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2026 (5) TMI 1713
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....ctuous. 4. Likewise, the Ground No. 7 of the assessee's appeal pertains to levy of interest under section 234A, 234B, 234C of the Act which is consequential in nature. Hence, the same does not require any separate and independent adjudication. Therefore, the same is dismissed as infructuous. 5. The issue raised by the assessee through Ground Nos. 3(a) and 3(b) of the appeal pertains to validity or legality of the search proceedings under section 132 of the Act. 6. At the outset, we note the learned AR for the assessee at the time of hearing before us submitted that the assessee is not willing to press the issue of validity of the search at this stage. Hence, the ground Nos. 3(a) and 3(b) of the assessee's appeal are hereby dismissed as not pressed. 7. The next issue raised by the assessee through Ground No. 3(c) is that no incriminating material was found during the search operation, therefore in absence of incriminating material, no addition to total income of the assessee can be made. 8. The facts in brief are that the assessee, an individual drawing salary income from M/s Innovative Studios Pvt Ltd (ISPL) & from M/s Innovative Leisure and Entertainment Pvt. Ltd. (....
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....sing out of building or commercial complex constructed on leasehold property is liable to be taxed as income from house property. Hence, the AO brought the same under the head income from house property and made addition to the total income after providing standard deduction to the assessee. 10. Being aggrieved, the assessee preferred an appeal before the learned CIT(A). 11. The assessee, before the learned CIT(A), submitted that there was no incriminating material found in respect of assessment year under consideration. The document found in relation to repayment of loan to Shri K Manju was in respect of receipt of loan through banking channel and receipt of loan is duly recorded in his books of accounts. The assessee also contended that the payment made should be telescoped with the income already offered to tax in the year under consideration. Therefore, there is no incriminating material found during the course of the search. Accordingly, no addition is warranted in the assessment under section 153A of the Act for the year which is a case of unabated/completed assessment year. 11.1 However, the learned CIT(A) rejected the assessee's argument by holding that loose sheet....
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.... assessments. 13.3 On the issue relating to change of head of income, the learned AR submitted that the assessee had consistently offered income from running and maintaining the multiplex as business income in earlier years and the same had been accepted by the Department. It was submitted that the assessee was not merely letting out the premises but was actively involved in maintaining and managing the multiplex facility, including deployment of manpower, security, upkeep and other operational responsibilities necessary for smooth functioning of the cinema complex. The learned AR contended that the Revenue, without there being any incriminating material unearthed during the course of search, merely changed the head of income from "business income" to "income from house property" with a view to deny business expenditure and create additional tax demand. 13.4 The learned AR therefore submitted that in the absence of any incriminating material pertaining to the concluded assessment years, no additions could have been made u/s 153A of the Act and the assessments deserved to be quashed on legal grounds itself. 14. The learned DR, on the other hand, strongly supported the order....
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....ng from the seized material and surrounding facts. Therefore, according to the learned DR, the additions were fully supported by material available on record and were within the scope of assessment contemplated u/s 153A of the Act. 14.5 The learned DR also submitted that the decision of the Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. does not support the assessee's case in the manner sought to be canvassed. According to him, the Hon'ble Supreme Court has held that additions in respect of completed assessments should be linked to incriminating material and in the present case such incriminating material was in fact found during the course of search in the form of seized loose sheets and sub-lease agreement. Therefore, the jurisdiction exercised by the AO u/s 153A of the Act was fully valid. 14.6 On the issue relating to sub-lease rental income, the learned DR submitted that the copy of sub-lease agreement found during search clearly demonstrated the true nature of the receipts earned by the assessee. According to him, the assessee had wrongly offered rental income under the head "business income" though the receipts were in the nature of rental income asse....
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....nted business dealings, such material loses the character of incriminating material for the purpose of completed assessments. 15.3 In the present case, the document relied upon by the Revenue is a loose sheet marked as pages 23 to 24 of Annexure A/IFC/2017 found during the course of search at Innovative Film City premises, reflecting certain payments made to Shri K. Manju through cash as well as banking channels. The Revenue treated the cash component of Rs. 30 lakh as unexplained money u/s 69A of the Act in the hands of the assessee. 15.4 However, on careful examination of the materials available on record, we note that the impugned document itself contains details of both cheque payments and cash payments made to the very same person. The existence and genuineness of Shri K. Manju as recipient is not disputed by the Revenue. Further, the cheque transactions forming part of the same document were admittedly accepted by the Department as genuine transactions in the hands of the group concerned except the cash payment. The assessee has consistently contended that the transactions reflected in the loose sheet pertained to business dealings of the group concerns and not personal....
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..... No unaccounted receipt, undisclosed asset or suppression of income was discovered from the said agreement during the course of search. 15.9 Merely because the AO subsequently formed an opinion that such income ought to have been assessed under a different head, namely "income from house property", the same would not convert an otherwise disclosed and recorded transaction into incriminating material. A change in legal characterization or head of income is fundamentally different from detection of undisclosed income during search. Section 153A of the Act in case of unabated assessments permits addition only on the basis of incriminating material unearthed during search and not on account of a mere change of opinion regarding taxability or head of income of already disclosed receipts. 15.10 Accordingly, we hold that the copy of sub-lease agreement found during the course of search does not constitute incriminating material within the meaning of section 153A of the Act and therefore no addition or recharacterization of income could have been made in respect of completed/unabated assessment year on the basis of such document. Accordingly, the grounds of appeal raised by the asse....
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....th issue raised on merit. Similarly, other grounds being general or consequential in nature are dismissed as infructuous. 19. In the result, all the appeal filed by the assessee for A.Ys. 2014-15, 2015-16 and 2016-17 are hereby partly allowed. Coming to ITA No. 2803/Bang/2025 pertaining to A.Y. 2017-18 20. The Ground Nos. 1, 2, 7 & 8 of the assessee's appeal are general ground and the same do not require any separate and independent adjudication. 21. Likewise, Ground No. 6 of the assessee's appeal pertains to levy of interest under section 234A, 234B, 234C of the Act which is consequential in nature. Hence, the same do not require any separate adjudication. 22. The issue raised by the assessee through Ground Nos. 3(a) and 3(b) of the appeal pertains to validity or legality of the search proceeding under section 132 of the Act. 23. At the outset, we note the learned AR for the assessee at the time of hearing before us submitted that the assessee is not willing to press the issue of validity of the search at this stage. Hence, Ground Nos. 3(a) and 3(b) of the assessee's appeal are hereby dismissed as not pressed. 24. The next issue raised by the assessee through ....
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....ee shall pay annual rent of Rs. 60,000/- and utilize the schedule property for development/construction of "multiplex complex". The sub-lessee was also allowed to mortgage the lease hold right for the purpose of borrowing from Karnataka State Financial Corporation. Accordingly, the sub-lessee company M/s Innovative Themes Pvt Ltd (hereafter- ITPL) borrowed Rs. 1.5 crore from KSFC in the year 2007 by mortgaging the lease hold for the purpose of construction of Multiplex Complex in the name and style of "Innovative Multiplex". 26.1 Subsequently the sub-lessee M/s ITPL entered into lease agreement with Suresh Productions Entertainment Ltd vide agreement dated 3rd June 2010. As per the agreement, M/s ITPL leased out certain portion of Innovative multiplex for 20 years to M/s Suresh Production which are detailed as under: - One cellar in underground - Entire commercial space on ground floor - 4 screens of cinema theatre situated at Ground floor and 1st floor - And office space equally shared by the ITPL and Suresh Production. 26.2 A monthly rent of Rs. 8,01,000/- to be enhanced by 5% on expiry of every 3 years period was agreed for above lease o....
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....tal income of the assessee. 27. The aggrieved assessee preferred an appeal before the learned CIT(A). 28. The assessee before the learned CIT(A) submitted that he has taken land property belonging to one Sri Narayna Reddy on lease for 27 years with the intention to run business of multiplex. Accordingly, multiplex building was constructed on the leasehold property. However, instead of running the business on own, the cinema screen theatre along with certain other commercial space was let out. Therefore, the income arising from the assets acquired or developed for business purposes should be treated as business receipt. It was also contended that the land on which the property being multiplex was constructed is not owned by the assessee. Therefore, the construction on the impugned land cannot be said to be owned by the assessee and accordingly income cannot be brought as income from house property. The assessee further submitted that the multiplex constructed on the lease hold land was in relation to entertainment industry and he has incurred expenses for maintaining and operating the same. The income over the expenses was offered as business income year after year. The lease ....
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....t house properties or rooms" and on the other hand it was considered that there exists a difference in both the properties. Therefore, there raises a question that whether the rental income generated from house property be charged as Income from House Property or as Business Income. Some such cases are discussed as under: "In East India Housing and Land Development Trust Ltd. v. CIT, a company was formed with the purpose to develop immovable properties and construct markets and stalls. The company purchased a land in Calcutta and developed stalls for market purposes. The assessee argued that the income earned from letting out the shops should be considered as a Business Income as the object of the company was to commercialize the space. However, the department contended that the income must be charged under IFHP. It was held by the court that, if a company derives income from shops and stalls it shall fall under the scope of IFHP. The mere fact that a company was formed with the purpose of developing and setting up stalls shall not change the nature and character of the income received. It was opined by the court that, "a company which has been incorporated with the object....
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....under the head "Income from House Property". 7.16 In Raj Dadarkar & Associates v. Asstt. CIT, the Maharashtra Housing and Developing Authority was engaged in construction of buildings. The market space was auctioned on a monthly license to the municipal market by the market department. The assessee was also a participant in the auction to acquire the "Right to conduct market on the market portion". The object of the assessee company was to develop a premise as market, and for the said purpose, they leased out the property to a partnership for a lease of more than 12 years to develop such as a market. The object clause of the memorandum of association stated that the entity was to take the property on lease, develop and then let it out to retailers. The issue before the court was that, "whether this kind of income is IFHP or PGBP". 7.17 It was held by the court that, "Merely because there is an entry in the object clause of the business showing a particular object, would not be the determinative factor to arrive at a conclusion that the income is to be treated as income from business. Such a question would depend upon the circumstances of each case. This Court whil....
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....roperty to earn rental income. The tenure of the lease was 10 years. As regards the ownership, the appellant was not the owner as he himself had stated that, Sri. Narayana Reddy is the owner as he was paying the property tax to BBMP. As regards the nature of income, the income being rent was being received monthly and forms the substantial part of the appellant's business. 7.22 The dominant intention of the appellant may be is to sub-let the property to earn income. The lease is a long-term lease of 10 years. The appellant is not in the business of renting or leasing out properties. The sub lease Agreement has been entered into in Individual capacity with Innovative Themes Pvt Ltd. Further the appellant is a lessor and the Innovative themes had undertaken to develop and construct a Multiplex on the same. Hence the dominant intention of the appellant is to enjoy the rental income on a long-term lease of 10 years from sub-letting the property which is land and no super structure on it. In view of the same, it is held that the income earned by the appellant has to be treated as income from House property and not Business Income. It is Innovative Themes which has entered into ....
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....ed that the Revenue has wrongly changed the head of income from business income to income from house property without appreciating the peculiar facts and manner in which the property was exploited. 30.6 The Ld. AR also submitted that there is no incriminating material found during the course of search to justify any such change in the head of income. 30.7 It was finally prayed that considering the consistent treatment, nature of activity and absence of incriminating material, the income should be assessed as business income and appeals be allowed. 31. The learned DR, on the other hand, submitted that the primary issue is the recharacterization of receipts from business income to income from house property, which has been rightly done by the AO and upheld by Ld. CIT(A). 31.1 It was contended that the receipts are regular, fixed and arise from exploitation of immovable property, and there is no evidence of any complex commercial or organized business activity carried out by the assessee. 31.2 The Ld. DR submitted that mere classification of income as business income in the return or books does not change its true nature, which has to be determined from the substance of....
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.... on long-term lease with a clear commercial objective of developing and exploiting a multiplex complex. The property was not a ready-built passive asset, but a commercial project which came into existence through development, financing and structured arrangements involving sub-leasing and commercial exploitation. 32.3 We further note that after the surrender of sub-lease by M/s ITPL, the assessee stepped into the arrangement and continued to derive income from the multiplex by exploiting the commercial asset. The receipts are thus not merely attributable to ownership or letting of property, but arise from a composite commercial arrangement relating to a specialized business asset. 32.4 A crucial aspect which has not been properly appreciated by the lower authorities is that the assessee has not let out the entire property in a passive manner. Rather, only certain identified portions of the multiplex, namely cinema theatre screens, commercial space on the ground floor and certain specified areas, were let out to M/s Suresh Productions, while the overall structure and commercial character of the multiplex remained that of an integrated business asset. 32.5 Thus, the arrangem....
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....nt involves leasehold land, development of a multiplex through a sub-lessee, subsequent surrender, and continued commercial exploitation of a specialized asset. The income arises not from mere ownership but from a chain of commercial arrangements and exploitation of a business asset. Therefore, the ratio of Bhoopalam Commercial Complex which deals with a case of simple letting of constructed property, in our humble understanding, cannot be mechanically applied to the present facts. 32.12 The learned CIT(A) has relied upon decisions such as East India Housing, Keyaram Hotels, Rayala Corporation, Raj Dadarkar & Associates and Cache Properties. In all these cases, the Hon'ble Courts have examined situations where the assessee was either deriving rental income from property ownership or where there was absence of significant commercial activity. In the present case, as discussed above, the asset is multiplex and the assessee has not merely let out the property but has exploited it in a commercial manner by letting out only certain portions and continuing to operate and maintain the facility. Therefore, the factual foundation of those decisions is absent in the present case. 32.15....
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....ssessee's appeal pertains to levy of interest under section 234A, 234B, 234C of the Act which is consequential in nature. Hence, the same do not require any separate and independent adjudication. Accordingly, the same are hereby dismissed as infructuous. 36. The issue raised by the assessee through Ground Nos. 3(a) and 3(b) of the appeal pertains to validity or legality of the search proceeding under section 132 of the Act. 37. At the outset, we note the learned AR for the assessee at the hearing before us submitted that the assessee is not willing to press the issue of validity of the search at this stage. Hence, Ground Nos. 3(a) and 3(b) of the assessee's appeal are hereby diminished as not pressed. 38. The next issue raised by the assessee through Ground No. 3(c) is that no incriminating material was found during the search, therefore in absence of incriminating material, no addition to total income of the assessee can be made. 38.1 On careful examination of facts, we note that the search in the present case was conducted on 16.11.2017, hence the year under consideration is search year for which assessment under section 143(3) r.w.s. 153D of the Act was made. Therefo....