TaxTMI 
TaxTMI 
2020 (11) TMI 481
X X X X Extracts X X X X
X X X X Extracts X X X X
....operations & for doing business. The diving line is difficult to find; but in our case being a company with its professed objects & the manner of activities & 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 of Association of company, the main object of the appellant company includes letting out of houses, flats & farm houses & not specifically in respect of shops & basements, i.e., the department is of the contention that Income from letting out of commercial establishments is not income from business. He failed to appreciate the intention of the appellant company; as the company was in existence since 1997 & was duly showing Income from Letting out of commercial establishments as Income from Business & Profession since inception/ acquisition of property. The company's professed objective is to derive trading/ major income from letting out of properties irrespective of the nature of the property. 2. The learned Pr. Commissioner of Income Tax has also disallowed the depreciation & vehicle expenses as no business was done during relevant assessment year under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 out. 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" rather 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, depreciation 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 lett....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 Association (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 & developers including purchase & sale of land, land development, colonization, opurchase, sale construction & letting out of houses, flats, farm houses. (OBJECT CLAUSE) * To sell, improve, alter, manage, develop exchange, lease, 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 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 property was one of the main business of the assessee company and therefore in view of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lonization, 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, would not be the determinative/conclusive factor to arrive at a conclusion that the income was to be treated as "income from business". The reliance was placed on the judgment of the Hon'ble Apex Court in the case of Sultan Brothers Pvt. Ltd. Vs. CIT reported in 51 ITR 353 (SC). 4.9 The Ld. Pr. CIT pointed out that no ancillary services were rendered by the assessee to its tenants and it had let out the premises on monthly lease rent right from the beginning of its acquisition / purchase and the A.O. had not verified the lease deeds executed by the assessee as no such copy of the lease deeds were either filed by the assessee or called for by the A.O. during the assessment 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 proceedings were silent on this issue, therefore, the A.O. was asked to procure the copy of the relevant lease deeds executed as pert....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing out of house, flats & farm houses was mentioned in its main object if the decisions of the Hon'ble Supreme Court in the case of M/s Raj Dadarkar & Associates (supra) read with Sultan Brother Pvt. Ltd. (supra) were taken into consideration. 4.13 The Ld. Pr. CIT further observed that even the assessee 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 nature of doing of systematic business activity or exploitation of property by the owner. He also observed that certain part of the premises i.e; SCO No. 126-127 in Section 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 completely over looked by the A.O. during the course of 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 submissions and arguments of the assessee we....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 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 rental income received by the assessee company is treated as income from house property, then their arises net profit from ti instead of loss." 4.16 He therefore rejected the above contention of the assessee. 4.17 Ld. Pr. CIT set aside the assessment order dt. 16.09.2016 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 well as duly taking into consideration of the fresh evidence brought on record including 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 repo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le and the assessee company was keenly interested for sale of the said stock in trade but due to unfavorable market prices as no suitable buyer was found at that time no purchase / sale of property had been carried out during the year under consideration which per-se could not have been lead to the conclusion that the business was discontinued. It was stated that there is a difference between lull in business and going out of business and a temporary lull in the business gave rise to an inference that the business was going through a lean period of transaction and it could be revived if proper circumstances arise. The reliance was placed on the judgment of the Hon'ble Kerala High Court in the case of K Sreedharan & Co. Vs. CIT reported at 202 ITR 796. It was accordingly submitted that the expenses incurred and depreciation claimed were allowable business expenses and the Pr. CIT was not justified in giving 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 Patel Vs. ITO (ITAT Ahmedabad) (December 2015). 6.3 Ld. Counsel for the assessee submitted that the assessee was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 erroneous and prejudicial to the interest of the Revenue but he summarily accepted the wrong calculation given by the A.O. wherein the entire depreciation and vehicle running expenses were disallowed by the A.O. The reliance was placed on the decision of the ITAT 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 passed by the A.O. was neither prejudicial to the interest of the Revenue nor it was erroneous, therefore the Ld. Pr. CIT was not justified in directing the A.O. to make more enquiries and reframe the assessment while passing the impugned order under section 263 of the Act, the same may be quashed. 7. In his rival submissions the Ld. CIT DR strongly supported the impugned order of the Ld. Pr. CIT and reiterated the contents of page nos. 15 to 17 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ossible and the AO 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 the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under s. 263, is not permitted to substitute his estimate of income in place 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 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 allowed the claim on being satisfied with the explanation of the assessee, the decision of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee to lease out its property 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 business of the assessee. The assessee, therefore, rightly disclosed the income under the head "Income from business". It could not be treated as "Income from house property". In the present case also the main object of the assessee in its MOA was to carry on the business of real estate dealers & developers including purchase & sale of land, land development, colonization, opurchase, sale construction & letting out of houses, flats, farm houses. However as per Clause 19 of the aforesaid MOA the assessee was authorized to sell, improve, alter, manage, develop exchange, lease, mortgage, dispose of etc of the business lands, property, assets etc in whole or in part in such manner and on such terms as the Directors may think fit. Therefore the income of the assessee received on lease out property was its business income. 8.4 On a similar issue the Hon'ble Supreme Court in the case of Rayala Corporation Pvt. Ltd. Vs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rroneous 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 order. However the Ld. Pr. CIT by considering the wrong calculations, was of the view that 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 adopting the said calculation, the Pr. CIT did not allow the depreciation and the other expenses on this basis that the assessee was not involved in any business activity during the year under consideration he ignored this explanation of the assessee that there was lull in business, but the business activity was not closed and the assessee was having stock in trade. It is well settled that there is a difference between discontinuation of business and the closure of business. In the present case, if there was ....