TMI Blog2012 (5) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... house property" Allowance of depreciation and other expenditure - held that:- the assessee is entitled to deduction u/s 24(1) and considering the fact that part of the expenditure relating to earning of business centre income might have been included in the expenses debited, therefore, in our considered opinion, the entire expenditure cannot be allowed as deduction. Similarly, since the assessee is only partially utilizing the premises at Parel for conducting its business and also getting rental income from the said premises, therefore, in our opinion, full depreciation cannot be allowed on the Parel premises Income from financing activity - AO treated the income under the head income from other sources - held that:- assessee that the assessee in a systematic and organized manner had started the business of financing activity which is in line with one of the main objects of the Memorandum of Association and as per the resolution passed by the board of Directors. Therefore the income from financing activity, in our opinion, has to be treated as "business income". - ITA No. 4213 and 4214/Mum/2009; ITA No. 4215/Mum/2009; ITA No. 4216 and 4217/Mum/2009; ITA No. 4391/Mum/2009; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Calcutta High Court in the case of Shambhu Investment Pvt. Ltd. vs. CIT reported in 249 ITR 47 wherein it has been held that income from the let out of the properties shall be taxed under the head 'income from house property' and a couple of other decisions, he came to the conclusion that rental income has to be assessed under the head "income from house property" irrespective of the fact that leasing of site is one of the objects of the assessee company. He further noted that the assessment of the assessee company for A.Y. 2003-04 has been completed u/s 143(3) r.w.s. 147 of the Act in which the receipts from the business centre was taxed under the head 'income from house property' which has been confirmed by the ld. CIT(A). In view of the above, the A.O. treated the business centre receipts of Rs.30,03,039/- as income from house property and he allowed the necessary deduction u/s 24(1) of the Act. So far as the allowability of various expenses debited in the PandL account, he held that such expenses do not have any nexus with the profit of Rs.11,900/- on account of sale of shares and securities. He, therefore, did not allow any expenses against the sale of shares and securities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduction of evidences before the AO. 3.3 So far as the remaining expenses are concerned, he held that the A.O. has accepted that the assessee was dealing in shares right from A.Y. 1995-96. Therefore, irrespective of the volume of shares transacted, the assessee has to be allowed certain expenses against the head 'income from business. Further, he held that in view of the various decisions by the judicial authorities, the assessee is entitled to certain expenses to maintain its corporate entity. He observed that the A.O. has no evidence in his possession that these expenses have not been incurred. He, therefore, directed the AO to allow the following expenses amounting to rs 4,57,284/- out of the total claim of Rs.37,89,597/-. S. No. Claimed Allowed Amount 1 Directors' Remuneration 1,75,000/- 50% 87,500/- 2 Payment to staff 1,65,097/- 50% 82,549/- 3 Electricity charges 4,22,157/- 30% 1,26,648/- 4 Payment to auditors 33,900/- 100% 33,900/- 5 Telephone and Postage charges 3,65,410/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar ended 31.3.1996 wherein the assessee has declared the sale of shares and securities at Rs.16,24,195.00 and receipt from business centre at Rs.9,47,079.00 and has claimed various expenses. 4.3 Referring to page 22 to 24 of the paper book, the ld. counsel for the assessee drew the attention of the Bench to the assessment order dtd. 29.2.2010 passed by the A.O. u/s 143(3) for the A.Y. 1997-98 wherein depreciation on the premises on which the business centre receipt has been received has been allowed. Referring to page 25 to 26 of the paper book, he drew the attention of the Bench to the computation of total income for A.Y. 1997-98 wherein the receipt from business centre has been computed as business income as per PandL account. Referring to page 30 of the paper book, he drew the attention of the Bench to the Trading and PandL account for the year ended 31.3.1997 wherein the assessee has declared the sale of shares and securities at Rs.34,80,406.00 and the income from business centre at Rs.9,67,978.00. He submitted that the various expenses debited to the PandL account has been accepted by the A.O. in his order passed under section 143(3) of the Act. 4.4 Referring to page 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f mind. Referring to page 61 to 63 of the paper book he submitted that vide order dtd. 30th September, 2005 for A.Y. 2003-04 in the order passed u/s 143(3) r.w.s. 147, the AO has treated the business centre receipt as "income from house property" which has been upheld by the Tribunal on 30th may, 2007. 4.5 Referring to page 3 of the paper book, the ld. counsel for the assessee drew the attention of the Bench to the reasons recorded. Referring to the same he submitted that no new fact has come to the light or has been discovered. Referring to page 44 of the paper book, he drew the attention of the Bench to the Trading and Profit and Loss account for the year ended 31st May, 1999 and submitted that the assessee has shown sale of shares and securities at Rs.11,900/-. He submitted that the amount is very small because of melt-down in the share marketing. The A.O. in the body of the assessment order has accepted the business income at Rs.11,900/-. The ld. CIT(A) has given part relief of the various expenses debited in the PandL account and the Revenue has not filed any appeal before the Tribunal. He submitted that when part of the business premises has been utilized for business pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions filed in the paper book, he submitted that in view of rule of consistency alone, the reassessment proceedings should be treated as null and void. He submitted that for A.Y. 1999-2000 the Revenue is not in appeal against the finding of the ld. CIT(A)'s order that the assessee is in business. He accordingly submitted that the reassessment proceedings should be held as void ab initio. Referring to the decision of the Hon'ble Madhya Pradesh High Court in the case of Ajay Singh vs. CIT (MP) and Arjun Singh vs. ADIT (Investigation) (MP) reported in 246 ITR 363, he submitted that the amount has to be quantified for the purpose of limitation for reopening of the assessment. He, accordingly, submitted that since in the reasons recorded by the A.O. there is nothing about quantification of amount that has escaped assessment, therefore, the reopening cannot be sustained. Therefore, the ground raised by the assessee should be allowed. 5. The ld. D.R., on the other hand, submitted that the reassessment notice has been issued within a period of 6 years. The assessment was completed u/s 143)(1)(a) and, therefore, there was no application of mind by the AO. Therefore, in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities, office attendants and delivery boys, provide use of telephone/fax lines/internet facilities and other communication facilities, provides clean and hygienic condition at all times and maintain efficient and technologically advanced services in the centre. He submitted that the business centre remains open between 9.00AM to 7.00 PM on all week days from Monday to Saturday except bank holidays. He submitted that as per the said agreement, the service charges received by the assessee is exclusive of electricity, telephone, telex, photocopy and facsimile charges and other expenses as may be agreed between the parties to this agreement. Referring to various other clauses of the agreement, he submitted that the assessee is in full control of the said business centre. It is a case of composite letting out of the property and, therefore, the order of the ITAT in assessee's own case for A.Y. 2003-04 cannot be followed ipso facto. The Tribunal has not adjudicated as to how the business operation of the assessee is conducted. He, therefore, submitted that the facts of the Tribunal order are different from the facts of the present case. Referring to a series of decisions filed in the pap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from house property which has been wrongly taxed. Referring to page 154 and 155 of the paper book which contains the details of reimbursement of Telephone and Electricity expenses, he submitted that out of the total electricity expenses of Rs.4,22,157/- which has been debited to the PandL account an amount of Rs.1,88,571/- has been reimbursed from its clients. Out of the telephone expenses of Rs.3,65,409/-, an amount of Rs.1,94,129/- has been reimbursed from the clients. Since the assessee has received this amount separately against the debit notes raised from time to time, the same should not be taxed under the head "income from house property". Referring to the order for A.Y. 2000-01 passed u/s 143(3) r.w.s. 147, he submitted that the A.O. has excluded the reimbursement of such expenses from the total receipt while calculating the rental income. He accordingly submitted that the above expenses should be reduced from the business centre receipt. 10. The ld. D.R., on the other hand, relied on the order of the ld. CIT(A). 11. After hearing both the sides we find force in the submission of the ld. Counsel for the assessee that the reimbursement of Telephone and electrici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record by the A.O. that these expenses are not incurred. 13.1 The ld. Counsel for the assessee submitted that irrespective of the volume of business or income earned by the assessee from such business activity, the full expense has to be allowed as deduction. Further depreciation on the business premises from where the assessee is conducting its business activity has also to be allowed. According to the ld. Counsel for the assessee nothing has been brought on record by the A.O. as to which of the expenditure is not for the purpose of business. Further, it is also the submission of the ld. Counsel for the assessee that once the asset has entered into the block of asset, the AO cannot disallow the depreciation. For this proposition, the ld. Counsel for the assessee relied on the following decisions reported in 322 ITR 542, 38 SOT 208, 22 SOT 429, 21 SOT 122, 142 Taxman 316 and 240 ITR 94. 14. The ld. D.R., on the other hand, strongly relied on the order of the ld. CIT(A). 15. We have considered the rival arguments made by both the sides, pursued the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to depreciation thought it has discontinued its business. 15.1 Considering the totality of the facts of the case we modify the order of the Ld. CIT(A) and direct the AO to allow the following expenses:- 1. Directors Remuneration 75% of Rs.. 1,75,000/- 2. Staff Payment 75% of Rs.. 1,65,097/- 3. Electricity charges (Rs.. 4,22,157/- - Rs.. 1,88,571/-) 75% of Rs.. 2,33,586/- 4. Payment to Auditors (as held by the Ld. CIT(A)) 100% of Rs.. 33,900/-) 5. Rates and Taxes (to be allowed u/s.23 as held by the Ld. CIT(A)) 6. Office Expenses 75% of Rs.. 10,688 7. Legal and Professional fees 75% of Rs.. 49,900/- 8. Telephone and Postage charges (Rs.. 3,65,409 - Rs.. 1,94,129) 75% of Rs.. 1,71,280/- 9. Repairs and maintenance 50% of Rs.. 62,443/- 10. Sundry balance written off 75% of Rs.. 6,448/- 11. Misc. Expenses 75% of Rs.. 23,440/- Over and above the assessee is entitled to 50% of the depreciation allowable to property situated at Parel and 50% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75% of Rs.54,869/- 8) Legal and Professional 75% of Rs.4,88,160/- 9) Repairs and maintenance 50% of Rs.2,40,741/- 10) Lease rental charges 50% of Rs.58,000/- The assessee is also entitled to depreciation on premises at Parel and other assets @ 50% of the allowable depreciation in line with our direction in ITA No. 4213/Mum/2009. We hold and direct accordingly. The grounds by the assessee are accordingly partly allowed. ITA No. 4215/Mum/2009 Assessment years 2002-03 19. The ground of appeal No.1 in this appeal relates to reopening of assessment by the A.O. and confirmed by the Ld. CIT(A). 19.1 After hearing both the sides, we find the above ground is identical to the grounds of appeal No.1 by the assessee in ITA No.4213/Mum/2009. We have already decided the issue and the ground raised by the assessee has been dismissed. Following the same ratio, the grounds of appeal No.1 by the assessee in the above appeal is dismissed. 20. In grounds of appeal No.2 the assessee has challenged the order of the Ld. CIT(A) in treating the receipt of Rs.56,31,200/- as income from "house property" as against "busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal no.1 in the above appeals is dismissed. 24. The grounds of appeal no.2 by the assessee relates to the reimbursement of expenses of Rs.8,73,586/- for the Assessment Year 2004-05 and Rs.9,78,944/- for the Assessment Year 2005-06 to be excluded from "income from house property" as computed by the AO. 25. After hearing both the sides we find the above ground is identical to the grounds of appeal No.3 in ITA No.4213/Mum/2009. We have already decided the issue in favour of the assessee with certain directions. Following the same ratio the grounds of appeal no.2 by the assessee in the above two appeals are allowed. 26. The ground of appeal no.3 in ITA No.4216/Mum/2009 relates to disallowances of expenses of Rs.47,43,049/- and in ITA No.4217/Mum/2009 relates to disallowance of expenses of Rs.44,21,948/-. 26.1 After hearing both the sides we find out of the various expenses claimed by the assessee, the Ld. CIT(A) sustained an amount of Rs.47,43,049/- for the Assessment Year 2004-05 and Rs.44,21,948/- for the Assessment Year 2005-06. Admittedly there is no business income declared by the assessee during the year. Therefore, the various expenses claimed by the assessee canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of financing activity by taking loans and advancing loans to other parties on interest. Accordingly it was requested that the interest income from financing activity has to be taxed under the head income from business. However, the A.O. was not convinced with the explanation given by the assessee and treated the same as income from other sources for the following reasons:- i) The:nexus of interest income with the expenses claimed has not been proved. ii) No evidence has been filed to suggest that the borrowing and lending is the assessee's business except for saying that the memorandum of association authorizes such activity. iii) During the year, borrowing and lending activity involves only one lender and the borrowers. iv) Without prejudice, the so called business activity has started on 168-2005 (the date of obtaining first loan from Calyon Bank). Any expenditure claimed prior to 16-8-2005 is to be disallowed since they are incurred prior to Setting up of the business. v) In the years upto AY 2005-06, assessee used to claim all these expenses against income from business centre. For all these years the income from business centre was treated as busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of decisions, it was submitted that any activity which is done in a systematic and organized manner and continuously with a view to earn profit has to be considered as business. 29.3 Without prejudice to the above contention, it was also submitted that the interest expenditure of Rs.31,52,636/- incurred by the assessee was inextricably related to the earning of the interest income. Since the interest income had been taxed under the head 'income from other sources', the interest expenditure was allowable as a deduction u/s 57(iii) of the I.T. Act. A copy of the ledger account of the Bank and the copies of ledger accounts of loans given to various parties were furnished to support the claim of direct nexus of the loan obtained from the bank and loan given to the parties. 29.4 Based on the arguments advanced by the assessee, the ld. CIT(A) held that the assessee had not been able to establish that the income from loans given and loans taken was taxable under the head 'income from business'. According to him, under the provisions of section 4 of the I.T. Act 1961 the interest income was very much required to be taxed under the head 'income from other sources'. Therefore, he uph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er book filed on behalf of the assessee. We have also considered the various decisions cited before us. From the various details furnished by the assessee in the paper book we find one of the main objects of the company to be pursued on its incorporation is to finance industrial enterprises (Paper book page no. 28 and 29). We find from page 27 of the paper book that the Board of Directors in their meeting held on 14the June, 2005 had passed the following resolution:- "Certified True Copy of the Resolution passed at the meeting of the Board of Directors of Saidarshan Business Centres Private Limited held on 14th June, 2005. The Chairman informed the Board that Company borrows funds from Banks, Financial Institutions and other Body Corporate in order to meet its financial requirements to restart the business of finance activities. The Directors present discussed the subject in details and passed following resolution unanimously. "RESOLVED THAT consent of the Board be and is hereby accorded to the Company to borrow money from Banks, Financial Institutions, Body Corporate etc. in order to meet its financial requirements and to lend others as may be deemed fit and viable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce we have held that the financing activity of the assessee is to be treated as business income therefore in line with our observations in ground No. 5 in ITA No. 4213/Mum/2009, we direct the A.O. to allow the following expenditure: 1) Director's remuneration 75% of Rs.300000/- 2) Payment to staff 75% of Rs.412515/- 3) Payment to auditors 100% of Rs.19642/- 4) Insurance charges 75% of Rs.8678/- 5) Telephone and postage 75% of Rs.34856/- 6) Motor car expenses 75% of Rs.480674/- 7) Miscellaneous expenses 75% of Rs.155801/- 8) Legal and Professional 75% of Rs.390793/- 9) Repairs and maintenance 50% of Rs.699864/- 10) Rates and taxes (to be allowed u/s 23 as directed by the CIT(A) The assessee is also entitled to depreciation @ 50% of the allowable depreciation only on Parel premises and other assets as per our observations in ITA No. 4213/Mum/2009. This ground by the assessee is accordingly partly allowed. 31. Ground of appeal No, 5 by the assessee reads as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irecting the A.O. to adjust the interest expenses against interest received when the assessee could not prove the nexus of expenses against interest income. 32.1 After hearing both the sides we find the Revenue has preferred this appeal against the part relief given by the ld. CIT(A) on account of various expenses claimed by the assessee which was disallowed by the A.O. We have already decided the issue in assessee's appeal and has given certain further relief to the assessee holding the financing activity of the assessee as business. Further under identical facts and circumstances of the case, the Tribunal in assessee's own case for A.Y. 2000-01, 2002-03, 2004-05 and 2005-06 had dismissed the appeal filed by the Revenue against the part relief given to the assessee by the CIT(A). Under these circumstances, the grounds raised by the Revenue are dismissed. So far as one of the grounds by the Revenue which relates to violation of Rule 46-A, the ld. counsel for the assessee drew the attention of the Bench to the details filed before the A.O. and submitted that the same is not an additional evidence and the ld. D.R. could not controvert. Therefore, the grounds raised by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce charges 13,324 50% 6,662 5 Motor car expenses 456,024 50% 228,012 6 Miscellaneous expenses 225,589 50% 112,795 735,029 36.2 We find the above ground is identical to the grounds of appeal No.4 in ITA No.4391/Mum/2009. We have already decided the issue and have given certain relief to the assessee by modifying the order of the ld. CIT(A). Following the same ratio, we modify the order of the ld. CIT(A) and direct the A.O. to allow the expenses which are as under: 1) Director's remuneration 75% of Rs.300000/- 2) Payment to staff 75% of Rs.439120/- 3) Payment to auditors 100% of Rs.18,000/- 4) Insurance charges 75% of Rs.13324/- 5) Motor car expenses 75% of Rs.456024/- 6) Miscellaneous expenses 75% of Rs.225589/- 7) Legal and Professional 75% of Rs.407888/- 8) Repairs and maintenance 50% of Rs.555226/- 9) Rates and taxes (to be allowed u/s 23 as directed by the CIT(A) The assessee is also entitled to depreciation @ 50% of the allowabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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