IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH
BEFORE: SHRI. N.K.SAINI, VP & SHRI , R.L. NEGI, JM
./ ITA NO. 309/Chd/2020
/ Assessment Year : 2015-16
Noor Resorts Private Limited Vs.
The Pr. CIT
Himachal Pradesh
This is an appeal by the Assessee against the order dt. 19/03/2020 of Ld. Pr.
CIT, Shimla passed under section 263 of the Income Tax Act, 1961 (hereinafter
referred to as ‘Act’).
2. Following grounds have been raised in this appeal:
1. The learned Pr. Commissioner of Income Tax has erred by treating the
income of appellant company under the head “Income from House Property” &
not under the head “Income from Business & Profession”. The learned Pr.
Commissioner of Income Tax has failed to appreciate that the company’s
professed objective is to derive trading/ major income from letting out of
properties irrespective of the nature of the property. The reliance has been
placed on the judgments in case of Rayala Corporation Pvt. Ltd vs. ACIT
(Supreme Court) August 2016 & Chennai Properties & Investments Ltd vs. CIT
(Supreme Court) April 2015.
2. The learned Pr. Commissioner of Income Tax has erred by treating that the
appellant company has not carried out any business activity during the year. The
reliance has been placed on the judgment of Chinubhai M Patel vs Income Tax
Officer (ITAT Ahmedabad) December 2015; where the business activities not
being carried out during the year per se; cannot even lead to the conclusion that
the business was discontinued or non-continuation of business is not a criteria to
decide heads of income or any disallowance of expenses.
3. The Appellant craves leave to amend, alter, modify, substitute, add to,
abridge and/ or rescind any or all of the above grounds.
3. During the course of hearing Ld. Counsel for the Assessee at the very
outset stated that an identical issue having similar facts has already been
adjudicated by this Bench of the ITAT in assessee’s own case in ITA No.
860/Chd/2019 for the A.Y. 2014-15 vide order dt. 11/11/2020 and thereafter vide
order dt. 05/05/2021 in M.A. No. 04/Chd/2021. It was further stated that since the
facts are identical for both the years, therefore, the same course may be
adopted for this year also. The Ld. Counsel for the assessee furnished the copies
of the aforesaid referred to order passed by the ITAT Chandigarh “B” Bench in
assessee’s own case for the A.Y. 2014-15.
4. In his rival submissions the Ld. CIT DR although supported the impugned
order passed by the Ld. Pr. CIT but could not controvert the aforesaid
contention of the Ld. Counsel for the Assessee.
5. We have considered the rival submissions of both the parties and perused
the material available on the record. It is noticed that an identical issue having
similar facts was a subject matter of adjudication before this Bench of ITAT in
assessee’s own case for the A.Y. 2014-15 in ITA No. 860/Chd/2019 which has
been adjudicated vide order dt. 11/11/2020 and the relevant findings have
been given in para 8 to 8.11 which read as under:
8. We have considered the submissions of both the parties and perused the
material available on the record. In the present case the A.O. framed the
assessment under section 143(3) of the Act, questionnaire alongwith Notice under
section 142(1) of the Act was issued to the assessee on 09/08/2016, in compliance
thereto the assessee furnished the requisite replies and documents. However the
Ld. Pr. CIT exercised his revisionary powers under section 263 of the Act and
considered the assessment order passed by the A.O. as erroneous and prejudicial
to the interest of the Revenue for the reasons that the assessee was having only
rental income which was to be considered as “income from house property” and
not as business income. Secondly there was no business activity therefore
expenses and the depreciation was wrongly allowed by the A.O. Now we have
to consider as to whether the view taken by the A.O. was a possible view in
accordance with law or not. The powers of the Ld. Pr. CIT under section 263 of the
Act and conditions to invoke the same may be summarized as under:
(i) “The CIT must record satisfaction that the order of the AO is erroneous and
prejudicial to the interests of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or
error committed by the A.O. and it is only when an order is erroneous, the
section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will
suffice for the requirement of the order being erroneous.
(iv) if the order is passed without application of mind, such order will fall under
the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interest of
the Revenue and if the AO has adopted one of the courses permissible
under law or where two views are possible and the AO has taken one view-with
which the CIT does not agree, it cannot be treated as an erroneous order, unless
the view taken by the AO is unsustainable under the law.
(vi) If while making the assessment, the A.O. examines the accounts, makes
enquiries, applies his mind to the facts and circumstances of the case and
determines the income, the CIT, while exercising his power under s. 263, is not
permitted to substitute his estimate of income in place of the income estimated
by the A.O.
(vii) The AO exercises quasi-judicial power vested in him and if he exercises
such power in accordance with law and arrives at a conclusion, such conclusion
cannot be termed to be erroneous simply because the CIT does not feel satisfied
with the said conclusion.
(vii) The CIT, before exercising his jurisdiction under s. 263, must have material
on record to arrive at a satisfaction.
(ix) If the AO has made enquiries during the course of assessment
proceedings on the relevant issues and the assessee has given detailed
explanation by a letter in writing and the AO allowed the claim on being satisfied
with the explanation of the assessee, the decision of the AO cannot be held to
be erroneous simply because in his order he does not make an elaborate
discussion in that regard.”
8.1 In the present case, the A.O. during the course of original assessment
proceedings, issued the questionnaire to the assessee, in response to which the
assessee furnished the reply and the documents which were considered by the
A.O. so it cannot be said that the enquiries were not made by the A.O. The rental
income shown by the assessee was considered to be “business income” as was
done in the preceding years since inception of the business by the assessee.
However, the Ld. Pr. CIT was of the view that the said view was not correct as the
letting out of the shop from which the rent was received was not the main object
of the assessee.
8.2 To resolve this controversy we have to considered the object and ancillary
object as mentioned in the Memorandum of Association and Article of
Association of the assessee company copy of which is placed at page no. 22 to
41 of the assessee’s compilation. The clause 3 of the said MOA read as under:
“ 3. To carry on the business of real estate dealers and developers including
purchase and sale of land, land development, colonization, purchase, sale,
construction and letting out of houses, flats, farm houses.”
The Ld. Pr. CIT considered the above said clause only. However he ignored the
ancillary clause no. 19 which read as under:
“ 19. To sell, improve, alter, manage, develop exchange, lease, mortgage,
dispose of, turn to account or otherwise deal with all or any parts of this business,
lands, property, assets, rights and the resources and undertakings of the
Company in whole or in part in such manner and on such terms as the Directors
may think fit.”
From the aforesaid clause it is clear that the assessee company was authorized to
lease out the property which in the present case has been done in respect of First
Floor & Second Floor SCO No. 126 & 127, Sector – 8C Chandigarh. The said
activity of leasing out was undertaken by the assessee company from the very
beginning when those assets were purchased, so it cannot be said that this
activity was only for the year under consideration. It is not in dispute that in all the
earlier years the income received from those lease out properties was considered
as “business income”, as the clause no. 19 of the MOA authorized assessee to
lease out its property which was its anciallary activity.
8.3 On a similar issue the Hon’ble Supreme Court in the case of Chennai
Properties and Investments Ltd. Vs. CIT (supra) held as under:
“ that letting of the properties was in fact the business of the assessee. The
assessee, therefore, rightly disclosed the income under the head “Income from
business”. It could not be treated as “Income from house property”.
In the present case also the main object of the assessee in its MOA was to carry
on the business of real estate dealers & developers including purchase & sale of
land, land development, colonization, opurchase, sale construction & letting out
of houses, flats, farm houses. However as per Clause 19 of the aforesaid MOA the
assessee was authorized to sell, improve, alter, manage, develop exchange,
lease, mortgage, dispose of etc of the business lands, property, assets etc in
whole or in part in such manner and on such terms as the Directors may think fit.
Therefore the income of the assessee received on lease out property was its
business income.
8.4 On a similar issue the Hon’ble Supreme Court in the case of Rayala
Corporation Pvt. Ltd. Vs. ACIT(supra) held as under:
“ that admittedly, the assessee had only one business and that was of leasing its
property and earning rent therefrom. The business of the company was to lease
its property and to earn rent and therefore, the income so earned should be
treated as its business income. The income of the assessee was to be subject to
tax under the head “Profits and gains of business or profession”.
8.5 Similarly the ITAT, Mumbai “J” Bench in the case of Shibani S. Bhojwani Vs.
DCIT(supra) held as under:
“Income from composite letting of furnished flats by the assessee, after thorough
vetting and scrutiny, having been accepted and assessed as ‘business income’
by the Department in the earlier years while framing regular assessments, in the
absence of any new facts emerging during the year under consideration, such
income cannot be assessed under the head ‘Income from house property’;
composite rental receipts are assessable as business income in the relevant
assessment year also in view of rule of consistency.”
8.6 Therefore by keeping in view the ratio laid down in the aforesaid referred
to cases we are of the opinion that the view taken by the A.O. was in
consonance with the ratio laid down by the Hon’ble Supreme Court and view
taken by the ITAT in the aforesaid referred to case. In that view of the matter, it
cannot be said that the view taken by the A.O. was wrong and if the view taken
by the A.O. was one of the possible view the assessment order dated 16/09/2016
passed by him cannot be considered to be erroneous. For the aforesaid view, we
are fortified by the ratio laid down by the Hon’ble Supreme Court in the case of
CIT Vs. Max India Ltd. [2007] 295 ITR 282 wherein it has been held that as under:
“ The phrase “prejudicial to the interest of the Revenue” in section 263 of the
Income-tax Act, 1961, has to be read in conjunction with the expression
“erroneous” order passed by the Assessing Officer. Every loss of revenue as a
consequence of an order of the Assessing Officer cannot be treated as
prejudicial to the interests of the Revenue. For example, when the Assessing
Officer adopts one of two courses permissible in law and it has resulted in loss of
revenue, or where two views are possible and the Assessing Officer has taken one
view with which the Commissioner does not agree, it cannot be treated as an
erroneous order prejudicial to the Revenue, unless the view taken by the
Assessing Officer is unsustainable in law.”
8.7 In the instant case, the assessee furnished a Chart before the authorities
below explaining that if the income received by it was to be treated as “income
from house property” instead of “business income” there would be an increase in
the loss. The said Chart had been reproduced in the former part of this order.
However the Ld. Pr. CIT by considering the wrong calculations, was of the view
that there was a profit instead of loss claimed by the assessee, if the rental
income to be considered as “income from house property” and not “as business
income” while adopting the said calculation, the Pr. CIT did not allow the
depreciation and the other expenses on this basis that the assessee was not
involved in any business activity during the year under consideration he ignored
this explanation of the assessee that there was lull in business, but the business
activity was not closed and the assessee was having stock in trade. It is well
settled that there is a difference between discontinuation of business and the
closure of business. In the present case, if there was no closure of the business,
therefore, it cannot be said that the assessee was not allowed to claim expenses
if those were incurred for the business purposes.
8.8 On a similar issue the Hon’ble Karnataka High Court in the case of K
Sreedharan & Co. Vs. CIT(supra) held as under:
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“I find merit in the contention raised on behalf of the petitioner and the reliance
placed on the above-mentioned decisions. In the present case also, the
assessment is not unit-wise but assessee-wise. Admittedly, the petitioner had to
participate in the auction which was conducted during the relevant assessment
year for the purpose of carrying on the business for the following year. The
assessee had to incur expenses for the above purpose. It is admitted that the
assessee had taken the loan and had to pay interest for the purpose of raising
money to participate in the auction and to acquire the licence for the purpose of
conducting the business of buying and selling arrack during the following year. It
is also an admitted fact that, for many years previous to the assessment year, the
assessee had been carrying on the same business. Under these circumstances,
the petitioner is perfectly justified in contending that it is entitled to claim
deduction in respect of the amount paid as interest for raising the loan during the
relevant assessment year”
8.9 In the present case also the assessee was not finding the buyer to sell the
property which were kept as stock in trade, so it cannot be said that the assessee
closed the business, therefore the expenses incurred for the purposes of business
as well as the depreciation claimed were allowable to the assessee as business
expenses, as such the Ld. Pr. CIT was not justified in not considering the
depreciation as well as the expenses to work out the income / loss of the
assessee.
8.10 In view of the aforesaid discussion, in the present case, it can be said that
by considering the rental income received by the assessee as “business income”
which was consistently claimed by the assessee in the preceding years also and
the department had accepted the same, the assessment order passed by the
A.O. was not prejudicial to the interest of the revenue, particularly when the loss
would have been more at Rs. 7,70,160.40 instead of Rs. 3,89,226/- if the rental
income was to be considered as “income from House Property”, instead of
“business income”, as declared by the assessee.
8.11 We therefore by considering the totality of the facts as discussed herein
above are of the view that the assessment order passed by the A.O. was not
prejudicial to the interest of the Revenue. In that view of the matter, the
impugned order passed by the Ld. Pr. CIT under section 263 of the Act is
quashed.
5.1 In the said case one Miscellaneous Application was also filed to rectify the
mistake apparent from record which was decided by this Bench of ITAT vide
order dt. 05/05/2021 in M.A. No. 04/Chd/2021, the mistake apparent from the
record was rectified, the relevant findings have been given in para 5 of the said
order which read as under:
5. After considering the submissions of both the parties, it is noticed
that in para 8.2 at page 15 in line 2 & 3 of the order dated 11/11/2020, the
leased out property has been mentioned as ‘First Floor & Second Floor’
SCO No. 126 & 127, Sector-8C Chandigarh instead of ‘Ground Floor and
Basement’ SCO No. 126 & 127, Sector-8C Chandigarh, inadvertently, due
7
to oversight and typographical mistake. Therefore, the mistake is rectified,
now in the order dated 11/11/2020 in ITA No. 860/Chd/2019 at page No.
15 in line 2&3, it is to be read as “Ground Floor and Basement” instead of
“First Floor & Second Floor”. Except this, there is no change in the
aforesaid order dated 11/11/2020 of the Tribunal.
Since the facts for the year under consideration are identical to the facts
involved in the earlier A.Y. 2014-15, so respectfully following the aforesaid
referred to orders passed in ITA No. 860/Chd/2019 and MA No. 04/Chd/2021
dated 11/11/2020 & 05/05/2021 respectively in assessee’s own case, the
impugned order passed by the Ld. Pr. CIT is quashed.
6. In the result, appeal of the Assessee is allowed.
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