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Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI
Before: SHRI PRADIP KUMAR KEDIA & SHRI RAHUL CHAUDHARY
The captioned appeals have been filed at the instance of the Assessee against the orders of the Commissioner of Income Tax (Appeals)-XXIV, Mumbai [‘CIT(A)’ in short], of even date 18.09.2019 arising from order assessment order passed by the Assessing Officer (AO) under Sections 143(3) of the Income Tax Act, 1961 (the Act) concerning AYs 2009-10 and 2010-11 respectively.
(Assessment Year 2009-10) 2. The grounds of appeal raised by the assessee read as under: “1. BECAUSE, Id. CIT(A) erred in law and on facts; in confirming addition of depreciation claim of Rs. 12,02,686/- by stating that unless the assets have been put to use for business purposes, the depreciation claim cannot be allowed and disregarding the fact that deprecation is a period cost.
2. BECAUSE. Id. CIT(A) erred in law and on facts; in restricting the claim of expenses under the head of Income from Business & Profession to Rs. 7,00,000/- and disallowing balance.
3. BECAUSE, Id. CIT(A) erred in law and on facts in treating common area maintenance charges collected from the lessees of the mall shops as income under the head "house property" ignoring the fact that CAM charges do not have income element and the same are common expenses of the shop owners which are collected and paid for the expenses through the appellant for which a separate bank account is maintained by the appellant.
4. BECAUSE, Id. CIT(A) erred in law and on facts in confirming the addition of Rs. 2,33,749/- as interest income on the basis of TDS credit by overlooking the fact that the interest was accrued but not due and has been offered as income in the next year on the basis of interest due and credited by bank.
5. BECAUSE, Id. CIT(A) erred in law and on facts in adjudicating ground in the true letter and spirit being devoid of principle of consistency and in violation of principles of natural justice.
6. BECAUSE, Id. CIT(A) erred in law and on facts in observing the appellant has not pressed this ground or made any submission before his office, when the appellant filed submission vide para no. 2 & 3 of submission.”
3. Briefly stated, the assessee is a private limited company engaged in the business of construction and development of real estate and regularly assessed to tax. During the assessment year 2009-10 in question, the assessee inter alia declared income under the head ‘income from house property’, loss under the head ‘business or profession’, loss under the head ‘capital gains’ and loss under the head ‘income from other sources’. The return filed by the assessee was subjected to scrutiny assessment. The Assessing Officer inter alia observed that assessee has not undertaken any business activity during the year. The Assessing Officer accordingly disallowed depreciation of Rs.12,02,686/- and other expenses debited in the P&L account on the ground of lack of any business activity. The Assessing Officer however allowed a lump sum amount of Rs. 7 lac while computing the ‘income from other sources’ towards maintaining the corporate status of the assessee attributable to audit fee, ROC fee and sum professional fees and staff salary as warranted for maintaining the company’s corporate status.
4. The Assessing Officer also noticed that the assessee has realized rental income from letting out on lease, a part of the Mall, namely, ‘City Center’ constructed by M/s. Akshar Developers on plot belonging to the assessee. The assessee has been collecting two types of payment from such lease, i.e., pure rental income and also receipt/charges on account of Common Area Maintenance [CAM]. The Assessee was also found to be incurring expenses for common maintenance. The Assessing Officer further noted that in its computation of income under the head ‘income from house property’, the assessee has shown aggregate amount of lease rent and net CAM charges collected as income, the breakup of which is as under: a) Rent income Rs.1,97,80,782/- b) CAM Charges (-) Rs.30,50,034/- 4.1 The Assessing Officer noted that the CAM charges receipts stands at Rs.1,03,05,922/- whereas the outgo on account of maintenance stands at Rs.1,33,55,956/- resulting in loss of Rs.30,50,034/- clubbed with rental income as noted above. The Assessing Officer held that only deduction allowable under the head ‘income from house property’ will be municipal taxes and standard deduction under section 24(a) of the Act. 4.2 The Assessing Officer thus, in effect, disallowed the outgo on account of common area maintenance incurred by the assessee against the common area maintenance receipts and substituted the expenses claimed by 30% of the CAM receipts being standard deduction.
5. The Assessing Officer also made addition of Rs.2,33,749/- as unaccounted interest income with reference to 26AS statement.
6. The assessee did not get any relief on the disputed amounts noted above, in the first appeal before CIT(A).
7. Aggrieved, the assessee preferred appeal before the Tribunal. 8. We have carefully considered the rival submissions and perused the orders of the lower authorities. We have also taken note of the material referred to and relied upon by the respective sides and case law cited. 9. Grounds No.1 and 2 concerns allowability of depreciation and claim of expenses under the head ‘business and profession’. It is the case of the assessee that both the Assessing Officer and CIT(A) have misdirected themselves in law by wrong appreciation of apparent facts on record. The assessee contends that it is wholly incorrect to say that the existing set up of the assessee company was devoid of any business activity. The assessee contends that it is engaged in dealing in lands and property and construction thereof. In the process, the assessee acquires land for trading purposes and also indulges in construction where considered expedient. The Ld. counsel referred to the copy of assessment order dated 22.03.2013 concerning Assessment Year 2010-11 showing proof of conducting business activity. The Ld. counsel further referred to copy of order dated 16.11.2011 delivered by Hon’ble Bombay High Court in assessee’s own case with regard to disputed land namely Karve Plot. It was submitted that the judgment of Hon’ble Bombay High Court establishes that the assessee was contesting for rights over land in the course of its business activity and this fact also unflinchingly proves that the assessee was actively engaged in business activity notwithstanding the fact that no positive income was earned under the head ‘business income’ during the year. The Ld. counsel for the assessee also pointed out that the Assessing Officer himself has accepted that the assessee is engaged in real estate activity. Ld. counsel further referred to judgment rendered by the Hon’ble Supreme Court in the case of CIT vs. Rajendra Prasad Moody, (1978) 115 ITR 519 (SC) and contends that claim of depreciation allowances and other business expenditure would not be disqualified for deduction merely on the ground that no income resulted from such expenditure particular assessment year. A reference was made to the decision of the Co-ordinate Bench in the case of M/s. Multi Act Reality Enterprises Pvt. Ltd. vs. ITO in order dated 28.08.2015 wherein it was observed, after taking note of plethora of judgments, that where the business is set up by the assessee and ready to do its business, the assessee would be entitled to be treated at par with subsisting business. For deductibility of expenses incurred after the business setup, earning of business income in immediate point of time is not a mandatory condition under law. The assessee may not have been successful in getting customer or earning the business income but if the assessee has done requisite preparation and if the assessee can be said to be in a position to cater to its customers, then it can be said that business is setup and it would amount to carrying on the business and accordingly, the incidental expenses would stand allowable to the assessee irrespective of the absence of any business income reported by the assessee during the year. The assessee further contends that what is required is that expenditure should be ‘for the purposes of the business’ which is wider in its scope than the expression ‘for the purposes of earning profit’ and may comprehend many acts incidental to the carrying on of a business. So long as the assessee has incurred the expenses for the purposes of business, there is no compelling necessity that the assessee has actually earned some commercial income in the relevant assessment year.
We have gone through the factual and legal position adverted on behalf of the assessee. Notwithstanding absence of any actual income under the head ‘business or profession’, it is discernible from record that assessee was geared up for undertaking business activities in real estate and was in constant endeavor to generate income from real estate business actively. Apart from attempt to acquire land which is akin to raw material in construction business, the engagement by way of collection of Common Area Maintenance [CAM] and incurring corresponding expenses thereon also underlines the business like approach and conduct of the assessee. 10.1 The financial statement of the assessee shows that the assessee had advanced a sum of Rs.2,26,93,790/- with intent to acquire Karve Plot. The deal albeit did not materialize and CIDCO claimed their right on the said plot and consequently the construction and development activity could not be carried on the said plot. The dispute on such acquisition travelled upto the Hon’ble Bombay High Court. In the subsequent assessment year 2010-11, the assessee was reportedly engaged in construction and development of project named ‘Aairah Tarrazo’ as admitted in para 3.1 of the assessment order for AY 2010-11. Such observation in Assessment Year 2010-11 is indicative of the fact that the assessee is actively engaged in real estate business. Needless to say, the real estate business involves huge complexity warranting systematic efforts and long gestation period. Furthermore, having regard to demonstrable fact of action to acquire plot in the earlier years coupled with ongoing maintenance activity of property/mall leased out, one cannot conceivably say that the presence of some commercial activity is out of contention. As a corollary to appraisal of such peculiar fact situation, we are of the considered view that the claim of various expenses by the assessee under the head ‘income from business / profession’ appears to be completely legit. The assessee would thus be entitled to claim expenses & depreciation under the head ‘business income’ as a matter of course. 10.2 Contextually, the Hon’ble High Court in Whittle Anderson Ltd. vs. CIT (1971) 79 ITR 613 (Bom) has observed that where the assets owned by the assessee were idle but were kept ready for use at any time and the contingency from use could also fall within the definition of word ‘used’ for the purposes of eligibility of depreciation notwithstanding non-generation of positive income under this head. 10.3 We thus see no warrant in the action of revenue to artificially restrict the expenses to the extent of adhoc amount of Rs.7 lac. The business expenses together with depreciation claimed under the head business and profession thus deserves to be allowed in toto.
The action of the lower authorities is thus reversed and the position taken by the assessee in this regard is restored.
Grounds no.1 and 2 of the assessee’s appeal is thus allowed. 13. We now advert to ground no.3 and 5 of the appeal seeking to challenge the disallowance of CAM charges. 13.1 As noted, the Assessing Officer has treated the CAM charges collected from all lessees of the Mall/shops as income under the head ‘income from house property’ and restricted the claim of expenses thereon to the extent of standard deduction of 30% ignoring the actual expenses incurred. In defense, it is the case of the assessee that as per the arrangement with the lessee(s) in the Mall, certain CAM charges were collected by the assessee and actual expenses incurred thereon amounting to Rs.1,33,55,956/- were claimed and set off against such cumulative CAM charges receipt. The assessee contends that it has been consistently following practice of offering resultant CAM charges received after deducting CAM charges incurred which has been duly accepted by the Department in scrutiny assessment for AY 2008-09 and AY 2011-12 regardless of clubbing of such charges with rental income. The ld. counsel for the assessee contends that out of nowhere, the Department has taken an altogether different stand in impugned Assessment Years 2009-10 and 2010-11 in departure to sacrosanct principles of consistency and practice followed in this regard. The assessee contends that the Assessing Officer has disallowed and restricted the CAM expenses to 30% of the actual receipt ignoring the vital fact that such activity needs systematic efforts and attention and such CAM receipts are inherently allied to business venture of the assessee. 13.2 The assessee contends that notwithstanding the fact that such CAM Collection and corresponding outgo of CAM expenses have been clubbed by the assessee together with Rental income under the head ‘income from house property’, it does not obfuscate true character of income/ loss from such activity. Such act do not make any real difference to the Revenue. The assessee further contends that the income was to be assessed under different head enumerated in section 14 as per true nature and character of the income and not merely on the basis of classification given by the assessee as observed in CIT vs. Paranjay Mercantile Ltd. (2014) 43 taxmann.com 193 (Guj.).
13.3 The assessee next contends that apart from the position accepted by the Department in Assessment Year 2008-09 and 2011-12, the case of the assessee is also covered in its favour by the judgment rendered by Hon’ble Bombay High Court in CIT vs. Runwal Developers Estate Ltd., (2011) 15 taxmann.com 196 (Bom) wherein, in the identical facts, the Hon’ble Bombay High Court held that activity towards maintenance charges received on account of maintenance and promotion of common area were in the nature of business receipts liable to be assessed under the head ‘business income’. In that case also, the assessee was in the business of building and developing residential and commercial complexes and was also running a Mall and a part of Mall area was given on lease to persons who were running shops, cinema halls and eating places in the Mall. Under agreement entered into by and between the assessee and lessees, the assessee was collecting business conducting fee and business facility charges which were all offered to tax under the head ‘income from house property’. In addition to above charges, the assessee had also been collecting maintenance charges from lessees towards promotion and upkeep of Mall area which was attempted to be taxed as ‘Income from house property’ from the Revenue Authorities. It was concluded by the Hon’ble Court that maintenance charges are independent contract to ensure a well maintained, modern, secured quality premises and thus cannot be equated with the rental income. The activity was held to be a business activity. The assessee thus contends that the expenditure incurred towards CAM, as claimed, cannot be brushed aside.
We have examined the factual position and find that plea of Assessee merits acceptance. The assessee has received CAM to the tune of Rs.1,03,05,922/- and has incurred expenses of Rs.1,33,55,956/- resulting in excess outgo of Rs.30,50,034/-. 15.1 The assessee has clubbed such excess outgo over CAM receipts with the rental income. The Assessing Officer has discarded such outgo and restricted the deduction on the gross amount received as per standard deduction under Section 24(a) which, in our view, is wholly unjustified for two reasons; Firstly, the activity of maintenance is independent and separate with that of rental activity and therefore the expenses incurred should be allowed against the collections made as claimed disregarding the incorrect head under which it has been claimed. It is the true nature of transaction which is required to be understood which is obviously in the nature of business activity as held in Runwal Developers (supra); Secondly, the principle of consistency as propounded by Hon’ble Supreme Court in Radha Swami Satsang vs. CIT (1992) 60 Taxman 248 (SC) requires to be adhered. The Assessing Officer in the instant case has examined the issue in earlier year as well as in the later years in the scrutiny assessment and rather admitted the position taken by the assessee. Where the fundamental aspect permeates through different assessment years, a position taken and sustained in other assessment year should not be ordinarily disturbed in some other year without showing any strong reason for doing so. The action of the Assessing Officer appears to be to merely deny the benefit of actual expenditure claimed and artificially restrict it to some standardized deduction. No substantive cause has been shown for doing so. 15.2 Thus, the action of the Revenue cannot be approved on any count. Hence, the disallowance made by the Assessing Officer towards CAM expenses is not sync with law in the given factual matrix. The position taken by the assessee is thus restored and the action of the Assessing Officer and CIT(A) are reversed. 15.3 Grounds No.3 and 5 of the appeal of the assessee are allowed.
Ground No.4 concerns addition of Rs.2,33,749/- towards interest income. 16.1 It is the case of the assessee that the interest income appearing as per form 26AS was accrued but however not due in the Assessment Year 2009-10 in question. The aforesaid income was stated to be duly offered as income in the next year on the basis of interest due and credited in bank. 16.2 We find that the case of the assessee merits consideration in the light of the decision rendered by the Co-ordinate Bench in the case of ACIT vs. Rajeev Tandon in order dated 14.08.2015 and Harbans Lal Malhotra P. Ltd. vs. ACIT in ITA No.421/Kol/2013 order dated 04.12.2015. It is trite that the Revenue should not agitate a revenue neutral issue. Where it does not make any difference to it in terms of revenue and when the income has already been declared and assessed in other assessment year, there is no warrant to disturb the position and multiply litigation. The action of the Assessing Officer and CIT(A) is thus set aside and the position taken by the assessee is affirmed. 16.3 Hence, the Ground No.4 of the appeal of the assessee is allowed.
In the result, the appeal of the assessee in ITA No.7606/Mum/2019 concerned Assessment Year 2009-10 is allowed. (Assessment Year 2010-11) 18. The grounds of appeal
raised by the assessee read as under;
1. BECAUSE, ld. CIT(A) erred in law and on facts; in disallowing the claim of depreciation of Rs.12,13,076 only for the reason that no computation under the head "Income from business & profession is possible ignoring the fact that the depreciation is a period cost and even in case there is no income under the head "Income from business & profession", the claim of depreciation is allowable under the provisions of Section 32 of the Act.
2. BECAUSE, ld. CIT(A) erred in law and on facts; in restricting the claim of expenses under the head of Income from Business & Profession to Rs. 4,00,000/- and disallowing balance by asserting that there is no income from business & profession and the expenses incurred on construction activity undertaken are capitalized.
3. BECAUSE, ld. CIT(A) erred in law and on facts in treating the reimbursement of cost (CAM ^ charges) as income assessable under Income from House Property thereby disallowing such expenses amounting to Rs.64,23,401/- ignoring that such reimbursement of cost is not rent received as provided u/s 23 of the Act 4. BECAUSE, ld. CIT(A) erred in law and on facts by ignoring the fact that the CAM charges are collected as agent of all lessee's/owners of the unit as common pool and expenses are incurred on behalf of all.
5. BECAUSE, ld. CIT(A) erred in law and on facts in adjudicating ground in the true letter and spirit being devoid of principle of consistency and in violation of principles of natural justice.”
19. Grounds No.1 and 2 are identical to Grounds No.1 and 2 in Assessment Year 2009- 10 supra. The factual matrix being the same, the observation and conclusion drawn in ITA No.7606/Mum/2019 shall apply mutatis mutandis to the