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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI RAMIT KOCHAR & SHRI DUVVURU R.L.REDDY
आदेश / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER:
These two appeals filed by assessee are directed against common appellate Order dated 22.05.2018 passed by learned Commissioner of Income Tax (Appeals)-1, Chennai (hereinafter called “the CIT(A)”), in ITA No.62 & 119/CIT(A)-1/2009-10 & 2011-12 for assessment Years (ay’s) 2006-07 & 2009-10 respectively , the appellate proceedings before learned CIT(A) had arisen from separate assessment orders dated 11.12.2009 & 23.11.2011 respectively passed by learned Assessing Officer
ITA Nos.2172 & 2263/Chny/2018 :- 2 -:
(hereinafter called “the AO”) u/s.143(3) read with Section 147 of the
Income-tax Act, 1961 (hereinafter called “the Act”) for ay: 2006-07 and
under Section 143(3) of the 1961 Act for ay: 2009-10 , respectively .
Common issues are involved in both the appeals filed by assessee for
these two ay’s and hence both these appeals are heard together and
disposed off by this common order.
The grounds of appeal raised by assessee in memo of appeal filed
with Income-Tax Appellate Tribunal, Chennai (hereinafter called “the
Tribunal”) for ay: 2006-07 and 2009-10 respectively , reads as under:-
Grounds of Appeal for the AY: 2006-07
“1. The order of the learned Commissioner of Income Tax (Appeals)-1, Chennai, is wrong, illegal and is opposed to law and facts of the case.
The learned assessing officer erred in re-opening the assessment without any additional tangible material to show that income has escaped assessment. The Notice under section 148 dated 9.01.2009 was based on income returned by the appellant vide his ROI.
The learned Assessing Officer ought to have seen that the assessee has furnished full and true particulars of its income at the time of original assessment with reference to income alleged to have escaped assessment and that the assessment cannot be validly reopened under Section 147 of the Act, even within four year, merely on the basis of change of opinion.
The learned CIT(A) erred in law in confirming the income derived by the appellant from letting out its building and sales income as Income from Other Sources.
The learned CIT(A) erred in law in taxing the income on account of sale as inventory as income from other sources and consequently disallowed the appellant claim of expenditure.
The learned CIT(A) erred in law in disallowing the appellants claim for deduction under 24(1)(b) towards interest paid in respect of loan taken for acquisition of the property.
The learned CIT(A) erred in restricting the claim of expenditure towards on account of property tax payment to Rs.8,09,545/- as against the claim of Rs.12,94,380/-.
For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon'ble Tribunal may be pleased to allow the appellants appeal and thus render justice.”
Grounds of Appeal for the AY: 2009-10
The order of the learned Commissioner of Income Tax (Appeals)-1, Chennai, is wrong, illegal and is opposed to law and facts of the case.
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The learned assessing officer erred in re-opening the assessment without any additional tangible material to show that income has escaped assessment. The Notice under section 148 dated 9.01.2009 was based on income returned by the appellant vide his ROI.
The learned Assessing Officer ought to have seen that the assessee has furnished full and true particulars of its income at the time of original assessment with reference to income alleged to have escaped assessment and that the assessment cannot be validly reopened under Section 147 of the Act, even within four year, merely on the basis of change of opinion.
The learned CIT(A) erred in law in confirming the income derived by the appellant from letting out its building as Income from Other Sources as against the claim of the appellant under the head income from house property.
The learned CIT(A) erred in law in disallowing the appellants claim for deduction under 24(1)(b) towards interest paid in respect of loan taken for acquisition of the property.
For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon'ble Tribunal may be pleased to allow the appellants appeal and thus render justice.”
First we shall take up appeal filed by assessee with tribunal for ay:
2006-07. At the outset, learned counsel for the assessee submitted that
assessee does not want to pursue Ground Nos.2 & 3 challenging re-
opening of concluded assessment by AO u/s.147 of the 1961 Act on legal
grounds and prayers were made by learned counsel for assessee to
dismiss grounds number 2 and 3 of its appeal for ay: 2006-07 , as not
been pressed. The learned counsel for assessee made endorsement in the
appeal file that assessee did not want to persue legal challenge to
reopening of the concluded assessment u/s 147 of the 1961 Act and
prayers are made by learned counsel for the assessee before the Bench to
that effect that the said ground number 2 and 3 may be dismissed as not
being pressed. The Ld.DR did not oppose dismissal of Ground Nos.2 & 3
raised by assessee in memo of appeal filed with tribunal. After hearing
contentions of both the parties and perusing the material on record, we
dismiss Ground Nos.2 & 3 raised by assessee in memo of appeal filed with
ITA Nos.2172 & 2263/Chny/2018 :- 4 -:
tribunal for ay: 2006-07, as not being pressed. While dismissing Ground
No. 2 and 3, it is observed that re-opening of the concluded assessment
by AO u/s 147 of the 1961 Act was done within 4 years from the end of
the assessment year and originally no assessment was framed by
Revenue u/s.143(3) of the Act and return of income was originally
processed u/s.143(1) of the 1961 Act. The decision of the Hon’ble
Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Private
Limited reported in (2007) 291 ITR 500(SC) gets applicable as no opinion
was initially formed by the AO as return of income was originally
processed u/s 143(1) of the 1961 Act and no scrutiny assessment was
framed by the AO u/s 143(3) of the 1961 Act. It is observed that
reopening of the concluded assessment was done by the AO by invoking
provisions of Section 147 of the 1961 Act within four years from end of
assessment year and hence proviso to Section 147 of the 1961 Act is not
applicable. We order accordingly.
Ground No.1 raised by assessee in memo of appeal filed with tribunal
for ay: 2006-07 is general in nature and is hereby dismissed.We order
accordingly.
Now coming to one of the effective issue in this appeal filed by assessee
with tribunal raised vide ground number 4 by assessee in memo of appeal
filed with tribunal for ay:2006-07 . Briefly stated facts of the case are that
the assessee was engaged in the business of fabrication work and
manufacture of bulk handling equipments. However, aforesaid business of
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the assessee was admittedly discontinued and stood closed since 2001.
The assessee had now let out factory land owned by it along with
building thereon , located at No. 9 Industrial Area II, Maraimalai Nagar,
Industrial Complex , Maraimalai Nagar-603209 , along with 2 Generators
to one M/s. Stanadyne Amalgamations (P) Ltd. for a period of 6 years
from 01.02.2004 to 31.01.2010 on a monthly rental of Rs. 2,05,000/-
(monthly rental will go up by 25% effective from 01.02.2007 onwards) ,
vide lease deed dated 01.02.2004. The assessee has filed copy of lease
deed dated 01.02.2004 with tribunal which is placed in file. The assessee
has treated said rental income as business income under the head ‘Profits
and Gains from Business or Profession’ , while filing return of income with
Revenue. But, however, said rental income was assessed by AO under
the head ‘income from other sources’, while framing assessment u/s
143(3) read with Section 147 of the 1961 Act. The Ld.CIT(A) has upheld
assessment order passed by AO.The learned CIT(A) while passing
appellate order noted that it is the assessee who had itself offered for tax
said rental income under the head ‘Income from House Property’ while
filing return of income for ay:2009-10 , but said income however was
again assessed to tax by AO for ay: 2009-10 under the head ‘Income from
other sources’ , while framing scrutiny assessment u/s 143(3) of the 1961
Act for ay: 2009-10.
Aggrieved by an appellate order passed by learned CIT(A) for ay: 2006-
07, the assessee has filed an appeal before this tribunal . The Ld.
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Counsel for assessee opened arguments before the Bench and submitted
that this rental income cannot be brought to tax under the head ‘income
from other sources’. It was fairly submitted by learned counsel for the
assessee that said income ought to have been brought to tax under the
correct head of income viz. ‘income from house property’ as there are
separate head’s of income specified under Section 14 of the 1961 Act for
bringing to tax various income’s of the tax-payers and rental income is to
be brought to tax under the head ‘Income from House Property’. It was
submitted that factory land along with building thereon and 2 Generators
were given on lease for a period of six years on monthly rental of `
2,05,000/- , as assessee’s own business stood discontinued and closed
since 2001 onwards and thus to earn rental income , this property
consisting of factory land and building thereon along with two Generators
were given on long term lease of six years . It was submitted that
predominant purpose and intention for giving on lease said property
along with generators on lease is to earn lease rent of Rs. 2,05,000/- per
month and not to do any systematic /organized business activities. The
Ld.DR, on the other hand, relied upon the orders of the authorities below.
We have considered rival contentions and perused the material on
record. We have observed that assessee was earlier engaged in business
of fabrication work and manufacture of bulk handling equipments. The
assessee’s aforesaid business was admittedly discontinued and stood
closed since 2001. The assessee has leased factory land along with
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building thereon and two generators installed at 9 Industrial Area II,
Maraimalai Nagar, Industrial Complex, Maraimalai Nagar-603209 on
monthly rental of Rs. 2,05,000/- to M/s.Stanadyne Amalgamations (P)
Ltd. for a period of six years from 01.02.2004 to 31.01.2010 . The
monthly rental shall increase by 25% effective from 01.02.2007 . A copy
of lease deed dated 01.02.2004 is filed by assessee with tribunal which is
placed on record in file. A perusal of the said lease deed clearly shows
that predominant objective of the assessee is to lease out factory land
along with factory building constructed thereon along with two generators
to earn rental income. There is no intention visible on perusal of lease
deed to undertake organized and systematic business activities by
assessee and in our considered view the income is to be brought to tax
under the head ‘income from house property’. The assessee business of
fabrication work and manufacture of bulk handling equipments stood
discontinued since 2001 and hence this assets were lying idle which was
leased on rent. The assessee has voluntarily declared said rental income
for ay:2009-10 under the head ‘income from house property’ . There are
different heads of income prescribed under Section 14 of the 1961 Act and
various income’s earned by tax-payers are to be assessed under the
correct head prescribed for bringing that income to tax. The income which
could not be brought to tax under any of the prescribed heads owing to
nature of the income, is then brought to tax under the residuary head
namely ‘Income from Other Sources’. The Hon’ble Supreme Court in the
case of Raj Dadarkar & Associates v. ACIT, CC-46, in Civil Appeal
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Nos.6455-6460 of 2017 vide judgment dated 09.05.2017 reported in
(2017) 81 taxmann.com 193(SC) had elaborately discussed as to under
what circumstances rental income is to be brought to tax under the head
‘income from house property’ or under the head ‘Profits and Gains from
Business of Profession’ , in this decision the Hon’ble Supreme Court has
distinguished its own decisions in the case of Chennai Properties &
Investments Ltd. v. CIT reported in (2015) 373 ITR 673(SC) and Rayala
Corporation Private Limited v. ACIT reported in (2016) 386 ITR 500 (SC)
to explain the parameters to be seen while bringing to tax rental income
under the head ‘Income from House Property’ or under the head ‘Profit
and Gains from Business or Profession’. It is observed by Hon’ble Supreme
Court that facts of each case are to be seen to determine what is the
correct head of income under which rental income is to be brought to tax.
The said decision of Hon’ble Supreme Court in the case of Raj Dadarkar &
Associates (supra) is reproduced hereunder: “10. We have considered the aforesaid submissions of counsel for the parties in the light of legal provisions contained in the Act. We may remark at the outset that it is not in dispute that having regard to the terms and conditions on which the leasehold rights were taken by the appellant in auction, constructed the market area thereupon and gave the same to various persons on sub-licensing basis, the appellant would be treated as deemed owner of these premises in terms of Section 27(iiib) of the Act. We may point out that the High Court took note of the provisions of Section 27(iiib) as well as Section 269UA(f) of the Act which reads as under: "Section 27(iiib) - a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof; Section 269UA(f) - "transfer",— (i) in relation to any immovable property referred to in sub-clause (i) of clause (d), means transfer of such property by way of sale or exchange or lease for a term of not
ITA Nos.2172 & 2263/Chny/2018 :- 9 -:
less than twelve years, and includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882). Explanation.—For the purposes of this sub-clause, a lease which provides for the extension of the term thereof by a further term or terms shall be deemed to be a lease for a term of not less than twelve years, if the aggregate of the term for which such lease is to be granted and the further term or terms for which it can be so extended is not less than twelve years ; (ii) in relation to any immovable property of the nature referred to in sub-clause (ii) of clause (d), means the doing of anything (whether by way of admitting as a member of or by way of transfer of shares in a co-operative society or company or other association of persons or by way of any agreement or arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, such property." 11. Thereafter, the High Court pointed out the circumstances under which the Market Department of MHAD had auctioned the market area wherein the appellant was the successful tenderor; the BMC permitted sub-letting of the shops and stalls in stilt portion; the appellant was permitted to carry out additions and alterations which he did; the manner in which the appellant after making necessary constructions sub- licensed to various types of traders etc. On that basis, the High Court concluded that reading of various clauses harmoniously as per the which the rights were given to the appellant in the said property, pointed out towards the appellant acquiring rights in or in respect of the building or part thereof, which rights were clearly traceable to Section 269UA(f) of the Act. 12. As pointed out above, the aforesaid conclusion is not even disputed by the learned counsel for the appellant. The submission was, as noted above, even if the appellant is deemed owner of the premises in question, since the letting out the place and earning rents therefrom is the main business activity of the appellant, then the income generated from sub-licensing the market area and earned by the appellant should be treated as income from business and not income from the house property. His submission was that the dominant test has to be applied and once it is found that dominant intention behind the activity was that of a business, the rental income would be business income. In support, Mr. Agarwal referred to the following two judgments: (i) Chennai Properties and Investments Ltd. v. CIT [2015] 373 ITR 673/231 Taxman 336/56 taxmann.com 456 (SC). (ii) Rayala Corporation (P.) Ltd. v. Asstt. CIT [2016] 386 ITR 500/243 Taxman 360/72 taxmann.com 149 (SC). 13. Before dealing with the respective contentions, we may state, in a summary form, scheme of the Act about the computation of the total income. Section 4 of the Act is the charging Section as per which the total income of an assessee, subject to statutory exemptions, is chargeable to tax. Section 14 of the Act enumerates five heads of income for the purpose of charge of income tax and computation of total income. These are: Salaries, Income from house property, Profits and gains of business or profession, Capital gains and Income from other sources. A particular income, therefore, has to be classified in one of the aforesaid heads. It is on that basis rules for
ITA Nos.2172 & 2263/Chny/2018 :- 10 -:
computing income and permissible deductions which are contained in different provisions of the Act for each of the aforesaid heads, are to be applied. For example, provisions for computing the income from house property are contained in Sections 22 to 27 of the Act and profits and gains of business or profession are to be computed as per the provisions contained in Sections 28 to 44DB of the Act. It is also to be borne in mind that income tax is only One Tax which is levied on the sum total of the income classified and chargeable under the various heads. It is not a collection of distinct taxes levied separately on each head of the income. 14. There may be instances where a particular income may appear to fall in more than one head. These kind of cases of overlapping have frequently arisen under the two heads with which we are concerned in the instant case as well, namely, income from the house property on the one hand and profits and gains from business on the other hand. On the facts of a particular case, income has to be either treated as income from the house property or as the business income. Tests which are to be applied for determining the real nature of income are laid down in judicial decisions, on the interpretation of the provisions of these two heads. Wherever there is an income from leasing out of premises and collecting rent, normally such an income is to be treated as income from house property, in case provisions of Section 22 of the Act are satisfied with primary ingredient that the assessee is the owner of the said building or lands appurtenant thereto. Section 22 of the Act makes 'annual value' of such a property as income chargeable to tax under this head. How annual value is to be determined is provided in Section 23 of the Act. 'Owner of the house property' is defined in Section 27 of the Act which includes certain situations where a person not actually the owner shall be treated as deemed owner of a building or part thereof. In the present case, the appellant is held to be "deemed owner" of the property in question by virtue of Section 27(iiib) of the Act. On the other hand, under certain circumstances, where the income may have been derived from letting out of the premises, it can still be treated as business income if letting out of the premises itself is the business of the assessee. 15. What is the test which has to be applied to determine whether the income would be chargeable under the head "income from the house property" or it would be chargeable under the head "Profits and gains from business or profession", is the question. It may be mentioned, in the first instance, that merely because there is an entry in the object clause of the business showing a particular object, would not be the determinative factor to arrive at a conclusion that the income is to be treated as income from business. Such a question would depend upon the circumstances of each case. It is so held by the Constitution Bench of this Court in Sultan Bros. (P) Ltd. v. CIT [1964] 51 ITR 353 (SC) and we reproduce the relevant portion thereof: "7. … We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature."
ITA Nos.2172 & 2263/Chny/2018 :- 11 -:
In view thereof, the object clause, as contained in the partnership deed, would not be the conclusive factor. Matter has to be examined on the facts of each case as held in Sultan Bros. (P) Ltd. case (supra) Even otherwise, the object clause which is contained in the partnership firm is to take the premises on rent and to sub-let. In the present case, reading of the object clause would bring out two discernible facts, which are as follows: (a) The appellant which is a partnership firm is to take the premises on rent and to sub- let those premises. Thus, the business activity is of taking the premises on rent and sub-letting them. In the instant case, by legal fiction contained in Section 27(iiib) of the Act, the appellant is treated as "deemed owner". (b) The aforesaid clause also mentions that partnership firm may take any other business as may be mutually agreed upon by the partners. 17. In the instant case, therefore, it is to be seen as to whether the activity in question was in the nature of business by which it could be said that income received by the appellant was to be treated as income from the business. Before us, apart from relying upon the aforesaid clause in the partnership deed to show its objective, the learned counsel for the appellant has not produced or referred to any material. On the other hand, we find that ITAT had specifically adverted to this issue and recorded the findings on this aspect in the following manner: "26. …On this issue facts available on record are that the assessee let out shops/stalls to various occupants on a monthly rent. The assessee collected charges for minor repairs, maintenance, water and electricity. As per the terms of allotment by the BMC, the assessee was bound to incur all these expenses. The assessee, in turn, collected extra money from the allottees. The assessee collected 20% of monthly rent as service charges. Such service charges were also used for providing services like watch and ward, electricity, water etc. This in our opinion was inseparable from basic charges of rent. The assessee has made bifurcation of the receipt from the, occupiers of the shops/stalls as rent and service charges. As rightly held by the Assessing Officer, decision of Hon'ble Supreme Court in the case of Shambu Investment Pvt. Ltd., 263 ITR 143 will apply. The assessee has not established that he was engaged in any systematic or organized activity of providing service to the occupiers of the shops/stalls so as to constitute the receipts from them as business income. In our opinion, the assessee received income by letting out shops/stalls; and therefore, the same has to be held as income from house property." 18. The ITAT being the last forum insofar as factual determination is concerned, these findings have attained finality. In any case, as mentioned above, the learned counsel for the appellant did not argue on this aspect and did not make any efforts to show as to how the aforesaid findings were perverse. It was for the appellant to produce sufficient material on record to show that its entire income or substantial income was from letting out of the property which was the principal business activity of the appellant. No such effort was made. 19. Reliance placed by the appellant on the judgments of this Court in Chennai Properties & Investments Ltd. (supra) and Rayala Corporation (P) Ltd. (supra) would be of no avail. In Chennai Properties & Investments Ltd. (supra) where one of us (Sikri, J.)
ITA Nos.2172 & 2263/Chny/2018 :- 12 -:
was a part of the Bench found that the entire income of the appellant was through letting out of the two properties it owned and there was no other income of the assessee except the income from letting out of the said properties, which was the business of the assessee. On those facts, this Court came to the conclusion that judgment of this Court in Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC) was applicable and the judgment of this Court in East India Housing & Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC) was held to be distinguishable. In the present case, we find that situation is just the reverse. The judgment in East India Housing and Land Development Trust Ltd. (supra) which would be applicable which is discussed in para 8 of Chennai Properties & Investments Ltd. case (supra) and the reproduction thereof would bring home the point we are canvassing: "8. With this background, we first refer to the judgment of this Court in East India Housing and Land Development Trust Ltd. case [East India Housing and Land Development Trust Ltd. v. CIT, [1961] 42 ITR 49 (SC)] which has been relied upon by the High Court. That was a case where the company was incorporated with the object of buying and developing landed properties and promoting and developing markets. Thus, the main objective of the company was to develop the landed properties into markets. It so happened that some shops and stalls, which were developed by it, had been rented out and income was derived from the renting of the said shops and stalls. In those facts, the question which arose for consideration was: whether the rental income that is received was to be treated as income from the house property or the income from the business? This Court while holding that the income shall be treated as income from the house property, rested its decision in the context of the main objective of the company and took note of the fact that letting out of the property was not the object of the company at all. The Court was therefore, of the opinion that the character of that income which was from the house property had not altered because it was received by the company formed with the object of developing and setting up properties." 20. In Rayala Corporation (P) Ltd. (supra) fact situation was identical to the case of Chennai Properties & Investments Ltd. (supra) and for this reason, Rayala Corporation (P) Ltd. (supra) followed Chennai Properties & Investments Ltd. (supra) which is held to be inapplicable in the instant case. 21. For the aforesaid reasons, we are of the opinion that these appeals lack merit and are, accordingly, dismissed with cost.” After considering the aforesaid decision of Hon’ble Supreme Court in the
case of Raj Dadarkar and Associates(supra) and applying the ratio of the
aforesaid decision to factual matrix prevailing in the case before us, we
are of the considered view that rental income earned by the assessee from
letting out its factory land and building along with 2 generators is to be
brought to income-tax under the head ‘income from house property’ , as
predominant purpose of the assessee was to let out its owned property
ITA Nos.2172 & 2263/Chny/2018 :- 13 -:
along with 2 generators installed therein with an intention to earn rental
income and not to carry on any organized and systematic business
activities by letting out this property along with 2 generators installed
therein. In income-tax matters, the objective is to assess correct income
of taxpayer for the correct assessment year chargeable to tax in the
correct hands as per scheme of the 1961 Act, which inter-alia include
assessing correct income under correct head of income with an ultimate
objective being that State gets correct tax from the tax-payer.
Proceedings before tribunal are merely extension of an assessment
proceedings to bring to tax correct income of the correct tax-payer
chargeable to income-tax in correct hands for correct assessment year
under correct head of income specified under Section 14 of the 1961 Act ,
so that Revenue gets its legitimate share of correct taxes due from tax-
payer for every assessment year. Since, we have held that rental income
from the said factory land , building constructed thereon and 2 generators
installed thereon shall be chargeable to income-tax under the head
‘Income from House Property’ and hence as fall out /consequence of the
same , the depreciation claimed by assessee on such assets shall not be
allowed keeping in view the fact that assessee has not used such assets
for the purposes of business or profession of the assessee during the year
under consideration . It is admitted position that business of the assessee
stood discontinued/closed since 2001. The decision of Mumbai-tribunal in
the case of Emco Dyestuff Private Limited v. DCIT reported in (2019) 108
taxmann.com 206(Mum-trib.) is relevant. We order accordingly.
ITA Nos.2172 & 2263/Chny/2018 :- 14 -:
With regard to Ground No.5 raised by assessee in memo of appeal filed
with tribunal for ay: 2006-07 which is with respect to disallowance of
following expenditure incurred by the assessee. The assessee has
incurred following expenses which were claimed as business expenses by
the assessee in return of income filed with Revenue, the details of which
are as under:
S.No. Expenditure Amount (Rs.) 1 Rent 2,40,000 2 Salaries and Wages 2,58,000 3 Telephone charges 36,298 4 Audit Fee 15,000 5 Director Remuneration 4,45,000 6 Other expenditure 1,12,215 Total 11,06,513
It is admitted position between rival parties that business of the assessee
was discontinued and stood closed since 2001 and admittedly there was
no business activities carried on by the assessee during the previous year
relevant to impugned ay. The AO disallowed aforesaid expenses except
an audit fee of Rs. 15,000/- which only stood allowed by the AO . One of
the predominant conditions for allowing the claim of business expenses
under the head ‘Profits and Gains of Business or Profession’ is that the
assessee has carried out business or profession during the year under
consideration. But, in this case, there is no business admittedly carried on
by the assessee during the entire year under consideration as it stood
closed/discontinued since 2001. The learned CIT(A) after considering the
entire factual matrix has rightly upheld assessment order passed by the
ITA Nos.2172 & 2263/Chny/2018 :- 15 -:
AO confirming disallowance of these business expenses except audit fees.
We do not find any infirmity in the appellate order passed by Ld.CIT(A)
confirming disallowance of aforesaid expenses except audit fee of Rs.
15,000/- which order of learned CIT(A) we confirm/uphold and accordingly
Ground No.5 raised by assessee in memo of appeal filed with tribunal for
ay: 2006-07 stand dismissed. The decision of Mumbai-tribunal in the case
of DCIT v. Ashik Woolen Mills Private Limited reported in (2017) 164 ITD
331(Mum-trib.) is relevant. We order accordingly.
With regard to Ground No.6 for ay: 2006-07, which concerns itself with
disallowing of interest expenses to the tune of Rs. 12,82,880/- by AO
which disallowance stood confirmed by learned CIT(A). It is stated by
learned counsel for the assessee before us that loans were raised by
assessee from SIPCOT for acquiring property consisting of factory land
and building thereon situated at 9 Industrial Area II, Maraimalai Nagar,
Industrial Complex, Maraimalai Nagar-603209 . It is claimed by learned
counsel for the assessee that this loan raised by assessee from SIPCOT
was repaid by availing fresh loan from Karur Vysya Bank and proceeds of
fresh loans raised from Karur Vysya Bank were used to repay loan earlier
raised from SIPCOT and thus a claim is made before the Bench that
interest paid was w.r.t. borrowings made for acquisition factory land and
building owned by assessee which was let out during the year under
consideration and hence interest paid on such borrowings used for
acquiring factory land and building thereon is to be allowed as deduction
while computing rental income arisen from letting out aforesaid factory
ITA Nos.2172 & 2263/Chny/2018 :- 16 -:
and building thereon chargeable to tax. The authorities below disallowed
said interest expenses as the assessee could not prove nexus of borrowing
with the amount spent for acquisition of factory land and building
thereon. The Ld.Counsel for the assessee pleaded before the Bench that
one more opportunity be granted to the assessee and assessee will
establish with cogent evidences that interest bearing loans borrowed from
Karur Vysya Bank were used to repay earlier loans raised by assessee
from SIPCOT and hence direct nexus can be proved which link cost of
acquisition of factory land and building situated at 9 Industrial Area II,
Maraimalai Nagar, Industrial Complex, Maraimalai Nagar-603209 with
ultimate borrowings from Karur Vysya Bank on which interest expenditure
was incurred. It was submitted that cogent and credible evidences will be
submitted before the AO to prove that proceeds of Karur Vysya Bank
loans were used for re-paying earlier borrowing from SIPCOT for
acquiring factory land and building. Our attention was drawn to para 12-
15 of appellate order passed by learned CIT(A) wherein details were
mentioned about these contentions of the assessee. The Ld.DR did not
raise objection if the matter is restored to the file of AO for fresh
adjudication. Under these circumstances and keeping in view entire
factual matrix of the case , we restore this issue back to the file of the
Assessing Officer for fresh adjudication on merits in accordance with law.
We have already held in preceding para’s of this order that rental income
from said factory land and building leased out by assessee along with two
generators shall be brought to tax under the head ‘Income from House
ITA Nos.2172 & 2263/Chny/2018 :- 17 -:
Property’ and in that case interest expenditure allowability shall be
governed by provisions of Section 24(b) of the 1961 Act . We clarify that
onus is now entirely on the assessee to prove with cogent and credible
evidences that interest bearing funds were borrowed from banks/FI for the
purpose of acquiring factory land and factory building and direct nexus is
to be proves, which assets were let out by the assessee during the year
under consideration . Needless to say that AO shall give proper and
adequate opportunity of being heard to the assessee in denovo
adjudication of the issue and evidences/explanation submitted by
assessee in its defense shall be admitted by the AO and thereafter
adjudicated on merits in accordance with law. We clarify that we have not
commented on the merits of this issue and AO shall be free to adjudicate
this issue in denovo proceedings on merits in accordance with law
uninfluenced by any of our observations in this order. Thus, Ground No.6
is allowed for statistical purposes.We order accordingly.
With respect to Ground No.7 raised by assessee in memo of appeal
filed with tribunal for ay: 2006-07, the assessee is aggrieved by restricting
of allowability of property tax payment to Rs. 8,09,545/- as against claim
for allowability of property tax of Rs.12,94,380/- filed by assessee in
return of income filed with Revenue . On perusal of the appellate order
passed by learned CIT(A) , it is observed that the assessee has expressed
inability to provide evidences in support of its claim for property tax
payments and hence ground of appeal raised by assessee before learned
CIT(A) stood dismissed by learned CIT(A) for ay: 2006-07. The learned
ITA Nos.2172 & 2263/Chny/2018 :- 18 -:
counsel for the assessee has also expressed even before us inability to
provide evidences in support of its claim for property tax paid by it and
prayers were made by learned counsel for assessee for dismissal of this
ground of appeal. The Ld.DR did not object for dismissal of this ground of
appeal. After hearing both the parties and perusing material on record, we
dismiss this ground of appeal number 7 filed by assessee in memo of
appeal filed with the tribunal for ay: 2006-07. It is the assessee who is
claiming deduction towards property tax payments from lease rent
received by it on leasing of the property and hence onus is squarely on
the assessee to prove with cogent evidences as to payment of property
taxes claimed as deduction in accordance with law. The assessee
miserably failed to furnish cogent evidences concurrently before all the
authorities including us and hence we are inclined to dismiss this ground
of appeal . Thus, Ground No.7 stands dismissed.We order accordingly.
In the result, the appeal filed by assessee in ITA
Nos.2172/Chny/2018 for ay: 2006-07 stand partly allowed.
Appeal of the Assessee–ITA No. 2263/Chny/2018 for ay: 2009-10
Since similar issues are involved in appeal filed by assessee for ay:
2009-10 as were there in appeal filed by assessee for ay: 2006-07(
ground number 1 to 4 and 6 of appeal for ay: 2006-07 are common issues
in ay: 2009-10) , our decision in ITA no. 2172/Chny/2018 for ay: 2006-07
for aforesaid relevant grounds therein shall apply mutatis mutandis to
ITA Nos.2172 & 2263/Chny/2018 :- 19 -:
appeal filed by assessee in ITA no. 2263/Chny/2018 for ay: 2009-10.We
order accordingly.
In the result, the appeal filed by assessee in ITA
Nos.2263/Chny/2018 for ay: 2009-10 stand partly allowed.
In the result, both the appeal(s) filed by assessee in ITA
Nos.2172/Chny/2018 for ay: 2006-07 and ITA no. 2263/Chny/2018 for
ay: 2009-10 stand partly allowed.
Order pronounced in Open Court on this 21st day of November,
2019 in Chennai.
Sd/- Sd/- (धु$वु% आर.एल. रे'डी) (र�मत कोचर) (DUVVURU R.L.REDDY) (RAMIT KOCHAR) �या)यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai, 5दनांक/Dated: 21st November, 2019. TLN
आदेश क1 /)त�ल6प अ7े6षत/Copy to: 4. आयकर आयु8त/CIT 1. अपीलाथ./Appellant 5. 6वभागीय /)त)न�ध/DR 2. /0यथ./Respondent 6. गाड+ फाईल/GF 3. आयकर आयु8त (अपील)/CIT(A)