DCIT, New Delhi v. M/s. Modi Industries Ltd., Uttar Pradesh

ITA 733/DEL/2013 | 2007-2008
Pronouncement Date: 25-10-2016 | Result: Dismissed

Appeal Details

RSA Number 73320114 RSA 2013
Assessee PAN AAACM2063Q
Bench Delhi
Appeal Number ITA 733/DEL/2013
Duration Of Justice 3 year(s) 8 month(s) 20 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Modi Industries Ltd., Uttar Pradesh
Appeal Type Income Tax Appeal
Pronouncement Date 25-10-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 25-10-2016
Date Of Final Hearing 21-12-2016
Next Hearing Date 21-12-2016
Assessment Year 2007-2008
Appeal Filed On 05-02-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI L.P. SAHU ACCOUNTANT MEMBER AND SHRI KULDIP SINGH JUDICIAL MEMBER ITA NO.733/DEL./2013 (ASSESSMENT YEAR : 2007-08) DCIT CENTRAL CIRCLE 19 VS. M/S. MODI INDUSTRIES LTD. NEW DELHI. MODI NAGAR (U.P.) (PAN : AAACM2063Q) ITA NO.788/DEL./2013 (ASSESSMENT YEAR : 2007-08) M/S. MODI INDUSTRIES LTD. VS. DCIT CENTRAL CIRCLE 19 MODI NAGAR (U.P.) NEW DELHI. (PAN : AAACM2063Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ROHIT JAIN ADVOCATE AND MS. DEEPASHREE RAO CA REVENUE BY : SHRI RAJESH KUMAR SENIOR DR DATE OF HEARING : 05.10.2016 DATE OF ORDER : 25.10.2016 O R D E R PER KULDIP SINGH JUDICIAL MEMBER : THE AFORESAID APPEAL FILED BY THE ASSESSEE AS WELL AS CROSS APPEAL FILED BY THE REVENUE ARE BEING DISPOSED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DISCUSSIO N. ITA NOS.733 & 788/DEL./2013 2 2. THE APPELLANT M/S. MODI INDUSTRIES LIMITED (HER EINAFTER REFERRED TO AS THE ASSESSEE) IN ITA NO.788/DEL/20 13 AND THE APPELLANT DEPUTY COMMISSIONER OF INCOME-TAX CENTR AL CIRCLE 19 NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE ) IN ITA NO.733/DEL/2013 BY FILING THE AFORESAID CROSS APPEA LS SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 22.11.2012 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-XXXIII NEW DE LHI QUA THE ASSESSMENT YEAR 2007-08 ON THE GROUNDS INTER A LIA THAT :- GROUNDS OF APPEAL FILED BY THE ASSESSEE (ITA NO.788/DEL/2013) 1. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN AFFIRMING THE ACTION O F THE ASSESSING OFFICER IN ASSESSING RENTAL INCOME OF RS.20 83 413 DERIVED FROM LETTING OUT OF CORPORATE OFFICE AND QUARTERS UNDER THE HEAD 'BUSINESS INCOME ' AS AGAINST THE SAME BEING DECLARED UNDER THE HEAD 'INC OME FROM HOUSE PROPERTY'. 1.1 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE CORPO RATE OFFICE AND QUARTERS WERE LET OUT TO THE SISTER CONC ERNS OF THE APPELLANT ON A TEMPORARY BASIS AND THEREFORE T HE RENTAL INCOME SO DERIVED WAS ASSESSABLE TO TAX UNDE R THE HEAD 'BUSINESS INCOME'. 1.2 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN DISALLOWING STATUTORY DEDUCTION @ 30% OF THE ANNUAL VALUE UNDER SECTION 2 4 OF THE ACT AGAINST THE RENTAL INCOME RECEIVED BY THE APPELLANT AFTER TREATING THE RENTAL INCOME FROM OF FICE AND QUARTERS AS 'BUSINESS INCOME'. ITA NOS.733 & 788/DEL./2013 3 2. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING THE RENTAL INCOME OF RS.4 20 000 RECEIVED FROM LETTING OUT OF M.D. OFFIC E (SOAP UNIT MERGED WITH M.D. OFFICE) AS 'INCOME FROM OTHER SOURCES' INSTEAD OF 'INCOME FROM HOUSE PROPER TY' DECLARED BY THE APPELLANT. 2.1 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) FAILED TO APPRECIATE THAT THE RENTAL INCOME FROM M. D. OFFICE (SOAP UNIT MERGED WITH M.D. OFFICE) WAS NOT RECEIVED ONLY FOR LETTING OUT OF LAND ALONE BUT FOR LAND AND BUILDING APPURTENANT THERETO. 2.2 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN DISALLOWING STATUTORY DEDUCTION @30% OF THE ANNUAL VALUE UNDER SECTION 24 OF THE ACT AGAINST THE RENT AL INCOME RECEIVED BY THE APPELLANT AFTER TREATING TH E RENTAL INCOME FROM (SOAP UNIT MERGED WITH M.D. OFFICE) AS 'INCOME FROM OTHER SOURCES'. 3. WITHOUT PREJUDICE THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN ASSESSING RENTAL INCOME OF RS.4 20 000 AS 'INCOME F ROM OTHER SOURCES' AND NOT AS 'BUSINESS INCOME' OF THE APPELLANT. GROUNDS OF APPEAL FILED BY THE REVENUE (ITA NO.733/DEL/2013) 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE CIT (A) HAS ERRED IN DIRECTING THE AO TO BIFURC ATE THE INCOME AND ASSESS THE SAME UNDER DIFFERENT HEADS. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT (A) HAS ERRED IN NOT APPRECIATING THE OBSER VATION OF THE AO AND ISSUED DIRECTIONS TO THE AO TO BIFURC ATE THE INCOME AND ASSESS THE SAME UNDER DIFFERENT HEADS. 7. THE ORDER OF THE CIT (A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. ITA NOS.733 & 788/DEL./2013 4 8. THE APPELLANT CRAVES LEAVE TO ADD ALTER OR AMEN D ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING T HE COURSE OF THE HEARING OF THE APPEAL. 3. BRIEFLY STATED THE FACTS OF THIS CASE ARE : ASSE SSEE FILED THE RETURN OF INCOME AT NIL AFTER ADJUSTING BROUGHT FOR WARD LOSSES AND UNABSORBED DEPRECIATION WHICH WAS SUBJECTED TO SCR UTINY AND CONSEQUENTLY NOTICES UNDER SECTION 143 (2) AND 142 (1) OF THE INCOME-TAX ACT 1961 (FOR SHORT THE ACT) ALONG WI TH QUESTIONNAIRE WERE ISSUED AND IN RESPONSE THERETO SHRI P.C. GUPT A DGM WITH SHRI A.P.S. SAINI COMPANY SECRETARY ATTENDED THE P ROCEEDINGS AND FILED REQUIRED DETAILS. 4. ASSESSEE COMPANY IS INTO THE BUSINESS OF MANUFAC TURING OF SUGAR SPIRIT/LIQUOR PAINTS AND VARNISHES ELECTROD ES AND INDUSTRIAL GASES TRADING OF INDUSTRIAL GASES WELDING MACHINE S AND ACCESSORIES AND WELDING FILTER METALS AND VANASPATI . ASSESSEE COMPANY HAS REFLECTED INCOME FORM HOUSE PROPERTY AT RS.1 81 00 528/- AFTER CLAIMING 30% DEDUCTION U/S 2 2 OF THE ACT SHOWN FROM THE QUARTERS OWNED BY THE COMPANY FORMIN G PART OF THE FIXED ASSETS AND ALL INCIDENTAL EXPENSES LIKE R EPAIR MAINTENANCE AND DEPRECIATION HAS BEEN CLAIMED AND ALLOWED. ASS ESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY ANY I NCOME OUT OF THE QUARTERS IS TO BE TREATED AS BUSINESS INCOME AND IS NOT CHARGEABLE ITA NOS.733 & 788/DEL./2013 5 U/S 22 TO WHICH THE ASSESSEE COMPANY FILED COMPREHE NSIVE REPLY. HOWEVER AO HAS NOT ACCEPTED THE PLEA TAKEN BY THE ASSESSEE COMPANY ON THE GROUND THAT THESE QUARTERS ARE FOR T HE FIXED ASSETS AND INCIDENTAL EXPENSES LIKE REPAIR MAINTENANCE AN D DEPRECIATION HAD BEEN CLAIMED AND ALLOWED ON THEM AND AS SUCH A NY INCOME ARISING OUT OF QUARTERS IS TO BE TREATED AS BUSINES S INCOME AND IT IS NOT CHARGEABLE U/S 22 OF THE ACT AND ASSESSED THE I NCOME OF THE ASSESSEE AS UNDER :- ACCORDINGLY I HOLD THAT THE RENTAL INCOME SHOWN BY THE ASSESSEE IS TO BE ASSESSED AS BUSINESS INCOME WHICH IS NOT E LIGIBLE TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. ACCORDINGLY THE DEDUC TION CLAIMED BY ASSESSEE U/S 22 TO THE TUNE OF RS.8 46 690/- IS DIS ALLOWED. I. BUSINESS INCOME DECLARED BY THE ASSESSEE RS.(-)12 92 79 410 ADD: RENT RECEIVED FROM BUILDINGS CONSIDERED AS BUSINESS INCOME AS DISCUSSED ABOVE RS. 2 5 8 57 897 II. INCOME FROM OTHER SOURCES RS. 12 48 000 TOTAL INCOME RS.(-)10 21 73 513 TAXABLE INCOME RS.(-)10 21 73 513 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING THE APPEAL WHO HAS PARTLY ALLOWED THE APPEAL . FEELING AGGRIEVED THE ASSESSEE COMPANY AS WELL AS REVENUE FILED CROSS APPEALS BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL GONE THROUGH THE DOCUMENTS R ELIED UPON AND ITA NOS.733 & 788/DEL./2013 6 ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS NO.1 1.1 & 1.2 OF ITA NO.788/DEL/2013 GROUNDS NO.5 6 & 7 OF ITA NO.733/DEL/2013 7. FROM THE GROUNDS OF APPEAL RAISED BY THE ASSESSE E COMPANY AS WELL AS REVENUE THE FIRST QUESTION ARISES FOR D ETERMINATION IS :- AS TO WHETHER RENTAL INCOME OF RS.20 83 413/- DERI VED BY THE ASSESSEE COMPANY BY WAY OF LETTING OUT OF CORPORATE OFFICE AND QUARTERS IS TO BE TREATED AS BUSINESS INCOME OR INCOME FROM HOUSE PROPERTY? 8. UNDISPUTEDLY THE ASSESSEE COMPANY HAS DERIVED R ENTAL INCOME OF RS.20 83 413/- BY WAY OF LETTING OUT OF S HEDS/QUARTERS OWNED BY THE COMPANY AND RESIDENTIAL QUARTERS TO TH IRD PARTY/SISTER CONCERN AND SHOWN THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY BY CLAIMING STANDARD DEDUCTION @ 30% ON S UCH AMOUNT. THE LD. AR FOR THE ASSESSEE CHALLENGED THE IMPUGNED ORDER ON THE GROUND OF CONSISTENCY BY ARGUING THAT THE PROPERTY IN QUESTION HAS BEEN LET OUT BY THE ASSESSEE COMPANY ABOUT 30 YEARS BACK AND HAS BEEN CONSISTENTLY DECLARING RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND TOOK SHELTER U/S 22 OF THE ACT. 9. FOR READY PERUSAL PROVISIONS CONTAINED U/S 22 O F THE ACT ARE REPRODUCED AS UNDER :- ITA NOS.733 & 788/DEL./2013 7 22. THE ANNUAL VALUE OF PROPERTY CONSISTING OF ANY BUILDINGS OR LANDS APPURTENANT THERETO OF WHICH THE ASSESSEE IS THE OWNER OTHER THAN SUCH PORTIONS OF SUCH PROPERTY AS HE MAY OCCUPY FOR THE PURPOSES OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM THE PROFIT S OF WHICH ARE CHARGEABLE TO INCOME-TAX SHALL BE CHARGE ABLE TO INCOME-TAX UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. 10. A BARE PERUSAL OF THE PROVISIONS CONTAINED U/S 22 OF THE ACT APPARENTLY GOES TO PROVE THAT RENTAL INCOME FROM UN USED PORTION OF ANY BUSINESS PREMISES OWNED BY THE ASSESSEE IS TO B E TREATED AS INCOME FROM HOUSE PROPERTY. IN THE CASE AT HAND U NDISPUTEDLY WHEN THE PROPERTY IN QUESTION CONSISTING OF BUILDIN GS AND LAND APPURTENANT THERETO I.E. IN THE SHAPE OF CORPORATE OFFICE AND QUARTERS IS OWNED BY THE ASSESSEE COMPANY AND IS ON RENT PURSUANT TO THE LEASE AGREEMENT DATED 07.06.2007 THE SAME H AS TO BE TREATED AS INCOME FROM HOUSE PROPERTY. IT DOES NOT MATTER IF THE PROPERTY IN QUESTION IS RENTED OUT TO THE THIRD PARTY OR ITS SISTER CONCERN BECAUSE SISTER CONCERN IS OTHERWISE TREATED AS A SE PARATE ENTITY FOR ALL INTENTS AND PURPOSES. 11. EVEN OTHERWISE THE ASSESSEE COMPANY HAS COME U P WITH THE LEASE AGREEMENT DATED 07.06.2007 WHICH DESCRIBES TH E ENTIRE LAND AND STRUCTURE THEREON HAVING BEEN RENTED OUT BY THE ASSESSEE COMPANY TO THE THIRD PARTY OR ITS SISTER CONCERN AN D THE ISSUE OF ITA NOS.733 & 788/DEL./2013 8 RENTING OUT THE LAND AND STRUCTURE THEREON OWNED BY THE ASSESSEE COMPANY IS DULY COVERED U/S 22 OF THE ACT. 12. LD. CIT (A) HAS PROCEEDED ON THE BASIS OF WHIMS AND FANCIES BY HOLDING THAT THE PORTION OF THE PROPERTY IN QUESTION HAS BEEN RENTED OUT BY THE ASSESSEE COMPANY TO ITS SIST ER CONCERN IS ON TEMPORARY BASIS AND COULD BE TAKEN BACK AT ANY POIN T OF TIME BY THE ASSESSEE COMPANY FOR ITS BUSINESS PURPOSES. WHEN T HE PROPERTY IN QUESTION HAS BEEN RENTED OUT ON THE BASIS OF LEASE AGREEMENT DATED 07.06.2007 THE SISTER CONCERN BECOMES STATUTORY TE NANT OF THE ASSESSEE COMPANY AND THE WORD TEMPORARY BASIS CAN NOT BE IMPORTED TO INTERPRET THE LEASE AGREEMENT (SUPRA). 13. HOWEVER SO FAR AS OBSERVATIONS RETURNED BY LD. CIT (A) THAT DEPRECIATION HAS BEEN CLAIMED BY THE ASSESSEE COMPA NY ON BUSINESS ASSETS AS FAR AS RENTAL INCOME OF RS.21 49 943/- IS CONCERNED THE SAME NEED TO BE STRICTLY INTERPRETED UNDER THE PROVISIONS CONTAINED U/S 22 OF THE ACT. 14. AT THE SAME TIME WE ARE OF THE CONSIDERED VIEW THAT THE RENTAL INCOME DERIVED BY THE ASSESSEE COMPANY BY WA Y OF LETTING OUT THE QUARTERS TO THE EMPLOYEES OF ITS COMPANY W HO UNDISPUTEDLY WORKS FOR CONDUCTING THE BUSINESS OF THE COMPANY H AS TO BE TREATED AS BUSINESS INCOME AND CANNOT BE TREATED AS INCOME FROM HOUSE PROPERTY BY ANY STRETCH OF IMAGINATION U/S 22 OF THE ACT. SO ITA NOS.733 & 788/DEL./2013 9 LD. CIT (A) HAS RIGHTLY DIRECTED THE AO TO FIND OUT THE BIFURCATION OF THE RENTAL INCOME AND ASSESSED THE SAME UNDER DI FFERENT HEADS. SO THE APPEAL OF THE REVENUE CHALLENGING THE ORDER PASSED BY LD. CIT (A) DIRECTING THE AO TO BIFURCATE THE INCOME IS NOT SUSTAINABLE. CONSEQUENTLY GROUNDS NO.1 1.1 & 1.2 OF ITA NO.788/DEL/2013 FILED BY THE ASSESSEE ARE PARTLY DE TERMINED IN FAVOUR OF THE ASSESSEE AND GROUNDS NO.5 6 & 7 OF I TA NO.733/DEL/2013 FILED BY THE REVENUE ARE DECIDED AG AINST THE REVENUE. GROUNDS NO.2 2.1 2.2 & 3 OF ITA NO.788/DEL/2013 15. FROM THE GROUNDS RAISED BY THE ASSESSEE COMPANY THE FIRST QUESTION ARISES FOR DETERMINATION IS :- AS TO WHETHER THE RENTAL INCOME OF RS.4 20 000/- D ERIVED BY THE ASSESSEE COMPANY BY WAY OF LETTING OUT OF MD OFFICE (SOAP UNIT MERGED WITH MD OFFICE) IS TO BE TREATED AS INCOME FROM OTHER SOURCES INCOME FRO M HOUSE PROPERTY OR BUSINESS INCOME ? 16. LD. CIT (A) TREATED THE RENTAL INCOME OF RS.4 2 0 000/- AS INCOME FROM OTHER SOURCES ON THE SOLE GROUND THAT T HE SAID RENTAL INCOME WAS DERIVED FROM LEASING OUT OF THE VACANT P LOT OF THE SOAP UNIT AND THEREFORE WAS NOT INCOME FROM HOUSE PROP ERTY. 17. PERUSAL OF THE LEASE AGREEMENT DATED 07.06.2007 MINUTELY PERUSED BY THE LD. CIT (A) IS ENOUGH TO DESCRIBE T HE PROPERTY IN ITA NOS.733 & 788/DEL./2013 10 QUESTION AS TOTAL LAND AREA OF 1584 SQ. MTR. HAVING INDUSTRIAL SHED OF COVERED AREA OF 733 SQ. MTR. IT IS ALSO SUBJECT MATTER OF THE LEASE AGREEMENT THAT THE LESSEE HAS REQUESTED THE LESSOR TO RENOVATE AND RECONSTRUCT THE EXISTING CONSTRUCTED BUILDING AS TH E SAID STRUCTURE IS QUITE OLD AND IS NOT SUITABLE FOR LEASE FOR USE OF MANUFACTURE WAREHOUSE STORAGE OF GOODS AND OFFICES ETC. WHEN THE LEASE AGREEMENT IS CATEGORIC ENOUGH TO LEASE OUT THE LAND AND STRUCTURE THEREON THE SAME CANNOT BE DISBELIEVED WITHOUT GET TING THE SAME VERIFIED BY THE LD. CIT (A) AND NO SUCH VERIFICATIO N/REMAND REPORT IS THERE ON THE FILE. SO WE ARE OF THE CONSIDERED VIEW THAT THE RENTAL INCOME OF RS.4 20 000/- WAS DERIVED BY THE A SSESSEE COMPANY BY LETTING OUT THE LAND AND STRUCTURE THERE ON. 18. NOW THE NEXT QUESTION ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER RENTAL INCOME OF RS.4 20 000/- IS TO BE TREATED AS INCOME FROM HOUSE PROPERTY OR INCOME FROM OTHER SOURCES OR BUSINESS INCOME ? 19. WHEN IT IS NOT IN DISPUTE THAT THE REGULAR RENT AL INCOME OF RS.4 20 000/- IS BEING DERIVED BY THE ASSESSEE COMP ANY FROM THE LAND AND STRUCTURE THEREON FROM M/S. WELD EXCEL IND IA LIMITED ON THE BASIS OF LEASE AGREEMENT DATED 07.06.2007 @ RS. 35 000/- PER MONTH ON PERMANENT BASIS IT HAS BECOME REGULAR BUS INESS INCOME ITA NOS.733 & 788/DEL./2013 11 OF THE ASSESSEE COMPANY. SO WE ARE OF THE CONSIDE RED VIEW THAT AO AS WELL AS LD. CIT (A) HAVE ERRED IN TREATING TH E RENTAL INCOME OF RS.4 20 000/- AS INCOME FROM OTHER SOURCES. SO THE SAME IS ORDERED TO BE TREATED AS BUSINESS INCOME OF THE ASS ESSEE COMPANY. SO GROUNDS NO.2 2.1 & 2.2 ARE DETERMINED AGAINST THE ASSESSEE AND GROUND NO.3 IS DETERMINED IN FAVOUR OF THE ASSE SSEE. 20. IN VIEW OF OUR FINDINGS ON THE ABOVE GROUNDS I TA NO.733/DEL/2013 FILED BY THE REVENUE IS HEREBY DISM ISSED AND ITA NO.788/DEL/2013 FILED BY THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON THIS DAY 25 TH OF OCTOBER 2016. SD/- SD/- (L.P. SAHU) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 25 TH DAY OF OCTOBER 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A) (CENTRAL) GURGAON. 5.CIT(ITAT) NEW DELHI. AR ITAT NEW DELHI.