MANMIT ARCADE (P) LTD,MANGALORE vs. INCOME TAX OFFICER MANGALURU, MANGALURU

Briefly stated the facts of the case are has undertaken the following transactions during the financial year 2018-19 :

It was noticed that assessee has not filed the return of income for the relevant AY 2019-20. The case was reopened u/s 147 vide order u/s 148A(d) and notice issued u/s 148 of the Act dated 27.02.2023. Thereafter notice under section 142(1) of the Act was issued on 8th July 2023. The assessee did not respond to the notice. Thereafter a reminder letter and show cause notice (SCN) was issued on various dates, which also was not responded by the assessee. The learned AO, thereafter issued a notice under section 133(6) to the parties calling for information. In response information received from 2 parties namely M/s Cogent E Services Private Limited and Bajaj Finance Limited. Subsequently SCN dt 3rd January 2024 and 7th February 2024 issued and served on the assessee. The assessee failed to comply with the SCN. Therefore the Ld AO has left with no other option but to frame the assessment based on the material available on record. He therefore treated the amount of Rs. 57,87,500/- (Rs 82,67,855/- minus Rs.24,80,356/- i.e 30% deduction u/s 24 ) as rental income of the assessee under “Income from house property”.

The Ld AO also noticed that assessee has received a contractual payments aggregating to Rs.9,63,400/- from various parties and estimated 8% as income from business by making an addition of Rs.77,070/-.

On being aggrieved by the Order of the learned AO, assessee carried the matter before the learned CIT(A). The assessee remained non-compliant before the Ld CIT(A). Therefore the Ld CIT(A) upheld the additions of the Ld AO, by dismissing the appeal of the assessee.

On being aggrieved by the Order of the learned CIT(A), assessee is in appeal before us by raising following revised grounds.

The assessee also filed additional evidence under Rule 29 of ITAT Rules which is extracted below: 1. The Appellant prays that the Hon'ble Tribunal may be pleased to admit the additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, and either adjudicate the issues on the basis of such evidence or restore the matter to the file of the Learned Assessing Officer or the Learned Commissioner of Income Tax (Appeals), as the Hon'ble Tribunal may deem fit, for fresh adjudication after affording the Appellant a reasonable opportunity of being heard. 2. The Appellant could not produce the relevant documents before the Learned Assessing Officer and the Learned Commissioner of Income Tax (Appeals) due to circumstances beyond its control. All the Directors of the Company belong to the same family, and serious family disputes arose during the relevant period, which adversely affected the management and affairs of the Company. Owing to these disputes, the Company was unable to effectively manage its affairs, comply with the requirements of the Companies Act, or properly respond to the notices issued during the assessment and appellate proceedings. The existence of the family dispute is evidenced by the judgment of the Additional Civil Judge & CJM, Mangaluru in Case No. 54/2018 dated 20.11.2018, a copy of which is enclosed. The Appellant has already discharged the due tax liability for the relevant assessment year, and the additional evidence now sought to be produced is crucial for the proper adjudication of the issues involved. Since the evidence goes to the root of the matter and is necessary for rendering substantial justice, it is prayed that the same may kindly be admitted in the interest of justice.

The assessee by way of additional evidence has submitted the judgment of the Additional Civil Judge & CJM, Mangaluru in Case No. 54/2018 dated 20.11.2018, citing the same as reason for non appearance before the Revenue Authorities. He therefore prayed for admission of additional evidences and restore the matter to the file of the Learned Assessing Officer or the Learned Commissioner of Income Tax (Appeals), as the Hon'ble Tribunal may deem fit, for fresh adjudication after affording the Assessee a reasonable opportunity of being heard.

The Ld AR submitted that serious family disputes arose during the relevant period, which adversely affected the management and affairs of the Company. The Company was unable to effectively manage its affairs, comply with the requirements of the Companies Act, or properly respond to the notices issued during the assessment and appellate proceedings. He further submits that the assessee could not produce the relevant documents before the Learned Assessing Officer and the Learned Commissioner of Income Tax (Appeals) due to circumstances beyond its control. The assessee also pointed out that in the preceding assessment years, the rental receipts from the very same commercial property/activity had consistently been assessed as business income and such treatment had been accepted by the Department. The learned AR further submitted that the assessee has been systematically carrying on the activity for several years and the Department has accepted the rental receipts as business income in earlier assessment years. There has been no material change in the facts or in the nature of the assessee's business during the year under consideration.

Reliance was placed on the judgments of the Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd. v. CIT, [2015] 373 ITR 673 (SC).

However, the Assessing Officer did not accept the claim of the assessee. According to the Assessing Officer, the income received by the assessee from letting out the property was assessable under the specific head “Income from House Property”. Accordingly, the rental receipts of Rs.57,87,500/- were treated as income from house property.

Per Contra the Ld DR submitted that the lower authorities have provided multiple opportunities where the assessee remained non compliant. He therefore pleaded that the order of Ld CIT(A) be upheld.

We have heard the rival contentions and carefully perused the material on record. The issue requiring consideration is whether the rental receipts received by the assessee from letting out the commercial complex are assessable under the head “Income from House Property” or under the head “Profits and Gains of Business or Profession”. The assessee is a company and, as stated before the lower authorities, its Memorandum of Association specifically contains objects relating to the activity of letting out commercial premises/commercial complex. The receipts are from letting out a commercial complex. The assessee has been carrying on the activity of letting out the commercial complex systematically and continuously.

The assessee has been consistently treating the rental receipts from the said activity as business income in the earlier assessment years. The Department has accepted such treatment in the past.

There is no finding by the Assessing Officer that there has been any material change in the nature of the assessee's business, the property, the manner of exploitation of the property, or the terms of letting during the year under consideration.

The Department cannot, therefore, disregard the established position in the assessee's own case in the absence of any material change in facts, merely because the Assessee has remained non compliant before the Revenue. It is true that the principle of res judicata does not strictly apply to income-tax proceedings and each assessment year is ordinarily a separate unit. However, where a fundamental aspect permeating through different assessment years has been examined and accepted by the Department in earlier years, a departure in a subsequent year, without any material change in facts or circumstances, requires proper justification.

We find merit in the argument of the Ld AR and considering the prayer the issues are remanded back to Ld AO for fresh consideration. The assessee shall be provided an opportunity to furnish submissions and documentary evidences. The Ld AO is directed to provide an opportunity of being heard and the submissions furnished by the assessee be examined in the light of our observations as aforesaid.

With regard to ground No 7, regarding the estimation of profits at 8% of the contractual receipts, in the absence of furnishing of documentary evidence by the assessee before the Ld AO, we are of the view that this issue is also remanded back to Ld AO for fresh consideration.

Accordingly, the issues raised by the assessee are statistically allowed.

ITA 3036/Bang/2025

In the result the appeals of the assessee are allowed.