PENNWALT LTD, NAVI MUMBAI v. DCIT CIR 7(1), MUMBAI

ITA 239/MUM/2009 | 2005-2006
Pronouncement Date: 19-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 23919914 RSA 2009
Assessee PAN AAACP6840L
Bench Mumbai
Appeal Number ITA 239/MUM/2009
Duration Of Justice 2 year(s) 7 day(s)
Appellant PENNWALT LTD, NAVI MUMBAI
Respondent DCIT CIR 7(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 19-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 19-01-2011
Date Of Final Hearing 10-01-2011
Next Hearing Date 10-01-2011
Assessment Year 2005-2006
Appeal Filed On 12-01-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI D.K. AGARWAL JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 239/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S. PENNWALT LIMITED DCIT CIRCLE 7(1) D-221 TTC-MIDC AAYAKAR BHAVAN M.K. ROAD THANE-BELAPUR ROAD VS. MUMBAI 400020 NERUL NAVI MUMBAI PAN - AAACP 6840 L APPELLANT RESPONDENT APPELLANT BY: SHRI RAJENDRAN RESPONDENT BY: SHRI NAVEEN GUPTA O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)-VII MUMBAI DATED 14.11.2008. THIS APPEAL WAS ORIGINALLY DISMISSED AS NOT ADMITTED AND BY THE ORDER IN MA NO. 59/MUM/2010 DAT ED 30-04-2010 THE APPEAL WAS RECALLED AND POSTED FOR HEARING. 2. ASSESSEE RAISED TWO GROUNDS AND FILED WRITTEN SUBMI SSIONS ALSO ON THE ABOVE TWO GROUNDS. SRI RAJENDRAN EXECUTIVE OF THE C OMPANY APPEARED IN RESPONSE TO THE NOTICE OF POSTING. 3. THE LEARNED D.R. WAS ALSO HEARD AND THE APPEAL IS D ECIDED AS UNDER. 4. GROUND NO. 1 PERTAINS TO THE ISSUE OF TREATING RENT AL INCOME OF ` 24 24 179/- AS INCOME FROM HOUSE PROPERTY AS AGAINS T BUSINESS INCOME DECLARED BY THE ASSESSEE. 5. BRIEFLY STATED ASSESSEE IS A LIMITED COMPANY ENGAG ED IN THE BUSINESS OF MANUFACTURE AND SALE OF PROCESS EQUIPMENTS AND A LSO UNDERTAKES TURNKEY PROJECTS. DURING THE COURSE OF BUSINESS IT ACQUIRED CERTAIN OFFICE PREMISES FOR ITS OWN USE RESIDENTIAL FLATS FOR THE PURPOSES OF PROVIDING ACCOMMODATION TO ITS EMPLOYEES AND ALSO HAD ITS OWN FACTORY PREMISES IN NERUL NAVI MUMBAI. THESE COMMERCIAL ASSETS WERE BE ING USED BY THE ITA NO. 239/MUM/2009 M/S. PENNWALT LIMITED 2 COMPANY. IN ORDER TO MAKE FULL UTILIZATION OF THESE COMMERCIAL ASSETS FOR A TEMPORARY PERIOD THE ABOVE COMMERCIAL ASSETS WERE L ET OUT. THE DETAILS OF THE RENT RECEIVED ARE GIVEN BELOW: - SL. NO. PARTY RENT RECEIVED NATURE OF ASSET 1 GUJART BOROSIL LTD. (80 000/- P.M. X 12 9 60 000/- COMMERCIAL PREMISES 2 GUJARAT FUSION GLASS LTD. (20 000 P.M. X 12) 2 40 000/- COMMERCIAL PROPERTY 3 TECHNOVA IMAGING SYSTEM LTD. (20 000 X 8) 1 60 000 RESIDENTIAL FLAT 4 TECHNOVA IMAGING SYSTEM LTD. (8 000 X 8) 64 000/- RESIDENTIAL FLAT 5 PENNWAL BERTUZZI LTD. (5 500 X 9) 49 500/- RESIDENTIAL FLAT 6 PENNWAL BERTUZZI LTD. (5 500 X 12) 6 60 000/- OFFICE IN FACTORY PREMISES 7 PENNWALT AGRU PLASTICS LTD. (APPROX 400 SQ.FT. GIVEN IN FACTORY OFFICE BUILDING) 2 90 676/- OFFICE IN FACTORY PREMISES TOTAL 24 24 179/- THE RENT RECEIVED AS ABOVE WAS CONSIDERED AS BUSINE SS INCOME BY THE COMPANY ON CONSIDERATION THAT THE ABOVE COMMERCIAL ASSETS WERE TEMPORARILY LET OUT. FURTHER ALL THE ABOVE ASSETS WERE UNFURNISHED. THE ASSESSEE HAS OFFERED THE ABOVE RENT AS BUSINESS INC OME RELYING ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CA ST OF CIT V. SANMAR HOLDINGS LTD. 272 ITR 341 WHEREIN IT WAS HELD THAT INCOME DERIVED FROM PROPERTY WHICH IS A COMMERCIAL ASSET SHOULD BE ASSE SSED UNDER THE HEAD BUSINESS AND ALSO THE DECISION OF THE HON'BLE SUPRE ME COURT IN THE CASE OF CIT VS. NATIONAL STORAGE PVT. LTD. 66 ITR 597 WHERE IN IN IT WAS HELD THAT WHERE THE LETTING IS ONLY INCIDENTAL AND SUBSERVIEN T TO THE MAIN BUSINESS OF THE ASSESSEE THEN THE INCOME IS TO BE ASSESSED UND ER THE HEAD BUSINESS. THE A.O. DID NOT AGREE WITH THE ASSESSEE AND CONSID ERED THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY AS NO DETAILS WERE SU BMITTED IN RESPECT OF THE ABOVE RENTAL PROPERTIES. HE HAS DEALT WITH THE ISSUE IN PARA 3 & 4 OF HIS ORDER. BEFORE THE CIT(A) IT WAS CONTENDED THAT COM PLETE DETAILS REGARDING THE COMMERCIAL ASSETS LET OUT WERE GIVEN WHICH WAS EVIDENT FROM PAGE 2 OF ITA NO. 239/MUM/2009 M/S. PENNWALT LIMITED 3 THE ASSESSMENT ORDER. THE CIT(A) UPHELD THE ACTION OF THE ASSESSEE FOLLOWING THE DECISION OF THE HON'BLE KOLKATA HIGH COURT IN T HE CASE OF CIT VS. SHAMBHU INVESTMENT P. LTD. 249 ITR 47 WHICH WAS FUR THER AFFIRMED BY THE HON'BLE SUPREME COURT AS REPORTED IN 263 ITR 143. 6. BEFORE US THE ASSESSEE SUBMITTED IN THE WRITTEN SUB MISSIONS THAT THE FACTS IN THE CASE OF SHAMBHU INVESTMENT P. LTD. ARE DIFFERENT AND DISTINGUISHABLE FROM THE FACTS OF THE ASSESSEE. IN THAT CASE THE LETTING OUT WAS OF FURNISHED PROPERTY. FURTHER IT WAS NOTICED THAT THE ENTIRE COST OF PROPERTY WAS RECOVERED BY WAY OF INTEREST FREE ADVA NCE. IN THE FACTS OF ASSESSEES CASE THE LETTING OUT WAS OF UNFURNISHED SPACE. FURTHER THERE WAS NO QUESTION OF RECOVERING THE ENTIRE COST OF PROPER TY BY WAY OF INTEREST FREE ADVANCE. IN FACT THE JUDGEMENT OF THE HON'BLE KOLK ATTA HIGH COURT WHICH HAS BEEN CONFIRMED BY THE HON'BLE SUPREME COURT HA S HELD THAT MERELY BECAUSE THE INCOME IS ATTACHED TO IMMOVABLE PROPERT Y IT CANNOT BE THE SOLE FACTOR FOR ASSESSMENT OF SUCH INCOME AS INCOME FROM PROPERTY. WHAT HAS TO BE SEEN IS WHAT WAS THE PRIMARY OBJECT OF THE ASSES SEE WHILE EXPLOITING THE PROPERTY. IF THIS PRINCIPLE IS APPLIED TO ASSESSEE S CASE THE PRIMARY OBJECT WAS TO LET OUT THE COMMERCIAL ASSET TEMPORARILY AS THE SAME WAS NOT REQUIRED FOR ITS BUSINESS. IN FACT FROM HE DETAILS OF THE RENT GIVEN ABOVE IT WAS OBSERVED THAT THE MAJOR INCOME IS FROM LETTING OUT OF A PART OF OFFICE PREMISES AND A PART OF THE FACTORY PREMISES WHICH A T THAT MOMENT WAS SURPLUS. IT IS NOT A CASE WHERE THE ASSESSEES BUSI NESS ITSELF WAS OF LETTING OUT OF PROPERTIES AS IN THE CASE OF SHAMBHU INVESTM ENTS. AS STATED ABOVE THE ASSESSEES MAIN BUSINESS IS OF MANUFACTURING AN D UNDERTAKING OF TURNKEY PROJECTS. LETTING OUT OF SURPLUS COMMERCIAL ASSETS IS NOT THE MAIN BUSINESS OF THE ASSESSEE. IN THE LIGHT OF THE ABOVE IT IS CLEAR THAT THE DECISION OF SHAMBHU INVESTMENTS IS NOT APPLICABLE TO ASSESSE ES CASE AND CONSEQUENTLY THE RENTAL INCOME HAS TO BE ASSESSED A S BUSINESS INCOME. 7. THE LEARNED D.R. HOWEVER SUBMITTED THAT ASSESSEE HAS NOT JUSTIFIED WHETHER IT HAS UNDERTOOK LETTING OUT OF PROPERTY AS BUSINESS AND WHETHER ANY ADDITIONAL SERVICES ARE RENDERED. SINCE THE ASS ESSEE HAS LEASED OUT THE PREMISES ON LEAVE AND LICENCE BASIS FOR A LONG PE RIOD ON A MONTHLY RENT THE AMOUNT IS TAXABLE UNDER THE HEAD HOUSE PROPERTY AS HELD BY THE HON'BLE ITA NO. 239/MUM/2009 M/S. PENNWALT LIMITED 4 SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENTS 26 3 ITR 143. THE CIT(A) WAS CORRECT IN UPHOLDING THE ORDER OF THE A. O. 8. WE HAVE CONSIDERED THE ISSUE. IT IS A FACT THAT THE ASSESSEE HAS SURPLUS SPACE IN THE BUILDING AND APARTMENTS WHIC H WERE LEASED OUT TO VARIOUS CONCERNS AND SOME OF THE AGREEMENTS ARE PLA CED ON RECORD. AS SEEN FROM THE LEAVE AND LICENCE AGREEMENTS PLACED ON REC ORD THE ASSESSEE AS OWNER AND IS IN POSSESSION OF THE PREMISES ON 5 TH FLOOR OF THE BUILDING KNOWN AS KAKAD CHAMBER IN WORLD DIVISION HAS LEASED OUT THE PROPERTY. LIKEWISE THE RESIDENTIAL FLAT IN NAVI MUMBAI WAS AL SO LEASED OUT AS MENTIONED IN THE LEASE AGREEMENT. MOST OF THE AGREE MENTS PLACED ON RECORD INDICATE THAT LEAVE AND LICENCE AGREEMENT WITHOUT A NY SERVICE BEING RENDERED TO THE TENANTS OTHER THAN NORMAL MAINTENAN CE AND REPAIR WORK. IN VIEW OF THIS EVENTHOUGH THE ASSESSEE TRIED TO DIST INGUISH THE JUDGEMENT OF THE SHAMBHU INVESTMENTS THE PRINCIPLES ESTABLISHED THEREIN ARE CLEARLY APPLICABLE. SINCE IT IS EXPLOITATION OF PROPERTY TH E AMOUNT IS TAXABLE UNDER THE HEAD HOUSE PROPERTY INCOME. ACCORDINGLY THE ASS ESSING OFFICERS ACTION IS CONFIRMED AND THE GROUND RAISED ON THIS ISSUE IS REJECTED. 9. GROUND NO. 2 PERTAINS TO THE DISALLOWANCE OF CUSTOM DUTY PAID FOR IMPORT OF RAW MATERIAL AND FORMED PART OF CLOSING S TOCK OF ` 19 71 602/-. IN THIS REGARD IT WAS SUBMITTED THAT IN THE EARLIER A. Y. 2003-04 SIMILAR ISSUE HAD COME UP BEFORE THE ITAT IN ITA NO. 5532/MUM/200 6 AND THE ISSUE WAS RESTORED BACK TO THE FILE OF THE A.O. FOR EXAMINATI ON AFRESH. 10. AS SEEN FROM THE ORDER OF THE A.O. THERE IS NO SPEC IAL DISCUSSION IN THE IMPUGNED ORDER OF THE A.O. WHEREAS IN THE COMPUTATI ON OF TOTAL INCOME THERE WAS AN ADDITION IN RESPECT OF CUSTOMS DUTY OF ` 2 32 907/- AND REDUCTION OF CUSTOM DUTY UNDER SECTION 43B OF ` 19 61 602/-. IN THE ABSENCE OF DETAILS PLACED ON RECORD BY THE ASSESSEE WE ARE UNABLE TO VERIFY WHETHER THIS IS THE ADJUSTMENT MADE BY THE ASSESSEE IN THE COMPUTATION OF INCOME ITSELF AT THE TIME OF FILING THE RETURN OR MADE BY THE A.O. AT THE TIME OF ASSESSMENT. AS SEEN FROM THE GROUNDS RAISED BEFORE THE CIT(A) ASSESSEE HAS CONTESTED THE AMOUNT OF ` 19 71 602/- AS GROUND NO. 5 WHICH WAS ITA NO. 239/MUM/2009 M/S. PENNWALT LIMITED 5 CONFIRMED IN A.Y. 2003-04 AS WELL. FOR A.Y. 2003-04 THE ISSUE WAS RESTORED BACK TO THE FILE OF THE A.O. TO EXAMINE THE ISSUE A S UNDER: - 9. NOW WE PROCEED TO DECIDE THE GROUND ON MERIT. WE HAVE HEARD THE PARTIES ON GROUND NO. 1 AS WELL AS THE ADDITIONAL G ROUND. BOTH THE PARTIES AGREED THAT GROUND NO. 1 AND ADDITIONAL GRO UND MAY BE RESTORED TO THE FILE OF THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AND DECIDE THE SAME IN ACCORDANCE WITH LAW. WE THEREFO RE SET ASIDE THE ORDER OF THE CIT(A) ON THE ISSUE OF THE DISALLOWANC E OF THE CUSTOM DUTY AND RESTORE THE GROUND NO. 1 AS WELL AS ADDITIONAL GROUND TO THE FILE OF THE AO WITH THE DIRECTIONS THAT AO SHOULD DECIDE TH E ADDITIONAL GROUND AS WELL AS CONSIDER THE FINDINGS IN RESPECT OF THE CUSTOM DUTY AMOUNTING TO RS.9 44 965/- AFTER TAKING INTO CONSI DERATION TOTALITY OF THE FACTS AS WELL AS PRECEDING YEARS ASSESSMENT RE CORD. THE AO SHOULD GIVE REASONABLE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. 11. SINCE THE ISSUE IS INTERLINKED TO THE ISSUE FOR A.Y . 2003-04 AND SINCE THE A.O. HAS TO EXAMINE THE PRECEDING YEARS RECORD S AS REQUESTED BY THE ASSESSEE IN THE WRITTEN SUBMISSIONS THE ISSUE IS R ESTORED BACK TO THE FILE OF THE A.O. TO EXAMINE THE FACTS AND DECIDE ACCORDINGL Y. GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 19 TH JANUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VII MUMBAI 4. THE CIT VII MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.