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2020 (1) TMI 723 - AT - Income TaxAssessment u/s 153A - assessment passed either under s.143(1) or under s.143(3) and not pending at the time of search in the absence of any incriminating material unearthed as a result of search or not ? - HELD THAT - In the absence of any connection with the incriminating material unearthed in search proceedings of the assessee, additions/disallowances/realignment of income already declared in the regular course in respect of concluded statements i.e. AYs. 2010-11 2011-12 in the instant appeals, are not permissible in law. In the present appeals, the AO has merely attempted to realign the taxability of income from one head to another i.e. from business income to income from house property. Apparently, the AO has merely sought to revisit the chargeability of income already declared prior to search without any discovery of incriminating material while making assessment post search under s.143(3) r.w.s. 153A of the Act. This course adopted by the AO does not resonate with the judicial interpretations available in this regard. Hence, the action of the AO for realignment of income for AYs. 2010-11 2011-12 is bad in law and cannot be countenanced The Revenue is thus ousted from making such adjustments under s.153A of the Act in respect of concluded assessments. - Decided in favour of assessee. Nature of income - rental income from letting out of some adjoining shops by the assessee company to one person - chargeable to tax u/s 22 under the head income from house property or business income chargeable u/s 28 - HELD THAT - The assessee in the instant case has merely let out three adjacent and adjoining shops to a cooperative bank and derived a pre-determined rental income therefrom in a passive manner without anything more. The lease agreement entered into with bank has not been placed on record despite specific query in this regard. In the instant case, the assessee himself has declared the rental income to be merely on other income source. As a corollary, the rental income was not regarded as part of the trading operations of the assessee. Thus, merely because one of the main object of the assessee is to let out property and derive rent thereon by itself cannot be viewed as a sole criteria for treatment of income derived under the head business income . The attendant circumstances and express statutory scheme of Act cannot be ignored while evaluating the nature of income. Significantly, a perusal of the Memorandum of Association placed on record shows that one of the clauses of the memorandum under category, other objects of the assessee is to let out immovable properties. We have also perused the main object for which the assessee company has been incorporated. A close reading of the main object shows that the company was incorporated to essentially carry on business as developers of land, building, immovable properties etc. by constructing and maintaining such buildings/shops etc. The leasing of shops and other property constructed in the course of such business as developer could however be also leased out as main object. It has not been shown that a single plunge to let out adjoining shops/galas to the bank resulted in the course of carrying on business as developer etc. An independent let out of property thus could be possibly regarded as business income only where some elements/characters of business is present. Dominant intention to let out property as business activity is also not shown to exist. - Decided against assessee.
Issues Involved:
1. Assessment of rental income under the head "Income from House Property" versus "Profits and Gains of Business or Profession." 2. Levy of interest under Sections 234A, 234B, 234C, and 234D. 3. Initiation of penalty proceedings under Section 271(1)(c). 4. Addition of ?200 based on non-incriminating material found during the search. 5. Scope of assessment under Section 153A for concluded assessments. Issue-wise Detailed Analysis: 1. Assessment of Rental Income: The primary issue was whether the rental income from letting out shops should be taxed under "Income from House Property" or "Profits and Gains of Business or Profession." The assessee argued that the rental income should be considered business income due to the company's main object clause, which includes letting and sub-letting of immovable properties. The Tribunal, however, upheld the Revenue's stance that the rental income should be taxed under "Income from House Property." The Tribunal noted that the assessee passively earned rental income without engaging in any systematic business activity. The decision was supported by the Supreme Court's ruling in Raj Dadarkar & Associates vs. ACIT, which emphasized that rental income derived passively does not qualify as business income. 2. Levy of Interest: The assessee challenged the levy of interest under Sections 234A, 234B, 234C, and 234D, arguing that the levy was not universal and should be canceled based on the Gujarat High Court's decision in Bharat Machinery and Hardware Mart's case. The Tribunal dismissed this ground, stating that the levy of interest under these sections is mandatory. 3. Initiation of Penalty Proceedings: The assessee contested the initiation of penalty proceedings under Section 271(1)(c), arguing that there was no justification for initiating such proceedings. The Tribunal dismissed this ground, noting that an appeal does not lie against the mere initiation of penalty proceedings. 4. Addition of ?200: The assessee raised an additional ground challenging the addition of ?200, arguing that it was not based on any incriminating material found during the search and was beyond the scope of assessment under Section 153A. The Tribunal admitted this additional ground for adjudication, referencing the Supreme Court's decision in NTPC vs. CIT. 5. Scope of Assessment under Section 153A: The Tribunal addressed whether the Revenue could interfere with concluded assessments under Section 153A in the absence of incriminating material found during the search. The Tribunal observed that assessments for AYs 2010-11 and 2011-12 were concluded and not pending at the time of the search. Citing the Gujarat High Court's decision in Saumya Constructions Pvt. Ltd. and other precedents, the Tribunal held that additions or disallowances under Section 153A are not permissible without incriminating material. Consequently, the Tribunal set aside the CIT(A)'s orders for AYs 2010-11 and 2011-12, ruling that the Revenue could not realign income from business income to income from house property for these years. For AYs 2012-13 and 2013-14, where assessments were pending at the time of the search, the Tribunal upheld the Revenue's action to tax the rental income under "Income from House Property." The Tribunal found no merit in the assessee's argument that rental income should be treated as business income, noting the absence of any systematic business activity or services provided by the assessee. Conclusion: The appeals for AYs 2010-11 and 2011-12 were allowed, and the assessments were set aside due to the absence of incriminating material. The appeals for AYs 2012-13 and 2013-14 were dismissed, upholding the Revenue's classification of rental income under "Income from House Property."
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