IT Appeal No. 655 (Mum.) of 2009 [Assessment Year 2005-06]. Case: Batra Gulati Hotels Vs Income-tax Officer 16(1)(1). ITAT (Income Tax Appellate Tribunal)
| Case Number | IT Appeal No. 655 (Mum.) of 2009 [Assessment Year 2005-06] |
| Judges | P.M. Jagtap, Accountant Member and Vijay Pal Rao, Judicial Member |
| Issue | Income Tax Act |
| Citation | 2011 (9) ITR 345 (Mum), 2010 (40) SOT 406 (Mum) |
| Judgement Date | June 25, 2010 |
| Court | ITAT (Income Tax Appellate Tribunal) |
Order:
P.M. Jagtap, Accountant Member., (In The ITAT Mumbai 'B' Bench)
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This appeal by the assessee is directed against the order of ld. CIT(A) XVI, Mumbai dated 27-10-2008.
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The assessee in the present case is a partnership firm which filed its return of income for the year under consideration on 25-10-2005 declaring total income of 'Nil'. During the course of assessment proceeding, it was noticed by the Assessing Officer that practically no business activity was carried on by the assessee during the year under consideration except collecting rent from the buildings owned by it and given on lease to run hotel business at Bangalore. The rent received from the said buildings aggregating to Rs. 35,04,000 was declared by the assessee as its business income and various expenses were claimed as deduction against the said income. According to the Assessing Officer, the said rental income was chargeable to tax in the hands of the assessee under the head "income from house property" and not under the head "profits and gains of business or profession". He, therefore, required the assessee to offer its explanation in the matter. In reply filed vide letter dated 17-12-2007, it was submitted on behalf of the assessee that hotel buildings owned by it were its commercial assets and income from exploitation thereof was its business income irrespective of whether the exploitation was done directly by the assessee or through some other agency. It was submitted that the assessee firm itself was running the restaurant in the said buildings for many years in the past and the same have subsequently been given on lease temporarily for overcoming financial crisis. The submissions made on behalf of the assessee were not found acceptable by the Assessing Officer for the following reasons given in paras No. 4 to 5.1 of his Order:
The assessee has claimed various expenses against rental income and income from other sources. It may be noted here that rental income is formed part of income from house property and comes under the concept of house property only. The assessee has claimed huge expenses in order to treat the rental income i.e. house property income as business income.
In this way the assessee has tried to minimize the margin of profit and defraud the revenue by giving colour of genuineness to business income. Further the assessee has claimed depreciation of Rs. 8,92,848 which consists of kitchen equipment depreciation of Rs. 5,08,543, the major part of expenses on depreciation. It is not known what kitchen equipments have been used to collect the rental income and dividend income. Further, the assessee has not claimed depreciation on land and building as forming part of his business. Any wise and prudent businessman would claim depreciation on these types of assets for the instant case; the assessee deliberately did not claim depreciation.
It is further gathered that the assessee debited Rs. 26,94,967 to P&L A/c as interest paid. The assessee has shown liability of Rs. 2,01,36,483 on which he has claimed interest paid Rs. 26,94,967. There is no nexus between the loan taken for earning income during this year. It was for investment in other parts of assets shown in balance sheet. Therefore, interest is not allowed for the purpose of rental income hence this ground of interest loan is also rejected.
The other portion of expenditure is loan processing fees of Rs. 2,10,000. The assessee was asked to furnish the details of expenditure on loan processing and the assessee's representative filed an explanation on 20-12-2007, regarding loan processing fees paid where he has produced the copy of Bank account showing the debit entry on 27-5-2007 on processing charges of Rs. 1,00,000 only. While the assessee has claimed loan processing charges of Rs. 2,10,000, it is clear that the assessee has shown excessive expenditure only with an intention to increase more expenditure and reduced the tax liability and suppressed income. In this way the assessee has tried to establish the fact that all expenses are connected with the business. In fact the assessee has given colourable dimension to the rental income as if the assessee in actively involved in the business. Therefore, this ground relating to business expenditure as claimed by the assessee against rental income is not sustainable and therefore not accepted as business expenditure.
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For the reasons given above and relying, inter alia, on the decision of Hon'ble Supreme Court in the case of Shambhu Investment (P.) Ltd. v. CIT [2003] 263 ITR 143: 129 Taxman 70, the Assessing Officer held that the rental income received by the assessee was chargeable to tax in its hands under the head "income from house property". Accordingly deduction under Section 24 amounting to Rs. 10,51,200 being 30 per cent of the rent received only was allowed by him as deduction for repairs and maintenance and the deductions claimed by the assessee on account of various expenses aggregating to Rs. 40,93,651 was disallowed by him. During the course of assessment proceedings, the Assessing Officer also noticed that deposits in cash amounting to Rs. 1,50,000 and Rs. 32,000 were made by the assessee in its bank account with Centurion Bank on 20-8-2004 and 18-10-2004 respectively. When the assessee was called upon by the Assessing Officer to explain the source and nature of the said cash deposits, it was submitted by the assessee that the said deposits were made in the bank account out of cash available as per the cash book. The extract of the relevant cash book was also filed by the assessee before the Assessing Officer in support. According to the Assessing Officer the assessee, however, did not produce the cash book and in the absence of the same, he treated the cash deposits found to be made in the bank account of the assessee amounting to Rs. 1,82,000 as unexplained. The said amount thus was added by him to the total income of the assessee under Section 68.
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Aggrieved by the order of the Assessing Officer, an appeal was preferred by the assessee before the ld. CIT(A) challenging the treatment given by the Assessing Officer to its rental income as income from house property instead of business income, the disallowance of Rs. 40,93,651 made by the Assessing Officer on account of various expenses and addition of Rs. 1,82,000 made under Section 68. It was submitted on behalf of the assessee before the ld. CIT(A) that first restaurant by name "Jacaranda" was started by the assessee at Bangalore in the year 1991. It was submitted that a second restaurant by name "Orchids & Roses" was started by the assessee in the year 1997-98 and it continued the restaurant business till the year 2000-01. It was submitted that in the year 2000-01, the assessee firm leased out the restaurant "Jacaranda" to M/s...
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