| SooperKanoon Citation | sooperkanoon.com/1172610 |
| Court | Gujarat High Court |
| Decided On | Jul-21-2014 |
| Case Number | Tax Appeal No. 639 of 2014 |
| Judge | M.R. SHAH & K.J. THAKER |
| Appellant | Phelix Appliances Ltd. |
| Respondent | Income-tax Officer, Ward-4 (2) |
M.R. Shah, J.
Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal") dated 31.07.2013 passed in ITA No.2536/AHD/2012 for AY 2009-10, the assessee has preferred the present Tax Appeal with the following proposed question of law.
"A. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the order of the lower authorities in not allowing set off of business loss against income from house property as provided under Section 70 of the Act? B. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in passing an unreasonable order devoid of any cogent reasons for rejection?"
2. That the assessee filed return of income for the year consideration declaring total income at Rs.18,58,721/-. The same was processed under Section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the "Act"). The case was later on selected for scrutiny assessment. Notice under Section 143(2) of the Act was issued, which was duly served upon the assessee. It appears that during the year under consideration and though the assessee company had given the complete production facility on rent and entered into lease agreement with Rex-tone Industries Limited, Mumbai to allow them to utilize the buildings along with land located at Plot No.5, GIDC, Por, Vadodara and received total rental income at Rs.39 lacs. The assessee furnished computation of income and it was notice that rental income at Rs.39 lacs under the head the income from house property and claimed deduction under Section 24 of the Act of Rs.11,70,000/-. The assessee also claimed set off business loss of Rs.8,71,279/- against the income from house property under Section 71 of the Act. The assessee was called upon to justify its claim of set off business loss at Rs.8,71,279/- against the income received from house property and the assessee tried to notify claim, however the Assessing Officer was not satisfied with the explanation. The Assessing Officer opined that as such there was no business or manufacturing activity carried out during the year under consideration and business loss claim and set of against the income shown under the head of house property is not allowable. Consequently, the Assessing Officer disallowed the business expenditure of Rs. 8,71,279/- claim of set off against the income from house property and added to the income of assessee.
2.1 Feeling aggrieved and dissatisfied with the order of assessment passed by the learned Assessing Officer disallowing the claim of the set off Rs. 8,71,279/- against the income from house property, the assessee preferred appeal before the learned CIT(A). The learned CIT(A) has concurred with the findings recorded by the Assessing Officer and dismissed the appeal.
2.2 Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A), the assessee preferred further appeal before the learned ITAT and by judgment and order, the learned Tribunal has dismissed the said appeal confirming the orders passed by the Assessing Officer as well as learned CIT(A).
2.3 Feeling aggrieved and dissatisfied with the impugned order passed by the learned ITAT, the assessee has preferred present Tax Appeal with the aforesaid proposed questions of law.
3. Shri Tej Shah, learned advocate for the appellant- assessee has vehemently submitted that the Assessing Officer has materially erred in considering Rs.8,71,279/- as business expenditure and set off claim by the assessee from the income received from the house property. It is submitted that as such the assessee claimed the business loss of Rs. 8,71,279/- as set off from the income received from the house property as provided under Section 71 of the Act. It is submitted that therefore, the AO has materially erred in not properly appreciating the scope of ambit of Section 71 of the Act.
3.1 It is submitted that as such the assessee notify the claim the business expenditure of Rs.8,71,279/- as set off against the income from house property under Section 71 of the Act. It is submitted that what was claimed by the assessee was the business loss of Rs.8,71,279/- from the income of the house property as provided under Section 71 of the Act. It is submitted that the learned Assessing Officer has materially erred in not properly appreciating the aforesaid fact. It is submitted that therefore, the learned CIT(A) as well as learned Tribunal have materially erred in confirming the order passed by the Assessing Officer. It is further submitted by Shri Shah, learned advocate for the assessee that even the learned Tribunal has not considered and / or dealt with the decision of the Tribunal of Delhi Bench in the case of ITO v. Mokul Finance (P.) Ltd. [2009] 29 SOT 11(URO) which was relied upon by the assessee. It is submitted that the same was required to be dealt with and considered by the learned Tribunal. It is further submitted that even the learned Tribunal has relied upon the decision of the Rajkot Bench of the ITAT in the case of Master Silk Mills (P.) Ltd. v. Dy. CIT [2001] 77 ITD 530, however against the aforesaid decision, Tax Appeal is pending before this Court. Therefore, it is requested to admit the present Tax Appeal and to be heard with aforesaid Tax Appeal No.17 of 2001. Making above submissions, it is requested to admit / allow the present Tax Appeal.
4. Heard Shri Tej Shah, learned advocate for the appellant- assessee. At the outset, it is required to be noted that as such there are concurrent findings of fact recorded by the all the authorities below that assessee incurred the expenditure of Rs.8,71,279/- as claimed and consequently loss suffered by the assessee to the aforesaid extent. There are concurrent findings of fact recorded by all the authorities below that as such assessee had stopped the manufacturing activity in the factory premises in question and started only trading activity of selling Air Conditioner and during the year under consideration sold only three A.Cs for an amount of Rs.45,000/-. It is required to be noted that as such the factory premises in question, in which, the manufacturing activity was earlier carried was given on lease to one Rex-tone Industries Limited, Mumbai and assessee earned the rental income from the house property of Rs.22,50,000/-. That the assessee claimed the benefit under Section 24 of the Act with respect to the rental income of Rs.22,50,000/-. The assessee also claimed the business loss of Rs.8,71,279/- by submitting that the assessee had incurred said expenditure while doing the business and claimed that there was business loss of Rs.8,71,279/- and claimed set off of the said business loss from the rental income from the house property. On appreciation of evidence and considering the factual aspect all the authorities below have not accepted the claim of the assessee that it had incurred expenditure of Rs. 8,71,279/- while doing the business and consequently there was business loss to the extent of Rs. 8,71,279/-and therefore, did not allow set off claimed by the assessee from the rental income received from the house property. The aforesaid is discussed in detail by the learned CIT(A) in para 3.2 to 3.2.5, which reads as under:
"3.2. I have considered the appellant's submissions and A.O.'s observation. On perusal of the lease agreement between the appellant and Rexton Industries Limited, it is seen that the appellant has leased out the property consisting of land and building located at Plot No.5 GIDC Por, Vadodara. The deed mentions only the land and the building and hence the machinery has not been leased out to the lessee. This is also evident from the fact that the appellant was in the business of manufacture of air conditioners, whereas the lessee has taken this premises on lease for the production of printing inks. This is also a fact that the entire premises has been given on lease and thus, the appellant is not carrying on any business activity from this premises. The deed also provides that all the utilities payments on this premises such as electricity telephone, water, drainage charges etc. shall be fully paid by licenses from 1st February 2008 upto the date of occupancy. The licensee has also been allowed to make interior improvements or alterations on its own expenses. It also provides that the licensee shall be responsible entirely for the repairs and maintenance of any of breakages and damages to the demised premises during the entire term of agreement. The licensee is also obliged to take comprehensive insurance policy for this building. The deed further provides that the notified are charges of Rs. 1,27,254/- shall be paid by the licensor.
3.2.1. Now, the computations of income filed by the appellant is as follows:â
| Annual letting value |  | Rs. 39,00,000/- |  |
| Less: Deduction u/s 24 | Â | Rs. 11,70,000/- | Â |
| Total income under head house property Income under head Business and Profession: | Â | Â | Rs. 27.30,000/- |
| Net Profit as per P and L A/c |  | Rs. 17,54,335/- |  |
| Add: Items Inadmissible or disallowance:- | Â | Â | Â |
| Expenses disallowed | Rs.78,300/- | Â | Â |
| Expenses relating to other | Rs. 11,87,880/- | Â | Â |
| Head of Income  |  |  |  |
| Income Tax Paid | Rs.8166/- | Â | Â |
| Sub Total |  | Rs. 12,74,366/- |  |
| Â | Â | Rs.30,28,721/- | Â |
| Less: Income considered separately Rent received | Â | Rs.39,00,000/- | Â |
| Income under the head profit and gains of the business | Â | Â | (-)Rs.8,71,279/ |
| Gross Total Income after set off   |  |  | Rs.18,58,721/- |
3.2.3 The appellant has also shown sales of Rs.45,000/-. Against this cost of goods sold has been shown at Rs.38,765/- . This cost is on account of material consumed of Rs.37,500/- and power and Fuel Rs.1265/-. The sale is of 3 units of air conditioners. These sales also have been made in cash on 3 different dates. Besides, the appellant has also shown purchase of one Onida make split AC, which has been shown as part of the closing stock. The cost of this AC is Rs.18,800/-.
3.2.4 Thus, the appellant evidently has stopped its manufacturing activity and rented out the entire factory premises to other party. Still, it is showing huge repair expenses to the factory in its books of accounts. Besides, it is showing three transactions of sale in order to show that it still carrying on business activity. But these three transactions are only a device to claim huge expenses being debited in the profit and loss account and which are not allowable as a deduction in computation of income from house property. The Rajkot Bench of ITAT in its decision in the case of Master Silk Mills (P) Ltd. v. Dy. CIT [2001] 77 ITD 530 (Rajkot) had refused to accept a similar argument on the basis of insignificant and small transactions that the business was still carried on by the appellant. Hence, it is held that the appellant has not carried on any business activity in this year.
3.2.5 Thus, at one hand, the appellant is claiming statutory deduction under section 24 of the Income Tax Act, 1961 equal to 30% of the annual value amounting to Rs.11,70,000/- but the appellant is not allowing any part of the director's remuneration, salary and wages and other expenses towards the house property income except for repair expenses, which have been made in cash and which were not the liability of the appellant at all discussed above. It is pertinent to note here that earlier there were separate deduction for repairs, collection or rent, insurance, ground rent, land revenue etc. u/s 24 of the Income Tax Act, 1961. But w.e.f. 1.4.2002, in lieu of this deduction, a consolidated sum equal to 30% of the annual value was allowed as a deduction in computation of income from house property. Thus, due to the fact that the appellant is not carrying on any business activity, the expenses debited in the P and L account relating to director's remuneration, salary and wages, rent etc. have been incurred fro the purpose of earning of house property income. Hence, the appellant's claim that all these expenses should be set off against the house property income is not acceptable as it will amount to allowing double deduction to the appellant, i.e. one in the form of standard deduction and another in the form of actual deduction from the income from house property."
4.1 The aforesaid has been confirmed by the learned ITAT. In the facts and circumstances of the case, we are in complete agreement with the view taken by the learned CIT(A) confirmed by the learned Tribunal. There is no error committed by the learned Assessing Officer or learned CIT(A) or learned Tribunal in disallowing the claim of set off claimed by the assessee of Rs.8,71,279/- from the rental income from the house property claimed under Section 71 of the Act.
5. Now, so far as contention on behalf of the appellant- assessee that learned Tribunal has not dealt with the decision of the Coordinate Bench of the Tribunal i.e. Delhi Bench relied upon by the assessee is concerned, it is true that the learned Tribunal ought to have considered the same. However, we ourselves have considered the same instead of remanding the matter on that ground and we are of the opinion that in the facts and circumstances of the case the said decision would not be of any assistance to the appellant - assessee. There are concurrent findings of fact recorded by all the authorities below not accepting the claim of the assessee with respect to the business expenditure of Rs. 8,71,279/- and consequently the business loss of Rs.8,71,279/- and set off the same claimed by the assessee from the rental income received from the house property.
6. Now, so far as contention on behalf of the appellant that learned Tribunal has relied upon the decision of the Rajkot Bench of the ITAT in the case of Master Silk Mills (P.) Ltd., (supra) against which, the Tax Appeal is admitted and therefore present Tax Appeal be admitted is concerned, it is required to be noted that irrespective of and / or independent to the decision of the Rajkot Bench of ITAT in the case of Master Silk Mills (P.) Ltd., (supra), on facts we are in complete agreement with the view taken by the learned Assessing Officer and learned CIT (A). It is required to be noted that the aforesaid decision was relied upon additionally and over and above facts and findings recorded. The decision of the learned Tribunal is not solely based upon the decision of the Rajkot Bench of ITAT in the case of Master Silk Mills (P.) Ltd., (supra).
7. In view of the above and for the reasons stated above, we see no reason to interfere with the impugned judgment and order passed by the learned Assessing Officer, learned CIT(A) as well as learned Tribunal. Under the circumstances, present Tax Appeal deserves to be dismissed and is accordingly dismissed.