TaxTMI 
TaxTMI 
2012 (5) TMI 419
X X X X Extracts X X X X
X X X X Extracts X X X X
....of income on 21/12/1999 declaring 'nil' income which was processed u/s 143(1)(a) of the Act on 17.11.2000. Subsequently, the case was re-opened and notice u/s 148 of the Act was issued and served on the assessee on 24.3.2006. The assessee, in response to the same requested the A.O. to treat the original return filed be treated as return in response to notice u/s 148. 2.1 During the course of assessment proceedings, the A.O. noted that the assessee company has shown sale of shares and securities at Rs.11900/-, business centre receipts Rs.30,03,039/-, dividend Rs.59,877/- and interest income of Rs.18,232/-. The assessee company has claimed various expenses and has shown net business income at Rs.'nil'. He noted that the assessee company is the owner of the premises at Parel and Sewri, Mumbai. The rental income from the properties has been shown by the assessee company as "income from business" instead of "income from house property". The AO, therefore, asked the assessee to show cause as to why the income received from the "let out of the properties" shown by it as "business income" should not be taxed under the head 'income from house property'. 2.2 It was explai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owance of various expenses by the A.O. disregarding the business income of the assessee, the ld. CIT(A) observed that the assessee has claimed the following expenses in the PandL account:- Sr. No. Expense Amount 1 Directors Remuneration 1,75,000/- 2 Payment to staff 1,65,097/- 3 Electricity Charges 4,22,157/- 4 Payment to Auditors 33,900/- 5 Rates and Taxes 1,10,192/- 6 Office Expenses 10,688/- 7 Legal and Professional Fees 49,900/- 8 Telephone and Postage charges 3,65,410/- 9 Reparis and Maintenance 62,443/- 10 Sundry Balance Written Off 6,448/- 11 Miscellaneous Expenses 23,440/- 12 Depreciation as per Income Tax Act 23,64,922/- Total 37,89,597/- 3.2 So far as the expenses relating to depreciation, sundry balances written off and legal and professional fees are concerned, he held that the same are not allowable. So far as the claim of Rs.62,443/- on account of repairs and maintenance expenses is concerned he held that the same cannot be allowed since the statutory deduction of 25% of ALV u/s 24(1) will take care of the same. As regards the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omputation of income filed for the A.Y. 1995-96 in which the business centre income has been computed under the head "business income". Referring to page 9 of the paper book, he drew the attention of the Bench to the statement of calculation of depreciation as per Income Tax Rules. Referring to page 11of the paper book, he drew the attention of the Bench to the PandL account for the year ended 31.3.1995 wherein the income from business centre was declared at Rs.5,78,502.00 and the sale of shares and securities was declared at Rs.34,84,431/-. Referring to page 10 of the paper book, he drew the attention of the Bench to the Balance sheet as on 31st March, 1995. 4.2 Referring to page 13 to 15 of the paper book, he drew the attention of the Bench to the order passed u/s 143(3) for A.Y. 1996-97 wherein the A.O. has treated the business centre receipt as business income on which depreciation has been allowed. Referring to page 16 and 17 of the paper book, he drew the attention of the Bench to the computation of income for the A.Y.2006-07 wherein the assessee has declared receipts from business centre as business income. Referring to page 21 of the paper book, he drew the attent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of shares and securities shown at Rs.391564/-. Referring to the copy of the assessment order for A.Y. 2001-02 placed at page No. 58 to 60, he submitted that the A.O. in the order passed u/s 143(3) on 25.11.2003 has accepted the business centre receipts as "business income" and has allowed the various expenses. Referring to page 57 of the paper book, he drew the attention of the Bench to the show cause notice dtd. 26th August, 2003 for A.Y. 2001-02 wherein the A.O. has asked the assessee to show cause as to why the income from business centre should not be treated as "income from house property". Referring to various replies given by the assessee, he submitted that the assessee has filed detail reasons including various legal decisions supporting the stand that such business centre receipt should be treated as business income. He submitted that the A.O. in the order passed u/s 143(3) on 25.11.2003 has accepted such claim of the assessee. Referring to the decision of the Hon'ble Bombay High Court in the case of Asian Paints vs. DCIT and Another reported in [2009] 308 ITR 195 (Bom), he submitted that once the A.O. has asked for the details which were provided by the assessee, the A.O.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erely a fresh application of mind by the A.O. to the same set of facts. Since the A.O. had failed to apply his mind to the relevant material while framing the assessment order, he could not take advantage of his own wrong and reopen the assessment u/s 147 of the Act. A mere change of opinion by the A.O. is not a ground for re-assessment. Referring to the decision of the Hon'ble Bombay High Court in the case of ICICI Prudential Life Insurance Co. vs. ACIT reported in 325 ITR 471, he submitted that the power to reopen an assessment is not akin to a power to review the order of assessment and a mere change of opinion would not justify a recourse to the power u/s 147. Unless the A.O. has tangible material to reopen an assessment, the power cannot be held to be validly exercised. Again referring to the reasons recorded by the A.O. for re-opening of the assessment, he submitted that there is no mention of tangible material and the said reasons only refer to assessment year 2003-04 wherein the business centre income has been treated as "income from house property". Referring to the decision of the Mumbai ITAT in the case of M/s Bijou Investors Galaxy Pvt. Ltd. vs. ITO in ITA No. 6479/Mum/....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The various decisions relied on by the Ld. Counsel for the assessee are distinguishable and are not applicable to the facts of the present case. Further, the Tribunal in assessee's own case for A.Y. 2003-04 has also upheld the re-assessment proceedings under identical facts. The ground raised by the assessee challenging the validity of re-opening of assessment, is accordingly dismissed. 7. Ground No. 2 relates to the order of the ld. CIT(A) in upholding the AO's action in treating the receipt from business centre as "income from house property" as against "business income" treated by the A.O. 7.1 The ld. counsel for the assessee submitted that the assessee during the impugned assessment year had purchased a new premises at Sewri amounting to Rs.3,12,90,047/- which has been added to the office premises and has entered into the block of assets. The A.O. has not bothered to go through the details and the ld. CIT(A) following the order of the Tribunal in assessee's own case has upheld the business centre income as "income from house property". Referring to a sample copy of the business service centre agreement placed at page 77 to 83 of the paper book, he submitte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the assessee is accordingly dismissed. 9. Grounds of appeal No. 3 by the assessee reads as under:- "Reimbursement of expenses of Rs.3,82,700/- to be ignored. The Hon'ble Commissioner of Income-tax (Appeals) has erred in law and in facts in treating the reimbursement of expenses of Rs.3,82,700/- as income under the head "Income from House Property". He ought to have excluded the said reimbursement of expenses from income from house property and also from total income as done by A.O. himself in A.Y. 2000-01 and 2002-03. Alternatively, he should have taxed under the head "Income from Business" or "Income from Other Sources". 9.1 Facts of the case, in brief, are that the assessee received business centre charges of Rs.26,20,339/-, reimbursement of electricity expenses Rs.1,88,571/- and reimbursement of telephone expenses of Rs.1,94,129/- totaling Rs.30,03,039/-. The A.O. considered the entire amount of Rs.30,03,039/- as rental income and after allowing deduction u/s 24(1) treated the balance income as income from house property. In appeal, the ld. CIT(A) also did not give any relief on this account. It is the submission of the ld. Counsel for t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss and therefore he should have allowed all the expenses incurred by the assessee against this business. Ground No. 5: Allowance of expenses: The Hon'ble Commissioner of Income tax (Appeals) has erred in law and in facts in restricting the deduction of expenses to the extent of rs 5,67,476/- which comprises of rs 1,10,192/- towards Municipal Taxes and rs 4,57,284/- towards various other expenses out of rs 37,89,597/-. The Hon'ble Commissioner of Income tax (Appeals) ought to have allowed all the remaining expenses of rs 32,22,121/- including depreciation either against business income or against income from other sources." 13. Facts of the case, in brief, are that the A.O. without making any discussion in the body of the assessment order taxed the amount of Rs.11,900/- being income from sale of shares as business income. He, however, did not allow any expenses claimed in the PandL account on the ground that these expenses don't have any nexus with the profit of Rs..11,900/-. In appeal, the ld. CIT(A) gave partial relief of expenses amounting to Rs.4,57,284/- out of the total expenses including depreciation claimed by the assessee at Rs.37,89,597/- by h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome from such business, the entire expenses have to be allowed since nothing has been brought on record that the expenditure has not been incurred for the purpose of business. We find merit in the above submission of the ld. Counsel for the assessee. However, considering the fact that business centre receipt which has been treated as "income from house property" by the ld. CIT(A) has been upheld by us and the assessee is entitled to deduction u/s 24(1) and considering the fact that part of the expenditure relating to earning of business centre income might have been included in the expenses debited, therefore, in our considered opinion, the entire expenditure cannot be allowed as deduction. Similarly, since the assessee is only partially utilizing the premises at Parel for conducting its business and also getting rental income from the said premises, therefore, in our opinion, full depreciation cannot be allowed on the Parel premises. Further no depreciation is allowable on the new premises purchased during the year i.e. premises at Sewri. However, the assessee in our opinion, is entitled to depreciation on other assets. This view of ours finds support from the decision of the Hon'....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 17.1 After hearing both the parties we find the ground of appeal No.2 in the above appeal is identical to the grounds of appeal no.2 in ITA No.4213/Mum/2009. We have already decided the issue and the ground of appeal has been decided against the assessee by upholding the order of the ld. CIT(A) on this issue. Following the same ratio the ground of appeal No.2 in the above appeal is dismissed. 18. In grounds of appeal No. 3 and 4 the assessee has challenged the order of the Ld. CIT(A) in restricting the deduction of expenses by sustaining an amount of Rs.68,52,019/-. 18.1 After hearing both the sides we find the above ground is identical to the grounds of appeal no.5 in ITA No.4213/Mum/2009. We have already decided the issue with certain directions therein. Following the same ratio the direction for the impugned assessment year is as under:- 1) Director's remuneration - 75% of Rs.1,80,000/ 2) Payment to staff 75% of Rs.2,79,611/- 3) Electricity charges 75% of 6,35,577/- 4) Payment to auditors 100% of 18,900/- 5) Telephone and postage 75% of Rs.5,80,963/- 6) Motor car expenses 75% of Rs.20,666/- 7)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpenses 75% of Rs.1,79,055/- 7) Miscellaneous expenses 75% of Rs.95,958/- 8) Legal and Professional 75% of Rs.3,12,504/- 9) Repairs and maintenance 50% of Rs.5,41,658/- 10) Lease rental charges 50% of Rs.1,16000/- The assessee is further entitled to depreciation @ 50% of the allowable depreciation on the Parel premises and other assets as per our directions in ITA No. 4213/Mum/2008. We hold and direct accordingly. The above grounds by the assessee are accordingly partly allowed. ITA No. 4216 and 4217/Mum/2009 Assessment Years: 2004-05 and 2005-06 22. The ground of appeal no.1 in the above two appeals relates to treatment of receipt from business centre as "income from house property" as against "business income" treated by the assessee. 23. After hearing both the sides we find the first ground by the assessee in the above two appeals is identical to the grounds of appeal no.2 in ITA No.4213/Mum/2009. We have already decided the issue and the ground raised by the assessee has been dismissed. Following the same ratio the grounds of appeal no.1 in the above appeals is dismissed. 24. The grounds of appeal no.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... dismissed. 28. The grounds of appeal no.2 relates to the reimbursement of expenses of Rs..50,000/- as income under the head "income from house property". 28.1 After hearing both the sides we find the above ground is identical to the grounds of appeal no.3 in ITA No.4213/Mum/2009. We have already decided the issue in favour of the assessee with certain directions. Following the same ratio this ground raised by the assessee is allowed. 29. Ground of appeal No. 3 by the assessee reads as under:- "The Hon'ble Commissioner of Income Tax (Appeals) has erred in law and in facts in confirming the action of Assessing Officer to tax interest income of Rs.32,73,829/- under the head "Income from other sources" instead of income under the head "income from business. He ought to have treated the interest income as business income." 29.1 Facts of the case in brief are that the A.O. during the course of assessment proceedings noted that the assessee has received interest income of Rs.32,73,829/- and has treated the same as business income. On being questioned by the A.O., it was submitted by the assessee that it has started the business ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ties i.e loans taken and given as per Main Object No. 3 of the Memorandum of Association. The copy of the relevant page of the clause was filed to support its claim. It was submitted that the assessee borrowed money from Caylon Bank which has been utilized to be advanced to three parties at ½ % to 1% more than interest payable to the bank. It was submitted that there was a direct nexus of expenses claimed against the interest income. It was further explained that the assessee had incurred various expenses such as salary to staff, directors' remuneration, legal and professional charges etc. for the purpose of business and shown in the profit and loss account. The assessee company had carried the activity of lending and borrowing money in a systematic and organized manner. It was immaterial whether the money was borrowed from one party and the same was given to only three parties. It was submitted that the assessee had borrowed adequate money from the bank which it can employ for the purpose of loans to be given. It was also submitted that the ITAT has no occasion to consider the issue of allowing expenses against finance business as there was no such ground before the ITAT in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing to page 56 and 57 of the paper book he drew the attention of the Bench to the Ledger account of Calyon Bank and ledger account of M/s Alankrita Finance and Investments Private Limited respectively and tried to explain the nexus of loan obtained and loan advanced. He submitted that in the subsequent year, such interest income had gone up to Rs.65052840/. He submitted that since there are regular transactions in a systematic and organized manner as per the board resolution and as per one of the main objects clause of Memorandum of Association, therefore, such income has to be treated as "business income". He submitted that there is no such standard formula to explain as to how the income has to be treated as business income. However, although the income in the subsequent year has gone up, the ld. CIT(A) in his order vide para No. 5.9 has not given any reason as to how such interest income should not be treated as income from business. Accordingly he submitted that interest income has to be treated as business income. 29.6 The ld. D.R., on the other hand, supported the order of the ld. CIT(A). 29.7 We have considered the rival arguments made by both the sides, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the extent of Rs.10,96,364/- which comprises of Rs.3,87,432/- towards municipal taxes and Rs.7,08,932/- towards various other expenses out of Rs.45,41,436/-. The Hon'ble Commissioner of Income tax (Appeals) ought to have allowed all the remaining expenses of Rs.34,45,072/- including depreciation either against business income or against income from other sources." 30.1 After hearing both the sides we find the above ground is identical to the grounds of appeal No.5 in ITA No.4213/Mum/2009. We find out of various expenses claimed by the assessee, the ld. CIT(A) has given part relief, the details of which are as under:- Sl No. Claimed Allowed Amount (Rs.) 1 Directors remuneration 3,00,000 50% 1,50,000 2 Payment to staff 4,12,515 50% 2,06,257 3 Payment to auditors 19,642 100% 19,642 4 Insurance charges 8,678 50% 4,339 5 Telephone and Post charges 34,856 30% 10,457 6 Motor Car expenses 4,80,674 50% 2,40,337 7 Miscellaneous expenses 1,55,801 50% 77,900 Total 7,08,932 30.2 Since we have held that the finan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nst Income from House Property. 2) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in law in allowing expenses amounting to Rs.7,08,932/- under various heads which are disproportionate and what cannot be attributed to earn the income assessed under 'Income from House Property'. Rs.3) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the A.O. to allow interest expenditure incurred for earning such income relying on the facts and evidence submitted during the appellate proceedings which were not submitted before the A.O. during assessment proceedings which is in violation to Rule 46A. 4) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the A.O. to allow expenditure which was claimed as business expenditure without appreciating the fact that the CIT(A) himself has held that business centre receipt is an income from house property as held by the A.O. 5) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the A.O. to adjust the interest expenses against interest received when the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urces treated by the A.O. and upheld by the ld. CIT(A). Following the same ratio the interest income of Rs.6,50,52,829/- is held to be income from business. 36. Ground No. 3 raised by the assessee reads as under:- "Allowance of expenses: The Hon'ble commissioner of Income tax (Appeals) has erred in law and in facts in restricting the deduction of expenses to the extent of Rs.7,35,029/- only. He ought to have allowed all the remaining expenses including depreciation against business income." 36.1 After hearing both the sides we find out of the various expenses claimed by the assessee, the ld. CIT(A) allowed part relief which is as under:- Sl. No. Expense Claimed in profit and loss A/c for the year ended 31.03.2007 To be allowed as per CIT(A) order in A.Y. 06-07 (to maintain consistency) Percentage Amount (Rs.) 1 Director's remuneration 300,000 50% 150,000 2 Payment to staff 439,120 50% 219,560 3 Payment to auditors 18,000 100% 18,000 4 Insurance charges 13,324 50% 6,662 5 Motor car expenses 456,024 50% 228,012 6 Miscellaneous e....