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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
The captioned cross appeals- one by the Revenue and the one by the assessee – are directed against the order of the Commissioner of Income Tax (Appeals)-10, Mumbai [in short ‘CIT(A)’] and arise out of the M/s Essar Properties Pvt. 2 & 1363/Mum/2016 assessment completed u/s 143(3) of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off by this consolidated order for the sake of convenience. Assessment Year: 2011-12 2. The grounds of appeal
s filed by the Revenue read as under:
1. On facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that income from lease rent of property is assessable as "Business Income" instead of " Income from House Property".
2. On facts and in circumstances of the case and in law, the Ld. CIT (A) has erred in holding that rental expenses of Rs,59,94,458/- and the depreciation of Rs.1,30,41,779/- on Building are allowable expenses against the rental income because the same is in nature of business income and not income from house property.
3. The appellant prays that the order of the Ld. CIT (A) on the above grounds be set aside to the file of the AO or confirm the order of the AO.
3. Briefly stated, the facts of the case are that the assessee-company had incurred various expenses in connection with earning of the business centre income and lease rental income on leasing plant and machinery and premises. The Assessing Officer (AO) assessed the business centre income and rental income under the head “Income from House Property” as against “Income from Business” and the remaining income under “Income from Business”. Thus, the AO identified expenses of Rs.89,89,271/- and depreciation of Rs.1,30,41,779/- as relating to rental income. Out of these expenses of Rs.89,89,271/-, the assessee had already disallowed Rs.21,35,116/- towards diminishing in value of M/s Essar Properties Pvt. 3 & 1363/Mum/2016 investments and Rs.8,59,697/- as loss on demolition of building in the return of income. Accordingly, the AO disallowed the balance expenses of Rs.59,94,458/- and depreciation of Rs.1,49,21,727/- on building, holding that the same had been incurred for property rented out and hence not eligible for any deduction except as enumerated u/s 24 of the Act.
4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) followed the order of his predecessor for the assessment year (AY) 2010-11 and allowed the appeal filed by the assessee.
5. Before us, the Ld. DR relies on the order of the AO. On the other hand, the Ld. counsel of the assessee relies on (i) order of the Mumbai Bench of the Tribunal assessee’s own case for the AY 2009-10 being ITA No. 423/Mum/2015, (ii) order of the Mumbai Bench of the Tribunal assessee’s own case for the AY 2009-10 being ITA No. 58/Mum/2015, (iii) order of the Mumbai Bench of the Tribunal assessee’s own case for the AY 2010-11 being ITA Nos. 2650 and 3747/Mum/2015, (iv) order of the Mumbai Bench of the Tribunal assessee’s own case for the AY 2005-06 being ITA No. 5852/Mum/2009 and (v) decision of the Hon’ble Bombay High Court in assessee’s own case for AY 2005-06 in ITA No. 1432 to 2011 and the order of the Ld. CIT(A) for the AY 2011-12.
We have heard the rival submissions and perused the relevant materials on record. We find that the same issue arose before the M/s Essar Properties Pvt. 4 & 1363/Mum/2016 Tribunal in earlier assessment years as mentioned at para 5 hereinbefore. For ready reference, we may mention here the order dated 29.02.2008 of the Co-ordinate Bench in assessee’s own case for AY 1997-98 and AY 2001-02 (ITA No. 2328/Mum/2004 & 3464/Mum/2005) and extract the decision as under: “We have duly considered the rival contentions and gone through the record carefully. Except AY 1997-98 in all other assessment years rental income received by the assessee has been assessed as business income. The Hon’ble Supreme Court in the case of Radhasoami Satsang v. CIT (supra) has held that no doubt principle of res judicata is strictly not applicable to the income tax proceedings, each assessment year is an independent unit, what is decided in one year may not apply in the subsequent year. However, Hon’ble Court observed that where fundamental aspect permeating through the different assessment years has been found as a facts one way or the other way and the parties have allowed that position to be sustained by not challenging the order it would not be appropriate to allow the proposition to be changed in subsequent year. The Hon’ble Supreme Court while holding so made a reference of the full bench decision of the Madras High Court wherein the fundamental reasons have been given for not deviating the stand in different assessment years. The observation extracted by the Hon’ble Supreme Court in this judgment and appearing at page 328 of the journal reads as under: “A Full Bench of the Madras High Court considered this question in T.M.M. Sankaralinga Nadar and Bros. v. CIT (1929) 4 ITC 226. dealing with the contention the Full Bench expressed the following opinion (p.242). The principle to be deduced from these two cases is that where the question relating to assessment does not vary with the income every year but depend on the nature of the property or any other question on which the rights of the parties to be taxed are based, e.g. whether a certain property is M/s Essar Properties Pvt. 5 & 1363/Mum/2016 trust property or not, it has nothing to do with the fluctuations in the income, such questions, if decided by a court on a reference made to it would be res judicata in that the same question cannot be subsequently agitated”. One of the decisions referred to by the Full Bench was the case of Hoystead v. Commissioner of Taxation [1926] AC 155 (PC) speaking for the Judicial Committee, Lord Shaw stated (p.165) “Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle namely that of a setting to rest rights of litigants, applies to the case where a point fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant has not been traversed in that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken.” Similarly, the Hon’ble Delhi High Court in 245 ITR 492 found that if rental income from the factory building assessed as business income for earlier assessment years consistently and there is no material change in facts then AO is not supposed to assess such income all of a sudden as income from house property in one of the year in isolation. The other decisions cited by the assessee supra are also on the same line. The ld. Counsel for the assessee has demonstrated that this is the only assessment year in which rental income has been assessed as income from house property, otherwise in earlier assessment years as well as in subsequent assessment years i.e. A.Y. 1998-99 to 2000-01 such income has been assessed as business income. He M/s Essar Properties Pvt. 6 & 1363/Mum/2016 demonstrated that after a gap of 3-4 years then again A.Y. 2001-02 the AO has assessed the income under the head house property. We find that in this assessment year i.e.2001-02 there is no change of facts and circumstances but simply for the reason that A.Y. 1997-98 such income was assessed under the head house property income, the ld. CIT(A) upheld the order of the AO. In view of the above authoritative pronouncement of Hon’ble Supreme Court the AO is supposed to maintain consistency on his stand upto and unless there is material change either in the facts or on the law. No such thing is discernible from the assessment order. More so, the AO has not doubted the leasing business of the assessee because he has accepted the assessee’s version as far as the rental income received by the assessee on the properties taken on lease and thereafter subleased by it to the sister concerns. In view of the above discussion, we allow the appeals of the assessee and direct the AO to assess the rental income from leasing activity under the head business income. Consistently, we also allow the depreciation on the building as well as equipment provided by the assessee. Since we upheld the leasing activity of the assessee as a business activity, therefore, the AO is directed to allow the other incidental expenses such as electricity charges, security charges and repairs of the building.” 6.1 Facts being identical, we follow the above decision and dismiss the appeal filed by the Revenue. ITA No. 1363/MUM/2016 Assessment Year: 2011-12 7. The grounds of appeal
filed by the assessee read as under:
1. The Commissioner of Income Tax (Appeals)-10, Mumbai, erred in confirming the disallowance u/s 14A read with Rule 8D made by the Dy. Commissioner of Income Tax-5(1) (‘the AO’) of Rs.2,83,60,930/-.
M/s Essar Properties Pvt. 7 & 1363/Mum/2016 2. The commissioner of Income Tax (Appeals)-10, Mumbai erred in confirming the deduction as lower of bought forward business loss or depreciation as per books of accounts of Rs.1,73,40,666/- while calculating the book profit u/s 115JB of the Act. 8. We begin with the 1st ground of appeal
. In a nutshell, the facts are that during the year under consideration the assessee had earned dividend income of Rs.1,65,928/- which it claimed as exempt income. During the course of assessment proceedings, the AO asked the assessee to explain as to why disallowance u/s 14A r.w. Rule 8D should not be made. In response to it, the assessee explained to the AO that it had not incurred any expenses to earn exempt income and hence there is no question of making any disallowance on account of expenses incurred for earning the exempt income. However, the AO was not convinced with the said explanation of the assessee and made a disallowance of Rs.2,83,60,930/- under Rule 8D(2)(iii) of the Income Tax Rules, 1963 (the Rule).
9. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) agreed with the reasons given by the AO. However, as the assessee has disallowed Rs.45,200/- under Rule 8D, the Ld. CIT(A) directed the AO to give credit to this amount while making disallowance u/s 14A.
10. Before us, the Ld. counsel of the assessee submits that for the purpose of disallowance u/s 14A of the Act only those investments are to be considered from which exempt income has been received during the year. Reliance is placed by him on the decision in (i) Asst. CIT v.
M/s Essar Properties Pvt. 8 & 1363/Mum/2016 Vireet Investments [165 ITD 25 (Del) (SB)], (ii) ACB India v. ACIT [374 ITR 108 (Del)], (iii) CIT v. Interglobe Enterprises Ltd. (Delhi High Court), (iv) M/s Slyvex Cable Co. Pvt. Ltd. v. DCIT being ITA No. 8581/Mum/2011 for AY 2008-09 dated 24.02.2016. The Ld. counsel further submits that disallowance u/s 14A of the Act is to be restricted to the amount of exempt income earned by assessee during the year. Reliance is placed by him on the decision in (i) Joint Investment v. CIT [372 ITR 694 (Del)], (ii) Assessee’s own case for AY 2009-10 (ITA No: 423/Mum/2015) dated 19.07.2016, (iii) Indus Valley Investments v. DCIT being ITA No. 3763/Mum/2013 for AY 2009- 10 dated 29.04.2015, (iv) M/s Daga Global Chemicals v. Asst. CIT being ITA No. 5592/Mum/2012 dated 01.01.2015, (v) M/s Slyvex Cable Co. Pvt. Ltd. v. Dy. CIT being ITA No. 8581/Mum/2011 for AY 2008-09 dated 24.02.2016, (vi) M/s Global Capital Ltd. v. ACIT being ITA No. 6586/Del/2013 for AY 2009-10 dated 27.11.2015 and (vii) DCIT v. DCM Ltd. being ITA No: 4467/Del/2012 for AY 2009-10 dated 01.09.2015.
On the other hand, the Ld. DR relies on the order passed by the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. The issue here is the disallowance made by the AO u/s 14A r.w. Rule 8D(2)(iii). The issue may be examined by the relevant recent decisions of the Hon’ble Supreme Court and Hon’ble Bombay High Court. We are of the considered view that the decision in Godrej & Boyce v. DCIT M/s Essar Properties Pvt. 9 & 1363/Mum/2016 [2010] 194 Taxman 203 (Bom.); Godrej & Boyce Manufacturing Company Ltd. v. DCIT (2017) 81 taxmann.com 111 (SC) and Maxopp Investment Ltd. v. CIT (2018) 91 taxmann.com 154 (SC) have relevance to instant case and these are to be examined. In Asst. Collector of Central Excise v. Dunlop India Ltd. (1985) 154 ITR 172 (SC), it is held: “It is needles to add that in India under article 141 of the Constitution, the law declared by the Supreme Court shall be binding on all courts within the territory of India and under article 144 all authorities civil and judicial, in the territory of India shall act in aid of the Supreme Court.” Further, in East India Commercial Co. Ltd. v. Collector of Customs, AIR 1962 SC 1893, it has been held that the law declared by the highest court in the state is binding on authorities or tribunals under its superintendence, and that they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such a proceeding. In the instant case neither the AO nor the Ld. CIT(A) had the benefit of the above two decisions of the Hon’ble Supreme Court on the date of passing the assessment/appellate order. Also the assessee was not having the benefit of the above two decisions while submitting its case before the above two authorities. In view of the above position of law, which is relevant to the instant case, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to recompute the disallowance u/s 14A r.w. Rule 8D by following the decisions of the Hon’ble Supreme Court and Hon’ble Bombay High Court delineated above. We direct the assessee to