T.N. VOHRA v. ASSISTANT COMMISSIONER OF INCOME TAX
[Citation -2006-LL-1020-1]

Citation 2006-LL-1020-1
Appellant Name T.N. VOHRA
Respondent Name ASSISTANT COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 20/10/2006
Assessment Year 2000-01
Judgment View Judgment
Keyword Tags income from house property • reassessment proceedings • commercial building • reason to believe • vacancy allowance • business purpose • notional income • issue of notice • rental income • sinking fund • alv
Bot Summary: The AO has not accepted the contention of the assessee that since this property was used for business, no notional rent can be considered for this property under s. 22, and has worked out the notional income at Rs. 19,80,000 and made the addition on the allegation that the assessee had himself admitted that there was no business during the year and no expenses were shown by the assessee to be incurred for the business during the year and no PL a/c was filed by the assessee. During assessment year under consideration, the assessee even though did not carry out any new transaction on behalf of his principals, but the premises continued to be occupied by the assessee for concluding the transactions already entered into by the assessee with the clients of its principals with regard to rendering of services on air freight. 17th Dec., 2003 according to which the assessee has carried on this business as an agent from the first floor of the premises and that he continued to occupy the said premises upto 31st March, 2000, as the work of sorting out issues and disputes with the clients of M/s Continental Carriers continued as also for suggesting solutions by way of settlements in respect of transactions handled by the assessee in the earlier years. Even though the assessee did not enter into any new transaction during the assessment year under consideration, but he was not free to say goodbye to the transactions already entered into through him and for which the assessee has undisputedly received huge commission income of Rs. 58.84 lakhs. The conclusion of the AO that business of the assessee was fully discontinued after 31st March, 1999 and the premises were occupied by the assessee for his personal purposes and not for the purpose of business is not corroborated by any documentary or circumstantial evidence. The business arrangements entered into by the assessee with the principals cannot be brushed aside and the duties which the assessee was supposed to undertake with respect to its earlier transactions have to be taken care of. Out of work done by the assessee during the immediately preceding year ended on 31st March, 1999, there was a recovery to be made against the bills issued in that year and the assessee s help was required for this work, insofar as the assessee has received commission on such income, which was carried out from the said premises during the assessment year under consideration.


These are cross-appeals filed by assessee and Revenue against order of learned CIT(A)-XXVI, New Delhi, dt. 7th June, 2004 for asst. yr. 2000-01 in matter of order passed under s. 148/143(3) of IT Act, 1961 wherein following grounds have been taken by assessee and Revenue. ITA No. 3144/Del/2004 (Assessee s appeal): "1(a) That reassessment proceedings are bad in law since there was no escapement of income which is chargeable to income-tax. (b) That notice under s. 148 is bad in law since case was reopened o n wrong facts as reasons adopted by AO for issue of such notice are that appellant had not shown income from property at 1st floor, RZ-293- , Mahipalpur, New Delhi, in year under appeal (i.e., asst. yr. 2000-01), whereas in earlier years, he had shown rental income from this property are totally wrong facts. When assessee had no rental income from 1st floor of Mahipalpur office during asst. yr. 1999-2000, how learned AO issued notice under s. 148 on ground that income was shown in earlier year but not in year under appeal and how his action was subsequently confirmed by learned CIT(A). property in question was undisputedly occupied by appellant for his business purposes till asst. yr. 2000-01 which is duly accepted by learned CIT(A). That learned CIT(A) has erred in upholding addition of sum of Rs. 38,103 made by AO on account of sinking fund while assessing income from house property. That appellant craves leave to add, modify or delete any ground of appeal before or at time of hearing of appeal." ITA No. 4025/Del/2004 (Revenue s appeal): "On facts and circumstances of case, learned CIT(A) erred in deleting income from house property at Rs. 19.80 lakhs being ALV of house property at RZ-293A, Mahipalpur, holding that assessee occupied said property for purpose of his business." Rival contentions have been heard and records perused. facts in brief are that in this case assessment was completed under s. 143(1) on 27th Dec., 2000. Subsequently, notice under s. 148 was issued on 20th Sept., 2002. reasons for issuing notice under s. 148 were that AO found that assessee had not shown income from property at Mahipalpur, New Delhi, in this year whereas in earlier years he had shown rental income from property. AO wanted to make addition of notional income of property, hence notice under s. 148 was issued. Regarding addition of Rs. 19,80,000 as notional income of house property, AO has stated that assessee was doing business from this premises till asst. yr. 1999-2000; his agreement with principals was not continued for this year, therefore, there was no business during year. It was submitted by assessee that this property was used by assessee for his business for settling old disputes/transactions and to find new business. AO has not accepted contention of assessee that since this property was used for business, no notional rent can be considered for this property under s. 22, and has worked out notional income at Rs. 19,80,000 and made addition on allegation that assessee had himself admitted that there was no business during year and no expenses were shown by assessee to be incurred for business during year and no P&L a/c was filed by assessee. After having these observations, AO has concluded that no business was shown by assessee in this year and later years also since assessee has closed down business, he has charged this property as income from house property as no business was done during year. By impugned order, learned CIT(A) confirmed action of AO for reopening assessment under s. 147. However, he has deleted addition made on account of notional rental income by observing as under: "Looking to facts of case AO s action in adding notional income of house property does not appear to be correct. said building was commercial building owned by appellant in which he was earlier carrying on business of earning commission income. Despite fact that agreement with principals has ended during year for earning of commission income but fact remained that appellant still occupied building for purpose of his business. He may not earn any business income but he was maintaining his office there and sorting and completing old business which he had taken in earlier years and since this was not residential property it cannot he said that appellant was using it for purpose of his residence. appellant was occupying it for purpose of business and concluding various business which he had earlier done from said premises. AO by any stretch of imagination cannot treat it as house property and add notional income on this premises since appellant was using it for business purpose and finding of AO that business discontinued after 31st March, 1999 is based on surmises without any proof. said premises continued to be occupied by appellant because he had to sort out pending issues and disputes with clients of principals and to suggest solutions for settlement of disputes with them as such matters related to transactions handled by appellant in period prior to 1st April, 1999. Hence, contention of AO that appellant s business finished on 31st March, 1999 was incorrect and this ground of appeal is decided in favour of appellant. premises which have been used for business for last so many years cannot be held to be residential property on which vacancy allowance is to be calculated. appellant s business might have finished but he still continued to sit in this office for all works of repairs, etc. and it cannot be said that this was house property on which notional income can be applied, Even if appellant did not have any business income he can still continue to use this office, involved his work of import and export of cargo. Hence, AO s action in treating it as notional income from house property which remained vacant during year is incorrect. It was also stated that during this period they did not have any commission income but out of work done in previous year i.e. year ending 31st March, 1999, there was recovery to be done against bills issued in that year for which appellant s services were required and for this purpose he kept first floor premises and he was using said premises for business purposes. Apart from this, appellant was also trying to secure new customers while operating from these premises after his association with M/s Continental Carriers had ended. It has further been stated that telephone was still installed in first floor for which they have shown telephone bills." It was contended by learned senior Authorised Representative, Dr. S. Narayanan, that there was no reason before AO for initiating assessment proceeding, insofar as in notice under s. 148 he has mentioned that assessee has offered similar rental income in earlier years. As per learned Authorised Representative no rental income was offered by assessee in earlier asst. yr. 1999-2000, therefore even notice issued for reopening was invalid. On other hand, learned Departmental Representative supported order of AO for initiating reassessment proceeding and order of learned CIT(A) for confirming action of AO. We have considered rival contentions, carefully gone through orders of authorities below and found from record that in assessment framed under s. 143(3)/147, AO has observed that assessee has offered rental income from said property at first floor, RZ-293, Block, Mahipalpur, New Delhi, in asst. yr. 2001-02 at Rs. 19,80,000. Since this income was not offered during assessment year under consideration which is immediately prior to asst. yr. 2001-02, AO was having reasons to believe that there was escapement of income. After amendment of provisions of s. 147 w.e.f. 1998-99, reason to believe that income has escaped assessment is sufficient to issue notice under s. 148, and at time of issue of notice it is not required to be established that there is actually escapement of income and mere existence of cogent reason is sufficient to initiate reassessment proceedings. However, during course of having assessment under s. 143(3)/147, it is required to be established that there was actual escapement of income. We, therefore, do not find any infirmity in orders of lower authorities for initiating reassessment proceedings. In instant case, assessee was working as agent of his principals, which were undertaking air freight services for its customers. assessee was deriving commission income from his principals on air freight turnover and during preceding previous year ending on 31st March, 1999, he has received total commission income of Rs. 58.84 lakhs. In view of arrangement entered into with principals, assessee was required to maintain and promote cordial relationship with numerous clients of principals which comprise of sorting out pending issues and disputes with them and also helping in arriving at settlements in respect of such disputed transactions. Undisputedly, assessee has carried on business from this premises situated at first floor of Block, Mahipalpur. However, during assessment year under consideration, assessee even though did not carry out any new transaction on behalf of his principals, but premises continued to be occupied by assessee for concluding transactions already entered into by assessee with clients of its principals with regard to rendering of services on air freight. assessee was under business obligation to sort out pending issues and disputes with clients of principals and to find out solutions for settlement of disputes with them which related to transactions handled by him in period prior to 1st April, 1999. We had also verified certificate issued by assessee s principals, M/s Continental Carriers, dt. 17th Dec., 2003 according to which assessee has carried on this business as agent from first floor of premises and that he continued to occupy said premises upto 31st March, 2000, as work of sorting out issues and disputes with clients of M/s Continental Carriers continued as also for suggesting solutions by way of settlements in respect of transactions handled by assessee in earlier years. Keeping in view nature of business assessee was undertaking disputes and differences were likely to arise between parties with regard to rendering of services and its scope vis-a-vis commission charged for such services. Even though assessee did not enter into any new transaction during assessment year under consideration, but he was not free to say goodbye to transactions already entered into through him and for which assessee has undisputedly received huge commission income of Rs. 58.84 lakhs. It was not only business compulsion but also inbound duty of assessee to sort out pending matters and to give final shape to transactions entered into through him and for which assessee was in receipt of huge amount of commission. We also found that assessee continued to enjoy telephone connection for his business at premises No. RZ-293, Block, Mahipalpur, in name of T.N. Vohra and which has been confirmed by photocopy of bill issued by Mahanagar Telephone Nigam Limited. AO has n o material in his hands which lays cogent material to say that premises were occupied by assessee for his personal purposes. conclusion of AO that business of assessee was fully discontinued after 31st March, 1999 and premises were occupied by assessee for his personal purposes and not for purpose of business is not corroborated by any documentary or circumstantial evidence. business arrangements entered into by assessee with principals cannot be brushed aside and duties which assessee was supposed to undertake with respect to its earlier transactions have to be taken care of. Such work could not come to standstill on stroke of closing hour of 31st March of 1999. There is point to be carried out unfinished worked in this regard. For this purpose, we had verified balance sheet of principals placed on record indicating sundry debtors and advances of Rs. 1.71 crores as on 31st March, 1999. Undisputedly, since inception, M/s Continental Carriers carry on business of clearing and forwarding agents acting mainly on behalf of import and export cargo which has to reach consignee after completion of due formalities. Undisputedly, M/s Continental Carriers operated as approved agent and held IATA license entitling it to various concessions and obligations. It has also earned commission on air freight booked by it from various airlines and out of which part of commission was given to assessee, Shri T.N. Vohra. findings recorded by learned CIT(A) to effect that said premises were continued to be occupied by assessee because he had to sort out pending issues and disputes with clients of principals, had not been controverted by Department by bringing any positive material on record. Out of work done by assessee during immediately preceding year ended on 31st March, 1999, there was recovery to be made against bills issued in that year and assessee s help was required for this work, insofar as assessee has received commission on such income, which was carried out from said premises during assessment year under consideration. As per normal business practice when bill is sent for services rendered client raises numerous objections and asks for clarifications and grievances for services rendered, which generally takes time for settlement after matters are explained to client s satisfaction. In view of above, we do not find any infirmity in order of learned CIT(A) for deleting addition of Rs. 19.80 lakhs being ALV of house property at RZ-293, Block, Mahipalpur. In result, appeal of assessee is allowed and Revenue is dismissed *** T.N. VOHRA v. ASSISTANT COMMISSIONER OF INCOME TAX
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