NOOR RESORTS PRIVATE LIMITED,KULLU vs. PR.CIT, SHIMLA

आदेश/Order

PER N.K. SAINI, VICE PRESIDENT

This is an appeal by the Assessee against the order dt. 19/03/2020 of Ld. Pr. CIT, Shimla passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’).

the business was discontinued or non-continuation of business is not a criteria to decide heads of income or any disallowance of expenses. 3. The Appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds.

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 to the interest of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view-with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under the law.

(vi) If while making the assessment, the A.O. examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under s. 263, is not permitted to substitute his estimate of income in place of the income estimated by the A.O.

(vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the said conclusion.

(vii) The CIT, before exercising his jurisdiction under s. 263, must have material on record to arrive at a satisfaction.

(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allowed the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard."

8.1 In the present case, the A.O. during the course of original assessment proceedings, issued the questionnaire to the assessee, in response to which the assessee furnished the reply and the documents which were considered by the A.O. so it cannot be said that the enquiries were not made by the A.O. The rental income shown by the assessee was considered to be “business income” as was done in the preceding years since inception of the business by the assessee.

However, the Ld. Pr. CIT was of the view that the said view was not correct as the letting out of the shop from which the rent was received was not the main object of the assessee. 8.2 To resolve this controversy we have to considered the object and ancillary object as mentioned in the Memorandum of Association and Article of Association of the assessee company copy of which is placed at page no. 22 to 41 of the assessee’s compilation. The clause 3 of the said MOA read as under: “ 3. To carry on 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 properties was considered as “business income”, as the clause no. 19 of the MOA authorized assessee to lease out its property which was its anciallary activity. 8.3 On a similar issue the Hon'ble Supreme Court in the case of Chennai Properties and Investments Ltd. Vs. CIT (supra) held as under: “ that letting of the properties was in fact the business of the assessee. The assessee, therefore, rightly disclosed the income under the head “Income from business”. It could not be treated as “Income from house property”. In the present case also the main object of the assessee in its MOA was 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. However as per Clause 19 of the aforesaid MOA the assessee was authorized to sell, improve, alter, manage, develop exchange, lease, mortgage, dispose of etc of the business lands, property, assets etc in whole or in part in such manner and on such terms as the Directors may think fit. Therefore the income of the assessee received on lease out property was its business income. 8.4 On a similar issue the Hon'ble Supreme Court in the case of Rayala Corporation Pvt. Ltd. Vs. ACIT(supra) held as under: “ that admittedly, the assessee had only one business and that was of leasing its property and earning rent therefrom. The business of the company was to lease its property and to earn rent and therefore, the income so earned should be

treated as its business income. The income of the assessee was to be subject to tax under the head “Profits and gains of business or profession”. 8.5 Similarly the ITAT, Mumbai “J” Bench in the case of Shibani S. Bhojwani Vs. DCIT(supra) held as under: “Income from composite letting of furnished flats by the assessee, after thorough vetting and scrutiny, having been accepted and assessed as ‘business income’ by the Department in the earlier years while framing regular assessments, in the absence of any new facts emerging during the year under consideration, such income cannot be assessed under the head ‘Income from house property’; composite rental receipts are assessable as business income in the relevant assessment year also in view of rule of consistency.” 8.6 Therefore by keeping in view the ratio laid down in the aforesaid 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 view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law.” 8.7 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. However the Ld. 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. In the present case, if there was no closure of the business, therefore, it cannot be said that the assessee was not allowed to claim expenses if those were incurred for the business purposes. 8.8 On a similar issue the Hon'ble Karnataka High Court in the case of K Sreedharan & Co. Vs. CIT(supra) held as under:

“I find merit in the contention raised on behalf of the petitioner and the reliance placed on the above-mentioned decisions. In the present case also, the assessment is not unit-wise but assessee-wise. Admittedly, the petitioner had to participate in the auction which was conducted during the relevant assessment year for the purpose of carrying on the business for the following year. The assessee had to incur expenses for the above purpose. It is admitted that the assessee had taken the loan and had to pay interest for the purpose of raising money to participate in the auction and to acquire the licence for the purpose of conducting the business of buying and selling arrack during the following year. It is also an admitted fact that, for many years previous to the assessment year, the assessee had been carrying on the same 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 Rs. 7,70,160.40 instead of Rs. 3,89,226/- if the rental income was to be considered as “income from House Property”, instead of “business income”, as declared by the assessee. 8.11 We therefore by considering the totality of the facts as discussed herein above are of the view that the assessment order passed by the A.O. was not prejudicial to the interest of the Revenue. In that view of the matter, the impugned order passed by the Ld. Pr. CIT under section 263 of the Act is quashed. 5.1 In the said case one Miscellaneous Application was also filed to rectify the mistake apparent from record which was decided by this Bench of ITAT vide order dt. 05/05/2021 in M.A. No. 04/Chd/2021, the mistake apparent from the record was rectified, the relevant findings have been given in para 5 of the said order which read as under:

to oversight and typographical mistake. Therefore, the mistake is rectified, now in the order dated 11/11/2020 in ITA No. 860/Chd/2019 at page No. 15 in line 2&3, it is to be read as “Ground Floor and Basement” instead of “First Floor & Second Floor”. Except this, there is no change in the aforesaid order dated 11/11/2020 of the Tribunal. Since the facts for the year under consideration are identical to the facts involved in the earlier A.Y. 2014-15, so respectfully following the aforesaid referred to orders passed in ITA No. 860/Chd/2019 and MA No. 04/Chd/2021 dated 11/11/2020 & 05/05/2021 respectively in assessee’s own case, the impugned order passed by the Ld. Pr. CIT is quashed.

(Order pronounced in the open Court on 06/10/2021)

Sd/- Sd/- आर.एल. नेगी एन.के.सैनी, (R.L. NEGI ) ( N.K. SAINI) �या�यक सद�य/ Judicial Member उपा�य� / VICE PRESIDENT AG Date: 06/10/2021 आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar