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Income Tax Appellate Tribunal, G BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HONBLE & SHRI NARENDRA KUMAR BILLAIYA, HONBLE
O RDER \nPER NARENDRA KUMAR BILLAIYA, AM:\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n2\nI.T.A. No. 1988/Mum/2024 & are\ncross appeals by the assessee and the revenue preferred against the\norder of the ld. CIT(A) - 53, Mumbai, pertaining to AY 2020-21.\n2. Both the appeals were heard together and are disposed off by this\ncommon order for the sake of convenience and brevity.\n3. We first take up the revenue's appeal in I.T.A. No.\n2323/Mum/2024.\n4. The revenue is aggrieved and has taken the following grounds of\nappeal:-\n\"1.\nWhether on the facts and circumstances of case\nand in law, the Ld. CIT(A) was justified to delete\ndisallowance of subleasing expenses of Rs.\n1,67,71,848/- under Section 57(iii) of the Act\nwithout appreciating the fact that assessee company\nhas failed to establish the fact that said expenses\nare incurred wholly and exclusively for\npurposes of the earning the sub-lease income\nshown under the head ‘Income from Other\nSources' which is necessary precondition to claim\ndeduction under Section 57(iii) of the Act?\"\n2. Whether on the facts and circumstances of case\nand in law, the Ld. CIT(A) was justified to delete\nreduction in the business loss by Rs.3,51,44,651/-\non account of cancellation / revision in area of sale\nof flats in respect of two parties without\nappreciating the fact that arriving at negative sales\nrevenue on one hand and debiting cost on other\nhand is clearly in blatant violation of the provisions\nof the Income Tax Act and Matching concept as\ncost can be debited or matched only with the\nrevenue and no cost or expense can be allowed in\nabsence of revenue being offered?\n3. Whether on the facts and circumstances of case\nand in law, the Ld. CIT(A) was justified to delete\ndisallowance of cost of construction amounting to\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n3\nRs.4,04,89,652/- pertaining to Project NEST\nwithout appreciating the fact that debit of expenses\nin P/L account without offering corresponding\nrevenue against such expenses violates the\nmatching concepts as pronounced by the Hon'ble\nBombay High Court in the case of Taparia Tools Ltd v/s\nJCIT, 2003 126 Taxman 544 & Hon'ble Supreme Court in\nthe decision rendered in the case of Rakesh Shantilal Mardia\nVs. DCIT [2012] 26 taxmann.com 253?\"\n4. Whether on the facts and circumstances of case and in law,\nthe Ld. CIT(A) was justified to delete disallowance of interest\nexpense amounting to Rs.2,04,20,10,031/- made u/s\n36(1)(iii) of the Act without appreciating the fact that\nSection 36(1)(iii) of the Income Tax Act, 1961 clearly\nprovides for deduction of interest expenses on the loan raised\nfor business purposes and assessee failed to establish that\ninterest expenses claimed as deduction u/s 36(1)(iii) of the\nAct are pertaining to loans raised for the business purpose?\"\n5. Whether on the facts and circumstances of case and in\nlaw, the Ld. CIT(A) was justified to delete disallowance of\ninterest expense amounting to Rs.2,04,20,10,031/- made u/s\n36(1)(iii) of the Act without appreciating the fact that\nassessee has claimed deduction of interest on interest portion\nalong with interest on borrowed capital portion which is not\nallowable as per provisions of Section 36(L)(iii) of the Income\nTax Act, 1961?\"\n6. Whether, on the facts and in the circumstances of the case\nand in law, the Ld. CIT(A) has erred in deleting the\ndisallowance u/s 14A of the Act by holding that the\ndisallowance u/s 14A of the Act cannot exceed the amount of\nexempt income earned during the year, thereby ignoring the\nclarificatory Explanation of disallowance u/s.14A(1)\ninserted vide the Finance Act 2022 that the provisions of\nsection 14A shall apply and shall be deemed to have always\napplied even in a case when exempt income has not accrued\nor arisen or has not been received during the previous year\nbut expenditure has been incurred during the said previous\nyear in relation to earning of such exempt income?\"\nto\n7. Whether on the facts and circumstances of case and in\nlaw, the Ld. CIT(A) was justified to direct to tax the common\nmaintenance charges received amounting\nRs.44,60,16,088/- as business income instead of Income from\nHouse Property and to delete disallowance of maintenance\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n4\nexpenses amounting to Rs.34,58,543/- claimed as business\nexpenditure related to Income from House Property ignoring\nthe decision of Hon'ble Punjab & Haryana High Court (HC)\nin the case of Sunil Kumar Gupta v/s Asstt. Commissioner\nof Income Tax dated
27. September, 2016 where Hon'ble High\nCourt has held that maintenance charges received in relation\nto the property should have been included within the ambit\nof \"rent\" and be taxed under the head \"Income from house\nproperty?\"\n8. Whether on the facts and circumstances of case and in law,\nthe Ld. CIT(A) was justified to delete disallowance made on\nthe account of unallocable expenses without appreciating the\nfact that assessee has failed to prove that these expenses are\nexpanded wholly and exclusively for the purpose of business\nor profession and thus admissible under provisions of Section\n37(1) of the Income Tax Act,\n1961?\n9. The Applicant craves to leave, to add, to amend and/or to\nalter any of the ground of appeal, if need be.”\n5. Representatives of both the sides were heard at length. Case\nrecords carefully perused and with the assistance of the Counsels, the\nrelevant documentary evidences brought on record duly considered in\nthe light of Rule 18(6) of the ITAT Rules.\n6. Ground No. 1, relates to the disallowance of subleasing expenses\nof Rs.1,67,71,848/-.\n7. The underlying facts in the issue are that the assessee is engaged\nin the business of real estate development and offering the property for\nsale or offering them on rent. The assessee has multiple real estate\nprojects. During the course of scrutiny assessment proceedings, the AO\nnoticed that the assessee has claimed to have earned sublease rental\nincome of Rs.3,38,91,817/- and offered the same for taxation under the\nhead income from other sources. The AO further found that the assessee\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n5\nhas claimed to have incurred sublet charges and expenses to the tune of\nRs.5,06,63,665/- and claimed the deduction u/s 57 of the Act.\nAccordingly, the net loss of Rs.1,67,71,848/- from sublet activity was\ncomputed under the head income from other sources.\n7.
1. The assessee was asked to justify its stand. In its reply, the assessee\nexplained that it has taken few small units from various unit holders\nand ground floor of the building Raghuleela Arcade Mall at Vashi.\nThese units along with the area owned by the assessee in the ground\nfloor is leased to Future Retail Ltd., Future Lifestyle Fashion Ltd., &\nKambala Hospitality Pvt. Ltd., as a larger unit as per the requirement.\nIt was explained that the sublease rent claimed is rent paid to various\nunit holders against the proportionate rent received on the total area\nrented to Future Retail Ltd., Future Lifestyle Fashion Ltd., &\nKambala Hospitality Pvt. Ltd.. The explanation of the assessee did not find any\nfavour with the AO. The AO was of the opinion that the assessee has\nnot expended the excess amount of lease premium for the purpose of\nsubleasing activities alone but for the purpose of operation of leasing its\nown properties to big corporates. The AO concluded that since the\namount of sublease premium paid by the assessee is not \"expenses\nwholly and exclusively for the purpose of earning sublease income\",\nwhole of the expenditure incurred for sublease expenses is not\nallowable u/s 57 of the Act and went on to make addition of\nRs.1,67,71,848/-.\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n6\n7.
2. The assessee challenged the addition before the ld. CIT(A) and\reiterated its claim of expenses. It was once again explained that\nRaghuleela Arcade Mall at Vashi was constructed in the year 2008\nwhich consisted of approximately 525 small shops and out of the total\nconstructed area, part of the area was sold and part of the area was held\nas investments to be given on lease. The small shops admeasuring about\n77 to 600 sq.ft., and were mostly sold during the construction phase\nitself. However, these small shops created a lot of problem as the rental\nincome was not enough and the maintenance was very high and the\ntenants were not paying maintenance for such small shops. In order that\nthe Raghuleela Mall, does not shut down, the management changed its\nstrategy and attracted large tenants like Pantaloons, Central Fame\nCinema etc.. The demand for these brands was large floor space but due\nto adjacent offices which were already sold to other small businesses the\nsame could not be leased out to such larger retailers. For taking\nadvantage of leasing a larger area and giving comfort to large retailers,\nthe assessee entered into lease agreements with these small buyers to\nwhom the units were sold. Thus the area owned by the assessee along\nwith the area taken by the assessee on lease were leased to Future Retail\nLtd., Future Lifestyle Fashion Ltd., &\nKambala Hospitality Pvt. Ltd.. It\nwas strongly contended that the assessee is surviving because of brands\nlike, Smart Bazaar, PVR cinema etc., operating from the mall.\n7.
3. After considering the facts and the submissions, ld. CIT(A) was\nconvinced that the assessee has booked high rents from the shopkeepers\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n7\nfrom letting out his own property in combined manner which otherwise\nwould have remained vacant had such an arrangement not been\nresorted to. Taking into account the assessee's view-point to maximise\nits profit, the ld. CIT(A) deleted the disallowance of Rs.1,67,71,848/-.\n7.
4. Before us, the ld. D/R strongly supported the findings of the AO\nand the ld. Counsel for the assessee, reiterated what has been stated\nbefore the lower authorities.\n8. We have carefully perused the orders of the authorities below.\nThere is no dispute that small shops were taken by the assessee which\nwere sold earlier, on rent to give a large premise to the brands like\nPantaloons, Central Fame Cinema etc.. This decision has not only kept\nthe Raghuleela Mall alive but is also a decision taken by a prudent\nbusinessman. We are of the considered view that commercial\nexpediency of a businessman should not be questioned by the revenue\nas the revenue cannot step into the shoes of a businessman to see how a\nprudent businessman would act in the given facts and circumstances.\nWe, therefore, do not find any merit in this grievance of the revenue and\nthe same is dismissed.\n9. Ground Nos.2 & 3 relate to the deletion of reduction in the\nbusiness loss by Rs.3,51,44,651/- and cost of construction at\nRs.4,04,89,652/-.\n10. While scrutinising the return of income, the AO noticed that the\nassessee has reduced amount of revenue recognition by Rs.3,51,44,651/-\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n8\non account of cancellation/revision in area of sale of flat in respect of\nSushil Rambilas Gupta and Shri Haresh Mehta.\n10.
1. The assessee was asked to explain why it has not increased the\ncorresponding work in progress as against sales reversal of\nRs.3,51,44,651/-. In its reply, the assessee explained that the reversal in\nsales has the effect of reducing the total sales during the year. It was\nfurther explained that the cumulative effect and due to decrease in sale\nratio on account of cancellation of flat, the cumulative effect has already\ngiven in the work in progress. Thus, the cost is reduced by way of\nreduced sale ratio as per the POCM followed by the assessee.\n10.
2. This explanation of the assessee was not accepted by the AO who\nwas of the opinion that the assessee has claimed original sum of\nRs.3,45,71,165/- as cost of construction in respect of project \"Nest\" for\nthe year under consideration without offering any additional revenue\nor increasing the corresponding work in progress of inventory as\nagainst the reversal of such sale. The basis of revenue recognition\nexplained by the assessee is as under:-\n***This space has been left blank intentionally, P.T.O.***\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n9\nProject wise Summary of Cost incurred and AREA sold as on 31.03.2020\nSr No.\nA\nB\nC\nParticular\nNest\nProjected Saleable Area (in Sq.Ft.)\n148,221\nEstimated Cost - Current\nLand Cost & Stamp Duty\nConstruction Cost\nTotal Projected Cost\nLess: Land Cost\nTotal Projected Cost Exculding Land Cost\n685,261,000\n2,129,420,848\n2,814,681,848\n685,261,000\n2,129,420,848\nCost to P&L\nOpening WIP Cost other than Land Cost (already incurred)\nOpening WIP Land cost\n2,364,926,725\n251,469,316\nAdd:\nAddition during the year\nTotal Cost incurred\n% Completion\n% Non Completion\nCost Transfer to WIP\nCost debited to P&L in Current year up to March 2020\nCost already debited to P&L up to March 2019\nCost debited for the year to P&L\n2,616,396,041\n92.96%\n7.04%\n1,849,858,249\n766,537,792\n730,917,301\n35,620,491\nD\nSales Revenue\nTotal Saleable Area sold (in Sq.Ft.)\n% of total Saleable area\n43,425\n29.30%\nTotal Saleable Area unsold (in Sq.Ft.)\n% of total Saleable area\n104,796\n70.70%\nSales Amount (basis Agreements registered)\n712,672,210\nSales income to P&L till date (% of cost incurred)\nLess Revenue already recognised\nSales Revenue for the year\n662,466,612\n697,037,777\n(34,571,165)\nWadhwagroup Holdings Pvt Ltd\n Assessment Year: 2020-21\nDetails of Cost of Construction\nSr\nNo.\nParticulars\nAmount\nAmount\nA) Opening Work in progress as on 01/04/2019\n3,82,32,71,406\nB) Add: Addition During the year\nLand cost including purchase of TDR/FSI\nMaterials, labour and other construction costs\nFinance costs\nLegal and professional charges\nMunicipal charges and taxes\nAdministrative expenses\nEmployee benefit expenses\n21,55,27,925\n14,84,59,776\n36,20,60,338\n1,78,75,154\n11,16,58,646\n2,26,92,072\n14,18,28,310\n1,02,01,02,221\nTotal cost of construction as at year end (A+B)\nC) Less: Closing Construction Work-in-process\n4,84,33,73,627\n4,80,28,83,975\nTotal Cost of Construction as on 31/03/2020 as\nper Note-23 of Financial Statement\n4,04,89,652\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n10\n10.
The AO strongly opined that the basis of arriving at negative sales\nrevenue on one hand and debiting cost on other hand is clearly in\nblatant violation of the provisions of the Income-tax Act as cost can be\ndebited or matched only with the revenue and no cost or expense can\nbe allowed in absence of revenue being offered. The AO accordingly\nwent on to disallow the sales reversal of Rs.3,51,44,651/- and the cost\nof work in progress debited at Rs.4,04,89,652/-.\n10.
The assessee agitated the matter before the ld. CIT(A) and once\nagain explained the accounting treatment. After considering the facts\nand the submission and understanding the accounting treatment, the\nld. CIT(A) observed that the assessee had to refund back Rs.\n3,51,44,651/- to two buyers in respect of which income had already been\nrecognized in earlier years. The ld. CIT(A) further observed that the\nassessee has incurred additional expenses of Rs.4,04,89,652/- during\nthe year on account of cost of construction of the project \"Nest”. In the\nabsence of fresh sales being booked during the year and the assessee\nfollowing PCM method, the ld. CIT(A) was convinced that the actions\nare appropriate enough so as to reflect the true income of the assessee\non the basis of consistent method of accounting followed by it and went\non to delete both the disallowances of Rs.4,04,89,652/- and\nRs.3,51,44,651/-.\n11. Before us, the ld. D/R strongly supported the findings of the AO\nand read the operative part. The ld. Counsel for the assessee reiterated\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n11\nand explained once again the accounting treatment given by the\nassessee by referring to the relevant documents in the paper book.\n12. We have given a thoughtful consideration to the orders of the\nauthorities below. The summary of cost incurred and area sold as on\n31/03/2020 & 31/03/2019 of the project \"Nest\" can be understood from\nthe following chart:-\nSummary off Cost Incurred and AREA sold as on 31.03.2020 and 31.3.2019 of the Project Nest\nSr No.\nParticular\n(A. Y 2020-21)\n(Α.Υ.2019-20)\nDifference\nA\nProjected Saleable Area (In Sq.Ft.)\n148,221\n148,221\nB\nTotal Estimated Projected Cost\n2,814,681,848\n2,554,037,625\nC\nCost to P&L\nOpening WIP Cost other than Land Cost (already\nIncurred)\n2,364,926,725\n1,393,027,588\nAdd:\nAddition during the year\n251,469,316\n971,899,138\nTotal Cost Incurred\n2,616,396,041\n2,364,926,726\n251,469,315\nCost Ratio (Total Cost Incurred till date / Estimated\nCost *100)\n92.96%\n92.60%\n036%\ni.e. (Rs 2,616,396,041/Rs.2,814,681,848)*100\nCost to be debited to P&L in Current year up to\nMarch 2020 (Cost Incurred till date Sales Ratio) i.e\n2,616,396,041*29.30%\n537,792\n730,917,301\nCost already debited to P&L up to March 2019\n730,917,301\n713,461,380\nCost debited for the year to P&L\n35,620,491\n17,455,921\nD\nSales Revenue\nTotal Saleable Area sold (In Sq.Ft.) Sales Ratio\n43,425\n45,810\n2,385\n29.30%\n30.91%\n-1.6%\nSales Amount\n712,672,210\n752,776,160\n- 40,103,950\n(Note 1)\nTotal revenue to be recognised till March 2020 (Sales\nAmount * Cost Ratio) La 712,672,210 * 29.30%\nLess: Revenue already recognised\nSales Revenue for the year\n662,466,612\n697,037,679\n697,037,777\n(34,571,314)\n682,705,620\n14,332,059\nWadhwagroup Holdings Pvt Ltd\n Assessment Year: 2020-21\nDetails of Cost of Construction\nSr\nParticulars\nAmount\nAmount\nNo.\nA) Opening Work in progress as on 01/04/2019\n3,82,32,71,406\nB) Add: Addition During the year\nLand cost including purchase of TDR/FSI\nMaterials, labour and other construction costs\nFinance costs\nLegal and professional charges\nMunicipal charges and taxes\nAdministrative expenses\nEmployee benefit expenses\n21,55,27,925\n14,84,59,776\n36,20,60,338\n1,78,75,154\n11,16,58,646\n2,26,92,072\n14,18,28,310\n1,02,01,02,221\nTotal cost of construction as at year end (A+B)\nC) Less: Closing Construction Work-in-process\n4,84,33,73,627\n4,80,28,83,975\nTotal Cost of Construction as on 31/03/2020 as\nper Note-23 of Financial Statement\n4,04,89,652\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n12\nNote 1 -Sales Consideration has reduced by the Flat Cancelled of MR Sushil Gupta\nTotal Reversal of Revenue\nSales Reversal due to Cancellation of Flat\nSale Consideration of the Sold Flat\nRevenue Offered till Last year\n40,103,950\n92.60%\n37,134,502\nLess Addl revenue to be offered on account of Increase In cost\nSale Agreement till date\nIncremental Cost Ratio\n712,672,210\n036%\n2,563,337\nTotal Cost to be Recognised on Protect Nest\n34,571314\nTotal Cost to be recognised for the year under consideration\nTotal Cost Incurred during the year\nSales Ratio\n251,469,316\n29.30%\n73,674,142\nless Reversal of Cost due to Flat Cancellation\nCost Incurred as on 1.4.2019\nDeferential Sales Ratio\nTotal Impact on Cost\n2,364,926,725\n1.61%\n38,053,651\n35,620,491\n12.
1. The reversal entry can be understood from the following chart:-\nDetails of Sales more than Rs.10 lakhs\nSr\nNo\nName of the Party\nAddress\nPAN\nAmount\nA) Sale of Hats\n1\nSuresh Balkrishnanan\n102,1st Floor, Brookvllle-\nW, S B Cross Lane, Off\nMughal Lane, Mahim\n(West), Mumbai- 400 016\nAERPB3730R\n146,090,000\nB)\nLess: Sales reversal due to\ncancellation of flats\n1\nSushil Rambilas Gupta\n301, Pooja Apts,\nGulmohar Road No. 1,\nJuhu,\nMumbai-400 049\nMumbai\n34,571,314\n2\nHaresh Mehta\n573,337\nA-B)\nNet Sale of Flats as per Note 21 of\n35,144,651\n110,945,3449\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n13\n12.
2. It can be seen from the above that the cost ratio which was 92.60%\nas on 31/03/2019, increased to 92.96% as on 31/03/2021. The sales ratio\nwas 30.91% which came down to 29.30% with a difference of (-)1.61%\nbecause of which, the sales revenue for the year came down from\nRs.1,43,32,059/- to (Rs.3,34,71,314/-).\n12.
2. 1. A further perusal of the aforementioned chart would show\nthat sale consideration of the sold flat was Rs.4,01,03,950/- on which\nrevenue offered till 31/03/2019 being 92.60% amounted to Rs.\n3,71,34,502/- and because of the increase in cost, sale agreement till\n31/03/2020 would be Rs.71,26,72,210/- with incremental cost ratio of\n0.36% being difference between 92.60% as on 31/03/2019 and 92.96% as\non 31/03/2020 would come to Rs.25,63,337/- for which total cost to be\nrecognized on project “Nest” would be Rs.3,45,71,314/- and the total\nimpact on cost would be Rs.3,56,20,491/-.\n12.
3. Considering the aforementioned accounting treatment, we do not\nfind any error or infirmity in the findings of the ld. CIT(A). Accordingly,\nGround Nos.2 & 3 taken together, are dismissed.\n13. Ground Nos.4 & 5 relate to the deletion of disallowance of interest\nexpenses of Rs.2,04,20,10,031/-. During the course of scrutiny\nassessment proceedings, the AO noticed that the assessee has claimed\nhuge interest expenses of Rs.2,65,27,32,829/- under the head income\nfrom business/profession. The AO further observed that this huge\ninterest expenditure is claimed against a very minimal business income\nof Rs.2006.70 Lakhs. The assessee was asked to furnish explanation for\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n14\nthe allowability of interest expenses as revenue expenditure u/s\n36(1)(iii) of the Act. The assessee filed detailed reply and explained the\nallowability of interest expenditure by the following chart:-\nStatement showing Interest Cost claim as allowable expenditure under the head Business and\nProfession.\nParticulars\nTotal Interest Cost\nLess: Interest Cost Capitalised in Inventories\nTotal Interest cost debited to P & L A/c\nLess: Interest claimed u/s 24B against rental income & disallowed under\n& Profession\nLess: Interest on Income tax disallowed under Business & Profession\nLess: Other Interest cost including Financial guarantee commission expenses\ndisallowed under Business & Profession(lnd As Adjustments)\nNet Interest cost allowable\nAmount\n3,80,06,20,172\n36,20,60,338\n3,43,85,59,834\n55,60,85,290\n55,26,146\n22,42,15,569\n2,65,27,32,829\n13.
1. The AO found that a very substantial portion of the funds have\nbeen invested by the assessee in the Investment Property, investments,\nproject work in progress and other financial assets like loans and only a\nnominal portion of funds have been invested in other business assets\nlike stock of raw material, finished goods, property plant and\nequipment and debtors. The AO further observed that the assessee in\nits return of income considered interest income under the head \"income\nfrom other sources\" where no deduction is claimed for interest expenses\nmeaning thereby that assessee itself has accepted that the loans\nadvanced are out of interest free funds available with the assessee.\nThe AO went on to recompute the liability of interest expenses which are\nmentioned at pages 20 to 24 of the assessment order and in doing so, the\nAO rubbished the contention of the assessee that its project has been\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n15\nstalled by the local authorities and went on to compute the disallowance\nof interest as under:-\nSr No\nName of Project\nInterest expense not allowable\nas business expense as claimed\nby the assessee\n1.\nThe Capital & Trade Centre\n1242088620\n2.\nRaghuleela Arcade &\nVishroop\n795204416\n3.\nRaghuleela Mall\n4716995\n4.\nPalm Beach Arcade\n168974776\nTotal Interest\n221,09,84,807\n13.
2. The assessee agitated the matter before the ld. CIT(A) and\nreiterated its claim of allowability of interest, once again emphasising\nthat the project was stalled by the local authorities and the assessee\ncould not have done anything. The ld. CIT(A) was convinced with the\nclaim of the assessee. However, the issue of interest expenses claim of\nRs.16,89,74,776/- in respect of Palm Beach Arcade property, did not\nconvince the ld. CIT(A) and accordingly went on to confirm the addition\nto the extent of Rs.16,89,74,776/- thereby deleting the disallowance to\nthe extent of Rs.2,04,20,10,031/-.\n14. Before us, the ld. D/R read the operative part of the assessment\norder and drew our attention to the chart exhibited elsewhere. The ld.\nCounsel for the assessee, reiterated his contention and vehemently\nstated that the disallowance sustained by the ld. CIT(A) is uncalled for.\n15. We have given a thoughtful consideration to the orders of the\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n16\nauthorities below. The Hon'ble Bombay High Court in the case of\nTaparia Tools Ltd. Vs. JCIT [2003] 260 ITR 102 (Bombay), has held as\nunder:-\n“Therefore, under the Mercantile System of Accounting, in order to determine the\nnet income of an accounting year, the revenue and other incomes are matched with\nthe cost of resources consumed [expenses]. Under the Mercantile System of\nAccounting, this Matching is required to be done on accrual basis. Under this\nMatching concept, revenue and income earned during an Accounting Period,\nirrespective of actual cash in-flow, is required to be compared with expenses incurred\nduring the same period, irrespective of actual out-flow of cash. In this case, the\nassessee is following Mercantile System of Accounting. This Matching concept is\nvery relevant to compute taxable income particularly in cases involving DRE.”\n16. In light of the aforementioned decision, we are of the considered\nview that where an assessee who is engaged in business of land\ndevelopment and has been consistently following Mercantile system of\naccounting in respect of its projects, PCM method of accounting in the\ncase in hand, the AO should not selectively alter the method of\naccounting for just one of its projects at his whims and fancies.\nConsidering the overall claim of the assessee, we do not find any reason\nto interfere with the findings of the ld. CIT(A). Accordingly, Ground No.\n5 of the revenue is dismissed. While doing so, Ground No. 2 of the\nassessee's appeal is also dismissed. The interest cost of Rs.\n16,89,74,776/- has to be capitalized in the Palm Beach Arcade property,\nfollowing the matching concept followed by the assessee.\n17.\nGround No. 6 relates to the restriction of disallowance u/s 14A of\nthe Act to the extent of exempt income earned by the assessee.\n18. This issue is no more res integra as has been held in plethora of\njudgements for example PCIT v. Caraf Builders and Constructions Pvt. Ltd.\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n17\n(2019) 414 ITR 122 (Delhi)(HC). Respectfully following the same, we do\nnot find any reason to interfere with the findings of the ld. CIT(A).\nAccordingly, Ground No. 6 is dismissed.\n19. Ground No. 7 relates to the deletion of common area maintenance\n(CAM) charges of Rs.44,60,16,088/- as business income instead of\nincome from house property and the addition of disallowance of\nmaintenance expenses of Rs.34,58,543/-.\n20. The AO noticed that the assessee has received maintenance\ncharges of Rs.48,72,29,783/- u/s 194C of the Act and other income of Rs.\n10,94,88,979/-u/s 1941(a) but found that the assessee has not disclosed\nthis income but has netted off with expenses and has also claimed TDS\nu/s 194C & 1941(a) of the Act. The assessee was asked to justify its claim.\nThe assessee submitted the following details:-\nDetails of CAM expenses & income\nParticulars\nAmount\nCAM and electricity expenses\n566,284,165\nLess: CAM and Electricity charges received\n510,052,684\nCAM expenses as per P&L A/c (Net) (Note 28:\nOther Expenses of the financials)\n56,231,481\n46,345,565\nLess: Disallowed under 'Any Other Additions U/S\n28 To 44DA' in the Computation Of Income\nTaken as allowable Business Expenses\nDisallowed in COI - As property Tax\nBalance\n3,458,543\n6,427,372\n0\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n18\n20.
1. The AO was not convinced with the noting of all expenses with\nincome. The AO found that the assessee has received rent and has\nclaimed standard deduction as under:-\nProperty\nGross Rent received\n30% Standard Deduction\nUNITS, CAPITAL, TRADE CE\nNTER,IT PARK, BKC\n193,92,10,908\n55,84,20,510\nTotal\n193,92,10,908\n55,84,20,510\n20.
2. The AO was of the opinion that since the assessee has already\nclaimed standard deduction on account of repairs and maintenance and\nsince the assessee has recovered electricity expenses of Rs.6,50,36,596/-\nwhich is not considered as part of rent, the AO went on to compute the\nincome from house property on account of maintenance charges which\naccording to him was rental income shown as business income received\nby the assessee and went on to disallowed under \"income from business\nand profession\" at Rs.45,49,02,004/- treating maintenance charges\nreceived Rs.44,60,16,088/-, as income from house property and allowed\nstatutory deduction @30% on the same and further disallowed CAM of\nRs.34,58,543/-.\n21. The assessee strongly agitated the matter before the ld. CIT(A)\nand claimed that the AO grossly erred in treating CAM charges as\nincome from house property which was nothing but reimbursement of\nthe charges paid by the assessee. After considering the facts and the\nsubmissions, the ld. CIT(A) was convinced that CAM charges are to be\ntaxed under the head business income and deleted the additions made\nby the AO.\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n19\n22. Before us, the ld. D/R repeated what has been stated before the\nAO and the ld. Counsel for the assessee, reiterated its claim.\n23. We have carefully considered the orders of the authorities below.\nThere is no dispute that the assessee has received Gross rent of\nRs.1,93,92,10,908/- against which it claimed statutory deduction on\naccount of repairs and maintenance amounting to Rs.55,84,20,510/-.\nHowever, the assessee as incurred expense of only Rs.50,12,47,569/-\nand the electricity expenses of Rs.6,50,36,596/- has been recovered by\nthe assessee. The maintenance charges received from tenants is\nconsidered as the part and parcel of rent and considered as part of ALV.\nThis observation of the AO does not carry any weight. The assessee has\nreceived over and above the rental income, reimbursement on account\nof CAM and electricity charges which is netted off against the actual\nexpenses incurred by the assessee and the net expenditure has been\ndebited to the profit and loss account. The point of dispute is whether\nthe recovery of CAM charges are to be considered as part of rent eligible\nfor statutory deduction @30% or has to be assessed as business income.\n23.
1. The Hon'ble Bombay High Court in the case of CIT vs. Runwal\nDevelopers (P) Ltd. 15 taxmann.com 196 (Bom), has held as under:-\n“9. We see no merit in the aforesaid contention. The fact that the assessee apart from\ncarrying on the construction activity, is in fact carrying on the business of running\na Mall in the name of 'R Mall' is not in dispute. Admittedly, part of the premises\nconstructed by the assessee have been sold to third parties on outright sale basis. It is\nalso not in dispute that maintenance charges for promotion and upkeep of the Mall\nhas been collected not only from the persons to whom the premises have been given\non lease basis but also from persons to whom the premises have been sold on out right\nsale basis. Obviously, no rent could be recovered from the persons to whom the\npremises were given on outright sale basis. Therefore, the Tribunal was justified in\nholding that the maintenance charges received were towards the maintenance and\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n20\npromotion of the common area and the amounts received towards maintenance\ncharges were business receipts liable to be assessed under the head \"income from\nbusiness'.\n10. Moreover, perusal of clause (6) in the business conducting agreement clearly\nshows that the maintenance charges collected by the assessee not only relates to the\nopen area / common area, repair and maintenance of equipment, land, atrium, fire\nfighting equipments, transformers, air conditioner plants, water tank and other\nservices in the common areas of the complex, but also towards the cost of security\nservices and overall house keeping of the common area. The fact that the quantum of\nmaintenance charges under the agreement are based on the area of the premises given\non lease / sale basis cannot be a ground to hold that the maintenance charges received\nwere part and parcel of the rent payable in respect of the leased premises.\n11. In these circumstances, the decision of the ITAT in holding that the maintenance\ncharges recovered by the assessee towards the promotion and upkeep of the Mall, from\nthe persons to whom the premises are let out and also from the persons to whom the\npremises were sold are attributable to conducting the business activity of running\nthe Mall and therefore, the amount of maintenance charges received were business\nreceipts assessable under the head 'business income' cannot be faulted.\"\n24. Respectfully following the same, we decline to interfere with the\nfindings of the ld. CIT(A). Accordingly, Ground No. 7 is dismissed.\n25. Ground No. 8 relates to the deletion of the disallowance made on\naccount of unallocable expenses. The expenses have been disallowed on\nthe ground that the same has not been incurred wholly and exclusively\nfor business purposes and further depreciation has also been\ndisallowed on the ground that the premises were not used for the\npurpose of business.\n26. The root cause for the disallowance is that the assessee has not\nallocated expenses to its various purchases.\n27. After perusing the orders of the authorities below and considering\nrival submissions, we are of the considered view that the expenses\nincurred at the head office level which pertains to the overall business\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n21\nof the assessee need not be allocated to various schemes as long as the\nsame are incurred wholly and exclusively for the purpose of business.\nTherefore, the impugned disallowance is uncalled for and the ld. CIT(A)\nhas rightly deleted the same which calls for no interference. Insofar as,\nthe claim of depreciation is concerned, the following factual findings of\nthe ld. CIT(A) will suffice:-\n\"11.
As regards the depreciation of Rs.43,69,000/-, it is the contention of the\nappellant that no such sum of Rs.43.69 lakhs has been claimed by the appellant. I\nfind that Schedule 27 to Financial Statements of the appellant titled as “Depreciation\nand Amortisation Expense" contains the following 3 items:-\nParticulars\nAmount Rs. Lakhs\nDepreciation on tangible assets\n35.88\nAmortisation on intangible assets\n7.80\nAmortisation on right of use assets\n569.82\nTotal\n613.50\n11.
In Schedule 33 to Financial Statements of the appellant titled as “Segment\nReporting", the appellant has allocated Rs.569.82 lakhs as related to “Leasing”\nsegment. Hence, the AO has held that that balance of Rs.43.69 lakhs is unallocable\nand hence stands disallowed. However, a perusal of the computation of income shows\nthat the appellant has added back the entire sum of Rs.6,13,50,017/- as “depreciation\ndisallowed\" and thereafter claimed depreciation as per IT Act separately. Given these\nset of facts, there is merit in the claim of the appellant that no disallowance is\nwarranted on the basis of segment reporting and that it has not claimed such\ndepreciation of Rs.43.69 lakhs. Hence, the disallowance of Rs.43,69,000/- is deleted.\"\n28. The aforementioned factual findings of the ld. CIT(A) need no\ndisturbance and the same is confirmed. Ground No. 8 is accordingly\ndismissed.\n29. Coming to the assessee's appeal in I.T.A. No. 1988/Mum/2024.\n30. Ground No. 2 has been adjudicated by us while deciding Ground\nNo. 4 & 5 of the revenue's appeal. For our detailed discussion therein,\nGround No. 2 is dismissed.\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n22\n31. Vide Ground No. 1, the assessee has challenged the deemed rental\nincome from house property u/s 23(1)(a) of the Act amounting to\nRs.23,11,235/-.\n31.
While perusing the return of income, the AO found that the\nassessee was claiming that Flat No. 901 in building Golden Peak, was\nused for business purposes. The AO was of the opinion that the said\nproperty was neither shown as fixed asset nor any depreciation has\nbeen claimed on it. The assessee was asked to justify its stand. The\nassessee explained that the said flat is used for keeping important\ndocuments and for storing records of the assessee company and partly\nused as guest house. The contention of the assessee was dismissed by\nthe AO who was of the opinion that since the property is kept as\ninvestment property, therefore, it is liable to be taxed as deemed let-out\nproperty u/s 23(1)(a) of the Act. Accordingly, deemed rental income\nwas computed at Rs.23,11,235/-.\n31.
The assessee carried the matter before the ld. CIT(A) but without\nany success.\n32. Before us, the ld. Counsel for the assessee vehemently stated that\nthe said property has been used as such since 2006 and till the present\n assessment year, no addition has been made by the AO and prayed for\nthe rule of consistency.\nThe ld. D/R simply supported the findings of the AO.\n33. We have given a thoughtful consideration to the orders of the\nauthorities below. The undisputed fact is that the status of the said\n\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1988/Mum/2024\nI.T.A. No. 2323/Mum/2024\n\n23\nproperty is the same since 2006 and no such addition has been made till\nthe assessment year under consideration. Therefore, following the rule\nof consistency as laid down by the Hon'ble Supreme Court in the case\nof Radhasoami Satsang v. CIT (1992] 193 ITR 321 (SC), we do not find any\nmerit in this addition made by the AO and the same is directed to be\ndeleted. Accordingly, Ground No. 1 raised by the assessee is allowed.\n34. In the result, appeal of the revenue is dismissed and that of the\nassessee is partly allowed.\nOrder pronounced in the Court on 28th February, 2025 at Mumbai.\nSd/-\n(SAKTIJIT DEY)\nVICE-PRESIDENT\nMumbai, Dated 28/02/2025\n*SC SMPS\nSd/-\n(NARENDRA KUMAR BILLAIYA)\nACCOUNTANT MEMBER\nआदेश की प्रतिलिपि अग्रेषित/