SHRI MAHESH GUPTA, Nagpur V. ACIT CENT. CIRCLE-2(3), Nagpur

ITSSA 110/NAG/2008

• Counselvise Citation: [2012] 121 COUNSELVISE.COM (IT) 8551 (ITAT-NAGPUR)
• Duration Of Justice: 4 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 15-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2002-2003
• Appeal Filed On: 07-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R V LOYA
• Keywords: Business income; Opportunity of being heard; Earning of tax free income
• Section: 143(3); 54F; 153A; 14A; 80IB; 131; 263

Judgement Text

IT (SS) A NO S . 110, 02 & 03/NAG/2008 MAHESH GUPTA, NAGP UR IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH , NAGPUR BEFORE: SHRI P.K. BANSAL , ACCOUNTANT MEMBER AND SHRI D.T. GARASIA , JUDICIAL MEMBER IT (SS) A NO. 110 / NAG / 20 08 ASSESSMENT YEAR : 2002 - 03 MAHESH GUPTA NAGPUR VS. CIT (CENTRA L) NAGPUR (APPELLANT) (RESPONDENT) PAN NO.AATPG 8810F IT(SS)A NOS.2 & 3/NAG/2008 ASSESSMENT YEAR : 2003 - 04 & 2004 - 05 MAHESH GUPTA NAGPUR VS. ACIT CENTRAL CIRCLE - 2(3) NAGPUR (APPELLANT) (RESPONDENT) IT(SS)A NOS.55&57/NAG/2008 ASSESSMENT YEAR : 2002 - 03 & 2004 - 05 SMT. VINITA MAHESH GUPTA NAGPUR VS. CIT CENTRAL NAGPUR (APPELLANT) (RESPONDENT) PAN NO.ABVPG 2767L APPELLANT BY: SHRI R.V. LOYA, C.A. RESPONDENT BY: SHRI SURESH KIRTANE, JCIT WITH DR. MILIND BHUSARI, CIT(DR) DATE OF HEARIN G: 10.10.2012 DATE OF PRONOUNCEMENT: 15.10.2012 ORDER PER P.K. BANSAL, ACCOUNTANT MEMBER: - FOR THE SAKE OF CONVENIENCE OF THESE APPEALS SINCE BELONGING TO THE SAME ASSESSEE ARE BEING DISPOSED OF BY THIS COMMON ORDER. IT(SS)A NO.110/NAG/2008: 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATE TO THE VALIDITY OF THE ORDER PASSED U/S 263 BY THE CIT. THE BRIEF FACTS OF THE CASE ARE THAT THE CIT INVOKING THE PROVISION OF SECTION 263 ISSUED SHOW CAUSE NOTICE DATED 13.7.2007 TO THE ASSESSEE BY RAISING THE FO LLOWING ISSUES. IT (SS) A NOS.110, 02 & 03/NAG/2008 MAHESH GUPTA, NAGPUR 2 1. A PERUSAL OF THE RECORDS SHOWS THAT YOU HAVE CLAIMED DEDUCTION U/S 54F IN RESPECT OF LONG TERM CAPITAL GAINS ON SALE OF SHARES ON THE GROUND OF INVESTMENT IN RESIDENTIAL PROPERTY AT GUPTA HOUSE, CIVIL LINES, NAGPUR. THE SAME WAS DISALLOW ED BY A.O. ON THE GROUND THAT YOU WERE ALREADY HAVING A SELF - OCCUPIED PROPERTY AT G - 2 BLOCK NO.201 IN GUPTA HOUSE, CIVIL LINES, NAGPUR. THE SAID OBSERVATION AND THE ACTION OF THE A.O. IN NOT ACCEPTING YOUR CLAIM ON THAT GROUND IS ERRONEOUS. 2. THE A.O. FAIL ED TO EXAMINE THE FOLLOWING ISSUES WHICH ARE VERY RELEVANT FOR THE PURPOSE OF ADJUDICATION OF YOUR CLAIM U/S 54F. YOUR CLAIM U/S 54F WAS NOT ADMISSIBLE ON THE FOLLOWING GROUNDS. I. THE PROPERTY ACQUIRED BY YOU IN GUPTA HOUSE, CIVIL LINES, NAGPUR IS NOT A RES IDENTIAL HOUSE BUT COMMERCIAL PROPERTY. DEDUCTION IS ADMISSIBLE ONLY FOR INVESTMENT IN A RESIDENTIAL HOUSE. II. AS PER THE PROVISIONS OF SEC 54F(1) THE BENEFIT IS ADMISSIBLE FOR INVESTMENT IN A RESIDENTIAL HOUSE. WITHOUT PREJUDICE TO THE CONTENTION THAT THE PROPERTY ACQUIRED BY YOU IS A COMMERCIAL PROPERTY, YOU HAD ACQUIRED TWO SEPARATE PROPERTIES NAMELY, APARTMENT NO.201 ON SECOND FLOOR AND APARTMENT NO.102 ON THE GROUND FLOOR. HENCE, THE PROVISIONS OF (A) (I) OF PROVISO TO SECTION 54F(1) APPLIES AND AS SUC H AS YOU ARE NOT ELIGIBLE FOR THE DEDUCTION. III. THE DEDUCTION U/S 54F IS ELIGIBLE IF THE ASSESSEE HAS WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO YEARS AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE PURCHASES OR HAS WITHIN A PERIOD OF THREE YEARS AFTER THAT DA TE CONSTRUCTS A RESIDENTIAL HOUSE. FROM THE TWO SALE DEEDS YOU HAVE FURNISHED IT PRIMA FACIE APPEARS THAT YOU HAD PURCHASED TWO COMMERCIAL FLATS ON 12 TH FEB, 2001. WITHOUT PREJUDICE TO THE OTHER CONTENTIONS, IF IT IS TO BE TREATED THAT THE REINVESTMENT W AS BY WAY OF PURCHASE, THE SUBSEQUENT PAYMENTS CLAIMED BY YOU CANNOT BE ALLOWED AS A DEDUCTION. IF IT IS TO BE TREATED THAT YOU HAVE CONSTRUCTED THE PROPERTY, THE EXPENDITURE INCURRED PRIOR TO THE PURCHASE OF THE RESIDENTIAL UNITS CANNOT BE ALLOWED AS DED UCTION. IN FACT, NEITHER YOU HAVE SUBMITTED CATEGORICALLY AS TWO WHETHER YOU HAVE CONSTRUCTED A PROPERTY OR PURCHASED IT, NOR THE A.O. HAS GIVEN ANY FINDING WHICH WAS ESSENTIAL. IV. THE CLAIM THAT CERTAIN PAYMENTS HAVE BEEN MADE AFTER 31.3.2002 BUT BEFORE THE DUE DATE FOR THE FILING OF THE RETURN ARE NOT SUBSTANTIATED AND AS SUCH THE A.O. COULD NOT HAVE ALLOWED OR CLAIM IN THEIR REGARD. 3. IN VIEW OF THE AFORESAID, THE ORDER OF THE A.O. IN SO FAR AS IT RELATED TO THE CLAIM FOR DEDUCTION U/S 54F IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. YOU MAY SHOW CAUSE AS TO WHY THE ASSESSMENT SHOULD NOT BE REVISED SUITABLY. 4. YOU HAVE CLAIMED AN AMOUNT OF RS.1,65,480/ - AS A DEDUCTION TOWARDS INTEREST PAID TO OTHERS, LEGAL AND PROFESSIONAL CHARGES AND BANK COMMIS SION AGAINST NIL INCOME TAX FROM OTHER FIRMS. SINCE THE SHARE INCOME FROM THE FIRMS ARE NOT ASSESSABLE TO TAX (BEING EXEMPT) AS PER THE SECTION 14A THE DEDUCTION CLAIMED BY YOU WAS NOT ALLOWABLE. THE ACTION OF THE A.O. IN ACCEPTING YOUR CLAIM IS ERRONE OUS AND PREJUDICIAL IT (SS) A NOS.110, 02 & 03/NAG/2008 MAHESH GUPTA, NAGPUR 3 TO THE INTEREST OF REVENUE. YOU MAY SHOW CAUSE AS TO WHY THE ASSESSMENT SHOULD NOT BE REVISED SUITABLY DISALLOWING THE SAID CLAIM. 3. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, CIT SET ASIDE THE ASSESSMENT ORDER FOR THE ASSESS MENT YEAR 1999 - 2000 BY OBSERVING AS UNDER: FROM WHAT HAS BEEN STATED ABOVE, IT IS QUITE CLEAR THAT THE ASSESSMENT ORDER PASSED ON 31.3.2006 IS PATENTLY ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. I, THEREFORE, IN EXERCISE OF POWERS VESTED IN ME U/S 263(1) OF THE ACT, SET - ASIDE THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 1999 - 2000 PASSED U/S 153A R.W.S. 143(3) ON 31.3.2006 WITH A DIRECTION TO THE AO TO REDO THE ASSESSMENT DULY TAKING CARE OF THE DEFICIENCIES/FINDINGS POINTED OUT IN PARA 5 A BOVE. IN DOING SO, THE AO MAY CARRY OUT NECESSARY FURTHER ENQUIRIES AND SHOULD ALSO PROVIDE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 4. THE LD. A.R. BEFORE US VEHEMENTLY CONTENDED THAT THE ISSUE OF THE LONG TERM CAPITAL GAIN AND THE EXEMPTION CLAIMED U/S 54F HAVE DULY BEEN EXAMINED BY THE ASSESSING OFFICER AND HE DISALLOWED THE CLAIM OF THE ASSESSEE. FOR THIS, ATTENTION WAS DRAWN TO PARA 3 AND 4.9 OF THE ASSESSMENT ORDER. NEITHER THE GENUINITY OF THE LONG TERM CAPITAL GAIN NOR THE CLAIM OF EXEMPTION U/S 54F WAS ACCEPTED. THE SALE DEEDS OF IMPUGNED FLATS WERE AVAILABLE IN SEIZED MATERIAL AND DULY VERIFIED BY THE ASSESSING OFFICER. THE DETAILS OF THE EXPENDITURE WERE ALSO FILED DURING THE COURSE OF THE VALUATION PROCEEDINGS. THE ASSESSING OFFICER EV EN ISSUED SUMMONS U/S 131 DATED 25.1.2006 FOR FILING THE DETAILS IN RESPECT OF THE PROPERTY. ASSESSEE FILED REPLY DATED 31.1.2006 IN WHICH IT WAS CATEGORICALLY STATED THAT THE SALE DEEDS ARE PART OF THE SEIZED RECORD S AND EVEN COPIES OF SALE DEEDS WERE A LSO FILED TO THE ASSESSING OFFICER. FOR THIS, PAGE 13 TO 19 OF THE PAPER BOOK WERE REFERRED. IT WAS POINTED OUT THAT THE ASSESSING OFFICER HAS ALSO FORWARDED THE DETAILS TO THE DVO VIDE LETTER DATED 2.2.2006. THE ASSESSEE AGAINST THE DISALLOWANCE OF THE CLAIM AND GENUINENESS OF THE LONG TERM CAPITAL GAIN, WENT IN APPEAL BEFORE THE CIT(A). FOR THIS, ATTENTION WAS DRAWN TO PARA - 5.1 OF THE CIT(A) S ORDER. THE CIT(A) ALLOWED THE DEDUCTION CONSIDERING THE TWO FLATS AS DWELLING UNIT. IN VIEW OF THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF SHIVNARAYAN CHOUDHARY VS. CWD 108 ITR 104, IT WAS HELD THAT THE TWO PORTIONS OF THE BUILDING WERE CONTINUOUS AND SITUATED IN THE SAME COMPOUND AND WITHIN COMMON BOUNDARIES HAVE A UNITY OF STRUCTURE. THUS IT WAS C ONTENDED THAT SINCE THE ASSESSMENT ORDER MERGED WITH THE ORDER OF THE CIT(A) AND THE ISSUE OF CLAIM OF EXEMPTION AND THE GENUINENESS OF THE CAPITAL GAIN WAS DULY CONSIDERED BY THE CIT(A), THE APPEAL FOR WHICH WAS DECIDED BY ORDER DATED 7.5.2007, CIT WAS NO T WITHIN HIS POWER TO INVOKE PROVISION OF SECTION 263. IN IT (SS) A NOS.110, 02 & 03/NAG/2008 MAHESH GUPTA, NAGPUR 4 RESPECT OF OTHER ISSUE REGARDING THE CLAIM OF EXPENDITURE ON INTEREST, LEGAL AND PROFESSIONAL CHARGES AND BANK COMMISSION, IT WAS POINTED OUT THAT CLAIM OF EXPENDITURE IN THE COMPUTATION OF INCOME HAS BEEN DULY VERIFIED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE CLAIMED ON INTEREST AFTER VERIFICATION . T HE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) ON THE ISSUE OF ALLOWABI LITY OF INTEREST, THEREFORE, CLAIM O N SUCH EXPENDITURE H AS MERGED WITH THE ORDER OF THE APPELLATE AUTHORITY AND THE CIT CANNOT INVOKE THE PROVISION OF SECTION 263. EVEN ON MERIT, IT WAS CONTENDED THAT THE CLAIM OF THE ASSESSEE ON EXPENDITURE INTEREST, LEG AL AND PROFESSIONAL CHARGERS AND BANK COMMISSION WAS GENUINE AND THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF THE BUSINESS. THE BALANCE SHEET IS ALSO AVAILABLE ON RECORD OF THE ASSESSING OFFICER IN WHICH DETAILS OF THE LOAN TAKEN AND THE INTEREST PAID TO VARIOUS PARTIES ARE MENTIONED. NO NEW LOANS HAVE BEEN OBTAINED DURING THE YEAR UNDER CONSIDERATION AND HENCE ESTABLISHING NEXUS OF UTILIZATION OF SUCH LOAN DOES NOT ARISE. IT WAS POINTED OUT THAT THE INTEREST AND THE OTHER EXPENDITURE WERE CLAIME D AGAINST THE PROFIT OF M/S. GUPTA EXPORTS AND THE COMPUTATION OF PROFIT AND GAINS FROM BUSINESS AND PROVISION WAS MADE AFTER DEDUCTING LESS EXPENDITURE FROM THE INCOME OF THE PROPRIETORSHIP CONCERN. IN THE PARTNERSHIP FIRM, THERE WAS NO ACTIVITY. THE DE TAILS WERE DISCLOSED AS THE ASSESSEE IS PARTNER. SINCE THERE WAS NO INCOME FROM THE FIRM, THEREFORE NO EXPENDITURE WAS INCURRED AND CLAIMED. THERE IS NO INVESTMENT IN PARTNERSHIP FIRM AS AGAINST THE SUBSTANTIAL INVESTMENT OF RS.1.6 CRORES IN M/S. GUPTA E XPORTS. THE ASSESSING OFFICER VERIFIED THE DETAILS AND THERE AFTER DISALLOWED RS.13,410/ - . THE PROVISION OF SECTION 14A WAS NOT APPLICABLE AS THE EXPENDITURE WAS NOT INCURRED FOR THE PURPOSE OF THE INCOME WHICH IS EXEMPT FROM TAX. RELIANCE WAS PLACED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MA RICO INDUSTRIES LIMITED VS. ACIT FOR THE PROPOSITION OF LAW WHEN THE ISSUE OF DEDUCTION U/S 80IB HAVING BEEN MADE SUBJECT MATTER OF APPEAL BEFORE CIT(A), THE SAID ISSUE MERGED WITH THE ORDER OF THE CIT(A) AS A WHOLE. HENCE IT WAS NO MORE AMENABLE TO REVISIONAL JURISDICTION OF CIT IN VIEW OF EXPLANATION (C) TO SECTION 263. EVEN OTHERWISE SECTION 14A(3) WAS NOT APPLICABLE DURING THE ASSESSMENT YEAR. 5. THE LD. D.R. ON THE OTHER HAND CONTENDED TH AT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND WHILE MAKING ASSESSMENT U/S 143(3). THE ISSUE WAS NOT MERGED WITH THE ORDER OF THE CIT(A). CIT(A) HAS DIFFERENT ISSUE. THERE WAS ERROR AND ORDER IT (SS) A NOS.110, 02 & 03/NAG/2008 MAHESH GUPTA, NAGPUR 5 WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE AS THERE WA S AN INCORRECT ASSUMPTION OF THE FACT AND INCORRECT APPLICATION OF THE LAW. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDER OF THE AUTHORITIES BELOW AS WELL AS THE PAPER AND THE CASE LAW S AS RELIED AND REFERRED TO BY BOTH THE PA RTIES. 7. THE FIRST ISSUE ON WHICH THE CIT ASSUMED THE JURISDICTION U/S 263 IS THE ISSUE OF GENUINENESS OF THE LONG TERM CAPITAL GAIN AS WELL AS THE CLAIM OF EXEMPTION U/S 54F BY THE ASSESSEE. THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSEE HAS SHO WN LONG TERM CAPITAL GAIN AND HAS CLAIMED THE EXEMPTION U/S 54F. THE ASSESSING OFFICER DOUBTED THE LONG TERM CAPITAL GAIN AND TREATED IT TO BE THE UNDISCLOSED INCOME OF THE ASSESSEE EVEN THE EXEMPTION U/S 54F WAS ALSO DENIED. FOR BOTH THESE ISSUES ALONG WITH THE OTHER ISSUE, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). NOW THE QUESTION TO BE DECIDED IS WHETHER THE LD. CIT HAS POWER TO ASSUME THE JURISDICTION U/S 263 IN VIEW OF THE DOCTRINE OF THE MERGER AND THE SPECIFIC PROVISION UNDER EXPLANATION (C) TO SECTION 263. EXPLANATION (C) TO SECTION 263 READS AS UNDER: (C) WHERE ANY ORDER REFERRED TO IN THIS SUB - SECTION AND PASSED BY THE AO HAD BEEN THE SUBJECT MATTER OF ANY APPEAL FILED ON OR BEFORE OR AFTER THE 1 ST DAY OF JUNE, 1988, THE POWERS OF THE C IT UNDER THIS SUB - SECTION SHALL EXTEND (AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED) TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL. 8 . FROM THE READING OF THE AFORESAID PROVISION, IT IS APPARENT THAT AFTER 1 ST JUNE, 1988, THE CIT CAN INVOKE SECTION 263 EVEN IN RESPECT OF THE MATTERS WHICH HAS NOT BEEN CONSIDERED AND DECIDED IN APPEAL FILED AGAINST THE ASSESSMENT ORDER. WE HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS THE CIT(A) S ORDER AND WE NOTED BOTH THESE ISSUES HAVE DULY BEEN CONSIDERED AND DECIDED IN THE APPEAL BY THE CIT(A). IN VIEW OF SPECIFIC PROVISION UNDER EXPLANATION (C) TO SECTION 263, DEBARRING THE CIT FOR INVOKING SECTION 263 IN RESPECT OF THE ISSUE, WHICH HAS BEEN CONSIDERED AND DECIDED IN APPEAL. THE CIT IN THIS C ASE HAS EXCEEDED HIS JURISDICTION BY INVOKING THE PROVISION OF SECTION 263 ON BOTH THESE ISSUES. ON TH ESE ISSUE S , WE CANNOT SUSTAIN THE ORDER OF THE CIT. 9. NOW COMING TO THE ISSUE OF THE CLAIM OF THE EXPENDITURE, WE NOTED THE CLAIM OF THE EXPENDITURE A S CLAIMED BY THE ASSESSEE IN THE COMPUTATION STATEMENT HAS DULY BEEN VERIFIED BY THE ASSESSING OFFICER DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. THUS THERE IS AN APPLICATION OF MIND ON THE PART OF THE ASSESSING IT (SS) A NOS.110, 02 & 03/NAG/2008 MAHESH GUPTA, NAGPUR 6 OFFICER. SIMILARLY, THE ASSESSING OF FICER HAS VERIFIED THE CLAIM OF THE ASSESSEE IN RESPECT OF THE INTEREST AND EVEN THE ASSESSING OFFICER DISALLOWED THE INTEREST AGAINST WHICH THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) HAS DULY CONSIDERED THE ISSUE OF LIABILITY OF THE INTERE ST. THE CIT IS DEBARRED IN VIEW OF EXPLANATION (C) TO SECTION 263 FROM INVOKING SECTION 263 IN RESPECT OF INTEREST ALSO. THIS IS A FACT THAT BOTH THE CONDITIONS THAT THE ORDER IS ERRONEOUS AND IS PREJUDICIAL TO THE INTEREST OF THE REVENUE MUST BE SATISFI ED FOR INVOKING THE JURISDICTION U/S 263 OF THE ACT AND INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF LAW SATISFIES THE REQUIREMENT OF THE ORDER BEING ERRONEOUS U/S 263. IT IS NOT A CASE WHERE THERE IS AN INCORRECT ASSUMPTION OF THE FACT OR AN INCORRECT APPLICATION OF THE LAW . I F THE ASSESSING OFFICER IS TAKEN ONE OF THE POSSIBLE VIEW THAT DOES NOT MEAN THAT THERE IS AN ERROR IN THE ORDER UNLESS AND UNTIL THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. WHERE THERE IS ANOTHE R VIEW POSSIBLE, THE REVISION IS NOT PERMISSIBLE. ERRONEOUS ORDER DOES NOT MEAN AN ORDER WITH WHICH COMMISSIONER IS UNABLE TO AGREE. IN VIEW OF THE AFORESAID DISCUSSION, WE QUASH THE ORDER PASSED U/S 263 OF THE ACT. 10 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. IT(SS)A NO.02/NAG/2008: 1 1 . IN THIS CASE WE NOTED THAT THE ISSUE INVOLVED IS WHETHER THE ORDER PASSED U/S 263 BY THE CIT IS SUSTAINABLE UNDER LAW? THE BRIEF FACTS OF THE CASE ARE THAT THE CIT BY INVOKING THE PROVISION OF SECTION 263 I SSUED SHOW CAUSE NOTICE DATED 1.8.2007 ON THE FOLLOWING REASONS: I HAVE PERUSED THE RECORDS OF YOUR CASE FOR A.Y. 2003 - 04. YOU HAVE CLAIMED AN AMOUNT OF RS.1,44,159/ - AS A DEDUCTION TOWARDS INTEREST PAID TO OTHERS, LEGAL AND PROFESSIONAL CHARGES AND BAN K COMMISSION AGAINST NIL INCOME TAX FROM OTHER FIRMS. IN THE ASST. ORDER U/S 153A R.W.S. 143(3) DATED 30.3.2006, THE A.O. HAS ALLOWED THIS CLAIM. SINCE THE SHARE INCOMES FROM THE FIRMS ARE NOT ASSESSABLE TO TAX (BEING EXEMPT), AS PER SECTION 14A THE DE DUCTION CLAIMED BY YOU WAS NOT ALLOWABLE. THE ACTION OF THE A.O. IN ACCEPTING YOUR CLAIM IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. YOU MAY SHOW CAUSE AS TO WHY THE ASSESSMENT SHOULD NOT BE REVISED SUITABLY DISALLOWING THE SAID CLAIM. 1 2 . THE ASSESSEE SUBMITTED THE REPLY AND STATED THAT THE ISSUE RAISED IN THE SHOW CAUSE NOTICE WERE DULY EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. THE EXPENSES HAVE BEEN CLAIMED AGAINST THE BUSINESS INCOME EARNED BY T HE ASSESSEE FROM THE PROPRIETORSHIP CONCERN M/S. GUPTA EXPORTS . F ROM THE PARTNERSHIP FIRM , T HERE IS NO INCOME AS NO BUSINESS ACTIVITY WAS CARRIED OUT DURING THE YEAR. THERE IS NO EXEMPT INCOME BEING EARNED BY THE ASSESSEE. THE IT (SS) A NOS.110, 02 & 03/NAG/2008 MAHESH GUPTA, NAGPUR 7 ASSESSEE HAS NOT INCURRED A NY EXPENDITURE FOR THE PURPOSE OF THE PARTNERSHIP FIRM. THE ASSESSEE WAS PARTNER IN TWO FIRMS M/S. SHIVAM TRADING CORPORATION AND M/S. MAHADEOPRASADJI & SONS. IN SHIVAM TRADING CORPIRATION, THE ASSESSEE WAS HAVING THE CREDIT BALANCE OF RS.4,70,263/ - WHIL E IN M/S. MAHADEOPRASADJI & SONS THERE WAS NIL INVESTMENT. NO BORROWED FUNDS ETC. WERE INVESTED AS THERE WAS NO INVESTMENT IN ANY FIRM. THE CIT DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE, HE HOLD THAT THE ORDER DATED 30.3.2006 PASSED BY THE ASSESS ING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND DIRECT THE ASSESSING OFFICER TO ENHANCE THE TOTAL INCOME BY AN AMOUNT OF RS.1,44,159/ - BY WAY OF DISALLOWANCE OF THE DEDUCTION/EXPENSES CLAIMED. THE ASSESSING OFFICER WAS FURTHER DIRECTED TO REVISE THE ASSESSMENT ORDER DATED 30.3.2006 AND SUBSEQUENT MODIFICATION ORDERS, IF ANY, SUITABLY. 1 3 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW, WE NOTED THAT IN THIS CASE, SO FAR THE ISSUE RELATING TO THE INTEREST AND OTHER EXPENSES ARE CONCERNED HAS DULY BEEN CONSIDERED BY THE ASSESSING OFFICER AND AFTER CONSIDERING THIS ISSUE, HE DISALLOWED PART OF THE EXPENSES. THE ASSESSEE HAS CLAIMED THESE EXPE NSES AGAINST THE INCOME FROM M/S. GUPTA EXPORTS WHICH IS APPARENT IN THE COMPUTATION STATEMENT. SIMILARLY, WE NOTED THAT THE ORDER ISSUE RELATING TO THE APPLICABILITY OF SECTION 14A, THE ASSESSEE HAS NOT MADE ANY INVESTMENT IN THE PARTNERSHIP FIRM AND EVE N THERE IS NO INCOME BEING EARNED BY THE ASSESSEE FROM THESE PARTNERSHIP FIRMS. EVEN WE NOTED THAT SUB - SECTION 3 OF SECTION 14A WAS INSERTED BY THE FINANCE ACT, 2006 W.E.F. 1.4.2007 WHICH SUGGESTS THAT THE PROVISIONS OF SUB - SECTION 2 SHALL ALSO APPLY IN R ELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO THE INCOME WHICH DOES NOT FORM PART PF THE TOTAL INCOME UNDER THIS ACT. SINCE SECTION 14A(3) WAS NOT APPLICABLE DURING THE ASSESSMENT YEAR, THEREFORE, I NVOKING PROVISION OF SECTION 263 IS ILLEGAL AND VOID - AB - INITIO. AS POINTED OUT BY US IN THE EARLIER PARAGRAPH, IF THE ASSESSING OFFICER HAS TAKEN ONE OF THE VIEW AND THE VIEW TAKEN BY THE ASSESSING OFFICER IS NOT UNSUSTAINABLE IN LAW, THE PROCEEDINGS U/S 263 CANNOT BE CARRIED OUT. THE ASSESSING OFFICER HAS DULY EXAMINED THE ISSUE RELATING TO THE INTEREST AND THE OTHER EXPENSES AND HE DISALLOWED EVEN PART OF THE INTEREST AS IS APPARENT FROM PARA - 5 OF THE ASSESSMENT ORDER. THIS IS NOT A CASE OF NON - APPLICA TION OR NON - EXAMINATION OF THE ISSUE BY THE ASSESSING OFFICER. UNDER THESE FACTS, IN THIS CASE, THE CONDITION THAT IT (SS) A NOS.110, 02 & 03/NAG/2008 MAHESH GUPTA, NAGPUR 8 THERE IS AN ERROR IN THE ORDER OF THE ASSESSING OFFICER IS NOT COMPLIED WITH. WE ACCORDINGLY, QUASH THE ORDER PASSED U/S 263 OF THE ACT. 1 4 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. IT(SS)A NO.03/NAG/2008 : 1 5 . THE BRIEF FACTS OF THE CASE ARE THAT THE CIT BY INVOKING THE PROVISIONS OF SECTION 263 ISSUED NOTICE TO THE ASSESSEE. ON PERUSAL OF THE RECORD AFTER NOTICING THAT TH E CLAIM FOR DEDUCTION FOR AN AMOUNT OF RS.1,40,280/ - TOWARDS INTEREST PAID TO OTHERS, LEGAL AND PROFESSIONAL CHARGES AND COMMISSION WAS ALLOWED AGAINST NIL INCOME FROM THE FIRM IN CONTRAVENTION OF SECTION 14A OF THE ACT AND THAT THE CLAIM FOR DEDUCTION U/S 24(A) OF THE ACT @ 30% WAS ALLOWED ON SERVICE CHARGES ALSO WHILE COMPUTING THE INCOME FROM HOUSE PROPERTY. IT WAS ALSO POINTED OUT DURING THE COURSE OF HEARING THAT TDS CERTIFICATE SHOW A MUCH HIGHER AMOUNT OF RENT AND SERVICE CHARGES COMPARED TO WHAT HA S BEEN ADMITTED IN THE RETURN AND THAT CREDIT HAS BEEN CLAIMED AND GRANTED FOR THE ENTIRE AMOUNT OF TDS TO THE ASSESSEE, EVEN THOUGH A PART OF THE RENT AND SERVICE CHARGES RELATED TO HIS WIFE AND THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE CREDIT F OR TDS SHOULD NOT BE RESTRICTED TO THE AMOUNT ASSESSED IN HIS CASE. THE ASSESSEE TOOK THE PLEA THAT THE ASSESSING OFFICER HAS DULY EXAMINED THE CLAIM OF THE ASSESSEE AND THE CLAIM WAS ALLOWED AFTER DETAILED EXAMINATION. ON MERIT ALSO THE ASSESSEE MADE TH E SIMILAR SUBMISSION AS HAS BEEN MADE FOR THE ASSESSMENT YEAR 2002 - 03 & 2003 - 04 IN RESPECT OF EXPENSES AND THE INTEREST AND IN RESPECT OF CLAIM OF DEDUCTION @ 30% OUT OF THE SERVICE CHARGES RECEIVED FROM THE TENANT STATING THEREIN THAT THE INCOME HAS ARISE N ONLY OUT OF THE PROPERTY AND IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PR OPERTY. THE PREMISES AS GIVEN ON LICENSE BY RECOVERING RENT AND SERVICE CHARGES AND THAT THE PRIMARY OBJECT WAS TO LEASE OUT THE PROPERTY TO REALIZE RENT AND NOT FOR EXPLOITI NG THE PROPERTY FOR ANY BUSINESS PURPOSE. THE SERVICES PROVIDED ARE ESSENTIAL AND NECESSARY INGREDIENTS FOR HANDING OVER THE PREMISES ON LEASE. THE CIT(A) DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE BUT TOOK THE VIEW THAT THE ORDER PASSED DATED 30. 3.2006 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND DIRECTED THE ASSESSING OFFICER AS UNDER: I THEREFORE, HOLD THAT THE ORDER OF AO DATED 30.3.2006 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND DIRECT THE AO TO: (I) ENHANCE T HE TOTAL INCOME BY AN AMOUNT OF RS.1,40,280/ - BY WAY OF DISALLOWANCE OF THE DEDUCTION/EXPENSES CLAIMED AND IT (SS) A NOS.110, 02 & 03/NAG/2008 MAHESH GUPTA, NAGPUR 9 (II) TO ASSESS THE SERVICE CHARGES RECEIVED FROM THE LICENSEES AS INCOME FROM OTHER SOURCES, DISALLOW THE CLAIM U/S 24(A) FOR DEDUCTION @ 30% OF SERVICE CHARGES. THE A.O. MAY HOWEVER ALLOW THE EXPENSES DIRECTLY RELATABLE TO THE EARNING OF SUCH SERVICE CHARGES. (III) TO WITHDRAW CREDIT FOR TDS IN RESPECT OF AMOUNTS (INCOME) OF SMT. VINITA GUPTA NOT BROUGHT TO TAX IN THE ASSESSMENT OF THE ASSESSEE FOR THIS YEAR . 1 6 . IN RESPECT OF THE INTEREST AS WELL AS THE OTHER EXPENSES, THE LD. A.R. MADE THE SAME SUBMISSIONS AS HAS BEEN MADE IN RESPECT OF THE EARLIER TWO ASSESSMENT YEARS AND DEALT WITH BY US IN THE PRECEDING PARAGRAPH S . IN RESPECT OF CLAIM OF 30% DEDUCTION AGAINST THE INCOME FROM HOUSE PROPERTY, IT WAS CONTENDED THAT THE AGREEMENT OF LEASE AND LICENSE AND SERVICE CHARGES ARE PART OF THE SEIZED REPORT AND WERE OTHERWISE AVAILABLE TO THE ASSESSING OFFICER AT THE TIME OF THE ASSESSMENT. THE ASSESSEE HAS PROVI DED COPY OF THIS AGREEMENT TO THE DVO ALSO. THE DETAILS OF THE RENT AND SERVICE CHARGES WERE DULY VERIFIED BY THE ASSESSING OFFICER FROM THE TDS CERTIFICATE AND ACCORDINGLY THE CREDIT FOR THE TDS WAS GIVEN IN THE IMMEDIATE PREVIOUS YEAR. THE ASSESSING OF FICER ASSESSED INCOME FROM RENT AND SERVICE CHARGES AS INCOME FROM HOUSE PROPERTY. THE CIT INVOKED THE PROVISIONS OF SECTION 263 ON OTHER ISSUE BUT DID NOT FIND ANY ERROR ON THE PART OF THE ASSESSING OFFICER ON THE ISSUE OF RENT AND SERVICE CHARGES. THE FACTS ARE SIMILAR TO THE FACTS OF THE CURRENT YEAR AS THE SAME AGREEMENT CONTINUED DURING THE YEAR. THUS IT WAS CONTENDED THAT ONCE THE VIEW HAS BEEN ACCEPTED BY THE CIT AND THERE IS NO CHANGE IN THE FACTS, NO REVISION PROCEEDINGS CAN BE PROCEEDED U/S 263 . HE RELIED ON THE PRINCIPLES OF CONSISTENCY AND FOR THIS HE HAS SUBMITTED FOLLOWING CASE LAWS: RADHASOAMI SATSANG VS. CIT (1992)193 ITR 321 (SC)_ CIT VS. LEADER VALVES LTD. (2007)295 ITR 273 (P&H) DIT VS. GURUNANAK VIDYA BHANDAR TRUST (2004) 272 ITR 379 (DEL.) 1 7 . THESE FACILITIES FOR THE SERVICES WHATEVER WAS PROVIDED BY THE ASSESSEE ARE OF THE SAME NATURE THAT A LANDLORD IS OBLIGED TO PROVIDE TO THE TENANT. SERVICE ELEMENT IS NOT PREDOMINANT OVER THE LETTING ACTIVITIES. OUR ATTENTION WAS DRAWN TOWARDS THE COPY OF THE LETTER DATED 7.8.2007 & 28.8.2007 SUBMITTED TO THE CIT. EVEN OTHERWISE IT WAS CONTENDED THAT EVEN IF VIEW TAKEN IS POSSIBLE AND THE ASSESSING OFFICER HAS ADOPTED THAT VIEW. THE ORDE R CANNOT BE REGARDED TO BE ERRONEOUS. THE LD. D.R. ON THE OTHER HAND CONTENDED THAT THERE WAS AN ERROR IN THE ORDER AND THE CIT HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 263. IT (SS) A NOS.110, 02 & 03/NAG/2008 MAHESH GUPTA, NAGPUR 10 18. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. SO FAR THE FIRST ISSUE IS CONCERNED ON WHICH THE SHOW CAUSE NOTICE WAS ISSUED WE HAVE ALREADY QUASHED THE PROCEEDING U/S 263 FOR THE ASSESSMENT YEAR 2003 - 04 FACTS BEING SAME, IN OUR VIEW ON THIS ISSUE ALSO IT CANNOT BE SAID THAT THERE IS AN ERROR IN THE ORD ER OF THE CIT(A). 1 9 . NOW COMING TO THE SECOND ISSUE IN RESPECT OF THE ALLOWANCE OF THE DEDUCTION @ 30% AGAINST THE SERVICE CHARGES AND AGAINST THE INCOME FROM HOUSE PROPERTY WE NOTED THAT THE ASSESSEE HAS SHOWN THE INCOME FROM THE SAME SOURCE UNDER THE HE AD INCOME FROM HOUSE PROPERTY IN THE ASSESSMENT YEAR 2003 - 04 AND THE INCOME WAS DULY ACCEPTED BY THE ASSESSING OFFICER BY ALLOWING HIM THE DEDUCTION @ 30% U/S 24 OF THE INCOME TAX ACT. THE CIT(A) EVEN THOUGH INVOKED PROVISION OF SECTION 263 IN THAT ASSESS MENT YEAR IN RESPECT OF THE CLAIM MADE BY THE ASSESSEE TOWARDS THE EXPENSES AND THE INTEREST BUT DID NOT INVOKE THE PROVISION OF SECTION 263 IN RESPECT OF CLAIM MADE BY THE ASSESSEE @ 30% U/S 24 AND SERVICE CHARGES RECEIVED BY THE ASSESSEE BEING ASSE SSED A S INCOME FROM HOUSE PROPERTY. THIS IS A FACT THAT THE ASSESSEE WAS THE OWNER OF THE PROPERTY AND HAS ENTERED INTO TWO AGREEMENTS WITH THE SAME TENANT ONE FOR THE LETTING OUT OF THE PROPERTY AND THE OTHER FOR THE SERVICE CHARGES. REGARDING P ROVIDING THE F ACILITIES TO THE ASSESSEE , T HE FACILITIES PROVIDED ARE THE INTEGRAL PART OF THE HOUSE PROPERTY BEING LET OUT. THE FACILITIES ARE TO BE PROVIDED IF A PROPERTY IS TO BE LET OUT. THERE CAN BE TWO VIEWS POSSIBLE ON THIS ISSUE, WHETHER THE SAID INCOME IS CHAR GEABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR UNDER THE HEAD INCOME FROM OTHER SOURCES. SINCE THIS ISSUE IS NOT BEFORE US, WE ARE NOT EXAMINING THIS ISSUE. WE NOTED THAT HON BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES COMPANY LIMITED VS. CI T 243 ITR 133 HAS CLEARLY LAID DOWN WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT ACCEDE TO , IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. IN VIEW OF THIS FACT, WE ARE OF THE VIEW THAT THE ORDER PASSED BY THE ASSESSING OFFICER CANNOT BE REGARDED TO BE AN ERRONEOUS ORDER. WE ACCORDINGLY, QUASH THE ORDER PASSED U/S 263. 20 . IN THE RESULT, THE APP EAL STAND S ALLOWED. IT (SS) A NOS.110, 02 & 03/NAG/2008 MAHESH GUPTA, NAGPUR 11 IT(SS)A NO.55/NAGPUR/2008: 21. BOTH THE PARTIES AGREED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SIMILAR TO THE ISSUE INVOLVED IN IT(SS)A NO.110/NAGPUR/2008 AND IT WAS STATED THAT WHATEVER VIEW THIS TRIBUNAL MAY TAKE IN IT(SS)A NO.110, THE SAME VIEW MAY BE TAKEN IN THIS CASE. IN THAT CASE, WE HAVE SINCE ALREADY QUASHED THE ORDER PASSED U/S 263 , RESPECTFULLY FOLLOWING OUR FINDING IN THAT CASE AS GIVEN IN THE PRECEDING PAGE, WE QUASH THE ORDER PASSED U/S 263 IN THIS CASE ALSO AND ACCORDI NGLY ALLOW THIS APPEAL OF THE ASSESSEE. 22. IN THE RESULT, THE APPEAL STAND S ALLOWED. IT(SS)A NO.57/NAGPUR/2008: 2 3 . BOTH THE PARTIES AGREED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SIMILAR TO THE ISSUE INVOLVED IN IT(SS)A NO.03/NAGPUR/2008 AND IT WAS STA TED THAT WHATEVER VIEW THIS TRIBUNAL MAY TAKE IN IT(SS)A NO.03, THE SAME VIEW MAY BE TAKEN IN THIS CASE. IN THAT CASE, WE HAVE SINCE ALREADY QUASHED THE ORDER U/S 263 , RESPECTFULLY FOLLOWING OUR FINDING IN THAT CASE AS GIVEN IN THE PRECEDING PAGE, WE QUAS H THE ORDER PASSED U/S 263 IN THIS CASE ALSO AND ACCORDINGLY ALLOW THIS APPEAL OF THE ASSESSEE. 24. IN THE RESULT, THE APPEAL STAND S ALLOWED. PRONOUNCED IN THE OPEN COURT ON 15.10 .20 1 2 SD/ - SD/ - ( D.T. GARASIA ) (P.K. BANSAL) JUDICIA L MEMBER ACCOUNTANT MEMBER VG/SPS NAGPUR DATED 15 TH OCTOBER , 20 1 2 COPY TO 1 SHRI MAHE S H GUPTA, C/O M/S. LOYA BAGRI & CO., CHARTERED ACCOUNTANTS, GANDHIBAG, NAGPUR 2 SMT. VINITA MAHESH GUPTA, C/O M/S. LOYA BAGRI & CO., CHARTERED ACCOUNTANTS, GANDHIBAG, NAGPUR. 3 CIT (CENTRAL), NAGPUR 4 ACIT, CENTRAL CIRCLE - 2(3), NAGPUR 5 THE CIT (A) , NAGPUR 6 THE DR, ITAT, NAGPUR 7 GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL NAGPUR