ITO, NEW DELHI vs. M/S WINGFLOW CONSTRUCTIONS (P) LTD., NEW DELHI

PER N.K. CHOUDHRY, JUDICIAL MEMBER :

This is an appeal filed by the revenue against the order of the

ld. CIT (A)-XXI, New Delhi.

assessee :-

“1. The Ld. CIT (A) has erred in facts and in law by not upholding the action of the AO treating the rental receipts of the assessee from its property at G-2/43A, Connaught Circus, New Delhi as income from house property on the ground that there was no change in facts from earlier years where the rental receipts from the property was treated as business income ignoring that :-.

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(i) There was ample change in the facts of the case during the year in comparison to earlier years. (ii) During the year under consideration the assessee has rented out new premises comprising the total area of ground floor and basement of G-2/43A, Connaught Circus, New Delhi to a new tenant M/s Bercos Melody House. (iii) The monthly rent receipt from M/s Bercos Melody House are substantially higher than from the other old tenant the Central Bank of India which continues to be a tenant. (iv) A comparison of the rent agreements between the assessee company and the Central Bank of India and between the assessee Company and M/s Bercos Melody House are in stark contrast to each other and there is hardly any similarity between them. (v) No other business activity has been carried out by the assessee during the year except sale of a shop and the letting out of premises from which rental income has been earned. (vi) In the overall change in the facts and circumstances of the case in comparison to earlier years, the rental income of the assessee deserves to be assessed as Income from House Property and not as Income from Business as claimed by the assessee. (vii) In the facts and circumstances of the case various expenses claimed by the assessee which are apparently unrelated to the rental income form house property are not allowable and only deduction u/s 24 of the I.T. Act is allowable after correctly treating it as Income from House Property.”

declaring loss of Rs.5,68,494/- on 26.09.2008 and the case was

processed under section 143 (1) of the Income-tax Act, 1961 (for

short ‘the Act’). The case of the assessee was selected for scrutiny

under CASS and notice u/s 143 (2) was issued on 06.08.2009 and

relevant details/documents/explanations were called u/s 142(1)

dated 19.04.2010. Accordingly, Shri Arun Malhotra, Director of

the assessee company and Shri Subhash Sharma, CA/AR attended

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the assessment proceedings and filed necessary details. The AO

observed that the assessee has shown rental income of

Rs.37,08,640/- from letting out of the property situated at G - 2/43- A, Middle Circle, Connuaght Place, New Delhi as business income

and claimed various expenses against the same. The said property

is owned by the assessee company. As per the provision of the

section 22 of the Act, rental income from the said property was to

be charged to income tax under the head ‘Income from House

property’. The AO observed that deductions from income from

house property are to be allowed as per the provision of section 24.

Moreover, he observed that the assessee has not carried out any

business activity during the year under consideration. The AO

disallowed the expenses of Rs.48,82,4821- as claimed by the assessee company against rental income and rental income of

Rs.37,08,6401- is taxed under the head ‘Income from House

Property’. Accordingly, the AO assessed the income of the

assessee at Rs.33,48,240/- as against returned loss of Rs.5,68,494/-

assessee has preferred the first appeal before the ld. CIT (A) who

deleted the addition made by the AO.

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submitted that from assessment year 1997-98 to assessment year 2003-04 assessee was showing it as 'income from house property' but it was assessed at 'business income' and further from assessment year 2004-05 to 2010-11 assessee has shown it as 'business income', which was assessed as 'business income' by the revenue till assessment year 2007-08, however, in assessment

year 2008-09 assessee has shown it as 'business income' but revenue has assessed it as 'income from house property'. He submitted that it clearly shows that from assessment year 1989-90 to assessment year 2007 -08, Department has consistently assessed the above said income as 'business income'. However, for assessment year 2008-09 it has been assessed as

'income from house property'. Ld. AR further submitted that in the assessment order, AO also has not given the cogent finding as to why he has arrived at the conclusion that above said income should not be treated as 'business income' and arrived at his finding in a very arbitrary manner, without any cogent reason. He further pleaded that principle of consistency has to be followed and

from the chart shown in CIT (A) order, it is absolutely clear that since beginning Department has accepted the above said income as 'business income'. Furthermore, he has relied on the order of the ITAT for assessment year 1998-99 wherein also relying on the rule of consistency, the action of AO and CIT(A) was upheld treating the rental income of the assessee under the

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head ‘income from business or profession’. Accordingly, he pleaded to

uphold the order of the ld. CIT (A).

rival submissions of the parties. If we consider the factual position as well as

controversy of the instant case with M/s. Rayala Corporation Pvt. Ltd. vs.

ACIT in Civil Appeal No.6437 of 2016 judgment dated 11.08.2016 passed by

the Hon’ble Apex Court while referring to Chennai Properties and Investments

Ltd. vs. CIT – (2015) 373 ITR 673 (SC), the same is identical and similar to

the case decided by the Apex Court. The relevant crux is reproduced herein

below :-

“11. The judgment relied upon by the learned counsel appearing for the assessee squarely covers the facts of the case involved in the appeals. The business of the company is to lease its property and to earn rent and therefore, the income so earned should be treated as its business income. 12. In view of the law laid down by this Court in the case of Chennai Properties (supra) and looking at the facts of these appeals, in our opinion, the High court was not correct while deciding that the income of the assessee should be treated as Income from House Property.”

Even otherwise, in our considered view, the ld. CIT (A) has rightly upheld the

assessee’s income as business income and for the sake of brevity, clarity and

to come to the right conclusion, the relevant part of the order of the ld. CIT

(A) is reproduced below :-

“3.1 During the course of appellant proceedings the ld. AR of the assessee attended and submitted a detailed submission with a chart showing the treatment of the income for various assessment years as under :

S. Asstt. Income Income shown Income assessed Remarks No. Year as as 1. 1989-90 102,850.00 Business income Business income Copy of return & order u/s 143(1) 2. 1990-91 3500.80 -DO- -DO- -do- 3. 1991-92 2440.00 -DO- -DO- Copy of return enclosed 4. 1992-93 22072.48 -DO- -DO- -do-

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From the chart it is absolutely clear that from assessment year 1995-96 assessee was showing the above income as 'business income' and same was assessed also as 'business income'. From assessment year 1996-97 to assessment year 2003-04 assessee was showing it as 'income from house property' but it was assessed at 'business income'. From assessment year 2004-05 to assessment year 2010-11 assessee has shown it as 'business income', which was assessed as 'business income' by the Department till assessment year 2007-08, However, in assessment year 2008-09 assessee has shown it as 'business income' but Department has assessed it as 'income from house property', the year in which appeal is for adjudication. In this regard it is found that from assessment year 1989-90 to assessment year 2007 -08, Department has consistently assessed the above said income as 'business income'. However, for assessment year 2008-09 it has been

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assessed as 'income from house property', In the body of assessment order AO also has not given the finding as to why he has arrived at the conclusion that above said income should not be treated as 'business income' and arrived at his finding in a very arbitrary manner, without any cogent reason, In this regard principle of consistency has to be followed and from the chart as discussed above, it is absolutely clear that since beginning Department has accepted the above said income as 'business income', So, for this assessment year why treatment of the head of the income is different, requires to be supported by reasoned order, which has not been done, Furthermore, Hon'ble ITAT has also held for assessment year 1998-99 relying on the rule of consistency and has also upheld the action of AO and CIT(A) and treated the rental income of the assessee under the head ‘income from business or profession’. So, relying on the above decision of the Hon’ble ITAT for the above mentioned assessment year, it is held that assessee’s income from rental income should be accepted as business income and ground no.1 and 2 are decided in favour of the appellant.”

In view of the above, we are of the opinion that the rule of

consistency should be followed and the CIT (A) is justified in

treating the assessee’s income as business income. Accordingly,

we uphold the order of the ld. CIT (A) and dismiss the grounds of

appeal.

Order pronounced in open court on this 16th day of December, 2016.

Sd/- sd/- (J.S REDDY) (N.K. CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 16th day of December, 2016 TS

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