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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 164/JP/2022
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR MkWa- ,l-lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 164/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2017-18 PCIT-2, cuke Natwar Lal Sharda Jaipur M-38-39, Tonk Road, Mahesh Colony, Vs. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ANAPS6999R vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (C.A.) jktLo dh vksj ls@ Revenue by : Shri Prathviraj Meena (CIT) a lquokbZ dh rkjh[k@ Date of Hearing : 13/07/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 31/08/2022
vkns'k@ ORDER
PER: DR. S. SEETHALAKSHMI, J.M. This appeal by the assessee is directed against the order of the Learned Principal Commissioner of Income Tax [hereinafter referred to as (ld. PCIT)]- 2, Jaipur dated 23.03.2022 for the AY 2017-18.
The assessee has raised the following grounds:- “1. On the facts and the circumstance of the case and in law, the ld. PCIT has erred in initiating Revision proceedings u/s 263 of the Income Tax Act, 1961 (the Act), on incorrect appreciation of the facts. 1.1 That, ld. PCIT has further erred in observing that assessee has claimed business loss including depreciation on assets lying in building u/s 57 of the Act, whereas no such query was raised vide show cause notice
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issued u/s 263. Appellant prays that issuing directions on the issue other than subject matter of show cause notice is not in accordance with law and therefore the directions of ld. PCIT to this extent is beyond jurisdiction and deserves to be hold bad in law. Without prejudice to Ground of Appeal No.1.1 and in the alternative, 1.2 That, ld. PCIT has further erred in observing that business loss as well as depreciation has been claimed u/s 57, which is contrary the facts as both business loss and depreciation were claimed under the head "Business and profession", therefore order passed by ld. PCIT deserves to be set aside in this regard. 2. That, ld. PCIT has further erred in initiating Revision proceedings without appreciating the fact that assessee had let out only land and building and not the plant & machinery, therefore Rent received therefrom was rightly offered for taxation under the head “Income from house property”. Appellant prays that Revision order has been passed in a causal manner and deserves to be quashed. 3. The appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing the appeal.”
Brief facts of the case are that assessee is an individual and during the year under consideration was deriving income from Salary, House Property, Business, Capital Gain and other sources. A survey u/s 133A was conducted in the case of assessee during F.Y. 2016-17, pursuant to which case was selected for compulsory scrutiny and accordingly notices were issued u/s 143(2) and 142(1) of the Income Tax Act, 1961. Details and information as sought by ld.AO were provided and assessment was completed u/s 143(3) vide order dated 27.11.2019, wherein the income offered for tax as a result of survey at Rs.15,34,28,700/- and declared as business income in the return of income filed was assessed as Income from Other Sources and provisions of section 115BBE are applied to it. Subsequently, ld. PCIT-2, Jaipur passed order u/s 263 and held the order passed by AO as erroneous and prejudicial to the interest of revenue on the issue of Income from House property declared by assessee by holding that the same should be assessed as Income from Other Sources. Aggrieved of
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the order so passed u/s 263, assessee has preferred present appeal before the Bench.
The AO arrived the findings the amount of Rs. 15,34,28,700/- will be taxed as per provisions of section 115BBE of the Act. Penalty u/s 271AAC(1) of the IT Act is initiated separately for unexplained investment in terms of provisions of section 69 of the Act. With the Following remarks, the income of the assessee is calculated as under:- Particulars Amount (Rs.) Income from salary ( as declared) Rs. 24,00,000/- Income from House property (as declared) Rs. 10,81,941/- Income from business (after deduction of Rs. Nill surrendered income) Income from capital gain Short Term Rs. 34,36,000/- (as declared) Long term Rs. 8,51,618/- Income from other sources at normal rate (as Rs. 3,93,70,548/- declared) Income from other sources at special rate u/s Rs. 15,34,28,700/- 115BBE as discussed above Less:- Deduction (Chapter VI-A) Rs. 72,100/- Total taxable income Rs. 20,04,96,707/- Rounded off Rs. 20,04,96,710/-
Assessed at income of Rs. 20,04,96,710/-. Penalty u/s 271AAC(1) of the IT Act is initiated separately for unexplained investment in terms of provisions of
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section 69 of the Act. Issue necessary forms. Computation in ITNS 150 is enclosed which is part of this order.
Before the ld. PCIT, the assessee has reiterated its arguments. The ld. PCIT for the reasons stated in his order has rejected the arguments and submissions made by the assessee. The ld. PCIT has confirmed the action of the AO by observing as under:-
“Accordingly, by virtue of powers conferred on the undersigned under the provisions of section 263 of the Income Tax Act, 1961, I hold that the order under Section 143(3) of the IT Act dated 27.11.2019 for AY 2017-18 passed by the Assessing Officer is erroneous in so far as it prejudicial to the interest of revenue as the said order has been passed by the Assessing Officer in a routine and perfunctory manner without considering/applying his mind to the information available on record. The order of the Assessing Officer is therefore liable to revision under the clause (a)& (b) Explanation (2) to section 263 of the Income Tax Act. Hence, the assessment order is set aside as discussed above.
Aggrieved by the ld. PCIT order, the assessee is in appeal before us. Before the ld. PCIT, the assesee has reiterated that his submissions, which was not taken on record by the ld. PCIT. Before us the ld. AR for assessee submitted a detailed Written submissions which are as under:-
“In these grounds of appeal, assessee has challenged the action of ld. PCIT in holding the assessment order as erroneous and prejudicial to the interest of revenue by incorrectly appreciating the facts of the case.
Facts pertaining to these grounds of appeal are that ld. PCIT issued show cause notice u/s 263 (APB 32-33) proposing to revise the Assessment order
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by observing that assessee had declared annual rent of Rs.15 lacs on letting out of “factory alongwith plant & machinery” under the head house property and deduction of Rs.4,50,000/- was claimed u/s 24(a). It was held by ld. PCIT that as per the provision of section 56(2)(iii), any income by way of letting out of plant & machinery alongwith factory, if not chargeable under the head “Business & profession” than it would be chargeable to tax under the head “Income from Other Sources”. Further ld. PCIT has held that the assessee has claimed expenditure u/s 57 of Rs. 1,49,574/- which includes depreciation on such plant & Machinery of M/s Sharda Food Products which claim is also incorrect. Accordingly, ld. PCIT held that the assessment order was passed without considering / applying his mind and thus the order so passed is erroneous as well as prejudicial to the interest of revenue.
In this regard, at the outset, kind attention of your honours is invited to notice issued by ld. PCIT (APB 32-33) from which, it is apparent that no explanation was sought from assessee regarding claim of Rs.1,49,574/-. In other words, holding assessment order erroneous in respect of this issue is without affording opportunity of being heard and thus order passed by ld. PCIT is against the principle of natural justice.
In the case of PCIT vs Universal Music India Pvt. Ltd. Income tax appeal no.238 of 2018 (Bom HC), ld.CIT had issued show cause notice on two issues, namely, (a) disallowance of Fringe Benefit Tax (FBT) paid of Rs.10,72,532/- included in miscellaneous expenses and not allowed by the Assessing Officer and (b) provision of Rs.1,40,98,685/- in respect of slow moving and obsolete inventories whereas eventually ld. CIT directed Assessing Officer by an Order dated 20th March, 2013 to make enquiry and examine the two issues and also on third issue namely payments made to persons specified under Section 40A(2)(b) of the Act of Rs.7,00,22,680/-
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which was allowed in the assessment order. The assessment order was set aside on these issues and these were to be examined afresh.
In that case, Hon’ble Bombay High court after considering the judgement of Hon’ble Apex Court in Amitabh Bacchan 2016(69) taxmann.com 170 held that when no issue was raised by the CIT in respect of payment made to persons specified under Section 40A(2)(b) of the Act and even the show cause notice is silent about it, then it is violation of principle of natural justice and accordingly such order was rightly quashed by Hon’ble ITAT.
In view of the aforesaid legal position it is humbly prayed that the observations of ld. PCIT in this regard deserves to be held bad in law.
On merits of the issue, kind attention of the hon’ble bench is invited to page 3 para 4 of the assessment order which is the computation of income wherein the ld. AO has not allowed any kind of deduction on account of depreciation and business loss claimed by the assessee. Basically, assessee had offered income of Rs.15,34,28,700/- from speculative business activity and interest income (APB 9) and further claimed business loss of Rs.1,49,574/- (including depreciation) from his proprietary firm M/s Sharda Food Products (APB 2-3), whereas ld. AO in assessment order, did not allow the loss so claimed by assessee. In fact, ld. AO assessed income of Rs.15,34,28,700/- surrendered during survey under the head Income from other sources on gross basis, i.e. without allowing any depreciation and business loss. Also, provisions of section 115BBE were invoked in respect of such income. It is thus submitted that the observation of ld. PCIT that assessee has claimed deduction u/s 57 towards business loss of Rs. 1,49,574/- from M/s Sharda Food Products, is firstly mixed up on facts and secondly same cannot be the basis for action u/s 263, as the ld. AO has
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already disallowed (not allowed) these losses (business loss and depreciation) in the assessment order.
With regards to other issue, i.e. Rental income from let out of factory to be assessed under the head “Income from other sources” and not under the head “Income from house property”, it is submitted that during the course of Revision proceedings, ld. PCIT issued show cause notice dated 18.02.2022, whereby, following query was raised (APB 32-33):
“3. On perusal of the assessment records, it was noticed that you had let out factory alongwith plant & machinery for annual rent of Rs.15 lakhs and shown this receipt under the head “income from house property” while claiming deduction of Rs.4,50,000/- u/s 24(a), whereas as per the provision of section 56(2)(iii), any income by way of letting out of plant & machinery alongwith factory if not chargeable under the head “Business & Profession” than it would be chargeable to tax under the head “income from other sources”. Accordingly, the rental income of Rs.15 lakhs was chargeable under the head “income from other sources” and no deduction u/s 24(a) was allowable. This wrong deduction of claim has resulted in under computation of income of Rs.4,50,000/-.”
In response to show cause notice, assessee filed reply on 24.02.2022 (APB- 34) whereby it was stated that assessee had let out only Land and building to S.S. Industries, for which rent of Rs.15 lacs was received. Copy of Rent agreement was also furnished (APB 35-38) alongwith reply, which clearly mentions that Rent of Rs.1,25,000/- per month was for the premises only. In fact, agreement does not contain a single clause regarding renting of plant & machinery. Your honours would appreciate that in case, assessee would have rented out plant & machinery, at least some clauses regarding same would have been incorporated in Rent agreement, regarding description of
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such plant & machinery, regarding terms & conditions of repairs and maintenance thereof etc. Moreover, had ld. PCIT any doubt regarding the fact whether only land & building was let out or it was let out alongwith plant & machinery, enquiries could have been made directly from tenant, which has not been done. All these facts were duly submitted before the ld. PCIT who has failed to appreciate the same and hold the assessment order as erroneous and prejudicial to the interest of revenue.
In view of above, it is submitted that assessee had let out only land and building and plant & machinery was never let out, therefore Rent received therefrom was rightly offered for taxation under the head “Income from house property”.
It is therefore submitted that order passed u/s 143(3) is neither erroneous nor prejudicial to the interest of the revenue and thus order passed by ld. PCIT deserves to be quashed. “
On the other hand, the ld. DR supported the order of the ld. PCIT.
We have heard both the parties, perused materials available on record. The ld. AR for the assessee submitted that the ld. PCIT issued a show cause notice u/s 263 proposing to revise the assessment order by observing that the assessee had declared annual rent of Rs. 15 lacs on letting out of factory along with plant & machinery under the head house property and deduction of Rs. 4,50,000/- was claimed u/s 24(a) while considering the merits of the case. The ld. AO has not allowed any kind of deduction on account of depreciation and business loss claimed by the assessee. It is observed that the assessee had offered income of Rs. 15,34,28,700/- from speculative business activity and
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interest income. The ld. AO has sustained of Rs. 15,34,28,700/- which was surrendered during the survey under the head of income from other sources on gross basis i.e. without allowing any depreciation and business loss. The ld. AR for the assessee submitted that the observations of the ld. PCIT that the assessee has claimed deduction u/s 57 towards business loss of Rs. 1,49,574/- from M/s Sharda Food Products and the same cannot be basis for action u/s 263, where the ld. AO has already disallowed these losses in the assessment order.
Further, we are of the opinion that the rental income from let out of factory to be assessed under the head income from house property. It is observed that during the course of revision proceedings, the ld. PCIT has issued a show cause notice dated 18.02.2022 and in response to the show cause notice, the assessee has filed a reply on 24.02.2022 where the assessee had stated that he had let out only to assessed income (proprietor Mr. Ram Charan Badaya) for which rent of Rs. 15 lacs was received. Copy of agreement was also furnished along with reply, which clearly mentions that rent of Rs. 1,25,000/- per month was for the premises only. It is observed that the income of Rs. 15 lacs has been correctly shown under the head income from house property and the same has been received from letting of land & building for rent.
From the above rental agreement which has been submitted by the ld. AR for the assessee which is reproduced in paper book Page No. 35 to 38. The relevant portion Para 35 & 36 is reproduced as under:-
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12 ITA No. 164 /JP/2022 Natwar Lal Sharda 11. From the facts and circumstances of the case, the submissions made by the ld. AR for the assessee and ld. DR, we observe that no opportunity is not ground for the ld. PCIT to decide beyond show cause notice. In Considering the entire conspectus of case, we find that the proceeding before the ld. PCIT suffers from no-infirmity so far as the conduction of inquiry is concern; consequently, we do not hesitate in set aside the order of Ld PCIT with infirmity and quashed the revisionary order passed u/s 263, accordingly the legal ground numbers 1, 1.1 and 1.2 stands allowed.
In Ground No. 2, we have considered the appeal on technical ground, therefore, the ground raised by the assessee on merits become infructuous and does not require any adjudication.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 31/08/2022. Sd/- Sd/- ¼ jkBksM deys'k t;UrHkkbZ ½ ¼,l-lhrky{eh½ (Dr. S. Seethalakshmi) (RATHOD KAMLESH JAYANTBHAI) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 31/08/2022. *Santosh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Natwar Lal Sharda , Jaipur. izR;FkhZ@ The Respondent- PCIT-2, Jaipur. 2. 3. vk;dj vk;qDr@ CIT vk;dj vk;qDr@ CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 5. xkMZ QkbZy@ Guard File { ITA No. 164/JP/2022} 6. vkns'kkuqlkj@ By order,
13 ITA No. 164 /JP/2022 Natwar Lal Sharda
सहायक पंजीकार@Aेेज. त्महपेजतंत