Loading judgment…
Facts
The revenue appealed against the CIT(A)'s order that treated rental income as business income, allowing set-off of unabsorbed depreciation. The AO had initially treated rental income as house property income.
Held
The Tribunal followed its coordinate bench's decision in the assessee's own case for a prior assessment year, which held that rental income was assessable as business income. Accordingly, the grounds raised by the revenue were dismissed.
Key Issues
Whether the rental income from an industrial park and commercial asset should be treated as business income or income from house property, and consequential issues of depreciation and interest expenses.
Sections Cited
250, 143(3), 24, 72, 14A, 37(1), 57(iii)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI ANIKESH BANERJEE
The instant appeal of the revenue was filed against the order of the National Faceless Appeal Centre (NFAC), Delhi [for brevity, ‘Ld.CIT(A)] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2012-13, date of order 06/12/2024. The impugned order emanated from the order of the Deputy Commissioner of Income-tax, Range 10(2)(2), Mumbai (in short, ‘Ld.AO’) passed under section 143(3) of the Act, date of order 31/01/2015.
2 ITA 815/Mum/2025 M/s Luvish Infotech Projects Pvt Ltd 2. The revenue has taken the following grounds: - “Grounds:
“1. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) justified in not considering & treating the income offered by the assessee as house property income rather treating the same as business income despite the facts that the receipts were received from letting out the industrial park, a commercial asset developed by the assessee along with rental from the activities of computer hardware, computer software and allied industrial activities?
Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) justified in treating the income offered by the assessee as house property income instead of business income without appreciating the decision of Hon’ble Supreme Court in the case of Shambhu Investments (P) Ltd. V. CIT [2003] 263 ITR 143 (SC), wherein it was held that where the prime object of the assessee under the agreement was to let out a portion of the property to various occupants by giving them additional right of using furniture and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property, the income derived from the said property was in income from property and not income from business, as the property was not exploited as business asset?
Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) justified in not considering & treating the income offered by the assessee as house property income rather treating the same as business income and allowing this interest of Rs. 31,05,000/- despite the facts that the receipts were received from letting out the industrial park, a commercial asset developed by the assessee along with rental from the activities of computer hardware, computer software and allied industrial activities?
Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) justified in not considering & treating the income offered by the assessee as house property income rather treating the same as business income and allowing this interest expenses of Rs. 21,52,380/- and not considering that the assessee was not able to substantiate that the interest expenses of Rs. 21,52,380/- debited to the profit and loss account were expended wholly and exclusively for the purpose of earning other income of Rs. 44,05,252/-.
3 ITA 815/Mum/2025 M/s Luvish Infotech Projects Pvt Ltd 5. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) justified in not considering & treating the income offered by the assessee as house property income rather treating the same as business income and allowing the assessee claim of unabsorbed depreciation of Rs. 83,56,774/- u/s. 72 of the IT Act?
6. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) justified in deleting the disallowance of Rs. 11,87,946/- u/s. 14A of the Act despite the fact that Ld. CIT(A) has treated the income offered by the assessee as business income ignoring the provisions of section?
7.Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) justified in deleting the disallowance of Rs. 11,87,946/- u/s. 14A of the Act despite the fact that in consequence to the clarificatory explanation of section 14A(1) inserted vide the Finance Act 2022 that the provisions of this section shall apply and shall be deemed to have always applied even in a case where exempt income has not accrued or arises or has not been received during the previous year, but expenditure has been incurred during the said previous year in relation to earning of such exempt income.
Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) justified in deleting the addition made on account of disallowance of expenses amounting to Rs. 6,99,171/- u/s. 37(1) of the Act despite the fact that the interest on service tax is penal nature.”
“The appellant craves the leave to add, amend, alter and /or delete any of the grounds of appeal as above.”
3. We heard the rival submissions and considered the documents available on the record. The revenue has filed the appeal against the order of the Ld.CIT(A). The issue involved related to treating the income as House Property Income as business income by the assessee while filing the return of income. But during the assessment proceedings, the Ld.AO treated this business income as “Income from House Property” amount to Rs.4,28,93,712/- and accordingly the assessee’s claim for set off unabsorbed depreciation of Rs.83,56,774/- was 4 ITA 815/Mum/2025 M/s Luvish Infotech Projects Pvt Ltd denied. Finally, the scrutiny assessment was completed under section 143(3) of the act and the Ld.AO treated the said income as “Income from house property” and allowed deductions under section 24 (a) and 24(b) amount to Rs.1,28,68,114/- and Rs.1,82,48,117/- respectively. Further, the addition was made on account of ‘Other income’ and ‘Interest income’ amount to Rs.44,05,252/-. On appeal, the Ld.CIT(A) considered the assessee’s submission and by considering the judicial precedents, allowed the appeal of the assessee; the unabsorbed depreciation of Rs.83,56,774/- was allowed to be set off. Aggrieved, the revenue filed an appeal before us by challenging the order of the Ld.CIT(A). Since all the grounds are challenged by the revenue interconnected with the impugned appeal order which is adjudicated considering the order of coordinate bench of ITAT-Mumbai, B-Bench in assessee’s own bearing for AY 2011-12 date of pronouncement 22/12/2017. The ground wise adjudication of appeal is as follows:- 4. Ground 1 & 2 of revenue The issue is related to the holding house property income as business income by the assessee. The assessee had declared the rental income as business income which was upheld by the Ld. CIT(A). Issue is covered by the order of the assessee’s own case which is as follows:- 4.1 The observation of the Ld. CIT(A) in paragraph no. 5.6 of the impugned appeal order is reproduced as below:- “5.6 I have carefully considered the submission made by the appellant and also carefully gone through the records. Respectfully following the order of Hon’ble ITAT in the appellant own case for AY 2011-12 (cited above), AO is directed to allow the claim of the appellant. Thus, ground No. 01 raised by the appellant is hereby allowed. Further, the second ground of appeal
relates to 5. ITA 815/Mum/2025 M/s Luvish Infotech Projects Pvt Ltd the consequential disallowance of depreciation and other expenses under the head ‘Profits & Gains from Business.’ As the assessing officer has held that the income is to be taxed under the head house property, he has disallowed the claim of depreciation and other expenses. Therefore, the same is consequential in nature and no adjudication is required.”
4.2. The observation of the coordinate bench in page 10 related (supra) is reproduced as below:- “After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and Hon’ble ITAT as mentioned above in assessee’s own case, we find that the identical issue has already been decided by the Hon’ble ITAT in assessee’s own case in 558 & 724/Hyd/2010 & ITA Nos. 1010/Hyd/2009 & ITA No. 308/Hyd/2012 for AY 2004-05 to 2008-09. Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or device from the findings recorded by the Ld. CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld.CIT(A) are judicious and are well reasoned. Resultantly, these grounds raised by the revenue stands dismissed.”
Ground-3 of revenue During the previous year relevant to AY 2012-13 the assessee had outstanding borrowings of Rs. 15,50,38,938/-. Out of these funds, an interest-free advance of Rs.2,58,75,000/- was given to its sister concern and remained outstanding throughout the year. Total interest paid to HDFC Bank on the borrowings was Rs.2,13,53,117/-. As the above advance was not utilised for the assessee’s own house-property, proportionate interest at 12 percent works out to Rs. 31,05,000/- is disallowed. Accordingly, the deduction permissible under section 24(b) is restricted to Rs.1,82,48,117/- (Rs.2,13,53,117/- – Rs.31,05,000/-). But the said disallowance is challenged assessee before the Ld. CIT(A) related interest on interest free advance to sister concern amount to Rs. 31,05,000/-.
6 ITA 815/Mum/2025 M/s Luvish Infotech Projects Pvt Ltd 5.1. The observation of the Ld. CIT(A) in page-8, paragraph no. 6.5 of the impugned appeal order is reproduced as below:- “6.5 I have carefully considered the submission made by the appellant and also carefully gone through the records. After having gone through the facts of the present case as well as considering the orders passed by CIT(A)-5, Hyderabad for AY 2007-08 & 2011-12, the AO is directed to disallow interest only on interest free advances to its sister concern in the year under consideration. Accordingly, the ground of appeal no. 03 raised by the appellant is hereby partially allowed.”
5.2. The observation of the coordinate bench in page 13 related (supra) is reproduced as below:- “After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and Hon’ble ITAT as mentioned above in assessee’s own case, we find that the identical issue has already been decided by the Hon’ble ITAT in assessee’s own case in for AY 2009-10. Therefore, taking the same stand, this issue is remitted back to the file of AO with similar directions as are contained in ITA No. 1992/M/13 for AY 2009- 10. Resultantly, this ground raised by the revenue stands allowed for statistical purposes.”
Ground-4 of revenue Since the assessee’s rental income of Rs.4,28,93,712/- was assessed under the head "Income from House Property", and other income and interest income of Rs.44,05,252/- were assessed under "Income from Other Sources", the Ld. AO disallowed the claim of interest expenses amounting to Rs.21,52,380/-. The assessee failed to substantiate that the said interest expenditure was incurred wholly and exclusively for earning the other income, as required under section 57(iii) of the Act. Hence, the deduction was denied by the Ld. AO. The assessee challenged the issue before the Ld. CIT(A). 6.1. The observation of the Ld. CIT(A) in page-8 to 10, paragraph no. 7 of the impugned appeal order is reproduced as below: -
7 ITA 815/Mum/2025 M/s Luvish Infotech Projects Pvt Ltd “7.1 During the assessment proceedings the AO observed that the assessee admitted rental income of Rs.4,28,93,712/-, interest income of Rs.36,01,457/- and other miscellaneous income of Rs.8,03,795/- under the head 'Income from Business'. Since the rental income of the assessee of Rs.4,28,93,712/- was assessed by the AO under the head 'Income from House Property', the Other Income & Interest Income of Rs.44,05,252/- was assessed under the head "Income from Other Sources". As regards the balance interest expenses of Rs.21,52,380/- debited to the P/L account, the AO held that the assessee had not substantiated that these interest expenses were expended wholly and exclusively for the purpose of earning other income and interest income of Rs.44,05,252/- as laid down under the provisions of section 57(iii) of the Act. Therefore, the same was not allowed by the AO as a deduction against the other income and interest income. Interest on service tax of Rs.6,99,121/- was also disallowed for similar reasons by the AO.
7.2 During the appellate proceedings, vide submission dated 25.11.2022 the appellant has stated that “during the previous year ended 31st March, 2012, your appellant was in receipt of interest income of Rs. 5,42,752/- & Rs. 24,61,647/- from M/s. Khandelwal Estates Pvt. Ltd & M/s. M.S. Luvish Properties Pvt. Ltd, respectively. The appellant is also in the receipt of interest income from other amounting to Rs. 5,97,098/- & Miscellaneous Income of Rs. 8,03,795/-. The Ld. Assessing officer has assessed the entire receipts under the head ‘Income from other Sources’ only on the reason that the appellant assessee had no business during the relevant previous year. However, in our submission with respect to ground no. 1, we have already submitted as to why rental receipts of the appellant should be assessed as business income. The appellant would also like to submit that since the nature of interest earned has nexus to business activity, the said interest should be treated under the head “Business Income” and not under the head “Income from other source”. The predecessor CIT(A) has allowed this ground in AY 2011-12. The Copy of the same is enclosed herewith and marked as Annexure – 2. Thus, the ground of appeal raised by your appellant should be allowed.”
Further the appellant has relied on the following case laws:
CIT vs Production (p) Ltd (Karnataka HC) 211 CTR 393
Eveready Industries India Ltd. Vs CIT (Calcutta HC) 235CTR263 7.3 I have carefully considered the submission made by the appellant and also carefully gone through the records. I find that similar issue arose for the consideration in earlier years wherein this ground was decided in favour of the appellant by the CIT (A) for AY 2011-12 vide order dated 02.06.2015. The relevant para of the said CIT(A) order is as follows: 3.3. Decision
8 ITA 815/Mum/2025 M/s Luvish Infotech Projects Pvt Ltd 3.3.1. I have carefully considered the submissions and contentions of the Ld. AR of the appellant and also carefully gone through the records. I find that similar issue arose for the consideration of my and Learned Predecessor in the earlier years wherein this ground was decided in Favour of the appellant. Respectfully following the orders of my Ld. Predecessors in the appellant’s own case, the Ld. AO is directed to allow the claim of the appellant. This ground of appeal is thus allowed.
Respectfully following the earlier orders in the appellant’s own case the AO is directed to allow the claim of the appellant. Accordingly ground no. 04 raised by the appellant is hereby allowed.”
6.2. The observation of the coordinate bench in page 16 related (supra) is reproduced as below:- “After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and Hon’ble ITAT as mentioned above in assessee’s own case, we find that the identical issue has already been decided by the Hon’ble ITAT in assessee’s own case in & 2748/M/2013 for Ay 2007-08 & 2009-10. Therefore, taking the same stand, this issue is remitted back to the file of AO with similar directions as are contained in ITA No. 2745 & 2748/M/13 for AY 2007-08 & 2009-10. Resultantly, this ground raised by the revenue stands allowed for statistical purposes.”
Ground-5 of revenue During the assessment proceedings, the Ld. AO noted that the appellant had claimed set-off of unabsorbed depreciation of Rs.83,56,774/- relating to AYs 2006-07 and 2008-09 against the current year’s income. However, the claim was disallowed, as the department had consistently treated the rental income— declared under 'business income'—as assessable under the head 'Income from House Property', where depreciation is not allowable. Accordingly, the set-off was denied. Aggrieved assessee filed the appeal before the Ld. CIT(A). 7.1. The observation of the Ld. CIT(A) in page-10 to 11, paragraph no. 8 of the impugned appeal order is reproduced as below: -
9 ITA 815/Mum/2025 M/s Luvish Infotech Projects Pvt Ltd “8.1 During the assessment proceedings, AO observed that during the year, the appellant had claimed set off of unabsorbed depreciation of Rs.83,56,774/- pertaining to A.Y 2006-07 and 2008-09 against the current year's income. The appellant’s claim of set off of unabsorbed depreciation was denied by the AO in view of the stand taken by the department consistently in the appellant’s own case that the rental income shown by the appellant under the head 'business income' is actually assessable under the head 'Income from House Property'. As such, no depreciation was allowable to the appellant. Hence, the AO denied the appellant's claim of set off of unabsorbed depreciation of Rs.83,56,774/-.
8.2 During the appellate proceedings vide submission dated 25.11.2022 the appellant has stated that “the unabsorbed depreciation and business losses pertain to Assessment Year 2006-07 & 2008-09. In continuity with the stand taken by the department that rental receipts should be taxed under the head income from house property, the assessing officer has denied the claim of set off of unabsorbed depreciation for the current assessment year. The above ground of appeal is consequential in nature and needs no separate submission.
It is submitted that the Hon’ble Jurisdictional Tribunal has already decided the above matter in favour of the Appellant in the previous assessment years by accepting all the contentions raised by the Appellant. The order pertaining to AY 2011-12 in is enclosed and the relevant para of the same is reproduced herein below:
“After having gone through the facts of the present case as well as considering the orders passed by revenue authorities, we find that Ld. CIT(A) has rightly directed the AO to compute the income and allow the set off of business loss if any as per law. Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.”
8.3 I have carefully considered the submission made by the appellant and the order of the Hon’ble ITAT for AY 2011-12 cited above. Respectfully following the decision of the Hon’ble ITAT, the AO is directed to compute the income as per the direction above and allow the set off business loss if any as per law. Accordingly ground No. 05 raised by the appellant is hereby allowed for statistical purpose.”
10 ITA 815/Mum/2025 M/s Luvish Infotech Projects Pvt Ltd 7.2. The observation of the coordinate bench in page 18 related (supra) is reproduced as below:- “After having gone through the facts of the present case as well as considering the orders passed by revenue authorities, we find that Ld. CIT(A) has rightly directed the AO to compute the income and allow the set off of business loss if any as per law. Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.”
8. Ground-6 & 7 of revenue The issue is related to disallowance U/s 14A r.w.r 8D of the Income Tax Rule, 1963 where the assessee suomoto disallowed expenses Rs. 69,536/- U/ 14A during filing of return. The Ld. AO considering the investment of the assessee in accordance with Rule 8D of the Rule computed the expenses amount to Rs. 12,57,482/- for contravening section 14A of the Act. After the deduction amount to Rs. 69,536/- the balance amount of Rs. 11,87,946/- was added back with total income. Aggrieved assessee filed an appeal before the Ld. CIT(A). 8.1. The observation of the Ld. CIT(A) in page-11 to 12, paragraph no. 9 of the impugned appeal order is reproduced as below: - “9.1 During the assessment proceedings, AO observed that the appellant had made investment of Rs.1,39,11,540/- as on 31.03.2011 and Rs.1,39,03,040/- as on 31.03.2012 in exempt-income yielding assets. The appellant had attributed expenses of Rs.69,536/- in its computation of total income. However, the AO held that the disallowance worked out by the appellant was not in accordance with Rule 8D. Accordingly disallowance u/s 14A of the Act of Rs. 12,57,482/- was made.
9.2 During the appellate proceedings, vide submission dated 25.11.2022 the appellant has stated that “the Ld. AO has made this addition without prejudice to the above, i.e., in case the income is finally assessed under the head “Profits or Gains from Business” then the following 11 ITA 815/Mum/2025 M/s Luvish Infotech Projects Pvt Ltd disallowances shall persist. During the Previous Year ending 31st March, 2012, your appellant had investments in exempt income yielding assets of Rs.1,39,03,040/-. In the return of income, your appellant had suo moto attributed expenses towards disallowance under section 14A of Rs. 69,536/-. However, during the course of assessment proceedings, the Assessing officer contended that disallowance worked out by the appellant is not in accordance with Rule 8D. Hence, he computed the disallowance as per section 14A read with rule 8D at Rs. 12,57,482/-. Thus, the assessing officer disallowed the balance sum of Rs. 11,87,946/- u/s 14A. In this regard, your appellant would like submit that the addition made by the Assessing officer is not acceptable. Before the assessing officer, your appellant had contended that it had earned no exempt income during the year, and that in the absence of any exempt income, no disallowance can be made under section 14A.”
Further the appellant has relied on the following case laws:
Pr. Commissioner of Income Tax - 14 Versus Wockhardt Hospitals Limited [2020 (3) TMI 972 – BOM HC] M/s. Redington (India) Ltd. vs ACIT [(2017) 392 ITR 633 (Mds HC)] Cheminvest Ltd. Vs CIT [(2015) 378 ITR 234 (Del HC)] 9.3 The submission of the appellant has been carefully considered. The issue under consideration is that the appellant had made suo-moto disallowance of Rs. 69,536/- us/ 14A of the Act. However, the AO invoked Rule 8D and disallowed an amount of Rs. 11,87,946/-. The appellant submitted that the addition made by the AO is not acceptable as the appellant had not earned any exempt income during the year under consideration. The appellant submitted that the addition so made u/s 14A is to be deleted.
9.4 In this regard, reliance is placed on the decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax, (Central) 1 vs. Chettinad Logistics (P.) Ltd. [2018] 95 taxmann.com 250 (SC)[02-07-2018] wherein it was held that section14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. In the said decision the SLP filed by the department against the order of the Hon’ble High Court was dismissed. The relevant extract of the said order is as under:
Expenditure incurred in relation to income not includible in total income (General principle) - Assessment year 2011-12 - High Court by impugned order held that section14A can only be triggered, if, assessee seeks to square off expenditure against income which does not form part
12 ITA 815/Mum/2025 M/s Luvish Infotech Projects Pvt Ltd of total income under Act; rule 8D only provides for a method to determine amount of expenditure incurred in relation to income, which does not form part of total income of assessee and it cannot go beyond what is provided in section14A - It further held that where no exempt income i.e., dividend, was earned in relevant assessment year by assessee, section14A could not be invoked - Whether SLP against said impugned order was to be dismissed - Held, yes 9.5 Based on the above decision of Hon’ble Supreme Court and facts of the case, AO is directed to delete the disallowance made u/s 14A of the Act. Hence, ground of appeal no. 06 is hereby allowed.”
9. Ground-8 of revenue The issue is challenged before the bench related allowability of the section 37(1) related to interest on service tax amount to Rs. 6,99,121/-. The Ld. AO rejected the claim of expenses U/s 37(1) of the Act. The aggrieved assessee filed an appeal before the Ld. CIT(A). 9.1. The observation of the Ld. CIT(A) in page-13, paragraph no. 10.3 of the impugned appeal order is reproduced as below: - “10.3 The submission of the appellant has been considered. The appellant had paid interest on service tax which was disallowed by the AO by invoking explanation to section 37(1). In this regard, reliance is placed on the decision of the Hon’ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. vs. CIT (1980 (4) TMI 1 - SUPREME Court) wherein it was held that interest for delayed payment of statutory dues is an allowable deduction u/s 37(1) of the Act and it cannot be held as penalty paid for infringement of law. Based on the judgement of Hon’ble Supreme Court and facts of the case, the AO is directed to delete the disallowance of Rs. 6,99,121/- on this issue. Accordingly ground No. 07 raised by the appellant is hereby allowed.”
10. Ground-9 of revenue The ground of the revenue is general in nature & thus no adjudication is required.
During the course of arguments, the Ld. AR drew our attention to the decision of coordinate bench of ITAT-Mumbai in the assessee’s own case for A.Y.
13 ITA 815/Mum/2025 M/s Luvish Infotech Projects Pvt Ltd 2011-12, order dated 22/12/2017, wherein the Co- ordinate Bench had held primary issue that the assessee’s rental income was assessable as “Income from Business.” The Ld. DR also conceded that the facts and circumstances for the year under consideration are identical to those of A.Y. 2011-12, which was decided in favour of the assessee. Accordingly, we follow the earlier decision of the Co-ordinate Bench in the assessee’s own case. In view thereof, we find no infirmity in the order passed by the Ld. CIT(A). Hence, the grounds raised by the revenue are dismissed.
12. In the result, the appeal filed by the revenue bearing ITA 815/Mum/2025 is dismissed.