Income Tax Appellate Tribunal - Mumbai
Mahendra K. Ghelani , vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "D"
Before S/Shri N.V. Vasudevan (JM) & A.L. Gehlot (AM)
I.T.A.No. 802/Mum/05 (Assessment year : 1999-2000)
I.T.A.No. 803/Mum/05 (Assessment year : 2000-01)
I.T.A.No. 804/Mum/05 (Assessment year : 2001-02)
ACIT 11(3) Shri Mahendra K. Ghelani
Room No. 446, 4th Floor C/o. Law Charter
Aayakar Bhavan Vs. 14-K Haman Street
M.K. Road Rajabahadur Mansion
Mumbai-400 020. Fort
Mumbai-400 023.
PAN/GIR No. : AALPG2739A
APPELLANT RESPONDENT
I.T.A.No. 26/Mum/05 (Assessment year : 1999-2000)
I.T.A.No. 27/Mum/05 (Assessment year : 2000-01)
I.T.A.No. 28/Mum/05 (Assessment year : 2001-02)
Shri Mahendra K. Ghelani ACIT 11(3)
C/o. Law Charter Room No. 446, 4th Floor
14-K Haman Street Vs. Aayakar Bhavan
Rajabahadur Mansion M.K. Road
Fort Mumbai-400 020.
Mumbai-400 023.
PAN/GIR No. : AALPG2739A
APPELLANT RESPONDENT
I.T.A.No. 23/Mum/05 (Assessment year : 1999-2000)
I.T.A.No. 24/Mum/05 (Assessment year : 2000-01)
I.T.A.No. 25/Mum/05 (Assessment year : 2001-02)
Smt. Mina M. Ghelani ACIT 11(3)
C/o. Law Charter Room No. 446, 4th Floor
14-K Haman Street Vs. Aayakar Bhavan
Rajabahadur Mansion M.K. Road
Fort Mumbai-400 020.
Mumbai-400 023.
PAN/GIR No. : AALPG0821G
APPELLANT RESPONDENT
2
Shri Mahendra K. Ghelani
Smt. Mina M. Ghelani
I.T.A.No. 805/Mum/05 (Assessment year : 1999-2000)
I.T.A.No. 806/Mum/05 (Assessment year : 2000-01)
I.T.A.No. 807/Mum/05 (Assessment year : 2001-02)
ACIT 11(3) Smt. Mina M. Ghelani
Room No. 446, 4th Floor C/o. Law Charter
Aayakar Bhavan Vs. 14-K Haman Street
M.K. Road Rajabahadur Mansion
Mumbai-400 020. Fort
Mumbai-400 023.
PAN/GIR No. : AALPG0821G
Assessee by : Shri Arvind Sonde
Department by : Shri Aarsi Prasad
ORDER
PER BENCH:-
ITA No. 28/Mum/05 is an appeal by the assessee while ITA No.804/Mum/05 is an appeal by the Revenue.
Both these appeals are directed against the order dated 18.11.2004 of learned CIT(A)-XI, Mumbai relating to A.Y.2001-02.
The assessee in this case is one Mr. Mahendra K. Ghelani.
2. ITA No. 25/Mum/05 is an appeal by the assessee while ITA No. 807/Mum/2005 is an appeal by the Revenue.
Both these appeals are directed against the order dated 18.11.2004 of learned CIT(A)-XI, Mumbai relating to A.Y. 2001-02.
The assessee in this case is one Mrs. Mina M. Ghelani, wife of Mr. Mahendra K. Ghelani.
3. These appeals involve identical issues arising out of identical facts and circumstances and were heard together. We deem it convenient to pass this common order.
3Shri Mahendra K. Ghelani Smt. Mina M. Ghelani
4. First issue that arises for consideration in the case of Mr. Mahendra K. Ghelani and Mrs. Mina M. Ghelani is as to whether revenue authorities were justified in treating the income derived from letting out of the property situated at 150 Chakala, Mumbai-400 002. (The aforesaid property hereinafter referred to as "Chakala Property") under the head income from other sources. The Chakala Property was owned by one Mr. Abdul Husain Ismil Shivji, who by an indenture of lease dated 3.5.1985, granted the aforesaid premises on lease to Mr. Mahendra K. Ghelani and Mrs. Mina M. Ghelani. Clause-1 of the Deed of Lease provides that the tenure of the lease will be for a period of 11 years commencing from 1.5.1985. Clause 4(b) of the Deed of lease confers power on the lessee to grant sub-lease. Clause 2(f) of the Deed of lease provides that at the expiration or sooner determination of the lease, lessee shall deliver possession of the premises leased. Mr. Mahendra K. Ghelani and Mrs. Mina M. Ghelani as lessees under the lease deed were thus entitled to half share of leasehold rights over Chakala property. They in turn, sublet the Chakala Property to Union Bank of India. Income derived from such subletting was offered to tax under the head income from house property. Since, income was declared under the head 'income from house property' assessee's claimed 1/4th deduction on account of repairs. The Assessing Officer held that since, it was a case of subletting of the premises and since the assessee was not owner of the property, income in the form of rent received from Union Bank of India is liable to the taxed under the head 'income from other source'. The Assessing Officer accordingly did not allow the claim of deduction of 1/4th of the rents received towards repairs.
5. Before learned CIT(A), the assessee contended that as per the lease deed dated 3.5.1985, the assessee was entitled to period of eleven years of lease and later on by an Agreement dated 3.12.1985 between the assessees and the owner of the Chakala Property, further period of eleven years extension of the lease period over and above lease period agreed to 4 Shri Mahendra K. Ghelani Smt. Mina M. Ghelani in the lease deed dated 3.5.1985 was agreed to be given to the assessees. The assessee therefore submitted that period of lease of the property was more than twelve year; and therefore in view of provisions of section 27(iiib) read with section 269UA(f) of the Act, the assessee has to be considered as deemed owner of the property; and therefore rental income from the property should be considered as income from 'house property'. This was rejected by learned CIT(A) for the following reasons :-
"I have considered the arguments of appellant and the contentions of the Assessing Officer. The appellant did not purchase the premise. Therefore, the appellant was not owner of the premises. The premises in question were leased to the appellant for more than 12 years as per agreements dated 3.5.1985 and 2.12.1985. At the same time, the appellant had also leased the premises to Union Bank of India for a period of 10 years as per agreement dated 2.12.1985. The Union Bank of India remained in possession of the premises till 30.9.2002 implying that the premises were let out to Union Bank of India for more than 12 years. Therefore, if the contentions of the appellant that as per section 27(iiib) r.w.s. 269 UA(f) of I.T. Act, the appellant could be deemed to be the owner of the premises. Therefore the income in question has to be considered as Income from Other Sources only. The action of the Assessing Officer deserves to be sustained. These grounds of appeal are rejected.
Aggrieved by the aforesaid order of the learned CIT(A), both the assessees have filed the present appeal before the Tribunal.
6. We have heard the submissions of learned counsel for the assessee who reiterated the stand as was taken by the assessees before the learned CIT(A). It has to be mentioned here that a copy of the Agreement dated 3.12.1985 between the owner of Chakala property and the assessees regarding extension of period of lease by another term of eleven years has not been filed. In any event, agreement does not appear to be registered document. Reference to this agreement dated 3.12.1985 is only contained in the lease deed between the assessees and the Union Bank of India. U/s. 22 of the Act, Annual value of any building or lands appurtenant thereto of which the assessee is the owner shall be 5 Shri Mahendra K. Ghelani Smt. Mina M. Ghelani chargeable to tax under the head 'Income from House property'; Section 27(iiib) defines 'owner of house property' for the purpose of section 22. A person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any transaction as is referred to in Clause (f) of section 269UA of the Act, shall be deemed to be the owner of that building or part thereof. Clause (f) of section 269UA defines transfer for the purpose of Chapter XX-C of the Act (i) in relation to any immovable property referred to in sub-clause (i) of clause (d) means transfer of such property by way of sale or exchange or lease for a term of not less than twelve years and allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53-A of the Transfer of Property Act, 1882. Explanation to clause (f) of section 269UA lays down that a lease which provides for extension of the term thereof by a further term or terms of not less than 12 years, if aggregate of the terms for which such lease is to be granted and further term or terms for which it can be so extended is not less than 12 years. The deed of lease dated 3.5.1985 under clause (1) thereof provides that the assessees will be lessee for a period of eleven years from 1.5.1985. There no clause which provides that extension of the term of the lease. We have already noticed that the assessee has been relying on the agreement between them and the landlord dated 3.12.1985 which was neither filed before the lower authorities nor before the Tribunal. It is the case of the assessees that under this Agreement further period of eleven years extension has been granted and the lease period thus was for 22 years. We have already held that this contention of the assessee remains unsubstantiated. Apart from the above, we are also of the view that explanation to clause (f) of section 269UA contemplates a lease which provides for extension of the term thereof by further term or terms of not less than 12 years, if aggregate of the term for which such lease is to be granted and further term or terms for which it can be so extended is not 6 Shri Mahendra K. Ghelani Smt. Mina M. Ghelani less than 12 years. The lease deed dated 3.5.1985, as already stated, does not provide for any extension of terms of the lease beyond eleven years. In such circumstances, we are of the view that the assessee cannot be said to be the owner of the house property under section 27(iiib) of the Act. We therefore confirm the order of learned CIT(A) but for the reasons given above and not for the reasons stated by the learned CIT(A) in his order. Thus, this common ground in the case of both the assessees are dismissed.
7. Next common issue that arises for consideration in the case of both the assessees is with regard to treating the income from lease of premises bearing office No. 321& 322 Plaza Shop Complex, Andheri (East), Mumbai -400 069 (hereinafter referred Sahara Plaza Property (SPP). The assessees are co-owners of SPP each owning ½ share each. They had purchased the aforesaid property under sale deed dated 20.8.1999. The aforesaid property was already in the occupation of a tenant M/s. Silicon Graphics System India Limited. The assessees agreed that the aforesaid tenancy would continue even after the purchase of the property by them. The agreement dated 5.1.1999 between the previous owner of the property and M/s. Silicon Graphics System India Ltd.,(copy at pages 142 to 168 of the paper book) recites that the owners own premises being unit No.321 and 322 admeasuring 1044 Sq.ft. in Sahar Plaza Office Complex and that they are entitled to permit use of the same and are also entitled to provide the business centre facilities to the lessee. It further provides in the recitals that use of the business centre facilities shall not tantamount to a tenancy and does not create any tenancy or other similar right or interest. Under clause 1 (a) the lessees have been given possession of the unit No.321 & 322 and have been assured that business centre facilities set out in clause-2 to the agreement would be provided to the lessees. Clause-2 lists the facilities and reads as follows:-
"The owners hereby agree to grant to the client the following business centre facilities, during the period of this Agreement viz.:7
Shri Mahendra K. Ghelani Smt. Mina M. Ghelani
(a) To have access to the said business centre for use of the client only by itself and its bonafide employees, authorized representatives and visitors during the days and hours hereinafter specified.
(b) To assist the client at the entire cost of the client in arranging upto 3 new telephone lines in addition to the two existing lines (total of 5 lines) to facilitate the client to make and receive telephone calls and fax messages.
(c) To provide for use of the client furniture, fixtures and air conditioning as per the design, specification and layout provided by the client as per detailed list set out in the annexure hereto.
(d) To keep the business centre open during business hours (9.00 am to 8.00 pm) during the week excluding any public holidays under the Negotiable instruments Act.
(e) To make available the facility of one receptionist to be approved by the client on charges to be paid separately by the owners.
(f) To keep the business centre clean and tidy and continue to provide with the existing electricity and water connections without being liable for any shortages, power cuts or other similar interruptions beyond the control of the owners.
(g) To provide any further facilities which the owners in their sole discretion consider necessary to provide the client.
(h) To provide 2 reserved car parks to the client at no additional cost.
Clause-7 of the Agreement provides for consideration payable. It refers to a composite sum without any bifurcation as to what is payable for use of the premises or what is payable for use of facilities provided. Annexure to the Agreement gives a list of furniture and internal decorations. The assessees offered the receipts from the tenant under 8 Shri Mahendra K. Ghelani Smt. Mina M. Ghelani the head the head 'income from house property'. The Assessing Officer, however, was of the view that the amount received by the assessees was consideration for use of business centre and therefore the income thereof was to be assessed under the head 'income from other sources'. Consequently, the Assessing Officer denied the claim of the assessee for deduction of 1/4th of the rent received towards repairs.
8. On appeal by the assessees, learned CIT(A) confirmed the order of the Assessing Officer for the following reasons :-
"I have considered the arguments of appellant and the contentions of the Assessing Officer. I have also perused the agreement dated 20.8.1998. As per the agreement the appellant purchased the premises in question jointly with Smt. Meena Ghelani, wife of the appellant from M/s Tirathdas Rellumal. The premises had been purchased by the appellant with M/s. Silicon as tenant/occupant. The agreement refers to another agreement dated 5.1.1999 between the M/s. Tirathdas Rellumal and M/s. Silicon Graphics Systems Limited. As per the agreement dated 5.1.1999, the premises in question had let out to M/s. Silicon Graphics as Business Centre. As per the agreement dated 5.1.1999 M/s. Silicon Graphics have been allowed to utilize the premises as office but the agreement was not to construe to create any right, interest, easement, tenancy or sub-tenancy or any other right or title of any kind of whatsoever in favour of M/s. Silicon Graphics.
In view of the above, it is obvious that M/s. Silicon Graphics were not the tenant and no right for tenancy or otherwise was created in favour of M/s. Silicon Graphics. The premises were utilized by Silicon Graphics, with the facility of telephone and receptionist. However, the facts of the case of appellant are slightly different than the case Shambu Investmnet 9 Shri Mahendra K. Ghelani Smt. Mina M. Ghelani Pvt. Ltd. in as much as that in the cited case the tenants had deposited the cost of property as security free advance in addition to monthly rent paid. The premises in the cited Judgment were provided were let out to various persons with services like watch and ward staff, electricity, water and other common amenities. Therefore the action of the Assessing Officer treating the income as income from other sources deserves to be sustained. This ground of appeal is rejected."
Aggrieved by the order of learned CIT(A), the assessees have preferred the relevant grounds of appeal before the Tribunal.
9. We have heard the submissions of learned counsel for the assessee who submitted that the amount in question was received by the assessees for letting out of their property and rents were received in their capacity as owner of the property and therefore the same has to be considered as income from house property. Learned counsel for the assessee also referred to the decision of Hon'ble Supreme Court in the case of Shambhu Investment P. Ltd. Vs. CIT, 129 Taxman70 (SC). Learned DR relied on the order of learned CIT(A).
10. We have considered the rival submissions. In Shambu Investments (P) Ltd. Vs. CIT 263 ITR 143 (SC) the Honourable Supreme Court approved the decision of the Hon'ble Calcutta High Court in the case of CIT Vs. Shambu Investments (P) Ltd. 249 ITR 47(Cal). The facts in the aforesaid case decided by the Hon'ble Calcutta High Court were as follows: The assessee, owner of certain furnished premises, let out the same to various persons or firms or organisations. Under the agreement, the assessee was to provide services like watch and ward staff, electricity, water and other common amenities. The income derived by the assessee from the said office premises was offered for taxation as business income and the same was assessed, accordingly, by the Assessing Officer. Subsequently, the Commissioner, invoking section 263, after giving 10 Shri Mahendra K. Ghelani Smt. Mina M. Ghelani hearing to the assessee, held that the same was erroneous and prejudicial to the interest of revenue and, therefore, remanded the matter to the Assessing Officer with a direction to assess the said income as "Income from House Property". Aggrieved by the said order, the assessee preferred an appeal before the Tribunal and the Tribunal held that the order of the Assessing Officer was not erroneous and prejudicial to the interest of the revenue and, therefore, cancelled the impugned order. On a reference to the Hon'ble High Court, it was held as follows :
"Taking into account the various judicial pronouncements, it clearly appears that merely because income is attached to any immovable property, it cannot be the sole factor for assessment of such income as income from property. What has to be seen is what is the primary object of the assessee while exploiting the property. If it is found applying such test that the main intention is letting out the property or any portion thereof, the same must be considered as rental income or income from property. In case it is found that the main intention is to exploit the immovable property by way of complex commercial activities in that event it must be held as business income".
On facts, the Court found that the cost of the property was Rs. 5,42,443/-. A portion of the property was used by the assessee himself for his own business purpose. The rest of the property had been let out to the various occupiers. It was further noticed that the assessee had already recovered a sum of Rs. 4,25,000/- as and by way of security free advance from three occupants. Hence, the entire cost of the property let out to those occupiers had already been recovered as and by way of interest-free advance by the assessee. Hence, the Court concluded that it could not be said that the assessee was exploiting the property for its commercial business activities and such business activities were primary motto and letting out the property was a secondary one. There was no separate agreement for furniture and fixtures or for providing security 11 Shri Mahendra K. Ghelani Smt. Mina M. Ghelani and other amenities. The Court therefore came to the conclusion that the only intention was to let out the portion of the premises to the respective occupants and the intention in making such agreement was to allow the occupants to enjoy the table space together with the furniture and fixtures. The Court on a plain reading of the agreemen was of the view that the intention of the parties to the said agreement were clear and unambiguous by which the first party had allowed the second party to enjoy the said table space upon payment of the comprehensive monthly rent. Further, it was composite table space let out to various occupants, the amenities granted to those occupants including the user of the furniture and fixtures were attached to such letting out. Hence, it was held that the prime object of the assessee under the said agreement was to let out portion of said property to various occupants by giving them additional right of using furniture and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property. Thus, it was held that the income derived from the said property was an income from property and should be assessed as such.
11. As held in the case of Shambu Investments (Supra), merely because income is attached to any immovable property, it cannot be the sole factor for assessment of such income as "Income from House Property". The primary objective of the Assessee while exploiting the property has to be seen. The nature of letting has to be seen before concluding whether the income from letting is from Business or Income from House property. In case it is found that the main intention is to exploit immovable property by way of complex commercial activities than it must be held as Business Income.
12. We have already referred to relevant clauses in lease deed under which, the tenant was given certain facilities. Perusal of the aforesaid clauses shows that what was given on lease was only unit No. 321 & 322 12 Shri Mahendra K. Ghelani Smt. Mina M. Ghelani measuring 1044 sq.ft. Tenant was also provided with furniture and fixtures and air conditioner. There is clause for providing one receptionist. Above clauses in lease deed, in our view will not render the income in question as income from other sources. There are no complex commercial activities so as to come to a conclusion that the income was business income. In our view, it was the case of simple letting of the property for consideration by the owner. Income has therefore to be considered only under the head 'income from house property'. The nomenclature used in the agreement between the parties regarding use of business centre facilities will not be conclusive. As already seen there is no business centre facility whatsoever and it was a case of letting of office space together with appurtenant amenities like furniture and fixtures, telephone connection. In our view, decision in the case of Shambhu Investment P. Ltd. (supra) clearly supports the stand of the assessee. In our view, learned CIT(A) was not justified in coming to the conclusion that M/s. Silicon Graphics (tenant) had no interest in the property and were not the tenant. This finding of learned CIT(A) is erroneous. M/S.Silicon Graphics were tenants of the premises. For all the above reasons, we hold that income in question has to be assessed under the head income from house property. Consequently, assessee would be entitled deduction on account of repairs as claimed. Relevant grounds of appeal of the assessee are allowed.
13. There is one more issue to be considered in the case of Assessee Mr. Mahendra K. Ghelani in ITA No. 28/Mum/2005 for AY 01-02. The assessee is a Lawyer by profession. He had shown withdrawals for household expenses of Rs. 71,237/-. The assessee explained that his wife Mrs. Meena Ghelani also a Lawyer by profession had contributed towards household expenses of Rs. 87,927/-. The Assessing Officer, however, found that after deducting conveyance, electricity, telephone and entertainment expenses, only sum of Rs. 19,500/- would have been contributed for household expenses by Mrs. Meena Ghelani as well as by 13 Shri Mahendra K. Ghelani Smt. Mina M. Ghelani the assessee. The Assessing Officer was of the view that withdrawals shown were very meager and therefore made addition of Rs. 50,000/- to the total income on account of low household withdrawal. On appeal by the assessee, learned CIT(A) confirmed the order of the Assessing Officer.
14. We have heard the rival submissions. We are of the view that the addition made by the Assessing Officer and sustained by learned CIT(A) is without any evidence. Such adhoc disallowance cannot be made. In doing so, revenue authorities have ignored submissions of the assessee that they were living in joint family and there have been other contributions. In any event, we are of the view that such adhoc disallowance cannot be sustained. We therefore delete the disallowance made by the revenue authorities.
15. We shall now take up for consideration appeals of the revenue. Grounds of appeal of the revenue in ITA No. 804/Mum/05 & 807/Mum/05 read as follows :-
Ground in ITA no. 804/Mum/05 (Mahendra K.Ghelani) for A.Y.01-02 On the facts and circumstances of the case and in law, learned CIT(A) erred in deleting the addition of Rs. 11,26,145/- towards the interest amount credited on account of the assessee in the books of the company.
The appellant prays that the order of learned CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. The appellant craves leave to amend or alter any ground or add a new ground which be necessary.
Ground in ITA No. 807/Mum/05 : (Mrs.Mina Ghelani) for A.Y.01-02 On the facts and circumstances of the case and in law, learned CIT(A) erred in deleting the addition of Rs. 8,59,749/- towards the interest amount credited on account of the assessee in the books of the company.
The appellant prays that the order of learned CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. The appellant craves leave to amend or alter any ground or add a new ground which be necessary.14
Shri Mahendra K. Ghelani Smt. Mina M. Ghelani
16. Shri Mahendra K. Ghelani and Mrs. Meena M. Ghelani are the directors of M/s. Variety Investment Pvt. Ltd.. An amount of Rs. 11,26,145 and Rs. 8,59,749/- was interest due to Shri Mahendra K. Ghelani and Mrs. Meena M. Ghelani from M/s. Variety Investment Pvt. Ltd. The Company credited interest amount in their books in the account of respective assessees. The company also deducted tax at source on such interest and TDS was paid to the Government account. The assessees did not reflect the aforesaid receipts in their return of income for A.Y. 2001-02. The assessees explained that they were following cash system of accounting; whereas, the company was following mercantile system of accounting. The assessees explained that on receipt basis, they had offered interest income to tax; and therefore no addition should be made. The Assessing Officer, however, rejected the claim of the assessees and held that once interest is credited to the account of the assessee in the books of the company, the same has to be treated as received by the assessee and he therefore added the aforesaid interest income to the total income of the assessee.
17. On appeal by the assessees, learned CIT(A) deleted the addition made by the Assessing Officer for the following reasons :- (in the case of Mahendra K.Ghelani) "I have considered the arguments of appellant and the contentions of the Assessing Officer. The fact that company has been following mercantile system of accounting is not disputed. It is also not disputed that the appellant followed cash system of accounting. In the mercantile system of accounting, the liability was incurred by the company when the interest was credited to the account of the appellant. However, the same cannot be considered as received by the appellant, as the appellant followed cash system of accounting. The interest had not been credited to an the independent account like the bank account or account of partners with the partnership firm from where the appellant was at liberty to withdraw the amount. By crediting the interest to the account of appellant, the company had acknowledged the liability towards the interest payable to the appellant. Therefore, the contentions of the Assessing Officer that interest of Rs. 11,26,145/- was received 15 Shri Mahendra K. Ghelani Smt. Mina M. Ghelani by the appellant cannot be sustained. The addition of Rs. 11,26,145/- is deleted."
Similar order was passed in the case of Mrs. Meena M. Ghelani. Aggrieved by the aforesaid orders of the learned CIT(A), the revenue has preferred the present appeals before the Tribunal.
18. Before us, learned DR relied on the orders of the Assessing Officer. We have considered his submissions and are of the view that there is no merit in these appeals of the revenue. As rightly held by learned CIT(A), when the assessees follows cash system of accounting, unless interest is received, the assessee cannot account the same as income. It is not a case where interest has been credited to an independent account like bank account, or account of partners with partnership firm. In such cases, the assessee was at liberty to withdraw the amount from the concerned account. Admittedly, there was no such credit to an independent account. The assessees are individuals and the interest in question was paid by a limited company. Therefore analogy of credit in partner's capital account by a firm cannot also be drawn. For all the above reasons, we confirm the order of learned CIT(A) and dismiss both these appeal of the revenue.
19. Now we deal with ITA No. 26/Mum/05 & ITA No. 802/Mum/05 :
These appeals relate to the Assessee Mr.Mahendra K.Ghelani. ITA No. 26/Mum/05 is an appeal by the assessee while ITA No. 802/Mum/05 is an appeal by the revenue. Both these appeals are directed against the order dated 18.11.2004 of learned CIT(A)-XI, Mumbai relating to A.Y. 1999-2000.
20. Ground No. 1&2 raised by the assessee read as follows :-
16Shri Mahendra K. Ghelani Smt. Mina M. Ghelani
1) Learned CIT(A) has erred in holding that income earned from an order enhancing the assessment in respect of source of income which was not disputed by the ITO.
2) The appellant submits that considering the facts and circumstances of the assessment in respect of the law prevailing the enhancement of assessment in respect of property income is without jurisdiction unlawful and illegal.
For A.Y. 1999-2000, the assessee originally filed return of income on 17.12.1999. Return was accepted u/s. 143(1) of the Act. Assessment was reopened by an issue of notice u/s. 147 of the Act. Ground on which, assessment was reopened was that the interest income credited by M/s. Variety Investment Pvt. Ltd. in their books and on which they had deducted tax at source had not been offered to tax by the assessee in the return of income. The Assessing Officer completed the assessment u/s. 143(3) read with section 147 making impugned addition of interest credited by M/s. Variety Investment Pvt. Ltd. ignoring the plea of the assessee that it was following cash system of accounting and therefore the sum cannot be brought to tax as the same was not received by the assessee. Aggrieved by the aforesaid order of the Assessing Officer, the assessee preferred the appeal before the Tribunal. Learned CIT(A) deleted the addition made by the Assessing Officer by following the order of the learned CIT(A) for A.Y. 2001-02. We have dealt with this aspect while deciding other appeals of the revenue. Learned CIT(A), however, proceeded to issue notice of enhancement. Learned CIT(A) referred to the fact that in A.Y. 2001-02, rental income from Chakala Property given on lease to Union Bank of India was brought to tax by the Assessing Officer under the head 'income from house property'; whereas it should have been brought to tax under the head 'income from other sources'. Learned CIT(A) therefore, wanted to disallow the claim of the assessee for deduction u/s. 24 on account of repairs and he therefore issued notice of enhancement to this extent. The assessee pleaded before the learned CIT(A) that in exercise of power of enhancement, learned CIT(A) cannot consider new source of income which has not been subject matter of 17 Shri Mahendra K. Ghelani Smt. Mina M. Ghelani consideration by the Assessing Officer from the point of view of taxability. It was submitted that in this context, consideration does not mean incidental or collateral examination of any matter by the Assessing Officer in the process of assessment and that there must be something in the assessment order to show that the ITO applied his mind to the particular subject matter or sources of income regarding its taxability or non-taxability. Learned CIT(A), however, did not agree the contention on behalf of the assessee for the following reasons :-
"I have considered the contentions of the appellant. In the cited case the assessment proceedings were sought to the reopened on the basis of information in respect of cash credits which were accepted u/s. 143(1) of the I.T. Act. In the case of appellant the assessment was reopened for taxing the interest income. Once the assessment was reopened, the Assessing Officer could examine all the aspects. In A.Y. 2001-02, the income from same properties has been assessed by the Assessing Officer and upheld in appeal to be income from other sources. The learned CIT(A) has all the powers of the Assessing Officer during pendency of the appeal as far as the assessment of income is concerned. If the Assessing Officer has omitted to consider the merits of any source of income, the learned CIT(A) is not prohibited from examining the merits of such source of income. Therefore, in order to have a harmonious inference for the particular source of income, the income from the property is being considered as income from other sources. While computing the income from this property the appellant had claimed deduction of Rs. 15,180/- for repairs u/s. 24(1) of the I.T. Act.
Since, the income from the above properties is held to be income from other sources, the appellant shall not be entitled to deduction u/s. 24 of the I.T. Act to the extent of Rs. 15,180/-. The income of the appellant shall be enhanced by amount of Rs. 15,180/-.
The CIT(A) thus enhanced the income of the Assessee by disallowing deduction u/s.24 of the Act. Aggrieved by the aforesaid order of the learned CIT(A), the assessee has raised Ground No. 1&2 before the Tribunal.18
Shri Mahendra K. Ghelani Smt. Mina M. Ghelani
21. We have heard the rival submissions. We have also perused the order the Assessing Officer passed u/s. 143(3) read with section 147 of the Act. In this order, the Assessing Officer considered the taxability of interest income credited by M/s. Variety Investment P. Ltd. and not offered to tax by the assessee. In fact, assessment was reopened only for this limited purpose. The Assessing Officer has not considered anything about rental income received by the assessees from letting out of property i.e. Chakala property to Union Bank of India. In such circumstances, we are of the view that the Assessing Officer has exercised power of enhancement on a matter which was not under consideration by the Assessing Officer. In fact, the Assessing Officer never applied his mind with regard to income from Chakala property. In this regard, learned counsel for the assessee has relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria, 66 ITR 443 (SC) and Hon'ble Bombay High Court in the case of Lokenath Tolaram Vs. CIT, 161 ITR 82 (Bom). The Hon'ble Supreme Court in the case of Rai Bahadur Hardutroy Motilal Chamaria(supra) has laid down following principles :-
"The appellate assistant commission has no jurisdiction under section 31(3) of the Indian Income Tax Act, 1922 to assess a source of income which is not disclosed either in the returns filed by the assessee or in the assessment order. It is not therefore open to the appellate assistant commissioner to travel outside the record i.e. the return made by the assessee or the assessment order of the ITO, with a view to finding out new sources of income and the power of enhancement under section 31(3) is restricted to the sources of income which have been the subject matter of consideration by the ITO from the point of view of taxability. In this context, 'consideration does not mean 'incidental' or 'collateral' examination of any .........the ITO, in the process of assessment. There must be so ......in the assessment order to show that the ITO applied his mind of the particular subject matter or the particular source of income with .......taxability or to its non-taxability and not to any incidental ......"19
Shri Mahendra K. Ghelani Smt. Mina M. Ghelani The Hon'ble Bombay High Court in the case of Lokenath Tolaram (supra) has again reiterated the above principles in the following words :-
"The Power of enhancement conferred upon the appellate assistant commissioner is restricted to the subject matter of assessment or the source of income which had been considered expressly or by clear implication by the ITO from the point of view of the taxability of the assessee. There had to be something in the assessment order to show that the ITO had applied his mind to the particular subject matter or the particular source of income with a view to its taxability or non-taxability and not to any incidental connection."
22. In the light of the aforesaid judicial pronouncements, we are of the view that the learned CIT(A) erred in exercising powers of enhancement. We hold that the action of learned CIT(A) in this regard is not legal. Consequently, other disputes raised by the assessee with regard to whether or not income in question has to be treated as income from house property or income from other sources is not taken up for consideration.
23. In the result, Appeal of the assessee stands allowed.
24. As far as ITA No. 802/Mum/05 is concerned, the issue is same as was considered while deciding appeal of the revenue for A.Y. 2001-02( para 15 to 18 of this order) in the case of Mahendra K. Ghelani and Mrs. Meena M. Ghelani i.e., with regard to receipt of interest from M/S.Variety Investments Pvt. Ltd. For the reasons stated therein, this appeal of the revenue is dismissed.
25. ITA No. 27/Mum/05 & ITA No. 803/Mum/05 : (Mr.Mahendra K.Ghelani) Both are cross appeals by the assessee and the revenue against the order dated 18.11.2004 of learned CIT(A)-XI, Mumbai relating to A.Y. 2000-01. Issues raised in these appeals are identical as in A.Y. 2001-02.
20Shri Mahendra K. Ghelani Smt. Mina M. Ghelani For the reasons stated therein, appeal of the assessee is allowed; while appeal of the revenue is dismissed.
26. ITA No. 23/Mum/05 & ITA No. 805/Mum/05 : (Mrs.Mina K.Ghelani) Both these appeals are cross appeals by the assessee and the revenue respectively against the order dated 18.11.2004 of learned CIT(A)-XI, Mumbai relating to A.Y. 1999-2000.
27. ITA No. 24/Mum/05 & ITA No. 806/Mum/05 : (Mrs.Mina K.Ghenai) Both these appeals are cross appeals by the assessee and the revenue respectively against the order dated 18.11.2004 of learned CIT(A)-XI, Mumbai relating to A.Y. 2000-01.
28. These four appeals are in respect of the assessee Mrs. Meena M. Ghelani. Grounds raised therein are identical grounds as decided in the case of Mr. Mahendra K. Ghelani in ITA No. 26/Mum/05 and ITA No. 802/Mum/05 (Para 19 to 24 of this order). For the reasons stated therein, appeals of the assessee are allowed while appeals of the revenue are dismissed.
Order has been pronounced on 11th Day of January 2010.
Sd/- Sd/-
(A.L. GEHLOT) (N.V. VASUDEVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 11th January, 2010
Copy to : 1. The Assessee
2. The Respondent
3. The CIT(A)-concerned.
4. The CIT, concerned.
5. The DR concerned, Mumbai
21
Shri Mahendra K. Ghelani
Smt. Mina M. Ghelani
6. Guard File
BY ORDER
True copy
ASSTT. REGISTRAR, ITAT, MUMBAI
PS