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TMI Blog2020 (11) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... may think fit. Therefore the income of the assessee received on lease out property was its business income. In the instant case, the assessee furnished a Chart before the authorities below explaining that if the income received by it was to be treated as income from house property instead of business income there would be an increase in the loss. The said Chart had been reproduced in the former part of this order. Pr. CIT by considering the wrong calculations, was of the view that there was a profit instead of loss claimed by the assessee, if the rental income to be considered as income from house property and not as business income while adopting the said calculation, the Pr. CIT did not allow the depreciation and the other expenses on this basis that the assessee was not involved in any business activity during the year under consideration he ignored this explanation of the assessee that there was lull in business, but the business activity was not closed and the assessee was having stock in trade. It is well settled that there is a difference between discontinuation of business and the closure of business - if there was no closure of the business, therefore, it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifficult to find; but in our case being a company with its professed objects the manner of activities the nature of dealings with the property, it can be inferred on which side the operations fall. As per learned Pr. Commissioner of Income Tax, as per Memorandum of Association of company, the main object of the appellant company includes letting out of houses, flats farm houses not specifically in respect of shops basements, i.e., the department is of the contention that Income from letting out of commercial establishments is not income from business. He failed to appreciate the intention of the appellant company; as the company was in existence since 1997 was duly showing Income from Letting out of commercial establishments as Income from Business Profession since inception/ acquisition of property. The company's professed objective is to derive trading/ major income from letting out of properties irrespective of the nature of the property. 2. The learned Pr. Commissioner of Income Tax has also disallowed the depreciation vehicle expenses as no business was done during relevant assessment year under appeal. In this regard, we submit that the closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Telephone ₹ 28,698/- 2. Vehicle running and Maintenance exp. ₹ 4,28,718/- 3. Depreciation ₹ 4,90,865/- Total ₹ 9,48,281/- The personal use by the assessee cannot be ruled out. Therefore, an adhoc addition disallowance of ₹ 1,00,000/- is made out of expenses debited above and added in the returned income. 4.1 Accordingly the income was assesseed at ₹ 1,34,832/- instead of NIL declared by the assessee. Thereafter the Ld. Pr. CIT exercised his revisionary powers under section 263 of the Act and observed that the assessment order dt. 20/10/2016 was submitted to his office, on perusal thereof and the assessment record made available by the A.O, it was noticed that the assessee had earned rental income of ₹ 26,63,438/- which had been shown as Income from Business Profession rather than showing the same as Income from House Property and that the said income was further set off against the various expenses claimed viz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in trade remained same at the beginning and at the end of the year, it could not be held that the business was discontinued. The reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Rayala Corporation Pvt. Ltd. Vs. ACIT reported in 386 ITR 500 and Chennai Properties and Investments Ltd. Vs. CIT reported in 373 ITR 673. 4.3 It was accordingly submitted that the rental income from House Property in the case of the assessee was rightly assessed by the A.O. as its income from business and profession because as per the Memorandum of Association (MOA) of the assessee company the main object clause and the ancillary clause read as under: To carry on the business of real estate dealers developers including purchase sale of land, land development, colonization, opurchase, sale construction letting out of houses, flats, farm houses. (OBJECT CLAUSE) To sell, improve, alter, manage, develop exchange, lease, mortgage, dispose of, turn to account or otherwise deal with all or any parts of the business, land, property, assets, rights the resources undertakings of the company in whole or in part in such manner on such terms as the director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and ancillary objects of the assessee were as under: 3. To carry on the business of real estate dealers and developers including purchse and sale of land, land development, colonization, purchase, sale, construction and letting out of houses, flats, farm houses. 4.8 According to the Ld. Pr. CIT, merely because there was an entry in the object clause of the business showing a particular object, would not be the determinative/conclusive factor to arrive at a conclusion that the income was to be treated as income from business . The reliance was placed on the judgment of the Hon'ble Apex Court in the case of Sultan Brothers Pvt. Ltd. Vs. CIT reported in 51 ITR 353 (SC). 4.9 The Ld. Pr. CIT pointed out that no ancillary services were rendered by the assessee to its tenants and it had let out the premises on monthly lease rent right from the beginning of its acquisition / purchase and the A.O. had not verified the lease deeds executed by the assessee as no such copy of the lease deeds were either filed by the assessee or called for by the A.O. during the assessment proceedings. 4.10 He also pointed out that the query letters issued by the A.O. and the replies fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the specific lease / rent deeds executed which would never make the said activity of the assessee to be in the nature of a systematic business activity inspite of the fact that letting out of house, flats farm houses was mentioned in its main object if the decisions of the Hon'ble Supreme Court in the case of M/s Raj Dadarkar Associates (supra) read with Sultan Brother Pvt. Ltd. (supra) were taken into consideration. 4.13 The Ld. Pr. CIT further observed that even the assessee had let out shop with basement on monthly lease rent, where as the object clause was in respect to letting out of houses, flats farm houses and not specifically in respect of shops basements. Therefore the letting out of the shops was not in the nature of doing of systematic business activity or exploitation of property by the owner. He also observed that certain part of the premises i.e; SCO No. 126-127 in Section 8C Chandigarh was leased out but no inquiry in this regard by invoking the provisions of Section 23(1)(c) of the Act was undertaken by the A.O. During the assessment proceedings and this aspect was completely over looked by the A.O. during the course of assessment proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27,07,474/- 26,63,438/- Deduction u/s 24 @ 30% 7,99,030/- Employee benefit 12,00,000/- 12,00,000/- Depreciation 4,90,865/- Not allowable Other expenses 9,87,706/- 5,58,988/- Excluded vehicle running expenses debited in P L account at ₹ 4,28,718/- not allowable vehicle running expenses claimed. When no business done. Income 28,903/- 1,05,418/- Add. Dep. Disallowed 9,08,944/- Total 5,19,768/- Less: Dep. Allowed 9,08,944/- Net income /loss -3,89,226/- + 1,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egular course of business under section 143(3) of the Act as a business income and in the absence of any fresh material on the basis of which the different view could justifiably be taken, it was not permissible for the A.O. to take a departure from the consistent view which was arrived at by him in the past since the inception of the business and that no material had been brought on record which could support the view taken by the Ld. Pr. CIT that certain new facts had emerged during the year under consideration which could justify the departure from the consistent approach adopted by the department. The reliance was placed on the decision of the ITAT, Mumbai Bench in the case of Shibani S. Bhojwani Vs. DCIT (2017) reported in 166 ITD 488 (ITAT MUM). 6.2 Ld. Counsel for the assessee submitted that the assessee was having stock in trade disclosed in the Balance Sheet which was available for sale and the assessee company was keenly interested for sale of the said stock in trade but due to unfavorable market prices as no suitable buyer was found at that time no purchase / sale of property had been carried out during the year under consideration which per-se could not have been l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OME FROM HOUSE PROPERTY 1864406.00 RENTAL INCOME 2663438 LESS: STANDARD DEDUCTION @ 30% -799031.40 PROFITS AND GAINS FROM BUSINESS AND PROFESSION -2634567 PROFIT BEFORE TAX AS PER PROFIT AND LOSS ACCOUNT 28903 ADD: DEPRECIATION DISALLOWED 490865 519768 LESS; ALLOWED DEPRECIATION -490897 LESS: RENTAL INCOME -2663438 CURRENT YEAR LOSS -770160.40 6.5 It was contended that in the similar chart which was considered by the Ld. Pr. CIT, the calculations of the department were made by disallowing entire depreciation and vehicle running ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the interest of the Revenue for the reasons that the assessee was having only rental income which was to be considered as income from house property and not as business income. Secondly there was no business activity therefore expenses and the depreciation was wrongly allowed by the A.O. Now we have to consider as to whether the view taken by the A.O. was a possible view in accordance with law or not. The powers of the Ld. Pr. CIT under section 263 of the Act and conditions to invoke the same may be summarized as under: (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interests of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the A.O. and it is only when an order is erroneous, the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice for the requirement of the order being erroneous. (iv) if the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of real estate dealers and developers including purchase and sale of land, land development, colonization, purchase, sale, construction and letting out of houses, flats, farm houses. The Ld. Pr. CIT considered the above said clause only. However he ignored the ancillary clause no. 19 which read as under: 19. To sell, improve, alter, manage, develop exchange, lease, mortgage, dispose of, turn to account or otherwise deal with all or any parts of this business, lands, property, assets, rights and the resources and undertakings of the Company in whole or in part in such manner and on such terms as the Directors may think fit. From the aforesaid clause it is clear that the assessee company was authorized to lease out the property which in the present case has been done in respect of First Floor Second Floor SCO No. 126 127, Sector - 8C Chandigarh. The said activity of leasing out was undertaken by the assessee company from the very beginning when those assets were purchased, so it cannot be said that this activity was only for the year under consideration. It is not in dispute that in all the earlier years the income received from those lease out proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid referred to cases we are of the opinion that the view taken by the A.O. was in consonance with the ratio laid down by the Hon'ble Supreme Court and view taken by the ITAT in the aforesaid referred to case. In that view of the matter, it cannot be said that the view taken by the A.O. was wrong and if the view taken by the A.O. was one of the possible view the assessment order dated 16/09/2016 passed by him cannot be considered to be erroneous. For the aforesaid view, we are fortified by the ratio laid down by the Hon'ble Supreme Court in the case of CIT Vs. Max India Ltd. [2007] 295 ITR 282 wherein it has been held that as under: The phrase prejudicial to the interest of the Revenue in section 263 of the Income-tax Act, 1961, has to be read in conjunction with the expression erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. Under these circumstances, the petitioner is perfectly justified in contending that it is entitled to claim deduction in respect of the amount paid as interest for raising the loan during the relevant assessment year 8.9 In the present case also the assessee was not finding the buyer to sell the property which were kept as stock in trade, so it cannot be said that the assessee closed the business, therefore the expenses incurred for the purposes of business as well as the depreciation claimed were allowable to the assessee as business expenses, as such the Ld. Pr. CIT was not justified in not considering the depreciation as well as the expenses to work out the income / loss of the assessee. 8.10 In view of the aforesaid discussion, in the present case, it can be said that by considering the rental income received by the assessee as business income which was consistently claimed by the assessee in the preceding years also and the department had accepted the same, the assessment order passed by the A.O. was not prejudicial to the interest of the revenue, particularly when the loss would have been more at ₹ 7,70,160.40 instead of ₹ 3,89,226/- if the ren ..... X X X X Extracts X X X X X X X X Extracts X X X X
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