TMI Blog2018 (10) TMI 858X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Chennai Properties [2015 (5) TMI 46 - SUPREME COURT], we hold that the CIT-A had rightly directed the AO to treat the warehouse rentals as income from business and consequentially allow the expenditure claimed in the return as business expenditure. - ITA No.1381/Kol/2015 - - - Dated:- 12-10-2018 - Shri S.S.Godara, Judicial Member And Shri, M. Balaganesh, Accountant Member For The Appellant : Shri Rabin Choudhury, Addl. CIT-SR-DR For The Respondent : Shri Dilip S Damle, FCA ORDER PER S.S.Godara, Judicial Member:- This Revenue s appeal for assessment year 2012-13 arises against the Commissioner of Income Tax (Appeals)-4, Kolkata s order dated 28.08.2015 passed in case No.1940/CIT(A)/Cir-10(1)/14-15, in proceedings u/s 143(3) of the Income Tax Act, 1961; in short the Act . Heard both the parties. Case file perused. 2. The Revenue s former substantive ground seeks to revive the Assessing Officer s action treating the taxpayer s share subscription sum of ₹3,01,00,000/- to be sec. 68 unexplained cash credits as reversed in the lower appellate proceedings as follows:- 4.2 I have carefully considered the AR's submissions and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 68 was made were-corporate assessees. In the assessment order the AO himself quoted their respective PANs which proves that each of them were assessee's in their own right. The assessee also filed copies of their the audited accounts for the FY 2011-12 of the five subscribed companies. Examination of these accounts revealed that each share subscribing company was having substantial own funds in the form of capital reserves which were several times more than the share subscription amount paid to the appellant. For example in the case of Agrani Credit Finvest Pvt Ltd, the company's own funds were ₹6914.38 lacs whereas the amount invested in assessee's shares was only ₹28 lacs which in percentage terms was 0.4%. In case of Crown Mansion Pvt Ltd. the company's net owned funds were, ₹4626.05 lacs whereas investment in appellant's share was ₹56 lacs, which in percentage terms of 1.21 %. In case of Liberal Infrastructure Pvt Ltd and Darshan Enclave Pvt Ltd, the investment was ₹84 lacs each as opposed to their net owned funds of ₹2442.02 lacs ₹2170 lacs respectively. In percentage terms it was about 3.5%. In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transactions could not have been doubted by the AO merely on the ground that share subscribers were not produced for AD's verification. 4.7 From perusal of Para 2.2 of the assessment order I note that in the notices u/s 131 the AO had required the shareholders to furnish certified copies of the statement of accounts/statement of affairs! balance sheet of the directors for the period 01.04.2009 to 31.03.2012, photo identity proof, residential address proof and the addresses for the communication of all directors as on that date. In my considered opinion in deciding the question of proving identity and creditworthiness and genuineness or share subscription amounts paid by the companies, personal information of the individual directors had no relevance whatsoever. The AO in his impugned order did not specify as to how such information or personal documents of the Directors could have led the AO to determine the genuineness of the transactions. The AO has not amplified in his order as to why by examining the personal particulars of the directors such as their residential address, statement of affairs etc could have established genuineness of transactions conducted by the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the respective companies. On these facts therefore it appeared to me that nothing much would have turned on the appearance of the representatives of the share subscribing companies since the material required for determination of identity and creditworthiness of the share subscribers was available on AO's record even in their absence. 4.8 From the perusal of the assessment order, I find that save except making general assertions observations about the modus operandi adopted by few paper companies, the AO did not bring on record any substantial material to disprove the documentary evidences which the appellant had placed on AO's record in support of the share subscription trans-actions. For AY 2012-13, the assessee filed its return of income declaring substantial income of ₹1,74,68,9801-. From the assessee's audited financial accounts, I find that the assessee had its own financial base. Assessee owned considerable fixed assets besides other current assets. As such on the facts I find that the appellant is not a mere paper company as alleged by the AO which are engaged in the business of providing accommodation entries. The audited accounts of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed enquiries and thereafter brought enough evidence which proved that assessee had routed its unaccounted money in the form of share subscriptions. In that particular case the share applicants had made confession that they had only provided accommodation entries and the transaction was not genuine. On these facts therefore the Delhi High Court came to conclusion that Section 68 was applicable because admittedly the assessee had failed to bring on record any material to dislodge the factual findings of the AO which were based on the confessions of the share applicants. 4.10 In the appellant's case save except relying on the fact that notices u/s 131 were either unserved or remained un- complied the AO did precious little to bring on record any affirmative evidence which proved that issue of Shares was not genuine. On the contrary, the materials on record showed that the assessee had furnished documents requisitioned which established that each company had subscribed to the equity shares of the assessee. I am therefore satisfied that on the facts on the applicant s case the decision in the case of Nova Promoters Finlease Pvt. Ltd . (supra) was not applicable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each and every share applicant/subscribers to first satisfy the assessee companies about the source of their funds before investing. It is for this reason the balance is struck by catena of judgments in laying down that the Department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with the law. That was precisely the observation of the Supreme Court in Lovely Export (supra) which holds the fields and is binding. In conclusion, we are of the opinion that once adequate evidence/material is given, as stated by us above, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has created evidence, the Revenue is supposed to make through probe of the nature indicated above before it could nail the assessee and fasten the assessee with such a liability under Section 68 and 69 of the Act. 4.12 Apart from these judgments of the Delhi High Court, the AIR also placed before me the following decisions of other Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received through banking channels. The assessment orders passed for AY 2012-13 in the case of share subscribing companies proved that each company was assessed in its own right and therefore identity of these companies could not be ignored or overlooked by the AO in the appellant's case. On these facts therefore I have no hesitation in holding that the appellant had proved the identity creditworthiness of the shareholders. 4.15 From the documents available it appeared that the share subscription amounts were received from bodies corporate, who were all independently assessed to tax. In the impugned order much emphasis was placed on the fact that notices u/s 131 remained un-complied and therefore it could not be said that the assessee had proved existence of the subscribing companies. The income-tax assessment orders of the share subscribing companies for the AY 2012-13 however proved otherwise because the AOs of the respective subscriber companies had passed the assessment orders for AY 2012-13 specifying the same address as furnished before the AO. The fact that the appellant was able to obtain copies of the assessment orders for AY 2012-13 from the respective share s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the appellant's case then I find that the income-tax assessment orders passed by the Departmental Officers for AY 2012-13 showed that existence of all the five share subscribing companies at their given addresses was accepted in their respective assessment proceedings. This fact established identity of the share subscriber. In the balance sheets of the respective share subscribers, the investments in assessee's share were recorded and each subscriber in its balance sheet had disclosed sufficiently large investible funds. The entries in balance sheet also established that apart from investment in shares of appellant, each share subscribing companies had made several other investments. The assessee had also filed copies of the bank statements of the respective share subscribing companies which established that the share subscription amounts were received, through banking channel. The sources of making payment were also furnished and the entries in bank statements indicated that there was no deposit of cash prior to clearance of the cheques in assessee's favour. All these facts and documents considered cumulatively establish that the assessee had discharged the onus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir Assessing Officer(s) made u/s 68 unexplained cash credits additions of share premium amounting to ₹67,03,00,000, ₹44,85,00,000/-, ₹24,42,00,000/- ₹21,70,00,000/- in case of first four entities and accepted similar credits of ₹20,45,00,000/- to be genuine satisfying all parameters of identity, genuineness and creditworthiness. It can therefore be safely assumed that all these additions sums forming subject-matter of the impugned additions to be accepted as genuine in respective investors entities end as the source of the amount(s) in issue totalling to ₹3,01,00,000/-. Learned Departmental Representative fails to dispute that the same very amount cannot be added twice in payees and recipients hands u/s 68 of the Act. We therefore see no reason to accept Revenue s instant former substantive ground. We affirm CIT(A) s findings under challenge qua the instant former issue. 4. Next comes the Revenue s latter grievance seeking to treat assessee s rental income of ₹656,63,468/- derived from its warehouse as income form house property instead of business income. The CIT(A) s detailed discussion qua the instant latter issue reads as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mass Housing Projects, Industrial Plants of all types, Industrial and Technology park and civil projects, Environmental based projects and Equipments, On shore/off shore projects, Airport facilities, Electronics Hardware Technology Park Schools, Colleges and other educational institutions, Public halls, Museum, Libraries, Garages, Hospitals, Health Centers, Community Centers, Hotels, Theaters, Muitiplexes, Shopping Malls, Holiday Homes and/or Beach Resorts and to render all services in connection thereto as planners, Designers, Consultants, Constructors, Builders, Developers, Architects, Engineers, Storage services, Erectors, Installers, Commissioning Agents, Management Consultants and for these purposes to purchase, take on lease, or otherwise acquire and hold any lands, houses, offices, workshops, structures, buildings and premises and prepare layout thereon or building of any tenure or description wherever situated, or right or interest therein or connected therewith, 5.3 A bare perusal of the main object clause of the MOA shows that the assessee company was incorporated with a view to promote, setup, develop, operate lease civil infrastructure facilities in different fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee carried on regularly and in an organized manner was therefore nothing but a business activity. Such activity was conducted by the assessee since its inception and the same was sanctioned by the main object incorporated in the MOA. 5.4 In the impugned order the AO justified the assessment of the rental income under the House Property by relying on the decisions of the Supreme Court in the case of S.G. Mercantile Coprn (P) Ltd (supra) and Shambhu Investment (P) Ltd Vs CIT (supra). On the contrary in the written submissions the AR relied on the decisions of the same Court rendered in the cases of Chennai Properties Investments Ltd Vs CIT (~6 taxmann.com 465) Karanpura Development Co. Ltd. v. CIT (44 ITR 362). I find that in the recent decision rendered on 9th April 2015 in the case of Chennai Properties Investments Ltd Vs CIT (supra), the Apex Court considered the entire law on the subject. The Apex Court had the benefit of considering number of decisions rendered by the same Court on the issue of taxability of income derived from immovable properties under the head Business or House Property . After considering the judgments of the Apex Court rendered earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent varieties could be stored and handled in an efficient manner and the warehousing facility could simultaneously be used by number of FMCG companies. The civil infrastructure facility developed was designed in a manner which would enable the user to exploit the infrastructure for storage handling of goods in cost effective and efficient manner. The activity carried on by the assessee can therefore fall within the definition of business in Section 2 (13) of the I T Act. 5.6 In the impugned order in support of his conclusions the AO heavily relied on the judgment of the Supreme Court in the case of S.G. Mercantile Corpn Vs CIT (83 ITR 700). On examination of relevant decision, I however find that the ratio laid down in that decision in fact advances the case of the assessee rather than furthering the case of the Revenue. In that case the Supreme Court ultimately held that the assessee who was engaged in the business of sub-leasing of the shops, the income was assessable under Section 10 of erstwhile Income-tax Act, 1922; meaning thereby income was assessable under the head Business and not Other Sources . On the contrary the Apex Court in the case of Karanpura Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Apex Court in the case of Chennai Properties Investments Ltd Vs CIT (supra) as also the decision of the jurisdictional ITAT, Kolkata in the case of Dutta Properties Vs ITO (supra), I direct the AO to assess the income by way of rent derived from letting of warehouse under the head Business . The AO is further directed to allow the deduction for expenses as claimed by the assessee in the return since the AO had allowed deduction only 30% of the annual value as provided in Section 24 of the Act. [Ground Nos. 5 6 are therefore allowed]. 5.7 In the course of hearing, the assessee had filed an additional ground claiming deduction for interest paid on borrowed funds under Section 24(b) of the Act for which no deduction was allowed in the impugned order is directed to assess the income under the head Business , the assessee would be entitled to claim the deduction for interest paid on borrowed funds under Section 36(1)(iii) of the Act. The AO is directed to allow the deduction for such interest since the borrowed funds were used for business purposes. [The additional ground of appeal thus having become infructuous is dismissed]. 5. We have given our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to develop, operate maintain a modern warehousing facility which could simultaneously be used by number of FMCG companies for storing numerous types of consumer products. The rent charged by the assessee was therefore not only for letting out of the building simplicitor but for providing incidental facilities and amenities for safe storage and handling of goods in an efficient manner. The air conditioning provided within the warehousing facilities enabled the occupiers to preserve the goods without being subjected to vagaries of nature. The assessee had carried on an organized activity with a view to commercially exploit the civic infrastructure set up by it at substantial cost. For setting up such civic infrastructure, the assessee had borrowed substantial sums on which the assessee was paying interest at commercial rates of interest. For carrying on such organized activity, the assessee had employed skilled and semi skilled staff. 2.3.1. We find that the issue under dispute is settled by the decision of the Hon ble Supreme Court in the case of Chennai Properties Investments Ltd reported in 56 taxmann.com 465 (SC). In that case, the assessee was a company incorpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment for the Asst Year 2011-12 was completed u/s 143(3) of the Act, wherein the rental income was assessed only under the head income from business . No new material was brought to on record to establish with sufficient evidence that the position accepted by the revenue in earlier years was untenable either on facts or as per law. Hence when there is no change in facts during the year under consideration, there is no reason for the revenue to take a differential stand by treating the rental income as income from house property. The principle of consistency cannot be given a go by eventhough the principle of resjudicate does not strictly apply to income tax proceedings. Reliance in this regard is made on the decision of Hon ble Supreme Court in the case of Radhasoami Satsang vs CIT reported in 193 ITR 321 (SC). 2.3.3. The ld DR placed reliance on yet another recent decision of the Hon ble Supreme Court in the case of Raj Dadarkar Associates reported in (2017) 81 taxmann.com 193 (SC) which was held in favour of the revenue. The ld AR stated that the said decision is distinguishable on facts. In the case of Raj Dadarkar supra, the assessee therein, had let out shops / stalls ..... X X X X Extracts X X X X X X X X Extracts X X X X
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