The Counsel Of The Appellant Argued That The v. Acit – Cc –46(Civil Appeal Nos. 6455-6460 Of 2017, Decided On09.05.2017

Court No. - 35 Case :- INCOME TAX APPEAL No. - 72 of 2017 Appellant :- Shri Hardoi Baba Roller Flour Mills Pvt. Ltd. HardoiRespondent :- Commissioner Of Income Tax BareillyCounsel for Appellant :- Abhinav Mehrotra Counsel for Respondent :- Krishna Agarwal,Krishna Agarwal Hon'ble Bharati Sapru,J.Hon'ble Piyush Agrawal,J. (Delivered by Hon'ble Piyush Agrawal, J.) Supplementary affidavit, filed today,is taken onrecord. Learned counsel for the assessee gives up his right to file a reply. The present appeal has been preferred against the order dated 20.07.2016 passed by the Income TaxAppellate Tribunal, Lucknow Bench, Lucknow(hereinafter referred to as, 'the Tribunal') in Income TaxAppeal No. 350/L/2016. The present appeal wasadmitted by this Court on 04.01.2018 on the followingquestion of law: “(I) Whether, on a true and correct interpretation of law, thetreatment of receipts from rent, derived from surplus space beinglet-out has rightly been classified by the Ld. ITAT as “BusinessIncome” as against the appellant's claim of it being is taxableunder the head “Income from House Property”? (II) Whether, the impugned order of the ITAT is in accordancewith law as the ITAT has recorded its findings ignoring a veryspecific argument made the assessee resulting in recording ofperverse findings and has drawn inoculate conclusions.?” The facts of the case are that the assessee filed itsreturns of income on 29.09.2012 showing a totalincome of Rs. 10,79,200/- for the Assessment Year2012-13. On 15.01.2013, the assessee filed its revisedreturns to correct the depreciation claim on the sameincome. The case of the assessee was selected forscrutiny and notice under section 143(2) of the IncomeTax Act, 1961 was issued on 06.08.2013, which wasserved upon it on 07.08.2013. Thereafter, by an orderdated 09.09.2013, the case was transferred to JointCommissioner of Income Tax, Range – Sitapur.Thereafter, on 23.10.2013, notice under section 143(2)of the Income Tax Act was issued and on 03.01.2014,notice under section 142(1) of the Income Tax Act wasissued to the assessee. On 19.12.2014, thequestionnaire was also issued and the same was dulyserved upon the assessee in accordance with law. The assessee submitted its reply and producedbooks of account for verification. On examination ofthe books of accounts, certain discrepancies werenoticed. The assessee declared the income from houseproperty amounting to Rs. 12,50,000/- and claimeddeduction under section 24 of the Income Tax Act for asum of Rs. 3,75,000/-. It was noticed that the assesseehas claimed double deductions; first as depreciation on building and thereafter, deduction under section 24 ofthe Income Tax Act. The Assessing Authority, while framing the assessment order dated 23.01.2015 has disalloweddouble deductions made by the assessee as the assesseehas let out its space which forms business income anddeduction under section 24 of the Income Tax Act wasnot permissible. The Assessing Authority hasdisallowed the deduction of Rs. 3,75,000/- anddisallowed a further sum of Rs. 20,736/- as claimed astravelling & conveyance expenses and Rs. 50,000/- asfreight and cartage and added back to the total incomeof the assessee. Feeling aggrieved by the aforesaid order, the appellant - assessee filed an appeal and the same wasdismissed by the Commissioner of Income Tax(Appeals) vide order dated 16.03.2016. Still feeling aggrieved, the appellant – assessee filed an appeal before the Tribunal, who, by theimpugned order, has partly allowed the appeal of theassessee, but has confirmed the disallowance undersection 24 of the Income Tax Act, i.e., addition of Rs.3,75,000/-. The assessee was directed to bring on record itsarticle of association as well as copy of the income tax returns for the period 2010-11 to 2014-15 and rent Feeling aggrieved by the aforesaid order, the appellant - assessee filed an appeal and the same wasdismissed by the Commissioner of Income Tax(Appeals) vide order dated 16.03.2016. Still feeling aggrieved, the appellant – assessee filed an appeal before the Tribunal, who, by theimpugned order, has partly allowed the appeal of theassessee, but has confirmed the disallowance undersection 24 of the Income Tax Act, i.e., addition of Rs.3,75,000/-. The assessee was directed to bring on record itsarticle of association as well as copy of the income tax returns for the period 2010-11 to 2014-15 and rent agreement. By means of the supplementary affidavitdated 21.01.2019, the same was brought on record. The Department has filed counter affidavit bringing on record all relevant materials. We have heard Shri Abhinav Mehrotra, learned counsel for the appellant – assessee and Shri KrishnaAgarwal, learned counsel for the respondent –Department and perused the materials brought onrecord. The counsel of the appellant argued that the assessee is entitled to claim deduction under section 24of the Income Tax Act as well and the authorities belowwere not justified in rejecting the same. He furtherrelied upon the Memorandum of Association of theCompany and emphasized that the main object of theCompany is not to earn income from renting itsproperty. He relied upon the judgment of the ApexCourt in Raj Dadarkar & Associates Vs. ACIT – CC –46(Civil Appeal Nos. 6455-6460 of 2017, decided on09.05.2017). The counsel for the Revenue has relied upon the orders passed by the lower authorities and argued thattwo claims of depreciation cannot be permitted and theauthorities were justified in rejecting the claim under section 24 of the Income Tax Act. On going through the record, especially, theMemorandum of Association, at serial no. 7, thefollowing object incidental or ancillary to the attainmentof main objects is mentioned, which is as follows: “7. To let out on lease or on hire the whole or any part of theproperty of the company on such terms as the company shalldetermine.” From the perusal of the said memorandum of association, it reveals that the object of the Company isalso to have business income from letting out the wholeor part of the property of the Company. From theperusal of the record, it also reveals that the assesseehas claimed depreciation on the building, which was letout and on the other hand, wants to claim deductionunder section 24 of the Income Tax Act as houseproperty. In the case of Raj Dadarkar & Associates (supra), relevant paragraph nos. 14 and 19 of the said judgmentare quoted below:- “14. …. On the other hand, under certain circumstances, wherethe income may have been derived from letting out of thepremises, it can still be treated as business income if letting outof the premises itself is the business of the assessee. 19. Reliance placed by the appellant on the judgments of thisCourt in Chennai Properties & Investments Ltd. and RayalaCorporation (P) Ltd. would be of no avail. In ChennaiProperties & Investments Ltd. where one of us (Sikri, J.) was apart of the Bench found that the entire income of the appellant was through letting out of the two properties it owned and therewas no other income of the assessee except the income fromletting out of the said properties, which was the business of theassessee…..” From the perusal of the aforesaid judgment, it is also clear that if the income has been earned only fromrenting of the premises, then the same cannot beallowed to claim deduction under section 24 of theIncome Tax Act. From the perusal of the record of the case in hand, 19. Reliance placed by the appellant on the judgments of thisCourt in Chennai Properties & Investments Ltd. and RayalaCorporation (P) Ltd. would be of no avail. In ChennaiProperties & Investments Ltd. where one of us (Sikri, J.) was apart of the Bench found that the entire income of the appellant was through letting out of the two properties it owned and therewas no other income of the assessee except the income fromletting out of the said properties, which was the business of theassessee…..” From the perusal of the aforesaid judgment, it is also clear that if the income has been earned only fromrenting of the premises, then the same cannot beallowed to claim deduction under section 24 of theIncome Tax Act. From the perusal of the record of the case in hand, it is crystal clear that the assessee, in its Memorandumof Association, had an object to earn income fromrenting out its property. The assessee has filed itsreturns showing income earned only from renting out ofthe property and there is no other income of theassessee in the disputed year. The assessee, in thedisputed year, has also claimed deduction on the sameproperty, rented out, which is not permissible under theAct. The authorities below were justified in rejectingthe second claim made by the appellant – assesseeunder section 24 of the Income Tax Act, as only onededuction is permissible under the Income Tax Act. In view of the fact, as stated above, the present appeal has no merits and it is hereby dismissed. The questions of law are answered, accordingly, infavour of the Revenue and against the Assessee. Order Date :-06.03.2019Amit Mishra