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TMI Blog2016 (6) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... ess as against income from house property was ex-facie wrong and unsustainable . Thus in view of our above stated discussions and reasoning as set-out above, we order deletion of penalty levied by the AO and confirmed by the learned CIT(A) on this ground. - Decided against revenue Disallowance of depreciation - Held that:- It is incumbent upon the assessee company to have produced the evidences to the satisfaction of the Revenue as the claim of deduction of the expenses in the return of income has been made by the assessee company and primary onus to prove its claim in return of income lay on the assessee company , which the assessee company failed to do so. In earlier years also, similar addition has been made and the assessee company has accepted these additions on confirmation of the additions by the learned CIT(A) after the first appeal stood dismissed by the learned CIT(A) against the quantum additions. In view of our above discussions and reasoning, addition towards disallowance of depreciation on purchase of new fixed assets , to the income of the assessee company needs to be confirmed/ sustained. We find no infirmity in the orders of the learned CIT(A which we confirm/su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case u/s 147/148 of the Act based on our discussions and reasoning above, hence, we uphold the decision of ld. CIT(A) in which we have found no infirmity. - Decided against assessee - I.T.A. No. 3416 to 3419/Mum/2013 - - - Dated:- 30-5-2016 - Shri Saktijit Dey, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : Shri S.C. Tiwari Ms. Rutiya Pawar For the Revenue : Shri Ritesh Misra,DR ORDER Per Ramit Kochar, Accountant Member All the four appeals are filed by the assessee company against four separate orders passed by learned Commissioner of Income Tax (Appeals) for the assessment years 2006-07 to 2009-10. These appeals were heard together and we decide them by this combined order for the sake of convenience. First we shall take up assessee company appeal in ITA No 3416/Mum/2013 for the assessment year 2006-07. 3. The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- 1. Learned Commissioner of Income Tax - Appeal {CIT-(A)} has erred in confirming levy of penalty of ₹ 1,27,660/- U/s 271(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income from business or profession as business income which is in the nature of the rent from letting out of the residential premises, therefore, the A.O. treated the rental receipts as income from house property by following the stand taken by the Revenue for the assessment year 2005-06. The A.O. further observed that the residential premises were used for accommodation and not for the business purpose. The A.O. accordingly disallowed the claim of depreciation amounting to ₹ 1,67,426/- on these rented accommodations as now these rental income are assessed to tax under the head Income from House Property instead of under the head Income from Business or Profession and added the same to the income of the assessee company and the total addition on account of depreciation was made to the income of the assessee to the tune of ₹ 5,09,456/- , vide assessment orders dated 23.12.2008 passed by the AO u/s 143(3) of the Act. The A.O. noted that the assessee company has concealed its income by furnishing inaccurate particulars of taxable income and thereby initiated penalty proceedings u/s 271(1)(c) of the Act. The assessee company filed first appeal before the learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation on the fixed assets. The A.O. relied on the decision of Hon ble Supreme Court in the case of UOI v. Dharmendra Textiles Processors and Others v. UOI , (2008) 306 ITR 277 (SC). The AO further observed that the learned CIT(A) also confirmed the addition made by the A.O. in the quantum assessment as the assessee company could not produce the details/evidences of additions to the fixed asset. The A.O. observed that the assessee company is in the habit of not producing the details of additions in respect of fixed assets and the assessee company has filed inaccurate particulars of income which resulted into evading of tax liability. The A.O. relied on the decision of Hon ble Kerala High Court in the case of CIT v. India Sea Food, (1976) 105 ITR 708(Ker.) and in the case of Gates Foam Rubber Company, (1973)91 ITR 467 (Ker. HC). The A.O. accordingly levied penalty u/s 271(1)(c) of the Act amounting to ₹ 1,71,482/- , vide penalty orders dated 31-03-2011. 6. Aggrieved by the penalty orders dated 31-03-2011 passed by the A.O. u/s 271(1)(c) of the Act, the assessee company filed first appeal before the learned CIT(A). 7. Before the learned CIT(A), the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a leading travel agency having branches all over the country. The assessee company s business has been not doing well and there were losses suffered by the assessee company and hence the assessee company was not able to produce the bills/vouchers with respect to the fixed assets purchased during the year. The depreciation with respect to the fixed assets purchased in the earlier year has been disallowed to the extent of ₹ 62,439/-. The learned Counsel submitted that the assessee company has declared the rental income as business income under the head income from business or profession and claimed depreciation, which rental income has been brought to tax under the head income from house property and hence claim of depreciation was not allowed. The ld. Counsel submitted that the learned CIT(A) has confirmed the orders of the A.O. in quantum assessment proceedings and income has been assessed to tax under the head income from house property . The ld. Counsel submitted that the A.O. has relied on the decision of Zoom Communications Limited(2010) 191 taxman 179(Del) and Dharmendra Textiles Processors(supra). The ld. Counsel relied on the decision of Hon ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilarly, it is observed that the assessee company has declared rental income as business income which is not accepted by the Revenue and brought to tax under the head Income from House Property . The properties were given on rent for residential purposes and godown. The assessee company has expressed its inability to produce the invoices with respect to the purchase of new fixed assets during the previous year relevant to the assessment and has claimed that it is due to losses incurred in the business of the assessee company which is spread across the country , it was not possible to collect the evidences from all the branches due to administrative reasons. In our considered view, it is incumbent on the assessee company to discharge the primary onus cast upon it by bringing on record the necessary evidences to sustain the claim which the assessee company has made by claiming deduction from income in the return of income filed with the Revenue which the assessee company was not been able to produce before the authorities and hence the additions were rightly made by the AO in quantum assessment proceedings. The question before us is with respect to the leviability of the penalty u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 387 (Delhi) in the case of Nalwa Sons Investment Ltd. (available in NJRS as 2010-LL-0826-2), held that when the tax payable on income computed under normal procedure is less than the tax payable under the deeming provisions of section 115JB of the Act, then penalty under section 271(1)(c) of the Act could not be imposed with reference to additions /disallowances made under normal provisions. The judgment has attained finality. 4. Subsequently, the provisions of Explanation 4 to sub-section (1) of section 271 of the Act have been substituted by Finance Act, 2015, which provide for the method of calculating the amount of tax sought to be evaded for situations even where the income determined under the general provisions is less than the income declared for the purpose of MAT u/s 115JB of the Act. The substituted Explanation 4 is applicable prospectively w.e.f. 1-4-2016. 5. Accordingly, in view of the Delhi High Court judgment and substitution of Explanation 4 of section 271 of the Act with prospective effect, it is now a settled position that prior to 1-4-2016, where the income tax payable on the total income as computed under the normal provisions of the Act is less th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antiation of the claim of the assessee company in the light of circular no 25/2015 dated 31.12.2015 issued by the CBDT . Needless to say that proper and adequate opportunity of being heard will be provided to the assessee company by the AO in accordance with principles of natural justice in accordance with law. In any case , we also hold that the assessee company will be entitled for getting relief on account of penalty levied u/s 271(1)(c) of the Act to the extent assessment order u/s. 143(3) of the Act stood modified by the orders u/s. 154 of the Act dated 27.08.2012 whereby the assessee company got relief of ₹ 1,30,191/- in quantum additions in scrutiny assessments u/s 143(3) of the Act. We order accordingly. The assessee company had properties which were rented out for residential purposes. The assessee company has claimed the same as business income under the head Income from Business or Profession while the AO has assessed the same under the head Income from House Property . The assessee company has come forward and relied upon the object clause in the Memorandum of Association of the assessee company to contend that the business of the assessee company was to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this claim of the assessee company to bring rental income as income from business as against income from house property was ex-facie wrong and unsustainable . Thus in view of our above stated discussions and reasoning as set-out above, we order deletion of penalty levied by the AO and confirmed by the learned CIT(A) on this ground. We order accordingly. 12. In the result appeal of the assessee company in ITA No. 3416/Mum/2013 for the assessment year 2006-07 is partly allowed as indicated above. Now we shall take up assessee company s appeal in ITA No 3417/Mum/2013 for the assessment year 2007-08. 13. The grounds of appeal raised by the assessee company in this appeal read as under:- 1. Learned Commissioner of Income Tax - Appeal {CIT -(A)} has erred in confirming levy of penalty of ₹ 2,24,468/- u/s 271(1)(c) of the Act. On the facts and circumstances of the case and in law, the penalty levied ought to be deleted. 2. Without prejudice to the above, the Ld CIT-(A) has further erred in confirming the levy of penalty u/s 271(1)(c) of the Act, on account of disallowance of depreciation of ₹ 3,24,092/- on account of rent from running business centers was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case, the disallowance made ought to be deleted. 4. The Ld CIT-(A) has erred in confirming the action of AO in making an ad-hoc disallowance of ₹ 9,14,877/- being 10% of the general expenses of ₹ 91,48,771/- on the ground of non production of supporting bills/ vouchers / ledger a/c. etc. On the basis of facts and in the circumstances of the case, the disallowance made ought to be deleted. 17. The brief facts involved in this appeal are that the return of income was filed by the assessee company on 3rd October, 2008 with the Revenue declaring loss of ₹ 75,70,438/-. The return of income was processed by the Revenue u/s 143(1) of the Act on 25th June, 2009 accepting the returned income. Subsequently, the case of the assessee company was reopened and notice issued u/s 148 of the Act to the assessee company on 25th October, 2010 which was duly served on the assessee company after recording the following reasons:- Return of Income for A. Y.2008P09 has been filed on 03.10.2008 showing Nil income and claiming refund of ₹ 20,51,024/-. The computation of income enclosed with return of income shows income form house property at Nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax under the head Income from house property . Detailed breakup was given by the assessee company from where it was clear that the residential premises/godown were let out for purely accommodation purposes and not for the purpose of running business centers, thus as per the AO , the income from this activity falls under the head Income from house property . The depreciation claimed by the assessee on such property was disallowed by the AO and added back to the business income of the assessee company. Accordingly, maintenance charges of ₹ 5,43,797/- was disallowed and added to the income of the assessee company and a sum of ₹ 37,06,221/- was assessed to tax as Income from house property and brought to tax accordingly by the AO. However, standard deduction u/s 24 of the Act was allowed by the Revenue. A sum of ₹ 54,667/- incurred towards property tax debited to the P L account was added to the business income of the assessee company and allowed as deduction under the head Income from house property by the AO vide assessment orders dated 16.12.2011 passed by the AO u/s. 143(3) read with Section 147 of the Act. Similarly, it was observed by the A.O. that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (c) (ii) of section 147 of the Act , as by showing rental income as business income, the income of the assessee company was made the subject of excessive relief under the Act . The A.O. has recorded the reasons and the same were provided to the assessee company. The A.O. has followed all the procedures for reopening of the assessment, hence, the action of the A.O. with respect to the reopening of assessment u/s 148 of the Act was held to be valid by the learned CIT(A) vide appellate orders dated 27.02.2013. With respect to the treating rental income by the AO as income from house property against the income from business as shown by the assessee company, it was observed by the learned CIT(A) that for the assessment years 2005-06 to 2007-08 , similar receipts were treated as Income from house property and the same were confirmed by the learned CIT(A) for the assessment year 2007-08. The learned CIT(A) held that letting out house property and godown cannot be treated as business income and the action of the A.O. to treat the rental income chargeable to tax under the head income from house property was held to be valid by the learned CIT(A) vide appellate orders dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom letting out residential premises and godown has been assessed to tax under the head Income from house property instead of Income from business . The learned Counsel for the assessee company submitted that the assessee company is running a travel agency and the properties owned and held by the assessee are let out for residential and godown purposes. The A.O. erred in bringing to tax the rental income under the head income from house property , while the same is chargeable to tax under the head Income from Business or profession . The assessee company is a part of Mittal Builders group. The assessee company bought these properties as investment pending realization of the property on sale. The assessee company has given the property on rent although the assessee company s main business is travel agency. The learned Counsel drew our attention to the Memorandum of the Association of the company wherein the object clause which is placed in paper book page 16 , the activity of letting out of property is listed as one of the objects of the assessee company and the learned counsel for the assessee company contended that the assessee company is in the business of giving propertie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings before us claimed that the decision of Hon ble Supreme Court in the case of Chennai Properties Investments Ltd.(supra) is squarely applicable in its case. The assessee s company s contention is that its main business as reflected in the object clause of Memorandum of Association is letting out of the properties , which object clause in Memorandum of Association of the company is placed in paper book page No. 16 filed with the Tribunal. In view of and in light of the decision of Hon ble Supreme Court in the case of Chennai Properties Investments Ltd. (supra) , the claim and contentions of the assessee company needs examination and verification by the authorities below whether the assessee company is actually engaged in the business of letting out of properties or not ?. In this regard based on the facts and circumstances of the case and in the interest of justice, we deem it fit to set aside and restore the issue to the file of the A.O. for de-novo determination of the issue on merits after examination and verification of the claims and contentions of the assessee company that whether the assessee company is engaged in the business of letting out properties or not, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee company in the return of income filed with the Revenue, the disallowance of 10% of the general expenses was made by the AO which was confirmed by the learned CIT(A) in the first appeal. It is incumbent upon the assessee company to have produced the evidence to the satisfaction of the AO , as the claim of deduction of the general expenses of ₹ 91,48,771/- from the income of the assessee company in the return of income has been made by the assessee company and the primary onus to prove its claim in return of income lay on the assessee company , which the assessee company failed to do so in the instant case. In our considered view based on facts and circumstances of the case, the disallowance of 10% of general expenses is quite reasonable keeping in view peculiar facts and circumstances of the case and we confirm the afore-stated disallowance. We find no infirmity in the orders of the learned CIT(A) which we confirm/sustain. We order accordingly. With respect to the contentions of the assessee company regarding re-opening of the assessment, we have observed that the assessee company filed its return of income which was processed u/s 143(1) of the Act. No scruti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accommodation purpose and not for the purpose of running business centres. On the facts and circumstances of the case, the said rental income ought to be assessed under the head Income from Business or Profession . 2. The Ld CIT -(A) has erred in confirming the action of AO in disallowing depreciation amounting to ₹ 43,628/-claimed by the appellant on certain additions made to fixed assets on the basis that proof of purchase was not submitted. On the facts and in the circumstances of the case, the disallowance made ought to be deleted. 3. The Ld CIT-(A) has erred in confirming the action of AO in disallowing depreciation of ₹ 25,668/- on certain assets purchased in the previous year relevant to A. Y. 2008-09 on the ground that those additions were not verified for want of proof of acquisition; consequently, depreciation on the said assets is not allowable in the year under consideration. On the facts and in the circumstances of the case the disallowance made ought to be deleted. 4. The Ld CIT -(A) has erred in confirming the action of AO in making adhoc disallowance of ₹ 18,73,118/- being 10% of the general expenses of ₹ 1,87,31,181/- on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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