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TMI Blog2012 (5) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded from the business centre receipt. - Appeal is allowed by way of direction to the A.O. to exclude an amount of Rs.3,82,700/- from the business centre receipt while calculating the business centre receipt as "income from house property" Allowance of depreciation and other expenditure - held that:- the assessee is entitled to deduction u/s 24(1) and considering the fact that part of the expenditure relating to earning of business centre income might have been included in the expenses debited, therefore, in our considered opinion, the entire expenditure cannot be allowed as deduction. Similarly, since the assessee is only partially utilizing the premises at Parel for conducting its business and also getting rental income from the said premises, therefore, in our opinion, full depreciation cannot be allowed on the Parel premises Income from financing activity - AO treated the income under the head income from other sources - held that:- assessee that the assessee in a systematic and organized manner had started the business of financing activity which is in line with one of the main objects of the Memorandum of Association and as per the resolution passed by the board of Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Calcutta High Court in the case of Shambhu Investment Pvt. Ltd. vs. CIT reported in 249 ITR 47 wherein it has been held that income from the let out of the properties shall be taxed under the head 'income from house property' and a couple of other decisions, he came to the conclusion that rental income has to be assessed under the head "income from house property" irrespective of the fact that leasing of site is one of the objects of the assessee company. He further noted that the assessment of the assessee company for A.Y. 2003-04 has been completed u/s 143(3) r.w.s. 147 of the Act in which the receipts from the business centre was taxed under the head 'income from house property' which has been confirmed by the ld. CIT(A). In view of the above, the A.O. treated the business centre receipts of Rs.30,03,039/- as income from house property and he allowed the necessary deduction u/s 24(1) of the Act. So far as the allowability of various expenses debited in the PandL account, he held that such expenses do not have any nexus with the profit of Rs.11,900/- on account of sale of shares and securities. He, therefore, did not allow any expenses against the sale of shares and securiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be allowed certain expenses against the head 'income from business. Further, he held that in view of the various decisions by the judicial authorities, the assessee is entitled to certain expenses to maintain its corporate entity. He observed that the A.O. has no evidence in his possession that these expenses have not been incurred. He, therefore, directed the AO to allow the following expenses amounting to rs 4,57,284/- out of the total claim of Rs.37,89,597/-. S. No. Claimed Allowed Amount 1 Directors' Remuneration 1,75,000/- 50% 87,500/- 2 Payment to staff 1,65,097/- 50% 82,549/- 3 Electricity charges 4,22,157/- 30% 1,26,648/- 4 Payment to auditors 33,900/- 100% 33,900/- 5 Telephone and Postage charges 3,65,410/- 30% 1,09,623/- 6 Office expenses 10,688/- 50% 5,344/- 7 Miscellaneous Expenses 23,440/- 50% 11,720/- Total 4,57,284/- Aggrieved with such order of the ld. CIT(A) the assessee is in appeal before us. 4. Grounds of appeal No. 1 by the assessee relates to the order of the ld. CIT(A) in upholding the re-opening of the assessment. 4.1 The ld. counsel for the assessee submitted that starting from A.Y. 1995-96 onwards the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he drew the attention of the Bench to the computation of total income for A.Y. 1997-98 wherein the receipt from business centre has been computed as business income as per PandL account. Referring to page 30 of the paper book, he drew the attention of the Bench to the Trading and PandL account for the year ended 31.3.1997 wherein the assessee has declared the sale of shares and securities at Rs.34,80,406.00 and the income from business centre at Rs.9,67,978.00. He submitted that the various expenses debited to the PandL account has been accepted by the A.O. in his order passed under section 143(3) of the Act. 4.4 Referring to page 32 and 33 of the paper book, he drew the attention of the Bench to the order passed u/s 143(3) dtd. 30.11.2010 for the A.Y. 1998-99. Referring to page 39 of the paper book, he drew the attention of the Bench to the Trading and PandL account ended 31st March 1998 wherein the assessee has declared sale of shares and securities at Rs.51,62,027.90 and the income from business centre at Rs.10,52,905.00. Referring to page 44 of the paper book, he drew the attention of the Bench to the trading and Profit and Loss account for the year ended 31.3.1999 according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the paper book, he drew the attention of the Bench to the Trading and Profit and Loss account for the year ended 31st May, 1999 and submitted that the assessee has shown sale of shares and securities at Rs.11,900/-. He submitted that the amount is very small because of melt-down in the share marketing. The A.O. in the body of the assessment order has accepted the business income at Rs.11,900/-. The ld. CIT(A) has given part relief of the various expenses debited in the PandL account and the Revenue has not filed any appeal before the Tribunal. He submitted that when part of the business premises has been utilized for business purpose, the assessee must get the whole of the expenses as deduction out of the business income. 4.6 The ld. counsel for the assessee submitted that once the assessee has got business, he must get full deduction. There is no discussion about the business activity by the A.O. No new material or new fact was brought on record. The A.O. had passed order u/s 143(3). Therefore, how a reasonable person comes to the conclusion that income chargeable to tax has escaped assessment is not understood. He submitted that when the A.O. knows that assessee has got busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 ITR 363, he submitted that the amount has to be quantified for the purpose of limitation for reopening of the assessment. He, accordingly, submitted that since in the reasons recorded by the A.O. there is nothing about quantification of amount that has escaped assessment, therefore, the reopening cannot be sustained. Therefore, the ground raised by the assessee should be allowed. 5. The ld. D.R., on the other hand, submitted that the reassessment notice has been issued within a period of 6 years. The assessment was completed u/s 143)(1)(a) and, therefore, there was no application of mind by the AO. Therefore, in view of the decision of the Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers reported in 291 ITR 500, the reassessment proceedings initiated by the A.O. has rightly been upheld by the ld. CIT(A). He further submitted that on identical facts and circumstances, the reassessment proceedings have been upheld by the Tribunal in assessee's own case for A.Y. 2003-04. 6. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other expenses as may be agreed between the parties to this agreement. Referring to various other clauses of the agreement, he submitted that the assessee is in full control of the said business centre. It is a case of composite letting out of the property and, therefore, the order of the ITAT in assessee's own case for A.Y. 2003-04 cannot be followed ipso facto. The Tribunal has not adjudicated as to how the business operation of the assessee is conducted. He, therefore, submitted that the facts of the Tribunal order are different from the facts of the present case. Referring to a series of decisions filed in the paper book including the decision of the Tribunal in the case of Gesco Corporation Ltd. vs. ACIT reported in 31 SOT 132 (Mum) he submitted that the business centre receipt has to be treated as "business income" as against "income from house property". 8. The ld. D.R., on the other hand, while supporting the order of the Ld. CIT(A) submitted that the issue stands decided against the assessee by the decision of the Tribunal in assessee's own case for A.Y. 2003-04 which has been followed by the ld. CIT(A). 8.1 After hearing both the sides we find identical issue had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, the same should not be taxed under the head "income from house property". Referring to the order for A.Y. 2000-01 passed u/s 143(3) r.w.s. 147, he submitted that the A.O. has excluded the reimbursement of such expenses from the total receipt while calculating the rental income. He accordingly submitted that the above expenses should be reduced from the business centre receipt. 10. The ld. D.R., on the other hand, relied on the order of the ld. CIT(A). 11. After hearing both the sides we find force in the submission of the ld. Counsel for the assessee that the reimbursement of Telephone and electricity expenses should be excluded from the business centre receipt. We find from the order passed u/s 143(3) r.w.s. 147 of the Act for A.O. 2000-01, a copy of which is placed at page 93 to 97 of the paper book, that the A.O. has excluded such reimbursement of expenses from the gross business centre receipts while treating such income as "income from house property". We, therefore, find no reason as to why the reimbursement of expenses should not be excluded from the business centre receipts which has been treated as "income from house property". We, therefore, direct the A.O. to exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. Counsel for the assessee that once the asset has entered into the block of asset, the AO cannot disallow the depreciation. For this proposition, the ld. Counsel for the assessee relied on the following decisions reported in 322 ITR 542, 38 SOT 208, 22 SOT 429, 21 SOT 122, 142 Taxman 316 and 240 ITR 94. 14. The ld. D.R., on the other hand, strongly relied on the order of the ld. CIT(A). 15. We have considered the rival arguments made by both the sides, pursued the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that the income of Rs.11,900/- arising from sale of shares has been treated by the A.O. as business income. There is also no dispute to the fact that various expenses incurred by the assessee and debited to the PandL account has not been proved to be false or untrue. It is also a fact that the ld. CIT(A) while giving part relief to the assessee has held that some expenditure is required for maintaining the corporate status of the assessee. We find the assessee was in the business of dealing in shares right from A.Y. 1995-96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l fees 75% of Rs.. 49,900/- 8. Telephone and Postage charges (Rs.. 3,65,409 - Rs.. 1,94,129) 75% of Rs.. 1,71,280/- 9. Repairs and maintenance 50% of Rs.. 62,443/- 10. Sundry balance written off 75% of Rs.. 6,448/- 11. Misc. Expenses 75% of Rs.. 23,440/- Over and above the assessee is entitled to 50% of the depreciation allowable to property situated at Parel and 50% of the depreciation allowable on furniture and fixtures, Air conditions, office equipment and computer system etc. The AO shall compute the deduction allowable in the above lines and allow the same as deduction from the business income. We hold and direct accordingly. The ground raised by the assessee is accordingly partly allowed. ITA No. 4214/Mum/2009; Assessment Years: 2000-01 16. The ground of appeal No.1 by the assessee relates to reopening of assessment by the A.O. and confirmed by the Ld. CIT(A). 16.1 After hearing both the sides, we find the above ground is identical to the grounds of appeal No.1 by the assessee in ITA No.4213/Mum/2009. We have already decided the issue and the ground raised by the assessee has been dismissed. Following the same ratio, the grounds of appeal no.1 by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 20. In grounds of appeal No.2 the assessee has challenged the order of the Ld. CIT(A) in treating the receipt of Rs.56,31,200/- as income from "house property" as against "business income" treated by the assessee. 20.1 After hearing both the parties we find the ground of appeal No.2 in the above appeal is identical to the grounds of appeal no.2 in ITA No.4213/Mum/2009. We have already decided the issue and the ground has been decided against the assessee by upholding the order of the ld. CIT(A) on this issue. Following the same ratio the ground of appeal No.2 in the above appeal is dismissed. 21. In grounds of appeal No. 3 and 4 the assessee has challenged the order of the Ld. CIT(A) in restricting the deduction of expenses by sustaining the amount of Rs.57,68,532/-. 21.1 After hearing both the sides we find the above ground is identical to the grounds of appeal No.5 in ITA No.4213/Mum/2009. We have already decided the issue with certain directions therein. Following the same ratio the direction for the impugned assessment year is as under:- 1) Director's remuneration 75% of Rs.1,80,000/- 2) Payment to staff 75% of 3,74,693/- 3) Electricity charges 75% of 6,96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther our directions in ITA No.4213/Mum/2009 to 4315/Mum/2009 on this issue also will not be applicable to the facts for ITA No.4216/Mum/2009 and 4217/Mum/2009. However, in the light of our observation in ITA No. 4213/Mum/2010 for A.Y. 1999-2000, the assessee is entitled to depreciation. We, therefore, modify the order of the ld. CIT(A) to this extent and direct the A.O. to allow 50% of the allowable depreciation only on Parel premises and other assets appearing in the balance sheet over and above the expenses allowed by the ld. CIT(A). The grounds of appeal by the assessee for the above two years are accordingly allowed partly. ITA NO: 4391/Mum/2009 27. In grounds of appeal No.1 the assessee has challenged the order of the Ld. CIT(A) in confirming the action of the A.O. in treating the receipt from business centre income as "income from house property" as against "business income" treated by the assessee. 27.1 After hearing both the sides we find the above ground by the assessee is identical to the grounds of appeal no.2 in ITA No.4213/Mum/2009. We have already decided the issue and the ground raised by the assessee has been dismissed. Following the same ratio this ground b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is assessed under the head income from house property in the earlier years and the H'ble ITAT has confirmed the head of income in AY 2003-04. All these expenses were disallowed in the earlier years. To somehow claim these expenses, the assessee has adopted the modus operandi of presenting income from other sources as business income. vi) As per clause 8(a) of Form 3CD, the nature of business of the assessee is stated to be providing business centre services. Thus, the claim of the assessee that it has started business of borrowing and lending money is contrary to the documents submitted by the assessee himself. vii) There is no mention of startingof the new business either in the Directors report or in the Notes to the account. Further, the interest income is classified as other income (Schedule L) and not as income from sales and operations (Schedule K). 29.2 Before the ld. CIT(A) it was submitted that it had restarted the business of financing as per the resolution passed by the Board in their meeting held on 14.6.2005. The company was authorized to do the business of financing activities i.e loans taken and given as per Main Object No. 3 of the Memorandum of Association. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome as income from other sources. However, he held that there is a direct nexus between money borrowed and money advanced on interest. Therefore, he directed the A.O. to allow the interest expenditure of Rs.31,52.636/- incurred by the assessee as a deduction. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before us. 29.5 The ld. counsel for the assessee referring to the copy of the resolution of the board of directors held on 14.6.2005 (a copy of which is placed at paper book page No. 27) submitted that the company started the business of financing activity by passing the necessary board resolution. Referring to page 15 of the paper book, he submitted that the company has obtained loan of Rs.8,24,00,000/- from Calyon Bank for the purpose of its financing activity. Referring to page 18 of the paper book he drew the attention of the Bench to the unsecured loans and advances given to various parties amounting to Rs.81717400/-. Referring to page 20 of the paper book he drew the attention of the Bench to the interest income of Rs.32,73,829/. Referring to page 56 and 57 of the paper book he drew the attention of the Bench to the Ledger account of Calyon Bank a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Indu A. Merchant, Shri Sudhir A. Merchant and Shri Viren A. Merchant three of the Directors of the Company be and are hereby authorized to take necessary steps to give effect to the above Resolution 29.8 We find the interest income of Rs.32.74 lacs during the year has gone up to Rs.6,50,52,840/- in the subsequent year. We therefore find merit in the submission of the ld. counsel for the assessee that the assessee in a systematic and organized manner had started the business of financing activity which is in line with one of the main objects of the Memorandum of Association and as per the resolution passed by the board of Directors. Therefore the income from financing activity, in our opinion, has to be treated as "business income". The ground raised by the assessee is accordingly allowed. 30. Ground of appeal No. 4 by the assessee reads as under:- "Allowance of expenses: The Hon'ble commissioner of Income tax (Appeals) has erred in law and in facts in restricting the deduction of expenses to the extent of Rs.10,96,364/- which comprises of Rs.3,87,432/- towards municipal taxes and Rs.7,08,932/- towards various other expenses out of Rs.45,41,436/-. The Hon'ble Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition. Considering the totality of the facts of the case and in the interests of justice, we deem it proper to restore the issue back to the file of the A.O. with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction regarding the cost of acquisition. The A.O. shall decide the issue afresh in accordance with law. We hold and direct accordingly. This ground raised by the assessee is allowed for statistical purpose. ITA No. 5070/Mum/2009 (By Revenue for A.Y. 2006-07) 32. The grounds raised by the Revenue read as under:- 1) On the facts and in the circumstances of the case and in law, the CIT(A) erred in law in allowing expenses under various heads which are not allowable under section 24 against Income from House Property. 2) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in law in allowing expenses amounting to Rs.7,08,932/- under various heads which are disproportionate and what cannot be attributed to earn the income assessed under 'Income from House Property'. Rs.3) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the A.O. to allow interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee is dismissed. 35. Ground No. 2 raised by the assessee reads as under:- "The Hon'ble commissioner of Income tax (Appeals) has erred in law and in facts in treating the interest income of Rs.6,50,52,829/- under the head "income from other sources" instead of "income from business". He ought to have treated the interest income as business income and interest expenses as business expenses." 35.1 After hearing both the sides we find the above ground is identical to the grounds of appeal No.3 in ITA No.4391/Mum/2009. We have already decided the issue and held that the interest from financing activity of the assessee's business income as against income from other sources treated by the A.O. and upheld by the ld. CIT(A). Following the same ratio the interest income of Rs.6,50,52,829/- is held to be income from business. 36. Ground No. 3 raised by the assessee reads as under:- "Allowance of expenses: The Hon'ble commissioner of Income tax (Appeals) has erred in law and in facts in restricting the deduction of expenses to the extent of Rs.7,35,029/- only. He ought to have allowed all the remaining expenses including depreciation against business income." 36.1 Afte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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