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2015 (7) TMI 1020 - AT - Income TaxIncome earned from exploitation of commercial space - whether has to be assessed under the head 'Income from House Property' or 'Profits and Gains of Business Profession' - Held that - no hesitation to hold that the main object of the present assesssee company was not to earn rental income from letting of property which was purchased in FY 2001-02 and let out in FY 2002- 03 temporarily till the company gets sufficient profits from its main business activity with cautious decision of Board of Directors of the company dated 14.1.2003 with the intention to reduce burden of expenditure and losses suffered by the assessee company right from its incorporation during preceding three years. The present case clearly falls on all four corners within the dicta of the constitutional bench of Hon ble apex court in the case of Sultan Brothers Ltd. vs CIT (1963 (12) TMI 4 - SUPREME Court ) as the assessee company let out the shop situated at Sector 18, Noida not as per main objects of the assessee company and the same was let out in the third year of business operations temporarily when the assessee company could not earn income from its main object in spite of their best efforts. At this juncture, the ratio of the decision of Hon ble Special Bench, ITAT, Delhi in the case of Atma Ram Properties (P) Ltd. 2006 (4) TMI 196 - ITAT DELHI-C also supports the case of the revenue wherein it was held that rental income derived by assessee company of letting out property simplicitor was chargeable to tax under the head income from house property and not as business income irrespective of the fact that the assessee company was doing business of acquiring, developing and selling properties because the rental income accrued to the assessee company only because of ownership of the property and not by exploitation of rented property by way of complex commercial activity. we are inclined to hold that the view taken by the AO and upheld by the CIT(A) is quite justified and reasonable. - Decided against assessee. Admission of additional evidence objected - Held that - In the present case, the assessee has not placed any sufficient reason which prevented it in filing documents/evidence during assessment proceedings which was filed subsequently before CIT(A) as additional evidence under Rule 46A. The assessee was given due opportunity of hearing before the AO, hence the AO rightly objected to the admission of additional evidence and the CIT(A) was quite justified in rejecting the same. Whether CIT (A) erred in considering letter dated 22.8.2008 filed by Shri Sanjeev Bhardwaj, who was never authorized by the assessee company to file such a letter? - Held that - In view of unrebutted affidavit of the Director of assessee company and other facts and circumstances, we hold that the AO is not allowed to treat the rental receipts of the assessee company as income from house property without considering and ignoring the other relevant facts and circumstances only on the basis of letter dated 22.8.2008 which was not field on the instructions of the assessee. Therefore, we are inclined to accept the contention of the assessee that the letter dated 22.8.2008 cannot be held as filed on behalf of the assessee and on the instruction of the assessee company. The conclusion of the AO cannot be held as sustainable in treating the rental receipts of the assessee company as income from house property instead of business income, as claimed by the assessee only on the basis of impugned letter dated 22.8.2008 which was not filed on the instructions of the assessee company in view of our foregoing discussion. - Decided in favour of assessee. Disallowance of expenses claimed in the profit and loss account on account of accounting charges, bank charges, general expenses, telephone expenses, preoperative expenses written off, staff welfare, lease rent expenses, maintenance charges, printing and stationery, remuneration to Director, salary and remuneration - Held that - respectfully following the ratio of the judgments of Hon ble Supreme Court in the case of CIT vs Rajendra Prasad Moody (1978 (10) TMI 133 - SUPREME Court ), we hold that it is not necessary that any income should, in fact, have been earned as a result of expenditure and expenses incurred by the assessee to maintain its corporate and legal existence cannot be disallowed merely because no income has been earned as a result of activities conducted and expenditure incurred by the assessee company during the relevant period. With the above proposition, the issue of allowability of expenditure claimed by the assessee in the Profit and loss account, which were disallowed by the AO and upheld by the CIT(A), is restored to the file of AO for proper examination and verification after affording due opportunity of hearing for the assessee and without being prejudiced or influenced with the earlier assessment and impugned order on this issue - Decided in favour of assessee for statistical purposes. Disallowance of set off of brought forward assessed business losses - Held that - Since by the earlier part of this order on ground no. 1, we have held that the rental income of the assessee company deserves to be treated as income from house property instead of business income as claimed by the assessee, therefore, business loss cannot be set off against the income from house property and conclusion of the CIT(A) was correct on this issue. However, we further make it clear that the AO is empowered to provide proper treatment to the brought forward losses as per relevant provisions of the Act in the present AY 2006-07 and also in the subsequent assessment years. Accordingly, ground no. 3 of the assessee is dismissed with the aforesaid directions of the AO to provide proper, reasonable and justified treatment to the same in accordance with law and relevant provisions of the Act. Availability of assumption of jurisdiction for initiation of proceedings and issuance of notice u/s 147/148 challenged - additional ground - Held that - Assessee is devoid of merits as notice u/s 148 of the Act in this case relevant to AY 2006-07 was issued on 25.9.2008 which is very well within the prescribed time limit as per provisions of section 149(b) of the Act. As we have already noted that the assessee did not place his wiliness or desire before the AO after receipt of notice u/s 148 of the Act until completion of reassessment proceedings on 27.11.2009, seeking copy of reasons recorded, therefore, the assessee is not entitled for any benefit in this regard. In the facts and circumstances of the present case, we hold that the AO validly assumed jurisdiction for initiation of reassessment proceedings u/s 147 of the Act and issuance of notice u/s 148 of the Act as there was valid reason to believe that the income has escaped assessment on the issue of treatment of rental income. Therefore, we decline to accept the legal contention of the assessee that the reopening of assessment was not valid, void ab initio and bad in law. - Decided against assessee.
Issues Involved:
1. Classification of income from exploitation of commercial space. 2. Disallowance of various expenses claimed by the assessee. 3. Set off of brought forward assessed business losses. 4. Rejection of application under Rule 46A of the Income Tax Rules, 1962. 5. Validity of letter dated 22.8.2008 filed by an unauthorized person. 6. Charging of interest under section 234B of the Income Tax Act, 1961. 7. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961. 8. Validity of reassessment proceedings and issuance of notice under section 148 of the Income Tax Act, 1961. Detailed Analysis: 1. Classification of Income from Exploitation of Commercial Space: The main contention was whether the income earned from letting out commercial space should be classified under 'Income from House Property' or 'Profits and Gains of Business & Profession'. The Tribunal held that the rental income should be treated as 'Income from House Property' based on the facts and circumstances of the case, including the object clause of the company and the nature of activities carried out. The Tribunal relied on the decision of the Special Bench of ITAT Delhi in Atma Ram Properties Pvt. Ltd. vs JCIT and the Supreme Court decision in East India Housing & Land Dev. Trust vs CIT. 2. Disallowance of Various Expenses: The Tribunal directed the AO to re-examine the disallowed expenses claimed by the assessee, which included accounting charges, bank charges, general expenses, and others. The Tribunal emphasized that expenses incurred to maintain corporate and legal existence should not be disallowed merely because no income was earned. The Tribunal cited the Supreme Court's decision in CIT vs Rajendra Prasad Moody and other relevant judgments. 3. Set Off of Brought Forward Assessed Business Losses: The Tribunal upheld the CIT(A)'s decision that business loss cannot be set off against income from house property. However, the AO was directed to provide proper treatment to the brought forward losses as per relevant provisions of the Act. 4. Rejection of Application under Rule 46A: The Tribunal upheld the rejection of the application under Rule 46A, stating that the assessee was given due opportunity of hearing before the AO, and no sufficient reason was provided for not producing the documents during the assessment proceedings. 5. Validity of Letter Dated 22.8.2008: The Tribunal accepted the assessee's contention that the letter dated 22.8.2008, which suggested treating rental income as income from house property, was not filed on the instructions of the assessee. The Tribunal held that the AO's reliance on this letter was not justified, and the rental income should be treated as business income as claimed by the assessee. 6. Charging of Interest under Section 234B: The issue of interest under section 234B was restored to the file of the AO for fresh adjudication as it was consequential in nature. 7. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal dismissed the ground challenging the initiation of penalty proceedings under section 271(1)(c) as premature. 8. Validity of Reassessment Proceedings and Issuance of Notice under Section 148: The Tribunal held that the AO validly assumed jurisdiction for initiation of reassessment proceedings under section 147 and issuance of notice under section 148. The Tribunal relied on the Supreme Court's decisions in CIT vs Rajesh Jhaveri Stock Brokers Pvt. Ltd. and DCIT vs Zuari Estate Development & Investment Co. Pvt. Ltd., stating that there was no question of change of opinion as the original assessments were completed under section 143(1). Conclusion: The Tribunal's order provided a detailed analysis of each issue raised by the assessee. The Tribunal upheld the classification of rental income as 'Income from House Property' and directed the AO to re-examine the disallowed expenses. The set-off of brought forward losses was also addressed, and the reassessment proceedings were held to be valid. The issues of interest and penalty proceedings were remanded back to the AO for fresh adjudication.
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