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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned order dated 27/05/2023, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [“learned CIT(A)”], for the assessment year 2016-17.
The brief facts of the case are that the assessee is engaged in the business of real estate development. For the year under consideration, the assessee filed its return of income on 17/10/2016, declaring a total income of Rs. Nil and claimed the current year loss of Rs.1,68,789. The return filed by Milan Theaters Pvt. Ltd. ITA no.2369/Mum./2023 the assessee was selected for scrutiny under CASS and accordingly, statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. The assessee came into existence in the assessment year 2009-10. Earlier it was a partnership firm in the name and style of “Milan Theaters”. The firm had constructed a shopping complex with a cinema theatre known as “Milan Mall”. The firm was converted into a private limited company without any change in its assets, in the name and style of “M/s Milan Theatre Private Limited”. As on 01/04/2004, the assessee decided to convert the Mall into shops for being sold. Accordingly, on conversion of its investment (capital asset) into stock in trade, in its account for the year ended 31/03/2015, known current investments comprising of land, building, and other assets were classified into inventory (Project Work in Progress). The new project comprises of 179 shops and 1 theatre.
2. During the assessment proceedings, from the ITS data it was observed that during the year under reference, the assessee had sold 71 shops and the theatre. The agreement of these units was registered with the office of the sub-registrar. However, it was observed from the accounts of the assessee that the assessee has not offered any sale of shops for tax during the year. Accordingly, vide notice dated 27/11/2018, it was brought to the notice of the assessee that the project, as such, was not actually under construction, as the mall was already constructed and the same was converted from fixed assets into stock in trade. Further, earlier there were 24 shops and a theatre, which was converted to 179 shops and a theatre. Accordingly, since the assessee had sold 71 shops and a theatre during the year, the assessee was asked to show cause as to why the sale of these units should not be brought to tax in the Page | 2
Milan Theaters Pvt. Ltd. ITA no.2369/Mum./2023 year under consideration. The assessee was also asked to work out the capital gain from the inception of the company till the conversion of fixed assets into stock in trade and business income from that date till the date of sale of shops and the theatre. Further, the assessee was asked to explain the issue of applicability of section 43CA in respect of the theatre and few shops in which the stamp duty value was more than the agreement value. The assessee was also asked to explain the admissibility of interest expenses, especially in view of the fact that the assessee has taken huge loans on a high rate of interest and has directly diverted these funds to the sister concern at a lesser rate of interest. The Assessing Officer (“AO”) vide order dated 30/12/2018, passed under section 143(3) of the Act did not agree with the submissions of the assessee and rejected the Project Completion Method and applied Percentage Completion Method in taxing the receipts from the sale of units during the year under the head “Profits and Gains from business” and “Long Term Capital Gains”. The AO assessed the profits and gains from business on the sale of units at the actual sale consideration of Rs.67,65,46,000. Further, the interest cost of Rs.13,57,00,000, was disallowed and notional income of Rs, 4,62,00,000 was brought to tax being worked out at 3% on the interest-free loan of Rs.154 crore granted to the related party. Accordingly, the AO assessed the total income of the assessee at Rs.16,23,28,910.
In the appeal before the learned CIT(A), despite various notices being issued, no reply/submission was filed on behalf of the assessee. Accordingly, vide impugned ex–parte order dated 27/05/2023, the learned CIT(A) dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us. Page | 3
Milan Theaters Pvt. Ltd. ITA no.2369/Mum./2023
We have considered the rival submissions and perused the material available on record. It is evident that the learned CIT(A) has passed the order ex-parte due to the non-appearance of/on behalf of the assessee. It is evident from the record that the learned CIT(A) issued notices on 11/01/2021, 01/11/2022, 11/05/2023, and 22/05/2023, however no compliance was made by the assessee. During the hearing, no justifiable reason was submitted on behalf of the assessee for the non-compliance. We are of the view that without any reasonable and sufficient cause and due to the non-compliant behaviour of the assessee, energy and time of the Income Tax Authority has been wasted which could have been used for justice delivery in other cases. In the circumstances, we feel it appropriate to impose a cost of Rs.5,000, which the assessee shall pay towards the Prime Minister's Relief Fund within 30 days from the date of receipt of this order. Subject to the payment of the cost by the assessee, the order of the learned CIT(A) is set aside and the matter is restored back to the file of the learned CIT(A) for deciding afresh on merits after taking into consideration submissions of the assessee. Needless to mention no order shall be passed without affording reasonable opportunity of hearing to the parties. Further, the assessee is directed to appear before the learned CIT(A) on all the dates of hearing as may be fixed without any default. As the matter is being restored to the file of the learned CIT(A) for adjudication on merits, the other grievances raised by the assessee on merits do not call for adjudication at this stage. As a result, grounds raised by the assessee are allowed for statistical purposes.
Milan Theaters Pvt. Ltd. ITA no.2369/Mum./2023 5. In the result, the appeal by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 20/10/2023