Subject: Assessee company does not have other activity.
Referred Sections:
Section 263 of the I.T. Act
Section 132 of the Income Tax Act
Section 22 of the I.T. Act,
Section 263 (1) of the Act
Referred Cases / Judgments
Chennai properties and Investments Ltd. vs. CIT 373 ITR 673 (SC)
Judgment of Hon’ble Supreme Court in the case of Chennai Properties and Investments Ltd. vs. CIT (2015) 373 ITR 673 (SC);
Judgment of Hon’ble Supreme Court in the case of Rayala Corporation (P.) Ltd. Vs. ACIT (2016) 386 ITR 500 (SC);
Judgment of Hon’ble Delhi High Court in the case of Pr. CIT vs. Delhi Airport Metro Express Pvt. Ltd., ITA.No.705 of 2017 Dated 05.09.2017;
Order of ITAT, Mumbai Bench in the case of Damsak Projects (P.) Ltd., vs. DCIT, Range-6(2), Mumbai (2016) 45 ITR (Tribu.) 278 (Mum.).
Investments Ltd. vs. CIT
Rayala Corporation (P.) Ltd. Vs. ACIT
New Delhi vs. Delhi Airport Metro Express Pvt.
Damsak Projects (P.) Ltd., vs. DCIT,
CIT vs. Delhi Airport Metro Express Pvt.
Choudhary vs. CIT 289 ITR 226
Chennai Properties and Investments Ltd.vs. CIT
Rayala Corporation (P.) Ltd. Vs. ACIT
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `C', NEW DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
ITA.Nos.2392 & 2393/Del/2018
Assessment Years 2013-2014 & 2014-2015
M/s. Great Heights Infratech
Pvt. Ltd., C-134, Defence The Pr. CIT, Central-2,
Colony, New Delhi 110024 vs. New Delhi.
PAN AAECG7642P
Appellant Respondent
Assessee by : Shri Hiren Mehta, C.A.
Revenue by : Shri Sanjeet Singh, CIT-D.R.
Date of Hearing : 16.08.2018
Date of Pronouncement : 04.09.2018
ORDER
PER BHAVNESH SAINI, JM
Both the appeals by Assessee are directed against
different Orders of the Ld. CIT (Central)-II, New Delhi, Dated
30.03.2018, for the A.Ys. 2013-2014 and 2014-2015 under
section 263 of the I.T. Act, 1961.
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
2. A search and seizure operation under section 132 of
the Income Tax Act, 1961 was conducted by the Investigation
Wing of the Department in M/s AMQ India Pvt. Ltd., M/s
Abdul Majeed Qureshi (Prop. Moin Akhtar Qureshi) pertaining
to AMQ Group of cases on 15.02.2014. During the course of
search and seizure proceedings, certain incriminating
documents/hard disk pertaining to assessee were found and
seized. Subsequently, assessment proceedings were completed
on 31.03.2016 for both the assessment years by the Assessing
Officer, Central Circle-19, New Delhi at total income of
Rs.4,14,07,930/- against the return of income declaring loss
of Rs.7,72,570/- declared by the assessee in A.Y. 2013-2014
and at total income of Rs.1,29,366/- against the return of
income of Rs.1,29,366/- declared by assessee in A.Y. 2014-
2015.
3. The Ld. CIT on examination of the records of
assessments observed that both the assessment orders dated
31.03.2016 is erroneous, as well as prejudicial to the interests
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
of the Revenue to the extent that assessment was completed
without proper examination/verification. The A.O. completed
the assessments in which he allowed the rental income as
income from business and profession without proper
examination/verification. Show cause notices under section
263 of the I.T. Act were issued to the assessee, pointing out
that rent of house property is taxable under section 22 of the
I.T. Act, 1961, which have not been verified by the A.O. at
assessment stage. The assessee filed written submissions in
response to the show cause notices and submitted that the
main objects for which assessee-company was incorporated
comprises of dealing in Real Estates by way of trade and
development of properties and activities incidental thereto
which would also include leasing and renting of properties. A
cogent examination of Memorandum of Association and the
audited balance sheet would indisputably lead to the
conclusion that apart from the rental income, the assessee-
company does not have other activity. The assessee-company
relied upon the judgments of Apex Court in the case of
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
Chennai properties and Investments Ltd. vs. CIT 373 ITR 673
(SC) and prayed that proceedings under section 263 of the IT
Act, 1961 may be dropped.
3.1. The Ld. CIT, however, did not accept the contention
of assessee and noted that the main object of the assessee
company is construction and development of any type of
properties, which is not same as in the case Chennai
Properties & Investments Ltd. vs CIT (supra). The assessee has
declared rental income and claimed depreciation against the
income. The approach of the A.O. is not correct because the
same should be taxed as income from house property. The
assessment orders were, therefore, held to be erroneous in so
far as prejudicial to the interests of the Revenue. Both the
assessment orders were accordingly set aside and restored
back to the file of the A.O. on the aforesaid issue only. A.O.
was directed to pass fresh assessment orders, after giving
opportunity of being heard to the assessee.
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
4. Learned Counsel for the Assessee reiterated the
submissions made before the authorities below and submitted
that assessee has main objects of carrying on business on
construction and renting out properties. Copy of the
Memorandum of Association of Assessee is filed at page-24 of
the paper book and main objects 1 to 3 to be pursued by the
Assessee-Company on its incorporation are as under :
"1. To carry on the business of construction of any type
of projects such as residential houses, commercial
buildings, flats and factory's sheds and buildings in
or out side of India and to act as builders, colonizers
and civil and constructional contractors and to do all
activities as contractor.
2. To purchase, take on lease or in exchange, hire or
otherwise acquire, sell and mortgage any estates,
lands, agricultural lands, buildings easements or
such other interest in any immovable property and to
develop and turn to account by laying out, plotting
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
and preparing the same for building purposes,
constructing building, furnishing, Fitting up and
improving buildings and by paying, draining and
building on lease.
3. To buy, exchange or otherwise acquire, an interest in
any immovable property such as houses, buildings
and lands within or outside the limits of Municipal
Corporation or such other local bodies and to provide
roads, drains, water supply electricity and lights
within these areas, to divide the same into suitable
plots and rent or sell the plots to the people for
building, houses, bungalows and colonies for
workmen according to schemes approved by
improvement Trusts Development Boards and
Municipal Boards thereon and to rent or sell the
same to the public and realise cost in lump-sum
installments or otherwise to start any housing
scheme in India or abroad."
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
4.1. He has submitted that assessee-company has one of
the objects to be renting out the property and in assessment
years under appeals. Assessee has only income from renting
out the properties which is business income of the assessee.
He has submitted that detailed reply was filed before Ld. CIT,
on which, no enquiry have been conducted by him and
explanation of assessee-company has not been considered in
proper perspective. The explanation of assessee has been
supported by material evidences produced on record. He has
submitted that since one of the main objects of the assessee-
company is renting out the properties, therefore, it was
correctly considered as business income by the A.O. He has
submitted that on change of opinion, Ld. CIT cannot revise the
assessments and that too when two views are possible and
A.O. has taken one of the view with which the Ld. CIT does not
agree, it cannot be treated as erroneous order, prejudicial to
the interests of the Revenue unless the view taken by the A.O.
is unsustainable in Law. In support of this proposition, he has
relied upon the decision of the Hon'ble Supreme Court in the
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Infratech Pvt. Ltd., New Delhi.
case of Malabar Industrial Company Limited 243 ITR 83. He
has relied upon following decisions :
(i) Judgment of Hon'ble Supreme Court in the case of
Chennai Properties and Investments Ltd. vs. CIT
(2015) 373 ITR 673 (SC);
(ii) Judgment of Hon'ble Supreme Court in the case of
Rayala Corporation (P.) Ltd. Vs. ACIT (2016) 386 ITR
500 (SC);
(iii) Judgment of Hon'ble Delhi High Court in the case of
Pr. CIT vs. Delhi Airport Metro Express Pvt. Ltd.,
ITA.No.705 of 2017 Dated 05.09.2017;
(iv) Order of ITAT, Mumbai Bench in the case of
Damsak Projects (P.) Ltd., vs. DCIT, Range-6(2),
Mumbai (2016) 45 ITR (Tribu.) 278 (Mum.).
4.2. He has submitted that since on explanation of
assessee, the Ld. CIT did not make any enquiry, therefore, the
order passed under section 263 of the I.T. Act, 1961, cannot
be sustained in law.
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
5. On the other hand, Ld. D.R. submitted that this
issue has not been examined by the A.O. and no enquiry have
been made. No opinion have been expressed by the A.O. on the
issue. The A.O. has not applied his mind. Therefore, it was
rightly set aside by the Ld. CIT, under section 263 of the I.T.
Act.
6. We have considered the rival submissions. The
Hon'ble Supreme Court in the case of Chennai Properties and
Investments Ltd. vs. CIT (supra), held as under :
"Where in terms of memorandum of association, main
object of assessee- company was to acquire properties and
earn income by letting out same, said income was to be
brought to tax as business income and not as income from
house property."
6.1. The Hon'ble Supreme Court in the case of Rayala
Corporation (P.) Ltd. Vs. ACIT (supra), held as under :
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
"Where assessee-company was engaged in business of
leasing out its house properties to earn rent, income so
earned as rent should be treated as `business income', and
not as 'income from house property'."
6.2. The Honourable Delhi High Court in the case of
Pr.CIT-3, New Delhi vs. Delhi Airport Metro Express Pvt. Ltd.,
(supra), held as under :
9. It is seen in the order dated 30th March 2016, the
PCIT has proceeded by setting out the contents of the SCN
and the contents of the reply given by the Assessee. It
appears that no inquiry, as such, was undertaken by the
PCIT to come to the conclusion that the original
assessment order was erroneous and prejudicial to the
interests of the Revenue.
10. For the purposes of exercising jurisdiction under
Section 263 of the Act, the conclusion that the order of the
AO is erroneous and prejudicial to the interests of the
Revenue has to be preceded by some minimal inquiry. In
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
fact, if the PCIT is of the view that the AO did not
undertake any inquiry, it becomes incumbent on the PCIT
to conduct such inquiry. All that PCIT has done in the
impugned order is to refer to the Circular of the CBDT and
conclude that "in the case of the Assessee company, the AO
was duty bound to calculate and allow depreciation on the BOT
in conformity of the CBDT Circular 9/2014 but the AO failed to
do so. Therefore, the order of the AO is erroneous insofar as
prejudicial to the interest of revenue".
11. In the considered view of the Court, this can hardly
constitute the reasons required to be given by the PCIT to
justify the exercise of jurisdiction under Section 263 of the
Act. In the context of the present case if, as urged by the
Revenue, the Assessee has wrongly claimed depreciation
on assets like land and building, it was incumbent upon
the PCIT to undertake an inquiry as regards which of the
assets were purchased and installed by the Assessee out
of its own funds during the AY in question and, which
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Infratech Pvt. Ltd., New Delhi.
were those assets that were handed over to it by the
DMRC. That basic exercise of determining to what extent
the depreciation was claimed in excess has not been
undertaken by the PCIT.
12. Mr. Asheesh Jain then volunteered that the PCIT had
exercised the second option available to him under Section
263 (1) of the Act by sending the entire matter back to the
AO for a fresh assessment. That option, in the considered
view of the Court, can be exercised only after the PCIT
undertakes an inquiry himself in the manner indicated
hereinbefore. That is missing in the present case.
13. Therefore, the Court is of the view that the IT AT was
not in error in setting aside the impugned order of the PCIT
under Section 263 of the Act. No substantial question of
law arises.
14. The appeal is dismissed."
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
6.3. The ITAT, Mumbai Bench in the case of Damsak
Projects (P.) Ltd., vs. DCIT, Range-6(2), Mumbai (supra), held
as under :
"Held that a detailed reply was filed during
assessment proceedings by which the assessee
extensively explained why the rental income should
not be assessed under the head 'Income from House
property'. Copies of lease agreement were filed. The
purpose of transferring fixed assets as stock-in-trade
was explained along with copies of purchase deed of
immovable properties. A certified copy of the Board
Resolution was also filed by which the accounting
error of treating the properties under the head fixed
assets was rectified and the same was resolved and
treated as under the head 'inventory' and accordingly
the claim of depreciation was reversed. Accordingly
the accounts were revised and the revised accounts
were adopted by the company. Considering all these
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Infratech Pvt. Ltd., New Delhi.
facts in totality in the light of the main objects of the
company, there was no lack of enquiry on the part of
the Officer for taxing the income under the head
business income and not under the head income from
house property.
Thus, even if the revised return had been completely
ignored by the AO that would only make the
assessment order erroneous but by any stretch of
imagination, it could not be said to be prejudicial to
the interest of the Revenue. Thus, there was no merit
in the assumption of jurisdiction by the
Commissioner under section 263".
6.4. Where assessee-company claimed that it was
engaged in real estate business, whether rental income was to
be taxed under the Head "Business Income" or "Income from
House Property" was to be decided as per objects of the
assessee-company. The assessee-company filed copy of the
Memorandum of Association and Learned Counsel for the
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
Assessee referred to main objects to be pursued by the
assessee-company on its incorporation which provides that
assessee-company would be carrying on business for
construction of any type of property and to let-out or sell the
same to the public, therefore, renting-out the properties is also
one of the main objects of the assessee-company. Therefore,
letting-out/renting-out the property was in fact business of
the assessee-company. Therefore, same was correctly claimed
by assessee-company as income from business and profession.
The assessee-company in response to the show cause notice
issued under section 263 of the I.T. Act, has specifically raised
the above points in its reply before Ld. CIT. However, the Ld.
CIT without considering the explanation of assessee-company,
passed the impugned orders. The Ld. CIT did not examine the
explanation of assessee-company at all and passed the order
without giving any reasons for decision for the same. Thus, no
enquiry have been conducted by the Ld. CIT to come to the
conclusion that original assessment orders were erroneous
and prejudicial to the interests of the Revenue. Such course
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
adopted by the Ld. CIT was not found favourable in favour of
the Revenue as held by the Hon'ble Delhi High Court in the
case of Pr. CIT vs. Delhi Airport Metro Express Pvt. Ltd.,
(supra). The Hon'ble Gauhati High Court in the case of Leela
Choudhary vs. CIT 289 ITR 226 held that Order passed under
section 263 of the I.T. Act without considering the reply of the
assessee would not be valid. In the instant case, the assessee-
company produced sufficient evidence and material before the
Ld. CIT in support of the contention that rental income is in
fact "Business Income" of the assessee-company which have
been correctly accepted by the A.O. Therefore, before taking
any adverse view against the assessee-company, the Ld. CIT
should have examined the explanation of assessee-company
and should have considered the reply of the assessee-
company. However, nothing has been done and without any
justification, the original assessment orders have been set
aside. It may also be noted here that the A.O. in A.Y. 2013-
2014 has specifically mentioned that necessary details,
information and documents have been called for from the
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ITA.Nos.2392 & 2393/Del./2018 Great Heights
Infratech Pvt. Ltd., New Delhi.
assessee-company time to time which have been furnished.
The A.O. accepted the returned income of the assessee-
company and made addition on account of unexplained
investment on protective basis. In A.Y. 2014-2015, the A.O.
specifically mentioned in the assessment order that assessee-
company has shown income from profits and gains from
business or profession. The A.O. examined the source of such
income on test check basis and reply/explanation of assessee-
company has been duly considered. The A.O. accepted the
returned income of the assessee-company which would show
that A.O. was conscious of the fact that assessee-company has
only declared income from business on account of rent
received in both the assessment years. There is no other
income declared by assessee-company in its accounts or in the
return of income. Therefore, it appears to us that A.O. has
accepted the rental income as business income of the
assessee-company in the impugned assessment years after
satisfying himself on such claim made by assessee-company
by producing the necessary details on record. The view of the
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Infratech Pvt. Ltd., New Delhi.
A.O. is supported by the Judgments of the Hon'ble Supreme
Court in the case of Chennai Properties and Investments Ltd.
vs. CIT (supra) and in the case of Rayala Corporation (P.) Ltd.
Vs. ACIT (supra). It is well settled Law that every loss of
Revenue as a consequence of an Order of the A.O. cannot be
treated as prejudicial to the interests of the Revenue, For
example, when A.O. adopted one of the course permissible
under Law and it has resulted in loss of Revenue or where two
views are possible and A.O. has taken one view with which the
Ld. CIT does not agree, it cannot be treated as an erroneous
Order prejudicial to the interests of the Revenue unless the
view taken by the A.O. is unsustainable in Law. We rely upon
the decision of the Hon'ble Supreme Court in the case of
Malabar Industrial Co. Ltd., (supra). Considering the totality of
the facts and circumstances of the case, we are of the view
that A.O. has correctly accepted the rental income as business
income in the facts and circumstances of the case. The Orders
of the Ld. CIT, thus, cannot be sustained in Law. We,
accordingly, set aside the impugned Orders of the Ld. CIT
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Infratech Pvt. Ltd., New Delhi.
passed under section 263 of the I.T. Act and restore the
original assessment orders.
7. In the result, both the appeals of the assessee are
allowed.
Order pronounced in the open court.
Sd/- Sd/-
(PRASHANT MAHARISHI) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Delhi, Dated 04th September, 2018
VBP/-
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT C-Bench, Delhi
6. Guard File
//By Order//
ASSISTANT REGISTRAR
ITAT : NEW DELHI.
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