M/S. Rainbow Foundations Ltd v. The Deputy Commissioner Of Income Tax,Company Circle V(2),Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMAND THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN M/s. Rainbow Foundations Ltd,No.4, Thanikachalam Street,T.Nagar, Chennai - 17.... Appellant Vs The Deputy Commissioner of Income Tax,Company Circle V(2),Chennai... Respondent Tax Case Appeal filed under Section 260-A of the Income TaxAct, 1961, against the order of Income Tax Appellate TribunalChennai 'B' Bench, dated 27.06.2008 in ITA No.2142/Mds/2007 forthe Assessment Year 2002-03, as against the order dt.04/06/07 ofthe Commissioner of Income Tax(Appeals)-III, Chennai inITA.NO.225/05-06, for the assessment year 2002-03, and asagainst the order dated 31/03/05, of the Deputy Commissioner ofIncome Tax, Chennai in P.A.NO.AAACR3089B, for the Assessmentyear 2002-03. for M/s.Pass Associates This appeal by the assessee filed under Section 260-A of theIncome Tax Act, 1961 (hereinafter referred to as ‘the Act’) isdirected against the order dated 27.06.2008 passed by theIncome Tax Appellate Tribunal Chennai 'B' Bench (hereinafterreferred to as 'Tribunal') in ITA No.2142/Mds/2007 for theAssessment Year 2002-03. https://hcservices.ecourts.gov.in/hcservices/ 2. This Tax Case Appeal was admitted on 03.11.2009 on thefollowing substantial questions of law: “1.Whether on the facts and in thecircumstances of the case, the Tribunal isjustified in law in treating the property letout at Pondy Bazaar, T.Nagar, as incomearising under the head "business" and not as"income from house property? and 2. Whether on the facts and in thecircumstances of the case, the Tribunal wasjustified in law in construing the propertyas a stock-in-trade and consequently theincome thereon is assessable under the head"income from business?” 3. We have heard Ms.E.Malini, learned counsel for M/s. PassAssociates, learned counsel for the appellant/assessee andMr.T.Ravikumar, learned Senior Standing Counsel for therespondent/Revenue. 4. The short issue, which falls for consideration in theinstant case is as to whether the rent received by the assesseein respect of certain unsold flats should be treated as areceipt under the head "house property" or "business income". 5. The Assessing Officer vide order dated 31.03.2005, passedunder Section 143(3) of the Act, treated the said property asstock-in-trade of the assessee's business and accordingly, heldthat deductions/allowances relating to profits and gains are notallowed. This finding was confirmed by the Commissioner ofIncome Tax (Appeals) - XII, Chennai [hereinafter referred to as'CIT(A)'] vide order dated 04.06.2007, which has been affirmedby the Tribunal vide impugned order dated 27.06.2008. 6. To decide the question of law framed for consideration,we have required to examine the relevant facts. 7. Ms.E.Malini, learned counsel appearing for the assesseepointed out that the CIT(A) had passed the order dated04.06.2007 without giving an opportunity to the assessee, as onthe previous hearing date i.e., on 21.09.2006, the authorizedrepresentative of the assessee could not present as he was atBangalore and an application praying for a short adjournment wasfiled on 21.09.2006. However, without assigning any fresh date,the order has been passed by the CIT(A) on 04.06.2007. 8. It is the further submission of the learned counselappearing for the assessee that the conclusion of the AssessingOfficer, that the rent received by the assessee from theimmovable property owned by it has to be assessed under the head"income from business" merely because the property, which hasearned rent, is part of stock-in-trade, is an incorrect finding.Further, it is submitted that the CIT(A) had erred in arrivingat a conclusion that the assessee does not own the property fromwhich the rent is earned. It is further submitted that theauthorities failed to appreciate that the job of the assesseewas never to be the business of letting out the properties. 8. It is the further submission of the learned counselappearing for the assessee that the conclusion of the AssessingOfficer, that the rent received by the assessee from theimmovable property owned by it has to be assessed under the head"income from business" merely because the property, which hasearned rent, is part of stock-in-trade, is an incorrect finding.Further, it is submitted that the CIT(A) had erred in arrivingat a conclusion that the assessee does not own the property fromwhich the rent is earned. It is further submitted that theauthorities failed to appreciate that the job of the assesseewas never to be the business of letting out the properties. 9. In support of her contentions, learned counsel placedreliance on the decisions of Hon'ble Supreme Court in the casesof Chennai Properties & Investments Ltd. Vs. CIT [reported in(2015) 373 ITR 0673] and Raj Dadarkar and Associates Vs. ACIT-CC-46 [reported in (2017) 394 ITR 592]. 10. Mr.T.Ravikumar, learned Senior Standing Counselappearing for the respondent/Revenue, while seeking to sustainthe order passed by the Tribunal, elaborately referred to theprofit and loss account for the year ended on 31.03.2002 andsubmitted that in the column 7 therein, which lists out CurrentAssets, Loans, Advances and Deposits, T.Nagar property has notbeen shown, whereas in column 8, which pertains to Currentliabilities & Provisions, the advance for commercial complex atT.Nagar has been mentioned. Further, it is submitted that incolumn 10, pertaining to Project income, T.Nagar property doesnot feature. Similarly, in column 12 relating to Projectexpenditure, T.Nagar does not find place. Therefore, it issubmitted that the Assessing Officer after considering theentire facts had come to the conclusion that the property isonly a stock-in-trade of the assessee's business and deductionrelating to profits and gains are not allowable. Therefore, itis submitted that the order passed by the Tribunal may besustained. 11. Ms.E.Malini, leaned counsel appearing for theappellant/assessee prefaced her submission by submitting that noadequate opportunity was granted to the assessee by the CIT(A).In fact, there is nothing on record for the Revenue to show thatthe CIT(A) had afforded a reasonable opportunity to the assesseebefore taking a decision vide order dated 04.06.2007. 12. On a reading of the order passed by the Tribunal, wefind that no reasonable opportunity has been given to theassessee by the Tribunal. The assessee has to be partiallyblamed for the present situation because the assessee did notplace the relevant documents before the Assessing Officer exceptthe profits and loss account. Further more, the assessee did notplace emphasis on their stand that they were not in the businessof letting out the properties. 13. Further, for the first time before the CIT(A), theassessee contended that the properties are built by the assesseeon the land taken on joint venture, and the land owner hascollected the full value of the land as per the terms of theagreement and the assessee has taken possession of the land andin terms of Section 27 of the Act read with Section 53A ofTransfer of Property Act, the transfer of land has taken placein favour of the assessee and the construction is done by theassessee itself. 13. Further, for the first time before the CIT(A), theassessee contended that the properties are built by the assesseeon the land taken on joint venture, and the land owner hascollected the full value of the land as per the terms of theagreement and the assessee has taken possession of the land andin terms of Section 27 of the Act read with Section 53A ofTransfer of Property Act, the transfer of land has taken placein favour of the assessee and the construction is done by theassessee itself. 14. Though such a plea raised by the assessee before the CIT(A), the assessee could not put forth the submissionseffectively before the CIT(A), as they did not have adequateopportunity to place the material. Furthermore, the CIT(A)discusses the case law on the subject, but there is no in depthdiscussion on the nature of transaction done by the assessee andthat they are "Owner" of the property, who had a right to letout the same. When the matter was taken before the Tribunal, wefind that no independent exercise was done by the Tribunal toexamine the case of the assessee. Surprisingly, the order passedby the Tribunal is verbatim extract of the findings recorded bythe CIT(A). This is clear by comparing paragraph 5 of theTribunal's order with paragraph 7 of the order passed by the CIT(A). 15. In our considered view, this is not the manner in whichthe Tribunal, being the last fact finding authority, coulddispose of an appeal. Be that as it may, we are of theconsidered view that the assessee should be afforded anopportunity to place all relevant materials before the CIT(A),who shall examine the documents and then take a fresh decisionin the matter. 16. For the above reasons, the appeal filed by the assesseeis allowed, the order passed by the Tribunal and the orderpassed by the CIT(A) dated 04.06.2007 are set aside and thematter is remanded to the CIT(A) for fresh consideration. The https://hcservices.ecourts.gov.in/hcservices/ substantial questions of law are left open. It will be open tothe assessee to place all documents to establish their case aswell as the decisions, which they propose to rely on. Afteraffording an reasonable opportunity to the assessee, the CIT(A)shall take a fresh decision in the matter uninfluenced by anyobservations made in the order dated 04.06.2007, which we haveset aside. No costs. Sd/- Assistant Registrar(CS III)//True Copy// Sub Assistant RegistrarmpTo1.The Deputy Commissioner of Income Tax,Company Circle V(2),Chennai2.The Income Tax Appellate Tribunal,Chennai 'B' Bench, Chennai.3.The Commissioner of Income Tax(Appals)-XIIChennai-34.+1cc to Mr.T.Ravikumar, Advocate sr.68752Tax Case Appeal No.757 of 2009svi(co)nr 09/10/2019