SUDHA ORGANICS P.LTD,MUMBAI vs. DCIT CEN CIR 45, MUMBAI

O R D E R PER BENCH: These appeals by the assessee are preferred against the very same orders of the Ld. CIT(A)-38,Mumbai dated 23.08.2011 pertaining to assessment years 2003-04 to 2009-10. Since common issues are involved in all these appeals, they were heard together and disposed of by this common order for the sake of convenience.

2. The Ld. CIT(A) failed to appreciate that the amount received on warehousing charges was towards composite compensation for use of factory with plant and was hence taxable under the head ‘Income from Business’ or ‘Income from other sources’.”

3. All these appeals filed by the assessee are delayed by 513 days. Affidavit of the Director of the Company is placed on record explaining the reasons in filing the appeals belatedly.

4.1. The Ld. Counsel for the assessee further submits that the Hon’ble Tribunal condoned the delay of 513 days in the group concern also. Since facts and circumstances being identical, the Ld. Counsel submits that the order may be followed.

All these appeals filed by the assessee are late by 513 days. Affidavit of the Director of the Company is placed on record explaining the reason in the filing the appeals late. During the appellate proceeding, learned counsel of the assessee filed a decision of the Mumbai Bench Tribunal in the case of The Phoenix Mills Ltd., decided in vide order dated 23­3­2010. It was explained that the Chartered Accountant, who was looking after the Income Tax matter of the assessee, advised the assessee that no appeal is to be filed against the order of CIT(A), therefore, the assessee did not file appeal. However, when the assessee changed his counsel, who advised that appeals should have been filed and accordingly, the appeals were filed immediately. It was explained that assessee was not aware of the legal provision properly and he was under bonafide belief that no useful purpose will be served if the appeals are filed as advised by the then Chartered Accountant. It was explained that similar facts were involved in the case of The Phoenix Mills Ltd (supra), and the Tribunal has condoned the delay in filing the appeal before the Tribunal.

On the other hand, learned DR stated that there was no reasonable cause in filing the appeals late before the Tribunal, therefore, the delay in filing the aforesaid appeals should not be condoned. After considering the submission and perusing the material on record, I found that the assessee was bonafide in not filing the appeals in time. Copy of the affidavit of the Director of the company is placed on record. It has been explained that the company received the order of CIT(A) dated 1­10­2011 and the appeal should have been filed before the Tribunal within 60 days. It is further explained that the appeal matters of the assessee were looking after by Mr. P.K.Tandon, Chartered Accountant and on his advice the appeals were not filed. However, when the assessee transferred the case to Mr. S.S.Gajja, Chartered Account, who advised that appeals are to be filed before the Tribunal as the order of the CIT(A) is not as per the provisions of law. I noted that due to wrong advice of the Chartered Accountant, appeals could not be filed in time, therefore, I am of the view that there is a reasonable cause in not filing the appeals in the time. The decision in the case of The Phoenix Mills Ltd (supra), on which reliance has been placed, is in favour of the assessee. In this case the ratio of the decision of the Hon’ble Apex Court in the case of Concord of India Insurance Co. Ltd. Vs. Smt. Nirmala Devi and others, reported in (1979) 118 ITR 507(SC), has been considered, wherein it has been held that the mistake of the counsel may in certain circumstances be taken into account in condoning the delay although there is no general proposition that mistake of counsel by itself is always a sufficient ground. Accordingly, the Hon’ble Apex Court has held that there is a mistake of the counsel and, therefore, the delay in filing the appeal has been condoned. I further noted that similar finding has been expressed by the Hon’ble Supreme Court in the case of N. Balakrishnan Vs. M. Krishnamurthy, reported in AIR 1998 SC 3222. The Tribunal has also considered the decision in the case of Mela Ram and sons Vs. to 3234/2013 4 CIT, reported in 29 ITR 607 (SC) and accordingly, the delay in filing appeal was condoned. The facts in the present case are also similar as in this case also due to mistake of Chartered Accountant the assessee could not file the appeals in time. In view of the above facts and circumstances of the case and in view of the various decisions mentioned above, which was considered by the Tribunal in the case of The Phoenix Mills Ltd (supra), I condone the delay in filing the present appeals before the Tribunal for all the years”.

“ Affidavit of Shri Pramod Menon, Director of M/s. Sudha Organics Pvt. Ltd., having its office at 1, Dorf Ketal Tower, Orlem, Malad (W), Mumbai­400 064.

(hereinafter referred to as an ‘Appellant’)

I, the above­named deponent, solemnly affirm and state in the matter of Income­tax appeal for the assessment year 2003­ 04, as under:

That Appellant company received the CIT Appeals order on 1­10­11 & the appeal with the ITAT ought to have been filed by 31.10.11 but the company has not filed appeal with the IT A T. There has been delay of 526 days in filing the appeal.

The files of the Dorf Ketal Group Companies were being handled by Mr.P.K.Tondon­ Chartered Accountant. On his advice appeals were filed for Dorf Ketal Chemicals (India) Pvt. Ltd for A.Y 04­05 to 06­07 on 29th February 2012. As per his advice, appeals were not filed for Sudha Organics Pvt. Ltd & Perfect Scales Co. Pvt. Ltd. Thereafter, the files have been transferred to S.S Gajja & Co­Chartered Accountants who have now advised us to file appeal, there being merit in the case of the Appellant.

The appellant humbly prays that in the interest of justice the delay in filing the present appeal be condoned by the Hon’ble Tribunal and the appeal be admitted for hearing.”

“After considering the submission and perusing the material on record, I find that there is no merit in the grounds raised by the assessee for the aforesaid assessment years. Though various decisions relied upon by the assessee are on the similar issue, however, facts of each case has to be taken into consideration while deciding the case in hand. In the present case, I noted that the assessee itself has never used the business asset for its business purpose. It was admitted during the appellate proceeding that in immediately preceding year i.e. assessment year 2002­03, the shed was constructed with the funds borrowed from the holding company. No interest has been paid to the holding company on that amount. It is further seen that small amount was spent on plant and machinery i.e. Rs.6 lakhs or odd. Rs.41,769/­ and Rs.10,859/­ or odd was spent for electricity fitting and air conditioner, respectively. As stated above, the assessee never used this shed for its own business purpose. When the shed was constructed, immediately thereafter the shed was rented out to the holding company on an annual rent of Rs.6 lakhs. Therefore, it cannot be said that the assessee has exploited its business asset for commercial purpose, though Hon’ble Supreme Court in the case of M/s Shambhu Investment Pvt. Ltd. (supra), itself has concluded in the following manner :­

“Taking a sum total of aforesaid discussions, it clearly appears that merely because income is attached to any immovable property cannot be the sole factor for assessment of such income as income from property; what has to be seen is what was the primary object of the assessee while exploiting the property. If it is found, applying such test, that main intention is for letting out the property, or any part thereof, the same must be considered as rental income or income from property. In case, it is found that the main intention is to exploit the immovable property by way of complex commercial activities, in that event, it must be held as business income.”

In this case the Hon’ble Supreme Court has held that if it is found that the main intention is to exploit the immovable property by way of complex commercial activities, it must be held as business income. As stated above, the assessee has never used the shed for its business purpose and immediately after construction, the shed was given to its holding company. Accordingly, for claiming depreciation, the assessee has shown the rental income as business income as there is no other expenses claimed by the assessee in its profit and loss account. Therefore, I am of the view that though the asset is a business asset but the rental income earned by the assessee has to be assessed as income from house property, as the assessee has never used this business asset for its commercial purposes. It is also seen that the factory shed was constructed by the funds of the holding company and was used by the holding company, which shows that the business asset created by the assessee was only for the purpose of holding company and not use of assessee. Hence, it is inferred from the fact that the holding company was the owner of the shed as the assessee is a hundred percent subsidiary of the holding company. Therefore, it cannot be said that the business asset was given on rent for exploitation of the immovable property by way of commercial activities. Accordingly, I hold that the AO and learned CIT(A) were justified in treating the rental income as income from house property. Accordingly appeals for assessment years 2003­04 to 2006­07 are dismissed”.

“For all the three assessment years, no rental income was received as the shed was not used by holding company. However, the AO was of the view that if the rental income is not received but the same has accrued the assessee. Accordingly, he assessed the rental income of Rs.6 lakhs each for all the three years.

The CIT(A) allowed partly relief to the assessee as in his view the ALP has to be determined on the basis of earlier rental income as required under Section 23(1) of the Act. Accordingly, the AO was directed to recompute the rental income.