WENGUARD BUSINESS P. LTD, V. ACIT CEN CIR 4(2),

MA 658/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 3796 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2001-2002
• Appeal Filed On: 22-09-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SJRO SANJEEV JAIN
• Keywords: Business income; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI D.MANMOHAN [VICE PRESIDENT] & SHRI T.R.SOOD, ACCOUNTANT MEMBER M.A.NO. 658/MUM/2009 A.Y 2001-02 [ARISING OUT OF I.T.A.NO.6151/MUM/2003 VANGUARD BUSINESS SYSTEMS P. LTD., E/51-52, GRAIN MERCHANTS CO- OPERATIVE HOUSING SOCIETY, SECTION 17, VASHI NAVI MUMBAI 400 703 PAN NO.AABVC 2208 J VS. THE INCOME TAX OFFICER, WARD 5(3)-3, MUMBAI (APPLICANT) (RESPONDENT) APPLICANT BY : SHRI VIPUL JOSHI. RESPONDENT BY : SJRO SANJEEV JAIN. O R D E R PER T.R.SOOD, AM: THROUGH THIS MISCELLANEOUS APPLICATION ASSESSEE H AS SOUGHT RECTIFICATION OF AN ERROR WHICH HAS BEEN CREPT INTO THE ORDER OF THE TRIBUNAL IN I.T.A.NO.6151/MUM/2003 FOR A.Y 2001-02. 7. THE LD. COUNSEL OF THE ASSESSEE CARRIED US THRO UGH VARIOUS PARAS OF THE MISCELLANEOUS APPLICATION AND POINTED OUT THAT, IN THIS CASE THE MAIN ISSUE WAS, WHETHER RENTAL INCOME WAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. HE SUBMITTED THAT AN I DENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN A.Y. 1996-97 AS WELL AS IN A.Y 2002-03. IN BOTH THESE YEARS THE ISSUE HAD BEEN SET ASIDE TO THE FILE OF THE AO FOR RE-DETERMINATION. HOWEVER, IN THIS YEAR THIS IS SUE HAS BEEN SET ASIDE TO THE FILE OF THE AO VIDE PARA-2 OF THE ORDE R OF THE TRIBUNAL. HOWEVER, THROUGH PARA-3 THE TRIBUNAL HAD HELD THAT VARIOUS 2 EXPENDITURES CLAIMED BY THE ASSESSEE, WHICH WERE IN CURRED FOR ITEMS LIKE SALARY, AUDIT FEES, INTEREST ETC., WERE HELD T O BE NOT ALLOWABLE. HE ARGUED THAT THIS FINDING IS INCONSISTENT WITH THE F INDING REGARDING THE MAIN ISSUE WHICH HAS BEEN SET ASIDE. THE ALLOWABILI TY OF THESE EXPENSES WOULD DEPEND ON THE DECISION THAT UNDER WH ICH HEAD SUCH INCOME SHOULD BE ASSESSED. SINCE THE TRIBUNAL HAS S ET ASIDE THIS ISSUE TO THE AO, ALLOWABILITY OF EXPENDITURE SHOULD HAVE ALSO BEEN SET ASIDE, PARTICULARLY KEEPING THE EARLIER ORDER IN VIEW. 8. HE ALSO SUBMITTED THAT IN THE LIGHT OF THIS ORDE R, THE CIT[A] HAS ALREADY HELD THAT INCOME OF THE ASSESSEE HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. HOWEVER, THE FIRST APPELLATE AUTHORITY, IN VIEW OF THE ORDER OF THE TRIBUNAL IN RESPECT OF THE SECOND PART OF THE ISSUE, HAS NOT ALLOWED THE EXPENDITURE. IN THIS CONNECTION, HE FILED A COPY OF THE ORDER OF THE CIT[A] DATED 1 4/11/2004. HE SUBMITTED THAT BECAUSE OF THIS ERROR ASSESSEE HAS L ANDED IN REAL PROBLEM WITHOUT ANY REMEDY AND, THEREFORE, MADE A P RAYER THAT THIS ERROR MAY BE CORRECTED. 9. ON THE OTHER HAND, THE LD. DR, SUBMITTED THAT IN THIS CASE ASSESSEE HAD RAISED AN ADDITIONAL GROUND REGARDING THE HEAD UNDER WHICH THE INCOME WAS ASSESSABLE AND THAT THE ISSUE HAS ALREADY BEEN SET ASIDE BY THE TRIBUNAL. THE MAIN GROUND OF THE A SSESSEE RELATES TO ALLOWANCE OF EXPENSES U/S.57[III] AND IT IS ONLY TH EN, THAT WHILE ADJUDICATING THIS MAIN GROUND, THE TRIBUNAL HAS REA CHED A CONCLUSION THAT SUCH EXPENSES ARE NOT ALLOWABLE THROUGH PARA-3 OF THE ORDER. 3 THEREFORE, NO ERROR HAS CREPT INTO THE ORDER OF THE TRIBUNAL AND NO RECTIFICATION IS CALLED FOR. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWIN G GROUND OF APPEAL- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEARNED CIT[A] V HAS ERRED IN DISALLOWING ALL EXPENSES LIKE BANK INT EREST, SALARY, STATUTORY AND ADMINISTRATION EXPENSES U/S.57[III] A ND IN CONFIRMING THE ASSESSMENT ORDER PASSED BY LEARNED ITO (3)-3. HE AL SO ERRED IN NOT CONSIDERING THE VARIOUS JUDICIAL PRONOUNCEMENTS CIT ED BY THE APPELLANT. 11. IN ADDITION TO ABOVE, AN ADDITIONAL GROUND HAD ALSO BEEN RAISED WHICH IS AS UNDER: THE LEARNED CIT[A] ERRED IN NOT ADJUDICATING THE GROUND OF APPEAL OF THE APPELLANT IN RESPECT OF THE TAXATION OF THE REN TAL INCOME AS BUSINESS INCOME AS CLAIMED BY THE APPELLANT AND MER ELY PROCEEDED ON THE FOOTING THAT THE SAID INCOME IS INCOME FROM OTHER SOURCES AND HENCE, THE ORDER OF THE CIT[A] IS LIABLE TO BE SET ASIDE SO AS TO ADJUDICATE UPON THE LEGAL ISSUE RAISED BY THE APPEL LANT. 12. WE FURTHER FIND THAT THE TRIBUNAL FIRST DEALT W ITH THE ADDITIONAL GROUND AND ADMITTED THE SAME IN VIEW OF THE DECISIO N OF THE HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CORPORATION LTD. VS. CIT [229 ITR 383]. AFTER ADMISSION OF THIS GROU ND, THE ISSUE RAISED IN ADDITIONAL GROUND WAS ADJUDICATED BY THE TRIBUNA L VIDE PARA-2 OF THE ORDER WHICH IS AS UNDER- 2. THE DR HAS RELIED ON THE ORDERS OF LOWER AUTHOR ITIES. IN THE FIRST INSTANCE, WE HOLD THAT THE ADDITIONAL GROUND URGED BY THE ASSESSEE BEING ONLY A LEGAL GROUND BASED ON FACTS AVAILABLE ON RECORD, IS ADMISSIBLE. RESPECTFULLY FOLLOWING THE HONOURABLE S UPREME COURTS 4 JUDGEMENT IN THE CASE OF NATIONAL THERMAL POWER COR PORATION [SUPRA], WE ACCORDINGLY ADMIT THE ADDITIONAL GROUND. IT IS A FACT THAT THE CIT[A] HAD NOT CONSIDERED ON MERITS WHETHER THE INCOME EAR NED BY THE ASSESSEE HAS TO BE CONSIDERED UNDER THE HEAD INCOME FROM O THER SOURCES OR IT CAN BE ASSESSED AS INCOME FROM BUSIN ESS. IN VIEW OF THE SAME, WE SET ASIDE THE MATTER FRESH CONSIDERATI ON ONLY ON THIS ISSUE, TO THE CIT[A] WITH A DIRECTION THAT WHETHER THE RENTAL INCOME HAS TO BE CONSIDERED AS BUSINESS INCOME OR INCOME F ROM OTHER SOURCES BE ADJUDICATED, AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . 13. WHILE ADJUDICATING THE MAIN GROUND OF THE APPEA L, FOLLOWING OBSERVATION WAS MADE BY THE TRIBUNAL VIDE PARA-3, W HICH IS AS UNDER- 3. WE NOW CONSIDER THE ONLY EFFECTIVE GROUND URGED IN THE APPEAL FILED BEFORE US. IT IS URGED THAT THE CIT[A] ERRED IN CONFIRMING THE DISALLOWANCE MADE BY ASSESSING OFFICER IN RESPECT OF ALL THE EXPENSES LIKE BANK INTEREST, SALARY, STATUTORY AND ADMINISTRATIVE EXPENSES UNDER SECTION 57[III]. THE FACTS RELATING TO THE ASSESSEE ARE, THAT IT IS A PRIVATE LIMITED COMPANY EARNING INCOME ACTING AS DEVELOPING AGENT IN RESPECT OF THE OFFICE PREMISES OCCUPIED BY A CO- OPERATIVE BANK. A COPY OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE BANK HAS BEEN FILED BEFORE US. FROM A PERUSAL O F THE SAME, IT IS CLEAR THAT THE AGREEMENT IS IN ESSENCE AN AGREEMENT FOR LETTING OUT PREMISES FOR BANK OCCUPATION, THOUGH IT IS TERMED A S AN AGREEMENT FOR DEVELOPING BANKING ACTIVITIES. THE ONLY ADDITIONAL SERVICES THAT THE ASSESSEE HAS TO UNDERTAKE AS PER THE AGREEMENT, BESIDES ALL OWING OCCUPATION OF THE PREMISES, IS THAT IT HAS TO ENSUR E THAT THE PREMISES IS OPENED AND CLOSED BY ITS EMPLOYEES. THE ASSESSEE HAD CLAIMED IN THE PROFIT AND LOSS ACCOUNT, AS PER PAGE 14 OF THE PAPER BOOK FILED BEFORE US, DEDUCTION TOWARDS AN AMOUNT OF RS.3,62,8 23/- TOWARDS VARIOUS ITEMS OF EXPENDITURE LIKE SALARY [RS.1,28,0 00], AUDIT FEE [RS.2,500], PROFESSIONAL FEE [RS.2890], ETC., AGGRE GATING TO 5 RS.1,39,588/-, BESIDES A SUBSTANTIAL AMOUNT TOWARDS BANK INTEREST PAID AMOUNTING TO RS.2,23,235/-. IN RESPECT OF BANK INTEREST, WE OBSERVE THAT THE SAME HAD BEEN PAID IN RESPECT OF T HE SECURITY DEPOSIT RECEIVED FROM THE BANK WHICH IS A TENANT FOR ALL PR ACTICAL PURPOSES AND FROM THE ANNUAL ACCOUNTS FILED BEFORE US IN THE PAP ER BOOK, WE OBSERVE THAT SUCH DEPOSIT HAS BEEN SUBSTANTIALLY UT ILIZED BY THE ASSESSEE FOR MAKING INVESTMENTS. ACCORDINGLY, WE OBSERVE TH AT INTEREST PAID CANNOT BE CONSIDERED AS AN EXPENDITUR E INCURRED FOR EARNING INCOME AS A DEVELOPMENT AGENT OF BANK, WHIC H IN ESSENCE IS ONLY THE RENTAL INCOME. HOWEVER, WE ALSO OBSERVED T HAT IT WOULD NOT BE FAIR NOT TO ALLOW ANY DEDUCTION TOWARDS EXPENDIT URE AGAINST THE INCOME EARNED BY THE ASSESSEE AS DONE BY THE ASSESSING OFFICER , WHO HAS ASSESSED THE ENTIRE GROSS RENTAL INCOME OF RS.3,01,512/- UNDER THE HEAD INCOME FROM OTHER SOURCES. WE ARE OF THE OPINION THAT DRAWING INFERENCE FROM PROVISIONS SIMILAR TO C OMPUTATION OF INCOME IN THE CASE BEFORE US, IN RESPECT OF INCOME FROM HOUSE PROPERTY, THE ASSESSEE BEING ELIGIBLE FOR DEDUCTION 25% OF ANNUAL VALUE TOWARDS REPAIRS AND MAINTENANCE AS APPLICABLE FOR THE ASSESSMENT YEAR UNDER APPEAL, THAT APPLYING THE SAM E ANALOGY ALLOWING DEDUCTION OF 25% OF THE AMOUNT INCURRED TO WARDS TOTAL EXPENDITURE OTHER THAN INTEREST PAID WHICH COMES OU T TO RS.75,000, RS.75,378/-, AS ROUNDED OFF, WOULD BE REASONABLE. W E ACCORDINGLY, DIRECT THAT DEDUCTION AGAINST INCOME EARNED TOWARDS DEVELOPMENT CHARGES BE ALLOWED TO THE EXTENT OF RS.75,000/-. 14. THUS, APPARENTLY IT CANNOT BE SAID THAT THERE I S ANY ERROR IN THE ORDER OF THE TRIBUNAL BECAUSE THE ISSUE RAISED REGA RDING ASSESSABILITY OF INCOME UNDER A PARTICULAR HEAD THROUGH ADDITIONA L, GROUND HAS BEEN ADJUDICATED SEPARATELY, AND THE MATTER WAS SET ASID E TO THE FILE OF THE AO. WHILE THE ISSUE REGARDING ALLOWANCE OF EXPENDIT URE RAISED IN THE MAIN GROUND HAS BEEN ADJUDICATED SEPARATELY AND TRI BUNAL CAME TO THE CONCLUSION THAT SUCH EXPENDITURE IS NOT ALLOWABLE, BUT AT THE SAME TIME 6 IT APPEARS THAT ONCE THE ISSUE REGARDING THE ASSESS ABILITY OF INCOME UNDER A PARTICULAR HEAD WAS SET ASIDE TO THE FILE O F THE AO, PERHAPS THERE WAS NO NEED TO ADJUDICATE THE SECOND ISSUE RE GARDING ALLOWABILITY OF THE EXPENDITURE. PERHAPS, IT WAS ADJUDICATED WIT H THE ASSUMPTION THAT IN CASE INCOME HAD TO BE ASSESSED UNDER THE HE AD INCOME FROM OTHER SOURCES, THEN ONLY A SMALL PORTION OF THE EX PENDITURE SHOULD BE ALLOWED FOR WHICH, REASONING HAS BEEN GIVEN IN PARA -3 OF THE ORDER. BUT BECAUSE OF THIS INCONSISTENCY, THE ASSESSEE HAS REA LLY LANDED IN TROUBLE. HOWEVER, IN OUR VIEW, ONCE INCOME IS ASSES SED UNDER A PARTICULAR HEAD, THEN THERE SHOULD NOT BE ANY DIFFI CULTY IN CLAIMING THE CONSEQUENTIAL EXPENDITURE AND THE ASSESSEE MAY TAKE UP THE ISSUE WITH LOWER AUTHORITIES, IF IT IS SO ADVISED. AS FAR AS THE ORDER OF TRIBUNAL IS CONCERNED, THERE IS NO ERROR APPARENT ON RECORD AND IT DOES NOT CALL FOR ANY INTERFERENCE. 15. IN THE RESULT, MISCELLANEOUS APPLICATION IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF JUNE, 2010. SD/- SD/- (D.MANMOHAN) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI:18 TH JUNE, 2010. P/-*