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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आयकरअपीलीयअिधकरण, ‘ए’ �यायपीठ,चे�ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI �ीएन.आर.एस. गणेशन,�याियकसद�यएवं �ीिड.एस. सु�दर�सह,लेखासद�यकेसम� BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER आयकरअपीलसं./ITA Nos.2628 & 2629/Mds/2014 िनधा�रणवष� / Assessment Years : 2008-09&2010-11 Shri K. Thanikachalam, The Asstt. Commissioner of C/o. S. Sridhar, v. Income Tax, Advocate, Business Circle - II, New No.14, Old No.82, Flat No.5, Chennai. 1st Avenue, Indira Nagar, Adyar, Chennai – 600 020. [PAN: AAEPT 1404 B] (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ�क�ओरसे/Appellant by : Shri S. Sridhar, Advocate ��यथ�क�ओरसे/Respondent by : Shri Shiva Srinivas, JCIT सुनवाईक�तारीख/Date of Hearing : 12.01.2017 घोषणाक�तारीख/Date of Pronouncement : 22.02.2017 आदेश आदेश /O R D E R आदेश आदेश PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER:
These appeals of the assessee are directed against the orders of Commissioner of Income Tax (Appeals)-I, Chennai, dated 28.07.2014and pertains to the assessment years 2008-09 and 2010-11.
:-2-: & 2629/Mds/2014
2 The assessee raised following grounds of appeal for the A.Y.2008-09 in appeal No.2628/Mds/2014:
1) The order of the Commissioner of Income Tax (Appeals) I, Chennai – 600 034 dated 28.07.2014 in for the above mentioned assessment year is contrary to law, facts and in the circumstances of the case. 2) The CIT (Appeals) erred in confirming the validity of the assumption of jurisdiction u/s 147 of the Act and erred further in confirming the re-assessment framed consequently u/s 143(3) r/w section 147 of the Act without assigning proper reasons and justification. 3) The CIT(Appeals) failed to appreciate the lack of fresh materials read with inadequate satisfaction recorded on the escapement of income as well as the attempt to shift the head of income from ‘income from business’ to the ‘income from house property’ to tax the income generated from commercial properties in the consequential re-assessment framed would vitiate the re- assessment framed both on jurisdiction and on merits of the case. 4) The CIT(Appeals) failed to appreciate that the decisions relied upon to sustain the assumption of jurisdiction/s 147 of the Act had no application to the facts of the case and cited out of context, thereby vitiating his decision rendered in relation thereto. 5) The CIT (Appeals) erred in confirming the assessment of rental income earned from commercial properties under the head ‘income from house property’ as against the claim for assessment of such income under the head ‘income from business’ without assigning proper reasons and justification. 6) The CIT(Appeals) went wrong in recording the findings in this regard in para 5.2 of the impugned order without assigning proper reasons and justified. 7) The CIT(Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law. 8) The Appellant craves leave to file additional grounds/arguments at the time of hearing.
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Ground No. 1 to 4 are relating to the reopening of the assessment under Section 147 of the Income Tax Act,1961 (in short ‘the Act’). The assessee filed return of income declaring total income of Rs.25,56,300/- and the assessment was completed under Section 143(1) of the Act.
Subsequently, the case was reopened by issue of notice under Section 148 of the Act dated 22.02.2012. The assessee has challenged the validity of reopening of assessment and the Ld.CIT(A) confirmed the validity of reopening of assessment placing reliance on Jurisdictional High court decision in ALA Firm vs. CIT(102ITR 622) and Hon’ble Apex court decision in the case of Esskay Engineering company Ltd vs CIT( 247 ITR818) and other decisions cited in CIT(A)’ order. In assessee’s case no assessment was made under section 143(3) earlier and the return was processed under Section 143(1) of the Act. The assessee has admitted the rental income as ‘income from business’ instead of ‘income from property’ and claimed various expenses as applicable to business income. Therefore, the Assessing Officer has reopened the assessment under Section 148 of the Act, having reason to believe that the income chargeable to tax had escaped assessment. The assessment was reopened within 4 years from the end of the relevant assessment year and the decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers P Ltd (291 ITR 500) is clearly
:-4-: & 2629/Mds/2014 applicable and we, therefore, uphold the issue of notice under Section 147 of the Act and hold that the assessment is validly reopened. The assessee’s appeal on this issue is dismissed.
Ground Nos. 5 to 8 are related to the assessment of business income as ‘income from property’. The assessee has let out the property and receiving the rents and such rents received were admitted as business income. According to the assessee, the rents were from market complex and property is commercially exploited and the rents received from such property are taxable as business income, but not as property income. The Assessing Officer relied on the decision of the Hon’ble jurisdictional High Court in the case of CIT v. Chennai Properties & Investment Ltd. [2004] 135 Taxman 509 (Mad.) and taxed the income as income from house property. Aggrieved by the order of the Assessing Officer the assessee went on appeal before the CIT (Appeals). The Ld. CIT(Appeals) confirmed the order of the Assessing Officer placing reliance on the decision of the Hon’ble jurisdictional High Court in the case of Sanmar Holding Ltd. (272 ITR 341). Aggrieved by the order of the CIT(Appeals), the assessee is in appeal before us.
:-5-: & 2629/Mds/2014
Appearing for the assessee, Shri S. Sridhar, the Ld. Counsel argued that the assessee has constructed the commercial complex for commercial exploitation. The income derived from such commercial complex required to be assessed as business income. The assessee has registered the complex as commercial asset for the purpose of commercial tax as well as the service tax. The assessee further argued that all along the assessee is admitting the income under the head business income which was accepted by the department in the earlier years on the same set of facts. The department cannot change the stand and take different view in the case of the same assessee on the same set of facts and further submitted that following the rule of consistency as held by jurisdictional High Court and other High Courts the income required to be assessed as business income and not as income from property. On the other hand, Shri Shiva Srinivas, the Ld. Departmental Representative relied on the orders of the lower authorities.
We heard the rival submissions and perused the material placed on record. The assessee has constructed the commercial complex, registered the same for Service Tax and Commercial Tax purposes as commercial establishment and admitted the income derived from the commercial complex as business income. Whereas the AO assessed
:-6-: & 2629/Mds/2014 the same as income from property. The AO relied on the decision of the Hon’ble jurisdictional High court in the case of Chennai properties cited (supra) and held it as property income. Hon’ble Supreme court has reversed the decision of the Hon’ble High court and held that where in terms of memorandum of association, main object of assessee-company was to acquire properties and earn income by letting out the same, said income was to be brought to tax as business income and not as income from house property in [2015] 56 taxmann.com 456 (SC).The Ld.CIT(A) relied on the decision of Hon’ble High Court in the case of CIT v.
Sanmar Holdings Ltd (272 ITR 341). However the case of Sanmar holdings Ltd was remitted back to the file of the Assessing officer to verify the facts regarding the ownership of building and the commercial exploitation of the property. In the appellants case there is no dispute that the assessee is the owner of the building and receiving the rents by making extra amenities and the business of the assessee is letting out the property on commercial lines. It was also not in dispute that the assessee has all along admitted the rental income as business income and the department has accepted the same. There was no change in the character of the building and the activity of the assessee to take ‘U’ turn from the earlier stand. The Ld.D.R could not explain the reasons or material facts to change the stand of the department. Though the Rule of :-7-: & 2629/Mds/2014 Resjidicata does not apply to the Income tax proceedings, the Rule of consistency does apply to the income tax proceedings. This view is up held by Hon’ble jurisdictional High court In CIT vs. L. G.
Ramamurthy (1977) 110 ITR 453 (Mad.), the court laid down the principle that “But what is relevant is not the personality of officers presiding over the Tribunal but the Tribunal as an institution. If it is conceded that simply because of the change in the personnel who manned the Tribunal, it is open to them to a conclusion totally contradictory to the conclusion which had been reached by earlier officers manning the tribunal on same set of facts it will not only shake the confidence of the public in judicial procedure as such, but it will totally destroy such confidence…….that will be destructive of the institutional integrity itself”.. similarly Hon’ble Supreme Court in Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) expressed view that Rule of consistency required to be followed in assessment proceedings. In the instant case, there was no dispute that the assessee has admitted the income as business income in the earlier years and the same was accepted by the department and there is no change in the facts in the year under consideration. Therefore, following the Rule of consistency and on facts we hold that income of the assessee received from the letting out of the properties should be assessed as income from :-8-: & 2629/Mds/2014 business but not from the property. Appeal of the assessee on this issue is allowed.
Now coming to for the assessment year 2010-11, the issues involved are the assessment of income from properties as business income, capital gains and deduction relating to the amounts paid to Shri Srinivas, loan of Rs.50 lakhs from Shr iSrinivas and miscellaneous loans of Rs.13.25 lakhs.
7.1 Ground No.1, 11 & 12 are general in nature and the Ld.AR has not made any argument. Therefore, these grounds do not require any specific adjudication.
Ground Nos. 2& 3 of the appeal for the assessment year 2010-11 are related to the income from property admitted as business income.
The facts of the case are the same as that of the assessment year 2008- 09 in appeal No.2628. As per the detailed reasoning given in earlier order of 2628, we allowed the appeal of the assessee and held that the income received from rents required to be assed as business income.
Therefore, Ground Nos. 2 & 3 are allowed.
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Ground No.4 is related to the computation of short term capital gains from transfer of three properties. The assessee sold three properties during the previous year relevant to the assessment year 2010-11 located at New Door Nos. 198 & 199, Thiruveethi Amman Koil Street, Mylapore, Chennai totally measuring 2 grounds and 1410 sq.ft (6210sq.ft) by way of three registered documents as follows: Doc. No.1109 of 2009 dt 28.5.09 – 650 sq.ft for Rs.42,90,000 Doc.No.1473 of 2009 dt 10.7.09–1192 sq.ft. for Rs.71,52,000 Doc.No.1817 of 2009 dt 28.8.09-4368 sq.ft. for Rs.2,88,28,800 The total value of the property sold was Rs.4,02,70,800/- by three sale deeds mentioned above.
9.1 The Assessing Officer treated the sale doc.No. Doc.No.1817 of 2009 dt 28.8.09 admeasuring 4368 sq.ft. for Rs.2,88,28,800/- as separate transaction and computed the short term capital gains at Rs.1,15,03,102/- against the capital gains admitted by the assessee at Rs.20,98,130/- and made addition of Rs.94,04.972/-.
9.2. The assessee sold the other two properties vide Doc. No.1109 of 2009 dt 28.5.09 – 650 sq.ft for Rs.42,90,000/- , and Doc.No.1473 of 2009 dt 10.7.09–1192 sq.ft. for Rs.71,52,000/- but neither admitted the capital gains nor submitted any details before the assessing officer.
:-10-: & 2629/Mds/2014 Therefore the assessing officer assessed the entire sale consideration of Rs.1,14,42,000/- as short term capital gains.
Aggrieved by the order of the Assessing Officer the assessee went on appeal before the CIT (Appeals) and submitted that the assessee as a proprietor of M/s.Sharad Homes & Properties became a duly appointed power attorney holder with regard to the property by a Registered Document No.651/2007 dated 16/03/2007.The property was acquired by the assessee with financial assistance from one Mr.C.R.
Srinivas from Bangalore and certain payments were made to him directly at the time of sale and these amounts are to be excluded from the taxable gains in the hands of the assessee. One such payment was Rs.35,00,000/-made by pay order is reflected in Doc.No.1473 of 2009 at Page No.10. Further an amount of Rs.1,10,00,000/- was made to Mr.Srinivas out of the sale proceeds in Doc.No.1817/09.This payment was made by way of Axis bank NEFT transfer. The Assessing officer in his order had reduced the cost of acquisition of Rs.1,73,25,698/- from the value of the three document and arrived at the short term capital gains. He has failed to consider the payments made to Mr.Srinivas from out of the sale value of the property towards settling the dues, which had been borne by him. This is evidenced by the Memorandum of :-11-: & 2629/Mds/2014 understanding entered into between the assessee as POA of the vendors and Mr.C.R.Srinivas on 25.03.2009. Mr. Srinivas was authorized to negotiate with the encroachers of the property and settled for an amount of Rs.1.10 Cr. which was later reimbursed by the assessee from the sale value of the property. Hence, this amount is to be reduced from the sale value of property for working out the short term capital gains.
According to the assessee, the short term capital gain on sale of property works out as under:
Total sale value of property in the 3 documents Rs. 4,02,70,800 Rs. Less: Eviction Expenses & Commission paid 33,00,000 Rs. Less: Cost of acquisition 1,73,25,698 Rs. Less: Amounts paid to C.R. Srinivas 1,45,00,000 (Rs.25,00,000 + Rs.1,10,00,000) Rs. Balance taxable as short term capital gains 51,45,102 Rs. Less: Amount already offered as capital gains. 46,45,102 Rs. Balance 5,00,000 (Already shown under ISDL deposit (i.e. Rs.14 lacs-Rs.9 lacs) and added to income By Assessing Officer under loans and advances)
The Ld. CIT (Appeals) allowed the eviction charges of Rs.33.00 lakhs subject to verification and confirmed the addition relating to the payments made to Shri Srinivas amounting to Rs.145 lakhs (110.00
:-12-: & 2629/Mds/2014 lakhs and 35.00 lakhs) and arrived at the STGL of Rs.1,96,45102/-.
Aggrieved by the order of the Ld.CIT (Appeals), the assessee is in appeal before us.
We heard both the parties and perused the material placed on record. The assessee sold the properties in 3 documents mentioned above for consideration of Rs.4,02,70,800/-. A sum of Rs.35,00,000,- was directly paid to Shri M. Srinivas from the sale proceeds of document No.1473 dated 10.07.2009 and the same was not accounted in the receipts and declared in the return of income, claiming it as deduction by over riding title. The Assessing Officer disallowed the claim made by the assessee and brought to tax the amount of Rs.35,00,000/-. The Ld. CIT (Appeals) also confirmed the addition made by the Assessing Officer. Further, an amount of Rs.1,10,00,000/- was made to Mr.Srinivas out of the sale proceeds in Doc.No.1817/09.
The aggregate amount of Rs.145 lakhs made to Shri Srinivas was explained to be paid to him since he made some financial support and negotiated with the encroachers. The CIT (Appeals) observed that the assessee could not explain as to why the sale proceeds were directly paid to Shri Srinivas. Before the Ld. CIT(Appeals), the assessee submitted that there was certain encroachment in the land and the :-13-: & 2629/Mds/2014 assessee could not vacate the encroachments, hence he approached Shri Srinivas and authorized him to vacate the encroachers and settle for an amount of Rs.1.10 crores which was reimbursed by the assessee from the sale value of the property. Hence, the Ld. AR of the assessee contented that the amount made to Shri Srinivas is deductable from the short term capital gains. The Ld. CIT (Appeals) did not accept the contention and confirmed the addition. With regard to the deduction claimed in respect of eviction charges of Rs.33 lakhs, the assessee submitted the confirmation letters before the Ld.CIT(Appeals) and the CIT(Appeals) allowed the deduction subject to verification.
12.0 As per the provisions of Section 48 of the Act, the cost of acquisition and the expenditure incurred in connection with the transfer of the capital asset is allowable as deduction. In this case, the assessee has made the payment aggregating to Rs.1.45 crores (110 lakhs + 35.00 lakhs) to Shri Srinivas and claimed the same as deduction.
12.1 The payment Rs.35.00 lakhs claimed to be financial support for purchase of property which was in the form of debt and application of money. As discussed earlier the cost of acquisition and the expenses incurred in relation to transfer of the property are allowable as deduction.
:-14-: & 2629/Mds/2014 The amount of Rs.35.00nlacs was not related to transfer of the property and the assessee has not produced any evidence to show that the payment was incurred for transfer/sale of property. As stated by the A.R, the property was purchased with the financial assistance of Mr.Shrinivas and hence it appeared to be loan for purchase of the property. The entire cost of acquisition was allowed as deduction and no further amount required to allowed. The assessee has not produced any evidence to show that the vendor has been paid over and above the sale consideration. Therefore, there is no error in the order of the Ld.CIT(A) and the same is confirmed.
12.2 The remaining amount Rs.110.00 lakhs supposed to be incurred for negotiating the encroachers. The assessee in this case purchased the property in financial year 2007-08and sold in February, 2009. But the purchase deed was not produced before the Assessing Officer or before us. It could not be ascertained whether the assessee has purchased the property in vacant possession or with the encumbrances of encroachments. The names of the persons who have encroached, when they have occupied the land and what was the mode of payment made to the encroachers, the amount paid to each encroacher, whether the amount is paid in cheque or cash by Shri Srinivas etc., has not :-15-: & 2629/Mds/2014 placed on record. The assessee has not placed any evidence to show that the land in question was in encroachment and Shri Srinivas made efforts to vacate the land from the encroachers. Before the assessing officer the assessee has not admitted the sale consideration for taxation and no details were furnished. The sale proceeds of document No.1109 and 1473 were not accounted in the books of accounts at all. The Ld.CIT(A) has not accepted the diversion by over riding title. The assessee has not produced any evidence to show that there was an encumbrance for making payment by over riding title. The assessee also failed to produce any evidence to show that the payment was made for transfer of the property. Therefore we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. The ground No. 4 to 8 of the assessee are dismissed.
Ground No.9 is related to the cash credit appearing in the name of Shri M. Srinivas. The Assessing Officer made addition since the assessee has not given any details or confirmations. No evidence was produced before the Ld. CIT (Appeals). However, from the submissions made before the CIT (Appeals), it is seen that the said credit of Rs.50 lakhs was said to be opening balance as on 01.04.2009. In the absence of any evidence to prove the genuineness of the transaction and the :-16-: & 2629/Mds/2014 creditworthiness of the creditor, the source of cash credit was not established. The AR of the assessee contented that the credit was related to the earlier year and not relating to the year under consideration, the same cannot be added in the assessment year under consideration. As per the provisions of Section 68 of the Act, the unexplained cash credit should be made addition in the year in which the same was received. For ready reference, we reproduce here under Section 68 of the Act: “Section 68: Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”
13.1 The issue relating to the cash credit was not examined by the Ld.CIT (Appeals) and the AO. Therefore we remit back the matter to the file of the Assessing Officer with a direction to verify the correctness of the claim made by the assessee, whether it was relating to the earlier year or the year under consideration and decide afresh as per law.
Accordingly, ground No.9 is allowed for statistical purpose.
:-17-: & 2629/Mds/2014
Ground No.10 is relating to addition of Rs.13,25,360/-. The assessee has shown the said amount of Rs.13,25,360/- as miscellaneous loans. No details were furnished before the Assessing Officer. Therefore, the Assessing Officer treated the source as unexplained and added back to the income. Before the Ld. CIT (Appeals) also, the assessee failed to furnish the basic details like address of the person, PAN number, source, mode of receipt, confirmation etc., Therefore, the Ld. CIT (Appeals) confirmed the addition made by the Assessing Officer.
Before us, the Ld. AR reiterated the submissions made before the Ld.CIT (Appeals) but not produced any evidence to prove that the loan was genuine. The assessee failed to furnish copies of confirmations, names and advance, mode of receipts, PAN No. etc., Therefore, we do not find any infirmity in the order of the Ld.CIT (Appeals) and the same is upheld. This ground is dismissed.
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