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Income Tax Appellate Tribunal, MUMBAI BENCHES “J”, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI D.KARUNAKARA. RAO
O R D ER PER MAHAVIR SINGH, JM :
This appeal by the assessee is arising out of the order of Ld. CIT(A), Mumbai in Appeal No. CIT(A)-14/Rg.-6(1)/IT-56/2011-12, dt. 07/11/2013. Assessment was framed by the ACIT, Circle 6(1), Mumbai for the AY 2009-10 vide his order dt. 23/12/2011 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of the assessee is against the order of Ld. CIT(A) confirming the action of the AO in assessing the income from letting out of property as income from house property instead of income from business or profession, as claimed by the assessee. The assessee has also raised another issue regarding disallowance of expenses claimed qua rental income, which is consequential to first issue. For this assessee has raised the following two grounds:
The Commissioner of Income Tax (Appeals)14, Mumbai, (Hereinafter referred to as “THE CIT-A”) has erred in law, on facts and in the circumstances of the case in confirming the income of Rs. 5,10,00,000/- as rental income instead of Business Income.
2. The CIT-A has erred in law, on facts and in the circumstances of the case in confirming the disallowance of expenses of Rs. 64,95,467/- incurred to carry on the Business activities.
Briefly stated facts are that the assessee company is engaged in the business of real estate, property development, construction etc. The assessee has declared income from business services of Rs. 5.10 Crores in the P&L account and claimed certain expenditure in the P&L account. After debiting expenditure, the assessee has declared profit before tax at Rs. 2.20 Crores. The assessee has claimed these business service receipts of Rs. 5.10 Crores as income from house property at the first instance while filing return of income in the computation of income. The assessee also claimed deduction under section 24A @ 30%. The assessee also claimed all expenditure and derived loss from business activity and adjusted the same against income from house property. Subsequently the assessee, during the course of assessment proceedings, changed its stand and claimed the income declared as rental income as income from business and profession. The assessee has entered into agreement, the nomenclature given to it was ‘Business Services Agreement’ with Essel Corporate Resources P. Ltd. (in short ECRPL)on 23/12/2008. This rental income was derived by the assessee from this party and claimed during the course of assessment proceedings as income from business and profession. The AO as well as Ld. CIT(A) both treated the income arising out of letting out of property to ECRPL as income from business and profession. Aggrieved, assessee preferred the appeal before the Tribunal.
Before us Ld. Counsel for the assessee claimed that as per the Memorandum of Association (MOA) and Article of Association (AOA) the main object of the assessee company is that of construction of building and letting out the same. Ld. Counsel for the assessee relied upon the decision of Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd. Vs. CIT [2015] 373 ITR 673 wherein it is held that where in terms of MOA, main object of assessee company is to acquire properties and earn income by letting out the same, the said income is to be brought to tax as business income and not as income from house property. When a query was put to the Ld. Counsel for the assessee as to whether this issue has been examined by lower authorities according to MOA and the object of the assessee company, Ld. Counsel fairly conceded that this issue has not been examined. On further query from Ld. Sr. DR, he also conceded the position and stated that the issue can be remanded back to the file of the AO in entirety and denovo for fresh examination of all aspects on this issue.
After hearing both the parties and going through the facts of the case, we find that none of the authorities below have examined the MOA or the main object of the assessee company and this plea was raised before us for the first time. To examine the issue on this aspect, we are of the view that this issue needs setting aside / remanding back to the file of the AO for fresh examination. In terms of the above we remand the matter back to the file of AO for fresh examination in terms of the decision of Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd.(supra). Accordingly, the orders of the lower authorities are set aside and matter is remanded back to the file of AO to decide afresh in entirety.
The second issue in this appeal of assessee is against the order of Ld. CIT(A) confirming the disallowance of Liquidated damages for non-performance of a business contract. For this the assessee has raised following ground no. 3:
3. The CIT-A has erred in law, on acts and in the circumstances of the case in confirming the disallowance of Rs. 2,25,00,000/- paid as Liquidated damages for non-performance of a business contract. 7. At the outset we have noticed from the assessment order that the Assessing Officer has recorded the cryptic finding while disallowing the liquidated damages and observed as under:
“5.4 As discussed above, it is very much apparent and established that the claim of liquidated damages is nothing but a colourable transaction which has no relevance to any business activity and hence the same cannot be allowed.”
Similarly, the Ld. CIT(A) also has not adjudicated the issue with speaking order and the relevant findings of the Ld. CIT(A) reads as under:
5.3 I have considered the facts of the case, submission of the appellant and the assessment order. The appellant’s A.R. has not been able to produce any evidence to show that the Liquidated Damages claimed by the appellant was incurred for the purpose of business in which the assessee indulged during the current year. No business activity was carried out by the assessee in the current year and therefore the claim of the appellant of liquidated damages is devoid of any merit in absence of any substantiating documents. The action of the A.O. is upheld. Ground is dismissed.
In view of the above facts and circumstances that none of the authorities below have recorded reasons for their orders while examining the issue, hence, we set aside the order of lower authorities on this issue. Matter is remanded back to the file of AO for afresh adjudication. We allow this ground of appeal of assessee for statistical purposes.
8. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 2nd August, 2016.