND NOT SPECIFICALLY IN RESPECT OF SHOPS & BASEMENTS. THEREFORE THE LETTING OUT OF THE SHOPS WAS NOT IN THE NATUR E OF DOING OF SYSTEMATIC BUSINESS ACTIVITY OR EXPLOITATION OF PROPERTY BY THE O WNER. HE ALSO OBSERVED THAT CERTAIN PART OF THE PREMISES I.E; SCO NO. 126-127 IN SECTIO N 8C CHANDIGARH WAS LEASED OUT BUT NO INQUIRY IN THIS REGARD BY INVOKING THE PROVISIONS OF SECTION 23(1)(C) OF THE ACT WAS UNDERTAKEN BY THE A.O. DURING THE ASSESSMENT PROCEEDINGS AND THIS ASPECT WAS 8 COMPLETELY OVER LOOKED BY THE A.O. DURING THE COURSE O F ASSESSMENT PROCEEDINGS, AS SUCH ENQUIRY WAS NEITHER MADE NOR ANY SUCH DETAILS WERE FOUND PLACED ON THE RECORD. 4.14 LD. PR. CIT FURTHER OBSERVED THAT THE ENTIRE SUBMI SSIONS AND ARGUMENTS OF THE ASSESSEE WERE BASED ON THE MAIN OBJECT CLAUSES OF THE A SSESSEE COMPANY AS PER ITS MOA AND ARTICLES OF ASSOCIATION WHEREBY IT WAS SUBMITT ED THAT ITS ONE OF THE MAIN OBJECT WAS TO LETTING OUT OF HOUSE, FLATS, FARM HOUSES , THEREFORE THE LETTING OUT OF SCO NOS 126-127 DURING THE YEAR UNDER CONSIDERATION WAS IN THE NATURE OF ITS SYSTEMATIC BUSINESS AND THE INCOME EARNED THEREON WAS TO BE ASSESS EED AS ITS INCOME FROM BUSINESS AND NOT INCOME FROM HOUSE PROPERTY. HOWEVER THE SAID DETAILS AND EVIDENCE WERE NOT FILED BY THE ASSESSEE DURING THE COUR SE OF ASSESSMENT PROCEEDINGS BUT LATER ON, THEREFORE THE SAME PROVED THAT THE A.O. HAD COMPLETED THE ASSESSMENT IN HURRY WITHOUT BRINGING ON RECORD ALL THE NECESSARY DETAIL S / EVIDENCES REQUIRED FOR THIS PURPOSE, THEREFORE THE ASSESSMENT PROCEEDINGS WERE COM PLETED WITHOUT CONDUCTING PROPER ENQUIRIES AND PROPER APPLICATION OF MIND ON THE P ART OF THE A.O., SO THE SAID ORDER WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF PROVISIONS OF SECTION 263 OF THE ACT. 4.15 AS REGARDS TO THE CONTENTION OF THE ASSESSEE THAT IF THE RENTAL INCOME WAS TO BE ASSESSED AS ITS INCOME FROM HOUSE PROPERTY THE RESU LTANT LOSS WOULD BE MORE THAN THE RESULTANT LOSS CONSIDERING THE SAME AS ITS BUSINESS IN COME. LD. PR. CIT POINTED OUT THAT THE A.O. ON VERIFICATION SUBMITTED IN THIS REGARD AS UN DER: NOW AFTER RECEIVING THE DIRECTION FOR SUBMISSION OF REPORT IN VIEW OF COMPUTATION SUBMITTED BEFORE YOUR GOODSELF, I AGAIN PERUSED THE CALCULATION CHART SUBMITTED BY THE AR OF THE ASSESSEE COMPANY BEFORE YOUR GOODSELF AND FO UND THAT THE CLAIM OF THE ASSESSEE IS NOT CORRECT, IF THE RENTAL INCOME TREATED AS INCOME FROM HOUSE PROPERTY AS PER BELOW TABLE:- IF INCOME TREATED AS BUSINESS INCOME IF INCOME TREA TED AS INCOME FROM HOUSE PROPERTY PARTICULARS AS PER ASSESSEE RENTAL INCOME 26,63,438/- 26,63,438/- OTHER INCOME 44036/- TOTAL INCOME 27,07,474/- 26,63,438/- DEDUCTION U/S 24 @ 30% 7,99,030/- EMPLOYEE BENEFIT 12,00,000/- 12,00,000/- DEPRECIATION 4,90,865/- NOT ALLOWABLE OTHER EXPENSES 9,87,706/- 5,58,988/- EXCLUDED VEHICL E RUNNING 9 EXPENSES DEBITED IN P&L ACCOUNT AT RS. 4,28,718/- NOT ALLOWABLE VEHICLE RUNNING EXPENSES CLAIMED. WHEN NO BUSINESS DONE. INCOME 28,903/- 1,05,418/- ADD. DEP. DISALLOWED 9,08,944/- TOTAL 5,19,768/- LESS: DEP. ALLOWED 9,08,944/- NET INCOME /LOSS -3,89,226/- + 1,05,418/- FROM THE ABOVE GIVEN TABLE IT IS CLEAR IF THE RENTA L INCOME RECEIVED BY THE ASSESSEE COMPANY IS TREATED AS INCOME FROM HOUSE PROPERTY, T HEN THEIR ARISES NET PROFIT FROM TI INSTEAD OF LOSS. 4.16 HE THEREFORE REJECTED THE ABOVE CONTENTION OF THE AS SESSEE. 4.17 LD. PR. CIT SET ASIDE THE ASSESSMENT ORDER DT. 1 6.09.2016 FOR THE A.Y. 2014-15 PASSED BY THE A.O. UNDER SECTION 143(3) OF THE ACT AND DIRECTED THE A.O. TO REASSESS OR RECOMPUTE THE INCOME BY CONDUCTING FURTHER ENQUIRY AS W ELL AS DULY TAKING INTO CONSIDERATION OF THE FRESH EVIDENCE BROUGHT ON RECORD INCL UDING THE MOA OF THE ASSESSEE COMPANY AND THE LEGAL POSITION, ON THIS ISSUE. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: SRIPAN LAND DEVELOPMENT PVT. LTD. VS. CIT REPORTED IN 46 SOT 447 (MUM) ADDL. CIT VS. SARAYA DISTILLERY REPORTED IN 115 ITR 34 (ALL) GEE VEE ENTERPRISES VS. ADDL. CIT REPORTED IN 99 IT R 375 (DEL) CIT VS. KOHINOOR TOBACCO PRODUCTS PVT. LTD. REPORTE D IN 234 ITR 557 (MP) RAMPYARI DEVI SAROGI VS. CIT REPORTED IN 67 ITR 84 (SC) SMT. TARA DEVI AGGARWAL VS. CIT REPORTED IN 88 ITR 323(SC) 5. BEING AGGRIEVED THE ASSESSEE IS IN APPEAL. 6. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISS IONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE LD. PR. CIT FAILED TO APPRECIATE THE FACTS THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSIN ESS OF PURCHASE AND SALE AND RENTING OF IMMOVABLE PROPERTY AND THE SITUATION, FACT S, NATURE OF ACTIVITY & NATURE OF OPERATIONS ARE IDENTICAL TO THE FACTS INVOLVED IN THE CASE OF CHENNAI PROPERTIES & 10 INVESTMENTS LTD. VS. CIT [2015] 373 ITR 673 (SC) WHER EIN IT HAS BEEN EXPLAINED THAT A MERE ENTRY IN THE OBJECT CLAUSE SHOWING A PARTICULAR OB JECT WOULD NOT BE DETERMINATIVE FACTOR TO ARRIVE AT AN CONCLUSION WHETHER THE INCOME FR OM LETTING OF PROPERTY IS ASSESSABLE AS BUSINESS PROFIT OR AS INCOME FROM HOUS E PROPERTY. 6.1 IT WAS FURTHER SUBMITTED THAT THE INCOME FROM LETT ING OF PROPERTY ON RENT BY THE ASSESSEE ENGAGED IN THE BUSINESS OF LETTING, IS ASSES SABLE AS BUSINESS PROFIT UNDER SECTION 28 OF THE ACT. RELIANCE WAS PLACED ON THE DECIS ION OF THE HON'BLE SUPREME COURT IN THE CASE OF RAYALA CORPORATION PVT. LTD. VS. ACIT REPORTED IN 288 CTR(SC) 121 / 72 TAXMANN.COM 149 (SC). IT WAS CONTENDED THAT THE A.O. A SSESSED THE RENTAL INCOME EARNED BY THE ASSESSEE IN REGULAR COURSE OF BUSINESS U NDER SECTION 143(3) OF THE ACT AS A BUSINESS INCOME AND IN THE ABSENCE OF ANY FRESH MATER IAL ON THE BASIS OF WHICH THE DIFFERENT VIEW COULD JUSTIFIABLY BE TAKEN, IT WAS NOT PERMISSIBLE FOR THE A.O. TO TAKE A DEPARTURE FROM THE CONSISTENT VIEW WHICH WAS ARRIVED AT BY HIM IN THE PAST SINCE THE INCEPTION OF THE BUSINESS AND THAT NO MATERIAL HAD BEEN BR OUGHT ON RECORD WHICH COULD SUPPORT THE VIEW TAKEN BY THE LD. PR. CIT THAT CE RTAIN NEW FACTS HAD EMERGED DURING THE YEAR UNDER CONSIDERATION WHICH COULD JUSTIFY THE DEPARTURE FROM THE CONSISTENT APPROACH ADOPTED BY THE DEPARTMENT. THE RELI ANCE WAS PLACED ON THE DECISION OF THE ITAT, MUMBAI BENCH IN THE CASE OF SHIBA NI S. BHOJWANI VS. DCIT (2017) REPORTED IN 166 ITD 488 (ITAT MUM). 6.2 LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AS SESSEE WAS HAVING STOCK IN TRADE DISCLOSED IN THE BALANCE SHEET WHICH WAS AVAILA BLE FOR SALE AND THE ASSESSEE COMPANY WAS KEENLY INTERESTED FOR SALE OF THE SAID STOC K IN TRADE BUT DUE TO UNFAVORABLE MARKET PRICES AS NO SUITABLE BUYER WAS FO UND AT THAT TIME NO PURCHASE / SALE OF PROPERTY HAD BEEN CARRIED OUT DURING THE YEAR U NDER CONSIDERATION WHICH PER-SE COULD NOT HAVE BEEN LEAD TO THE CONCLUSION THAT THE BUSINE SS WAS DISCONTINUED. IT WAS STATED THAT THERE IS A DIFFERENCE BETWEEN LULL IN BUSI NESS AND GOING OUT OF BUSINESS AND A TEMPORARY LULL IN THE BUSINESS GAVE RISE TO AN INFERE NCE THAT THE BUSINESS WAS GOING THROUGH A LEAN PERIOD OF TRANSACTION AND IT COULD BE REV IVED IF PROPER CIRCUMSTANCES ARISE. THE RELIANCE WAS PLACED ON THE JUDGMENT OF THE HO N'BLE KERALA HIGH COURT IN THE CASE OF K SREEDHARAN & CO. VS. CIT REPORTED AT 202 IT R 796. IT WAS ACCORDINGLY SUBMITTED THAT THE EXPENSES INCURRED AND DEPRECIATION CLAIMED WERE ALLOWABLE 11 BUSINESS EXPENSES AND THE PR. CIT WAS NOT JUSTIFIED IN G IVING WRONG OBSERVATION THAT THOSE WERE NOT ALLOWABLE BUSINESS EXPENSES. THE RELIANCE WAS PLACED ON THE DECISION OF THE ITAT AHMEDABAD BENCH IN THE CASE OF CHINUBHA M PATE L VS. ITO (ITAT AHMEDABAD) (DECEMBER 2015). 6.3 LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AS SESSEE WAS ACTIVELY ENGAGED IN THE BUSINESS BY WAY OF SEEKING POTENTIAL BUYERS TO SE LL THE STOCK IN HAND AND WAS ALSO LOOKING AT PROSPECTIVE DEALS FOR FURTHER PURCHASE O F PROPERTY TO BE SOLD LATER AT A PROFIT. HOWEVER, NONE OF THOSE ACTIVITIES CULMINATED IN A FINAL SALE OR PURCHASE TRANSACTION DUE TO LULL MARKET CONDITION AND FINALLY RESULTED TO P&L AC COUNT OF THE ASSESSEE COMPANY SHOWING ONLY RENTAL INCOME. IT WAS CONTENDED THAT AS PER T HE PROVISIONS OF SECTION 263 OF THE ACT LD. PR. CIT MAY PASS AN ORDER ENHANCING / MOD IFYING ANY ORDER PASSED UNDER THE ACT IF HE / SHE BELIEVES THAT THE SAID ORDER WAS P REJUDICIAL TO THE INTEREST OF THE REVENUE AND THAT THE LD. PR. CIT / CIT HAS TO BE SATI SFIED THAT THE FOLLOWING TWIN CONDITIONS EXIST FOR INVOCATION OF SECTION 263 OF INCO ME TAX ACT: - THE ORDER OF A.O. SOUGHT TO BE REVISED IS ERRONEOUS & - IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. IF ONE OF THEM IS ABSENT, RECOURSE CANNOT BE TAKEN UNDER SECTION 263 OF THE INCOME TAX ACT, 1961. RELIANCE WAS PLACED ON THE JUDGMENT OF HON'B LE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES CO. LTD. VS. CIT REPORTED IN 24 3 ITR 83. 6.4 LD. COUNSEL FOR THE ASSESEE FURNISHED A CHART DEPIC TING THAT IF RENTAL INCOME WAS TO BE CONSIDERED UNDER THE HEAD INCOME FROM HOUSE PROP ERTY INSTEAD OF INCOME FROM BUSINESS THEN THE NET LOSS CARRIED FORWARD FOR THE RELEVANT ASSESSMENT YEAR WOULD BE HIGHER. THE RELEVANT CHART FURNISHED BY THE ASSESSEE REA D AS UNDER: INCOME FROM HOUSE PROPERTY 1864406.00 RENTAL INCOME 2663438 LESS: STANDARD DEDUCTION @ 30% -799031.40 PROFITS AND GAINS FROM BUSINESS AND PROFESSION -2634 567 PROFIT BEFORE TAX AS PER PROFIT AND LOSS ACCOUNT 28903 ADD: DEPRECIATION DISALLOWED 490865 12 519768 LESS; ALLOWED DEPRECIATION -490897 LESS: RENTAL INCOME -2663438 CURRENT YEAR LOSS -770160.40 6.5 IT WAS CONTENDED THAT IN THE SIMILAR CHART WHICH WAS C ONSIDERED BY THE LD. PR. CIT, THE CALCULATIONS OF THE DEPARTMENT WERE MADE BY DI SALLOWING ENTIRE DEPRECIATION AND VEHICLE RUNNING EXPENSES THEREFORE THE LD. PR. CIT WA S NOT JUSTIFIED IN RELYING ON THE WRONG FIGURES WHILE TAKING THE VIEW THAT THERE WOULD BE PROFIT IF THE RENTAL INCOME IS CONSIDERED AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME PARTICULARLY WHEN NO JUSTIFICATION OR REASONS WAS PROVIDED FOR MAKING THE DISALLOWANCE OF DEPRECIATION EXPENSES. 6.6 IT WAS CONTENDED THAT THE LD. PR. CIT WAS REQUIRED TO PASS A SPEAKING ORDER DETAILING HOW THE ORDER PASSED BY THE A.O. WAS ERRONEOU S AND PREJUDICIAL TO THE INTEREST OF THE REVENUE BUT HE SUMMARILY ACCEPTED THE WR ONG CALCULATION GIVEN BY THE A.O. WHEREIN THE ENTIRE DEPRECIATION AND VEHICLE RUNNING E XPENSES WERE DISALLOWED BY THE A.O. THE RELIANCE WAS PLACED ON THE DECISION OF THE I TAT CHANDIGARH BENCH IN THE CASE OF SHRI ABHIMANYU GUPTA VS. PR. CIT (2018) 64 ITR 611 (CHD TRIB). IT WAS ACCORDINGLY SUBMITTED THAT THE ASSESSMENT ORDER DT. 16/09/2016 PAS SED BY THE A.O. WAS NEITHER PREJUDICIAL TO THE INTEREST OF THE REVENUE NOR IT WAS ER RONEOUS, THEREFORE THE LD. PR. CIT WAS NOT JUSTIFIED IN DIRECTING THE A.O. TO MAKE MORE ENQ UIRIES AND REFRAME THE ASSESSMENT WHILE PASSING THE IMPUGNED ORDER UNDER SECTI ON 263 OF THE ACT, THE SAME MAY BE QUASHED. 7. IN HIS RIVAL SUBMISSIONS THE LD. CIT DR STRONGLY SU PPORTED THE IMPUGNED ORDER OF THE LD. PR. CIT AND REITERATED THE CONTENTS OF PAGE NOS. 15 TO 17 OF THE IMPUGNED ORDER. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE EARNED RENTAL INCOME ON THE ASSETS AND SINCE ALL THE EXPENSES WERE TO BE INCURRED BY THE TENANT, THE SAME WERE RIGHTLY DIRECTED TO BE DISALLOWED BY THE LD. PR. CIT. IT WAS FURTHER SUB MITTED THAT THE A.O. HAD NOT MADE THE ENQUIRY WHILE FRAMING THE ASSESSMENT THEREFORE THE LD. PR. CIT WAS JUSTIFIED IN EXERCISING HIS REVISIONARY POWERS U/S 263 OF THE ACT A ND DIRECTING THE A.O. TO MAKE THE ENQUIRY AND REFRAME THE ASSESSMENT. 13 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIE S AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE THE A.O. FRAMED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT, QUESTIONNAIRE ALONGWIT H NOTICE UNDER SECTION 142(1) OF THE ACT WAS ISSUED TO THE ASSESSEE ON 09/08/2016, IN CO MPLIANCE THERETO THE ASSESSEE FURNISHED THE REQUISITE REPLIES AND DOCUMENTS. HOWEVER THE LD. PR. CIT EXERCISED HIS REVISIONARY POWERS UNDER SECTION 263 OF THE ACT AND CONS IDERED THE ASSESSMENT ORDER PASSED BY THE A.O. AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR THE REASONS THAT THE ASSESSEE WAS HAVING ONLY RENTAL INCOME WHICH WAS TO BE CONSIDERED AS INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCO ME. SECONDLY THERE WAS NO BUSINESS ACTIVITY THEREFORE EXPENSES AND THE DEPRECIATI ON WAS WRONGLY ALLOWED BY THE A.O. NOW WE HAVE TO CONSIDER AS TO WHETHER THE VIEW TAK EN BY THE A.O. WAS A POSSIBLE VIEW IN ACCORDANCE WITH LAW OR NOT. THE POWERS OF THE LD . PR. CIT UNDER SECTION 263 OF THE ACT AND CONDITIONS TO INVOKE THE SAME MAY BE SUMMARI ZED AS UNDER: (I) 'THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BOTH T HE CONDITIONS MUST BE FULFILLED. (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVER Y TYPE OF MISTAKE OR ERROR COMMITTED BY THE A.O. AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS, THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT AP PLICATION OF LAW WILL SUFFICE FOR THE REQUIREMENT OF THE ORDER BEING ERRO NEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDIC IAL TO THE INTEREST OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE CO URSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE A O HAS TAKEN ONE VIEW-WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER THE LAW. (VI) IF WHILE MAKING THE ASSESSMENT, THE A.O. EXAMINES T HE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUM STANCES OF THE CASE AND DETERMINES THE INCOME, THE CIT, WHILE EXERCISING HI S POWER UNDER S. 263, IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN P LACE OF THE INCOME ESTIMATED BY THE A.O. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIM AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AT A CONCLUSION, SUCH CONCLUSION 14 CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE SAID CONCLUSION. (VII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S . 263, MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO ALLOWE D THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NO T MAKE AN ELABORATE DISCUSSION IN THAT REGARD.' 8.1 IN THE PRESENT CASE, THE A.O. DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, ISSUED THE QUESTIONNAIRE TO THE ASSESSEE, IN RESPONSE TO WHICH THE ASSESSEE FURNISHED THE REPLY AND THE DOCUMENTS WHICH WE RE CONSIDERED BY THE A.O. SO IT CANNOT BE SAID THAT THE ENQUIRIES WERE NOT MADE BY THE A.O. THE RENTAL INCOME SHOWN BY THE ASSESSEE WAS CONSIDERED TO BE BUSINESS IN COME AS WAS DONE IN THE PRECEDING YEARS SINCE INCEPTION OF THE BUSINESS BY THE A SSESSEE. HOWEVER, THE LD. PR. CIT WAS OF THE VIEW THAT THE SAID VIEW WAS NOT CORRECT AS THE LETTING OUT OF THE SHOP FROM WHICH THE RENT WAS RECEIVED W AS NOT THE MAIN OBJECT OF THE ASSESSEE. 8.2 TO RESOLVE THIS CONTROVERSY WE HAVE TO CONSIDERED THE OBJECT AND ANCILLARY OBJECT AS MENTIONED IN THE MEMORANDUM OF ASSOCIATION AND ARTICLE OF ASSOCIATION OF THE ASSESSEE COMPANY COPY OF WHICH IS PLACED AT PAGE NO. 22 TO 41 OF THE ASSESSEES COMPILATION. THE CLAUSE 3 OF THE SAID MOA READ AS UNDER : 3. TO CARRY ON THE BUSINESS OF REAL ESTATE DEALER S AND DEVELOPERS INCLUDING PURCHASE AND SALE OF LAND, LAND DEVELOPMENT, COLONI ZATION, PURCHASE, SALE, CONSTRUCTION AND LETTING OUT OF HOUSES, FLATS, FARM HOUSES. THE LD. PR. CIT CONSIDERED THE ABOVE SAID CLAUSE ONLY. HOWEVER HE IGNORED THE ANCILLARY CLAUSE NO. 19 WHICH READ AS UNDER: 19. TO SELL, IMPROVE, ALTER, MANAGE, DEVELOP EXCH ANGE, LEASE, MORTGAGE, DISPOSE OF, TURN TO ACCOUNT OR OTHERWISE DEAL WITH ALL OR ANY PARTS OF THIS BUSINESS, LANDS, PROPERTY, ASSETS, RIGHTS AND THE RESOURCES A ND UNDERTAKINGS OF THE COMPANY IN WHOLE OR IN PART IN SUCH MANNER AND ON S UCH TERMS AS THE DIRECTORS MAY THINK FIT. 15 FROM THE AFORESAID CLAUSE IT IS CLEAR THAT THE ASSES SEE COMPANY WAS AUTHORIZED TO LEASE OUT THE PROPERTY WHICH IN THE PRESENT CASE HAS B EEN DONE IN RESPECT OF FIRST FLOOR & SECOND FLOOR SCO NO. 126 & 127, SECTOR - 8C CHANDIGARH. THE SAID ACTIVITY OF LEASING OUT WAS UNDERTAKEN BY THE ASSESSEE COMPANY FROM THE VERY BEGINNING WHEN THOSE ASSETS WERE PURCHASED, SO IT CANNOT BE SAID THAT THIS ACTIVITY WAS ONLY FOR THE YEAR UNDER CONSIDERATION. IT IS NOT IN DISPUTE THAT IN ALL TH E EARLIER YEARS THE INCOME RECEIVED FROM THOSE LEASE OUT PROPERTIES WAS CONSIDERED AS BU SINESS INCOME, AS THE CLAUSE NO. 19 OF THE MOA AUTHORIZED ASSESSEE TO LEASE OUT ITS PR OPERTY WHICH WAS ITS ANCIALLARY ACTIVITY. 8.3 ON A SIMILAR ISSUE THE HON'BLE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES AND INVESTMENTS LTD. VS. CIT (SUPRA) HELD AS UNDER: THAT LETTING OF THE PROPERTIES WAS IN FACT THE BUSINE SS OF THE ASSESSEE. THE ASSESSEE, THEREFORE, RIGHTLY DISCLOSED THE INCOME UNDE R THE HEAD INCOME FROM BUSINESS. IT COULD NOT BE TREATED AS INCOME FR OM HOUSE PROPERTY. IN THE PRESENT CASE ALSO THE MAIN OBJECT OF THE ASSESSE E IN ITS MOA WAS TO CARRY ON THE BUSINESS OF REAL ESTATE DEALERS & DEVELOPERS IN CLUDING PURCHASE & SALE OF LAND, LAND DEVELOPMENT, COLONIZATION, OPURCHASE, SALE CONSTRU CTION & LETTING OUT OF HOUSES, FLATS, FARM HOUSES. HOWEVER AS PER CLAUSE 19 OF THE A FORESAID MOA THE ASSESSEE WAS AUTHORIZED TO SELL, IMPROVE, ALTER, MANAGE, DEVELOP EXCHANGE, LEASE, MORTGAGE, DISPOSE OF ETC OF THE BUSINESS LANDS, PROPERTY, ASSE TS ETC IN WHOLE OR IN PART IN SUCH MANNER AND ON SUCH TERMS AS THE DIRECTORS MAY THINK FIT. THE REFORE THE INCOME OF THE ASSESSEE RECEIVED ON LEASE OUT PROPERTY WAS ITS BUSI NESS INCOME. 8.4 ON A SIMILAR ISSUE THE HON'BLE SUPREME COURT IN THE CASE OF RAYALA CORPORATION PVT. LTD. VS. ACIT(SUPRA) HELD AS UNDER: THAT ADMITTEDLY, THE ASSESSEE HAD ONLY ONE BUSINE SS AND THAT WAS OF LEASING ITS PROPERTY AND EARNING RENT THEREFROM. THE BUSINESS O F THE COMPANY WAS TO LEASE ITS PROPERTY AND TO EARN RENT AND THEREFORE, THE IN COME SO EARNED SHOULD BE TREATED AS ITS BUSINESS INCOME. THE INCOME OF THE A SSESSEE WAS TO BE SUBJECT TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS O R PROFESSION. 8.5 SIMILARLY THE ITAT, MUMBAI J BENCH IN THE CASE O F SHIBANI S. BHOJWANI VS. DCIT(SUPRA) HELD AS UNDER: 16 INCOME FROM COMPOSITE LETTING OF FURNISHED FLATS B Y THE ASSESSEE, AFTER THOROUGH VETTING AND SCRUTINY, HAVING BEEN ACCEPTED AND ASSE SSED AS BUSINESS INCOME BY THE DEPARTMENT IN THE EARLIER YEARS WHILE FRAMIN G REGULAR ASSESSMENTS, IN THE ABSENCE OF ANY NEW FACTS EMERGING DURING THE YEAR U NDER CONSIDERATION, SUCH INCOME CANNOT BE ASSESSED UNDER THE HEAD INCOME FR OM HOUSE PROPERTY; COMPOSITE RENTAL RECEIPTS ARE ASSESSABLE AS BUSINES S INCOME IN THE RELEVANT ASSESSMENT YEAR ALSO IN VIEW OF RULE OF CONSISTENCY . 8.6 THEREFORE BY KEEPING IN VIEW THE RATIO LAID DOWN IN THE AFORESAID REFERRED TO CASES WE ARE OF THE OPINION THAT THE VIEW TAKEN BY THE A. O. WAS IN CONSONANCE WITH THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT AND VIE W TAKEN BY THE ITAT IN THE AFORESAID REFERRED TO CASE. IN THAT VIEW OF THE MATTER , IT CANNOT BE SAID THAT THE VIEW TAKEN BY THE A.O. WAS WRONG AND IF THE VIEW TAKEN BY TH E A.O. WAS ONE OF THE POSSIBLE VIEW THE ASSESSMENT ORDER DATED 16/09/2016 PASSED BY HIM CANNOT BE CONSIDERED TO BE ERRONEOUS. FOR THE AFORESAID VIEW, WE ARE FORTIFI ED BY THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MAX INDIA LTD. [2007] 295 ITR 282 WHEREIN IT HAS BEEN HELD THAT AS UNDER: THE PHRASE PREJUDICIAL TO THE INTEREST OF THE RE VENUE IN SECTION 263 OF THE INCOME-TAX ACT, 1961, HAS TO BE READ IN CONJUNCTION WITH THE EXPRESSION ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. E VERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CAN NOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EX AMPLE, WHEN THE ASSESSING OFFICER ADOPTS ONE OF TWO COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE AS SESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE REVENUE, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. 8.7 IN THE INSTANT CASE, THE ASSESSEE FURNISHED A CHART BEFORE THE AUTHORITIES BELOW EXPLAINING THAT IF THE INCOME RECEIVED BY IT WAS TO BE TREATED AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME THERE WOULD BE AN INCREASE IN THE LOSS. THE SAID CHART HAD BEEN REPRODUCED IN THE FORMER PART OF THIS OR DER. HOWEVER THE LD. PR. CIT BY CONSIDERING THE WRONG CALCULATIONS, WAS OF THE VIEW THA T THERE WAS A PROFIT INSTEAD OF LOSS CLAIMED BY THE ASSESSEE, IF THE RENTAL INCOME TO BE CONSIDERED AS INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCOME WHILE ADOPT ING THE SAID CALCULATION, THE PR. CIT DID NOT ALLOW THE DEPRECIATION AND THE OTHER EXPE NSES ON THIS BASIS THAT THE ASSESSEE WAS NOT INVOLVED IN ANY BUSINESS ACTIVITY DURI NG THE YEAR UNDER CONSIDERATION HE IGNORED THIS EXPLANATION OF THE ASSESSEE THAT THERE W AS LULL IN BUSINESS, BUT THE BUSINESS ACTIVITY WAS NOT CLOSED AND THE ASSESSEE WAS HAVING STOCK IN TRADE. IT IS WELL 17 SETTLED THAT THERE IS A DIFFERENCE BETWEEN DISCONTINUAT ION OF BUSINESS AND THE CLOSURE OF BUSINESS. IN THE PRESENT CASE, IF THERE WAS NO CLOSURE OF THE BUSINESS, THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE WAS NOT ALLOWED TO CLAIM EXP ENSES IF THOSE WERE INCURRED FOR THE BUSINESS PURPOSES. 8.8 ON A SIMILAR ISSUE THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF K SREEDHARAN & CO. VS. CIT(SUPRA) HELD AS UNDER: I FIND MERIT IN THE CONTENTION RAISED ON BEHALF OF THE PETITIONER AND THE RELIANCE PLACED ON THE ABOVE-MENTIONED DECISIONS. IN THE PRE SENT CASE ALSO, THE ASSESSMENT IS NOT UNIT-WISE BUT ASSESSEE-WISE. ADMI TTEDLY, THE PETITIONER HAD TO PARTICIPATE IN THE AUCTION WHICH WAS CONDUCTED DURI NG THE RELEVANT ASSESSMENT YEAR FOR THE PURPOSE OF CARRYING ON THE BUSINESS FO R THE FOLLOWING YEAR. THE ASSESSEE HAD TO INCUR EXPENSES FOR THE ABOVE PURPOS E. IT IS ADMITTED THAT THE ASSESSEE HAD TAKEN THE LOAN AND HAD TO PAY INTEREST FOR THE PURPOSE OF RAISING MONEY TO PARTICIPATE IN THE AUCTION AND TO ACQUIRE THE LICENCE FOR THE PURPOSE OF CONDUCTING THE BUSINESS OF BUYING AND SELLING ARRAC K DURING THE FOLLOWING YEAR. IT IS ALSO AN ADMITTED FACT THAT, FOR MANY YEARS PREVI OUS TO THE ASSESSMENT YEAR, THE ASSESSEE HAD BEEN CARRYING ON THE SAME BUSINESS. UN DER THESE CIRCUMSTANCES, THE PETITIONER IS PERFECTLY JUSTIFIED IN CONTENDING THAT IT IS ENTITLED TO CLAIM DEDUCTION IN RESPECT OF THE AMOUNT PAID AS INTEREST FOR RAISING THE LOAN DURING THE RELEVANT ASSESSMENT YEAR 8.9 IN THE PRESENT CASE ALSO THE ASSESSEE WAS NOT FIND ING THE BUYER TO SELL THE PROPERTY WHICH WERE KEPT AS STOCK IN TRADE, SO IT CANNOT BE SAID THAT THE ASSESSEE CLOSED THE BUSINESS, THEREFORE THE EXPENSES INCURRED FOR THE PURPOSES OF BUSINESS AS WELL AS THE DEPRECIATION CLAIMED WERE ALLOWABLE TO THE ASS ESSEE AS BUSINESS EXPENSES, AS SUCH THE LD. PR. CIT WAS NOT JUSTIFIED IN NOT CONSIDERING THE DEPRECIATION AS WELL AS THE EXPENSES TO WORK OUT THE INCOME / LOSS OF THE ASSESSE E. 8.10 IN VIEW OF THE AFORESAID DISCUSSION, IN THE PRESENT CASE, IT CAN BE SAID THAT BY CONSIDERING THE RENTAL INCOME RECEIVED BY THE ASSESSEE AS BUSINESS INCOME WHICH WAS CONSISTENTLY CLAIMED BY THE ASSESSEE IN THE PRECED ING YEARS ALSO AND THE DEPARTMENT HAD ACCEPTED THE SAME, THE ASSESSMENT ORDER P ASSED BY THE A.O. WAS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE, PARTICULARL Y WHEN THE LOSS WOULD HAVE BEEN MORE AT RS. 7,70,160.40 INSTEAD OF RS. 3,89,226/- IF THE RENTAL INCOME WAS TO BE CONSIDERED AS INCOME FROM HOUSE PROPERTY, INSTEAD OF BUSINESS INCOME, AS DECLARED BY THE ASSESSEE. 18 8.11 WE THEREFORE BY CONSIDERING THE TOTALITY OF THE FA CTS AS DISCUSSED HEREIN ABOVE ARE OF THE VIEW THAT THE ASSESSMENT ORDER PASSED BY T HE A.O. WAS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THAT VIEW OF THE MATTER, THE IMPUGNED ORDER PASSED BY THE LD. PR. CIT UNDER SECTION 263 OF THE ACT IS QUASHED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 11/11/2020 ) SD/- SD/- $ %#& '( .., (SATBEER SINGH GODARA ) ( N .K. SAINI) ) (*/ JUDICIAL MEMBER ! / VICE PRESIDENT AG DATE: 11/11/2020 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE