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Facts
The assessee claimed depreciation on a hotel property leased out as business income, along with expenses for excise duty, GST, and sales tax. The PCIT, invoking Section 263, treated the assessment order as erroneous and prejudicial to revenue regarding these claims, leading to a revisional order.
Held
The Tribunal noted that the property was a commercial asset specifically designed for business, and the income derived from its exploitation was business income. The assessee's claim for depreciation on such assets was deemed in order, aligning with the business definition and Supreme Court precedents.
Key Issues
Whether the income from leasing a fully equipped hotel and restaurant is assessable as business income or income from house property, and whether the related depreciation claim is admissible.
Sections Cited
143(3), 263, 142(1), 32, 57, 2(5), 2(4)
AI-generated summary — verify with the full judgment below
2 ITA 344/JODH/2024 Shree Ram Colloids Private Limited 2. The brief facts of the case are that the assessment was completed under section 143(3) of the Act by the National e-Assessment Centre, Delhi on 09/04/2021 and addition was made related to duty draw back not shown in the return of income amount to Rs.12,547/-. The Ld. PCIT by invoking provisions of section 263 issued notice to the assessee by treating this assessment order as erroneous and prejudicial to the interest of the revenue. The 5 points was asked to explain by the Ld.PCIT in his impugned notice. But finally, related to two points for claiming of depreciation on rented property and the expenses related to excise duty, GST expenses and sales-tax expenses amount to Rs.11,54,204.12 was treated as erroneous and prejudicial to the interest of the revenue, which was not considered by the Ld.AO, by invoking provisions of section 263 of the Act. The aggrieved assessee filed an appeal before us by challenging the revisional order.
The Ld.AR argued and filed a paper book spanning pages 1 to 467, which is kept on record. The Ld.AR argued that the property was given on rent and the said rent was declared as business income and accordingly, the depreciation was claimed. During the assessment and also before the Ld.PCIT, the assessee explained that the assessee has given on a short tenure lease its property being fully equipped hotel and restaurant situated at Village Osiyan. The lease amount received from the said letting out was declared as ‘Business income’. As per the object clause of the assessee, the memorandum includes objects to run hotel, restaurant, resorts, café, swimming pool, health clubs motes, holiday camps, canteens, clubs and to act as property dealer. During the assessment proceedings, the details were called for by issuing notice under section 142(1) asking for the details. Further, the Ld. PCIT issued the notice dated 09/01/2024 4 ITA 344/JODH/2024 Shree Ram Colloids Private Limited work, control and manage any land, buildings, offices, factories, shop, godowns, farm house, colonies, malls, multiplexes, multistories, apartments, flats, shopping complexes, townships, row houses, and other works and conveniences and to build, maintain and run hotel, restaurant, resorts, café, swimming pool, health clubs motes, holiday camps, canteens, clubs and to act as property dealer. One of the purpose of the company as inserted on 01/11/2012 was also leasing activities. 2.2 In the case of the assessee it is a inseparable contract of letting out and it is the composite tool of the trade. The hotel building is situated in the small Village Osian in the Thar Desert on the sand dunes. The same consists of some structure constructed and also major portion which is partly constructed where tents were being placed. These are purely temporary structures and specifically designed assets to attract tourists. These special features cannot be merely said that the letting out of property and cannot be considered as income from house property. In the present case, the assessee is the owner of a commercial property specifically designed to suit a particular business only and no other use of the asset can be made, and the income derived from exploitation of such business apparatus would be the income from Business.
2.3 The nature of business of the assessee also includes the income from hotel and leasing activities and carrying out all the activities which are relevant for earning the income for these properties by extending various facilities. The income arising there from is necessarily assessable under the head Income from Business and profession and assessee and accordingly the claim of depreciation was in order. Your kind attention is also invited towards the decision of Hon'ble Supreme Court at Page nos. 772-773 in the case of Narain Swadeshi Weaving Mills vs Commissioner of Excess Profits Tax IR 1955 SC 176, (1954) 26 ITR 765 SC, 19551 SCR 952 stated as under:
"Business" as defined in section 2(5) of the Excess Profits Tax Act includes amongst others, any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture. The first part of this definition of "a business" in the Excess Profits Tax Act is the same as the definition of a business in section 2(4) of the Indian Income-tax Act. Whether a particular activity amounts to any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture is always a difficult question to answer. On the one hand it has been pointed out by the Judicial Committee in Commissioner of Income-tax v. Shaw Wallace & Co. ((2932) IL.R. 59 Cat 1343), that the words 6 ITA 344/JODH/2024 Shree Ram Colloids Private Limited 4. While considering the issue related to the expenses claimed by the assssee in P&L Account pertaining to indirect expenses, amount to Rs.11,54,204.12, show cause notice was issued by the Ld.PCIT and the relevant paragraph 6 of the impugned notice is reproduced as below:- “6. In order to examine the sales declared in the ITR with the sales/turnover declared in the VAT/GST returns, the FAO asked the assessee to submit copies of VAT/GST returns. The assessee submitted GST returns in form GSTR 3B for the period July 2017 to March 2018 but no VAT return or GSTR-1 is filed to show details of sales in the period of April 2017 to June 2017. As such the information submitted by the assessee was incomplete but the FAO did not ask for the reaming data of sales declared in VAT returns of 1.4.2017 to 30.6.2017.
Therefore, you are given an opportunity of being heard and are requested to explain with documentary evidences as to why the order passed on 09.04.2021 u/s 143(3) of the Act by the Assessing Officer should not be declared as erroneous in so far as it is prejudicial to the interest of revenue to the extent of the additional issues discussed as above.”
The assessee replied to the questions raised by the Ld. PCIT by the letter dated 13/02/2024 (APB pages 8 to 25) and the relevant paragraph is reproduced below: 5. That the details of the expenses of Rs.11,54,204/- is related to the following expenses: - Particulars Amount in Rs. Excise Duty 2,66,251.00 GST Expenses 1,620.00 Sales Tax Expenses 8,86,333.12 Total 11,54,204.12 5.1 The Tax Auditor, in the clause 26(i)(B)(b) of form 3CD has reported no payment of Sales tax/VAT/Excise Duty or GST has been routed through profit and Loss account because of we have followed the accounting policy of recognising the sales/turnover in our books of accounts net off Sales tax/VAT/Excise Duty or 8 ITA 344/JODH/2024 Shree Ram Colloids Private Limited 5. The Ld.AR further stated that the same query was duly raised by the Ld.AO in assessment proceedings in the notice for clarification issued by the Ld.AO, on 16/01/2023. The relevant notice dated 16/01/2023 is enclosed in APB pages 130- 133 and the said notice is duly complied by the assessee and uploaded the reply in the system. The copy e-proceeding response related notice date 16/01/2023 is annexed in APB pages 138-139. Finally, the draft assessment order was issued and the Ld.AO has accepted the assessee’s reply which was filed during the assessment proceedings. The showcause notice was issued by the Ld. AO for clarification related to duty draw back not offered to tax and the addition was proposed amount to Rs.63,597/-. So, the explanation with relevant evidence of the assessee are duly considered by the Ld.AO while verifying the facts during assessment proceeding.
The Ld.DR argued and fully stands with the order of the Ld.PCIT. The relevant paragraphs 5.3 to 5.5, on pages 26 to 27, are relied upon, which are extracted below:- “5.3. On the issue of rent income from the property, the Assessee has contended that it has given on a short term lease its property being a fully equipped hotel and restaurant situated at village Osian and that the lease amount received was shown as business income. The Assessee has contended that the hotel building and the temporary structures were specially designed assets to attract tourists and the income from letting out of these properties cannot be considered as income from house property. The Assessee has contended that he being owner of a commercial property specifically designed to suit a particular business income derived from the property falls under the head income from business. The Assessee has placed reliance upon the decision of Hon'ble Supreme Court in the case of Narain Swadeshi Weaving Mills for the purpose of business of definition of the term business. Based on these contentions, the Assessee has contended that the rent income of Assessee from a commercial property cannot be taken as income from house property and even if it is taken as income from other source, the Assessee would be allowed depreciation u/s 32 or section 57.
10 ITA 344/JODH/2024 Shree Ram Colloids Private Limited addressed, leaving no grounds for invoking the provisions of Section 263 of the Act. In arriving at this conclusion, we respectfully rely on the judgments in PCIT vs Pramod Kumar Tekriwal (2023) 154 taxmann.com 142 (SC) where the Hon’ble Apex Court dismissed the appeal of the revenue for the ground that the assessee has produced all the relevant documents before the Ld.AO and the Ld.AO had taken one possible view out of two and assumption of jurisdiction by Principal CIT under section 263 which is erroneous but High Court by the order held that since the factual findings taken by the ITAT, there is no error in the Tribunal which allowed the appeal of the assessee. In the case of PCIT vs. Cartier Leaflin (P.) Ltd. [(2023) 146 taxmann.com 281 (SC)], it was held that if the Ld. AO has adopted a plausible view, there is no justification for invoking Section 263 to revise the assessment order. This ruling applies even if it is alleged that the AO did not examine certain aspects, such as the books of account or the share trading transactions conducted by the assessee through demat accounts, during the assessment proceedings. Moreover, we note that the assessee had claimed depreciation related to hotel business & running the resort “Village Osiyan”. The income is declared under the head business & profession. The factual issue is fully covered the order of the Hon’ble Apex Court in Chennai Properties & Investments Ltd. V. CIT (2015) 373 ITR 673. Considering the other issue, the assessee’s plea is that in Clause 26(i)(B)(b) of Form 3CD, the Tax Auditor has reported that no payments pertaining to Sales Tax, VAT, Excise Duty, or GST have been routed through the Profit and Loss Account. This is in accordance with the accounting policy consistently followed by the