NA vs. ARI OIL PRODUCTS PRIVATE LIMITED ,MUMBAIVS.ASST. CIT, CENTRAL CIRCLE 34, MUMBAI

On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred, both on facts and in law, upholding the Operating Lease Income of Rs. 39,00,480/- and Service Income of Rs. 6,55,329/- as 'Income from Other Sources instead of 'Income from Business and Profession'.

On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in observing that the Appellant was not in the business of leasing even though the Learned Assessment Officer (the Ld. AO) never challenged that the Appellant was not in business of leasing.

On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred that the Appellant had not filed any evidence to that the Appellant was not in the business of leasing even though all the lease agreements were filed both before the Ld. AO and L.d. CIT(A),

On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred by not following the Hon'ble Tribunal's Order passed in Appellant's own case for AY 2004-05, AY 2007-08 and AY 2008-09 for the same lease and service income arising from the same lease agreements as in the earlier years before the Hon'ble Tribunal.

On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in disallowing the following expenses on the ground that in the current assessment year there was no business activity, neither manufacturing nor trading. Salary, Wages, Bonus and Other Expenses Rs. 22,42,384 Bank Charges Rs. 2,030

The Ld. CIT(A) failed to appreciate that the appellant has not ceased the business activities and all the expenses mentioned above have been incurred wholly and exclusively for the purpose of the business and are allowable as deduction u/s 37(1) of the Income-tax Act 1961. 4. 3. The expenses are also allowable as deduction against the leasing and service income which are part of the business income.

Without prejudice to the above, even if the leasing income is treated as "Income from Other Sources", the expenditure incurred should be allowed as deduction u/s. 57 as the same were incurred-wholly and exclusively for the 'purpose of earning the said income.

The Ld. CIT(A) has erred both on facts and in law in not allowing the set-off of carried forward business losses against the lease income.

We have heard both the sides and have perused the material on record.

The Assessee is stated to have been engaged in the business of manufacturing and trading in fatty acid and fatty alcohols. It is the case of the Assessee that during the previous the Assessment Year 2009-2010 the Assessee was not able to utilize its factory for carrying on activities by itself as there were no sales orders. Further, there was no trading activity. However, Assessee did not shut down its business. The Assessee had let out its land and building alongwith plant and machinery. In the return of income for the Assessment Year 2009-2010, the Assessee had offered to tax under the head ‘Business Income’ the License Income of INR.39,00,480/-, and Service income of INR.655,329/-. The Assessee had also claimed deduction for certain administrative and other expenses incurred during the relevant previous year.

The case of the Assessee was selected for regular scrutiny. Placing reliance upon the order passed by the First Appellate Authority for Assessment Year 2008-09, the Assessing Officer concluded that no business activity was carried on by the Assessee during the relevant previous year and treated the business income offered to tax by the Assessee ass business income as income taxable under the head ‘Income from Other Sources’. The deduction claimed by the Assessee for business expenses was disallowed by the Assessing Officer on the ground that the expenses were not incurred wholly and exclusively for the purpose of business. Thus, the Assessing Officer concluded as under:

Being aggrieved, the Assessee preferred appeal before the Learned CIT(A) which was dismissed vide Order, dated 22/09/2025, impugned by way of the present appeal on the grounds reproduced in paragraph 2 above.

It is admitted positions that the lower authorities had relied upon the decision of the Learned First Appellate Authority in the case of the Assessee for the Assessment Year 2008-2009 while rejecting the claim/contentions of the Assessee. During the course of hearing the Learned Authorised Representative for the Assessee had placed on record the Common Order, dated 09/02/2021, passed by the Mumbai Bench of the Tribunal in the case of the Assessee for the Assessment Year 2004-2005 [ITA No. 8665/Mum/2010], 2007-2008 [ITA No. 6575/Mum/2012] and 2008-2009 [ITA No. 8553/Mum/2011]. On perusal of same we find that the issue of determination of nature of operating lease income was decided by the Co-ordinate Bench of the Tribunal in the favour of the Assessee holding that in the present case (a) the rental/lease income was taxable as business income; (b) the Assessee was entitled to claim deduction for expenses and depreciation; and (c) the Assessee was also entitled to claim set-off of brought forward losses. The relevant extract of the Common Order, dated 09/02/2021, passed by the Tribunal in the case of the Assessee in for the Assessment Year 2004-2005 [ITA No. 8665/Mum/2010], 2007-2008 [ITA No. 6575/Mum/2012] and 2008-2009 [ITA No. 8553/Mum/2011] is set out herein under:

Upon due consideration, we find that though there are various allegations in the assessment order that the assessee group was indulging in colorable tax avoidance devices, however, the trading results shown by the assessee have ultimately been not disturbed by Ld. AO. What has been done is the fact that rental income from Buildings has been assessed as „Income from House Property‟ whereas lease income from Plant & Machinery has been assessed as „Income from Other Sources‟. In the process depreciation on these assets has been denied to the assessee. It could also be observed that by accepting the trading results, Ld. AO has accepted the fact that assessee‟s business was continuing despite the observation that no manufacturing activity was being carried out by the assessee during the year which is also evident from the fact that except for depreciation allowance, retrenchment compensation along with minor disallowances, all other business expenditure as claimed by the assessee has been allowed by Ld. AO.

Proceeding further, we find that various lease agreements of buildings and Plant & Machinery, entered into by the assessee, were continuing since past many years and the assessee earned rental / lease income in similar manner since AY 1999-2000 and offered the same as „Business income‟. The assessee‟s stand has always been accepted by the department in most of other years. The Ld. AR has tabulated the assessment position, along with documentary evidences, for various years in the following manner:- xx xx It could be gathered that rental / lease income so earned by the assessee has been accepted by the revenue as „Business income‟ all along since AY 1999-2000 except for this assessment year and AYs 2007-08 & 2008-09. 6 Though undisputedly, the principle of res - judicata is not applicable to income tax proceedings but the rule of consistency would demand that accepted position is not disturbed on identical facts as per the decision of Hon‟ble Bombay High Court in the case of PCIT v/s. Quest Investment Advisors Pvt. Ltd. reported in [2018] 409 ITR 545 wherein it has been held that when a principle has been accepted by the Revenue in earlier years as well as in subsequent years then the Revenue is bound by it unless there is a change in law or change in facts therein, which change has to be pointed out in the assessment Order. In so doing the jurisdictional High Court followed the judgment of the Supreme Court in Bharat Sanchar Nigam Ltd. v/s. Union of India reported in [2006] 282 ITR 273 where the court had drawn a distinction between the principle of res judicata and consistency. The decision of Hon‟ble Apex Court in Radhasoami Satsang V/s CIT (193 ITR 321) also favor the same proposition.

Therefore, on the facts and circumstances, the action of Ld. AO in disturbing the rental / lease income as „Business Income‟ could not be held to be justified. Once the assessee‟s position has been accepted in so many past as well as succeeding years, there is no reason to disturb the same only in few years, the facts being remaining the same. Therefore, we are inclined to hold that the rental / lease income from building as well as from plant & machinery was assessable as „Business Income‟ only. 9 Consequently, the assessee would be entitled for depreciation on these assets. In such a scenario, the question of determining the notional rental income would not, at all, arise. We order so. Ground Nos.3 & 4 stand allowed to that extent. 9. xx xx ITA No.3576/Mum/2012, AY 2007-08 10. xx xx

As stated, the assessee is, more or less, similarly aggrieved in this year. While framing assessment u/s 143(3) on 31/12/2009, the lease income is proposed to be assessed as „income from other sources‟. Consequently, 90% of major expenditure comprising-off of Salaries, Administration and Rent etc. has been disallowed. The set-off of business losses has been denied. The stand of Ld. AO, upon confirmation by Ld. CIT(A), is in further challenge before us.

Since facts are identical in this year, following our adjudication for AY 2004-05, we hold that rental / lease income was to be assessed as „Business Income‟ only. Consequently, the assessee would be entitled for deduction of business expenditure as well as set-off of carry forward losses. The Ld. AO is directed to recompute the income in terms of our above order. The appeal stand allowed in terms of our above order.

The facts in this year are quite identical to AY 2007-08. While framing assessment u/s 143(3) on 23/11/2010, the lease income is proposed to be assessed as „income from other sources‟. Consequently, salary expenses to the extent of 75%, repairs to building for Rs.1.73 Lacs and professional fees of Rs.0.19 Lacs has been disallowed by Ld. AO which has been confirmed by ld. CIT(A). The set- off of business losses has also been denied. Aggrieved, the assessee is in further appeal before us.

Since facts are identical as in AY 2007-08, following our adjudication for that year, we hold the rental / lease income was to be assessed as „Business Income‟ only. Consequently, the assessee would be entitled for deduction of Salary expenditure, repairs to building and professional fees as well as set-off of carry forward losses. The Ld. AO is directed to re-compute the income in terms of our above order. The appeal stand allowed in terms of our above order.

The appeal for AY 2004-05 stands partly allowed whereas the remaining two appeals stand allowed in terms of our above order.”