IN INCOME TAX APPELLATE TRIBUNAL PUNE BENCH , PUNE BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM ITA Nos.1963 to 1968/PN/2013 Assessment Years : 2000-01 & 02-03 to 06-07 M/s. Nutan Warehousing Company Pvt. Ltd., Appellant 1379, Krishi Bhavan, Bhawani Peth, Pune 411 042 PAN No.AAACH7084L v/s DCIT, Circle-2, Pune Respondent ITA No.2130/PN/2013 Assessment Year : 2001-02 M/s. Nutan Warehousing Company Pvt. Ltd., Appellant 1379, Krishi Bhavan, Bhawani Peth, Pune 411 042 PAN No.AAACH7084L v/s ITO, Ward-1(3), Pune Respondent ITA No.361/PN/2014 Assessment Year : 2008-09 M/s. Nutan Warehousing Company Pvt. Ltd., Appellant 1379, Krishi Bhavan, Bhawani Peth, Pune 411 042 PAN No.AAACH7084L v/s DCIT, Circle-2, Pune Respondent Assessee by : Shri S.N. Doshi Revenue by : Shri Rajesh Damor & Shri Anil Kumar Chaware 2 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 Date of Hearing : 01.08.2016 Date of Pronouncement:30.09.2016 ORDER PER R.K. PANDA, AM : ITA Nos.1963 to 1966/PN/2013 filed by assessee are directed against common order dated 29-08-2013 of CIT(A)-II, Pune relating to A.Yrs. 2000-01 & 2002-03 to 2004-05 respectively. ITA Nos. 1967 & 1968/PN/2013 filed by assessee are directed against common order dated 29-08-2013 of CIT(A)-II, Pune relating to A.Yrs. 2005-06 & 2006-07 respectively. ITA No.2130/PN/2013 filed by assessee is directed against order dated 26-09-2013 of CIT(A)-II, Pune relating to Assessment Year 2001-02. ITA No.361/PN/2014 filed by assessee is directed against order dated 09-12-2013 of CIT(A)-II, Pune relating to Assessment Year 2008-09. Since common issues are involved in all these appeals, therefore, these were heard together and are being disposed of by this common order. 2. first issue in grounds of appeal that is common for all years except for A.Y. 2000-01 relates to order of CIT(A) in confirming action of AO in treating lease rental as income from house property as against business income treated by assessee. 3. First we take up ITA No.2130/PN/2013 for A.Y.2001-02 as lead case. Facts of case, in brief, are that assessee is Pvt. Ltd. Company and is engaged in business of warehousing as per license granted to it under Bombay Warehousing Act, 1959. 3 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 warehousing receipts with lease charges were assessed as business income right from 1973-74 to 1999-2000. However, for impugned assessment year, AO assessed lease charges as property income. In appeal Ld.CIT(A) held that even warehousing receipts are also to be assessed as property income. Tribunal confirmed order of CIT(A). assessee went in appeal before Hon ble Bombay High Court and Hon ble High Court vide order dated 18-02-2010 set aside order of Tribunal and directed AO to decide same in line with following observation : Since Tribunal has not considered this aspect of case, we are of view that it would be appropriate and proper to set aside decision of Tribunal and to remand proceedings back to Assessing Officer for fresh determination and assessment in accordance with law. We order accordingly. Upon remand, it is clarified that assessing officer shall not consider himself to be bound by decision of Tribunal dated 19th of March 2001 for assessment year 1994-95, 1995-96, 1996-97, in view of concession in those terms which has been made during these proceedings by assessee. In order to facilitate fresh exercise being carried out in terms of order passed by this court, impugned order of Tribunal dated 31st of August 2006 is set aside. However, it is clarified that all rights and contentions of revenue on all aspects of case on merit are kept open. order of remand, it is clarified shall also be with respect to disallowance that have been effected under section 40A(ii) of Income Tax Act, 1961. In view of order of remand, it is not necessary for this court to express any view on any of our other on question of law involved appeal is accordingly disposed of. No costs. 4. In pursuance of above direction of Hon ble High Court, AO issued notice to assessee asking him to submit all information/material to substantiate claim that warehousing activities are business activities and resulting income as business income. 4 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 5. It may be pertinent to mention here that assessment orders for A.Y. 2000-01 and 2002-03 to 2008-09 were set aside by Tribunal to file of AO for fresh adjudication relying on decision of Hon ble Bombay High Court in assessee s own case. 6. During course of assessment proceedings AO asked assessee to submit following documents/details : 1. Memorandum of Association and Articles of Association at time of incorporation of company and subsequent changes if any. 2. Bifurcation of gross receipts as warehousing charges, rent charges, other incidental receipts from financial year 1998-99 to 2005-06. 3. Breakup of area of owned warehouses and leased warehouses. 4. Period of let out of warehouse for relevant period. 5. Copy of warehousing/rental agreements for all tenants/clients since financial year 1998-99 till financial year 2005-06. 6. Names, designations and roles of persons employed by assessee for warehousing activity. 7. assessee inter alia submitted following points which has been incorporated by AO at Page 3 of his order and which can be summarized as under : (a) company was incorporated on 07-07-1972 with main object of carrying on business of warehousing, cold storage and refrigeration. business of company is governed by provisions of Bombay Warehousing Act, 1959. company has obtained license under said Act which is renewed from time to time. As per Bombay Warehousing Rules, 1960 every warehouseman is required to submit current rates of warehousing service charges and u/s 20(1), every warehouseman is required to insure goods in warehouse against loss or damage by fire or burglary. That company is complying these conditions. (b) It was submitted that assessee company is liable to pay service tax on service of storage and warehousing and upon inclusion of service of storage and warehousing as taxable service it has obtained certificate of registration from Central Excise Commissioner, Pune-1 on 9-9-2002, which means that service tax cell of custom and Central Excise Department recognizes warehousing activity as services. 5 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 (c) assessee further submitted that company is rendering services to its client on daily basis, excluding holidays from 9.30 a.m. to 5 O'clock, and no possession is given to client as seen by agreement and warehouses are located in "Industrial Zone" as per zoning of area by Govt. of Maharashtra. (d) It was submitted that Pune Bench of Tribunal in assessee's own case for AY 1994-95 to 1996-97 has decided appeal in its favour and held that even lease rental received by it is incidental to warehousing business carried out by assessee company. Since there is no change in facts about assessee as well as method of warehousing business carried out, same should be followed. (e) assessee has also taken warehouses on lease from other parties and given same along with service facilities to his client. warehousing of goods, their security, insurance, loading unloading etc. are managed by assessee company. (g) That out of approximately 2,16,000 sq.ft. of warehouses let out by assessee company to various clients, only 70000 sq.ft. is owned by assessee company and remaining 1,46,000 sq.ft. has been taken by assessee company on hire. assessee has constructed warehouses on land taken on lease and these lease agreements are not perpetual lease. (f) That assessee is providing services like loading, unloading, transportation, security, maintenance, electricity etc. assessee company has employed separate staffs to look after and maintain this activity of warehousing. services provided by assessee make attractive for its customers to utilized his warehousing activity as composite business proposition. (g) That assessee has been discriminated by department in treating income from warehousing derived by Maharashtra State Warehousing Corporation & Central Warehousing Corporation as business income while that of assessee as income from house property. (h) That assessee company has incurred substantial expenses on providing various services to clients which company is contractually obliged to provide and these services are not such which are ordinarily provided by landlord to tenant. (i) That expenses claimed by assessee company are genuine and supported by documentary evidences. They have been incurred directly in connection with services which assessee is contractually required to provide to their client. Hence, assessee company is legitimately untitled to claim expenses as business expenses. (j) That Ld. CIT has passed order u/s.264 in case of Sajjad Hussain Gabrani, Prop. of Storewell Warehousing Corporation, Pune wherein he has held that income from warehousing activity is income from business. 6 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 (k) In Central Warehousing Act, Section 2(t) which says warehousing business has been defined as warehousing business means business of maintaining warehouses for stores of goods and issuing negotiable warehousing receipts. (l) That Allahabad High Court, Luknow Bench in case of CIT Vs. Goel Builders reported in 192 Taxman 28 has held that consistency has to be adopted by department in accepting/challenging decisions of appellate authorities which has not been done in case of assessee. (m) That warehousing activity is incidental to leasing of warehouse carried out by assessee company is activity involving property of complexity and becomes commercial asset and assessee company is not simply renting out warehouse premises per se. Even lease charges received are inextricably linked to composite warehousing business activity and therefore income there from would fall within ambit of income from Business. (n) It was further submitted that AO while completing assessment for A.Y. 2001-02 has not considered following decisions : i. CIT Vs. National Storage Pvt. Ltd. reported in 66 ITR 596 ii. Karnani Properties Ltd. Vs. CIT reported in (1971) 82 ITR 547 (SC) iii. East India Housing & Land Development Trust Ltd. Vs. CIT West Bengal iv. V.N. Rukari & Sons Vs. ITO, Ward-3(7), Pune Various other decisions were also relied upon by assessee. 8. However, AO was not satisfied with arguments advanced by assessee. para-wise comments of AO to various submissions made by assessee are as under : a. contention of assessee that as per Bombay Warehousing Act, 1959 warehousing activity is 'business' is not acceptable' because expression used in one statute cannot govern meaning in another statute. issue whether lease rent/warehousing charges received by assessee from letting out of property will be taxed under which 'head of income' and same, will have to be decided on basis of provisions of Income-tax Act 1961 alone as much as warehousing charges are determined by Warehousing Act, 1959. Same is applicable for definition of warehousing given in Central Warehousing Act. With respect to argument of assessee regarding applicability of service tax reason given above is equally applicable. 7 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 b. With respect to rendering services on daily basis contention of assessee is not correct as far as lease property to Hindustan Liver Ltd is concerned. Further, location of warehouse in industrial Zone cannot determine head under which income is to taxed. c. contention of assessee that out of 250000 lakhs sqft. of warehouses it owns only 70000 Sqft and remaining 180000 sq.ft have been leased is also not correct. Though assessee has leased land from its sister concerns, yet constructions of warehouses have been done by assessee company by utilizing borrowed funds and deposit and these warehouses are shown as fixed assets in Balance Sheet of assessee and assessee has been claiming depreciation. Hence for all practical purpose assessee is owner of these warehouses. d. contention of assessee that it is providing services like loading unloading, transportation, security, maintenance, electricity are not relevant as for as lease property is concerned and question of composite charges does not arise. e. contention of assessee that Hon'ble tribunal's decision for A.Y. 1994-95 to 1996-97 be followed for subsequent years as well as there is no change in facts as well as business model of warehousing, is not acceptable because there is change in facts. With construction and long term lease of factory to Hindustan Liver Ltd for 10 years, area of leased property has increased from merely 10,250 sq.ft to 68,000 sq.ft. i.e., from merely 5% to 31 % in terms of area let out and 35-45 % in terms of gross receipt. This by no stretch of imagination can be called as no change in facts. order of Hon'ble ITAT for 1994-95 to 1996-97 were not accepted in principle however, appeal was not filled because of tax effect being less than threshold limit for filling appeal. Since there was change in facts , Assessing Officer had correctly taxed income derived from leased property as Income from House property. f. With respect to claim of assessee that it has incurred substantial expenses on providing various services and that expenses claimed by assessee company are genuine and supported by documentary evidences, it is stated that Income tax Act 1961 provides computation mechanism for each head of income. Once it has been decided that particular receipt is to be taxed under particular head of income, computation mechanism provided for that head of income is to be followed for arriving at taxable income and only expenses allowable under heads of income are allowed. g. With respect to claim of assessee that CIT-II Pune has passed u/s. 264 in case of Sajjad Husain Gabrani, Prop of Storewell Warehousing Corporation Pune, and has held that income from warehousing activity is income from business, it is seen that CIT-II in said order has distinguished facts from case of assessee, hence same cannot be applied in case of assessee. 8 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 h. With respect to assessee's contention that consistency has not been maintained, it is mentioned that facts have changed since March 2001, with lease of factory premised of 68000 sq ft to Hindustan Liver Ltd. department has shown remarkable consistency, by not contesting decision of ITAT dt.19-03-2001, when facts were same. And Department again accepted order of ITAT, Pune after decision in assessee's case for AY 2001-02 when facts were changed. i. With regard to contention of assessee that warehousing activity and incidental leasing of warehouse carried out by assessee company is complex commercial activity, it is stated that there is no complex activity involved as for as leased property is concerned. 9. Having dealt with issues raised by assessee in its various submissions as above, AO proceeded to decide issue in hand, i.e. whether income from warehousing activities carried out by assessee are to be treated as Business Income or Income from House property or partly as Business Income and partly as House Property income and whether lease rental constitutes dominant part of warehousing activity or is subservient to it. He observed that Hon'ble High Court in order dt.18.02.2010 in Income Tax Appeal No.1269 of 2007 in Para No.6 has observed as under: "What has to be deduced is to letting out of property constitutes dominant aspect of transaction or whether it was subservient to main business of assessee of carrying out warehousing activities". 10. Keeping above in mind, AO noted that assessee is carrying out two types of activities. (i) Leasing out of custom made factory premises to Hindustan Lever Limited for its 100% Export Oriented Unit engaged in manufacturing and blending of Tea and tea export. (ii) Letting out of Warehouses having about 20 warehouses units (Galas) to different customers. 9 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 11. So far as leasing out to Hindustan Lever Limited is concerned, he observed that assessee had leased out about 10,250 sq.ft. warehouse to be used as factory to client called Lipton Tea for storing, and blending of Tea in year 1985. Subsequently, Hindustan Lever Limited took over business of Lipton Tea and expressed its need of larger space for new factory for manufacturing and blending of tea for its 100% Export Oriented Unit. assessee then constructed factory on area of 68,000 sq.ft. as per requirement of Hindustan Lever Limited for Export Oriented Unit new factory was constructed at total cost of Rs.4.99 Cr. out of which Rs 1.44 Cr was financed by Hindustan Liver Ltd as security deposit and balance was financed out of bank loans. Hindustan Lever Limited is carrying out manufacturing and blending of tea in this factory since March 2000 by employing of about 400 employees and installing huge plant & machinery along with furniture and fixtures. 12. He analysed lease agreement with Hindustan Lever Ltd. and noted that : 1. lease was for period of 10 years with effect from 01-11- 2000 for premises comprising of factory admeasuring 68,000 sq.ft. on monthly rent of Rs.4,45,000/-. 2. That lessee will pay said monthly rent at rate of Rs.4,45,000/- per month in advance on or before 21st day of each calendar month. 3. That lessee (HLL) agreed to pay assessee company (the lessor) Rs.144.00 lacs on taking possession, Rs.31.64 lacs at beginning of fourth year and Rs.39.65 lacs at beginning of seventh year as security deposit. 4. That assessee company (the lessor) agreed to allow lessee (HLL) to possess and enjoy demised premises , for carrying out manufacturing activities including blending, processing, mixing and packing of tea and other items of food and beverages. 10 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 5. That as long as lessee continued to pay rent and observed and performed terms and conditions of lease agreement lessee would have right of peaceful possession and enjoy demised premises without any interruption or disturbance from lessor. 6. That machinery, furniture and fixtures, electrical equipment and other utilities installed or kept in said premises which are owned by lessee shall always belong to and be property of assessee. 7. That lessee shall insure machinery installation, stocks and other contents in demised premises which are owned by lessee. 8. That lessee will pay for electricity, power and water charges during tenancy on basis of actual reading of meter/sub- meter installed in premises. 9. That lessee will be entitled to construct at its cost in said premises, partitions and such other fixtures as may be necessary for lessee to carry on their industrial activities. 10. That lease shall be renewable at option of lessee for such further period and such terms as may be mutually agreed between lessee and lessor. 13. In view of above terms and conditions of lease agreement, AO held that premises has been given on lease of 10 years, construction has been as per requirement of lessee, furniture and fixers and plant and machinery are owned by lessee, HLL is carrying out manufacturing and blending of tea for its 10% export oriented unit, and possession has been handed over to lessee and assessee has no active role whatsoever as far as this property is concerned. Hence, income from lease of this property can be taxed only as Income from House Property. 14. AO further noted that assessee has warehouses at two places, namely, Phursungi and Dhankawadi. At Phursungi approximate area of warehouses, as explained by assessee is about 2,16,000 sq.ft. Out of this, about 70,000 sq.ft. is owned by 11 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 assessee company and remaining of about 1,50,000 sq.ft. has been constructed by assessee company on land leased from sister concerns, Directors and their relatives and about 30,000 sq.ft. area at Dhanakwadi, is leased by assessee from M/s. Kamdhenu Chemicals, sister concern. There are about 20 galas/Warehouse Units with independent entry/exit having separate shutters/doors which are let out or given on rent to customers as per their requirements. area of these Galas/Warehouse units varies from 650 sq.ft. to 5000 sq.ft. and segment of let out during year has varied from 6 months to 3 years. 15. AO further observed : a. that company is rendering services to its client on daily basis excluding holidays from 9.30 am to 5 O clock and that possession is not passed to clients and warehouses having double locking where in one key is kept with customer and another with assessee. b. that assessee has also taken warehouses on lease of about 30,000 sq.ft. from other parties and given same along with service facilities to his client. c. that assessee is providing services like loading, unloading, transportation, security maintenance electricity. d. that assessee has employed over 20 permanent and semi- permanent staff to look after and maintain these activities of warehousing. services provided by assessee make attractive for its customers to utilize his warehousing activity as composite business proposition. e. that assessee company has incurred substantial expenses on providing various services to clients which company is contractually obliged to provide and these services are not such which are ordinarily provided by landlord to tenant. f. that warehousing activity carried out by assessee company is activity involving property of complexity and becomes commercial asset and assessee company is not simply renting out warehouse premises per se. g. that assessee has bus facility for transport of staff from warehouse to Swargate, Pune. 12 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 h. that agreement are made for segment of three years and clients may join at any time and client and assessee company can vacate/get it vacated by three months notice. Hence, it is claimed that agreement is not for long term as in case of lease agreement. i. that assessee has installed fire hydrant system with capacity of 2 50,000/- liter to keep warehouses fire proof. 16. AO noted from above that assessee is actively involved in warehousing activities and warehouse is being commercially exploited on business lines so far as it related to pure warehousing activities. Hon ble High Court in above referred order has observed that Hon ble Tribunal in order dated 31- 08-2006 has not referred to any of warehousing agreements of assessee and has based decision only on lease agreement with Hindustan Lever Ltd and that no reason has been given for not following Tribunal s own decision in case of assessee. Hence he held warehousing activity carried out by assessee as business and income derived from is business income. 17. AO further observed that order of Tribunal dated 12-03-2001 also cannot be applied in A.Y. 2001-02 and subsequent years as facts of case have changed. Till March, 2000 Lipton tea was occupying approximately 30,000 sq.ft. out of which only 10,250 sq.ft. was for factory and 20,000 sq.ft. was for warehousing. In such situation Hon ble Tribunal was justified in holding that lease rental from merely 10,250 sq.ft. of property was only minor part of total 1,50,000 sq.ft. of warehouses and subservient to dominant activity of warehousing. 18. However, with construction and lease of new factory having area 66,000 sq.ft. in March 2000, has changed facts 13 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 drastically and area of leased factory vis- -vis warehouse has gone up from 5% to about 31% in terms of area and about 30-45% in terms of gross receipts. Hence letting out of property cannot be regarded as subservient to warehousing activity by any stretch of imagination. In fact, keeping in view overall warehousing activity where occupancy of warehouses varies from 60-80% only and uncertainly attached to it, leased rentals constitutes main stay of assessee company. 19. In view of above discussion AO concluded that : i. lease rental received by assessee from lease of 68000 sq.ft. of factory to Hindustan Lever Ltd. as per agreement dt.18-03-2001 for 10 years, wherein Lessee has set up its 100% export oriented unit, is held to be income from House property . ii. warehousing activities carried out by assessee on remaining warehouses are held to be business activities and resulting income as income from Business and Profession . iii. leased out property comprising of about 31% of total warehouse area and about 30-45% total receipts are held as dominant and not subservient to total warehousing activities. Hence, lease rental will be assessed as income from House Property and warehousing activities as income from Business and Profession . AO accordingly determined taxable income at Rs.70,66,483/- which comprised of income from house property at Rs.28,20,676/- as business income at Rs.42,45,807/-. 20. Before CIT(A) assessee reiterated same submissions as made before AO. It was submitted that Tribunal in assessee s own case for A.Yrs.94-95, 95-96 and 96-97 has allowed claim of assessee in treating lease rental income as 14 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 income from business . It was submitted that warehouses provided for warehousing as well as those provided to M/s. HUL is one and same activity and there is no scope for any segregation. Further on entire receipts company is subjected to service tax. It was submitted that business of assessee company is governed by provisions of Bombay Warehousing Act, 1959. Referring to Central Warehousing Act it was submitted that provisions of section 2(t) defines warehousing business as business of maintaining warehouses for storage of goods and issuing negotiable warehousing receipts. It was submitted that dominant object is to carry on warehousing activity as business activity and leasing is incidental and subservient to warehouse and hence same is also business activity. It was further submitted that warehouses are commercial assets in case of assessee. Relying on various decisions it was submitted that income received by assessee should be considered as business income. 21. Without prejudice to above assessee further submitted that when entire bank loan was utilized for construction of warehouses leased out AO was not justified in allowing only 31% of bank interest as allowable deduction from computation of income from house property. Since entire loan obtained from Federal Bank, Pune has been utilized exclusively for purpose of construction of warehouse which has been leased out to M/s. HUL AO was not justified in allowing only 31% of interest on such bank loan out of such rental income which has been treated by AO as income from house property. disallowance of depreciation by AO was also challenged before CIT(A). 15 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 22. However, Ld.CIT(A) was not satisfied with explanation given by assessee. Rejecting submissions made before him and distinguishing various decisions cited before him he held that AO is fully justified in treating lease rental income as income from house property . He observed that gross receipts of leasing activity varies between 30 to 40% out of total gross receipts of assessee and consumed about 31% of total area which clearly indicates that leasing profit cannot be regarded as subservient to warehousing activity by any stretch of imagination. According to him essence of providing warehousing facilities comprised in providing space which is let out and therefore same does not constitute business. He observed that in instant case assessee is owner of godowns/warehouses which have been allowed to be used by M/s. HUL and it is clear that all conditions specified u/s.22 of I.T. Act, 1961 are present. He further noted that lease agreement between assessee and HUL clearly reveals that only object and intention of assessee while accepting said property was to let out property on monthly rent and there was no complex commercial activity involved in letting out of property. Thus, lease rent received by assessee was only because of bare letting of property and said character cannot change and income does not change or become income from business or profession merely because letting out included certain minor additional services provided to lessee. Relying on various decisions he held that activity of assessee of leasing and letting activity cannot be termed as business activity. He accordingly held that lease rent received by 16 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 assessee from HUL has rightly been assessed as income from house property. 23. As regards contention of assessee that AO was not justified in allowing only 31% of interest he held that assessee could not conclusively establish nexus between utilization of loan and construction of warehouse leased out to M/s. HUL. Since AO has held that 31% of area of property, whose income is taxable under head income from house property, therefore, allowance of interest to extent of 31% and disallowance of depreciation to extent prima-facie appears to be reasonable. He accordingly dismissed ground raised by assessee before him. 24. Aggrieved with such order of CIT(A) assessee is in appeal before us with following grounds : 1. On facts and in circumstances of case order passed by CIT(A) is bad in law as CIT(A) having given finding that appellant is engaged in warehousing business has failed in not appreciating and adopting specific direction of Hon ble Bombay High Court to effect that where dominant activity is in nature of business activity income of appellant has to be assessed as business income and hence CIT(A) has erred in taxing leasing activity separately. 2. On facts and in circumstances of case and without prejudice to above CIT(A) has erred in holding that considering total lease charges received leasing activity is dominant and not subservient to warehousing activity. 3. On facts and in circumstances of case and without prejudice to above CIT(A) has erred in allowing only 31% of total interest on bank loan while computing income from house property overlooking fact that entire bank loan is utilized only for purpose of construction of leased warehouses. 4. On facts and in circumstances in case, CIT(A) has erred in disallowing 31% of total depreciation holding that same is attributable to leased warehouses. 17 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 25. Ld. Counsel for assessee strongly challenged order of CIT(A). He submitted that assessee is private limited company incorporated in year 1973. Referring to copy of Memorandum and Articles of Association, copy of which is placed at pages 182 to 193 of paper book, he drew attention of Bench to main objects of company to be pursued on its incorporation which inter alia includes to carry on business of warehousing, cold storage and refrigeration, to provide facilities and godowns for proper and safe storing of valuable agricultural and horticultural produce and to provide godowns and warehousing facilities for goods of all description of agricultural and allied products. 26. He submitted that provisions of Bombay Warehousing Act, 1959 are applicable to assessee company. Unless it obtains license under said act it cannot proceed for any activity. He submitted that in course of carrying on warehouse activity some portion of warehouses has been leased out to HUL right from 1982 which is being continued. warehousing receipts with lease charges have been assessed as business income right from A.Y. 1973-74 to A.Y. 1999-2000. He submitted that during A.Y. 94- 95 and 96-97 AO for first time assessed lease charges as property income. Referring to pages 223 to 230 of paper book he submitted that Tribunal vide ITA No.1014/PN/1997, 01/PN/1998 and 02/PN/1998 order dated 19-03-2001 has held warehouse of assessee was part and parcel of warehousing activity of assessee. Out of many warehouses one had been leased out to valuable customer who was also availing of warehousing facilities and therefore same is only exploitation 18 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 of commercial asset and there is hardly any basis for treating such lease rent on different footing. Accordingly, claim of assessee for treating such lease rental as business income was accepted. He submitted that AO in A.Y. 2001-02 assessed lease charges as property income. Ld.CIT(A) held that even warehousing receipts also be assessed as property income. Tribunal confirmed order of CIT(A). On further appeal by assessee Hon ble Bombay High Court vide order dated 18-02- 2010 set aside issue and directed AO to decide same in line of directions given therein. He submitted that reassessment orders for A.Yrs. 2000-01 and 2002-03 to 2008-09 were also set aside by Tribunal relying on decision of Hon ble Bombay High Court with direction to decide issues accordingly. Tribunal also directed AO to decide issue of validity of reopening for A.Yrs. 2000-01, 2002-03, 2003-04 and 2004-05. 27. Ld. Counsel for assessee drew attention of Bench to observation of Hon ble High Court while setting aside issue to file of AO and submitted that instead of examining terms of lease deed and decide as to whether leasing profit is subservient to warehousing profit or otherwise AO has erroneously considered area leased out of total warehouse area. He drew attention of Bench to Memorandum and Articles of Association of company and lease agreement executed with Hindustan Lever Ltd. Referring to copy of lease deed with Hindustan Lever Ltd. he submitted that assessee has not merely leased out 4 walls of warehouse. It has provided essential and necessary services of supervisory, 19 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 loading and unloading, handling, security, transporting etc. to all clients including Hindustan Lever Ltd. on daily basis during working hours. assessee has incurred expenditure on Electricity, Maintenance, Staff etc. which proves that leasing is complex activity directly linked with main warehousing activity. Therefore, it is subservient to warehousing activity which is dominant. 28. He submitted that where plots have been acquired on lease as well as plots owned by assessee are used for constructing warehouse that clearly proves commercial use of warehouse. He submitted that leasing activity alongwith warehousing activity is being continued since 1984. In year 1984 area admeasuring 10,250 sq.ft. was leased out to Hindustan Lever Ltd. vide lease agreement dated 12-12-1984, copy of which is placed at pages 330 to 347 of paper book. Assessments for several assessment years were completed u/s.143(3) accepting these lease charges as business income. Referring to following decisions he submitted that AO should have followed rule of consistency in absence of any compelling reasons justifying deviation : i. Commissioner of Central Excise vs. M/s.Doaba Steel Rolling Mills SC vide Civil Appeal No.3400/2003 order dated July 6, 2011. ii. State CBI Vs. Shashibala Subramanyam SC reported in 289 ITR 8 iii. Burger Paints India Ltd. vs. CIT reported in 266 ITR 99 (SC) iv. Radhasoami Satsang Vs. CIT reported in 193 ITR 321 (SC) v. CIT vs. Excel Industries Ltd. reported in 358 ITR 295 SC vi. CIT vs. J.K. Charitable trust reported in 220 CTR 105 VII. CIT vs. Goel Builders reported in 236 CTR 472 viii. Dr. Narendra Prasad Patna HC reported in 235 CTR 583 20 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 29. Referring to recent decision of Hon ble Supreme Court in case of M/s. Chennai Properties Vs. CIT vide Civil Appeal No.4494 of 2004 and 4491 to 4493 of 2004 order dated 09-04-2015 he submitted that assessee in that case is company incorporated under Indian Companies Act. Its main object as stated in memorandum of association is to acquire properties in City of Madras and to let out those properties. assessee had rented out such properties and rental income received therefrom was shown as income from business in return filed by assessee. AO refused to tax same as business income on ground that since income was received from let out of properties, it was in nature of rental income. He accordingly treated same as income from house property . In appeal CIT(A) allowed appeal filed by assessee holding same to be business income . Tribunal dismissed appeal filed by Revenue. Revenue approached Hon ble High Court. Hon ble High Court upheld order of CIT(A) vide order dated 05-09-2002 holding that income derived by letting out of properties would not be income from business but could be assessed only as income from house property . assessee filed appeal before Hon ble Supreme Court and Hon ble Supreme Court allowed appeal filed by assessee holding that letting out of properties is infact is business of assessee and therefore assessee has rightly disclosed income under head income from business and it cannot be treated as income from house property . He submitted that since main objects of assessee company is to carry on business of warehousing, cold storage and refrigeration in all its branches and activities and to 21 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 provide facilities and godowns for proper and safe storage of valuable agricultural and horticultural products and to provide goods and services of all kinds in connection there with and to provide warehousing godowns and warehousing facilities for goods of all description of agricultural and allied products, therefore, in view of decision of Hon ble Supreme Court lease rental should be treated as business income . He accordingly submitted that order of CIT(A) be set aside and ground raised by assessee be allowed. 30. So far as disallowance of interest is concerned Ld. Counsel for assessee submitted that entire bank loan has been utilised for construction of property which has been let out to Hindustan Lever Ltd., therefore, CIT(A) was not justified in upholding order of AO wherein AO has allowed only 31% of total interest on bank loan while computing income from house property. Similarly, disallowance of depreciation is also uncalled for. 31. Ld. Departmental Representative on other hand heavily relied on order of CIT(A). He submitted that Ld.CIT(A) has given justifiable reasons for treating income from lease rental as income from house property. He accordingly submitted that order of CIT(A) be upheld and grounds raised by revenue on this issue be dismissed. 32. We have considered rival arguments made by both sides, perused orders of AO and CIT(A) and paper book filed on behalf of assessee. We have also considered various decisions cited before us. only dispute in above grounds is 22 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 regarding treatment of lease income from Hindustan Lever Ltd. as income from house property or as business income . We find Hon ble High Court while setting aside issue to file of AO has observed as under : question as to whether income which is received by assessee from transaction which has been entered into in respect of immovable property in question should be treated as income from house property or as income from business would have to be resolved on basis of well settled tests laid down in law in decided cases. What is material in such cases is primary object of assessee while exploiting property. If primary or dominant object is to lease or let out property, income which is derived from property would have to be regarded as income from house property. Conversely if dominant intention of assessee is to exploit commercial asset by carrying on commercial activity, income that is received would have to be treated as income from business. What has to be deduced is to whether letting out of property constitutes dominant aspect of transaction or whether it was subservient to main business of assessee of carrying out warehousing activities. first submission which has been urged on behalf of assessee, to effect that decision of Tribunal rendered on March 19, 2001 for assessment years 1994-95, 1995-96 and 1996-97 ought to have been considered, but has not been considered by Tribunal, cannot be brushed aside as without substance. Be that as it may, during course of hearing of these proceedings we have considered earlier judgment of Tribunal. Ex facie, perusal of earlier judgment would show that that Tribunal has not made reference to detailed terms and conditions of warehousing agreements entered into by assessee or to lease agreement by which factory came to be leased out. Consequently, upon considering position in this regard counsel appearing on behalf of assessee has fairly stated that assessee would not consider that earlier decision of Tribunal be regarded as binding. In so far as decision which is impugned in these proceedings is concerned, Tribunal has basically relied upon lease agreement dated March 18, 2001, between assessee and Hindustan Lever. It is on basis of terms of lease agreement that Tribunal arrived at conclusion that primary purpose of assessee was to let out factory and that income that was derived therefrom could not consequently be regarded as income from business. submission of assessee is that terms on which assessee entered into warehousing agreements have not been considered at all in decision of Tribunal. Now, perusal of decision of Tribunal would show that Tribunal noted two decisions of Tribunal, first in Vora Warehousing P. Ltd. v. Asst. CIT [1999] 70 ITO 518 (Mum) (SMC) where rent which was realized from warehousing activity was held to be assessable as business income and second in case of V. N. Rukari v. ITO in ITA No. 84/PN/2001 in which Tribunal held that income which was realized from warehousing activity would be assess-able as income from house property. 23 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 Tribunal followed decision of Madras High Court in CIT v. Indian Warehousing Industries Ltd. [2002] 258 ITR 93 and was of view that facts of that case were identical, in holding that income received from leasing of ware-house was assessable as income from house property. Ex facie, therefore, terms of warehousing agreement were not considered by Tribunal. Merely styling agreement as warehousing agreement would not be conclusive of nature of transaction since it is for Tribunal to determine as to whether transaction was bare letting out of asset or whether assessee was carrying on commercial activity involving warehousing operations. Since Tribunal has not considered this aspect of case, we are of view that it would be appropriate and proper to set aside decision of Tribunal and to remand proceedings back to Assessing Officer for fresh determination and assessment in accordance with law. We order accordingly. Upon remand, it is clarified that Assessing Officer shall not consider himself to be bound by decision of Tribunal dated March 19,2001 for assessment years 1994-95, 1995-96 and 1996-97, in view of concession in those terms which has been made during these proceedings by assessee. In order to facilitate fresh exercise being carried out in terms of order passed by this court, impugned order of Tribunal dated August 31, 2006 is set aside. How-ever, it is clarified that all rights and contentions of assessee and Revenue on all aspects of case on merits are kept open. order of remand, it is clarified shall also be with respect to disallowance that has been effected under section 40A(ii) of Income-tax Act, 1961. In view of order of remand, it is not necessary for this court to express any view one way or other on questions of law involved. appeal is accordingly disposed of. No costs. 33. We find AO after considering submission of assessee, which have already been narrated in preceding paragraphs, treated lease rental received by assessee from lease of 68,000 sq.ft of factory to Hindustan Lever Ltd. as income from house property and treated warehousing activities carried out by assessee on remaining warehouses as business income which has been upheld by Ld.CIT(A). 34. It is submission of Ld. Counsel for assessee that main objects to be pursued as per memorandum of association are construction of warehouses for storage of agricultural goods. Provisions of Bombay Warehousing Act, 1959 are applicable to assessee company. It is also his submission that AO was 24 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 required to examine terms of lease deed and decide whether leasing activity is subservient to warehousing activity or not. Further, if going by version of AO, 69% of total receipts/total area is meant for warehousing activity, in that case, AO should have accepted that leasing activity is subservient to warehousing activity that being dominant activity of assessee. 35. From various details furnished by assessee in paper book, we find main objects to be pursued by assessee company on its incorporation are as under : iii. Objects : objects for which Company is established are : Main Objects Of company to be pursued by Company on its incorporation are : (1)(a) To carry on business of Warehousing, cold storage and refrigeration in all its branches and activities and sphere. (b) To carry on business of storage of fertilizers, insecticides, quality seeds, agricultural and horticultural equipment, tools and machinery. (c) To carry on business of quality seeds and develop quality seeds, acquire suitable lands and carry on agriculture. (d) To produce material and fertilizers and insecticides and acquire agency in above lines and act as Commission Agents. (e) To act as clearing and forwarding agents of aforesaid products. (f) To provide facilities and godowns for proper and safe storing of valuable agricultural and horticultural produce and to provide goods and services of all kinds in connection there with. (g) To provide godowns and warehousing facilities for goods of all description of agricultural and allied products. 36. Similarly, objects incidental or ancillary to attainment of main objects include following : 2. To purchase, erect, establish or otherwise acquire and equip warehousing godowns, additional cold storage plants or unit for 25 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 business of Company as may deem desirable and to build and erect necessary structures or buildings to house same. ................ ................ 18. To let on lease or on hire whole or any part of real and personal property of Company on such terms as Company shall determine, to enter into such arrangements as Company may think proper with any public authority for buildings, chawls and tenements as property of Company or on property of others or to let same either to employees of Company or to others and upon such terms as Company may think proper. 37. From statement showing year-wise details of total receipts as per profit and loss account, warehousing charges and service charges from Hindustan Lever Ltd. etc. copy of which is placed at page 212 of paper book, we find details are as under : % of warehsg % of Lease Warehousing ch. Total Rcpts as Warehousing Lease Rent Rent to charges Received F.Y. Per P&L charges From HLL Total received from HLL Receipts from HLL to total warehsg ch. E= G= B=C+D C D F (D/B)*100 (F/C)*100 2000 - 01 10,313,426.00 7,598,434.00 2,714,992.00 26.32 4,836,240.00 63.65 2001- 02 17,686,971.33 11,817,590.33 5,869,381.00 33.18 11,066,970.00 93.65 2002 - 03 19,580,172.66 13,910,172.66 5,670,000.00 28.96 11,390,112.00 81.88 2003 - 04 20,431,251.63 13,647,501.63 6,783,750.00 33.20 11,760,877.50 86.18 2004 - 05 19,776,426.00 12,858,926.00 6,917,500.00 34.98 12,279,750.00 95.50 2005 - 06 21,521,078.50 14,570,078.50 6,951,000.00 32.30 11,342,060.00 77.84 38. perusal of above break up of lease rental income from Hindustan Lever Ltd and various other parties vis- -vis main objects of assessee company show that warehousing activity is dominant activity and leasing out being incidental is subservient. 26 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 39. We find merit in submission of Ld. Counsel for assessee that assessee has constructed several sheds for industrial and warehouse purposes which proves that leasing is done for exploitation of commercial asset. We also find force in submission of Ld. Counsel for assessee that assessee has not merely leased out 4 walls of warehouse. It has also provided essential and necessary services of supervisory, loading and unloading, handling, security, transporting etc. to all clients including Hindustan Lever Ltd. on daily basis during working hours. assessee has incurred expenditure on Electricity, Maintenance, Staff etc. which proves that leasing is complex activity directly linked with main warehousing activity. Therefore, it is subservient to warehousing activity. Further, since plots have been acquired on lease as well as plots owned by assessee are used for constructing warehouses same clearly proves commercial use of warehouse. Further, assessee is liable to pay service tax on service of storage and warehousing since service of storage and warehousing has been included as taxable service. 40. We find identical issue had come up before Hon ble Supreme Court in case of M/s. Chennai Properties (Supra). In that case, assessee company was incorporated under Indian Companies Act. Its main object was to acquire properties in City of Madras and let out these properties. assessee had let out said properties and rental income received therefrom was shown as income from business in return filed by assessee. However, according to AO since income was received from letting out of properties it was in nature of rental income. He 27 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 therefore treated rental income as income from house property . In appeal Ld.CIT(A) allowed appeal of assessee by holding that such rental income is income from business . Tribunal upheld action of CIT(A). On further appeal by revenue Hon ble High Court vide order dated 05-09-2002 allowed appeal filed by revenue holding that income derived by letting out of properties would not be income from business but can be assessed only as income from house property. assessee filed appeal before Hon ble Supreme Court. Hon ble Supreme Court allowing appeal filed by assessee held that letting of properties infact is business of assessee and therefore assessee has rightly disclosed income under head income from business . relevant observation of Hon ble Supreme Court read as under : From aforesaid facts, it is clear that question which is to be determined on facts of this case is as to whether income derived by company from letting out this property is to be treated as income from business or it is to be treated as rental income from house property. We have heard learned counsel for parties on aforesaid issue. Before we narrate legal principle that needs to be applied to give answer to aforesaid question, we would like to recapitulate some seminal features of present case. Memorandum of Association of appellant-company which is placed on record mentions main objects as well as incidental or ancillary objects in clause III. (A) and (B) respectively. main object of appellant company is to acquire and hold properties known as Chennai House and Firhavin Estate both in Chennai and to let out those properties as well as make advances upon security of lands and buildings or other properties or any interest therein. What we emphasise is that holding aforesaid properties and earning income by letting out those properties is main objective of company. It may further be recorded that in return that was filed, entire income which accrued and was assessed in said return was from letting out of these properties. It is so recorded and accepted by assessing officer himself in his order. 28 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 It transpires that return of total income of Rs.244030 was filed for assessment year in question that is assessment year 1983-1984 and entire income was through letting out of aforesaid two properties namely, Chennai House and Firhavin Estate . Thus, there is no other income of assessee except income from letting out of these two properties. We have to decide issue keeping in mind aforesaid aspects. With this background, we first refer to judgment of this Court in East India Housing and Land Development Trust Ltd.'s case which has been relied upon by High Court. That was case where company was incorporated with object of buying and developing landed properties and promoting and developing markets. Thus, main objective of company was to develop landed properties into markets. It so happened that some shops and stalls, which were developed by it, had been rented out and income was derived from renting of said shops and stalls. In those facts, question arose for consideration was: whether rental income that is received was to be treated as income from house property or income from business. This court while holding that income shall be treated as income from house property, rested its decision in context of main objective of company and took note of fact that letting out of property was not object of company at all. court was therefore, of opinion that character of that income which was from house property had not altered because it was received by company formed with object of developing and setting up properties. Before we refer to Constitution Bench judgment in case of Sultan Brothers (P) Ltd., we would be well advised to discuss law laid down authoritatively and succinctly by this Court in 'Karanpura Development Co. Ltd. v. Commissioner of Income Tax, West Bengal' [44 ITR 362 (SC)]. That was also case where company, which was assessee, was formed with object, inter alia, of acquiring and disposing of underground coal mining rights in certain coal fields and it had restricted its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub-leasing them to collieries and other companies. Thus, in said case, leasing out of coal fields to collieries and other companies was business of assessee. income which was received from letting out of those mining leases was shown as business income. Department took position that it is to be treated as income from house property. It would be thus, clear that in similar circumstances, identical issue arose before Court. This Court first discussed scheme of Income Tax Act and particularly six heads under which income can be categorised / classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or other head. These heads are in sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, Court pointed out that deciding factor is not ownership of land or leases but nature of activity of assessee and nature of operations in relation to them. It was highlighted and stressed that objects of company must also be kept in view to interpret activities. In support of aforesaid proposition, number of judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in England and US Courts were taken note of. position in law, ultimately, is summed up in following words: - 29 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 As has been already pointed out in connection with other two cases where there is letting out of premises and collection of rents assessment on property basis may be correct but not so, where letting or sub-letting is part of trading operation. diving line is difficult to find; but in case of company with its professed objects and manner of its activities and nature of its dealings with its property, it is possible to say on which side operations fall and to what head income is to be assigned. After applying aforesaid principle to facts, which were there before Court, it came to conclusion that income had to be treated as income from business and not as income from house property. We are of opinion that aforesaid judgment in Karanpura Development Co. Ltd.'s case squarely applies to facts of present case. No doubt in Sultan Brothers (P) Ltd.'s case, Constitution Bench judgment of this Court has clarified that merely entry in object clause showing particular object would not be determinative factor to arrive at conclusion whether income is to be treated as income from business and such question would depend upon circumstances of each case, viz., whether particular business is letting or not. This is so stated in following words: - We think each case has to be looked at from businessman's point of view to find out whether letting was doing of business or exploitation of his property by owner. We do not further think that thing can by its very nature be commercial asset. commercial asset is only asset used in business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that particular activity is business because it is concerned with asset with which trade is commonly carried on. We find nothing in cases referred, to support proposition that certain assets are commercial assets in their very nature. We are conscious of aforesaid dicta laid down in Constitution Bench judgment. It is for this reason, we have, at beginning of this judgment, stated circumstances of present case from which we arrive at irresistible conclusion that in this case, letting of properties is in fact is business of assessee. assessee therefore, rightly disclosed income under Head Income from Business. It cannot be treated as 'income from house property'. We, accordingly, allow this appeal and set aside judgment of High Court and restore that of Income Tax Appellate Tribunal. No orders as to costs. 41. We find subsequent to hearing of appeal before us Hon ble Supreme Court in case of M/s. Rayala Corporation Pvt. Ltd. Vs. ACIT vide Civil Appeal No.6437/2016 order dated 11-08-2016 following decision in case of M/s. Chennai 30 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 Properties (Supra) has decided identical issue by holding that where business of company is to lease its property and to earn rent, such rental income has to be treated as income from profits and gains of business or profession . relevant observations of Hon ble Supreme Court reads as under : appellant-assessee, private limited company, is having house property, which has been rented and assessee is receiving income from said property by way of rent. main issue in all these appeals is whether income so received should be taxed under head Income from House Property or Profit and gains of business or profession . reason for which aforestated issue has arisen is that though assessee is having house property and is receiving income by way of rent, case of assessee is that assessee company is in business of renting its properties and is receiving rent as its business income, said income should be taxed under Head Profits and gains of business or profession whereas case of Revenue is that as income is arising from House Property, said income must be taxed under head Income from House Property . 1.The learned counsel appearing for assessee submitted that issue involved in these appeals is no more res integra as this Court has decided in case of Chennai Properties and Investments Ltd. v. Commissioner of Income Tax [2015] 373 ITR 673 (SC) that if assessee is having his house property and by way of business he is giving property on rent and if he is receiving rent fromthe said property as his business income, said income, even if in nature of rent, should be treated as Business Income because assessee is having business of renting his property and rent which he receives is in nature of his business income. 2.According to learned counsel appearing for assessee, afore- stated judgment in case of Chennai Properties (supra) has referred to all judgments on subject and more particularly, judgment in case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC) which has summed up as under:- As has been already pointed out in connection with other two cases where there is letting out of premises and collection of rents assessment on property basis may be correct but not so, where letting or sub-letting is part of trading operation. dividing line is difficult to find; but in case of company with its professed objects and manner of its activities and nature of its dealings with its property, it is possible to say on which side operations fall and to what head income is to be assigned. 5. learned counsel also submitted that assessee is private limited company and even as per its Memorandum of Association its business is to deal into real estate and also to earn income by way of rent by leasing or renting properties belonging to assessee company. 31 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 6. learned counsel also drew our attention to fact that High Court and authorities below had come to specific finding to effect that assessee company had stopped its other business activities and was having only activity with regard to leasing its properties and earning rent therefrom. Thus, except leasing properties belonging to assessee company, company is not having any other business and said fact is not in dispute at all. 7. For afore-stated reasons, learned counsel submitted that impugned judgment delivered by High Court is not proper for reason that High Court has directed that income earned by appellant assessee should be treated as Income from House Property . 8. On other hand, learned counsel appearing for respondent- Revenue made effort to justify reasons given by High Court in impugned judgment. learned counsel also relied upon judgment delivered by this Court in case of M/s. S.G. Mercantile Corpn. (P) Ltd. v. CIT, Calcutta (1972) 1 SCC 465. According to him, important question which would arise in all such cases is whether acquisition of property for leasing and letting out all shops and stalls would be essentially part of business and trading operations of assessee. According to learned counsel appearing for Revenue, leasing and letting out of shops and properties is not main business of assessee as per Memorandum of Association and therefore, income earned by assessee should be treated as income earned from House Property. He, therefore, submitted that impugned judgment is just legal and proper and therefore, these appeals should be dismissed. 9. Upon hearing learned counsel and going through judgments cited by learned counsel, we are of view that law laid down by this Court in case of Chennai Properties (supra) shows correct position of law and looking at facts of case in question, case on hand is squarely covered by said judgment. 10. Submissions made by learned counsel appearing for Revenue is to effect that rent should be main source of income or purpose for which company is incorporated should be to earn income from rent, so as to make rental income to be income taxable under head Profits and Gains of Business or Profession . It is admitted fact in instant case that assessee company has only one business and that is of leasing its property and earning rent therefrom. Thus, even on factual aspect, we do not find any substance in what has been submitted by learned counsel appearing for Revenue. 11. judgment relied upon by learned counsel appearing for assessee squarely covers facts of case involved in appeals. business of company is to lease its property and to earn rent and therefore, income so earned should be treated as its business income. 12. In view of law laid down by this Court in case of Chennai Properties (supra) and looking at facts of these appeals, in our opinion, High court was not correct while deciding that income of assessee should be treated as Income from House Property. 32 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 13. We, therefore, set aside impugned judgments and allow these appeals with no order as to costs. We direct that income of assessee shall be subject to tax under head Profits and gains of business or profession . 42. As mentioned earlier, main objects of assessee company is to carry on business of warehousing, cold storage and refrigeration, to provide facilities and godowns for proper and safe storing of valuable agricultural and horticultural produce and to provide godowns and warehousing facilities for goods of all description of agricultural and allied products. Similarly, other objects of assessee company also provide to let on lease or hire whole or any part of real and personal property of assessee company. We, therefore, respectfully following above two decisions of Hon ble Supreme Court cited (Supra) hold that lease income received by assessee on account of let out of warehouses/godowns as profits and gains from business or profession . We therefore set aside order of CIT(A) and direct AO to treat lease rentals received by assessee company from Hindustan Lever Ltd. as business income . 43. Since assessee succeeds on this issue grounds of appeal No.3 and 4 by assessee company become academic in nature and therefore are not being adjudicated. 44. Identical grounds have been taken by assessee in appeals for A.Yrs. 2002-03 to 2006-07 and 2008-09. Following same reasonings, grounds raised by assessee in appeals for A.Yrs. 2002-03 to 2006-07 and 2008-09 on this issue are allowed. 33 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 45. second issue raised by assessee in grounds of appeal which are common for A.Y. 2000-01 and 2002-03 to 2004-05 relates to reopening of assessment u/s.147 in absence of any tangible material. 46. Facts of case, in brief, are that warehousing receipts with lease charges were assessed as business income right from 1973-74 to 1999-2000. In A.Y. 1994-95 to 1996-97 for first time, AO assessed lease charges only as property income. tribunal however allowed asseessee's appeal. Thereafter in A.Y. 2001-02, AO again assessed lease charges as property income. CIT(A) held that even warehousing receipts also be assessed as property income. Tribunal Confirmed order of CIT(A) Assessee preferred appeal before Hon ble Bombay High Court which by its order dated 18.02.2010 set aside issue and directed AO to decide same in line with directions mentioned therein. Meanwhile, reassessment orders of A.Ys 2000-01, 2002- 03 to 2008-09 were also set aside by Tribunal relying on decision of Hon ble Bombay High Court and directing AO to decide issue accordingly. tribunal also directed AO to decide issue of validity of reopening of Y s of 2000-01, 2002-03, 2003-04 & 2004-05. 47. AO, in order to assess entire receipts both warehousing and lease charges as property income had issued notices u/s. 148 for A.Y. 2000-01, 2002-03 to 2004-05. AO provided reasons for issuing notices u/s 148. assessee raised objections for reasons recorded. AO rejecting objections justified reopening of assessments on ground 34 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 that returns of all these assessment years were processed u/s. 143(1). AO relied on decision of Supreme Court in case of Rajesh Javeri Stock Brokers P Ltd. - 291 ITR 500. In appeal Ld.CIT(A) upheld action of AO in reopening assessments which were completed u/s.143(1). 48. Ld. Counsel for assessee submitted that all details relating to warehousing receipts inclusive of lease charges have been truly and fully disclosed in returns of income supported with statutory and tax audit reports. According to him, reasons are derived only from these particulars fully furnished with return of income. Therefore, there is absolutely no fresh or new tangible material possessed by AO to justify issue of notice u/s. 148. Therefore, reopening is invalid. For above proposition he relied on decision of Hon ble Supreme Court in case of Kelvinator of India Ltd. reported in 320 ITR 561. 49. So far as AO's reliance on decision of Rajesh Javeri Stock Brokers is concerned he submitted that same is misplaced. He submitted that validity is not challenged on ground of change of opinion but ground that no new tangible material has been possessed by AO. Ld. Counsel for assessee submitted that in following decisions, this proposition has been laid down by distinguishing ratio decided in Rajesh Javeri Stock Broker's case : 1. H. V. Transmission Ltd. Vs. ACIT ITA No.2230/Mum/2010 order dated 07-10-2011 2. Telco Dadajee Dhackjee Ltd. Vs. DCIT ITA No.4613/Mum/2005 3. Parveen P. Bharucha Vs. DCIT and Another reported in 348 ITR 325 35 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 4. D.T.T.D.C. Vs. DCIT reported in - 350 ITR 216 5. Orient Craft ITA No.555/2012 order dated 12-12-2012 Delhi High Court 50. Ld. Departmental Representative on other hand heavily relied on order of CIT(A). He submitted that assessments for above four years have been completed u/s.143(1). Therefore, in view of decision of Hon ble Supreme Court in case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. reported in 291 ITR 500 CIT(A) was justified in upholding reassessment proceedings. 51. We have considered rival arguments made by both sides, perused orders of AO and CIT(A) and paper book filed on behalf of assessee. We have also considered various decisions cited before us. We find assessments for A.Y. 2000-01 and 2002-03 to 2004-05 were completed u/s.143(1). AO reopened assessments u/s.148 on ground that entire receipts of warehousing of lease charges has to be assessed as income from property as against business income treated by assessee. assessee challenged validity of reassessment proceedings. Ld.CIT(A) following decision of Hon ble Supreme Court in case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (Supra) upheld reassessment proceedings initiated by AO. It is submission of Ld. Counsel for assessee that in absence of any tangible material available with AO he cannot reopen assessments since all material facts were already there on record. It is submission of Ld. Departmental Representative that assessments for above four years have been completed u/s.143(1). Therefore, in view of decision of Hon ble Supreme Court in case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. reported 36 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 in 291 ITR 500 CIT(A) was justified in upholding reassessment proceedings. 52. We find merit in arguments of Ld. Counsel for assessee that in absence of any tangible material, AO cannot reopen assessment u/s.147 even when assessment has been completed u/s.143(1). We find Mumbai Bench of Tribunal in case of H.V. Transmission Ltd. (Supra) has held that reassessment proceedings initiated by AO in absence of any tangible material before him is invalid even though assessments have been completed originally u/s.143(1). relevant observation of Tribunal from Para 8 onwards read as under : 8. We have considered rival submissions and also perused relevant material on record. It is observed that assessment completed in this case originally u/s 143(1) was reopened by AO for following reasons recorded u/s 148(2) : From Balance Sheet, Annexure 11, it is seen that assessee has incurred expenses towards Enterprise Resource Planning Software amounting to Rs.95,14,000/-. In accounts, assessee has debited 25% of this amount i.e. 23,78,500/- whereas in computation of income, assessee has claimed entire amount of Rs.95,14,000/- as deduction. expense incurred by assessee towards Enterprise Resource Planning Software is payment for acquisition of software which is capital in nature and hence assessee s claim of same as revenue expenses is not allowable. As is clearly evident from reasons recorded by AO, there was no new material coming to possession of AO on basis of which assessment completed u/s 143(1) was reopened and this position has not been disputed even by learned DR. Relying on decision of Hon ble Supreme Court in case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra), he, however, has contended that reopening of assessment completed originally u/s 143(1) is permissible without there being any new material coming to possession of AO if reasons recorded for reopening of assessment are otherwise valid. learned counsel for assessee, on other hand, has relied on Third Member decision of Tribunal in case of Telco Dadaji Dhackjee Ltd. (supra) stating that similar issue involved in said case has been decided by Third Member in favour of assessee after taking into consideration decision of Hon ble Supreme Court in 37 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) relied upon by learned DR. In said case, return, filed by assessee was originally accepted u/s 143(1). In said return assessee had claimed deduction for payment of non-compete fees of Rs.75 lakhs which included payment of Rs.15 lakhs towards Directors. assessee had also claimed depreciation of Rs.1,41,858/- on lease premises. AO issued notice u/s 148 on ground that these were not allowable expenses and income chargeable to tax had escaped assessment. He accordingly disallowed both items in reassessment order. When matter reached to Tribunal, learned Judicial Member took view that there was no fresh material to support formation of belief of AO that income chargeable to tax had escaped assessment and in absence of any fresh tangible material, he came to conclusion that it was not permissible for AO to reopen assessment. learned Accountant Member, however, took different view relying on decision of Hon ble Supreme Court in case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) and matter, therefore, was referred to Third Member for resolving inter alia, following point of difference: Whether on facts and circumstances of proceedings initiated by AO u/s 147 is liable to be confirmed or quashed when there was no fresh material available with AO and assessment had been completed originally u/s 143(1). Third Member agreed with view taken by learned Judicial Member relying mainly on decision of Hon ble Supreme Court in case of Kelvinator of India Ltd. (supra) and Eicher Ltd. 320 ITR 561. It was held by Third Member that section 147 applies both to section 143(1) as well as section 143(3) and, therefore, except to extent that reassessment notice issued u/s 148 in case where original assessment was made u/s 143(1) cannot be challenged on ground of mere change of opinion, still it is open to assessee to challenge notice on ground that there is no reason to believe that income chargeable to tax has escaped assessment. As regards decision of Hon ble Supreme Court in case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) cited by Revenue and relied upon by Accountant Member, Third Member held that same was applicable in cases where return was processed u/s 143(1) but later on notice was issued u/s 148 and assessee challenges notice on ground that it is prompted by mere change of opinion. Third Member then referred to decision of Hon ble Supreme Court in case of CIT vs. Kelvinator of India (supra) wherein it was held that there should be tangible material to come to conclusion that income had escaped assessment. Relying on said decision, it was held by Third Member that while resorting to section 147 even in case where only intimation had been issued u/s 143(1)(a), it is essential that AO should have before him tangible material justifying his reason to believe that income had escaped assessment. Since there was no such tangible material before AO from which he could entertain belief that income of assessee chargeable to tax had escaped assessment, Third Member held that reassessment proceedings initiated by AO were liable to be quashed on ground that there was no tangible material before AO even though assessment was completed originally u/s 143(1). In our opinion, Third Member decision of 38 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 Tribunal in case of Telco Dadaji Dhackjee Ltd. (supra) is squarely applicable in present case and respectfully following same, we hold that initiation of reassessment proceedings by AO itself was bad in law and reassessment completed in pursuance thereof is liable to be quashed being invalid. We order accordingly and allow ground No.1 of assessee s appeal. 9. As result of our decision rendered above on preliminary issue quashing/cancelling assessment made by AO u/s 143(3) read with section 147, other issues raised in appeals of assessee and Revenue in respect of additions made in said assessment have become infructuous and we do not deem it necessary or expedient to decide same. 10. In result, appeal of assessee is allowed whereas appeal of Revenue is dismissed. 53. We find Hon ble Delhi High Court in case of Orient Craft (Supra) has also decided identical issue holding that in absence of any tangible material which came to possession of AO subsequent to issue of intimation, reassessment proceedings initiated u/s.147 is bad in law. In that case also assessee filed its return of income on 31-10-2012 declaring total income of Rs.45,35,395/-. Return was processed u/s.143(1) on 27-02-2002 by accepting returned income. In said return claim of Rs.8,74,20,642/- was made u/s.80HHC and Rs.13,35,65,316/- u/s.10B assessee was 100% Export Oriented Unit undertaking and was entitled to substantial amounts as Duty drawback DEPB Premium etc. which were declared in profit and loss account. AO issued notice u/s.148 on 15-08-2005 on ground that income chargeable to tax had escaped assessment. According to reasons recorded for reopening of assessment assessee was wrong in treating proceeds of sale of Quota as part of export turnover for claiming deduction u/s.80HHC. In opinion of AO, sale proceeds of Quota cannot be considered as export turnover but represented business income covered u/s.28 (iv) and 39 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 had to be reduced to extent of 90% from business income as treated by Explanation (baa) to section 80HHC. Not doing so resulted in excessive allowance of deduction u/s.80HHC and consequently in escapement of income chargeable to tax. assessee filed return in response to notice u/s.148. He also asked for reasons and filed objections thereafter. AO rejected such objections and completed assessment by making certain additions. assessee challenged validity of reassessment proceedings before CIT(A). Ld.CIT(A) rejected ground relating to validity of reassessment proceedings but decided appeal on merit in favour of assessee. Both assessee and revenue filed appeal before Tribunal. assessee challenged jurisdiction of AO to reopen assessment u/s.147 and also certain issues on merit which was decided against it by CIT(A). Revenue filed appeal on point on which CIT(A) had given relief to assessee. Tribunal following decision of Hon ble Supreme Court in case of CIT Vs. Kelvinator of India Ltd. reported in 320 ITR 561 held that since there was no tangible material available with AO to form requisite belief of escapement of income reopening of completed assessment is unsustainable in eye of law. Accordingly, same was cancelled. Since assessee succeeded on this point Tribunal did not examine merit of disallowances/additions made in assessment year. 54. Revenue approached Hon ble High Court with following substantial question of law : Was Tribunal right in law in holding that in absence of any tangible material available with Assessing Officer to form requisite belief regarding escapement of income, reopening of assessment made under section 143(1) is bad in law? 40 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 55. Hon ble High Court after considering various decisions observed has as under : 13. Having regard to judicial interpretation placed upon expression reason to believe , and continued use of that expression right from 1948 till date, we have to understand meaning of expression in exactly same manner in which it has been understood by courts. assumption of Revenue that somehow words reason to believe have to be understood in liberal manner where finality of intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such assumption because of language employed in Section 147; it makes no distinction between order passed under section 143(3) and intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting words reason to believe vis- -vis Section 143(1) and Section 143(3). We are unable to appreciate what permits Revenue to assume that somehow same rigorous standards which are applicable in interpretation of expression when it is applied to reopening of assessment earlier made under Section 143(3) cannot apply where only intimation was issued earlier under Section 143(1). It would in effect place assessee in whose case return was processed under Section 143(1) in more vulnerable position than assessee in whose case there was full-fledged scrutiny assessment made under Section 143(3). Whether return is put to scrutiny or is accepted without demur is not matter which is within control of assessee; he has no choice in matter. other consequence, which is somewhat graver, would be that entire rigorous procedure involved in reopening assessment and burden of proving valid reasons to believe could be circumvented by first accepting return under Section 143(1) and thereafter issue notices to reopen assessment. interpretation which makes distinction between meaning and content of expression reason to believe in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such unintended mischief. It would be discriminatory too. interpretation that leads to absurd results or mischief is to be eschewed. 14. Certain observations made in decision of Rajesh Jhaveri (supra) are sought to be relied upon by revenue to point out difference between assessment and intimation . context in which those observations were made has to be kept in mind. They were made to point out that where intimation is issued under section 143(1) there is no opportunity to assessing authority to form opinion and therefore when its finality is sought to be disturbed by issuing notice under section 148, proceedings cannot be challenged on ground of change of opinion . It was not opined by Supreme Court that strict requirements of section 147 can be compromised. On contrary, from observations (quoted by us earlier) it would appear clear that court reiterated that so long as ingredients of section 147 are fulfilled intimation issued under section 143(1) can be subjected to 41 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 proceedings for reopening. court also emphasised that only requirement for disturbing finality of intimation is that assessing officer should have reason to believe that income chargeable to tax has escaped assessment. In our opinion, said expression should apply to intimation in same manner and subject to same interpretation as it would have applied to assessment made under section 143(3). argument of revenue that intimation cannot be equated to assessment, relying upon certain observations of Supreme Court in Rajesh Jhaveri (supra) would also appear to be self-defeating, because if intimation is not assessment then it can never be subjected to section 147 proceedings, for, that section covers only assessment and we wonder if revenue would be prepared to concede that position. It is nobody s case that intimation cannot be subjected to section 147 proceedings; all that is contended by assessee, and quite rightly, is that if revenue wants to invoke section 147 it should play by rules of that section and cannot bog down. In other words, expression reason to believe cannot have two different standards or sets of meaning, one applicable where assessment was earlier made under section 143(3) and another applicable where intimation was earlier issued under section 143(1). It follows that it is open to assessee to contend that notwithstanding that argument of change of opinion is not available to him, it would still be open to him to contest reopening on ground that there was either no reason to believe or that alleged reason to believe is not relevant for formation of belief that income chargeable to tax has escaped assessment. In doing so, it is further open to assessee to challenge reasons recorded under section 148(2) on ground that they do not meet standards set in various judicial pronouncements. 14. In present case reasons disclose that Assessing Officer reached belief that there was escapement of income on going through return of income filed by assessee after he accepted return under Section 143(1) without scrutiny, and nothing more. This is nothing but review of earlier proceedings and abuse of power by Assessing Officer, both strongly deprecated by Supreme Court in CIT vs. Kelvinator (supra). reasons recorded by Assessing Officer in present case do confirm our apprehension about harm that less strict interpretation of words reason to believe vis- -vis intimation issued under section 143(1) can cause to tax regime. There is no whisper in reasons recorded, of any tangible material which came to possession of assessing officer subsequent to issue of intimation. It reflects arbitrary exercise of power conferred under section 147. 15. For above reasons, we answer substantial question of law framed by us in affirmative, in favour of assessee and against Revenue. appeal of Revenue is accordingly dismissed. There shall be no order as to costs. 56. Since in instant case also all material facts were already there on record and no tangible material was available before AO, 42 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 therefore, respectfully following above decisions cited (Supra) we hold that reassessment proceedings initiated by AO are bad in law. Accordingly, grounds raised by assessee on this issue for above four assessment years are allowed. 57. Ground of appeal No.5 by assessee reads as under : On facts and in circumstances of case Ld.CIT(A) has erred in disallowing service charges of Rs.23,27,592/- made to Shri Industrial Services by invoking provision of section 40A(2)(b) of Act. 58. Facts of case, in brief, are that AO during course of assessment proceedings noted that assessee has paid services charges of Rs.27,02,000/- to Shri Industrial Suppliers which is proprietary concern of Mr.G.M. Navlakha Director of assessee company. He noted that service charges has been paid for providing all industrial services such as loading, unloading, security etc. AO applying provision of section 40A(2)(b) disallowed amount of Rs.13,51,000/- being 50% of such service charges. In appeal Ld.CIT(A) referring to profit and loss account of Shri Industrial Suppliers found that it had earned net profit of Rs.23,61,629/- which works out to 87.42% of such receipts. Therefore, CIT(A) held that there was no basis for payment of service charges. He treated net profit at 10% and held that reasonable expenditure that assessee can claim is only Rs.3,74,408/- as against Rs.13,51,000/- disallowed by AO. He accordingly enhanced disallowance by Rs.9,76,592/-. 59. Aggrieved with such order of CIT(A) assessee is in appeal before us. 43 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 60. Ld. Counsel for assessee submitted that this approach of CIT(A) is devoid of any merit and law. reasonability has to be decided on basis of fair market value of goods and services etc and not on basis of percentage of net profit of party to whom payment is made. No evidence has been brought on record by AO or CIT(A) to prove that same should have been charged at lesser rate than what has been paid by assessee. He accordingly submitted that this disallowance be cancelled. 61. Ld. Departmental Representative on other hand heavily relied on order of CIT(A). 62. We have considered rival arguments made by both sides, perused orders of AO and CIT(A) and paper book filed on behalf of assessee. We find in instant case assessee has shown total service charges received at Rs.42,93,005/- from various companies against services such as loading, unloading, handling, security services and transportation etc. Against above income assessee company has paid Rs.27,02,000/- to Shri Industrial Suppliers as handling charges which is proprietary concern of Director Mr. G.M. Navlakha. We find AO following provisions of section 40A(2)(b) disallowed amount of Rs.13,51,000/- being 50% of such service charges. While doing so, he noted that Shri Industrial Suppliers is proprietary concern of Shri G.M. Navlakha who is Principal Director of assessee company. Further, as against receipt of Rs.27,02,000/- as service charges Shri Navlakha had incurred expenditure of Rs.3,40,371/- only which shows that he has shown net profit of 87.4% which is highly impossible and clearly shows that 44 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 assessee company had paid huge amount to proprietary concern of Director for which no commensurate services were rendered by proprietary concern. We find in appeal Ld.CIT(A) enhanced such disallowance by Rs.9,76,592/-. It is submission of Ld. Counsel for assessee that AO has not brought on record any comparable case as what would have been reasonable amount. Therefore, disallowance of 50% of such service charge is uncalled for. It is submission of Ld. Authorised Representative that instead of deleting addition Ld.CIT(A) has enhanced same. We do not find any force in above argument of Ld. Counsel for assessee. Admittedly, Shri Industrial Suppliers is proprietary concern of Shri G.M. Navlakha who is Principal Director of assessee company. As against service charge received at Rs.42,93,005/- assessee has paid amount of Rs.27,02,000/- to Shri Industrial Suppliers as handling charges out of such handling charges. Mr. G.M. Navlakha has incurred only meager expenditure of Rs.3,40,371/- and thereby earned huge income of Rs.23,61,629/- which is 87.4% of receipts. Since Director of assessee company is also proprietor of Shri Industrial Suppliers and he is key person for both concerns, therefore, diversion of income of assessee company to proprietary concern of Director is clearly visible and therefore same in our opinion comes within purview of section 40A(2)(b) of I.T. Act. We therefore hold that AO was justified in disallowing 50% of such payment as excess payment to relatives as per provisions of section 40A(2)(b). However, CIT(A) in our opinion is not justified in enhancing same to Rs.23,27,592/- in instant case only on ground that Mr. 45 ITA No.2130/PN/2013, ITA Nos.1963 to 1968/PN/2013 & ITA No.361/PN/2014 Navlakha has incurred meager expenditure of Rs.3,40,371 out of total receipt of Rs.27,02,000/-. There may be so many reasons for incurring of less expenditure by Director. Considering totality of facts of case, we are of considered opinion that disallowance of 50% of expenses as done by AO in instant case was correct approach. We accordingly hold that disallowance of Rs.13,51,000/- u/s.40A(2)(b) is justified under facts and circumstances of case. Ground raised by assessee is accordingly partly allowed. 63. In result, ITA No.2130/PN/2013 for A.Y. 2001-02 is partly allowed and remaining appeals are allowed. Order pronounced in open court on 30-09-2016. Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Pune; Dated : 30th September, 2016. Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A)-II, Pune 4. CIT-II, Pune 5. DR, ITAT, Pune; 6. Guard file. BY ORDER, //True C //True Copy// 2 3 Sr. Private Secretary ITAT, Pune M/s. Nutan Warehousing Company Pvt. Ltd. v. DCIT, Circle-2, Pune