2018 (3) TMI 1509 - AT - Income Tax

Receipt from warehousing activities - busniss income or income from house property - Held that - The lower authorities have erred in assessing the receipts from warehousing activity as income from house property instead of treating it as business income . Accordingly, we set-aside the order of the CIT(A) and direct the Assessing Officer to recompute the income by treating the receipt from warehousing activity as business income . Thus, on this aspect, assessee succeeds. Reopening of assessment - Held that - When the Assessing Officer recorded the reasons to reopen the assessment for Assessment Year 2008-09, he was conscious that for Assessment Years 2006-07 and 2007-08, assessments have been completed u/s 143(3) of the Act and such income has been accepted as business income . Under these circumstances, it was imperative for the Assessing Officer to record the reasons as to why such assessments were not correct, especially considering the fact that the judgmen in the case of Shambhu Investment (P) Ltd. (2001 (3) TMI 77 - CALCUTTA High Court) was all along available to the assessing authority at the time of assessments made u/s 143(3) for Assessment Years 2006-07, 2007-08 and 2008-09. There is no attempt made by the Assessing Officer to refer to any new tangible material say as to why the departure from the accepted stand of assessing the receipts from godown rent and facilities as business income , was required to be made - onus has not been discharged by the Assessing Officer inasmuch as he does not make out any case for making a departure from the earlier accepted stand in the scrutiny assessments. - Decided in favour of assessee.

Summary

Issues Involved:
1. Nature and treatment of amounts received from warehousing activity.
2. Validity of the proceedings initiated under Sec. 147/148 of the Income Tax Act for Assessment Year 2008-09.

Issue-wise Detailed Analysis:

1. Nature and Treatment of Amounts Received from Warehousing Activity:
The primary controversy in both appeals pertains to whether the receipts from warehousing activities should be treated as 'business income' or 'income from house property'. The assessee argued that these receipts should be treated as 'business income' as they arise directly from regular business activities and not from mere letting of property. The Assessing Officer, however, treated these receipts as 'income from house property', leading to the reassessment of income for the years under consideration.

The assessee, a company engaged in the business of shipping and warehousing agency, maintained that the warehousing facility was integral to its business operations, providing temporary storage solutions to importers. The assessee emphasized that the warehousing services included auxiliary services such as pest control, security, and safe storage, which are not typical of mere property letting. The invoices raised on clients supported the claim that the warehousing space was provided on a 'need' basis without any specific earmarked space being rented out.

The Tribunal considered the nature of the warehousing activity and the manner in which the property was used. It referred to precedents such as the Hon'ble Supreme Court's decision in M/s. Rayala Corporation Pvt. Ltd. vs ACIT and the Hon'ble Madras High Court's decision in CIT vs NDR Warehousing (P.) Ltd., which supported the assessee's stance that income from warehousing, involving significant business operations, should be treated as 'business income'. The Tribunal also noted that in previous assessment years (2006-07 and 2007-08), similar receipts were treated as 'business income' and there was no change in facts or law to justify a different treatment for the years under consideration.

2. Validity of the Proceedings Initiated Under Sec. 147/148 for Assessment Year 2008-09:
The proceedings for Assessment Year 2008-09 were initiated under Sec. 147/148 on the grounds that the income from godown rent should have been taxed as 'income from house property' based on the Hon'ble Supreme Court's decision in Shambhu Investment Pvt. Ltd. vs CIT. The assessee challenged the validity of these proceedings, arguing that the reopening was based on a mere change of opinion without any new material or change in facts.

The Tribunal observed that the judgment in Shambhu Investment Pvt. Ltd. was available even at the time of the original assessment, and the Assessing Officer had not provided any new tangible material to justify the reopening. The Tribunal emphasized the principle of consistency, noting that the income from godown rent had been consistently treated as 'business income' in previous assessments, and there was no justification for a departure from this accepted position.

The Tribunal concluded that the reopening of the assessment was flawed and based on a mere change of opinion, which is impermissible. Therefore, the initiation of proceedings under Sec. 147/148 was held to be invalid.

Conclusion:
The Tribunal held that the receipts from warehousing activities should be treated as 'business income' and not 'income from house property'. Additionally, the proceedings initiated under Sec. 147/148 for Assessment Year 2008-09 were deemed invalid. Consequently, both appeals of the assessee were allowed.