ACIT 1(1), MUMBAI vs. BOMBAY GAS CO. LTD, MUMBAI

Bombay Gas Co. Ltd. ITO 1(1)(1) बिधम/ Empire House, A. K. Nayak Room No. 579, Aayakar Marg, Fort, Mumbai-400001. Bhavan, Mumbai- Vs. 400020. अपीलाथीकीओरसे/ Appellant by : Sh. Manish V. Shah, प्रत्यथीकीओरसे/Respondentby : Sh. Suman Kumar, DR सुनवाईकीतारीख/ : 01/01/2018 Date of Hearing घोषणाकीतारीख / : 07/03/2018 Date of Pronouncement आदेश / O R D E R Per Shri Sandeep Gosain, Judicial Member: These three appeals filed by the revenue as well as assessee are against the order of Commissioner of Income Tax (Appeals)-1 Mumbai dated 13.06.11 and 27.11.12for AY2008- 09 & 2009-10 respectively.

are mentioned herein below:- 1. "Whether on the facts and circumstances of the case and in law, the CIT (A)is right in deleting the addition of Rs. 12,50,000/- being accrued interest on Inter Corporate Deposits (ICDs) made by the Assessing Officer?

2. "Whether on the facts and circumstances of the case and in law, the CIT (A)is right in confirming disallowance only to the extent Rs. 17,72,620/- as capital expenditure out of total disallowance of Rs. 62,76,048/- made by the Assessing Officer being legal and professional fees, even though the balance amount related to discontinued business and was therefore not allowable as business expenses?"

3. "Whether on the facts and circumstances of the case and in law, the CIT (A)has erred in treating the profit on sale of shares of Rs. 2,47,49,139/- as Capital gain as against the business income assessed by the Assessing Officer whereas the facts show clear intention of the assessee to earn business profits?"

4. "Whether on the facts and circumstances of the case and in law, the CIT (A)erred in treating the rental income as income from business and profession as against income taxed under the head "income from house property" by the Assessing Officer."

The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal

."

4. As per the facts of the present case, the assessee was carrying on the business of gas distribution through its network of underground pipelines. Due to strike, followed by closure, the company closed its operation with effect from July 1981. Thereafter the assessee company is engaged in the business of subletting guaranteed premises and subsequently entered into finance and investment activity claiming to be anon-banking finance company. During the year, the assessee has shown income by way of rent, compensation and service at Rs. 1,89,64,556/-, interest and others at Rs.3,55,58,852/- which includes interest on ICDs, Fixed Deposits, Income Tax refunds, dividend, long term and short term capital gains, after deducting administrative and other expenses as well as manpower and interest expenses, net profit has been arrived at Rs. 2,18,35,011/-. The return of income was electronically filed for A.Y. 2008-09 on 30.09.2008 declaring total income at Rs. 16,12,642/-. The same was processed u/s. 143(1) of the Act. Subsequently, the case was taken up for scrutiny by issuance of notice u/s. 143(2). After seeking reply of the assessee, order of assessment dated 10.12.10 was passed by the AO thereby making additions/disallowance under different heads as mentioned in the assessment order.

5. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee and restricted the additions. Aggrieved by the order of Ld. CIT(A), both i.e. revenue as well as the assessee have filed their respective appeals before us. However at present we are dealing with the appeal filed by the revenue bearing on the grounds mentioned herein above.

Ground No. 1 6. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in deleting the addition of Rs. 12,50,000/- being accrued interest on Inter Corporate Deposits (ICDs), made by the Assessing Officer.

7. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in its detailedorder in para no.

4. The operative portion of the order of Ld. CIT(A) is contained in para no. 4.3 of its order and the same is reproduced below:- 4.3 I have duly considered the appellant AR's submission and the facts of the case. I find that the assessee has earned dividend income @ 5% on the debentures. However, the assessee has not offered the interest income on the ground that the concern party has requested to waive the interest. In fact, the assessee has not waived interest as there is no such Board's Resolution but the assessee has preferred not to charge interest in the books of accounts which is a separate matter but for the purpose of computation of income under the Income tax Act, income has to be computed in accordance with principle of accounting. In this case, the assessee has earned income on the basis of Mercantile System of Accounting; but the interest income has not been shown as the assessee has not received the interest in last three years. The money lent as debentures has become non performing asset (NPA). Hence, as per AS-9 no interest is to be charged on NPA. Therefore, the AO is not justified in adding the interest income not received by the appellant. Reliance is placed on the decision of Delhi High Court in the case of CIT vs. VasisthChayVyapar (ITA 552 of 2005), wherein it was held that if there are uncertainties revenue should not be recognized. Similar decision was pronounced in the case of ACIT v. Ruby Mills Ltd (ITA No.587/Mum/06), wherein it was held that interest should not be taken as income if there was default in payment of such interest by the other party. This ground of appeal is allowed.

After having gone through the facts of the present case, arguments addressed by both the parties, documents placed on record, judgment cited and orders passed by the lower authorities, we find that Ld. CIT(A) after appreciating the facts of the present case has rightly concluded that although the assessee has earned dividend income @ 5% on the debentures, but the assessee has not offered the interest income on the ground that the concerned party has requested to waive the interest. From the records, we also noticed, that though the assessee has not waived interest, as there is no such board’s resolution, but the assessee has preferred not to charge interest in the books of account. As per the assessee no interest income has accrued, therefore the interest income has not been shown. We also noticed that the money lent as debentures have become NPA (Non-performing Asset), an aspect which has not been challenged by the revenue before us. Therefore as per AS-9, no interest is to be charged on such an investment. Ld. CIT(A) while reaching to the said conclusion had relied upon the judgment passed by the Hon’ble Delhi High Court in the case of CIT vs. Vasisth Chay Vyapar (ITA 552 of 2005) and ACIT v. Ruby Mills Ltd (ITA No.587/Mum/06) which is justified.

Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.

Ground No. 2 8. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in confirming disallowance only to the extent Rs. 17,72,620/- as capital expenditure out of total disallowance of Rs. 62,76,048/- made by the Assessing Officer being legal and professional fees, even though the balance amount related to discontinued business and was therefore not allowable as business expenses.

by the revenue in its detailed order in para no.

5. The operative portion of the order of Ld. CIT(A) is contained in para no. 5.2 of its order and the same is reproduced below:- 5.2 I have duly considered the submission of the appellant's AR and the facts of the case. I find that the assessee has incurred legal and professional charges in connection with the business of the assessee. Had the assessee not contested the legal proceedings with MIs. Mark Mascarenhas, in London, the assessee would have been held liable to pay more damages. Although the arbitration was passed against the appellant at London, the assessee incurred total expenses of Rs.3 1,75,043/- only as against the total cost of the award of British pound of Rs.6,25 ,695/-. Hence, the amount of legal expenses amounting to Rs.31,75,043/- is allowable as business expenditure.

As regards, the expenditure of Rs. 17,72,620/- is concerned, this expenditure was incurred on legal and professional charges to recover flat from Mr. Ashok Jalan. Mr. Ashok Jalan, is son of ex-director of the company and to recover the flat from him the assessee filed Suit against him. In my considered view this expenditure is in connection with the flat which is capital asset. Therefore, expenditure incurred by the assessee isalso required to be capitalized. Even the assessee has admitted in the alternative grounds of appeal that this expenditure should be allowed to be set off against capital income in subsequent year when the flat was sold. Hence, this expenditure is disallowed as capital expenditure and the addition of Rs. 17,72,620/- is sustained as capital expenditure.

Other expenditure like labour matters, on which the company has incurred an amount of Rs.3,06,5 36/- and retainership fees and others amounting to Rs. 10,21,849/- are required to be allowed as these expenses were incurred in connection with business of the assessee and these expenses have been allowed by the A.O. in earlier years although the assessments were scrutinized u/s. 143(3). In the facts and circumstances of the case, these expenses are allowed. In short a sum of Rs. 17,72,620/- out of total disallowance of Rs.62,76,048/- is disallowed as capital expenditure. Rest of the amount is allowed as business expenditure. This ground of appeal is partly allowed.

After having gone through the facts of the present case, arguments addressed by both the parties, documents placed on record, judgment cited and orders passed by the lower authorities, we find that Ld. CIT(A) after appreciating the facts of the present case has rightly concluded that the assessee has incurred legal and professional charges in connection with the business of assessee. The assessee incurred total expenses of Rs. 31,75,043/- being the amount of legal expenses and other expenditure like labor matters, the assessee has incurred an amount of Rs. 3,06,536 and retainership fees and others amounting to Rs. 10,21,849/- as expenses in connection with business of the assessee. The said expenses have also been allowed by the AO in the earlier years in assessment u/s 143(3) of the I.T. Act. Therefore considering the above facts and circumstances of the present case, we find that Ld. CIT(A) has dealt with this ground judiciously. Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed. Ground No. 3.

10. This ground grounds raised by the revenue relates to challenging the order of Ld. CIT(A) in treating the profit on sale of shares of Rs. 2,47,49,139/- as Capital gain as against the business income assessed by the Assessing Officer whereas the facts show clear intention of the assessee to earn business profits.

by the revenue in its detailed order in para no.

7. The operative portion of the order of Ld. CIT(A) is contained in para no. 7.1 of its order and the same is reproduced below:-

Decision I have duly considered the submission of the appellant's AR and facts of the case. I find that the AO has noted that the assessee has been purchasing and selling shares frequently and showing the income as capital gain, Short Term or Long Term depending on the period of Investment. However, the AO has treated the income as business income as, according to him, frequent purchasing and selling shares amount to business. I do not agree with the findings of the AO as the nature of income has to be determined from the facts of the case. In this case, the assessee has been showing investment in the balance sheet as investments only. They are not treated as stock in trade. Hence, the intention of the assessee is clear that he wants to earn capital gain on sale of shares. The assessee has also not used any borrowed fund so that it can be said that the assessee has incurred any liability for obtaining the business profit. In the case of Janak S. Rangwala v. ACIT (11 SOT 627 Mum), the Hon'ble I.T.A.T. Mumbai has held that the frequency of transaction should not determine the nature of income. If the intention was to earn the capital gain, the AO cannot treat the capital gain as business income. Moreover, consistency has to be maintained in Income tax proceedings if in earlier years, the claim of the assessee was accepted as capital gain, the same cannot be changed in this year on the same set of facts and circumstances of the case. The AO is directed to accept the capital gain offered by the appellant. This ground of appeal is allowed. After having gone through the facts of the present case, arguments addressed by both the parties, documents placed on record, judgment cited and orders passed by the lower authorities, we find that Ld. CIT(A) after appreciating the facts of the present case has rightly concluded that the assessee has been showing investment in the balance sheet as investments only. We have also noticed that the assessee has not treated the shares as stock-in-trade, hence the intention of the assessee is to earn capital gain on sale of shares. From the facts of the case, the assessee has not used any borrowed funds for the purpose of purchasing the shares. Ld. CIT(A) while reaching to the conclusion had correctly relied upon the judgment in the case of Janak S. Rangwala v. ACIT (11 SOT 627 Mum), wherein the Hon'ble I.T.A.T. Mumbai, has held that the frequency of transaction should not determine the nature of income. Moreover, consistency has to be maintained in Income tax proceedings if in earlier years, the claim of the assessee was accepted as capital gain, the same cannot be changed in this year on the same set of facts and circumstances of the case. Therefore considering the above facts and circumstances, we dismiss this ground raised by the revenue.

Ground No. 4 12. This ground grounds raised by the revenue relates to challenging the order of Ld. CIT(A) in treating the rental income as income from business and profession as against income taxed under the head "Income from house property" by the AO.

by the revenue in its detailed order in para no.

8. The operative portion of the order of Ld. CIT(A) is contained in para no. 8.2 of its order and the same is reproduced below:- Decision I find that the assessee is not the owner of the house property. In fact, the assessee has obtained the property on lease from LIC of India and given it on rent to State Bank of Indore. In this year, the assessee has also provided certain services like Facsimile machine, telex machine, copying machine, word processors etc,. On the facts and circumstances of the case, appellant cannot be held as owner of the property and the income derived by him cannot be taxed under the head "Income from House property". The income also cannot be taxed under the provisions of Section 27(iii)(b) r.w.s. 269UA(f) of the I.T.Act. Even in earlier years, my predecessor has decided the same issue in favour of the appellant. In order to maintain consistency, I hold that the assessee is deriving income as "Income from Business and Profession". Reliance is placed on the decision of RadhasoamiSatsang vs. CIT reported in 193 ITR 321. This ground of appeal is allowed.

After having gone through the facts of the present case, arguments addressed by both the parties, documents placed on record, judgment cited and orders passed by the lower authorities, we noticed that in the previous years i.e. 2005-06, 2006-07 & 2007-08 in assessee’s own case, Ld. CIT(A) directed the AO to assess the income derived from the property under the head ‘Income from business and profession’ rather than rental income in view of rule of consistency. We further noticed that thereafter against the said order, the department filed an appeal before Hon’ble ITAT wherein the issue was decided against the assessee/respondent and the assessee was treated as deemed owner u/s 27(iii)(b) of the Act and subsequently treated the rental income as ‘Income from house property’. Since this ground has already been decided by the Coordinate Bench of Hon’ble ITAT in assessee’s own case, therefore respectfully following the decision of Hon’ble ITAT in assessee own case and while maintaining judicial consistency which is applicable mutandis mutandi in the present case. However, Ld. AR drawn our attention to the application dated 27th Jan 2017 moved in for requesting to admit additional evidence. Assessee vide the above application seeks, admission of additional evidence on the ground that although Ld. CIT(A) has allowed the claim of the assessee /respondent in respect of taxing the rental income earned by the assessee under the head ‘Profits and gains from business or profession’ against the head ‘Income from house property’. Ld. AR further submitted that the AO had assessed the amount received as rent and service charges as ‘Income from house property’, by invoking the provisions of Section 27(iii)(b) r.w.s 269UA(f) of the Act. The Ld. AR submitted that against the aforesaid invoking of provisions of section 27(iii) of the Act, the assessee wants to submit that the lease agreement with LIC is a monthly tenancy right. Since, section 27 of the Act specifically excludes any right by way of any lease from month to month, hence the tenancy in the present case clearly falls within the exclusions as provided in section 27(iii)(b) of the Act. In order to substantiate the above contentions, the assessee want to bring on record the following documents:- 1) Order of the Estate Officer Life Insurance Corporation under the Public premises (Eviction of Unauthorized Occupant) Act, 1971 dated July 10, 2012, 2) Order of the Bombay Civil Court dated October 12, 2012 3) Order of the Hon’ble Bombay High Court dated February 5, 2013. It was also submitted that the above documents could not be submitted before the lower authorities, as the same were received after the said proceedings.

Since we have already allowed the application filed by the assessee for leading additional evidence and thus admitted the additional evidence in the shape of orders passed by Bombay Civil Court, Hon’ble High Court and Estate Officer. We have noticed that these additional evidences were not available before the lower authorities, therefore considering the interest of justice, we think it fit to restore the matter back to the file of AO for passing afresh order on this ground by taking into consideration the additional evidences or any other document so called for or produced /filed by the assessee. The AO shall provide sufficient opportunity of hearing to the assessee. Before parting, we may make it clear that our decision to restore the matter back to the file of AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the AO independently in accordance with law. Therefore, this ground is allowed for statistical purposes.

ITA No. 1187/M/2013for AY 2009-10 filed by revenue. 17. In this appeal, the revenue has raised a solitary ground, thereby challenging the order of Ld. CIT(A) in deleting the additions of Rs. 12,50,00 being accrued interest on inter- corporate deposits (ICD’s) made by the AO. Since we have already decided the identical ground of appeal in AY 2008-09 on merits. Therefore, following our own decision in we apply the same findings in the present appeal in order to maintain judicial consistency which is applicable mutatis mutandis in the present case. Resultantly, the appeal filed by the revenue stands dismissed. ITA No. 725/Mum/2013 for AY 2009-10.

18. Now we take up assessee’s appeal filed in ITA No. 725/Mum/2013 for AY 2009-10 on the grounds mentioned herein below:-

GROUND I:

The Learned Commissioner of Income-Tax (Appeals) - I, Mumbai ["the CIT (A)"] erred in upholding the decision of the Deputy Commissioner of Income Tax - 1(1), Mumbai ("the AO") in disallowing a sum of ' 18,30,157/- under section 14A read with rule 8D of the Income Tax Act,1961 ("the Act") on the alleged ground that the expenses were incurred for earning tax-free income.

2. The Appellant therefore prays that the disallowance of 18,30,157/- being alleged expenses attributed to earning tax-free income be deleted.

Revised Ground No. II 1 On the facts and circumstances of the case, the Hon’ble Commissioner of Income Tax (Appeals) ‘CIT(A)” erred in confirming the action of the AO in assessing the Income of' 2,03,70,306/- received in the form of Rent and Service charges under the head "Income form House Property" instead of "Profits and Gains from Business and Profession", without considering the order dated October 20, 2012 passed by the Hon’ble Bombay City Civil Court, which was submitted to the CIT(A) on November 26, 2012. The CIT(A) while passing his order dated November 27, 2012, had not considered the same order.

2. The Appellant, therefore, prays that AO be directed to assess the Rent and Service charges of Rs. 2,03,70,307/- received under the head ‘Profit and Gains from business or profession”.

GROUND III:

1. The CIT(A) further erred in disallowing Repairs and Maintenance Expenditure of 4,93,810/- on the alleged ground that the said expenditure was incurred in respect of property, where the income thereon is chargeable under the head 'Income from House Property".

2. The Appellant prays that the said expenditure of 4,93,810/- should be allowed asdeduction. GROUND IV:

Ground No. I. 19. This ground grounds raised by the assessee relates to challenging the order of Ld. CIT(A) in upholding the decision of the Deputy Commissioner of Income Tax - 1(1), Mumbai ("the AO") in disallowing a sum of Rs. 18,30,157/- under section 14A read with rule 8D of the Income Tax Act,1961 ("the Act") on the ground that the expenses were incurred for earning tax-free income.