ITO 7(2)(4), MUMBAI v. STEEL SUPPLIERS LTD, MUMBAI

ITA 7296/MUM/2008 | 2005-2006
Pronouncement Date: 31-03-2010 | Result: Dismissed

Appeal Details

RSA Number 729619914 RSA 2008
Assessee PAN AABCS1088A
Bench Mumbai
Appeal Number ITA 7296/MUM/2008
Duration Of Justice 1 year(s) 3 month(s) 5 day(s)
Appellant ITO 7(2)(4), MUMBAI
Respondent STEEL SUPPLIERS LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted I
Date Of Final Hearing 19-04-2010
Next Hearing Date 19-04-2010
Assessment Year 2005-2006
Appeal Filed On 26-12-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SMT.P.MADHAVI DEVI (J.M) & RAJENDRA SING H(A.M) ITA NO.6846/MUM/2008(A.Y. 2005-06) M/S. STEEL SUPPLIERS LTD. C/O. SHANKARLAL JAIN & ASSOCIATES 12 ENGINEER BLDG. 265 PRINCES STREET MUMBAI 02. PAN: AABCS 1088A (APPELLANT) VS. THE ITO WARD 7(2)(4) MUMBAI. (RESPONDENT) ITA NO.7296/MUM/2008(A.Y. 2005-06) THE ITO WARD 7(2)(4) MUMBAI. (APPELLANT) VS. M/S. STEEL SUPPLIERS LTD. C/O. SHANKARLAL JAIN & ASSOCIATES 12 ENGINEER BLDG. 265 PRINCES STREET MUMBAI 02. PAN: AABCS 1088A (RESPONDENT) ASSESSEE BY : SHRI S.L.JAIN REVENUE BY : SHRI MOHAMMED USMAN ORDER PER RAJENDRA SINGH A.M THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDE R DATED 14/10/2008 OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06. THESE APPEALS ARE BEING DISPOSED OF BY A SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. TH E DISPUTES RAISED IN THESE APPEALS ARE ON TWO DIFFERENT GROUNDS. 2. THE FIRST DISPUTE WHICH IS RELEVANT ONLY TO THE DEPARTMENTAL APPEAL IS REGARDING DIRECTION OF THE CIT(A) TO TREAT THE WAREHOUSING CH ARGES AS BUSINESS INCOME. THE A.O DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE AS SESSEE HAD DECLARED ITA NO.6846&7296/M/2008(A.Y.2005-06) 2 WARESHOUSING CHARGES OF RS. 78 94 496/- AS BUSINESS INCOME. THE A.O ALSO NOTED FROM THE TDS CERTIFICATE THAT THE TAX HAD BEEN DED UCTED UNDER SECTION 194I OF THE IT ACT WHICH RELATED TO THE RENTAL INCOME. IT WAS FURTHER NOTED BY HIM THAT THE PARTIES WHO HAD TAKEN THE PREMISES ON RENT WERE ALMOST THE SAME YEAR AFTER YEAR. THE A.O OBSERVED THAT THERE WAS SPECIFIC HEAD FOR ASSESSING THE RENTAL INCOME FROM HOUSE PROPERTY AND THEREFORE RENTAL INCOME WAS REQUIRED TO BE ASSESSED AS HOUSE PROPERTY INCOME AND NOT BUSINESS INCOME. HE REFERRED TO THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF SHAMBHU INVESTMENTS PVT. LTD. (249 ITR 247) AND OTHER JUDGMENTS IN SUPPORT OF HIS VIEW. ACCORDINGLY HE A SSESSED THE WAREHOUSING CHARGES AS HOUSE PROPERTY INCOME AND NOT BUSINESS INCOME. 2.1 IN APPEAL THE ASSESSEE DISPUTED THE DECISION O F THE AO AND ARGUED THAT ALL THE POINTS RAISED BY THE AO WERE DULY REPLIED. IT WAS POINTED OUT THAT TAX HAD BEEN DEDUCTED UNDER SECTION 194I IN VIEW OF THE CBDT CIR CULAR NO.718 DATED 2/8/2005 AND MERELY BECAUSE TAX HAD BEEN DEDUCTED UNDER SECTION 194I INCOME COULD NOT BE NECESSARILY ASSESSED AS HOUSE PROPERTY INCOME. IT WAS EXPLAINED THAT THE ASSESSEE HAD AN ORGANIZED WAREHOUSING ACTIVITY IN WHICH IT R ECEIVED MERCHANDISE FROM CUSTOMERS/CLIENTS AND PLACED THEM AT PROPER PLACES IN THE GODOWN. THE GOODS ARE STACKED AND PROPERLY RECORDED TO FACILITATE RETRIEV AL. THE CUSTOMERS ARE CHARGED ON THE BASIS OF QUANTITY WEIGHT AND SPACE UTILIZED FOR ST ORING. THE LOCK AND KEY OF THE WAREHOUSE REMAINED WITH THE ASSESSEE AND HAD NEVER BEEN GIVEN TO THE HIRERS. THE ASSESSEE INCURS SUFFICIENT EXPENDITURE ON SALARY SECURITY ELECTRICITY SALES PROMOTIONS BROKERAGE ETC. FOR MANAGING THE WAREHOUSING ACTIVIT Y. SUCH EXPENSES ARE NOT REQUIRED IN CASE THE PROPERTY IS JUST LET OUT. IN THIS CASE THE CUSTOMERS ARE NEITHER TENANTS NOR LEASE HOLDERS. IT WAS ALSO ARGUED THAT JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE ITA NO.6846&7296/M/2008(A.Y.2005-06) 3 CASE OF SHAMBHU INVEMENTS AND OTHER JUDGMENTS RELIE D ON BY THE AO ARE DISTINGUISHABLE. IN CASE OF THE SHAMBHU INVESTMEN T THE ASSESSEE HAD TAKEN THE ENTIRE COST OF THE PROPERTY AS INTEREST FREE ADVANC E AND THEREFORE HIGH COURT HELD THAT IT COULD NOT BE SAID THAT ASSESSEE WAS EXPLOITING THE PROPERTY FOR COMMERCIAL ACTIVITY. IT WAS ALSO SUBMITTED THAT IN THE EARLIER YEARS THE WA REHOUSING INCOME HAD BEEN ASSESSED BY THE DEPARTMENT AS BUSINESS INCOME. THE CIT(A) WAS SATISFIED BY THE EXPLANATION GIVEN AND AGREED THAT THE INTENTION OF THE ASSESSEE WAS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMMERCIAL ACTIVITIES AND ACCORDINGLY HE ACCEPTED THE CLAIM OF THE ASSESSEE TO ASSESS THE WAREHOUSING IN COME AS BUSINESS INCOME. AGGRIEVED BY THE SAIDDECISION THE REVENUE IS IN A PPEAL. 2.2 BEFORE US LD. A.R FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES WHEREAS THE LD. D.R PLACED RELIA NCE ON THE ORDER OF THE A.O. 2.3 WE HAVE PERUSED THE RECORD AND CONSIDERED THE M ATTER CAREFULLY. THE DISPUTE IS AS TO WHETHER THE INCOME FROM WAREHOUSING CHARGES SHOULD BE ASSESSED AS BUSINESS INCOME OR HOUSE PROPERTY INCOME. THE AO HAS TREAT ED THE INCOME AS HOUSE PROPERTY INCOME ON THE GROUND THAT THERE IS A SPECIFIC HEAD TO ASSESS RENTAL INCOME. HE HAS ALSO REFERRED TO JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF SHAMBHU INVESTMENTS PVT. LTD. (249 ITR 247). THE CIT(A) HA S ACCEPTED THE CLAIM OF THE ASSESSEE TO ASSESS INCOME AS BUSINESS INCOME AS THE ASSESSEE WAS IN THE BUSINESS OF WAREHOUSING ACTIVITY AND THE SAID INCOME HAD BEEN A SSESSED BY THE DEPARTMENT AS BUSINESS INCOME IN THE EARLIER YEARS. ON CAREFUL C ONSIDERATION OF ALL THE ASPECTS OF THE MATTER WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) IN HOLDING THAT THE WAREHOUSING INCOME SHOULD BE ASSESSED AS BUSINESS INCOME. WE FIND FRO M RECORDS THAT THE ASSESSEE HAD USED THE PREMISES FOR WAREHOUSING ACTIVITIES. IT HAD COMPLETE CONTROL OVER THE PROPERTY ITA NO.6846&7296/M/2008(A.Y.2005-06) 4 AND THE LOCK AND KEY REMAINED WITH THE ASSESSEE WHO RECEIVED MERCHANDISE FROM THE CLIENTS AND PLACED THEM IN THE GODOWN. THE GOODS WERE STACKED AND PROPERLY RECORDED BY THE ASSESSEE. THE CUSTOMERS ARE CHARGE D ON THE BASIS OF QUANTITY WEIGHT AND SPACE UTILIZED FOR STORING. THE ASSESSEE HAS I NCURRED SUFFICIENT EXPENDITURE ON SALARY SECURITY ELECTRICITY SALES PROMOTIONS B ROKERAGE ETC. FOR CARRYING OUT THE VARIOUS ACTIVITIES RELATING TO THE WAREHOUSE. MOREOVER TH E INCOME HAS ALREADY BEEN ASSESSED BY THE DEPARTMENT IN THE EARLIER YEARS AS BUSINESS INCOME. THERE IS NO CHANGE IN THE FACTUAL OR LEGAL POSITION. THE ASSESSEE HAS MADE C OMMERCIAL EXPLOITATION OF THE PROPERTY AND IT IS NOT A CASE OF LETTING OUT THE PR OPERTY AS A OWNER ON RENT. THE JUDGMENT IN THE CASE OF SHAMBHU INVESTMENT(SUPRA) I S DISTINGUISHABLE. IN THAT CASE THE HONBLE CALCUTTA HIGH COURT NOTED THAT THE ASSESSEE HAD RECOVERED ALMOST ENTIRE COST OF THE PROPERTY BY WAY OF SECURITY FEE ADVANCE AND THEREFORE IT COULD NOT BE SAID THAT THE ASSESSEE WAS EXPLOITING THE PROPERTY FOR COMMER CIAL PURPOSE. IN THE PRESENT CASE THE POSITION IS DIFFERENT . AS MENTIONED EARLIER T HE ASSESSEE HAS ORGANIZED ACTIVITY FOR COMMERCIALLY EXPLOITING THE PROPERTY FOR WAREHOUSIN G PURPOSES. WE ARE THEREFORE OF THE VIEW THAT THE INCOME HAS BEEN RIGHTLY ASSESSED AS BUSINESS INCOME. THE ORDER OF CIT(A) IS ACCORDINGLY UPHELD. 3. THE SECOND DISPUTE WHICH IS RELEVANT TO BOTH TH E APPEALS IS REGARDING ALLOWANCES OF EXPENSES RELATING TO PROPERTY GIVEN ON LEASE. THE ASSESSEE HAD TAKEN PREMISES ON LEASE FROM ASSOCIATE CONCERN AND LEASE D OUT THE SAME TO BE VIJAYA BANK FOR CERTAIN COMPENSATION. THE LEASE RENT PAID BY T HE ASSESSEE TO THE ASSOCIATE CONCERN WAS RS. 94 520/-. THE ASSESSEE HAD ALSO INCURRED EXPENDITURE ON DEPRECIATION(RS.2344/-) SOCIETY CHARGES (53 427/-) AND RATES AND TAXED PAID RS. 5 04 276/-). THE A.O OBSERVED THAT THE ASSESSEE HA D RECEIVED ONLY THE LEASE RENT AND ITA NO.6846&7296/M/2008(A.Y.2005-06) 5 THE ONLY EXPENDITURE WAS THE LEASE RENT. HE THERE FORE ALLOWED ONLY LEASE RENT PAID AND DISALLOWED OTHER ITEMS OF EXPENDITURE. IN APPEAL C IT(A) HELD THAT SIMILAR DEDUCTION HAD BEEN ALLOWED IN THE PAST. HE THEREFORE DIRECTED THE AO TO ALLOW RATE AND TAXED IF ACTUALLY PAID. HOWEVER ACTION OF THE AO IN DISALL OWING DEPRECIATION ON FURNITURE AND CLAIME OF SOCIETY CHARGES WAS UPHELD. AGGRIEVED BY SUCH DECISION BOTH THE PARTIES ARE IN APPEAL. WHEREAS THE DEPARTMENT IS AGGRIEVED WIT H THE DIRECTION OF THE CIT(A) TO ALLOW RATES AND TAXES THE ASSESSEE HAS CHALLENGED THE DECISION OF THE CIT(A) IN DISALLOWING THE DEPRECIATION AND SOCIETY CHARGES. 3.1. WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. THE LD. A.R SUBMITTED THAT THE EXPENDITURE HAD BEEN INCURRED IN CONNECTION WITH LE ASE OF THE PROPERTY AND SIMILAR EXPENDITURE HAD BEEN ALLOWED IN THE PAST. HE REFER RED TO THE ASSESSMENT ORDERS FOR ASSESSMENT YEAR 2004-05 AND 2001-02 PLACED IN THE FILE TO POINT OUT THAT AO HAD ALLOWED ALL EXPENDITURE IN EARLIER YEARS. IT WAS A CCORDINGLY URGED THAT EXPENDITURE SHOULD BE ALLOWED THIS YEAR ALSO FACTS REMAINING TH E SAME. THE LD. D.R PLACED RELIANCE ON THE ORDER OF THE AO. 3.2. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE ASSESSEE HAD TAKEN THE PREMISES ON LEASE WHICH HAD BEEN SUB-LET TO VIJAYA BANK. IN ADDITION TO THE LEASE RENT THE ASSESSEE HAD ALSO C LAIMED EXPENDITURE ON ACCOUNT OF RATES AND TAXES DEPRECIATION AND SOCIETY CHARGES. WE FIND THAT THE SIMILAR EXPENDITURE HAD BEEN CLAIMED IN THE EARLIER YEARS AND ALLOWED B Y AO HIMSELF AFTER SCRUTINY WHICH IS CLEAR FROM THE COPY OF ASSESSMENT ORDERS PASSED UND ER SECTION 143(3) BY THE AO FOR A.Y 2001-02 AND 2004-05 PLACED ON RECORD. IN THE ASSESSMENT YEAR 2004-05 THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS. 2802/- SO CIETY CHARGES OF RS.13 152/- AND RATES AND TAXES OF RS.6 24 053/- WHICH HAVE BEEN A LLOWED AFTER SCRUTINY. NO ITA NO.6846&7296/M/2008(A.Y.2005-06) 6 DISTINGUISHING FEATURE THIS YEAR HAVE BEEN BROUGHT TO OUR NOTICE BY THE LD. D.R. THE EXPENDITURE THEREFORE CANNOT BE DISALLOWED WITHOU T GIVING ANY VALID REASON. THEREFORE IN OUR VIEW ALL SUCH EXPENSES WHICH HAV E BEEN ALLOWED IN THE PAST HAVE TO BE ALLOWED. WE ACCORDINGLY DISMISS THE APPEAL OF THE REVENUE ON THIS POINT AND ALLOW THAT OF THE ASSESSEE. 4. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED WHILE THAT OF THE ASSESEE IS ALLOWED. ORDER PRONOUNCED ON THE 31 ST DAY OF MARCH 2010. SD/- SD/- (P.MADHAVI DEVI) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DT. 31ST MARCH 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT(A)CONCERNED 4. THE CIT CITY -CONCERNED. 5. THE D.RI BEN CH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.6846&7296/M/2008(A.Y.2005-06) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 29/3/2010 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 30/3/2010 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER ITA NO.6846&7296/M/2008(A.Y.2005-06) 8 ITA NO.6846&7296/M/2008(A.Y.2005-06) 9