Notional rent cannot be taxed under Other Sources without evidence, and disallowances must be restricted or deleted.

ORDER

Vikram Singh Yadav, Accountant Member. – These are appeals filed by the Assessee and cross appeal filed by the Revenue against the respective orders of the Learned Commissioner of Income Tax (Appeals)-17, Mumbai [‘Ld.CIT(A)’], dated 20/02/2014 & 01/06/2017, pertaining to Assessment Year (AY) 2004-05 and 2005-06, wherein the Assessee and Revenue have taken the following grounds of appeal:

1. On the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) – 17, Mumbai (“the CIT(A)”) erred in confirming the action of the Dy. Commissioner of Income-tax-8(2), Mumbai (“the AO”) in bringing to tax an amount of Rs. 475.73 lacs as rent for the alleged consideration for premises usage charges payable by Procter & gamble Hygiene and Health Care Ltd (“PGHH”).

2. The CIT(A) furred erred in holding that:

3. He failed to appreciate and ought to have held that the purpose of entering into an agreement with PGHH was sharing of certain common facilities and not for renting of the premises in favour of PGHH and no tenancy rights were created in favour of PGHH.

4. The Appellant prays that the addition of Rs. 475.73 lacs be deleted.

Without Prejudice to the Above:

Ground II:

1. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO in assessing the alleged rental income under the head “Income from House Property”.

2. The CIT(A) also erred in confirming the action of the AO in assessing the income earned from M/s. Nortel Network Private Limited under the head “Income from House Property”.

3. The Appellant prays that the said rental income be assessed under the head “Income from Business or Profession” as against the “Income from House Property”.

Without Prejudice to the Above:

Ground III:

1. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO in assessing the alleged rental income under the head “Income from House Property”.

2. He failed to appreciate and ought to have held that the same was temporally let out along with various facilities to the sister concern.

3. The Appellant prays that the said amount (to the extent held as income) be considered as “Income for Other Sources”.

Ground IV:

On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO in disallowing Rs. 1047.75 lacs consisting of repairs & maintenance of building, service charges and depreciation on building, on the alleged ground that these expenditure have been incurred in relation to the let out portion of the building.

2. He further erred in confirming the action of the AO of adopting the proportion of the “Space Rented Out” as basis for disallowing the expenditures without rejecting the method of apportionment of expenditure in the ratio of “Net Outside Sales” (“NOS”) as agreed between the Appellant and PGHH and adopted by the Appellant.

3. He failed to appreciate and ought to have held that:

4. The Appellant prays that the disallowance of Rs. 1047.75 lacs be deleted, Without Prejudice to the Above:

Ground V:

1. If the alleged rental income from PGHH and rental income from Nortel Network Private Limited is taxed under the head “Income from House Property”, in such case, only the expenditure related to building ought to be considered for disallowance rather than all the shared expenses.

2. The Appellant prays that for the purpose of disallowance, the AO be directed to consider only building related expenses.

Ground VI:

1. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming action of the AO of charging interest u/s. 234 of the Act.

2. The Appellant prays that the AO be directed to delete / appropriately reduce the interest u/s. 234.

Ground VII:

The Appellant craves leave to add to, alter or amend all or any of the above grounds of appeal at the time of hearing.”

GROUND I

1. On facts and circumstances of the case and in law, the Commissioner of Income-Tax (Appeal)-16 (“CIT(A)”) erred in confirming the action of the Addl. Commissioner of Income Tax, Range 7(1) (“AO”) in disallowing expenditure 179.88 lacs (being 20% of 899.41 on trade incentive to the extent of lacs), following the order of CIT (A) in AY 2007-08 which had disallowed the expenditure on an adhoc basis.

2. He failed to appreciate and ought to have held that expenditure on trade incentives as claimed by the Appellant is an allowable revenue expenditure and no disallowance could have been made on adhoc basis.

3. The Appellant prays that AO be directed to allow the expenditure on trade incentive as claimed by the Appellant as revenue expenses.

1. On facts and circumstances of the case and in law, the CIT(A) erred confirming the action of the AO in disallowing depreciation of moulds and dyes on the alleged ground that Appellant has not been able to substantiate with documentary evidences as to whether and from when the said asset were ‘put to use’ and how the same were used by the Appellant.

2. He failed to appreciate and ought to have held that the fact that moulds and dyes were utilized for manufacture of shampoo bottles was already before the AO and CIT(A), and the very fact of the Appellant having purchased the products packed in the plastic containers (which were made, using such moulds & dyes) from the party established the actual user of the moulds and dyes.

3. The Appellant prays that AO be directed to allow the Appellant’s claim for depreciation on moulds and dyes of 10.69 lacs.”

1. “On the facts and in the circumstances of the case and in the law, the Ld CIT(A) has erred in directing that the AO should consider the rental income received from Procter and Gamble Hygiene and Healthcare Limited as “Income from other sources “.

2. “On the facts and in the circumstances of the case and in the law, the Ld CIT(A) has erred in directing that the AO should allow deduction on account of depreciation, repairs and maintenance & administrative expenses when it is clear that these expenses are not allowable and are covered in the standard deduction under the head Income from House Property.”

3. “On the facts and in the circumstances of the case and in the law, the Ld CIT(A) has erred in directing that the AO should treat the rental income as taxable under the head “Income from other sources” instead of “Income from house Property”, without appreciating the decision of the Apex court in the case of CIT v. National Storage Pvt Ltd and Shambhu Investments Pvt Ltd v. CIT [263 ITR 143]”.

4. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the A.O. be restored.

5. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.

2. Briefly, the facts of the case are that the assessee is a company, engaged in marketing, selling & distribution of several consumer products. The assessee has filed its return of income showing income of Rs. 17,05,23,600/- which was selected for scrutiny and an order u/s. 143(3) was passed by the Deputy Commissioner of Income Tax, Circle 7(1), Mumbai (“the DCIT”) dated 29.12.2006 assessing total income of Rs. 66,00,96,491/-. Thereafter, the ld. Commissioner of Income Tax-8, Mumbai passed an order u/s. 263 of the Act directing the DCIT to recompute the income chargeable under the head “Income from House Property”. The ld. Commissioner of Income tax -8, set aside the assessment order for A.Y. 2004-05 u/s. 263 of the Act, with the direction to find out the actual area given on rent or occupied by others (tenants) and recompute the income from rent under the head “income from house property” and disallow all expenses in the nature of depreciation, maintenance, repair, insurance etc. pertaining to rented portion of the office and re-compute the common expenses on the basis of space occupied or on the basis of actual use, after giving further opportunity to the assessee for being heard on this issue. Accordingly, the AO issue a detailed show cause notice to the assessee and after considering the submissions made by the assessee held that before invoking the provision of Section 22 of the Act, two undisputed condition must be fulfilled-firstly, the assessee must be an absolute owner of the property, consisting of any building and in this case, the assessee is an exclusive and lawful owner of the office building known as P&G Plaza situated at plot No. 495 Cardinal Gracious Road, Chakala, Andheri East. Secondly, the property must be let out by the owner and in this case, the assessee has clearly let out the office building by executing an agreement with the affiliate company namely Procter & Gamble Health and Hygiene Ltd. (PGHH). The AO held that it is an undisputed fact that the tenant company physically exists and operates its business affairs from the office premises owned by the assessee. The AO did not agree with the argument of the assessee that the sister concern was not given any area on rent, however, the said entity was permitted its utilization along with certain other common facilities as per agreement dated 01.04.2001. According to the AO, sister concern was occupying the premises in terms of an explicit agreement in which a clear provision of user’s charges has been made. Therefore, irrespective of whether the assessee is collecting the user’s charges or sacrificing on its own volition, the rental income to the assessee has started accruing as soon as the agreement was executed. Therefore, according to the AO, the fact that the provisions for charge at Rs. 90 per square feet for the built-up area was in terms of understanding of the party not implemented became meaningless since any other private understanding of the assessee with its sister concern will not supersede the specific provision of the agreement entered into.

3. As regards to the contention of the assessee that the first and second floor of the office building remained vacant during the year under consideration as the architect had to carry out internal renovation work on the first floor of the building was not found correct by the AO. The AO observed that it was not disclosed by the assessee which and on how much space the work was to be carried out for DSP Merrill Lynch. No agreement with DSP Merrill Lynch has been furnished. It was not known if DSP Merrill Lynch was tenants of the assessee. Further the approval letter dated 15.12.2006 did not clarify as to when exactly the floor had to be vacated for renovation work and when the work was actually started. It was also not disclosed by the assessee that if the entire floor had to be vacated further work carried out for DSP Merrill Lynch or part of it. Therefore, the AO did not find letter of approval from BMC an authenticate documents to substantiate assessee’s claim that the first floor was actually remained vacant for the entire year under consideration. The AO found that the letter furnished by the assessee as regards to the completion of work on the second and third floor also does not inspire much confidence. According to AO, the letter of competition indicates that whatever renovation work was carried out was ready for occupation before October, 2006. Even in this letter, it was not specified that the entire second and third floor were completely vacant and that too throughout the entire year. The AO observed that the work carried out by the assessee mainly pertained to glass partition and renovation work which normally does not warrant complete evacuation of the floor at the time of carrying out the renovation work. It was also observed by the AO that the assessee has not claimed the third floor was vacant during the year therefore; admittedly the third floor was under its selfoccupation. The AO also observed that the assessee did not give any information as regards to evacuation of the existing personal, equipments, furniture etc. during the period under consideration. Therefore, according to AO, there was no evidence per se to suggest that the second and third floors were vacant during the entire year. Therefore, the letters of BMC submitted by the assessee are completely inadequate to substantiate its claim that the first and second floor were vacant for the year. Under the circumstances, the claim of the assessee that the first and second floor remained vacant throughout the year and assessee was occupying only the third and fourth floor with the sister concern was not found acceptable. The AO accordingly concluded that except for ground floor which was given on rent to Nortel Network comprising of 27% of the total area, the remaining 73% the building was under joint occupation of the assessee and its sister concern during the entire year under consideration.

4. The AO further observed that it is a matter of record that the assessee is recovering expenses from its sister concern in the form of service charges in terms of Annexure 1 to the agreement. In the same annexure, the first item under the head service charges has been identified as compensation or usage charges at the rate of Rs. 90 per square feet for the built-up area occupied from time to time. This item is followed by non- interest-bearing refundable security deposit equivalent to 6 month usage charges. Apart from this charge/deposit, the assessee company is required to claim reimbursement of various expenses such as depreciation, fire and marine insurance, water electricity, generator charges, administrative services for the building, telephone, telecommunication etc. and various general supplies on a proportionate basis. The AO accordingly treated the usage charges received by the assessee from its sister concern as rental income of the assessee for the year under consideration. It was further observed by the Ld.AO that the assessee has not specified in the agreement the extra area given for occupation/usage by its sister concern. In the absence of any such information about the exact square feet of area given by the assessee to its sister concern, the AO presumed that the property was shared in 5050 ratio between the assessee and its sister concern namely PGHH. The total area of the building was 99,603 square feet and out of this, the assessee had given the ground floor bearing 1150 square feet area on rent to Nortel Network India Private Limited from whom, the assessee had received a rent of Rs. 1,58, 72,912/- during the year under consideration. Therefore, the remaining area of 88,099 square feet is jointly occupied by the assessee and it sister concern on 50-50 basis. The AO, thereafter, computed the area of the space occupied by the assessee’s sister concern by multiplying 44049.5 square feet with Rs. 90 square feet and arrived at a figure of Rs. 39,64,455/- per month which comes to Rs 4,75,73,460/-for the year to be the amount of actual rent received/receivable by the assessee from its sister concern for the usage of the office premises occupied by it and assessed the same as income from the house property.

5. Further, from a perusal of the accounts on various details submitted by the assessee, the AO observed that the total expenses in respect of the building such as repair and maintenance, service charges and depreciation on building amounted to Rs. 16,49,99,905/- and AO disallowed total expenditure of 63.5% as 27% of the area was given to Nortel Network India Private Limited and the remaining 73% was occupied by the assessee along with it sister concern out of which 50% i.e, 36.5% was given to PHHH for its usage. The AO calculated the total area which was let out to both Nortel Network and M/s PGHH which comes to 63.5% and accordingly disallowed the expenses (63.5% of Rs 16,49,99,905/-) and added the same to the total income of the assessee as being inadmissible expenditure pertaining to let out portion of the building. In this way, the AO added the total amount of Rs. 10,47,74,940/- to the total income of the assessee and assessed accordingly.

6. The assessee thereafter carried the matter in appeal before the ld. CIT(A). The ld. CIT(A) held that Section 22 lays down that annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income- tax, shall be chargeable to income-tax under the head “Income from house property”. Section 23(1)(a) lays down that for the purpose of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. Thus, where the property is not let out and used by the owner himself for any purpose other than the business, income-tax would be chargeable under the head “Income from house property” even though no tangible income has accrued to the owner of such property. Income-tax chargeable under this head is thus on notional income when the property is in selfoccupation. The ld. CIT(A) held that the liability of an assessee arises from the fact that he is owner of the property, irrespective of the fact that property in question was let out or vacant or occupied by gratuitous tenant or even by the owner himself, if he occupies more than one house in the previous year. It is also immaterial whether the owner received any income or not. The law has laid down artificial rules by which the monetary value of annual income determined is to be considered as the income of the assessee from house property and he is liable to be taxed for such artificial income i.e. annual letting value which is the notional income as opposed to real income. The mere ownership of the property is sufficient to make a person liable under section 22 and actual realisation of income is not necessary, as this section charges not actual income but the notional income, i.e., annual value of the property. Once the person is identified as owner, no other factor can be considered in determining his liability to be assessed under section 22 of the Act. In fact, the ownership by itself attracts the charge which is levied on the owner of the house property. It is immaterial whether the owner is in possession or enjoyment of the property. The liability also does not depend upon the power of the owner to let out the property; it does not depend even on the actual receipt of income. Section 22 of the Act envisages a tax on the owner of the property but at the same time disassociates the tax from the actual derivation or enjoyment of the income from the property. The ld. CIT(A) held that the tax is chargeable in respect of the property and not the occupation, possession of other kinds of rights of owner of the house property. It was held by the ld CIT(A) that the undisputed fact of the assessee’s case are that the assessee is an exclusive and lawful owner of the office building known as P&G Plaza situated at plot No. 495 Cardinal Gracious Road, Chakala, Andheri East and the said property is given on rent to its sister concern, namely PGHH. There exists an explicit agreement between the assessee and Procter & Gamble Health and Hygiene Ltd. (PGHH) vide which they are in relationship of a tenant and owner of a property. In view of the fact that PGHH occupies and share the office space alongwith the assessee and affecting its business turnover from that premises, it is difficult to agree with the assessee’s proposition that that the sister concern was not given any area on rent, however, the said entity was permitted its utilisation along with certain other common facilities as per agreement dated 01.04.2001. According to AO, sister concern was occupying the premises in terms of an explicit agreement in which a clear provision for collection of user’s charges has been made. Therefore, irrespective of whether the assessee is collecting the user’s charges or sacrificing on its own volition, the rental income to the assessee has started accruing as soon as the agreement was executed. Further, there was a provisions for charge of Rs. 90 per square feet for the built-up area and according to assessee in terms of understanding of the parties to contract not implemented became meaningless since any other private understanding of the assessee with its sister concern will not supersede the specific- provision of the agreement entered into. It is also a matter of fact that the ld. Commissioner of Income Tax-8, set aside the assessment order for assessment year 2004- 05 u/s 263 of the Act, with the direction to find out the actual area given on rent or occupied by others(tenants) and recomputed the income from rent under the head income from house property and disallow all expenses in the nature of depreciation, maintenance, repair, insurance etc. pertaining to rented portion of the office and recompute the common expenses on the basis of space occupied or on the basis of actual use, after giving further opportunity to the assessee for being heard on this issue. The ld. CIT(A) noted that the entire exercise of the AO is in this direction only. It is also a fact that assessee contested the order of the ld. Commissioner of Income Tax -8 before the Hon’ble ITAT, which declined to interfere and thus upheld the finding of the ld CIT-8. Further, it is not the case of the assessee that the property in question is not given on rent but modus operandi of collecting the rent is different. Therefore, from the facts on record, it is quite abundantly clear that primary object of the assessee is to exploit the property by letting out a portion of it to its sister concern. There is no commercial activities carried on by the assessee other than the collection of service charges which is based on the turnover affected by each party occupying the premises. Apparently there is also a contract on record which clearly provides for charging of service charges as well as the square feet area used by the sister concern in its day-to-day operation. Therefore, there is no merit in the argument of the ld. AR of the assessee. The assessee submitted that without prejudice to the contentions of the assessee that the said income, if at all should be taxed only as business income, in a similar factual matrix in respect of an earlier premise (which was owned by PGHH) jointly occupied by the assessee and PGHH, the Hon’ble Tribunal has held that the rental income (which was actually received by PGHH from the Assessee) is to be taxed as income from other sources, the ld CIT(A) held that the same proves the case of the Revenue that the income shown by the assessee as business income is not correct and the right head under which the income is to be taxed is the income from house property as observed by the ld. Commissioner of Income Tax-8 in its order under section 263. Further, the assessee also contended that the area in use is not 50 to 50% but it must be taken on a realistic basis which according to it is less than what AO has computed. However, the ld CIT(A) held that the said contention of the assessee cannot be accepted as it was not able to give any evidence in support of its contention. It is also a matter of fact that the AO during the assessment proceeding requested the assessee to give evidences of the area occupied by its sister concern but of no avail. The assessee did not give any evidence in support of the claim made either before him or before the .AO. In view of this, the ld. CIT(A) held that he find no infirmity in the order of the Ld.AO which was accordingly upheld.

7. The ld. CIT(A) further noted that the assessee had charged repairs and maintenance, depreciation and service charges in its books of account in terms of the understanding with its sister concern consistently followed by it, which also accounted for the recoveries from its sister concern for its share in the common expenses due to the assessee. The Assessee submitted that as per the Agreement dated August 29, 2003 entered by the assessee for sharing of certain common facilities, the various administrative expenses were also to be shared by the Assessee and PGHH in the ratio of respective net sales. Accordingly, the assessee paid Rs. 7.63 crores to the said sister concern such amount being net of the recoveries from such sister concern in respect of its share of common expenses, full break-up of which was furnished by the assessee during the assessment proceedings. The assessee submitted that these expenses were business expenses having no nexus with income from house property and hence were not covered within the ambit of Section 24 of the Act i.e. standard deduction @ 30%. It was further argued by the assessee that these expenses were actually incurred by the Assessee & PGHH and were shared by them in the ratio of their respective net sales which were carried out on the accordance to the agreement dated August 29, 2003 for sharing of certain common facilities, the various administrative expenses. Further, the assessee submitted that for any expenditure to be allowed u/s. 37 the twin conditions to be fulfilled are that the expenditure should not be of a capital nature, and that, it should have been expended wholly for the purposes of business. The expression ‘for the purpose of business’ in Section 37 of the Act has been held to mean an expenditure which is voluntary in nature and commercially expedient. Assessee, in this regard, submitted that all the expenses incurred on selling and administrative cost and finished products logistic costs (FPLC) incurred by both the companies is generally shared by both the companies in the ratio of Net outside Sales (NOS). Further, the ratio of Net outside Sales is the proportion in which the Assessee is bearing its proportion of the expenses. Thus, the Assessee submitted that the disallowance of expenses adopted by the AO is on the basis of the proportion of the space rented out and not in the ratio of Net Outside Sales and accordingly, the proportion of disallowance was at 50%. The assessee had incurred expenses aggregating to Rs. 31.68 Crores for the common marketing and administrative functions shared by both PGHP and PGHH. In similar manner, PGHH also incurred expenses aggregating to Rs. 62.75 Crores for such common functions. Thus, the total cost incurred for the common functions amounted to Rs.94.43 Crores. The ‘Net Outside Sales’ ratio for the year under consideration worked out at 44.63:55.37 between PGHP and PGHH. Thus, the total aforesaid expense of Rs. 94.43 Crores was divided in the said ratio. Consequently, in terms of the agreement, PGHP had to bear Rs.42.15 Crores and PGHH had to bear Rs.52.28 Crores. Thus, at the year-end, PGHP owed Rs.10.46 Crores to PGHH (difference between the amount expended and amount to be borne). In this regard, the ld CIT(A) noted that the AO complying with the direction of the ld CIT-8, Mumbai u/s. 263 find out that the area used by both i.e. the assessee and its sister concern excluding the area on the ground floor by M/s. Nortel Net Work Pvt. Ltd. is 88099 sq. Ft. and in the absence of any details given by the assessee as observed supra, the AO has no option but to compute that the area as being shared equally and thereafter computed the usage charges @ Rs. 90 per sq.ft. and added the amount of actual rent received or receivable by the assessee from PGHH for the use of office premises occupied by it. The ld. CIT(A) accordingly held that he finds no infirmity in the order of the AO which was confirmed.

8. As regards the expenses claimed by the assessee in relation to the property as business expenses, the ld CIT(A) held that the allocation made by the AO was perfectly in order. The assessee himself has claimed that the area occupied by M/s. Nortel Net Work India Pvt. Ltd. is 27% of the total area of the building. Therefore the remaining 73% of the building is jointly occupied by the assessee and its sister concern i.e. M/s. PGH. 50% of the area occupied by sister concern therefore comes to 36.5%. Therefore, the total area which has been let out by the assessee, to its sister concern as well as M/s. Nortel Net Work Pvt. Ltd. comes to 63.5%. Therefore, the AO was absolutely right in disallowing the expenses of 63.5% claimed by the assessee. The ld. CIT(A) accordingly didn’t find any infirmity in the order of the AO and ground of appeal were dismissed.

9. The assessee thereafter carried the matter in appeal before the Tribunal and the matter was disposed off by the Coordinate Bench vide its order dated 06.06.2016, in Procter and Gamble Home Products (P.) Ltd. v. Income Tax Appellate Tribunal [2025]  (Bombay)/ITA No. 3531/Mum/2014, wherein it was held that the income from PGHH was assessable under the head “Income from Other Sources” and the AO was directed to treat so received as income from other sources and to allow the claim of deduction in respect of expenditure incurred for earning the same. Thereafter, we find that there were Miscellaneous Applications filed by the assessee and the Revenue, subsequent orders passed by the Coordinate Benches and the matter having reached before the Hon’ble Bombay High Court on three different occasions and as per the latest order of the Hon’ble Bombay High Court, in Writ Petition No. 1960 of 2023, dated 24.02.2025, the Hon’ble High Court has held that qua the Tribunal, finding that the income receivable from PGHH was “Income from Other Sources” has attained finality though, the said finding is pending before this Court in Revenue’s appeal admitted on 26.08.2019, and the matter was remitted to ITAT to decide ground no. 1, 4 and 5 of the assessee’s appeal in ITA No. 3531/Mum/2014. Hence, the matter has come up for adjudication before us.

10. At the outset, given the litigation history involved, we deem it appropriate to refer to the findings of the Hon’ble High Court in its latest order dated 24.02.2025, and the same read as under:

“4. The conspectus of facts in which the above challenge arises is set out briefly hereafter:

5. Mr. Pardiwalla, learned senior counsel for the petitioner, submitted that the issue of whether the income receivable from PGHH amounted to “income from other sources” or “income from house property” had attended finality qua the ITAT, given the ITAT order dated 6 June 2016 and this Court’s order dated 9 March 2018 allowing the petitioner’s Writ Petition No.2738 of 2017. He submitted that the only issue that had survived before the ITAT was whether the real income theory would apply, given the ITAT’s finding that the income receivable to be taxed as “income from other sources”. He submitted that the ITAT exceeded its jurisdiction by once again reviewing its earlier order dated 6 June 2016, even though this Court had clarified that the MA under Section 254(2) of the Act is not akin to a substantive review. Mr. Pardiwalla submitted that on this short ground, the impugned order dated 2 September 2022 deserves to be set aside.

6. Mr. Mishra learned counsel for the respondent defended the impugned order by submitting that the MA filed by the revenue had questioned the finding about the income being from other sources. He submitted that once the ITAT concluded that this was the case of “income from house property”, there was no bar to considering the notional income expressly permitted under the Act. He, therefore, submitted that there was no jurisdictional error in the impugned order to warrant any interference by this Court.

7. Mr Mishra submitted that, in any event, this Court admitted the revenue appeal, and therefore, the finding about the nature of income derived by the petitioner from PGHH could not be said to have attained any finality. For these reasons, Mr. Mishra submitted that this petition can be dismissed.

8. The rival contentions now fall for our determination.

9. Based on the facts we narrated above, we are satisfied that, at least qua the ITAT, the finding that income receivable from PGHH was “income from other sources” had attained finality. The issue of whether this finding was correct is pending before this Court in the revenue’s appeal admitted on 26 August 2019.

10. The ITAT, in deciding the assessee’s appeal on remand, could not have re-visited the above issue and held that the income receivable by the petitioner-assessee from PGHH amounted to “income from house property”. This was more so considering this Court’s order dated 9 March 2018 in Writ Petition No.2738 of 2017, in which this Court had categorically held that the MA under Section 254(2) of the Act was not akin to a substantive review.

11. In effect, the impugned order indicates that the ITAT has reviewed its judgment and order dated 6 June 2016, despite an appeal against that judgment and order already being admitted by this Court at the revenue’s request. While disposing of an application under Section 254(2) of the Act, the ITAT lacked the jurisdiction to review its order. The application under Section 254(2) of the Act must be resolved in accordance with the discipline outlined in that provision. This was more so because on an earlier occasion, in this very matter, the ITAT had exceeded its jurisdiction, and its order dated 28 July 2017 had to be judicially reviewed by this Court in Writ Petition No 2738 of 2017.

12. In any event, after this Court disposed of Writ Petition No.2738 of 2017 by its order dated 9 March 2018, the only issue which survived before the ITAT was whether the real income theory would apply given the ITAT’s finding on the nature of the income from PGHH. While deciding this issue or rather this ground raised by the petitioner-assessee, it was not open to the ITAT to review its judgment and order dated 6 June 2016 and hold that the income receivable by the petitioner-assessee from PGHH was income from house property. On the above ground, we are satisfied that the 2/09/22 impugned order dated 9 February 2022 warrants interference and needs to be quashed and set aside.

13. The ITAT’s jurisdiction under Section 254[2] of the IT Act is limited. It is not akin to a substantial review. This Court clarified this position in an earlier round when the ITAT had similarly exceeded its jurisdiction. The issue of whether the income receivable by the petitioner from PGHH was income from house property or income from other sources was writ large before this Court in the Revenue’s pending appeal. The ITAT, exercising powers under section 254[2] of the IT Act, could not have reviewed its earlier finding on this issue. The ITAT’s impugned order dated 2 September 2022 deserves to be set aside accordingly.

14. However, we clarify that this judgment and order would in no way interfere with this Court deciding on whether the income receivable from PGHH should be classified as “income from house property” or “income from other sources” in revenue’s appeal No.1052 of 2017 under Section 260-A of the Act. We have interfered with the ITAT’s order not on the merits but because we were satisfied that the ITAT exceeded its jurisdiction under Section 254(2) in deciding such an issue.

15. Accordingly, we set aside the ITAT’s order dated 2 September 2022 and once again remand the matter to the ITAT to decide grounds Nos.1, 4, and 5 in the petitioner’s appeal before the ITAT, appeal No.3531 of 2014. The Rule is made absolute without costs order.

16. The parties must now appear before the ITAT on 8 March 2025 and file an authenticated copy of this order.”

11. During the course of hearing, the ld. AR submitted that the assessee is engaged in the business of manufacturing (including through job work) and trading of laundry, hair care, skin care, baby care, air freshener and fem care products (“Home Products”). Its sister concern, namely, Procter & Gamble Hygiene and Health Care Lid (“PGHH”) is engaged in the manufacture and sale of personal care and health care products like Vicks, Whisper, etc. (“Healthcare products”). The ld. AR further submitted that as the marketing/distribution channels (such as medical stores, etc.) of the Assessee and PGHH (assessee’s sister concern) are common, both the aforesaid parties shared the office building owned by the assessee in such a manner that can enable their marketing/production planning teams to sit together for a seamless flow of work. While this arrangement was in place since 2001, the parties formalized it by way of an agreement dated August 29, 2003 (effective from April 01, 2001) for sharing of certain common facilities. Clauses 1 to 7 thereof deals with sharing of common premises and Clauses 8 to 10 deals with sharing of common costs, which are part of paper book. Clause 2 of the aforesaid agreement read with Annexure I thereof refers to compensation/ usage charges of Rs. 90 per sq. ft. “and/or” reimbursement of certain expenses as may be agreed between the parties. Accordingly, it was only the reimbursement of expenses that was implemented between the parties. In other words, the usage charges of Rs. 90/- per sq. ft. were never implemented between the assessee and its sister concern. Also, the corresponding security deposit was never implemented. Clauses 8 and 9 of the aforesaid agreement read with Annexure Il thereof refers to sharing of common expenses in the ratio of net sales of the companies. These expenses are not necessarily the expenses incurred in respect of the commonly used premises, but several other expenses incurred across various centres all over the country. The ld. AR submitted that the AO has assessed the notional income of Rs. 90/- per sq. ft. as Income from House Property (“HP”) in the hands of the assessee and consequently, disallowed building related expenses such as repairs & maintenance of budding, service charges and depreciation on building. The disallowance of said expenses included not only expenses related to the common office building but also the expenses shared by the two companies in accordance with Clauses 8 and 9 read with Annexure II of the agreement mentioned above.

12. It was submitted that in accordance with Clause – 2 which provided for compensation/usage charges of Rs. 90/- per square feet and/ or reimbursement of expenses as may be agreed between the parties, the assessee and its sister concern did not implement the usage charges of Rs. 90/- per square feet for the area shared but implemented the reimbursement of expenses as envisaged under the agreement. Commercially, it was deemed fit not to implement the usage charges per square feet because it was very difficult to identify the square feet area occupied by the group companies. Therefore, once the income is assessable as ‘OS’, notional income cannot be brought to tax under this head. Consequently, the disallowance of building related expenditure such as repairs & maintenance of building, service charges and depreciation on building is not sustainable. Section 57(ii) and section 57(iii) of the Act expressly permits complete deduction of expenditure laid out wholly and exclusively for earning income chargeable under the head ‘OS’. Besides the amount of disallowance of expenses includes several other common expenses which are not commonly used property. Such disallowance in any case is unwarranted.

13. Further, it was submitted that the matter is covered by the decision of the Coordinate Bench in assessee’s own case for A.Y. 2007-08 and 2008-09 in Procter & Gamble Home Products Ltd. v. Addl CIT [IT Appeal Nos. 4191 (Mum) of 2014 & 2876/MUM/2015, dated 6.04.2026] wherein the relevant findings read as under:

“19. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on decision on Hon’ble Jurisdictional High Court in assesses own case in Writ Petition No. 1960 of 2023. On considering the treatment / action of assessing officer in earlier years as well as in the current assessment year, we find that Id. AR of the assessee has correctly explained the fact with regard to issue under consideration. We find after the decision of Hon’ble High Court’s order dated February 24, 2025; the head of income as regards the rental income being ‘OS’ has become final. Thus, following the decision of Hon’ble High Court, receipt of rent payable by PGHH and GIL is held as income from other sources. So far as other small portion of area, which is let out to third parties, on same principle as per the decision of jurisdictional High Court is also to the taxed under the head other sources.

20. So far as taxing the notional rent is concerned, we find merit in the submission of Id. AR of the assessee that once the income is assessable as ‘OS’, notional income cannot be brought to tax under this head. Consequently, the disallowance of building related expenditure such as repairs & maintenance of building, service charges and depreciation on building is not sustainable. We also find merits in the submission of Id AR of the assessee that section 57(ii)&(iii) of the Act expressly permits complete deduction of expenditure laid out wholly and exclusively for earning income chargeable under the head ‘OS’. Thus, the assessee is also eligible for all such deduction which are incurred wholly and exclusively for the purpose of income from other sources. So far as taxing of notional income is concerned, it cannot be taxed unless the AO brought any evidence that such income is received or receivable by the assessee. Thus, in view of aforesaid discussion, we do not find any justification for taxing notional rent. In the result, ground No. 3 of the appeal is dismissed. In the result, ground no. 3 and all alternative ground No. 4 & 5 raised by assessee are allowed. Ground related with interest under section 234B is consequential.”

14. On the other hand, the ld CIT-DR supported the order and findings of AO & ld CIT(A).

15. We have heard the rival contentions and pursued the material available on record. As per the Assessing officer, the assessee is an exclusive and lawful owner of the office building known as P&G Plaza situated at plot No. 495 Cardinal Gracious Road, Chakala, Andheri East and the assessee has clearly let out the office building by executing an agreement with the affiliate company namely Procter & Gamble Health and Hygiene Ltd. (PGHH) which operated its business affairs from the office premises owned by the assessee. According to the AO, the said affiliate company was occupying the premises in terms of an explicit agreement in which a clear provision of user’s charges has been made. Therefore, accordingly to the AO, irrespective of whether the assessee is collecting the user’s charges or sacrificing on its own volition, the rental income to the assessee has started accruing as soon as the agreement was executed. According to the AO, the fact that the provisions for charge at Rs. 90 per square feet for the built-up area was in terms of understanding of the party not implemented became meaningless since any other private understanding of the assessee with its sister concern will not supersede the specific provision of the agreement entered into. The ld Counsel has however submitted that Clause 2 of the aforesaid agreement read with Annexure I thereof refers to compensation/ usage charges of Rs. 90 per sq. ft. “and/or” reimbursement of certain expenses as may be agreed between the parties. Accordingly, it was only the reimbursement of expenses that was implemented between the parties and the usage charges of Rs. 90/- per sq. ft. were never implemented between the assessee and its sister concern and corresponding security deposit was never implemented. It was submitted that it is therefore a case of notional rent determination which cannot be brought to tax under the head “Income from other Sources.” We find that there is no dispute that the assesse is the owner of the subject property and the said premises has been occupied and utilized by the affiliate company for its business purposes. The limited question is whether any income has accrued to the assesse company in terms of the subject agreement and whether the same can be held chargeable and brought to tax under the head ‘Income from other sources”. As per the AO, as soon as the agreement has been entered into, the rental income has started accruing to the assesse irrespective of whether the assessee is actually collecting the user’s charges or sacrificing on its own volition. As against that, the claim of the assesse is that a reading of the agreement talks about usage charges and/or reimbursement of certain expenses as may be agreed between the parties and it is only the latter which was implemented and the former was never implemented. We therefore find that it is not a case of any subsequent understanding rather it is a case where the agreement has been implemented in terms of reimbursement of expenses. We find that similar factual assertion was made by the assessee before the Hon’ble Bombay High Court wherein it was submitted that the agreement was fully implemented except for the clause relating to the usage charges which was never acted upon by and between the parties instead the common costs were shared and the excess costs incurred were reimbursed. We further find that recently, similar matter came up for consideration before the Coordinate Bench in assessee’s own case for subsequent years 2007-08 and 2008-09 and the Coordinate Bench under identical facts and circumstances of the case has held that unless the Assessing officer brought on record any evidence that the assesse either received or the rental income is receivable, the notional rent cannot be brought to tax while assessing the income under the head “Income from other sources”. Nothing has been brought on record to deviate from the view taken by the Coordinate Bench. Therefore, following the decision of the Coordinate Bench, where the income is held assessable under the head “Income from other sources”, notional rent of Rs. 475.73 lacs cannot be brought to tax in the hands of the assesse and the ground no. 1 of the assesse’s appeal is allowed.

16. In Ground no. 4, the assesse has challenged the disallowance of repair and maintenance expenses of building, services charges, and depreciation on building of Rs 10,47,74,940/- where the AO has brought to tax rental income under the head ‘Income from House property” and in ground no. 5, the assesse has without prejudice contended that only building related expenses to be considered while computing income under the head “Income from House property”.

17. We find that the aforesaid disallowance has been made pursuant to treatment of rent receivable from PGHH as well as rent of Rs 1,05,21,003/-actual received from Nortel Network India Pvt Ltd as income from house property. As far as rent receivable from PGHH is concerned, in view of the decision of the Co-ordinate Bench in the earlier round, the income has to be assessable under the head “income from other sources” and not under the head ‘income from house property” and therefore, any claim of expenses have to be tested in terms of section 57(ii) and 57(iii) of the Act. The Coordinate Bench in assessee’s own case for subsequent assessment year 2007-08 and 2008-09 has held that section 57(ii) and section 57(iii) expressly permits complete deduction of expenditure laid out wholly and exclusively for earning income chargeable under the head “Income from other sources”. Following the same, the disallowance to the extent relatable to PGHH is hereby directed to be deleted. As far as rent amount actually received from Nortel Network Limited, there is no dispute that rental income so received is assessable under the head ‘Income from house property”. Therefore, we direct the Assessing officer to re-compute and restrict the disallowance to the extent of depreciation and building related expenses pertaining to the area occupied by Nortel Network Limited. In the result, the grounds no. 4 and 5 are partly allowed.

18. In the result, the grounds of appeal no. 1, 4 & 5 of the assessee’s appeal are disposed off in light of aforesaid directions.

19. Now, we take up the assessee’s appeal in ITA No. 4977/Mum/2017 for A.Y. 2005-06.

20. In ground no. 1, the assessee has challenged the disallowance of trade incentive to the extent of Rs. 179.88 lacs being 20% of Rs. 899.41 lacs, following the order of ld. CIT(A) in A.Y. 2007-08, wherein the expenditure was similarly disallowed on ad-hoc basis.

21. In this regard, briefly, the facts of the case are that during the course of assessment proceedings, the Assessing Officer observed that the assessee being a distributor of the products manufactured by Procter & Gamble Hygiene and Healthcare Limited, was merely a conduit for spending expenditure and that the expenditure has built the brand. Therefore, the Assessing Officer held that the expenditure aimed at promotion of brands generates an enduring benefit and the expenditure could not be entirely treated as revenue expenses having been spent only for the business of the year under consideration. At the same time, keeping in view, the assessee’s business need to incur expenditure for promoting sales using the brands in regular course of business, the Assessing Officer, considered it reasonable to allow 50% of the expenditure at Rs. 8.99 crore incurred towards brand promotion and disallow the remaining 50% i.e. Rs. 4,49,07,696/-, treating the same as expenditure of capital in nature and the same was brought to tax in the hands of the assessee.

22. The assessee thereafter carried the matter in appeal before the ld. CIT(A) and the ld. CIT(A) following the assessee’s own order passed by his ld. predecessor by order dated 21.03.2014 for A.Y. 2007-08 held that as the issue are identical to the issue decided by his ld. predecessor in A.Y. 2007-08 and since there is neither any factual change nor legal change, following the same, the disallowance was restricted to 20% of the claim as against 50% disallowed by the Assessing Officer. Further, the AO having held the disallowed amount as capital in nature ought to have allowed deprecation thereon and therefore, on the confirmed disallowance of 20%, the AO was directed to allow depreciation. Against the said order, the assessee is in appeal before us.

23. During the course of hearing, the ld. AR submitted that the matter for A.Y. 2007-08 has since been decided by the Coordinate Bench vide its order dated 06.04.2026 in ITA No. 4191/Mum/2014, wherein the disallowance of 20% of trade incentive were deleted and the relevant findings are contained at Para no. 14 of its order and the contents thereof reads as under:

“14. We have considered the rival submission of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws relied by parties. We find that during the year under consideration, the assessee debited Rs. 42.69 Crore on account of trade incentive and brand promotion expenses. The AO disallowed 20% of such expenditure and by taking view that such expenses were exclusively indicated for promotion of brand of various products which is enduring benefit and take it a capital expenditure and disallowed to the extent of 20% and worked out on disallowance of Rs. 6.66 Crore. The Ld. CIT(A) confirm the action of the AO by taking the view that observation of AO have not been rebutted by assessee it its submission and thus, he has no reason to deviate from the finding of AO. We find that assessee has incurred/allowed such trade incentive as a part of their business model. Such expenses in respect of promoting of products, is to be considered as revenue expenses. Similar view was taken by jurisdictional High Court in assesses own case reported in CIT v. Procter & Gamble Homes Products Limited (supra). We further find that Delhi Tribunal in ACIT v. Intercontinental Hotel Groups India Private Limited (supra) also held that advertisement expenses incurred by the assessee in promotion of brand belonging to its parent company, was to be allowed as business expenditure. Further, the Hon’ble Delhi high Court in PCIT v. Seagram Manufacturing Private Limited (supra) also held that where assessee incurred expenses for brant popularity merely because overseas of all the brand also gained some benefit, claim of expenditure as a business expenditure should not be denied. Thus, in view of the aforesaid legal position, we do not find any justification in disallowing 20% of trade incentive by taking view that it was revenue nature and that it was incurred for the promotion of brand on various products and were enduring benefit. In the result, ground No. 2 of appeal is allowed. “

24. It was accordingly submitted that following the decision of the Coordinate Bench, the addition so sustained by the ld. CIT(A) be directed to be deleted.

25. The ld. DR has been heard who has relied on the order passed by the lower authorities.

26. We have heard the rival contentions and perused the material available on record. In light of the fact that the ld. CIT(A) has followed the order of his ld. predecessor for A.Y. 2007-08, wherein the disallowance of 50% was restricted to 20% and the said matter has since been examined at length by the Coordinate Bench and vide its order dated 06.04.2026, the same has been deleted. In light of the same, the disallowance so made by the Assessing Officer and confirmed by the ld. CIT(A) is hereby directed to be deleted. In the result, ground no. 1 of the assessee’s appeal is allowed.

27. In ground no. 2, the assessee has challenged the disallowance of depreciation of Rs 10.69 lakhs on moulds and dies.

28. In this regard, briefly, the facts of the case are that the Assessing Officer had originally disallowed the expenditure on moulds and dies as a book accommodation entry and made an addition u/s. 69 of the Act and consequent disallowance of depreciation was also made by him. The assessee thereafter carried the matter in appeal before the ld. CIT(A). The ld. CIT(A) after going through the agreement, the invoices and the explanation submitted by the assessee and the fact that the investments are duly recorded in the books of accounts, held that the Assessing Officer was not justified in making addition u/s. 69 of the Act as unexplained investment. At the same time, it was held that the assessee has not been able to substantiate with documentary evidences as to whether and from when the said assets were ‘put to use’ and how the same were used by the assessee and accordingly, the disallowance to the extent of depreciation was confirmed. Against the said order, the assessee is in appeal before us.

29. During the course of hearing, it was submitted that the moulds and dies were utilized for manufacture of shampoo bottles and the said fact was already on record before the Assessing Officer as well as the ld. CIT(A) and the very fact that the assessee having purchased the products packed in the plastic containers which were made using such moulds and dies from the parties established the actual use of the moulds and dies by the assessee and therefore, the question of the assessee not substantiating the use of the asset does not arise for consideration. It was further submitted that there are decisions of the Hon’ble Courts and the Tribunals wherein, it has been held that even where the asset is ready for use, the depreciation ought to be allowed to the assessee. It was submitted that in the instant case, the facts are on a stronger footing where the moulds and dies were actually utilized in manufacture of the products packed in the plastic containers which in turn have used the moulds and dies and therefore, the depreciation so claimed by the assessee be directed to be allowed.

30. The ld. DR has been heard, who has relied on the order passed by the lower authorities.

31. We have heard the rival contentions and perused the material available on record. We find merit in the contention advanced by the ld. AR that when the final products so manufactured or packed in the plastic containers which were made using the subject moulds and dies, then effectively, the moulds and dies have been utilized by the assessee during the financial year relevant to the assessment year under consideration and therefore, the test of the asset being ‘put to use’ has been duly satisfied and therefore, the assessee is eligible for claim of depreciation on moulds and dies. In light of same, the Assessing Officer is hereby directed to allow depreciation of Rs. 10.69 lakhs on the moulds and dies so claimed by the assessee. In the result, ground no. 2 of the assessee’s appeal is allowed.

32. In the result, appeal of the assessee is allowed.

33. In revenue’s appeal in ITA No. 5973/Mum/2017 for A.Y. 2005-06. Both the parties fairly submitted that the facts and circumstances of the case are exactly identical as in A.Y. 2004-05, wherein the notional rental income in respect of usage of premises by PGHH has been brought to tax by the Assessing Officer and expenses have been disallowed. It was submitted that similar contentions as raised in A.Y. 2004-05 may be considered. Therefore, considering the admitted position that there are no change in the facts and circumstances of the case, our findings and directions contained in A.Y. 2004-05, shall apply mutatis mutandis for the year under consideration and the grounds of appeal are disposed off accordingly.

34. In the result, the cross appeal filed by the revenue for A.Y. 2005-06 is disposed off in light of aforesaid directions.