Prime Developers , Mumbai vs Assessee

ी संजय अरोड़ा, लेखा सद य के सम एवं ी अ मत शु ला, या यक सद य ।

BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM

आयकर अपील सं./I.T.A. No. 147/Mum/2011 ( नधारण वष / Assessment Year: 2006-07)

Prime Developers ITO-Ward - 12(1)(3), Hariom Chambers, Aaykar Bhavan, 1st Floor, 7th Floor, B-16, Veera Industrial Estate, बनाम/ Mumbai Link Road, Andheri (W), Vs. Mumbai-400 053

थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAAFP 7898 P (अपीलाथ /Appellant) : ( यथ / Respondent)

अपीलाथ क ओर से / Appellant by : Shri Jayesh Desai

यथ क ओर से/Respondent by : Shri Parmanand

सनु वाई क तार ख / : 19.11.2014 Date of Hearing घोषणा क तार ख / : 05.01.2015 Date of Pronouncement

आदे श / O R D E R Per Sanjay Arora, A. M.:

This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-23, Mumbai ('CIT(A)' for short) dated 22.04.2010, dismissing the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2006-07 vide order dated 22.12.2008.

2 ITA No.147/Mum/2011 (A.Y. 2006-07) Prime Developers vs. ITO

2. The brief facts of the case are that the assessee, an individual, offered a sum of Rs.2,00,030/-, comprising rent and dividend, per his return of income for the relevant year, filed on 17.07.2006. The assessee was observed during the course of assessment proceedings to have claimed expenses under the account heads of telephone, electricity, legal and professional, society maintenance, printing and stationery, depreciation, etc., amounting to Rs.2,23,249/-, against the gross income of Rs.6,04,688/- and Rs.13,511/- by way of rent and dividend respectively, through its profit and loss account for the year. The same was in view of the Assessing Officer (A.O.) not permissible; the assessee having in fact also claimed statutory allowance u/s. 24(a) @ 30% of the gross rent in computing the annual value of the house property from which rent was received. Income was accordingly assessed u/s.22 at Rs.4,23,282/-, i.e., as income from house property, allowing deduction u/s.24(a) on the rental income of Rs.6.05 lacs. The same stood confirmed in appeal by the ld. CIT(A). Adverting to the decision by the apex court in the case of Escorts Ltd. vs. Union of India [1993] 199 ITR 43 (SC), he held that the income arising to the assessee, from whatever source, has to be necessarily computed under the different heads of income as specified u/s.14 of the Act. The assessee was conducting the same activity as in the past, which though, i.e., as per the decision in the case of Shambhu Investment (P.) Ltd. vs. CIT [2003] 263 ITR 143 (SC), came to be assessed under the head 'income from house property'. No deduction of any expenditure, as being claimed, was allowable in computing the same. Aggrieved, the assessee is in second appeal.

3. Before us, placing the revised assessment order u/s.143(3) r/w s. 263 of the Act dated 08.11.2011 on record, it was contended for and on behalf of the assessee that the rent income assessed as 'income from house property', has since been reviewed u/s.263 of the Act, assessing the same as 'income from other sources'. Though the assessee had not appealed there-against, so that the amendment to the assessment had become final, the same did not detract from or undermine the assessee's case, i.e., as being agitated per its instant appeal, in any manner. This is for the reason that the impugned expenditure stands claimed by the assessee not in computing the income from house property (u/s.22) 3 ITA No.147/Mum/2011 (A.Y. 2006-07) Prime Developers vs. ITO

or the income from other sources (u/s.56), as it now or finally stands assessed, but the income assessable u/s.28. There being no receipt from its business, the entire expenditure would result in a business loss to the same extent, i.e., Rs.2,23,249/-. The same is, in terms of section 71, eligible for set off against the income assessable u/s.56. Further, reliance was placed by the ld. Authorized Representative (AR), the assessee's counsel, on a host of decisions to the effect that a temporary suspension of business would not lead to the inference of closure of business, so that where it is in a dormant state, awaiting proper market conditions to develop, regular expenditure incurred can only be said to have been incurred in the course of business.

The Revenue's case, as projected by the ld. Departmental Representative (DR), was that there is nothing on record to suggest that business had been carried out either overtly or covertly. It could not under the circumstances be at all said that business was carried out in any manner at any time during the year.

4. We have heard the parties, and perused the material on record.

Our first observation in the matter is that there is nothing on record to show that the assessment as made subsequently, i.e., vide assessment order dated 08.11.2011 (supra), has become final; the assessee not contesting the same. The same, however, would only impact the head of income under the lease rental income from the terrace of the building would stand to be assessed, i.e., u/s.22 or sec. 56, and no more. The subject matter of the instant appeal, however, is whether the assessee is entitled to deduction in respect of the impugned expenditure in computing his business income, i.e., as business loss, against his income assessable under other head/s of income. There is, accordingly, no merger on this issue, and we may proceed to decide the assessee's appeal on merits.

Qua merits, we observe no dispute in principle. The receipt of income is not a criterion or condition for deciding as to whether the assessee has carried out any business during the year, a purely factual matter. The matter, thus, is purely factual, and would therefore stand to be decided on the basis of findings of fact. We find no such finding by either of the authorities below nor any material on record that could lead to such an 4 ITA No.147/Mum/2011 (A.Y. 2006-07) Prime Developers vs. ITO

inference, i.e., exhibit that any business was carried out during the relevant previous year. True, an assessee may not have anything tangible, i.e., in the form of results, to show, but what is there, one may ask, to show of any efforts to generate business, or that any business activity was indeed carried out during the year. The assessee may, for example, have bid, which had though failed, or entered into some agreement for purchase or development of land; got some plans approved or made applications for the same, etc. The assessee has no staff, in the absence of which it is difficult to contemplate any effective work, much less steps for revival of the business being taken, which would rather involve and require greater effort. If telephone, for instance, was used for its purposes, to whom and for what purpose the calls were made? There is nothing to show if the assessee had sufficient funds for business, though were in the absence of any avenues for utilization parked in liquid instruments. Merely because some business activity had been carried out in the past, or may have been carried out in future, would be no reason for inferring business activity during the relevant year. Rather, in-as-much as the efforts for revival is a continuous process, there would be a continuum of past efforts, and not necessarily fresh attempts toward the same, that could show of the business being afloat. Further, as a reading of the assessment order dated 08.11.2011 shows, the assessee had built a building consisting of seven floors. While six floors were sold, the seventh (top) floor was retained by him, converting it into office premises. It stands not even clarified as to when the building was constructed and sold. The only 'activity' is of lease rental for the terrace, which could not by itself be said to be a building or house property and, further, could only be considered as co-owned by all the seven co-owners of the building, rather than solely by the assessee, so that the said income was treated as 'income from other sources'. The assessee's whole case is sans any evidence and presumptuous.

Under the facts and circumstances of the case, in our clear view, the assessee has been clearly unable to show that any business activity had been carried out, or even the capacity or wherewithal therefor and, accordingly, is not entitled for deduction of any expenditure on the premise that it stands incurred for a business purpose, which purpose, where so, would rather itself exhibit the carrying on of the business. The question of 5 ITA No.147/Mum/2011 (A.Y. 2006-07) Prime Developers vs. ITO

having incurred a loss therein, and of it being, therefore, liable for set off against income arising under other head of income, does not arise. We decide accordingly.

5. In the result, the assessee's appeal is dismissed प रणामतः नधा रती क अपील खा रज क जाती है ।

Order pronounced in the open court on January 05, 2015

Sd/- Sd/-

(Amit Shukla) (Sanjay Arora) या यक सद य / Judicial Member लेखा सद य / Accountant Member मंब ु ई Mumbai; दनांक Dated : 05.01.2015 व. न.स./Roshani, Sr. PS आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent 3. आयकर आयु त(अपील) / The CIT(A) 4. आयकर आयु त / CIT - concerned 5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड फाईल / Guard File आदे शानस ु ार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मंब ु ई / ITAT, Mumbai