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TMI Blog2022 (6) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... income and allow the same in accordance with law after giving reasonable opportunity of hearing to the assessee. Income from Business Centre and reimbursement of expenses - Income from house property or business - contention of the assessee is that it has not let out any property or part thereof, instead it has been allowing the spaces for commercial use by commercially exploiting the property for the purpose of business - HELD THAT:- We have perused the Business Centre Agreement ( Agreement ) entered into between the assessee company and three space holder companies - Agreement mentions that the licensor assessee is owner and in possession of commercial building situated in Greater Kailash-II, New Delhi and that it is authorised to utilise commercial space appx. 1852 sq. ft. located at Mezzanine Floor of the said complex for running Business-cum-Facility Centre therefrom. In pursuance of the same the assessee has set up a fully air conditioned Business-cum-Facility Centre in the said commercial space for providing temporary office and other secretarial services and facilities to different individuals, companies and entities against payment of monthly Licence Fee and other cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses claimed by the assessee and allow deduction in computing income from business if on verification the expenses are found to be deductible as per law after giving reasonable opportunity of hearing to the assessee. Disallowance of interest - AO made the disallowance for the reason that amount borrowed by the assessee from M/s. Binaguri Tea Company Pvt. Ltd. was considered as assessee s income from undisclosed source - HELD THAT:- We are of the view that the impugned interest paid on borrowal for the purpose of assessee s business has to be allowed under section 36(1)(iii) of the Act. We, therefore, direct the AO to allow the interest (inclusive of TDS deposited by the assessee to the credit of the lender) while computing income of the assessee under the head business . It may not be out of place to mention that the loan obtained by the assessee appearing in its books as credit has been held to be genuine by us. Accordingly, interest on the capital borrowed for the purposes of business is a deductible expenditure. We direct the Ld. AO to modify the assessment. Outstanding credit balance in the account of M/s. Bell Ceramics Ltd . - AO made the disallowance holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the completion of assessment proceedings, which consideration alone could not have been held as a valid consideration for upholding the assumption of jurisdiction to make an order u/s 143(3) of the Act. 2. That the learned CIT(A) has failed to comprehend that the burden to establish that the notice u/s 143(2) of the Act had been served within the statutory period had to be discharged by the AO and as such in the absence of such a burden having been discharged by the AO, it had to be held that very assumption of jurisdiction to frame an assessment u/s 143(3) of the Act is vitiated in law. The learned CIT(A) ought to have thus held that the order of assessment itself was nullity in law. 3. That the learned CIT(A) has erred both on facts and in law in substantially confirming the order of assessment in having failed to allow even the routine business expenditure incurred by the assessee, despite the fact such an expenditure claimed represented business expenditure and that too without assigning any reason whatsoever. 3.1 That the learned CIT(A) has failed to comprehend that it was even undisputed by the AO that the assessee is engaged in the business and is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om Searock Developers Pvt. Ltd. against the sale of property, despite the fact the assessee had discharged its initial onus in establishing the identity, creditworthiness and genuineness of the transaction and as such the addition sustained by the learned CIT(A) is entirely misconceived. 6.2.1 The learned CIT(A) has further failed to appreciate that the additions of Rs. 7,45,81,575/- had been made by the learned AO only on the ground that the creditors had failed to respond to his notice u/s 133(6) of the Income Tax Act, which could not have been held to be any valid and legal basis. 6.2.2 That the learned CIT(A) has further failed to appreciate that it had been admitted by the AO in his order that the source of advance of Rs. 5,50,00,000/- had been established by the assessee when it had furnished the bank account of the creditor which reflected that the creditor before advancing the loan to the assessee, had received Rs. 5,85,00,000/-, from a source through cheque and not in cash. 6.2.3 That the learned CIT(A) while confirming the addition of Rs. 1,83,00,000/- has failed to comprehend that the basis on which the addition has been made is wholly ingenious and as such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has failed to appreciate that out of an expenditure debited in the profit and loss account of Rs. 3,76,74,222/- the assessee itself had not claimed a amount of Rs. 2,83,11,092/- representing the provision made for advances, sinking fund, ground rent and property tax and as such he ought to have held that the assessee, to be allowed a deduction of Rs. 93,63,130/-. 7.5 That the learned CIT(A) ought to have directed the AO to allow a deduction of a sum aggregated to Rs. 3,70,35,314/- as an allowable expenditure, while computing its business income. 7.6 That the learned CIT(A) has thus erred in upholding the disallowance of an amount of Rs. 48,73,153/-, and claimed under the head interest and the amount of interest paid to M/s Binaguri Tea Company Pvt. Ltd. despite the fact the said sum was debited in the books of accounts under the head interest expenses . He has failed to appreciate that the assessee had borrowed the amount of Rs. 5,50,00,000/- from M/s Binaguri Tea Company Pvt. Ltd. and had been utilised for the purposes of business. 7.7 That the learned CIT(A) has erred in failing to appreciate that the assessee had further claimed a deduction of Rs. 1,90, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a presumption that the notice has been correctly and properly served upon the appellant within the time prescribed and therefore, in view of the provisions of section 292BB, it is held that there is no merit in the contention of the appellant... . Accordingly, we reject these grounds. 5. Ground Nos. 3 and 3.1 relate to denial of deduction of expenditure while computing income under the head Business . Perusal of the appellate order reveals that the Ld. CIT(A)-1 held that the assessee s business income comprised of income from management consultancy of Rs. 35,04,508/-, interest income of Rs. 72,40,190/- and profit on sale of asset of Rs. 60,447/-. The grievance of the assessee is that the expenditure relatable to the said business income debited to P L Account ought to have been allowed as deduction which has not been done. 5.1 We find substance in the above contention of the assessee and direct the Ld. AO to scrutinise the expenses debited to the P L Account relatable to the aforesaid business income and allow the same in accordance with law after giving reasonable opportunity of hearing to the assessee. 6. Ground No. 4 relates to income from Business Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the order of the Hon ble Calcutta High Court wherein it is held as under :- Hence, we hold that prime object of the assessee under the said agreement was to let out the portion of the said property to various occupants by giving them additional right of using the furniture and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property. In view of the facts and law discussed above, we hold that the income derived from the said property is an income from property and should be assessed as such. 6.4 The Ld. AO also observed (page 12 of Assessment Order) that the assessee has itself admitted in its submission made in AY 2010-11 that income from Business Centre is inclusive of cost of fully air condition business-cum-facility in the nature of commercial space and for providing temporary office and other similar charges provided under a specific agreement executed with them. 6.5 According to the Ld. AO in the assessee s own case for AY 2008-09, the Assessing Officer s finding that there is no business activity such as to warrant computation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in CIT vs. Excel Industries Ltd. (2013) 358 ITR 295 (SC), CIT vs. J.K. Charitable Trust 308 ITR 161 (SC) and CIT vs. Maruti Suzuki India Ltd. 416 ITR 613 (SC). 6.8.3 The contention of the assessee is that it has not let out any property or part thereof, instead it has been allowing the spaces for commercial use by commercially exploiting the property for the purpose of business. Therefore the impugned income from Business Centre is assessable as business income and not as income from house property. In support, reliance is placed on Chennai Properties Investment Ltd. vs. CIT (2015) 373 ITR 673 (SC); Rayala Corporation (P) Ltd. vs. ACIT (2016) 386 ITR 500 (SC); PCIT vs. Sri Bharathi Warehousing Corporation (2017) 392 ITR 160 (AP). 6.8.4 Likewise, it is submitted that the amount of Rs. 13,43,161/- received by way of reimbursement of expenses forms part of business receipt and had the same character i.e. as income from Business Centre. 6.8.5 It is also a grievance of the assessee that while computing total income of the assessee the Ld. AO did not allow expenditure debited in the P L Account which has been allowed since inception 6.9 We have given our caref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l building for the purpose of enjoying the rent but to commercially exploit the same by letting it out Therefore, income derived therefrom partakes the character of income from business. 6.10.2 During the assessment proceedings it was brought to the notice of the Ld. AO that since inception starting from AY 2002-03 the assessee company has been receiving Business Centre income which has duly been assessed as Business income till AY 2007-08. The activity of the Business Centre was dormant in AY 2008-09 for which the assessee furnished explanation. The inability of the assessee to make use of the commercial building in one year will not change its nature. In the following AY 2009-10 Business Centre receipts were taxed as Business income. Except the AYs 2010-11, 2011-12 and 2012-13 Business Centre receipts have again been taxed as Business income in assessments framed under section 143(3) for the AYs 2013-14 and 2014-15. It is thus obvious that income derived from Business Centre has been accepted by the Revenue as Business income in preceding years as well as subsequent assessment years. 6.10.3 We are aware that the principle of estoppel and res-judicata do not apply in inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial use by commercially exploiting the property for the purpose of business. In such a scenario income derived by commercially exploiting the property is assessable as business income as held in the judgements relied upon by the assessee. In our opinion reliance by the Ld. AO on the decision of Calcutta High Court in Shambhu Investment Pvt. Ltd. (supra), confirmed by the Hon ble Supreme Court is totally misplaced as in that case there was no commercial exploitation of the property by the assessee. 6.10.6 We, therefore, hold that the income derived by the assessee from running Business Centre amounting in all to Rs. 1,17,76,874/- and income of Rs. 13,43,161/- by way of reimbursement of expense constitute Business income and are assessable as such. The Ld. AO is directed to modify the assessment and carry out necessary consequential amendments. He shall allow the deduction of expenses debited to P L Account as per law and withdraw the deduction allowed under section 24 of the Act. We order accordingly and allow this ground of the assessee. 7. Ground No. 5 relates to determination of carry forward and set off of business loss claimed by the assessee which has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt. Ltd. for the first time during the year and that too as an advance from customer and even if the assessee s contention of some dispute is accepted, it is not comprehensible how why assessee should hold on to the said amount. In fact, in ordinary course whenever there is any dispute the said amount would be returned forthwith. He, therefore, made impugned addition under section 68 read with section 69A of the Act. 8.4 On appeal, the Ld. CIT(A)-1 discussed this issue in para 4.4 of his appellate order. The assessee submitted before the Ld. CIT(A)-1 that in respect of unsecured loan of Rs. 5,62,85,575/- received from Binaguri Tea Company Pvt. Ltd., it filed before the Ld. AO a confirmation of account from the said company which is an income-tax payee and is assessed at PAN: AABCD1008P. The bank statement of the assessee was also filed from where it is seen that the said company had paid a sum of Rs. 5,50,00,000/- to the assessee company on 28.05.2010 through Banking Channel. Regarding advance received from M/s. Searock Developers Pvt. Ltd. of Rs. 1.83 crore, the submission made before the Ld. AO was reiterated. Accepting the findings of the Ld. AO, the Ld. CIT(A)-1 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money found to have been received by the assessee is on him as held by the Hon ble Supreme Court in Kale Khan Mohammad Hanif vs. Commissioner of Income-Tax (1963) 50 ITR 1 (SC) and Roshan Di Hatti vs. CIT (1997) 107 ITR 938 (SC). 8.9 It is also well settled that in the case of cash credit entry it is necessary for the assessee to prove not only the identity of the creditors but also to prove the capacity of the creditors to advance the money and the genuineness of the transaction. In C. Kant Co. vs Commissioner Of Income-Tax (1980) 126 ITR 63 (Cal), the Hon ble Calcutta High Court held that on whom the onus of proof lies in a particular case is a question of law . But whether the onus has been discharged in a particular case is a question of fact. 8.10 Hon ble Kolkata High Court observed in the case of S.K. Bothra Sons (HUF) vs. ITO (2011) 203 TAXMAN 436 (Kol) that the law is settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the Assessing Officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal came to the conclusion that the assessee has discharged the burden which lay on him, then it could not be said that such conclusion was unreasonable or perverse or based on no evidence. 9.3 Secondly, according to the Ld. AO there is deposit of Rs. 5,85,00,000/- on 25.05.2010 just three days earlier in the account of the creditor in HDFC bank. In this regard, the submission of the assessee is that the said deposit is through clearance of a cheque. It is not a deposit in cash. 9.4 Thirdly, as per Ld. AO the account of the creditor reflected few transactions, the submission of the assessee is that the Ld. AO overlooked the fact that the said account was only one of the account and not all (page 274 of the Paper Book). 9.5 Lastly, the Ld. AO observed that income of the creditor for AY 2011-12 as per return is NIL. The assessee stated that during appellate proceeding the Ld. CIT(A)-1 directed to file further details. In response thereto, the assessee filed written submission dated 09.10.2018 and enclosed therewith Financial Accounts of the creditor company for the year ending 31.03.2011; a copy of ledger account of the creditor in the books of the assessee; l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is submitted that the assessee had further refunded Rs. 1 lac. It is pointed out that the Ld. AO has not disputed either the creditworthiness or the source of the credit. The assessee has placed on record Financial Account of the creditor for the year ending on 31.03.2011 (page 438-451 of the Paper Book). Profit and Loss Account shows the income of Rs. 39,55,609/- in AY 2011-12 as against income of Rs. 25,33,745/- of the preceding year. 10.3 Having heard the submission of the parties and on careful consideration thereof, we have reached to the conclusion that the assessee has discharged the primary onus which lay upon it. The identity of the creditor, the creditworthiness of the creditor and genuineness of the transaction have been proved by the assessee. In CIT vs. Bedi Co. Pvt. Ltd. (1998) 230 ITR 580 (SC) , the Hon ble Supreme Court held that where the explanation offered by the assessee as to the nature and source of credit is prima facie credible, it cannot be rejected on mere surmises. We, therefore, delete the impugned addition of Rs. 1,83,00,000/-. Ground No. 6 and its sub-grounds are decided in favour of the assessee. 11. Ground No. 7 has not been pressed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness has to be allowed under section 36(1)(iii) of the Act. We, therefore, direct the AO to allow the interest (inclusive of TDS deposited by the assessee to the credit of the lender) while computing income of the assessee under the head business . It may not be out of place to mention that the loan obtained by the assessee appearing in its books as credit has been held to be genuine by us. Accordingly, interest on the capital borrowed for the purposes of business is a deductible expenditure. We direct the Ld. AO to modify the assessment. 15. Ground No. 7.7 relates to write off of outstanding credit balance of Rs. 1,90,64,516/- in the account of M/s. Bell Ceramics Ltd.. The Ld. AO made the disallowance holding that its nexus with income earned during the year is not established (page 14 of the Assessment Order). Before the Ld. CIT(A)-1 the assessee submitted that the impugned sum has been claimed by the assessee as having written off out of interest claimed from the said company. He, however, confirmed the disallowance observing that the assessee did not tender satisfactory explanation as to how the amount qualifies for writing off. 15.1 The assessee is now before us. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A) ought to have held that the entire expenditure incurred and debited in the Profit Loss account and claimed by it in the computation of income of Rs. 3,43,32,655/- be allowed, when it has not been disputed that the assessee was engaged in the business. The finding of the learned CIT(A) that the only proportionate expenditure is allowable is erroneous. He has failed to appreciate that once the assessee is engaged in the business, the entire expenditure incurred and debited in the Profit Loss account which has not been disputed, is an allowable deduction. 3. That in any case and without prejudice, the learned Commissioner of Income Tax (Appeals), has failed to appreciate that as the income earned by it from business centre aggregated to Rs. 1,45,64,364/- is held to be income from property, then statutory deduction u/s 24(a) of the Income Tax Act had to be allowed, and thus the disallowance made of Rs. 25,09,214/- under the head business income was untenable instead CIT(A) ought to have held that a deduction of Rs. 43,69,309/- be allowed to the assessee as a deduction. 4. That the learned Commissioner of Income Tax (Appeals), has erred both on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is assessable as Business income which may be recomputed allowing expenses relatable thereto debited in P L Account in accordance with law and to withdraw the statutory deduction under section 24(a) allowed while computing income of Business Centre under the head Income from house property . The Ld. AO is directed to modify the assessment of AY 2012-13 suitably following the above direction. This ground is decided accordingly. 23. Ground No. 4 relates to disallowance of interest of Rs. 57,90,822/- paid to M/s. Binaguri Tea Company Pvt. Ltd.. Identical issue arose for our consideration in AY 2011-12 in Ground No. 7.6 wherein we held that interest paid on borrowal for the purposes of business is an allowable deduction under section 36(1)(iii) of the Act in computing income from business. Accordingly, the similar issue raised in AY 2012-13 is decided in favour of the assessee. The Ld. AO is directed to modify the assessment. 24. Ground No. 5 relates to disallowance of Rs. 7,260/- under section 14A of the Act. The Ld. AO had disallowed Rs. 11,17,148/- which disallowance on appeal has been restricted to Rs. 7,260/- by the Ld. CIT(A)-2. The impugned disallowance has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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