PREMIER CHEMICALS, MUMBAI v. ACIT RG 20(2), MUMBAI

ITA 2664/MUM/2009 | 2005-2006
Pronouncement Date: 14-01-2011 | Result: Allowed

Appeal Details

RSA Number 266419914 RSA 2009
Assessee PAN AAAFP4625Q
Bench Mumbai
Appeal Number ITA 2664/MUM/2009
Duration Of Justice 1 year(s) 8 month(s) 17 day(s)
Appellant PREMIER CHEMICALS, MUMBAI
Respondent ACIT RG 20(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 14-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 14-01-2011
Date Of Final Hearing 14-12-2010
Next Hearing Date 14-12-2010
Assessment Year 2005-2006
Appeal Filed On 27-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 2664/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S. PREMIER CHEMICALS ACIT RANGE 20(2) PLOT NO. 38 CENTRAL ROAD MUMBAI PHASE II MIDC ANDHERI (E) VS. MUMBAI 400093 PAN - AAAFP 4625 Q APPELLANT RESPONDENT APPELLANT BY: MS. AARTI VISANJI RESPONDENT BY: SHRI SURENDRA KUMAR O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XX MUMBAI DATED 07.01.2008. 2. ASSESSEE HAS RAISED THE FOLLOWING TEN GROUNDS: - 1. THE LD. ASSESSING OFFICER HAS ERRED IN DISALLOW ING INTEREST EXPENDITURE RS.31 54 603/- AND THE CIT (APPEALS) HA S ERRED IN CONFIRMING THE SAME WITHOUT ANY LEGAL BASIS. 2. THE LD. ASSESSING OFFICER HAS ERRED IN DISALLOWI NG REPAIRS AND MAINTENANCE EXPENDITURE RS.4 75 846/- AND THE CIT ( APPEALS) HAS ERRED IN CONFIRMING THE SAME WITHOUT ANY LEGAL BASI S. 3. THE LD. ASSESSING OFFICER HAS ERRED IN DISALLOWI NG SECURITY CHARGES RS.2 55 885/- AND THE CIT (APPEALS) HAS ERRED IN CO NFIRMING THE SAME WITHOUT ANY LEGAL BASIS. 4. THE LD. ASSESSING OFFICER HAS ERRED IN DISALLOWI NG OFFICE EXPENSES RS.10 66 880/- AND THE CIT (APPEALS) HAS ERRED IN C ONFIRMING THE SAME WITHOUT ANY LEGAL BASIS. 5. THE LD. ASSESSING OFFICER HAS ERRED IN DISALLOWI NG RATES AND TAXES RS.5 00 000/- AND THE CIT (APPEALS) HAS ERRED IN CO NFIRMING THE SAME WITHOUT ANY LEGAL BASIS. 6. THE LD. ASSESSING OFFICER HAS ERRED IN DISALLOWI NG PROCESSING CHARGES TO BANK RS.4 50 000/- AND THE CIT (APPEALS) HAS ERRED IN CONFIRMING THE SAME WITHOUT ANY LEGAL BASIS. ITA NO. 2664/MUM/209 M/S. PREMIER CHEMICALS 2 7. THE LD. ASSESSING OFFICER HAS ERRED DISALLOWING INTEREST ON PARTNERS CAPITAL RS.22 93 564/- AND THE CIT (APPEA LS) HAS ERRED IN CONFIRMING THE SAME WITHOUT ANY LEGAL BASIS. 8. THE LD. ASSESSING OFFICER HAS ERRED IN NOT CONSI DERING THE CHARGES OF INFORMATION TECHNOLOGY BUSINESS CENTRE RS.1 63 1 9 833 AS BUSINESS INCOME AND DISALLOWING BUSINESS EXPENDITUR E UNDER VARIOUS HEADS AND THE CIT (APPEALS) HAS ERRED IN CO NFIRMING THE SAME WITHOUT ANY LEGAL BASIS. 9. THE LD. ASSESSING OFFICER HAS ERRED IN DISALLOWI NG DEPRECIATION RS.81 93 794/- IN FULL AND THE CIT (APPEALS) HAS ER RED IN CONFIRMING THE SAME WITHOUT ANY LEGAL BASIS. 10. THE LD. ASSESSING OFFICER HAS ERRED IN NOT ALLO WING DEPRECIATION OF RS.3 30 120/- @ 60% ON THE W.D.V. OF DATA PROCESSIN G COST CAPITALIZED BY THE LD. A.O. IN HIS ASSESSMENT ORDER FOR A.Y. 2004-05 AND THE CIT (APPEALS) HAS ERRED IN CONFIRMING THE S AME WITHOUT ANY LEGAL BASIS. 3. BRIEFLY STATED ALL THE GROUNDS ARE INTERLINKED TO THE ISSUE WHETHER THE ASSESSEE IS RUNNING A BUSINESS CENTRE IN ANDHERI M UMBAI AS A BUSINESS VENTURE OR EXPLOITING THE SAME SO AS TO TAX ASSESS EES RECEIPTS AS INCOME FROM HOUSE PROPERTY. THE ASSESSEE OFFERED BUSINESS CENTRE CHARGES AS INCOME FROM HOUSE PROPERTY AND CLAIMED VARIOUS DEDU CTIONS WHEREAS IT ALSO OFFERED PROFIT AND GAINS OF BUSINESS AND CLAIMED E XPENDITURES AND DEPRECIATION. THE RECEIPTS INCLUDE SALE IN HIGH SEA S CHARGES FOR ADDITIONAL FACILITIES CHARGES FOR BUSINESS CENTER AND REIMBUR SEMENT OF COMMON EXPENSES SOME OF THEM ARE TREATED AS PART OF HOUSE PROPERTY INCOME. THE A.O. ANALYSED THE COMPUTATION OF LOSS FROM BUSINESS OR PROFESSION AND CONCLUDED THAT ASSESSEES CLAIM OF I.T. PARK COULD NOT BE ACCEPTED AS I.T. PARK HAS NOT STARTED DURING THE YEAR AND THE ENTIRE INCOME HAS TO BE ASSESSED AS HOUSE PROPERTY INCOME. ACCORDINGLY HE D ISALLOWED VARIOUS EXPENSES CLAIMED WHICH COULD NOT BE ALLOWED CONSID ERING THAT THE INCOME WAS ASSESSABLE UNDER HOUSE PROPERTY AND BROUGHT THE ENTIRE RECEIPTS ON THE HOUSE PROPERTY. SOME OF THE EXPENDITURE DISALLOWED FROM COMPUTATION OF INCOME FROM BUSINESS WAS WITH REFERENCE TO REPAIRS AND MAINTENANCE SECURITY CHARGES OFFICE EXPENSES RATES AND TAXES INTEREST ON CAPITAL AND DEPRECIATION. IT WAS ASSESSEES CONTENTION THAT THE DEPRECIATION WAS TO BE ALLOWED WHICH WAS ALLOWED IN A.Y. 2003-04 AND A.Y. 2004-05 AND INTEREST ON CAPITAL TO PARTNERS WERE ALSO ALLOWABLE EITHER U NDER INCOME FROM HOUSE PROPERTY OR UNDER BUSINESS AND VARIOUS OTHER CHARGE S ALSO INCIDENTALLY WERE ITA NO. 2664/MUM/209 M/S. PREMIER CHEMICALS 3 ALLOWABLE EITHER UNDER BUSINESS HEAD OR UNDER HOUS E PROPERTY. THESE WERE THE CONTENTIONS BEFORE THE CIT(A) AND CIT(A) ANALYS ED ASSESSEES NATURE OF BUSINESS AND CATEGORISED THE AMOUNTS INTO THREE TYP ES AND ULTIMATELY UPHELD THE COMPUTATION OF INCOME UNDER HOUSE PROPER TY AND DENIED VARIOUS CLAIMS OF EXPENDITURE. ACCORDINGLY HE DISMISSED THE GROUNDS. 4. CONTESTING THE FINDINGS OF THE A.O. AND THE CIT(A) THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE WAS HAVING AN OLD PREMI SES IN WHICH THERE WAS A SOAP FACTORY WHICH WAS CONVERTED INTO AN I.T. CEN TRE AND UTILISING THE ADDITIONAL FSI GIVEN FOR I.T. CENTRES THE ASSESSEE HAS CONSTRUCTED AN ADDITIONAL BUILDING ALSO IN THE SAME PREMISES AND O N FEW FLOORS OF THE ADDITIONAL BUILDING THE ASSESSEE HAS STARTED HIS OW N I.T. CENTRE OF DATA PROCESSING AND THE A.O. AND CIT(A) HAS CONFUSED THE ISSUE WITH ASSESSEES OLD BUILDING IN WHICH THE I.T. CENTRE WAS ALSO PER MITTED AND FEW PEOPLE WERE OCCUPYING ON LEASE BASIS AND ITS OWN I.T. CENT RE WHICH WAS RUN BY THE ASSESSEE COMPANY AS A BUSINESS OF DATA PROCESSING. THE LD.COUNSEL THEN REFERRED TO THE COMPUTATION STATEMENTS AND EXPENDIT URE CLAIMS WHICH INCLUDED OFFICE EXPENSES DISALLOWED BY THE A.O. TO SUBMIT THAT THE ASSESSEE HAS EMPLOYED ITS OWN PEOPLE AND ALSO ENGAGED IN DAT A PROCESSING BUSINESS OF ITS OWN WHICH WAS NOT PART OF THE BUSINESS CENT RE CHARGES RECEIVED FROM OTHER PARTIES. EVENTHOUGH IT WAS SUBMITTED THAT THE ASSESSEE ITSELF HAS OFFERED CERTAIN BUSINESS CENTRE CHARGES AS HOUSE PR OPERTY INCOME IT WAS THEIR CONTENTION THAT THE ENTIRE I.T. CENTRE WAS OF COMMERCIAL OPERATION AND THE INCOME THEREON SHOULD BE ASSESSED AS BUSINESS I NCOME ONLY AND NOT AS HOUSE PROPERTY INCOME. SHE THEN REFERRED TO VARIOUS EXPENDITURES DISALLOWED TO SUBMIT THAT RENT RATES AND TAXES ARE ALLOWABLE BOTH UNDER HOUSE PROPERTY INCOME AS WELL AS BUSINESS INCOME. WITH RE FERENCE TO SECURITY CHARGE ALSO THE SAME IS ALLOWABLE AS THE ASSESSEE H AS TO PROVIDE SECURITY TO THE WHOLE BUILDING AND THIS CAN BE CONSIDERED AS EX PENDITURE EITHER UNDER HOUSE PROPERTY OR UNDER BUSINESS AND REFERRED TO TH E PROPERTY TAX ALSO WHICH SHOULD BE ALLOWED AS DEDUCTION BUT THE A.O. H AS MADE ADDITION. WITH REFERENCE TO OFFICE EXPENSES THE MAJOR EXPENDITURE WAS PERTAINING TO TRAINING EXPENSES IN THE BUSINESS OF DATA PROCESSING WHICH SHOULD BE ALLOWED AS SEPARATE EXPENSES. IT WAS SUBMITTED THAT EVEN THE A .O. DISALLOWED THE ITA NO. 2664/MUM/209 M/S. PREMIER CHEMICALS 4 PROCESSING CHARGES TO BANK OF ` 4 50 000/- WITHOUT ANY REASONING AND THE SAME WAS ALLOWABLE AS BUSINESS DEDUCTION AS THERE W S INCOME FROM BUSINESS ALSO. IT WAS HER SUBMISSION THAT INTEREST ON CAPITAL TO PARTNERS WAS ALSO DISALLOWED WHICH WAS AN ALLOWABLE DEDUCTIO N AS PER THE PARTNERSHIP ACT EITHER UNDER THE HEAD BUSINESS OR U NDER THE HEAD HOUSE PROPERTY AS THE ENTIRE FUNDS ARE USED FOR CONSTRUCT ING THE BUILDING OR USED IN THE DATE PROCESSING BUSINESS. SHE THEN REFERRED TO THE ISSUE OF DEPRECIATION WHICH WAS ALLOWED BY THE A.O. IN EARLI ER TWO YEARS AND WRONGLY DISALLOWED IN THIS ASSESSMENT YEAR. SHE THEN REFERR ED TO THE PAPER BOOK FILED IN THIS REGARD INCLUDING VARIOUS AGREEMENTS PHOTOG RAPHS OF THE BUILDING TO SUBMIT THAT THE ASSESSEE IS RUNNING THE I.T. CENTRE AS A COMMERCIAL BUSINESS AND BOTH THE A.O. AND THE CIT(A) WERE WRON G IN CONSIDERING THE INCOMES AS HOUSE PROPERTY INCOME. SHE THEN REFERRED TO VARIOUS CASE LAWS ON THE ISSUE TO STATE THAT IT IS BUSINESS INCOME. 5. THE LEARNED D.R. HOWEVER SUBMITTED THAT ON THE AV AILABLE FACTS ON RECORD THE INCOMES ARE CORRECTLY ASSESSABLE UNDER H OUSE PROPERTY INCOME FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENT (P) LTD. 263 ITR 143 AS THERE ARE NO SPE CIFIC SERVICES RENDERED AS BUSINESS OPERATION AND ONLY GENERAL SERVICES FOR BU ILDING WERE PROVIDE BY THE ASSESSEE. HE SUPPORTED THE ORDER OF THE A.O AND CIT(A). 6. WE HAVE CONSIDERED THE ISSUE. WITHOUT GOING INTO TH E MERITS OF CLAIMS EITHER PARTIES WE ARE OF THE OPINION THAT THE A.O. HAS NOT CORRECTLY EXAMINED THE FACTS AS EXPLAINED AND AS SEEN FROM VARIOUS STA TEMENTS AND DETAILS PLACED ON RECORD. THE ASSESSEE IS RUNNING A BUSINES S CENTRE IN THE OLD FACTORY PREMISES CONVERTED INTO AN I.T. CENTRE IN E ARLIER YEARS. ASSESSEE ALSO GOT ADDITIONAL FSI FOR CONSTRUCTION OF ANNEXE BUILD ING OUT OF WHICH ONLY GROUND AND 1 ST FLOORS WERE OPERATIONAL UPTO THE IMPUGNED ASSESSME NT YEAR AND BECOME FULLY OPERATIONAL IN THE LATER ASSESSMEN T YEARS. ASSESSEE HAS GIVEN VARIOUS DETAILS OF AGREEMENTS TO SUBMIT THAT UPTO A.Y. 2002-03 THERE ARE ONLY OPERATIONS IN THE OLD EXISTING STRUCTURE I N GROUND FLOOR AND 1 ST FLOOR. IN A.Y. 2002-03 THE EXISTING STRUCTURE OF 1 ST FLOOR WAS GIVEN TO UTI SECURITIES EXCHANGE LTD. AND IN A.Y. 2003-04 THE ON 2 ND FLOOR WAS PROVIDED TO KUECHNE & NAGEL PVT. LTD. AND FOR THE IMPUGNED ASSESSMENT Y EAR THE STRUCTURE UPTO ITA NO. 2664/MUM/209 M/S. PREMIER CHEMICALS 5 SECOND FLOOR IN THE NEW STRUCTURE WAS ONLY OPERATIO NAL AND GIVEN THE DETAILS OF AGREEMENTS WITH VARIOUS COMPANIES. ASSESSEE IS O FFERING IN ITS BUSINESS CENTRE FACILITIES OF DATA PROCESSING AND SOFTWARE DEVELOPMENT AND THE CHARGES ARE ACCORDINGLY SHOWN AS BUSINESS INCOME. O N PERUSING THE DETAILS MADE AVAILABLE IN THE PAPER BOOK WE ARE OF THE OPI NION THAT THE ISSUE IS TO BE EXAMINED WHETHER THE ASSESSEE IS RUNNING THE I.T . CENTRE AS A COMMERCIAL ENTERPRISE IN WHICH CASE THE INCOMES ARE TO BE ASSESSED AS BUSINESS INCOME OR ONLY EXPLOITED THE ASSETS WHICH SHOULD BE ASSESSED AS HOUSE PROPERTY OR DOING BOTH I.E. PARTLY EXPLOITIN G THE FACILITIES AVAILABLE BY LEASING OUT PART OF THE PROPERTY TO THIRD PARTIES O N A PERMANENT BASIS WITHOUT ANY SERVICES WHICH SHOULD BE ASSESSED AS H OUSE PROPERTY INCOME OR DOING SEPARATE DATA PROCESSING BUSINESS AS A BUSINE SS VENTURE ON PART OF THE PROPERTY FOR OWN USE IN WHICH CASE THE CORRESP ONDING RECEIPTS SHOULD BE CONSIDERED AS BUSINESS RECEIPTS. THESE ASPECTS R EQUIRE EXAMINATION OF NOT ONLY PLANS AND DESIGNS AND PERMISSIONS BUT ALSO THE NATURE OF RECEIPTS FLOOR-WISE/ACTIVITY-WISE/ YEARWISE AND ONLY AFTER E XAMINATION OF THE FACTS THE LEGAL INTERPRETATIONS CAN BE DONE. AS SUBMITTED BY THE LEARNED COUNSEL UPTO THE PRESENT ASSESSMENT YEAR ONLY TWO FLOORS IN THE NEW STRUCTURE WAS OPERATIONAL AND THE OLD STRUCTURE WAS OPERATIONAL I N EARLIER ASSESSMENT YEARS. THE ENTIRE I.T. CENTRE BECOME OPERATIONAL IN SUBSEQUENT ASSESSMENT YEARS THE MATTERS OF WHICH WERE STILL PENDING WITH THE CIT(A). IN VIEW OF THIS WE ARE OF THE OPINION THAT WITHOUT GOING INTO LEGAL EXAMINATION OF THE ISSUE WHETHER THE INCOME CAN BE ASSESSED AS INCOME FROM H OUSE PROPERTY OR BUSINESS INCOME THE ISSUE IS TO BE RESTORED BACK T O THE A.O. TO EXAMINE THE FACTS FROM A.Y. 2001-02 ONWARDS AND ALSO SUBSEQUENT TO THIS ASSESSMENT YEAR TO DECIDE THE NATURE OF RECEIPTS WHETHER ON L EASE OF THE PROPERTY OR BUSINESS RECEIPTS AND TO WHAT EXTENT ASSESSEES WAS DOING BUSINESS. BASED ON THE FACTS ONLY THE ISSUE CAN BE DETERMINED AND T HE ASSESSEE IS DIRECTED TO FURNISH NECESSARY DETAILS IN SUPPORT OF ITS CONTENT IONS TO THE A.O. AND A.O. IS DIRECTED TO EXAMINE WITH OUT PREJUDICE TO THE EA RLIER STAND WHETHER THE ASSESSEE IS RUNNING I.T. CENTRE AS A BUSINESS OR NO T IF SO WHETHER FULLY OR PARTLY AND DECIDE THE ISSUE ACCORDINGLY. IN CASE TH E INCOMES ARE TREATED AS INCOME FROM HOUSE PROPERTY INCOME THEN VARIOUS CLAI MS DISALLOWED IN THE ASSESSMENT YEAR SHOULD BE RE-EXAMINED WHETHER THEY CAN BE ALLOWED UNDER ITA NO. 2664/MUM/209 M/S. PREMIER CHEMICALS 6 HOUSE PROPERTY OR UNDER THE HEAD BUSINESS AS ASSESS EE IS ALSO HAVING BUSINESS TRANSACTIONS OF HIGH SEAS SALES. DISALLOWA NCE OF ENTIRE EXPENDITURE WITH OUT EXAMINATION IS NOT WARRANTED AND A.O. IS D IRECTED TO KEEP THIS ASPECT IN MIND WHILE EXAMINING THE ISSUES AND DECID E ACCORDINGLY. THEREFORE THE GROUNDS ARE DEEMED ALLOWED FOR STATISTICAL PURP OSES. 7. IN THE RESULT APPEAL IS ALLOWED FOR STATISTICAL PU RPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JANUARY 2011. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 14 TH JANUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XX MUMBAI 4. THE CIT XX MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.