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TMI Blog2010 (10) TMI 703X X X X Extracts X X X X X X X X Extracts X X X X ..... be assessed. The issue arose for the first time in the assessment year 2005-06 and therefore, we take up for consideration the appeal in ITA No.6294/Mum/2009 for the assessment year 2005-06. 3. Ground No. 1 raised by the assessee reads as under: "The learned CIT(A) erred in confirming and treating rent received of Rs.3,47,898/- by the assessee as income from house property as against income from business treated by the assessee." 4. The assessee is a partnership firm. It is engaged in trading in textiles and money lending. As per the Partnership Deed, it was authorized to carry on the business of money lending, borrowing, financing and other business to earn interest and business to earn rent. M/s. Shree Madhu Industrial Estate Ltd., owned premises known as Madhu Industrial Estate, standing at Globe Mills Passage, Mumbai 400 013. One Shri Indra Kumar Somani by virtue of holding debentures in Sree Madhu Induatrial Estate Ltd., was entitled to occupy a portion of the premises in Madhu Industrial Estate. By two Memorandum of Agreements, both dated 30.6.1977, a portion in the third floor of the building known as Madhu Industrial Estate (hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 143(1) of the Act. For all the above reasons the CIT(A) held that the income in question has to be allowed as "income from house property". Aggrieved by the aforesaid order of the CIT(A), the assessee has raised ground No.1 before the Tribunal. 7. We have heard the submissions of the learned counsel for the assessee who reiterated the stand of the assessee as was taken before the CIT(A). We are of the view that the assessee was merely let out the property and deriving rental income. He was not carrying on any systematic or organized activity which could be said to be carrying on a business. The Assessee has neither pleaded nor proved facts by which it could be said that the income in question was income from business. The fact that in the past the treatment of the income as one from business cannot be a bar to make assessment of the income under the correct head of income in accordance with law. The other reasons given by the CIT(A), in our view are proper. The revenue has rightly placed reliance on the decision of the Hon'ble Supreme Court in the case CIT v. Shambu Investments P.Ltd. (249 ITR 47)(SC). In the said case, property was let out by an assessee toge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 143(1) of the Act. Later on a notice under section 148 was issued and served on the assessee on 27.3.2008. The reasons for initiation of re-assessment proceeding was the outcome of the assessment in the Assessment Year 2005-06, wherein it was held that income from letting out the property has to be assessed under the head "income from house property". Before the lower authorities the assessee did not challenge the validity of initiation of re-assessment proceedings. 14. Before us it was submitted that in the assessment completed in the past, the income has been accepted as income from business and reopening has been done purely on a change of opinion. We are of the view that this objection cannot be accepted for the reason that the outcome of the assessment in the assessment year 2005-06 was sufficient for the A.O. to entertain a belief regarding escapement of income. The assessee by claiming the income from letting out the property under the head "business income" was also claiming deduction of expenses which were allowed normally under the head "income from house". By reason of changing of head of income those expenses cannot be allowed as a deduction. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee will explain as to how it has to be considered as owner of the property and as to how the rent from letting of the property has to be considered as "Income from House Property". As far as A.Y.'s in which the income has been considered by the AO himself as "Income from House property", such assessments will hold good so long as they are not disturbed by a process known to law. We accordingly allow ground No.2 raised by the assessee for statistical purposes. 18. Ground No. 3 raised by the assessee reads as under: "The ld.CIT(A) thereby erred in allowing only compensation paid to Shree Madhu Indl. Estate Ltd. to Rs.18,314/- and compensation paid to Somani and Co. Pvt. Ltd. at Rs.12,000/- only and thereby erred in disallowing other expenses deb9ted to profit and loss account." 19. The assessee claimed the fee that it paid to Shree Madhu Indusal Estates Ltd., the owner of the property and Somani and Co. Pvt. Ltd., the owner of the property, for obtaining rights to let out the property were claimed as deduction against the income from house property. This was disallowed for the reason that the income in question is assessed under section 57 i.e. income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the result, ITA No.6291/Mum/2009 is partly allowed for statistical purposes. ITA No. 6292/Mum/2009 for the assessment Year 2002-03 27. Ground No.1 is with regard to validity of reassessment proceedings and ground No.2 with regard to treating the licence fees received as income from other sources have already been decided while deciding ground No. 1 and 2 of the assessee's appeal for the A.Y. 2001-02. For the reasons stated therein, ground No. 1 is dismissed, while ground No. 2 is allowed for statistical purposes. 28. Ground No. 3 raised by the assessee reads as follows: "The Ld.CIT(A) thereby erred in allowing only compensation paid of Rs.50,563/- only and thereby erred in disallowing other expenses debited to profit and loss account." 29. This ground is purely consequential to ground No.2. The outcome of this ground of appeal will depend on the outcome in the set aside proceedings. The AO will consider the allowability of the expenditure in the set aside proceedings depending on the head of income under which the income from letting is assessed. Accordingly, ground 3 is allowed for statistical purposes. 30. Ground No. 4 reads as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed other expenses debited to profit and loss account." 40. We have already decided identical grounds of appeal in the assessee's appeal for the assessment year 2002-03 in ITA No.6292/Mum/2009 above, viz. ground Nos. 2 and 3. For the reasons stated therein, ground No.2 and ground No. 3 are allowed for statistical purposes. 41. Ground No. 4 raised by the assessee reads as under: "The Ld.CIT(A) in offering profit from completed project the profit therefrom is estimated @ 15% i.e. Rs.11,29,469/- of the WIP and thereby deducted the brought forward loss of assessment year 1999- 2000 of Rs.35,434/- and the brought forward loss of Rs.65,669/- for assessment year 2000-01 and added Rs.10,28,366/- as income from business." 42. The assessee was carrying out construction of buildings on Plot No.16-C of Survey no. 161 Part, Pahadi, Bangur Nagar at Goregaon (West), Mumbai 400 090. The construction of the building was in progress and as on 31.3.2002, 90% of the construction was completed. The assessee had constructed in all about 15 flats out of which assessee had received advances for purchase from 9 persons. There were disputes raised by the neighbours of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and only occupation certificate is pending, the A.O. was of the view that profits had been generated from the construction activity. He estimated 50% of the Work in progress shown in the balance sheet as the profit of the assessee for the previous year and thereby added a sum of Rs.11,29,4469/- to the total income of the assessee. 44. On appeal by the assessee the CIT(A) confirmed the order of the A.O. According to the CIT(A) the assessee was following the project completion method and 80% of the project was complete. According to the CIT(A), the assessee had received the payments against sale of flats and though the possession of the flat has not been delivered and though there was an order of the Bombay High Court restraining the assessee from partying with possession, yet the profit on construction had to be brought to tax. Aggrieved by the order of the CIT(A), the assessee had raised the aforesaid ground of appeal before the Tribunal. 45. We have heard the rival submissions. The admitted facts in the case are that ultimately if the litigation is decided against the assessee, the assessee has to pull down the entire structure. In that event the assessee has to r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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