ACIT NON CORPORATE CIRCLE 10(1), CHENNAI vs. S.VINODH KUMAR, CHENNAI

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

These are appeal and cross objection of the Revenue and

assessee respectively directed against an order dated 16.08.2017 of

ld. Commissioner of Income Tax (Appeals)-12, Chennai. Appeal of the

Revenue is taken up first for disposal.

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ground No.1 & 5 are general needing no specific adjudication.

Through its ground No.2, grievance raised by the Revenue 3.

is that ld. Commissioner of Income Tax (Appeals) held interest of

�54,49,764/- received by the assessee as its business income and

directed allowance of expenditure incurred against such income.

Officer had found the assessee to be an employee of two companies

and held that he was not carrying on any business. As per the ld.

Departmental Representative, assessee had received interest income

from one M/s. Siyat Holding Pvt. Ltd. Contention of the ld.

Departmental Representative was that assessee claimed such interest

as his business income, but, on the other hand, had not paid interest

on funds received from nine parties. As per the ld. Departmental

Representative, ld. Assessing Officer had come to a correct conclusion

that assessee had in the case of some parties received interest

whereas in case of some other parties not charged any interest. As per

the ld. Departmental Representative, assessee was not doing any

business activity. Contention of the ld. Departmental Representative

was that ld. Commissioner of Income Tax (Appeals) erred in going by

the submissions of the assessee and holding that assessee was

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pursuing a business activity. Reliance was placed on the judgments

of Hon’ble Apex Court in the case of M/s. Narain Swadeshi Weaving

Mills Ltd. vs. CEPT, 26 ITR 765 and M/s. Vijaya Laxmi Sugar Mills

Limited vs. CIT, 191 ITR 641.

Per contra, ld. Authorised Representative strongly supported 5.

the order of the ld. Commissioner of Income Tax (Appeals).

orders of the authorities below. A reading of the order of the ld.

Commissioner of Income Tax (Appeals) show that ld. Assessing Officer

himself had mentioned the business of the assessee as that of

investment and finance in the assessments done for earlier years.

Assessee had filed audit report in form No.3CD, after conducting the

Audit u/s.44AB of the Act, and also his profit and loss account as well

as Balance sheet alongwith the return of income. In his computation

of income filed along the return, assessee had made suo-motu

disallowance of the following expenditure:-

Advertisement Exp 1,179 Conveyance 545 Demat Charges 331 Depreciation 4,101 Donation Paid 10,00,000 Foreign Tour expenses 14,060 Insurance paid 1,079 Meeting Expenses 8,000

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Miscellaneous Expenses 17,016 Membership fee paid 25,403 Maintenance charges 14,500 Provided Fund 86,400 Professional tax 2,190 Professional fees 600 Property Tax 71,954 Security Services Charges 12,060 Share Trading Exp. 523 Travelling Exp 2,15,901 Water Charges 600 Water Tax 7,276

The following items were considered separately :-

Rent Received 53,44,193

PPF Interest 1,99,853

Salary received 3,96,00,000

Profit on sale of shares – LTCG 69,900

Profit on sale of shares foreign company 1,18,259

Miscellaneous Income 1,670

Dividend received. 7,07,421

In our opinion non charging of interest from few persons to whom

assessee had advanced loans would not be a sufficient enough a

reason to hold that assessee was not doing a finance and investments

business. Assessment order for assessment year 2009-2010 placed

by the assessee at paper book pages 21 to 23 clearly show that ld.

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Assessing Officer had accepted the business of the assessee as one of

finance and investment. Ld. Departmental Representative could not

point out any difference in facts or any change of facts from what

existed for assessment year 2009-2010, vis-a-vis the impugned

assessment year. In these circumstances, we are of the opinion that

ld. Commissioner of Income Tax (Appeals) was justified in taking a

view that interest income of the assessee had to be considered under

the head business income and allowing the expenditure exclusively

incurred for earning such income. As for the reliance placed by the

Revenue on the judgments of Hon’ble Apex Court in the case of Narain

Swadeshi Weaving Mills Ltd. (supra) and M/s. Vijaya Laxmi Sugar Mills

Limited (supra) the facts in these case were entirely different. We do

not find any reason to interfere with the order of the ld. Commissioner

of Income Tax (Appeals). Ground No.2 of the Revenue stands

dismissed.

dividend income received by Minor V. Prateek and Minor V.Palak were

allowed exemption u/s.10(34) r.w.s. 115O of the Act, by the ld.

Commissioner of Income Tax (Appeals).

Ld. Departmental Representative fairly admitted that 8.

assessee had produced records which demonstrated payment of

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dividend distribution tax by the concerned companies from which

dividends were received by Minor V. Prateek and Minor V.Palak. In

our opinion, dividend distribution tax under Section 115O of the Act,

having been paid by the companies concerned, ld. Commissioner of

Income Tax (Appeals) was justified in holding that dividend income

received by Minor V. Prateek and Minor V.Palak were exempt

u/s.10(34) of the Act. Ground No.3 of the Revenue stands dismissed.

addition claimed by the assessee u/s.35AC of the Act was allowed to it.

Relevant ground is reproduced hereunder:-

‘’The ld. Commissioner of Income Tax (Appeals) decision on deletion of disallowance of deduction claimed by the assessee u/s.35AC is only corollary to the decision on ground no.1 above and hence, the assessee’s claim of deduction u/s.35AC is not an allowable expenditure as the assessee has no business income’’.

A reading of the above ground clearly show that it is raised as

corollary to ground No.2 regarding treatment of the interest income

earned by the assessee. We have already upheld the order of the ld.

Commissioner of Income Tax (Appeals) that interest received by the

assessee was rightly treated as business income of the assessee.

Accordingly, ground No.4 becomes infructuous and is dismissed.

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Grievance raised by the assessee is that ld. Commissioner of Income

Tax (Appeals) disallowed unrealized rent of �32,27,156/- while

computing its income from house property, for a warehouse premise at

Puzhal, Chennai owned by Minor V. Palak.

which fair market value was to be computed was set out in Sub

Section (1) of Section 23 of the Act. As per the ld. Authorised

Representative actual rent received or receivable cannot include

unrealized rent as computed under Rule 4 of the Income Tax Rules,

1962 (in short ‘’the Rules’’). Contention of the ld. Authorised

Representative was that lower authorities had denied the deduction for

unrealized rent, just for a reason that assessee could not substantiate

how the amount remained unrealized.

Per contra, ld. Departmental Representative strongly 12.

supported the order of the ld. Commissioner of Income Tax (Appeals).

We have considered the rival contentions and perused the 13.

orders of the authorities below. Assessee had clubbed income from

house property earned by Minor V. Palak with his income in

accordance with Section 64 of the Act. Against the rental income of

�54,68,000/-, assessee had claimed deduction of �32,27,156/- as

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unrealized dues from one Shree Krishna Corpn Limited. Ld. Assessing

Officer had denied the claim for a reason that assessee could not

demonstrate how the amount remained unrealized. Ld. CIT (A) was of

the opinion that assessee was maintaining accounts on accrual basis

and hence such claim for unrealized amount could not be allowed.

Section 23 of the Act is apposite here and is reproduced hereunder:-

1) For the purposes of section 22, the annual value of any property shall be deemed to be? (a) the sum for which the property might reasonably be expected to let from year to year ; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable ; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable : Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him. Explanation For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise.

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Explanation clearly say that amount of actual rent shall not include the

amount of rent which a owner cannot realize. The method of

computing unrealized rent is set out in Rule 4 of the Income Tax

Rules, 1962 and thus is reproduced hereunder:-

We find that none of the lower authorities had examined the issue

based on the Section and Rule mentioned supra. Issue in our opinion

requires a revisit by the ld. Assessing Officer. We therefore set aside

the orders of the lower authorities and remit this issue back to the file

of the ld. Assessing Officer for consideration afresh.

In the result, the appeal of the Revenue is dismissed 14.

whereas Cross Objection of the assessee is allowed for statistical

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purpose.

Order pronounced on Thursday, the 5th day of April, 2018, at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन) (अ�ाहम पी. जॉज�) (N.R.S. GANESAN) (ABRAHAM P. GEORGE) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai �दनांक/Dated: 5th April, 2018 KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF