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2016 (10) TMI 895 - AT - Income TaxIncome from the lodging house - Nature of income - business income or house property - Held that - The license granted by the Magistrate, Lodging House Fund clearly shows that for carrying on the business of letting out the property to be used as Holiday Home or lodge, such license was granted. The agreements referred to above also clearly show that with such stipulation only the property was let out to different organisations. Further is not a case of mere letting out the property on a rent, but the assessee also provided watch and ward, furniture and fixtures and other services. All these facts unmistakeably show the intention of the assessee that he was making use of the property for business or commercial purpose. It is worth to note that in Sultan Bros. Pvt. Ltd. vs. CIT (1963 (12) TMI 4 - SUPREME Court) observed that whether a particular letting is business has to be decided in the circumstances of each case, and each case has to be looked at from a businessmen s point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. Revenue could not produce the document, which they are relying upon and at the same time they are unable to demonistrate how and where the learned CIT was wrong. Viewing from any angle we do not find any error in the finding of the learned CIT that the income from Bani Bhawan Puri constitutes business income and not income from house property. We, therefore, uphold the finding of learned CIT and answer the issue in favour of the assessee. Undisclosed or unexplained investment or income - Held that - Merely because the documents recovered from the premises of assessee in the survey conducted on 18.902.2003 indicate that there was undisclosed turnover of ₹ 91,65,486/- as per learned AO or ₹ 1,00,79,633/- as per learned CIT, the entire turnover amount cannot treated as the undisclosed income or investment, without having regard to the facts and figures surrounding the business of the assessee. While assessing the income of the assessee, should have had to the common course of natural elements, and public and private business in relation to facts and figures obtained in a particular case. AO did not consider this aspect and the learned CIT having gone through the details relating to the purchases sales and payments in respect of the business of the assessee reached a conclusion that the total turnover was accumulated through a periodic cycling of the sales amount to purchases and it generally takes three months for each cycle to complete. This finding of the learned CIT is in conformity with the initial plea of the assessee that the funds were being rotated at least four times during the year. Enhancing the Gross Profit Ratio from 10.36% to 11.55% - Held that - CIT has considered the Gross Profit Ratio rate by working the formula, i.e. Gross Profit Ratio on sales X 100/100-GP on sales. By working out like this he arrived at 11.55% of Gross Profit Ratio on the total turnover of ₹ 1,00,79,633/-. By calculating the G.P. in that method and adding such amount to the undisclosed amount of ₹ 25,19,908/-, learned CIT reached the amount to be added back at ₹ 39,44,106/-. By doing so, the learned CIT granted relief to a tune of ₹ 52,21,380/-. We are at loss to understand where exactly the ld. CIT erred in this process. The reasoning adopted by the learned CIT is scientific and the findings reached by him are impeccable.
Issues Involved:
1. Treatment of income from Bani Bhawan, Puri as "Income from Business" vs. "Income from House Property". 2. Relief granted by the CIT to the assessee amounting to ?52,21,380/-. Issue-wise Detailed Analysis: Issue No. 1: Treatment of Income from Bani Bhawan, Puri 10. The primary contention revolves around whether the income from Bani Bhawan should be treated as "Income from Business" or "Income from House Property." The assessee has been conducting business by letting out the property on a commercial basis to various organizations for use as a Holiday Home. Historically, the income from this property was treated as business income, but from the assessment year 1993-94, the department started treating it as income from house property. The ITAT previously ruled in favor of the assessee for the assessment years 1993-94 and 1995-96, treating the income as business income. 11. The assessee provided documentary evidence, including license fee receipts and agreements with organizations, demonstrating that the property was used for commercial purposes. The licenses issued by the Magistrate, Lodging House Fund, Puri, included specific conditions for operating the property as a lodging house, indicating a business activity. 13. The assessee also provided additional services such as watch and ward, furniture, and fixtures, further supporting the business nature of the income. The Tribunal cited the decision in Sultan Bros. Pvt. Ltd. vs. CIT (1964) 51 ITR 353, emphasizing that the nature of letting should be viewed from a business perspective. 14. The revenue's contention that the assessee accepted the treatment of income as house property for the assessment year 1993-94 was unsupported by evidence. The Tribunal referenced prior decisions and orders, including the ITA No. 49/Cal/2000 for AY 1995-96, which consistently treated the income as business income. 15. The Tribunal also referred to the Allahabad High Court decision in Commissioner of Income Tax vs. Pateshwari Electrical and Associated Industries (P) Limited 282 ITR 61 (All), which supported treating rental income from property used for commercial purposes as business income. 16. The revenue failed to provide contrary evidence or demonstrate errors in the CIT's findings. The Tribunal upheld the CIT's decision, confirming that the income from Bani Bhawan constitutes business income. Issue No. 2: Relief Granted by CIT17. The CIT granted relief to the assessee by reducing the undisclosed investment or income from ?91,65,486/- to ?39,44,106/-. The AO had based the undisclosed investment on documents identified as TCS-22, TCS-44, and TCS-48, adding gross profit and payments to Anuj Textiles, reaching a final figure of ?91,65,486/-. 18. The CIT, after a comprehensive review of the documents and business records, determined the total turnover to be ?1,00,79,633/-. The CIT enhanced the Gross Profit Ratio from 10.36% to 11.55%, adding the difference to the income of the assessee. 19. The CIT concluded that the turnover was accumulated through periodic cycling of sales and purchases, estimating that the same amount was rotated four times during the year. This resulted in an undisclosed investment of ?25,19,908/-, being one-fourth of the total turnover. 20. The CIT's method of enhancing the Gross Profit Ratio and calculating the undisclosed investment was found to be reasonable and scientific. The Tribunal upheld the CIT's findings, noting no errors in the process. 21. Consequently, the Tribunal dismissed the revenue's appeal, confirming the CIT's findings and the granted relief. Conclusion:22. The appeal of the Revenue is dismissed, and the findings of the CIT on both issues are confirmed. Order pronounced in the open Court on September 14, 2016.
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