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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’ NEW DELHI
Before: SHRI B.P. JAIN
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘SMC’ NEW DELHI BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA No.5232/Del/2016 Assessment Year 2013-14 ITO, Ward-30(1), Vs. Sigma Information New Delhi System, PAN: ABEFS 3498M Shed 1 & 2, Opposite Radio Mirchi, Okhla Industrial Area, Phase- IV, New Delhi. PAN: ABEFS 3498M (Assessee) (Respondent) Revenue by : Ms. Bedobani Chaudhuri, Sr.D.R. Assessee(s) by : Shri Rahul Khare, Adv.
सुनवाई क� तार�ख/Date of Hearing : 24/04/2017 घोषणा क� तार�ख /Date of Pronouncement: 27/04/2017 ORDER This appeal of the Revenue arises from the order of learned CIT(A)-X, New Delhi, vide order dated 18.03.2016 for the assessment year 2013-14. The Revenue has raised the following grounds of appeal as under: “1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in directing the AO to treat the rental income as income from house property and allow deduction u/s 24(a) and 24(b) of the IT Act, 1961 as claimed by the assessee whereas the Assessing Officer has assessed the income of the assessee as Income from Business on the basis of the business of renting of properties of the assessee and Auditor's Report" 2. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the facts of the case that in the Tax Audit Report, the auditor of the assessee has himself described the renting of properties as business income. Further, in the asstt. Year 2011-12, the assessee has declared rent from properties as business income". 3. "On the facts and circumstances of the case, the Ld. CIT(A) has erred in not considering and overlooking the remarks and observations contain in the report of the Auditor's which clearly establish that the impugned income is
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business income and not rental income"
On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 4,96,952/- made u/s 43B of the Income Tax Act, 1961 by ignoring the provisions of section 43B(a), which uses the expression 'any sum payable by way of tax' and service tax, therefore, qualify the term tax used in the sub section.”
Grounds No.1 and 3 are related to treat the rental income as business income and ground no.4 is related to the reduction u/s.43B of the Act. Ground No.5 is general in nature, therefore, does not require any adjudication.
The brief facts of the case in all the grounds are as per learned CIT(A) order which is reproduced hereinbelow: “During the year under consideration assessee had shown loss under the head House Property amounting to Rs.18,14,533/-, Business Loss Rs.3,81,853/- and Income from Other Source of Rs.8,65,069/-. While completing the assessment, it was observed by the AO that assessee was engaged in the business of letting out of property and in the P&L A/c amount of Rs.1,34,40,000/- was credited on account of rental income. Apart from the above, assessee had also disclosed interest income and sales and after claiming various expenses net profit of Rs.27,00,683/- was shown during the year under consideration. AO further noticed that in the computation of income the rental income was computed under the head "Income from House Property" and loss of Rs.13,31,317/- was retuned. AO further noticed that in the balance sheet and tax audit report service tax payable was shown of Rs4,96,952/- which was not paid till the date of filing of return. Considering the fact mentioned in the audit report that assessee was engaged in the business of renting of property and assessee itself in the A Y 2011-12 also treated the same as business income, AO issued show cause to the assessee on 11.02.2016 to explain as to why the rental income be not treated as Business Income instead of Income from House Property and why the amount of RsA,96,952/- be not disallowed u/s 43B of the IT Act and the same is treated as part of taxable income for the year under consideration. As mentioned in the assessment order, assessee filed its reply vide letter dt.16.02.2016 in response to the above show cause, wherein it was submitted that auditor inadvertently under the bonafide relief treated the rental receipts as part of the turnover. With regard to proposed disallowance u/s 43B, it was explained to the AO that service tax which was received is not a part of rental income. The service tax so received and paid is neither an income nor an expense and the delay in deposit does not attract the provisions of Section 43E of the Act. However, AO found the above reply of the assessee devoid of an) merits considering the fact that assessee itself in the AY 2011-12 treated the rental receipts as Income from Business or Profession. Further relying on the provisions of Section 43B, AO held that since entire service tax was not paid within the due date of filing of return and even till the date of filing of ITR for the
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AY under consideration, the same deserves to be added back as per provisions of Section 43B of the Act. With these observations, AO re-computed the income of the assessee as under: “Profit and gains from business or profession Profit before tax as per P&L A/c Rs.27,00,68/- Add: Service tax payable Rs.4,96,952/- Rs.31,97,635/- Less: Interest Income Rs.8,65,069/- Rs.23,32,566/- Rs.23,32,566 Income from other sources Interest income as declared” Rs.8,65,069/- Total Income Rs.31,97,635/- R/O Rs.31,97,640/- 4. Learned CIT(A) deleted the additions for the reasons mentioned in his order.
I have heard the rival contentions and perused the facts of the case. I find no infirmity in the order of learned CIT(A) whose order is a reasoned order that AO has assessed the rental income as Business Income relying on the observation of the auditor in the audit report wherein it was shown that assessee was engaged in the business of renting out of properties. Further, reliance has been placed by the AO that assessee itself in the A.Y. 2011-12 has shown the rental income as part of its business income. However, on the other hand, Ld. AR has explained that in the computation of income assessee has bifurcated the items of income shown in the P&L A/c under different heads i.e. Income from House Property wherein rental income was shown of Rs.1,34,40,000/- and after claiming deduction u/s. 24(a) and u/s. 24(b) loss to the tune of Rs.18,14,533/- was shown. Similarly, loss of Rs.3,81,853/- was shown under the head "Profit or Gains from Business or Profession after making certain adjustments on account of deducting rental income and interest income from the business profit which were separately shown in the computation under the head House Property and Income from Other Sources. Similarly, interest income of Rs.8,65,069/- was
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disclosed· under the head "Income from Other Sources" which was reflected in the P&L A/c being interest on bank FDRs of Rs.8,38,869/- and interest on Income Tax Refund of Rs.26,200/-. With these submissions, it has been contended that assessee has rightly disclosed the rental income of Rs.1,34,40,000/- under the head "Income from House Property" and deserves to claim deductions thereon u/s.24(a) 24(b) of the Act.
5.1 It was further observed by ld. CIT(A) that Assessing Officer should have considered all the facts disclosed in the return of income and not entirely on the basis of observation of the auditor, which sometimes can be wrong and if assessment is made totally on the basis of audit report, no addition can be made relying on the auditor's report wherein no adverse comments have been made. Therefore, it is concluded that auditor's report can be a basis for drawing inference but whole assessment cannot be made entirely on the basis of audit report. AO should have taken into consideration all the relevant facts and information available on record or provided by the assessee during the assessment stage and after considering the same, conclusion should be drawn. In the present case, the fact remains that in the computation of income, assessee has bifurcated the items of income of trading and P&L A/c which makes it evidently clear that apart from business income, assessee had shown rental income and interest income during the year under consideration. Computation of total income makes it evidently clear that on the basis of trading and P&L A/c, assessee separately disclosed income from house property, income from business and profession and income from other sources, which were consolidatedly shown in the trading and P&L A/c. Therefore, it cannot be concluded that
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assessee has earlier shown the rental income as business income which has later on changed to reduce the tax effect.
5.2 In view of the above factual matrix of the case, it is held that assessee has rightly shown the rental income as income from house property in the computation of income and is allowable to claim deduction u/s.24(a) and u/s.24(b) of the IT Act. AO was accordingly directed rightly to treat the rental income as income from house property and allow deduction u/s.24(a) and 24(b) as claimed by the assessee.
As regards the deduction u/s.43B of the Act, I find no infirmity in the order of learned CIT(A) that the specific provisions of section 438 clearly indicates that these are related in respect of specific sums as mentioned in clause (a) to (f) of this section, and service tax does not come under the purview of items shown above. Further in the present case, the service tax collection and its deposit in the Government Exchequer does not cover under the purview of Section 28 of the Act as assessee has received the service tax in respect of rental income, which is assessed to tax under the head House Property and disallowance cannot be made by applying the provisions of Section 438 of the IT Act, 1961. Without prejudice to the facts of the present case, it is pertinent to mention here that even while making the assessment in respect of business income, no addition can be made u/s 438 if the service tax has not been routed through the P&L A/c as held by jurisdictional High Court in the case of CIT vs. Nobel & Hewitt India P. Ltd. (2008) 305 ITR 324 (Del) holding as under: "6 .... In our opinion since the assessed did not debit the amount to the Profit & Loss Account as an expenditure nor did the assessed claim
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any deduction in respect of the amount and considering that the assessed is following the mercantile system of accounting, the question of disallowing the deduction not claimed would not arise. 7. Learned Counsel for the revenue submits that the assessed has sought to evade tax under the mercantile system of accounting. We are of the view that it is not for the revenue authorities to tell the assessed how to maintain its accounts. 8. We cannot find any fault in the view taken by the Tribunal and find no merit in this appeal. 9. No substantial question of law arises. 10. The appeal is dismissed." 6.1 Keeping in view the facts and circumstances of the instant case, as enumerated above, it is an undisputed fact that rigor of section 438 cannot be applied in the case of the assessee considering the fact that service tax collected by the assessee is in respect of rental income which is assessed to tax under the head House Property and provisions of Section 438 cannot be applied while computing the Income from House Property. Even considering the facts of the present case, it cannot be denied that assessee has not claimed the service tax in the P&L A/c. Hence, even otherwise no addition can be made by applying the provisions of Section 43-B in respect of service tax which has not been routed through the trading and P&L A/c. Therefore, Assessing Officer was rightly directed to delete the addition of Rs.4,96,952/- made u/s.43B of the Act. Thus, both the issues of the Revenue are dismissed
In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on this day 27th April, 2017
Sd/- (B.P. JAIN) ACCOUNTANT MEMBER Dated: 27/04/2017