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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
These three appeals by the assessee are arising out of the different orders of Commissioner of Income Tax(Appeals)-12 &13, Mumbai [in short CIT(A)], in appeal No. CIT(A)-12/ACIT-7(1)/Tr.19/2011-12, CIT(A)- 13/Addl.cit-7(1)/109/09-10 , CIT(A)-13/7(1)/AP301/11-12 dated 22-11- 2011, 15-10-2010, 25-09-2012. The Assessments were framed by the Asst. Commissioner of Income Tax, Addl. Commissioner of Income Tax & Dy. Commissioner of Income Tax, Circle-7(1), Mumbai (in short ‘ACIT’) for the A.Y. 2006-07, 2007-08, 2009-10 vide order dated 22-12-2008, 30-10- 2009, 29-12-2011 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
ITA Nos. 6853 & 631/Mum/2012 928/Mum/2011 2. The first common issue in these three appeals of assessee is against the order of CIT(A) confirming the action of the AO in treating the rental income as income from house property instead of business income. Consequently, the CIT(A) erred in disallowing the depreciation, maintenance expenses and also salary, wages and bonus, travelling and office expenses. The issue is exactly identical in all the three years and facts and circumstances are also exactly identical as conceded by both the sides. Hence, we will take up the facts from AY 2006-07 in and will decide the issue. The following is ground No. 1 (a), (b), (c) & (d) raised by assessee: -
(a) The Commissioner of Income-tax (Appeals) erred in confirming the action of treating the rental Income of Rs. 23,21,533/- as" Income from House property instead of Business Income".
(b) The Commissioner of Income-tax (Appeals) erred in confirming the disallowance of Depreciation of Rs. 2,96,571/- on the assets.
(c) The Commissioner of Income-tax (Appeals) erred in confirming the disallowance of Maintenance Expenses of Rs. 3,22,293/-.
(d) The Commissioner of Income-tax (Appeals) erred in confirming the disallowance of the part of expenses incurred for Salary, wages & B Traveling and office expenses amounting to Rs.5,20,456/-.”
As regards to the ground No. 1 (a) treating the business income as income form house property by the AO, the AO noted that the assessee has received rental income from the following: -
The AO relying on the earlier year assessment orders treated the receipts from let out of these properties as rental income and assessed the same under income from house property. Aggrieved, assessee preferred the appeal before CIT(A), who also relying on the order of CIT(A) for AY 2005-06 treated the same as income from house property. The learned Counsel for the assessee, Shri Nitesh Joshi, very fairly filed copies of Tribunal’s order for AY 2005-06 in order dated 19.01.2011, whereby the Tribunal has rejected the contention of the assessee and confirmed the action of the lower authorities treating the income as rental income by observing in para 8 as under: -
"8. We have considered the issue. It is a fact that the assessee has surplus space in the building and apartments, which were leased out to various concerns and some of the agreements are placed on record. As seen from the leave and licence agreements placed on record the assessee as owner and is in possession of the premises on 5th floor of the building known as Kakad Chamber in World Division has leased out the property. Likewise the residential flat in Navi Mumbai was also leased out as mentioned in the lease agreement. Most of the agreements placed on record indicate that leave and licence agreement without any service being rendered to the tenants other than normal maintenance and repair work. In view of this, even & 631/Mum/2012 928/Mum/2011 though the assessee tried to distinguish the judgement of the Shambhu Investments the principles established therein are clearly applicable. Since it is exploitation of property the amount is taxable under the head House property income. Accordingly, the Assessing Officer’s action is confirmed and the ground raised on this issue is rejected.”
The learned Counsel for the assessee only relied on the case law of Hon’ble Supreme Court in the Case of Chennai Properties and Investments Ltd. v. CIT [2015] 373 ITR 673 (SC) , apart from factual aspect he stated that the issue is covered. After hearing the learned Sr. Departmental Representative and assessee’s Counsel, we are of the view that the issue is covered in favour of assessee and the Tribunal’s order for AY 2005-06 had attend the finality because the assessee has not preferred an appeal before the Hon’ble High Court. As the issue is covered, we confirm the orders of the lower authorities treating the rental receipts as income from house property. Accordingly, this common issue of assessee’s appeals is dismissed.
6. As regards to the issue of disallowance of depreciation on the above issue, which has been decided against the assessee by treating the rental receipts as income from house property, this being a consequential issue, the same is dismissed.
As regards to the disallowance of maintenance expenses of ₹ 3,22,293/-, the learned Counsel for the assessee only stated that the AO has disallowed the expenses of ₹ 3,22,293/- because the assessee’s income is assessed as income from house property.
We find that this issue has not been adjudicated by CIT(A) despite specific ground raised before him. However, this issue needs to go back & 631/Mum/2012 928/Mum/2011 to AO for the simple reason that it is to be verified whether these expenses are claimed by assessee net of the rental receipts or these are inclusive in the gross receipts. In case these are inclusive of gross receipts, the AO has to take ALV of the property excluding these expenses. For re-deciding this issue, the matter is set aside to the file of the AO. Similar is the issue regarding expenses of salary, wages and bonus, travelling and office expenses amounting to ₹ 5,25,456/-. On similar reasoning’s this is also set aside to the file of the Assessing Officer.
The next issue in these two appeals i.e. for AY 2006-07 and 2007- 08 in and 928/Mum/2011 respectively for both the years i.e. for AY 2006-07 and 2007-08 is as regards to the order of CIT(A) confirming the addition of difference amount of closing stock valuation considering inclusive method of Modvat under section 145A of the Act. The assessee has raised the following ground No. 2
"2. The Commissioner of Income Tax (Appeal) erred in confirming the disallowance of Rs. 58,93,415/- being the difference amount of closing stock valuation considering Inclusive method of modvat under Section 145A of the Act.”
Brief facts are that the AO noted from tax audit report in Annexure- 1 that the Modvat credit value is reduced from the purchase cost of material and Modvat outstanding is shown in the excise deposit account in the balance sheets. According to AO, the assessee is following non- inclusive method for accounting of Modvat credit, which is with regard to inventory of purchase and consumption. According to AO, the assessee has not followed the accounting method prescribed under section 145A of the Act and therefore, he made addition of Modvat credit to the closing stock. The CIT(A) confirmed the action of the Assessing Officer. & 631/Mum/2012 928/Mum/2011 11. At the outset, the learned Counsel for the assessee filed copy of the judgment of Hon’ble Bombay High Court in the case of CIT vs Diamond Dye Chem Ltd. in Income Tax Appeal No. 146 of 2015 dated 07-07-2017, whereby the Hon’ble Bombay High Court has followed the Hon’ble Supreme Court decision in the case of CIT vs. Nippon Chemicals Co. Ltd 261 ITR 275 and held that the amount of Modvat credit was irreversible credit offered to manufacturers upon purchase of duty paid raw materials and that would not amount to income. Hon’ble High Court observed in Para 5 and 6 as under : -
"5. We have considered the submissions. It is not disputed that the assessee was liable to excise duty. The assessee got credit in the excise duty already paid on the raw materials purchased by it and utilized in the manufacturing of excisable goods. The assessee was adopting the exclusive method i.e. valuing the raw materials on the purchase price minus (-) the Modvat credit. The same would be permissible. The Apex Court in the case of Indo Nippon Chemicals Co. Ltd. (supra) while affirming the order of High Court, has observed that the income was not generated to the extent of Modvat credit or unconsumed raw material. Merely because the Modvat credit was irreversible credit offered to manufacturers upon purchase of duty paid raw materials, that would not amount to income which was liable to be taxed under the Act. It is also held that whichever method of accounting is adopted, the net result would be the same.
Considering the above, the amount of the unutilized Cenvat credit could not have been directly & 631/Mum/2012 928/Mum/2011 added to the closing stock. The Tribunal has not committed any error.” -
In view of the above facts, we are of the view that the issue is squarely covered in favour of assessee and against Revenue and hence, we direct the AO to delete the addition.
The next issue in these three appeals of assessee for AY 2006-07, 2007-08 & 2009-10 in 6853/Mum/2012 and 928/Mum/2011 respectively, is as regards to the addition of unexplained credit entry of ₹ 14,14,819 under section 68 of the Act. The issue is exactly identical and facts are also being identical in all the years i.e. for AY 2006-07 and 2007-08 & 2009-10. For this assessee has raised following ground No 3:-
"3. The Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs. 14,14,819/- as unexplained credit entry ujs±68 of the Income Tax Act.”
Briefly stated facts are that the assessee has trading relation with one Shri Shriram Rayons, from whom assessee is making sales and purchases. As per the assessee’s claim that it has received an amount of ₹ 14,14,819/- on 15.12.2004. The AO verified this amount from the ledger copies submitted by M/s Shriram Rayons under section 133(6) of the Act to the Assessing Officer. There was difference in the opening and closing balance as per the ledger account of M/s Shriram Rayons, wherein credit balance was ₹ 92,267 and assessee’s accounts it was claimed at ₹ 14,14,819/-. The assessee could not reconcile the discrepancy and AO added the same. The CIT(A) also confirmed the action of the Assessing Officer.
Before us, the learned Counsel filed details of reconciliation, which were not filed before AO. When these details were confronted to the & 631/Mum/2012 928/Mum/2011 learned Sr. Departmental Representative, he fairly agreed that the issue can be remitted back to the file of the AO for re-consideration of this reconciliation. As we are restraining from discussing the merits of the reconciliation at this stage, we restore this issue back to the file of the AO to consider the reconciliation and the details in entirety. Accordingly, this issue is set aside in the file of the Assessing Officer. Accordingly, this common issue in three appeals of the assessee is set aside to the file of the AO.
The next issue in these three appeals of the assessee is as regards to the order of CIT(A) confirming the disallowance of expenses relatable to dividend amount under section 14A of the Act, amounting to ₹ 51,371 in AY 2006-07, ₹ 2,29,494/- in AY 2007-08 and ₹ 2,32,360/- in AY 2009-10. The learned Counsel for the assessee stated that he has instructions from assessee not to press this amount due to smallness of the amount. As the assessee is not interested in prosecuting this issue, we dismiss the same as not pressed.
In the Result, the appeals of the Assessee are partly allowed.
Order pronounced in the open court on 04-04-2018.