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TMI Blog2020 (1) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... esonate 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation of facts and adjudication of the common issues involved. IT(SS)A No. 53/Ahd/2017 - AY 2010-11 3. The grounds of appeal filed by the assessee read as under: "1. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the assessment of income of ₹ 65,000 under the head "Income from House Property" as against income under the head "Profits and Gains of Business or Profession" as claimed by the appellant. 2. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing Ground No. 3 of the appellant's appeal before him on the ground that levy of interest u/s. 234A, 234B 234C and 234D was mandatory. He ought to have appreciated, inter alia, that even as the levy may be mandatory, it was not universal and that the appellant had challenged the very levy of interest under those provisions and, in the peculiar facts and circumstances of its case, the ratio of the decision of the Gujarat High Court in Bharat Machinery and Hardware Mart's case (136 ITR 875) was attracted and the levy deserved to be cancelled. 3. In law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the AO noticed that the assessee has declared rent income from three shops situated at Swaminarayan Avenue, Vasna, Ahmedabad, let out to a cooperative bank. The AO treated the income derived from let out of property to be taxable under the head 'income from house property' instead of 'business income' reflected by the assessee in its return of income. 7. Aggrieved by the aforesaid action of the AO, the assessee preferred appeal before the CIT(A) without any success. 8. Further aggrieved, the assessee preferred appeal before the Tribunal. 9. The learned AR for the assessee submitted at the outset that the return filed in regular course prior to search stood concluded at the time of initiation of search on expiry of limitation period of issuance of notice under s.143(2) of the Act in so far as AYs. 2010-11 & 2011 12 are concerned. The learned AR submitted that where the assessment of AYs. 2010-11 & 2011-12 stood concluded by operation of law prior to search and were not pending at the time of search, the assessment framed under s.153A of the Act after search could be done only in respect of income bearing a reference to the incriminating material found in the course of search. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting policies adopted by the assessee company. It was pointed out that rent income as per the policy as to be recognized on the basis of 'actual receipt' instead of 'mercantile system' applicable to income derived from 'business activity'. The learned DR pointed out that all the three shops have been combined and bundeled together and given to the bank as one contract to derive some predetermined rental income passively. In contrast to a business activity, the assessee is not engaged in any systematic activity for earning rental income. The P&L account also simply claims depreciation allowance and a token salary expense as expenditure against rental income. Thus, no concerted efforts for deriving rental income or business risks associated with business venture can be inferred in the facts and circumstances of the case. 12. We have carefully considered the rival submissions. In the instant case, two fold controversies are marked for adjudication namely; (i) whether while making assessment pursuance to search under s.153A of the Act, the Revenue is entitled to interfere with already concluded (and not abated) assessment passed either under s.143(1) or under s.143(3) of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Consequently, the order of the CIT(A) for AY 2010-11 & 2011-12 is set aside on this legal ground alone. The Revenue is thus ousted from making such adjustments under s.153A of the Act in respect of concluded assessments. 14. In the result, appeals of the assessee in IT(SS)A Nos. 53 & 53/Ahd/2017 for AYs. 2010-11 & 2011-12 are allowed. 15. The legal ground raised by way of additional ground in AYs. 2010-11 & 2011-12 which stood concluded at the time of search is not available to the pending assessments in AYs. 2012-13 & 2013-14 where the AO would be without any fetters to make all adjustments as may be permissible in law. Hence, we advert to examine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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