Case Law Details
Chand N. Bhojwani Vs DCIT (ITAT Mumbai)
AO was bound to compute the tax payable by the assessee on the income computed by him even if it was at a lesser figure than the income returned by the assessee. AO was unjustified in not giving full effect to the assessee on having himself assessed such income under the head ‘Income from house property’ from letting out of flats.
FULL TEXT OF THE ITAT JUDGMENT
This appeal, filed by the assessee, being ITA No. 7391/Mum/2016 , is directed against appellate order dated 28.09.2016 passed by learned Commissioner of Income Tax (Appeals)-39, Mumbai (hereinafter called “the CIT(A)”), for assessment year 2012-13, the appellate proceedings had arisen I.T.A. No.7391/Mum/2016 before learned CIT(A) from assessment order passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”) for AY 2012-13.
2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-
“GROUND I: LICENSE FEES ASSESSABLE UNDER THE HEAD “PROFITS AND GAINS OF BUSINESS OR PROFESSION” AND NOT “INCOME FROM HOUSE PROPERTY”
1.1 On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in upholding the action of the Deputy Commissioner of Income Tax, Central Circle – 3(4), Mumbai (‘the AO’) in assessing the license fees received from the composite letting of property under the head “Income from House Property”.
1.2 He failed to appreciate and ought to have held that:
a. the aforesaid property has been let out along with furniture, fixtures and other amenities from the A.Y, 2002-03 and have since been assessed under the head Profits and Gains of Business or Profession in all assessments completed under section 143(3) of the Act from A.Y. 2002-03 to A.Y. 2008-09. There has not been any change in the activity of the Appellant during the captioned Assessment Year. In absence of change in facts, the license fees cannot be assessed under the head Income from House Property;
b. the mere fact that the Appellant has not expanded her business activity cannot be a basis to treat the income as Income from House Property.
1.3 The Appellant, prays that the License fees be treated as income under the head “Profits and gains of Business and Profession” instead of income under the head Income from House Property.
GROUND II: DEPRECIATION DISALLOWANCE
2.1 On the facts and circumstances of the case and in law, the Learned CIT(A) erred in upholding the action of the AO in disallowing the claim of depreciation on fully furnished flats.
2.2 He failed to appreciate and ought to have held that once the flats are used for the purposes of the business of composite letting, they form part of the block of assets and in view of Explanation 5 to section 32, allowance of depreciation is mandatory and hence cannot be disallowed.
2.3 The Appellant, therefore, prays that the disallowance on depreciation be deleted.
WITHOUT PREJUDICE TO GROUNDS I & II
GROUND III: LICENSE FEES OF COMPOSITE LETTING ACTIVITY OUGHT TO HAVE BEEN TAXED UNDER THE HEAD ‘INCOME FROM OTHER SOURCES’.
3.1 On the facts and circumstances of the case and in law, and without prejudice to the foregoing grounds, the income by way of license fees for composite letting out of furniture/fittings etc together with the residential premises ought to be taxed as “Income from Other Sources” if not as income under the head “Profits and Gains of Business or Profession”.
3.2 He failed to appreciate and ought to have held that the clear mandate of section 56 is that such inseparable letting income would have to be taxed under the head “Income from Other Sources” if not under the head “Profits and Gains under the head “Profits and Gains of Business or Profession“.
WITHOUT PREJUDICE TO GROUNDS I, II & III
GROUND IV : NON-ADJUDICATION OF CLAIM OF MAINTENANCE CHARGES WHILE COMPUTING “ANNUAL VALUE” OF LET OUT FLATS
4.1 On the facts and circumstances of the case and in law, the Learned CIT(A) erred in not adjudicating the Ground dealing with the action of the AO in disallowing the claim for deduction of maintenance charges in computing Annual Letting Value and in computing income under the head ‘Income from House Property’ on fully furnished flats on the ground that the issue of deductibility of maintenance charges is of academic interest since even without considering this issue the assessed income is below the returned income.
4.2 He failed to appreciate and ought to have held that the deduction to which the Appellant is otherwise entitled, in accordance with the provisions of the Act, cannot be denied merely on the ground that even without considering such deduction the assessed income is below the returned income.
4.3 The Appellant, therefore, prays that the CIT(A) be directed to adjudicate the ground regarding non-allowability by the Assessing Officer of maintenance charges while computing annual value of let out properties.
WITHOUT PREJUDICE TO GROUNDS I, II, III and IV.
GROUND V: RETURNED INCOME HELD TO BE TOTAL INCOME MERELY BECAUSE IT IS GREATER THAN INCOME AS COMPUTED BY THE ASSESSING OFFICER.
5.1 The CIT(A) erred in confirming the action of the Assessing Officer in assessing the total income to be the returned income solely for the reason that the returned income was greater than the income as assessed by him merely because the CBDT circular states so.
5.2 He failed to appreciate and ought to have held that the total income has to be computed in accordance with the provisions of the Act and that an excessive amount returned by the Appellant cannot be assessed to tax merely because it has been returned or that the CBDT circular states so. Since it is the duty of the Assessing Officer to correctly compute the income.
5.3 The Appellant prays that subject to the claims raised in Grounds I, II, III and IV above, the income as computed by the Assessing Officer in the impugned assessment order be held to be the assessed income.
GROUND VI: GENERAL
6.1 The Appellant craves leave to add, amend, alter and/or delete any/all of the above grounds of appeal.”
3. The brief facts of the case are that the assessee is having income from house property and other sources . The assessee showed income from letting out of flats as business income which was assessed to tax by the AO under the head „Income from house property‟ by following the decision of Hon‟ble Supreme Court in the case of Shambhu Investment P. Ltd v. CIT (2003) 263 ITR 143(SC) . The AO also followed his own decision for the preceding year i.e. AY 2011-12 , which was later approved by ld. CIT-A vide order dated 03.10.2014 for AY 2011-12 wherein learned CIT(A) dismissed the appeal of the assessee.
4. The assessee went in appeal before the learned CIT-A challenging the assessment order passed by the AO u/s 143(3) for AY 2012-13 wherein learned CIT(A) dismissed the appeal of the assessee by following his own appellate order for AY 2011-12, vide appellate orders dated 28-09-2016 passed for AY 2012-13.
5. Aggrieved by the appellate order dated 28-09-2016 passed by learned CIT(A) for the impugned assessment year, the assessee has come in an appeal before the tribunal .
At the outset , Ld. Counsel for the assessee submitted that ground no. (I) to (IV) raised by the assessee in memo of appeal filed with the tribunal are not pressed and the same should be dismissed as not being pressed. The Ld. DR raised no objection for the dismissal of ground no. (I) to (IV).
After hearing both the parties and on perusal of the material on record , we hereby dismiss ground no (I) to (IV) as raised by the assessee in memo of appeal filed with the tribunal as not being pressed. We order accordingly.
With respect to the ground no (V) raised by the assessee in its appeal filed with the tribunal, it is the submission of ld. Counsel for the assessee that the said ground is covered by the decision of the tribunal in assessee‟s own case in ITA no. 273/Mum/2015 and 274/Mum/2045 for AY 2010-11 and 2011-12 respectively vide common order dated 28.07.2017 . The assessee has placed the said orders of the tribunal dated 28-07-2017 which is placed in file and our attention was drawn by learned counsel for the assessee to the decision of the tribunal in said orders.
The Ld. DR fairly agreed that the said issue in ground no. (V) is covered by the decision of the tribunal in assessee own case in ITA No. 273/Mum/2015 and 274/Mum/2045 for AY 2010-11 and 2011-12 respectively vide common orders dated 28.07.2017.
6. We have considered rival contentions and have perused the material on record. We have observed that the assessee has offered for taxation income from letting of flats as business income which was assessed by the AO as income from house property , wherein the assessee agreed to be assessed under the head „Income of house property‟ with respect to the letting of the flats instead of its earlier claim as filed in return of income to have earned income from business from letting of these flats. However , after assessing the said income of the assessee under the head „Income from house property‟, the AO has not given full effect to is own decision to assessee assessee‟s income as income from house property because of the reason that the assessed income went down below the returned income . The authorities below retained the assessed income equivalent to the returned income despite the said assessed income having gone below the returned income due to the income from letting of flats being assessed under the head „Income from House Property‟ instead of being returned as business income owing mainly to the statutory deduction available u/s 24(a) . Thus, the AO did not gave full effect to the assessee on having himself assessed such income under the head „Income from house property‟ from letting out of flats because the income came down below the returned income due to statutory deduction allowable to the assessee u/s. 24(a) . We have observed that the tribunal has passed detailed reasoned order in ITA No. 273/Mum/2015 and 274/Mum/2045 for AY 2010-11 and 2011-12 , vide common order dated 28.07.2017 allowing the full effect to the decision of the AO to assess the said income from letting of the flats under the head „Income from House Property‟ and relevant extracts are as detailed here under:-
“ 10. We have heard the rival contentions and perused the material available on record in the light of the decisions relied upon by the learned Authorised Representative. Undisputedly, in the original return of income as well as in the return of income filed in pursuance to notice issued under section 153A of the Act, the assessee has declared total income of` Rs. 12,14,75,531. While doing so, the assessee has treated the income derived from letting out of flats as business income. In the course of assessment proceedings, the Assessing Officer after considering the facts and material on record, in his own wisdom concluded that income from letting out of flats is to be assessed under the head income from house property and accordingly proceeded to compute the income of the assessee. However, as a result of such computation made by the Assessing Officer the income was determined at Rs. 11,79,83,380. Having found that the income determined by him is lesser than the income returned by the assessee the Assessing Officer adopting the income returned by the assessee, computed the tax liability. In our considered opinion, the aforesaid action of the Assessing Officer is legally impermissible. As could be seen, the Assessing Officer himself took a decision to treat the income from letting out of properties as a house property income instead of business income. Therefore, while computing the tax liability the Assessing Officer has to give full effect to the income computed by him by adopting such approach. Merely because in the process of such computation the income determined by him becomes lower than the income returned by the assessee, the Assessing Officer for the purpose of computation of tax liability cannot adopt the income returned by the assessee. Once the Assessing Officer takes a decision to reject the claim made by the assessee in the return of income, he has to give full effect to his decision and cannot apply his decision in a selective manner. When the Assessing Officer proceeded to compute the income from letting out of property as house property income, he has to allow the assessee the statutory benefits attached to such income. In this regard, the CBDT circular referred to above by the learned Commissioner (Appeals) cannot come to the rescue of the Revenue. As held by the Hon’ble Gujarat High Court in Gujarat Gas Co. (supra), the CBDT instructions as contained in Circular no.549 dated 31st October 1989 cannot over ride the statutory provisions contained under the Act, hence, such instructions of CBDT cannot bind the Assessing Officer to bypass the provisions of the Act. The Hon’ble Calcutta High Court in CIT v/s Bhaskar Mitter, [1004] 73 Taxman 437 (Cal.) while dealing with similar issue held as under:–
“8. The controversy raised in the second question is as to whether the annual letting value of the property determined by the Tribunal could be a figure lower than that returned by the assessee. The principles for determining the annual letting value under section 23 are now well-settled and if the value returned is not in accordance with such principles, it is open to the assessee to contend that the value as may be determined upon correct application of the law should form the basis of assessment. The revenue authorities, in our view, cannot be heard to say that merely because the assessee has returned a figure which is higher than the annual value determined in accordance with the correct legal principles, such higher amount and not the correct amount should be lawfully assessed. An assessee is liable to pay tax only upon such income as can be in law included in his total income and which can be lawfully assessed under the Act. The law empowers the ITO to assess the income of an assessee according to law and determine the tax payable thereon. In doing so he cannot assess an assessee on an amount, which is not taxable in law, even if the same is shown by an assessee. There is no estoppel by conduct against law nor is there any waiver of the legal right as much as the legal liability to be assessed otherwise than according to the mandate of the law (sic). It is always open to an assessee to take the plea that the figure, though shown in his return of total income, is not taxable in law. The Tribunal, therefore, in our view did not commit any error in directing to fix the correct annual letting value of the premises in question, in accordance with the provisions of section 23 of the said Act with reference to the municipal valuation, although such sum was lower than the figure shown by the assessee in his returns of total income.”
The other decisions relied upon by the learned Authorised Representative also express similar view. Thus, keeping in view the ratio laid down in the decisions referred to above, we hold that the Assessing Officer is bound to compute the tax payable by the assessee on the income computed by him even if it is at a lesser figure than the income returned by the assessee. This ground is allowed.
In the result, assessee’s appeal is partly allowed.”
Respectively following the aforesaid decision of the tribunal in assessee‟s own case in ITA no. 273/Mum/2015 and ITA no. 274/Mum/2015 for AY 2010-11 and 2011-12 , vide common orders dated 28.07.2017, we allow the Ground no (V) raised by the assessee in memo of appeal filed with the tribunal by holding that the AO is bound to compute the tax payable by the assessee on the income computed by the AO even if it is at a lesser figure than the income returned by the assessee. We order accordingly.
7. In the result, the appeal of the assessee in ITA no. 7391/Mum/2016 for AY 2012-13 is partly allowed as indicate above.
Source- Chand N. Bhojwani Vs DCIT (ITAT Mumbai); I.T.A. No.7391/Mum/2016; 23/04/2018; 2012/13
