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