M/s. Nutan Warehousing Co. P.Ltd.,, Pune v. Deputy Commissioner of Income-tax,

ITA 1963/PUN/2013 | 2000-2001
Pronouncement Date: 30-09-2016 | Result: Allowed

Appeal Details

RSA Number 196324514 RSA 2013
Assessee PAN AAACH7084L
Bench Pune
Appeal Number ITA 1963/PUN/2013
Duration Of Justice 2 year(s) 10 month(s) 22 day(s)
Appellant M/s. Nutan Warehousing Co. P.Ltd.,, Pune
Respondent Deputy Commissioner of Income-tax,
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2016
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-09-2016
Date Of Final Hearing 19-08-2015
Next Hearing Date 19-08-2015
Assessment Year 2000-2001
Appeal Filed On 08-11-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE . . ' # BEFORE SHRI R.K. PANDA AM AND SHRI VIKAS AWASTHY JM . / ITA NOS.1963 TO 1968/PN/2013 '% % / ASSESSMENT YEARS : 2000-01 & 02-03 TO 06-07 M/S. NUTAN WAREHOUSING COMPANY PVT. LTD. 1379 KRISHI BHAVAN BHAWANI PETH PUNE 411 042 PAN NO.AAACH7084L . / APPELLANT V/S DCIT CIRCLE - 2 PUNE . / RESPONDENT . / ITA NO.2130/PN/2013 '% % / ASSESSMENT YEAR : 2001-02 M/S. NUTAN WAREHOUSING COMPANY PVT. LTD. 1379 KRISHI BHAVAN BHAWANI PETH PUNE 411 042 PAN NO.AAACH7084L . / APPELLANT V/S ITO WARD - 1(3) PUNE . / RESPONDENT . / ITA NO.361/PN/2014 '% % / ASSESSMENT YEAR : 2008-09 M/S. NUTAN WAREHOUSING COMPANY PVT. LTD. 1379 KRISHI BHAVAN BHAWANI PETH PUNE 411 042 PAN NO.AAACH7084L . / APPELLANT V/S DCIT CIRCLE - 2 PUNE . / RESPONDENT ASSESSEE BY : SHRI S.N. DOSHI REVENUE BY : SHRI RAJESH DAMOR & SHRI ANIL KUMAR CHAWARE 2 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 / ORDER PER R.K. PANDA AM : ITA NOS.1963 TO 1966/PN/2013 FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER DATED 29-08-2013 OF THE CIT(A)-II PUNE RELATING TO A.YRS. 2000-01 & 2002-03 TO 2004-05 RE SPECTIVELY. ITA NOS. 1967 & 1968/PN/2013 FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER DATED 29-08-2013 OF THE CIT(A )-II PUNE RELATING TO A.YRS. 2005-06 & 2006-07 RESPECTIVELY. ITA NO.2130/PN/2013 FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 26-09-2013 OF THE CIT(A)-II PUNE RELATING TO ASS ESSMENT YEAR 2001-02. ITA NO.361/PN/2014 FILED BY THE ASSESSEE IS DIRE CTED AGAINST THE ORDER DATED 09-12-2013 OF THE CIT(A)-II PU NE RELATING TO ASSESSMENT YEAR 2008-09. SINCE COMMON ISSUES ARE INVOLV ED IN ALL THESE APPEALS THEREFORE THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. THE FIRST ISSUE IN THE GROUNDS OF APPEAL THAT IS COMMO N FOR ALL THE YEARS EXCEPT FOR A.Y. 2000-01 RELATES TO THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF THE AO IN TREATING THE LEASE RENTAL AS INCOME FROM HOUSE PROPERTY AS AGAINST BUSINESS INCOME TREAT ED BY THE ASSESSEE. 3. FIRST WE TAKE UP ITA NO.2130/PN/2013 FOR A.Y.2001-02 AS THE LEAD CASE. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSES SEE IS A PVT. LTD. COMPANY AND IS ENGAGED IN THE BUSINESS OF WAREHOUSIN G AS PER THE LICENSE GRANTED TO IT UNDER THE BOMBAY WAREHOUSING ACT 1959. / DATE OF HEARING : 01.08.2016 / DATE OF PRONOUNCEMENT:30.09.2016 3 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 THE WAREHOUSING RECEIPTS WITH THE LEASE CHARGES WERE AS SESSED AS BUSINESS INCOME RIGHT FROM 1973-74 TO 1999-2000. HOWEVE R FOR THE IMPUGNED ASSESSMENT YEAR THE AO ASSESSED THE LEASE CH ARGES AS PROPERTY INCOME. IN APPEAL THE LD.CIT(A) HELD THAT EVEN T HE WAREHOUSING RECEIPTS ARE ALSO TO BE ASSESSED AS PROPER TY INCOME. THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A). THE ASSES SEE WENT IN APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT AND THE HON BLE HIGH COURT VIDE ORDER DATED 18-02-2010 SET ASIDE THE ORDER OF THE TRIBUNAL AND DIRECTED THE AO TO DECIDE THE SAME IN LINE W ITH THE FOLLOWING OBSERVATION : SINCE THE TRIBUNAL HAS NOT CONSIDERED THIS ASPECT OF THE CASE WE ARE OF THE VIEW THAT IT WOULD BE APPROPRIATE AND PROPER TO SET ASIDE THE DECISION OF THE TRIBUNAL AND TO REMAND THE PROCEEDIN GS BACK TO THE ASSESSING OFFICER FOR A FRESH DETERMINATION AND ASSESSMENT I N ACCORDANCE WITH THE LAW. WE ORDER ACCORDINGLY. UP ON REMAND IT IS CLARIFIED THAT ASSESSING OFFICER SHALL NOT CONSIDER HIMSEL F TO BE BOUND BY THE DECISION OF TRIBUNAL DATED 19 TH OF MARCH 2001 FOR ASSESSMENT YEAR 1994-95 1995-96 1996-97 IN VIEW OF THE CONCESSION IN THOSE TERMS WHICH HAS BEEN MADE DURING THESE PROCEEDINGS BY THE ASSE SSEE. IN ORDER TO FACILITATE A FRESH EXERCISE BEING CARRIED O UT IN TERMS OF THE ORDER PASSED BY THIS COURT THE IMPUGNED ORDER OF THE TRIBUN AL DATED 31 ST OF AUGUST 2006 IS SET ASIDE. HOWEVER IT IS CLARIFIED THA T ALL THE RIGHTS AND CONTENTIONS OF THE REVENUE ON ALL ASPECTS OF THE CASE O N MERIT ARE KEPT OPEN. THE ORDER OF REMAND IT IS CLARIFIED SHALL ALSO BE WITH RESPECT TO DISALLOWANCE THAT HAVE BEEN EFFECTED UNDER SECTION 40 A(II) OF THE INCOME TAX ACT 1961. IN VIEW OF THE ORDER OF REMA ND IT IS NOT NECESSARY FOR THIS COURT TO EXPRESS ANY VIEW ON ANY OF OUR OTHER ON THE QUESTION OF LAW INVOLVED THE APPEAL IS ACCORDINGLY DISPOSED OF. NO COSTS. 4. IN PURSUANCE OF THE ABOVE DIRECTION OF THE HONBLE HIGH COURT THE AO ISSUED A NOTICE TO THE ASSESSEE ASKING HIM TO SU BMIT ALL THE INFORMATION/MATERIAL TO SUBSTANTIATE THE CLAIM THAT THE WAR EHOUSING ACTIVITIES ARE BUSINESS ACTIVITIES AND THE RESULTING INCOME AS BUSINESS INCOME. 4 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 5. IT MAY BE PERTINENT TO MENTION HERE THAT THE ASSESSMENT ORD ERS FOR A.Y. 2000-01 AND 2002-03 TO 2008-09 WERE SET ASIDE BY THE TRIBUNAL TO THE FILE OF THE AO FOR FRESH ADJUDICATION RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO SUBMIT THE FOLLOWING DOCUMENTS/DETAILS : 1. MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION AT THE TIME OF INCORPORATION OF THE COMPANY AND SUBSEQUENT CHANGE S IF ANY. 2. BIFURCATION OF GROSS RECEIPTS AS WAREHOUSING CHARGES REN T CHARGES OTHER INCIDENTAL RECEIPTS FROM THE FINANCIAL YEAR 19 98-99 TO 2005-06. 3. BREAKUP OF THE AREA OF OWNED WAREHOUSES AND THE LEASE D WAREHOUSES. 4. PERIOD OF THE LET OUT OF THE WAREHOUSE FOR THE RELEV ANT PERIOD. 5. COPY OF WAREHOUSING/RENTAL AGREEMENTS FOR ALL THE TEN ANTS/CLIENTS SINCE FINANCIAL YEAR 1998-99 TILL FINANCIAL YEAR 200 5-06. 6. NAMES DESIGNATIONS AND ROLES OF THE PERSONS EMPLOYED BY THE ASSESSEE FOR WAREHOUSING ACTIVITY. 7. THE ASSESSEE INTER ALIA SUBMITTED THE FOLLOWING POINTS WHIC H HAS BEEN INCORPORATED BY THE AO AT PAGE 3 OF HIS ORDER AND WHICH CAN BE SUMMARIZED AS UNDER : (A) THE COMPANY WAS INCORPORATED ON 07-07-1972 WITH THE MAIN OBJECT OF CARRYING ON THE BUSINESS OF WAREHOUSING COL D STORAGE AND REFRIGERATION. THE BUSINESS OF COMPANY IS GOVERNED BY THE PROVISIONS OF BOMBAY WAREHOUSING ACT 1959. THE COMPANY HAS OBTAIN ED LICENSE UNDER THE SAID ACT WHICH IS RENEWED FROM TIME TO TIME . AS PER THE BOMBAY WAREHOUSING RULES 1960 EVERY WAREHOUSEMAN IS RE QUIRED TO SUBMIT THE CURRENT RATES OF WAREHOUSING SERVICE CHARGES AND U/S 20(1) EVERY WAREHOUSEMAN IS REQUIRED TO INSURE THE GOODS IN THE WAREHOUSE AGAINST THE LOSS OR DAMAGE BY FIRE OR BURGLARY. THAT T HE COMPANY IS COMPLYING THESE CONDITIONS. (B) IT WAS SUBMITTED THAT THE ASSESSEE COMPANY IS LIABLE TO PAY SERVICE TAX ON THE SERVICE OF STORAGE AND WAREHOUSING AND UPON INCLUSION OF THE SERVICE OF STORAGE AND WAREHOUSING AS T AXABLE SERVICE IT HAS OBTAINED CERTIFICATE OF REGISTRATION FROM CENTRAL EXCISE COMMISSIONER PUNE-1 ON 9-9-2002 WHICH MEANS THAT THE SERVICE TAX CELL OF THE CUSTOM AND CENTRAL EXCISE DEPARTMENT RECO GNIZES THE WAREHOUSING ACTIVITY AS SERVICES. 5 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 (C) THE ASSESSEE FURTHER SUBMITTED THAT THE COMPANY IS R ENDERING SERVICES TO ITS CLIENT ON DAILY BASIS EXCLUDING HOLIDAY S FROM 9.30 A.M. TO 5 O'CLOCK AND NO POSSESSION IS GIVEN TO THE CLIENT AS SE EN BY THE AGREEMENT AND THE WAREHOUSES ARE LOCATED IN 'INDUSTRIA L ZONE' AS PER ZONING OF THE AREA BY GOVT. OF MAHARASHTRA. (D) IT WAS SUBMITTED THAT THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR AY 1994-95 TO 1996-97 HAS DECIDED THE APPEAL IN ITS FAVOUR AND HELD THAT EVEN THE LEASE RENTAL REC EIVED BY IT IS INCIDENTAL TO THE WAREHOUSING BUSINESS CARRIED OUT BY THE ASSESSEE COMPANY. SINCE THERE IS NO CHANGE IN THE FACTS ABOUT THE ASSESSEE AS WELL AS THE METHOD OF WAREHOUSING BUSINESS CARRIED OUT THE SA ME SHOULD BE FOLLOWED. (E) THE ASSESSEE HAS ALSO TAKEN WAREHOUSES ON LEASE FROM TH E OTHER PARTIES AND GIVEN THE SAME ALONG WITH SERVICE FACILITI ES TO HIS CLIENT. THE WAREHOUSING OF GOODS THEIR SECURITY INSURANCE LOADIN G UNLOADING ETC. ARE MANAGED BY THE ASSESSEE COMPANY. (G) THAT OUT OF THE APPROXIMATELY 2 16 000 SQ.FT. OF WAREHOUSES LET OUT BY THE ASSESSEE COMPANY TO THE VARIOUS CLIENTS ONLY 70000 SQ.FT. IS OWNED BY THE ASSESSEE COMPANY AND REMAINING 1 46 000 SQ. FT. HAS BEEN TAKEN BY ASSESSEE COMPANY ON HIRE. THE ASSESSEE HAS CONSTRU CTED THE WAREHOUSES ON THE LAND TAKEN ON LEASE AND THESE LEASE AG REEMENTS ARE NOT PERPETUAL LEASE. (F) THAT THE ASSESSEE IS PROVIDING SERVICES LIKE LOADING UNLOADING TRANSPORTATION SECURITY MAINTENANCE ELECTRICITY ET C. THE ASSESSEE COMPANY HAS EMPLOYED SEPARATE STAFFS TO LOOK AFTER AND MAINTAIN THIS ACTIVITY OF WAREHOUSING. THE SERVICES PROVIDED BY ASSESSE E MAKE ATTRACTIVE FOR ITS CUSTOMERS TO UTILIZED HIS WAREHOUSING ACTIVITY AS A COMPOSITE BUSINESS PROPOSITION. (G) THAT THE ASSESSEE HAS BEEN DISCRIMINATED BY THE DEPAR TMENT IN TREATING THE INCOME FROM WAREHOUSING DERIVED BY MAHA RASHTRA STATE WAREHOUSING CORPORATION & CENTRAL WAREHOUSING CORPORA TION AS BUSINESS INCOME WHILE THAT OF THE ASSESSEE AS INCOME FROM HOUSE PROPERTY. (H) THAT THE ASSESSEE COMPANY HAS INCURRED SUBSTANTIAL EXP ENSES ON PROVIDING VARIOUS SERVICES TO THE CLIENTS WHICH THE COM PANY IS CONTRACTUALLY OBLIGED TO PROVIDE AND THESE SERVICES AR E NOT SUCH WHICH ARE ORDINARILY PROVIDED BY LANDLORD TO A TENANT. (I) THAT THE EXPENSES CLAIMED BY THE ASSESSEE COMPANY ARE GENUINE AND SUPPORTED BY DOCUMENTARY EVIDENCES. THEY HAVE BE EN INCURRED DIRECTLY IN CONNECTION WITH THE SERVICES WHICH THE ASSE SSEE IS CONTRACTUALLY REQUIRED TO PROVIDE TO THEIR CLIENT. HENCE THE ASSESSEE COMPANY IS LEGITIMATELY UNTITLED TO CLAIM THE EXPENSE S AS BUSINESS EXPENSES. (J) THAT THE LD. CIT HAS PASSED AN ORDER U/S.264 IN THE CASE OF SAJJAD HUSSAIN GABRANI PROP. OF STOREWELL WAREHOUSING CORPOR ATION PUNE WHEREIN HE HAS HELD THAT INCOME FROM WAREHOUSING ACTI VITY IS INCOME FROM BUSINESS. 6 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 (K) IN CENTRAL WAREHOUSING ACT SECTION 2(T) WHICH SA YS WAREHOUSING BUSINESS HAS BEEN DEFINED AS WAREHOUSING BUSINESS MEANS THE BUSINESS OF MAINTAINING WAREHOUSES FOR THE STORES OF GOODS AND I SSUING NEGOTIABLE WAREHOUSING RECEIPTS. (L) THAT THE ALLAHABAD HIGH COURT LUKNOW BENCH IN THE CASE OF CIT VS. GOEL BUILDERS REPORTED IN 192 TAXMAN 28 HAS HELD T HAT CONSISTENCY HAS TO BE ADOPTED BY THE DEPARTMENT IN ACCEPTING/CHA LLENGING THE DECISIONS OF THE APPELLATE AUTHORITIES WHICH HAS NOT BE EN DONE IN THE CASE OF THE ASSESSEE. (M) THAT THE WAREHOUSING ACTIVITY IS INCIDENTAL TO LE ASING OF WAREHOUSE CARRIED OUT BY THE ASSESSEE COMPANY IS AN ACTIV ITY INVOLVING A PROPERTY OF THE COMPLEXITY AND BECOMES A COMMERCIAL ASSET AND THE ASSESSEE COMPANY IS NOT SIMPLY RENTING OUT WAREHOUSE PREMI SES PER SE. EVEN THE LEASE CHARGES RECEIVED ARE INEXTRICABLY LINK ED TO THE COMPOSITE WAREHOUSING BUSINESS ACTIVITY AND THEREFORE THE INCOME THERE FROM WOULD FALL WITHIN THE AMBIT OF INCOME FROM BUSINESS. (N) IT WAS FURTHER SUBMITTED THAT THE AO WHILE COMPLE TING THE ASSESSMENT FOR THE A.Y. 2001-02 HAS NOT CONSIDERED THE FO LLOWING DECISIONS : I. CIT VS. NATIONAL STORAGE PVT. LTD. REPORTED IN 66 IT R 596 II. KARNANI PROPERTIES LTD. VS. CIT REPORTED IN (1971) 82 ITR 547 (SC) III. EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. VS. CI T WEST BENGAL IV. V.N. RUKARI & SONS VS. ITO WARD-3(7) PUNE VARIOUS OTHER DECISIONS WERE ALSO RELIED UPON BY THE ASSESSEE. 8. HOWEVER THE AO WAS NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE. THE PARA-WISE COMMENTS OF THE AO TO THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE ARE AS UNDER : A. THE CONTENTION OF THE ASSESSEE THAT AS PER THE BOMBA Y WAREHOUSING ACT 1959 THE WAREHOUSING ACTIVITY IS 'BUSINESS' IS NOT ACCEPTABLE' BECAUSE THE EXPRESSION USED IN ONE STATUTE CANNOT GOVERN THE MEANING IN ANOTHER STATUTE. THE ISSUE WHETHER THE LEASE RENT/WAREHOUSING CHARGES RECEIVED BY THE ASSESSEE FROM LE TTING OUT OF THE PROPERTY WILL BE TAXED UNDER WHICH 'HEAD OF INCOME' AND THE SAME WILL HAVE TO BE DECIDED ON THE BASIS OF THE PROVISIONS OF THE INCOME-TAX ACT 1961 ALONE AS MUCH AS WAREHOUSING CHARGES ARE DETER MINED BY THE WAREHOUSING ACT 1959. SAME IS APPLICABLE FOR THE DEF INITION OF WAREHOUSING GIVEN IN THE CENTRAL WAREHOUSING ACT. WIT H RESPECT TO THE ARGUMENT OF THE ASSESSEE REGARDING APPLICABILITY OF TH E SERVICE TAX THE REASON GIVEN ABOVE IS EQUALLY APPLICABLE. 7 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 B. WITH RESPECT TO RENDERING SERVICES ON DAILY BASIS THE CONTENTION OF THE ASSESSEE IS NOT CORRECT AS FAR AS THE LEASE PROPER TY TO THE HINDUSTAN LIVER LTD IS CONCERNED. FURTHER LOCATION O F THE WAREHOUSE IN INDUSTRIAL ZONE CANNOT DETERMINE THE HEAD UNDER WHIC H THE INCOME IS TO THE TAXED. C. THE CONTENTION OF THE ASSESSEE THAT OUT OF 250000 LA KHS SQFT. OF WAREHOUSES IT OWNS ONLY 70000 SQFT AND REMAINING 18000 0 SQ.FT HAVE BEEN LEASED IS ALSO NOT CORRECT. THOUGH THE ASSESSEE HAS L EASED THE LAND FROM ITS SISTER CONCERNS YET THE CONSTRUCTIONS OF THE W AREHOUSES HAVE BEEN DONE BY THE ASSESSEE COMPANY BY UTILIZING BORROWED FUNDS AND DEPOSIT AND THESE WAREHOUSES ARE SHOWN AS FIXED ASSETS IN T HE BALANCE SHEET OF THE ASSESSEE AND THE ASSESSEE HAS BEEN CLAIMING DEP RECIATION. HENCE FOR ALL PRACTICAL PURPOSE THE ASSESSEE IS THE OWNER OF THESE WAREHOUSES. D. THE CONTENTION OF THE ASSESSEE THAT IT IS PROVIDING SE RVICES LIKE LOADING UNLOADING TRANSPORTATION SECURITY MAINTENA NCE ELECTRICITY ARE NOT RELEVANT AS FOR AS THE LEASE PROPERTY IS CONCERNED AND THE QUESTION OF COMPOSITE CHARGES DOES NOT ARISE. E. THE CONTENTION OF THE ASSESSEE THAT HON'BLE TRIBUNAL 'S DECISION FOR A.Y. 1994-95 TO 1996-97 BE FOLLOWED FOR SUBSEQUEN T YEARS AS WELL AS THERE IS NO CHANGE IN FACTS AS WELL AS THE BUSINESS MODEL OF WAREHOUSING IS NOT ACCEPTABLE BECAUSE THERE IS CHANGE IN THE FACTS. WITH THE CONSTRUCTION AND LONG TERM LEASE OF THE FACT ORY TO THE HINDUSTAN LIVER LTD FOR 10 YEARS THE AREA OF LEASED P ROPERTY HAS INCREASED FROM MERELY 10 250 SQ.FT TO 68 000 SQ.FT. I .E. FROM MERELY 5% TO 31 % IN TERMS OF AREA LET OUT AND 35-45 % IN TERM S OF GROSS RECEIPT. THIS BY NO STRETCH OF IMAGINATION CAN BE CALLED AS NO CHANGE IN FACTS. THE ORDER OF THE HON'BLE ITAT FOR 1994-95 TO 1996-9 7 WERE NOT ACCEPTED IN PRINCIPLE HOWEVER THE APPEAL WAS NOT FI LLED BECAUSE OF THE TAX EFFECT BEING LESS THAN THRESHOLD LIMIT FOR FILLING APPEAL. SINCE THERE WAS CHANGE IN THE FACTS THE ASSESSING OFFICER HAD CORRE CTLY TAXED THE INCOME DERIVED FROM THE LEASED PROPERTY AS INCOME FRO M THE HOUSE PROPERTY. F. WITH RESPECT TO THE CLAIM OF THE ASSESSEE THAT IT HA S INCURRED SUBSTANTIAL EXPENSES ON PROVIDING VARIOUS SERVICES AND T HAT THE EXPENSES CLAIMED BY THE ASSESSEE COMPANY ARE GENUINE AND SUPPORTED BY DOCUMENTARY EVIDENCES IT IS STATED THAT THE I NCOME TAX ACT 1961 PROVIDES COMPUTATION MECHANISM FOR EACH HEAD OF INCO ME. ONCE IT HAS BEEN DECIDED THAT A PARTICULAR RECEIPT IS TO BE TAXE D UNDER A PARTICULAR HEAD OF INCOME THE COMPUTATION MECHANISM PROVIDED F OR THAT HEAD OF INCOME IS TO BE FOLLOWED FOR ARRIVING AT THE TAXABLE INCOME AND ONLY THE EXPENSES ALLOWABLE UNDER THE HEADS OF INCOME ARE ALLOW ED. G. WITH RESPECT TO THE CLAIM OF THE ASSESSEE THAT THE CI T-II PUNE HAS PASSED U/S. 264 IN THE CASE OF SAJJAD HUSAIN GABRANI PR OP OF STOREWELL WAREHOUSING CORPORATION PUNE AND HAS HELD THAT INCOM E FROM WAREHOUSING ACTIVITY IS INCOME FROM BUSINESS IT IS SEEN THAT THE CIT-II IN THE SAID ORDER HAS DISTINGUISHED THE FACTS FROM THE CASE OF THE ASSESSEE HENCE THE SAME CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE. 8 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 H. WITH RESPECT TO THE ASSESSEE'S CONTENTION THAT CONSISTEN CY HAS NOT BEEN MAINTAINED IT IS MENTIONED THAT THE FACTS HAVE CHANGED SINCE MARCH 2001 WITH THE LEASE OF THE FACTORY PREMISED OF 68000 SQ FT TO THE HINDUSTAN LIVER LTD. THE DEPARTMENT HAS SHOWN REMARKAB LE CONSISTENCY BY NOT CONTESTING THE DECISION OF THE ITAT DT.19-03-2001 WHEN THE FACTS WERE SAME. AND THE DEPARTMENT AGAIN A CCEPTED THE ORDER OF THE ITAT PUNE AFTER THE DECISION IN THE ASSE SSEE'S CASE FOR AY 2001-02 WHEN THE FACTS WERE CHANGED. I. WITH REGARD TO THE CONTENTION OF THE ASSESSEE THAT W AREHOUSING ACTIVITY AND THE INCIDENTAL LEASING OF WAREHOUSE CARR IED OUT BY THE ASSESSEE COMPANY IS COMPLEX COMMERCIAL ACTIVITY IT IS STA TED THAT THERE IS NO COMPLEX ACTIVITY INVOLVED AS FOR AS THE LEASED PR OPERTY IS CONCERNED. 9. HAVING DEALT WITH THE ISSUES RAISED BY THE ASSESSEE IN ITS VARIOUS SUBMISSIONS AS ABOVE THE AO PROCEEDED TO DECIDE THE ISSUE IN HAND I.E. WHETHER THE INCOME FROM WAREHOUSING ACTIVITIES C ARRIED OUT BY THE ASSESSEE ARE TO BE TREATED AS BUSINESS I NCOME OR INCOME FROM HOUSE PROPERTY OR PARTLY AS BUSINESS INCOME A ND PARTLY AS HOUSE PROPERTY INCOME AND WHETHER THE LEASE RENTAL C ONSTITUTES THE DOMINANT PART OF THE WAREHOUSING ACTIVITY OR IS SUBSERVIEN T TO IT. HE OBSERVED THAT THE HON'BLE HIGH COURT IN ORDER DT.18.02.20 10 IN THE INCOME TAX APPEAL NO.1269 OF 2007 IN PARA NO.6 HAS OBSER VED AS UNDER: 'WHAT HAS TO BE DEDUCED IS TO LETTING OUT OF THE PROPERTY CONSTITUTES A DOMINANT ASPECT OF THE TRANSACTION OR WHETHER IT WAS SUBSERVIENT TO THE MAIN BUSINESS OF THE ASSESSEE OF CARRYING OUT WAREHOUSING ACTIVITIES'. 10. KEEPING THE ABOVE IN MIND THE AO NOTED THAT THE A SSESSEE IS CARRYING OUT TWO TYPES OF ACTIVITIES. (I) LEASING OUT OF THE CUSTOM MADE FACTORY PREMISES TO THE HINDUSTAN LEVER LIMITED FOR ITS 100% EXPORT ORIENTED UNIT ENGAGED IN MANUFACTURING AND BLENDING OF TEA AND TEA EXPORT. (II) LETTING OUT OF WAREHOUSES HAVING ABOUT 20 WAREHO USES UNITS (GALAS) TO DIFFERENT CUSTOMERS. 9 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 11. SO FAR AS THE LEASING OUT TO HINDUSTAN LEVER LIMITED IS CONCERNED HE OBSERVED THAT THE ASSESSEE HAD LEASED O UT ABOUT 10 250 SQ.FT. WAREHOUSE TO BE USED AS FACTORY TO THE C LIENT CALLED LIPTON TEA FOR STORING AND BLENDING OF TEA IN THE YEAR 198 5. SUBSEQUENTLY THE HINDUSTAN LEVER LIMITED TOOK OVER THE BUSINESS OF LIPTON TEA AND EXPRESSED ITS NEED OF A LARGER SPACE FO R NEW FACTORY FOR MANUFACTURING AND BLENDING OF TEA FOR ITS 100% EXPORT O RIENTED UNIT. THE ASSESSEE THEN CONSTRUCTED A FACTORY ON AN A REA OF 68 000 SQ.FT. AS PER THE REQUIREMENT OF HINDUSTAN LEVER LIMITED FOR EXPORT ORIENTED UNIT THE NEW FACTORY WAS CONSTRUCTED AT TOTAL COST OF RS.4.99 CR. OUT OF WHICH RS 1.44 CR WAS FINANCED BY THE HIND USTAN LIVER LTD AS SECURITY DEPOSIT AND BALANCE WAS FINANCED OU T OF BANK LOANS. THE HINDUSTAN LEVER LIMITED IS CARRYING OUT THE MANUFACTURING AND BLENDING OF TEA IN THIS FACTORY SINCE MARC H 2000 BY EMPLOYING OF ABOUT 400 EMPLOYEES AND INSTALLING HUGE PLAN T & MACHINERY ALONG WITH FURNITURE AND FIXTURES. 12. HE ANALYSED THE LEASE AGREEMENT WITH HINDUSTAN LEVE R LTD. AND NOTED THAT : 1. THE LEASE WAS FOR A PERIOD OF 10 YEARS WITH EFFECT FROM 01-11- 2000 FOR THE PREMISES COMPRISING OF A FACTORY ADMEASURI NG 68 000 SQ.FT. ON A MONTHLY RENT OF RS.4 45 000/-. 2. THAT THE LESSEE WILL PAY THE SAID MONTHLY RENT AT T HE RATE OF RS.4 45 000/- PER MONTH IN ADVANCE ON OR BEFORE 21 ST DAY OF EACH CALENDAR MONTH. 3. THAT THE LESSEE (HLL) AGREED TO PAY THE ASSESSEE COMPA NY (THE LESSOR) RS.144.00 LACS ON TAKING POSSESSION RS.31.64 LACS A T THE BEGINNING OF THE FOURTH YEAR AND RS.39.65 LACS AT THE BEGINNING OF THE SEVENTH YEAR AS A SECURITY DEPOSIT. 4. THAT THE ASSESSEE COMPANY (THE LESSOR) AGREED TO ALLOW THE LESSEE (HLL) TO POSSESS AND ENJOY THE DEMISED PREMISES FOR CAR RYING OUT THE MANUFACTURING ACTIVITIES INCLUDING BLENDING PROCESSIN G MIXING AND PACKING OF TEA AND OTHER ITEMS OF FOOD AND BEVERAGES. 10 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 5. THAT AS LONG AS THE LESSEE CONTINUED TO PAY THE REN T AND OBSERVED AND PERFORMED THE TERMS AND CONDITIONS OF THE LEASE AG REEMENT THE LESSEE WOULD HAVE THE RIGHT OF PEACEFUL POSSESSION AND EN JOY THE DEMISED PREMISES WITHOUT ANY INTERRUPTION OR DISTURBA NCE FROM THE LESSOR. 6. THAT THE MACHINERY FURNITURE AND FIXTURES ELECT RICAL EQUIPMENT AND OTHER UTILITIES INSTALLED OR KEPT IN THE SAID PRE MISES WHICH ARE OWNED BY THE LESSEE SHALL ALWAYS BELONG TO AND BE THE PROPERTY OF THE ASSESSEE. 7. THAT THE LESSEE SHALL INSURE THE MACHINERY INSTALLATI ON STOCKS AND OTHER CONTENTS IN THE DEMISED PREMISES WHICH ARE OWNED BY THE LESSEE. 8. THAT THE LESSEE WILL PAY FOR ELECTRICITY POWER AN D WATER CHARGES DURING THE TENANCY ON THE BASIS OF ACTUAL READING OF THE METER/SUB- METER INSTALLED IN THE PREMISES. 9. THAT THE LESSEE WILL BE ENTITLED TO CONSTRUCT AT IT S COST IN THE SAID PREMISES PARTITIONS AND SUCH OTHER FIXTURES AS MAY BE NE CESSARY FOR THE LESSEE TO CARRY ON THEIR INDUSTRIAL ACTIVITIES. 10. THAT THE LEASE SHALL BE RENEWABLE AT THE OPTION O F THE LESSEE FOR SUCH FURTHER PERIOD AND SUCH TERMS AS MAY BE MUTUALLY AGREED BETWEEN THE LESSEE AND THE LESSOR. 13. IN VIEW OF THE ABOVE TERMS AND CONDITIONS OF THE LEAS E AGREEMENT THE AO HELD THAT THE PREMISES HAS BEEN GIVEN ON A LEASE OF 10 YEARS CONSTRUCTION HAS BEEN AS PER THE REQUIREME NT OF THE LESSEE FURNITURE AND FIXERS AND PLANT AND MACHINERY ARE O WNED BY THE LESSEE THE HLL IS CARRYING OUT MANUFACTURING AND BLEN DING OF TEA FOR ITS 10% EXPORT ORIENTED UNIT AND THE POSSESSION HAS BEEN HANDED OVER TO THE LESSEE AND THE ASSESSEE HAS NO AC TIVE ROLE WHATSOEVER AS FAR AS THIS PROPERTY IS CONCERNED. HENCE THE INCOME FROM THE LEASE OF THIS PROPERTY CAN BE TAXED ONLY AS IN COME FROM HOUSE PROPERTY. 14. THE AO FURTHER NOTED THAT THE ASSESSEE HAS WAREHO USES AT TWO PLACES NAMELY PHURSUNGI AND DHANKAWADI. AT PHURSUNGI APPROXIMATE AREA OF THE WAREHOUSES AS EXPLAINED BY THE ASSESSEE IS ABOUT 2 16 000 SQ.FT. OUT OF THIS ABOUT 70 000 SQ.FT. IS OWNE D BY 11 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 THE ASSESSEE COMPANY AND THE REMAINING OF ABOUT 1 50 000 SQ.FT. HAS BEEN CONSTRUCTED BY THE ASSESSEE COMPANY ON THE LAND LEASED FROM THE SISTER CONCERNS DIRECTORS AND THEIR RELATIVES AND A BOUT 30 000 SQ.FT. AREA AT DHANAKWADI IS LEASED BY THE ASSESSEE FROM M /S. KAMDHENU CHEMICALS A SISTER CONCERN. THERE ARE ABOUT 2 0 GALAS/WAREHOUSE UNITS WITH INDEPENDENT ENTRY/EXIT HAVING SEPARATE SHUTTERS/DOORS WHICH ARE LET OUT OR GIVEN ON RENT TO T HE CUSTOMERS AS PER THEIR REQUIREMENTS. THE AREA OF THESE GALAS/WAREHOU SE UNITS VARIES FROM 650 SQ.FT. TO 5000 SQ.FT. AND THE SEGMENT OF LET OUT DURING THE YEAR HAS VARIED FROM 6 MONTHS TO 3 YEARS. 15. THE AO FURTHER OBSERVED : A. THAT THE COMPANY IS RENDERING SERVICES TO ITS CLIENT ON DAILY BASIS EXCLUDING HOLIDAYS FROM 9.30 AM TO 5 O CLOCK AND T HAT POSSESSION IS NOT PASSED TO THE CLIENTS AND THE WAREHOUSES HAVING DOUBLE L OCKING WHERE IN ONE KEY IS KEPT WITH THE CUSTOMER AND ANOTHER WITH TH E ASSESSEE. B. THAT THE ASSESSEE HAS ALSO TAKEN WAREHOUSES ON LEASE OF A BOUT 30 000 SQ.FT. FROM THE OTHER PARTIES AND GIVEN THE SAM E ALONG WITH SERVICE FACILITIES TO HIS CLIENT. C. THAT THE ASSESSEE IS PROVIDING SERVICES LIKE LOADING UNLOADING TRANSPORTATION SECURITY MAINTENANCE ELECTRICITY. D. THAT THE ASSESSEE HAS EMPLOYED OVER 20 PERMANENT AND SEMI- PERMANENT STAFF TO LOOK AFTER AND MAINTAIN THESE ACTI VITIES OF WAREHOUSING. THE SERVICES PROVIDED BY ASSESSEE MAKE ATTR ACTIVE FOR ITS CUSTOMERS TO UTILIZE HIS WAREHOUSING ACTIVITY AS A COMPO SITE BUSINESS PROPOSITION. E. THAT THE ASSESSEE COMPANY HAS INCURRED SUBSTANTIAL EXP ENSES ON PROVIDING VARIOUS SERVICES TO THE CLIENTS WHICH THE COM PANY IS CONTRACTUALLY OBLIGED TO PROVIDE AND THESE SERVICES AR E NOT SUCH WHICH ARE ORDINARILY PROVIDED BY LANDLORD TO A TENANT. F. THAT THE WAREHOUSING ACTIVITY CARRIED OUT BY THE ASSESSEE COMPANY IS AN ACTIVITY INVOLVING A PROPERTY OF THE C OMPLEXITY AND BECOMES A COMMERCIAL ASSET AND THE ASSESSEE COMPANY IS NOT SIMPLY RENTING OUT WAREHOUSE PREMISES PER SE. G. THAT THE ASSESSEE HAS BUS FACILITY FOR TRANSPORT OF ST AFF FROM WAREHOUSE TO SWARGATE PUNE. 12 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 H. THAT THE AGREEMENT ARE MADE FOR A SEGMENT OF THRE E YEARS AND THE CLIENTS MAY JOIN AT ANY TIME AND THE CLIENT AND THE ASSESSEE COMPANY CAN VACATE/GET IT VACATED BY THREE MONTHS NOTICE. HENC E IT IS CLAIMED THAT THE AGREEMENT IS NOT FOR LONG TERM AS IN CASE OF LEASE AGREEMENT. I. THAT THE ASSESSEE HAS INSTALLED A FIRE HYDRANT SYSTEM W ITH A CAPACITY OF 2 50 000/- LITER TO KEEP THE WAREHOUSES F IRE PROOF. 16. THE AO NOTED FROM THE ABOVE THAT THE ASSESSEE IS A CTIVELY INVOLVED IN THE WAREHOUSING ACTIVITIES AND THE WAREHOUSE IS BEING COMMERCIALLY EXPLOITED ON BUSINESS LINES SO FAR AS IT RELATED TO PURE WAREHOUSING ACTIVITIES. THE HONBLE HIGH COURT IN THE ABOV E REFERRED ORDER HAS OBSERVED THAT THE HONBLE TRIBUNAL IN THE ORD ER DATED 31- 08-2006 HAS NOT REFERRED TO ANY OF THE WAREHOUSING AG REEMENTS OF THE ASSESSEE AND HAS BASED THE DECISION ONLY ON THE LE ASE AGREEMENT WITH HINDUSTAN LEVER LTD AND THAT NO REASON HAS BEEN GIVEN FOR NOT FOLLOWING THE TRIBUNALS OWN DECISION IN THE CASE OF THE ASS ESSEE. HENCE HE HELD THE WAREHOUSING ACTIVITY CARRIED OUT BY TH E ASSESSEE AS BUSINESS AND THE INCOME DERIVED FROM IS BUSINESS INCOME. 17. THE AO FURTHER OBSERVED THAT THE ORDER OF THE TRIBU NAL DATED 12-03-2001 ALSO CANNOT BE APPLIED IN THE A.Y. 2001-02 AND SUBSEQUENT YEARS AS FACTS OF THE CASE HAVE CHANGED. T ILL MARCH 2000 THE LIPTON TEA WAS OCCUPYING APPROXIMATELY 30 000 SQ.FT. OUT OF WHICH ONLY 10 250 SQ.FT. WAS FOR FACTORY AND 20 000 SQ.FT. WAS FOR THE WAREHOUSING. IN SUCH A SITUATION THE HONBLE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT LEASE RENTAL FROM MERELY 10 250 SQ.FT. OF PROP ERTY WAS ONLY A MINOR PART OF TOTAL 1 50 000 SQ.FT. OF WAREHOUSES AN D SUBSERVIENT TO THE DOMINANT ACTIVITY OF THE WAREHOUSING. 18. HOWEVER WITH THE CONSTRUCTION AND LEASE OF THE NEW FA CTORY HAVING AREA 66 000 SQ.FT. IN MARCH 2000 HAS CHANGED THE FA CTS 13 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 DRASTICALLY AND THE AREA OF LEASED FACTORY VIS--VIS WAREH OUSE HAS GONE UP FROM 5% TO ABOUT 31% IN TERMS OF AREA AND ABOUT 30-45% IN TERMS OF GROSS RECEIPTS. HENCE THE LETTING OUT OF THE PR OPERTY CANNOT BE REGARDED AS SUBSERVIENT TO THE WAREHOUSING ACTIVITY BY ANY ST RETCH OF IMAGINATION. IN FACT KEEPING IN VIEW THE OVERALL WAREHOUS ING ACTIVITY WHERE OCCUPANCY OF THE WAREHOUSES VARIES FROM 6 0-80% ONLY AND THE UNCERTAINLY ATTACHED TO IT THE LEASED RENTALS C ONSTITUTES THE MAIN STAY OF THE ASSESSEE COMPANY. 19. IN VIEW OF THE ABOVE DISCUSSION THE AO CONCLUDED THAT : I. THE LEASE RENTAL RECEIVED BY THE ASSESSEE FROM THE LEASE OF THE 68000 SQ.FT. OF THE FACTORY TO HINDUSTAN LEVER LT D. AS PER THE AGREEMENT DT.18-03-2001 FOR 10 YEARS WHEREIN THE LESSEE HAS SET UP ITS 100% EXPORT ORIENTED UNIT IS HELD TO BE INCOME FROM HOUSE PROPERTY. II. THE WAREHOUSING ACTIVITIES CARRIED OUT BY THE ASSESSEE ON THE REMAINING WAREHOUSES ARE HELD TO BE BUSINESS ACTIVITIES AND THE RESULTING INCOME AS INCOME FROM BUSINESS AND PROFESSION. III. THE LEASED OUT PROPERTY COMPRISING OF ABOUT 31% OF THE TOTAL WAREHOUSE AREA AND ABOUT 30-45% TOTAL RECEIPTS ARE HELD AS DOMINANT AND NOT SUBSERVIENT TO THE TOTAL WAREHOUSING ACTIVITIES. HENCE THE LEASE RENTAL WILL BE ASSESSED AS INCOME FROM HOUSE PROPERTY AND THE WAREHOUSING ACTIVITIES AS INCOME FROM BUSINESS AND PROFESSION. THE AO ACCORDINGLY DETERMINED THE TAXABLE INCOME AT RS.70 66 483/ - WHICH COMPRISED OF INCOME FROM HOUSE PROPERTY AT RS.28 2 0 676/- AS BUSINESS INCOME AT RS.42 45 807/-. 20. BEFORE CIT(A) THE ASSESSEE REITERATED THE SAME SUBM ISSIONS AS MADE BEFORE THE AO. IT WAS SUBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YRS.94-95 95-96 AND 96-97 HA S ALLOWED THE CLAIM OF THE ASSESSEE IN TREATING THE LEASE RENTAL INC OME AS 14 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 INCOME FROM BUSINESS. IT WAS SUBMITTED THAT THE WAREH OUSES PROVIDED FOR WAREHOUSING AS WELL AS THOSE PROVIDED TO M/S . HUL IS ONE AND THE SAME ACTIVITY AND THERE IS NO SCOPE FOR ANY SEGREGATION. FURTHER ON THE ENTIRE RECEIPTS THE COMPANY IS SUBJECTE D TO SERVICE TAX. IT WAS SUBMITTED THAT THE BUSINESS OF THE ASSESSE E COMPANY IS GOVERNED BY THE PROVISIONS OF BOMBAY WAREHOUSING ACT 19 59. REFERRING TO THE CENTRAL WAREHOUSING ACT IT WAS SUBMITTED THAT PROVISIONS OF SECTION 2(T) DEFINES WAREHOUSING BUSINESS AS TH E BUSINESS OF MAINTAINING WAREHOUSES FOR THE STORAGE OF GOO DS AND ISSUING NEGOTIABLE WAREHOUSING RECEIPTS. IT WAS SUBMITTED THAT THE DOMINANT OBJECT IS TO CARRY ON THE WAREHOUSING ACTIVITY AS BUSINESS ACTIVITY AND LEASING IS INCIDENTAL AND SUBSERVIENT TO THE WA REHOUSE AND HENCE THE SAME IS ALSO BUSINESS ACTIVITY. IT WAS FURT HER SUBMITTED THAT THE WAREHOUSES ARE COMMERCIAL ASSETS IN CASE OF THE ASSESSEE. RELYING ON VARIOUS DECISIONS IT WAS SUBMITTED T HAT THE INCOME RECEIVED BY THE ASSESSEE SHOULD BE CONSIDERED AS BUSINESS INCOME. 21. WITHOUT PREJUDICE TO THE ABOVE THE ASSESSEE FURTHE R SUBMITTED THAT WHEN THE ENTIRE BANK LOAN WAS UTILIZED FOR THE CONST RUCTION OF THE WAREHOUSES LEASED OUT THE AO WAS NOT JUSTIFIED IN ALLO WING ONLY 31% OF THE BANK INTEREST AS ALLOWABLE DEDUCTION FROM THE COMPUTATION OF INCOME FROM HOUSE PROPERTY. SINCE THE ENT IRE LOAN OBTAINED FROM FEDERAL BANK PUNE HAS BEEN UTILIZED EXCLUSIVE LY FOR THE PURPOSE OF CONSTRUCTION OF THE WAREHOUSE WHICH HAS BEEN LEASED OUT TO M/S. HUL THE AO WAS NOT JUSTIFIED IN ALLOWING ONLY 3 1% OF THE INTEREST ON SUCH BANK LOAN OUT OF SUCH RENTAL INCOME WHICH HAS BEEN TREATED BY THE AO AS INCOME FROM HOUSE PROPERTY. THE DISALLOWANCE OF DEPRECIATION BY THE AO WAS ALSO CHALLENGED BEFORE THE CIT(A). 15 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 22. HOWEVER THE LD.CIT(A) WAS NOT SATISFIED WITH THE EXPLAN ATION GIVEN BY THE ASSESSEE. REJECTING THE SUBMISSIONS MADE B EFORE HIM AND DISTINGUISHING THE VARIOUS DECISIONS CITED BEFORE HIM HE HELD THAT THE AO IS FULLY JUSTIFIED IN TREATING THE LEASE RENTAL IN COME AS INCOME FROM HOUSE PROPERTY. HE OBSERVED THAT THE GR OSS RECEIPTS OF THE LEASING ACTIVITY VARIES BETWEEN 30 TO 40% OUT OF THE TOTAL GROSS RECEIPTS OF THE ASSESSEE AND CONSUMED ABOUT 31% OF THE TOTAL AREA WHICH CLEARLY INDICATES THAT THE LEASING PROFIT CANNOT BE R EGARDED AS SUBSERVIENT TO THE WAREHOUSING ACTIVITY BY ANY STRETCH OF IMAGINATION. ACCORDING TO HIM THE ESSENCE OF PROVIDING WARE HOUSING FACILITIES COMPRISED IN PROVIDING SPACE WHICH IS LET OUT AND TH EREFORE THE SAME DOES NOT CONSTITUTE BUSINESS. HE OBSERVED TH AT IN THE INSTANT CASE THE ASSESSEE IS THE OWNER OF GODOWNS/WAREHOUSES W HICH HAVE BEEN ALLOWED TO BE USED BY M/S. HUL AND IT IS CLEAR THAT ALL THE CONDITIONS SPECIFIED U/S.22 OF THE I.T. ACT 1961 ARE PRESEN T. HE FURTHER NOTED THAT THE LEASE AGREEMENT BETWEEN THE AS SESSEE AND HUL CLEARLY REVEALS THAT THE ONLY OBJECT AND INTENTION OF THE ASSESSEE WHILE ACCEPTING THE SAID PROPERTY WAS TO LET OUT THE PRO PERTY ON A MONTHLY RENT AND THERE WAS NO COMPLEX COMMERCIAL ACTIVIT Y INVOLVED IN THE LETTING OUT OF THE PROPERTY. THUS THE LEASE RENT RECEIVED BY THE ASSESSEE WAS ONLY BECAUSE OF BARE LETTING OF THE P ROPERTY AND THE SAID CHARACTER CANNOT CHANGE AND THE INCOME DOES NOT CHANGE OR BECOME INCOME FROM BUSINESS OR PROFESSION MERELY BECAUSE LETTING OUT INCLUDED CERTAIN MINOR ADDITIONAL SERVICES PROVIDED TO THE LESSEE. RELYING ON VARIOUS DECISIONS HE HELD THAT THE ACTIVITY OF T HE ASSESSEE OF LEASING AND LETTING ACTIVITY CANNOT BE TERMED AS A BUSIN ESS ACTIVITY. HE ACCORDINGLY HELD THAT THE LEASE RENT RECEIVE D BY THE 16 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 ASSESSEE FROM HUL HAS RIGHTLY BEEN ASSESSED AS INCOME FROM HOUSE PROPERTY. 23. AS REGARDS THE CONTENTION OF THE ASSESSEE THAT TH E AO WAS NOT JUSTIFIED IN ALLOWING ONLY 31% OF THE INTEREST HE HELD THAT T HE ASSESSEE COULD NOT CONCLUSIVELY ESTABLISH THE NEXUS BET WEEN THE UTILIZATION OF THE LOAN AND THE CONSTRUCTION OF THE WAREHO USE LEASED OUT TO M/S. HUL. SINCE THE AO HAS HELD THAT 31% OF TH E AREA OF THE PROPERTY WHOSE INCOME IS TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY THEREFORE THE ALLOWANCE OF INTEREST TO TH E EXTENT OF 31% AND DISALLOWANCE OF DEPRECIATION TO THE EXTENT PRIMA- FACIE APPEARS TO BE REASONABLE. HE ACCORDINGLY DISMISSED THE GROUND RAISED BY THE ASSESSEE BEFORE HIM. 24. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ORDER PASSED BY THE CIT(A) IS BAD IN LAW AS THE CIT(A) HAVING GIV EN A FINDING THAT APPELLANT IS ENGAGED IN WAREHOUSING BUSINESS HAS FAILED IN NOT APPRECIATING AND ADOPTING THE SPECIFIC DIRECTION OF THE HONBLE BOMBAY HIGH COURT TO THE EFFECT THAT WHERE THE DOMINANT AC TIVITY IS IN THE NATURE OF BUSINESS ACTIVITY THE INCOME OF THE APPELLANT HAS TO BE ASSESSED AS BUSINESS INCOME AND HENCE CIT(A) HAS ERRED IN TAXING TH E LEASING ACTIVITY SEPARATELY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE THE CIT(A) HAS ERRED IN HOLDI NG THAT CONSIDERING THE TOTAL LEASE CHARGES RECEIVED LEASING ACTIVITY IS D OMINANT AND NOT SUBSERVIENT TO THE WAREHOUSING ACTIVITY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D WITHOUT PREJUDICE TO THE ABOVE THE CIT(A) HAS ERRED IN ALLOW ING ONLY 31% OF TOTAL INTEREST ON BANK LOAN WHILE COMPUTING THE INCOME FRO M HOUSE PROPERTY OVERLOOKING THE FACT THAT THE ENTIRE BANK LOAN IS UT ILIZED ONLY FOR THE PURPOSE OF CONSTRUCTION OF LEASED WAREHOUSES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES IN THE CASE T HE CIT(A) HAS ERRED IN DISALLOWING 31% OF THE TOTAL DEPRECIATION H OLDING THAT THE SAME IS ATTRIBUTABLE TO THE LEASED WAREHOUSES. 17 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 25. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGED THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE ASSESSEE IS A PRIVAT E LIMITED COMPANY INCORPORATED IN THE YEAR 1973. REFERRING TO THE COPY OF MEMORANDUM AND ARTICLES OF ASSOCIATION COPY OF WHICH IS PLA CED AT PAGES 182 TO 193 OF THE PAPER BOOK HE DREW THE ATTEN TION OF THE BENCH TO THE MAIN OBJECTS OF THE COMPANY TO BE PURSUE D ON ITS INCORPORATION WHICH INTER ALIA INCLUDES TO CARRY ON THE BUS INESS OF WAREHOUSING COLD STORAGE AND REFRIGERATION TO PROVIDE FACILIT IES AND GODOWNS FOR PROPER AND SAFE STORING OF VALUABLE AGRICULTURA L AND HORTICULTURAL PRODUCE AND TO PROVIDE GODOWNS AND WAREHO USING FACILITIES FOR GOODS OF ALL DESCRIPTION OF AGRICULTURAL AND ALLIED PRODUCTS. 26. HE SUBMITTED THAT THE PROVISIONS OF BOMBAY WAREHOUS ING ACT 1959 ARE APPLICABLE TO THE ASSESSEE COMPANY. UNLESS IT O BTAINS LICENSE UNDER THE SAID ACT IT CANNOT PROCEED FOR ANY ACT IVITY. HE SUBMITTED THAT IN THE COURSE OF CARRYING ON THE WAREHO USE ACTIVITY SOME PORTION OF THE WAREHOUSES HAS BEEN LEASED OUT TO HUL RIGHT FROM 1982 WHICH IS BEING CONTINUED. THE WAREHOUSING RECEIPT S WITH THE LEASE CHARGES HAVE BEEN ASSESSED AS BUSINESS INCOM E RIGHT FROM A.Y. 1973-74 TO A.Y. 1999-2000. HE SUBMITTED THAT DURING A.Y. 94- 95 AND 96-97 THE AO FOR THE FIRST TIME ASSESSED THE LEAS E CHARGES AS PROPERTY INCOME. REFERRING TO PAGES 223 TO 230 OF THE P APER BOOK HE SUBMITTED THAT THE TRIBUNAL VIDE ITA NO.1014/PN/1997 01/PN/1998 AND 02/PN/1998 ORDER DATED 19-03-2001 H AS HELD WAREHOUSE OF THE ASSESSEE WAS PART AND PARCEL OF THE W AREHOUSING ACTIVITY OF THE ASSESSEE. OUT OF THE MANY WAREHOUSES ON E HAD BEEN LEASED OUT TO A VALUABLE CUSTOMER WHO WAS ALSO AVAILING O F THE WAREHOUSING FACILITIES AND THEREFORE THE SAME IS ONLY THE E XPLOITATION 18 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 OF A COMMERCIAL ASSET AND THERE IS HARDLY ANY BASIS FOR T REATING SUCH LEASE RENT ON A DIFFERENT FOOTING. ACCORDINGLY THE CLAIM OF THE ASSESSEE FOR TREATING SUCH LEASE RENTAL AS BUSINESS INCO ME WAS ACCEPTED. HE SUBMITTED THAT THE AO IN A.Y. 2001-02 ASSE SSED THE LEASE CHARGES AS PROPERTY INCOME. THE LD.CIT(A) HELD THAT EVEN THE WAREHOUSING RECEIPTS ALSO BE ASSESSED AS PROPERTY INCOM E. THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A). ON FURTHER APP EAL BY THE ASSESSEE THE HONBLE BOMBAY HIGH COURT VIDE ORDER DAT ED 18-02- 2010 SET ASIDE THE ISSUE AND DIRECTED THE AO TO DECIDE THE SAME IN LINE OF THE DIRECTIONS GIVEN THEREIN. HE SUBMITTED THAT T HE REASSESSMENT ORDERS FOR A.YRS. 2000-01 AND 2002-03 TO 2008-09 WERE ALSO SET ASIDE BY THE TRIBUNAL RELYING ON THE DECISIO N OF THE HONBLE BOMBAY HIGH COURT WITH A DIRECTION TO DECIDE TH E ISSUES ACCORDINGLY. THE TRIBUNAL ALSO DIRECTED THE AO TO DECIDE THE ISSUE OF VALIDITY OF REOPENING FOR A.YRS. 2000-01 2002-03 2003-04 AN D 2004-05. 27. THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE OBSERVATION OF THE HONBLE HIGH COURT WHILE SETTING ASIDE THE ISSUE TO THE FILE OF THE AO AND SUBMITTED THAT IN STEAD OF EXAMINING THE TERMS OF THE LEASE DEED AND DECIDE AS TO W HETHER THE LEASING PROFIT IS SUBSERVIENT TO THE WAREHOUSING PROFIT OR O THERWISE THE AO HAS ERRONEOUSLY CONSIDERED THE AREA LEASED OUT OF THE TOTAL WAREHOUSE AREA. HE DREW THE ATTENTION OF THE BENCH TO THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY AND THE LEASE AGREEMENT EXECUTED WITH HINDUSTAN LEVER LTD. REFE RRING TO THE COPY OF THE LEASE DEED WITH HINDUSTAN LEVER LTD. HE SUBM ITTED THAT THE ASSESSEE HAS NOT MERELY LEASED OUT THE 4 WALLS OF T HE WAREHOUSE. IT HAS PROVIDED ESSENTIAL AND NECESSARY SERVICES OF SUPE RVISORY 19 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 LOADING AND UNLOADING HANDLING SECURITY TRANSPORTING ETC. TO ALL THE CLIENTS INCLUDING HINDUSTAN LEVER LTD. ON DAILY BASIS DURING WORKING HOURS. THE ASSESSEE HAS INCURRED EXPENDITURE ON ELECTR ICITY MAINTENANCE STAFF ETC. WHICH PROVES THAT THE LEASING IS A C OMPLEX ACTIVITY DIRECTLY LINKED WITH THE MAIN WAREHOUSING ACTIVITY. THEREFORE IT IS SUBSERVIENT TO THE WAREHOUSING ACTIVITY WH ICH IS DOMINANT. 28. HE SUBMITTED THAT WHERE THE PLOTS HAVE BEEN ACQUIR ED ON LEASE AS WELL AS PLOTS OWNED BY THE ASSESSEE ARE USED FOR CON STRUCTING THE WAREHOUSE THAT CLEARLY PROVES THE COMMERCIAL USE OF THE WAREHOUSE. HE SUBMITTED THAT THE LEASING ACTIVITY ALONGWITH WAREHOUS ING ACTIVITY IS BEING CONTINUED SINCE 1984. IN THE YEAR 1984 AREA AD MEASURING 10 250 SQ.FT. WAS LEASED OUT TO HINDUSTAN LEVER LTD. VIDE LEASE AGREEMENT DATED 12-12-1984 A COPY OF WHICH IS PLACED AT PAGES 330 TO 347 OF THE PAPER BOOK. ASSESSMENTS FOR SEVERAL ASSE SSMENT YEARS WERE COMPLETED U/S.143(3) ACCEPTING THESE LEASE CHARGES A S BUSINESS INCOME. REFERRING TO THE FOLLOWING DECISIONS HE SUBMITTED TH AT THE AO SHOULD HAVE FOLLOWED THE RULE OF CONSISTENCY IN ABSENCE OF ANY COMPELLING REASONS JUSTIFYING THE DEVIATION : I. COMMISSIONER OF CENTRAL EXCISE VS. M/S.DOABA STE EL ROLLING MILLS SC VIDE CIVIL APPEAL NO.3400/2003 ORDER DATED JULY 6 2011. II. STATE CBI VS. SHASHIBALA SUBRAMANYAM SC REPORTED IN 289 ITR 8 III. BURGER PAINTS INDIA LTD. VS. CIT REPORTED IN 266 ITR 99 (SC) IV. RADHASOAMI SATSANG VS. CIT REPORTED IN 193 IT R 321 (SC) V. CIT VS. EXCEL INDUSTRIES LTD. REPORTED IN 358 ITR 295 SC VI. CIT VS. J.K. CHARITABLE TRUST REPORTED IN 220 CTR 105 VII. CIT VS. GOEL BUILDERS REPORTED IN 236 CTR 472 VIII. DR. NARENDRA PRASAD PATNA HC REPORTED IN 235 CTR 583 20 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 29. REFERRING TO THE RECENT DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF M/S. CHENNAI PROPERTIES VS. CIT VIDE CIVIL A PPEAL NO.4494 OF 2004 AND 4491 TO 4493 OF 2004 ORDER DATED 0 9-04-2015 HE SUBMITTED THAT THE ASSESSEE IN THAT CASE IS A COMPA NY INCORPORATED UNDER THE INDIAN COMPANIES ACT. ITS MAIN OBJECT AS STATED IN THE MEMORANDUM OF ASSOCIATION IS TO ACQUIRE TH E PROPERTIES IN THE CITY OF MADRAS AND TO LET OUT THOSE PR OPERTIES. THE ASSESSEE HAD RENTED OUT SUCH PROPERTIES AND THE RENT AL INCOME RECEIVED THEREFROM WAS SHOWN AS INCOME FROM BUSINESS IN THE RETURN FILED BY THE ASSESSEE. THE AO REFUSED TO TAX THE SAME AS BUSINESS INCOME ON THE GROUND THAT SINCE THE INCOME WAS RECEIVED FROM LET OUT OF THE PROPERTIES IT WAS IN THE NATURE OF REN TAL INCOME. HE ACCORDINGLY TREATED THE SAME AS INCOME FROM HOUSE PROPERTY. IN APPEAL THE CIT(A) ALLOWED THE APPEAL FILED BY THE ASSESSEE HOLDING THE SAME TO BE BUSINESS INCOME. THE TRIBUNAL DISMISSED THE APPEAL FILED BY THE REVENUE. THE REVENUE APPROACHED THE HON BLE HIGH COURT. THE HONBLE HIGH COURT UPHELD THE ORDER OF THE CIT(A) VIDE ORDER DATED 05-09-2002 HOLDING THAT THE INCOME DERIVED BY LETTING OUT OF THE PROPERTIES WOULD NOT BE INCOME FROM BUSINESS BUT COULD BE ASSESSED ONLY AS INCOME FROM HOUSE PROPERTY. TH E ASSESSEE FILED APPEAL BEFORE THE HONBLE SUPREME COURT AND THE HO NBLE SUPREME COURT ALLOWED THE APPEAL FILED BY THE ASSESSEE HO LDING THAT LETTING OUT OF THE PROPERTIES IS INFACT IS THE BUSINESS OF TH E ASSESSEE AND THEREFORE THE ASSESSEE HAS RIGHTLY DISCLOSED THE INC OME UNDER THE HEAD INCOME FROM BUSINESS AND IT CANNOT BE TREATE D AS INCOME FROM HOUSE PROPERTY. HE SUBMITTED THAT SINCE THE MAIN OBJECTS OF THE ASSESSEE COMPANY IS TO CARRY ON THE BUSINESS OF WA REHOUSING COLD STORAGE AND REFRIGERATION IN ALL ITS BRANCHES AND ACTIV ITIES AND TO 21 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 PROVIDE FACILITIES AND GODOWNS FOR PROPER AND SAFE STORAGE OF VALUABLE AGRICULTURAL AND HORTICULTURAL PRODUCTS AND TO PROVIDE GOO DS AND SERVICES OF ALL KINDS IN CONNECTION THERE WITH AND TO PROVID E WAREHOUSING GODOWNS AND WAREHOUSING FACILITIES FOR GOODS OF ALL DESCRIPTION OF AGRICULTURAL AND ALLIED PRODUCTS THEREFORE IN V IEW OF THE DECISION OF HONBLE SUPREME COURT THE LEASE RENTAL SH OULD BE TREATED AS BUSINESS INCOME. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THE GROUND RAISED BY THE ASSESSEE BE ALLOWED. 30. SO FAR AS THE DISALLOWANCE OF INTEREST IS CONCERNED T HE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ENTIRE BANK LOAN HAS BEEN UTILISED FOR CONSTRUCTION OF THE PROPERTY WHICH HAS BEEN LET OUT TO HINDUSTAN LEVER LTD. THEREFORE THE CIT(A) WAS NOT JUS TIFIED IN UPHOLDING THE ORDER OF THE AO WHEREIN THE AO HAS ALLOWED ONLY 31% OF THE TOTAL INTEREST ON BANK LOAN WHILE COMPUTING THE INCO ME FROM HOUSE PROPERTY. SIMILARLY THE DISALLOWANCE OF DEPRECIATION IS ALSO UNCALLED FOR. 31. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED T HAT THE LD.CIT(A) HAS GIVEN JUSTIFIABLE REASONS FOR TREATING THE INCO ME FROM LEASE RENTAL AS INCOME FROM HOUSE PROPERTY. HE ACCORDING LY SUBMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD AND TH E GROUNDS RAISED BY THE REVENUE ON THIS ISSUE BE DISMISSED. 32. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED T HE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE IN THE ABOVE GROUNDS IS 22 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 REGARDING THE TREATMENT OF THE LEASE INCOME FROM HINDUST AN LEVER LTD. AS INCOME FROM HOUSE PROPERTY OR AS BUSINESS IN COME. WE FIND THE HONBLE HIGH COURT WHILE SETTING ASIDE THE ISSUE TO THE FILE OF THE AO HAS OBSERVED AS UNDER : THE QUESTION AS TO WHETHER THE INCOME WHICH IS RECEIV ED BY THE ASSESSEE FROM THE TRANSACTION WHICH HAS BEEN ENTERED INTO IN RESPECT OF THE IMMOVABLE PROPERTY IN QUESTION SHOULD BE TREATED AS INCOME FROM HOUSE PROPERTY OR AS INCOME FROM BUSINESS WOULD HAVE TO BE RESOLVED ON THE BASIS OF THE WELL SETTLED TESTS LAID DOWN IN THE LAW IN DECIDED CASES. WHAT IS MATERIAL IN SUCH CASES IS THE PRIMARY OBJEC T OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY. IF THE PRIMARY OR THE DOMINANT OBJECT IS TO LEASE OR LET OUT PROPERTY THE INCOME W HICH IS DERIVED FROM THE PROPERTY WOULD HAVE TO BE REGARDED AS INCOME FRO M HOUSE PROPERTY. CONVERSELY IF THE DOMINANT INTENTION OF THE ASSESSEE IS T O EXPLOIT A COMMERCIAL ASSET BY CARRYING ON A COMMERCIAL ACTIVITY THE INCOME THAT IS RECEIVED WOULD HAVE TO BE T REATED AS I NCOME FROM BUSINESS . WHAT HAS T O BE DEDUCED IS TO WHETHER THE LETT I NG OUT OF THE PROPERTY CONS TIT U T ES A DOMINAN T ASPECT OF T HE TRANSACTION OR WHE T HER IT WAS SUBSERV I ENT TO THE MAIN BUSINESS OF THE ASSESSEE OF CA R RY I NG OUT WAREHOUSING ACTIV I T I ES . THE F I RST SUBMISS I ON WHICH HAS BEEN URGED ON BEHALF OF T HE ASSESSEE TO THE EFFECT THAT THE DECISION OF THE TR I BUNA L RENDERED ON MARCH 19 2001 FOR THE ASSESSMENT YEA R S 1994 - 95 1 995 - 96 AND 1 996 - 97 OUGH T T O HAVE BEEN CONSIDERED BUT HAS NOT BEEN CONS I DERED BY THE TRIBUNAL CANNOT BE BRUSHED AS I DE AS WITHOUT SUBSTANCE. BE THAT AS IT MAY DURING THE COURSE OF THE HEARING OF THESE PROCEEDINGS WE HAVE CONSIDERE D THE EARLIER J UDGMENT OF THE TRIBUNA L . E X FACIE A PERUSA L OF THE EA R L I ER JUDGMEN T WOU L D SHOW T HAT THAT THE T R IBUNAL HAS NOT MADE A REFERENCE TO THE DE T AILED T ERMS AND COND ITI ONS OF THE WAREHOUSING AGREEMENTS ENTE R ED I NTO BY THE ASSESSEE OR TO THE LEASE AGREEMENT BY WHICH T HE FAC T ORY CAME TO BE LEASED OUT. CONSEQUENTLY UPON CONSIDERING THE POSITION IN THIS REGARD COUNSEL APPEARING ON BEHALF OF THE ASSESSEE HAS FA IRLY STATED THAT THE ASSESSEE WOU L D NOT CONSIDER THAT THE EAR LI ER DEC I SION OF THE TRIBUNAL BE REGARDED AS BINDING . IN SO FAR AS THE DEC I S I ON WH I CH I S I MPUGNED I N THESE PROCEED I NGS IS CONCE R NED T HE TR I BUNA L HAS BAS I CA LL Y RELIED UPON THE LEASE AGREEMENT DATED MARCH 18 2001 BETWEEN THE ASSESSEE AND HINDUSTAN LEVER . IT IS ON THE BASIS OF THE TERMS OF THE LEASE AGREEMENT THAT THE TRIBUNAL ARRIVED AT A CONCLUSION THAT THE P RIMARY PURPOSE OF THE ASSESSEE WAS T O LET OU T THE FACTORY AND THA T THE I NCOME T HAT WAS DER I VED THEREFROM COU L D NOT CONSEQUENT L Y BE REGARDED AS INCOME FROM BUS I NESS . THE SUBMISSION OF THE ASSESSEE IS THAT THE TE R MS ON WHICH THE ASSESSEE ENTERED INTO WAREHOUSING AGREEMENTS HAVE NOT BEEN CON SIDERED AT ALL I N T H E DECIS I ON OF T HE TRIBUNA L . NOW A PERUSAL OF THE DEC I SION OF T HE TRIBUNA L WOU L D SHOW THA T T HE TR IBUNA L NOTED T WO DEC I S I ONS OF THE TR I BUNA L T HE FIRS T IN VORA WAREHOUSING P . LTD . V . ASST. CIT [1999] 70 ITO 518 (MUM) (SMC) WHERE THE RENT WHICH WAS REALI Z ED FROM WAREHOUSING ACTIVITY WAS HELD TO BE ASSESSABLE AS BUSINESS INCOME AND TH E SECOND IN THE CASE OF V . N . RUKARI V . ITO IN ITA NO. 84 / PN / 2001 I N WH I CH T HE TRIBUNA L HELD THA T THE I NCOME WHICH WAS R EA LI ZED F R OM WAREHOUS I NG ACTIVI T Y WOULD BE ASSESS - AB L E AS I NCOME F R OM HOUSE PROPERTY . THE 23 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 TR I BUNAL FOLLOWED A DECIS I ON OF T HE MADRAS H I GH COURT I N CIT V. INDIAN WAREHOUSING INDUSTRIES LTD. [2002] 258 ITR 93 AND WAS O F T HE VIEW THA T THE FAC T S OF T HAT CASE WERE IDENT I CAL IN HOLD I NG THAT THE I NCOME RECEIVED FROM THE LEASING OF THE WARE - HOUSE WAS ASSESSABLE AS INCOME FROM HOUSE PROPERTY . EX FACIE THEREFORE THE TERMS OF THE WAREHOUSING AGREEMENT WERE NOT CONSIDERED BY THE TRIBUNAL . MERELY STYLING AN AGREEMENT AS A WAREHOUS I NG AG R EEMENT WOU L D NO T BE CO N CLUS I VE OF THE NA T URE OF THE T RANSAC TI ON S I NCE IT I S FOR THE TR I BUNAL TO DE T ERM I NE AS T O WHE T HER THE TRANSACTION WAS A BARE LETT I NG OUT OF THE ASSET O R WHETHE R T HE ASSESSEE WAS CARRYING ON A COMMERCIAL ACTIVITY INVOLVING WARE HOUSING OPERATIONS . S I NCE THE TR I BUNAL HAS NOT CONS I DERED TH I S ASPECT OF THE CASE WE ARE OF THE VIEW THAT IT WOULD BE APPROPR I A T E AND PROPER TO SET AS I DE THE DEC I SION OF T HE TR I BUNA L AND TO REMAND THE P R OCEED I NGS BACK TO THE ASSESS I NG OFFICER FOR A FRESH DETERMINATION AND ASSESSMENT IN ACCORDANCE WITH LAW . WE ORDER ACCORDINGLY . UPON REMAND I T I S C L ARIFIED THAT THE ASSESSING OFFICER SHALL NOT CONSIDER HIMSELF TO B E BOUND BY THE DECISION OF THE TRIBUNAL DATED MARCH 19 2001 FOR THE ASSESSMENT YEARS 1994 - 95 1995-96 AND 1996 - 97 IN V I EW OF T HE CONCESS I O N I N THOSE TERMS WH I CH HAS BEEN MADE DURING THESE PROCEED I NGS BY THE ASSESSEE. I N ORDER TO FACIL I TATE A FRESH EXERCISE BEING CARRIED OUT IN TERMS OF TH E ORDER PASSED BY THIS COURT THE IMPUGNED ORDER OF THE TRIBUNAL DATED AUGUST 31 2006 I S SET ASIDE . HOW-EVER IT IS CLARIFIED THAT AL L THE RIGHTS AND CONTENTIONS OF THE ASSESSEE AND THE REVENUE ON ALL ASPEC T S OF THE CASE ON THE MER IT S ARE KEPT OPEN . THE O R DER OF R EMAND I T I S CLAR I F I ED SHA LL ALSO BE WITH RESPECT TO THE DISA L LOWANCE THAT HAS BEEN EFFECTED UNDER SECTION 4 0A(II) OF THE I NCOME - TA X ACT 1961 . IN VIEW OF THE ORDER OF REMAND IT IS NOT NECESSARY FOR THIS COURT TO EXPRESS ANY VIEW ONE WAY OR THE OTHER ON THE QUEST I ONS OF LAW INVOLVED . THE APPEA L I S ACCORDINGLY D I SPOSED OF . NO COS T S . 33. WE FIND THE AO AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE WHICH HAVE ALREADY BEEN NARRATED IN THE PRECE DING PARAGRAPHS TREATED THE LEASE RENTAL RECEIVED BY THE AS SESSEE FROM THE LEASE OF 68 000 SQ.FT OF THE FACTORY TO HINDUSTAN LEVER LTD. AS INCOME FROM HOUSE PROPERTY AND TREATED THE WAREHOUS ING ACTIVITIES CARRIED OUT BY THE ASSESSEE ON THE REMAINING WAREHOUSE S AS BUSINESS INCOME WHICH HAS BEEN UPHELD BY THE LD.CIT(A). 34. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT THE MAIN OBJECTS TO BE PURSUED AS PER THE MEMORANDUM OF ASSOCIATION ARE CONSTRUCTION OF WAREHOUSES FOR STORAGE O F AGRICULTURAL GOODS. PROVISIONS OF BOMBAY WAREHOUSING ACT 1959 ARE AP PLICABLE TO THE ASSESSEE COMPANY. IT IS ALSO HIS SUBMISSION THAT THE AO WAS 24 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 REQUIRED TO EXAMINE THE TERMS OF THE LEASE DEED AND DEC IDE WHETHER LEASING ACTIVITY IS SUBSERVIENT TO THE WAREHOUSING ACTIVITY OR NOT. FURTHER IF GOING BY THE VERSION OF THE AO 69% OF THE TOTA L RECEIPTS/TOTAL AREA IS MEANT FOR WAREHOUSING ACTIVITY IN TH AT CASE THE AO SHOULD HAVE ACCEPTED THAT LEASING ACTIVITY IS SUB SERVIENT TO WAREHOUSING ACTIVITY THAT BEING THE DOMINANT ACTIVITY OF THE ASSESSE E. 35. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK WE FIND THE MAIN OBJECTS TO BE PURSUED BY T HE ASSESSEE COMPANY ON ITS INCORPORATION ARE AS UNDER : III. OBJECTS : THE OBJECTS FOR WHICH THE COMPANY IS E STABLISHED ARE : MAIN OBJECTS OF THE COMPANY TO BE PURSUED BY THE COMP ANY ON ITS INCORPORATION ARE : A (1)(A) TO CARRY ON THE BUSINESS OF WAREHOUSING COLD STORAGE AND REFRIGERATION IN ALL ITS BRANCHES AND ACTIVITIES AND SP HERE. (B) TO CARRY ON THE BUSINESS OF STORAGE OF FERTILIZERS INSECTICIDES QUALITY SEEDS AGRICULTURAL AND HORTICULTURAL EQUIPME NT TOOLS AND MACHINERY. (C) TO CARRY ON THE BUSINESS OF QUALITY SEEDS AND DEVEL OP QUALITY SEEDS ACQUIRE SUITABLE LANDS AND CARRY ON AGRICULTURE. (D) TO PRODUCE MATERIAL AND FERTILIZERS AND INSECTICI DES AND ACQUIRE AGENCY IN THE ABOVE LINES AND ACT AS COMMISSION AGENTS. (E) TO ACT AS CLEARING AND FORWARDING AGENTS OF THE A FORESAID PRODUCTS. (F) TO PROVIDE FACILITIES AND GODOWNS FOR PROPER AND SAFE STORING OF VALUABLE AGRICULTURAL AND HORTICULTURAL PRODUCE AND TO PROVIDE GOODS AND SERVICES OF ALL KINDS IN CONNECTION THERE WITH. (G) TO PROVIDE GODOWNS AND WAREHOUSING FACILITIES FOR GOODS OF ALL DESCRIPTION OF AGRICULTURAL AND ALLIED PRODUCTS. 36. SIMILARLY THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATT AINMENT OF THE MAIN OBJECTS INCLUDE THE FOLLOWING : 2. TO PURCHASE ERECT ESTABLISH OR OTHERWISE ACQUIRE AND EQUIP WAREHOUSING GODOWNS ADDITIONAL COLD STORAGE PLANTS OR UNIT FOR THE 25 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 BUSINESS OF THE COMPANY AS MAY DEEM DESIRABLE AND TO BUI LD AND ERECT THE NECESSARY STRUCTURES OR BUILDINGS TO HOUSE THE SAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18. TO LET ON LEASE OR ON HIRE THE WHOLE OR ANY PART OF THE REAL AND PERSONAL PROPERTY OF THE COMPANY ON SUCH TERMS AS THE C OMPANY SHALL DETERMINE TO ENTER INTO SUCH ARRANGEMENTS AS THE COMP ANY MAY THINK PROPER WITH ANY PUBLIC AUTHORITY FOR BUILDINGS CHAW LS AND TENEMENTS AS THE PROPERTY OF THE COMPANY OR ON THE PROPERTY OF O THERS OR TO LET THE SAME EITHER TO THE EMPLOYEES OF THE COMPANY OR TO OTH ERS AND UPON SUCH TERMS AS THE COMPANY MAY THINK PROPER. 37. FROM THE STATEMENT SHOWING YEAR-WISE DETAILS OF TOTAL RECEIPTS AS PER PROFIT AND LOSS ACCOUNT WAREHOUSING CHARGES AN D SERVICE CHARGES FROM HINDUSTAN LEVER LTD. ETC. A COPY OF WHICH IS PLACED AT PAGE 212 OF THE PAPER BOOK WE FIND THE DETAILS ARE AS UNDER : F.Y. TOTAL RCPTS AS PER P&L WAREHOUSING CHARGES LEASE RENT FROM HLL % OF LEASE RENT TO TOTAL RECEIPTS WAREHOUSING CHARGES RECEIVED FROM HLL % OF WAREHSG CH. RECEIVED FROM HLL TO THE TOTAL WAREHSG CH. A B=C+D C D E = (D/B)*100 F G = (F/C)*100 2000 - 01 10 313 426.00 7 598 434.00 2 714 992.00 26.32 4 836 240.00 63.65 2001- 02 17 686 971.33 11 817 590.33 5 869 381.00 33.18 11 066 970.00 93.65 2002 - 03 19 580 172.66 13 910 172.66 5 670 000.00 28.96 11 390 112.00 81.88 2003 - 04 20 431 251.63 13 647 501.63 6 783 750.00 33 . 20 11 760 877.50 86.18 2004 - 05 19 776 426.00 12 858 926.00 6 917 500.00 34.98 12 279 750.00 95.50 2005 - 06 21 521 078.50 14 570 078 . 50 6 951 000.00 32.30 11 342 060.00 77.84 38. A PERUSAL OF THE ABOVE BREAK UP OF THE LEASE RENTAL INCOME FROM HINDUSTAN LEVER LTD AND VARIOUS OTHER PARTIES VIS--VIS THE MAIN OBJECTS OF THE ASSESSEE COMPANY SHOW THAT WAREHOUSING ACTIVITY IS THE DOMINANT ACTIVITY AND LEASING OUT BEING INCIDENTAL IS SUBSERVIENT. 26 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 39. WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS CONSTRUCTED SEVERAL SHEDS FOR INDUSTRIAL AND WAREHOUSE PURPOSES WHICH PROVES THAT THE LEASING IS DONE FOR EXPLOITATION OF THE COMMERCIAL ASSET. WE ALSO FIND FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT T HE ASSESSEE HAS NOT MERELY LEASED OUT THE 4 WALLS OF THE WAREHOUSE. IT HAS ALSO PROVIDED ESSENTIAL AND NECESSARY SERVICES OF SUPERVISORY LOADING AND UNLOADING HANDLING SECURITY TRANSPORTING ETC. TO ALL THE CLIE NTS INCLUDING THE HINDUSTAN LEVER LTD. ON DAILY BASIS DURING WO RKING HOURS. THE ASSESSEE HAS INCURRED EXPENDITURE ON ELECTR ICITY MAINTENANCE STAFF ETC. WHICH PROVES THAT LEASING IS A COMPLE X ACTIVITY DIRECTLY LINKED WITH THE MAIN WAREHOUSING ACTIVITY. THEREFORE IT IS SUBSERVIENT TO THE WAREHOUSING ACTIVITY. F URTHER SINCE PLOTS HAVE BEEN ACQUIRED ON LEASE AS WELL AS PLOTS O WNED BY THE ASSESSEE ARE USED FOR CONSTRUCTING THE WAREHOUSES TH E SAME CLEARLY PROVES THE COMMERCIAL USE OF THE WAREHOUSE. FURTHER T HE ASSESSEE IS LIABLE TO PAY SERVICE TAX ON THE SERVICE OF STORAGE AND WAREHOUSING SINCE SERVICE OF STORAGE AND WAREHOUSING HAS BEEN INCLUD ED AS TAXABLE SERVICE. 40. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE HONB LE SUPREME COURT IN THE CASE OF M/S. CHENNAI PROPERTIES (SU PRA). IN THAT CASE THE ASSESSEE COMPANY WAS INCORPORATED UNDE R THE INDIAN COMPANIES ACT. ITS MAIN OBJECT WAS TO ACQUIRE THE PROPE RTIES IN THE CITY OF MADRAS AND LET OUT THESE PROPERTIES. THE ASSE SSEE HAD LET OUT THE SAID PROPERTIES AND THE RENTAL INCOME RECEIVED THERE FROM WAS SHOWN AS INCOME FROM BUSINESS IN THE RETURN FILED BY THE A SSESSEE. HOWEVER ACCORDING TO THE AO SINCE THE INCOME WAS RECEIV ED FROM LETTING OUT OF THE PROPERTIES IT WAS IN THE NATURE OF RENT AL INCOME. HE 27 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 THEREFORE TREATED THE RENTAL INCOME AS INCOME FROM HOU SE PROPERTY. IN APPEAL THE LD.CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY HOLDING THAT SUCH RENTAL INCOME IS INCOME FROM BUSINESS. THE TR IBUNAL UPHELD THE ACTION OF THE CIT(A). ON FURTHER APPEAL BY THE REVENUE THE HONBLE HIGH COURT VIDE ORDER DATED 05-09-2002 ALLOW ED THE APPEAL FILED BY THE REVENUE HOLDING THAT INCOME DERIVED BY LETTING OUT OF THE PROPERTIES WOULD NOT BE INCOME FROM BUSINESS BUT CAN BE ASSESSED ONLY AS INCOME FROM HOUSE PROPERTY. THE ASS ESSEE FILED APPEAL BEFORE THE HONBLE SUPREME COURT. THE HONBLE SU PREME COURT ALLOWING THE APPEAL FILED BY THE ASSESSEE HELD THAT LE TTING OF THE PROPERTIES INFACT IS THE BUSINESS OF THE ASSESSEE AND THEREFORE THE ASSESSEE HAS RIGHTLY DISCLOSED INCOME UNDER THE HEAD INCOME FROM BUSINESS. THE RELEVANT OBSERVATION OF THE HONBLE SUPRE ME COURT READ AS UNDER : FROM THE AFORESAID FACTS IT IS CLEAR THAT THE QUESTIO N WHICH IS TO BE DETERMINED ON THE FACTS OF THIS CASE IS AS TO WHETHER T HE INCOME DERIVED BY THE COMPANY FROM LETTING OUT THIS PROPERTY IS TO B E TREATED AS INCOME FROM BUSINESS OR IT IS TO BE TREATED AS RENTAL INCOME FR OM HOUSE PROPERTY. WE HAVE HEARD THE LEARNED COUNSEL FOR THE PARTIES ON THE AFORESAID ISSUE. BEFORE WE NARRATE THE LEGAL PRINCIPLE THAT NEEDS TO BE APPLIED TO GIVE THE ANSWER TO THE AFORESAID QUESTION WE WOULD LIKE TO REC APITULATE SOME SEMINAL FEATURES OF THE PRESENT CASE. THE MEMORANDUM OF ASSOCIATION OF THE APPELLANT-COMPAN Y WHICH IS PLACED ON RECORD MENTIONS MAIN OBJECTS AS WELL AS INCID ENTAL OR ANCILLARY OBJECTS IN CLAUSE III. (A) AND (B) RESPECTIVELY. THE M AIN OBJECT OF THE APPELLANT COMPANY IS TO ACQUIRE AND HOLD THE PROPERT IES KNOWN AS CHENNAI HOUSE AND FIRHAVIN ESTATE BOTH IN CHENNAI AND TO LET OUT THOSE PROPERTIES AS WELL AS MAKE ADVANCES UPON THE SECU RITY OF LANDS AND BUILDINGS OR OTHER PROPERTIES OR ANY INTEREST THER EIN. WHAT WE EMPHASISE IS THAT HOLDING THE AFORESAID PROPERTIES AND E ARNING INCOME BY LETTING OUT THOSE PROPERTIES IS THE MAIN OBJECTIVE OF THE COMPANY. IT MAY FURTHER BE RECORDED THAT IN THE RETURN THAT WAS FILED ENTIRE INCOME WHICH ACCRUED AND WAS ASSESSED IN THE SAID RETURN WAS FRO M LETTING OUT OF THESE PROPERTIES. IT IS SO RECORDED AND ACCEPTED BY THE ASSESSING OFFICER HIMSELF IN HIS ORDER. 28 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 IT TRANSPIRES THAT THE RETURN OF A TOTAL INCOME OF RS. 244030 WAS FILED FOR THE ASSESSMENT YEAR IN QUESTION THAT IS ASSESSMENT YEAR 1983 -1984 AND THE ENTIRE INCOME WAS THROUGH LETTING OUT OF THE AFO RESAID TWO PROPERTIES NAMELY CHENNAI HOUSE AND FIRHAVIN ESTAT E. THUS THERE IS NO OTHER INCOME OF THE ASSESSEE EXCEPT THE INCOME FROM LETTING OUT OF THESE TWO PROPERTIES. WE HAVE TO DECIDE THE ISSUE KEEP ING IN MIND THE AFORESAID ASPECTS. WITH THIS BACKGROUND WE FIRST REFER TO THE JUDGMENT OF THIS COURT IN EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD.'S CASE WH ICH HAS BEEN RELIED UPON BY THE HIGH COURT. THAT WAS A CASE WHERE THE COMPANY WAS INCORPORATED WITH THE OBJECT OF BUYING AND DEVELOPI NG LANDED PROPERTIES AND PROMOTING AND DEVELOPING MARKETS. THUS THE MAIN OBJECTIVE OF THE COMPANY WAS TO DEVELOP THE LANDED PROPERTIES INTO MAR KETS. IT SO HAPPENED THAT SOME SHOPS AND STALLS WHICH WERE DEVELOPE D BY IT HAD BEEN RENTED OUT AND INCOME WAS DERIVED FROM THE RENT ING OF THE SAID SHOPS AND STALLS. IN THOSE FACTS THE QUESTION AROSE FOR CO NSIDERATION WAS: WHETHER THE RENTAL INCOME THAT IS RECEIVED WAS TO BE TREATED AS INCOME FROM THE HOUSE PROPERTY OR THE INCOME FROM THE BUSINE SS. THIS COURT WHILE HOLDING THAT THE INCOME SHALL BE TREATED AS INC OME FROM THE HOUSE PROPERTY RESTED ITS DECISION IN THE CONTEXT OF THE MA IN OBJECTIVE OF THE COMPANY AND TOOK NOTE OF THE FACT THAT LETTING OUT OF THE PROPERTY WAS NOT THE OBJECT OF THE COMPANY AT ALL. THE COURT WAS THEREFORE OF THE OPINION THAT THE CHARACTER OF THAT INCOME WHICH WAS FROM THE HOUSE PROPERTY HAD NOT ALTERED BECAUSE IT WAS RECEIVED BY T HE COMPANY FORMED WITH THE OBJECT OF DEVELOPING AND SETTING UP PROPERTIES. BEFORE WE REFER TO THE CONSTITUTION BENCH JUDGMENT I N THE CASE OF SULTAN BROTHERS (P) LTD. WE WOULD BE WELL ADVISED TO DISCUSS T HE LAW LAID DOWN AUTHORITATIVELY AND SUCCINCTLY BY THIS COURT IN 'KARA NPURA DEVELOPMENT CO. LTD. V. COMMISSIONER OF INCOME TAX WEST BENGAL' [ 44 ITR 362 (SC)]. THAT WAS ALSO A CASE WHERE THE COMPANY WHICH WAS THE A SSESSEE WAS FORMED WITH THE OBJECT INTER ALIA OF ACQUIRING AN D DISPOSING OF THE UNDERGROUND COAL MINING RIGHTS IN CERTAIN COAL FIELD S AND IT HAD RESTRICTED ITS ACTIVITIES TO ACQUIRING COAL MINING LEA SES OVER LARGE AREAS DEVELOPING THEM AS COAL FIELDS AND THEN SUB-LEASING THE M TO COLLIERIES AND OTHER COMPANIES. THUS IN THE SAID CASE THE LEASING OUT OF THE COAL FIELDS TO THE COLLIERIES AND OTHER COMPANIES WAS THE BU SINESS OF THE ASSESSEE. THE INCOME WHICH WAS RECEIVED FROM LETTING OU T OF THOSE MINING LEASES WAS SHOWN AS BUSINESS INCOME. DEPARTMENT TOOK THE POSITION THAT IT IS TO BE TREATED AS INCOME FROM THE H OUSE PROPERTY. IT WOULD BE THUS CLEAR THAT IN SIMILAR CIRCUMSTANCES IDE NTICAL ISSUE AROSE BEFORE THE COURT. THIS COURT FIRST DISCUSSED THE SCHEME OF THE INCOME TAX ACT AND PARTICULARLY SIX HEADS UNDER WHICH INCOME CAN BE CATEGORISED / CLASSIFIED. IT WAS POINTED OUT THAT BEFOR E INCOME PROFITS OR GAINS CAN BE BROUGHT TO COMPUTATION THEY HAVE TO BE ASSIGNED TO ONE OR THE OTHER HEAD. THESE HEADS ARE IN A SENSE EXCLUSIVE OF ONE ANOTHER AND INCOME WHICH FALLS WITHIN ONE HEAD CANNOT BE ASSIGNED TO OR TAXED UNDER ANOTHER HEAD. THEREAFTER THE COURT POINTED OUT THAT THE DECIDING FACTOR IS NOT THE OWNERSHIP OF LAND OR LEASES BUT THE NATURE OF THE ACTIVITY OF THE ASSESSEE AND THE NATURE OF THE OPERATIONS IN RELA TION TO THEM. IT WAS HIGHLIGHTED AND STRESSED THAT THE OBJECTS OF THE COM PANY MUST ALSO BE KEPT IN VIEW TO INTERPRET THE ACTIVITIES. IN SUPPO RT OF THE AFORESAID PROPOSITION NUMBER OF JUDGMENTS OF OTHER JURISDICTION S I.E. PRIVY COUNSEL HOUSE OF LORDS IN ENGLAND AND US COURTS WERE T AKEN NOTE OF. THE POSITION IN LAW ULTIMATELY IS SUMMED UP IN THE F OLLOWING WORDS: - 29 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 AS HAS BEEN ALREADY POINTED OUT IN CONNECTION WITH T HE OTHER TWO CASES WHERE THERE IS A LETTING OUT OF PREMISES AND C OLLECTION OF RENTS THE ASSESSMENT ON PROPERTY BASIS MAY BE CORRECT B UT NOT SO WHERE THE LETTING OR SUB-LETTING IS PART OF A TRAD ING OPERATION. THE DIVING LINE IS DIFFICULT TO FIND; BUT IN THE CASE OF A COMPANY WITH ITS PROFESSED OBJECTS AND THE MANNER OF ITS ACTIVIT IES AND THE NATURE OF ITS DEALINGS WITH ITS PROPERTY IT IS POSSIBLE TO SAY ON WHICH SIDE THE OPERATIONS FALL AND TO WHAT HEAD THE I NCOME IS TO BE ASSIGNED. AFTER APPLYING THE AFORESAID PRINCIPLE TO THE FACTS WHICH WERE THERE BEFORE THE COURT IT CAME TO THE CONCLUSION THAT INC OME HAD TO BE TREATED AS INCOME FROM BUSINESS AND NOT AS INCOME FROM HOUSE PRO PERTY. WE ARE OF THE OPINION THAT THE AFORESAID JUDGMENT IN KARANP URA DEVELOPMENT CO. LTD.'S CASE SQUARELY APPLIES TO THE FACTS OF THE PR ESENT CASE. NO DOUBT IN SULTAN BROTHERS (P) LTD.'S CASE CONSTITUTI ON BENCH JUDGMENT OF THIS COURT HAS CLARIFIED THAT MERELY AN ENTRY IN T HE OBJECT CLAUSE SHOWING A PARTICULAR OBJECT WOULD NOT BE THE DETERMI NATIVE FACTOR TO ARRIVE AT AN CONCLUSION WHETHER THE INCOME IS TO BE T REATED AS INCOME FROM BUSINESS AND SUCH A QUESTION WOULD DEPEND UPON THE CIRCUMSTANCES OF EACH CASE VIZ. WHETHER A PARTICULAR BUSINESS IS LETTING OR NOT. THIS IS SO STATED IN THE FOLLOWING WORDS: - WE THINK EACH CASE HAS TO BE LOOKED AT FROM A BUSINESS MAN'S POINT OF VIEW TO FIND OUT WHETHER THE LETTING WAS TH E DOING OF A BUSINESS OR THE EXPLOITATION OF HIS PROPERTY BY AN OWNE R. WE DO NOT FURTHER THINK THAT A THING CAN BY ITS VERY NATUR E BE A COMMERCIAL ASSET. A COMMERCIAL ASSET IS ONLY AN ASSET USED IN A BUSINESS AND NOTHING ELSE AND BUSINESS MAY BE CARRIED ON WITH PRACTICALLY ALL THINGS. THEREFORE IT IS NOT POSSIBLE T O SAY THAT A PARTICULAR ACTIVITY IS BUSINESS BECAUSE IT IS CONCERNED W ITH AN ASSET WITH WHICH TRADE IS COMMONLY CARRIED ON. WE FIND NOTHING IN THE CASES REFERRED TO SUPPORT THE PROPOSITION THAT CERTAIN ASSETS ARE COMMERCIAL ASSETS IN THEIR VERY NATURE. WE ARE CONSCIOUS OF THE AFORESAID DICTA LAID DOWN IN T HE CONSTITUTION BENCH JUDGMENT. IT IS FOR THIS REASON WE HAVE AT THE BEGINNING OF THIS JUDGMENT STATED THE CIRCUMSTANCES OF THE PRESENT CASE F ROM WHICH WE ARRIVE AT IRRESISTIBLE CONCLUSION THAT IN THIS CASE LE TTING OF THE PROPERTIES IS IN FACT IS THE BUSINESS OF THE ASSESSEE. THE ASSESSEE THERE FORE RIGHTLY DISCLOSED THE INCOME UNDER THE HEAD INCOME FROM BUSINE SS. IT CANNOT BE TREATED AS 'INCOME FROM THE HOUSE PROPERTY'. WE ACCO RDINGLY ALLOW THIS APPEAL AND SET ASIDE THE JUDGMENT OF THE HIGH COURT A ND RESTORE THAT OF THE INCOME TAX APPELLATE TRIBUNAL. NO ORDERS AS TO CO STS. 41. WE FIND SUBSEQUENT TO THE HEARING OF THE APPEAL BEFOR E US THE HONBLE SUPREME COURT IN THE CASE OF M/S. RAYALA CORPORA TION PVT. LTD. VS. ACIT VIDE CIVIL APPEAL NO.6437/2016 ORDER DATED 11-08-2016 FOLLOWING THE DECISION IN THE CASE OF M/S. CHENNA I 30 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 PROPERTIES (SUPRA) HAS DECIDED AN IDENTICAL ISSUE BY HOLDING THAT WHERE THE BUSINESS OF THE COMPANY IS TO LEASE ITS PROPER TY AND TO EARN RENT SUCH RENTAL INCOME HAS TO BE TREATED AS INCO ME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE RELEVANT OBSERVATIONS OF THE HONBLE SUPREME COURT READS AS UNDER : THE APPELLANT-ASSESSEE A PRIVATE LIMITED COMPANY IS H AVING HOUSE PROPERTY WHICH HAS BEEN RENTED AND THE ASSESSEE IS RECEI VING INCOME FROM THE SAID PROPERTY BY WAY OF RENT. THE MAIN ISSUE IN ALL THESE APPEALS IS WHETHER THE INCOME SO RECEIVED SHOULD BE TAX ED UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR PROFIT AND GAI NS OF BUSINESS OR PROFESSION. THE REASON FOR WHICH THE AFORESTATED ISSUE H AS ARISEN IS THAT THOUGH THE ASSESSEE IS HAVING THE HOUSE PROPERTY AND IS R ECEIVING INCOME BY WAY OF RENT THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE COMPANY IS IN BUSINESS OF RENTING ITS PROPERTIES AND IS RE CEIVING RENT AS ITS BUSINESS INCOME THE SAID INCOME SHOULD BE TAXED UND ER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION WHEREAS THE C ASE OF THE REVENUE IS THAT AS THE INCOME IS ARISING FROM HOUSE PROP ERTY THE SAID INCOME MUST BE TAXED UNDER THE HEAD INCOME FROM HOU SE PROPERTY. 1. THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IN THESE APPEALS IS NO MORE RES INTEGRA AS THIS COURT HAS DECIDED IN THE CASE OF CHENNAI PROPERTIES AND INVESTM ENTS LTD. V. COMMISSIONER OF INCOME TAX [2015] 373 ITR 673 (SC) TH AT IF AN ASSESSEE IS HAVING HIS HOUSE PROPERTY AND BY WAY OF BUSINESS HE IS GIVING THE PROPERTY ON RENT AND IF HE IS RECEIVING RENT FROMTHE SAID PROPERTY AS HIS BUSINESS INCOME THE SAID INCOME EVEN IF IN THE NATURE OF RENT SHOULD BE TREATED AS BUSINESS INCOME BECAUSE THE ASSESSEE IS HAVING A BUSINESS OF RENTING HIS PROPERTY AND THE RENT WHICH HE RECEIV ES IS IN THE NATURE OF HIS BUSINESS INCOME. 2. ACCORDING TO THE LEARNED COUNSEL APPEARING FOR THE A SSESSEE THE AFORE- STATED JUDGMENT IN THE CASE OF CHENNAI PROPERTIES (SUPR A) HAS REFERRED TO ALL THE JUDGMENTS ON THE SUBJECT AND MORE PARTICUL ARLY THE JUDGMENT IN THE CASE OF KARANPURA DEVELOPMENT CO. LTD. V. CIT [1962] 44 ITR 362 (SC) WHICH HAS SUMMED UP AS UNDER:- AS HAS BEEN ALREADY POINTED OUT IN CONNECTION WITH T HE OTHER TWO CASES WHERE THERE IS A LETTING OUT OF PREMISES AND C OLLECTION OF RENTS THE ASSESSMENT ON PROPERTY BASIS MAY BE CORRECT B UT NOT SO WHERE THE LETTING OR SUB-LETTING IS PART OF A TRAD ING OPERATION. THE DIVIDING LINE IS DIFFICULT TO FIND; BUT IN THE C ASE OF A COMPANY WITH ITS PROFESSED OBJECTS AND THE MANNER OF ITS ACTIVIT IES AND THE NATURE OF ITS DEALINGS WITH ITS PROPERTY IT IS POSSIBLE TO SAY ON WHICH SIDE THE OPERATIONS FALL AND TO WHAT HEAD THE I NCOME IS TO BE ASSIGNED. 5. THE LEARNED COUNSEL ALSO SUBMITTED THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND EVEN AS PER ITS MEMORANDUM OF ASSOC IATION ITS BUSINESS IS TO DEAL INTO REAL ESTATE AND ALSO TO EARN INC OME BY WAY OF RENT BY LEASING OR RENTING THE PROPERTIES BELONGING TO THE ASSESSEE COMPANY. 31 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 6. THE LEARNED COUNSEL ALSO DREW OUR ATTENTION TO THE FACT THAT THE HIGH COURT AND THE AUTHORITIES BELOW HAD COME TO A SPECIFI C FINDING TO THE EFFECT THAT THE ASSESSEE COMPANY HAD STOPPED ITS OTHER BU SINESS ACTIVITIES AND WAS HAVING ONLY AN ACTIVITY WITH REGAR D TO THE LEASING ITS PROPERTIES AND EARNING RENT THEREFROM. THUS EXCEPT L EASING THE PROPERTIES BELONGING TO THE ASSESSEE COMPANY THE COMPAN Y IS NOT HAVING ANY OTHER BUSINESS AND THE SAID FACT IS NOT IN DI SPUTE AT ALL. 7. FOR THE AFORE-STATED REASONS THE LEARNED COUNSEL SUB MITTED THAT THE IMPUGNED JUDGMENT DELIVERED BY THE HIGH COURT IS NOT PROPER FOR THE REASON THAT THE HIGH COURT HAS DIRECTED THAT THE INCO ME EARNED BY THE APPELLANT ASSESSEE SHOULD BE TREATED AS INCOME FROM HOUSE PROPERTY. 8. ON THE OTHER HAND THE LEARNED COUNSEL APPEARING FOR THE RESPONDENT- REVENUE MADE AN EFFORT TO JUSTIFY THE REASONS GIVEN B Y THE HIGH COURT IN THE IMPUGNED JUDGMENT. THE LEARNED COUNSEL ALSO RELI ED UPON THE JUDGMENT DELIVERED BY THIS COURT IN THE CASE OF M/S. S .G. MERCANTILE CORPN. (P) LTD. V. CIT CALCUTTA (1972) 1 SCC 465. ACCORDING TO HIM THE IMPORTANT QUESTION WHICH WOULD ARISE IN ALL SUCH CASES IS WHETHER THE ACQUISITION OF PROPERTY FOR LEASING AND LETTING OUT A LL THE SHOPS AND STALLS WOULD BE ESSENTIALLY A PART OF BUSINESS AND TRADING OPER ATIONS OF THE ASSESSEE. ACCORDING TO THE LEARNED COUNSEL APPEARING FOR THE REVENUE LEASING AND LETTING OUT OF SHOPS AND PROPERTIES IS NOT T HE MAIN BUSINESS OF THE ASSESSEE AS PER MEMORANDUM OF ASSOCIATION AND THERE FORE THE INCOME EARNED BY THE ASSESSEE SHOULD BE TREATED AS INCOME EARNED FROM HOUSE PROPERTY. HE THEREFORE SUBMITTED THAT THE IMP UGNED JUDGMENT IS JUST LEGAL AND PROPER AND THEREFORE THESE APPEALS SHOU LD BE DISMISSED. 9. UPON HEARING THE LEARNED COUNSEL AND GOING THROUG H THE JUDGMENTS CITED BY THE LEARNED COUNSEL WE ARE OF THE VIEW THA T THE LAW LAID DOWN BY THIS COURT IN THE CASE OF CHENNAI PROPERTIES (SUPRA) SHOWS THE CORRECT POSITION OF LAW AND LOOKING AT THE FACTS OF THE CASE IN QUESTION THE CASE ON HAND IS SQUARELY COVERED BY THE SAID JUDGMENT. 10. SUBMISSIONS MADE BY THE LEARNED COUNSEL APPEARING F OR THE REVENUE IS TO THE EFFECT THAT THE RENT SHOULD BE THE MAIN SOUR CE OF INCOME OR THE PURPOSE FOR WHICH THE COMPANY IS INCORPORATED SHOULD BE TO EARN INCOME FROM RENT SO AS TO MAKE THE RENTAL INCOME TO BE THE INCOME TAXABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT IS AN ADMITTED FACT IN THE INSTANT CASE THAT THE ASSESSEE C OMPANY HAS ONLY ONE BUSINESS AND THAT IS OF LEASING ITS PROPERTY AND EARN ING RENT THEREFROM. THUS EVEN ON THE FACTUAL ASPECT WE DO NO T FIND ANY SUBSTANCE IN WHAT HAS BEEN SUBMITTED BY THE LEARNED COU NSEL APPEARING FOR THE REVENUE. 11. THE JUDGMENT RELIED UPON BY THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE SQUARELY COVERS THE FACTS OF THE CASE INVOLVED IN THE APPEALS. THE BUSINESS OF THE COMPANY IS TO LEASE ITS PROPERTY AND TO EARN RENT AND THEREFORE THE INCOME SO EARNED SHOULD BE TREATED AS I TS BUSINESS INCOME. 12. IN VIEW OF THE LAW LAID DOWN BY THIS COURT IN TH E CASE OF CHENNAI PROPERTIES (SUPRA) AND LOOKING AT THE FACTS OF THESE AP PEALS IN OUR OPINION THE HIGH COURT WAS NOT CORRECT WHILE DECIDI NG THAT THE INCOME OF THE ASSESSEE SHOULD BE TREATED AS INCOME FROM HOUSE PR OPERTY. 32 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 13. WE THEREFORE SET ASIDE THE IMPUGNED JUDGMENTS AN D ALLOW THESE APPEALS WITH NO ORDER AS TO COSTS. WE DIRECT THAT THE I NCOME OF THE ASSESSEE SHALL BE SUBJECT TO TAX UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION. 42. AS MENTIONED EARLIER THE MAIN OBJECTS OF THE ASSESSE E COMPANY IS TO CARRY ON THE BUSINESS OF WAREHOUSING COLD STORAGE AND REFRIGERATION TO PROVIDE FACILITIES AND GODOWNS FOR PROPE R AND SAFE STORING OF VALUABLE AGRICULTURAL AND HORTICULTURAL PRODUC E AND TO PROVIDE GODOWNS AND WAREHOUSING FACILITIES FOR GOODS OF ALL DESCRIPTION OF AGRICULTURAL AND ALLIED PRODUCTS. SIMILARLY THE OTHE R OBJECTS OF THE ASSESSEE COMPANY ALSO PROVIDE TO LET ON LEASE OR HIRE THE WHOLE OR ANY PART OF THE REAL AND PERSONAL PROPERT Y OF THE ASSESSEE COMPANY. WE THEREFORE RESPECTFULLY FOLLOWING THE ABOVE TWO DECISIONS OF THE HONBLE SUPREME COURT CITED (SUPRA) H OLD THAT THE LEASE INCOME RECEIVED BY THE ASSESSEE ON ACCOUNT O F LET OUT OF THE WAREHOUSES/GODOWNS AS PROFITS AND GAINS FROM BUSINESS OR PROFESSION. WE THEREFORE SET ASIDE THE ORDER OF THE CIT (A) AND DIRECT THE AO TO TREAT THE LEASE RENTALS RECEIVED BY THE ASSE SSEE COMPANY FROM HINDUSTAN LEVER LTD. AS BUSINESS INCOME. 43. SINCE THE ASSESSEE SUCCEEDS ON THIS ISSUE THE GROUN DS OF APPEAL NO.3 AND 4 BY THE ASSESSEE COMPANY BECOME ACAD EMIC IN NATURE AND THEREFORE ARE NOT BEING ADJUDICATED. 44. IDENTICAL GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE IN THE APPEALS FOR A.YRS. 2002-03 TO 2006-07 AND 2008-09. FOLLOW ING THE SAME REASONINGS THE GROUNDS RAISED BY THE ASSESSEE IN APPEALS FOR A.YRS. 2002-03 TO 2006-07 AND 2008-09 ON THIS ISSUE ARE ALLOWED. 33 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 45. THE SECOND ISSUE RAISED BY THE ASSESSEE IN THE GROU NDS OF APPEAL WHICH ARE COMMON FOR A.Y. 2000-01 AND 2002-03 TO 2004-05 RELATES TO REOPENING OF THE ASSESSMENT U/S.147 IN ABSENC E OF ANY TANGIBLE MATERIAL. 46. FACTS OF THE CASE IN BRIEF ARE THAT T HE WAREHOUSING RECEIPTS WITH THE LEASE CHARGES WERE ASSESSED AS BUSINESS INCOME RIGHT FROM 1973-74 TO 1999-2000. IN A.Y. 1994-95 TO 1996-97 FOR T HE FIRST TIME THE AO ASSESSED THE LEASE CHARGES ONLY AS PROPERTY IN COME. THE TRIBUNAL HOWEVER ALLOWED THE ASSEESSEE'S APPEAL. THEREAFT ER IN THE A.Y. 2001-02 THE AO AGAIN ASSESSED THE LEASE CHARGES AS PROPERTY INCOME . THE CIT(A) HELD THAT EVEN THE WAREHOUSING RECEIPTS ALSO B E ASSE S SED AS PROPERTY INCOME. THE TRIBUNAL CONFIRMED THE ORDER OF CIT(A) ASSESSEE PREFERRED APPEAL BEFORE HONBLE BOMBAY HIG H COURT WHICH BY ITS ORDER DATED 18 . 02 . 2010 SET ASIDE THE ISSUE AND DIRECTED THE AO TO DECIDE THE SAME IN LINE WITH THE DIRECTIONS MEN TIONED THEREIN. MEANWHILE THE REASSESSMENT ORDERS OF A.YS 2000-01 2002- 03 TO 2008-09 WERE ALSO SET ASIDE BY THE TRIBUNAL RELYIN G ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT AND DIRECTING TH E AO TO DECIDE THE ISSUE ACCORDINGLY. THE TRIBUNAL ALSO DIRECTED THE AO TO DECIDE THE ISSUE OF VALIDITY OF REOPENING OF A Y S OF 2000-01 2002-03 2003-04 & 2004-05. 47. THE AO IN ORDER TO ASSESS THE ENTIRE RECEIPTS BOTH WAREHOUSING AND LEASE CHARGES AS PROPERT Y INCOME HAD ISSUED THE NOTICES U/S. 148 FOR A.Y. 2000-01 2002-03 TO 2004-05 . THE AO PROVIDED THE REASONS FOR ISSUING THE NOTICES U/S 148. THE ASSESSEE RAISED THE OBJECTIONS FOR THE REASONS RECORDED . THE AO REJECTING THE OBJECTIONS JUSTIFIED THE REOPENING OF THE ASSESSMENTS ON THE GROUND 34 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 THAT THE RETURNS OF ALL THESE ASSESSMENT YEARS WERE PR OCESSED U/S. 143(1). AO RELIED ON THE DECISION OF SUPREME COURT IN THE CA SE OF RAJESH JAVERI STOCK BROKERS P LTD. - 291 ITR 500. IN AP PEAL THE LD.CIT(A) UPHELD THE ACTION OF THE AO IN REOPENING THE ASSE SSMENTS WHICH WERE COMPLETED U/S.143(1). 48. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL TH E DETAILS RELATING TO WAREHOUSING RECEIPTS INCLUSIVE OF LEASE CHARGES HAVE BEEN TRULY AND FULLY DISCLOSED IN THE RETURNS OF INCOME SUPPOR TED WITH THE STATUTORY AND TAX AUDIT REPORTS. ACCORDING TO HIM THE REASONS ARE DERIVED ONLY FROM THESE PARTICULARS FULLY FURNISHED WITH THE RETURN OF INCOME. THEREFORE THERE IS ABSOLUTELY NO FRESH OR NEW TAN GIBLE MATERIAL POSSESSED BY THE AO TO JUSTIFY THE ISSUE OF NOT ICE U/S. 148. THEREFORE REOPENING IS INVALID. FOR THE ABOVE PROPOSITION H E RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF K ELVINATOR OF INDIA LTD. REPORTED IN 320 ITR 561. 49. SO FAR AS THE AO'S RELIANCE ON THE DECISION OF RAJESH JAVERI STOCK BROKERS IS CONCERNED HE SUBMITTED THAT THE SAME IS MISPLACED. HE SUBMITTED THAT THE VALIDITY IS NOT CHALLENGED ON THE GROUND OF CHANGE OF OPINION BUT THE GROUND THAT NO NEW TANGIBLE MATERIAL HAS BEEN POSSESSED BY THE AO. THE LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT IN FOLLOWING DECISIONS THIS PROPOSITION HAS BEEN LAID DOWN BY DISTINGUISHING THE RATIO DECIDED IN RAJESH JAVERI STOCK BROKER'S CASE : 1. H. V. TRANSMISSION LTD. VS. ACIT ITA NO.2230/MUM/20 10 ORDER DATED 07-10-2011 2. TELCO DADAJEE DHACKJEE LTD. VS. DCIT ITA NO.4613/MUM/2005 3. PARVEEN P. BHARUCHA VS. DCIT AND ANOTHER REPORTED IN 348 ITR 325 35 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 4. D.T.T.D.C. VS. DCIT REPORTED IN - 350 ITR 216 5. ORIENT CRAFT ITA NO.555/2012 ORDER DATED 12-12 -2012 DELHI HIGH COURT 50. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF CIT(A). HE SUBMITTED THAT A SSESSMENTS FOR THE ABOVE FOUR YEARS HAVE BEEN COMPLETED U/S.143(1). THEREFORE IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CA SE OF RAJESH JHAVERI STOCK BROKERS PVT. LTD. REPORTED IN 291 I TR 500 THE CIT(A) WAS JUSTIFIED IN UPHOLDING THE REASSESSMENT PROCEEDINGS. 51. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH SIDES PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PA PER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE V ARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSMENTS FOR THE A.Y. 2000-01 AND 2002-03 TO 2004-05 WERE COMPLETED U/S.143 (1). THE AO REOPENED THE ASSESSMENTS U/S.148 ON THE GROUND TH AT THE ENTIRE RECEIPTS OF WAREHOUSING OF LEASE CHARGES HAS TO BE ASSE SSED AS INCOME FROM PROPERTY AS AGAINST BUSINESS INCOME TREATED BY THE ASSESSEE. THE ASSESSEE CHALLENGED THE VALIDITY OF THE REA SSESSMENT PROCEEDINGS. THE LD.CIT(A) FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKE RS PVT. LTD. (SUPRA) UPHELD THE REASSESSMENT PROCEEDINGS INITIATED BY T HE AO. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN ABSENCE OF ANY TANGIBLE MATERIAL AVAILABLE WITH THE AO HE CANNOT REO PEN THE ASSESSMENTS SINCE ALL MATERIAL FACTS WERE ALREADY THERE ON RECORD. IT IS THE SUBMISSION OF THE LD. DEPARTMENTAL REPRESENTATIVE T HAT THE ASSESSMENTS FOR THE ABOVE FOUR YEARS HAVE BEEN COMPLET ED U/S.143(1). THEREFORE IN VIEW OF THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS PVT. LTD. REPORTED 36 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 IN 291 ITR 500 THE CIT(A) WAS JUSTIFIED IN UPHOLDING THE REASSESSMENT PROCEEDINGS. 52. WE FIND MERIT IN THE ARGUMENTS OF THE LD. COUNSEL FOR TH E ASSESSEE THAT IN THE ABSENCE OF ANY TANGIBLE MATERIAL THE AO CANNOT REOPEN THE ASSESSMENT U/S.147 EVEN WHEN THE ASSESSME NT HAS BEEN COMPLETED U/S.143(1). WE FIND THE MUMBAI BENCH OF THE TRIB UNAL IN THE CASE OF H.V. TRANSMISSION LTD. (SUPRA) HAS HELD THAT REASSESSMENT PROCEEDINGS INITIATED BY THE AO IN ABSENCE OF ANY TANGIBLE MATERIAL BEFORE HIM IS INVALID EVEN THOUGH THE ASSES SMENTS HAVE BEEN COMPLETED ORIGINALLY U/S.143(1). THE RELEVANT OBS ERVATION OF THE TRIBUNAL FROM PARA 8 ONWARDS READ AS UNDER : 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PE RUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSMENT COMPLETED IN THIS CASE ORIGINALLY U/S 143(1) WAS REOPEN ED BY THE AO FOR THE FOLLOWING REASONS RECORDED U/S 148(2) : FROM THE BALANCE SHEET ANNEXURE 11 IT IS SEEN THAT ASSESSEE HAS INCURRED EXPENSES TOWARDS ENTERPRISE RESOURCE PLANNING SOFTWARE AMOUNTING TO RS.95 14 000/-. IN THE ACCOUNTS THE ASSESSEE HAS DEBITED 25% OF THIS AM OUNT I.E. 23 78 500/- WHEREAS IN THE COMPUTATION OF INCOME TH E ASSESSEE HAS CLAIMED ENTIRE AMOUNT OF RS.95 14 000/- AS A DEDUC TION. THE EXPENSE INCURRED BY THE ASSESSEE TOWARDS ENTERPRISE RESOUR CE PLANNING SOFTWARE IS PAYMENT FOR ACQUISITION OF SOFTWA RE WHICH IS CAPITAL IN NATURE AND HENCE THE ASSESSEES CLAIM OF THE SAME AS REVENUE EXPENSES IS NOT ALLOWABLE. AS IS CLEARLY EVIDENT FROM THE REASONS RECORDED BY THE AO THERE WAS NO NEW MATERIAL COMING TO THE POSSESSION OF THE AO ON THE BASIS OF WHICH THE ASSESSMENT COMPLETED U/S 143(1) WAS REOPENED AND THIS POSITION HAS NOT BEEN DISPUTED EVEN BY THE LEARNED DR. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI S TOCK BROKERS (P) LTD. (SUPRA) HE HOWEVER HAS CONTENDED THAT THE REO PENING OF ASSESSMENT COMPLETED ORIGINALLY U/S 143(1) IS PERMISSIBLE W ITHOUT THERE BEING ANY NEW MATERIAL COMING TO THE POSSESSION O F THE AO IF THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT ARE OT HERWISE VALID. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND HAS RELIED ON THIRD MEMBER DECISION OF THE TRIBUNAL IN THE CASE OF TELCO DADAJI DHACKJEE LTD. (SUPRA) STATING THAT A SIMILAR ISSUE INVO LVED IN THE SAID CASE HAS BEEN DECIDED BY THE THIRD MEMBER IN FAVOUR O F THE ASSESSEE AFTER TAKING INTO CONSIDERATION THE DECISION OF HONB LE SUPREME COURT IN 37 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. (SUPR A) RELIED UPON BY THE LEARNED DR. IN THE SAID CASE THE RETURN FILED B Y THE ASSESSEE WAS ORIGINALLY ACCEPTED U/S 143(1). IN THE SAID RETURN TH E ASSESSEE HAD CLAIMED DEDUCTION FOR PAYMENT OF NON-COMPETE FEES OF RS.75 LAKHS WHICH INCLUDED PAYMENT OF RS.15 LAKHS TOWARDS DIRECTOR S. THE ASSESSEE HAD ALSO CLAIMED DEPRECIATION OF RS.1 41 858/- ON LEA SE PREMISES. THE AO ISSUED NOTICE U/S 148 ON THE GROUND THAT THESE WERE NOT ALLOWABLE EXPENSES AND INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSME NT. HE ACCORDINGLY DISALLOWED BOTH THE ITEMS IN THE REASSESSMENT ORDER. WHEN THE MATTER REACHED TO THE TRIBUNAL THE LEARNED JUD ICIAL MEMBER TOOK THE VIEW THAT THERE WAS NO FRESH MATERIAL TO SUPPORT THE F ORMATION OF THE BELIEF OF THE AO THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT AND IN THE ABSENCE OF ANY FRESH TANGIBLE MATERIAL H E CAME TO THE CONCLUSION THAT IT WAS NOT PERMISSIBLE FOR THE AO TO RE OPEN THE ASSESSMENT. THE LEARNED ACCOUNTANT MEMBER HOWEVER TOO K A DIFFERENT VIEW RELYING ON THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. (SUPRA) AND THE MATTER THEREFORE WAS REFERRED TO A THIRD MEMBER FOR RESOLVING INTER AL IA THE FOLLOWING POINT OF DIFFERENCE: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE PROCEE DINGS INITIATED BY THE AO U/S 147 IS LIABLE TO BE CONFIRMED OR QUASHED WHEN THERE WAS NO FRESH MATERIAL AVAILABLE WITH THE A O AND THE ASSESSMENT HAD BEEN COMPLETED ORIGINALLY U/S 143(1). THE THIRD MEMBER AGREED WITH THE VIEW TAKEN BY THE LEARNED JUDICIAL MEMBER RELYING MAINLY ON THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA) AND EICHER L TD. 320 ITR 561. IT WAS HELD BY THE THIRD MEMBER THAT SECTION 147 APPLIES BOTH TO SECTION 143(1) AS WELL AS SECTION 143(3) AND THEREFORE EXCEP T TO THE EXTENT THAT A REASSESSMENT NOTICE ISSUED U/S 148 IN A CASE WHERE THE OR IGINAL ASSESSMENT WAS MADE U/S 143(1) CANNOT BE CHALLENGED ON TH E GROUND OF A MERE CHANGE OF OPINION STILL IT IS OPEN TO AN ASSESSEE TO CHALLENGE THE NOTICE ON THE GROUND THAT THERE IS NO REASON TO BELIE VE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. AS REGARDS THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI S TOCK BROKERS (P) LTD. (SUPRA) CITED BY THE REVENUE AND RELIED UPON BY THE ACCOUNTANT MEMBER THE THIRD MEMBER HELD THAT THE SAME WAS APPLI CABLE IN CASES WHERE THE RETURN WAS PROCESSED U/S 143(1) BUT LATER ON NOTICE WAS ISSUED U/S 148 AND THE ASSESSEE CHALLENGES THE NOTICE ON TH E GROUND THAT IT IS PROMPTED BY A MERE CHANGE OF OPINION. THE THIR D MEMBER THEN REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA (SUPRA) WHEREIN IT WAS HELD THAT THERE SHOULD BE TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT I NCOME HAD ESCAPED ASSESSMENT. RELYING ON THE SAID DECISION IT WAS HELD BY T HE THIRD MEMBER THAT WHILE RESORTING TO SECTION 147 EVEN IN A CASE WHERE ONLY AN INTIMATION HAD BEEN ISSUED U/S 143(1)(A) IT IS ESSENTI AL THAT THE AO SHOULD HAVE BEFORE HIM TANGIBLE MATERIAL JUSTIFYING H IS REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. SINCE THERE WAS NO SUC H TANGIBLE MATERIAL BEFORE THE AO FROM WHICH HE COULD ENTERTAI N THE BELIEF THAT INCOME OF THE ASSESSEE CHARGEABLE TO TAX HAD ESCAPED ASSE SSMENT THE THIRD MEMBER HELD THAT REASSESSMENT PROCEEDINGS INITIATE D BY THE AO WERE LIABLE TO BE QUASHED ON THE GROUND THAT THERE WAS NO TANGIBLE MATERIAL BEFORE THE AO EVEN THOUGH THE ASSESSMENT WAS CO MPLETED ORIGINALLY U/S 143(1). IN OUR OPINION THE THIRD MEM BER DECISION OF THE 38 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 TRIBUNAL IN THE CASE OF TELCO DADAJI DHACKJEE LTD. ( SUPRA) IS SQUARELY APPLICABLE IN THE PRESENT CASE AND RESPECTFULLY FOLLOW ING THE SAME WE HOLD THAT THE INITIATION OF REASSESSMENT PROCEEDINGS BY THE AO ITSELF WAS BAD IN LAW AND THE REASSESSMENT COMPLETED IN PURSUANCE T HEREOF IS LIABLE TO BE QUASHED BEING INVALID. WE ORDER ACCORDI NGLY AND ALLOW GROUND NO.1 OF THE ASSESSEES APPEAL. 9. AS A RESULT OF OUR DECISION RENDERED ABOVE ON THE P RELIMINARY ISSUE QUASHING/CANCELLING THE ASSESSMENT MADE BY THE AO U/S 14 3(3) READ WITH SECTION 147 THE OTHER ISSUES RAISED IN THE APPEALS OF THE ASSESSEE AND THE REVENUE IN RESPECT OF ADDITIONS MADE IN THE SA ID ASSESSMENT HAVE BECOME INFRUCTUOUS AND WE DO NOT DEEM IT NECESSAR Y OR EXPEDIENT TO DECIDE THE SAME. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. 53. WE FIND THE HONBLE DELHI HIGH COURT IN THE CASE OF ORI ENT CRAFT (SUPRA) HAS ALSO DECIDED AN IDENTICAL ISSUE HOLDING THAT IN ABSENCE OF ANY TANGIBLE MATERIAL WHICH CAME TO THE POSSES SION OF THE AO SUBSEQUENT TO THE ISSUE OF INTIMATION REASSESSMENT PR OCEEDINGS INITIATED U/S.147 IS BAD IN LAW. IN THAT CASE ALSO THE ASSE SSEE FILED ITS RETURN OF INCOME ON 31-10-2012 DECLARING TOTAL INCOME OF RS.45 35 395/-. RETURN WAS PROCESSED U/S.143(1) ON 27-02 -2002 BY ACCEPTING THE RETURNED INCOME. IN THE SAID RETURN CLAIM OF RS.8 74 20 642/- WAS MADE U/S.80HHC AND RS.13 35 65 316/- U/S.10B THE ASSESSEE WAS A 100% EXPORT ORIENTED UNIT U NDERTAKING AND WAS ENTITLED TO SUBSTANTIAL AMOUNTS AS DUTY DRAWBAC K DEPB PREMIUM ETC. WHICH WERE DECLARED IN THE PROFIT AND LOSS ACC OUNT. THE AO ISSUED A NOTICE U/S.148 ON 15-08-2005 ON THE GR OUND THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. ACCO RDING TO THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT THE A SSESSEE WAS WRONG IN TREATING THE PROCEEDS OF SALE OF QUOTA AS PART OF THE EXPORT TURNOVER FOR CLAIMING DEDUCTION U/S.80HHC. IN THE OPINION O F THE AO THE SALE PROCEEDS OF THE QUOTA CANNOT BE CONSIDERED AS EXPORT TURNOVER BUT REPRESENTED BUSINESS INCOME COVERED U/S .28 (IV) AND 39 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 HAD TO BE REDUCED TO THE EXTENT OF 90% FROM THE BUSIN ESS INCOME AS TREATED BY EXPLANATION (BAA) TO SECTION 80HHC. NOT DOING SO RESULTED IN EXCESSIVE ALLOWANCE OF DEDUCTION U/S.80HHC AND CONSEQUENTLY IN ESCAPEMENT OF INCOME CHARGEABLE TO TAX. THE ASSESSEE FILED RETURN IN RESPONSE TO NOTICE U/S.148. HE A LSO ASKED FOR THE REASONS AND FILED OBJECTIONS THEREAFTER. THE AO R EJECTED SUCH OBJECTIONS AND COMPLETED THE ASSESSMENT BY MAKING CERT AIN ADDITIONS. THE ASSESSEE CHALLENGED THE VALIDITY OF THE REAS SESSMENT PROCEEDINGS BEFORE CIT(A). THE LD.CIT(A) REJECTED THE GROU ND RELATING TO VALIDITY OF THE REASSESSMENT PROCEEDINGS BUT DECIDED T HE APPEAL ON MERIT IN FAVOUR OF THE ASSESSEE. BOTH THE ASSESSEE AND REVENUE FILED APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE CHALLENGED THE J URISDICTION OF THE AO TO REOPEN THE ASSESSMENT U/S.147 AND ALSO CE RTAIN ISSUES ON MERIT WHICH WAS DECIDED AGAINST IT BY THE CIT(A). THE R EVENUE FILED APPEAL ON THE POINT ON WHICH THE CIT(A) HAD GIVEN RELIE F TO THE ASSESSEE. THE TRIBUNAL FOLLOWING THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. REPO RTED IN 320 ITR 561 HELD THAT SINCE THERE WAS NO TANGIBLE MATERIAL A VAILABLE WITH THE AO TO FORM THE REQUISITE BELIEF OF ESCAPEMENT OF INCOME THE REOPENING OF THE COMPLETED ASSESSMENT IS UNSUSTAINABLE IN THE EYE OF LAW. ACCORDINGLY THE SAME WAS CANCELLED. SINCE THE ASSES SEE SUCCEEDED ON THIS POINT THE TRIBUNAL DID NOT EXAMINE THE MERIT OF THE DISALLOWANCES/ADDITIONS MADE IN THE ASSESSMENT YEAR. 54. THE REVENUE APPROACHED THE HONBLE HIGH COURT WITH THE FOLLOWING SUBSTANTIAL QUESTION OF LAW : WAS THE TRIBUNAL RIGHT IN LAW IN HOLDING THAT IN TH E ABSENCE OF ANY TANGIBLE MATERIAL AVAILABLE WITH THE ASSESSING OFFICER TO FORM THE REQUISITE BELIEF REGARDING ESCAPEMENT OF INCOME THE REOPENING OF THE ASSESSMENT MADE UNDER SECTION 143(1) IS BAD IN LAW? 40 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 55. THE HONBLE HIGH COURT AFTER CONSIDERING VARIOUS DECISIO NS OBSERVED HAS AS UNDER : 13. HAVING REGARD TO THE JUDICIAL INTERPRETATION P LACED UPON THE EXPRESSION REASON TO BELIEVE AND THE CONTINUED USE O F THAT EXPRESSION RIGHT FROM 1948 TILL DATE WE HAVE TO UNDERSTAND THE MEANING OF THE EXPRESSION IN EXACTLY THE SAME MANNER IN WHICH IT HAS B EEN UNDERSTOOD BY THE COURTS. THE ASSUMPTION OF THE REVENUE THAT SOMEH OW THE WORDS REASON TO BELIEVE HAVE TO BE UNDERSTOOD IN A LIBERA L MANNER WHERE THE FINALITY OF AN INTIMATION UNDER SECTION 143(1) IS SOU GHT TO BE DISTURBED IS ERRONEOUS AND MISCONCEIVED. AS POINTED OUT EARLIER THERE IS NO WARRANT FOR SUCH AN ASSUMPTION BECAUSE OF THE LANGUAGE EMPLOYED IN SECTION 147; IT MAKES NO DISTINCTION BETWEEN AN ORDER PASSED UNDER SECTION 143(3) AND THE INTIMATION ISSUED UNDER SECTION 143(1). THEREFORE IT IS NOT PERMISSIBLE TO ADOPT DIFFERENT STAN DARDS WHILE INTERPRETING THE WORDS REASON TO BELIEVE VIS--VIS SECTION 143(1) AND SECTION 143(3). WE ARE UNABLE TO APPRECIATE WHAT PE RMITS THE REVENUE TO ASSUME THAT SOMEHOW THE SAME RIGOROUS STANDARDS WHICH A RE APPLICABLE IN THE INTERPRETATION OF THE EXPRESSION WH EN IT IS APPLIED TO THE REOPENING OF AN ASSESSMENT EARLIER MADE UNDER SECTI ON 143(3) CANNOT APPLY WHERE ONLY AN INTIMATION WAS ISSUED EARL IER UNDER SECTION 143(1). IT WOULD IN EFFECT PLACE AN ASSESSEE IN WHOSE CA SE THE RETURN WAS PROCESSED UNDER SECTION 143(1) IN A MORE VULNERABLE P OSITION THAN AN ASSESSEE IN WHOSE CASE THERE WAS A FULL-FLEDGED SCRUTINY A SSESSMENT MADE UNDER SECTION 143(3). WHETHER THE RETURN IS PUT TO SCRUTINY OR IS ACCEPTED WITHOUT DEMUR IS NOT A MATTER WHICH IS WITHI N THE CONTROL OF ASSESSEE; HE HAS NO CHOICE IN THE MATTER. THE OTHER CONSE QUENCE WHICH IS SOMEWHAT GRAVER WOULD BE THAT THE ENTIRE RIGOROUS PROCEDURE INVOLVED IN REOPENING AN ASSESSMENT AND THE BURDEN OF P ROVING VALID REASONS TO BELIEVE COULD BE CIRCUMVENTED BY FIRST ACCE PTING THE RETURN UNDER SECTION 143(1) AND THEREAFTER ISSUE NOTICES TO R EOPEN THE ASSESSMENT. AN INTERPRETATION WHICH MAKES A DISTINCTION B ETWEEN THE MEANING AND CONTENT OF THE EXPRESSION REASON TO BELIE VE IN CASES WHERE ASSESSMENTS WERE FRAMED EARLIER UNDER SECTION 143( 3) AND CASES WHERE MERE INTIMATIONS WERE ISSUED EARLIER UNDER SECTI ON 143(1) MAY WELL LEAD TO SUCH AN UNINTENDED MISCHIEF. IT WOULD BE DISCRIMINATORY TOO. AN INTERPRETATION THAT LEADS TO ABSURD RESULTS OR MISCHI EF IS TO BE ESCHEWED. 14. CERTAIN OBSERVATIONS MADE IN THE DECISION OF RAJESH JHAVERI (SUPRA) ARE SOUGHT TO BE RELIED UPON BY THE REVENUE TO POINT OUT THE DIFFERENCE BETWEEN AN ASSESSMENT AND AN INTIMATION. THE CONTE XT IN WHICH THOSE OBSERVATIONS WERE MADE HAS TO BE KEPT IN MIND. TH EY WERE MADE TO POINT OUT THAT WHERE AN INTIMATION IS ISSUED UND ER SECTION 143(1) THERE IS NO OPPORTUNITY TO THE ASSESSING AUTHORITY TO FO RM AN OPINION AND THEREFORE WHEN ITS FINALITY IS SOUGHT TO BE DISTURBED BY ISSUING A NOTICE UNDER SECTION 148 THE PROCEEDINGS CANNOT BE CHALLENG ED ON THE GROUND OF CHANGE OF OPINION. IT WAS NOT OPINED BY THE SUP REME COURT THAT THE STRICT REQUIREMENTS OF SECTION 147 CAN BE COMPROMISED. ON THE CONTRARY FROM THE OBSERVATIONS (QUOTED BY US EARLIER) IT WOULD APPEAR CLEAR THAT THE COURT REITERATED THAT SO LONG AS THE INGREDIENTS OF SECTION 147 ARE FULFILLED AN INTIMATION ISSUED UNDER SECTION 143(1) C AN BE SUBJECTED TO 41 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 PROCEEDINGS FOR REOPENING. THE COURT ALSO EMPHASISED TH AT THE ONLY REQUIREMENT FOR DISTURBING THE FINALITY OF AN INTIMA TION IS THAT THE ASSESSING OFFICER SHOULD HAVE REASON TO BELIEVE THAT IN COME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN OUR OPINION THE SAID EXPRESSION SHOULD APPLY TO AN INTIMATION IN THE SAME MANNER AND SUBJECT TO THE SAME INTERPRETATION AS IT WOULD HAVE APPLIED TO AN A SSESSMENT MADE UNDER SECTION 143(3). THE ARGUMENT OF THE REVENUE TH AT AN INTIMATION CANNOT BE EQUATED TO AN ASSESSMENT RELYING UPON CERTAI N OBSERVATIONS OF THE SUPREME COURT IN RAJESH JHAVERI (SUPRA) WOULD ALSO APPEAR TO BE SELF-DEFEATING BECAUSE IF AN INTIMATION IS NOT AN ASSESSMENT THEN IT CAN NEVER BE SUBJECTED TO SECTION 147 PROCEEDINGS FOR THAT SECTION COVERS ONLY AN ASSESSMENT AND WE WONDER IF THE REVENUE WOULD BE PREPARED TO CONCEDE THAT POSITION. IT IS NOBODYS CASE THAT AN INTIMATION CANNOT BE SUBJECTED TO SECTION 147 PROCE EDINGS; ALL THAT IS CONTENDED BY THE ASSESSEE AND QUITE RIGHTLY IS THAT IF THE REVENUE WANTS TO INVOKE SECTION 147 IT SHOULD PLAY BY THE RULES OF T HAT SECTION AND CANNOT BOG DOWN. IN OTHER WORDS THE EXPRESSION REASON TO BELIEVE CANNOT HAVE TWO DIFFERENT STANDARDS OR SETS OF MEANING ONE APPLICABLE WHERE THE ASSESSMENT WAS EARLIER MADE UNDER SECTION 143(3 ) AND ANOTHER APPLICABLE WHERE AN INTIMATION WAS EARLIER I SSUED UNDER SECTION 143(1). IT FOLLOWS THAT IT IS OPEN TO THE ASSESSEE TO CON TEND THAT NOTWITHSTANDING THAT THE ARGUMENT OF CHANGE OF OPIN ION IS NOT AVAILABLE TO HIM IT WOULD STILL BE OPEN TO HIM TO C ONTEST THE REOPENING ON THE GROUND THAT THERE WAS EITHER NO REASON TO BEL IEVE OR THAT THE ALLEGED REASON TO BELIEVE IS NOT RELEVANT FOR THE FOR MATION OF THE BELIEF THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN DOING SO IT IS FURTHER OPEN TO THE ASSESSEE TO CHALLENGE THE REASONS R ECORDED UNDER SECTION 148(2) ON THE GROUND THAT THEY DO NOT MEET T HE STANDARDS SET IN THE VARIOUS JUDICIAL PRONOUNCEMENTS. 14. IN THE PRESENT CASE THE REASONS DISCLOSE THAT THE ASSESSI NG OFFICER REACHED THE BELIEF THAT THERE WAS ESCAPEMENT OF INCOM E ON GOING THROUGH THE RETURN OF INCOME FILED BY THE ASSESSEE AFT ER HE ACCEPTED THE RETURN UNDER SECTION 143(1) WITHOUT SCRUTINY AND NO THING MORE. THIS IS NOTHING BUT A REVIEW OF THE EARLIER PROCEEDINGS AND AN ABUSE OF POWER BY THE ASSESSING OFFICER BOTH STRONGLY DEPRECATED BY TH E SUPREME COURT IN CIT VS. KELVINATOR (SUPRA). THE REASONS RECORDED BY THE ASSESSING OFFICER IN THE PRESENT CASE DO CONFIRM OUR APPREHENSIO N ABOUT THE HARM THAT A LESS STRICT INTERPRETATION OF THE WORDS REASON T O BELIEVE VIS--VIS AN INTIMATION ISSUED UNDER SECTION 143(1) CAN CAUSE TO THE TAX REGIME. THERE IS NO WHISPER IN THE REASONS RECORDED OF ANY TAN GIBLE MATERIAL WHICH CAME TO THE POSSESSION OF THE ASSESSING OFFICER SUBSEQ UENT TO THE ISSUE OF THE INTIMATION. IT REFLECTS AN ARBITRARY EXER CISE OF THE POWER CONFERRED UNDER SECTION 147. 15. FOR THE ABOVE REASONS WE ANSWER THE SUBSTANTIAL QUE STION OF LAW FRAMED BY US IN THE AFFIRMATIVE IN FAVOUR OF THE ASSE SSEE AND AGAINST THE REVENUE. THE APPEAL OF THE REVENUE IS ACCORDINGLY DI SMISSED. THERE SHALL BE NO ORDER AS TO COSTS. 56. SINCE IN THE INSTANT CASE ALSO ALL MATERIAL FACTS WERE ALR EADY THERE ON RECORD AND NO TANGIBLE MATERIAL WAS AVAILABLE BEFO RE THE AO 42 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 THEREFORE RESPECTFULLY FOLLOWING THE ABOVE DECISIONS CITED (SU PRA) WE HOLD THAT THE REASSESSMENT PROCEEDINGS INITIATED BY THE AO ARE BAD IN LAW. ACCORDINGLY THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE FOR THE ABOVE FOUR ASSESSMENT YEARS ARE ALLOWED. 57. GROUND OF APPEAL NO.5 BY THE ASSESSEE READS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) HAS ERRED IN DISALLOWING THE SERVICE CHARGES OF RS.23 27 59 2/- MADE TO SHRI INDUSTRIAL SERVICES BY INVOKING THE PROVISION OF SECTIO N 40A(2)(B) OF THE ACT. 58. FACTS OF THE CASE IN BRIEF ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS P AID SERVICES CHARGES OF RS.27 02 000/- TO SHRI INDUSTRIAL SUPPLIERS WHICH IS THE PROPRIETARY CONCERN OF MR.G.M. NAVLAKHA DIRECTOR OF THE ASS ESSEE COMPANY. HE NOTED THAT THE SERVICE CHARGES HAS BEEN PAID FOR PROVIDING ALL THE INDUSTRIAL SERVICES SUCH AS LOADING UNLOADING SECURITY ETC. THE AO APPLYING THE PROVISION OF SECTION 40A(2 )(B) DISALLOWED AN AMOUNT OF RS.13 51 000/- BEING 50% OF SUCH SER VICE CHARGES. IN APPEAL THE LD.CIT(A) REFERRING TO THE PROFIT A ND LOSS ACCOUNT OF SHRI INDUSTRIAL SUPPLIERS FOUND THAT IT HAD EAR NED NET PROFIT OF RS.23 61 629/- WHICH WORKS OUT TO 87.42% OF SUCH R ECEIPTS. THEREFORE THE CIT(A) HELD THAT THERE WAS NO BASIS FOR PAY MENT OF SERVICE CHARGES. HE TREATED THE NET PROFIT AT 10% AND HELD THAT REASONABLE EXPENDITURE THAT THE ASSESSEE CAN CLAIM IS O NLY RS.3 74 408/- AS AGAINST RS.13 51 000/- DISALLOWED BY THE AO. HE ACCORDINGLY ENHANCED THE DISALLOWANCE BY RS.9 76 592/-. 59. AGGRIEVED WITH SUCH ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 43 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 60. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS APPROACH OF THE CIT(A) IS DEVOID OF ANY MERIT AND LAW. THE REASONA BILITY HAS TO BE DECIDED ON THE BASIS OF THE FAIR MARKET VALUE OF THE GO ODS AND SERVICES ETC AND NOT ON THE BASIS OF PERCENTAGE OF NET PROFIT OF THE PARTY TO WHOM THE PAYMENT IS MADE. NO EVIDENCE HAS BE EN BROUGHT ON RECORD BY THE AO OR THE CIT(A) TO PROVE THAT THE S AME SHOULD HAVE BEEN CHARGED AT LESSER RATE THAN WHAT HAS BEEN PAID B Y THE ASSESSEE. HE ACCORDINGLY SUBMITTED THAT THIS DISALLOWANCE BE CANCELLED. 61. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 62. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND IN THE INSTANT CASE THE ASSESSEE HAS SHOWN TOTAL SERVICE CHARGES RECEIVED AT R S.42 93 005/- FROM VARIOUS COMPANIES AGAINST THE SERVICES SUCH AS LOADIN G UNLOADING HANDLING SECURITY SERVICES AND TRANSPORTATION ET C. AGAINST THE ABOVE INCOME THE ASSESSEE COMPANY HAS PAID RS.27 02 000/- TO SHRI INDUSTRIAL SUPPLIERS AS HANDLING CHARG ES WHICH IS THE PROPRIETARY CONCERN OF THE DIRECTOR MR. G.M. N AVLAKHA. WE FIND THE AO FOLLOWING THE PROVISIONS OF SECTION 40A(2)(B) DISALLOWED AN AMOUNT OF RS.13 51 000/- BEING 50% OF SUCH SE RVICE CHARGES. WHILE DOING SO HE NOTED THAT SHRI INDUSTRIAL SUP PLIERS IS THE PROPRIETARY CONCERN OF SHRI G.M. NAVLAKHA WHO IS THE P RINCIPAL DIRECTOR OF THE ASSESSEE COMPANY. FURTHER AS AGAINST T HE RECEIPT OF RS.27 02 000/- AS SERVICE CHARGES SHRI NAVLAKHA HAD INCURR ED EXPENDITURE OF RS.3 40 371/- ONLY WHICH SHOWS THAT HE HA S SHOWN NET PROFIT OF 87.4% WHICH IS HIGHLY IMPOSSIBLE AND CLEARLY SHO WS THAT 44 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 THE ASSESSEE COMPANY HAD PAID HUGE AMOUNT TO THE PRO PRIETARY CONCERN OF THE DIRECTOR FOR WHICH NO COMMENSURATE SERVIC ES WERE RENDERED BY THE PROPRIETARY CONCERN. WE FIND IN APPEAL TH E LD.CIT(A) ENHANCED SUCH DISALLOWANCE BY RS.9 76 592/-. IT IS THE S UBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE AO HAS NO T BROUGHT ON RECORD ANY COMPARABLE CASE AS WHAT WOULD HAVE BEEN TH E REASONABLE AMOUNT. THEREFORE DISALLOWANCE OF 50% OF SUCH SERVICE CHAR GE IS UNCALLED FOR. IT IS THE SUBMISSION OF THE LD. AUTHORISED REPRESENTATIVE THAT INSTEAD OF DELETING THE ADDITION THE L D.CIT(A) HAS ENHANCED THE SAME. WE DO NOT FIND ANY FORCE IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. ADMITTEDLY SHRI INDUSTRIAL SUPPLIERS IS THE PROPRIETARY CONCERN OF SHRI G.M. NAVLAKHA WHO IS THE PRINCIPAL DIRECTOR OF THE ASSESSEE COMPANY. A S AGAINST SERVICE CHARGE RECEIVED AT RS.42 93 005/- THE ASSESSEE HAS PAID AN AMOUNT OF RS.27 02 000/- TO SHRI INDUSTRIAL SUPPLIERS AS HAN DLING CHARGES OUT OF SUCH HANDLING CHARGES. MR. G.M. NAVLAKHA H AS INCURRED ONLY MEAGER EXPENDITURE OF RS.3 40 371/- AND THE REBY EARNED HUGE INCOME OF RS.23 61 629/- WHICH IS 87.4% OF THE RECEIPTS. SINCE THE DIRECTOR OF THE ASSESSEE COMPANY IS ALSO THE PROPRIETOR OF SHRI INDUSTRIAL SUPPLIERS AND HE IS THE KEY P ERSON FOR BOTH THE CONCERNS THEREFORE DIVERSION OF INCOME OF THE AS SESSEE COMPANY TO THE PROPRIETARY CONCERN OF THE DIRECTOR IS C LEARLY VISIBLE AND THEREFORE THE SAME IN OUR OPINION COMES WITHIN THE PU RVIEW OF SECTION 40A(2)(B) OF THE I.T. ACT. WE THEREFORE HOLD THAT T HE AO WAS JUSTIFIED IN DISALLOWING 50% OF SUCH PAYMENT AS EXCESS PAYME NT TO THE RELATIVES AS PER PROVISIONS OF SECTION 40A(2)(B). HOWEVER THE CIT(A) IN OUR OPINION IS NOT JUSTIFIED IN ENHANCING THE SAME TO RS.23 27 592/- IN THE INSTANT CASE ONLY ON THE GROUND TH AT MR. 45 ITA NO.2130/PN/2013 ITA NOS.1963 TO 1968/PN/2013 & ITA NO.361/PN/2014 NAVLAKHA HAS INCURRED MEAGER EXPENDITURE OF RS.3 40 371 OU T OF THE TOTAL RECEIPT OF RS.27 02 000/-. THERE MAY BE SO MANY REA SONS FOR INCURRING OF LESS EXPENDITURE BY THE DIRECTOR. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE WE ARE OF THE CONSIDERE D OPINION THAT DISALLOWANCE OF 50% OF THE EXPENSES AS DONE BY THE AO IN T HE INSTANT CASE WAS THE CORRECT APPROACH. WE ACCORDINGLY HOLD TH AT DISALLOWANCE OF RS.13 51 000/- U/S.40A(2)(B) IS JUSTIFIED UNDER TH E FACTS AND CIRCUMSTANCES OF THE CASE. GROUND RAISED BY T HE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. 63. IN THE RESULT THE ITA NO.2130/PN/2013 FOR A.Y. 2001-0 2 IS PARTLY ALLOWED AND THE REMAINING APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30-09-2016. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE ; DATED : 30 TH SEPTEMBER 2016. ( )'+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) / THE CIT(A)-II PUNE 4. % / THE CIT-II PUNE 5. 6. ( ++ / DR ITAT A PUNE; 0 / GUARD FILE. / BY ORDER ( + //TRUE C ( + //TRUE COPY// 23 + / SR. PRIVATE SECRETARY / ITAT PUNE