I.T.A. No. 1580/KOL./2012 Assessment year: 2003-2004 Page 1 of 10 IN INCOME TAX APPELLATE TRIBUNAL, KOLKATA B BENCH, KOLKATA Before Shri Waseem Ahmed, Accountant Member and Shri K. Narasimha Chary, Judicial Member I.T.A. No. 1580/KOL/2012 Assessment Year: 2003-2004 Income Tax Officer,.................................................................Appellant Ward-41(1), Kolkata, 18, Rabindra Sarani, Kolkata-700 001 -Vs.- Sri Shyamal Banerjee,.............................................................Respondent 128A, Bidhan Sarani, Kolkata-700 004 [PAN:AENPB 8022 L] Appearances by: Shri Tanuj Kumar Neogi, Additional CIT, Sr. D.R., for Department Shri Subash Agarwal, Advocate, for assessee Date of concluding hearing : August 25, 2016 Date of pronouncing order : September 14, 2016 ORDER Per Shri K. Narasimha Chary, J.M.: This is appeal by Revenue challenging order dated 18.06.2012 passed by learned Commissioner of Income Tax (Appeals)-XXX, Kolkata (hereinafter referred to as learned CIT ) for assessment year 2003-04. 2. Brief facts of case are that assessee is doing business in textile and also deriving income from other sources which shall include income from lodging business carried in name of Bani Bhavan at Puri, income from partnership firm Young Bengal Society, Jagat Jyoti Cloth Dying and Printing House, Maa Durga Candle works and Bengal paper converters. On 18.02.2003 there was survey conducted in business premises of assessee, wherein certain incriminating documents and evidences were unearthed and were impounded with identification marks, inter alia, TCS-2, TCS-4, TCS- 9, TCS-22, TCS-44, and TCS-48, relevant for purpose of this appeal. assessee filed his return on 28.11.2003 declaring total income of Rs.12,28,450/-. By way of I . T. . N o. 1 5 8 0 / KO L . / 2 0 1 2 Assessment year: 2003-2004 Page 2 of 10 order dated 28.03.2006 learned AO assessed income of assessee at 1,53,77,200/-. Aggrieved by said order, assessee carried matter in appeal to learned CIT. Ld. CIT by order dated 5.1.2007 gave certain relief to assessee pursuant to which learned AO passed order under section 251 of Act granting relief to tune of Rs.2,99,629/-. Matter reached ITAT in appeal and ITAT by order dated 14.12.2007 remanded matter to learned AO for fresh disposal after de novo consideration. Subsequently, pursuant to orders of ITAT, learned AO vide order dated 30.12.2008 made certain additions on account of rental income and advances received from parties in respect of Bani Bhavan at Puri, and unexplained and undisclosed investments and income. He framed assessment at 1,10,35,881/-. Subsequently, on 2.2.2009 he modified same under section 154/143(3)/251/254 of Act and assessed income at 1,07,20,210/-. 3. Aggrieved by said order of learned AO, assessee carried matter in appeal to learned CIT and CIT by way of impugned order treated income from Bani Bhawan as income from business and deleted additions made on that score. Further, learned CIT calculated undisclosed or unexplained investment or income of assessee at Rs.39,44,106/- as against Rs.91,65,486/- calculated by learned AO, thereby granted relief to assessee to tune of Rs.52,21,380/-. 4. Challenging these two findings of learned CIT in impugned order, Revenue preferred this appeal with three days delay before us on following grounds:- (1) ld. CIT(A) has erred in law as well as on facts in treating income from Bani Bhawan , Puri as Income from Business instead of Income from House Property . issue was discussed in detail in assessment order. It is gathered from record that on same issue in AY 1993-94 order u/s 143(3)/254/251 dated 29.12.2006 of I.T. Act, was passed and assessee has not preferred further appeal and accepted said order. (2) ld. CIT(A) has erred in law as well as on facts in allowing relief of Rs.52,21,380/- without appreciating facts that addition was made on basis of different documents found during course of survey u/s 133A of I.T. Act. 5. This appeal is preferred with three days delay. It is explained by Revenue that order of learned CIT impugned in this appeal was communicated to them on I . T. . N o. 1 5 8 0 / KO L . / 2 0 1 2 Assessment year: 2003-2004 Page 3 of 10 27.08.2012 and last day of limitation for filing appeal was 26.10.2012. However, since 27th & 28th October, 2012 happened to be Saturday and Sunday and on 29th ITO was on leave on occasion of Durga Puja and Laxmi Puja , delay occurred. When we heard ld. Counsel for assessee, he fairly conceded for condoning delay and to argue matter on merits. Recording same, and accordingly we condone delay and proceed to hear appeal on merits. 6. It is argument of ld. D.R. that learned CIT erred in holding income from Bani Bhawan as income from business instead of income from house property, since assessee is residing in part of building and let out remaining to others on rental basis. He further assailed impugned order on ground that learned CIT committed error in holding that total turnover was accumulated through periodic cycling of sales amount to purchases for four times during financial year, instead of adding entire unexplained investment as undisclosed income. For these reasons, learned DR prayed to restore order of learned AO. 7. It is argument of Ld. AR that learned CIT has taken total unexplained investment as result of rotating same amount for four times instead of taking it as rotation for nine times in view of tax audit report where ratio of stock to turnover was found to be 10.10%. He further submitted that learned CIT increased in Gross Profit Ratio from 10.36% to 11.55% and made certain addition on this basis. 8. At outset, it we wish to state that in respect of learned CIT taking undisclosed investment as investment in four cycles instead of investment in nine cycles as pleaded by assessee, and learned CIT enhancing Gross Profit Ratio from 10.36% to 11.55%, there is no appeal preferred by assessee. It is only revenue that has come in this appeal challenging treatment of income from Bani Bhawan and also granting relief to assessee to tune of Rs.52,21,380/-. 9. Basing on above contentions and circumstances points that arise for our consideration are,- (i) Has learned CIT erred in treating income from Bani Bhawan at Puri as income from business instead of income from house property as framed by learned AO? I . T. . N o. 1 5 8 0 / KO L . / 2 0 1 2 Assessment year: 2003-2004 Page 4 of 10 (ii) Has learned CIT erred in granting relief to tune of Rs.52,21,380/- to assessee? Issue No. 1 10. As could be seen from record Bani Bhawan is Lodge situated on beach at Puri. assessee has been conducting his business in letting out this property on commercial basis to many Government, semi-Government and institutions to be used as Holiday Home. Since establishment about three decades back, income from lodging house has been treated as business income by assessee and has been accepted so by department. However, from about assessment year 1993-94, department has started treating such income as income from house property. Dispute has reached level of ITAT in respect of assessment years 1993-94 and 1995-96, wherein ITAT decided issue in favour of assessee holding that income from Bani Bhawan be treated as income from business and not income from House property. 11. In respect of assessment year relevant to this appeal also, this issue has been canvassed before learned CIT. Certain documents were produced before learned CIT and also before this Tribunal. Now we shall proceed to analyze and appreciate such documentary evidence. assessee produced copy of licensee fee receipt and also licenses for years 2003-2004 and 2006 as samples to show terms and conditions. These documents are enumerated from page no. 53 to 56 of paper book. In all these documents, while granting licence in favour of assessee to received lodgers/pilgrims, licensing authority, i.e. Magistrate, Lodging House Fund, Puri had stipulated following conditions :- (1) License shall be produced to Magistrate, Medical Officer or Health or any other persons authorised to enter and inspect under section 10 of Act. (2) License is granted subject to conditions prescribed in Rule 7 which is as follows :- (i) owner, or in his absence person in charge of any licensed house, shall keep one sweeper for every hundred pilgrims. I . T. . N o. 1 5 8 0 / KO L . / 2 0 1 2 Assessment year: 2003-2004 Page 5 of 10 (ii) Provide open Kirosine tins tarred within and without at rate of one for every ten pilgrims for collections of rubbish refuse. (iii) Cause living rooms, varandaha and court yards to be swept and cleaned daily and collections of rubbish and refuse to be removed. (iv) Cause all wells attached to licensed house to be throughly cleaned once year & except in case of covered wells fitted with pump shall have all well disinfected at such times and in such manner as Magistrate shall prescribe. (v) Cause all latrines, urinal, drain cesspools and receptacles for rubbish to be cleaned daily. (vi) Display on conspicuous part of main entrance of house, ticket showing red letters not less than six inches in height: (a) registered number of license, (b) number of pilgrims which house is licensed to accommodate. (c) period during which license is in force. (vii) Display in conspicuous place on lintel of each room or on posts of each varandah licensed for accommodation of pilgrims ticket showing number of pilgrims for which it is licensed & shall our accommodate more than number authorised by Magistrate. (viii) Report immediately to nearest police station all cases of serious illness and all dates accruing in licensed house. Information shall be sent immediately by Officer- In- charge of Police Station to Medical Officer of Health. (ix) Afford assistance to Medical Officer of Health or his assistant in removing sick persons, if necessary, to hospital and in getting house disinfected. 12. assessee also produced as many as nine agreements entered into with different organizations which are incorporated in page nos. 57 to 96 of paper book. I . T. . N o. 1 5 8 0 / KO L . / 2 0 1 2 Assessment year: 2003-2004 Page 6 of 10 All these agreements invariably show that organizations taking premises under these agreements were under obligation to use premises for purpose of Holiday Home only. In some agreements, purpose was mentioned as lodging. Scheduled annexed to all these agreements clearly show that demised premises consists of some bed rooms, toilet, kitchen, etc. 13. license granted by Magistrate, Lodging House Fund clearly shows that for carrying on business of letting out property to be used as Holiday Home or lodge, such license was granted. agreements referred to above also clearly show that with such stipulation only property was let out to different organisations. Further is not case of mere letting out property on rent, but assessee also provided watch and ward, furniture and fixtures and other services. All these facts unmistakeably show intention of assessee that he was making use of property for business or commercial purpose. It is worth to note that in Sultan Bros. Pvt. Ltd. vs. CIT (1964) 51 ITR 353 at page no. 354, Hon ble Apex Court observed that whether particular letting is business has to be decided in circumstances of each case, and each case has to be looked at from businessmen s point of view to find out whether letting was doing of business or exploitation of his property by owner. 14. Further, in grounds itself, revenue pleaded that order dated 29.12.2006 under section 143(3)/254/251, in respect of assessment year 1993-94 was same, and assessee accepted same without preferring any appeal. As matter of fact, revenue has never produced any such material in support of its contention. On other hand, vide page No. 104 and 106 of paper book assessee produced copy of order in ITA No. 49/Cal/2000 in respect of assessment year 1995-96. In this order, Coordinate Bench of this Tribunal clearly observed that copy of order in respect of AY 1993-94 was produced before Tribunal and Tribunal observed therein that income from Bani Bhawan was treated as business income. Further, vide no. 107 to 114 of paper book, assessee produced order dated 26.2.2010 passed by learned CIT in respect of AY 2001-02. In this order, vide Para (i) under ground no. 3, learned CIT observed that Puri Municipality has given licence to run commercial project only as lodging/holiday home restricting number of I . T. . N o. 1 5 8 0 / KO L . / 2 0 1 2 Assessment year: 2003-2004 Page 7 of 10 lodgers at 165, and matter relating to income of Bani Bhawan as business income had already been decided in past by ITAT in AYs. 1993-94 and 1995- 96. learned CIT also referred therein to order in ITA No. 49/Cal/2000 for AY 1995-96 wherein issue was held in favour of assessee. Following same in respect of AY 2001-02, learned CIT concluded that income from Bani Bhawan Puri should be treated as business income. In impugned order Learned CIT referred to all these facts and circumstances of case. He also relied upon decision reported in National Storage Pvt. Ltd. Vs CIT (1967) 66 ITR 596 (SC), for principle that even rental income from property having limitation in its use is assessable as business income and not income from house property. It is pertinent to note that in this case also use of property is burdened with conditions as could be found from license granted by Magistrate of Lodging House Fund, Puri, which are extracted above. 15. Hon ble Allahabad High Court in Commissioner of income Tax vs.- Pateshwari Electrical and Associated Industries (P) Limited 282 ITR 61 (All) referred to decision in Sultan Bros. (P) Ltd. vs.- CIT [1964] 51 ITR 353, CEPT vs.- Shree lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC), CIT vs.- Shanmugham [1984] 147 ITR 692 (Mad.), S.G. Mercantile Corpn. (P) Ltd. vs.- CIT [1972] 83 ITR 700 (SC), and distinguished decisions reported in Shambhu Investment (P) Ltd. [2001] 249 ITR 47 (Cal.) and CIT vs.- Purshottam Dass [2001] 247 ITR 516 (Delhi) to reach conclusion that when property was used for commercial purpose by letting out same with furniture and fittings after obtaining Sarai licence from District Magistrate as well as from Dist. Health Officer and renewable from year to year, learned CIT was right in treating receipts as business income. This decision is application to facts of this case on all fours. 16. Revenue could not produce document, which they are relying upon and at same time they are unable to demonistrate how and where learned CIT was wrong. Viewing from any angle we do not find any error in finding of learned CIT that income from Bani Bhawan Puri constitutes business income and not income from house property. We, therefore, uphold finding of learned CIT and answer issue in favour of assessee. I . T. . N o. 1 5 8 0 / KO L . / 2 0 1 2 Assessment year: 2003-2004 Page 8 of 10 Issue No. 2: 17. Now coming to relief to tune of Rs.52,21,380/- granted by learned CIT to assessee, we find that learned AO, basing on incriminating documents with identification mark TCS-22, TCS-44 and TCS-48 assessed undisclosed investment at Rs,71,69,487/-. To this amount, learned AO also added gross profit at 10.36%. Learned AO also considered payments to Anuj Textiles and added amount along with Gross Profit Ratio at 10.36%. Finally learned AO added Rs.2,60,000/- in respect of amount under TCS-2, to reach final figure of Rs.91,65,486/- on account of undisclosed or unexplained investment or income. 18. We have carefully perused order of learned CIT. After elaborate discussion and comprehensive consideration of documents under TCS-2, TCS-4, TCS-9, TCS-22, TCS-44 and TCS-48, learned CIT reached at Rs.1,00,79,633/- as total amount of turnover. Learned CIT did not agree with learned AO in respect of Gross Profit Ratio, and as against Gross Profit Ratio of 10.36% framed by AO, learned CIT enhanced it to 11.55% and added difference amount to income of assessee. As already stated above, assessee does not challenge enhancement of turnover from Rs.95,61,486/- as framed by learned AO to Rs.1,00,79,633/- or enhancing Gross Profit Ratio from 10.36% to 11.55%. entire dispute in this appeal revolves around finding of learned CIT that same amount was rotated for four times to make total turn over of Rs. 1,00,79,633/- as such of only one fourth of this total turn over alone is investment which has to be added to income of assessee instead of adding total turnover to income of assessee. For this purpose, we have to look into order of learned CIT and line of reasoning given by him to reach such conclusion that turnover was accumulated by rotating sale amount to purchases for four times year, and that Rs.25,19,908/- is actual amount of undisclosed investment. 19. It could be seen from record that initially assessee has claimed that sales amount was ploughed in at least four times for purchases during period; therefore, undisclosed investment should be estimated at 1/4th of turnover. However, subsequently he changed version at claimed that investment being I . T. . N o. 1 5 8 0 / KO L . / 2 0 1 2 Assessment year: 2003-2004 Page 9 of 10 rotated nine times on basis of disclosed accounts and ratio of stock to turnover in tax audit report. Learned CIT appreciated record and account books of assessee to find out truth and rejected second version of assessee. On verification of payments made by assessee learned CIT found that payments are of small amounts and periodic in nature and entire amount has not been paid in one time. payments were from to time during financial year. On considering purchases and goods sold learned CIT further found that amounts realized on sale of goods were again ploughed in by way of purchases, and this cycle of sales and purchases continued, having considered nature of business of assessee, learned CIT came to opinion that monies in such manner could be rotated four times in year. On this premises, learned CIT estimated undisclosed investment at Rs.25,19,908/- being 1/4th of total turnover of Rs.1,00,79,633/-. Neither Revenue nor assessee could explain to us as to how learned CIT was wrong in this process. Merely because documents recovered from premises of assessee in survey conducted on 18.902.2003 indicate that there was undisclosed turnover of Rs.91,65,486/- as per learned AO or Rs.1,00,79,633/- as per learned CIT, entire turnover amount cannot treated as undisclosed income or investment, without having regard to facts and figures surrounding business of assessee. While assessing income of assessee, should have had to common course of natural elements, and public and private business in relation to facts and figures obtained in particular case. It seems learned AO did not consider this aspect and learned CIT having gone through details relating to purchases sales and payments in respect of business of assessee reached conclusion that total turnover was accumulated through periodic cycling of sales amount to purchases and it generally takes three months for each cycle to complete. This finding of learned CIT is in conformity with initial plea of assessee that funds were being rotated at least four times during year. 20. Now coming to aspect of enhancing Gross Profit Ratio from 10.36% to 11.55%, learned CIT has considered Gross Profit Ratio rate by working formula, i.e. Gross Profit Ratio on sales X 100/100-GP on sales. By working out like this he arrived at 11.55% of Gross Profit Ratio on total turnover of Rs.1,00,79,633/-. By calculating G.P. in that method and adding such amount to undisclosed amount I . T. . N o. 1 5 8 0 / KO L . / 2 0 1 2 Assessment year: 2003-2004 Page 10 of 10 of Rs.25,19,908/-, learned CIT reached amount to be added back at Rs.39,44,106/-. By doing so, learned CIT granted relief to tune of Rs.52,21,380/-. We are at loss to understand where exactly ld. CIT erred in this process. reasoning adopted by learned CIT is scientific and findings reached by him are impeccable. We uphold same. We, therefore, find this issue against revenue and dismiss Ground No. 2. 21. In view of our findings on issue no. 1 & 2, we dismiss grounds no. 1 & 2. Consequently appeal is also dismissed, confirming findings of ld. CIT on these aspects. 22. In result, appeal of Revenue is dismissed. Order pronounced in open Court on September 14, 2016. Sd/- Sd/- (Waseem Ahmed) (K. Narasimha Chary) Accountant Member Judicial Member Kolkata, 14 t h day of September, 2016 Copies to : (1) Income Tax Officer, Ward-41(1), Kolkata, 18, Rabindra Sarani, Kolkata-700 001 (2) Sri Shyamal Banerjee, 128A, Bidhan Sarani, Kolkata-700 004 (3) Commissioner of Income Tax(Appeals)-XXX, Kolkata (4) CIT- ,Kolkata; (5) Departmental Representative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S. Income-tax Officer, Ward-41(1), Kolkata v. Shyamal Banerjee