ACIT, New Delhi v. M/s. Kirpa Ram Bros. (HUF), New Delhi

ITA 3153/DEL/2010 | 2007-2008
Pronouncement Date: 22-12-2010 | Result: Allowed

Appeal Details

RSA Number 315320114 RSA 2010
Assessee PAN ABOUT3857S
Bench Delhi
Appeal Number ITA 3153/DEL/2010
Duration Of Justice 5 month(s) 28 day(s)
Appellant ACIT, New Delhi
Respondent M/s. Kirpa Ram Bros. (HUF), New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 22-12-2010
Appeal Filed By Department
Order Result Allowed
Bench Allotted D
Tribunal Order Date 22-12-2010
Date Of Final Hearing 22-10-2010
Next Hearing Date 22-10-2010
Assessment Year 2007-2008
Appeal Filed On 24-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI R. P. TOLANI JUDICIAL MEMBER & SHRI B.C. MEENA ACCOUNTANT MEMBER ITA NO. 3153/DEL/2010 ASSESSMENT YEAR: 2007-08 ACIT VS. KIRPA RAM BROS. (HUF) CIRCLE 32(1) C-153 DEFENCE COLONY ROOM NO. 376A C.R. BLDG. NEW DELHI. I.P. ESTATE NEW DELHI. AEHK1408C (APPELLANT) (RESPONDENT) APPELLANT BY : SH. A.K. MONGA SR. DR RESPONDENT BY : SH. B.K.ANAND CA ORDER PER R. P. TOLANI J.M. THIS IS REVENUES APPEAL. SOLE GROUND RAISED IS AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.10 10 032/- MADE BY THE AO WITHO UT CONSIDERING THE FACT THAT THERE WAS SUFFICIENT EVIDENCE TO CONCLUDE THAT THE EXPENSES SHOWN UNDER VARIOUS HEADS LIKE SALARY ELECTRICITY AND WATER ET C. WERE NOT RELATED TO THE BUSINESS OF THE ASSESSEE BUT TO THE EARNING OF RENT AL INCOME. 2. BRIEF FACTS ARE THE ASSESSEE IS TENANT OF A PROP ERTY SITUATED AT CONNAUGHT PLACE HAVING PHYSICAL POSSESSION OF ABOUT 3857 SQ. FT ON THE GROUND AND RESIDENT FLOOR OF THE PREMISES. ASSESSE E SUB-LETTED THE PREMISES BY LICENSE AN AGREEMENT WITH ONE COMPANY NAMELY BIS TRO HOSPITALITY P. LTD. FOR ITA NO. 3153/D/2010 2 RUNNING RESTAURANT AND BAR IN THE NAME OF TGI FRID AY. THE SAID LICENSE AGREEMENT STIPULATED THAT ASSESSES SHALL NOT BE RES PONSIBLE FOR MAINTENANCE MANAGEMENT AND OPERATIONS OF THE RESTAURANT AND BAR BUSINESS AND HAD NO LIABILITY WHATSOEVER IN THAT RESPECT. ASSESSEE CLA IMED BUSINESS EXPENDITURE OF RS. 1010032/- AGAINST REMUNERATION FOR LICENSE OF S UB-LETTED PREMISES AS UNDER: - SALARY EXPENSES RS. 8 18 500 ELECTRICITY & WATER EXPENSES RS. 1 18 368 PRINTING & STATIONERY RS. 2 875 STAFF WELFARE RS. 14 277 TELEPHONE EXPENSES RS. 30 457 CONVEYANCE EXPENSES RS. 25 555 3. DURING THE COURSE OF ASSESSMENT AO ASKED AS TO W HY THIS EXPENDITURE SHOULD BE ALLOWED AS IT HAD NOT BEARING WITH THE BU SINESS OF THE ASSESSEE. ASSESSEE REPLIED IN THIS BEHALF AS UNDER: - FOR THE QUERY RAISED IN YOUR LETTER IT IS HUMBLY STATED THAT AT NO STAGE HAS THE ASSESSEE CLAIMED THAT THE BUSINESS OF RUNNING OF THE RESTAURANT WAS ITS AND EXPENSES INCURRED RELATE TO SUCH A BUSINESS. IF IT WAS SO THEN IT WOULD BE OWNER OF T HE SALES AT THE RESTAURANT AND NOT EARN LICENSE FEE RELATED TO SUCH SALE TURNOVER OF THE RESTAURANT. THE ASSESSEE IS CLAIMING EXPENS ES RELATED TO ITS BUSINESS AS OWNER OF TENANCY RIGHTS WHICH IS A COMMERCIAL ASSET WITH IT DULY EXPLOITED BY IT. THE EXPENSES A LSO RELATE AS OBSERVER TO SEE THAT THE LICENSEE DOES NOT MISUSE T HE ASSET IN ANY MANNER IN THE CONDUCT OF ITS BUSINESS AS RESTAU RANT OPERATOR WHICH COULD ENTAIL LOSS TO THE ASSESSEE. SUCH INFIRMITIES BY THE LICENCEE COULD FOR EXAMPLE BE VIOLATION OF EXCISE OR MUNICIPAL BYE LAWS; CODE FOR ADVERTISEMEN T AND ITA NO. 3153/D/2010 3 DISPLAYS ETC. THE CONSEQUENCE OF SUCH COULD RESULT IN CEILING OF THE PREMISES. EXPENSES RELATED IN OVERLOOKING AND PRESERVING COMMERCIAL ASSET OF A BUSINESS ARE PERMISSIBLE EXPE NSE AND SUCH RELATED EXPENSES HAVE BEEN CLAIMED BY THE ASSE SSEE. FURTHER IT MAY NOT BE OUT OF POINT TO MENTION THAT THE EXPENSES RELATE TO ITS SUCH COMMERCIAL ACTIVITY IS NOT FOR T HE FIRST TIME IN THE CURRENT YEAR AND IS ALREADY SETTLED IN FAVOUR O F THE ASSESSEE IN THE EARLIER YEARS SAVE FOR CERTAIN DISALLOWANCE FOR ELECTRICITY CHARGES. 4. THE AO WAS NOT CONVINCED OF DISALLOWED THE EXPEN DITURE BY FOLLOWING OBSERVATIONS: - 9. THE REPLY FURNISHED BY THE ASSESSEE HAS BEEN C ONSIDERED AND FOUND NOT TO BE SATISFACTORY. THE NATURE AND T HE AMOUNT OF THE EXPENSES CLAIMED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT DO NOT COMMENSURATE WITH THE BUSINESS OF TH E ASSESSEE BEING THE OWNER OF THE TENANCY RIGHTS. TH E TERMS OF THE LICENSE AGREEMENT ARE SELF CONTAINED AND SUFFIC IENT SO AS TO PREVENT ANY KIND OF MISUSE OF THE TENANTED PREMISES . IN FACT THE INCOME DERIVED BY THE ASSESSEE BY LICENSING THE SAID PREMISE IS MORE IN THE NATURE OF RENTAL INCOME AS T HE ASSESSEE IS NOT LIABLE FOR INCURRING ANY EXPENSES OTHER THAN THOSE RELATED TO THE BUILDING ITSELF SUCH AS PROPERTY TAX MUNICI PAL TAXES ETC. THE ASSESSEE FAILS TO PROVIDE ANY JUSTIFICATION WIT H REGARD TO THE CLAIM OF SALARY EXPENSE OF RS. 8 18 500/-. THE ASS ESSEE BEING THE OWNER OF THE TENANCY RIGHTS HAS NO REASON TO EM PLOY SALARIED PERSONS WHEN HE IS NOT ASSOCIATED WITH ANY OF THE MAINTENANCE SUPERVISION OR CONTROLLING FUNCTIONS O F THE RESTAURANT AND BAR AS IT IS CLEARLY STIPULATED IN T HE AGREEMENT THAT HE HAS NO ROLE IN RUNNING THE BUSINESS. THE B USINESS RATIONALE COUPLED WITH THE FINANCIAL PRUDENCY DOES NOT SUGGEST ANY KIND OF REASONING SO AS TO BELIEVE THAT THE OWN ERSHIP OF A ITA NO. 3153/D/2010 4 CAPITAL ASSET IN THE NATURE OF TENANCY RIGHTS REQUI RE SALARIED EMPLOYEES TO OVERLOOK THE USE OF THE ASSET. IT IS TO BE NOTED THAT ASSESSEE IS ALREADY CLAIMING SECURITY SERVICE CHARGES AS EXPENSES FOR THE SAME WHICH FURTHER RESTRAINS ANY KIND OF ALLOWANCE FOR THE SALARY EXPENSE WHICH COULD BE ALL OWED FOR THE PURPOSE OF OVERLOOKING AND PRESERVING COMMERCIAL A SSET OF A BUSINESS TO PREVENT MISUSE OF THE ASSET. 10. IT IS ALSO IMPORTANT TO MAKE A MENTION THAT IT IS ONLY IN THE REVISED RETURN WHEREBY ASSESSEE HAS SUBMITTED A FRE SH PROFIT AND LOSS ACCOUNT THAT THE SALARY EXPENSES HAS BEEN INCREASED TO RS. 8 18 500/- WHEREAS IN THE ORIGINAL PROFIT A ND LOSS ACCOUNT FILED WITH THE ORIGINAL RETURN ASSESSEE HAD CLAIMED SALARY EXPENSES OF RS. 3 18 500/- ALONG WITH THE PARTNERS REMUNERATION AT RS. 6 00 000/-. THIS SPEAK OF THE GUILTY INTENT OF THE ASSESSEE AS THE ASSESSEE HAS TRIED TO CAMOUFLA GE THE EXPENSES AFTER THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSEE HAS TAKEN THE PLEA THAT THERE WERE CERTAIN ACCOUNTING ERRORS DUE TO WHICH ASSESSEE HAD TO FILE REVISED RE TURN. HOWEVER THIS EXERCISE HAS BEEN DONE AS MERE RESHUF FLING OF THE EXPENSES UNDER VARIOUS HEAD SO AS TO UNDULY JUS TIFY THE EXPENSES CLAIMED IN PROFIT AND LOSS ACCOUNT. 11. CONSIDERING THE ABOVE DISCUSSION SALARY EXPEN SE OF RS. 8 18 500/- AS THERE SEEMS TO BE NO NEXUS BETWEEN TH E COMMERCIAL EXPEDIENCY OF THE BUSINESS AND NATURE OF THE EXPENSE AND ADDED BACK TO THE INCOME OF THE ASSESSE E AS INCOME FROM BUSINESS. ALSO BEING SATISFIED THAT ASSESSEE HAS FILED INACCURATE PARTICULARS OF INCOME AND HAS CONC EALED ITS INCOME IN FILING OF RETURN OF INCOME PENALTY PROCE EDING U/S 271(1)(C) IS SEPARATELY INITIATED ON THIS ACCOUNT. 13. SIMILARLY OTHER EXPENSES CLAIMED BY THE ASSES SEE IN PROFIT AND LOSS ACCOUNT AS PRINTING AND STATIONERY OF RS. 2 875/- STAFF WELFARE EXPENSES OF RS.14 277/- TELEPHONE EXPENSES OF RS. 30 457/- AND CONVEYANCE EXPENSES OF RS. 25 555/- HA VE NO ITA NO. 3153/D/2010 5 JUSTIFICATION IN THE LIGHT OF THE NATURE OF THE BUS INESS AND ARE THEREFORE DISALLOWED AND ADDED BACK TO THE TOTAL I NCOME OF THE ASSESSEE AS INCOME FROM BUSINESS. ALSO BEING SAT ISFIED THAT ASSESSEE HAS FILED INACCURATE PARTICULARS OF INCOME AND HAS CONCEALED ITS INCOME IN FILING OF RETURN OF INCOME PENALTY PROCEEDING U/S 271(1)(C) IS SEPARATELY INITIATED ON THIS ACCOUNT. 5. AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL WHERE IT WAS CONTENDED THAT IN ALL THE PRECEDING YEARS SUCH EXPENDITURE HAS BEE N ALLOWED AND IT WAS PLEADED THAT THE RULE OF CONSISTENCY WAS APPLICABL E. CIT(A) DELETED THE ADDITIONS BY FOLLOWING OBSERVATIONS: - I HAVE CAREFULLY CONSIDERED THE FACTS AND CIRCUMST ANCES OF THE CASE. ON CAREFUL CONSIDERATION I AM OF THE VIEW TH AT THE APPELLANT HAD REVISED THE RETURN OF INCOME IN ORDER TO AMEND THE ACCOUNTING GROUPING IN WHICH SEVERAL EXPENSES WERE WRONGLY CLAIMED IN THE ORIGINAL RETURN. IN PARTICULAR THE CLUBBING OF THE REMUNERATION PAID TO TWO CO-PARCENARS OF RS. 6 LAKH S UNDER THE HEAD SALARY EXPENSES WAS THE RIGHT TREATMENT WHIC H WAS EXPECTED IN CASE OF AN HUF ASSESSEE. THEREFORE IN MY VIEW THE LD. AO WAS SUBJECTIVE IN REACHING THE CONCLUSIO N THAT THE APPELLANT HAD CAMOUFLAGED THE EXPENSES WHEN THE SEL ECTED FOR SCRUTINY. IN EFFECT SUCH EXPENSES HAD BEEN CLAIME D IN THE PAST ALSO AND ALSO ALLOWED BY THE DEPARTMENT. MOREOVER BEFORE DISALLOWING SUCH EXPENSES THE AO HAS NOT IN ANY WA Y REACHED TO THE CONCLUSION THAT SUCH EXPENSES WERE NOT ALLOW ABLE U/S 37(1) OF THE INCOME TAX ACT 1961. IN ANY CASE A R EVISED RETURN IF FILED BEFORE THE PRESCRIBED DATE IS A VALID RET URN. FURTHER REGARDING THE DISALLOWANCE OF ELECTRICITY AND WATER CHARGES I FIND THAT SUCH EXPENSES RELATE TO APPELLA NTS OWN PREMISES AND THE AO HAS FAILED TO DISTINGUISH THAT THE APPELLANT ITA NO. 3153/D/2010 6 WAS RUNNING HIS OWN BUSINESS SEPARATELY WHILE A SEP ARATE PART OF THE SAME PROPERTY WAS LEASED OUT TO M/S BISTRO H OSPITALITY LTD.. THEREFORE BEFORE MAKING THE DISALLOWANCE T HE LD. AO OUGHT TO HAVE MADE THE DISTINCTION ON FACTS BASED O N THE EXAMINATION OF THE ELECTRICITY BILLS ETC. WHICH S HE FAILED TO DO. ON THE SAME GROUND SINCE I HAVE SEPARATELY HELD TH AT THE APPELLANT WAS CARRYING OUT OWN BUSINESS SEPARATELY THERE WAS NO GROUND IN DISALLOWING EXPENSES IN THE NATURE OF PRINTING AND STATIONERY TELEPHONE EXPENSES CONVEYANCE EXPENSES AND STAFF WELFARE. IN VIEW OF THE ABOVE ALL ADDITIONS MADE BY THE LD. AO ARE DELETED. 6. AGGRIEVED AGAINST THE DELETION OF ADDITION REVEN UE IS BEFORE US. LD. DR CONTENDS THAT THE EXPENDITURE IN QUESTION CLAIMED B Y THE ASSESSEE HAD NO RELATION TO THE BUSINESS OF THE ASSESSEE AS IT HAS NOT TO CA RRIED OUT ANY BUSINESS WHILE LETTING OUT THE PROPERTY BY WAY OF LICENSE TO BISTR O HOSPITALITY LTD. THEREFORE THE EXPENDITURE HAS BEEN WRONGLY ALLOWED. THE CIT(A) W ITHOUT VERIFYING THE FACTS HAS GIVEN THE RELIEF. ON A POINTED QUERY LD. COUNSEL F OR THE ASSESSEE FAILED TO GIVE ANY SATISFACTORY REPLY AS TO HOW THE INCOME FROM SUB LE TTING OF HOUSE PROPERTY WAS TREATED AS INCOME FROM BUSINESS. LD. COUNSEL ONLY PLEADED THAT SINCE PAST IT WAS TREATED BUSINESS INCOME ON THE RULE OF CONSISTENCY. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE SEEN THE PROFIT AND LOSS ACCOUN T OF THE ASSESSEE EXCEPT RENTAL INCOME FROM TGI RESTAURANT ASSESSEE HAS NO OTHER MAJOR INCOME. THERE IS NO EVIDENCE OF BUSINESS OF LETTING PROPERT IES EXCEPT LETTING UP ONE TENANTED PROPERTY WHICH CAN NEVER BE CALLED A BUSI NESS OF THE ASSESSEE. LD. ITA NO. 3153/D/2010 7 COUNSEL FOR THE ASSESSEE ONLY CONTENDS THAT IT IS T HE OLD BUSINESS OF THE ASSESSEE AND THE INCOME HAS BEEN TAXED AS BUSINESS INCOME ON THE RULE OF CONSISTENCY. IN OUR VIEW THE ASSESSMENT HAS BEEN F RAMED AGAINST THE EXPRESS PROVISIONS OF LAW WE ARE SURPRISED TO SEE THE WAY THIS ASSESSMENT HAS BEEN FRAMED. PRINCIPLES OF RES-JUDICATA DO NOT APPLY TO INCOME TAX PROCEEDINGS. FURTHER A PATENT MISTAKE OF LAW CANNOT BE REGULARIZ ED OR ALLOWED IN THE PRETEXT OF CONSISTENCY. IT IS THE DUTY OF THE ITAT TO ENSU RE THAT A FAIR AND PROPER ASSESSMENT IS FRAMED IN ACCORDANCE WITH LAW. THE A SSESSEE HAS EARNED NO INCOME EXCEPT BY WAY OF RENT TERMED AS LICENSE FEE BY LETTING UP THIS TENANTED PROPERTY. THE LICENSE FEE IS NOTHING BUT THE RENT RECEIVED FROM LETTING OUT OF IMMOVABLE PROPERTY HELD BY THE ASSESSEE AS TENANT S ITUATE AT CONNAUGHT PLACE AS MENTIONED ABOVE. THE RENTAL INCOME BY WHATEVER NAME CALLED IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY AND CANNOT B E ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. 8. ASSESSEES RENTAL RECEIPTS IS INCOME FROM HOUSE PROPERTY AND INSTEAD OF ASSESSING ACCORDINGLY AS PROVIDED BY THE LAW IT HA S BEEN ASSESSED AS BUSINESS INCOME. WE MAY REITERATE THAT IT IS THE D UTY OF THE ITAT TO ENSURE THAT A PROPER AND FAIR ASSESSMENT IS MADE ON THE INCOME. WE ARE OF THE VIEW THAT AO AND CIT(A) BOTH HAVE NOT CONSIDERED THE APPROPRI ATE LEGAL POSITION IN THIS BEHALF. SINCE ASSESSE HAS NOT BEEN HEARD IN RESPEC T OF TREATMENT OF SO CALLED LICENSE FEE/RENTAL INCOME AS INCOME FROM HOUSE PROP ERTY THE ASSESSMENT IS SET ASIDE RESTORED BACK TO THE FILE OF THE AO TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE AN OP PORTUNITY OF BEING HEARD. THE ISSUE OF EXPENSES IN QUESTION WILL BE CONSIDERE D IN THE LIGHT OF THE SAME. ITA NO. 3153/D/2010 8 9. IN THE RESULT REVENUE APPEAL ALLOWED FOR STATIS TICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22.12.10 (B.C. MEENA) (R. P. TOLANI) ACCOUNTANT MEMBER JUDICI AL MEMBER DATED: 22.12.10 *KAVITA CHOPRA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR