ITO WARD-41(1), KOLKATA, KOLKATA vs. SRI SHYAMAL BANERJEE, KOLKATA

Aggrieved by the said order of learned AO, the assessee carried the matter in appeal to learned CIT and the CIT by way of impugned order treated the income from Bani Bhawan as income from business and deleted the additions made on that score. Further, learned CIT calculated the undisclosed or unexplained investment or income of the assessee at Rs.39,44,106/- as against Rs.91,65,486/- calculated by learned AO, thereby granted a relief to the assessee to a tune of Rs.52,21,380/-.

Challenging these two findings of learned CIT in the impugned order, the Revenue preferred this appeal with three days delay before us on the following grounds:- (1) The ld. CIT(A) has erred in law as well as on facts in treating income from ‘Bani Bhawan’, Puri as “Income from Business” instead of “Income from House Property”. The issue was discussed in detail in assessment order. It is gathered from record that on the same issue in AY 1993-94 order u/s 143(3)/254/251 dated 29.12.2006 of the I.T. Act, was passed and the assessee has not preferred further appeal and accepted the said order.

It is the argument of the ld. D.R. that the learned CIT erred in holding the income from Bani Bhawan as the income from business instead of income from house property, since the assessee is residing in a part of the building and let out the remaining to others on rental basis. He further assailed the impugned order on the ground that the learned CIT committed error in holding that the total turnover was accumulated through a periodic cycling of the sales amount to purchases for four times during the financial year, instead of adding the entire unexplained investment as undisclosed income. For these reasons, learned DR prayed to restore the order of the learned AO.

It is the argument of the Ld. AR that the learned CIT has taken the total unexplained investment as the result of rotating the same amount for four times instead of taking it as rotation for nine times in view of the tax audit report where the ratio of stock to turnover was found to be 10.10%. He further submitted that the learned CIT increased in the Gross Profit Ratio from 10.36% to 11.55% and made certain addition on this basis.

At the outset, it we wish to state that in respect of the learned CIT taking the undisclosed investment as the investment in four cycles instead of investment in nine cycles as pleaded by assessee, and learned CIT enhancing the Gross Profit Ratio from 10.36% to 11.55%, there is no appeal preferred by the assessee. It is only the revenue that has come in this appeal challenging the treatment of income from Bani Bhawan and also granting relief to the assessee to a tune of Rs.52,21,380/-.

Basing on the above contentions and circumstances the points that arise for our consideration are,-

As could be seen from the record Bani Bhawan is a Lodge situated on the beach at Puri. The assessee has been conducting his business in letting out this property on commercial basis to many Government, semi-Government and institutions to be used as Holiday Home. Since establishment about three decades back, the income from the lodging house has been treated as business income by the assessee and has been accepted so by the department. However, from about the assessment year 1993-94, the department has started treating such income as income from house property. Dispute has reached the level of ITAT in respect of the assessment years 1993-94 and 1995-96, wherein the ITAT decided the issue in favour of assessee holding that the income from Bani Bhawan be treated as income from business and not income from House property.

In respect of the assessment year relevant to this appeal also, this issue has been canvassed before the learned CIT. Certain documents were produced before the learned CIT and also before this Tribunal. Now we shall proceed to analyze and appreciate such documentary evidence. The assessee produced the copy of licensee fee receipt and also the licenses for the years 2003-2004 and 2006 as samples to show the terms and conditions. These documents are enumerated from page no. 53 to 56 of the paper book. In all these documents, while granting licence in favour of the assessee to received lodgers/pilgrims, the licensing authority, i.e. the Magistrate, Lodging House Fund, Puri had stipulated the following conditions :-

The assessee also produced as many as nine agreements entered into with different organizations which are incorporated in page nos. 57 to 96 of the paper book.

The license granted by the Magistrate, Lodging House Fund clearly shows that for carrying on the business of letting out the property to be used as Holiday Home or lodge, such license was granted. The agreements referred to above also clearly show that with such stipulation only the property was let out to different organisations. Further is not a case of mere letting out the property on a rent, but the assessee also provided watch and ward, furniture and fixtures and other services. All these facts unmistakeably show the intention of the assessee that he was making use of the property for business or commercial purpose. It is worth to note that in Sultan Bros. Pvt. Ltd. –vs. – CIT (1964) 51 ITR 353 at page no. 354, the Hon’ble Apex Court observed that whether a particular letting is business has to be decided in the circumstances of each case, and each case has to be looked at from a businessmen’s point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner.

Further, in the grounds itself, the revenue pleaded that order dated 29.12.2006 under section 143(3)/254/251, in respect of assessment year 1993-94 was the same, and the assessee accepted the same without preferring any appeal. As a matter of fact, the revenue has never produced any such material in support of its contention. On the other hand, vide page No. 104 and 106 of the paper book the assessee produced the copy of an order in ITA No. 49/Cal/2000 in respect of assessment year 1995-96. In this order, a Coordinate Bench of this Tribunal clearly observed that the copy of the order in respect of AY 1993-94 was produced before the Tribunal and the Tribunal observed therein that the income from the Bani Bhawan was treated as business income. Further, vide no. 107 to 114 of the paper book, the assessee produced the order dated 26.2.2010 passed by the learned CIT in respect of AY 2001-02. In this order, vide Para (i) under ground no. 3, the learned CIT observed that the Puri Municipality has given licence to run the commercial project only as a lodging/holiday home restricting the number of

Hon’ble Allahabad High Court in Commissioner of income Tax –vs.- Pateshwari Electrical and Associated Industries (P) Limited 282 ITR 61 (All) referred to the decision in Sultan Bros. (P) Ltd. –vs.- CIT [1964] 51 ITR 353, CEPT –vs.- Shree lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC), CIT –vs.- Shanmugham [1984] 147 ITR 692 (Mad.), S.G. Mercantile Corpn. (P) Ltd. –vs.- CIT [1972] 83 ITR 700 (SC), and distinguished the decisions reported in Shambhu Investment (P) Ltd. [2001] 249 ITR 47 (Cal.) and CIT –vs.- Purshottam Dass [2001] 247 ITR 516 (Delhi) to reach a conclusion that when the property was used for commercial purpose by letting out the same with a furniture and fittings after obtaining Sarai licence from the District Magistrate as well as from the Dist. Health Officer and renewable from year to year, the learned CIT was right in treating the receipts as business income. This decision is application to the facts of this case on all fours.

Revenue could not produce the document, which they are relying upon and at the same time they are unable to demonistrate how and where the learned CIT was wrong. Viewing from any angle we do not find any error in the finding of the learned CIT that the income from Bani Bhawan Puri constitutes business income and not income from house property. We, therefore, uphold the finding of learned CIT and answer the issue in favour of the assessee.

Now coming to the relief to a tune of Rs.52,21,380/- granted by the learned CIT to the assessee, we find that the learned AO, basing on the incriminating documents with identification mark TCS-22, TCS-44 and TCS-48 assessed undisclosed investment at Rs,71,69,487/-. To this amount, learned AO also added gross profit at 10.36%. Learned AO also considered payments to Anuj Textiles and added the amount along with Gross Profit Ratio at 10.36%. Finally the learned AO added Rs.2,60,000/- in respect of the amount under TCS-2, to reach the final figure of Rs.91,65,486/- on account of undisclosed or unexplained investment or income.

We have carefully perused the order of the learned CIT. After an elaborate discussion and comprehensive consideration of the documents under TCS-2, TCS-4, TCS-9, TCS-22, TCS-44 and TCS-48, the learned CIT reached at Rs.1,00,79,633/- as the total amount of turnover. Learned CIT did not agree with the learned AO in respect of Gross Profit Ratio, and as against the Gross Profit Ratio of 10.36% framed by AO, learned CIT enhanced it to 11.55% and added the difference amount to the income of the assessee. As already stated above, the assessee does not challenge the enhancement of the turnover from Rs.95,61,486/- as framed by the learned AO to Rs.1,00,79,633/- or enhancing the Gross Profit Ratio from 10.36% to 11.55%. The entire dispute in this appeal revolves around the finding of the learned CIT that the same amount was rotated for four times to make the total turn over of Rs. 1,00,79,633/- as such of only one fourth of this total turn over alone is the investment which has to be added to the income of the assessee instead of adding the total turnover to the income of the assessee. For this purpose, we have to look into the order of the learned CIT and a line of reasoning given by him to reach such a conclusion that the turnover was accumulated by rotating the sale amount to purchases for four times a year, and that Rs.25,19,908/- is the actual amount of undisclosed investment.

It could be seen from the record that initially the assessee has claimed that the sales amount was ploughed in at least four times for purchases during the period; therefore, the undisclosed investment should be estimated at 1/4th of the turnover. However, subsequently he changed the version at claimed that the investment being

Now coming to the aspect of enhancing the Gross Profit Ratio from 10.36% to 11.55%, learned CIT has considered the Gross Profit Ratio rate by working the formula, i.e. Gross Profit Ratio on sales X 100/100-GP on sales. By working out like this he arrived at 11.55% of Gross Profit Ratio on the total turnover of Rs.1,00,79,633/-. By calculating the G.P. in that method and adding such amount to the undisclosed amount

In view of our findings on issue no. 1 & 2, we dismiss grounds no. 1 & 2. Consequently appeal is also dismissed, confirming the findings of ld. CIT on these aspects.

In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on September 14, 2016.