Laxmi Infra Developers Ltd., Surat V. The Income tax Officer,Ward-1(4), Surat

ITA 894/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5789 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 25-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C
• Assessee Lawyers: M J SHAH
• Keywords: Business income; Rule of consistency; Wrong claim; Capital expenditure
• Section: 143(1); 195; 143(2); 264; 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' (BEFORE S/SHRI MUKUL SHRAWAT,JM & A N PAHUJA,AM) ITA NO.894/AHD/2010 (ASSESSMENT YEAR:- 2007-08) LAXMI INFRA DEVELOPERS LTD.[FORMERLY ABHISHEK ESTATE LTD.], A-HOUSE, GROUND FLOOR, MILLENNIUM MARKET, RING ROAD, SURAT [PAN: AABCA 9744 K] V/S INCOME-TAX OFFICER, WARD- 1(4), SURAT [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI M J SHAH, AR REVENUE BY:- SHRI M C PANDIT,. DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 28-01-2010 OF THE LD. CIT(APPEALS)-I, SURAT, RAISES THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A)-I, SURAT HAS ERRED IN NOT PROPER LY APPRECIATING THE FACTS OF THE CASE OF THE APPELLANT COMPANY AS E XPLAINED IN SUBMISSIONS MADE BEFORE THE ITO AND LEARNED CIT(A). 2. ON FACTUAL CONSIDERATIONS OF THE CASE, THE CIT(A ) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS.1,12,000/- MADE ON ACC OUNT OF RENT INCOME CREDITED IN WORK-IN-PROGRESS ACCOUNT. 3. IT IS THEREFORE, PRAYED THAT THE SAID ADDITION O F RS.1,12,000/- UPHELD BY THE CIT(A) MAY KINDLY BE DELETED. 4. THE APPELLANT PRAYS FOR GRANTING SUCH OTHER RELI EF AS MAY BE DEEMED JUST & PROPER BY YOUR HONOURS CONSIDERING THE FACTUAL AND LEGAL ASPECTS OF THE CASE OF THE AP PELLANT 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, MODIFY, SUBSTITUTE, CHANGE, DELETE ETC .ANY OR ALL OF THE G ROUNDS OF APPEAL. 2 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING NIL INCOME FILED ON 31-10-BY THE ASSESSEE-COMPANY, ENGAGED IN DEVELOPMENT OF A HOUSING PROJECT, AFTER BEING PROCE SSED U/S 143(1) ITA NO.894/AHD/2010 FOR AY2007-08 LAXMI INFRA DEVELOPERS LIMITED, SURAT 2 OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED T O AS THE ACT], WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF A NOT ICE U/S 143(2) OF THE ACT ON 22-09-2008. DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NO TICED THAT THE ASSESSEE-COMPANY RECEIVED A SUM OF RS.1,12,2000 FR OM M/S FASCEL LTD. ON ACCOUNT OF RENT OF A COMMUNICATION T OWER IN THEIR PREMISES. TO A QUERY BY THE AO, THE ASSESSEE VIDE T HEIR LETTER DATED 27/07/2009 SUBMITTED THAT THE INCOME HAS ALREADY BE EN CREDITED TO WIP ACCOUNT AND SAID PRACTICE OF ACCOUNTING HAS BEEN AC CEPTED BY THE DEPARTMENT IN THE PAST. IN RESPONSE TO ANOTHER NOTICE DATED 05/1 0/2009, THE ASSESSEE REPLIED VIDE LETTER DATED 07/11/2009 THAT THE INCO ME RECEIVED FROM RENTING OF THE PROJECT PREMISES OF THE COMPANY WAS BUSINESS RELATED INCOME AND WAS CREDITED TO WORK-IN-PROGRESS ACCOUNT. THIS IS SUE WAS RAISED DURING THE SCRUTINY ASSESSMENTS FOR THE AY 2004-05 AND 2006-0 7 AND BOTH THE OFFICERS HAD ACCEPTED THEIR PRACTICE OF TREATING RENTAL INCOME A S BUSINESS INCOME .HOWEVER, THE AO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESS EE ON THE GROUND THAT THE ASSESSEE'S MAIN OBJECT WAS TO DEVELOP AND MAINTAIN THE HOUSING PROJECT WHILE RENTAL INCOME BY LETTING OUT THEIR PREMISES HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE AO FURTHER OBSERVED THAT WRONG CLAIM ACCEPTED IN THE PREVIOUS YEARS CAN NOT BE PERPETUATED. 3. ON APPEAL, THE LD. CIT(A) UPHELD THE FINDINGS O F THE AO IN THE FOLLOWING TERMS : 2.2 DURING THE APPELLATE PROCEEDINGS, THE APPELLAN T HAS REPEATED THE SUBMISSION MADE BEFORE THE A.O. THE SAME IS, THEREF ORE, NOT REPEATED AGAIN. THE APPELLANT FURTHER STATED THAT IN THE EAR LIER YEARS, NAMELY A.YS. 2004-05 & 2006-07, THE DEPARTMENT HAS ACCEPTED THE RENTAL INCOME AS BUSINESS INCOME AND, THEREFORE, THIS YEAR ALSO THE SAME SHOULD BE ACCEPTED. 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE AP PELLANT AND THE OBSERVATION OF THE A.O. THE FACTS UNDER CONSIDERATI ON ARE NOT IN DISPUTE. THE APPELLANT HAS RECEIVED RENTAL INCOME FOR ALLOWI NG ERECTION OF COMMUNICATION TOWER IN ITS AREA. ADMITTEDLY, GIVING AREA ON RENT FOR COMMUNICATION TOWER IS NOT THE BUSINESS OF THE ASSE SSEE AS STATED EARLIER. ITA NO.894/AHD/2010 FOR AY2007-08 LAXMI INFRA DEVELOPERS LIMITED, SURAT 3 THE ASSESSEE'S BUSINESS IS DEVELOPMENT OF HOUSING P ROJECT AND SALES THEREOF. IN THE PRESENT CASE, THE APPELLANT HAS AL LOWED ERECTION OF A COMMUNICATION TOWER IN THE AREA ON WHICH IT HAS EAR NED THE RENTAL INCOME. THE RENTAL INCOME IS, THEREFORE, INCOME FROM OTHER SOURCES. AS DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALCALI CHEMICAL & FERTILIZER LTD. (227-ITR-172), INCOME FROM OTHER SO URCES CANNOT BE ADJUSTED AGAINST THE CAPITAL EXPENDITURE OR WORK-IN -PROGRESS OF THE BUSINESS. THE RENTAL INCOME HAS NO NEXUS WITH THE B USINESS INCOME OF THE ASSESSEE. IN THE CASE OF TUTICORIN ALCALI CHEMICAL & FERTILIZER LTD. (SUPRA), THE HON'BLE SUPREME COURT HAD CLEARLY STATED THAT T HE INCOME FROM OTHER SOURCES CANNOT BE ADJUSTED AGAINST THE WORK-IN-PROG RESS OR THE CAPITAL EXPENDITURE. FOLLOWING THE SAME PRINCIPLE, THE RENT AL INCOME BEING INCOME FROM OTHER SOURCES IN THIS CASE THE ACTION OF THE A .O. IS CONFIRMED AND THESE GROUNDS OF APPEAL ARE DISMISSED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED AR ON BEHALF OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE LD. CIT(A) CONTENDED THAT IN THE EARLIER YEARS VIZ. AYS 2004-05 AND 2006 -07, THE DEPARTMENT HAVING ACCEPTED THE RENTAL INCOME AS BUS INESS INCOME THEIR CLAIM SHOULD BE ACCEPTED IN THE YEAR UNDER CO NSIDERATION ALSO. TO A QUERY BY THE BENCH, THE LD. AR STATED THAT REL EVANT AGREEMENT IN TERMS OF WHICH THE RENTAL INCOME HAS BEEN DERIVE D IS NOT AVAILABLE. THE LEARNED DR, ON THE OTHER HAND, SUPPO RTED THE FINDINGS OF THE LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY, A SIMILAR CLAIM OF THE ASSE SSEE HAS BEEN ACCEPTED IN THE AYS 2004-05 & 2006-07 IN SCRUTINY A SSESSMENTS AND THE FACTS IN THE YEAR UNDER CONSIDERATION ARE SIMIL AR AS WERE PREVAILING IN THOSE YEARS. IN THE LIGHT OF UNDISPUT ED FACTS MENTIONED HEREINABOVE, WE ARE OF THE OPINION THAT NO STRAITJA CKET FORMULA CAN BE DEVISED TO DETERMINE CONCLUSIVELY AS TO UNDER WHICH HEAD RENTA L INCOME FROM EXPLOITATION OF COMMERCIAL IMMOVABLE PROPERTY SHOULD FALL. IT DEPEN DS UPON THE TERMS AND CONDITIONS STIPULATED IN THE RELEVANT AGREEMENT. AL L THE RELEVANT FACTORS NEED TO BE NECESSARILY LOOKED INTO TO DECIDE THE CHARACTER OF INCOME. IF THE FACTS SHOW THAT ITA NO.894/AHD/2010 FOR AY2007-08 LAXMI INFRA DEVELOPERS LIMITED, SURAT 4 THE ASSESSEE IS DOING A COMPLEX COMMERCIAL ACTIVITY BY EXPLOITING THE IMMOVABLE PROPERTY, THEN THE INCOME WOULD FALL UNDER THE HEAD 'PROFITS AND GAINS FROM BUSINESS OR PROFESSION'. IF ON THE OTHER HAND, THE ASSESSEE HAS SIMPLY LET OUT THE SPACE AND IS EARNING THE RENTAL INCOME, IT WOULD FA LL UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. THOUGH THE LD. AR ON BEHALF OF TH E ASSESSEE DID NOT PLACE BEFORE US THE RELEVANT TERMS AND CONDITIONS GOVERNI NG THE RENTAL INCOME DERIVED BY THE ASSESSEE, THE FACTS AS REVEALED FROM THE IMP UGNED ORDERS AND POSITION TAKEN BY THE REVENUE IN THE PRECEDING ASSESSMENT YE ARS REVEAL THAT THE ASSESSEE HAS EXPLOITED THEIR COMMERCIAL IMMOVABLE PROPERTY FOR EARNING RENTAL INCOME FROM FASCEL LTD ON ACCOUNT OF A COMMUNICATIO N TOWER IN THEIR PREMISES. IN THESE CIRCUMSTANCES, WE ARE OF T HE VIEW THAT THE YIELD OF INCOME BY EXPLOITING A COMMERCIAL ASSET IS THE PROFIT OF THE BUSINESS IRRESPECTIVE OF THE MANNER IN WHICH THAT ASSET IS E XPLOITED BY THE OWNER OF THE BUSINESS. HE IS ENTITLED TO EXPLOIT IT TO HIS BEST ADVANTAGE AND HE MAY DO SO EITHER BY USING IT HIMSELF PERSONALLY OR BY LETTING IT OUT TO SOMEBODY ELSE. 7.1 MOREOVER, AS ALREADY STATED, THE REVENUE HAV E ACCEPTED THE CLAIM OF THE ASSESSEE IN THE AYS 2004-05 & 2006-07. IN THE CASE OF TARABEN RAMANBHAI PATEL [1995] 215 ITR 323 (GUJ),HONBLE HIGH COURT OBSERVED THAT IT IS NO DO UBT TRUE THAT THE STRICT RULE OF THE DOCTRINE OF RESJUD ICATA DOES NOT APPLY TO PROCEEDINGS UNDER THE INCOME-TAX ACT, AT THE SAME TIME, IT IS E QUALLY TRUE THAT UNLESS THERE IS A CHANGE OF CIRCUMSTANCES, THE AUTHORITIES WILL NOT D EPART FROM PREVIOUS DECISIONS AT THEIR SWEET WILL IN THE ABSENCE OF MATERIAL CIRC UMSTANCES OR REASONS FOR SUCH DEPARTURES. THE HON'BLE SUPREME COURT IN THE CASE O F RADHASOAMI SATSANG V. CIT [1992] 193 ITR 321 HAS APPROVED THE PRINCIPLE OF CONSISTENCY, WHEN TH EY OBSERVED THAT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND THE PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT C HALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. SIMILAR VIEW HAS BEEN EXPRESSED IN A CATENA OF CASE S INCLUDING CIT V. LEADER VALVES LTD. [2007] 295 ITR 273 ( PUNJ. & HAR.), DIT (EXEMPTION) V. GURU NANAK VIDYA BHANDAR TRUST [2004] 272 ITR 379 (DELHI), DIR ECTOR OF INCOME-TAX ITA NO.894/AHD/2010 FOR AY2007-08 LAXMI INFRA DEVELOPERS LIMITED, SURAT 5 (EXEMPTION) V. APPAREL EXPORT PROMOTION COUNCIL (NO . 1) [2000], 244 ITR 734(DEL.), CIT V. NEO POLY PACK P. LTD. [2000] ,245 ITR 492 (DELHI), AND CIT V. A.R.J. SECURITY PRINTERS [2003] 264 ITR 276(DEL.). THOUGH THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE IN THE INCOME-TAX MATTER , BUT FINDINGS OF EARLIER YEARS ON THE SAME MATTER ARE RELEVANT AS PER THE RATIO LAID DOWN IN SARDAR KEHAR SINGH V. CIT [1992] 195 ITR 769 (RAJ), TARABEN RAMANBHAI PATEL V. ITO [1995] 215 ITR 323 (GUJ) AND CIT V. HINDUSTHAN MOTORS LTD. [1991] 192 ITR 619 (CAL). EARLIER HONBLE APEX COURT IN PARASHURAM POTTERY WORKS CO. LTD. V. ITO [1977] 106 ITR 1 (SC) OBSERVED : 'AT THE SAME TIME, WE HAVE TO BEAR IN MIND THAT THE POLICY OF LAW IS THAT THERE MUST BE A POINT OF FINALITY IN ALL LEGAL PROCEEDING S, THAT STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPS E OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI-JUDICIAL CONT ROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY.' 7.11 IN THE LIGHT OF AFORESAID DECISIONS, THE L AW IS THEREFORE FAIRLY WELL SETTLED. FOR REJECTING THE VIEW TAKEN IN THE EARLIER ASSESSM ENT YEARS, THERE MUST BE A MATERIAL CHANGE IN THE FACT SITUATION. THERE IS NO GAINSAYING THAT THE PREVIOUS VIEW WILL HAVE NO APPLICATION EVEN IN CASES WHERE T HE LAW ITSELF HAS UNDERGONE A CHANGE BUT BEFORE AN EARLIER VIEW CAN BE UPSET OR D IGRESSED FROM, ONE OF THE TWO MUST BE DEMONSTRATED, NAMELY, A CHANGE IN THE FACT SITUATION OR A MATERIAL CHANGE IN LAW WHETHER ENACTED OR DECLARED BY THE SU PREME COURT. IN THE INSTANT CASE, UNDISPUTEDLY, THERE IS NO CHANGE IN THE FACT SITUATION NOR CHANGE IN LAW . IN THE ABSENCE OF A CHANGE IN FACTS, THERE WAS NO COMP ELLING REASON FOR TAKING A DIFFERENT VIEW IN THE YEAR UNDER CONSIDERATION. 8. IN VIEW OF THE FOREGOING, WE ARE OF THE OP INION THAT RENTAL INCOME DERIVED BY THE ASSESSEE ON ACCOUNT OF A COMM UNICATION TOWER IN THEIR PREMISES, HAS TO BE ASSESSED AS BUS INESS INCOME, AS ACCEPTED BY THE AO IN THE AYS. 2004-05 & 2006-07. W ITH THESE OBSERVATIONS, GROUND NOS. 2 & 3 RAISED BY THE ASSES SEE ARE ALLOWED TO THAT EXTENT. ITA NO.894/AHD/2010 FOR AY2007-08 LAXMI INFRA DEVELOPERS LIMITED, SURAT 6 9. GROUND NOS.1 & 4 IN THE APPEAL BEING GENERAL IN NATURE NOR ANY SUBMISSIONS HAVING BEEN MADE ON THESE GROUNDS ,DO N OT CALL FOR ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HA VING BEEN RAISED IN TERMS OF THE RESIDUARY GROUND NO.5, ALL THESE GR OUNDS ARE DISMISSED. 10. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT TODAY ON 25-06-2010 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 25-06-2010 COPY OF THE ORDER FORWARDED TO : 1. LAXMI INFRA DEVELOPERS LTD., A-HOUSE, GROUND FLO OR, MILLENNIUM MARKET, RING ROAD, SURAT 2. ITO, WARD-1(4), SURAT 3. CIT CONCERNED 4. CIT(A)-I, SURAT 5. THE DR,C BENCH ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD